RYB Education, Inc.

Table of Contents

(Mark One)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 20-F

 REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE

ACT OF 1934

OR

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

For the fiscal year ended December 31, 2019.

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

1934

OR
 SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT

OF 1934

Date of event requiring this shell company report . . . . . . . . . . . . . . . . . . .

Commission file number 001-38203

For the transition period from                       to                        

RYB Education, Inc.
(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)

4/F, No. 29 Building, Fangguyuan Section 1, Fangzhuang
Fengtai District, Beijing 100078
People’s Republic of China
(Address of principal executive offices)

Hao Gu, Chief Financial Officer
4/F, No. 29 Building, Fangguyuan Section 1, Fangzhuang
Fengtai District, Beijing 100078
People’s Republic of China
Phone: (86 10) 8767 5611
Email:  guhao@rybbaby.com
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

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

Title of each class
American depositary shares, each representing one
Class A ordinary share

Class A ordinary shares, par value US$0.001 per
share*

Trading Symbol
RYB

Name of each exchange on which registered
New York Stock Exchange

*                  Not for trading, but only in connection with the listing on the New York Stock Exchange of American depositary shares.

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

None
(Title of Class)

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

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

None
(Title of Class)

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

As of December 31, 2019, there were 29,213,801 ordinary shares issued and 27,586,346 shares outstanding, par value US$0.001 per share, being the
sum of 20,637,205 Class A ordinary shares and 6,949,141 Class B ordinary shares.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes   x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   xNo

Note — Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
from their obligations under those Sections.

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.

xYes   No

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.

x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).

x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. (Check one):

Large accelerated filer 



Accelerated filer x



Non-accelerated filer 

Emerging growth company  x

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. x

† 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 accountant firm that prepared or issued
its audit report.

Yes   xNo

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

U.S. GAAP x

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   x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
FORWARD-LOOKING STATEMENTS
PART I

TABLE OF CONTENTS

ITEM 1.
ITEM 2.
ITEM 3.
ITEM 4.
ITEM 4A.
ITEM 5.
ITEM 6.
ITEM 7.
ITEM 8.
ITEM 9.
ITEM 10.
ITEM 11.
ITEM 12.

ITEM 13.
ITEM 14.
ITEM 15.
ITEM 16A.
ITEM 16B .
ITEM 16C.
ITEM 16D.
ITEM 16E.
ITEM 16F.
ITEM 16G.
ITEM 16H.

PART II.

IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
OFFER STATISTICS AND EXPECTED TIMETABLE
KEY INFORMATION
INFORMATION ON THE COMPANY
UNRESOLVED STAFF COMMENTS
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
FINANCIAL INFORMATION
THE OFFER AND LISTING
ADDITIONAL INFORMATION
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
CONTROLS AND PROCEDURES
AUDIT COMMITTEE FINANCIAL EXPERT
CODE OF ETHICS
PRINCIPAL ACCOUNTANT FEES AND SERVICES
EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
CORPORATE GOVERNANCE
MINE SAFETY DISCLOSURE

PART III.

ITEM 17.
ITEM 18.
ITEM 19.

FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
EXHIBITS

i

1
2
3
3
3
3
36
60
60
79
88
89
90
91
101
102
104
104
104
104
105
105
105
105
105
106
106
106
107
107
107
107

 
 
 
 
Table of Contents

INTRODUCTION

Unless otherwise indicated and except where the context otherwise requires, references in this annual report on Form 20-F to:

·                   “ADSs” are to our American depositary shares, each of which represents one Class A ordinary share;

·                   “ADRs” are to the American depositary receipts that evidence our ADSs;

·                   “China” or the “PRC” are to the People’s Republic of China, excluding, for the purposes of this annual report only, Hong Kong, Macau and

Taiwan;

·                   “Class A ordinary shares” are to our class A ordinary shares, par value US$0.001 per share;

·                   “Class B ordinary shares” are to our class B ordinary shares, par value US$0.001 per share;

·                   “ordinary shares” or “shares” are to our Class A ordinary shares and Class B ordinary shares;

·                   “RMB” and “Renminbi” are to the legal currency of China;

·                   "SGD$" and "Singapore dollar" are to the legal currency of Singapore;

·                   “RYB,” “we,” “us,” “our company” and “our” are to RYB Education, Inc., our Cayman Islands holding company, and its subsidiary, its

consolidated variable interest entity, the subsidiaries of the consolidated variable interest entity and the non-enterprise entities sponsored by the
consolidated variable interest entity;

·                   “teaching facilities in our network” are to our directly operated or franchise kindergartens, play-and-learn centers and student care centers that

are in operation, and references to our directly operated kindergartens include facilities that are in the process of obtaining the private school
operation permits or registration certificates for private non-enterprise entities but contribute to our tuition fee revenues; and

·                   “US$,” “U.S. dollars,” “$,” and “dollars” are to the legal currency of the United States.

1

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

FORWARD-LOOKING STATEMENTS

This annual report on Form 20-F contains forward-looking statements that relate to our current expectations and views of future events. These

statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially
different from those expressed or implied by the forward-looking statements. These statements are made under the “safe harbor” provisions of the U.S.
Private Securities Litigations Reform Act of 1995.

You can identify some of these forward-looking statements by words or phrases such as “may,” “will,” “expect,” “anticipate,” “aim,” “estimate,”

“intend,” “plan,” “believe,” “is/are likely to,” “potential,” “continue” or other similar expressions. We have based these forward-looking statements largely on
our current expectations and projections about future events that we believe may affect our financial condition, results of operations, business strategy and
financial needs. These forward-looking statements include statements relating to:

·                   our goals and strategies;

·                   our future business development, financial conditions and results of operations;

·                   the expected growth of the early childhood education industry in China;

·                   our expectations regarding demand for our educational products and services;

·                   our expectations regarding our relationships with our franchisees, students and their parents, business partners and our other stakeholders;

·                   competition in our industry; and

·                   relevant government policies and regulations relating to our industry.

You should read this annual report and the documents that we refer to in this annual report and have filed as exhibits to this annual report completely
and with the understanding that our actual future results may be materially different from what we expect. Other sections of this annual report discuss factors
which could adversely impact our business and financial performance. Moreover, we operate in an evolving environment. New risk factors emerge from time
to time and it is not possible for our management to predict all risk factors, 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.

You should not rely upon forward-looking statements as predictions of future events. 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.

2

 
 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

ITEM 1.         IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

ITEM 2.         OFFER STATISTICS AND EXPECTED TIMETABLE

PART I

Not applicable.

ITEM 3.         KEY INFORMATION

A.                                     Selected Financial Data

Our Selected Consolidated Financial Data

The following selected consolidated statements of comprehensive income data for the years ended December 31, 2017, 2018 and 2019, selected

consolidated balance sheet data as of December 31, 2018 and 2019, and selected consolidated cash flow data for the years ended December 31, 2017, 2018
and 2019, have been derived from our audited consolidated financial statements included elsewhere in this annual report. The following selected consolidated
statement of comprehensive income data for the year ended December 31, 2016, selected consolidated balance sheet data as of December 31, 2016 and 2017
and selected consolidated cash flow data for the year ended December 31, 2016 have been derived from our audited consolidated financial statements not
included in this annual report. Our consolidated financial statements are prepared and presented in accordance with accounting principles generally accepted
in the United States of America, or U.S. GAAP.

You should read the selected consolidated financial information in conjunction with our consolidated financial statements and related notes and

“Item 5. Operating and Financial Review and Prospects” included elsewhere in this annual report. Our historical results are not necessarily indicative of our
results expected for future periods.

Selected Consolidated Comprehensive Statement of

Operations Data:

Net revenues:
Services
Products

Total net revenues
Cost of revenues:

Services
Products

Total cost of revenues
Gross profit
Operating expenses:
Selling expenses
General and administrative expenses

Total operating expenses
Operating income (loss)
Income before income taxes
Less: Income tax expenses
Income (loss) before loss in equity method investments
Loss from equity method investments
Net income (loss)
Less: Net (loss) income attributable to noncontrolling interest
Increase(decrease) in redeemable noncontrolling interest
Net income (loss) attributable to RYB Education, Inc.
Net income (loss) attributable to ordinary shareholders of RYB

Education, Inc.

Net income (loss) per share attributable to ordinary shareholders

of RYB Education, Inc.:
Basic
Diluted

Weighted average shares used in calculating net income (loss)

per ordinary share:
Basic
Diluted

2016

Years Ended December 31,

2017

2018

(in thousands of US$, except for share and 
per share data)

2019

95,936
12,577
108,513

85,356
6,260
91,616
16,897

1,922
7,424
9,346
7,551
8,231
2,155
6,076
(189)
5,887
(618)
—
6,505

6,505

0.28
0.26

122,869
17,934
140,803

101,522
9,755
111,277
29,526

1,774
18,418
20,192
9,334
10,592
3,812
6,780
(239)
6,541
(574)
—
7,115

7,115

0.29
0.27

139,216
17,282
156,498

121,549
9,315
130,864
25,634

2,233
26,428
28,661
(3,027)
1,037
2,459
(1,422)
(291)
(1,713)
(93)
169
(1,789)

(1,789)

(0.06)
(0.06)

166,183
16,100
182,283

147,669
7,865
155,534
26,749

2,808
23,775
26,583
166
2,015
3,541
(1,526)
(664)
(2,190)
387
(143)
(2,434)

(2,434)

(0.09)
(0.09)

23,163,801
24,682,525

24,735,445
26,566,657

29,213,801
29,213,801

28,074,624
28,074,624

3

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
  
  
 
  
  
  
  
 
  
  
  
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
  
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
  
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
  
  
 
 
 
 
 
 
 
  
  
  
  
 
 
 
 
 
 
 
 
 
 
 
2016

46,256
63,983
104,410
80,287
100,449
3,961

2016

35,053
(12,122)
1,422
(2,690)

21,663

24,965
46,628

As of December 31,

2017

2018

(in thousands of US$)

158,691
172,808
229,738
97,022
124,444
105,294

104,084
121,596
243,455
108,339
128,487
113,340

Years Ended December 31,

2017

2018

(in thousands of US$)

25,099
(8,655)
92,496
3,666

112,606

46,628
159,234

828
(51,735)
(756)
(2,741)

(54,404)

159,234
104,830

2019

68,728
91,570
336,094
125,908
219,377
107,916

2019

12,982
(34,378)
(13,454)
(542)

(35,392)

104,830
69,438

Table of Contents

Selected Consolidated Balance Sheet Data:
Cash and cash equivalents
Total current assets
Total assets
Total current liabilities
Total liabilities
Total equity

Selected Consolidated Cash Flow Data:
Net cash generated from operating activities
Net cash used in investing activities
Net cash generated from/(used in) financing activities
Exchange rate effect on cash and cash equivalents
Net increase/(decrease) in cash and cash equivalents and

restricted cash

Cash and cash equivalents and restricted cash at beginning of

year

Cash and cash equivalents and restricted cash at end of year

B.                                     Capitalization and Indebtedness

Not applicable.

C.                                     Reasons for the Offer and Use of Proceeds

Not applicable.

D.                                     Risk Factors

Risks Related to Our Business

New legislations and changes in the regulatory requirement regarding private education and preschool education in countries where we operate may
materially affect our business operations and prospects.

The private education industry in China is subject to various rules and regulations, which are amended or updated from time to time. In the preschool

education industry, PRC government authorities have recently issued new rules, regulations and guidelines that may affect our business and results of
operations. For details on recent regulations on private education, please see “Item 4. Information on the Company—B. Business Overview—Regulation—
Regulations Relating to Private Education in the PRC.”

4

 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
  
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
  
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

The Law for Promoting Private Education of the PRC was promulgated in December 2002, and was amended in June 2013, and further amended in

November 2016 and took effect on September 1, 2017 (the “Amended Law for Promoting Private Education”). There remain uncertainties in the
interpretation and implementation of the Amended Law for Promoting Private Education with respect to various aspects of the operations of a for-profit
private school and whether such implementation regulations would have any material adverse impact on our business. In particular, (i) specific procedures
regarding the conversion of an existing private school into a for-profit school have not yet been promulgated by most local authorities and (ii) specific
conditions or requirements in respect of any preferential tax treatment which for-profit schools may enjoy have not been promulgated by relevant authorities.

On August 10, 2018, the Ministry of Justice of the PRC, or MOJ, issued the Implementing Regulations for the Law for Promoting Private Education
of the PRC (Revised Draft) (the “Draft for Review”), for public consultation purposes. Article 5 of this draft prohibits foreign-invested enterprises established
in China and social organizations whose controllers are foreign parties from sponsoring, participating in the establishment of or controlling private schools
which provides compulsory education in China. Article 12 of this draft rule prohibits group-based education institutions from controlling not-for-profit
private schools through mergers and acquisitions, franchise, agreement or any other similar manner. Article 45 of this draft requires that related party
transactions entered into by private schools shall be open, fair and just and shall not harm national interests, interest of the school or the rights and interests of
the teachers and students.

The Opinions of the Central Committee of the Communist Party of China (“CPC”) and State Council on Deepening Reform and Standardized
Development in Preschool Education, or Reform Opinions , issued by the Central Committee of the Communist Party of China and the State Council in
November 2018 is another regulation that might cast great uncertainties on our operation. It stipulates, among others, (i) social capital is not allowed to
control not-for-profit kindergartens or kindergartens that are sponsored by state-owned assets or collectively-owned assets through ways such as mergers and
acquisitions, delegating operation, franchising, variable interest entities or contractual arrangements, in breach of which, the kindergartens shall not be
allowed to issue additional share capital until the education department jointly with other relevant authorities have remedied such breach, and (ii) public
companies are not allowed to invest in for-profit kindergartens through ways such as financing from the capital market, or acquire assets of for-profit
kindergartens through ways such as issuing shares or paying cash.

The above laws and regulations bring significant uncertainties to our operation. Firstly, it is uncertain whether it would become illegal to use

contractual arrangements to consolidate operation results of kindergartens under the new regulation regime. However, because (i) the Draft for Review is in
draft form and of no legal effect; (ii) according to the Legislation Law of the PRC provides that laws, administrative regulations, local regulations,
autonomous regulations, and separate regulations do not have retrospective effect other than special provisions; (iii) there is no provision in the Draft for
Review or Reform Opinions providing that it will have retrospective force; (iv) the Article 5 of Draft for Review is silent on the legality of private schools,
including kindergartens, controlled by PRC citizens through foreign-invested enterprises; and (v) our contractual arrangements have been signed before the
Draft for Review or Reform Opinions promulgation our PRC legal counsel Commerce & Finance Law Offices is of the view that our contractual
arrangements will continue to be legal, valid and binding on the parties so long as our contractual arrangements had been entered into on an arm’s length
basis as business arrangements having regard to the principles of openness, fairness and justice, and they do not harm national interests, the interest of the
schools, or the rights and interest of the teachers and the students.

Secondly, the new regulations may be deemed to cast important restriction on how we could operate and expand our kindergarten business.
According to the Reform Opinions and the Draft for Review, assuming the latter were formally promulgated as in the current draft form, we would only be
allowed to (a) acquire for-profit kindergartens or control them through ways such as franchising or “contractual arrangements”, or (b) expand business by
organic growth, while we would not be allowed to expand our business by acquiring not-for-profit kindergartens or by controlling not-for-profit kindergartens
under franchise or “contractual  arrangements”,  which may limit our ability to further expand our business in the future. As of December 31, 2019, certain of
our kindergartens had been turned into not-for-profit kindergartens. Additionally, we would not be allowed to invest for-profit kindergartens with financing
from capital market or to acquire assets of for-profit kindergartens through cash payments or share issuance. Our existing contractual arrangements might be
also subject to the review and audit by the relevant authorities, and if the authorities are of the view that contractual arrangements would be amended,
terminated or canceled, the contractual arrangements may not be executed in whole or in part. We might be also restricted from further raising capital equity
financing.

5

 
 
 
 
 
 
Table of Contents

In January 2019, the General Office of the State Council issued another circular that might have material impact on our operation. The Circular on

Initiating the Rectification of Kindergartens Affiliated to Residential Communities in Urban Areas, or Circular on Initiating the Rectification, requires
existing community-affiliated kindergartens to be handed over to local education authorities and shall be held by local education authorities as public
kindergartens or turn into inclusive kindergartens by authorized social parties. It also provides that community-affiliated kindergartens shall be not-for-profit.
Some of our kindergartens are community-affiliated facilities, and as of December 31, 2019, a few of which have been turned into inclusive kindergartens,
further, the local education authorities may require us to turn the rest into public kindergartens held by local education authorities or inclusive kindergartens
which may affect our profitability and results of operations.

G iven the evolving regulatory environment, there is uncertainty as to whether the Draft for Review will be legislated in the same form as published

for public consultation, and how the Draft for Review, Reform Opinions or Circular on Initiating the Rectification will be interpreted and implemented. To
the extent that we are not able to fully comply with these requirements, our business, financial condition and results of operations may be materially and
adversely affected. We are unable to predict with certainty the impact, if any, that future legislation or regulations relating to the implementation of the laws
promoting private education in the PRC will have on our business, financial condition and results of operations. However, if our existing group structure or
our contractual arrangements were deemed to violate any rules, laws or regulations, we may be required to terminate or amend our contractual arrangements
and/or dispose of our kindergartens, our license to operate private schools may be revoked, cancelled or not renewed and we may be exposed to other
penalties as determined by the relevant government authorities. If such situations occur, our business, financial condition and prospects would be materially
and adversely affected.

In Singapore, the operation of kindergartens are regulated by the Early Childhood Development Centres Act, which was passed in 2017. This act set

forth certain prerequisite requirements that must be met in order to obtain a license to operate a kindergarten, such as physical requirements, staffing
requirements and financial requirements. The Early Childhood Development Agency, an autonomous agency formed in 2013 and hosted under the Ministry
of Social and Family Development of Singapore, serves as the regulatory and developmental authority for the early childhood sector in Singapore, overseeing
various aspects of children’s development, such as the setting up and licensing of kindergartens. Any change or addition to the laws and regulations imposed
by authorities overseeing the preschool education sector in Singapore may have a material adverse effect on our Singapore operations, which would in turn
adversely affect our financial condition and results of operations.

The growth of our business depends on the market recognition of our brand. If we are not able to maintain our reputation, enhance our brand
recognition and continuously update our curriculum, our business and operating results may be materially and adversely affected.

Our track record in providing quality education services established “RYB ( 紅黃è— )” as a leading brand in the industry. We believe that

market recognition of our brand is a key factor to ensure our future success. As we continue to grow in size and broaden the scope of our curricula and
services, however, it may become increasingly difficult to maintain the quality and consistency of the services we offer, which may negatively impact our
brand and the popularity of our products and services offered thereunder.

Our brand value will also be affected by customer perceptions. Those perceptions are affected by a number of factors; some of them are based on

first-hand observation of our service quality while others may be based on indirect information from media or other sources. Incidents and any negative
publicity related thereto, even if factually incorrect, may lead to significant deterioration of our brand image and reputation, and consequently negatively
affect students’ and their parents’ interests in our services and products as well as franchisees and potential franchisees’ interest in joining our franchise
network. Particularly in the age of digital media and social network, impacts of negative publicity associated with any single incident could be easily
amplified and potentially cause impacts that go beyond our estimation or control.

For example, according to a court verdict, a female teacher then working at one of our directly operated kindergarten in Beijing was found to have
used sewing needles as a way to “discipline” children during post-lunch naptime in late 2017. She was subsequently discharged from our company and was
criminally charged with “maltreatment of children under care” in connection with a class she taught. We refer to this incident in this annual report as the
“2017 Incident.” On December 28, 2018, she was sentenced to one and a half years’ imprisonment by Beijing Chaoyang District People’s Court and
prohibited from child-caring employment for a term of five years following her release from prison.  At the time, despite the fact only one teacher was
charged and the case remained under investigation, rumors and negative publicity surrounding the 2017 Incident was widely circulated on the internet, and
subsequently affected our reputation and brand goodwill. Consequently, some parents lost confidence in our safety management, and utilization of the
kindergarten involved in the 2017 Incident was directly and negatively impacted, and some franchisees also requested to terminate their franchise
relationships with us.

6

 
 
 
 
 
 
 
 
Table of Contents

In addition, scientific studies on early childhood education are constantly evolving and new or innovative conclusions on education methodologies
or philosophies may affect customers’ perception of our services and products. If we are unable to maintain our reputation, enhance our brand recognition or
increase positive awareness of our education products and services, it may be difficult to maintain and grow student enrollment at our directly operated or
franchise teaching facilities or attract more business partners to join our network, and our business and growth prospects may be materially and adversely
affected.

Misbehavior or unsatisfactory performance by our teachers will hurt our reputation and potentially our operation results and financial performance.

Our teachers are the ones who interact directly with our students and their families. Despite our constant emphasis on service quality, our continuous

training of our teachers as well as our close supervision, we cannot assure that our teachers will completely follow our service manual and standards at all
times. Any misbehavior or unsatisfactory performance by our teachers will hurt our reputation and potentially our operation results and financial
performance. For example, the significant negative publicity associated with the 2017 Incident directly affected our operation results, as some children chose
to temporarily stop coming to our teaching facilities, some families decide d to withdraw their children’s enrollments, and some franchisees and business
partners requested to terminate our relationships or delay the opening of their franchised RYB teaching facilities. The price of our ADSs was also
significantly affected by the 2017 Incident and the associated negative publicity related thereto, and dipped heavily on the first day when it was first reported.

Injuries, accidents, food quality incidents or other harm suffered by students or employees at the facilities we and our franchisees operate may damage
our reputation and subject us to liabilities.

Operating kindergartens and play-and-learn centers involves inherent risks associated with the safety and wellbeing of our students and other people
visiting or working at our teaching facilities. We could face negligence claims for inadequate maintenance of our teaching facilities or lack of supervision of
our teachers and other employees. In addition, any defects in indoor and outdoor playground equipment in our teaching facilities or educational tools we use
in classrooms may cause harm to students. We therefore could be liable for accidents, injuries, food quality incidents or other harm to students or other people
at our teaching facilities. Even if we are found not legally liable for such accidents or injuries, disputes on liabilities or general complaints by parents
regarding food quality, students wellbeing or, from time to time, air quality and renovation fumes within our teaching facilities may create unfavorable
publicity and our reputation may be damaged on such occasions. Additionally, although we maintain certain liability insurance, the insurance coverage may
not be adequate to fully protect us from claims and liabilities, and reoccurrence of similar accidents may make it difficult for us to obtain liability insurance at
reasonable prices in the future. Defending such claims may also cause us to incur substantial expenses and divert the time and attention of our management.
For measures we have taken to enhance the safety of students and employees, please see “Item 4. Information on the Company—B. Business Overview—
Insurance and Safety.”

If we fail to maintain and increase student enrollment in our kindergartens and play-and-learn centers, our revenues may decline and we may not be able
to maintain profitability.

The growth of our business relies heavily on the student enrollment in our kindergartens and play-and-learn centers. Student enrollment not only

directly affects the tuition fees derived from our directly operated teaching facilities, it also affects the willingness of our franchisees to re-invest in and
expand or continue their franchise operations within our network. We may face difficulties in increasing or maintaining the level of fees that we charge the
franchisees or selling our educational merchandise through them if they find their franchise business with us unattractive. Our student enrollment is affected
by several factors, including parents’ perception of the security and safety of our facilities, quality of care and education their children receive from us, our
ability to develop new course materials and improve existing courses, expand our geographic reach, manage our growth while maintaining consistent and
high teaching and service quality, effectively market and precisely target our products and services to a broader base of prospective students and parents, and
respond effectively to competitions.

7

 
 
 
 
 
 
 
 
Table of Contents

We face risks associated with our franchise business model.

We operate on a “direct plus franchise” business model. Many of the teaching facilities within our network, including the majority of “RYB
branded” kindergartens and most of our play-and-learn centers, are operated through franchisees. Our franchisees are an integral constituent in our business
model and ecosystem and are expected to play an instrumental role in our future expansion. We are therefore subject to risks that are typically associated with
the franchise business model.

A sizeable portion of our revenues is affected by the ability of our franchisees to grow their businesses. For example, part of our revenues is derived

from sales of teaching tools and licensing of feature courses to franchisees in addition to the basic course package. Through our franchisees, we also sell
educational merchandise to children enrolled in franchise kindergartens and play-and-learn centers. If our franchisees are unable to grow their business or
cease to procure educational merchandise from us, our revenues will be negatively affected. Also, deterioration in the business operations of our franchisees
can result in, among other things, their facility closures, delayed, reduced or no payments of annual and other fees and charges to us. In the event of any
franchisee closure, we may need to take over the children originally enrolled in the closed facility and arrange to settle them in our directly operated or other
franchisees’ facilities, or refund their fees paid, which can be costly and time-consuming.

Our success also depends on the willingness and ability of our franchisees to implement our business initiatives and strategies, including upgrades of

equipment and interior decoration of teaching facilities and to remain aligned with us on business upgrade, promotional activities or capital-intensive
reinvestment plans. Our control over our franchisees is based on the contracts with them and our standardized supervision and monitoring procedures, which
may not be as effective as direct ownership. Although we maintain comprehensive and rigorous supervisory procedures, set standards to guide our franchisees
on operations of kindergartens and play-and-learn centers—including requiring all our franchisees to obtain all required licenses and permits and only hire
teaching staff with proper qualification and certification—and require all teachers and management personnel of our franchise teaching facilities to complete
our mandatory trainings, our franchisees manage their businesses independently and are therefore responsible for the day-to-day operation of the franchise
facilities and compliance with our franchise agreements. In addition, it is the franchisees and their teachers and employees that interact directly with students
and their parents. In the event of any unsatisfactory performance or illegal actions by the franchisees or their employees or any incidents or operational issues
in the franchise facilities, we may suffer reputational or financial damage which in turn might adversely affect our business as a whole.

In addition, the cooperation between a franchisee and us may be suspended or terminated for various reasons, including disagreements or disputes

between the franchisee and us, their non-compliance with our franchise agreement, the franchisee’s failure to maintain requisite approvals, licenses or permits
or to comply with other governmental regulations, or changing regulatory environment. For example, following the 2017 Incident, we temporarily suspended
franchising both kindergartens and play-and-learn centers. We have since resumed franchising play-and-learn centers but the sizable franchising of new
kindergartens remains suspended. Prolonged suspension of our franchising business may negatively affect our revenue and results of operations. Moreover,
although we have maintained rigorous supervision of our franchisees and contractually require all of our franchisees to obtain requisite licenses or permits,
certain of our franchisees may not be able to fulfill these requirements on a timely basis, potentially negatively impacting our brand image and leading us to
choose to terminate our cooperation with such franchisees. We may not be able to find replacements for those franchisees timely or at all. Any resulting
service disruption could materially and adversely affect our brand image, reputation and financial performance.

Our ownership mix of directly operated and franchise teaching facilities also affects our financial results and condition. The decision to operate a

teaching facility directly or under franchise is driven by many factors. Our ability to grow our business and achieve the benefits of an optimal ownership mix
will depend on various factors, including our ability to timely and effectively select franchisees that meet our rigorous standards. If we are unable to
effectively address risks associated with the franchise business model, our reputation and results of operations may be materially and adversely affected.

8

 
 
 
 
 
 
 
Table of Contents

Our business relies on our ability to recruit, train and retain dedicated and qualified teachers and management personnel.

Our teachers and facility principals are critical to the quality of our services and our reputation. We seek to, and help our franchisees to, recruit, train

and retain qualified and dedicated teachers with necessary licenses and permits required by law, as well as principals who manage our teaching facilities.
There is, however, a limited pool of teachers with the attributes we require. In addition, any foreign teachers we hire must hold valid working permits, which
may not be obtained in a timely manner, or at all. Despite our various initiatives, investments to secure qualified personnel and competitive compensation we
and our franchisees offer, we may still not be able to recruit, train and retain sufficient qualified teachers and principals to keep pace with our growth while
maintaining consistent teaching quality in the different markets we serve. A shortage of qualified teachers or a deterioration in the quality of our teachers’
services, whether actual or perceived, or a significant increase in the average compensation of the kindergarten teachers, would have a material adverse effect
on our business, financial condition and results of operations.

Our business and results of operations depend on our ability to maintain and raise the fee levels and prices of our services and products.

An important factor affecting our profitability is the tuition fees we charge at our directly operated teaching facilities as well as the fees that we
charge our franchisees and other business partners. We are currently in the process of applying certain of our directly operated kindergartens as for-profit
schools where local authorities have allowed for such application, and certain of our directly operated kindergartens have been successfully applied as for-
profit schools. We also derive a portion of revenues from sales of educational merchandise. The amounts of those fees and prices we charge, except for
inclusive kindergartens, are primarily determined based on the demand and popularity among children and their parents for our education services and
products, the cost of our operations, the geographic markets where we operate, our competitors’ pricing levels, our pricing strategy to gain market share and
the general economic conditions in China and other countries in which we operate.

In addition, our tuition cannot exceed the maximum amounts on file with the local governmental pricing authorities. See “Item 4. Information on the

Company—B. Business Overview—Regulation—Regulations Relating to Private Education in the PRC—Interim Measures for the Management of the
Collection of Private Education Fees.” Certain of our kindergartens are “inclusive kindergartens” where tuition is determined by local educational authorities.
We also operate certain of our kindergartens on premises leased from government bodies as of December 31, 2019. If we are encouraged or required by
relevant educational authorities to operate some of these kindergartens as “inclusive kindergartens,” our tuition fee level at these teaching facilities may
become lower. There can be no assurance that we will be able to maintain or raise the tuition level and other fees that we charge at our teaching facilities in
the future due to various reasons, including the failure to complete pricing filings with governmental authorities and some of our facilities being converted
into inclusive kindergartens, and our business, financial position and results of operations may be materially and adversely affected in the event of our failure
to maintain or steadily raise our fee levels and prices of our services and products.

Moreover, the Amended Law for Promoting Private Education sets out certain restrictions as to the use of profits earned by not-for-profit schools.

We in general plan to submit applications and designate our directly operated kindergartens as for-profit schools, but there is no guarantee that our for-profit
school designation applications will be approved. See “Item 4. Information on the Company—B. Business Overview—Regulation—Regulations Relating to
Private Education in the PRC—The Amendment to the Law for Promoting Private Education” for further details. As a result, we may not be able to maintain
our current tuition fees and may not be able to raise any of such fees for our kindergartens at our desired rates, times and places or at all in the future under
the framework of the Amended Law for Promoting Private Education.

We may not be able to obtain all necessary approvals, licenses and permits or to make all necessary registrations and filings for our educational and other
services in the countries in which we operate.

In order to operate kindergartens and play-and-learn centers, we and our franchisees are required to obtain and maintain various approvals, licenses
and permits and to fulfill registration and filing requirements pursuant to applicable laws and regulations in China. For instance, to establish a kindergarten, a
private school operation permit from the local education bureau and registration certificate for private non-enterprise entities issued by the local civil affairs
bureau will be required. In addition, private school operation permits are subject to periodic renewal and kindergartens are subject to annual inspections by
the competent government authorities.

9

 
 
 
 
 
 
 
 
 
Table of Contents

Given the significant amount of discretion the local PRC authorities may have in the interpretation, implementation and enforcement of the relevant
rules and regulations, as well as other factors beyond our control, while we intend to and our franchisees, under the terms of their franchise agreements with
us, are required to obtain and maintain all requisite permits and complete necessary filings and registrations on a timely basis, we cannot assure you that we
and our franchisees will be able to obtain all required permits and complete the necessary filings or registrations in time. We and some of our franchisees are
in the process of applying for or renewing private school operation permits and/or registration certificates for private non-enterprise entities in connection
with certain kindergartens. As an interim measure pending the issuance of these permits or certificates, fees for the services we provide at the directly
operated kindergartens are collected by our other consolidated entities.

Additional requirements on permits and licenses may also apply to our operations, including the requirement to pass a fire control assessment for all

our teaching facilities, to obtain a license for online transmission of audio-visual programs for providing online video-audio contents on our website or
mobile apps, to obtain food operation licenses for kindergartens where regular meals are served and to have all teaching staff obtain teachers’ licenses and
work permits, among others. Although we are in the process of applying for food operation licenses and passing fire control assessments for certain of our
directly operated kindergartens, we cannot assure you that we will be able to receive or renew all required licenses, permits or certificates in a timely manner.

Moreover, we are required to obtain and maintain various approvals, licenses and permits and fulfil registration and filing requirements in order to

conduct and operate education and other services in Singapore. For instance, to establish and operate a kindergarten or a student care center in Singapore, we
are required to obtain a license from the Early Childhood Development Agency. To establish and operate a student care center and kindergarten in Singapore,
we are required to obtain license agreement with the government. In addition, the engagement of foreign teachers in Singapore also requires approval from
the Ministry of Manpower of Singapore.

While we intend to obtain, using our best efforts, all requisite permits and approvals and complete the necessary filings, renewals and registrations

on a timely basis for our preschool centers, and are not aware of any impediment to our so doing nor has there been any material non-compliance in this
regard, we are not able to give any assurance that we will be able to obtain all required permits and approvals in a timely manner or at all. If we fail to obtain
required permits or approvals in a timely manner or obtain or renew any permits or approvals, we may be subject to fines, the suspension of our non-
compliant operations or the reduction or cancellation of government subsidies granted to us, which may materially and adversely affect our business and
results of operations.

Certain of our operations may be deemed by PRC government to be carried out by entities beyond their authorized business scope.

Currently, some of our consolidated entities in China providing certain training programs directly to children or teachers do not list “educational

training,” “children training” or similar items in their business scopes. In addition, certain of our consolidated entities provide training and education
programs at the locations that are not registered in their business licenses or private school operation permits.

We are in the process of applying to expand business scopes of those entities or establish new branches that engage in providing training and
education programs to include “educational training,” “children training” or items of similar nature and applying for private education permit for the facilities
at these locations. There is, however, no assurance that our application will be accepted by local AIC or education bureau in a timely fashion or at all. If it
comes to the attention of the relevant PRC government authorities that the above entities operate beyond their authorized business scopes, or conduct
business at locations that are not registered in their licenses or permits, they may be ordered to complete the registration for change of business scope within a
given period, the failing of which may subject these entities to fines, confiscation of the gains derived from the noncompliant operations or cease the
noncompliant operations.

Sponsor registrations of certain of our directly operated kindergartens are inconsistent with their actual sponsorship structure.

The sponsors of a kindergarten are required to register with the competent local education bureau and be reflected in that kindergarten’s charter

documents and its private school operation permit. However, due to variances in certain local education bureaus’ registration practices, in some cases we are
not able to register kindergarten sponsors to accurately reflect the actual sponsorship structure. For certain of our directly operated kindergartens, we are
shown as the sole sponsor in the education bureau registration and our private school operation permits without reflecting the minority interests of other
investors. We have entered into cooperation agreements with those investors and the relevant charter documents and/or capital verification reports show them
as co-sponsors, thus resulting in inconsistencies with the education bureau registrations. For certain of our directly operated kindergartens, certain individuals
were registered as sole sponsors with the competent local education bureaus, while we are the actual kindergarten sponsor only in the charter documents
and/or capital verification reports.

10

 
 
 
 
 
 
 
 
 
 
Table of Contents

There is no assurance that we will be able to file for amendments to these registrations to rectify these inconsistencies. Although the charter

documents and/or capital verification reports would evidence the ownership of and control over those kindergartens, if we were to be held responsible for
those inconsistencies in registration, we may be subject to fines, confiscation of the gains derived from our noncompliant operations, suspension of our
noncompliant operations, revocation of private school operation permits, or liability to indemnify economic loss suffered by our students. Moreover, these
inconsistencies might put our control of the directly operated kindergartens at risk. Materialization of any of the aforementioned risks may materially and
adversely affect our business, financial conditions and results of operations.

We face risks related to natural disasters, health epidemics and other outbreaks, which could significantly disrupt our operations.

Natural disasters such as earthquakes, floods, landslides, tornados, and regional outbreaks of health epidemics or a global health pandemic, such as a

novel strain of coronavirus (COVID-19), avian influenza, severe acute respiratory syndrome (SARS), Ebola or other epidemics, depending upon its severity
and duration, could severely affect our business. For example, in early 2020, in connection with the heightened efforts to contain or delay the spread of
COVID-19, local, regional, and national governments took a number of unprecedented public actions to limit or ban public interactions, which included
extending the Chinese New Year holiday in China, quarantining individuals infected with or suspected of having COVID-19, prohibiting free travel,
encouraging working remotely from home, cancelling public activities and prohibiting public aggregation, among others. The COVID-19 pandemic has
resulted in temporary suspension of operation of most of our facilities as requirement by the government. In response, we have taken a series of measures,
including taking preventive measures to ensure the health and safety of our students and staff at our facilities, introducing online educational content to
facilitate home-based education and holding parent-teacher meetings online to proactively communicate our crisis relief plan and effectively retain students,
among others. The extent to which COVID-19 impacts our financial condition and results of operations will depend on the future development of the
outbreak, including the global severity and duration of the pandemic and actions taken to contain the outbreak, which are highly uncertain and unpredictable.
To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks
described in this annual report.

Other unforeseen events and outbreaks, for example, the SARS outbreak in 2003 and influenza A (H1N1) outbreak from 2009 to 2010, adversely

affected our business and results of operations as we experienced temporary closure of our facilities. Any future outbreak of avian influenza, SARS, H1N1 or
other adverse public health situation in China or other countries in which we operate may have a material and adverse effect on our business operations.
These occurrences could cause cancellation or deferment of student enrollment and require temporary closure of our facilities, while we could still be
obligated to pay rent and other expenses for these facilities. We may also face litigation if we are found negligent in the prevention and control of these health
epidemics in our facilities. Such occurrences therefore may severely disrupt our business operations and may have a material adverse effect on our business,
financial condition and results of operations.

We may not be able to continually upgrade our course materials, improve the content of our existing curricular or develop new course materials that are
appealing to children and their parents.

We constantly update and improve the content of our existing courses and develop new courses or services to meet evolving market demands.

Revisions to our existing courses and our newly developed courses or services may not be well received by existing or prospective students or their parents.
Even if we are able to develop new courses or services that are well received, we may not be able to introduce them in a timely or cost-effective manner. If
we do not respond adequately to changes in market demands, our ability to attract and retain students may be impaired and our financial results could suffer.

Offering new courses or services or modifying existing courses may require us to invest in content development, increase marketing efforts and re-

allocate resources away from other uses. We may have limited experience with the content of new courses or services and may need to adjust our systems and
strategies to incorporate new courses or services into our existing offerings. If we are unable to continually improve the content of our existing courses, or
offer new courses or services in a timely or cost-effective manner, our results of operations and financial condition could be adversely affected.

11

 
 
 
 
 
 
 
 
Table of Contents

We face intense competition in our industry, which could lead to pricing pressure, reduced operating margins, loss of market share, departure of qualified
employees and increased capital expenditures.

The early childhood education industry in China is rapidly evolving, highly fragmented and competitive, and we expect the competition in this

industry to persist and intensify. We compete with public and private kindergartens, play-and-learn centers and other teaching and child-caring institutions
that offer similar programs. We compete with them in many aspects, including the quality of program and curriculum offerings, service quality, tuition fee
levels, competent teachers and other key personnel and facility locations and conditions. Our competitors may adopt similar or superior curricula, teacher
training systems, facility conditions and marketing approaches, with different pricing and service packages that may have greater appeal than our offerings. In
addition, some of our competitors may have more resources than we do and may be able to devote greater resources than we can to the development and
promotion of their schools and respond more quickly than we can to the changes in student demand or market needs. In particular, the PRC public education
system continues to improve in terms of resources and teaching quality, and government funding subsidies enable public kindergartens to offer services at
competitive price levels, which leads to increased competition for us. As such, we may have to reduce tuition fees or increase capital expenditure in response
to competition in order to retain or attract students or pursue new market opportunities. Moreover, we face intense competition in the early childhood
education industry in Singapore. If we are unable to successfully compete for students, maintain or increase our tuition fee level, attract and retain competent
teachers or other key personnel, enhance the quality of our educational services or control competition costs, our business and results of operations may be
materially and adversely affected.

We and our franchisees lease most school premises and may not be able to fully control the rental costs, quality, maintenance and our leasehold interest
in these premises, nor can we guarantee that we and our franchisees will be able to successfully renew or find suitable premises to replace our existing
premises upon expiration or termination of the existing leases.

We and our franchisees lease most school premises from third parties. We require the landlords’ cooperation to effectively manage the condition of

such premises, buildings and facilities. In the event that the condition of the school premises, buildings and facilities deteriorates, or if any or all of our
landlords fail to properly maintain and renovate such premises, buildings or facilities in a timely manner or at all, the operation of our teaching facilities could
be materially and adversely affected. In addition, if any of our landlords terminate the existing lease agreements before expiration, refuse to continue to lease
the premises to us or our franchisees when such lease agreements expire, or increase rent to a level not acceptable to us or our franchisees, we will be forced
to relocate the teaching facilities. Given parents prefer to send their children to kindergartens and play-and-learn centers in the vicinity of their
neighborhoods, we may lose students if we cannot secure replacement premises nearby. Moreover, under the current regulatory environment, we may be
subject to restrictions with respect to the fees we are able to charge for kindergartens leased on government property or community property.

In addition, certain lessors have not provided us with valid ownership certificates for our leased properties. As a result, there is a risk that these

lessors may not have the right to lease such properties to us, in which case the relevant lease agreements may be deemed invalid or we may face challenges
from the property owners or other third parties regarding our right to occupy the premises. If such lease is terminated as a result of challenges by third parties,
we may be forced to relocate the affected teaching facilities and incur significant expenses.

Under the applicable PRC laws and regulations, we are required to register and file with the relevant government authorities executed leases but

have failed to do so in certain instances. While the lack of registration will not affect the validity and enforceability of the lease agreements under the PRC
Law, a fine ranging from RMB1,000 to RMB10,000 may be imposed on the parties for each non-registered lease, if the requirement of registration failed to
be fulfilled after a period of time demanded by a relevant local authority.

We may not be able to achieve the benefits we expect from recent and future acquisitions and investments, which may have a material adverse effect on
our business, financial condition and results of operations.

As part of our growth strategy, we have pursued and intend to continue to pursue selective strategic acquisitions of and investments in businesses
which we deem to be complementary or beneficial to our existing business. Given the trend of the regulatory environment, our future acquisitions may be
subject to more stringent regulations. For example, the Draft for Review prohibits group-based education institutions from controlling not-for-profit private
schools through mergers and acquisitions, which may limit our acquisition targets and negatively affect our growth strategies. Acquisitions and investments
also expose us to potential risks, including risks associated with the diversion of resources from our existing businesses, difficulties in successfully integrating
the acquired businesses, failure to achieve expected growth by the acquired businesses as well as inability to generate sufficient revenue to offset the costs
and expenses of the acquisitions. Materialization of any of the aforementioned risks may lead to a material adverse effect on our business, financial conditions
and results of operations.

12

 
 
 
 
 
 
 
 
 
Table of Contents

Our success depends on the continuing efforts of our senior management team and other key personnel.

It is important for us to have the continuing services of our senior management team, in particular, Mr. Chimin Cao, our co-founder, executive
director and chairman of the board of directors, and Ms. Yanlai Shi, our co-founder, executive director and chief executive officer. If one or more of our
senior executives or other key personnel are unable or unwilling to continue in their present positions, we may not be able to find their replacements
successfully, and our business may be disrupted. Competition for experienced management personnel in the private education industry is intense with a small
pool of qualified candidates, and we may not be able to retain services of our senior executives or key personnel, or attract and retain high-quality senior
executives or key personnel in the future. In addition, if any member of our senior management team or any of our other key personnel joins a competitor or
forms a competing company, we may lose teachers, students and staff members. Each of our executive officers and key employees is subject to the duty of
confidentiality and non-competition restrictions. However, if any disputes arise between any of our senior executives or key personnel and us, it may be
difficult to successfully pursue legal actions against these individuals because of the uncertainties of China’s legal system.

Any interruption to or discontinuation of our course management and information technology systems may affect the teaching activities of us and our
franchisees.

Our information technology infrastructure provides the backbone to maintain consistency in our service quality. Our Whiteboard information system

works as a centralized platform for our teachers to prepare their courses online, serves as a multimedia teaching tool in the classrooms and operates as an
efficient and secure channel for us to release curriculum content and upgrades to kindergartens and play-and-learn centers within our network. In addition, the
operation of certain of our online product and services, such as our e-commerce platform of Qingtian Youpin and our mobile app Zhu Dou , are highly
dependent on the proper operation of our information technology system. As such, material breakdown of our information technology system and any loss of
the right to use the technology licensed from third parties could cause interruption to our business.

Uncertainties and risks accompany our strategy to further grow our business of directly operated kindergartens.

Direct operation of kindergartens has long been a driver of our growth. In 2019, revenues generated from our business of directly operated

kindergartens represented a significant portion of our total revenues. We plan to mainly operate for-profit kindergartens and seek growth opportunities by
continuing to open new kindergartens under our direct operation in the future, but uncertainties and risks exist with this strategy.

It is oftentimes difficult to locate desired premises for kindergartens. Generally, kindergartens should not be built close to railways, highways,
airports and main traffic artery. In addition, a kindergarten is not allowed to be located in a high-rise building and is required to have its independent entrance
and courtyard. Kindergartens also need to be within easy access from large residential communities. These conditions make it difficult to locate desired
premises for the development of kindergartens. Additionally, a relatively large amount of capital expenditure is required when launching a new kindergarten.
When we launch a new directly operated kindergarten, the preparation period between handover of the leased property from the landlord to us and the facility
opening typically lasts six to ten months, and no revenue can be generated during this period. In addition, in a typical case, it takes a kindergarten about
another three to four years of operation to ramp up student enrollment to near its capacity.

13

 
 
 
 
 
 
 
 
Table of Contents

We may not be able to execute our growth strategies successfully, which may hinder our ability to capitalize on new business opportunities.

We seek and will continue to implement various strategies to grow our business, including expanding the teaching facility network, increasing

student enrollment, expanding curricula and product offerings, pursuing strategic acquisitions and investments, improving systems and infrastructures, and
other future strategies that we plan to execute. These strategies may not materialize due to a number of factors, including, without limitation, the following:

·                   we may fail to identify, and effectively market our services in, new geographic markets with sufficient growth potential;

·                   we may be unable to successfully integrate acquired businesses, if any, with our current service offerings and achieve anticipated synergies;

·                   our analysis for selecting suitable new facility locations may not be accurate and the demand for our services at the newly selected locations

may not materialize or increase as rapidly as we expect;

·                   the development of new teaching facilities may be delayed or affected by many factors, such as delays in obtaining government approvals or

licenses, shortages of key construction supplies and skilled labor, construction accidents, or natural catastrophes, some of which are beyond our
control;

·                   we may require more time than expected, or may not be able, to obtain the accreditation for our services;

·                   we may not be able to further expand our franchise network as fast as we expect;

·                   students and/or their parents may react negatively to our plans to increase facility, class size or tuition;

·                   we may not be able to develop and upgrade our curricula and product lines that are appealing to our students;

·                   we may not be able to continue to enhance our online offerings of courses and educational merchandise; and

·                   we may not be able to adequately upgrade or strengthen our operational, administrative and technological systems and our financial and

management controls to support our future expansion.

If we fail to successfully execute our growth strategies, we may not be able to maintain our growth rate and current business, and our prospects may

be materially and adversely affected as a result.

If our new brands and service offerings thereunder are not well received by the market, our overall financial performance and condition may be
adversely affected.

We constantly seek to expand our business lines and extend our business coverage in addressable markets that we identified. For example, in
addition to our core “RYB” brand kindergartens and play-and-learn centers, and leveraging our expertise in early childhood education, we expand our
specially developed courses to kindergartens outside of our network with other business partners. Our efforts in exploring these new business opportunities
and developing new brands may divert management attention and resources from our existing business. Moreover, if these new brands and the service
offerings thereunder are not well received by the market, we may not be able to generate sufficient revenue to offset the costs and expenses we incurred for
them, and our overall financial performance and condition may be adversely affected.

14

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

Non-compliance on the part of business counterparties could disrupt our business and adversely affect our results of operations.

Our business counterparties and our vendors, may be subject to regulatory penalties or punishments because of their regulatory compliance failures,

which may affect our business activities and reputation and, in turn, our results of operations. In addition, we cannot be certain whether any of these
counterparties has infringed or will infringe any third parties’ legal rights or violate any regulatory requirements. We require the business counterparties to
confirm that they are in compliance with regulatory requirements to conduct the business, but we cannot assure you that these counterparties strictly comply
with all applicable regulatory requirements in respect of permits and approvals, and any noncompliance on the part of these counterparties may cause
potential liabilities to us and in turn disrupt our operations.

Success of our kindergartens and play-and-learn centers may be affected if we fail to continue to collaborate with overseas third-party educational
content providers.

We offer the Scholastic English course and The Music Class (TMC) courses, which are both licensed from overseas third-party educational content

providers, at our kindergartens and play-and-learn centers. We also team up with Erikson Institution to provide domestic and overseas training programs to
our teachers and principals.

Our license agreements with TMC will expire in 2025, our cooperation with Scholastic and Erikson Institution will end in 2021 and 2022,
respectively. In the event any of the license agreements are terminated or failed to be renewed upon expiration or earlier, we may not be able to find suitable
educational content providers to continue to offer international courses appealing to our students. We may also encounter disputes with those partners from
time to time. Should this occur, students attracted to our teaching facilities because of these courses may cease to enroll, and our business, results of
operations, prospects and reputation may be materially and adversely affected.

Unauthorized disclosure or manipulation of sensitive personal data of our students and their parents, whether through breach of our network security or
otherwise, could expose us to litigation or could adversely affect our reputation.

Maintaining our network security and internal controls over access rights is of critical importance because sensitive and confidential personal

information, such as names, addresses, phone numbers of our students and their parents, as well as recordings of our CCTV monitoring system installed in
our kindergartens and play-and-learn centers, which are primarily stored in our computer database or in our security centers. If our security measures are
breached as a result of actions by third parties, employee error, malfeasance or otherwise, third parties may receive or be able to access confidential
information of our students and potentially infringe students’ right to privacy and portrait, which could subject us to liabilities, interrupt our business and
adversely impact our reputation. Additionally, we run the risk that our employees or third parties could misappropriate or illegally disclose confidential
information in our possession. As a result, we may be required to expend significant resources to provide additional protection from the threat of these
security breaches or to alleviate problems caused by these breaches.

We generate a significant portion of our revenues from Beijing. Any event negatively affecting our industry in Beijing could have a material adverse
effect on our overall business and results of operations.

We derived a large portion of our total net revenues for the fiscal year ended December 31, 2019 from our operations in Beijing, and we expect our
operations there to continue to contribute an important portion of our revenues. If there occurs an event in Beijing that negatively affects private education or
if Beijing adopts regulations relating to private education that place additional restrictions or burdens on us, our overall business and results of operations may
be materially and adversely affected.

Our facilities have capacity constraints; if our expansion cannot keep up with the increased market demands, we might not be able to grow student
enrollment efficiently or we might lose potential students to our competitors.

The facilities of our kindergartens and play-and-learn centers are limited in size and number of classrooms. We may not be able to admit all students

who would like to enroll in our teaching facilities due to the capacity constraints of our teaching facilities. This would deprive us of the opportunity to serve
the students and to potentially develop a long-term relationship with them for continued services. If we fail to expand our network of teaching facilities as
quickly as the demand for our services grows, we could lose potential students to our competitors, and our results of operations and business prospects could
suffer.

15

 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

If we fail to protect our intellectual property rights, our brand and business may suffer.

We consider our copyrights, trademarks, trade names, Internet domain names, patents and other intellectual property rights invaluable to our ability
to continue to develop and enhance our brand recognition. Unauthorized use of our intellectual property rights may damage our brand reputation. Our RYB
brand and logo is a registered trademark in China. Our proprietary curricula and course materials are protected by copyrights. However, preventing
infringement on or misuse of intellectual property rights could be difficult, costly and time-consuming, particularly in China. The measures we take to protect
our intellectual property rights may not be adequate to prevent unauthorized uses. Furthermore, application of laws governing intellectual property rights in
China is uncertain and evolving, and could involve substantial risks to us. There have been several incidents in the past where third parties used our brand
RYB without our authorization, and on certain occasions we have resorted to litigation to protect our intellectual property rights. We cannot assure you that
the relevant governmental authorities will grant us the approval to register our trademarks. As a result, we may be unable to prevent third parties from
utilizing this brand name, which may have an adverse impact on our brand image. If we are unable to adequately protect our intellectual property rights in the
future, we may lose these rights, our brand name may be harmed, and our business may suffer materially. Furthermore, our management’s attention may be
diverted by those violations of our intellectual property rights, and we may have to enter into costly litigation to protect our proprietary rights against any
infringement or violation.

We may encounter disputes from time to time relating to our use of intellectual properties of third parties.

We cannot assure you that our courses and marketing materials, products, platform or other intellectual property developed or used by us do not or

will not infringe upon valid copyrights or other intellectual property rights held by third parties. We may encounter disputes from time to time over rights and
obligations concerning intellectual property, and we may not prevail in those disputes. We have adopted policies and procedures to prohibit our employees
and contractors from infringing upon third-party copyright or intellectual property rights. However, we cannot ensure that our teachers or other personnel will
not, against our policies, use third-party copyrighted materials or intellectual property without proper authorization in our classes or via any medium through
which we provide our services. We may incur liability for unauthorized duplication or distribution of materials posted on our websites or used in our classes.
We have been involved in claims against us alleging our infringement of third-party intellectual property rights and we may be subject to such claims in the
future. Any such intellectual property infringement claim could result in costly litigation and divert our management attention and resources.

Changes to the level of kindergarten subsidies granted by governments may affect our ability to attract or retain students.

All parents with a child of Singaporean citizenship and enrolled in a kindergarten licensed by the Early Childhood Development Agency will receive

a basic subsidy from the government of Singapore. The amount will depend on the main applicant’s working status and the program type that the child is
enrolled in. In addition, all parents with a child of Singaporean citizenship that enrolled in a student care center registered with Ministry of Social and Family
Development of Singapore will receive subsidy from the government of Singapore depending on their household income level and working status of the
parents.

Any reduction in the level of subsidies granted by the government may cause parents to be attracted to more affordable programs that our

competitors may offer, which may have a material adverse effect on our business, financial condition and results of operations.

We are exposed to potential liabilities arising from the products we sell.

We sell educational products through our facility network and the Zhu Dou Parenting platform, and we operate the Qingtian Youpin e-commerce

platform where we sell high-quality maternal and children products. Contractual disputes over warranties can arise in the ordinary course of business. In
extreme situations, we may be exposed to potential injury liabilities as a result of misuse or quality defects of the products we sell.

There can be no assurance that we will not experience material product liability losses in the future, or that we will be able to defend such claims at a

contained level of cost. We currently do not have product liability insurance and we cannot assure you that we would be able to obtain insurance coverage
with sufficient coverage at an acceptable cost in the future. A successful claim brought against us in excess of our available insurance coverage may have a
material adverse effect on our business.

16

 
 
 
 
 
 
 
 
 
 
 
Table of Contents

We have limited insurance coverage which could expose us to significant costs and business disruption.

We have limited liability insurance coverage for our students and their parents in our facilities. A successful liability claim against us due to injuries

suffered by our students or other people on our premises could materially and adversely affect our financial conditions, results of operations and reputation.
Even if unsuccessful, such a claim could cause adverse publicity to us and require substantial cost to defend and divert the time and attention of our
management. For more information, see “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business— Injuries, accidents, food quality
incidents or other harm suffered by students or employees at the facilities we and our franchisees operate may damage our reputation and subject us to
liabilities. In addition, we do not have any business disruption insurance. Any business disruption event could result in substantial cost to us and diversion of
our resources.

Our business is subject to seasonal fluctuations, which may cause our results of operations to fluctuate from quarter to quarter, and in turn result in
volatility in and adversely affect the price of our ADSs.

We have experienced, and expect to continue to experience, seasonal fluctuations in our results of operations, primarily due to seasonal changes in

student enrolments. The number of students at our facilities is typically the lowest at the start of each calendar year, due to the graduation of kindergarten
students at the end of the preceding year, before gradually being replaced over the course of the year by new enrolments. As our revenue is directly affected
by the headcount of students at our facilities, such seasonal fluctuations in student enrolments generally give rise to a corresponding seasonal fluctuation in
our revenue over the course of a year. We expect fluctuations in our revenue and results of operations to continue. These fluctuations could adversely affect
our business, financial condition and results of operations.

A severe or prolonged downturn in the Chinese or global economy could materially and adversely affect our business and financial condition.

COVID-19 had a severe and negative impact on the Chinese and the global economy in the first quarter of 2020. Whether this will lead to a
prolonged downturn in the economy is still unknown. Even before the outbreak of COVID-19, the global macroeconomic environment was facing numerous
challenges. The growth rate of the Chinese economy had already been slowing since 2010. There is considerable uncertainty over the long-term effects of the
expansionary monetary and fiscal policies which had been adopted by the central banks and financial authorities of some of the world’s leading economies,
including the United States and China, even before 2020. Unrest, terrorist threats and the potential for war in the Middle East and elsewhere may increase
market volatility across the globe. There have also been concerns about the relationship between China and other countries, including the surrounding Asian
countries, which may potentially have economic effects. In particular, there is significant uncertainty about the future relationship between the United States
and China with respect to trade policies, treaties, government regulations and tariffs. Economic conditions in China are sensitive to global economic
conditions, as well as changes in domestic economic and political policies and the expected or perceived overall economic growth rate in China. For example,
the COVID-19 pandemic has caused significant downward pressure for the global economy, and many major economies have lowered their expected growth
rate for 2020. Any severe or prolonged slowdown in the global or Chinese economy may materially and adversely affect our business, results of operations
and financial condition.

If we fail to implement and maintain an effective system of internal controls, we may be unable to accurately report our results of operations, meet our
reporting obligations or prevent fraud, investor confidence and the market price of our ADSs may be adversely affected.

We are subject to reporting obligations under the U.S. securities laws. The SEC, as required by Section 404 of the Sarbanes-Oxley Act of 2002,

adopted rules requiring every public company to include a management report on the company’s internal control over financial reporting in its annual report,
which contains management’s assessment of the effectiveness of our internal control over financial reporting. Our management has concluded that our
internal control over financial reporting was effective as of December 31, 2019. See “Item 15. Controls and Procedures—Management’s Report on Internal
Control over Financial Reporting.” In addition, once we cease to be an “emerging growth company” as such 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.

17

 
 
 
 
 
 
 
 
 
Table of Contents

Even if our management concludes that our internal control over financial reporting is effective, our independent registered public accounting firm,

after conducting its own independent testing, may issue a report that is qualified if it is not satisfied with our internal controls or the level at which our
controls are documented, designed, operated or reviewed, or if it interprets the relevant requirements differently from us. Any failure to achieve and maintain
effective internal control over financial reporting could result in the loss of investor confidence in the reliability of our consolidated financial statements,
which in turn could harm our business and negatively impact the market price of the ADSs. Furthermore, we have incurred and anticipate that we will
continue to incur considerable costs, management time and other resources in an effort to comply with Section 404 and other requirements of the Sarbanes-
Oxley Act.

Failure to make adequate contributions to various employee benefits plans as required by PRC regulations may subject us to penalties.

Companies operating in China are required to participate in various government sponsored employee benefit plans, including certain social

insurance, housing funds and other welfare-oriented payment obligations, and contribute to the plans in amounts equal to certain percentages of salaries,
including bonuses and allowances, of employees up to a maximum amount specified by the local government from time to time at locations where they
operate their businesses. The requirement of employee benefit plans has not been implemented consistently by the local governments in China given the
different levels of economic development in different locations. Our failure in making contributions to various employee benefit plans and in complying with
applicable PRC labor-related laws may subject us to late payment penalties. We may be required to make up the contributions for these plans as well as to pay
late fees and fines. If we are subject to late fees or fines in relation to the underpaid employee benefits, our financial condition and results of operations may
be adversely affected.

Risks Related to Our Corporate Structure

If the PRC government decides that the agreements that establish the structure for operating certain of our operations in China do not comply with PRC
regulations relating to the relevant industries, or if these regulations or the interpretation of existing regulations change in the future, we could be subject
to severe penalties or be forced to relinquish our contract or other interests in those operations.

Foreign investment in the education industry in China is extensively regulated and subject to numerous restrictions. Pursuant to the List of Special
Management Measures for the Market Entry of Foreign Investment  issued jointly by the NDRC and the MOFCOM on June 30, 2019 and became effective
on July 30, 2019(the “Negative List”), the provision of preschool education in the PRC is under the category of “restricted industries” for foreign investors.
Foreign investments in preschool education is restricted to cooperation with PRC domestic parties who are required to play a dominant role in the
cooperation. In addition, the Implementation Opinions of the MOE on Encouraging and Guiding the Entry of Private Capital in the Fields of Education and
Promoting the Healthy Development of Private Education issued by the MOE on June 18, 2012 also stipulates that the foreign portion of the total investment
in a Sino-foreign joint venture kindergarten is restricted to less than 50%. In terms of the identity of the foreign investors, according to the Regulation on
Operating Sino-foreign Schools of the PRC, or the Sino-foreign Schools Regulation, which was promulgated by the State Council on March 1, 2003, became
effective on September 1, 2003 and amended on July 18, 2013, and its implementation measures, foreign investors in kindergartens must be foreign education
institutions with relevant qualifications and experience. See “Item 4. Information on the Company—B. Business Overview—Regulation—Regulations
Relating to Foreign Investment in the PRC” in this annual report for further details.

We are a Cayman Islands exempted company and our PRC subsidiary is currently considered a foreign-invested enterprise. Accordingly, our PRC
subsidiary is not eligible to control the operation of kindergarten business. To ensure strict compliance with the PRC laws and regulations, we conduct such
business activities through Beijing RYB, our consolidated variable interest entity, or VIE, and its subsidiaries. RYB Technology, our wholly owned subsidiary
in China, has entered into a series of contractual arrangements with our VIE and its shareholders, which enable us to (1) exercise effective control over our
VIE, (2) receive substantially all of the economic benefits of our VIE, and (3) have an exclusive option to purchase all or part of the equity interests and
assets in our VIE when and to the extent permitted by PRC law. As a result of these contractual arrangements, we have control over and are the primary
beneficiary of our VIE and hence consolidate its financial results as our VIE under U.S. GAAP. See “Item 4. Information on the Company—C.
Organizational Structure” for further details.

18

 
 
 
 
 
 
 
 
Table of Contents

If the PRC government decides that our contractual arrangements do not comply with its restrictions on foreign investment in kindergarten

education, or if the PRC government otherwise finds that we, our VIE, or any of its subsidiaries are in violation of PRC laws or regulations or lack the
necessary permits or licenses to operate our business, the relevant PRC regulatory authorities, would have broad discretion in dealing with such violations or
failures, including, without limitation:

·                   terminating the lease of certain of our kindergartens;

·                   revoking the business licenses and/or operating licenses of such entities;

·                   discontinuing or placing restrictions or onerous conditions on our operation through any transactions between our PRC subsidiary and our VIE;

·                   imposing fines, confiscating the income from our PRC subsidiary or our VIE, or imposing other requirements with which we or our VIE may

not be able to comply;

·                   requiring us to restructure our ownership structure or operations, including terminating the contractual arrangements with our VIE and

deregistering the equity pledges of our VIE, which in turn would affect our ability to consolidate, derive economic interests from, or exert
effective control over our VIE; or

·                   restricting or prohibiting our use of the proceeds of our initial public offering to finance our business and operations in China.

Any of these actions could cause significant disruption to our business operations and severely damage our reputation, which would in turn

materially and adversely affect our business, financial condition and results of operations. If any of these occurrences results in our inability to direct the
activities of our VIE that most significantly impact its economic performance, and/or our failure to receive the economic benefits from our VIE, we may not
be able to consolidate the entity in our consolidated financial statements in accordance with U.S. GAAP.

Substantial uncertainties exist with respect to the interpretation and implementation of the Foreign Investment Law and how it may impact the viability
of our current corporate structure, corporate governance and business operations.

On March 15, 2019, the Foreign Investment Law was formally passed by the 13th National People’s Congress and became effective on January 1,
2020. The Foreign Investment Law replace d the Law on Sino-Foreign Equity Joint Ventures, the Law on Sino-Foreign Contractual Joint Ventures and the
Law on Foreign-Capital Enterprises to become the legal foundation for foreign investment in the PRC.

Conducting operations through contractual arrangements has been adopted by many PRC-based companies, including us, to obtain and maintain

necessary licenses and permits in the industries that are currently subject to foreign investment restrictions or prohibitions in China. The Foreign Investment
Law stipulates four forms of foreign investment. However, the Foreign Investment Law does not explicitly stipulate the contractual arrangements as a form of
foreign investment. Since contractual arrangements are not specified as foreign investment under the Foreign Investment Law, and if the future laws,
administrative regulations or provisions prescribed by the State Council do not incorporate contractual arrangements as a form of foreign investment and the
operation of preschool education is still in the Negative List, our contractual arrangements as a whole and each of the agreements comprising the contractual
arrangements will not be affected and will continue to be legal, valid and binding on the parties. If the PRC government finds that our contractual
arrangements do not comply with its restrictions on foreign investment, or if the our contractual arrangements are in violation of any further PRC laws and
regulations, as a result, we may not be able to operate our kindergartens through the contractual arrangements and we would lose our rights to receive the
economic benefits of our kindergartens and our VIE. Therefore, the financial results of our kindergartens and our VIE would no longer be consolidated into
our Group’s financial results and we would have to derecognize their assets and liabilities according to the relevant accounting standards. An investment loss
would be recognized as a result of such derecognition.

19

 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

In the extreme case-scenario, we may be required to terminate our contractual arrangements and/or dispose of our kindergartens , our VIE and its

subsidiaries, which could have a material and adverse effect on our business, financial condition and result of operations.

Therefore, there is no guarantee that our contractual arrangements and the business of our VIE and its subsidiaries will not be materially and

adversely affected in the future.

We rely on contractual arrangements with our VIE and its shareholders for a large portion of our business operations—including the operation of
kindergartens as well as franchise of kindergartens and play-and-learn centers—which may not be as effective as direct ownership in providing
operational control.

We have relied and expect to continue to rely on contractual arrangements with our VIE and its shareholders to operate kindergarten education
services in China. For a description of these contractual arrangements, see “Item 4. Information on the Company—C. Organizational Structure.” These
contractual arrangements may not be as effective as direct ownership in providing us with control over our VIE. For example, our VIE and its shareholders
could breach their contractual arrangements with us by, among other things, failing to conduct its operations in an acceptable manner or taking other actions
that are detrimental to our interests. The revenues contributed by our VIE and the VIE’s subsidiaries or kindergartens sponsored by our VIE constituted the
vast majority of our net revenues in 2019.

If we had direct ownership of our VIE, we would be able to exercise our rights as a shareholder to effect changes in the board of directors of our

VIE, 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 our VIE and its shareholders of their obligations under the contracts to exercise control over
our VIE. The shareholders of our consolidated VIE 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 our
VIE. 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. Therefore, our contractual
arrangements with our VIE may not be as effective in ensuring our control over the relevant portion of our business operations as direct ownership would be.

Any failure by our VIE or its shareholders to perform their obligations under our contractual arrangements with them would have a material and adverse
effect on our business.

If our VIE or its shareholders fail to perform their respective obligations under the contractual arrangements, we may have to incur substantial costs

and expend additional resources to enforce such arrangements. We may also have to rely on legal remedies under PRC law, including seeking specific
performance or injunctive relief, and claiming damages, which we cannot assure will be effective under PRC law. For example, if the shareholders of our VIE
refuse to transfer their equity interest in our VIE to us or our designee if we exercise the purchase option pursuant to these contractual arrangements, or if they
otherwise act in bad faith toward us, then we may have to take legal actions to compel them to perform their contractual obligations. In addition, if any third
parties claim any interest in such shareholders’ equity interests in our VIE, our ability to exercise shareholders’ rights or foreclose the share pledge according
to the contractual arrangements may be impaired. If these or other disputes between the shareholders of our VIE and third parties were to impair our control
over our VIE, our ability to consolidate the financial results of our VIE would be affected, which would in turn result in a material adverse effect on our
business, operations and financial condition.

All of 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 VIE 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. In the
event we are unable to enforce these contractual arrangements, or if we suffer significant delays or other obstacles in the process of enforcing these
contractual arrangements, we may not be able to exert effective control over our VIE, and our ability to conduct our business may be negatively affected.

20

 
 
 
 
 
 
 
 
 
Table of Contents

The shareholders of our VIE may have potential conflicts of interest with us, which may materially and adversely affect our business and financial
condition.

The shareholders of our VIE may have potential conflicts of interest with us. These shareholders may breach, or cause our VIE to breach, or refuse
to renew, the existing contractual arrangements we have with them and our VIE, which would have a material and adverse effect on our ability to effectively
control our VIE and receive economic benefits from it. For example, the shareholders may be able to cause our agreements with our VIE 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 in relation to our VIE may be subject to scrutiny by the PRC tax authorities and they may determine that we or our VIE owe
additional taxes, which could negatively affect our financial condition and the value of your investment.

Under applicable PRC laws and regulations, arrangements and transactions among related parties may be subject to audit or challenge by the PRC
tax authorities within ten years after the taxable year when the transactions are conducted. We could face material and adverse tax consequences if the PRC
tax authorities determine that the VIE contractual arrangements were not entered into on an arm’s-length basis in such a way as to result in an impermissible
reduction in taxes under applicable PRC laws, rules and regulations, and adjust the income of our VIE in the form of a transfer pricing adjustment. A transfer
pricing adjustment could, among other things, result in a reduction of expense deductions recorded by our VIE for PRC tax purposes, which could in turn
increase its tax liabilities without reducing our PRC subsidiary’s tax expenses. In addition, the PRC tax authorities may impose late payment fees and other
penalties on our VIE for the adjusted but unpaid taxes according to the applicable regulations. Our financial position could be materially and adversely
affected if our VIE’s tax liabilities increase or if it is required to pay late payment fees and other penalties.

We may lose the ability to use and benefit from assets held by our VIE that are material to the operation of certain portion of our business if the entity
goes bankrupt or becomes subject to a dissolution or liquidation proceeding.

As part of our contractual arrangements with our VIE, our VIE and its subsidiaries hold certain assets that are material to the operation of certain

portion of our business. If our VIE goes bankrupt and all or part of its assets become subject to liens or the 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. Under
the contractual arrangements, our VIE may not, in any manner, sell, transfer, mortgage or dispose of their assets or legal or beneficial interests in the business
without our prior consent. If our VIE undergoes a voluntary or involuntary liquidation proceeding, the independent third-party creditors may claim rights to
some or all of these assets, thereby hindering our ability to operate our business, which could materially and adversely affect our business, financial condition
and results of operations.

Our VIE and its subsidiaries may be subject to limitations on their ability to operate kindergartens or make payments to related parties.

As a holding company, our ability to pay dividends and other cash distributions to our shareholders depends on our ability to receive dividends and

other distributions from our PRC subsidiary. The amount of dividends and other distributions our PRC subsidiary is able to be paid to us depends on the
amount of service fees paid by our VIE and its subsidiaries pursuant to the contractual arrangements.  However, if the PRC government authorities
promulgate any new policies, such authorities may seek to confiscate any or all of the service fees that have been paid by our VIE or its subsidiaries,
including retrospectively, if, among other things, such service fees are viewed as in violation of PRC laws and regulations, or our contractual arrangements
are viewed as in violation of PRC laws and regulations by PRC authorities and are terminated or canceled. The relevant PRC authorities may also seek to halt
children enrollments at our kindergartens or, in a worse situation, revoke the operation permits of these kindergartens. As a result, our business and financial
performance may be materially and adversely affected.

21

 
 
 
 
 
 
 
 
 
Table of Contents

Certain terms of our Contractual Arrangements may not be enforceable under PRC laws

Our contractual arrangements provide for dispute resolution by way of arbitration in accordance with the arbitration rules of the China International
Economic and Trade Arbitration Commission in Beijing, the PRC. Our contractual arrangements provide that the arbitral body may award remedies over the
equity interests, property interests and/or assets of the VIE, injunctive relief or order of winding up of the VIE. However, we have been advised by our PRC
Legal Advisors that the above-mentioned provisions contained in the contractual arrangements may not be enforceable. Under PRC laws, an arbitral body
does not have the power to grant any injunctive relief or provisional or final winding-up order to preserve the assets of or any equity interest in our VIE in
case of disputes. Therefore, such remedies may not be available to us, notwithstanding the relevant contractual provisions contained in our contractual
arrangements. PRC laws allow an arbitral body to award the transfer of assets of or equity interest in the VIE in favor of an aggrieved party. In the event of
non-compliance with such award, enforcement measures may be sought from the court. However, the court may or may not support the award of an arbitral
body when deciding whether to take enforcement measures. Under PRC laws, courts of judicial authorities in the PRC generally would not grant injunctive
relief or the winding-up order against the VIE as interim remedies to preserve the assets or equity interests in favor of any aggrieved party. As a result, we
may not be able to obtain sufficient remedies in a timely manner, and our ability to exert effective control over our VIE and its subsidiaries and conduct our
education business could be materially and adversely affected.

Risks Related to Doing Business in China

Changes in China’s economic, political or social conditions or government policies could have a material adverse effect on our business and operations.

The majority of our assets and operations are located in China. Accordingly, our business, financial condition, results of operations and prospects

may be influenced to a significant degree by political, economic and social conditions in China generally. The Chinese economy differs from the economies
of most developed countries in many respects, including the level of government involvement, level of development, growth rate, control of foreign exchange
and allocation of resources. Although the Chinese 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, a substantial portion of
productive assets in China is still owned by the government. In addition, the Chinese government continues to play a significant role in regulating industry
development by imposing industrial policies. The Chinese government also exercises significant control over China’s economic growth through allocating
resources, controlling payment of foreign currency-denominated obligations, setting monetary policy, and providing preferential treatment to particular
industries or companies.

While the Chinese economy has experienced significant growth over the past decades, growth has been uneven, both geographically and among

various sectors of the economy, and the rate of growth has been slowing since 2012. Any adverse changes in economic conditions in China, in the policies of
the Chinese government or in the laws and regulations in China could have a material adverse effect on the overall economic growth of China. Such
developments could adversely affect our business and operating results, lead to reduction in demand for our services and adversely affect our competitive
position. The Chinese government has implemented various measures to encourage economic growth and guide the allocation of resources. Some of these
measures may benefit the overall Chinese 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. The growth rate of the Chinese economy has gradually
slowed since 2010, and the impact of COVID-19 on the Chinese economy in 2020 is likely to be severe. Any prolonged slowdown in the Chinese economy
may reduce the demand for our products and services and materially and adversely affect our financial condition and results of operations.

Uncertainties with respect to the PRC legal system could adversely affect us.

The PRC legal system is a civil law system based on written statutes. Unlike the common law system, prior court decisions under the civil law

system may be cited for reference but have limited precedential value.

22

 
 
 
 
 
 
 
 
 
Table of Contents

In 1979, the PRC government began to promulgate a comprehensive system of laws and regulations governing economic matters in general. The

overall effect of legislation over the past three decades has significantly enhanced the protections afforded to various forms of foreign investments in China.
However, China has not developed a fully integrated legal system, and recently enacted laws and regulations may not sufficiently cover all aspects of
economic activities in China. In particular, the interpretation and enforcement of these laws and regulations involve uncertainties. Since PRC administrative
and court authorities have significant discretion in interpreting and implementing statutory provisions and contractual terms, it may be difficult to evaluate the
outcome of administrative and court proceedings and the level of legal protection we enjoy. These uncertainties may affect our judgment on the relevance of
legal requirements and our ability to enforce our contractual rights or tort claims. In addition, the regulatory uncertainties may be exploited through unmerited
or frivolous legal actions or threats in attempts to extract payments or benefits from us.

Furthermore, the PRC legal system is based in part on government policies and internal rules, some of which are not published on a timely basis or

at all and may have a retroactive effect. As a result, we may not be aware of our violation of any of these policies and rules until sometime after the violation.
In addition, any administrative and court proceedings in China may be protracted, resulting in substantial costs and diversion of resources and management
attention.

You may experience difficulties in effecting service of legal process, enforcing foreign judgments or bringing actions in China against us or our
management named in the annual report based on foreign laws.

We are an exempted company incorporated under the laws of the Cayman Islands, we conduct substantially all of our operations in China and

substantially all of our assets are located in China. In addition, all our senior executive officers reside within China for a significant portion of the time and
most are PRC nationals. As a result, it may be difficult for our shareholders to effect service of process upon us or those persons inside mainland China. In
addition, China does not have treaties providing for the reciprocal recognition and enforcement of judgments of courts with the Cayman Islands and many
other countries and regions. Therefore, recognition and enforcement in China of judgments of a court in any of these non-PRC jurisdictions in relation to any
matter not subject to a binding arbitration provision may be difficult or impossible.

We may rely on dividends and other distributions on equity paid by our PRC subsidiary to fund any cash and financing requirements we may have, and
any limitation on the ability of our PRC subsidiary to make payments to us could have a material and adverse effect on our ability to conduct our
business.

We are a Cayman Islands holding company and we rely principally on dividends and other distributions on equity from our PRC subsidiary for our

cash requirements, including for services of any debt we may incur. Our PRC subsidiary’s ability to distribute dividends is based upon its distributable
earnings. Current PRC regulations permit our PRC subsidiary to pay dividends to its respective shareholders only out of their accumulated profits, if any,
determined in accordance with PRC accounting standards and regulations. In addition, each of our PRC subsidiary, our VIE and its subsidiaries are required
to set aside at least 10% of its after-tax profits each year, if any, to fund a statutory reserve until such reserve reaches 50% of its registered capital. Our PRC
subsidiary as a foreign invested enterprise, or FIE, is also required to further set aside a portion of its after-tax profit to fund an employee welfare fund,
although the amount to be set aside, if any, is determined at its discretion. These reserves are not distributable as cash dividends. If our PRC subsidiary incurs
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 PRC subsidiary to distribute dividends or other payments to their respective shareholders could materially and adversely limit
our ability to grow, make investments or acquisitions that could be beneficial to our businesses, pay dividends or otherwise fund and conduct our business.

PRC regulation of loans to and direct investment in PRC entities by offshore holding companies and governmental control of currency conversion may
delay or prevent us from using the proceeds of our initial offering to make loans to or make additional capital contributions to our PRC subsidiary, which
could materially and adversely affect our liquidity and our ability to fund and expand our business.

Any funds we transfer to our PRC subsidiary, either as a shareholder loan or as an increase in registered capital, are subject to approval by or

registration with relevant governmental authorities in China. According to the relevant PRC regulations on FIEs, in China, capital contributions to our PRC
subsidiary are subject to the approval of or filing with the MOFCOM or its local branches and registration with other governmental authorities in China. In
addition, (a) any foreign loan procured by our PRC subsidiary is required to be registered with the State Administration of Foreign Exchange, or SAFE, or its
local branches, and (b) our PRC subsidiary may not procure loans which exceed the statutory amount as approved by the MOFCOM or its local branches.
Any medium-or long- term loan to be provided by us to our VIE must be approved by the NDRC and the SAFE or its local branches. We may not obtain
these government approvals or complete such registrations on a timely basis, if at all, with respect to future capital contributions or foreign loans by us to our
PRC subsidiary. If we fail to receive such approvals or complete such registration, our ability to use the proceeds of our initial public offering and to
capitalize our PRC operations may be negatively affected, which could adversely affect our liquidity and our ability to fund and expand our business.

23

 
 
 
 
 
 
 
 
 
Table of Contents

On March 30, 2015, the SAFE promulgated the Circular on Reforming the Management Approach Regarding the Foreign Exchange Capital

Settlement of Foreign-Invested Enterprises, or SAFE Circular 19, which took effect as of June 1, 2015. SAFE Circular 19 launched a nationwide reform of
the administration of the settlement of the foreign exchange capitals of FIEs and allows FIEs to settle their foreign exchange capital at their discretion, but
continues to prohibit FIEs from using the Renminbi fund converted from their foreign exchange capitals for expenditure beyond their business scopes,
providing entrusted loans or repaying loans between non-financial enterprises. The SAFE issued the Circular on Reforming and Regulating Policies on the
Control over Foreign Exchange Settlement of Capital Accounts, or SAFE Circular 16, effective in June 2016. Pursuant to SAFE Circular 16, enterprises
registered in China may also convert their foreign debts from foreign currency to Renminbi on a self-discretionary basis. SAFE Circular 16 provides an
integrated standard for conversion of foreign exchange under capital account items (including but not limited to foreign currency capital and foreign debts) on
a self-discretionary basis which applies to all enterprises registered in China. SAFE Circular 16 reiterates the principle that Renminbi converted from foreign
currency-denominated capital of a company may not be directly or indirectly used for purposes beyond its business scope or prohibited by PRC laws or
regulations, while such converted Renminbi shall not be provided as loans to its non-affiliated entities. As this circular is relatively new, there remains
uncertainty as to its interpretation and application and any other future foreign exchange related rules. Violations of these Circulars could result in severe
monetary or other penalties. SAFE Circular 19 and SAFE Circular 16 may significantly limit our ability to transfer to and use in China the net proceeds of our
initial public offering to fund the establishment of new entities in China by our VIE or its subsidiaries, to invest in or acquire any other PRC companies
through our PRC subsidiary, or to establish new consolidated variable interest entities in the PRC, which may adversely affect our business, financial
condition and results of operations.

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

The conversion of Renminbi into foreign currencies, including U.S. dollars, is based on rates set by the People’s Bank of China. The Renminbi has
fluctuated against the U.S. dollar, at times significantly and unpredictably. The value of 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. 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.

Any significant appreciation or depreciation of Renminbi may materially and adversely affect our revenues, earnings and financial position, and the

value of, and any dividends payable on, our ADSs in U.S. dollars. For example, to the extent that we need to convert U.S. dollars we receive into Renminbi to
pay our operating expenses, appreciation of Renminbi against the U.S. dollar would have an adverse effect on the RMB amount we would receive from the
conversion. Conversely, a significant depreciation of Renminbi against the U.S. dollar may significantly reduce the U.S. dollar equivalent of our earnings,
which in turn could adversely affect the price of our ADSs.

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. As a
result, fluctuations in exchange rates may have a material adverse effect on your investment.

24

 
 
 
 
 
 
Table of Contents

Governmental control of currency conversion may limit our ability to utilize our net revenues effectively and affect the value of your investment.

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 primarily
relies on dividend payments from our PRC subsidiary 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 the SAFE, cash generated from the operations of our PRC subsidiary in China may be used to pay dividends
to our company. However, approval from or registration with appropriate governmental 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 subsidiary and VIE 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, the PRC government may from time to time impose more restrictive foreign exchange policies and step up scrutiny of major outbound
capital movement. More restrictions and substantial vetting process may be required by the SAFE or other government authorities to regulate cross-border
transactions falling under the capital account. The PRC government may at its discretion restrict access to foreign currencies for current account transactions
in the future. 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 pay dividends in foreign currencies to our shareholders, including holders of our ADSs.

Certain PRC regulations may make it more difficult for us to pursue growth through acquisitions.

Among other things, the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rules, established

additional procedures and requirements that could make merger and acquisition activities by foreign investors more time-consuming and complex. Such
regulation requires, among other things, that the MOFCOM be notified in advance of any change-of-control transaction in which a foreign investor acquires
control of a PRC domestic enterprise or a foreign company with substantial PRC operations, if certain thresholds under the Provisions on Thresholds for Prior
Notification of Concentrations of Undertakings, issued by the State Council in 2008, were triggered. Moreover, the Anti-Monopoly Law promulgated by the
Standing Committee of the NPC which became effective in 2008 requires that transactions which are deemed concentrations and involve parties with
specified turnover thresholds must be examined by the MOFCOM before they can be completed. In addition, PRC national security review rules which
became effective in September 2011 require acquisitions by foreign investors of PRC companies engaged in military related or certain other industries that
are crucial to national security be subject to security review before consummation of any such acquisition.

The MOJ Draft for Review released by the MOJ on August 10, 2018, stipulates that group-based education institution shall not control not-for-profit

private schools through mergers and acquisition, franchise, agreement or any other similar manner. Furthermore, the Reform Opinions issued by the Central
Committee of the Communist Party of China and the State Council on November 15, 2018, which regulates that social capital is not allowed to control not-
for-profit kindergartens or kindergartens that are sponsored by state-owned assets or collectively-owned assets through ways such as mergers and
acquisitions, delegating operation, franchising, variable interest entities or contractual arrangements, and listed companies are not allowed to invest for-profit
kindergartens through ways such as financing from share market, or acquire assets of for-profit kindergartens through ways such as issuing shares or paying
cash. Such stipulation may have a negative impact on both the type and number of the target of our expansion strategy, as we may no longer be able to
acquire not-for-profit private schools or control them through ways such as franchising or “contractual arrangements”, and we may no longer to invest for-
profit kindergartens through ways such as financing from share market, or acquire assets of for-profit kindergartens through ways such as issuing shares or
paying cash.

We may pursue potential strategic acquisitions that are complementary to our business and operations. Complying with the requirements of these

regulations to complete such transactions could be time-consuming, and any required approval processes, including obtaining approval or clearance from the
MOFCOM, may delay or inhibit our ability to complete such transactions and limit the scope and amount of our acquisition, which could affect our ability to
expand our business or maintain our market share.

25

 
 
 
 
 
 
 
Table of Contents

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

In July 2014, SAFE promulgated the Circular on Relevant Issues Concerning Foreign Exchange Control on Domestic Residents’ Offshore

Investment and Financing and Roundtrip Investment Through Special Purpose Vehicles, or SAFE Circular 37, to replace the Notice on Relevant Issues
Concerning Foreign Exchange Administration for Domestic Residents’ Financing and Roundtrip Investment Through Offshore Special Purpose Vehicles, or
SAFE Circular 75, which ceased to be effective upon the promulgation of SAFE Circular 37. SAFE Circular 37 requires PRC residents (including PRC
individuals and PRC corporate entities) to register with local branches of SAFE in connection with their direct or indirect offshore investment activities.
SAFE Circular 37 is applicable to our shareholders who are PRC residents and may be applicable to any offshore acquisitions that we make in the future.

Under SAFE Circular 37, PRC residents who make, or have prior to the implementation of SAFE Circular 37 made, direct or indirect investments in
offshore special purpose vehicles, or SPVs, will be required to register such investments with local branches of SAFE. In addition, any PRC resident who is a
direct or indirect shareholder of an SPV is required to update its filed registration with the local branch of the SAFE with respect to that SPV, to reflect any
material change. Moreover, any subsidiary of such SPV in China is required to urge the PRC resident shareholders to update their registration with the local
branch of the SAFE. If any PRC shareholder of such SPV fails to make the required registration or to update the previously filed registration, the subsidiary
of such SPV in China may be prohibited from distributing its profits or the proceeds from any capital reduction, share transfer or liquidation to the SPV, and
the SPV may also be prohibited from making additional capital contribution into its subsidiary in China. On February 13, 2015, the SAFE promulgated a
Notice on Further Simplifying and Improving Foreign Exchange Administration Policy on Direct Investment, or SAFE Notice 13, which became effective on
June 1, 2015. Under SAFE Notice 13, applications for foreign exchange registration of inbound foreign direct investments and outbound overseas direct
investments, including those required under SAFE Circular 37, will be filed with qualified banks instead of the SAFE. The qualified banks will directly
examine the applications and accept registrations under the supervision of the SAFE.

All of our shareholders that we are aware of being subject to the SAFE regulations have completed all necessary registrations with the local SAFE

branch or qualified banks as required by SAFE Circular 37. We cannot assure you, however, that all of these individuals may continue to make required
filings or updates on a timely manner, or at all. We can provide no assurance that we are or will in the future continue to be informed of identities of all PRC
residents holding direct or indirect interest in our company. Any failure or inability by such individuals to comply with the SAFE regulations may subject us
to fines or legal sanctions, such as restrictions on our cross-border investment activities or our PRC subsidiary’s ability to distribute dividends to, or obtain
foreign exchange-denominated loans from, our company or prevent us from making distributions or paying dividends. As a result, our business operations
and our ability to make distributions to you could be materially and adversely affected.

Furthermore, as these foreign exchange regulations are still relatively new and their interpretation and implementation has been constantly evolving,
it is unclear how these regulations, and any future regulation concerning offshore or cross-border transactions, will be interpreted, amended and implemented
by the relevant governmental authorities. For example, we may be subject to a more stringent review and approval process with respect to our foreign
exchange activities, such as remittance of dividends and foreign-currency-denominated borrowings, which may adversely affect our financial condition and
results of operations. In addition, if we decide to acquire a PRC domestic company, we cannot assure you that we or the owners of such company, as the case
may be, will be able to obtain the necessary approvals or complete the necessary filings and registrations required by the foreign exchange regulations. This
may restrict our ability to implement our acquisition strategy and could adversely affect our business and prospects.

Any failure to comply with PRC regulations regarding the registration requirements for employee stock incentive plans of an overseas listed company
may subject the PRC plan participants or us to fines and other legal or administrative sanctions.

In February 2012, SAFE promulgated the Notices on Issues Concerning the Foreign Exchange Administration for Domestic Individuals

Participating in Stock Incentive Plan of Overseas Publicly-Listed Company, replacing earlier rules promulgated in 2007. Pursuant to these rules, PRC citizens
and non-PRC citizens who reside in China for a continuous period of not less than one year who participate in any stock incentive plan of an overseas listed
company, subject to a few exceptions, are required to register with the SAFE through a domestic qualified agent, which could be the PRC subsidiaries of such
overseas listed company, and complete certain other procedures. In addition, an overseas-entrusted institution must be retained to handle matters in
connection with the exercise or sale of stock options and the purchase or sale of shares and interests. We and our executive officers and other employees who
are PRC citizens or who reside in the PRC for a continuous period of not less than one year and who have been granted options are subject to these
regulations as our company became an overseas listed company upon the completion of our initial public offering. Failure to complete the SAFE registrations
may subject them to fines of up to RMB300,000 for entities and up to RMB50,000 for individuals, and legal sanctions, and may also limit our ability to
contribute additional capital into our PRC subsidiary and limit our PRC subsidiary’s ability to distribute dividends to us. We also face regulatory uncertainties
that could restrict our ability to adopt additional incentive plans for our directors, executive officers and employees under PRC law. See “Item 4. Information
on the Company—B. Business Overview—Regulation—Regulations Relating to Employee Stock Incentive Plan of Overseas Publicly-Listed Company.”

26

 
 
 
 
 
 
 
 
Table of Contents

The State Administration of Taxation, or SAT, has issued certain circulars concerning employee share options and restricted shares. Under these

circulars, our employees working in China who exercise share options or are granted restricted shares will be subject to PRC individual income tax. Our PRC
subsidiary have obligations to file documents related to employee share options or restricted shares with relevant tax authorities and to withhold individual
income taxes of those employees who exercise their share options. If our employees fail to pay or we fail to withhold their income taxes according to relevant
laws and regulations, we may face sanctions imposed by the tax authorities or other PRC governmental authorities. See “Item 4. Information on the Company
—B. Business Overview—Regulation—Regulations Relating to Employee Stock Incentive Plan of Overseas Publicly-Listed Company.”

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 ADS holders.

Under the PRC Enterprise Income Tax Law and its implementation rules, an enterprise established outside of the PRC with “de facto management

body” within the PRC is considered a “resident enterprise” and will be subject to the 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 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: (i) the primary location of the day-to-day
operational management is in the PRC; (ii) 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; (iii) the enterprise’s primary assets, accounting books and records, company seals, and board and shareholder
resolutions are located or maintained in the PRC; and (iv) at least 50% of voting board members or senior executives habitually reside in the PRC.

We believe RYB Education, Inc. is not a PRC resident enterprise for PRC tax purposes. See “Item 4. Information on the Company—B. Business

Overview—Regulation—Regulations Relating to Tax in the PRC—Income Tax.” 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 RYB Education, Inc. is a PRC resident enterprise for enterprise income tax purposes, we will be subject to PRC enterprise income tax on our
worldwide income at the rate of 25%. Furthermore, 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 our ADSs. In addition, non-resident enterprise shareholders (including our ADS holders) may be subject
to 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.
Furthermore, if we are deemed a PRC resident enterprise, dividends payable to our non-PRC individual shareholders (including our 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% unless a reduced rate is available
under an applicable tax treaty. It is unclear whether non-PRC shareholders of RYB Education, Inc. would be able to claim the benefits of any tax treaties
between their country of tax residence and the PRC in the event that RYB Education, Inc. is treated as a PRC resident enterprise.

27

 
 
 
 
 
Table of Contents

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

On February 3, 2015, the SAT issued a Public Notice Regarding Certain Corporate Income Tax Matters on Indirect Transfer of Properties by Non-

Tax Resident Enterprises, or SAT Bulletin 7. SAT Bulletin 7 extends its tax jurisdiction to transactions involving transfer of other taxable assets through
offshore transfer of a foreign intermediate holding company. In addition, SAT Bulletin 7 has introduced safe harbors for internal group restructurings and the
purchase and sale of equity through a public securities market. SAT Bulletin 7 also brings challenges to both foreign transferor and transferee (or other person
who is obligated to pay for the transfer) of taxable assets.

On October 17, 2017, the SAT issued the Announcement of the State Administration of Taxation on Issues Concerning the Withholding of

Nonresident Enterprise Income Tax at Source, or SAT Bulletin 37, which came into effect on December 1, 2017. The SAT Bulletin 37 further clarifies the
practice and procedure of the withholding of non-resident enterprise income tax. Where a non-resident enterprise transfers taxable assets indirectly by
disposing of the equity interests of an overseas holding company, which is an Indirect Transfer, the non-resident enterprise as either transferor or transferee,
or the PRC entity that directly owns the taxable assets, may report such Indirect Transfer to the relevant tax authority. 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 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. Both the transferor and the transferee may be subject to penalties under PRC tax
laws if the transferee fails to withhold the taxes and the transferor fails to pay the taxes.

We face uncertainties as to the reporting and other implications of certain past and future transactions where PRC taxable assets are involved, such

as offshore restructuring, sale of the shares in our offshore subsidiaries or investments. Our company may be subject to filing obligations or taxed if our
company is transferor in such transactions, and may be subject to withholding obligations if our company is transferee in such transactions under SAT
Bulletin 7 and/or SAT Bulletin 37. For transfer of shares in our company by investors who are non-PRC resident enterprises, our PRC subsidiary may be
requested to assist in the filing under SAT Bulletin 7 and/or SAT Bulletin 37. As a result, we may be required to expend valuable resources to comply with
SAT Bulletin 7 and/or SAT Bulletin 37 or to request the relevant transferors from whom we purchase taxable assets to comply with these circulars, or to
establish that our company should not be taxed under these circulars, which may have a material adverse effect on our financial condition and results of
operations.

The audit report included in this annual report is prepared by an auditor who is not inspected by the Public Company Accounting Oversight Board and,
as such, you are deprived of the benefits of such inspection.

Our independent registered public accounting firm that issues the audit report included in this annual report, as an auditor of companies that are

traded publicly in the United States and a firm registered with the Public Company Accounting Oversight Board, or the PCAOB, is required by the laws of
the United States to undergo regular inspections by the PCAOB to assess its compliance with the laws of the United States and professional standards.
Because our auditors are located in China, a jurisdiction where the PCAOB is currently unable to conduct inspections without the approval of the Chinese
authorities, our auditors are not currently inspected by the PCAOB. Inspections of other firms that the PCAOB has conducted outside of China have
identified deficiencies in those firms’ audit procedures and quality control procedures, which may be addressed as part of the inspection process to improve
future audit quality.

28

 
 
 
 
 
 
 
Table of Contents

On May 24, 2013, PCAOB announced that it had entered into a Memorandum of Understanding on Enforcement Cooperation with the China

Securities Regulatory Commission, or the CSRC, and the Ministry of Finance which establishes a cooperative framework between the parties for the
production and exchange of audit documents relevant to investigations in the United States and China. Upon inspection, it appears that the PCAOB continues
to be in discussions with the Mainland China regulators to permit inspections of audit firms that are registered with PCAOB in relation to the audit of Chinese
companies that trade on U.S. exchanges. On December 7, 2018, the SEC and the PCAOB issued a joint statement highlighting continued challenges faced by
the U.S. regulators in their oversight of financial statement audits of U.S.-listed companies with significant operations in China. As part of a continued
regulatory focus in the United States on access to audit and other information currently protected by national law, in particular the PRC’s, in June 2019, a
bipartisan group of lawmakers introduced bills in both houses of the U.S. Congress that would require the SEC to maintain a list of issuers for which PCAOB
is not able to inspect or investigate an auditor report issued by a foreign public accounting firm. The Ensuring Quality Information and Transparency for
Abroad-Based Listings on our Exchanges (EQUITABLE) Act prescribes increased disclosure requirements for these issuers and, beginning in 2025, the
delisting from U.S. national securities exchanges such as the New York Stock Exchange of issuers included on the SEC’s list for three consecutive years.
Enactment of this legislation or other efforts to increase U.S. regulatory access to audit information could cause investor uncertainty for affected issuers,
including us, and the market price of our ADSs could be adversely affected. It is unclear if this proposed legislation would be enacted. On April 21, 2020, the
SEC and the PCAOB issued another joint statement reiterating the greater risk that disclosures will be insufficient in many emerging markets, including
China, compared to those made by U.S. domestic companies. In discussing the specific issues related to the greater risk, the statement again highlights the
PCAOB’s inability to inspect audit work paper and practices of accounting firms in China, with respect to their audit work of U.S. reporting companies.

The inability of the PCAOB to conduct inspections of auditors in China makes it more difficult to evaluate the effectiveness of our auditors’ audit
procedures or quality control procedures as compared to auditors outside of China that are subject to PCAOB inspections. Investors may lose confidence in
our reported financial information and procedures and the quality of our financial statements.

Proceedings instituted by the SEC against Chinese affiliates of the “big four” accounting firms, including our independent registered public accounting
firm, could result in financial statements being determined to not be in compliance with the requirements of the Exchange Act.

Starting in 2011 the Chinese affiliates of the “big four” accounting firms, including our independent registered public accounting firm, were affected

by a conflict between U.S. and Chinese law. Specifically, for certain U.S.-listed companies operating and audited in mainland China, the SEC and the
PCAOB sought to obtain from the Chinese firms access to their audit work papers and related documents. The firms were, however, advised and directed that
under Chinese law, they could not respond directly to the U.S. regulators on those requests, and that requests by foreign regulators for access to such papers in
China had to be channeled through the CSRC.

In late 2012, this impasse led the SEC to commence administrative proceedings under Rule 102(e) of its Rules of Practice and also under the

Sarbanes-Oxley Act of 2002 against the Chinese accounting firms, including our independent registered public accounting firm. A first instance trial of the
proceedings in July 2013 in the SEC’s internal administrative court resulted in an adverse judgment against the firms. The administrative law judge proposed
penalties on the firms including a temporary suspension of their right to practice before the SEC, although that proposed penalty did not take effect pending
review by the Commissioners of the SEC. On February 6, 2015, before a review by the Commissioner had taken place, the firms reached a settlement with
the SEC. Under the settlement, the SEC accepted that future requests by the SEC for the production of documents would normally be made to the CSRC. The
firms would receive matching Section 106 requests, and would be required to abide by a detailed set of procedures with respect to such requests, which in
substance would require them to facilitate production via the CSRC. The CSRC initiated a procedure through which, under its supervision and subject to its
approval, requested classes of documents held by the accounting firms could be sanitized of problematic and sensitive content in order to render them capable
of being made available by the CSRC to U.S. regulators.

Under the terms of the settlement, the underlying proceeding against the four PRC-based accounting firms was deemed dismissed with prejudice at

the end of four years starting from the settlement date, which was on February 6, 2019. Despite the final ending of the proceedings, the presumption is that all
parties will continue to apply the same procedures: i.e. the SEC will continue to make its requests for the production of documents to the CSRC, and the
CSRC will normally process those requests applying the sanitization procedure. We cannot predict whether, in cases where the CSRC does not authorize
production of requested documents to the SEC, the SEC will further challenge the four PRC-based accounting firms’ compliance with U.S. law. If additional
challenges are imposed on the Chinese affiliates of the “big four” accounting firms, we could be unable to timely file future financial statements in
compliance with the requirements of the Exchange Act.

29

 
 
 
 
 
 
 
Table of Contents

In the event that the SEC restarts the administrative proceedings, depending upon the final outcome, listed companies in the United States with

major PRC operations may find it difficult or impossible to retain auditors in respect of their operations in the PRC, which could result in financial statements
being determined to not be in compliance with the requirements of the Exchange Act, including possible delisting. Moreover, any negative news about any
such future proceedings against these audit firms may cause investor uncertainty regarding China-based, U.S.-listed companies, and the market price of our
common stock may be adversely affected.

If our independent registered public accounting firm was 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 delisting of our ADSs from the New
York Stock Exchange or deregistration from the SEC, or both, which would substantially reduce or effectively terminate the trading of our ADSs in the
United States.

Risks Related to Our American Depositary Shares

The trading price of our ADSs is likely to be volatile, which could result in substantial losses to investors.

The trading price of our ADSs ranged from US$5.45 to US$9.46 per ADS in 2019. The trading price of our ADSs is likely to remain volatile and

could fluctuate widely due to factors beyond our control. This may happen because of broad market and industry factors, including the performance and
fluctuation of the market prices of other companies with business operations located mainly in China that have listed their securities in the United States. In
addition to market and industry factors, the price and trading volume for our ADSs may be highly volatile for factors specific to our own operations,
including the following:

·                   variations in our revenues, earnings and cash flow;

·                   announcements of new investments, acquisitions, strategic partnerships or joint ventures by us or our competitors;

·                   announcements of new offerings, solutions and expansions by us or our competitors;

·                   changes in financial estimates by securities analysts;

·                   detrimental adverse publicity about us, our services or our industry;

·                   announcements of new regulations, rules or policies relevant for our business;

·                   additions or departures of key personnel;

·                   release of lock-up or other transfer restrictions on our outstanding equity securities or sales of additional equity securities; and

·                   potential litigation or regulatory investigations.

Any of these factors may result in large and sudden changes in the volume and price at which our ADSs will trade.

In the past, shareholders of public companies have often brought securities class action suits against those companies following periods of instability

in the market price of their securities. If we were involved in a class action suit, it could divert a significant amount of our management’s attention and other
resources from our business and operations and require us to incur significant expenses to defend the suit, which could harm our results of operations. Any
such class action suit, whether or not successful, could harm our reputation and restrict our ability to raise capital in the future. In addition, if a claim is
successfully made against us, we may be required to pay significant damages, which could have a material adverse effect on our financial condition and
results of operations.

30

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

We have granted, and may continue to grant, options and other types of awards under our share incentive plan, which may result in increased share-
based compensation expenses.

We currently have two share incentive plans for the purpose of granting share-based compensation awards to employees, directors and consultants to
incentivize their performance and align their interests with ours. They are the 2009 Share Incentive Plan and 2017 Share Incentive Plan, which we refer to as
the 2009 Plan and the 2017 Plan in this annual report, respectively. We account for compensation costs for all share options using a fair-value based method
and recognize expenses in our consolidated statement of income in accordance with U.S. GAAP. We believe the granting of share-based compensation is of
significant importance to our ability to attract and retain key personnel and employees, and we will continue to grant share-based compensation to employees
in the future. As a result, our expenses associated with share-based compensation may increase, which may have an adverse effect on our results of
operations.

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

The trading market for our ADSs will be influenced by research or reports that industry or securities analysts publish about our business. If one or
more analysts who cover us downgrade our ADSs, the market price for our ADSs would likely decline. If one or more of these analysts cease to cover us or
fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause the market price or trading volume for our
ADSs to decline.

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

Sales of substantial amounts of our ADSs in the public market, or the perception that these sales could occur, could adversely affect the market price
of our ADSs and could materially impair our ability to raise capital through equity offerings in the future. We cannot predict what effect, if any, market sales
of securities held by our significant shareholders or any other shareholder or the availability of these securities for future sale will have on the market price of
our ADSs. Ascendent Rainbow (Cayman) Limited holds 5,713,612 Class A ordinary shares and 2,831,131 Class B ordinary shares, representing
approximately 31.0% of total outstanding ordinary shares.ursuant to a Registration Rights Agreement we entered into with Ascendent Rainbow (Cayman)
Limited in September 2017, we agreed to provide Ascendent Rainbow (Cayman) Limited with certain registration rights in respect of our ordinary shares
held by them, subject to certain limitations. See “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions—Registration
Rights Agreement.” Registration of these shares under the Securities Act would result in these shares becoming freely tradable without restriction
immediately upon the effectiveness of the registration statement. If part or all of these shares are sold in the public market, the prevailing market price for our
ADSs could be adversely affected. Such sales might also make it more difficult for us to sell equity or equity-related securities in the future at a time and
price that we deem appropriate.

Our dual-class voting structure will limit your ability to influence corporate matters and could discourage others from pursuing any change of control
transactions that holders of our Class A ordinary shares and ADSs may view as beneficial.

We have a dual-class share structure such that our ordinary shares consist of Class A ordinary shares and Class B ordinary shares. In respect of

matters requiring the votes of shareholders, each Class A ordinary share shall entitle the holder thereof to one vote, and each Class B ordinary share shall
entitle the holder thereof to ten (10) votes. Our ADSs represent Class A ordinary shares. Each Class B ordinary share is convertible into one Class A ordinary
share at any time at the option of the holder thereof, while Class A ordinary shares are not convertible into Class B ordinary shares under any circumstances.
Upon any sale, transfer, assignment or disposition of any Class B ordinary shares by a shareholder thereof to any person or entity which is not an affiliate of
such shareholder, or upon a change of ultimate beneficial ownership of any Class B ordinary shares to any person who is not an affiliate of the registered
shareholder of such share, such Class B ordinary shares shall be automatically and immediately converted into the equal number of Class A ordinary shares.
Further, each Class B ordinary share shall automatically be re-designated into one Class A ordinary share, if at any time Mr. Chimin Cao, Ms. Yanlai Shi and
their respective affiliates collectively hold less than five percent (5%) of the issued and outstanding ordinary shares in the capital of the Company, and no
Class B ordinary shares shall be issued by the Company thereafter.

31

 
 
 
 
 
 
 
 
 
Table of Contents

As of March 31, 2020, Mr. Cao, Ms. Shi and Ascendent Rainbow (Cayman) Limited collectively beneficially own an aggregate of approximately

67.6% of our total issued and outstanding ordinary shares and 90.2% of the voting power of our issued and outstanding shares.

Therefore, Mr. Cao, Ms. Shi and Ascendent Rainbow (Cayman) Limited have considerable influence over matters requiring shareholders’ approval,

including election of directors and significant corporate transactions, such as a merger or sale of our company or our assets. 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.

Because we do not expect to pay dividends in the foreseeable future, you must rely on price appreciation of our ADSs for return on your investment.

We currently intend to retain most, if not all, of our available funds and any future earnings to fund the development and growth of our business. As

a result, we do not expect to pay any cash dividends in the foreseeable future. Therefore, you should not rely on an investment in our ADSs as a source for
any future dividend income.

Our board of directors has discretion as to whether to distribute dividends, subject to certain requirements of Cayman Islands law. In addition, our
shareholders may by ordinary resolution declare dividends, but no dividend may exceed the amount recommended by our directors. Under Cayman Islands
law, a Cayman Islands company may pay dividends out of either profit or share premium account, provided that in no circumstances may dividends be paid if
this would result in the company being unable to pay its debts as they fall due in the ordinary course of business. Even if our board of directors decides to
declare and pay dividends, the timing, amount and form of future dividends, if any, will depend on our future results of operations and cash flow, our capital
requirements and surplus, the amount of distributions, if any, received by us from our subsidiaries, our financial condition, contractual restrictions and other
factors deemed relevant by our board of directors. Accordingly, the return on your investment in our ADSs will likely depend entirely upon any future price
appreciation of our ADSs. There is no guarantee that our ADSs will appreciate in value or even maintain the price at which you purchased the ADSs. You
may not realize a return on your investment in our ADSs and you may even lose your entire investment in our ADSs.

Our memorandum and articles of association contain anti-takeover provisions that could have a material adverse effect on the rights of holders of our
Class A ordinary shares and ADSs.

Our memorandum and articles of association contain provisions to limit the ability of others to acquire control of our company or cause us to engage

in change-of-control transactions. For example, these provisions include a dual-class share structure that gives greater voting power to the Class B ordinary
shares beneficially owned by our founders and Ascendent Rainbow (Cayman) Limited. 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 our ADSs may fall and the voting and other rights of the holders of our ordinary shares and ADSs may be materially and
adversely affected.

You may face difficulties in protecting your interests, and your ability to protect your rights through U.S. courts may be limited, because we are
incorporated under Cayman Islands law.

We are an exempted company incorporated under the laws of the Cayman Islands. Our corporate affairs are governed by our memorandum and

articles of association, the Companies Law (2020 Revision) of the Cayman Islands and the common law of the Cayman Islands. The rights of shareholders to
take action against our directors, actions by minority shareholders and the fiduciary duties of our directors to us under Cayman Islands law are to a large
extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial
precedent in the Cayman Islands as well as from the common law of England, the decisions of whose courts are of persuasive authority, but are not binding,
on a court in the Cayman Islands. The rights of our shareholders and the fiduciary duties of our directors under Cayman Islands law are not as clearly
established as they would be under statutes or judicial precedent in some jurisdictions in the United States. In particular, the Cayman Islands 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.

32

 
 
 
 
 
 
 
 
 
 
Table of Contents

Shareholders of Cayman Islands exempted companies like us have no general rights under Cayman Islands law to inspect corporate records (apart

from our memorandum and articles of association) or to obtain copies of lists of shareholders of these companies. Our directors have discretion under our
memorandum and 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.

Certain corporate governance practices in the Cayman Islands, which is our home country, differ significantly from requirements for companies

incorporated in other jurisdictions such as the United States. To the extent we choose to follow home country practice with respect to corporate governance
matters, our shareholders may be afforded less protection than they otherwise would under rules and regulations applicable to U.S. domestic issuers.

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 our

management, members of the board of directors or controlling shareholders than they would as public shareholders of a company incorporated in the United
States.

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

We are a Cayman Islands exempted company and substantially 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. Substantially all of the assets of these persons are located outside the United States. As a result, it may be difficult or impossible for you to bring an
action against us or against these individuals in the United States in the event that you believe that your rights have been infringed under the U.S. federal
securities laws or otherwise. Even if you are successful in bringing an action of this kind, the laws of the Cayman Islands and of China may render you unable
to enforce a judgment against our assets or the assets of our directors and officers.

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 the voting
of the underlying Class A ordinary shares which are represented by your ADSs.

Holders of ADSs do not have the same rights as our registered shareholders. As a holder of our ADSs, you will not have any direct right to attend

general meetings of our shareholders or to cast any votes at such meetings. You will only be able to exercise the voting rights which are carried by the
underlying Class A ordinary shares which are 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 may vote only by giving voting instructions to the depositary. Upon receipt of your
voting instructions, the depositary will try, as far as is practicable, to vote the underlying Class A ordinary shares represented by your ADSs in accordance
with your instructions. If we ask for your instructions, then upon receipt of your voting instructions, the depositary will try to vote the underlying Class A
ordinary shares represented by your ADSs in accordance with your instructions. If we do not instruct the depositary to ask for your instructions, the
depositary may still vote in accordance with instructions you give, but it is not required to do so. You will not be able to directly exercise your right to vote
with respect to the underlying Class A ordinary shares represented by your ADSs unless you withdraw such shares and become the registered holder of such
shares prior to the record date for the general meeting. When a general meeting is convened, you may not receive sufficient advance notice of the meeting to
withdraw the underlying Class A ordinary shares represented by your ADSs and become the registered holder of such shares to allow you to attend the
general meeting and to vote directly with respect to any specific matter or resolution to be considered and voted upon at the general meeting. In addition,
under our 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 underlying Class A ordinary shares represented by 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. Under our memorandum and articles
of association, the minimum notice period required for convening a general meeting is ten calendar days. When a general meeting is convened, you may not
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 or
withdraw the underlying Class A ordinary shares represented by your ADSs to allow you to vote at such meeting. 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. The deposit agreement provides that if
the depositary does not timely receive voting instructions from the ADS holders and if voting is by poll, then such holder shall be deemed, and the depositary
shall deem such ADSs holder, to have instructed the depositary to give a discretionary proxy to a person designated by us to vote the underlying Class A
ordinary shares represented by ADSs, with certain limited exceptions. This means that you may not be able to exercise your right to direct how the underlying
Class A ordinary shares represented by your ADSs are voted and you may have no legal remedy if the underlying Class A ordinary shares represented by your
ADSs are not voted as you requested.

33

 
 
 
 
 
 
 
 
Table of Contents

You may experience dilution of your holdings due to the inability to participate in rights offerings.

We may, from time to time, distribute rights to our shareholders, including rights to acquire securities. Under the deposit agreement, the depositary

will not distribute rights to holders of ADSs unless the distribution and sale of rights and the securities to which these rights relate are either exempt from
registration under the Securities Act with respect to all holders of ADSs, or are registered under the provisions of the Securities Act. The depositary may, but
is not required to, attempt to sell these undistributed rights to third parties, and may allow the rights to lapse. We may be unable to establish an exemption
from registration under the Securities Act, and we are under no obligation to file a registration statement with respect to these rights or underlying securities
or to endeavor to have a registration statement declared effective. Accordingly, holders of ADSs may be unable to participate in our rights offerings and may
experience dilution of their holdings as a result.

You may be subject to limitations on 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 in
connection with corporate events such as a rights offering, during which time the depositary needs to maintain an exact number of ADS holders on its books
for a specified period. The depositary may also close its books in emergencies, and on weekends and public holidays. The depositary may refuse to deliver,
transfer or register transfers of our ADSs generally when our share register or the books of the depositary are closed, or at any time if we or the depositary
thinks it is advisable to do so because of any requirement of law or of any government or governmental body, or under any provision of the deposit
agreement, or for any other reason.

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

We are an “emerging growth company,” as defined in the JOBS Act, and we may take advantage of certain exemptions from requirements applicable

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

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

As a public company, we incur significant legal, accounting and other expenses that we did not incur as a private company. The Sarbanes-Oxley Act
of 2002, as well as rules subsequently implemented by the SEC and the New York Stock Exchange, impose various requirements on the corporate governance
practices of public companies. As a company with less than US$1.07 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. These provisions include exemption from the auditor attestation requirement under Section 404 of the Sarbanes-
Oxley Act of 2002, or Section 404, in the assessment of the emerging growth company’s internal control over financial reporting. The JOBS Act also permits
an emerging growth company to delay adopting new or revised accounting standards until such time as those standards apply to private companies. However,
we have elected to “opt out” of this provision and, as a result, we will comply with new or revised accounting standards as required when they are adopted for
public companies. This decision to opt out of the extended transition period under the JOBS Act is irrevocable.

34

 
 
 
 
 
 
 
 
 
Table of Contents

We expect these rules and regulations to increase our legal and financial compliance costs and to make some corporate activities more time-

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

As a company incorporated in the Cayman Islands, we are permitted to, and do, adopt certain home country practices in relation to corporate governance
matters that differ significantly from the New York Stock Exchange corporate governance listing standards; these practices may afford less protection to
shareholders than they would enjoy if we complied fully with the New York Stock Exchange corporate governance listing standards.

As a Cayman Islands exempted company listed on the New York Stock Exchange, we are subject to the New York Stock Exchange corporate

governance listing standards. However, New York Stock Exchange rules permit a foreign private issuer like us to follow the corporate governance practices
of its home country. Certain corporate governance practices in the Cayman Islands, which is our home country, may differ significantly from the New York
Stock Exchange corporate governance listing standards. Currently, we rely on home country practice exemption with respect to the requirement for a fully
independent nominating and corporate governance committee. We may also opt to rely on additional home country practice exemptions in the future. As a
result, our shareholders may be afforded less protection than they otherwise would under the New York Stock Exchange corporate governance listing
standards applicable to U.S. domestic issuers.

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
United States 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: (i) 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; (ii) the sections of the Exchange Act regulating the solicitation of proxies, consents, or authorizations in
respect of a security registered under the Exchange Act; (iii) 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 (iv) 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. In addition, we intend to publish our results

on a quarterly basis through press releases, distributed pursuant to the rules and regulations of the New York Stock Exchange 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 compared to 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, which would be made available to you, were you investing in a U.S. domestic issuer.

35

 
 
 
 
 
 
 
Table of Contents

There can be no assurance that we will not be a passive foreign investment company, or PFIC, for U.S. federal income tax purposes for any taxable year,
which could result in adverse U.S. federal income tax consequences to U.S. holders of our ADSs or ordinary shares.

A non-U.S. corporation will be a passive foreign investment company, or PFIC, for any taxable year if either (1) at least 75% of its gross income for
such year consists of certain types of “passive” income; or (2) at least 50% of the value of its assets (based on an average of the quarterly values of the assets)
during such year is attributable to assets that produce passive income or are held for the production of passive income (the “asset test”). Based on our income
and assets and the market price of our ADSs, we do not believe we were a PFIC for the taxable year ended December 31, 2019 and do not anticipate
becoming a PFIC in the foreseeable future. However, no assurance can be given in this regard because the determination of whether we are or will become a
PFIC is a fact-intensive inquiry made on an annual basis that depends, in part, upon the composition of our income and assets. Fluctuations in the market
price of our ADSs may cause us to become a PFIC for the current or subsequent taxable years because the value of our assets for the purpose of the asset test
may be determined by reference to the market price of our ADSs. Recent fluctuations in the market price of our ADSs increased our risk of becoming a PFIC.
The market price of the ADSs may continue to fluctuate considerably; consequently, we cannot assure you of our PFIC status for any taxable year. The
composition of our income and assets may also be affected by how, and how quickly, we use our liquid assets.

If we were to be or become a PFIC for any taxable year during which a U.S. Holder (as defined in “Item 10. Additional Information—E. Taxation—
United States Federal Income Tax Considerations”) holds our ADSs or ordinary shares, certain adverse U.S. federal income tax consequences could apply to
such U.S. Holder. See “Item 10. Additional Information—E. Taxation—United States Federal Income Tax Considerations—Passive Foreign Investment
Company Rules.”

ITEM 4.         INFORMATION ON THE COMPANY

A.                                     History and Development of the Company

We opened our first play-and-learn center in 1998 in Beijing. Later in July 2001, we incorporated Beijing RYB Children Potential Education

Entertainment Co., Ltd. to expand the operation of play-and-learn centers and kindergartens. In May 2006, we changed the name of Beijing RYB Children
Potential Education Entertainment Co., Ltd. to Beijing RYB Children Education Technology Development Co., Ltd., which we refer to as Beijing RYB or our
VIE in this annual report.

In January 2007, we incorporated Top Margin Limited, an exempted company under the laws of the Cayman Islands, as our offshore holding

company to facilitate financing and offshore listing. Shortly following its incorporation, our company issued ordinary shares to the holding vehicles of the
then shareholders of Beijing RYB, in proportion to these shareholders’ then respective equity interest percentages in Beijing RYB. Later in 2007, we also
established a wholly owned subsidiary, Beijing RYB Technology Development Co., Ltd., which we refer to as RYB Technology in this annual report, through
which we obtained control over Beijing RYB based on a series of contractual arrangements. These contractual arrangements include the business operation
agreement, the exclusive consultation and service agreement, the equity disposal agreement, the equity pledge agreement, the power of attorney and the
spousal consent.

As a result of these contractual arrangements, we have effective control over, and are the primary beneficiary of, Beijing RYB. We therefore treat
Beijing RYB and its subsidiaries as our consolidated affiliated entities under U.S. GAAP and have consolidated their financial results in our consolidated
financial statements in accordance with U.S. GAAP. However, those contractual arrangements may not be as effective in providing operational control as
direct ownership.

In June 2017, we changed the corporate name of our company from Top Margin Limited to RYB Education, Inc. RYB Education, Inc. is a holding

company. We conduct substantially all of our business in China through our VIE, its subsidiaries and sponsored kindergartens.

On September 26, 2017, our ADSs commenced trading on the New York Stock Exchange under the symbol “RYB.” We raised from our initial

public offering approximately US$90.1 million in net proceeds after deducting underwriting commissions and the offering expenses payable by us.

In April 2019, we acquired a Singapore-based private education group for a total consideration of RMB146.2 million.

36

 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

Our principal executive offices are located at 4/F, No. 29 Building, Fangguyuan Section 1, Fangzhuang, Fengtai District, Beijing 100078, People’s

Republic of China. Our telephone number at this address is +86 10-8767 5611. Our registered office in the Cayman Islands is located at the offices of Maples
Corporate Services Limited, PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands.

B.                                     Business Overview

We provide kindergarten services, play-and-learn center services, student care services, as well as at-home education products and services through

our VIE, its subsidiaries and sponsored kindergartens. Outside of our network, we license our separately developed courses, sell educational products and also
provide kindergarten operation solutions , training and other advisory services.

Our Early Childhood Education Network and Alliance

We directly operate and franchise play-and-learn centers , kindergartens and student care centers across the country and abroad. In addition, we also

license separately developed kindergarten courses, and offer operational solutions, training and other advisory services through other business partners, to
kindergartens outside of our network.

Kindergartens

Our kindergartens serve 2-6-year-old children. Each kindergarten normally houses classrooms, playgrounds and multi-function rooms that can serve
as music classrooms, conference rooms and indoor activity areas. A typical kindergarten in our network occupies approximately 2,500 square meters of land
with approximately 3,000 square meters of indoor floor area.

When we launch a new directly operated kindergarten, the preparation period between handover of the leased property from the landlord to us and

the facility opening typically lasts six to ten months. In a typical case, it takes a kindergarten another three to four years of operation to ramp up student
enrollment to near its capacity. For such reason, we refer to a kindergarten with over four years of operating history as a mature kindergarten.

As of December 31, 2019, we had 100 directly operated and 250 franchise kindergartens in operation in 29 provinces and municipalities in China.

Total student enrollment and total teaching staff at our directly operated kindergartens in China was 25,808 and 3,481 as of December 31, 2019, respectively.

The locations of our kindergartens are carefully planned based on a number of specific factors, including the estimated population of 2-6-year-old

children and the number of competitors, as well as the spending power of families in the neighborhood. We follow the guidelines of local education
authorities in determining the size of each class and adjust each kindergarten’s number of classes according to the demand in the relevant local market.

The majority of our kindergartens are operated under the “RYB ( 

  )” brand. They teach our core “RYB” curricula, with some variations in
feature course offerings tailored to local needs, and most of them also teach Scholastic Early-age English. The tuition fees of our kindergartens vary across
our network, mostly in accordance with the spending power of local communities.

In addition, to serve the growing demand for bilingual, premium early childhood education in China, some of our kindergartens also provide

Chinese-English bilingual curricula or English-only curricula.

Play-and-learn centers

Our play-and-learn centers offer flexible and engaging classes, designed for joint participation by 0-6-year-old children and their adult family

members, to promote the children’s development, foster bonding with family, and prepare them for their entry into kindergartens or primary schools.

Our typical play-and-learn centers occupy 500 to 800 square meters of indoor floor area, with classrooms and caregiver waiting zones.

37

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

We operate a small number of facilities directly as flagship models and have expanded our network primarily with franchise play-and-learn centers.

As of December 31, 2019, there were a total of 6 directly-operated and 1,152 franchise play-and-learn centers in operation in our network.

We consider similar factors when selecting sites for play-and-learn centers as for our kindergartens. With more flexibility in class schedule and

course fee arrangement, play-and-learn centers generally can cover a wider geographic area and attract families at different income levels, as compared to
kindergartens.

Singapore operations

In April 2019, we acquired a Singapore-based private education group, which has contributed to our existing educational offerings by expanding our

directly operated facility network and diversifying our operations geographically. The Singapore operations have the potential to create synergy with our
existing operations in additional and integrated early childhood education content and products.

Our Singapore operations offer kindergarten services and student care services, and deliver quality and innovative education contents to students in

Singapore and other countries.

As of December 31, 2019, we had 18 directly operated and 4 franchised kindergartens, and 26 directly operated and 4 franchised student care centers
in operation in Singapore. Total student enrollment and total teaching staff at the directly operated kindergartens and directly operated student care centers in
Singapore was 4,998 and 539 as of December 31, 2019, respectively.

Our kindergartens in Singapore are operated under several brands which help address the needs of various customer segments. Differentiated

curriculum has been separately developed for each brand, which incorporates pedagogies such as Reggio Emilia approach, Habits of Mind and Multiple
Intelligences. The tuition fees of our kindergartens in Singapore differ across brands.

Our student care centers in Singapore are operated to provide students with academic enrichment sessions, homework guidance and other services.

Most of the student care services are school-based.

Network control

We expect all of our franchisees to be committed to early childhood education and share our vision, and we employ stringent selection standards in
evaluating franchisee candidates. For kindergarten franchisees, we prefer candidates with substantial experience in preschool education. For play-and-learn
center franchisees, we favor candidates who are equipped with experience in business operations and sales. Upon joining our network, a franchisee receives
our standardized operation manual with detailed requirements that the franchisee must follow. Our franchisees are required to establish and implement proper
human resources management, financial reporting and other policies and procedures. We require our franchisees and their facility principals to undergo
training regularly.

We strive to maintain high service quality consistently at our franchise facilities. The layout and interior design of each facility is determined by our

headquarters in order to ensure a safe teaching and playing environment.

We also share our standards and recommendations with respect to teachers and staff recruiting with our franchisees to help them identify suitable

candidates. We require all recruited teachers to go through our orientation, training and certification process before they can be certified and qualified to teach
in our network.

We require every class to be taught in accordance with our curricula and teaching guidance. Our centralized whiteboard system stores and displays

recorded teaching videos from our model teachers for others to follow. Our franchise supervisors visit and follow up with our franchisees regularly in order to
ensure that our requirements are complied with and to offer support in improving teaching quality when needed.

We also actively seek feedback directly from parents, through both online and offline channels. We have developed a mobile app for our directly
operated kindergartens that allows parents to send their feedback to teachers and facility principals conveniently on their mobile devices. In addition, we
operate a national customer service hotline at our headquarters so that parents can reach out to us directly.

Our efforts to ensure high-quality and consistent service delivery across our network extend to the suppliers of teaching tools, educational toys and

other products. We require our franchisees to purchase certain goods, including teaching aids, student uniforms, school bags and other educational
merchandise, exclusively from us or from vendors approved by us.

38

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

Our Products and Services

We offer a full spectrum of early childhood education services and products at our directly operated teaching facilities, and provide course content,
training, support and guidance and other services to our franchisees and licensees. Additionally, we also develop and sell early childhood education products
and other products and services in adjacent markets.

Services at our directly operated facilities

We offer high-quality preschool education to 2-6-year-old children at our directly operated kindergartens, including our mandatory core curricula

and feature courses. We also offer after-school academic enrichment, homework guidance, and other educational content and services at our student care
centers in Singapore. Tuition fees at our directly operated facilities are charged by month of enrollment.

We also hire bilingual teachers and, in some premium classes, foreign teachers, to teach classes in English at some of our kindergartens to cater to

the growing demand in China to develop children’s foreign language skills at early ages.

In play-and-learn centers, our curriculum aims to encourage interactions between 0-6-year-old children and their family members, promote physical,

intellectual and emotional development of the children, and prepare these children for their entry into kindergartens or primary schools. Courses offered at
play-and-learn centers include play and explore, talent talk shows, The Music Class, intelligence cultivation, as well as transition to kindergartens and
primary schools. Play-and-learn centers charge students by sessions attended. Parents purchase prepaid cards for classes, with credit typically ranging from 24
sessions to 240 sessions in most play-and-learn centers. Each session typically lasts forty to fifty minutes. Those pre-paid session cards normally have set
expiration dates. For example, a 96-session prepaid card generally has a term of two years, and any unused sessions will expire at the end of the two-year
term. The per-session price varies across the country for prepaid cards with different number of sessions, ranging typically from approximately RMB100 to
approximately RMB500.

We allow refunds of tuition fees in certain circumstances. Where there are specific requirements by local education bureaus, we follow their
guidance. For example, for kindergartens for which no local requirement exists, if a child does not attend classes for a whole calendar month, we may allow a
refund of 50% of the tuition fee for that month; and if a child only attends classes for five days or less in a month, we may allow a refund of 25% of the
tuition fee for that month. For play-and-learn centers, we allow full refund within seven days of purchase of the course cards. After that seven-day period, we
generally allow a refund for unused sessions (after deducting certain processing fees) if customers have only used less than half of the total sessions that they
purchased; we do not offer any refund if 50% or more of the total sessions purchased have been used.

As with other education service providers, our tuition fee revenues are affected by seasonality. Due to the winter holidays and the summer vacation,

we typically generate lower revenue from tuition fees in the first and third calendar quarters.

Products and services provided to our kindergarten and play-and-learn center franchisees

We provide course content, training, support and guidance, and other services to our franchisees. After franchisees are qualified to join our network,

we work with them in selecting suitable premises for their kindergartens or play-and-learn centers. We then provide an interior design plan for each new
facility to ensure the safety of children and maintain consistency in facility design. Although franchisees make their own hiring decisions, we share with them
our recruiting standards and recommendations. Every teacher at our franchise teaching facilities is required to go through a training of at least three weeks at
our headquarters and pass our rigorous qualification exam before being certified to teach in our network.

Teachers at our franchise teaching facilities have access to our digital white board course management system to receive course content from us (or,

in certain cases, detailed, paper-based teaching plans) with practical and useful classroom teaching guidance and suggestions.

39

 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

In addition, our franchise supervisors, who are usually experienced teachers or teaching facility principals, visit and follow up closely with our

franchisees to monitor teaching facilities’ service quality and offer professional advice on various topics ranging from marketing solutions, recruiting
initiatives and interactions with parents to teaching facility upgrade plans.

Our typical franchise agreements have terms of five years for kindergartens and three years for play-and-learn centers, and are renewable with our

consent and payment of a renewal fee. These franchise agreements set out in detail what services we provide and the fee level for such services. In addition to
the fixed annual fee model, starting in late 2018, we also began to use revenue-sharing model for our franchise services.

As of December 31, 2019, we had a total of 1,402 franchise facilities in China and 8 in Singapore. We believe our franchise business model not only

helps franchisees achieve personal success, but also increasingly adds value to our own business and reputation.

Product and service extensions

To supplement our classroom teaching and reach a wider customer base beyond our networks, we launched Zhu Dou Parenting products in
September 2011. It includes a Zhu Dou mobile app, where parents can access educational animations, cartoons and lectures for free or for a small fee, as well
as a variety of at-home education products that can be separately sold to parents.

We also distribute educational merchandise such as teaching aids, educational toys, at-home educational products and school uniforms through our
franchisees and other business partners. We maintain high standards when we procure educational merchandise from vendors to ensure that the products are
well designed, meet relevant industrial standards and appeal to the target age group. In addition to leveraging our internal product design capabilities, we
work with educational merchandise designers and/or vendors to design or refine the products that best fit our requirements.

We have established Qingtian Youpin , an e-commerce platform for high-quality maternity and children’s products. These products are not only

available online, but are also sold in our numerous teaching facilities across the country.

We have been constantly exploring new growth opportunit ies in the early childhood education industry. For example, we rolled out pilot programs
of daycare services for 0-3-year old children, tutorials on traditional Chinese culture and arts, and started to provide internal design services to kindergarten
outside our network.

Our Curriculum and R&D Capability

Our curriculum

Our kindergarten curriculum in China consists of our self-developed Multi-Dimension Education Courses, which cover the six principal fields of
early childhood education, preparation for entry into kindergartens and primary schools, Scholastic Early-age English, and certain feature courses. We also
offer another set of courses tailored for our play-and-learn centers.

The course packages for the Hong Shan Enable Alliance are specially tailored to be unique while being inclusive and affordable. While these for-

license courses are built upon the core methodologies used in the course materials taught at RYB-branded kindergartens, they are designed to be easy to use at
a lower cost.

Our kindergarten curriculum in Singapore are self-developed and incorporates leading pedagogies such as Reggio Emilia approach, Habits of Mind

and Multiple Intelligences. We offer differentiated curriculum for different brands.

Curricula Development

Our curricula are constantly evolving in response to the needs of children and their parents. We identify needs for new courses or course updates

through various channels, including initiatives from our in-house education experts and feedback from our customers. The entire development process
includes feasibility review, design, quality review, trial release and internal feedback, fine-tuning and official release. Upgrades to existing courses appear
instantly on our white board system upon their release. We require our teachers to incorporate course upgrades to their teaching promptly. In the event of any
major upgrade or release of new courses, we will hold various training sessions for teachers in our network.

40

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

We have a strong early childhood educational content development team, with solid credentials and rich experience fueled by a spirit of innovation.

Our research and development department is headed by renowned figures in the education industry and benefits from insights offered by a highly engaged
advisory board of industry leaders, including Mr. Xiping Tao, a former general advisor of the Supervisory Board for China National Education and the
honorary Chairman of the Asia-Pacific Regional Association of the United Nations Educational, Scientific and Cultural Organization. Our development
department hosts separate teams that are devoted to each of our product and service lines, including play-and-learn centers, kindergartens, other business
partners and Zhu Dou Parenting products. These teams specialize in their respective areas to develop tailored contents while collaborating with each other at
the same time to ensure an integrated overall curriculum system.

As of December 31, 2019, our dedicated content development team consisted of 48 members. Over 81% of them held bachelor’s degrees or above,

approximately 54% of them graduated with education-related majors, and they have an average of over 10 years’ experience in early childhood education.
Many of our teaching staff and facility principals also actively participate in our daily content development activities.

Our development team also designs and develops educational tools and toys, as well as books for the mass market.

Our partnerships and collaborations with globally renowned education institutions greatly supplement and enhance the comprehensiveness and
diversity of our curricula. We introduced the Scholastic Early-age English course and The Music Class into our curricula in 2008 and 2016, respectively.

Our Teaching Staff, Principals and Other Employees

We employ a large body of principals and teaching staff and also maintain a team of sales representatives and other supporting staff, including

doctors, kitchen crew and security guards, in our directly operated kindergartens and play-and-learn centers.

As of December 31, 2019, we employed a total of 4,069 teaching staff in our directly operated facilities, almost all of whom had received

professional training from colleges or other institutions in the areas of pedagogy, arts and language before joining us. Before joining us, a number of our
teachers have gone through RYB co-sponsored programs with selected teachers’ colleges where they studied. Through these co-sponsored programs, we
provide these candidates with an early exposure to our culture and teaching philosophy.

We have established a system for teachers to advance and develop within our system. We maintain a standardized internal evaluation process with

clearly defined key performance indicators, and our four-tier teacher ranking system promotes and rewards teachers based on their teaching quality and
experience. A good portion of our management term is promoted from experienced and outstanding teachers. We require each of our directly operated
kindergartens to develop at least one person to become qualified as a facility principal and to train and develop at least two staff as facility directors and two
teaching staff as top-level teachers each year.

Our Brand Image, Marketing and Student Recruitment

We position ourselves as a provider of early childhood educational services tailored to the needs of each child at the different stages of her or his

growth. We believe parents of prospective students are attracted to our teaching facilities by our excellent brand name and reputation, the quality of our
curricula and our long operating history in the private early childhood education sector. Therefore, our student enrollment has grown primarily through word-
of-mouth and referrals by parents. Aside from that, we also employ the following marketing methods to attract students:

41

 
 
 
 
 
 
 
 
 
 
 
Table of Contents

·                   Social Events and Activities.   We participate in and host community events designed to promote awareness of the virtues of early childhood
education. For example, we from time to time host themed open-house events at our facilities to allow children and parents to have direct
interactions with our existing students, parents and facility employees. We also write columns for early childhood and parenting magazines and
publish frequently in other media. We believe that these events and publications enhance our public image and increase brand awareness.

·                   Distribution of Marketing Materials.   Our sales representatives distribute informational brochures, posters and flyers in the vicinity of our

kindergartens or play-and-learn centers.

·                   Cross-Selling.   As we gain footholds in many different markets, we use our presence in one market as an opportunity to advertise our offerings
in other markets. With a variety of products and services aimed at children of different age groups, our goal is to create a brand name that
permeates every stage of a child’s educational progression.

Information Technology

Our technology platform supports the delivery of high-quality educational content to all teaching facilities in our network, and also helps to reduce

our operating costs and empower future growth. We currently use a combination of commercially available and custom developed software and hardware
systems. Our technology platform consists of our facility management system, franchisee management system, digital white board course management
system, and other platforms.

We have developed various mobile applications, including Zhu Dou Parenting , where users can purchase at-home educational content, books and
educational toys; Qingtian Youpin , an e-commerce platform for high-quality maternity and children’s products; and mobile app for kindergartens and p lay-
and-learn centers that keeps parents updated on facility news, course progress updates and updates for their children. We have also created service account
and public account on WeChat to enhance the communications between parents and our directly operated kindergartens and to increase our cross-selling
efforts.

One of our ongoing primary objectives is to maintain reliable systems. We have implemented performance monitoring for all key systems to enable

us to respond quickly to potential problems. Our websites are hosted at cloud servers maintained by a reputable cloud computing service provider.

In addition to continuous development and improvement of our technology infrastructure, we have also upgraded certain technology equipment to

enhance the security of our facilities. For example, we have installed CCTV monitoring system in all of our directly operated kindergartens in PRC.

Intellectual Property

Our brands, trademarks, service marks, copyrights, patents and other intellectual property rights distinguish and protect our course offerings and

services from infringement, and contribute to our competitive advantages. As of March 31, 2020, our intellectual property rights include the following:

·                   487 trademark registrations for our brand and logo in China, among them RYB Kindergarten ( 

  ) and RYB Play-and-learn
  )” by the Trademark Review and Adjudication

Center ( 
Board of the State Administration for Industry and Commerce in China;

  ) have been recognized as “well-known trademarks ( 

·                   879 copyrights for content that we developed in-house;

·                   80 domain names; and

·                   11 patents relating to our educational toys granted in China.

Insurance and Safety

We endeavor to provide a safe environment for children at our teaching facilities. We apply stringent safety standards in the design and construction
of our teaching facilities. We have established and strictly implemented security and safety protocols. Safety is an important factor in the evaluation scale we
apply to the performance of our facility principals and our own management personnel, and we also take into consideration safety maintenance when
deciding whether to renew a franchise agreement with a franchisee or to expand our cooperation with it.

42

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

Our teachers, however, may not follow our safety manual and standards at all times, and any misbehavior by our teachers may cause harm to

children in our teaching facilities. For example, the 2017 Incident caused harm to our students, and the ensuing negative publicity associated with it directly
affected our operation results. As a result of the 2017 Incident, some parents lost confidence in our services, and utilization of the kindergarten involved in the
2017 Incident was directly and negatively impacted, and some franchisees requested to terminate their franchise relationships with us. Subsequent to this
event, we established a special task force under the leadership of our independent directors to conduct a thorough self-inspection across our teaching
facilities. We have taken steps to implement more stringent teacher recruitment requirements, by, among other things, improving teacher training, raising
teacher compensation, and more closely monitoring and providing support to our staff. We have also taken measures to improve the security monitoring and
management system of our teaching facilities. All of our directly operated kindergartens in PRC are now equipped with CCTV monitoring systems. We have
also invited parents to participate in open classes and other efforts aimed at making our facilities safer and more transparent.

With respect to food safety, most of our directly operated kindergartens are now equipped with kitchens to provide meals to our students and others

at our facilities, which reduces the likelihood of food poisoning or food quality incidents on our premises as a result of purchasing food from the outside.

We maintain various insurance policies to safeguard against risks and unexpected events. We have purchased certain liability insurance covering our
directly operated kindergartens and play-and-learn centers. We also provide social security insurance, including pension insurance, unemployment insurance,
work-related injury insurance and medical insurance, to our employees.

We do not maintain business interruption insurance nor do we maintain product liability insurance or key-man insurance. Our management evaluates

the adequacy of our insurance coverage from time to time, and we purchase additional insurance policies as needed.

Competition

The early childhood education market in China is rapidly evolving, highly fragmented and competitive. We face competition in each type of service

and product we offer and in each geographic market where we operate. Our competitors at the national level include VTRON for the kindergarten business
and Combaby and Babycare for the play-and-learn center business, among others.

We believe the principal competitive factors in our business include the following:

·                   brand recognition;

·                   type and quality of education services offered;

·                   ability to effectively tailor service offerings to the needs of children and parents;

·                   ability to control the network;

·                   ability to attract and retain high-quality teachers and managerial talent;

·                   customer satisfaction;

·                   locations with better access to a wider student body; and

·                   price-to-value ratio.

We believe that we compete favorably with our competitors on the basis of the above factors.

Legal Proceedings

We may from time to time be subject to various legal or administrative claims and proceedings arising in the ordinary course of business. For more

information, see “Item 8. Financial Information—A. Consolidated Statements and Other Financial Information—Legal Proceedings.”

43

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

Regulation

This section sets forth a summary of the most significant rules and regulations that affect our business activities in China or our shareholders’ rights

to receive dividends and other distributions from us.

Regulations Relating to Foreign Investment in the PRC

The Foreign Investment Law

On March 15, 2019, the Foreign Investment Law was formally passed by the 13th National People’s Congress and it has taken effect on January 1,

2020. The Foreign Investment Law is the fundamental law for foreign investment in PRC, which replaces the Law on Sino-Foreign Equity joint ventures, the
Law on Sino-Foreign Contractual Joint Ventures and the Law on Foreign-Capital Enterprises as the general law applicable for the foreign investment within
the PRC.

The Foreign Investment Law defines foreign investment as any investment activity directly or indirectly carried out in the PRC by one or more
foreign natural persons, enterprises or other organizations, and specifically stipulates four forms of investment activities as foreign investment, namely,
(i) establishment of a foreign-invested enterprise in the PRC by a Foreign Investor, either individually or collectively with any other investor, (ii) obtaining
shares, equities, assets interests or any other similar rights or interests of an enterprise in the PRC by a foreign investor, (iii) investment in any new
construction project in the PRC by a foreign investor, either individually or collectively with any other investor, and (iv) investment in any other manners
stipulated under laws, administrative regulations or provisions prescribed by the State Council.

The Foreign Investment Law establishes the administration systems for foreign investment, which mainly consists of pre-establishment national

treatment plus negative list, foreign investment information report system and security review system. The said systems, together with other administration
measures stipulated under the Foreign Investment Law, constitute the frame of foreign investment administration. The pre-establishment national treatment
refers to granting to foreign investors and their investments, in the stage of investment access, the treatment no less favorable than that granted to domestic
investors and their investments; the negative list refers to special administrative measures for access of foreign investment in specific fields as stipulate d by
the State. The State will give national treatment to foreign investments outside the negative list. The negative list will be released by or upon approval by the
State Council.

The Foreign Investment Law sets forth principles and measures to promote foreign investment in the PRC and specifically provides that the PRC

legally protects Foreign Investors’ investment, earnings and other legitimate rights and interests in the PRC.

The Foreign Investment Law further provides that foreign-invested enterprises established before the Foreign Investment Law coming into effect

may retain their original form of organizations within five years after the Foreign Investment Law comes into effect.

On December 26, 2019, the State Council issued the Regulations on Implementing the Foreign Investment Law of the PRC, which came into effect

on January 1, 2020 and replaced the Regulations on Implementing the Sino-Foreign Equity Joint Venture Enterprise Law , Provisional Regulations on the
Duration of Sino-Foreign Equity Joint Venture Enterprise Law , the Regulations on Implementing the Wholly Foreign-Owned Enterprise Law and the
Regulations on Implementing the Sino-Foreign Cooperative Joint Venture Enterprise Law.

Catalogue of Industries for Encouraging Foreign Investment (2019 Edition) and Special Administrative Measures for Access of Foreign Investment
(Negative List) (2019)

Under the Catalogue of Industries for Encouraging Foreign Investment (2019 Edition), or the Foreign Investment Catalogue, which was promulgated

by the NDRC and the MOFCOM on June 30, 2019 and became effective on July 30, 2019, foreign-invested industries are classified into two categories,
namely (i) those included on the Catalogue of Industries for Encouraging Foreign Investment and (ii) those included on the Catalogue of Priority Industries
for Foreign Investment in Central and Western China.

The Negative List further reduced restrictions on the foreign investment. After the implementation of the Foreign Investment Catalogue and the
Negative List, the Catalogue for the Guidance of Foreign Investment Industries (2017 Revision) and the Special Administrative Measures for Access of
Foreign Investment (Negative List) (2018 Version) were repealed simultaneously.

44

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

Under the Negative List, the provision of pre-school, ordinary senior high school and higher education services in the PRC is under the category of

restricted industries for foreign investors. Foreign investments in such education institutions are only allowed in the form of Sino-foreign cooperative
educational institutions in which the domestic party shall play a dominant role. It suggests that the principal or the chief executive officer of an education
institutions shall be a PRC national and the representatives of the domestic party shall account for no less than half of the total number of members of the
board of directors, the executive council or the joint administration committee of a Sino-foreign cooperative educational institution.

Regulations on Sino-Foreign Investment in Operating Schools

The Regulation on Operating Sino-foreign Schools and its Implementing Rules apply to the activities of educational institutions established in the
PRC cooperatively by foreign educational institutions and Chinese educational institutions, the students of which are to be recruited primarily among PRC
citizens, and encourage substantial cooperation between overseas educational organizations, with relevant qualifications and experience in providing high-
quality education, and PRC educational organizations to jointly operate various types of schools in the PRC, especially in the areas of higher education and
occupational education. The overseas educational organization must be a foreign educational institution with relevant qualification and high-quality education
ability. It is uncertain what type of information (including duration and type of experience) a foreign investor must provide to the competent PRC government
authority to demonstrate that it meets the qualification requirement. PRC-foreign cooperative schools are not permitted, however, to engage in compulsory
education and military, police, political and other kinds of education that are of a special nature in the PRC. Any PRC-foreign cooperative school and
cooperation program shall be approved by relevant education authorities and obtain an Operation Permit for Sino-foreign Cooperative School, and a Sino-
foreign cooperative school established without the above approval or permit may be prohibited by the relevant authorities, ordered to refund the fees collected
from its students and subjected 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 ordered to refund the fees collected from its students.

Implementation Opinions of the MOE on Encouraging and Guiding the Entry of Private Capital in the Fields of Education and Promoting the Healthy
Development of Private Education

On June 18, 2012, the MOE issued the Implementation Opinions of the MOE on Encouraging and Guiding the Entry of Private Capital in the Fields
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 educational institute must be less than 50 percent.

Regulations Relating to Private Education in the PRC

Education Law of the PRC

On March 18, 1995, the NPC enacted the Education Law of the PRC, which became effective on September 1, 1995, and was amended on
December 27, 2015. This law sets forth provisions relating to the fundamental educational systems of the PRC, including a school education system
comprising preschool education, primary education, secondary education and higher education; a system of nine-year compulsory education; and a national
education examination system. The law stipulates that the government formulates plans for the development of education and establishes and operates
schools and other institutions of education, and, in principle, that 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. The Education Law also stipulates that some basic
conditions must be fulfilled for the establishment of a school or any other educational institution; accordingly, the establishment, modification or termination
of a school or any other education institution shall, in accordance with the relevant PRC laws and regulations, follow specific examination, verification,
approval, registration or filing procedures.

Pursuant to the Education Law of the PRC before the Amended Law for Promoting Private Education becoming effective, no organization or
individual may establish or operate a school or any other education institution for profit-making purposes and accordingly, no private schools shall be
established for profit-making purposes. Pursuant to the Implementation Rules, private schools are classified into three categories, namely, (i) schools
established by donations, (ii) schools whose sponsors do not require reasonable returns and (iii) schools whose sponsors require reasonable returns.

45

 
 
 
 
 
 
 
 
 
 
Table of Contents

On December 27, 2015, the Standing Committee of the PRC National People’s Congress, or the NPC Standing Committee, published the Decision
on Amendment of the Education Law, which became effective on June 1, 2016. The amended Education Law does not include provisions that prohibit any
organization or individual from establishing or operating a school for profit-making purposes.

The Law for Promoting Private Education and its Implementation Rules

On December 28, 2002, the NPC Standing Committee promulgated the Law for Promoting Private Education, or the Private Education Law, which

became effective on September 1, 2003, and was amended on June 29, 2013. On March 5, 2004, the PRC State Council promulgated the Implementation
Rules for the Law for Promoting Private Education, or the PE Implementation Rules, which became effective on April 1, 2004. The Private Education Law
and the PE Law Implementation Rules provide rules for social organizations or individuals to establish schools or other educational organizations using
nongovernment funds in the PRC; such schools or educational organizations established using nongovernment funds are referred to as “private schools.”

Under the Private Education Law and PE Implementation Rules, private education is deemed a public welfare undertaking, and entities and

individuals who establish private schools are commonly referred to as “sponsors,” instead of “investors” or “shareholders.” The establishment of a private
school shall meet the local need for educational development and the requirements of the Education Law and the relevant laws and regulations. The standards
for the establishment of private schools shall be commensurate with those for the establishment of public schools of the same grade and category. In addition,
the establishment of private schools providing academic qualifications education, kindergarten education, education for self-study examination and other
cultural education shall be subject to approval by the education authorities at or above the county level, while the establishment of private schools engaging in
vocational qualification training and vocational skill training shall be subject to approval by the authorities in charge of labor and social welfare at or above
the county level. A duly approved private school will be granted a permit for operating a private school and shall be registered in accordance with relevant
laws and regulations. According to the Interim Regulations on Registration Administration of Private Non-enterprise Units promulgated by the State Council
and became effective on October 25, 1998, private non-enterprise units, which referred to social organizations which are established by enterprises,
institutions, associations or other civil entities as well as individual citizens using non-state assets and conduct not-for-profit social service activities, shall be
registered with the Ministry of Civil Affairs of the PRC or its local counterparts above the county level as a private non-enterprise unit.

Under the above regulations, private schools have the same legal status as public schools, though private schools are prohibited from providing

military, police, political and other kinds of education which are of a special nature. The operations of a private school are highly regulated.

The Amendment to the Law for Promoting Private Education

On November 7, 2016 , the Decision of the Standing Committee of the National People’s Congress on Amending the Law for Promoting Private

Education of the PRC was promulgated by Order No. 55 of the President of the PRC, or the Amended Law for Promoting Private Education, which became
effective on September 1, 2017. On 29 December 2018, the Decision of the Standing Committee of the National People’s Congress on Amending the Seven
Laws of the Labor Law of the PRC was promulgated by Order No. 24 of the President of the PRC and took into effect on the same date, which made two
minor adjusts to Article 26 and Article 64 of the Amended Private Education Promotion Law.

The Amended Law for Promoting Private Education establishes a new classification system for private schools. Private schools are now classified

by whether they are established and operated for profit-making purposes. Under the Amended Law for Promoting Private Education, sponsors of private
schools that are not engaged in compulsory education may choose to establish not-for-profit or for-profit private schools at their own discretion. School
sponsors of for-profit private schools are allowed to get income from the operation of the school, and the balance of running such schools is permitted to be
handled in accordance with the PRC Company Law and other relevant laws and administrative regulations. School sponsors of not-for-profit private schools
are prohibited from getting income from the operation of the schools, and the balance of running such schools may only be used for the operation of other
not-for-profit schools. Furthermore, the remaining assets upon liquidation of for-profit private schools are permitted to be handled in accordance with the
relevant provisions of the PRC Company Law and that of not-for-profit private schools may only be used for the operation of other not-for-profit schools.
For-profit private schools are entitled to make their own decisions about collection of fees in accordance with the market situation, while collection of fees for
not-for-profit private schools shall be subject to concrete measures to be promulgated by the provincial, autonomous regional or municipal government. In
addition, private schools are entitled to preferential tax policies and land policies in accordance with PRC laws, with the emphasis that not-for-profit private
schools shall enjoy preferential tax policies and land policies equivalent to those applicable to public schools.

46

 
 
 
 
 
 
 
 
 
Table of Contents

If the school sponsors of private schools established prior to the promulgation date of this decision choose to register and operate their schools as

not-for-profit private schools, they shall cause the school to amend its articles of association in accordance with this decision and continue the school
operation pursuant to such revised articles of association. Furthermore, upon the termination of such not-for-profit private schools, the government authority
may grant some compensation or reward to the school sponsors who have made capital contributions to such school from the remaining assets of such schools
upon their liquidation and may then apply the rest of the assets to the operation of other not-for-profit private schools. If the school sponsors of private
schools established prior to the promulgation date of this decision choose to register and operate their schools as for-profit private schools, the schools shall
go through some procedures including but not limited to conducting financial settlement, defining the property right, paying relevant taxes and expenses and
making renewed registration, the details of which shall be subject to concrete measures to be promulgated by the provincial, autonomous regional or
municipal government.

On December 29, 2016, the State Council issued the Several Opinions of the State Council on Encouraging the Operation of Education by Social

Forces and Promoting the Healthy Development of Private Education, which require, among other things, access to the operation of private schools and the
encouragement of social forces to enter into the education industry. The State Council Opinions also provide that each level of the people’s government shall
increase its support to private schools in terms of financial investment, financial support, autonomous policies, preferential tax treatments, land policies, fee
policies, autonomous operation and protection of teachers’ and students’ rights. The opinions further require each level of the people’s government to
improve its local policies on governmental support to for-profit and not-for-profit private schools by way of, among others, preferential tax treatments.

On December 30, 2016, the MOE, the Ministry of Civil Affairs, the State Administration of Industry and Commerce of the PRC, or SAIC, the

Ministry of Human Resources and Social Security, or MOHRSS, and the State Commission Office of Public Sectors Reform jointly issued the
Implementation Rules on the Classification Registration of Private Schools, reflecting the new classification system for private schools as set out in the
Amended Law for Promoting Private Education. Pursuant to these implementation rules, if a private school established before the promulgation of the
Amended Law for Promoting Private Education chooses to be registered as a not-for-profit school, it shall amend its articles of association, continue its
operation and complete the new registration procedure. If such a private school chooses to be registered as a for-profit school, it shall conduct the financial
settlement process, have the property rights of its assets such as lands, school buildings and net balance being authenticated by relevant governmental
authorities. In addition, such a private school shall pay the relevant taxes, apply for a new private school operation permit, and apply to be transformed into a
limited liability company and registered as a for-profit school and continue its operation.

On December 30, 2016, the MOE, SAIC and the MOHRSS jointly issued the Implementation Rules on the Supervision and Administration of For-
profit Private Schools, pursuant to which the establishment, division, merger, termination and other material changes of a for-profit private school shall first
be reported by the board of directors of the relevant school to and get approvals from the relevant authorities, and subsequently be registered with the
competent branch of SAIC.

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

In addition to the Amended Private Education Promotion Law and the rules above mentioned, more implementing regulations will be introduced to

further provide detailed requirements for the operation of not-for-profit and for-profit private schools:

·                   the amendment to the Implementation Rules for the Law on the Promotion of Private Education of the PRC;

47

 
 
 
 
 
 
 
 
Table of Contents

·                   the local regulations relating to legal entity registration of for-profit and nonprofit private schools; and

·                   the specific measures to be formulated and promulgated by the competent authorities responsible for the administration of private schools in the
provinces in which our schools are located, including but not limited to the specific measures for registration of pre-existing private schools, the
specific requirements for authenticating various parties’ property rights and payment of taxes and fees of for-profit private schools, taxation
policies for for-profit private schools and measures for collection of not-for-profit private schools’ fees.

Draft for Review

On April 20, 2018, the MOE released for public consultation purposes the MOE Draft for Comments, namely, the Implementing Regulations for the

Law for Promoting Private Education of the PRC (the Draft Revision) (the Consultation Version), and its explanatory notes. The consultation period for
public comments has ended on May 20, 2018.

On August 10, 2018, the MOJ released for public consultation purpose the MOJ Draft for Review, namely, the “Implementing Regulations for the

Law for Promoting Private Education of the PRC (Revised Draft) (the “Draft for Review”), and its explanatory notes. The Draft for Review is a revised
version of the MOE Draft for Comments, for public consultation purposes. The consultation period for public comments has ended on September 10, 2018.

The Draft for Review makes certain significant changes to certain provisions of the 2004 Implementing Regulations, which may affect the private

schools. Details of such changes are as follows:

·                   Article 5: Foreign-invested enterprises established in China and social organizations whose controllers are foreign parties shall not sponsor, or

participate in the establishment of or control private schools which provides compulsory education in China;

·                   Article 12: A social organization, if simultaneously sponsors or actually controls more than one private school or implements group-oriented

operations of schools, shall be qualified as a legal person, and the funds, personnel, organizations and other conditions and abilities suitable for
carrying out the activities of running schools, and shall be responsible for the management and supervision of its private schools. Group-based
education institution shall not control nonprofit private schools through mergers and acquisition, franchise, agreement or any other similar
manner; and

·                   Article 45: Related party transactions entered into by private schools shall be open, fair and just and shall not harm national interests, interest of

the school or the rights and interests of the teachers and students.

Private schools shall set up an information disclosure system to deal with related parties. The educational administrative department and the human

resources and social security departments shall strengthen supervision of the agreements signed between not-for-profit private schools and their related
parties, and if these agreements involve major interests or will be performed over a long period of time and repetitively, they shall examine and audit the
necessity, legality and compliance of these agreements. When the executive council, the board of directors or decision-making body in other forms deliberates
on the transactions with related parties, the members of the decision-making body who have an interest in such transactions shall abstain from voting and may
not exercise their voting rights on behalf of other members.

Opinions of the CPC Central Committee and State Council on Deepening Reform in Preschool Education

On November 7, 2018, the Central Committee of the Communist Party of China and the State Council promulgated the Opinions of the CPC Central

Committee and State Council on Deepening Reform in Preschool Education, or the Reform Opinions, which provides, among others, that (i) private
kindergartens forming part or all of the assets of a listing vehicle are prohibited from listing on stock markets; (ii) non-governmental capital is prohibited
from controlling state-owned or collectively-owned kindergartens and not-for-profit kindergartens by ways of mergers and acquisitions, entrusted
management, franchising, variable interest entities arrangements, or other forms of control agreements; (iii) for-profit kindergartens which participate in
acquisitions, franchising or chain operation shall file with education departments of the county level or above and make available to the public agreements
entered into with relevant interested enterprises; (iv) listed companies are prohibited from investing in for-profit kindergartens through financing through
stock markets, and should not purchase assets of for-profit kindergartens by cash, issuance of shares or other similar means; and (v) provincial legislative
bodies should promulgate implementing measures by June 2019 with regard to the election of private kindergartens to be registered as not-for-profit or for-
profit schools and specify time-frame requirements for such registration.

48

 
 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

Circular on Initiating the Rectification of Kindergartens Affiliated to Residential Communities in Urban Areas

On January 9, 2019, the General Office of the State Council issued the Circular on Initiating the Rectification of Kindergartens Affiliated to

Residential Communities in Urban Areas, or Circular on Initiating the Rectification, according to which the completed community-affiliated kindergartens
should be handed over to the local education authorities. Those which are not handed over to the local education authorities should complete this procedure
within a limited time, and those are used for other purposes shall be taken back by the local education authorities. After the existing community-affiliated
kindergartens been handed over to local education authorities, they shall be held by local education authorities as public kindergartens or turn into inclusive
kindergartens operated by authorized social parties. The community-affiliated kindergartens shall be not-for-profit.

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

The Interim Measures for the Management of the Collection of Private Education Fees were 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 these measures and
the Implementation Rules for the Law for Promoting Private Education, the types and amounts of fees charged by a private school providing academic
qualifications education shall be examined by education authorities or labor and social welfare authorities and approved by the governmental pricing
authority. A private school that provides nonacademic qualifications education shall file its pricing information with the governmental pricing authority and
publicly disclose such information. If a school raises its tuition levels without obtaining the proper approval or making the requisite filings with the relevant
government pricing authorities, the school will be required to return the additional tuition fees obtained through such tuition increase and become liable for
compensation of any losses caused to the students in accordance with relevant PRC laws. From January 1, 2016, pursuant to the Notice on the Cancellation of
the Fee Charge Permit System and Strengthening the Supervision, which was jointly promulgated by the NDRC and the Ministry of Finance on January 9,
2015, the annual review system for Fee Charge Permit Certificates shall be abolished nationwide from January 1, 2015, and the system of Fee Charge Permit
Certificates shall be abolished nationwide from January 1, 2016. Accordingly, our kindergartens are not required to apply for or renew any Fee Charge Permit
Certificate after January 1, 2016.

On October 12, 2015, the State Council and the Central Committee of the Communist Party of China jointly issued Certain Opinions of the Central
Committee of the Communist Party of China and the State Council on Promoting the Price Mechanism Reform, which allows for-profit private schools to set
their tuition fees on their own, while the tuition-collecting policies of not-for-profit private schools shall be determined by the provincial governments in a
market-oriented manner, taking into account local circumstances.

Regulations on Safety and Health Protection of Schools

Pursuant to the Food Safety Law of the PRC, which was amended on December 29, 2018 and became effective on December 29, 2018, collective

canteens of schools and kindergartens shall obtain licenses in accordance with law and strictly abide by all laws, regulations and food safety standards.
Schools and kindergartens should only order meals from off-site providers that have obtained the relevant food production licenses and should conduct
regular inspections of the meals provided.

In accordance with the Regulation on the Management of Food Safety and Nutritional Health in Schools, which was promulgated on February 20,

2019, became effective on April 1, 2019, school (including kindergartens) concentrated dining should follow the principle of prevention first, full process
monitoring, territorial management, school implementation. Schools (including kindergartens) should regard the food safety as an important part of school
safety work, establish and implement relevant food safety management systems and work requirements, and organize regular inspections of food safety
hazards. Kindergartens should establish a centralized meal catering system, and equipped with full-time(part-time) food safety managers and nutrition and
health managers.

49

 
 
 
 
 
 
 
 
 
Table of Contents

According to the Circular on Strengthening Hygiene and Epidemic Prevention and Food Hygiene and Safety of Private Schools, which was
promulgated on April 29, 2006, private schools should pay high attention to and strengthen schools’ hygiene and epidemic prevention and food hygiene and
safety.

According to the Administrative Measures for the Safety of Kindergartens and Primary and Middle Schools, which were promulgated on June 30,

2006 and became effective on September 1, 2006, schools should strictly implement Regulations on Hygiene Administration of School Canteens and
Collective Provision of Meals for Students and Standards on Hygiene of Catering Industry and Delivery Entity of Collective Dining, and should strictly
comply with the hygiene operation norms. In order to ensure the hygiene and safety of food and beverages for teachers and students, schools should
(a) establish a system of procurement of canteen supplies from designated suppliers, (b) request for and retain the necessary certificates during the
procurement process, (c) spot check food quality and maintain records, and (d) examine the hygiene of the food-serving area and the safety of drinking water.

Pursuant to the Circular on Further Strengthening Food Safety of School Canteens issued on August 11, 2011, school canteens are comprehensively

required to carry out food safety self-inspections. Local food and drug administrations at all levels are required to comprehensively strengthen supervision
and inspection on food safety of school canteens before commencement of each term, and, before the commencement of every spring term and every autumn
term, should consider school canteens as key points of supervision and strengthen their supervision and inspection. The school food safety responsibility
system should be comprehensively carried out.

According to the Law on the Protection of Minors of the PRC, which was amended on October 26, 2012 and became effective in January 2013,

schools, kindergartens and nurseries shall establish a safety system, improve safety education among minors and adopt measures to guarantee their personal
safety.

In accordance with the Regulation on Safety Management of Middle and Primary Schools and Kindergartens, which was promulgated on June 30,

2006 and became effective on September 1, 2006, schools shall be responsible for safety management and education, and for establishing and improving
internal safety management systems and safety emergency response mechanisms, incorporating safety education into their educational content and carrying
out safety education among students.

According to the Regulation on Sanitary Work of Schools, which was promulgated on June 4, 1990 and became effective on the same day, schools

shall carry out sanitary work. The main tasks of the sanitary work include monitoring health conditions of students, carrying out health education among
students, helping students develop good health habits, improving health environment and health conditions for teachers and enhancing prevention and
treatment of infectious disease and common diseases among students.

Regulations on Qualifications of Teachers

Pursuant to the Implementation Rules for the Law on the Promotion of Private Education of the PRC, teachers employed by a private school shall

have the qualifications specified for teachers and meet the conditions provided for in the Teachers Law and the other relevant laws and regulations, and there
shall be a definite number of full-time teachers in a private school. Pursuant to the Teachers Law of the PRC issued by Standing Committee of the NPC, the
Teachers Law shall apply to teachers specifically engaged in education and teaching at schools of various levels and categories or other institutions of
education. “Schools of various levels and categories” refers to the schools that carry out pre-school education, ordinary primary education, ordinary
secondary education, vocational education, ordinary higher education, special education or adult education, and “other institutions of education” refers to
ShaoNianGong, local teaching, research offices and the institutions that conduct audio-visual education.

In addition, pursuant to the Teachers Law, the relevant provisions of the Teachers Law may be applied mutatis mutandis in the light of the actual

conditions to the educational and teaching assistants of schools or other institutions of education, as well as teachers and the educational and teaching
assistants of schools of other categories.

Regulations Relating to Management of Kindergartens

On September 11, 1989, the MOE issued the Kindergarten Management Regulations, which took effect on February 1, 1990. The Kindergarten

Management Regulations provide some basic principles for the establishment and management of kindergartens enrolling children aged three years and older,
and call for local regulations following such principles. On the one hand, according to the Kindergarten Management Regulations, establishment of a
kindergarten shall meet certain requirements, taking into consideration the following factors: (1) safety and sanitary conditions of the locations and facilities,
(2) professional qualifications of the teaching and administrative staff, (3) financial capacity of the sponsors, and (4) procedures for approval by competent
authorities. On the other hand, the Kindergarten Management Regulations set out provisions on the operation and management of a kindergarten, including:
(1) educational practice shall be suitable for the children’s developments; (2) no corporal punishment is allowed; (3) sanitation and hygiene rules and safety
protection system shall be made and followed; and (4) financial management shall be enhanced to prevent inappropriate applications of the kindergarten
funding. Any entity or person who violates the Kindergarten Management Regulations could be penalized by the MOE.

50

 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

Regulations Relating to Licenses for Value-Added Telecommunications Services

On September 25, 2000, the State Council issued the Regulations on Telecommunications of China, or the Telecommunications Regulations, which

was amended on February 6,2016, to regulate telecommunications activities in China. The Telecommunications Regulations divide telecommunications
services into two categories, namely “infrastructure telecommunications services” and “value-added telecommunications services.” Pursuant to the
Telecommunications Regulations, operators of value-added telecommunications services must first obtain a Value-added Telecommunications Business
Operating License, or a VAT License, from the Ministry of Industry and Information Technology, or MIIT, or its provincial level counterparts. The
Administrative Measures for Telecommunications Businesses Operating Licensing was promulgated by the MIIT on March 1, 2009 and amended on July 3,
2017, which set forth more specific provisions regarding the types of licenses required to operate value-added telecommunications services, the qualifications
and procedures for obtaining such licenses and the administration and supervision of such licenses.

According to the Catalog of Classification of Telecommunications Businesses effective from April 1, 2003, Internet information services, also called
Internet content services, or ICP services, are deemed to be a type of value-added telecommunications services. On December 28, 2015, the MIIT published a
revised Catalog of Classification of Telecommunication Business, or the 2015 MIIT Catalog, which took effect on March 1, 2016, and was amended on
June 6, 2019. According to the 2015 MIIT Catalog, Internet information services, which include information release and delivery services, information search
and query services, information community platform services, information real-times interactive services, and information protection and processing services,
continue to be classified as a category of value-added telecommunication services. The Administrative Measures on Internet Information Services, or ICP
Measures, also promulgated by the PRC State Council on September 25, 2000 and amended on January 8, 2011, set forth more specific rules on the provision
of ICP services. According to the ICP Measures, any company that engages in the provision of commercial ICP services shall obtain a sub-category VAT
License for Internet Information Services, or ICP license, from the relevant government authorities before providing any commercial Internet content services
within the PRC; when the ICP services involve areas of news, publication, education, medical treatment, health, pharmaceuticals and medical equipment, and
if required by law or relevant regulations, specific approval from the respective regulatory authorities must be obtained prior to applying for the ICP License
from the MIIT or its provincial level counterpart. Pursuant to the above mentioned regulations, “commercial ICP services” generally refers to provision of
specific information content, online advertising, web page construction and other online application services through Internet for profit making purposes.

Regulations Relating to Franchise Businesses

On February 6, 2007, the State Council promulgated the Regulation on the Administration of Commercial Franchises, which became effective on

May 1, 2007. This regulation requires that any enterprise engaging in trans-provincial franchise business shall register with the Ministry of Commerce, or the
MOC, and any enterprise engaging in franchise business within one province shall register with the provincial counterpart of the MOC. The Administrative
Measures for the Filing of Commercial Franchises, which was promulgated by the MOC on April 30, 2007 and amended on December 12, 2011 set forth in
detail the procedures and documents required for such filing, including, among other things, the franchise agreement entered into with the franchisee, the
franchise market plan and trademarks and patents relating to the franchise.

Regulations Relating to Publication Distribution

Under the Administrative Measures for the Publication Market, or Publication Market Measures, which were jointly promulgated by SAPPRFT and

the Ministry of Commerce and became effective on June 1, 2016, any enterprise or individual who engages in publication distribution activities shall obtain
permission from SAPPRFT or its local counterpart. “Publication” is defined as “books, newspapers, periodicals, audio-video products, and electronic
publications,” and “distributing” is defined as “general distribution, wholesale, retail, rental, exhibition and other activities,” respectively, in the Publication
Market Measures. Any enterprise or individual that engages in retail distribution of publications shall obtain a Publication Business Operating License issued
by the local counterpart of SAPPRFT at the county level. In addition, any enterprise or individual that holds a Publication Business Operating License must
make filings with the relevant local counterpart of SAPPRFT that granted such license to it within fifteen days of beginning to carry out any online
publication distribution business.

51

 
 
 
 
 
 
 
 
Table of Contents

Regulations Relating to Intellectual Property in the PRC

Copyright

Pursuant to the Copyright Law of the PRC, copyrights include personal rights such as the right of publication and that of attribution as well as
property rights such as the right of production and that of 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, unless otherwise provided in
the Copyright Law of the PRC, shall constitute infringements of copyrights. The infringer shall, according to the circumstances of the case, undertake to
cease the infringement, take remedial action, and offer an apology, pay damages, etc.

Trademark

Pursuant to the Trademark Law of the PRC, 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 such trademark has been approved. The period of validity of a registered trademark shall be ten
years, counted from the day the registration is approved. According to this law, using a trademark that is identical to 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 of the exclusive
right to use a registered trademark. The infringer shall, in accordance with the regulations, undertake to cease the infringement, take remedial action, and pay
damages, etc.

Patent

Pursuant to the Patent Law of the PRC, after the grant of the patent right for an invention or utility model, except where otherwise provided for in

the Patent Law, no entity or individual may, without the authorization of the patent owner, exploit the patent, that is, make, use, offer to sell, sell or import the
patented product, or use the patented process, or use, offer to sell, sell or import any product which is a direct result of the use of the patented process, for
production or business purposes. And after a patent right is granted for a design, no entity or individual shall, without the permission of the patent owner,
exploit the patent, that is, for production or business purposes, manufacture, offer to sell, sell, or import any product containing the patented design. Where
the infringement of patent is decided, the infringer shall, in accordance with the regulations, undertake to cease the infringement, take remedial action, and
pay damages, etc.

Domain Name

Pursuant to the Measures for the Administration of Internet Domain Names, “domain name” shall refer to the character mark of hierarchical
structure, which identifies and locates a computer on the Internet and corresponds to IP address of that computer. And the principle of “first come, first serve”
is followed for the domain name registration service. After completing the domain name registration, the applicant becomes the holder of the domain name
registered by him/it.

Regulations Relating to Labor Protection in the PRC

According to the Labor Law of the PRC, or the Labor Law, which was promulgated by the Standing Committee of the NPC on July 5, 1994, came

into effect on January 1, 1995, and was amended on August 27, 2009 and on December 29, 2018, an employer shall develop and improve its rules and
regulations to safeguard the rights of its workers. An employer shall develop and improve its labor safety and health system, stringently implement national
protocols and standards on labor safety and health, conduct labor safety and health education for workers, guard against labor accidents and reduce
occupational hazards. Labor safety and health facilities must comply with relevant national standards. An employer must provide workers with the necessary
labor protection gear that complies with labor safety and health conditions stipulated under national regulations, as well as provide regular health checks for
workers that are engaged in operations with occupational hazards. Laborers engaged in special operations shall have received specialized training and have
obtained the pertinent qualifications. An employer shall develop a vocational training system. Vocational training funds shall be set aside and used in
accordance with national regulations and vocational training for workers shall be carried out systematically based on the actual conditions of the company.

52

 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

The Labor Contract Law of the PRC, which was promulgated by the SCNPC on June 29, 2007, came into effect on January 1, 2008, and was

amended on December 28, 2012, and the Implementation Regulations on Labor Contract Law, which was promulgated on September 18, 2008, and became
effective since the same day, regulate both parties through a labor contract, namely the employer and the employee, and contain specific provisions involving
the terms of the labor contract. It is stipulated under the Labor Contract Law and the Implementation Regulations on Labor Contract Law that a labor contract
must be made in writing. An employer and an employee may enter into a fixed-term labor contract, an un-fixed term labor contract, or a labor contract that
concludes upon the completion of certain work assignments, after reaching agreement upon due negotiations. An employer may legally terminate a labor
contract and dismiss its employees after reaching agreement upon due negotiations with the employee or by fulfilling the statutory conditions. Labor contracts
concluded prior to the enactment of the Labor Law and subsisting within the validity period thereof shall continue to be honored. With respect to a
circumstance where a labor relationship has already been established but no formal contract has been made, a written labor contract shall be entered into
within one month from the effective date of the Labor Contract Law.

According to the Interim Regulations on the Collection and Payment of Social Insurance Premiums, the Regulations on Work Injury Insurance, the

Regulations on Unemployment Insurance and the Trial Measures on Employee Maternity Insurance of Enterprises, enterprises in the PRC shall provide
benefit plans for their employees, which include basic pension insurance, unemployment insurance, maternity insurance, work injury insurance and basic
medical insurance. An enterprise must provide social insurance by processing social insurance registration with local social insurance agencies, and shall pay
or withhold relevant social insurance premiums for or on behalf of employees. The Law on Social Insurance of the PRC, which was promulgated on
October 28, 2010, and became effective on July 1, 2011, has consolidated pertinent provisions for basic pension insurance, unemployment insurance,
maternity insurance, work injury insurance and basic medical insurance, and has elaborated in detail the legal obligations and liabilities of employers who do
not comply with relevant laws and regulations on social insurance.

According to the Interim Measures for Participation in the Social Insurance System by Foreigners Working within the Territory of China, which was

promulgated by the Ministry of Human Resources and Social Security on September 6, 2011, and became effective on October 15, 2011, employers who
employ foreigners shall participate in the basic pension insurance, unemployment insurance, basic medical insurance, occupational injury insurance, and
maternity leave insurance in accordance with the relevant law, with the social insurance premiums to be contributed respectively by the employers and
foreigner employees as required. In accordance with such Interim Measures, the social insurance administrative agencies shall exercise their right to supervise
and examine the legal compliance of foreign employees and employers and the employers who do not pay social insurance premiums in conformity with the
laws shall be subject to the administrative provisions provided in the Social Insurance Law and the relevant regulations and rules mentioned above.

According to the Regulations on the Administration of Housing Provident Fund, which was promulgated and became effective on April 3, 1999, and

was amended on March 24, 2002, housing provident fund contributions by an individual employee and housing provident fund contributions by his or her
employer shall belong to the individual employee.

The employer shall timely pay up and deposit housing provident fund contributions in full amount and late or insufficient payments shall be
prohibited. The employer shall process housing provident fund payment and deposit registrations with the housing provident fund administration center. With
respect to companies who violate the above regulations and fail to process housing provident fund payment and deposit registrations or open housing
provident fund accounts for their employees, such companies shall be ordered by the housing provident fund administration center to complete such
procedures within a designated period. Those who fail to process their registrations within the designated period shall be subject to a fine ranging from
RMB10,000 to RMB50,000. When companies breach these regulations and fail to pay up housing provident fund contributions in full amount as due, the
housing provident fund administration center shall order such companies to pay up within a designated period, and may further apply to the People’s Court
for mandatory enforcement against those who still fail to comply after the expiry of such period.

53

 
 
 
 
 
 
Table of Contents

On September 18, 2018, the general meeting of State Council announced that the policies for social insurance shall remain unchanged until the
reform has been completed for the transfer of the authority for social insurance from the Ministry of Human Resources and Social Security to the State
Administration of Taxation on January 1, 2019. On September 21, 2018, the Ministry of Human Resources and Social Security released an Urgent Notice on
Enforcing the Requirement of the General Meeting of the State Council and Stabilization the Levy of Social Insurance Payment and required that the policies
for both the rate and basis of social insurance contributions shall remain unchanged until the reform on the transfer of the authority for social insurance has
been completed. On November 16, 2018, the State Administration of Taxation released the Notice of Certain Measures on Further Supporting and Serving the
Development of Private Economy, which provided that the policy for social insurance shall remain stable and the State Administration of Taxation will
pursue to lower the social insurance contribution rates with the relevant authorities, and ensure the overall burden of social insurance contribution on
enterprises will be lowered.

Regulations Relating to Tax in the PRC

Income Tax

The PRC Enterprise Income Tax Law took effect on January 1, 2008 and amended on February 24, 2017 and amended on December 29, 2018. . The
PRC Enterprise Income Tax Law applies a uniform 25 percent enterprise income tax rate to both foreign-invested enterprises and domestic enterprises, except
where tax incentives are granted to special industries and projects. Under the PRC Enterprise Income Tax Law and its implementation regulations, dividends
generated from the business of a PRC subsidiary after January 1, 2008, and payable to its foreign investor may be subject to a withholding tax rate of 10
percent if the PRC tax authorities determine that the foreign investor is a Non-resident Enterprise, unless there is a tax treaty with China that provides for a
preferential withholding tax rate. Distributions of earnings generated before January 1, 2008, are exempt from PRC withholding tax.

Under the PRC Enterprise Income Tax Law, an enterprise established outside China with “de facto management bodies” within China is considered

a “resident enterprise” for PRC enterprise income tax purposes and is generally subject to a uniform 25 percent enterprise income tax rate on its worldwide
income. A circular issued by the State Administration of Taxation in April 2009 regarding the standards used to classify certain Chinese-invested enterprises
controlled by Chinese enterprises or Chinese enterprise groups and established outside of China as “resident enterprises” clarified that dividends and other
income paid by such PRC “resident enterprises” will be considered PRC-source income and subject to PRC withholding tax, currently at a rate of 10 percent,
when paid to non-PRC enterprise shareholders. This circular also subjects such PRC “resident enterprises” to various reporting requirements with the PRC
tax authorities. Under the implementation regulations to the PRC Enterprise Income Tax Law, a “de facto management body” is defined as a body that has
material and overall management and control over the manufacturing and business operations, personnel and human resources, finances and properties of an
enterprise. In addition, the tax circular mentioned above specifies that certain PRC-invested overseas enterprises controlled by a Chinese enterprise or a
Chinese enterprise group in the PRC will be classified as PRC resident enterprises if the following are located or resided in the PRC: (i) senior management
personnel and departments that are responsible for daily production, operation and management; (ii) financial and personnel decision making bodies; (iii) key
properties, accounting books, the company seal, and minutes of board meetings and shareholders’ meetings; and (iv) half or more of the senior management
or directors who have the voting rights.

On February 3, 2015, the SAT issued the Announcement of the State Administration of Taxation on Several Issues Concerning the Enterprise

Income Tax on Indirect Property Transfer by Non-resident Enterprises, or SAT Bulletin 7. SAT Bulletin 7 extends its tax jurisdiction to capture transactions
involving transfer of immovable property in China and assets held under the establishment, and placement in China, of a foreign company through the
offshore transfer of a foreign intermediate holding company. SAT Bulletin 7 also addresses transfer of the equity interest in a foreign intermediate holding
company broadly. In addition, SAT Bulletin 7 provides criteria on how to assess reasonable commercial purposes and introduces safe harbor scenarios
applicable to internal group restructurings. However, it also brings challenges to both the foreign transferor and transferee of the Indirect Transfer as they
have to assess on whether the transaction should be subject to PRC tax and to file or withhold the PRC tax accordingly.

On October 17, 2017, the SAT issued the Announcement of the State Administration of Taxation on Issues Concerning the Withholding of

Nonresident Enterprise Income Tax at Source, or SAT Bulletin 37, which came into effect on December 1, 2017. The SAT Bulletin 37 further clarifies the
practice and procedure of the withholding of non-resident enterprise income tax.

54

 
 
 
 
 
 
 
 
Table of Contents

Where non-resident investors were involved in our private equity financing, if such transactions were determined by the tax authorities to lack

reasonable commercial purpose, we and our non-resident investors may be at risk of being required to file a return and be taxed under SAT Bulletin 7 and/or
SAT Bulletin 37 and we may be required to expend valuable resources to comply with SAT Bulletin 7 and/or SAT Bulletin 37 or to establish that we should
not be held liable for any obligations under SAT Bulletin 7 and/or SAT Bulletin 37.

According to Notice of the Ministry of Finance and the State Administration of Taxation on Tax Policies Relating to Education, or Circular 39,

schools established by government are not required to pay Enterprise Income Tax, or EIT on fees they have collected upon approval and have incorporated
under the fiscal budget management or the special account management of the funds outside the fiscal budget. Schools are not required to pay EIT on the
financial allocations they have received and special subsidies they have obtained from their administrative departments or institutions at higher levels.
Nonetheless, our main business is the operation of kindergartens, which is not explicitly exempted from the requirement to pay EIT under Circular 39, and we
have paid our EIT for our income generated in 2018.

According to the Amended Law for Promoting Private Education, private schools will be entitled to preferential tax treatments, among which not-
for-profit private schools will be entitled to the same preferential tax treatment as public schools, and taxation policies for for-profit private schools after the
Amended Law for Promoting Private Education takes effect are yet to be announced.

Other Tax Exemptions

According to Circular 39, the real properties and land used by schools, nurseries and kindergartens established by enterprises shall be exempt from

house property tax and urban land use tax. Schools expropriating arable land upon approval shall be exempt from arable land use tax. Schools and educational
institutions established by any enterprises, government affiliated institutions, social groups or other social organizations or individuals and citizens with non-
state fiscal funds for education and open to the public upon the approval of the administrative department for education or for labor of the relevant people’s
government at the county level or above which has also issued the relevant school running license, shall be exempted from deed tax on their ownership of
land and houses used for teaching activities.

Value-Added Tax

Pursuant to the Provisional Regulations on Value-Added Tax of the PRC last amended on 19 November 2017, and its Implementation

Rules promulgated by the Ministry of Finance, or the MOF and last amended on 28 October 2011, tax payers engaging in sale of goods, provision of
processing services, repairs and replacement services, sales of services, intangible assets or real property, or importation of goods within the territory of the
PRC shall pay value-added tax, or the VAT.

On 16 November 2011, the MOF and the SAT jointly promulgated the Pilot Plan for Levying Value-Added Tax in lieu of Business Tax. Starting

from 1 January 2012, the PRC Government has been gradually implementing a pilot program in certain provinces and municipalities, to levy a 6% VAT on
revenue generated from modern service industries in lieu of the business tax.

The Measures for the Exemption of Value-Added Tax from Cross-Border Taxable Activities in the Collection of Value-Added Tax in Lieu of

Business Tax (for Trial Implementation), which was promulgated on 6 May 2016 by the SAT, and revised according to the Notice of State Administration of
Taxation on Revising Some Normative Documents on Taxation on 15 June 2018, provides that if a domestic enterprise provides cross-border taxable
activities such as professional technology services, technology transfer, software service etc., the above mentioned cross-border taxable activities shall be
exempted from the VAT.

On 23 March 2016, the MOF and the SAT jointly issued the Circular of Full Implementation of Business Tax to Value-added Tax Reform, which

confirms that business tax will be completely replaced by the VAT from 1 May 2016.

Pursuant to Notice of the Ministry of Finance and the State Administration of Taxation on Adjusting Value-added Tax Rates issued by the MOF and
SAT on 4 April 2018 and effective on 1 May 2018, the applicable VAT for VAT-taxable sales activities or imported goods are adjusted respectively from 17%
and 11% to 16% and 10%.

55

 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

In accordance with Ministry of Finance, General Administration of Taxation, General Administration of Customs Announcement No. 39 of 2019,

the applicable VAT for VAT-taxable sales activities or imported goods are adjusted respectively from 16% to 13% since April 1, 2019.

Regulations Relating to Foreign Exchange

Foreign Currency Exchange

Pursuant to the Foreign Currency Administration Rules, as amended, and various regulations issued by the SAFE and other relevant PRC

government authorities, Renminbi is freely convertible to the extent of current account items, such as trade related receipts and payments, interest and
dividends. Capital account items, such as direct equity investments, loans and repatriation of investment, unless expressly exempted by laws and regulations,
still require prior approval from SAFE or its provincial branch for conversion of Renminbi into a foreign currency, such as U.S. dollars, and remittance of the
foreign currency outside of the PRC. Payments for transactions that take place within the PRC must be made in Renminbi. Foreign currency revenues
received by PRC companies may be repatriated into China or retained outside of China in accordance with requirements and terms specified by SAFE.

Dividend Distribution

Wholly foreign-owned enterprises and Sino-foreign equity joint ventures in the PRC may pay dividends only out of their accumulated profits, if any,

as determined in accordance with PRC accounting standards and regulations. Additionally, these foreign-invested enterprises may not pay dividends unless
they set aside at least 10 percent of their respective accumulated profits after tax each year, if any, to fund certain reserve funds, until such time as the
accumulative amount of such fund reaches 50 percent of the enterprise’s registered capital. In addition, these companies also may allocate a portion of their
after-tax profits based on PRC accounting standards to employee welfare and bonus funds at their discretion. These reserves are not distributable as cash
dividends.

Regulations on loans to and direct investment in PRC entities by offshore holding companies

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

On January 11, 2017, the People’s Bank of China promulgated the Circular of the People’s Bank of China on Matters relating to the Macro-

prudential Management of Comprehensive Cross-border Financing, or PBOC Circular 9, which took effect on the same date. The PBOC Circular 9
established a capital or net assets-based constraint mechanism for cross-border financings. Under such mechanism, a company may carry out cross-border
financings in Renminbi or foreign currencies at their own discretion. The total cross-border financings of a company shall be calculated using a risk-weighted
approach and shall not exceed an upper limit. The upper limit is calculated as capital or assets multiplied by a cross-border financing leverage ratio and
multiplied by a macro-prudential regulation parameter.

In addition, according to PBOC Circular 9, as of the date of the promulgation of PBOC Circular 9, a transition period of one year is set for foreign-

invested enterprises and during such transition period, foreign-invested enterprises may apply either the current cross-border financing management mode,
namely the mode provided by Implementation Rules for the Provisional Regulations on Statistics and Supervision of Foreign Debt and the Interim Provisions
on the Management of Foreign Debts, or the mode in this PBOC Circular 9 at its sole discretion. After the end of the transition period, the cross-border
financing management mode for foreign-invested enterprises will be determined by the People’s Bank of China and SAFE after assessment based on the
overall implementation of this PBOC Circular 9.

56

 
 
 
 
 
 
 
 
 
 
 
Table of Contents

According to applicable PRC regulations on foreign-invested enterprises, the foreign exchange capital of foreign-invested enterprises shall be

subject to the Discretional Foreign Exchange Settlement. The term “Discretional Foreign Exchange Settlement” refers to the foreign exchange capital in the
capital account of an foreign-invested enterprise for which the rights and interests of monetary contribution has been confirmed by the local foreign exchange
bureau (or the book-entry registration of monetary contribution by the banks) can be settled at the banks based on the actual operational needs of the foreign-
invested enterprise. The proportion of Discretional Foreign Exchange Settlement of the foreign exchange capital of a foreign-invested enterprise is
temporarily determined as 100%. The Renminbi converted from the foreign exchange capital will be kept in a designated account and if a foreign-invested
enterprise needs to make further payment from such account, it still needs to provide supporting documents and go through the review process with the banks.

Regulations Relating to Employee Stock Incentive Plan of Overseas Publicly-Listed Company

Pursuant to the Notice on Issues Concerning the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plan of

Overseas Publicly Listed Company, or Circular 7, issued by the SAFE in February 2012, employees, directors, supervisors and other senior management
participating in any stock incentive plan of an overseas publicly listed company who are PRC citizens or who are non-PRC citizens residing in China for a
continuous period of not less than one year, subject to a few exceptions, are required to register with the SAFE through a domestic qualified agent, which
could be a PRC subsidiary of such overseas listed company, and complete certain other procedures. If we fail to complete the SAFE registrations, such failure
may subject us to fines and legal sanctions and may also limit our ability to contribute additional capital into our wholly foreign-owned subsidiary in China
and limit such subsidiary’s ability to distribute dividends to us.

In addition, the State Administration for Taxation has issued certain circulars concerning employee share options or restricted shares. Under these
circulars, the employees working in the PRC who exercise share options or are granted restricted shares will be subject to PRC individual income tax. The
PRC subsidiaries of such overseas listed company have obligations to file documents related to employee share options or restricted shares with relevant tax
authorities and to withhold individual income taxes of those employees who exercise their share options. If the employees fail to pay or the PRC subsidiaries
fail to withhold their income taxes according to relevant laws and regulations, the PRC subsidiaries may face sanctions imposed by the tax authorities or other
PRC government authorities.

C.                                     Organizational Structure

The following chart illustrates our company’s organizational structure, including our significant subsidiaries and consolidated affiliated entities :

57

 
 
 
 
 
 
 
Table of Contents

(1)          Messrs. Chimin Cao and Yanlai Shi are beneficial owners of the shares of RYB Education, Inc. and hold 28.18% and 14.59% equity interests in Beijing

RYB, respectively. Messrs. Chimin Cao and Yanlai Shi are also directors of our company.

(2)          Beijing RYB, directly or through its subsidiaries, is the sole sponsor of 91 out of 118 of our directly operated kindergartens. In addition to these 91

kindergartens, we also had 9 directly operated kindergartens in China and 18 directly operated kindergartens in Singapore as of December 31, 2019, all
of which are sponsored or controlled by Precious Companion Group Limited or its subsidiaries.

The following is a summary of the currently effective contractual arrangements by and among RYB Technology, our wholly-owned subsidiary,

Beijing RYB, our consolidated affiliated entity, and the shareholders of Beijing RYB. We also consolidate two additional entities that are not material to our
overall operation through similar contractual arrangements.

58

 
 
 
 
 
Table of Contents

Agreements that provide us with effective control over Beijing RYB

Business Operation Agreement.   Pursuant to the amended and restated Business Operation Agreement among RYB Technology, Beijing RYB and

the 29 aforementioned shareholders of Beijing RYB, Beijing RYB and those shareholders agree that, without prior written consent of RYB Technology,
Beijing RYB will not take any action that may have material adverse effects on its businesses, assets, human resources, rights, obligations, or business
operations. Beijing RYB and those shareholders further agree that they will accept and strictly follow RYB Technology’s instructions in relation to Beijing
RYB’s daily operations, financial management, and election of directors appointed by RYB Technology. Those shareholders agree to transfer any dividends
or any other income or interests they receive as the shareholders of Beijing RYB immediately and unconditionally to RYB Technology. Unless RYB
Technology terminates this agreement in advance, this agreement will remain effective for ten years. Upon request by RYB Technology, parties to this
agreement shall extend the term of this agreement prior to its expiration. Beijing RYB and those shareholders have no right to terminate this agreement
unilaterally.

Power of Attorney.   Each of the 29 aforementioned shareholders of Beijing RYB has signed power of attorney with RYB Technology to irrevocably

authorize RYB Technology or any person(s) designated by RYB Technology to act as his or her attorney-in-fact to exercise all of his or her rights as a
shareholder of Beijing RYB, including, but not limited to, the right to convene shareholders’ meetings, vote and sign any resolution as a shareholder, appoint
directors, supervisors and officers, amend articles of association, as well as the right to sell, transfer, pledge and dispose of all or a portion of the shares held
by such shareholder. The power of attorney will remain in force for 10 years. Upon request by RYB Technology, parties to this agreement shall extend the
term of this agreement prior to its expiration.

Spousal Consent.   Spouses of 20 shareholders of Beijing RYB, who collectively holds 98.69% equity interest, have each signed a spousal consent
letter. Under the spousal consent letters, each signing spouse acknowledges that the shares of Beijing RYB held by the relevant shareholder of Beijing RYB
are the personal assets of such shareholder and not jointly owned by the couple. Each signing spouse also unconditionally and irrevocably gives up his or her
rights to such shares and any associated economic rights or interests to which he or she may be entitled pursuant to applicable laws and undertakes not to
make any assertion of rights to such shares and the underlying assets. Each signing spouse agrees and undertakes that he or she will not carry out in any
circumstances any conducts that are contradictory to the contractual arrangements and this consent letter.

Equity Pledge Agreement.   Pursuant to the Equity Pledge Agreement among RYB Technology, Beijing RYB and the 29 aforementioned
shareholders of Beijing RYB, those shareholders have pledged 99.88% equity interest in Beijing RYB to RYB Technology to guarantee the performance by
Beijing RYB and its shareholders of their obligations under the business operation agreement, the power of attorney, the equity disposal agreement and the
exclusive consultation and service agreement. If Beijing RYB or those shareholders breach their contractual obligations under these agreements, RYB
Technology, as pledgee, will have the right to dispose of the pledged equity interests in Beijing RYB and will have priority in receiving the proceeds from
such disposal. Those shareholders also agree that, during the term of the equity pledge agreement, they will not dispose of the pledged equity interests or
create or allow any encumbrance on the pledged equity interests. We have completed registering the equity pledge with the relevant office of Administration
for Industry and Commerce in accordance with the PRC Property Rights Law.

Agreement that allows us to receive economic benefits from Beijing RYB

Exclusive Consultation and Service Agreement.   Pursuant to the amended and restated Exclusive Consultation and Service Agreement among RYB

Technology, Beijing RYB and the 29 aforementioned shareholders of Beijing RYB, RYB Technology or its designated person has the exclusive right to
provide Beijing RYB with education-related services and consulting and other services. Without RYB Technology’s prior written consent, Beijing RYB may
not accept any services subject to this agreement from any third party. RYB Technology has the right to determine the service fee to be charged to Beijing
RYB under this agreement by considering, among other things, the complexity of the services, the actual cost that may be incurred for providing such
services, as well as the value and comparable price on the market of the service provided. RYB Technology will have the exclusive ownership of all
intellectual property rights created as a result of the performance of this agreement. Beijing RYB also granted RYB Technology an irrevocable and exclusive
right to purchase part or all of Beijing RYB’s assets at the lowest price permitted by the PRC laws. To guarantee Beijing RYB’s performance of this
agreement, upon request from RYB Technology, Beijing RYB shall pledge or mortgage part or all of its accounts receivable and part or all of its assets to
RYB Technology. Unless RYB Technology terminates this agreement in advance, this agreement will remain effective for ten years. Upon request by RYB
Technology, parties to this agreement shall extend the term of this agreement prior to its expiration. Other parties to this agreement may not terminate this
agreement unilaterally. Certain kindergartens that elected not-for-profit status, pursuant to the Law on the Promotion of Private Education as disclosed in Item
4. Information on the Company—B. Business Overview—Regulation—Regulations Relating to Private Education in the PRC— The Amendment to the Law
for Promoting Private Education, are not within the scope of this agreement. Those kindergartens engage Beijing RYB and its subsidiaries as their exclusive
operational consultants through a separate set of exclusive consultation and service arrangements. The terms are substantially similar to the aforementioned
agreement between Beijing RYB and RYB Technology.

59

 
 
 
 
 
 
 
 
Table of Contents

Agreement that provides us with the option to purchase the equity interests in Beijing RYB

Equity Disposal Agreement.   Pursuant to the amended and restated Equity Disposal Agreement among RYB Technology, Beijing RYB and the 29
aforementioned shareholders of Beijing RYB, those shareholders irrevocably granted RYB Technology or any third party designated by RYB Technology an
exclusive option to purchase all or part of their equity interests in Beijing RYB at the lowest price permitted by applicable PRC laws. Those shareholders
further undertake that they will neither create any pledge or encumbrance on their equity interests in Beijing RYB, nor transfer, gift or otherwise dispose of
their equity interests in Beijing RYB to any person other than RYB Technology or its designated third party. Without RYB Technology or its designated third
party’s prior written consent, those shareholders agree not to, among other things, amend its articles of association, permit Beijing RYB to enter into
transactions which materially and adversely affect Beijing RYB’s assets, liabilities, business operations, equity interests and other legal interests, or merge
with any other entities or make any investments, or distribute dividends. This agreement will remain effective for ten years. Upon request by RYB
Technology, the parties to this agreement shall extend the term of this agreement.

In the opinion of Commerce & Finance Law Offices, our PRC legal counsel:

·                   the ownership structures of RYB Technology and Beijing RYB are in compliance with PRC laws or regulations currently in effect; and

·                   the contractual arrangements among RYB Technology, Beijing RYB, and the shareholders of Beijing RYB, governed by PRC law, are valid and

binding under PRC law, and do not and will not result in any violation of applicable PRC laws or regulations currently in effect.

However, there are substantial uncertainties regarding the interpretation and application of current and future PRC laws, regulations and rules.

Accordingly, the PRC regulatory authorities may in the future take a view that is contrary to or otherwise different from the above opinion of our PRC legal
counsel. If the PRC government finds that the agreements that establish the structure for operating our early childhood education business do not comply with
PRC government restrictions on foreign investment in education businesses, the operation of kindergartens, we could be subject to severe penalties, including
being prohibited from continuing operations. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure—If the PRC
government decides that the agreements that establish the structure for operating certain of our operations in China do not comply with PRC regulations
relating to the relevant industries, or if these regulations or the interpretation of existing regulations change in the future, we could be subject to severe
penalties or be forced to relinquish our contracts or other interests in those operations” and “—Risks Related to Doing Business in China—Uncertainties with
respect to the PRC legal system could adversely affect us.”

D.                                     Property, Plant and Equipment

As of December 31, 2019, we leased office space and facilities for our directly operated teaching facilities in China and Singapore with an aggregate

gross floor area of approximately 377,673 square meters. Our leases have terms of 1 to 20 years. The areas of our leased premises are based on figures
specified in the relevant land use right certificates or lease agreements, where available, or our operational records. We lease properties from third parties on
an as-is basis. A majority of our directly operated kindergartens are located on leased premises designated for educational use.

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 in conjunction with our consolidated

financial statements and the related notes included elsewhere in this annual report on Form 20-F. This discussion may contain forward-looking statements
based upon current expectations 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 under “Item 3. Key Information—D. Risk Factors” or in other parts of this annual report
on Form 20-F.

60

 
 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

A.                                     Operating Results

Major Factors Affecting Our Results of Operations

Our business and operating results are affected by factors affecting China and Singapore’s early childhood education industry generally. We have

benefited from the rapid economic growth, significant urbanization and higher per capita disposable income of urban households in China, which has allowed
many Chinese parents to spend more on their children’s education. Similarly, given the stable economic growth, adequate government support, and steadfast
family spending on education in Singapore, we see our Singapore operations as a solid step forward in dedicating our continuous efforts in improving and
expanding our educational offerings globally.

Fluctuations in birth rate of China and Singapore may have some impact on our student enrollment. A higher birth rate could increase our potential

customer base, while declining birth rates could hint at a shrunken potential customer base.

At the same time, our results are subject to changes in the education industry regulatory regimes in China and Singapore. The PRC and the

government of Singapore regulates various aspects of our business and operations, including the qualification and licensing requirements for entities that
provide education services, standards for the operations of teaching facilities and foreign investments in the education industry.

As with other education service providers, our quarterly business and operating results are affected by seasonality. Due to the winter holidays and

summer vacation, we typically have lower net revenues in the first and third calendar quarters.

While our business is influenced by factors affecting the early childhood education in China and Singapore generally, we believe our results of

operations are more directly affected by company-specific factors, including the following major factors.

Size of Our Network and Student Enrollment

Our revenue growth is primarily driven by the expansion of our network in terms of the number of our directly operated facilities, student enrollment

at those facilities and the number of franchise facilities. We derive a large portion of our revenues from tuition fees, which are primarily driven by student
enrollment at our directly operated facilities. With respect to our franchise facilities, our revenues from initial franchise fees are mainly affected by the
number of new franchisees, while revenues from recurring franchise fees are primarily driven by the total number of franchisees. As our network and student
enrollment grow in size, we are also generally able to sell more education-related products through our network. In addition, we believe that our large scale
strengthens our brand, which in turn boosts further growth.

Our ability to increase the size of our network and student enrollment depends on factors including our brand recognition, parents’ demand for high-
quality early childhood education, our ability to leverage the scalability of our franchise business model and to attract and retain more franchisees, the ability
of us and our franchisees to successfully launch new teaching facilities, the quality of our services and products as well as the ability of us and our franchisees
to respond to competition and achieve high utilization rates.

We have achieved steady growth in recent years. Our directly operated facilities increased from 85 as of December 31, 2017 to 101 as of
December 31, 2018, and 144 as of December 31, 2019, including 44 in Singapore as of December 31, 2019. We had 21,684, 23,627 and 30,806 students
enrolled at our directly operated facilities as of December 31, 2017, 2018, and 2019, respectively, including 4,998 in Singapore as of December 31, 2019. The
number of our franchise kindergartens and student care centers increased from 210 as of December 31, 2017 to 247 as of December 31, 2018, and further to
258 as of December 31, 2019, including 8 in Singapore as of December 31, 2019. The total number of our directly operated and franchise play-and-learn
centers increased from 953 as of December 31, 2017 to 1,102 as of December 31, 2018, and further to 1,158 as of December 31, 2019. We expect the size of
our network and our student enrollment to continue to grow steadily.

61

 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

Ability to Increase Tuition Fees

The level of tuition fees we charge at our directly operated kindergartens and student care centers affects our profitability. We aim to charge tuition

fees commensurate with the quality and level of our education services while considering the general income level of the relevant neighborhood and the
popularity of our facilities where we have discretion. We seek to gradually increase our tuition fee level without compromising our student enrollment. After
years of development, we are generally able to charge higher fees with our mature facilities within our network than when they were in their initial ramp-up
period. Due to economic disparity across different regions in China and Singapore, the geographical mix of our directly operated facilities can also affect our
overall tuition fee level. Our tuition fees cannot exceed the maximum amounts on file with the local governmental pricing authorities.

We may elect to qualify our kindergartens within PRC as either for-profit or not-for-profit private schools under the framework of the Amended Law
for Promoting Private Education. According to the Amended Law for Promoting Private Education, for-profit private schools have the discretion to determine
the amount of their tuition fees without the need for governmental approval while fee levels at not-for-profit private schools will remain subject to approval.
Those two types of private schools will also have different tax treatments. Due to uncertainties regarding the local implementation measures of the Amended
Law for Promoting Private Education across China, we plan to analyze and determine whether to qualify all or part of our directly operated kindergartens as
for-profit kindergartens. Furthermore, as certain of our kindergartens were established in the form of “inclusive kindergartens,” where tuitions are determined
by local educational regulators for public interest needs, it is not clear whether such inclusive kindergartens will be eligible for for-profit treatment. See also
“Item 4. Information on the Company—B. Business Overview—Regulation—Regulations Relating to Private Education in the PRC—The Amendment to the
Law for Promoting Private Education.”

Regulatory environment of privat e education and preschool education in China

We operate in a challenging regulatory environment. Private education in China, particularly the preschool sector, is subject to a set of complex and

evolving laws, rules and regulations. We may have to adjust our business operations and acquisition strategies from time to time in order to remain fully
compliant with the most current laws and regulations, which could materially affect our operating results. For example, the Reform Opinions stipulates that
public companies are not allowed to invest in for-profit kindergartens by way of financing through capital market or acquire assets of for-profit kindergartens
through cash payment or share issuance, which could prohibit us from investing in any for-profit kindergartens through financing through capital market or
acquiring assets of for-profit kindergartens through cash payments or share issuance. The Reform Opinions also stipulates that social capital is not allowed to
control not-for-profit kindergartens or kindergartens that are sponsored by state-owned assets or collectively-owned assets through ways such as mergers and
acquisitions, which could restrict us from conducting any acquisitions of not-for-profit kindergartens.

Many of the rules regulating the preschool education industry are issued by the central government in the form of high-level opinion or guidance

document. To ensure legal compliance, however, we have to interpret the opinion and guidance documents in the most stringent ways the government
authorities may interpret and enforce, which may require us to expend significant resources to adjust our business operations, thus affecting our operating
results. For risk relating to the challenging regulatory environment, see “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business—New
Legislations and changes in the PRC regulatory requirement regarding private education and preschool education in countries where we operate may
materially affect our business operations and prospects.”

Moreover, we are exposed to public scrutiny, and our potential customers, usually parents of young children, are particularly sensitive to news

relating to the safety and compliance of our kindergartens. If our facilities or operations are perceived by parents as unsafe or in violation of any relevant
laws, rules, or regulations, student enrollment is likely to be negatively affected.

Ability to Improve Our Operating Efficiency and Profitability

Our cost of revenues mainly consists of costs and expenses for our directly operated kindergartens. Costs and expenses of a kindergarten is typically
affected by its capacity, which is determined by the number of classes that can be feasibly set up on the facility, and the number of students in each class. We
normally assign two teachers and one nursery aide to each class, and regardless of its size, a kindergarten is required to have staff in nursery, security, kitchen
and general management areas. As such, variable costs such as compensation to teaching staff generally increase with the addition of new classes, and fixed
costs such as compensation to all other facility staff, costs and expenses to sustain the running of the facility, rental and related payments and depreciation and
amortization remain relatively stable. An increase in the number of new directly operated kindergartens in the overall mix of directly operated kindergartens
may place a constraint on our operating efficiency.

62

 
 
 
 
 
 
 
 
 
 
Table of Contents

Gross margin of our directly operated kindergartens, which represents profit before income tax for kindergarten as all costs and expenses for the
running of the kindergartens are charged to our cost of revenues, has a significant impact on our overall profitability. In general, larger kindergartens with
more classes operating at higher utilizations and charging premium prices yield higher gross margin.

Scope and Quality of Our Product Offerings and Services

High-quality course offerings and learning experience at our directly operated kindergartens help increase their popularity. The scope and quality of
our course offerings and the effectiveness of our franchisees’ services also have an impact on the competitiveness of our franchisees’ teaching facilities. As a
result, high-quality course offerings and franchise support help us to better attract and retain franchisees and the scope of our course offerings determines, in a
certain degree, our level of ongoing training fees. Furthermore, we can more effectively recruit and retain other business partners with kindergarten course
content that is designed to address their needs. The diversity and quality of our educational merchandise that we sell directly affect the sales volume of these
products, which is also a major component of our revenue.

Impact of COVID-19 On Our Operations

The majority of our net revenues are derived from tuition fees from kindergartens, student care centers and play-and-learn centers. Our results of
operations and financial conditions in 2020 will be affected by the COVID-19 pandemic. The extent to which COVID-19 impacts our results of operations
will depend on the future development of the outbreak, including the global severity and duration of the pandemic and actions taken to contain the outbreak,
which remain highly uncertain and unpredictable as of the date of this annual report. Our results of operations will also be affected to the extent that the
outbreak harm the Chinese economy in general.

In connection with the heightened efforts to contain or delay the spread of COVID-19, the local, regional, and national governments took a number

of unprecedented public actions to limit or ban public interactions, which included extending the Chinese New Year holiday in China, quarantining
individuals infected with or suspected of having COVID-19, prohibiting residents from free travel, encouraging working remotely from home, cancelling
public activities and prohibiting public aggregation, among others. The COVID-19 pandemic has resulted in temporary suspension of operation of most of
our facilities as requirement by the government. In response, we have taken a series of measures, including taking preventive measures to ensure the health
and safety of our students and staff at our facilities, introducing online educational content to facilitate home-based education and holding parent-teacher
meetings online to proactively communicate our crisis relief plan and effectively retain students, among others. Despite these efforts, the impact of COVID-
19 pandemic may likely adversely affect our financial condition and results of operations.

Key Components of Results of Operations

Net Revenues

Our net revenues include tuition fees generated from kindergarten services, student care services and play-and-learn center services, franchising fees,

sale of educational merchandise, royalty fees and training and other services. We provide private kindergarten services, student care services and play-and-
learn center services to students and charge tuition fees. We recorded US$100.7 million, US$117.1 million and US$147.4 million in tuition fees from our
directly operated facilities in 2017, 2018 and 2019, respectively. Tuition fees are collected in advance and are initially recorded as deferred revenue and
recognized ratably over the course of the programs.

We generate franchise fees through the provision of initial setup services as well as ongoing franchisee support services. At the start of each
franchise relationship, we charge the franchisee a one-time initial franchise fee, the first-year annual franchise fee and the initial merchandise fee. During the
term of the franchise, we charge each franchisee recurring annual franchise fees for the use of our brand and core course materials and one advice session per
year. We recorded US$13.5 million, US$14.4 million and US$12.3 million in franchise fees in 2017, 2018 and 2019, respectively.

63

 
 
 
 
 
 
 
 
 
 
 
Table of Contents

We generate training and other services revenues through provision of services such as training to our franchisees and their teaching staff, as well as

other services. We recorded US$7.7 million, US$7.2 million and US$6.2 million from training and other services provided to franchise business in 2017,
2018 and 2019, respectively.

We generate royalty fees through course licensing and provision of educational merchandise, kindergarten operational services, training and other

advisory services through other business partners to the kindergartners beyond our directly operated and franchised kindergartens. We recorded US$0.9
million, US$0.6 million and US$0.3 million in royalty fees in 2017, 2018 and 2019, respectively.

We generate educational merchandise revenue through the sale of educational merchandise, including educational toys, teaching aids, textbooks and

other goods, to our franchisees for them to further distribute and also directly to a vast market of families. We recorded US$17.9 million, US$17.3 million
and US$16.1 million from the sale of educational merchandise to our franchisees and end-users in 2017, 2018 and 2019, respectively.

The following table sets forth the breakdown of our net revenues, both in absolute amount and as a percentage of our total net revenues, for the

periods presented.

2017

US$

%

Year Ended December 31,
2018

US$

%

(in thousands, except for percentages)

2019

US$

%

Services:

Tuition fees from kindergartens, student

care centers and play-and-learn
centers
Franchise fees
Training and other services
Royalty fees

Products:

Sale of educational merchandise

Total net revenues

Cost of Revenues

100,745
13,537
7,703
884
122,869

17,934
140,803

71.6%
9.6%
5.5%
0.6%
87.3%

12.7%
100%

117, 080
14,365
7,161
610
139,216

17,282
156,498

74.8%
9.2%
4.6%
0.4%
89.0%

11.0%
100%

147,417
12,269
6,156
341
166,183

16,100
182,283

80.9%
6.7%
3.4%
0.2%
91.2%

8.8%
100%

Our cost of revenues related to tuition fees from our directly operated facilities consists primarily of all costs and expenses in the operation of all of

our directly operated facilities. Such costs and expenses primarily include ( i) compensation to facility staff, (ii) facility rental cost, (iii) food and supplies
cost, (iv) all other costs and expenses incurred to run and maintain our facilities and (v) depreciation and amortization. Compensation to our facility staff
consists of base salaries, performance-based bonuses and share-based and other compensation to them. Facility staff mainly includes principals and other
managers of our teaching facilities, teachers, nursery aides and administrative staff. Most of our facility staff are our own employees. We normally assign two
teachers and one nursery aide to each kindergarten class. Our food and supplies cost represents the cost of the raw ingredients for the meals and cost of raw
materials for the educational products we provide at our directly operated teaching facilities. We expect our facility staff cost and ingredient and raw material
cost to be in line with the size of our business. We expect the amount of our facility rental cost to continue to increase as we grow. Our depreciation and
amortization cost relates to the depreciation charges of the furniture, fixtures and equipment used in rendering teaching services, the leasehold improvement
for our teaching facilities, and amortization charges of the acquired intangible assets. As we further expand our directly operated facilities network, we expect
such cost to increase in absolute amounts.

Our cost of revenues relating to our franchise fees mainly consists of compensation to our franchise service and supervision team members for (

i) the signing and onboarding of new franchisees, (ii) the support and services to franchisees for their facility establishment, marketing and operation
optimization and (iii) ongoing quality supervision. As we continue to expand our franchise network and employ more staff for our franchise service and
supervision team, we expect our franchisee support and service cost to increase in absolute amounts.

64

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
  
  
  
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
  
  
  
  
 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

Our cost of revenues relating to sale of merchandise consists of the cost of educational toys, teaching aids, textbooks and other goods and our cost of

revenues relating to training and other services mainly consists of the costs and expenses incurred for the provision of training and other services for
franchisees.

Selling Expenses

Our selling expenses primarily consist of advertising, marketing and brand promotion expenses as well as compensation to our selling personnel. We

expect that our selling expenses will continue to increase in absolute amounts as we continue to market our products and services and expand into new
geographic regions but will remain relatively stable as a percentage of our net revenues.

General and Administrative Expenses

Our general and administrative expenses mainly consist of ( i) compensation to our management, administrative and R&D personnel, including base

salaries, performance-based bonuses and share-based and other compensation, (ii) rental expenses for administrative facilities and (iii) professional service
expense. We expect that our general and administrative expenses will increase in absolute amounts in the foreseeable future as we incur additional costs for
becoming and being a public company but will in time decrease as a percentage of our net revenues as we continue to benefit from economies of scale and
improve our operating efficiency.

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

Operating expenses:
Selling expenses
General and administrative expenses

Total operating expenses

 Results of Operations

2017

US$

%

Year Ended December 31,
2018

US$

%

(in thousands, except for percentages)

2019

US$

%

1,774
18,418
20,192

1.3%
13.0%
14.3%

2,233
26,428
28,661

1.4%
16.9%
18.3%

2,808
23,775
26,583

1.5%
13.1%
14.6%

The following table sets forth a summary of our consolidated results of operations for the periods presented, both in absolute amount and as a

percentage of our net revenues for the periods presented. This information should be read together with our consolidated financial statements and related
notes included elsewhere in this annual report. The results of operations in any period are not necessarily indicative of our future trends.

65

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
  
  
  
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

Net Revenues
Services

Tuition fees from

kindergartens, student care
centers and play-and-learn
centers
Franchise fees
Training and other services
Royalty fees

Products

Sale of education merchandise

Total net revenues
Cost of revenues

Services
Products

Total cost of revenues
Gross profit
Operating expenses
Selling expenses
General and administrative

expenses

Total operating expenses
Operating income (loss)
Interest income
Government subsidy income
(Loss) gain on disposal of

subsidiaries

Income before income taxes
Income tax expenses
Income (loss) before loss in equity

method investments
Loss from equity method

investments
Net income (loss)

2017

US$

%

Year Ended December 31,
2018

US$

%

(in thousands, except for percentages)

2019

US$

%

100,745
13,537
7,703
884

17,934
140,803

101,522
9,755
111,277
29,526

1,774

18,418
20,192
9,334
563
863

(168)
10,592
3,812

6,780

(239)
6,541

71.6%
9.6%
5.5%
0.6%

12.7%
100.0%

72.1%
6.9%
79.0%
21.0%

1.3%

13.0%
14.3%
6.6%
0.4%
0.6%

(0.1)%
7.5%
2.7%

4.8%

(0.2)%
4.6%

117, 080
14,365
7,161
610

17,282
156,498

121,549
9,315
130,864
25,634

2,233

26,428
28,661
(3,027)
2,147
683

1,234
1,037
2,459

(1,422)

(291)
(1,713)

74.8%
9.2%
4.6%
0.4%

11.0%
100.0%

77.6%
6.0%
83.6%
16.4%

1.4%

16.9%
18.3%
(1.9)%
1.4%
0.4%

0.8%
0.7%
1.6%

(0.9)%

(0.2)%
(1.1)%

147,417
12,269
6,156
341

16,100
182,283

147,669
7,865
155,534
26,749

2,808

23,775
26,583
166
858
499

492
2,015
3,541

(1,526)

(664)
(2,190)

80.9%
6.7%
3.4%
0.2%

8.8%
100.0%

81.0%
4.3%
85.3%
14.7%

1.5%

13.1%
14.6%
0.1%
0.5%
0.3%

0.3%
1.1%
1.9%

(0.8)%

(0.4)%
(1.2)%

The following table lists our net revenue and cost of revenues by reportable segment for the periods indicated, and financial data has been

retrospectively presented to give effect to the current structure.

66

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
  
  
  
  
 
  
  
  
  
  
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
  
  
  
  
 
 
 
 
 
 
 
 
 
  
  
  
  
  
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
  
  
  
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

Net revenues

PRC Kindergartens
PRC Play-and-learn centers
Singapore kindergartens, student care centers and others
Others

Total net revenues
Cost of revenues

PRC Kindergartens
PRC Play-and-learn centers
Singapore kindergartens, student care centers and others
Others

Total cost of revenues
Gross profit

PRC Kindergartens
PRC Play-and-learn centers
Singapore kindergartens, student care centers and others
Others

Total gross profit

2017

Years Ended December 31,
2018
(in thousands of US$)

2019

105,679
29,871
—
5,253
140,803

88,281
18,129
—
4,867
111,277

17,398
11,742
—
386
29,526

124,175
26,777
—
5,546
156,498

108,140
15,694
—
7,030
130,864

16,035
11,083
—
(1,484)
25,634

131,427
24,901
19,073
6,882
182,283

113,315
14,269
16,200
11,750
155,534

18,112
10,632
2,873
(4,868)
26,749

Year Ended December 31, 2019 Compared to Year Ended December 31, 2018

Net Revenues

Our net revenues increased by 16.5% from US$156.5 million in 2018 to US$182.3 million in 2019. This increase was primarily attributable to a

US$30.3 million increase in tuition fees from our directly operated kindergartens, play-and-learn centers and student care centers.

Our directly operated facilities increased from 101 in 2018 to 144 in 2019, with the student enrollment at our directly operated facilities increased
from 23,627 as of December 31, 2018 to 30,806 as of December 31, 2019. The increase in our student enrollment was mainly driven by higher utilization
rates at ramping facilities and contribution from our Singapore operations.

Our revenues from franchise fees decreased by 14.6% from US$14.4 million in 2018 to US$12.3 million in 2019, as franchise fee revenue in 2018

was relatively high due to the recording of an accounting estimate change.

Our revenues from the sale of educational merchandise decreased by 6.8% from US$17.3 million in 2018 to US$16.1 million in 2019. This decrease

was primarily due to a decrease in the amount of merchandise sold through our franchise network.

Cost of Revenues

Our cost of revenues increased by 18.9% from US$130.9 million in 2018 to US$155.5 million in 2019, primarily due to an increase in staff

compensation and higher operating cost, such as rental and material consumption as the Company continued to moderately expand its facilities network.

Gross profit and gross margin

As a result of the factors set out above, our gross profit increased by 4.3% from US$25.6 million in 2018 to US$26.7 million in 2019. Gross margin
decreased from 16.4% in 2018 to 14.7% in 2019. The decrease in our gross margin was primarily due to increase in staff compensation and operating costs as
the Company continued to moderately expand its facilities network and decrease in franchise fees revenue.

67

 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

Operating Expenses

Our selling expenses increased by 25.8% from US$2.2 million in 2018 to US$2.8 million in 2019. This increase was generally in line with the

increase of our net revenue. Selling expenses constituted 1.4% and 1.5% of our net revenues in 2018 and 2019, respectively.

Our general and administrative expenses decreased by 10.0% from US$26.4 million in 2018 to US$23.8 million in 2019. This decrease was mainly

contributed by the decrease of share-based compensation expenses and our stringent cost control measures.

Operating Income/(loss)

We had US$3.0 million operating loss in 2018, and US$0.2 million operating income in 2019, respectively.

Government Subsidies

We recognized US$0.7 million and US$0.5 million in government subsidies for 2018 and 2019, respectively. Government subsidies consist mainly

of compensation to certain of our directly operated kindergartens, “inclusive kindergartens”, where tuition is determined by local educational authorities.
Government subsidies granted to specific kindergartens to subsidize their rental and teacher training costs were recorded to offset the cost of revenues when
the conditions were met. For the years ended December 31, 2018 and 2019, US$1.1 and US$6.0 million were recognized as reduction of cost of revenues,
respectively.

Income Tax Expenses

Our income tax expenses increased from US$2.5 million in 2018 to US$3.5 million in 2019, primarily due to increase in taxable income.

Net Loss

As a result of the foregoing, we had net loss of US$1.7 million in 2018 and net loss of US$2.2 million in 2019, respectively.

Year Ended December 31, 2018 Compared to Year Ended December 31, 2017

Net Revenues

Our net revenues increased by 11.1% from US$140.8 million in 2017 to US$156.5 million in 2018. This increase was primarily attributable to a

US$16.3 million increase in tuition fees from our directly operated kindergartens and play-and-learn centers.

Our directly operated kindergartens increased from 85 in 2017 to 101 in 2018 as we further expanded our network and the student enrollment at our

directly operated kindergartens increased from 21,684 as of December 31, 2017 to 23,627 as of December 31, 2018. The increase in our student enrollment
was attributable to new facility openings as well as higher utilization rates at existing ones as their operations mature. We also increased the number of our
facilities through acquisitions. Tuition levels at our kindergartens remain stable when comparing to 2017.

Our revenues from franchise fees increased by 6.1% from US$13.5 million in 2017 to US$14.4 million in 2018. This increase was mainly due to the
recognition of initial franchise fee revenue over the service period as the Company adopted Topic 606 “Revenue from Contracts with Customers” (ASC 606)
applying the modified retrospective method to franchise contracts starting January 1, 2018. As of December 31, 2018, we had 1,343 franchise teaching
facilities, a 16.2% increase from 1,156 as of December 31, 2017. Even though as at the end of 2018, the total number of franchise teaching facilities increased
comparing to last year end, the revenue increased from franchise fees was offset by the halt of the kindergarten franchise program and of the play-and-learn
franchise expansion during the first half of 2018, as well as lower revenue generated from existing franchisees related to a one-off fee reduction at the
beginning of 2018.

Our revenues from the sale of educational merchandise slightly decreased by 3.6% from US$17.9 million in 2017 to US$17.3 million in 2018.

68

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

Cost of Revenues

Our cost of revenues increased by 17.6% from US$111.3 million in 2017 to US$130.9 million in 2018, primarily due to a planned increase in staff
compensation at the Company’s directly operated kindergartens and higher operating cost as the Company continued to moderately expand its kindergarten
facilities network.

Gross Profit and Gross Margin

As a result of the factors set out above, our gross profit decreased by 13.2% from US$29.5 million in 2017 to US$25.6 million in 2018. Gross

margin decreased from 21.0% in 2017 to 16.4% in 2018. The decreases in our gross profit and margin were primarily due to the pausing of the kindergarten
franchise program, the temporary suspension of the play-and-learn franchise expansion during the first half of 2018, one-off fee reduction at the beginning of
2018 and the planned increase in staff compensation and operating costs at directly operated kindergartens.

Operating Expenses

Our selling expenses increased by 25.9% from US$1.8 million in 2017 to US$2.2 million in 2018. This increase was generally in line with the

increase of our net revenue. Selling expenses constituted 1.3% and 1.4% of our net revenues in 2017 and 2018, respectively.

Our general and administrative expenses increased by 43.5% from US$18.4 million in 2017 to US$26.4 million in 2018. This increase was primarily

attributable to higher expenses incurred in staff compensation including share-based compensation expenses and professional service fees.

Operating Income/(loss)

We had US$9.3 million operating income in 2017 and US$3.0 million operating loss in 2018, respectively.

Government Subsidies

We recognized US$0.9 million and US$0.7 million in government subsidies for 2017 and 2018, respectively. Government subsidies consist mainly

of compensation to certain of our directly operated kindergartens, “inclusive kindergartens”, where tuition is determined by local educational authorities.
Government subsidies granted to specific kindergartens to subsidize their rental and teacher training costs were recorded to offset the cost of revenues when
the conditions were met. For the years ended December 31, 2017 and 2018, nil and US$1.1 million were recognized as reduction of cost of revenues,
respectively.

Income Tax Expenses

Our income tax expenses decreased from US$3.8 million in 2017 to US$2.5 million in 2018, primarily due to decrease in taxable income.

Net Income/(Loss)

As a result of the foregoing, we had net income of US$6.5 million in 2017 and net loss of US$1.7 million in 2018, respectively.

Taxation

We generate the majority of our operating income from our PRC operations. Income tax liability is calculated based on a separate return basis as if

we had filed separate tax returns for all the periods presented.

The Cayman Islands

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. In addition, the Cayman Islands does not impose withholding tax on dividend payments. 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.

69

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

Hong Kong

Under the current Hong Kong Inland Revenue Ordinance, our Hong Kong subsidiary is subject to a 8.25% profit tax rate on assessable profits on the

first Hong Kong Dollars (“HK$”) 2 million and 16.5% on any assessable profits in excess of HK$2 million starting from April 1, 2018. Under the Hong
Kong tax laws, we are exempted from the Hong Kong income tax on our foreign-derived income. In addition, payments of dividends from our Hong Kong
subsidiary to us are not subject to any Hong Kong withholding tax.

PRC

Under the PRC Enterprise Income Tax Law, or EIT Law, our PRC subsidiaries and consolidated affiliated entities are subject to enterprise income

tax at a statutory rate of 25%. In accordance with the EIT Law, dividends, which arise from profits of foreign invested enterprises, or FIEs, earned after
January 1, 2008, are subject to a 10% withholding income tax. In addition, under tax treaty between the PRC and Hong Kong, if the foreign investor is
incorporated in Hong Kong and qualifies as the beneficial owner, the applicable withholding tax rate is reduced to 5%, if the investor holds at least 25% in the
FIE, or 10%, if the investor holds less than 25% in the FIE. Under Circular 36, our PRC subsidiaries and consolidated affiliated entities are subject to value
added tax, or VAT, at a rate of 6% to 17% on proceeds received from customers, and are entitled to a refund for VAT already paid or borne on the goods
purchased by it and utilized in the production of goods or provisions of services that have generated the gross sales proceeds.

Singapore

Our subsidiaries located in Singapore are subject to Singapore corporate income tax at a rate of 17% in 2019 and a tax relief enabling companies to
deduct unutilized capital allowances, trade losses and donations of one company from the assessable income of another company within the same group. Our
subsidiaries located in Singapore are also subject to tax exemption scheme, allowing for 75% to be exempted from tax for the first Singapore Dollars
(“SGD$”) 10,000 of the income and 50% exempted from tax for the next SGD$190,000 for the year ended December 31, 2019.

Critical Accounting Policies

We prepare our financial statements in accordance with U.S. GAAP, which requires our management to make estimates and assumptions that affect
the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the balance sheet dates and the reported amounts of revenues
and expenses during the reporting periods. We continually evaluate these judgments and estimates based on our own historical experience, knowledge and
assessment of current business and other conditions, our expectations regarding the future based on available information and assumptions that we believe to
be reasonable, which together form our basis for making judgments about matters that are not readily apparent from other sources. Since the use of estimates
is an integral component of the financial reporting process, our actual results could differ from those estimates. Some of our accounting policies require a
higher degree of judgment than others in their application.

The selection of critical accounting policies, the judgments and other uncertainties affecting application of those policies and the sensitivity of
reported results to changes in conditions and assumptions are factors that should be considered when reviewing our financial statements. We believe the
following accounting policies involve the most significant judgments and estimates used in the preparation of our financial statements. You should read the
following description of critical accounting policies, judgments and estimates in conjunction with our consolidated financial statements and other disclosures
included in this annual report.

Revenue Recognition

Prior to January 1, 2018, we recognized revenues, under FASB Revenue Recognition (Topic 605), when the following four revenue recognition

criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the service has been performed and received by the customer, (iii) the amount of fees
from the customer is fixed or determinable, and (iv) collectability is reasonably assured.

On January 1, 2018, we adopted ASC 606 applying the modified retrospective method to all contracts that were not completed as of January 1, 2018.

Results for period beginning after January 1, 2018 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported
under the accounting standards in effect for the prior period. Revenues are recognized when control of the promised goods or services are transferred to the
customers, in an amount that reflects the consideration that we expect to receive in exchange for those goods or services.

70

 
 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

We follow five steps for our revenue recognition under ASC 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) we satisfies a performance obligation.

We provide private kindergarten services, play-and-learn center services and student care services to students. Tuition fees are collected in advance

and are initially recorded as deferred revenue.

Kindergarten services are by ourselves, a series of classes which are highly interdependent and interrelated in the context of the contract and each

class is not distinct and are not sold standalone. Therefore, kindergarten services are accounted for as a single performance obligation.

Play-and-learn center services provide a different series of classes which are highly interdependent and interrelated in the context of the contract and

each class is not distinct and are not sold standalone. Therefore, play-and-learn center services are accounted for as a single performance obligation.

Student care services provide a separate series of classes which are highly interdependent and interrelated in the context of the contract and each

class is not distinct and are not sold standalone. Therefore, student care services are accounted for as a single performance obligation.

The transaction prices for kindergarten services, play-and-learn services and students care services are determined by the contract amount net of any
refund. For the kindergarten program, the students can claim certain amount of the tuition refund, upon withdrawal, if more than a certain number of classes
are missed. For the play-and-learn program, students are entitled to refund, upon withdrawal, for unused portion of the prepaid course fees. For the student
care services, the students can claim refund, upon withdrawal, if classes are missed due to illness. The refund amount is subject to the refund policy at each
facility and the timing of the student’s withdrawal.

Revenues for the kindergarten services and student care services are recognized on a straight line basis over the service period from the registration

day to the day on which the service period ends. Revenues for the play-and-learn center services are recognized ratably over the course of the programs.

We generate revenues by franchising kindergartens and play-and-learn centers under the brand name of RYB. We collect from franchisees the initial

franchising fees and annual franchise fee. As the initial franchising service and annual franchising service are distinct from each other, we identify two
performance obligations accordingly. The computed transaction price is allocated to each performance obligation based on a relative stand-alone selling price.

Initial franchising fees represent provision of initial setup services which are typically received upfront and recorded as prepayments from
customers. The set -up period begins with the site decoration or training services, whichever is earlier, to the time point when kindergartens or play-and-learn
commence operations, which is approximately 7 or 8 months. Initial franchising fees are recognized over time throughout the set-up period.

Annual franchise fees represent continuing supporting services provided by us to the franchised kindergartens or play-and-learn centers, including

marketing and advertising services. The related annual franchise fees are received upfront and recorded as deferred revenue. Annual franchise fees are
recognized over time throughout the contract terms.

Our educational merchandise consists of educational toys, teaching aids, textbooks and other goods. We consider both franchisees and end-users are
our customers. Prepayments for sales of educational merchandise is recognized as prepayments from customers and is generally recognized as revenue when
control of promised goods is transferred to the customers. Sales of educational merchandise is accounted for as a single performance obligation, and
recognize at the point of time when the control of promised goods is transferred to the customers.

We provide training services to the franchisees and the teaching staff of the franchised kindergartens and play-and-learn centers. We identified the
training services as a single performance obligation, and given the trainings are usually performed during a short period of time, revenues are recognized at
the point of time when training services are delivered.

71

 
 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

We also sell educational merchandise and provide kindergarten solutions through our other business partners. The royalty fees are received upfront

and recorded as deferred revenue. We identified the royalty fees as a single performance obligation, and revenues are recognized over time throughout the
contract terms.

Consolidation of Variable Interest Entities

Our consolidated financial statements include the financial statements of RYB Education, Inc., its subsidiaries, its VIEs and the VIEs’ subsidiaries
and kindergartens. All profits, transactions and balances among RYB Education, Inc., its subsidiaries, its VIEs and the VIEs’ subsidiaries and kindergartens
have been eliminated upon consolidation.

PRC laws and regulations restrict foreign ownership and investment in the education industry at the kindergarten level. As RYB Technology, Qiyuan

Education Technology (Tianjin) Co., Ltd. (“TJ Qiyuan”) and Beijing Beilin International Education Co., Ltd. (“BJ Beilin”) are deemed foreign legal persons
under PRC laws, our subsidiaries are not eligible to engage in the provision of kindergarten services. Due to these restrictions, we conduct our kindergarten
service business in China primarily through contractual arrangements among (1) RYB Technology, TJ Qiyuan and BJ Beilin, our wholly owned PRC
subsidiaries, (2) Beijing RYB, Beiyao Technology Development Co., Ltd. (“Beiyao”), and Beijing Haidian District Bozhi Training School (“Bozhi”), our
VIEs, and (3) shareholders of Beijing RYB, Beiyao and Bozhi.

As a result of these contractual arrangements, we believe we are entitled to direct the activities that most significantly affect the economic
performance of Beijing RYB, Beiyao and Bozhi, and receive the economic benefits of Beijing RYB, Beiyao and Bozhi. In making the conclusion that we are
the primary beneficiaries of Beijing RYB, Beiyao and Bozhi, we believe our rights under the terms of the equity disposal agreement and exclusive option
agreement have provided us with a substantive kick out right. More specifically, we believe the terms of the equity disposal agreement and exclusive option
agreement are valid, binding and enforceable under PRC laws and regulations currently in effect. We also believe that the minimum amount of consideration
permitted by the applicable PRC law to exercise the option has not represented a financial barrier or disincentive for us to currently exercise our rights under
the equity disposal agreement and exclusive option agreement. In addition, our rights under the business operation agreement and powers of attorney have
reinforced our abilities to direct the activities most significantly impacting Beijing RYB, Beiyao and Bozhi’s economic performance. We also believe that this
ability to exercise control ensures that Beijing RYB, Beiyao and Bozhi would continue to execute and renew service agreements and pay service fees to us.
By charging service fees, and by ensuring that service agreements are executed and renewed indefinitely, we have the rights to receive substantially all of the
economic benefits from Beijing RYB, Beiyao and Bozhi. Accordingly, as the primary beneficiaries of Beijing RYB, Beiyao and Bozhi and in accordance with
U.S. GAAP, we consolidate its financial results and assets and liabilities in our consolidated financial statements.

In 2019, our certain kindergartens, during the application or renewal process of registration, elected as not-for-profit kindergartens in the PRC and

operated in compliance with PRC not-for- profit legal regimes. However, we believe these not-for-profit kindergartens do not meet the definition of a not-for-
profit entity under U.S. GAAP, and therefore treat these not-for-profit kindergartens as “for-profit” entities for accounting purposes. These not-for-profit
kindergartens generally cannot declare dividends or distribute their net assets to their sponsors, our consolidated VIEs.

We generally do not have legal entitlement to distribute the net assets of these not-for-profit kindergartens. In the event of liquidation of these not-
for-profit kindergartens, the net proceeds can only continue to be used for another not-for-profit kindergarten with similar purposes. In the unlikely case of
liquidation of the not-for-profit kindergarten, we may be able to retain the residual value by naming another not-for-profit kindergarten of us in the PRC as
the recipient, if one exists; however, we generally cannot name a for-profit entity as the recipient. Moreover, because the kindergarten generally would be
required to provide for the continued education of its students, liquidation would not be a likely course of action and would be unlikely to result in significant
residual assets available for distribution.

72

 
 
 
 
 
 
 
 
Table of Contents

We maintain control of these not-for-profit kindergartens through our rights to designate a majority of the governing entities’ board members,

through which we have the legal ability to direct the activities most significantly impacting these not-for-profit kindergartens’ economic performance. We
maintain a variable interest in these not-for-profit kindergartens through exclusive consultation and service arrangements in which fees for such consultation
and service are determined at our discretion. We have the ability to provide additional contractual arrangements for educational and other services. We also
have the ability to transfer our sponsor rights to govern these not-for-profit kindergartens to other parties, which could yield a return if and when these rights
are transferred.

Under ASC 810-10, “Consolidation,” we believe we are the primary beneficiary of these not-for-profit kindergartens because we have, as further

described herein: (1) the power to direct the activities of these not-for-profit kindergartens that most significantly affect their educational and economic
performance and (2) the right to receive economic benefits from contractual and other arrangements with these not-for-profit kindergartens that could
potentially be significant to these not-for-profit kindergartens. We account for the acquisition of the right to control these not-for-profit kindergartens in
accordance with ASC 805, “Business Combinations.”

As advised by our PRC legal counsel, our corporate structure in China complies with all existing PRC laws and regulations. However, our PRC legal
counsel has also 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 validity of these contractual arrangements are uncertain and the relevant government
authorities may have broad discretion in interpreting these laws and regulations.

Business Combinations

Business combinations are recorded using the acquisition method of accounting. The purchase price of the acquisition is allocated to the tangible

assets, liabilities, identifiable intangible assets acquired and non-controlling interest, if any, based on their estimated fair values as of the acquisition date. The
excess of the purchase price over those fair values is recorded as goodwill. Acquisition-related expenses are expensed as incurred.

Income Taxes

Current income taxes are provided for in accordance with the laws of the relevant tax authorities. Deferred income taxes are recognized when

temporary differences exist between the tax bases of assets and liabilities and their reported amounts in the financial statements. Net operating loss carry
forwards and credits are applied using enacted statutory tax rates applicable to future years. Deferred tax assets are reduced by a valuation allowance when, in
the opinion of management, it is more-likely-than-not that a portion of or all of the deferred tax assets will not be realized. The impact of an uncertain income
tax position is recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant tax authority. An uncertain income tax
position will not be recognized if it has less than a 50% likelihood of being sustained. Interest and penalties on income taxes will be classified as a component
of the provisions for income taxes.

73

 
 
 
 
 
 
 
 
Table of Contents

Fair Value of Options

The fair value of the options granted is estimated on the dates of grant using the binomial option pricing model with the following assumptions used.

(1)

Risk-free interest rate 
(2)
Expected volatility 
Expected dividend yield 
Expected multiples 
Fair value of underlying ordinary share 

(3)

(4)

(5)

Grant date

2017

2.15% - 2.31%
40%
0%
2.8/2.2
11.67

2018

2.73%
38%
0%

2.2
17.40

(1)          We estimate risk-free interest rate based on the daily treasury long term rate of U.S. Department of the Treasury with a maturity period close to the

expected term of the options before September 27, 2017, and based on the historical volatility of the Company’s share price since September 27, 2017.

(2)          We estimated expected volatility based on the annualized standard deviation of the daily return embedded in historical share prices of comparable

companies with a time horizon close to the expected expiry of the term of the options.

(3)          We have never declared or paid any cash dividends on our capital stock, and we do not anticipate any dividend payments on our ordinary shares in the

foreseeable future.

(4)          The exercise multiple is estimated as the ratio of fair value of underlying shares over the exercise price as at the time the option is exercised, based on a

consideration of research study regarding exercise pattern based on historical statistical data.

(5)          The estimated fair value of the ordinary shares underlying the options as of the grant dates was mainly determined based on a retrospective valuation

with the assistance of a third-party appraiser before September 27, 2017, and based on the Company’s share price since September 27, 2017.

Share-based Compensation

Share-based compensation with employees is measured based on the grant date fair value of the equity instrument. Share-based compensation

expenses are recognized over the requisite service period based on the graded vesting attribution method with corresponding impact reflected in additional
paid-in capital. When no future services are required to be performed by grantees in exchange for an award of equity instruments, the cost of the award is
expensed on the grant date. We elect to recognize forfeitures when they occur.

We adopted the 2009 and 2017 Share Incentive Plans for the grant of share options to employees, directors and non-employees to provide incentive

for their services. The maximum number of ordinary shares that may be issued pursuant to all awards under the 2009 and 2017 Share Incentive Plans was
5,803,040 ordinary shares as of March 31, 2020.

For share options, we used the binomial option pricing model determine the estimated fair value. For options granted before our initial public
offering, the volatility assumption was estimated based on the annualized standard deviation of the daily return embedded in historical share prices of
comparable companies with a time horizon close to the expected expiry of the term of the options. For options granted after our initial public offering, the
volatility assumption was estimated based on the historical volatility of our share price since the initial public offering.

For non-vested shares granted after our initial public offering, the fair value of our non-vested shares on the grant date is determined by the closing

quoted market price.

Impairment Assessment on Long-Lived Assets and Goodwill

Long-lived assets, including intangible assets with definite lives, are reviewed for impairment whenever events or changes in circumstances indicate

that the carrying amount of the asset may not be recoverable. When these events occur, we measure impairment by comparing the carrying amount of long-
lived asset to the estimated undiscounted future cash flows expected to result from the use of the assets and their eventual disposition. If the sum of the
expected undiscounted cash flow is less than the carrying amount of the assets, we would recognize an impairment loss based on the fair value of the assets.
Fair value is estimated based on various valuation techniques, including the discounted value of estimated future cash flows. The evaluation of asset
impairment requires us to make assumptions about future cash flows over the life of the asset being evaluated. These assumptions require significant
judgment and actual results may differ from assumed and estimated amounts. We recorded impairment losses on intangible assets with definite lives of nil, nil
and US$79,000 during the years ended December 31, 2017, 2018 and 2019.

74

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

The impairment test for intangible assets not subject to amortization consists of a comparison of the fair value of the intangible asset with its

carrying value. If the carrying value of the intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. No
impairment charge was recognized for the years ended December 31, 2017, 2018 and 2019.

The excess of the purchase price over the fair value of net assets acquired is recorded on the consolidated balance sheet as goodwill. The guidance

permits us to first assess qualitative factors to determine whether it is "more likely than not" that the fair value of a reporting unit is less than its carrying
amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test.

We performed annual impairment test, at December 31, using a two-step approach. The first step compares the fair value of a reporting unit to its
carrying amount, including goodwill. If the fair value of the reporting unit is greater than its carrying amount, goodwill is not considered impaired and the
second step is not required. If the fair value of the reporting unit is less than its carrying amount, the second step of the impairment test measures the amount
of the impairment loss, if any, by comparing the implied fair value of goodwill to its carrying amount. If the carrying amount of goodwill exceeds its implied
fair value, an impairment loss is recognized equal to that excess. The implied fair value of goodwill is calculated in the same manner that goodwill is
calculated in a business combination, whereby the fair value of the reporting unit is allocated to all of the assets and liabilities of that unit, with the excess
purchase price over the amounts assigned to assets and liabilities representing the implied fair value of goodwill. We recorded impairment losses on goodwill
of nil, nil and US$337,000 during the years ended December 31, 2017, 2018 and 2019.

Depreciation and Amortization

The costs of property and equipment and a cquired finite-lived intangible assets are charged ratably as depreciation and amortization expenses,

respectively, over the estimated useful lives of the respective assets using the straight-line method. We periodically review changes in technology and industry
conditions, asset retirement activity and residual values to determine adjustments to estimated remaining useful lives and depreciation and amortization rates.
Actual economic lives may differ from estimated useful lives. Periodic reviews could result in a change in estimated useful lives and therefore depreciation
and amortization expenses in future periods.

Leases

We have lease contracts for offices, kindergartens, play-and-learn centers and student care centers in different cities in the PRC and Singapore under

operating leases. We determine whether an arrangement constitutes a lease and record lease liabilities and right-of-use assets on our consolidated balance
sheets at the lease commencement. We measure our lease liabilities based on the present value of the total lease payments not yet paid discounted based on
the more readily determinable of the rate implicit in the lease or its incremental borrowing rate, which is the estimated rate we would be required to pay for a
collateralized borrowing equal to the total lease payments over the term of the lease. We estimate our incremental borrowing rate based on an analysis of
publicly traded debt securities of companies with credit and financial profiles similar to its own. We measure right-of-use assets based on the corresponding
lease liability adjusted for payments made to the lessor at or before the commencement date, and initial direct costs it incurs under the lease. We begin
recognizing rent expense when the lessor makes the underlying asset available to us. Our leases have remaining lease terms of up to 19 years, none of them
include options to extend or terminate the leases.

For short-term leases, the Group records operating lease expense in its consolidated statements of operations on a straight-line basis over the lease

term and record variable lease payments as incurred.

Recent Accounting Pronouncements

A list of recent accounting pronouncements that are relevant to us is included in note 2 to our consolidated financial statements, which are included

in this annual report.

B.                                     Liquidity and Capital Resources

The following table sets forth the movements of our cash and cash equivalents for the periods presented:

Summary Consolidated Cash Flow:
Net cash generated from operating activities
Net cash used in investing activities
Net cash generated from/(used in) financing activities
Exchange rate effect on cash and cash equivalents
Net increase/(decrease) in cash and cash equivalents and restricted cash
Cash and cash equivalents and restricted cash at beginning of year
Cash and cash equivalents and restricted cash at end of year

75

2017

Years Ended December 31,
2018
(in thousands of US$)

2019

25,099
(8,655)
92,496
3,666
112,606
46,628
159,234

828
(51,735)
(756)
(2,741)
(54,404)
159,234
104,830

12,982
(34,378)
(13,454)
(542)
(35,392)
104,830
69,438

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

To date, we have financed our operations primarily through cash generated by operating activities and historical equity financing activities. As of

December 31, 2017, 2018 and 2019, our cash, cash equivalents and restricted cash were US$159.2 million, US$104.8 million and US$69.4 million,
respectively. Our cash and cash equivalents primarily consist of cash at banks and on hand and restricted cash. Restricted cash represents Renminbi deposits
in restricted bank accounts for operating kindergartens required by certain local regulations. The deposits in restricted bank accounts cannot be withdrawn
until these kindergartens are closed. As of December 31, 2017, 2018 and 2019 restricted cash were approximately US$0.5 million, US$0.7 million and
US$0.7 million, respectively. Approximately 56.3% of our cash and cash equivalents as of December 31, 2019 were held in China. Approximately 56.0% of
our cash and cash equivalents were held by our consolidated affiliated entities and denominated in Renminbi.

The disruption on our business operations caused by the pandemic of COVID-19 has had material adverse effects on our financial condition and
operations during the first quarter of 2020. Since February 2020, most of our facilities in China have been closed. Resumption of operations is subject to
government announcement or approval. To cope with COVID-19's adverse impact on our operations and liquidity, we have taken various mitigating steps,
including (i) reducing labor costs and operational expenses, (ii) postponing discretionary capital expenditures and (iii) obtaining bank facilities if necessary.
These measures will not affect our adherence to high quality and safety standards, and we believe that our existing cash and cash equivalents are sufficient to
fund our operating activities, necessary capital expenditures and other obligations for at least the next 12 months.

We may also decide to enhance our liquidity position or increase our cash reserve for future expansions and acquisitions through additional financing

activities. The issuance and sale of additional equity would result in further dilution to our shareholders. The incurrence of indebtedness would result in
increased fixed obligations and could result in operating covenants that may restrict our operations and ability to make distributions. However, financing may
not be available in amounts or on terms favorable to us.

Although we consolidate the results of our consolidated variable interest entity and its subsidiaries, we only have access to the assets or earnings of
our consolidated variable interest entity and its subsidiaries through our contractual arrangements with VIE. See “Item 4. Information on the Company—C.
Organizational Structure.” For restrictions and limitations on liquidity and capital resources as a result of our corporate structure, see “Item 5. Operating and
Financial Review and Prospects—B. Liquidity and Capital Resources—Holding Company Structure.”

In utilizing the proceeds we received from our initial public offering and the other cash that we hold offshore, we may make additional capital
contributions to our PRC subsidiaries, establish new PRC operating entities, make loans to our PRC operating entities, or acquire offshore entities with
business operations in China in offshore transactions. Most of these uses are subject to PRC regulations and approvals.

Operating Activities

Net cash generated from operating activities in the year ended December 31, 2019 was US$13.0 million. The difference between our net loss of

US$2.2 million and the net cash generated from operating activities was due to (i) an adjustment to add back US$16.2 million in non-cash and non-operating
items, which mainly consist of US$11.5 million from depreciation and amortization and US$4.0 million from share-based compensation, (ii) a decrease of
cash as result of increase in working capital. In 2019, our accounts receivable increased for US$1.7 million, inventories increased for US$2.0 million, other
non-current assets increased for US$2.3 million, prepayment from customers decreased for US$1.4 million and deferred tax assets increased for US$2.7
million , this effect was partially offset by an increase of US$5.6 million in accrued expenses and other liabilities and an increase of US$3.4 million in income
tax payable. Prepayment from customers decreased mainly due to our proactive slowdown of expansion in franchise network in the second half of 2019.
Deferred revenue increased mainly because several of our subsidiaries and directly operated facilities recorded loss in 2019. Accrued expenses and other
current liabilities increased mainly due to the increase in salary and welfare payable that accompanied the increase in the number of employees and network
expansion. Current income taxes are provided for in accordance with the laws of the relevant tax authorities. It increased in 2019 due to the increase in our
taxable income in the fourth quarter of 2019.

76

 
 
 
 
 
 
 
 
Table of Contents

Net cash generated from operating activities in the year ended December 31, 2018 was US$0.8 million. The difference between our net loss of

US$1.7 million and the net cash used in operating activities was due to (i) an adjustment to add back US$13.9 million in non-cash and non-operating items,
which mainly consist of US$7.5 million from depreciation and US$6.7 million from share-based compensation, (ii) a decrease of cash as result of increase in
working capital. In 2018, our prepayment from customers decreased for US$12.9 million and deferred tax assets increased for US$4.6 million, and this effect
was partially offset by an increase of US$5.3 million in accrued expense and other liabilities and an increase of US$1.7 million in income tax payable. We
lease property and own furniture, fixtures, equipment and leasehold improvement for the operation of kindergartens and play-and-learn centers, and they are
depreciated over their estimated useful life. Prepayment from customers decreased as we suspended new franchise applications and made some one-time
refunds to certain franchisees during the year of 2018. Accrued expenses and other current liabilities increased mainly because of the increase in salary and
welfare payable that accompanied the increase in the number of employees. Current income taxes are provided for in accordance with the laws of the relevant
tax authorities. It increased in 2018 due to the increase in our taxable income in the fourth quarter of 2018. Several of our subsidiaries and directly operated
kindergartens recorded loss in 2018, which contributed to the increase in our deferred tax assets.

Net cash generated from operating activities in the year ended December 31, 2017 was US$25.1 million. The difference between our net income of
US$6.5 million and the net cash generated from operating activities was due to (i) an adjustment of US$10.5 million in non-cash items, which mainly consist
of US$6.1 million from depreciation and US$4.0 million from share-based compensation, (ii) an increase of US$10.9 million in accrued expenses and other
current liabilities, and (iii) an increase of US$4.1 million in income tax payable, while partially offset by an increase of US$4.8 million in deferred tax assets.
We lease property and own furniture, fixtures, equipment and leasehold improvement for the operation of kindergartens and play-and-learn centers, and they
are depreciated over their estimated useful life. Accrued expenses and other current liabilities increased mainly because of the increase in salary and welfare
payable that accompanies an increase in employees. Current income taxes are provided for in accordance with the laws of the relevant tax authorities. It
increased in 2017 due to the increase in our taxable income. Several of our subsidiaries and directly operated kindergartens recorded loss in 2017, which
caused our deferred tax assets to increase. We expect these deferred tax assets can be utilized with our profit in near future. In 2017, we refunded US$7.3
million to a number of franchisees as they determined to terminate the franchise agreements with us and cancelled their plans to open kindergartens and play-
and-learn centers under RYB brand, as a result of negative publicity and deteriorating brand recognition following the 2017 Incident.

Investing Activities

Net cash used in investing activities was US$34.4 million in the year ended December 31, 2019, primarily due to US$17.9 million used in
acquisition related payments and US$12.5 million used in purchase of property, plant and equipment and spending on leasehold improvement to support our
expansion of directly operated facilities.

Net cash used in investing activities was US$51.7 million in the year ended December 31, 2018, primarily due to US$ 39.8 million used in
acquisition related payments and US$11.5 million used in purchase of property, plant and equipment and spending on leasehold improvement to support our
expansion of directly operated kindergartens.

Net cash used in investing activities was US$8.7 million in the year ended December 31, 2017, primarily due to a US$11.9 million used in purchase

of property, plant and equipment and spending on leasehold improvement to support our expansion of directly operated kindergartens.

Financing Activities

Net cash used in financing activities in the year ended December 31, 2019 was US$13.5 million, which was primarily attributable to US$12.0

million used in share repurchase payments.

Net cash used in financing activities in the year ended December 31, 2018 was US$0.8 million, which was primarily attributable to payment of

initial public offering expenses of US$1.4 million, partially offset by capital contribution from minority shareholders of US$0.8 million.

77

 
 
 
 
 
 
 
 
 
 
Table of Contents

Net cash generated from financing activities in the year ended December 31, 2017 was US$92.5 million, primarily generated from US$94.6 million

of proceeds from issuing ordinary shares, partially offset by payment of initial public offering costs in an amount of US$3.1 million.

Capital Expenditures

Our capital expenditures are incurred mainly for new teaching facility establishment and existing facility renovations. We made capital expenditures
of US$14.7 million, US$16.3 million and US$14.1 million in 2017, 2018 and 2019, respectively. The increase of capital expenditures was mainly due to the
opening of new directly operated facilities.

We will continue to make capital expenditures to support the expected growth of our business.

Holding Company Structure

RYB Education, Inc. is a holding company with no material operations of its own. We conduct our operations primarily through our subsidiary, our
consolidated variable interest entity and its subsidiaries in China. As a result, RYB Education, Inc.’s ability to pay dividends depends upon dividends paid by
our PRC subsidiary. In addition, our wholly foreign-owned subsidiary in China is permitted to pay dividends to us only out of its retained earnings, if any, as
determined in accordance with PRC accounting standards and regulations. Under PRC law, each of our subsidiary and our consolidated variable interest
entity in China is required to set aside at least 10% of its after-tax profits each year, if any, to fund certain statutory reserve funds until such reserve funds
reach 50% of their registered capital. In addition, our wholly foreign-owned subsidiary in China may allocate a portion of its after-tax profits based on PRC
accounting standards to enterprise expansion funds and staff bonus and welfare funds at its discretion, and our consolidated variable interest entity may
allocate a portion of its after-tax profits based on PRC accounting standards to a surplus fund at its discretion. The statutory reserve funds and the
discretionary 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 designated by SAFE. Our PRC subsidiary has not paid dividends and will not be able to pay dividends until they generate
accumulated profits and meet the requirements for statutory reserve funds.

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 since

January 1, 2019 that are reasonably likely to have a material adverse effect on our net revenues, income, profitability, liquidity or capital resources, or that
caused the disclosed financial information to be not necessarily indicative of future operating results or financial conditions.

E.                                     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 shareholder’s 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. 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 product development services with us.

F.                                      Tabular Disclosure of Contractual Obligations

The following table sets forth our contractual obligations as of December 31, 2019:

Operating Lease Obligations
Purchase Obligations
Total

Total

119,834
5,467
125,301

Less than 1 
 year

17,479
680
18,159

78

Payment Due by Period

1-3 years

3-5 years

More than 5 years

(in thousands of US$)

25,248
1,033
26,281

23,281
680
23,961

53,826
3,074
56,900

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

Our operating lease obligations relate to our leases of office premises. We lease our office premises under non-cancelable operating lease
arrangements. Rental expenses under operating leases for 2017, 2018 and 2019 were US$11.8 million, US$16.2 million and US$20.3 million, respectively.
Purchase obligations relate to future minimum purchase obligations under the non-cancelable purchase agreements related to curriculum collaboration with
international institutions.

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

December 31, 2019.

G.                                    Safe Harbor

See “Forward-Looking Statements” on page 1 of this annual report.

ITEM 6.         DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A.                                     Directors and Senior Management

The following table sets forth information regarding our directors and executive officers as of March 31, 2020.

Directors and Executive Officers
Chimin Cao
Yanlai Shi
Liang Meng
Joel A. Getz
Dennis Demiao Zhu
Zhengong Chang
Hao Gu

56
49
47
55
56
69
38

Age

Position/Title

Co-founder, Executive Director and Chairman of the Board
Co-founder, Executive Director and Chief Executive Officer
Director
Independent Director
Independent Director
Independent Director
Chief Financial Officer

Mr. Chimin Cao is our co-founder and has served as chairman of the board since our inception. Mr. Cao has a wealth of experience in the early

childhood education industry. Together with Ms. Yanlai Shi, Mr. Cao established our first play-and-learn center in 1998 and then incorporated Beijing RYB to
expand our operations in July 2001. Prior to that, Mr. Cao founded Beijing Dongrun Fandoule Kepu Entertainment Co. Ltd. in 1996 as the first franchise to
introduce Fun Dazzle indoor playgrounds to Beijing. Mr. Chimin Cao received his joint master’s degree of management from the Australian National
University and Tsinghua University in 2007.

Ms. Yanlai Shi is our co-founder and has served as director and chief executive officer since our inception. Ms. Shi is a pioneer of the early

childhood education industry in China. Ms. Shi also holds various positions, including a member of National Committee of the Chinese People’s Political
Consultative Conference of Fengtai District, Beijing, and a representative of the 11th National Congress of Chinese Women. Ms. Shi has received many
honors in the business world as well. To name a few, she was awarded “Leader of Education Industry” in 2016 and “The Most Influential Business Women in
China” in 2014. Ms. Shi received her bachelor’s degree in law from Peking University and joint master’s degree in management from the Australian National
University and Tsinghua University.

Mr. Liang Meng has served as our director since November 2015. In addition to his role in our company, Mr. Meng is also the founding managing

partner of Ascendent Capital Partners, a China-based private equity firm. Prior to Ascendent, Mr. Meng was a managing director of D. E. Shaw & Co., where
he was the leader of the firm’s Asian investment office. He also founded and was CEO of D. E. Shaw & Co. private equity business in Greater China.
Previously, Mr. Meng was a managing director of JP Morgan Securities (Asia Pacific) Limited and co-head of China. In addition to his roles in business
world, Mr. Meng is currently a Donaldson Fellow of Yale School of Management and the co-chairman of the school’s Greater China Advisory Board. He is
also an Advisory Board member of the Harvard Kennedy School Mossavar-Rahmani Center, and a founding council member of the Future Forum, a non-
profit platform for the promotion of science in China. Mr. Liang Meng earned his M.B.A. from the Yale School of Management.

Mr. Joel A. Getz started to serve as our director in September 2017. Mr. Getz is now the senior associate dean for Development and Alumni

Relations at the Yale School of Management. In addition to that, Mr. Getz serves as secretary and independent director of Stephan Co., a publicly traded
manufacturer and distributor of hair care, skincare and personal care items in the U.S. Prior to that, Mr. Getz held senior development roles at several non-
profit organizations. From 1990 to 1997, Mr. Getz was the president and co-founder of Rim Pacific, a manufacturing and distribution firm focusing on art
reproductions. Mr. Getz received his B.A. in 1986 from Harvard University.

79

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

Mr. Dennis Demiao Zhu started to serve as our director in September 2017. Mr. Zhu worked at Oaktree Capital (Hong Kong) Limited from 2005 to
2011, serving as its managing director first and later as a senior advisor. Prior to joining Oaktree, Mr. Zhu was managing director, chairman of Greater China
Operating Committee and member of Asia Pacific Executive Committee at JPMorgan Chase. Between 1994 and 1999, Mr. Zhu worked at Credit Suisse First
Boston in the Equity Capital Markets and Investment Banking departments as Head of China Businesses. From 1992 to 1994, Mr. Zhu worked at FMC
Corporation’s Investment Analysis Department and was based in Chicago. Mr. Zhang received his M.B.A. degree from the University of Chicago Booth
School of Business in 1993 and is currently the co-chairman of Asia Regional Cabinet of the Global Advisory Board of the University of Chicago Booth
School of Business.

Mr. Zhengong Chang started to serve as our director in September 2017. Mr. Chang is now the president of Beijing FYJS Investment Inc. Between

April 2013 and April 2014, Mr. Chang served as a consultant to Huawei Technologies Co., Ltd, and he was an independent director of the board of BOYA
Software Group between April 2011 and April 2015. From September 2011 to September 2013, Mr. Chang was an independent director of the board of
Beijing Yucheng Technologies Limited. Mr. Zhengong Chang has been the co-chairman of the Federation of Sino-Canadian Business Marketing Association
since 2006. Mr. Chang also founded and served as the president of CBL Data Recovery Technologies Inc. from March 1992 to May 2010. Mr. Chang
received his master’s degree in computer science from Stevens Institute of Technology, New Jersey in 1987.

Mr. Hao Gu has served as our chief financial officer since May 2019. Prior to joining us, Mr. Gu was executive director in the investment banking

division at the Hong Kong branch of UBS AG. Between 2017 and 2018, Mr. Gu was vice president in the investment banking division at Credit Suisse (Hong
Kong) Limited, where he originated and executed various transactions focusing on social media, education and IT services. Mr. Gu received his B.A. from
Beijing Foreign Studies University and M.B.A. from Cornell University.

Employment Agreements and Indemnification Agreements

We have entered into employment agreements with each of our executive officers. Under these agreements, each of our executive officers is

employed for a specified time period. We may terminate employment for cause, at any time, without advance notice or remuneration, for certain acts of the
executive officer, such as conviction or plea of guilty to a felony or any crime involving moral turpitude, negligent or dishonest acts to our detriment, or
misconduct or a failure to perform agreed duties. We may also terminate an executive officer’s employment without cause upon three-month advance written
notice. In such case of termination by us, we will provide severance payments to the executive officer as expressly required by applicable law of the
jurisdiction where the executive officer is based. The executive officer may resign at any time with a three-month advance written notice.

Each executive officer has agreed to hold, both during and after the termination or expiry of his or her employment agreement, in strict confidence

and not to use, except as required in the performance of his or her duties in connection with the employment or pursuant to applicable law, any of our
confidential information or trade secrets, any confidential information or trade secrets of our clients or prospective clients, or the confidential or proprietary
information of any third party received by us and for which we have confidential obligations. The executive officers have also agreed to disclose in
confidence to us all inventions, designs and trade secrets which they conceive, develop or reduce to practice during the executive officer’s employment with
us and to assign all right, title and interest in them to us, and assist us in obtaining and enforcing patents, copyrights and other legal rights for these
inventions, designs and trade secrets.

In addition, each executive officer has agreed to be bound by non-competition and non-solicitation restrictions during the term of his or her
employment and typically for one year following the last date of employment. Specifically, each executive officer has agreed not to; (i) approach our
suppliers, clients, customers or contacts or other persons or entities introduced to the executive officer in his or her capacity as a representative of us for the
purpose of doing business with such persons or entities that will harm our business relationships with these persons or entities; (ii) assume employment with
or provide services to any of our competitors, or engage, whether as principal, partner, licensor or otherwise, any of our competitors, without our express
consent; or (iii) seek directly or indirectly, to solicit the services of any of our employees who is employed by us on or after the date of the executive officer’s
termination, or in the year preceding such termination, without our express consent.

80

 
 
 
 
 
 
 
 
Table of Contents

We have also entered into indemnification agreements with each of our directors and executive officers. Under these agreements, we agree to

indemnify our directors and executive officers against certain liabilities and expenses incurred by such persons in connection with claims made by reason of
their being a director or officer of our company.

B.                                     Compensation of Directors and Executive Officers

For the fiscal year ended December 31, 2019, we paid an aggregate of approximately RMB 7.5 million in cash to our directors and executive
officers. We have not set aside or accrued any amount to provide pension, retirement or other similar benefits to our directors and executive officers. Our PRC
subsidiaries and variable interest entity 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.

2009 Share Incentive Plan

In September 2009, our board of directors approved the 2009 Share Incentive Plan, which we refer to as the 2009 Plan in this annual report, to attract

and retain the best available personnel, provide additional incentives to employees, directors and consultants and promote the success of our business. The
maximum aggregate number of shares that may be issued under the 2009 Plan was at first 1,222,910, and was later increased by the board of director to
2,573,756 in 2011. As of March 31, 2020, options to purchase 2,022,256 ordinary shares have been granted and outstanding, excluding awards that were
forfeited or cancelled after the relevant grant dates.

The following paragraphs describe the principal terms of the 2009 Plan.

Types of Awards .  The 2009 Plan permits the awards of options.

Plan Administration .  Our board of directors will administer the 2009 Plan. The board of directors will determine the participants to receive awards

and the terms and conditions of each award grant.

Award Agreement .  Awards granted under the 2009 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.

Eligibility .  We may grant awards to our employees, directors and consultants of our company.

Vesting Schedule .  In general, options granted under the 2009 Plan will vest in three years, with 40%, 30% and 30% vesting at the 1st, 2nd and 3rd

anniversary.

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 nine years from the date of a grant.

The following table summarizes, as of March 31, 2020, the options granted under our 2009 Plan to our directors and executive officers, excluding

awards that were forfeited or cancelled after the relevant grant dates.

Name
Chimin Cao
Yanlai Shi

Ordinary Shares 
Underlying Options 
Awarded

Exercise Price 
(US$/Share)

*
583,460
*
887,546
*

3.11
1.08
3.11
2.88
1.58

Date of Grant
September 29, 2013
September 11, 2009
September 29, 2013
November 5, 2015
July 1, 2017

Date of Expiration

From November 17, 2021 to July 15, 2022
From April 27, 2018 to May 27, 2022
From November 17, 2021 to July 15, 2022
November 4, 2023
June 30, 2025

*                  Less than 1% of our total outstanding shares.

81

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

As of March 31, 2020, other employees as a group held options to purchase ordinary shares of our company, with exercise prices ranging from

US$1.08 to US$3.11 per share.

2017 Share Incentive Plan

In June 2017, our board of directors approved the 2017 Share Incentive Plan, as amended and restated from time to time, which we refer to as the
2017 Plan in this annual report, 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 2017 Plan, the maximum aggregate number of shares which may be issued pursuant to all awards is initially
2,059,005 Class A ordinary shares, plus an annual increase in the maximum number of Class A ordinary shares on the first day of each of our fiscal year
during the term of the 2017 Plan commencing with the fiscal year beginning January 1, 2018, by an amount equal to the lesser of (i) 2.0% of the total number
of ordinary shares issued and outstanding on the last day of the immediately preceding fiscal year, and (ii) such number as may be determined by the board of
directors. As of March 31, 2020, the maximum aggregate number of shares which may be issued pursuant to all awards under the 2017 Plan was 3,779,284
Class A ordinary shares, and options to purchase 2,465,736 ordinary shares and restricted shares have been granted and outstanding, excluding awards that
were forfeited or cancelled after the relevant grant dates.

The following paragraphs describe the principal terms of the 2017 Plan.

Types of Awards.   The 2017 Plan permits the awards of options, restricted shares 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 2017 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 2017 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 ten years from the date of a grant.

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

except as otherwise provided by the plan administrator.

Termination and Amendment of the 2017 Plan.   Unless terminated earlier, the 2017 Plan has a term of ten 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.

The following table summarizes, as of March 31, 2020, the options granted under our 2017 Plan to our directors and executive officers, excluding

awards that were forfeited or cancelled after the relevant grant dates.

82

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

Name
Chimin Cao

Yanlai Shi

Hao Gu

Ordinary Shares 
Underlying Options 
and Restricted Shares 
Awarded

Exercise Price 
(US$/Share)

Date of Grant

514,751
*
(1)
*
(1)
772,127
*
(1)
*
(1)
*
(1)
*
(1)

11.66
N/A
N/A
11.66
N/A
N/A
N/A
N/A

June 22, 2017
March 14, 2018
August 20, 2019
June 22, 2017
March 14, 2018
August 20, 2019
July 29, 2019
December 4, 2019

Date of 
Expiration

June 21, 2027
March 13, 2028
August 19, 2029
June 21, 2027
March 13, 2028
August 19, 2029
July 28, 2029
December 3, 2029

(1)          Restricted shares

*      Less than 1% of our total outstanding shares.

As of March 31, 2020, other employees as a group held options to purchase 761,324 ordinary shares of our company, with exercise price ranging

from US$0.01 to US$11.66 per share.

C.                                     Board Practices

Our board of directors consists of six directors. A director is not required to hold any shares in our company to qualify to serve as a director. A
director who is in any way, whether directly or indirectly, interested in a contract or transaction or proposed contract or transaction with our company is
required to declare the nature of his interest at a meeting of our directors. A director may vote in respect of any contract or transaction, proposed contract or
transaction 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 transaction or proposed contract or transaction is considered. The directors may exercise all the powers of the
company to raise or borrow money, mortgage or charge its undertaking, property and assets (present and future) and uncalled capital or any party thereof, and
issue debentures, debenture stock, bonds and other securities, whether outright or as collateral security for any debt, liability or obligation of the company or
of any third party. None of our non-executive directors has a service contract with us that provides for benefits upon termination of service.

Committees of the Board of Directors

We have established three committees under the board of directors: an audit committee, a compensation committee and a nominating and corporate

governance committee. We have adopted a charter for each of the three committees. Each committee’s members and functions are described below.

Audit Committee .   Our audit committee consists of Mr. Joel A. Getz, Mr. Dennis Demiao Zhu and Mr. Zhengong Chang. Mr. Zhu is the chairman

of our audit committee. We have determined that Mr. Getz, Mr. Zhu and Mr. Chang satisfy the “independence” requirements of Section 303A of the
Corporate Governance Rules of the New York Stock Exchange and Rule 10A-3 under the Exchange Act. We have determined that Mr. Zhu qualifies as an
“audit committee financial expert.” The audit committee oversees our accounting and financial reporting processes and the audits of the financial statements
of our company. The audit committee is responsible for, among other things:

·                   appointing the independent auditors and pre-approving all auditing and non-auditing services permitted to be performed by the independent

auditors;

·                   reviewing with the independent auditors any audit problems or difficulties and management’s response;

·                   discussing the annual audited financial statements with management and the independent auditors;

·                   reviewing the adequacy and effectiveness of our accounting and internal control policies and procedures and any steps taken to monitor and

control major financial risk exposures;

·                   reviewing and approving all proposed related party transactions;

·                   meeting separately and periodically with management and the independent auditors; and

83

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

·                   monitoring compliance with our code of business conduct and ethics, including reviewing the adequacy and effectiveness of our procedures to

ensure proper compliance.

Compensation Committee. Our compensation committee consists of Mr. Joel A. Getz, Mr. Dennis Demiao Zhu and Mr. Zhengong Chang.
Mr. Chang is the chairman of our compensation committee. We have determined that Mr. Getz, Mr. Zhu and Mr. Chang satisfy the “independence”
requirements of Section 303A of the Corporate Governance Rules of the New York Stock Exchange. The compensation committee assists the board in
reviewing and approving the compensation structure, including all forms of compensation, relating to our directors and executive officers. Our chief
executive officer may not be present at any committee meeting during which his compensation is deliberated. The compensation committee is responsible for,
among other things:

·                   reviewing and approving, or recommending to the board for its approval, the compensation for our chief executive officer and other executive

officers;

·                   reviewing and recommending to the board for determination with respect to the compensation of our non-employee directors;

·                   reviewing periodically and approving any incentive compensation or equity plans, programs or similar arrangements; and

·                   selecting compensation consultant, legal counsel or other adviser only after taking into consideration all factors relevant to that person’s

independence from management.

Nominating and Corporate Governance Committee. Our nominating and corporate governance committee consists of Mr. Chimin Cao, Mr. Dennis
Demiao Zhu and Mr. Zhengong Chang. Mr. Cao is the chairperson of our nominating and corporate governance committee. Each of Mr. Zhu and Mr. Chang
satisfies the “independence” requirements of Section 303A of the Corporate Governance Rules of the New York Stock Exchange. The nominating and
corporate governance committee assists the board of directors in selecting individuals qualified to become our directors and in determining the composition
of the board and its committees. The nominating and corporate governance committee is responsible for, among other things:

·                   selecting and recommending to the board nominees for election by the shareholders or appointment by the board;

·                   reviewing annually with the board the current composition of the board with regards to characteristics such as independence, knowledge, skills,

experience and diversity;

·                   making recommendations on the frequency and structure of board meetings and monitoring the functioning of the committees of the board; and

·                   advising the board periodically with regards to significant developments in the law and practice of corporate governance as well as our

compliance with applicable laws and regulations, and making recommendations to the board on all matters of corporate governance and on any
remedial action to be taken.

Duties of Directors

Under Cayman Islands law, our directors owe fiduciary duties to our company, including a duty 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 owe to our
company a duty to exercise the care, and diligence that a reasonably prudent person would exercise in comparable circumstances and a duty to exercise the
skill they actually possess. 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. In certain limited exceptional circumstances, a shareholder may have the right to seek damages in our name if a
duty owed by our directors is breached.

84

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

Our board of directors has all the powers necessary for managing, and for directing and supervising, our business affairs. The functions and powers

of our board of directors include, among others:

·                   convening shareholders’ annual general meetings and reporting its work to shareholders at such meetings;

·                   declaring dividends and distributions;

·                   appointing officers and determining the term of office and responsibilities of the officers;

·                   exercising the borrowing powers of our company and mortgaging the property of our company; and

·                   approving the transfer of shares in our company, including the registration of such shares in our share register.

Terms of Directors and Officers

Our directors may be appointed by an ordinary resolution of our shareholders. Our directors are not subject to a term of office, unless such term is

expressly specified in a written agreement between the company and the director or otherwise, and hold office until such time as they are removed from
office by ordinary resolution of the shareholders. A director will also cease to be a director automatically if, among other things, the director (i) becomes
bankrupt or makes any arrangement or composition with his creditors; (ii) dies or is found by our company to be or becomes of unsound mind; (iii) resigns
his office by notice in writing to our company; or (iv) without special leave of absence from our board, is absent from three consecutive board meetings and
our board resolves that his office be vacated; or (v) is removed from office pursuant to any other provision of our articles of association. Where the office of a
director is vacated in any of these circumstances, our board of directors may appoint another director to fill the vacancy so created. Our officers are elected by
and serve at the discretion of the board of directors.

D.                                     Employees

As of December 31, 2017, 2018 and 2019, we had a total of 4,994, 5,785 and 6,547 employees, respectively. The majority of our employees are

located in China. The following table sets forth the breakdown of our own employees as of December 31, 2019 by function:

Functions:
Teaching staff in directly operated teaching facilities
Other staff in directly operated teaching facilities and supporting branch offices
Network support and supervision
Research and development*
Selling, general and administrative
Total

Number 
of 
Employees

4,069
1,919
288
48
223
6,547

*                  Note: Aside from our dedicated research and development team, many of our teaching staff and facility principals also actively participate in our daily

content development activities.

We believe we offer our employees competitive compensation packages and a merit-based work environment that encourages proactivity and

responsibility, and, as a result, we have generally been able to attract and retain qualified personnel.

85

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

We believe we offer our employees competitive compensation packages and a merit-based work environment that encourages initiative, and as a

result, we have generally been able to attract and retain qualified personnel and maintain a stable core management team.

As required by PRC regulations, we participate in various government statutory employee benefit plans, including social insurance funds, namely a

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

We enter into standard labor agreements with our employees, in addition, we enter into confidentiality and intellectual property rights agreements

with our key employees.

We believe that we maintain a good working relationship with our employees, and we have not experienced any major labor disputes.

E.                                     Share Ownership

The following table sets forth information with respect to the beneficial ownership of our ordinary shares as of March 31, 2020 by:

·                   each of our directors and executive officers; and

·                   each person known to us to own beneficially more than 5% of our total outstanding shares.

The calculations in the table below are based on 20,637,205 Class A ordinary shares and 6,949,141 Class B ordinary shares outstanding as of

March 31, 2020, excluding the company’s repurchase of 1,627,455 Class A ordinary shares in the form of ADSs made by December 31, 2019.

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 after March 31,
2020, 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.

Directors and Executive Officers:**

(1)

(3)

Chimin Cao 
(2)
Yanlai Shi 
Liang Meng 
Joel A. Getz
Dennis Demiao Zhu
Zhengong Chang
(4)
Hao Gu 
All Directors and Executive Officers as a Group

Principal Shareholders:

Ascendent Rainbow (Cayman) Limited 
(6)
Joy Year Limited 
Trump Creation Limited 
Bloom Star Limited 
RYB Education Limited 

(8)

(7)

(9)

(5)

Ordinary Shares 
Beneficially Owned

Class A 
ordinary 
 shares

Class B 
ordinary 
 shares

Total ordinary 
shares

Percentage of 
total ordinary 
shares

Percentage 
 of 
aggregate 
voting 
†
 power 

4,544,745
2,084,384
5,713,612
—
—
—
*
12,360,276

5,713,612
4,135,854
2,108,691
—
300,741

86

2,059,005
2,059,005
2,831,131
—
—
—
—
6,949,141

2,831,131
2,059,005
—
1,194,865
864,140

6,603,750
4,143,389
8,544,743
—
—
—
*
19,309,417

8,544,743
6,194,859
2,108,691
1,194,865
1,164,881

22.5%
14.1%
31.0%
—
—
—
*
67.6%

31.0%
21.1%
7.6%
4.1%
4.0%

27.8%
24.7%
37.8%
—
—
—
*
90.2%

37.8%
27.4%
2.3%
13.3%
9.9%

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
  
  
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
  
  
  
 
  
  
  
  
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

†                  For each person and group included in this column, percentage of voting power is calculated by dividing the voting power beneficially owned by such

person or group by the voting power of all of our Class A and Class B ordinary shares as a single class. Each holder of Class A ordinary shares is entitled
to one vote per share and each holder of our Class B ordinary shares is entitled to ten votes per share on all matters submitted to them for a vote. Our
Class A ordinary shares and Class B ordinary shares vote together as a single class on all matters submitted to a vote of our shareholders, except as may
otherwise be required by law. Our Class B ordinary shares are convertible at any time by the holder thereof into Class A ordinary shares on a one-for-one
basis.

*                  Less than 1% of our total outstanding ordinary shares.

**           Except for Messrs. Liang Meng, Dennis Demiao Zhu and Zhengong Chang, the business address of our directors and executive officers is c/o 4/F,

No. 29 Building, Fangguyuan Section 1, Fangzhuang, Fengtai District, Beijing, People’s Republic of China. The business address of Mr. Liang Meng’s is
Suite 1609, 16/F, Jardine House, 1 Connaught Place, Central, Hong Kong. The business address of Mr. Dennis Demiao Zhu is Park Avenue 2-29G, 6
Chaoyang Park Nanlu, Beijing, 100026, People’s Republic of China. The business address of Mr. Zhengong Chang is 710-131 Upper Duke Cres.
Markham ON, L6G 0B6, Canada.

(1)          Represents (i) 4,135,854 Class A ordinary shares and 2,059,005 Class B ordinary shares held by Joy Year Limited, a British Virgin Islands company,
(ii) 368,891 Class A ordinary shares Top Genius Ventures Limited, a British Virgin Islands company, has the right to acquire upon exercise of option
within 60 days after March 31, 2020, and (iii) 40,000 restricted share units issuable to Mr. Cao within 60 days after March 31, 2020. Both Joy Year
Limited and Top Genius Ventures Limited are ultimately held by The Top Genius Trust, a trust established with the laws of Guernsey and managed by
Credit Suisse Trust Limited as the trustee. Mr. Chimin Cao is the settlor of The Top Genius Trust, and Mr. Cao and his family members are the trust’s
beneficiaries. Under the terms of this trust, Mr. Cao has the power to direct the trustee with respect to the retention or disposal of, and the exercise of any
voting and other rights attached to the shares held by Joy Year Limited and Top Genius Ventures Limited in our company.

(2)          Represents (i) 1,194,865 Class B ordinary shares held by Bloom Star Limited, a British Virgin Islands company, (ii) 300,741 Class A ordinary shares
and 864,140 Class B ordinary shares held by RYB Education Limited, a Cayman Islands company, (iii) 1,743,643 Class A ordinary shares Noble Hero
Holdings Limited, a British Virgin Islands company, has the right to acquire upon exercise of option within 60 days after March 31, 2020, and (iv) 40,000
restricted share units issuable to Ms. Shi within 60 days after March 31, 2020. Bloom Star Limited, Noble Hero Holdings Limited and RYB Education
Limited are all ultimately held by The Noble Hero Trust, a trust established with the laws of Guernsey and managed by Credit Suisse Trust Limited as
the trustee. Ms. Yanlai Shi is the settlor of The Noble Hero Trust, and Ms. Shi and her family members are the trust’s beneficiaries. Under the terms of
this trust, Ms. Shi has the power to direct the trustee with respect to the retention or disposal of, and the exercise of any voting and other rights attached
to the shares held by Bloom Star Limited, Noble Hero Holdings Limited and RYB Education Limited in our company.

(3)          Represents the 5,713,612 Class A ordinary shares and 2,831,131 Class B ordinary shares held by Ascendent Rainbow (Cayman) Limited. Mr. Liang

Meng is a director of, and holds 50% of equity interests in, Ascendent Capital Partners II GP Limited, the general partner of Ascendent Capital Partners
II GP, L.P., which in turn is the general partner of Ascendent Capital Partners II, L.P., the sole shareholder of Ascendent Rainbow (Cayman) Limited.

(4)          Represents the Class A ordinary shares Mr. Hao Gu has the right to acquire upon exercise of option or vesting of restricted shares within 60 days after

March 31, 2020.

(5)          Represents the 5,713,612 Class A ordinary shares and 2,831,131 Class B ordinary shares held by Ascendent Rainbow (Cayman) Limited. The registered
address of Ascendent Rainbow (Cayman) Limited is at the office of Walkers Corporate Limited, Cayman Corporate Centre, 27 Hospital Road, George
Town, Grand Cayman KY1-9008, Cayman Islands. Ascendent Rainbow (Cayman) Limited is wholly owned by Ascendent Capital Partners II, L.P., a
Cayman Islands limited partnership, whose general partner is Ascendent Capital Partners II GP, L.P., another Cayman Islands limited partnership. The
general partner of Ascendent Capital Partners II GP., L.P. is Ascendent Capital Partners II GP Limited, a Cayman Islands company. Mr. Liang Meng is a
director, and holds 50% of equity interests in, Ascendent Capital Partners II GP Limited.

(6)          Represents the 4,135,854 Class A ordinary shares and 2,059,005 Class B ordinary shares held by Joy Year Limited, a British Virgin Islands company.
Joy Year Limited is ultimately held by The Top Genius Trust. Mr. Chimin Cao is the settlor and proctor of The Top Genius Trust, and Mr. Cao and his
family members are its beneficiaries. Under the terms of this trust, Mr. Cao has the power to direct the trustee with respect to the retention or disposal of,
and the exercise of any voting and other rights attached to the shares held by Joy Year Limited in our company. The registered address of Joy Year
Limited is P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands.

(7)          Represents the 2,108,691 Class A ordinary shares held by Trump Creation Limited, a British Virgin Islands company. The registered address of Trump

Creation Limited is P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands.

(8)          Represents the 1,194,865 Class B ordinary shares held by Bloom Star Limited, a British Virgin Islands company. Bloom Star Limited is ultimately held
by The Noble Hero Trust, a trust established with the laws of Guernsey and managed by Credit Suisse Trust Limited as the trustee. Ms. Yanlai Shi is the
settlor of The Noble Hero Trust, and Ms. Shi and her family members are the trust’s beneficiaries. Under the terms of this trust, Ms. Shi has the power to
direct the trustee with respect to the retention or disposal of, and the exercise of any voting and other rights attached to the shares held by Bloom Star
Limited in our company.

(9)          Represents the 300,741 Class A ordinary shares and 864,140 Class B ordinary shares held by RYB Education Limited, a Cayman Islands company. RYB
Education Limited is ultimately held by The Noble Hero Trust. Ms. Yanlai Shi is the settlor and proctor of The Noble Hero Trust, and Ms. Shi and her
family members are its beneficiaries. Under the terms of this trust, Ms. Shi has the power to direct the trustee with respect to the retention or disposal of,
and the exercise of any voting and other rights attached to the shares held by RYB Education Limited in our company.

87

 
 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

To our knowledge, as of March 31, 2020, 9,938,323 of our ordinary shares were held by one record holder in the United States, which was Citibank,

N.A., the depositary of our ADS program. The number of beneficial owners of our ADSs in the United States is likely to be much larger than the number of
record holders of our ordinary shares in the United States.

ITEM 7.         MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A.                                     Major Shareholders

Please refer to “Item 6. Directors, Senior Management and Employees—E. Share Ownership.”

B.                                     Related Party Transactions

Contractual Arrangements with our Variable Interest Entity and its Shareholders

See “Item 4. Information on the Company—C. Organizational Structure.”

Registration Rights Agreement

We have granted certain registration rights to Ascendent. Set forth below is a description of the registration rights granted under our agreement with

Ascendent.

Demand Registration Rights .   At any time after 180 days after the effective date of the registration statement for a public offering, Ascendent has
the right to demand that we file a registration statement covering the registration of any of its registrable securities. We are not obligated to effect more than
two demand registrations, other than demand registration to be effected pursuant to registration statement on Form F-3, for which an unlimited number of
demand registrations shall be permitted.

Piggyback Registration Rights .   If we propose to file a registration statement for a public offering of our securities, we must offer Ascendent an
opportunity to include in the registration the number of registrable securities of the same class or series as those proposed to be registered. If the managing
underwriters of any underwritten offering determine in its view the number of registrable securities exceeds the maximum offering size, the registrable
securities shall allocate first to us, second to Ascendent and third to any other holders of our securities; provided that Ascendent shall be entitled to register
the offer and sale or distribute at least 50% of the securities to be included in any such registration statement.

Form F-3 Registration Rights .   Ascendent may request us in writing to file an unlimited number of registration statements on Form F-3 of

registrable securities with total value of no less than US$10 million. Within two months of receiving such request, we shall effect the registration of the
securities on Form F-3.

Employment Agreements and Indemnification Agreements

See “Item 6. Directors, Senior Management and Employees—A. Directors and Senior Management—Employment Agreements and Indemnification

Agreements.”

Share Incentive Plan

See “Item 6. Directors, Senior Management and Employees—B. Compensation of Directors and Executive Officers—2009 Share Incentive Plan”

and “—2017 Share Incentive Plan.”

Other Transactions with Related Parties

We have rented certain facilities from Ms. Zhiying Li, the spouse of Mr. Chimin Cao, our co-founder and Chairman of the Board. During 2017, 2018
and 2019, we incurred US$0.3 million, US$0.3 million and US$0.5 million, in rental expenses to Ms. Li. We had nil, nil and nil million due from Ms. Li as of
December 31, 2017, 2018 and 2019, respectively, as prepaid rental expenses for the next year.

We have also extended loans that are interest-free, unsecured and payable on demand to certain related parties.

We have historically extended such loans to Mr. Chimin Cao and entities controlled by him for his personal use. As of December 31, 2016, the

outstanding principal amount under such loans extended to Mr. Cao and an entity controlled by him was US$0.1 million. These loans were fully repaid in
June 2017.

88

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

We have historically extended such loans to Ms. Yanlai Shi and entities controlled by her for her personal use. As of December 31, 2016, the

outstanding principal amount under such loans extended to Ms. Shi and entities controlled by her was US$3.6 million. These loans were fully repaid in
June 2017.

In 2016, we extended such loans to Hainan RYB International Kindergarten Management Co., Ltd., our equity investee, for working capital use. As

of December 31, 2019, the outstanding principal amount under such loans was nil.

In November 2015, as part of the repurchase of series B preferred shares of our company, Glossy Growth Limited, a company controlled by

Mr. Chimin Cao and Ms. Yanlai Shi, made capital contribution to our company in the amount of US$2.0 million. In June 2017, we determined a return of
capital at US$2.0 million in the aggregate to Mr. Cao and Ms. Shi in relation to this capital contribution. US$1.01 million of the return of capital was used to
offset a US$1.01 million interest-free loan extended to Glossy Growth Limited in March 2017 and the balance of US$0.99 million has been repaid as of
December 31, 2017.

C.                                     Interests of Experts and Counsel

Not applicable.

ITEM 8.         FINANCIAL INFORMATION

A.                                     Consolidated Statements and Other Financial Information

We have appended consolidated financial statements filed as part of this annual report.

Legal Proceedings

We and certain of our directors and officers were named as defendants in two putative class actions filed in the United States District Court for the
Southern District of New York:  Qian v. RYB Education, Inc. et al. , Case No. 1:17-cv-09261-KPF (S.D.N.Y.) and Wang v. RYB Education, Inc. et al ., Case
No. 1:17-cv-09320-UA (S.D.N.Y.).  The complaints in both actions allege that our registration statements contained misstatements or omissions regarding our
business, operation, and compliance in violation of the U.S. securities laws.  The complaints state that the plaintiffs seek to represent a class of persons who
allegedly suffered damages as a result of their trading in our securities between September 27 and November 22, 2017, and allege violations of Sections
10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder, and Sections 11 and 15 of the Securities Act of 1933.  On
January 3, 2018, the court entered an order consolidating the two cases. On June 18, 2018, the consolidated action was voluntarily dismissed without
prejudice.

We, certain of our directors and officers, and certain underwriters for our initial public offering were also named as defendants in a putative class
action filed in the Superior Court of the State of California for the County of San Mateo:  Qian v. RYB Education, Inc. et al ., Case No. 17CIV05494.  The
complaint alleges that our registration statements contained misstatements or omissions regarding our business, operations and prospects in violation of the
U.S. securities laws.  The complaint states that the plaintiffs seek to represent a class of persons who allegedly suffered damages as a result of their purchase
or other acquisition of our securities in connection with our initial public offering on or about September 27, 2017, and alleges violations of Sections 11, 12(a)
(2) and 15 of the Securities Act of 1933. On September 5, 2018, the case was stayed on forum non conveniens grounds.

We and certain of our directors and officers were also named as defendants in a putative class action filed in the Supreme Court of the State of New

York for the County of Queens: Zhang v. RYB Education, Inc. et al. , Index No. 717923/2018.  The complaint alleges that our registration statements
contained misstatements or omissions regarding our business, operations and prospects in violation of the U.S. securities laws.  The complaint states that the
plaintiffs seek to represent a class of persons who allegedly suffered damages as a result of their purchase or other acquisition of our securities in connection
with our initial public offering on or about September 27, 2017, and alleges violations of Sections 11, 12(a)(2) and 15 of the Securities Act of 1933. This case
remains in its preliminary stage, we express no opinion on the likelihood of any unfavorable outcome or any estimate of the amount or range of any potential
loss.

89

 
 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

Dividend Policy

Our board of directors has discretion on whether to distribute dividends, subject to certain restrictions under 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, our company may only pay dividends out of either 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. Even if our board of
directors decides to pay dividends on our ordinary shares, the form, frequency and amount will depend upon our future operations and earnings, capital
requirements and surplus, general financial condition, contractual restrictions and other factors that our board of directors may deem relevant.

We do not have any present plan to pay any cash dividends on our ordinary shares in the foreseeable future. We currently intend to retain most, if not

all, of our available funds and any future earnings to operate and expand our business.

We are a holding company incorporated in the Cayman Islands. We may rely on dividends from our subsidiaries in China for our cash requirements,

including any payment of dividends to our shareholders. PRC regulations may restrict the ability of our PRC subsidiary to pay dividends to us. See “Item 4.
Information on the Company—B. Business Overview—Regulation—Regulations Relating to Foreign Exchange—Dividend Distribution.”

If we pay any dividends on our ordinary shares, we will pay those dividends which are payable in respect of the Class A ordinary shares underlying

our ADSs to the depositary, as the registered holder of such Class A ordinary shares, and the depositary then will pay such amounts to our ADS holders in
proportion to Class A ordinary shares underlying the ADSs held by such ADS holders, subject to the terms of the deposit agreement, including the fees and
expenses payable thereunder. Cash dividends on our ordinary shares, if any, will be paid in U.S. dollars.

B.                                     Significant Changes

We have not experienced any significant changes since the date of our audited consolidated financial statements included in this annual report.

ITEM 9.         THE OFFER AND LISTING

A.                                     Offering and Listing Details

See “ —C. Markets.”

B.                                     Plan of Distribution

Not applicable.

C.                                     Markets

Our ADSs, each representing one Class A ordinary share of ours, have been listed on the New York Stock Exchange since September 27, 2017 under

the symbol “RYB.”

D.                                     Selling Shareholders

Not applicable.

E.                                     Dilution

Not applicable.

F.                                      Expenses of the Issue

Not applicable.

90

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

ITEM 10.       ADDITIONAL INFORMATION

A.                                     Share Capital

Not applicable.

B.                                     Memorandum and Articles of Association

The following are summaries of material provisions of our fifth amended and restated memorandum and articles of association, as well as the

Companies Law (2020 Revision) insofar as they relate to the material terms of our ordinary shares.

Objects of Our Company. Under our memorandum and articles of association, the objects of our company are unrestricted and we have the full

power and authority to carry out any object not prohibited by the law of the Cayman Islands.

Ordinary Shares. Our ordinary shares are issued in registered form, and are issued when registered in our register of shareholders. We may not issue

share to bearer. Our shareholders who are nonresidents of the Cayman Islands may freely hold and vote their shares.

Conversion. Each Class B ordinary share is convertible into one Class A ordinary share at any time at the option of the holder thereof. Class A

ordinary shares are not convertible into Class B ordinary shares under any circumstances. Upon any sale, transfer, assignment or disposition of any Class B
ordinary shares by a holder thereof to any person or entity that is not an Affiliate (as defined in our articles of association) of such holder, or upon a change of
ultimate beneficial ownership of any Class B ordinary share to any person or entity that is not an Affiliate of the registered holder of such shares, such
Class B ordinary shares will be automatically and immediately converted into an equal number of Class A ordinary shares. In addition, if at any time,
Mr. Chimin Cao, Ms. Yanlai Shi and their respective affiliates collectively hold less than 5% of the issued and outstanding share capital of our company, each
issued and outstanding Class B ordinary share shall be automatically re-designated into one Class A ordinary share, and we will not issue any Class B
ordinary shares thereafter.

Dividends. The holders of our ordinary shares are entitled to such dividends as may be declared by our board of directors. In addition, our
shareholders may declare dividends by ordinary resolution, but no dividend shall exceed the amount recommended by our directors. Our articles of
association provide that dividends may be declared and paid out of the funds of our company lawfully available therefor, which under Cayman law includes
our profits, realized or unrealized, and any reserve set aside from funds legally available for distribution. Under the laws of the Cayman Islands, our company
may pay a dividend out of either profits or share premium account, provided that in no circumstances may a dividend be paid if this would result in our
company being unable to pay its debts as they fall due in the ordinary course of business.

Voting Rights. Voting at any shareholders’ meeting is by show of hands unless a poll is demanded (before or on the declaration of the result of the

show of hands). A poll may be demanded by the chairman of such meeting or any shareholder present in person or by proxy at the meeting.

An ordinary resolution to be passed at a meeting by the shareholders requires the affirmative vote of a simple majority of the votes cast by
shareholders entitled to do so at a meeting, while a special resolution requires the affirmative vote of no less than two-thirds of the votes cast by shareholders
entitled to do so at a meeting. A special resolution will be required for important matters such as a change of name or making changes to our memorandum
and articles of association. Holders of the ordinary shares may, among other things, divide or combine their shares by ordinary resolution.

General Meetings of Shareholders.   As a Cayman Islands exempted company, we are not obliged by the Companies Law to call shareholders’

annual general meetings. Our memorandum and articles of association provide that we may (but are not obliged to) in each year hold a general meeting as our
annual general meeting in which case we shall specify the meeting as such in the notices calling it, and the annual general meeting shall be held at such time
and place as may be determined by our directors.

Shareholders’ general meetings may be convened by the chairman of our board or a majority of our board of directors. Advance notice of at least ten
calendar days is required for the convening of our annual general shareholders’ meeting (if any) and any other general meeting of our shareholders. A quorum
required for any general meeting of shareholders consists of at least one shareholder present or representing by proxy, representing not less than one-third of
all votes attaching to all of our shares in issue and entitled to vote.

91

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

The Companies Law provides shareholders with only limited rights to requisition a general meeting, and does not provide shareholders with any
right to put any proposal before a general meeting. However, these rights may be provided in a company’s articles of association. Our memorandum and
articles of association provide that upon the requisition of shareholders representing in aggregate not less than one-third of the votes attaching to the issued
and outstanding shares of our company entitled to vote at general meetings as at the date of the deposit, our board will convene an extraordinary general
meeting and put the resolutions so requisitioned to a vote at such meeting. However, our memorandum and articles of association do not provide our
shareholders with any right to put any proposals before annual general meetings or extraordinary general meetings not called by such shareholders.

Transfer of Ordinary Shares. Subject to the restrictions set out below, any of our shareholders may transfer all or any of his or her ordinary shares

by an instrument of transfer in the usual or common form or such other form approved by our board of directors.

Our board of directors may, in its absolute discretion, decline to register any transfer of any ordinary share which is not fully paid up or on which we

have a lien. Our board of directors may also decline to register any transfer of any ordinary share unless:

·                   the instrument of transfer is lodged with us, accompanied by the certificate for the ordinary shares to which it relates and such other evidence as

our board of directors may reasonably require to show the right of the transferor to make the transfer;

·                   the instrument of transfer is in respect of only one class of ordinary shares;

·                   the instrument of transfer is properly stamped, if required; and

·                   in the case of a transfer to joint holders, the number of joint holders to whom the ordinary share is to be transferred does not exceed four.

·                   a fee of such maximum sum as the New York Stock Exchange may determine to be payable or such lesser sum as our directors may from time

to time require is paid to us in respect thereof.

If our directors refuse to register a transfer they shall, within three calendar months after the date on which the instrument of transfer was lodged,

send to each of the transferor and the transferee notice of such refusal.

The registration of transfers may, on ten calendar days’ notice being given by advertisement in such one or more newspapers by electronic means or
by any other means in accordance with the rules of the New York Stock Exchange, be suspended and the register closed at such times and for such periods as
our board of directors may from time to time determine, provided always that the registration of transfers shall not be suspended nor the register closed for
more than 30 calendar days in any calendar year.

Liquidation. On the winding up of our company, if the assets available for distribution amongst our shareholders shall be more than sufficient to
repay the whole of the share capital at the commencement of the winding up, the surplus shall be distributed amongst our shareholders in proportion to the
par value of the shares held by them at the commencement of the winding up, subject to a deduction from those shares in respect of which there are monies
due, of all monies payable to our company for unpaid calls or otherwise. If our assets available for distribution are insufficient to repay the whole of the share
capital, the assets will be distributed so that, as nearly as may be, the losses are borne by our shareholders in proportion to the par value of the shares held by
them.

Calls on Shares and Forfeiture of Shares. Our board of directors may from time to time make calls upon shareholders in respect of any moneys

unpaid on their shares in a notice served to such shareholders at least 14 calendar days prior to the specified time of payment. The shares that have been
called upon and remain unpaid are subject to forfeiture.

92

 
 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

Redemption, Repurchase and Surrender of Shares. We may issue shares on terms that such shares are subject to redemption, at our option or at the
option of the holders thereof, on such terms and in such manner as may be determined, before the issue of such shares, by either our board of directors or by a
special resolution of our shareholders. Our company may also repurchase any of our shares on such terms and in such manner as have been approved by our
board of directors or by an ordinary resolution of our shareholders, or are otherwise authorized by our memorandum and articles of association. Under the
Companies Law, the redemption or repurchase of any share may be paid out of our company’s profits or out of the proceeds of a new issue of shares made for
the purpose of such redemption or repurchase, or out of capital (including share premium account and capital redemption reserve) if our company can,
immediately following such payment, pay its debts as they fall due in the ordinary course of business. In addition, under the Companies Law no such share
may be redeemed or repurchased (a) unless it is fully paid up, (b) if such redemption or repurchase would result in there being no shares outstanding or (c) if
the company has commenced liquidation. In addition, our company may accept the surrender of any fully paid share for no consideration.

Variations of Rights of Shares. If at any time, our share capital is divided into different classes or series of shares, the rights attached to any class or
series of shares (unless otherwise provided by the terms of issue of the shares of that class or series), whether or not our company is being wound-up, may be
materially adversely varied with the consent in writing of the holders of two-thirds of the issued shares of that class or series or with the sanction of a special
resolution passed at a separate meeting of the holders of the shares of that class or series. The rights conferred upon the holders of the shares of any class
issued shall not, unless otherwise expressly provided by the terms of issue of the shares of that class, be deemed to be materially adversely varied by the
creation or issue of further shares ranking pari passu with such existing class of shares.

Issuance of Additional Shares. Our memorandum and articles of association authorizes our board of directors to issue additional ordinary shares

from time to time as our board of directors shall determine, to the extent of available authorized but unissued shares.

Our memorandum and articles of association also authorizes our board of directors to establish from time to time one or more series of preference

shares and to determine, with respect to any series of preference shares, the terms and rights of that series, including:

·                   the designation of the series;

·                   the number of shares of the series;

·                   the dividend rights, dividend rates, conversion rights, voting rights; and

·                   the rights and terms of redemption and liquidation preferences.

Our board of directors may issue preference shares without action by our shareholders to the extent authorized but unissued. Issuance of these shares

may dilute the voting power of holders of ordinary shares.

Inspection of Books and Records. Holders of our ordinary shares will have no general right under Cayman Islands law to inspect or obtain copies of

our list of shareholders or our corporate records. However, our board of director may from time to time determine whether the accounts and books of the
Company shall be open to the inspection of our shareholders.

Anti-Takeover Provisions. Some provisions of our memorandum and articles of association may discourage, delay or prevent a change of control of

our company or management that shareholders may consider favorable, including provisions that:

·                   authorize our board of directors to issue preference shares in one or more series and to designate the price, rights, preferences, privileges and

restrictions of such preference shares without any further vote or action by our shareholders; and

·                   limit the ability of shareholders to requisition and convene general meetings of shareholders.

However, under Cayman Islands law, our directors may only exercise the rights and powers granted to them under our memorandum and articles of

association for a proper purpose and for what they believe in good faith to be in the best interests of our company.

93

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

Exempted Company. We are an exempted company with limited liability incorporated under the Companies Law. The Companies Law distinguishes

between ordinary resident companies and exempted companies. Any company that is registered in the Cayman Islands but conducts business mainly outside
of the Cayman Islands may apply to be registered as an exempted company. The requirements for an exempted company are essentially the same as for an
ordinary company except that an exempted company:

·                   does not have to file an annual return of its shareholders with the Registrar of Companies;

·                   is not required to open its register of members for inspection;

·                   does not have to hold an annual general meeting;

·                   may issue negotiable or bearer shares or shares with no par value;

·                   may obtain an undertaking against the imposition of any future taxation (such undertakings are usually given for 20 years in the first instance);

·                   may register by way of continuation in another jurisdiction and be deregistered in the Cayman Islands;

·                   may register as a limited duration company; and

·                   may register as a segregated portfolio company.

“Limited liability” means that the liability of each shareholder is limited to the amount unpaid by the shareholder on the shares of the company.

C.                                     Material Contracts

We have not entered into any material contracts other than in the ordinary course of business and other than those described in “Item 4. Information
on the Company”, “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions,” in this “Item 10. Additional Information—
C. Material Contracts” or elsewhere in this annual report on Form 20-F.

D.                                     Exchange Controls

See “Item 4. Information on the Company—B. Business Overview—Regulation—Regulations Relating to Foreign Exchange.”

E.                                     Taxation

The following summary of the material Cayman Islands, PRC and U.S. federal income tax consequences of an investment in our ADSs or ordinary
shares is based upon laws and relevant interpretations thereof in effect as of March 31, 2020, all of which are subject to change. This summary does not deal
with all possible tax consequences relating to an investment in our ADSs or ordinary shares, such as the tax consequences under U.S. state and local tax laws
or under the tax laws of jurisdictions other than the Cayman Islands, the People’s Republic of China and the United States.

Cayman Islands Taxation

The Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains or appreciation and there is no

taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to us levied by the government of the Cayman Islands
except for stamp duties which may be applicable on instruments executed in, or after execution brought within the jurisdiction of the Cayman Islands. The
Cayman Islands is not party to any double tax treaties that are applicable to any payments made to or by our company. There are no exchange control
regulations or currency restrictions in the Cayman Islands.

Payments of dividends and capital in respect of the ADSs and ordinary 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 our ordinary shares, nor will gain derived from the disposal of the shares
be subject to Cayman Islands income or corporation tax.

94

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

No stamp duty is payable in respect of the issue of our ordinary shares or on an instrument of transfer in respect of our ordinary shares.

People’s Republic of China Taxation

Under the PRC Enterprise Income Tax Law and its implementation rules, an enterprise established outside of the PRC with “de facto management
body” within the PRC is considered a resident enterprise. 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 April 2009, the
State Administration of Taxation 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 State Administration of Taxation’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: (i) the primary
location of the day-to-day operational management is in the PRC; (ii) 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; (iii) the enterprise’s primary assets, accounting books and records, company seals, and
board and shareholder resolutions, are located or maintained in the PRC; and (iv) at least 50% of voting board members or senior executives habitually reside
in the PRC.

We believe that RYB Education, Inc. is not a PRC resident enterprise for PRC tax purposes. RYB Education, Inc. is not controlled by a PRC

enterprise or PRC enterprise group and we do not believe that RYB Education, Inc. meets all of the conditions above. RYB Education, Inc. is a company
incorporated outside the PRC. 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. 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 RYB Education, Inc. is a PRC resident enterprise for enterprise income tax purposes, we will be subject to
PRC enterprise income tax on our worldwide income at the rate of 25%. Furthermore, 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 our ADSs. In addition, non-resident enterprise shareholders (including
our 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. Furthermore, if we are deemed a PRC resident enterprise, dividends payable to our non-PRC individual shareholders (including
our 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% unless a
reduced rate is available under an applicable tax treaty. It is also unclear whether non-PRC shareholders of RYB Education, Inc. would be able to claim the
benefits of any tax treaties between their country of tax residence and the PRC in the event that RYB Education, Inc. is treated as a PRC resident enterprise.

In January 2009, the State Administration of Taxation promulgated the Provisional Measures for the Administration of Withholding of Enterprise

Income Tax for Non-resident Enterprises, pursuant to which the entities that have the direct obligation to make certain payments to a non-resident enterprise
should be the relevant tax withholders for the non-resident enterprise, and such payments include: income from equity investments (including dividends and
other return on investment), interest, rents, royalties and income from assignment of property as well as other incomes subject to enterprise income tax
received by non-resident enterprises in China. Further, the measures provide that in case of an equity transfer between two non-resident enterprises which
occurs outside China, the non-resident enterprise which receives the equity transfer payment must, by itself or engage an agent to, file tax declaration with the
PRC tax authority located at place of the PRC company whose equity has been transferred, and the PRC company whose equity has been transferred should
assist the tax authorities to collect taxes from the relevant non-resident enterprise.

95

 
 
 
 
 
 
 
Table of Contents

The State Administration of Taxation issued an SAT Circular 59 together with the Ministry of Finance in April 2009 and a SAT Circular 698 in
December 2009. By promulgating and implementing these two circulars, the PRC tax authorities have enhanced their scrutiny over the direct or indirect
transfer of equity interests in a PRC resident enterprise by a non-resident enterprise. Under SAT Circular 698, where a non-resident enterprise transfers the
equity interests of a PRC “resident enterprise” indirectly by disposition of the equity interests of an overseas holding company, and the overseas holding
company is located in a tax jurisdiction that: (1) has an effective tax rate less than 12.5% or (2) does not tax foreign income of its residents, the non-resident
enterprise, being the transferor, must report to the relevant tax authority of the PRC “resident enterprise” the indirect transfer. On February 3, 2015, the SAT
issued a Public Notice Regarding Certain Corporate Income Tax Matters on Indirect Transfer of Properties by Non-Tax Resident Enterprises, or SAT Bulletin
7, to supersede the rules with respect to the Indirect Transfer under SAT Circular 698. SAT Bulletin 7 has introduced a new tax regime that is significantly
different from the previous one under SAT Circular 698. SAT Bulletin 7 extends its tax jurisdiction to not only Indirect Transfers set forth under SAT Circular
698 but also transactions involving transfer of other taxable assets through offshore transfer of a foreign intermediate holding company. In addition, SAT
Bulletin 7 provides clearer criteria than SAT Circular 698 for assessment of reasonable commercial purposes and has introduced safe harbors for internal
group restructurings and the purchase and sale of equity through a public securities market. SAT Bulletin 7 also brings challenges to both foreign transferor
and transferee (or other person who is obligated to pay for the transfer) of taxable assets.

On October 17, 2017, the SAT issued the Announcement of the State Administration of Taxation on Issues Concerning the Withholding of

Nonresident Enterprise Income Tax at Source, or SAT Bulletin 37, which came into effect on December 1, 2017. The SAT Bulletin 37 further clarifies the
practice and procedure of the withholding of non-resident enterprise income tax. Where a non-resident enterprise transfers taxable assets indirectly by
disposing of the equity interests of an overseas holding company, which is an Indirect Transfer, the non-resident enterprise as either transferor or transferee,
or the PRC entity that directly owns the taxable assets, may report such Indirect Transfer to the relevant tax authority. 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 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. Both the transferor and the transferee may be subject to penalties under PRC tax
laws if the transferee fails to withhold the taxes and the transferor fails to pay the taxes.

Our company may be subject to filing obligations or taxed if our company is transferor in such transactions, and may be subject to withholding

obligations if our company is transferee in such transactions, under SAT Bulletin 7 and/or SAT Bulletin 37. For transfer of shares in our company by investors
that are non-PRC resident enterprises, our PRC subsidiaries may be requested to assist in the filing under SAT Bulletin 7 and/or SAT Bulletin 37. As a result,
we may be required to expend valuable resources to comply with SAT Bulletin 7 and/or SAT Bulletin 37 or to request the relevant transferors from whom we
purchase taxable assets to comply with these circulars, or to establish that our company should not be taxed under these circulars, which may have a material
adverse effect on our financial condition and results of operations.

United States Federal Income Tax Considerations

The following discussion is a summary of U.S. federal income tax considerations generally applicable to the ownership and disposition of our ADSs

or Class A ordinary shares by a U.S. Holder (as defined below) that holds our ADSs as “capital assets” (generally, property held for investment) under the
U.S. Internal Revenue Code of 1986, as amended, or the Code. This discussion is based upon existing U.S. federal tax law, which is subject to differing
interpretations or change, possibly with retroactive effect. No ruling has been sought from the Internal Revenue Service, or the IRS, with respect to any U.S.
federal income tax considerations described below, and there can be no assurance that the IRS or a court will not take a contrary position. This discussion,
moreover, does not address the Medicare tax on certain net investment income, the U.S. federal estate, gift and alternative minimum tax considerations,
information reporting or backup withholding, or any state, local and non-U.S. tax considerations, relating to the ownership or disposition of our ADSs or
Class A ordinary shares. The following summary does not address all aspects of U.S. federal income taxation that may be important to particular investors in
light of their individual circumstances or to persons in special tax situations such as:

·                   banks and other financial institutions;

96

 
 
 
 
 
 
 
Table of Contents

·                   insurance companies;

·                   pension plans;

·                   cooperatives;

·                   regulated investment companies;

·                   real estate investment trusts;

·                   broker-dealers;

·                   traders in securities that elect to use a mark-to-market method of accounting;

·                   certain former U.S. citizens or long-term residents;

·                   tax-exempt entities (including private foundations);

·                   persons liable for alternative minimum tax;

·                   individual retirement accounts or other tax-deferred accounts;

·                   holders who acquire their ADSs or Class A ordinary shares pursuant to any employee share option or otherwise as compensation;

·                   investors that will hold their ADSs or Class A ordinary shares as part of a straddle, hedge, conversion, constructive sale or other integrated

transaction for U.S. federal income tax purposes;

·                   investors that have a functional currency other than the U.S. dollar;

·                   persons that actually or constructively own 10% or more of our voting stock (by vote or value); or

·                   partnerships or other entities taxable as partnerships for U.S. federal income tax purposes, or persons holding common stock through such

entities.

all of whom may be subject to tax rules that differ significantly from those discussed below.

Each U.S. Holder is urged to consult its tax advisor regarding the application of U.S. federal tax law to its particular circumstances, and the state,

local, non-U.S. and other tax considerations of the ownership and disposition of our ADSs or Class A ordinary shares.

General

For purposes of this discussion, a “U.S. Holder” is a beneficial owner of our ADSs or Class A ordinary shares that is, for U.S. federal income tax

purposes:

·                   an individual who is a citizen or resident of the United States;

·                   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;

·                   an estate the income of which is includible in gross income for U.S. federal income tax purposes regardless of its source; or

·                   a trust (A) the administration of which is subject to the primary supervision of a U.S. court and which has one or more U.S. persons who have
the authority to control all substantial decisions of the trust or (B) that has otherwise validly elected to be treated as a U.S. person under the
Code.

97

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

If a partnership (or other entity treated as a partnership for U.S. federal income tax purposes) is a beneficial owner of our ADSs or Class A ordinary
shares, the tax treatment of a partner in the partnership will generally depend upon the status of the partner and the activities of the partnership. Partnerships
holding our ADSs or Class A ordinary shares and their partners are urged to consult their tax advisors regarding an investment in our ADSs or Class A
ordinary shares.

For U.S. federal income tax purposes, it is generally expected that a U.S. Holder of ADSs will be treated as the beneficial owner of the underlying

shares represented by the ADSs. The remainder of this discussion assumes that a U.S. Holder of our ADSs will be treated in this manner. Accordingly,
deposits or withdrawals of Class A ordinary shares for ADSs will generally not be subject to U.S. federal income tax.

Passive Foreign Investment Company Considerations

A non-U.S. corporation, such as our company, will be classified as a PFIC, for U.S. federal income tax purposes for any taxable year, if either

(i) 75% or more of its gross income for such year consists of certain types of “passive” income or (ii) 50% or more of the value of its assets (determined on
the basis of a quarterly average) during such year is attributable to assets that produce or are held for the production of passive income. For this purpose, cash
and assets readily convertible into cash are categorized as a passive asset and the company’s goodwill and other unbooked intangibles are taken into account.
Passive income generally includes, among other things, dividends, interest, rents, royalties, and gains from the disposition of passive assets. We will be
treated as owning a proportionate share of the assets and earning a proportionate share of the income of any other corporation in which we own, directly or
indirectly, more than 25% (by value) of the stock.

Although the law in this regard is not entirely clear, we treat our consolidated VIE as being owned by us for U.S. federal income tax purposes

because we control its management decisions and are entitled to substantially all of the economic benefits associated with this entity. As a result, we
consolidate its results of operations in our consolidated U.S. GAAP financial statements. If it were determined, however, that we are not the owner of the
consolidated VIE 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 VIE for U.S. federal income tax purposes, and based upon our current and projected income and assets and
the market value of our ADSs, we do not believe we are a PFIC for the taxable year ended December 31, 2019 and do not anticipate becoming a PFIC in the
foreseeable future. While we do not anticipate being or becoming a PFIC in the current or foreseeable taxable years, no assurance can be given in this regard
because the determination of whether we will be or become a PFIC is a factual determination made annually that will depend, in part, upon the composition
of our income and assets. Fluctuations in the market price of our ADSs may cause us to be classified as a PFIC for the current or future taxable years because
the value of our assets for purposes of the asset test, including the value of our goodwill and unbooked intangibles, may be determined by reference to the
market price of our ADSs from time to time (which may be volatile). If our market capitalization subsequently declines, we may be or become classified as a
PFIC for the current taxable year or future taxable years. Recent fluctuations in the market price of our ADSs increased our risk of becoming a PFIC. The
market price of the ADSs may continue to fluctuate considerably; consequently, we cannot assure you of our PFIC status for any taxable year. Furthermore,
the composition of our income and assets may also be affected by how, and how quickly, we use our liquid assets. Under circumstances where our revenue
from activities that produce passive income significantly increase relative to our revenue from activities that produce non-passive income, or where we
determine not to deploy significant amounts of cash for active purposes, our risk of becoming classified as a PFIC may substantially increase.

If we are classified as a PFIC for any year during which a U.S. Holder holds our ADSs or ordinary shares, the PFIC rules discussed below under “—

Passive Foreign Investment Company Rules” generally will apply to such U.S. Holder for such taxable year, and unless the U.S. Holder makes certain
elections, will apply in future years even if we cease to be a PFIC.

The discussion below under “—Dividends” and “—Sale or Other Disposition” is written on the basis that we will not be or become classified as a

PFIC for U.S. federal income tax purposes. The U.S. federal income tax rules that apply generally if we are treated as a PFIC are discussed below under “—
Passive Foreign Investment Company Rules.”

98

 
 
 
 
 
 
 
 
 
Table of Contents

Dividends

Subject to the discussion below under “Passive Foreign Investment Company Rules,” any cash distributions (including the amount of any PRC tax
withheld) paid on our ADSs or Class A ordinary shares out of our current or accumulated earnings and profits, as determined under U.S. federal income tax
principles, will generally be includible in the gross income of a U.S. Holder as dividend income on the day actually or constructively received by the U.S.
Holder, in the case of Class A ordinary shares, or by the depositary, in the case of ADSs. Because we do not intend to determine our earnings and profits on
the basis of U.S. federal income tax principles, any distribution we pay will generally be treated as a “dividend” for U.S. federal income tax purposes.
Dividends received on our ADSs or Class A ordinary shares will not be eligible for the dividends received deduction allowed to corporations.

A non-corporate U.S. Holder will be subject to tax at the lower capital gain tax rate applicable to “qualified dividend income,” provided that certain
conditions are satisfied, including that (1) our ADSs are readily tradeable on an established securities market in the United States, or, in the event that we are
deemed to be a PRC resident enterprise under the PRC tax law, we are eligible for the benefit of the United States-PRC income tax treaty, (2) we are neither a
PFIC nor treated as such with respect to a U.S. Holder (as discussed below) for the taxable year in which the dividend is paid and the preceding taxable year,
and (3) certain holding period requirements are met. Our ADSs (but not our Class A ordinary shares) are readily tradeable on the New York Stock Exchange.
There can be no assurance, however, that our ADSs will be considered readily tradeable on an established securities market in later years.

In the event that we are deemed to be a PRC resident enterprise under the PRC Enterprise Income Tax Law (see “Item 10. Additional Information—

E. Taxation—People’s Republic of China Taxation”), we may be eligible for the benefits of the United States-PRC income tax treaty. If we are eligible for
such benefits, dividends we pay on our Class A ordinary shares, regardless of whether such shares are represented by the ADSs, and regardless of whether our
ADSs are readily tradeable on an established securities market in the United States, would be eligible for the reduced rates of taxation applicable to qualified
dividend income, as described in the preceding paragraph.

For U.S. foreign tax credit purposes, dividends paid on our ADSs or Class A ordinary shares generally will be treated as income from foreign

sources and generally will constitute passive category income. If PRC withholding taxes apply to dividends paid to you with respect to our ADSs or Class A
ordinary shares, you may be able to obtain a reduced rate of PRC withholding taxes under the United States-PRC income tax treaty if certain requirements are
met. In addition, subject to certain conditions and limitations, PRC withholding taxes on dividends that are non-refundable under United States-PRC income
tax treaty may be treated as foreign taxes eligible for credit against your U.S. federal income tax liability. If you do not elect to claim a foreign tax credit, you
may instead claim a deduction for U.S. federal income tax purposes in respect of such withholding, but only for a year in which you elect to do so for all
creditable foreign income taxes. You should consult your tax advisor regarding the creditability of any PRC tax.

Sale or Other Disposition

Subject to the discussion below under “Passive Foreign Investment Company Rules,” a U.S. Holder will generally recognize capital gain or loss

upon the sale or other disposition of ADSs or Class A ordinary shares in an amount equal to the difference between the amount realized upon the disposition
and the holder’s adjusted tax basis in such ADSs or Class A ordinary shares. Any capital gain or loss will be long-term if the ADS or Class A ordinary shares
have been held for more than one year and will generally be U.S.-source gain or loss for U.S. foreign tax credit purposes. In the event that gain from the
disposition of the ADSs or Class A ordinary shares is subject to tax in the PRC, such gain may be treated as PRC source gain under the United States-PRC
income tax treaty. The deductibility of a capital loss may be subject to limitations. U.S. Holders are encouraged to consult their tax advisors regarding the tax
consequences if a foreign tax is imposed on a disposition of our ADSs or Class A ordinary shares, including the availability of the foreign tax credit under
their particular circumstances.

Passive Foreign Investment Company Rules

If we are classified as a PFIC for any taxable year during which a U.S. Holder holds our ADSs or Class A ordinary shares, and unless the U.S.

Holder makes a mark-to-market election (as described below), the U.S. Holder will generally be subject to special tax rules on (i) any excess distribution that
we make to the U.S. Holder (which generally means any distribution paid during a taxable year to a U.S. Holder that is greater than 125% of the average
annual distributions paid in the three preceding taxable years or, if shorter, the U.S. Holder’s holding period for the ADSs or Class A ordinary shares), and
(ii) any gain realized on the sale or other disposition of ADSs or Class A ordinary shares. Under the PFIC rules:

99

 
 
 
 
 
 
 
 
 
 
Table of Contents

·                   the excess distribution or gain will be allocated ratably over the U.S. Holder’s holding period for the ADSs or Class A ordinary shares;

·                   the amount allocated to the current taxable year and any taxable years in the U.S. Holder’s holding period prior to the first taxable year in which

we are classified as a PFIC (each, a “pre-PFIC year”), will be taxable as ordinary income;

·                   the amount allocated to each prior taxable year, other than a pre-PFIC year, will be subject to tax at the highest tax rate in effect for individuals

or corporations, as appropriate, for that year; and

·                   a tax equal to the interest charge generally applicable to underpayments of tax will be imposed on the tax attributable to each prior taxable year,

other than a pre-PFIC year.

If we are a PFIC for any taxable year during which a U.S. Holder holds our ADSs or Class A ordinary shares and any of our subsidiary, our variable

interest entity or any of the subsidiaries or sponsored entities of our variable interest entity is also a PFIC, such U.S. Holder would be treated as owning a
proportionate amount (by value) of the shares of the lower-tier PFIC for purposes of the application of these rules. U.S. Holders are urged to consult their tax
advisors regarding the application of the PFIC rules to any of our subsidiary, our variable interest entity or any of the subsidiaries or sponsored entities of our
variable interest entity.

As an alternative to the foregoing rules, a U.S. Holder of “marketable stock” in a PFIC may make a mark-to-market election with respect to such

stock, provided that such stock is regularly traded. For those purposes, our ADSs, but not our Class A ordinary shares, are treated as marketable stock as they
are listed on the New York Stock Exchange. We anticipate that our ADSs should qualify as being regularly traded, but no assurances may be given in this
regard. If a U.S. Holder makes this election with respect to our ADSs, the holder will generally (i) include as ordinary income for each taxable year that we
are a PFIC the excess, if any, of the fair market value of ADSs held at the end of the taxable year over the adjusted tax basis of such ADSs and (ii) deduct as
an ordinary loss the excess, if any, of the adjusted tax basis of the ADSs over the fair market value of such ADSs held at the end of the taxable year, but such
deduction will only be allowed to the extent of the amount previously included in income as a result of the mark-to-market election. The U.S. Holder’s
adjusted tax basis in the ADSs would be adjusted to reflect any income or loss resulting from the mark-to-market election. If a U.S. Holder makes a mark-to-
market election in respect of a corporation classified as a PFIC and such corporation ceases to be classified as a PFIC, the holder will not be required to take
into account the gain or loss described above during any period that such corporation is not classified as a PFIC. If a U.S. Holder makes a mark-to-market
election, any gain such U.S. Holder recognizes upon the sale or other disposition of our ADSs in a year when we are a PFIC will be treated as ordinary
income and any loss will be treated as ordinary loss, but such loss will only be treated as ordinary loss to the extent of the net amount previously included in
income as a result of the mark-to-market election.

Because , as a technical matter, a mark-to-market election cannot be made for any lower-tier PFICs that we may own, a U.S. Holder may continue to

be subject to the PFIC rules with respect to such U.S. Holder’s indirect interest in any investments held by us that are treated as an equity interest in a PFIC
for U.S. federal income tax purposes.

We do not intend to provide information necessary for U.S. Holders to make qualified electing fund elections, which, if available, would result in tax

treatment different from (and generally less adverse than) the general tax treatment for PFICs described above.

If a U.S. Holder owns our ADSs or Class A ordinary shares during any taxable year that we are a PFIC, the holder must generally file an annual IRS

Form 8621. You should consult your tax advisors regarding the U.S. federal income tax consequences of owning and disposing of our ADSs or Class A
ordinary shares if we are or become a PFIC.

F.                                      Dividends and Paying Agents

Not applicable.

100

 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

G.                                    Statement by Experts

Not applicable.

H.                                    Documents on Display

We are subject to the periodic reporting and other informational requirements of the Exchange Act. Under the Exchange Act, we are required to file
reports and other information with the SEC. Specifically, we are required to file annually a Form 20-F no later than four months after the close of each fiscal
year. Copies of reports and other information, when so filed, may be inspected without charge and may be obtained at prescribed rates at the public reference
facilities maintained by the SEC at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. The public may obtain information regarding the Washington,
D.C. Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a web site at www.sec.gov that contains reports, proxy and
information statements, and other information regarding registrants that make electronic filings with the SEC using its EDGAR system. As a foreign private
issuer, we are exempt from the rules under the Exchange Act prescribing the furnishing and content of quarterly reports and proxy statements, and officers,
directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act.

We will furnish Citibank, N.A., the depositary of our ADSs, with our annual reports, which will include a review of operations and annual audited
consolidated financial statements prepared in conformity with U.S. GAAP, and all notices of shareholders’ meetings and other reports and communications
that are made generally available to our shareholders. The depositary will make such notices, reports and communications available to holders of ADSs and,
upon our request, will mail to all record holders of ADSs the information contained in any notice of a shareholders’ meeting received by the depositary from
us.

I.                                         Subsidiary Information

Not applicable.

ITEM 11.       QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Inflation

To date, inflation in China has not materially impacted our results of operations. According to the National Bureau of Statistics of China, the year-
over-year percent changes in the consumer price index for December 2017, 2018 and 2019 were increases of 1.8%, 1.9% and 4.5%, respectively. Although
we have not been materially affected by inflation in the past, we can provide no assurance that we will not be affected by higher rates of inflation in China in
the future.

Market Risks

Foreign Exchange Risk

The majority of our revenues and expenses are denominated in RMB, and a small portion is denominated in SGD. 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 our ADSs will be affected by the exchange rate between
U.S. dollar and Renminbi because the value of our business is effectively denominated in RMB, while our ADSs will be traded in U.S. dollars.

The conversion of Renminbi into foreign currencies, including U.S. dollars, is based on rates set by the People’s Bank of China. The Renminbi has
fluctuated against the U.S. dollar, at times significantly and unpredictably. 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.

To the extent that we need to convert U.S. dollars into Renminbi for our operations, appreciation of the Renminbi against the U.S. dollar would have

an adverse effect on the RMB 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 or for other business purposes, appreciation of the U.S. dollar against the Renminbi would
have a negative effect on the U.S. dollar amounts available to us.

101

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

As of December 31, 2019, we had Renminbi-denominated cash and cash equivalents, accrued expenses and other current liabilities and deferred

revenue of RMB 271.6 million, RMB361.3 million and RMB261.2 million, respectively. A 10% depreciation of Renminbi against the U.S. dollar based on
the foreign exchange rate on December 31, 2019 would result in a decrease of US3.5 million in cash and cash equivalents. A 10% appreciation of Renminbi
against the U.S. dollar based on the foreign exchange rate on December 31, 2019 would result in an increase of US$5.2 million and US$3.8 million in
accrued expenses and other current liabilities and deferred revenue, respectively.

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. 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 . However, our future interest income may fall short of expectations
due to changes in market interest rates.

ITEM 12.       DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

A.                                     Debt Securities

Not applicable.

B.                                     Warrants and Rights

Not applicable.

C.                                     Other Securities

Not applicable.

D.                                     American Depositary Shares

Fees and Charges Our ADS Holders May Have to Pay

Citibank, N.A. is our depositary. The depositary collects its fees for delivery and surrender of ADSs directly from investors depositing ordinary

shares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting for them. The depositary collects fees for making distributions to
investors by deducting those fees from the amounts distributed or by selling a portion of distributable property to pay the fees. The depositary may collect its
annual fee for depositary services by deduction from cash distributions or by directly billing investors or by charging the book-entry system accounts of
participants acting for them. The depositary may generally refuse to provide fee-attracting services until its fees for those services are paid.

An ADS holder will be required to pay the following fees under the terms of the deposit agreement:

Services:
· Issuance of ADSs upon deposit of shares (excluding issuances as a result of
distributions of shares)
· Cancellation of ADSs
· Distribution of cash dividends or other cash distributions (e.g., sale of rights
and other entitlements)
· Distribution of ADSs pursuant to (i) stock dividends or other free stock
distributions, or (ii) exercise of rights to purchase additional ADSs
· Distribution of securities other than ADSs or rights to purchase additional
ADSs (e.g., spin-off shares)
· ADS Services

· Up to US$0.05 per ADS issued

Fees:

· Up to US$0.05 per ADS cancelled
· Up to US$0.05 per ADS held

· Up to US$0.05 per ADS held

· Up to US$0.05 per ADS held

· Up to US$0.05 per ADS held on the applicable record date(s) established
by the depositary

102

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

Fees and Other Payments Made by the Depositary to Us

The depositary may reimburse us for expenses we incur that are related to the establishment and maintenance of the ADR program, by making

available to us a set amount or a portion of the depositary fees charged in respect of the ADR program or otherwise, upon such terms and conditions as we
and the depositary may agree from time to time. For the year ended December 31, 2019, we received reimbursement in the amount of US$ 0.3 million from
the depositary.

103

 
 
 
Table of Contents

ITEM 13.       DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

PART II.

None.

ITEM 14.       MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

Material Modifications to the Rights of Security Holders

See “Item 10. Additional Information—B. Memorandum and Articles of Association” for a description of the rights of securities holders, which

remain unchanged.

Use of Proceeds

The following “Use of Proceeds” information relates to the registration statement on Form F-1, as amended (File Number 333-220259) (the “F-1
Registration Statement”) in relation to our initial public offering of 5,500,000 ADSs representing 5,500,000 Class A ordinary shares, at an initial offering
price of US$18.50 per ADS. Our initial public offering closed in September 2017. Credit Suisse Securities (USA) LLC and Morgan Stanley & Co.
International plc were the representatives of the underwriters for our initial public offering.  We received net proceeds of approximately US$90.1 million from
our initial public offering. 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 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.

We still intend to use the proceeds from our initial public offering as disclosed in the F-1 Registration Statement , subject to the changes of laws and

regulations that may restrict our intended use of the proceeds.

ITEM 15.       CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our chief executive officer and our chief financial officer, we carried
out an evaluation of the effectiveness of our disclosure controls and procedures, which is defined in Rules 13a-15(e) of the Exchange Act, as of December 31,
2019. Based upon that evaluation, our management, with the participation of our chief executive officer and chief financial officer, has concluded that, as of
the end of the period covered by this annual report, our disclosure controls and procedures were effective in ensuring that the information required to be
disclosed by us in this annual report is recorded, processed, summarized and reported to them for assessment, and required disclosure is made within the time
period specified in the rules and forms of the SEC.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15

(f) under the Exchange Act. Our management, with the participation of our chief executive officer and our chief financial officer, evaluated the effectiveness
of our internal control over financial reporting based on criteria established in the framework in Internal Control—Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management has concluded that our internal control
over financial reporting was effective as of December 31, 2019.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any

evaluation of effectiveness 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.

104

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the period covered by this annual report on Form 20-F

that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 16A.    AUDIT COMMITTEE FINANCIAL EXPERT

Our board of directors has determined that Dennis Demiao Zhu, a member of our audit committee and independent director (under the standards set
forth in Section 303A of the Corporate Governance Rules of the New York Stock Exchange and Rule 10A-3 under the Securities Exchange Act of 1934), is
an audit committee financial expert.

ITEM 16B.    CODE OF ETHICS

Our board of directors adopted a code of business conduct and ethics that applies to our directors, officers and employees in August 2017. We have

posted a copy of our code of business conduct and ethics on our website at http://ir.rybbaby.com .

ITEM 16C.    PRINCIPAL ACCOUNTANT FEES AND SERVICES

The following table sets forth the aggregate fees by categories specified below in connection with certain professional services rendered by Deloitte

Touche Tohmatsu Certified Public Accountants LLP, our principal external auditors, for the periods indicated. We did not pay any other fees to our auditors
during the periods indicated below.

(1)

Audit fees 
Other fees

For the Year Ended 
December 31,

2018

2019

(in thousands of US$)

1,332
334

1,201
—

(1)          “Audit fees” means the aggregate fees billed for professional services rendered by our principal auditors for the audit of our annual financial statements

and the review of our comparative interim financial statements.

The policy of our audit committee is to pre-approve all audit and other service provided by Deloitte Touche Tohmatsu Certified Public Accountants

LLP as described above, other than those for de minimis services which are approved by the Audit Committee prior to the completion of the audit.

ITEM 16D.    EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

None.

ITEM 16E.    PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

On December 16, 2018, our board of directors authorized a share repurchase program, under which we may purchase up to US$12 million of our

ADSs over the next 12 months from December 18, 2018 through December 17, 2019. The share repurchase program was publicly announced on
December 18, 2018.

The following table sets forth a summary of our repurchase of our ADSs made in 2019 under the share repurchase program described in the

paragraph above. All shares were repurchased in the open market pursuant to the share repurchase program announced on December 16, 2018.

105

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

Period
January, 2019
February, 2019
March, 2019
April, 2019
May, 2019
June, 2019
Total

Total 
Number of 
ADSs 
Purchased

19,464
229,667
262,922
649,007
338,777
127,618
1,627,455

US$
US$
US$
US$
US$
US$

Average Price 
Paid Per ADS

Total 
Number of 
ADSs 
Purchased as 
Part of the 
Publicly 
Announced 
Plan

Approximate Dollar 
Value of ADSs that May 
Yet Be Purchased Under 
the Plan

6.866800
7.747914
7.380455
7.275642
7.596043
6.669192
N/A

19,464
229,667
262,922
649,007
338,777
127,618
1,627,455

US$
US$
US$
US$
US$
US$

11,866,345
10,086,904
8,146,420
3,424,478
851,113
4
N/A

ITEM 16F.    CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

Not applicable.

ITEM 16G.   CORPORATE GOVERNANCE

As a Cayman Islands exempted company listed on the New York Stock Exchange, we are subject to the New York Stock Exchange corporate

governance listing standards. However, New York Stock Exchange rules permit a foreign private issuer like us to follow the corporate governance practices
of its home country. Certain corporate governance practices in the Cayman Islands, which is our home country, may differ significantly from the New York
Stock Exchange corporate governance listing standards. Currently, we rely on home country practice exemption with respect to the requirement for a fully
independent nominating and corporate governance committee. We may also opt to rely on additional home country practice exemptions in the future. As a
result, our shareholders may be afforded less protection than they otherwise would under the New York Stock Exchange corporate governance listing
standards applicable to U.S. domestic issuers. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our American Depositary Shares—As a
company incorporated in the Cayman Islands, we are permitted to, and do, adopt certain home country practices in relation to corporate governance matters
that differ significantly from the New York Stock Exchange corporate governance listing standards; these practices may afford less protection to shareholders
than they would enjoy if we complied fully with the New York Stock Exchange corporate governance listing standards.”

ITEM 16H.   MINE SAFETY DISCLOSURE

Not applicable.

106

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
  
 
 
 
 
 
 
 
 
Table of Contents

ITEM 17.       FINANCIAL STATEMENTS

We have elected to provide financial statements pursuant to Item 18.

ITEM 18.       FINANCIAL STATEMENTS

PART III.

The consolidated financial statements of RYB Education, Inc. are included at the end of this annual report.

ITEM 19.       EXHIBITS

Exhibit 
Number
1.1

2.1

2.2

2.3

2.4

2.5*
2.6*
4.1

4.2

4.3

4.4

4.5

4.6

4.7

4.8

4.9

4.10

8.1*
11.1

12.1*
12.2*
13.1**
13.2**
15.1*
15.2*
15.3*
101.INS*
101.SCH*
101.CAL*
101.DEF*
101.LAB*
101.PRE*

Description of Document

Fifth Amended and Restated Memorandum and Articles of Association of the Registrant, effective September 27, 2017 (incorporated
herein by reference to Exhibit 3.2 to the Form F-1/A filed on September 13, 2017 (File No. 333-220259))
Registrant’s Specimen American Depositary Receipt (incorporated herein by reference to Exhibit 4.3 to the Form F-1/A filed on
September 13, 2017 (File No. 333-220259))
Registrant’s Specimen Certificate for Ordinary Shares (incorporated herein by reference to Exhibit 4.2 to the Form F-1/A filed on
September 13, 2017 (File No. 333-220259))
Form of Deposit Agreement, among the Registrant, the depositary and the holders and beneficial owners of the American Depositary
Shares issued thereunder (incorporated herein by reference to Exhibit 4.3 to the Form F-1/A filed on September 13, 2017 (File No. 333-
220259))
Shareholder and Noteholder Agreement between the Registrant and other parties thereto dated November 5, 2015 (incorporated herein
by reference to Exhibit 4.4 to the Form F-1 filed on August 30, 2017 (File No. 333-220259))
Description of American Depositary Shares of the Registrant
Description of Class A Ordinary Shares of the Registrant
English summary of 2009 Share Incentive Plan (incorporated herein by reference to Exhibit 10.1 to the Form F-1 filed on August 30,
2017 (File No. 333-220259))
2017 Share Incentive Plan (incorporated herein by reference to Exhibit 10.2 to the Form F-1 filed on August 30, 2017 (File No. 333-
220259))
Form of Indemnification Agreement between the Registrant and its directors and executive officers (incorporated herein by reference to
Exhibit 10.3 to the Form F-1 filed on August 30, 2017 (File No. 333-220259))
Form of Employment Agreement between the Registrant and its executive officers (incorporated herein by reference to Exhibit 10.4 to
the Form F-1 filed on August 30, 2017 (File No. 333-220259))
English translation of amended and restated Exclusive Consultation and Services Agreement among RYB Technology, Beijing RYB and
shareholders of Beijing RYB dated November 4, 2015 (incorporated herein by reference to Exhibit 10.5 to the Form F-1 filed on
August 30, 2017 (File No. 333-220259))
English translation of amended and restated Business Operation Agreement among RYB Technology, Beijing RYB and shareholders of
Beijing RYB dated November 4, 2015 (incorporated herein by reference to Exhibit 10.6 to the Form F-1 filed on August 30, 2017 (File
No. 333-220259))
English translation of Equity Pledge Agreement among RYB Technology, Beijing RYB and shareholders of Beijing RYB dated
November 4, 2015 (incorporated herein by reference to Exhibit 10.7 to the Form F-1 filed on August 30, 2017 (File No. 333-220259))
English translation of amended and restated Equity Disposal Agreement among RYB Technology, Beijing RYB and shareholders of
Beijing RYB dated November 4, 2015 (incorporated herein by reference to Exhibit 10.8 to the Form F-1 filed on August 30, 2017 (File
No. 333-220259))
English translation of Power of Attorney granted by shareholders of Beijing RYB dated November 4, 2015 (incorporated herein by
reference to Exhibit 10.9 to the Form F-1 filed on August 30, 2017 (File No. 333-220259))
Registration Rights Agreement between the Registrant and Ascendent Rainbow (Cayman) Limited dated September 13, 2017
(incorporated herein by reference to Exhibit 10.10 to the Form F-1/A filed on September 13, 2017 (File No. 333-220259))
Significant Subsidiaries and Consolidated Affiliates Entities of the Registrant
Code of Business Conduct and Ethics of the Registrant (incorporated herein by reference to Exhibit 99.1 to the Form F-1 filed on
August 30, 2017 (File No. 333-220259))
CEO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
CFO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
CEO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Consent of Maples and Calder (Hong Kong) LLP
Consent of Commerce & Finance Law Offices
Consent of Deloitte Touche Tohmatsu Certified Public Accountants LLP, an independent registered public accounting firm
XBRL Instance Document
XBRL Taxonomy Extension Scheme Document
XBRL Taxonomy Extension Calculation Linkbase Document
XBRL Taxonomy Extension Definition Linkbase Document
XBRL Taxonomy Extension Label Linkbase Document
XBRL Taxonomy Extension Presentation Linkbase Document

*                  Filed with this Annual Report on Form 20-F.

**           Furnished with this Annual Report on Form 20-F.

107

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

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.

RYB Education, Inc.

By:
Name:
Title:

/s/ Yanlai Shi
Yanlai Shi
Executive Director and Chief Executive Officer

Date: April 30, 2020

108

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

CONTENTS

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2018 AND 2019

CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) FOR THE YEARS ENDED DECEMBER 31, 2017, 2018

AND 2019

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE YEARS ENDED DECEMBER 31, 2017,

2018 AND 2019

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

F- 1

PAGE

F - 2

F - 3

F - 5

F - 6

F - 7

F - 8

F - 10

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the shareholders and the Board of Directors of RYB Education, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of RYB Education Inc. and its subsidiaries (the “Company”) as of December 31, 2019 and
2018, the related consolidated statements of operations, comprehensive income/(loss), changes in shareholders’ equity and cash flows for each of the three
years in the period ended December 31, 2019, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial
statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations
and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the
United States of America.

Change in Accounting Principle

As discussed in Note 2 to the financial statements, the Company has changed its method of accounting for leases on January 1, 2019 due to the adoption of
Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842).

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 audit 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 audits 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 provide a reasonable basis for our opinion.

Other matter

As discussed in Notes 2 and 25 to the financial statements, subsequent to the date of the financial statements, the Company experienced significant disruption
to its operations resulting from the outbreak of COVID19 epidemic and has taken various measures to counter such disruption. Our opinion is not modified
with respect to this matter.

/s/ Deloitte Touche Tohmatsu Certified Public Accountants LLP
Beijing, the People’s Republic of China
April 30, 2020

We have served as the Company’s auditor since 2016.

F- 2

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

ASSETS
Current assets

CONSOLIDATED BALANCE SHEETS
(In thousands of U.S. dollars, except share and per share data, or otherwise noted)

As of December 31

2018

2019

Cash and cash equivalents
Term deposits
Accounts receivable (net of allowance for doubtful accounts of $34 and $92 as of December 31, 2018 and

2019, respectively)

Inventories
Prepaid expenses and other current assets
Loan receivables - current
Amounts due from related parties

Total current assets

Non-current assets
Restricted cash
Property, plant and equipment, net
Goodwill
Intangible assets, net
Long-term investments
Deferred tax assets
Other non-current assets
Loan receivables - non-current
Operating lease right-of-use assets

TOTAL ASSETS

LIABILITIES

Current liabilities

Prepayments from customers, current portion (including prepayments from customers of the consolidated

VIEs without recourse to the Group of $6,647 and $5,904 as of December 31, 2018 and 2019,
respectively)

Accrued expenses and other current liabilities (including accrued expenses and other current liabilities of
the consolidated VIEs without recourse to the Group of $54,443 and $47,825 as of December 31, 2018
and 2019, respectively)

Income tax payable (including income tax payable of the consolidated VIEs without recourse to the Group

of $11,298 and $14,364 as of December 31, 2018 and 2019, respectively)

Operating lease liabilities, current portion (including operating lease liabilities of the consolidated VIEs
without recourse to the Group of $nil and $13,068 as of December 31, 2018 and 2019, respectively)
Deferred revenue, current portion (including deferred revenue of the consolidated VIEs without recourse to

the Group of $29,578 and $30,266 as of December 31, 2018 and 2019, respectively)

Long-term debt, current portion (including long-term debt of the consolidated VIEs without recourse to the

Group of $nil and $nil as of December 31, 2018 and 2019, respectively)

Amounts due to related parties (including amounts due to related parties of the consolidated VIEs without

recourse to the Group of $nil and $124 as of December 31, 2018 and 2019, respectively)

104,084
—

876
4,811
11,243
582
—

121,596

746
45,896
25,096
4,491
4,805
16,195
24,048
582
—

68,728
1,005

2,804
7,256
10,279
1,149
349

91,570

710
50,142
52,687
17,700
5,237
18,161
16,484
—
83,403

243,455

336,094

6,647

5,904

60,429

11,685

—

29,578

—

—

56,472

14,929

16,399

31,993

87

124

Total current liabilities

108,339

125,908

F- 3

 
 
 
 
 
 
 
 
 
 
  
  
 
  
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
 
 
 
 
 
  
  
 
  
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
 
 
 
 
 
  
  
 
  
  
 
 
  
  
 
  
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
 
 
 
 
Table of Contents

CONSOLIDATED BALANCE SHEETS - continued
(In thousands of U.S. dollars, except share and per share data, or otherwise noted)

Non-current liabilities

Prepayments from customers, non-current portion (including prepayments from customers of the

consolidated VIEs without recourse to the Group of $3,582, and $2,508 as of December 31, 2018 and
2019, respectively)

Deferred revenue, non-current portion (including deferred revenue of the consolidated VIEs without
recourse to the Group of $5,567, and $4,206 as of December 31, 2018 and 2019, respectively)
Other non-current liabilities (including other non-current liabilities of the consolidated VIEs without
recourse to the Group of $8,541 and $9,167 as of December 31, 2018 and 2019, respectively)

Deferred income tax liabilities (including deferred income tax liabilities of the consolidated VIEs without

recourse to the Group of $1,110 and $1,271 as of December 31, 2018 and 2019, respectively)

Operating lease liabilities, non-current portion (including operating lease liabilities of the consolidated VIEs

without recourse to the Group of $nil and $68,509 as of December 31, 2018 and 2019, respectively)

TOTAL LIABILITIES

MEZZANINE EQUITY

Redeemable non-controlling interests

EQUITY

Ordinary shares (par value of $0.001 per share; 99,999,999 shares authorized; 29,213,801 shares issued and
outstanding as of December 31, 2018; 29,213,801 shares issued and 27,586,346 shares outstanding as of
December 31, 2019)

Treasury stock
Additional paid-in capital
Statutory reserve
Accumulated other comprehensive (losses) income
Accumulated deficit

Total RYB Education, Inc. shareholders’ equity
Non-controlling interest

TOTAL EQUITY
TOTAL LIABILITIES, MEZZANINE EQUITY AND TOTAL EQUITY

The accompanying notes are an integral part of the consolidated financial statements.

F- 4

As of December 31

2018

2019

3,582

6,915

8,541

1,110

—

2,508

5,531

11,034

3,384

71,012

128,487

219,377

1,628

8,801

29
—
135,881
3,362
(122)
(30,421)

108,729
4,611

113,340
243,455

29
(12,000)
139,843
4,060
141
(33,553)

98,520
9,396

107,916
336,094

 
 
 
 
 
 
 
 
 
 
  
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
 
 
 
 
 
  
  
 
  
  
 
 
 
 
 
  
  
 
  
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
 
 
 
 
 
 
 
 
  
  
 
 
 
 
 
 
 
 
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands of U.S. dollars, except share and per share data, or otherwise noted)

2017

Years ended December 31,
2018

2019

Table of Contents

Net revenues:
Services
Products

Total net revenues

Cost of revenues:

Services
Products

Total cost of revenues

Gross profit

Operating expenses:
Selling expenses
General and administrative expenses

Total operating expenses

Operating income (loss)
Interest income
Government subsidy income
(Loss) gain on disposal of subsidiaries

Income before income taxes
Less: Income tax expenses

Income (loss) before loss in equity method investments
Loss from equity method investments

Net income (loss)
Less: Net (loss) income attributable to noncontrolling interest

Increase (decrease) in redeemable non-controlling interest

Net income (loss) attributable to ordinary shareholders of RYB Education, Inc.
Net income (loss) per share attributable to ordinary shareholders of RYB

Education, Inc.
Basic
Diluted

122,869
17,934
140,803

101,522
9,755
111,277

29,526

1,774
18,418
20,192

9,334
563
863
(168)

10,592
3,812

6,780
(239)

6,541
(574)
—

7,115

0.29
0.27

139,216
17,282
156,498

121,549
9,315
130,864

25,634

2,233
26,428
28,661

(3,027)
2,147
683
1,234

1,037
2,459

(1,422)
(291)

(1,713)
(93)
169

(1,789)

(0.06)
(0.06)

166,183
16,100
182,283

147,669
7,865
155,534

26,749

2,808
23,775
26,583

166
858
499
492

2,015
3,541

(1,526)
(664)

(2,190)
387
(143)

(2,434)

(0.09)
(0.09)

Weighted average shares used in calculating net income (loss) per ordinary share

Basic
Diluted

24,735,445
26,566,657

29,213,801
29,213,801

28,074,624
28,074,624

The accompanying notes are an integral part of the consolidated financial statements.

F- 5

 
 
 
 
 
 
 
 
 
 
 
  
  
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
  
 
  
  
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
  
 
 
 
 
 
 
  
  
  
 
  
  
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
  
 
 
 
 
 
 
 
 
 
 
  
  
  
 
 
 
 
 
  
  
  
 
 
 
 
 
 
 
 
 
 
  
  
  
 
 
 
  
  
  
 
 
 
 
 
 
  
  
  
 
  
  
  
 
 
 
 
 
 
 
 
 
 
  
  
  
 
 
Table of Contents

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands of U.S. dollars)

Net income (loss)
Other comprehensive income (loss), net of tax of nil:
Change in cumulative foreign currency translation adjustments

Total comprehensive income (loss)
Less: comprehensive (loss) income attributable to noncontrolling interest
Comprehensive income (loss) attributable to RYB Education, Inc.

The accompanying notes are an integral part of the consolidated financial statements.

F- 6

2017

Years ended December 31
2018

6,541

410

6,951
(566)
7,517

(1,713)

(983)

(2,696)
(171)
(2,525)

2019

(2,190)

269

(1,921)
289
(2,210)

 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
  
 
 
 
 
 
  
  
  
 
 
 
 
 
 
 
 
Table of Contents

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(In thousands of U.S. dollars, except share data)

  Number of  

  Number of

golden
share

  Golden  
  share  

ordinary
Share

  Ordinary  
share

RYB Education, Inc. Shareholders
  Accumulated  
other

  Additional  

  Total RYB  
  Education, Inc.  

Non-

  paid-in   Statutory   comprehensive   Accumulated   shareholders’  

controlling   Total

  Treasury stock  

capital

  reserve  

income (loss)  

deficit

equity

interest

equity  

  Redeemable  
non-
controlling  
interest

1

—

23,163,801

23

—

36,420

2,156

381

(35,472)

3,508

453

3,961

7,115

7,115

(574)

6,541

(522)

—

—

—

—

—

3,990

595

3,990

595

(2,000)

—

(2,000)

—

—

—

—

—

—

—

—

—

—

—

—

—

550,000

—

—

—

—

1

—

—

—

—

—

—

—

—

—

522

3,990

594

(2,000)

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

402

—

—

—

—

(1) —

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

402

8

410

—

—

1,337

1,337

—

—

325

325

—

—

—

—

—

—

—

5,500,000

5

—

90,130

—

—

—

90,135

—

90,135

—

—

—

29,213,801

29

—

129,134

2,678

783

(28,879)

103,745

1,549

105,294

—

—

—

—

—

—

—

—

(1,620)

(1,620)

(121)

(1,741)

—

—

—

—

—

—

—
—

—
—

—

—

—

—
—

—

—

—

—
—

—

—

—

—
—

—

—

—

684

6,747

—

—
—

—
—

—

—

—

—
—

931

931

—

931

(684)

—

—

6,747

—

—

—

6,747

—
(169)

—
(169)

—
—

—
(169)

1,431
169

Balance as of
January 1,
2017
Net income

(loss) for the
year

Provision of
statutory
reserve
Share-based
payments

Option

exercised

Return of
capital

Foreign

currency
translation
adjustments

Capital

contribution
from non-
controlling
interest

Disposal of non-

wholly
subsidiaries
Redemption of
golden share

Issuance of
ordinary
shares upon
initial public
offering-
(“IPO”) (net
of issuance
cost of
$4,492)

Balance as of

December 31,
2017

Net loss for the

year
Cumulative
effect
adjustment
related to
opening
retained
earnings for
adoption of
ASC 606
Provision of
statutory
reserve
Share-based
payments
Recognition of
redeemable
non-
controlling
interest
Adjustment of
redeemable
non-

—

—

—

—

—

—

—

28

—

—

—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
  
  
  
  
  
  
  
  
  
  
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
  
  
  
  
  
  
  
  
  
  
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
controlling
interest

Foreign

currency
translation
adjustment
Contribution by
minority
interest

Disposal of non-

wholly
subsidiaries
Acquisition of
additional
equity
interest
from non-

controlling
shareholders

Balance as of

December 31,
2018

Net loss for the

year

Repurchase of

shares
Provision of
statutory
reserve
Share-based
payments
Recognition of
redeemable
non-
controlling
interest
Adjustment of
redeemable
non-
controlling
interest

Foreign

currency
translation
adjustment
Contribution by
minority
interest

Disposal of non-

wholly
subsidiaries

Business

acquisitions

Balance as of

December 31,
2019

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

(905)

—

—

—

—

—

(905)

(78)

(983)

—

3,330

3,330

—

121

121

—

—

—

—

—

—

—

—

—

—

—

—

—

(190)

(190)

—

—

—

29,213,801

29

—

135,881

3,362

(122)

(30,421)

108,729

4,611

113,340

1,628

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

(12,000)

—

—

—

—

—

—

—

698

3,962

—

—

—

—

—

(2,577)

(2,577)

70

(2,507)

—

(12,000)

—

(12,000)

(698)

—

—

3,962

—

—

—

3,962

317

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

6,895

—

—

—

—

—

—

—

—

143

143

—

143

(143)

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

263

—

—

—

—

—

—

—

263

(98)

165

104

—

—

—

420

420

(758)

(758)

5,151

5,151

—

—

—

—

—

29,213,801

29

(12,000) 139,843

4,060

141

(33,553)

98,520

9,396

107,916

8,801

The accompanying notes are an integral part of the consolidated financial statements.

F- 7

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
  
  
  
  
  
  
  
  
  
  
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
  
  
  
  
  
  
  
  
  
  
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
  
  
  
  
  
  
  
  
  
  
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
  
  
  
  
  
  
  
  
  
  
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of U.S. dollars)

2017

Years ended December 31
2018

2019

CASH FLOWS FROM OPERATING ACTIVITIES

Net income (loss)
Adjustments to reconcile net income (loss) to net cash generated from operating

activities:
Depreciation of property, plant and equipment
Share-based compensation
Change in allowance for doubtful accounts
Loss on disposal of property, plant and equipment
Loss from equity method investments
Net loss (gain) on disposal of subsidiaries
Amortization of intangible assets

Changes in operating assets and liabilities:

Accounts receivable
Inventories
Prepaid expenses and other current assets
Amounts due from related parties
Deferred tax assets
Other non-current assets
Prepayments from customers
Accrued expenses and other current liabilities
Income tax payable
Deferred revenue
Other non-current liabilities

Net cash generated from operating activities

CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of businesses, net of cash acquired
Investments in term deposits
Proceeds from maturity of term deposits
Proceeds from disposal of subsidiaries
Purchase of long-term investments
Purchase of property, plant and equipment
Proceeds from disposal of property, plant and equipment
Cash surrendered in disposal of subsidiaries
Loans to related parties
Repayment from loans to related parties
Loans to third parties
Repayment of loans to third parties

Net cash used in investing activities

F- 8

6,541

6,099
3,990
—
13
239
168
—

183
(290)
(2,110)
(115)
(4,826)
(3)
(3,192)
10,927
4,113
1,371
1,991

25,099

—
—
444
—
—
(11,917)
178
(168)
(1,010)
3,818
—
—

(8,655)

(1,713)

(2,190)

7,530
6,747
—
20
291
(1,234)
529

(271)
(1,512)
1,558
(51)
(4,583)
(1,110)
(12,872)
5,307
1,749
(91)
534

9,296
3,962
477
100
664
(492)
2,224

(1,724)
(1,992)
884
—
(2,689)
(2,255)
(1,415)
5,582
3,353
516
(1,319)

828

12,982

(39,786)
(55,454)
55,454
832
(894)
(11,480)
804
—
—
—
(1,665)
454

(51,735)

(17,949)
(1,881)
868
1,218
(4,800)
(12,492)
658
—
—
—
—
—

(34,378)

 
 
 
 
 
 
 
 
 
 
 
  
  
  
 
 
 
  
  
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
  
 
  
  
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
  
 
 
 
 
 
 
  
  
  
 
  
  
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
  
 
 
Table of Contents

CONSOLIDATED STATEMENTS OF CASH FLOWS - continued
(In thousands of U.S. dollars)

2017

Years ended December 31
2018

2019

CASH FLOWS FROM FINANCING ACTIVITIES
Capital contribution from noncontrolling interests
Return of capital to Founders
Payment of initial public offering costs
Acquisition of businesses
Proceeds of exercise of options
Proceeds from initial public offering
Acquisition of additional equity interest
from non-controlling shareholders
Amount due to related parties
Payment made in connection with repurchase of shares
Repayment of long-term debt

Net cash generated from (used in) financing activities

Exchange rate effect on cash and cash equivalents

Net increase (decrease) in cash and cash equivalents, and restricted cash
Cash and cash equivalents, and restricted cash at beginning of the year

Cash and cash equivalents, and restricted cash at end of the year

Supplemental schedule of cash flow information

Income taxes paid

Supplemental schedule of non-cash activities

Acquisition of property, plant and equipment through deposits made
Acquisition of property, plant and equipment through payable
A loan due from a related party settled with return of capital
Return of capital to settle with a loan from a related party
Unsettled portion of investment and acquisitions

The accompanying notes are an integral part of the consolidated financial statements.

F- 9

1,337
(990)
(3,073)
—
595
94,627

—
—
—
—

92,496

3,666

112,606
46,628

159,234

(4,626)

2,187
708
1,010
(1,010)
—

811
—
(1,377)
—
—
—

(190)
—
—
—

(756)

(2,741)

(54,404)
159,234

104,830

420
—
—
(1,936)
—
—

—
125
(12,000)
(63)

(13,454)

(542)

(35,392)
104,830

69,438

(5,213)

(3,451)

1,368
414
—
—
5,719

1,828
478
—
—
575

 
 
 
 
 
 
 
 
 
 
 
  
  
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
  
 
 
 
 
  
  
  
 
 
 
 
  
  
  
 
 
 
 
 
 
 
 
  
  
  
 
 
 
 
 
 
  
  
  
 
  
  
  
 
 
  
  
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(In thousands of U.S. dollars, except share and per share data, or otherwise noted)

1.                                       ORGANIZATION AND BASIS OF PRESENTATION

Top Margin Limited was incorporated under the laws of the Cayman Islands on January 11, 2007. In June 2017, Top Margin Limited changed the
corporate name into RYB Education, Inc. (the “Company”). The Company, its subsidiaries, its consolidated variable interest entities (“VIEs”) and
VIEs’ subsidiaries and kindergartens (collectively the “Group”) are primarily engaged in providing kindergarten educational services, play-and-learn
centers services, student care services and sale of educational merchandise in the People’s Republic of China (“PRC”) and in Singapore.

As of December 31, 2019, details of the Company’s subsidiaries, its VIEs and VIEs’ major subsidiaries and kindergartens were as follows:

Date of
establishment
or acquisition

Place of
establishment

Percentage of
legal ownership
by the Company

Name
Subsidiaries:
Beijing RYB Technology Development

Co., Ltd. (“RYB Technology”)

December 24, 2007

QIYUAN Education Technology

(Tianjin) Co., Ltd (“TJ Qiyuan”)

May 18, 2018

PRC

PRC

100%

100%

Beijing Beilin International Education

September 28, 2018

PRC

90%

Co., Ltd. (“BJ Beilin”)

Precious Companion Group Limited

August 4, 2018

Hong Kong

100%

Digital Knowledge World Co., Ltd.

September 1, 2018

Cayman

90%

Islands

Digital Education Co., Ltd.

September 1, 2018

Hong Kong

90%

Beilin International Education Limited

September 1, 2018

Hong Kong

90%

Global Eduhub Pte Ltd.

April 1, 2019

Singapore

77%

Global Edu (SG) Holding Pte Ltd.

April 1, 2019

Singapore

77%

Global Eduhub Holding Limited

April 1, 2019

Hong Kong

77%

Variable interest entities:
Beijing RYB Children Education

Technology Development Co., Ltd.
(“Beijing RYB”)

July 3, 2001

Beiyao Technology Development

June 15, 2018

Co., Ltd. (“Beiyao”)

PRC

PRC

Consolidated VIE

Consolidated VIE

Beijing Haidian Distric Bozhi Training

September 28, 2018

PRC

Consolidated VIE

School (“Bozhi”)

F- 10

Principal activities

Investment holding and
provision of educational
services
Investment holding and
provision of educational
services
Investment holding and
provision of educational
services
Investment holding and
provision of educational
services
Investment holding and
provision of educational
services
Investment holding and
provision of educational
services
Investment holding and
provision of educational
services
Investment holding and
provision of educational
services
Investment holding and
provision of educational
services
Investment holding and
provision of educational
services

Investment holding and
provision of educational
services
Investment holding and
provision of educational
services
Training services

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(In thousands of U.S. dollars, except share and per share data, or otherwise noted)

1.              ORGANIZATION AND BASIS OF PRESENTATION - continued

VIEs’ major subsidiaries and kindergartens  
Shenzhen RYB Children Education

(1) 
:

Technology Development Co., Ltd.

June 20, 2007

PRC

Consolidated VIE

Hunan RYB Education Development

September 22, 2011

Co., Ltd.

Beijing Youer Lezhi Technology

April 2, 2014

Development Co., Ltd.

Beijing Qingtian Youpin E-Commerce

June 8, 2015

Co., Ltd.

Guangzhou RYB Education
Development Co., Ltd.

September 30, 2016

Beijing RYB Jincheng Technology

August 29, 2017

Development Co., Ltd
Shanghai Geleli Technology

Development Co.,

June 4, 2019

PRC

PRC

PRC

PRC

PRC

PRC

Consolidated VIE

Consolidated VIE

Consolidated VIE

Consolidated VIE

Consolidated VIE

Consolidated VIE

Beijing Youyanhui Education

June 8, 2018

PRC

Consolidated VIE

Technology Development Co., Ltd

NASCANS Pte. Ltd.

April 1, 2019

Singapore

77%

Sale of educational
merchandise and
provision of educational
services
Provision of educational
services
Play-and-learn centers
services
Sale of educational
merchandise
Provision of educational
services
Play-and-learn centers
services
Sale of educational
merchandise and
provision of educational
services
Provision of educational
services
Provision of educational
services
Kindergarten services

Beijing Haidian District RYB Multi-

January 10, 2005

Dimension Intelligence Experimental
Kindergarten 

(2)

Beijing Fengtai District RYB Multi-

April 14, 2005

Dimension Intelligence Experimental
Kindergarten 

(2)

Beijing Development RYB Bilingual

February 21, 2006

Kindergarten 

(2)

Beijing Daxing District RYB

July 17, 2008

Kindergarten 

(2)

Beijing Changping District Huilongguan

November 4, 2008

RYB Kindergarten 

(2)

Beijing Chaoyang District Century

August 27, 2009

Jiahua Kindergarten 

(2)

Beijing Chaoyang District RYB

August 27, 2009

Kindergarten 

(2)

Beijing Chaoyang District RYB
Zhongcanyuan Kindergarten 

(2)

September 14, 2010

PRC

PRC

PRC

PRC

PRC

PRC

PRC

PRC

Consolidated VIE

Consolidated VIE

Kindergarten services

Consolidated VIE

Kindergarten services

Consolidated VIE

Kindergarten services

Consolidated VIE

Kindergarten services

Consolidated VIE

Kindergarten services

Consolidated VIE

Kindergarten services

Consolidated VIE

Kindergarten services

Mulberry Learning Centre International

April 1, 2019

Pte Ltd

Mulberry Learning Centre @ Tanjong

April 1, 2019

Singapore

Singapore

77%

77%

Kindergarten services

Kindergarten services

Pagar Pte Ltd

Beijing Chaoyang District RYB

Xintiandi Kindergarten 

(2)

April 11, 2011

Beijing Chaoyang District RYB Hepingli

April 11, 2011

Kindergarten 

(2)

Dalian Jinzhou New District RYB
Hongxinghai Kindergarten 
Changsha Kaifu District RYB

(2)

Kindergarten 

(2)

November 20, 2011

March 30, 2012

Hefei Faneng Sunshine Beach

January 18, 2013

Kindergarten 

(2) 

Guiyang Guanshanhu District RYB

June 3, 2013

Jinyuan Kindergarten 

(2) 

Beijing Chaoyang District Jingsong RYB

July 5, 2013

Kindergarten 

(2)

Changsha Kaifu District Vanke City

January 8, 2014

RYB Kindergarten 

(2)

Changzhou Wujin District RYB New

February 17, 2014

City Villa Kindergarten 

(2)

Guangzhou Liwan District RYB

Tangning Garden Kindergarten 
Chongqing North Bank RYB Huarun

(2)

Central Park Kindergarten

Changzhou Tianning District Huarun
International RYB Kindergarten
Jinan Licheng District RYB Wanxiang

May 1, 2014

May 26, 2014

September 25, 2014

October 30, 2014

PRC

PRC

PRC

PRC

PRC

PRC

PRC

PRC

PRC

PRC

PRC

PRC

PRC

Consolidated VIE

Kindergarten services

Consolidated VIE

Kindergarten services

Consolidated VIE

Kindergarten services

Consolidated VIE

Kindergarten services

Consolidated VIE

Kindergarten services

Consolidated VIE

Kindergarten services

Consolidated VIE

Kindergarten services

Consolidated VIE

Kindergarten services

Consolidated VIE

Kindergarten services

Consolidated VIE

Kindergarten services

Consolidated VIE

Kindergarten services

Consolidated VIE

Kindergarten services

Consolidated VIE

Kindergarten services

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
New Sky Kindergarten 
Xiamen Siming District RYB

(2)

Yongniantianshu Kindergarten 

(2)

Beijing Guofengmeitang Kindergarten 
Beijing Chaoyang District RYB
(2)
Zhuhuanian Kindergarten 

(2)

July 10, 2015

September 14, 2015
October 10, 2015

Tangshan Lubei District RYB Wutong

April 20, 2016

Road Kindergarten

Beijing Fangshan District RYB

May 3, 2016

ChangyangPeninsula Kindergarten 
Beijing Daxing District RYB Hongmulin

(2)

May 17, 2016

Kindergarten 

(2)

Jinan Licheng District Wangsheren Street

October 30, 2016

RYB Kindergarten 

(2)

Beijing Shunyi District RYB City

November 1, 2016

Garden Kindergarten 

(2)

Beijing Mentougou District RYB

November 16, 2016

Yongsheng Jiayuan Kindergarten 
Beijing XueErLe Education Technology

(2)

Co., Ltd

Beijing Haidian District RYB
Yidongyuan Kindergarten 
Beijing Xicheng District RYB

(2)

Kindergarten 

(2)

December 13, 2016

December 15, 2016

January 16, 2017

Xiamen Jimei District RYB Kindergarten

April 19, 2017

(2) 

Shenzhen Longhua District Ranlo Man

September 20, 2017

Haining Kindergarten 

(2)

Beijing Mentougou District Longyue

October 23, 2017

Changan RYB Kindergarten
ZaoZhuang RYB Kindergarten 
Chongqing Liangjiang District RYB
Leyuan Kindergarten Co., Ltd.

(2) 

Tengzhou RYB Renhe Tiandi

Kindergarten 

(2) 

May 1, 2018
June 1, 2018

May 1, 2018

Shanghai Peidi Culture Communication

July 1, 2018

Co., Ltd  

Alphabet Playhouse Childcare and

April 1, 2019

Learning Centre Pte Ltd

Alphabet Playhouse @ East Coast Pte

April 1, 2019

Ltd

PRC

PRC
PRC

PRC

PRC

PRC

PRC

PRC

PRC

PRC

PRC

PRC

PRC

PRC

PRC

PRC
PRC

PRC

PRC

Consolidated VIE

Kindergarten services

Consolidated VIE
Consolidated VIE

Kindergarten services
Kindergarten services

Consolidated VIE

Kindergarten services

Consolidated VIE

Kindergarten services

Consolidated VIE

Kindergarten services

Consolidated VIE

Kindergarten services

Consolidated VIE

Kindergarten services

Consolidated VIE

Kindergarten services

Consolidated VIE

Kindergarten services

Consolidated VIE

Kindergarten services

Consolidated VIE

Kindergarten services

Consolidated VIE

Kindergarten services

Consolidated VIE

Kindergarten services

Consolidated VIE

Kindergarten services

Consolidated VIE
Consolidated VIE

Kindergarten services
Kindergarten services

Consolidated VIE

Kindergarten services

Consolidated VIE

Kindergarten services

Singapore

Singapore

77%

77%

Kindergarten services

Kindergarten services

(1)     The net revenues generated from these major subsidiaries and kindergartens accounted for approximately 70% of Group’s total net

revenues for the year ended December 31, 2019. The English name is for identification purpose only.

(2)     These kindergartens are established and controlled by Beijing RYB, Beiyao or their subsidiaries.  Under PRC laws and regulations, entities who
establish kindergartens are commonly referred to as “sponsors” instead of “owners” or “shareholders”.  The economic substance of “sponsorship”
in respect of kindergartens is substantially similar to that of ownership with respect to legal, regulatory and tax matters.

F- 11

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(In thousands of U.S. dollars, except share and per share data, or otherwise noted)

1.                                       ORGANIZATION AND BASIS OF PRESENTATION - continued

The VIE arrangements

PRC laws and regulations restrict foreign ownership and investment in the education industry at the kindergarten level. As the Company is deemed a
foreign legal person under PRC laws, accordingly the Company’s subsidiary is not eligible to engage in the provision of kindergarten services. To
comply with these foreign ownership restrictions, the Company operates substantially all of its education services through VIEs and the VIEs’
subsidiaries and kindergartens in the PRC. The VIEs and their subsidiaries and kindergartens hold leases and other assets necessary to provide
education services and generate revenues.

On July 3, 2008, RYB Technology, a wholly-owned subsidiary of the Group, entered into a series of contractual arrangements with Beijing RYB,
and the shareholders of Beijing RYB, through which the Company obtained effective control over, and became the primary beneficiary of Beijing
RYB.  The contractual arrangements were modified on September 19, 2011 and November 4, 2015 when there were changes in the shareholders in
Beijing RYB.

On June 15, 2018, TJ Qiyuan, a wholly-owned subsidiary of the Group, entered into a series of contractual arrangements with Beiyao, and the
shareholders of Beiyao, through which the Company obtained effective control over, and became the primary beneficiary of Beiyao.

In September 2018, the Group acquired BJ Beilin and Bozhi through the acquisition of Digital Knowledge World Co., Ltd. On September 28, 2018,
BJ Beilin, a wholly-owned subsidiary of the Group, entered into a series of contractual arrangements with Bozhi, and the shareholders of Bozhi,
through which the Company obtained effective control over, and became the primary beneficiary of Bozhi. The terms of these contractual
agreements of Beiyao and Bozhi are substantially similar to the agreements of Beijing RYB, except that the agreements of Bozhi will remain
effective for twenty years, when contract duration is applicable.

·                                           Agreements that transfer economic benefits to the Group:

Exclusive Consultation and Service Agreement

Pursuant to the exclusive consultation and service agreement, Beijing RYB engages RYB Technology as its exclusive operational
consultant, and RYB Technology agrees to provide necessary education related consulting services to assist Beijing RYB’s operational
activities and business development. Without the prior written consent of RYB Technology, Beijing RYB shall not accept any services
subject to this agreement from any third parties. The fees for such consultation and service are determined at RYB Technology’s discretion.
Unless RYB Technology terminates this agreement in advance, this agreement will remain effective for ten years.  Upon request by RYB
Technology, contractual parties to this agreement shall extend the term of this agreement prior to its expiration. Other contractual parties to
this agreement cannot terminate this agreement unilaterally. Certain kindergartens that elected not-for-profit status pursuant to the Law on
the Promotion of Private Education as disclosed in Note 22 are not within the scope of this agreement. Those kindergartens engage Beijing
RYB and its subsidiaries as their exclusive operational consultants through a separate set of exclusive consultation and service
arrangements. The terms are substantially similar to the aforementioned agreement between Beijing RYB and RYB Technology.

F- 12

 
 
 
 
 
 
 
 
 
 
 
Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(In thousands of U.S. dollars, except share and per share data, or otherwise noted)

1.              ORGANIZATION AND BASIS OF PRESENTATION - continued

The VIE arrangements - continued

·              Agreements that transfer economic benefits to the Group: - continued

Exclusive Consultation and Service Agreement - continued

For the years ended December 31, 2017, 2018 and 2019, $6,075, $1,461 and $9,877 service fees, respectively, were charged by RYB
Technology, TJ Qiyuan and BJ Beilin.

·                                         Agreements that provide the Company effective control over VIEs:

Business Operation Agreement

Pursuant to the business operation agreement, Beijing RYB and its shareholders agreed to, (i) without prior written consent of RYB
Technology, Beijing RYB will not conduct any transactions that may have substantial effects on its assets, businesses, personnel,
obligations, rights, or business operations. (ii) Beijing RYB will accept and follow RYB Technology ’s instructions in relation to Beijing
RYB’s daily operational and financial management, election of directors, general manager, financial controller, kindergarten principals, and
other senior management executives designated by RYB Technology. (iii) the shareholders will transfer any dividends, income, or interests
received as the shareholders of Beijing RYB immediately and unconditionally to RYB Technology. Unless RYB Technology terminates this
agreement in advance, this agreement will remain effective for ten years. Upon request by RYB Technology, contractual parties to this
agreement shall extend the term of this agreement prior to its expiration. Other contractual parties to this agreement cannot terminate this
agreement unilaterally.

Power of Attorney

Pursuant to the power of attorney, each of Beijing RYB ’s shareholders irrevocably authorized RYB Technology, or any
person(s) designated by RYB Technology, as the attorney-in-fact to act on his or her behalf on all matters pertaining to Beijing RYB and to
exercise all of his or her rights as a shareholder of Beijing RYB, including but not limited to convene shareholders’ meeting, vote and sign
any resolution as a shareholder, appoint directors, supervisors and officers, amend article of association, as well as the right to sell, transfer,
pledge and dispose of all or a portion of the shares held by such shareholder. In addition, each such shareholders also undertakes that he or
she will not engage in any activities in violation of this power of attorney or cause conflict of interest between RYB Technology and Beijing
RYB or its subsidiaries and kindergartens. The power of attorney will remain in force and irrevocable as long as the applicable shareholder
remains a shareholder of Beijing RYB, unless RYB Technology instructs to the contrary in writing.

Equity Pledge Agreement

Pursuant to the equity pledge agreement , Beijing RYB’s shareholders pledged their respective equity interests in Beijing RYB to RYB
Technology to guarantee Beijing RYB’s performance, and shareholders’ obligations under the contractual arrangements between the Beijing
RYB, its shareholders and RYB Technology. If Beijing RYB or its shareholders breach their contractual obligations under these agreements,
RYB Technology, as a pledgee, will have the right to dispose of the pledged equity interests in Beijing RYB and priority in receiving the
proceeds from such disposal. Beijing RYB’s shareholders also agree that, during the term of the equity pledge agreement, they will not
dispose of the pledged equity interests or create or allow any encumbrance on the pledged equity interests.

F- 13

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(In thousands of U.S. dollars, except share and per share data, or otherwise noted)

1.              ORGANIZATION AND BASIS OF PRESENTATION - continued

The VIE arrangements - continued

·                                           Agreements that provide the Company effective control over VIEs: - continued

Equity Disposal Agreement

Pursuant to the equity disposal agreement, Beijing RYB’s shareholders irrevocably granted RYB Technology or any third parties designated
by RYB Technology an exclusive option to purchase all or part of those shareholders’ equity interests in Beijing RYB at any time that RYB
Technology deems fit. The purchase price would be the minimum amount of consideration permitted under applicable PRC law at the time
when the option is exercised. Those shareholders further undertake that they will not create any pledge or encumbrance on their equity
interests in Beijing RYB, and transfer, gift or otherwise dispose of their equity interests in Beijing RYB to any person(s) other than RYB
Technology or its designated third parties. This agreement will remain effective for ten years. Upon request by RYB Technology,
contractual parties to this agreement shall extend the term of this agreement prior to its expiration.

As a result of these contractual arrangements, RYB Technology (1) has the power to direct the activities that most significantly affected the
economic performance of Beijing RYB, and (2) received the economic benefits of Beijing RYB. In making the conclusion that the RYB
Technology, a wholly owned subsidiary of the Company, is the primary beneficiary of Beijing RYB, the Company believes the Company’s
rights under the terms of the equity disposal agreement has provided it with a substantive kick out right. More specifically, the Company
believes the terms of the equity disposal agreement are valid, binding and enforceable under PRC laws and regulations currently in effect.
The Company also believes that the minimum amount of consideration permitted by the applicable PRC law to exercise the option has not
represented a financial barrier or disincentive for the Company to currently exercise its rights under the equity disposal agreement. In
addition, the articles of association of Beijing RYB provided that the shareholders of Beijing RYB have the power to, in a shareholders’
meeting: (i) approve the operating strategy and investment plan; (ii) elect the members of board of directors and approve their
compensation; and (iii) review and approve the annual budget and earnings distribution plan. Consequently, the Company’s rights under the
business operation agreement and powers of attorney have reinforced the Company’s abilities to direct the activities most significantly
impacting Beijing RYB’s economic performance. The Company also believes that this ability to exercise control ensured that Beijing RYB
would continue to execute and renew service agreements and pay service fees to the Company. By charging service fees, and by ensuring
that service agreements were executed and renewed indefinitely, the Company has the rights to receive substantially all of the economic
benefits from Beijing RYB.

F- 14

 
 
 
 
 
 
 
 
Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(In thousands of U.S. dollars, except share and per share data, or otherwise noted)

1.              ORGANIZATION AND BASIS OF PRESENTATION - continued

The VIE arrangements - continued

In 2019, certain kindergartens of the Group, during the application or renewal process of registration, elected as not-for-profit kindergartens in the
PRC and operated in compliance with PRC not-for-profit legal regimes. However, the Group believes these not-for-profit kindergartens do not meet
the definition of a not-for-profit entity under accounting principles generally accepted in the United States of America (“U.S. GAAP”), and therefore
treats these not-for-profit kindergartens as “for-profit” entities for accounting purposes. These not-for-profit kindergartens generally cannot declare
dividends or distribute their net assets to their sponsors, the consolidated VIEs of the Group.

The Company generally does not have legal entitlement to distribute the net assets of these not-for-profit kindergartens. In the event of liquidation of
these not-for-profit kindergartens, the net proceeds can only continue to be used for another not-for-profit kindergarten with similar purposes. In the
unlikely case of liquidation of the not-for-profit kindergarten, the Company may be able to retain the residual value by naming another not-for-profit
kindergarten of the Company in the PRC as the recipient, if one exists; however, the Company generally cannot name a for-profit entity as the
recipient. Moreover, because the kindergarten generally would be required to provide for the continued education of its students, liquidation would
not be a likely course of action and would be unlikely to result in significant residual assets available for distribution.

The Company maintains control of these not-for-profit kindergartens through its rights to designate a majority of the governing bodies’ board
members, through which it has the legal ability to direct the activities most significantly impacting these not-for-profit kindergartens’ economic
performance. The Company maintains a variable interest in these not-for-profit kindergartens through exclusive consultation and service
arrangements in which fees for such consultation and service are determined at the Group’s discretion. The Company has the ability to provide
additional contractual arrangements for educational and other services. The Group also has the ability to transfer its sponsor rights in these not-for-
profit kindergartens to other parties, which could yield a return if and when these rights are transferred.

F- 15

 
 
 
 
 
 
 
Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(In thousands of U.S. dollars, except share and per share data, or otherwise noted)

1.              ORGANIZATION AND BASIS OF PRESENTATION - continued

The VIE arrangements - continued

Under ASC 810-10, “Consolidation,” the Group believes it is the primary beneficiary of these not-for-profit kindergartens because it has, as further
described herein: (1) the power to direct the activities of these not-for-profit kindergartens that most significantly affect their educational and
economic performance and (2) the right to receive economic benefits from contractual and other arrangements with these not-for-profit kindergartens
that could potentially be significant to these not-for-profit kindergartens. The Company accounts for the acquisition of the right to control these not-
for-profit kindergartens in accordance with ASC 805, “Business Combinations.”

·                                           Risks in relation to VIE structure

The Company believes that the contractual arrangements with VIEs and their shareholders are in compliance with existing PRC laws and
regulations and are legally enforceable.  However, the contractual arrangements are subject to risks and uncertainties, including:

·                                           VIEs 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 agreements. If the Group cannot resolve any conflicts of interest or
disputes between the Group and the shareholders of VIEs, the Group would have to rely on legal proceedings, which could result
in disruption of its business, and there is substantial uncertainty as to the outcome of any such legal proceedings.

·                                           VIEs 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 VIEs or the Group, mandate a change
in ownership structure or operations for VIEs or the Group, restrict VIEs or the Group’s use of financing sources or otherwise
restrict 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 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 business and operations in China.

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.  As a result, the Group may not be able to consolidate VIEs and their subsidiaries and kindergartens in the
consolidated financial statements as the Group may lose the ability to exert effective control over VIEs and their shareholders, and the
Group may lose the ability to receive economic benefits from VIEs.

The Group’s business has been directly operated by the VIEs and their subsidiaries and kindergartens. For the years ended December 31,
2018 and 2019, the VIEs and their subsidiaries and kindergartens accounted for an aggregate of 65% and 68%, respectively, of the Group’s
consolidated total assets, and 94% and 90% respectively of the Group’s consolidated total liabilities.

F- 16

 
 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(In thousands of U.S. dollars, except share and per share data, or otherwise noted)

1.                                       ORGANIZATION AND BASIS OF PRESENTATION - continued

The VIE arrangements - continued

The following financial information of the Company’s VIEs and VIEs’ subsidiaries and kindergartens after the elimination of inter-company
transactions and balances as of December 31, 2018 and 2019, and for the three years ended December 31, 2019 was included in the accompanying
consolidated financial statements:

Cash and cash equivalents
Prepaid expenses and other current assets
Total current assets
Total assets
Total current liabilities
Total liabilities

Net revenues
Net income

Net cash provided by (used in) operating activities
Net cash used in investing activities
Net cash provided by (used in) financing activities
Effects of exchange rate changes

As of December 31,

2018

2019

41,133
11,101
58,503
157,834
101,966
120,766

37,548
9,548
57,023
230,975
111,551
197,212

2017

For the years ended December 31,
2018

2019

140,012
17,925

25,453
(7,573)
381
3,609

155,946
14,610

(2,159)
(18,866)
436
(2,701)

162,644
13,743

14,691
(16,360)
(1,457)
(495)

There are no consolidated VIEs’ assets that are collateral for the VIEs’ obligations and which can only be used to settle the VIEs’ obligations.  No
creditors (or beneficial interest holders) of the VIEs have recourse to the general credit of the Company or any of its consolidated subsidiaries.  No
terms in any arrangements, considering both explicit arrangements and implicit variable interests, require the Company or its subsidiaries to provide
financial support to the VIEs.  However, if the VIEs ever need financial support, the Company or its subsidiaries may, at its option and subject to
statutory limits and restrictions, provide financial support to the VIEs through loans to the shareholders of the VIEs or entrustment loans to the VIEs.

F- 17

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
  
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(In thousands of U.S. dollars, except share and per share data, or otherwise noted)

2.                                       SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation and use of estimates

The accompanying consolidated financial statements have been prepared in accordance with U.S. GAAP.

The accompanying consolidated financial statements have been prepared assuming that the Group will continue as a going concern, 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 Group’s ability to generate cash flows from operations, and
the Group’s ability to arrange adequate financing arrangements, to support its working capital requirements.

The disruption on the Group’s business operations caused by the pandemic of COVID-19 has had material adverse effects on its financial condition
and operations during the first quarter of 2020. As the disruptions are ongoing, the Group is unable to reasonably estimate the business resume date
due to the uncertainties surrounding the business closures and other events related to the COVID-19 outbreak. To uphold its business and manage
cash flows, the Group has reduced labor costs and other operational expenses, as well as reducing and postponing discretional capital expenditures.
Management believes that there is no substantial doubt about the Group’s ability to continue as a going concern within one year after the date that
the financial statements are issued.

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the balance sheet dates and the reported
amounts of revenues and expenses during the reporting periods. Significant estimates and assumptions reflected in the Group’s financial statements
include, but are not limited to, consolidation of the VIEs, purchase price allocation relating to business acquisitions, valuation allowance for deferred
tax assets, useful lives of property, plant and equipment and intangible assets, impairment of long-lived assets, intangible assets, goodwill and long
term investments, and incremental borrowing rate for leases. Actual results could materially differ from those estimates.

Principles of consolidation

The consolidated financial statements include the financial statements of the Company, its subsidiaries, its VIEs and VIEs’ subsidiaries and
kindergartens.  All profits, transactions and balances among the Company, its subsidiaries, its VIEs and VIEs’ subsidiaries and kindergartens have
been eliminated upon consolidation.

Foreign currency translation

The Company’s functional currency is the United States dollar. The functional currency of the Company’s subsidiaries, VIEs and VIEs’ subsidiaries
and kindergartens in the PRC is the Chinese Renminbi (“RMB”). The functional currency of the Company’s subsidiaries in Singapore is the
Singapore dollar (“SGD$”).

Assets and liabilities are translated from each entity’s functional currency to the reporting currency at the exchange rate on the balance sheet date. 
Equity accounts are translated at historical exchange rates, and revenues and expenses are translated using the average rate of exchange in effect
during the reporting period.  Translation adjustments are reported and shown as a separate component of other comprehensive income in the
consolidated statements of changes in equity and consolidated statements of comprehensive income (loss).

Transactions in currencies other than the functional currencies during the year are converted into the applicable functional currencies at the
applicable rates of exchange prevailing at the dates of the transactions.  Exchange gains and losses are recognized in the consolidated statements of
operations.

F- 18

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(In thousands of U.S. dollars, except share and per share data, or otherwise noted)

2.                                       SIGNIFICANT ACCOUNTING POLICIES - continued

Business Combinations

Business combinations are recorded using the acquisition method of accounting.  The purchase price of the acquisition is allocated to the tangible
assets, liabilities, identifiable intangible assets acquired and non-controlling interest, if any, based on their estimated fair values as of the acquisition
date.  The excess of the purchase price over those fair values is recorded as goodwill. Acquisition-related expenses are expensed as incurred.

Cash and cash equivalents

Cash and cash equivalents comprise cash at banks, on hand, which have original maturities of three months or less when purchased and are subject
to an insignificant risk of changes in value. The carrying value of cash equivalents approximates market value.

Term deposits

Term deposits consist of deposits placed with financial institutions with an original maturity of greater than three months and less than one year.

Restricted cash

Restricted cash represents RMB deposits in restricted bank accounts for operating kindergartens as required by certain local regulations.  The
deposits in restricted bank accounts cannot be withdrawn until these kindergartens are closed.  Restricted cash is classified as either current or non-
current based on when the funds will be released in accordance with the terms of the respective agreement.

Inventories

Inventories, mainly consisting of educational toys, teaching aids, and textbooks, are stated at the lower of cost or net realized value.  Cost is
determined using the weighted average method.

F- 19

 
 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(In thousands of U.S. dollars, except share and per share data, or otherwise noted)

2.                                       SIGNIFICANT ACCOUNTING POLICIES - continued

Fair value

Fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants
at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value,
the Group considers the principal or most advantageous market in which it would transact and it considers assumptions that market participants
would use when pricing the asset or liability.

Authoritative literature provides a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three broad
levels.  The level in the hierarchy within which the fair value measurement in its entirety falls is based upon the lowest level of input that is
significant to the fair value measurement as follows:

Level 1

Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.

Level 2

Level 2 applies to assets or liabilities for which there are inputs other than quoted prices included within Level 1 that are observable for the asset or
liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with
insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be
derived principally from, or corroborated by, observable market data.

Level 3

Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement
of the fair value of the assets or liabilities.

F- 20

 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(In thousands of U.S. dollars, except share and per share data, or otherwise noted)

2.                                       SIGNIFICANT ACCOUNTING POLICIES - continued

Financial instruments

The Group’s financial instruments consist primarily of cash and cash equivalents, term deposits, restricted cash, available-for-sale securities,
accounts receivable, other receivables, current and non-current loan receivables, amounts due from related parties, current portion of long-term debt,
amount due to related parties and other payables. The carrying amounts of cash and cash equivalents, term deposits, restricted cash, accounts
receivable, other receivable, current loan receivables, amounts due from related parties, current portion of long-term debt, amount due to related
parties and other payable approximate their fair values due to the short-term maturities of these instruments. Available-for-sale securities are carried
at fair value. The carrying amount of non-current loan receivables approximates fair value as its interest rates are at the same level of current market
yield for comparable loans.

Allowance for doubtful accounts

An allowance for doubtful accounts is recorded in the period in which a loss is determined to be probable based on an assessment of specific
evidence indicating doubtful collection, historical experience, account balance aging and prevailing economic conditions.  Allowance is reversed
when the underlying balance of doubtful accounts are subsequently collected.  Accounts receivable balances are written off when the Group
determines that the balance is uncollectible.

Loan receivables

Loan receivables are recorded at unpaid principal balances, net of unearned interest income and allowance that reflects the Group’s best estimate of
the amounts that may not be collected.

There is no allowance for loan losses recorded during the years ended December 31, 2017, 2018 and 2019.

Property, plant and equipment, net

Property, plant and equipment are stated at cost and are depreciated using the straight-line method over the estimated useful lives of the assets, as
follows:

Category
Buildings
Furniture, fixture and equipment
Motor vehicles
Leasehold improvement and building improvement

Estimated useful life
35 years
5 years
5 years
Shorter of lease term or economic life

F- 21

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(In thousands of U.S. dollars, except share and per share data, or otherwise noted)

2.             SIGNIFICANT ACCOUNTING POLICIES - continued

Property, plant and equipment, net — continued

Repair and maintenance costs are charged to expense as incurred, whereas the cost of renewals and betterment that extends the useful lives of
property, plant and equipment are capitalized as additions to the related assets.  Retirements, sales and disposals of assets are recorded by removing
the cost and accumulated depreciation from the assets and accumulated depreciation accounts with any resulting gain or loss reflected in the
consolidated statements of operations.

Leases

The Group has lease contracts for offices, kindergartens, play-and-learn centers and student care centers in different cities in the PRC and Singapore
under operating leases. The Group determines whether an arrangement constitutes a lease and records lease liabilities and right-of-use assets on its
consolidated balance sheets at lease commencement. The Group measures its lease liabilities based on the present value of the total lease payments
not yet paid discounted based on the more readily determinable of the rate implicit in the lease or its incremental borrowing rate, which is the
estimated rate the Group would be required to pay for a collateralized borrowing equal to the total lease payments over the term of the lease. The
Group estimates its incremental borrowing rate based on an analysis of publicly traded debt securities of companies with credit and financial profiles
similar to its own. The Group measures right-of-use assets based on the corresponding lease liability adjusted for payments made to the lessor at or
before the commencement date, and initial direct costs it incurs under the lease. The Group begins recognizing lease expense when the lessor makes
the underlying asset available to the Group. The Group’s leases have remaining lease terms of up to nineteen years, none of them include options to
extend or terminate the leases.

For short-term leases, the Group records operating lease expense in its consolidated statements of operations on a straight-line basis over the lease
term and record variable lease payments as incurred.

Intangible assets, net

Intangible assets with definite lives are carried at cost less accumulated amortization and impairment. The amortization of such intangible assets is
recognized over the expected useful lives of the assets.

Intangible assets with indefinite lives is not amortized, but tested for impairment annually or more frequently if event and circumstances indicate that
it might be impaired.

Impairment of long-lived assets with definite lives

Long-lived assets, including intangible assets with definite lives, are reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of the asset may not be recoverable. When these events occur, the Group measures impairment by comparing the carrying
value of the long-lived assets to the estimated undiscounted future cash flows expected to result from the use of the assets and their eventual
disposition.  If the sum of the expected undiscounted cash flow is less than the carrying amount of the assets, the Group would recognize an
impairment loss based on the fair value of the assets. The Group recorded impairment losses on intangible assets with definite lives of $nil, $nil and
$79 during the years ended December 31, 2017, 2018 and 2019.

F- 22

 
 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(In thousands of U.S. dollars, except share and per share data, or otherwise noted)

2.              SIGNIFICANT ACCOUNTING POLICIES - continued

Impairment of goodwill and indefinite-lived intangible assets

Goodwill is not amortized, but tested for impairment annually or more frequently if event and circumstances indicate that it might be impaired.

The excess of the purchase price over the fair value of net assets acquired is recorded on the consolidated balance sheet as goodwill. The guidance
permits the Group to first assess qualitative factors to determine whether it is “more likely than not” that the fair value of a reporting unit is less than
its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test.  Absent from any
impairment indicators, the Group performs its annual impairment test on the last day of each fiscal year.

The Group performed its annual impairment test, at December 31, using a two-step approach.  The first step compares the fair value of a reporting
unit to its carrying amount, including goodwill.  If the fair value of the reporting unit is greater than its carrying amount, goodwill is not considered
impaired and the second step is not required.  If the fair value of the reporting unit is less than its carrying amount, the second step of the impairment
test measures the amount of the impairment loss, if any, by comparing the implied fair value of goodwill to its carrying amount.  If the carrying
amount of goodwill exceeds its implied fair value, an impairment loss is recognized equal to that excess.  The implied fair value of goodwill is
calculated in the same manner that goodwill is calculated in a business combination, whereby the fair value of the reporting unit is allocated to all of
the assets and liabilities of that unit, with the excess purchase price over the amounts assigned to assets and liabilities representing the implied fair
value of goodwill.

The impairment test for intangible assets not subject to amortization consists of a comparison of the fair value of the intangible asset with its
carrying value. If the carrying value of the intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess.

Long-term investments

The Group’s long-term investments consist of equity method investments and available-for-sale security.

(a)           Equity method investments

For an investee company over which the Group has the ability to exercise significant influence, but does not have a controlling interest in common
shares or in-substance common shares, the Group accounts for the investment under the equity method.  Significant influence is generally considered
to exist when the Group has an ownership interest in the voting stock of the investee between 20% and 50%.  Other factors, such as representation
on the investee’s board of directors, voting rights and the impact of commercial arrangements, are also considered in determining whether the equity
method of accounting is appropriate.

Under the equity method, the Group initially records its investments at cost and subsequently recognizes its proportionate share of each equity
investee’s net income or loss after the date of investment into earnings and accordingly adjusts the carrying amount of the investment.

F- 23

 
 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(In thousands of U.S. dollars, except share and per share data, or otherwise noted)

2.                                       SIGNIFICANT ACCOUNTING POLICIES - continued

(a)           Equity method investments - continued

An impairment charge is recorded if the carrying amount of the investment exceeds its fair value and this condition is determined to be other-than-
temporary. The Group estimates the fair value of the investee company using discounted cash flow approach which requires significant judgments,
including the estimation of future cash flows, which is dependent on internal forecasts, the estimation of long-term growth rate of a company’s
business, the estimation of the useful life over which cash flows will occur, and the determination of the weighted average cost of capital. The Group
did not record any impairment losses on its equity method investments during the years ended December 31, 2017, 2018 and 2019.

(b)           Available-for-sale securities

For investment in preferred shares which is determined to be debt securities, the Group accounts for them as long-term available-for-sale securities
when they are not classified as either trading or held-to-maturity investments. Available-for-sale investments are carried at their fair values and the
unrealized gains or losses from the changes in fair values are included in accumulated other comprehensive income (loss).

The Group reviews its investment in available-for-sale securities, for other-than-temporary impairment based on the specific identification method.
The Group considers available quantitative and qualitative evidence in evaluating potential impairment of its investments. When assessing
investments for other-than-temporary declines in value, the Group considers, among other factors, general market conditions, government economic
plans, the duration and the extent to which the fair value of the investment is less than the cost, and the Group’s intent and ability to hold the
investment, in determining if impairment is needed.

Revenue recognition

On January 1, 2018, the Group adopted ASC 606 applying the modified retrospective method to all contracts that were not completed as of
January 1, 2018. Results for reporting period beginning after January 1, 2018 are presented under ASC 606, while prior period amounts are not
adjusted and continue to be reported under the accounting standards in effect for the prior period. The Group recorded a net reduction to opening
accumulated deficit of $931 as of January 1, 2018 due to the cumulative impact of adopting ASC 606. The impacts to revenue for the year 2018
were an increase of $1,151 as a result of adopting ASC 606.

The Group follows five steps for its revenue recognition under ASC 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 entity satisfies a performance obligation.

F- 24

 
 
 
 
 
 
 
 
 
 
 
Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(In thousands of U.S. dollars, except share and per share data, or otherwise noted)

2.              SIGNIFICANT ACCOUNTING POLICIES - continued

Revenue recognition - continued

The Group generated its revenues from the following revenue sources:

(i)            Tuition fees generated from kindergarten services, play-and-learn centers services and student care services

The Group provides private kindergarten services, play-and-learn centers services and students care centers services to students. Tuition fees are
collected in advance and are initially recorded as deferred revenue.

Kindergarten services are by themselves, a series of classes which are highly interdependent and interrelated in the context of the contract and each
class is not distinct and not sold standalone. Therefore, the kindergarten services are accounted for as a single performance obligation.

Play-and-learn centers services provide a different series of classes which are highly interdependent and interrelated in the context of the contract
and each class is not distinct and not sold standalone. Therefore, play-and-learn centers services are accounted for as a single performance
obligation.

Student care services provide a different series of classes which are highly interdependent and interrelated in the context of the contract and each
class is not distinct and not sold standalone. Therefore, student care services are accounted for as a single performance obligation.

The transaction prices for kindergarten services, play-and-learn centers services and student care services are determined by the contract amount net
of refund. For the kindergarten program, the students can claim certain amount of the tuition refund, upon withdrawal, if more than a certain number
of classes are missed. For the play-and-learn program, students are entitled to refund, upon withdrawal, for unused portion of the prepaid course
fees. For the student care services, the students can claim refund, upon withdrawal, if classes are missed due to illness. The refund amount is subject
to the refund policy at each facility and the timing of the student’s withdrawal.

Revenues for the kindergarten services and student care center services are recognized on a straight line basis over the service period from the
registration day to the day on which the service period ends. Revenues for the play-and-learn centers services are recognized ratably over the course
of the programs.

F- 25

 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(In thousands of U.S. dollars, except share and per share data, or otherwise noted)

2.              SIGNIFICANT ACCOUNTING POLICIES - continued

Revenue recognition - continued

(ii)           Franchising fees

The Group generates revenues by franchising kindergartens and play-and-learn centers under the brand name of RYB. The Group collects from
franchisees the initial franchising fees and annual franchise fee. As the initial franchising service and annual franchising service are distinct from
each other, the Group identifies two performance obligations accordingly. The transaction price is allocated to each performance obligation based on
a relative stand-alone selling price.

Initial franchising fees represent provision of initial set-up services which are typically received upfront and recorded as prepayments from
customers. The set-up period usually begins with the site renovation or training services, whichever is earlier, to the time point when kindergartens
or play-and-learn centers commence operations, which is approximately 7 or 8 months. Initial franchising fees are recognized over time throughout
the set-up period.

Annual franchise fees represent supporting services provided by the Group to the franchised kindergartens or play-and-learn centers, including
marketing and advertising services. The related annual franchise fees are received upfront and recorded as deferred revenue. Annual franchise fees
are recognized over time throughout the contract terms.

(iii)         Sales of educational merchandise

The Group’s educational merchandise consists of educational toys, teaching aids, textbooks and other goods. The Group considers both franchisees
and end-users are its customers. Prepayments for sales of educational merchandise is recognized as prepayments from customers. Sales of
educational merchandise is accounted for as a single performance obligation, and recognize at the point of time when the control of promised goods
is transferred to the customers.

(iv)          Training services

The Group provides training services to the franchisees and the teaching staffs of the franchised kindergartens and play-and-learn centers. The Group
identified the training services as a single performance obligation, and given the trainings are usually performed during a short period of time,
revenues are recognized at the point of time when training services are delivered.

(v)          Royalty fees

The Group also sells educational merchandise and provides kindergarten solutions through its other business partners. The royalty fees are received
upfront and recorded as deferred revenue. The Group identified the royalty fees as a single performance obligation, and revenues are recognized over
time throughout the contract terms.

F- 26

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(In thousands of U.S. dollars, except share and per share data, or otherwise noted)

2.              SIGNIFICANT ACCOUNTING POLICIES - continued

Revenue recognition - continued

Disaggregation of revenue

The following table presents the Group’s revenues disaggregated by revenue sources.

Net revenues:

PRC kindergartens
PRC play-and-learn centers
Singapore kindergartens, student care centers and others
Others

Total net revenues

The following table presents the Group’s revenues disaggregated by revenue types.

Services:
Tuition fees from kindergartens, play-and-learn centers and student care

centers
Franchise fees
Training and other services
Royalty fees

Products:

Sale of educational merchandise

Total net revenues

F- 27

2017

Years ended December 31,
2018

2019

105,679
29,871
—
5,253

140,803

124,175
26,777
—
5,546

156,498

131,427
24,901
19,073
6,882

182,283

2017

Years ended December 31,
2018

2019

100,745
13,537
7,703
884
122,869

17,934

140,803

117,080
14,365
7,161
610
139,216

17,282

156,498

147,417
12,269
6,156
341
166,183

16,100

182,283

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
  
 
 
  
  
  
 
 
 
 
 
 
  
  
  
 
 
 
 
 
Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(In thousands of U.S. dollars, except share and per share data, or otherwise noted)

2.              SIGNIFICANT ACCOUNTING POLICIES - continued

Revenue recognition - continued

Contract liabilities

The Group’s contract liabilities consists of prepayments from customers and deferred revenue, primarily relate to the advance consideration received
from customers, which include tuition fees received from customers, initial franchise fees and annual franchise fees received from franchisees,
advance consideration of educational merchandise received from customers, and royalty fees received from other business partners, for which
services have not yet been provided to the customers. The prepayments from customers and deferred revenue are recognized as revenue once the
criteria for revenue recognition are met.

The table below reflects the Group’s contract liabilities:

Prepayments from customers, current portion
Prepayments from customers, non-current portion
Deferred revenue, current portion
Deferred revenue, non-current portion

As of December 31,

2018

2019

6,647
3,582
29,578
6,915

5,904
2,508
31,993
5,531

The Group recognized $29,000 in revenue for the year ended December 31, 2019 which related to contract liabilities that existed at December 31,
2018. The Group recognized $31,000 in revenue for the year ended December 31, 2018 which related to contract liabilities that existed at
December 31, 2017.

There was no contract asset recorded as of December 31, 2018 and 2019.

F- 28

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(In thousands of U.S. dollars, except share and per share data, or otherwise noted)

2.                                       SIGNIFICANT ACCOUNTING POLICIES - continued

Value added taxes

Pursuant to the PRC tax laws, in case of any product sales, generally the value added tax (“VAT”) rate is 17% of the gross sales for general VAT
payer before May 1, 2018. Some subsidiaries of the Group are deemed as general VAT payer for the sales of educational merchandise and the
intercompany sales.  The net VAT balance, after netting off the input VAT, is recorded as accrued expenses and other current liabilities in the Group’s
consolidated financial statements.

Since May 1, 2018, the VAT rate decreased to 16% of the gross sales for general VAT payer. Therefore, VAT is calculated at 16% on the sales of
educational merchandise and paid after deducting input VAT on purchases for the period of May 1, 2018 to March 31, 2019.

Since April 1, 2019, the VAT rate decreased to 13% of the gross sales for general VAT payer. Therefore, VAT is calculated at 13% on the sales of
educational merchandise and paid after deducting input VAT on purchases since April 1, 2019.

Tuition fees generated from kindergarten services in the PRC are qualified for VAT exemption pursuant to a circular jointly released by the Ministry
of Finance and Finance and State Administration of Taxation. Revenue generated from other services in the PRC, namely play-and-learn center
services, franchise fees, royalty fees, and training services, is reported net of VAT, at a rate of 6%, collected on behalf of PRC tax authorities, except
for an entity who is designated as a small scale VAT payer. Small scale VAT payer is subject to VAT at a rate of 3% on play-and-learn center services
and training services.

Goods and Services Tax (“GST”) is a broad-based value added tax in Singapore, which is imposed on all supplies of goods and services in Singapore
made by a taxable person for business purposes. GST rate is 7% of the gross sales. Singapore’s entities whose taxable turnover for the past 12
months exceeds SGD$1 million or the taxable turnover in the next 12 months to be more than SGD$1 million should be registered as GST-registered
companies, their revenue generated from kindergarten services, student care center services and others, is reported net of GST collected on behalf of
Singapore tax authorities. For Non-GST registered entities, they are qualified for GST exemption for all kinds of revenue.

Income taxes

Current income taxes are provided for in accordance with the laws of the relevant tax authorities.  Deferred income taxes are recognized when
temporary differences exist between the tax bases of assets and liabilities and their reported amounts in the financial statements.  Net operating loss
carry forwards and credits are applied using enacted statutory tax rates applicable to future years.

Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more-likely-than-not that a portion of or all of
the deferred tax assets will not be realized.  The impact of an uncertain income tax position is recognized at the largest amount that is more-likely-
than-not to be sustained upon audit by the relevant tax authority.  An uncertain income tax position will not be recognized if it has less than a 50%
likelihood of being sustained.  Interest and penalties on income taxes will be classified as a component of the provisions for income taxes.

F- 29

 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(In thousands of U.S. dollars, except share and per share data, or otherwise noted)

2.                                       SIGNIFICANT ACCOUNTING POLICIES - continued

Share-based compensation

Share-based compensation are measured based on the grant date fair value of the equity instrument.  Share-based compensation expenses are
recognized over the requisite service period based on the graded vesting attribution method with corresponding impact reflected in additional paid-in
capital.  When no future services are required to be performed by grantees in exchange for an award of equity instruments, the cost of the award is
expensed on the grant date.  The Group elects to recognize forfeitures when they occur.

Government subsidies

The Group receives government subsidies at the discretion of the local government based on certain criteria in relation to the Group’s kindergarten
operations. Government subsidies are recognized as liabilities when the government subsidies are received, and released to consolidated statements
of operations as government subsidy income when the Group is not subject to further obligation or future refunds. For government subsidies granted
to specific kindergartens to subsidize their rental and teacher training costs are recorded by offset to the cost of revenues when the conditions are
met.

For the years ended December 31, 2017, 2018 and 2019, $863, $683 and $499 were recognized as government subsidy income, respectively; $nil,
$1,098 and $6,022 were recognized as reduction of cost of revenues, respectively.

Net income (loss) per share

Basic net income (loss) per share is computed by dividing income (loss) attributable to holders of ordinary shares by the weighted average number
of ordinary shares outstanding during the period.  Diluted net income per share reflects the potential dilution that could occur if securities to issue
ordinary shares were exercised or converted into ordinary shares.  The dilutive effect of outstanding share-based awards is reflected in the diluted net
income per share by application of the treasury stock method.

Comprehensive income (loss)

Comprehensive income (loss) includes net income (loss) and foreign currency translation adjustments and is reported in the consolidated statements
of comprehensive income (loss).  The Group presents the components of net income (loss), the components of other comprehensive income (loss)
and total comprehensive income (loss) in two separate but consecutive statements.

F- 30

 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(In thousands of U.S. dollars, except share and per share data, or otherwise noted)

2.                                       SIGNIFICANT ACCOUNTING POLICIES - continued

Contingency

The Group is subject to lawsuits, investigations and other claims related to the operation of its kindergartens, product, taxing authorities and other
matters, and are required to assess the likelihood of any adverse judgments or outcomes to these matters, as well as potential ranges of probable
losses and fees.

Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the obligation is disclosed
as a contingent liability, unless the probability of outflow of economic benefits is remote.  Possible obligations, whose existence will only be
confirmed by the occurrence or nonoccurrence of one or more future events, are also disclosed as contingent liabilities unless the probability of
outflow of economic benefits is remote.

Significant risks and uncertainties

Foreign currency risk

RMB is not a freely convertible currency.  The State Administration for Foreign Exchange, under the authority of the People’s Bank of China,
controls the conversion of RMB into foreign currencies.  The value of RMB is subject to changes in central government policies and to international
economic and political developments affecting supply and demand in the China Foreign Exchange Trading System market.  The cash and cash
equivalents of the Group included aggregate amounts of $42,068 and $39,020, which were denominated in RMB, at December 31, 2018 and 2019,
respectively, representing 41% and 56% of the cash and cash equivalents at December 31, 2018 and 2019, respectively.

Concentration of credit risk

Financial instruments that potentially expose the Group to significant concentration of credit risk primarily consist of cash and cash equivalents,
term deposits, accounts receivable, loan receivables, amounts due from related parties and other current assets.  As of December 31, 2019, all of the
Group’s cash and cash equivalents and term deposits were deposited in financial institutions located in the PRC, the United States of America and
Singapore. Accounts receivable are typically unsecured and are derived from revenue earned from customers in the PRC and Singapore. The risk
with respect to accounts receivable is mitigated by credit evaluations the Group performs on its customers and its ongoing monitoring process of
outstanding balances.

There are no revenues or accounts receivable from customers which individually represent greater than 10% of the total net revenues in the three
years ended December 31, 2019 or accounts receivable as of December 31, 2018 and 2019.

F- 31

 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(In thousands of U.S. dollars, except share and per share data, or otherwise noted)

2.              SIGNIFICANT ACCOUNTING POLICIES - continued

Recent accounting pronouncements adopted

In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, Leases (Topic 842). The guidance supersedes existing
guidance on accounting for leases with the main difference being that operating leases are to be recorded in the statement of financial position as
right-of-use assets and lease liabilities, initially measured at the present value of the lease payments. For operating leases with a term of 12 months
or less, a lessee is permitted to make an accounting policy election not to recognize lease assets and liabilities. The Group has elected not to record
on the balance sheet leases with an initial term of twelve months or less. For public companies, the guidance is effective for fiscal years beginning
after December 15, 2018, including interim periods within those fiscal years. Early application of the guidance is permitted. In July 2018, ASU
2016-02 was updated with ASU No. 2018-11, Targeted Improvements to ASC 842, which provides entities with relief from the costs of
implementing certain aspects of the new leasing standard. Specifically, under the amendments in ASU 2018-11, (1) entities may elect not to recast
the comparative periods presented when transitioning to ASC 842 (the “optional transition method”) and (2) lessors may elect not to separate lease
and nonlease components when certain conditions are met. Before ASU 2018-11 was issued, transition to the new lease standard required application
of the new guidance at the beginning of the earliest comparative period presented in the financial statements.

The Group adopted Topic 842 on January 1, 2019 using the modified retrospective transition approach allowed under ASU 2018-11, without
adjusting the comparative periods presented. The Group elected the practical expedients under ASU 2016-02 which includes the use of hindsight in
determining the lease term and the practical expedient package to not reassess whether any expired or existing contracts are or contain leases, to not
reassess the classification of any expired or existing leases, and to not reassess initial direct costs for any existing leases. Upon adoption of Topic
842, the Group recognized right-of-use assets and corresponding lease liabilities of $78,909 and $84,243, respectively, on the consolidated balance
sheet. The difference between the right-of-use assets and lease liabilities was due to prepaid and accrued rent. The adoption did not have a material
impact on the Group’s consolidated statements of operations or consolidated statements of cash flows upon adoption as described in Note 14. The
adoption of Topic 842 also did not result in a cumulative-effect adjustment to retained earnings.

Recent accounting pronouncements not yet adopted

In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses (Topic 326), Measurement of Credit Losses on Financial
Statements. This ASU requires a financial asset (or 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. This ASU affects entities holding financial
assets and net investment in leases that are not accounted for at fair value through net income. The amendments affect loans, debt securities, trade
receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from
the scope that have the contractual rights to receive cash. For public business entities, the amendments in this update are effective for fiscal years
beginning after December 15, 2019, including interim periods within those fiscal years.

F- 32

 
 
 
 
 
 
 
 
Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(In thousands of U.S. dollars, except share and per share data, or otherwise noted)

2.              SIGNIFICANT ACCOUNTING POLICIES - continued

Recent accounting pronouncements not yet adopted - continued

All entities may adopt the amendments in this update through a cumulative-effect adjustment to retained earnings as of the beginning of the first
reporting period in which the guidance is effective (that is, a modified-retrospective approach). In April 25, 2019, ASU 2016-13 was updated with
ASU 2019-04, which clarifies certain aspects of accounting for credit losses, hedging activities, and financial instruments. ASU 2019-04 provides
certain alternatives for the measurement of the allowance for credit losses (ACL) on accrued interest receivable (AIR). These measurement
alternatives include (1) measuring an ACL on AIR separately, (2) electing to provide separate disclosure of the AIR component of amortized cost as
a practical expedient, and (3) making accounting policy elections to simplify certain aspects of the presentation and measurement of such AIR. For
entities that have adopted ASU 2016-13, the amendments in ASU 2019-04 related to ASU 2016-13 are effective for fiscal years beginning after
December 15, 2019, and interim periods therein. An entity may early adopt ASU 2019-04 in any interim period after its issuance if the entity has
adopted ASU 2016-13. The Group has evaluated the effect of the adoption of this ASU and does not expect there will be a material impact on its
consolidated financial statements from the adoption of the new guidance.

In January 2017, FASB issued ASU No. 2017-04: Simplifying the Test for Goodwill Impairment. Under the new accounting guidance, an entity will
no longer determine goodwill impairment by calculating the implied fair value of goodwill by assigning the fair value of a reporting unit to all of its
assets and liabilities as if that reporting unit had been acquired in a business combination. Instead, an entity will perform its goodwill impairment
tests by comparing the fair value of a reporting unit with its carrying amount. An entity will recognize an impairment charge for the amount by
which the carrying amount exceeds the reporting unit’s fair value but not to exceed the total amount of the goodwill of the reporting unit. In addition,
an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the
goodwill impairment, if applicable. The provisions of the new accounting guidance are required to be applied prospectively. The new accounting
guidance is effective for the Company for goodwill impairment tests performed in fiscal years beginning after December 15, 2019. Early adoption is
permitted for goodwill impairment tests performed after January 1, 2017. The Group has evaluated the effect of the adoption of this ASU and does
not expect there will be a material impact on its consolidated financial statements from the adoption of the new guidance.

In October 2018, the FASB issued ASU 2018-17, Consolidation (Topic 810): Targeted Improvements to the Related Party Guidance for Variable
Interest Entities. ASU 2018-17 changes how entities evaluate decision-making fees under the variable interest entity guidance. To determine whether
decision-making fees represent a variable interest, an entity considers indirect interests held through related parties under common control on a
proportional basis, rather than in their entirety. This guidance will be adopted using a retrospective approach and is effective for the Company on
January 1, 2020. The Group has evaluated the effect of the adoption of this ASU and does not expect there will be impact on its consolidated
financial statements and related disclosures from the adoption of the new guidance.

F- 33

 
 
 
 
 
 
 
Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(In thousands of U.S. dollars, except share and per share data, or otherwise noted)

3.                                       BUSINESS ACQUISITIONS

Acquisition of Beijing Hengda Youshi Education Development Co., Ltd. (“BJ Hengda”)

On May 2, 2018, the Group acquired 100% equity interests in BJ Hengda for a total cash consideration of $945. BJ Hengda operates a kindergarten
in Beijing with well-known international teaching team would allow the Group expand its services. This transaction was considered a business
acquisition and therefore was recorded using the acquisition method of accounting. The acquired assets and liabilities were recorded at their fair
market value at the date of acquisition.

The management performed a purchase price allocation with the assistance from an independent appraiser, as of the date of acquisition:

Cash and cash equivalents
Other current assets
Property, plant and equipment, net
Intangible asset:
Student base

Other current liabilities
Deferred tax liabilities
Goodwill
Total

Depreciation or
amortization period

5 - 10 years

4 years

310
50
535

104
(361)
(26)
333
945

The results of operations attributable to BJ Hengda are included in the consolidated statement of operations beginning on May 2, 2018, which
included net revenue of $481 and pre-tax net loss of $748 for the year ended December 31, 2018.

F- 34

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(In thousands of U.S. dollars, except share and per share data, or otherwise noted)

3.              BUSINESS ACQUISITIONS - continued

Acquisition of Shandong Buladun Education Information Consultation Co., Ltd. (“Shandong Buladun”)

On May 1, 2018, the Group acquired 80% equity interests in Shandong Buladun for a total cash consideration of $4,575. Shandong Buladun operates
four kindergartens in Shandong Province. The acquisition was considered a business acquisition and recorded using the acquisition method of
accounting. The acquired assets and liabilities were recorded at their fair market value at the date of acquisition.

The management performed a purchase price allocation with the assistance from an independent appraiser, as of the date of acquisition:

Cash and cash equivalents
Other current assets
Property, plant and equipment, net
Intangible asset:
Student base

Other current liabilities
Deferred tax liabilities
Non-controlling interest
Goodwill
Total

Depreciation or
amortization period

5 - 8 years

4 years

134
21
1,819

942
(3,927)
(236)
(915)
6,737
4,575

The results of operations attributable to Shandong Buladun are included in the consolidated statement of operations beginning on May 1, 2018,
which included net revenue of $2,393 and pre-tax net income of $958 for the year ended December 31, 2018.

F- 35

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(In thousands of U.S. dollars, except share and per share data, or otherwise noted)

3.              BUSINESS ACQUISITIONS - continued

Acquisition of Shanghai Peidi Culture Communication Co., Ltd. (“Shanghai Peidi”) and Shanghai Jingdepu Education School (“Shanghai
Jingdepu”)

On July 1, 2018, the Group acquired 80% equity interest in Shanghai Peidi and 100% equity interest of Shanghai Jingdepu for a total cash
consideration of $4,197. Shanghai Peidi and Shanghai Jingdepu operate two kindergartens in Shanghai. The transaction was considered a business
acquisition and was recorded using the acquisition method of accounting. The acquired assets and liabilities were recorded at their fair market value
at the date of acquisition.

The management performed a purchase price allocation with the assistance from an independent appraiser, as of the date of acquisition:

Other current assets
Property, plant and equipment, net
Deferred tax assets
Intangible assets:
Student base
Trademark

Other current liabilities
Deferred tax liabilities
Non-controlling interest
Goodwill
Total

Depreciation or
amortization period

4 - 8 years

4 years
5 years

1,477
32
123

865
305
(1,144)
(302)
(1,431)
4,272
4,197

The results of operations attributable to Shanghai Peidi and Shanghai Jingdepu are included in the consolidated statement of operations beginning on
July 1, 2018, which included net revenue of $1,781 and pre-tax net income of $257 for the year ended December 31, 2018.

As part of this acquisition, the non-controlling shareholder also received a put option to sell its entire non-controlling interest of Shanghai Peidi to
the Group based on multiple of Shanghai Peidi’s net profit (excluding non-recurring items) at the year when option is exercised. The non-controlling
interest has been recorded as a redeemable non-controlling interest presented in the mezzanine equity section of the consolidated balance sheets at an
initial amount of $1,431 estimated by the management with the assistance from an independent appraiser. Subsequently, the non-controlling interest
was carried at the higher of (1) the initial carrying amount, increased or decreased for the non-controlling interest’s share of net income or loss or
(2) the expected redemption value. The increased and decreased amount to the expected redemption value of $169 and $143, respectively, was
recorded to retained earnings for the year ended December 31, 2018 and 2019, respectively.

F- 36

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(In thousands of U.S. dollars, except share and per share data, or otherwise noted)

3.              BUSINESS ACQUISITIONS - continued

Acquisition in Digital Knowledge World Co., Ltd. (“DKW”)

On September 1, 2018, the Group acquired 90% equity interest in DKW for a total cash consideration of $17,130. DKW operates three international
kindergartens in Beijing. The transaction was considered a business acquisition and recorded using the acquisition method of accounting. The
acquired assets and liabilities were recorded at their fair market value at the date of acquisition.

The management performed a purchase price allocation with the assistance from an independent appraiser, as of the date of acquisition:

Cash and cash equivalents
Other current assets
Property, plant and equipment, net
Intangible assets:
Student base
Trademark

Other current liabilities
Deferred tax liabilities
Non-controlling interest
Goodwill
Total

Depreciation or
amortization period

5 years

4 years
5 years

4,773
4,013
1,322

1,721
1,062
(7,235)
(696)
(1,523)
13,693
17,130

The results of operations attributable to DKW are included in the consolidated statement of operations beginning on September 1, 2018, which
included net revenue of $3,493 and pre-tax net income of $463 for the year ended December 31, 2018.

F- 37

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
  
 
 
 
 
  
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
 
  
 
 
  
 
 
Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(In thousands of U.S. dollars, except share and per share data, or otherwise noted)

3.              BUSINESS ACQUISITIONS - continued

Acquisition in Shenzhen Ranlo Education investment Co., Ltd. (“Shenzhen Ranlo”)

On January 1, 2019, the Group acquired 100% equity interest in Shenzhen Ranlo for cash consideration of $5,985. Shenzhen Ranlo owned and
operated a kindergarten located in Shenzhen, PRC. The transaction was considered a business acquisition and recorded using the acquisition method
of accounting. The acquired assets and liabilities assumed were recorded at their fair market value at the acquisition date.

The management performed a purchase price allocation with the assistance from an independent appraiser, as of the acquisition date:

Cash and cash equivalents
Other current assets
Property, plant and equipment, net
Operating lease right-of-use assets
Intangible assets:
Student base

Other current liabilities
Deferred tax liabilities
Deferred revenue
Operating lease liabilities
Goodwill
Total

Depreciation or
amortization period

5-10 years

4 years

576
789
4,462
2,612

145
(477)
(36)
(245)
(2,612)
771
5,985

The results of operations attributable to Shenzhen Ranlo are included in the consolidated statement of operations beginning on January 1, 2019,
which included net revenue of $1,716 and pre-tax net loss of $661 for the year ended December 31, 2019.

F- 38

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
  
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
 
  
 
 
  
 
 
Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(In thousands of U.S. dollars, except share and per share data, or otherwise noted)

3.              BUSINESS ACQUISITIONS - continued

Acquisition in Global Eduhub Holding Limited. (“GEH”)

On April 1, 2019, the Group acquired 77% equity interest in GEH for cash consideration of $21,414. GEH operates kindergartens and student care
centers in Singapore which facilitate the Group to expand its services outside of the PRC. The transaction was considered a business acquisition and
therefore was recorded using the acquisition method of accounting. The acquired assets and liabilities assumed were recorded at their fair market
value at the acquisition date.

The management performed a purchase price allocation with the assistance from an independent appraiser, as of the acquisition date:

Cash and cash equivalents
Other current assets
Property, plant and equipment, net
Operating lease right-of-use assets
Intangible assets:
Student base
Trademark
Initial franchise

Other current liabilities
Deferred tax liabilities
Operating lease liabilities
Non-controlling interest
Goodwill
Total

Depreciation or
amortization period

5-10 years

5.67 years
Indefinite
3.75 years

663
2,224
2,920
5,924

3,650
7,766
1,626
(6,266)
(2,217)
(6,062)
(6,895)
18,081
21,414

The results of operations attributable to GEH are included in the consolidated statement of operations beginning on April 1, 2019, which included
net revenue of $19,193 and pre-tax net income of $1,310 for the year ended December 31, 2019.

As part of this acquisition, the non-controlling shareholders also received a put option to sell their entire non-controlling interests of GEH to the
Group based on multiple of GEH's earnings before interest, taxes, depreciation and amortization for the financial year preceding the date when
option is exercised. The non-controlling interests have been recorded as redeemable non-controlling interests presented in the mezzanine equity
section of the consolidated balance sheets at an initial amount of $6,895 estimated by the management with the assistance from an independent
appraiser. Subsequently, the non-controlling interests were carried at the higher of (1) the initial carrying amount, increased or decreased for the non-
controlling interest’s share of net income or loss or (2) the expected redemption value. Adjustments to reconcile the carrying value to the maximum
redemption amount are recorded to retained earnings. There was no such adjustment during the year ended December 31, 2019.

F- 39

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
  
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
 
  
 
 
  
 
 
 
Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(In thousands of U.S. dollars, except share and per share data, or otherwise noted)

3.              BUSINESS ACQUISITIONS - continued

Acquisition in Shanghai Geleli Technology Development Co.(“Shanghai Geleli “)

On June 4, 2019, the Group acquired 51% equity interest in Shanghai Geleli for cash consideration of $5,310. Shanghai Geleli is primarily engaged
in sale of children toys and teaching aid tools. The acquisition would further enrich Group’s offering on educational merchandise and services to
customers. The transaction was considered a business acquisition and therefore was recorded using the acquisition method of accounting. The
acquired assets and liabilities assumed were recorded at their fair market value at the acquisition date.

The management performed a purchase price allocation with the assistance from an independent appraiser, as of the acquisition date:

Cash and cash equivalents
Other current assets
Operating lease right-of-use assets
Intangible assets:

Brand
Non-compete agreement
Customer relationship

Other current liabilities
Deferred tax liabilities
Operating lease liabilities
Non-controlling interest
Goodwill
Total

Depreciation or
amortization period

5 years
5 years
9.5 years

1,190
611
64

1,129
347
87
(177)
(391)
(64)
(4,050)
6,564
5,310

The results of operations attributable to Shanghai Geleli are included in the consolidated statement of operations beginning on June 4, 2019, which
included net revenue of $1,088 and pre-tax net loss of $77 for the year ended December 31, 2019.

F- 40

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
  
 
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
 
  
 
 
  
 
 
Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(In thousands of U.S. dollars, except share and per share data, or otherwise noted)

3.              BUSINESS ACQUISITIONS - continued

Acquisition in Beijing Xingqiba Network Technology Co., Ltd. (“Beijing Xingqiba”)

On May 1, 2019, the Group acquired 51% equity interest in Beijing Xingqiba for cash consideration of $1,297. Beijing Xingqiba mainly engages in
providing interactive learning software and child art courses, which would supplement well the Group’s online learning platform. This transaction
was considered a business acquisition and therefore was recorded using the acquisition method of accounting. The acquired assets and liabilities
assumed were recorded at their fair market value at the acquisition date. As of December 31, 2019, consideration payable of $575 remained
outstanding.

The management performed a purchase price allocation with the assistance from an independent appraiser, as of the acquisition date:

Cash and cash equivalents
Other current assets
Intangible assets:

Software and courses
Non-compete agreement
Exclusive agent agreement

Other current liabilities
Deferred tax liabilities
Non-controlling interest
Goodwill
Total

Depreciation or
amortization period

5 years
6 years
0.67 year

2
20

208
297
30
(26)
(134)
(1,130)
2,030
1,297

The results of operations attributable to Beijing Xingqiba are included in the consolidated statement of operations beginning on May 1, 2019, which
included net revenue of $230 and pre-tax net loss of $343 for the year ended December 31, 2019.

F- 41

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
  
 
  
  
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
 
  
 
 
  
 
 
Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(In thousands of U.S. dollars, except share and per share data, or otherwise noted)

3.              BUSINESS ACQUISITIONS - continued

Acquisition in Mulberry Learning Centre Alexandra Pte. Ltd. (“Mulberry Alexandra”)

On November 1, 2019, the Group acquired 100% equity interest in Mulberry Learning Centre Alexandra Pte. Ltd., a kindergarten located in
Singapore, for cash consideration of $1,047. This transaction was considered a business acquisition and therefore was recorded using the acquisition
method of accounting. The acquired assets and liabilities assumed were recorded at their fair market value at the acquisition date.

The management performed a purchase price allocation with the assistance from an independent appraiser, as of the acquisition date:

Cash and cash equivalents
Other current assets
Property and equipment, net
Operating lease right-of-use assets
Intangible assets:
Student base

Other current liabilities
Deferred tax liabilities
Operating lease liabilities
Goodwill
Total

Depreciation or
amortization period

5-10 years

5.17 years

283
67
91
557

190
(431)
(47)
(557)
894
1,047

The results of operations attributable to Mulberry Alexandra are included in the consolidated statement of operations beginning on November 1,
2019, which included net revenue of $236 and pre-tax net income of $70 for the year ended December 31, 2019.

F- 42

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
  
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
  
 
  
 
  
 
 
  
 
 
  
 
 
Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(In thousands of U.S. dollars, except share and per share data, or otherwise noted)

3.              BUSINESS ACQUISITIONS - continued

The following summary of unaudited pro forma result of operations for the years ended December 31, 2017 and 2018 was presented with the
assumption that the acquisitions during the year ended December 31, 2018 occurred as of January 1, 2017. These pro forma results do not purport to
be indicative of the results of operations which would have resulted had these acquisitions occurred as of December 31, 2017, nor are they indicative
of future operating results.

Pro forma net revenue
Pro forma net income attributable to RYB Education, Inc.
Pro forma net income per ordinary share-basic
Pro forma net income per ordinary share- diluted

Years ended December 31,

2017

2018

154,124
9,442
0.38
0.36

165,309
380
0.01
0.01

The following summary of unaudited pro forma result of operations for the years ended December 31, 2018 and 2019 was presented with the
assumption that the acquisitions during the years ended December 31, 2019 occurred as of January 1, 2018. The following pro forma financial
information is not necessarily indicative of the results that would have occurred had the acquisitions been completed at the beginning of the periods
as indicated, nor are they indicative of future operating results.

Pro forma net revenue
Pro forma net loss attributable to RYB Education, Inc.
Pro forma net loss per ordinary share-basic
Pro forma net loss per ordinary share- diluted

4.                                       ACCOUNTS RECEIVABLE, NET

Accounts receivable, net consisted of the following:

Accounts receivable
Less: allowance for doubtful accounts
Accounts receivable, net

Movement of allowance for doubtful accounts was as follows:

Balance at beginning of the year
Addition
Foreign currency adjustment
Balance at end of the year

F- 43

Years ended December 31,

2018

2019

181,964
(2,279)
(0.08)
(0.08)

189,907
(2,791)
(0.10)
(0.10)

As of December 31,

2018

2019

910
(34)
876

As of December 31,

2018

2019

36
—
(2)
34

2,896
(92)
2,804

34
58
—
92

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(In thousands of U.S. dollars, except share and per share data, or otherwise noted)

5.                                       INVENTORIES

Inventories consisted of the following:

Educational merchandise

No inventory write-down was provided for the years ended December 31, 2017, 2018 and 2019.

6.                                      PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets consisted of the following:

Prepaid service fees
Prepaid rental expenses (Note)
Staff advances
Prepayment for inventories and others
Government subsidy receivables
Receivables from the disposal of subsidiaries
Receivables from third party payment platform
Project deposit
Interest receivables
Others

As of December 31,

2018

2019

4,811
4,811

7,256
7,256

As of December 31,

2018

2019

3,620
2,734
597
1,731
—
574
82
—
121
1,784
11,243

3,392
607
1,730
186
931
486
346
431
176
1,994
10,279

Note: The Group adopted Topic 842 on January 1, 2019 using the modified retrospective transition approach allowed under ASU 2018-11 as
described in Note 2. The balance as of December 31, 2019 represents prepaid rental expenses for short-term leases which the Group elected not to
record on balance sheets under Topic 842. The prepaid rental expenses for operating lease expenses as of December 31, 2019 were included in the
Group’s operating lease right-of-use assets on its consolidated balance sheet.

F- 44

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

7.                                       LOAN RECEIVABLES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(In thousands of U.S. dollars, except share and per share data, or otherwise noted)

On May 21, 2018, the Group provided a loan of $574 to a third party supplier, and the interest rate was set at the commercial bank deposit rate. The
maturity date of the loan was December 30, 2019. In 2019, the maturity date was extended to December 31, 2020.

In August 2018, the Group provided a loan of $575 to Shanghai Peidi’s non-controlling shareholder at interest rate of 7% per annum. The repayment
of the loan was guaranteed by 20% equity shares of another company held by the borrower and the loan will be repaid on the second anniversary of
the loan origination.

No allowance for loan loss recorded for above loan receivables in 2018 and 2019.

8.                                       PROPERTY, PLANT AND EQUIPMENT, NET

Property, plant and equipment consisted of the following:

Buildings
Furniture, fixture and equipment
Leasehold improvement
Motor vehicles
Total
Less: Accumulated depreciation

As of December 31,

2018

2019

907
10,639
61,735
1,154
74,435
(28,539)
45,896

896
13,684
73,163
1,040
88,783
(38,641)
50,142

Depreciation expenses were $6,099, $7,530 and $9,296 for the years ended December 31, 2017, 2018 and 2019, respectively.

F- 45

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

9.                                       GOODWILL

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(In thousands of U.S. dollars, except share and per share data, or otherwise noted)

The Group has ten reporting units where they carry goodwill resulting from acquisitions . The changes in carrying amount of goodwill for the years
ended December 31, 2018 and 2019 were as follows.

Costs:
Beginning balance
Addition (Note 3)
Foreign currency adjustment
Ending balance
Goodwill impairment loss
Goodwill, net

As of December 31,

2018

2019

428
25,035
(367)
25,096
—
25,096

25,096
28,340
(412)
53,024
(337)
52,687

Goodwill is tested for impairment annually or more frequently if events or changes in circumstances indicate that it might be impaired. When
determining the fair value of each reporting unit, the Group used discounted cash flow model that included a number of significant unobservable
inputs. Key assumptions used to determine the estimated fair value include: (a) internal cash flows forecasts including expected revenue growth,
operating margins and estimated capital needs, (b) an estimated terminal value using a terminal year long-term future growth rate determined based
on the growth prospects of the reporting units; and (c) a discount rate that reflects the weighted-average cost of capital adjusted for the relevant risk
associated with each reporting unit’s operation and the uncertainty inherent in the Group’s internally developed forecast.

The Group recorded $nil, $nil and $337 impairment of goodwill for the years ended December 31, 2017, 2018 and 2019.

F- 46

 
 
 
 
 
 
 
 
 
 
 
 
  
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(In thousands of U.S. dollars, except share and per share data, or otherwise noted)

10.                                INTANGIBLE ASSETS, NET

Intangible assets, net, consisted of the following:

Intangible assets not subject to amortization:

Trademark

Intangible assets subject to amortization:

Trademark
Student base
Initial franchise
Brand
Non-compete agreement
Customer relationship
Software and courses
Contracts

Total costs
Less: accumulated amortization

impairment loss
Intangible assets, net

As of December 31,

2018

2019

—

1,367
3,632
—
—
—
—
—
—
4,999
(508)
—
4,491

7,766

1,350
7,526
1,626
1,120
632
86
340
29
20,475
(2,696)
(79)
17,700

Amortization expenses for intangible assets for the years ended December 31, 2017, 2018 and 2019 were $nil, $529 and $2,224, respectively. As of
December 31, 2019, the estimated amortization expenses related to intangible assets for next five years is expected to be $2,67 0, $2,701, $2,288,
$1,282 and $942 respectively, and $51 thereafter.

The Group recorded impairment loss for the intangible assets of $nil, $nil and $79 for the years ended December 31, 2017, 2018 and 2019,
respectively.

F- 47

 
 
 
 
 
 
 
 
 
 
 
 
  
  
 
 
 
 
  
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(In thousands of U.S. dollars, except share and per share data, or otherwise noted)

11.                                LONG-TERM INVESTMENTS

Equity method investments

In April 2016, the Group invested cash consideration of $231 to set up a joint venture, Hainan RYB International Kindergarten Management Co.,
Ltd (“Hainan RYB”), with a third party, and obtained 51% equity interest in ownership.  The Group holds three seats out of five of the board of
directors of Hainan RYB.  Subject to the articles of association of Hainan RYB, the adoption of any resolution of the board of directors shall require
the affirmative vote of all directors of Hainan RYB.  The Group used the equity method to account for the investment, because the Group had the
ability to exercise significant influence but did not have control over the investee.

In September 2016, the Group invested cash consideration of $301 to acquire 16% equity interest in Beijing Seven Children Education Technology
Co., Ltd. (“Seven Children”). The Group holds one seat out of three of the board of directors of Seven Children. The Group used the equity method
to account for the investment, because the Group had the ability to exercise significant influence but did not have control over the investee.

In November 2018, the Group invested cash consideration of $4,400 for 19% equity interest in Beijing Da Ai Pre-school Management Education
Technology Co., Ltd. (“Beijing Da Ai”). The Group holds one seat out of three of the board of directors of Beijing Da Ai. The Group accounts for
the investment using equity method, because the Group has the ability to exercise significant influence but does not have control over the investee.

The Group shared loss of $239, $291 and $664 from its equity method investments during the years ended December 31, 2017, 2018 and 2019,
respectively.

F- 48

 
 
 
 
 
 
 
 
Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(In thousands of U.S. dollars, except share and per share data, or otherwise noted)

11.                                LONG-TERM INVESTMENTS - continued

Equity method investments — continued

The summarized financial information of the Group’s equity method investments, in accordance with Rule 4-08 of Regulation S-X, is as follows:

Current assets
Non-current assets
Current liabilities
Non-current liabilities

Total revenues
Gross profit
Loss from operations
Net loss

Available-for-sale securities

As of December 31,

2018

2019

835
2,307
(2,116)
—

2017

Years ended December 31,
2018

2019

1,960
755
(693)
(729)

3,893
917
(1,444)
(1,584)

3,045
3,575
(3,002)
(886)

3,139
460
(3,124)
(3,132)

On June 25, 2018, the Group entered into an investment agreement with the owners of Beijing Borderless Education Consulting Co., Ltd. (“Beijing
Borderless”), a company established in the PRC, principally engaged in providing education content and operating traditional cultural service
platforms. The Group purchased 20% equity ownership interest for a cash consideration of $436. The investment was classified as available-for-sale
security and measured at fair value as the Group determined that investment was debt security due to the redemption option available to the investor.
The unrealized holding gains or losses of nil was reported in other comprehensive income for the years ended December 31, 2018 and 2019.

On July 2, 2019, the Group entered into an investment agreement with the owners of Beijing Rui Le Future Education Technology Co., Ltd (“Beijing
Rui Le”), a company established in the PRC, principally engaged in providing pre-school education training services. The Group purchased 16%
equity ownership interest for cash consideration of $575. The investment was classified as available-for-sale security and measured at fair value as
the Group determined that investment was debt security due to the redemption option available to the investor. The unrealized holding gains or
losses of nil was reported in other comprehensive income for the year ended December 31, 2019.

No impairment indicator was noted at the end of 2019

F- 49

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(In thousands of U.S. dollars, except share and per share data, or otherwise noted)

12.                               OTHER NON-CURRENT ASSETS

Other non-current assets consisted of the following:

(1)

Rental deposits 
Prepayment for investments 
Prepayment for property, plant and equipment
Others

(2)

As of December 31,

2018

2019

4,027
20,021
—
—
24,048

6,638
6,295
2,880
671
16,484

(1)          Rental deposits represent office and kindergartens rental deposits for the Group’s operations, which will not be refunded within one year.

(2)          On September 12, 2018, the Group entered into an agreement with a third party to acquire Shenzhen Ranlo. As of December 31, 2018, the

group paid consideration for this acquisition of $5,515 in cash, accordingly the Group recognized the prepayment as other non-current assets.
The transaction was completed in January 2019.

On December 20, 2018, the Group entered into a loan agreement with the controlling shareholder (“borrower”) in a leading Singapore-based
private childhood education group GEH for a loan of $14,506 to the borrower. On February 5, 2019, the Group further entered into a definitive
agreement to acquire borrower’s interest holding over GEH for approximately RMB125 million (equivalent to $14,506) in cash. On March 26,
2019, the Group entered into a series of share purchase agreement with borrower and other shareholders of GEH, pursuant to which the Group
acquired 77% of the equity interest in GEH for a total cash consideration of RMB146.2 million (equivalent to $21,400), the principal of the loan
to borrower was settled as part of the acquisition consideration and interest on the loan was waived per agreement. Since the loan was
subsequently settled as acquisition consideration, the Group recorded the loan as other non-current assets as of December 31, 2018. The
acquisition in the GEH was completed in April 2019.

On June 21, 2019, the Group entered into an agreement to additionally acquire 10% equity interest, from the non-controlling interest holder, of
Shandong Buladun. As of December 31, 2019, the group paid consideration for this acquisition of $1,362 in cash. The transaction is expected to
be completed in 2020.

On July 15, 2019, the Group entered into an agreement with third parties to acquire 80% equity interest in five kindergartens in Singapore. As of
December 31, 2019, the group has partially paid consideration for this acquisition of $297 in cash. The transaction is expected to be completed
in 2020.

F- 50

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(In thousands of U.S. dollars, except share and per share data, or otherwise noted)

12.                               OTHER NON-CURRENT ASSETS — continued

On September 6, 2019, the Group entered into agreement to acquire 10% equity interest, from the non-controlling interest holder, of DKW. As
of December 31, 2019, the group has paid consideration for this acquisition of $4,636 in cash. The transaction is expected to be completed in
2020.

13.                               ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

The components of accrued expenses and other current liabilities are as follows:

Salary and welfare payable
Accrued expenses
Payables for purchase of property, plant and equipment
Payables for purchase of educational merchandise
Other tax payable
Acquisition consideration payable
Others

14.                               LEASES

Operating leases

As of December 31,

2018

2019

26,963
16,190
2,878
3,141
282
5,719
5,256
60,429

29,724
11,510
2,861
3,741
917
575
7,144
56,472

The Group’s leases consist of various operating lease contracts for offices, kindergartens, play-and-learn centers and student care centers in different
cities in the PRC and in Singapore. The Group determines if an arrangement is a lease at inception. Some lease agreements contain lease and non-
lease components, which the Group chooses to account for as separate components. The allocation of the consideration between the lease and
the non-lease components is based on the relative stand-alone prices of lease components included in the lease contracts. As of December 31, 2019,
the Group had no leases that were classified as a financing lease. As of December 31, 2019, the Group did not have additional operating leases that
have not yet commenced.

Total operating lease expenses for the year ended December 31, 2019 was $16,956 and was recorded in cost of revenues, and general and
administrative expenses on the consolidated statements of operations.

The short term lease expenses for the year ended December 31, 2019 was $3,363 and was recorded in the consolidated statements of operations.

F- 51

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(In thousands of U.S. dollars, except share and per share data, or otherwise noted)

14.           LEASES - continued

Operating leases - continued

Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows used in operating leases
Right-of-use assets obtained in exchange for new lease obligations:
Weighted average remaining lease term
Weighted average discount rate

For the year ended
December 31, 2019

15,514
25,685
9.03 years

6.6%

The following is a maturity analysis of the annual undiscounted cash flows for the annual periods ended December 31:

Years ending December 31,

2020
2021
2022
2023
2024
2025 and thereafter

Less: imputed interest

Total

17,479
13,543
11,705
12,606
10,675
53,826

32,423

87,411

Future minimum payments under non-cancelable operating leases related to offices and kindergartens and play-and-learn centers consisted, as of
December 31, 2018, under ASC 840, the predecessor to Topic 842, was as follows:

Years ending December 31,
2019
2020
2021
2022
2023
2024 and thereafter

16,607
15,075
13,155
12,002
10,913
64,845
132,597

Payments under operating leases are expensed on a straight-line basis over the periods of their respective leases.  The terms of the leases do not
contain lease escalation or contingent rents.  For the years ended December 31, 2017 and 2018, total rental expense for all operating leases amounted
to $11,760 and $16,195, respectively.

F- 52

 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(In thousands of U.S. dollars, except share and per share data, or otherwise noted)

15.                                FAIR VALUE MEASUREMENT

Measured or disclosed at fair value on a recurring basis

The Group measured its financial assets and liabilities, including cash equivalents, term deposits, available-for-sale securities, restricted cash,
accounts receivable, loan receivables, amounts due from related parties, other receivables, long-term debt, amount due to related parties and other
payables on a recurring basis as of December 31, 2018 and 2019.  Cash and cash equivalents, term deposits and restricted cash are classified within
Level 1 of the fair value hierarchy because they are valued based on the quoted market price in an active market.

The carrying amounts of accounts receivables, loan receivables-current and amounts due from related parties approximate their fair values. The
carrying amount of loan receivables —noncurrent approximates fair value as its interest rates are at the same level of current market yield for
comparable loans.

The Group measured available-for-sale securities based on a valuation which utilizes income approach to determine the equity value and the options-
pricing method to determine the allocated values between preferred shares and common shares. The available-for-sale securities are classified within
Level 3 of the fair value hierarchy because the Group used unobservable inputs to value the investments. The significant unobservable inputs include
the forecast financial performance of the investee business and discount rate to determine the fair value of the business.

Measured or disclosed at fair value on a non-recurring basis

The Group’s goodwill and intangible assets are primarily acquired through business acquisitions. Purchase price allocation are measured at fair value
on a nonrecurring basis as of the acquisition dates. The Group measures its goodwill and intangible assets at fair value on a nonrecurring basis
annually or whenever events or changes in circumstances indicate that carrying amount of a reporting unit exceeds its fair value. Intangible assets
are measured using the income approach - discounted cash flow method when events or changes in circumstances indicate that the carrying amount
of an asset may no longer be recoverable. For goodwill impairment testing, refer to Note 9 for details. The Group recognized impairment loss of
$nil, $nil and $416 related to goodwill and intangible assets acquired for the years ended December 31, 2017, 2018 and 2019.

The Group measures long-term equity method investment at fair value on a non-recurring basis whenever events or changes in circumstances
indicate that the carrying value may no longer be recoverable. The fair value is determined using models with significant unobservable inputs (Level
3 inputs), primarily the management projection of discounted future cash flow and the discount rate. The Group did not recognize any impairment
loss related to the long-term equity method investment for the years ended December 31, 2017, 2018 and 2019.

F- 53

 
 
 
 
 
 
 
 
 
 
Table of Contents

16.           ORDINARY SHARES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(In thousands of U.S. dollars, except share and per share data, or otherwise noted)

The Company’s fourth amended and restated Memorandum and Article of Association authorized the Company to issue 99,999,999 ordinary shares
with a par value of $0.001 per share.

On November 5, 2015, the Company re-designated 10,115,854 ordinary shares as Class A ordinary shares.

On November 5, 2015, the Company issued 13,047,947 Class B ordinary shares to RYB Education Limited (a company established by Ms. Yanlai
Shi, the director and Chief Executive Officer of the Company), with total proceeds of $50,224.  RYB Education Limited shall be entitled to receive
special dividend and any dividend declared in relation to the future investor financing transaction, which shall not be declared in favor of or
distributed to any Class A ordinary shareholders.

th 

 Amended and Restated Memorandum of Association of the Company dated August 30, 2017, upon the completion of IPO, each

Pursuant to the 5 
Class A ordinary share is entitled to one vote, and each Class B ordinary share is entitled to ten votes.  Each Class B ordinary share is convertible
into one Class A ordinary share at any time by the holder thereof.  Class A ordinary shares are not convertible into Class B ordinary shares under any
circumstances.  Except for voting and conversion rights, holder of Class A ordinary shares and Class B ordinary shares have the same rights.

Upon the completion of the Company’s IPO in September, 2017, (i) 3,253,870 of Class A ordinary shares were re-designated as Class B ordinary
shares on a one-for-one basis, (ii) 9,352,676 of Class B ordinary shares were re-designated Class A ordinary shares on a one-for-one basis, (iii) the
golden share was redeemed by the Company, and (iv) the Company offered and issued 5,500,000 Class A ordinary shares with a par value $0.001
per share at the total proceeds of $94,627 through IPO.  IPO related expense is $4,492, out of which $3,073 was paid in 2017 and the remaining was
paid in 2018.

As of December 31, 2019, there were 29,213,801 shares issued and 27,586,346 shares outstanding. As of December 31, 2018, there were 29,213,801
ordinary shares issued and outstanding.

Share repurchase program

On November 24, 2017, the Company announced that the board of directors of the Company has approved a share repurchase program whereby the
Company is authorized to repurchase its own ordinary shares in the form of American depositary shares with an aggregate value of up to $50,000
during the next 12 months. As of December 31, 2019, the Company did not repurchase any shares under this program.

On December 18, 2018, the Company announced that the board of directors of the Company approved another share repurchase program whereby
the Company is authorized to repurchase its own ordinary shares in the form of American depositary shares with an aggregate value of up to $12,000
during the next 12 months. Pursuant to this share repurchase plan, the Company repurchased 1,627,455 shares as of December 31, 2019, with a total
consideration of approximately $12,000 at a price range of $6.50 to $8.00 per share, including brokerage commissions. The shares repurchased by
the Company were accounted for at cost as treasury stock.

F- 54

 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(In thousands of U.S. dollars, except share and per share data, or otherwise noted)

17.                                SHARE INCENTIVE PLAN

The Company adopted the 2009 and 2017 Share Incentive Plans for the grant of share options to employees, directors and non-employees to provide
incentive for their services.

The maximum number of ordinary shares that may be delivered pursuant to compensatory awards granted to the employees, directors and non-
employees under the 2009 Share Incentive Plan should not exceed 2,573,756 ordinary shares of par value $0.001 per share.

The maximum aggregate number of ordinary shares that may be issued pursuant to all awards is initially 2,059,005, plus an annual increase on the
first day of each of the Company’s fiscal years the term of the 2017 Share Incentive Plan, commencing with the fiscal year beginning January 1,
2018, by an amount equal to 2.0% of the total number of ordinary shares issued and outstanding on the last day of the immediately preceding fiscal
year.

On June 22, 2017, the Company granted a total of 1,286,878 share options to directors at an exercise price of $11.66 per option.  The options will
vest in accordance with the vesting schedules set out in the respective share option agreements.

If the Company completes a qualified IPO before June 22, 2018, the vesting and expiration terms are:

(i)                                      25% of the share options will be vested and exercisable on June 22, 2018, and will expire on June 21, 2027;

(ii)                                   75% of the share options will be vested quarterly in twelve quarters with equal quarterly installments after June 22, 2018, and will expire

on June 21, 2027.

If the Company does not complete a qualified IPO before June 22, 2018, the vesting and expiration terms are:

(i)                                      25% of the share options will be vested and exercisable on the date of 1 

 trading date of the IPO, and will expire on June 21, 2027;

st 

(ii)                                   75% of the share options will be vested quarterly in twelve quarters with equal quarterly installments after the 1 

st 

 trading date of the IPO,

and will expire on June 21, 2027.

As the Company completed the qualified IPO on September 27, 2017, the first vesting schedule applied.

On June 22, 2017, the Company granted a total of 772,127 share options to employees at an exercise price of $11.66 per option. The options will
vest in accordance with the vesting schedules set out in the respective share option agreements.  The vesting and expiration terms are:

(i)                                      25% of the share options will be vested and exercisable on June 22, 2018, and will expire on June 21, 2027;

(ii)                                   75% of the share options will be vested quarterly in twelve quarters with equal quarterly installments after June 22, 2018, and will expire

on June 21, 2027.

F- 55

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(In thousands of U.S. dollars, except share and per share data, or otherwise noted)

17.           SHARE INCENTIVE PLAN - continued

Share options - continued

On July 1, 2017, the Company granted a total of 50,300 share options to a director and a consultant at weighted average exercise price of $1.48 per
option. The options were fully vested on the grant date and will expire on June 30, 2027.

On April 2, 2018, the Company granted 20,000 share options to an employee at an exercise price of $0.01 per option. The options will vest in
accordance with the vesting schedules set out in the respective share option agreements.  The vesting and expiration terms are:

(i)                                      25% of the share options will be vested and exercisable on April 1, 2019, and will expire on April 1, 2028;

(ii)                                   75% of the share options will be vested quarterly in twelve quarters with equal quarterly installments after April 1, 2019, and will expire

on April 1, 2028.

A summary of the share option activities is as follows:

Number
of options
outstanding

Weighted
average
exercise price

Weighted average
grant-date
fair value per option

Weighted average
remaining contractual
term (years)

Aggregate
intrinsic
value

Options outstanding at January 1,

2019
Forfeited

Options outstanding at
December 31, 2019

Options vested and expected to
vest at December 31, 2019

Options exercisable at
December 31, 2019

4,057,011
(48,453)

4,008,558

4,008,558

3,304,234

7.00
5.99

7.02

7.02

6.03

3.62
9.95

3.54

3.54

3.09

5.93
—

5.14

5.14

4.64

7,000
—

6,084

6,084

6,084

The weighted average grant date fair value of options granted during the years ended December 31, 2017, 2018 and 2019 were $5.75, $17.39 and
$nil, respectively. The total fair value of options vested during the year ended December 31, 2017, 2018 and 2019 were $513, $14,782 and $3,320,
respectively. The total intrinsic value of options exercised during the year ended December 31, 2017, 2018 and 2019 were $5,612, $nil and $nil,
respectively.

For share options that vest on grant date, the cost of award is expensed on the grant date. For the graded vesting share options, the Company
recognizes the compensation cost over the requisite service period for each separately vesting portion of the award as if the award is, in substance,
multiple awards. The Company recorded share-based compensation expenses relating to share options of $3,990, $4,869 and $2,069 for the years
ended December 31, 2017, 2018 and 2019, respectively.

As of December 31, 2019, total unrecognized compensation expenses relating to share options were $1,068, which is expected to be recognized over
a weighted average period of 1.48 years.

F- 56

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
  
  
  
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
  
  
  
 
 
 
 
 
 
 
 
  
  
  
  
  
 
 
 
 
 
 
 
 
  
  
  
  
  
 
 
 
 
 
 
 
 
 
 
Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(In thousands of U.S. dollars, except share and per share data, or otherwise noted)

17.           SHARE INCENTIVE PLAN - continued

Share options - continued

The fair value of the options granted is estimated on the dates of grant using the binomial option pricing model with the following assumptions used.

Grant date
Risk-free interest rate
Expected volatility
Expected dividend yield
Exercise multiples
Fair value of underlying ordinary share

(1)                                 Risk-free interest rate

As of December 31,

2017

2.15%~2.31%

2018

40%
—
2.8/2.2
11.67

2.73%
38%
—
2.2
17.40

Risk-free interest rate was estimated based on the daily treasury long term rate of U.S. Treasury Department with a maturity period close to
the expected term of the options.

(2)                                 Expected volatility

Expected volatility of the underlying ordinary shares during the lives of the options was estimated based on the historical stock price
volatility of comparable listed companies over a period comparable to the expected term of the options before September 27, 2017, and
based on the historical volatility of the Company’s share price since September 27, 2017.

(3)                                 Expected dividend yield

Expected dividend yield was estimated by the Company based on its expected dividend policy over the expected term of the options.

(4)                                 Exercise multiples

Exercise multiple represents the value of the underlying share as a multiple of exercise price of the option which, if achieved, results in
exercise of the option.

(5)                                 Fair value of underlying ordinary shares

The estimated fair value of the ordinary shares underlying the options as of the respective grant dates was determined based on a
retrospective valuation with the assistance of a third party appraiser before September 27, 2017, and based on the Company’s share price
since September 27, 2017.

F- 57

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(In thousands of U.S. dollars, except share and per share data, or otherwise noted)

17.           SHARE INCENTIVE PLAN - continued

Nonvested shares

On March 14, 2018, the Company granted 200,000 nonvested shares to three directors and executive officers. 25% of the nonvested shares will be
vested on March 14, 2019. 75% of the nonvested will be vested quarterly in twelve quarters with equal quarterly installments after March 14, 2019.
The grant date fair value of the nonvested shares was $20.43 per share, which was the closing price of the Company’s ordinary share on New York
Stock Exchange (“NYSE”) on March 14, 2018. This grant resulted in a total share-based compensation of $4,086, to be recognized ratably over the
requisite service period of 4 years.

On October 24, 2018, the Company granted 18,000 nonvested shares to a non-employee. 25% of the nonvested will be vested on October 23, 2019.
75% of the nonvested will be vested quarterly in twelve quarters with equal quarterly installments after October 23, 2019. The grant date fair value
of the nonvested shares was $17.11 per share, which was the closing price of the Company’s ordinary share on NYSE on October 24, 2018. This
grant resulted in a total share-based compensation of $308, to be recognized ratably over the requisite service period of 4 years.

On July 29, 2019, the Company granted 8,388 nonvested shares to an employee. 25% of the nonvested will be vested on July 29, 2020. 75% of the
nonvested will be vested quarterly in twelve quarters with equal quarterly installments after July 29, 2020. The grant date fair value of the nonvested
shares was $6.06 per share, which was the closing price of the Company’s ordinary share on NYSE on July 29, 2019. This grant resulted in a total
share-based compensation of $51, to be recognized ratably over the requisite service period of 4 years.

On August 20, 2019, the Company granted 240,000 nonvested shares to two directors and executive officers. 25% of the nonvested will be vested on
August 20, 2020. 75% of the nonvested will be vested quarterly in twelve quarters with equal quarterly installments after August 20, 2020. The grant
date fair value of the nonvested shares was $6.69 per share, which was the closing price of the Company’s ordinary share on NYSE on August 20,
2019. This grant resulted in a total share-based compensation of $1,606, to be recognized ratably over the requisite service period of 4 years.

On December 4, 2019, the Company granted 9,146 nonvested shares to an employee. 25% of the nonvested will be vested on December 4, 2020.
75% of the nonvested will be vested quarterly in twelve quarters with equal quarterly installments after December 4, 2020. The grant date fair value
of the nonvested shares was $5.55 per share, which was the closing price of the Company’s ordinary share on NYSE on December 4, 2019. This
grant resulted in a total share-based compensation of $51, to be recognized ratably over the requisite service period of 4 years.

F- 58

 
 
 
 
 
 
 
 
 
Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(In thousands of U.S. dollars, except share and per share data, or otherwise noted)

17.           SHARE INCENTIVE PLAN - continued

Nonvested shares - continued

A summary of the nonvested shares activities is as follows:

Nonvested shares outstanding at January 1, 2019

Granted
Vested

Nonvested shares outstanding at December 31, 2019

Number
of nonvested shares
outstanding

Weighted
average grant date
fair value

Aggregate
intrinsic value

218,000

257,534
(92,000)

383,534

20.16

6.63
20.27

11.05

1,273

2,090

The weighted average grant date fair value of nonvested shares granted during the years ended December 31, 2017, 2018 and 2019 were $nil, $20.16
and $6.63, respectively. The total fair value of nonvested shares vested during the year ended December 31, 2017, 2018 and 2019 were $nil, $nil and
$669, respectively.

No nonvested shares were granted in 2017.

The Group recognized compensation expense over the requisite service period for each separately vesting portion of the award as if the award is in
substance, multiple awards. The Company recorded share-based compensation expenses relating to nonvested shares of $1,878 and $1,893 for the
years ended December 31, 2018 and 2019, respectively. As of December 31, 2019, total unrecognized compensation expenses relating to nonvested
shares were $2,331, which is expected to be recognized over a weighted average period of 3.11 years.

18.                                INCOME TAXES

Cayman Islands

The Company is a tax-exempt entity incorporated in Cayman Islands.

H ong Kong

The Company’s subsidiaries located in Hong Kong and are subject to a profits tax rate of 8.25% on assessable profits on the first Hong Kong Dollars
(“HK$”) 2 million and 16.5% for any assessable profits in excess of HK$2 million starting from the financial commencing on April 1, 2018.

Singapore

The Company’s subsidiaries located in Singapore are subject to Singapore corporate income tax at a rate of 17% in 2019 and Group Relief, which
enables companies to deduct unutilized capital allowances, trade losses, and donations of one company from the assessable income of another
company in the same group. The Company’s subsidiaries located in Singapore are subject to tax exemption scheme, which companies can enjoy
75% exempted from tax for the first SGD$10 thousand and 50% exempted from tax for the next SGD$190 thousand for the year ended
December 31, 2019.

F- 59

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
  
 
 
 
 
 
 
  
  
  
 
 
 
  
 
 
  
 
 
  
  
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(In thousands of U.S. dollars, except share and per share data, or otherwise noted)

18.           INCOME TAXES - continued

China

The Company’s subsidiaries, the VIEs and the VIEs’ subsidiaries and kindergartens, which were entities established in the PRC (the “PRC entities”)
are subject to PRC Enterprise Income Tax (EIT), on the taxable income in accordance with the relevant PRC income tax laws, which have adopted a
unified income tax rate of 25% since January 1, 2008.

The current and deferred components of the income tax expense appearing in the consolidated statements of operations are as follows:

Current tax expense
Deferred tax expense

2017

Years ended December 31,
2018

2019

9,291
(5,479)

3,812

6,351
(3,892)

2,459

The principle components of deferred tax assets and deferred tax liabilities are as follows:

2017

Years ended December 31,
2018

2019

Deferred tax assets

Accrued expenses
Net operating loss carry-forwards

Total deferred tax assets
Less: valuation allowance

Deferred tax assets, net

Deferred tax liabilities

Acquired intangible assets, net

Total deferred tax liabilities

3,615
11,337

14,952
(2,522)

12,430

—

—

4,094
14,123

18,217
(2,022)

16,195

1,110

1,110

6,010
(2,469)

3,541

5,551
15,469

21,020
(2,859)

18,161

3,384

3,384

As of December 31, 2018 and 2019, the Group had net operating loss carried forward from the PRC entities of $56,492 and $ 61,586, respectively,
which will expire on various dates from December 31, 2020 to December 31, 2024, and the remaining tax losses from Hong Kong entities will be
carried forward indefinitely.

F- 60

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
  
 
 
 
 
 
 
 
  
  
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
  
 
  
  
  
 
 
 
 
 
 
 
 
 
 
  
  
  
 
 
 
 
 
 
 
  
  
  
 
 
 
 
 
 
  
  
  
 
  
  
  
 
 
 
 
 
 
  
  
  
 
 
 
 
 
 
Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(In thousands of U.S. dollars, except share and per share data, or otherwise noted)

18.           INCOME TAXES - continued

The reconciliation of the effective tax rate and the statutory income tax rate applicable to PRC operations is as follows:

Income before income taxes

Income tax expense computed at an applicable tax rate of 25%
Permanent differences
Effect of income tax rate difference in other jurisdictions
Change in valuation allowance

2017

Years ended December 31,
2018

2019

10,592

2,648
6
909
249
3,812

1,037

259
10
2,690
(500)
2,459

2,015

504
108
2,092
837
3,541

In addition, u ncertainties exist with respect to how the current income tax law in the PRC applies to the Group’s overall operations, and more
specifically, with regard to tax residency status.  The New EIT Law includes a provision specifying that legal entities organized outside of the PRC
will be considered residents for Chinese Income tax purposes if the place of effective management or control is within the PRC.  The
implementation rules to the New EIT Law provide that non-resident legal entities will be considered PRC residents if substantial and overall
management and control over the manufacturing and business operations, personnel, accounting and properties, occurs within the PRC.  Despite the
present uncertainties resulting from the limited PRC tax guidance on the issue, the Group does not believe that the legal entities organized outside of
the PRC within the Group should be treated as residents for EIT law purposes.  If the PRC tax authorities subsequently determine that the Company
should be deemed resident enterprises, the Company will be subject to the PRC income taxes, at a rate of 25%.

If any entity within the Group that is outside the PRC were to be a non-resident for PRC tax purposes dividends paid to it out of profits earned by
PRC subsidiaries after January 1, 2008 would be subject to a withholding tax at a rate of 10%, subject to reduction by an applicable tax treaty with
the PRC.  As of December 31, 2019, the Company ’s subsidiaries, the VIEs, and VIEs’ subsidiaries and kindergartens located in the PRC recorded
aggregate accumulated deficits.  Accordingly, no deferred tax liabilities has been accrued for the Chinese dividend withholding taxes.  In the future,
aggregate undistributed earnings of the Company’s subsidiaries, the VIEs, and VIEs’ subsidiaries and kindergartens located in the PRC, if any, that
are taxable upon distribution to the Company, will be considered to be indefinitely reinvested, because the Company does not have any plan to pay
cash dividends by using any undistributed earnings of the Company’s subsidiaries, the VIEs, and VIEs’ subsidiaries and kindergartens located in the
PRC in the foreseeable future and intends to retain most of their available funds and any future earnings for use in the operation and expansion of
their business.

F- 61

 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
  
 
 
 
 
 
 
  
  
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(In thousands of U.S. dollars, except share and per share data, or otherwise noted)

18.           INCOME TAXES - continued

The Group did not identify significant unrecognized tax benefits for the years ended December 31, 2017, 2018 and 2019. The Group did not incur
any interest and penalties related to potential underpaid income tax expenses and also does not anticipate any significant increases or decreases in
unrecognized tax benefits in the next 12 months from December 31, 2019.

19.                                EMPLOYEE DEFINED CONTRIBUTION PLAN

Full time employees of the Group in the PRC participate in a government mandated defined contribution plan, pursuant to which certain pension
benefits, medical care, employee housing fund, unemployment insurance and other welfare benefits are provided to employees.  Chinese labor
regulations require that the Group’s PRC entities make contributions to the government for these benefits based on certain percentages of the
employees’ salaries.  The Group has no legal obligation for the benefits beyond the contributions made. The total amounts for such employee
benefits, which were expensed as incurred, were $12,748, $12,868 and $13,041 for the years ended December 31, 2017, 2018 and 2019,
respectively.

20.                                NET INCOME (LOSS) PER SHARE

Basic and diluted net income (loss) per share for each of the periods presented were calculated as follows:

Numerator:
Net income (loss) attributable to ordinary
shareholders of RYB Education, Inc. for computing basic and diluted net

income (loss) per ordinary share

Denominator:
Weighted average ordinary shares outstanding used in computing basic net

2017

Years ended December 31,
2018

2019

7,115

(1,789)

(2,434)

income (loss) per ordinary share

24,735,445

29,213,801

28,074,624

Effect of dilutive securities
Plus incremental weighted average ordinary shares
from assumed conversions of options and nonvested shares using the

treasury stock method

1,831,212

—

—

Weighted average ordinary shares outstanding used in computing diluted net

income per ordinary share

26,566,657

29,213,801

28,074,624

Net income (loss) per ordinary share-basic
Net income (loss) per ordinary share-diluted

0.29
0.27

(0.06)
(0.06)

(0.09)
(0.09)

F- 62

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
  
 
  
  
  
 
 
 
 
  
  
  
 
  
  
  
 
 
 
 
 
 
  
  
  
 
  
  
  
 
  
  
  
 
 
 
 
 
 
  
  
  
 
 
 
 
 
 
  
  
  
 
 
 
 
 
Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(In thousands of U.S. dollars, except share and per share data, or otherwise noted)

20.           NET INCOME (LOSS) PER SHARE - continued

For the years ended December 31, 2018 and 2019, the following shares outstanding were excluded from the calculation of diluted net loss per
ordinary share, as their inclusion would have been anti-dilutive for the periods presented.

Share options
Nonvested shares

21.                                RELATED PARTY TRANSACTION

(1)                                  Related parties

Name of related parties

As of  December 31,

2018

4,057,011
218,000

2019

4,008,558
383,534

4,275,011

4,392,092

Relationship with the Group

Mr. Chimin Cao
Ms. Zhiying Li
Shanghai Huiliang Technology Development Co., Ltd.

Chairman of the Board of Directors of the Company
Spouse of Mr. Chimin Cao
Equity method long-term investee of the Group

(“Shanghai Huiliang”)

(2)                                  The significant related party transactions are as follows:

Rental expense recorded: Ms. Zhiying Li 

(i)

2017

Years ended December 31,
2018

2019

293

293

332

332

492

492

F- 63

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
  
 
 
 
 
 
 
  
  
  
 
 
 
 
 
 
Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(In thousands of U.S. dollars, except share and per share data, or otherwise noted)

21.           RELATED PARTY TRANSACTION - continued

(3)                                  The significant balances between the Group and its related parties are as follows:

Amounts due from:
Shanghai Huiliang 

(ii)

Amounts due to:
Shanghai Huiliang 

(iii)

As of December 31,

2018

2019

—

—

As of December 31,

2018

2019

—

—

349

349

124

124

(i)                                      The transactions with the related party shown above represent the rental expenses recorded in each year.

(ii)                                   The balance with related parties were interest-free, unsecured and repayable on demand.

(iii)                                The balance represents advances payable to the related party, and was paid by the Group in January 2020.

22.                                COMMITMENTS AND CONTINGENCIES

Purchase commitments

Future minimum purchase obligations payments under non-cancelable purchase agreements related to curriculum collaboration with international
institutions consisted of the following at December 31, 2019:

Years ending December 31,
2020
2021
2022
2023
2024
2025 and thereafter

F- 64

680
558
475
340
340
3,074
5,467

 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
 
  
  
 
 
 
 
 
  
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
 
  
  
 
 
 
 
 
  
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(In thousands of U.S. dollars, except share and per share data, or otherwise noted)

2 2 .                                COMMITMENTS AND CONTINGENCIES - continued

Contingencies

In order to operate kindergartens, the Group is required to obtain and maintain various approvals, licenses, and permits and to fulfill registration and
filing requirements pursuant to applicable laws and regulations. For instance, to establish a kindergarten, a private school operation permit from the
local education bureau and registration certificate for private non-enterprise entities with the local civil affairs bureau will be required, and the Group
is required to periodically renew the private school operation permit and pass annual inspections conducted by the relevant government authorities.

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 beyond control of the Group, while the Group intends to obtain all requisite permits and complete necessary
filings and registrations on a timely basis for the Group ’s operations, the Group cannot assure to obtain all required permits in time.

If the Group fails to receive required permits or certificates in a timely manner, or at all, the Group may be subject to fines, confiscation of the gains
derived from the non-compliant operations, suspension of the non-compliant teaching facilities or liability to indemnify economic loss suffered by
the Group’s students, which may materially and adversely affect the Group ’s business, financial conditions and results of operations.

Currently, the Group has not received private school operation permits or registration certificates for private non-enterprise entities for certain
directly operated kindergartens, and the Group is in the process of obtaining the permits or certificates for these kindergartens.  During the years
ended December 31, 2017, 2018, 2019, net revenues generated from these kindergartens were $7,241, $11,685 and $9,559, respectively.

On November 7, 2016, the Standing Committee of the National People’s Congress promulgated the Decision on Amending the Law on the
Promotion of Private Education of the PRC (the “Amended Private Education Law”), which became effective on September 1, 2017. On
December 29, 2018, the Decision of the Standing Committee of the National Peoples Congress on Amending the Seven Laws of the Labor Law of
the PRC was promulgated by Order No. 24 of the President of the PRC and took into effect on the same date, which made two minor adjusts to
Article 26 and Article 64 of the Amended Private Education Promotion Law. Due to lack of authoritative interpretation and implementation
guidance, the potential impact related to the Group not fully complying with the Amended Private Education Law or any relevant regulations cannot
be reasonably estimated at the issuance of this report. 

F- 65

 
 
 
 
 
 
 
 
 
Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(In thousands of U.S. dollars, except share and per share data, or otherwise noted)

2 2 .                                COMMITMENTS AND CONTINGENCIES - continued

Contingencies - continued

The Company, three of its directors and officers, and certain underwriters for the Company’s initial public offering were named as defendants in a
putative class action filed in the Superior Court of the State of California for the County of San Mateo. The complaint alleges that the Company’s
registration statements contained misstatements or omissions regarding its business, operations and prospects in violation of the U.S. securities laws.
Certain preliminary motion papers have been filed, but the court has not yet ruled. On September 5, 2018, this case was stayed on forum non
conveniens grounds.

The Company and certain of its directors and officers were named as defendants in a putative class action filed, on November 21, 2018, in the
Supreme Court of the State of New York County of Queens. The complaint alleges that the Company’s registration statements contained
misstatements or omissions regarding the Company’s business and operations in violation of the U.S. securities laws.  The complaint states that the
plaintiffs seek to represent a class of persons who allegedly suffered damages as a result of their purchase of the Company’s securities issued
pursuant to and traceable to the Company’s initial public offering on or about September 27, 2017, and alleges violations of the U.S. securities
laws. As this case remains in its preliminary stage, the likelihood of any unfavorable outcome or any estimate of the amount or range of any potential
loss cannot be reasonably estimated at the present time.

As a result, the Group did not record any liabilities pertaining to these.

23.                                SEGMENT INFORMATION

The Group’s chief operating decision maker (“CODM”) has been identified as the Chief Executive Officer of the Company, who reviews financial
information of operating segments when making decisions about allocating resources and assessing performance of the Group. An operating
segment is a component of the Group that engages in business activities from which it may earn revenues and incur costs, and is identified on the
basis of the internal financial reports that are provided to and regularly reviewed by the Group’s CODM.

For the years ended December 31, 2017, the Group’s CODM reviewed the financial information of the education business carried out by the Group
on a consolidated basis. Therefore, the Group has one operating and reportable segment, which is the provision of educational services, prior to
2018. For the year ended December 31, 2018, the Group’s CODM changed operating segment when making decisions about allocating resources
and assessing performance of the Group due to business plan and developments, and identified three operating segments, including kindergartens,
play-and-learn centers and others. For the year ended December 31, 2019, the Group’s CODM added an operating segment when making decisions
about allocating resources and assessing performance of the Group due to new business and developments acquired in Singapore, and accordingly
identified four operating segments, including PRC kindergartens, PRC play-and-learn centers, Singapore kindergartens, student care centers and
others, and others.

F- 66

 
 
 
 
 
 
 
 
 
 
Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(In thousands of U.S. dollars, except share and per share data, or otherwise noted)

23.                                SEGMENT INFORMATION - continued

The Group’s CODM evaluates performance based on each reporting segment’s revenue, costs of revenues and gross profit. Revenues, cost of
revenues and gross profits by segment are presented below. Separate financial information of operating income by segment is not available. The
following financial data has been retrospectively presented to give effect to the current structure.

2017

Years ended December 31,
2018

2019

Net revenues:

PRC kindergartens
PRC play-and-learn centers
Singapore kindergartens, student care centers and others
Others

Total net revenues

Cost of revenues:

PRC kindergartens
PRC play-and-learn centers
Singapore kindergartens, student care centers and others
Others

Total cost of revenues

Gross profit

PRC kindergartens
PRC play-and-learn centers
Singapore kindergartens, student care centers and others
Others

Total gross profit

105,679
29,871
—
5,253

140,803

88,281
18,129
—
4,867

111,277

17,398
11,742
—
386

29,526

124,175
26,777
—
5,546

156,498

108,140
15,694
—
7,030

130,864

16,035
11,083
—
(1,484)

25,634

131,427
24,901
19,073
6,882

182,283

113,315
14,269
16,200
11,750

155,534

18,112
10,632
2,873
(4,868)

26,749

The Group’s CODM does not review the financial position by operating segments, thus total assets by operating segment is not presented.

F- 67

 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
  
 
 
 
 
 
 
  
  
  
 
  
  
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
  
 
 
 
 
 
 
  
  
  
 
  
  
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
  
 
 
 
 
 
 
Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(In thousands of U.S. dollars, except share and per share data, or otherwise noted)

23.                                SEGMENT INFORMATION - continued

Geographical information

The Company’s operations are located in the PRC and Singapore. The Company’s revenues and long lived assets by geographic areas (based on
location of the other signing party of the revenue contract) are detailed below:

Net Revenues:

PRC
Singapore

Long-lived assets:

PRC
Singapore

24.                                RESTRICTED NET ASSETS

2017

Years ended December 31,
2018

2019

140,803
—
140,803

156,498
—
156,498

163,210
19,073
182,283

As of December 31,

2018

2019

100,309
—
100,309

208,579
9,765
218,344

Relevant PRC statutory laws and regulations permit payments of dividends by the Group’s PRC entities 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 U.S. GAAP differ from those reflected in the statutory financial statements of the Company’s entities.

Prior to payment of dividends, pursuant to the PRC laws and regulations, enterprises incorporated in the PRC must make appropriations from after-
tax profit to non-distributable reserve funds as determined by the Board of Directors of each company.  These reserves include (i) general reserve,
and (ii) other reserves at the discretion of the Board of Director.

Subject to certain cumulative limits, the general reserve requires annual appropriations of 10% of after-tax profits as determined under PRC laws and
regulations at each year-end until the balance reaches 50% of the PRC entity registered capital; the other reserve appropriations are at the Company’s
discretion.  These reserves can only be used for specific purposes of enterprise expansion and are not distributable as cash dividends.  The
Company’s subsidiaries, the VIEs, and VIEs’ subsidiaries, contributed $nil and $nil to the general reserve during the years ended December 31,
2018 and 2019, respectively.

F- 68

 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
  
 
  
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(In thousands of U.S. dollars, except share and per share data, or otherwise noted)

24.           RESTRICTED NET ASSETS - continued

PRC laws and regulations require kindergartens that require reasonable returns to contribute 25% of after-tax income before payments of dividend to
a fund to be used for the construction or maintenance of the kindergarten or procurement or upgrading of educational facility.  For kindergartens that
do not require reasonable returns, this amount should be equivalent to no less than 25% of the annual increase of its net assets as determined in
accordance with generally accepted accounting principles in the PRC.  For the Group’s kindergartens, amounts contributed to the reserve of $684
and $698 for the years ended December 31, 2018 and 2019, respectively.

These reserves are included as statutory reserves in the consolidated statements of changes in equity. The statutory reserves cannot be transferred to
the Company in the form of loans or advances and are not distributable as cash dividends except in the event of liquidation.

Because the Group’s PRC entities can only be paid out of distributable profits reported in accordance with PRC accounting standards, the Group’s
PRC entities are restricted from transferring a portion of their net assets to the Company. The restricted amounts include the paid-in capital and
statutory reserves of the Group’s PRC entities. The aggregate amount of paid-in capital and statutory reserves, which represented the amount of net
assets of the Group’s PRC entities not available for distribution, were $12,663 and $13,096 as of December 31, 2018 and 2019, respectively. The
retained earnings of not-for-profit kindergartens in the PRC amounting to $3,504 as of December 31, 2019 are restricted from distribution in the
form of loans, advances, or cash dividends in accordance with PRC regulation.

25.                                SUBSEQUENT EVENTS

In January 2020, COVID-19 has spread rapidly in many parts of China and other parts of the world. The epidemic has resulted in quarantines, travel
restrictions, and the temporary closure of facilities in China and elsewhere. The Group’s revenue and workforce are concentrated in the PRC. Since
February 2020, the Group’s kindergarten operations in the PRC were suspended and the resume dates are subject to further government guidelines or
approval. On April 8, 2020, the Group’s kindergarten operations in Singapore were suspended and are expected to resume on June 1, 2020.

The disruptions to the Group’s business had material adverse effects on its financial condition and operations during the first quarter of 2020. As the
disruptions are ongoing, the Group expects such adverse effects will continue, and may develop further beyond the first quarter of 2020. The Group
is unable to reasonably estimate the financial impact to its future results of operations, cash flows and financial condition due to the uncertainties
surrounding the business closures and other events related to the COVID-19 outbreak.

In October 2019, the Group entered into an agreement to dispose its 47% equity interest in Shanghai Huiliang subsidiary. In April 2020, the
agreement was cancelled as the underlying transaction was never executed.

F- 69

 
 
 
 
 
 
 
 
 
 
Description of American Depositary Shares

Exhibit 2.5

Citibank, N.A., as depositary bank issues the ADSs. Citibank, N.A.’s depositary offices are located at 388 Greenwich Street, New York, New York
10013, U.S.A. American Depositary Shares are frequently referred to as “ADSs” and represent ownership interests in securities that are on deposit with the
depositary bank. ADSs may be represented by certificates that are commonly known as “American Depositary Receipts” or “ADRs.” The depositary bank
typically appoints a custodian to safekeep the securities on deposit. In this case, the custodian is Citibank, N.A.—Hong Kong branch, located at 9/F., Citi
Tower, One Bay East, 83 Hoi Bun Road, Kwun Tong, Kowloon, Hong Kong.

Set forth below is a summary description of the material terms of the ADSs and of your material rights as an owner of ADSs. Please remember that

summaries by their nature lack the precision of the information summarized and that the rights and obligations of an owner of ADSs will be determined by
reference to the terms of the deposit agreement and not by this summary. We urge you to review the deposit agreement in its entirety. A copy of the deposit
agreement is on file with the SEC under cover of a Registration Statement on Form F-6 (File No. 333-220440). The portions of this summary description that
are italicized describe matters that may be relevant to the ownership of ADSs but that may not be contained in the deposit agreement.

Each ADS represents the right to receive, and to exercise the beneficial ownership interests in, one Class A ordinary share that is on deposit with the

depositary bank and/or custodian. An ADS also represents the right to receive, and to exercise the beneficial interests in, any other property received by the
depositary bank or the custodian on behalf of the owner of the ADS but that has not been distributed to the owners of ADSs because of legal restrictions or
practical considerations. We and the depositary bank may agree to change the ADS-to-Class A ordinary share ratio by amending the deposit agreement. This
amendment may give rise to, or change, the depositary fees payable by ADS owners. The custodian, the depositary bank and their respective nominees will
hold all deposited property for the benefit of the holders and beneficial owners of ADSs. The deposited property does not constitute the proprietary assets of
the depositary bank, the custodian or their nominees. Beneficial ownership in the deposited property will under the terms of the deposit agreement be vested
in the beneficial owners of the ADSs. The depositary bank, the custodian and their respective nominees will be the record holders of the deposited property
represented by the ADSs for the benefit of the holders and beneficial owners of the corresponding ADSs. A beneficial owner of ADSs may or may not be the
holder of ADSs. Beneficial owners of ADSs will be able to receive, and to exercise beneficial ownership interests in, the deposited property only through the
registered holders of the ADSs, the registered holders of the ADSs (on behalf of the applicable ADS owners) only through the depositary bank, and the
depositary bank (on behalf of the owners of the corresponding ADSs) directly, or indirectly, through the custodian or their respective nominees, in each case
upon the terms of the deposit agreement.

 
 
 
 
 
If you become an owner of ADSs, you will become a party to the deposit agreement and therefore will be bound to its terms and to the terms of any

ADR that represents your ADSs. The deposit agreement and the ADR specify our rights and obligations as well as your rights and obligations as owner of
ADSs and those of the depositary bank. As an ADS holder you appoint the depositary bank to act on your behalf in certain circumstances. The deposit
agreement and the ADRs are governed by New York law. However, our obligations to the holders of Class A ordinary shares will continue to be governed by
the laws of the Cayman Islands, which may be different from the laws in the United States.

In addition, applicable laws and regulations may require you to satisfy reporting requirements and obtain regulatory approvals in certain
circumstances. You are solely responsible for complying with such reporting requirements and obtaining such approvals. Neither the depositary bank, the
custodian, us or any of their or our respective agents or affiliates shall be required to take any actions whatsoever on your behalf to satisfy such reporting
requirements or obtain such regulatory approvals under applicable laws and regulations.

As an owner of ADSs, we will not treat you as one of our shareholders and you will not have direct shareholder rights. The depositary bank will hold

on your behalf the shareholder rights attached to the Class A ordinary shares underlying your ADSs. As an owner of ADSs you will be able to exercise the
shareholders rights for the Class A ordinary shares represented by your ADSs through the depositary bank only to the extent contemplated in the deposit
agreement. To exercise any shareholder rights not contemplated in the deposit agreement you will, as an ADS owner, need to arrange for the cancellation of
your ADSs and become a direct shareholder.

The manner in which you own the ADSs (e.g., in a brokerage account vs. as registered holder, or as holder of certificated vs. uncertificated ADSs)
may affect your rights and obligations, and the manner in which, and extent to which, the depositary bank’s services are made available to you. As an owner
of ADSs, you may hold your ADSs either by means of an ADR registered in your name, through a brokerage or safekeeping account, or through an account
established by the depositary bank in your name reflecting the registration of uncertificated ADSs directly on the books of the depositary bank (commonly
referred to as the “direct registration system” or “DRS”). The direct registration system reflects the uncertificated (book-entry) registration of ownership of
ADSs by the depositary bank. Under the direct registration system, ownership of ADSs is evidenced by periodic statements issued by the depositary bank to
the holders of the ADSs. The direct registration system includes automated transfers between the depositary bank and The Depository Trust Company
(“DTC”), the central book-entry clearing and settlement system for equity securities in the United States. If you decide to hold your ADSs through your
brokerage or safekeeping account, you must rely on the procedures of your broker or bank to assert your rights as ADS owner. Banks and brokers typically
hold securities such as the ADSs through clearing and settlement systems such as DTC. The procedures of such clearing and settlement systems may limit
your ability to exercise your rights as an owner of ADSs. Please consult with your broker or bank if you have any questions concerning these limitations and
procedures. All ADSs held through DTC will be registered in the name of a nominee of DTC. This summary description assumes you have opted to own the
ADSs directly by means of an ADS registered in your name and, as such, we will refer to you as the “holder.” When we refer to “you,” we assume the reader
owns ADSs and will own ADSs at the relevant time.

2

 
 
 
 
 
Dividends and Distributions

As a holder of ADSs, you generally have the right to receive the distributions we make on the securities deposited with the custodian. Your receipt of
these distributions may be limited, however, by practical considerations and legal limitations. Holders of ADSs will receive such distributions under the terms
of the deposit agreement in proportion to the number of ADSs held as of the specified record date, after deduction of the applicable fees, taxes and expenses.

Distributions of Cash

Whenever we make a cash distribution for the securities on deposit with the custodian, we will deposit the funds with the custodian. Upon receipt of
confirmation of the deposit of the requisite funds, the depositary bank will arrange for the funds received in a currency other than U.S. dollars to be converted
into U.S. dollars and for the distribution of the U.S. dollars to the holders, subject to the laws and regulations of the Cayman Islands.

The conversion into U.S. dollars will take place only if practicable and if the U.S. dollars are transferable to the United States. The depositary bank

will apply the same method for distributing the proceeds of the sale of any property (such as undistributed rights) held by the custodian in respect of securities
on deposit.

The distribution of cash will be made net of the fees, expenses, taxes and governmental charges payable by holders under the terms of the deposit

agreement. The depositary bank will hold any cash amounts it is unable to distribute in a non-interest bearing account for the benefit of the applicable holders
and beneficial owners of ADSs until the distribution can be effected or the funds that the depositary bank holds must be escheated as unclaimed property in
accordance with the laws of the relevant states of the United States.

Distributions of Class A Ordinary Shares

Whenever we make a free distribution of Class A ordinary shares for the securities on deposit with the custodian, we will deposit the applicable

number of Class A ordinary shares with the custodian. Upon receipt of confirmation of such deposit, the depositary bank will either distribute to holders new
ADSs representing the Class A ordinary shares deposited or modify the ADS-to-Class A ordinary share ratio, in which case each ADS you hold will represent
rights and interests in the additional Class A ordinary shares so deposited. Only whole new ADSs will be distributed. Fractional entitlements will be sold and
the proceeds of such sale will be distributed as in the case of a cash distribution.

The distribution of new ADSs or the modification of the ADS-to-Class A ordinary share ratio upon a distribution of Class A ordinary shares will be

made net of the fees, expenses, taxes and governmental charges payable by holders under the terms of the deposit agreement. In order to pay such taxes or
governmental charges, the depositary bank may sell all or a portion of the new Class A ordinary shares so distributed.

No such distribution of new ADSs will be made if it would violate a law (e.g., the U.S. securities laws) or if it is not operationally practicable. If the

depositary bank does not distribute new ADSs as described above, it may sell the Class A ordinary shares received upon the terms described in the deposit
agreement and will distribute the proceeds of the sale as in the case of a distribution of cash.

3

 
 
 
 
 
 
 
 
 
 
 
Distribution of Rights

Whenever we intend to distribute rights to subscribe for additional Class A ordinary shares, we will give prior notice to the depositary bank and we
will assist the depositary bank in determining whether it is lawful and reasonably practicable to distribute rights to subscribe for additional ADSs to holders.

The depositary bank will establish procedures to distribute rights to subscribe for additional ADSs to holders and to enable such holders to exercise

such rights if it is lawful and reasonably practicable to make the rights available to holders of ADSs, and if we provide all of the documentation contemplated
in the deposit agreement (such as opinions to address the lawfulness of the transaction). You may have to pay fees, expenses, taxes and other governmental
charges to subscribe for the new ADSs upon the exercise of your rights. The depositary bank is not obligated to establish procedures to facilitate the
distribution and exercise by holders of rights to subscribe for new Class A ordinary shares other than in the form of ADSs.

The depositary bank will not distribute the rights to you if:

·                   We do not timely request that the rights be distributed to you or we request that the rights not be distributed to you; or

·                   We fail to deliver satisfactory documents to the depositary bank; or

·                   It is not reasonably practicable to distribute the rights.

The depositary bank will sell the rights that are not exercised or not distributed if such sale is lawful and reasonably practicable. The proceeds of

such sale will be distributed to holders as in the case of a cash distribution. If the depositary bank is unable to sell the rights, it will allow the rights to lapse.

Elective Distributions

Whenever we intend to distribute a dividend payable at the election of shareholders either in cash or in additional shares, we will give prior notice

thereof to the depositary bank and will indicate whether we wish the elective distribution to be made available to you. In such case, we will assist the
depositary bank in determining whether such distribution is lawful and reasonably practicable.

The depositary bank will make the election available to you only if it is reasonably practicable and if we have provided all of the documentation

contemplated in the deposit agreement. In such case, the depositary bank will establish procedures to enable you to elect to receive either cash or additional
ADSs, in each case as described in the deposit agreement.

4

 
 
 
 
 
 
 
 
 
 
 
 
If the election is not made available to you, you will receive either cash or additional ADSs, depending on what a shareholder in the Cayman Islands

would receive upon failing to make an election, as more fully described in the deposit agreement.

Other Distributions

Whenever we intend to distribute property other than cash, Class A ordinary shares or rights to subscribe for additional Class A ordinary shares we
will notify the depositary bank in advance and will indicate whether we wish such distribution to be made to you. If so, we will assist the depositary bank in
determining whether such distribution to holders is lawful and reasonably practicable.

If it is reasonably practicable to distribute such property to you and if we provide to the depositary bank all of the documentation contemplated in the

deposit agreement, the depositary bank will distribute the property to the holders in a manner it deems practicable.

The distribution will be made net of fees, expenses, taxes and governmental charges payable by holders under the terms of the deposit agreement. In

order to pay such taxes and governmental charges, the depositary bank may sell all or a portion of the property received.

The depositary bank will not distribute the property to you and will sell the property if:

·                   We do not request that the property be distributed to you or if we request that the property not be distributed to you; or

·                   We do not deliver satisfactory documents to the depositary bank; or

·                   The depositary bank determines that all or a portion of the distribution to you is not reasonably practicable.

The proceeds of such a sale will be distributed to holders as in the case of a cash distribution.

Redemption

Whenever we decide to redeem any of the securities on deposit with the custodian, we will notify the depositary bank in advance. If it is practicable

and if we provide all of the documentation contemplated in the deposit agreement, the depositary bank will provide notice of the redemption to the holders.

The custodian will be instructed to surrender the shares being redeemed against payment of the applicable redemption price. The depositary bank

will convert into U.S. dollars upon the terms of the deposit agreement the redemption funds received in a currency other than U.S. dollars and will establish
procedures to enable holders to receive the net proceeds from the redemption upon surrender of their ADSs to the depositary bank. You may have to pay fees,
expenses, taxes and other governmental charges upon the redemption of your ADSs. If less than all ADSs are being redeemed, the ADSs to be retired will be
selected by lot or on a pro rata basis, as the depositary bank may determine.

5

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Changes Affecting Class A Ordinary Sahres

The Class A ordinary shares held on deposit for your ADSs may change from time to time. For example, there may be a change in nominal or par

value, split-up, cancellation, consolidation or any other reclassification of such Class A ordinary shares or a recapitalization, reorganization, merger,
consolidation or sale of assets of the Company.

If any such change were to occur, your ADSs would, to the extent permitted by law and the deposit agreement, represent the right to receive the

property received or exchanged in respect of the Class A ordinary shares held on deposit. The depositary bank may in such circumstances deliver new ADSs
to you, amend the deposit agreement, the ADRs and the applicable Registration Statement(s) on Form F-6, call for the exchange of your existing ADSs for
new ADSs and take any other actions that are appropriate to reflect as to the ADSs the change affecting the Class A ordinary shares. If the depositary bank
may not lawfully distribute such property to you, the depositary bank may sell such property and distribute the net proceeds to you as in the case of a cash
distribution.

Issuance of ADSs Upon Deposit of Class A Ordinary Shares

The Class A ordinary shares are deposited by us with the custodian. Upon receipt of confirmation of such deposit, the depositary bank will issue

ADSs.

The depositary bank may create ADSs on your behalf if you or your broker deposit Class A ordinary shares with the custodian. The depositary bank

will deliver these ADSs to the person you indicate only after you pay any applicable issuance fees and any charges and taxes payable for the transfer of the
Class A ordinary shares to the custodian. Your ability to deposit Class A ordinary shares and receive ADSs may be limited by U.S. and Cayman Islands legal
considerations applicable at the time of deposit.

The issuance of ADSs may be delayed until the depositary bank or the custodian receives confirmation that all required approvals have been given

and that the Class A ordinary shares have been duly transferred to the custodian. The depositary bank will only issue ADSs in whole numbers.

When you make a deposit of Class A ordinary shares, you will be responsible for transferring good and valid title to the depositary bank. As such,

you will be deemed to represent and warrant that:

·                   The Class A ordinary shares are duly authorized, validly issued, fully paid, non-assessable and legally obtained.

·                   All preemptive (and similar) rights, if any, with respect to such Class A ordinary shares have been validly waived or exercised.

·                   You are duly authorized to deposit the Class A ordinary shares.

·                   The Class A ordinary shares presented for deposit are free and clear of any lien, encumbrance, security interest, charge, mortgage or
adverse claim, and are not, and the ADSs issuable upon such deposit will not be, “restricted securities” (as defined in the deposit
agreement).

6

 
 
 
 
 
 
 
 
 
 
 
 
 
·                   The Class A ordinary shares presented for deposit have not been stripped of any rights or entitlements.

If any of the representations or warranties are incorrect in any way, we and the depositary bank may, at your cost and expense, take any and all

actions necessary to correct the consequences of the misrepresentations.

Transfer, Combination and Split Up of ADRs

As an ADR holder, you will be entitled to transfer, combine or split up your ADRs and the ADSs evidenced thereby. For transfers of ADRs, you will

have to surrender the ADRs to be transferred to the depositary bank and also must:

·                   ensure that the surrendered ADR is properly endorsed or otherwise in proper form for transfer;

·                   provide such proof of identity and genuineness of signatures as the depositary bank deems appropriate;

·                   provide any transfer stamps required by the State of New York or the United States; and

·                   pay all applicable fees, charges, expenses, taxes and other government charges payable by ADR holders pursuant to the terms of the deposit

agreement, upon the transfer of ADRs.

To have your ADRs either combined or split up, you must surrender the ADRs in question to the depositary bank with your request to have them
combined or split up, and you must pay all applicable fees, charges and expenses payable by ADR holders, pursuant to the terms of the deposit agreement,
upon a combination or split up of ADRs.

Withdrawal of Class A Ordinary Shares Upon Cancellation of ADSs

As a holder, you will be entitled to present your ADSs to the depositary bank for cancellation and then receive the corresponding number of
underlying Class A ordinary shares at the custodian’s offices. Your ability to withdraw the Class A ordinary shares held in respect of the ADSs may be limited
by U.S. and Cayman Islands considerations applicable at the time of withdrawal. In order to withdraw the Class A ordinary shares represented by your ADSs,
you will be required to pay to the depositary bank the fees for cancellation of ADSs and any charges and taxes payable upon the transfer of the Class A
ordinary shares. You assume the risk for delivery of all funds and securities upon withdrawal. Once canceled, the ADSs will not have any rights under the
deposit agreement.

If you hold ADSs registered in your name, the depositary bank may ask you to provide proof of identity and genuineness of any signature and such

other documents as the depositary bank may deem appropriate before it will cancel your ADSs. The withdrawal of the Class A ordinary shares represented by
your ADSs may be delayed until the depositary bank receives satisfactory evidence of compliance with all applicable laws and regulations. Please keep in
mind that the depositary bank will only accept ADSs for cancellation that represent a whole number of securities on deposit.

7

 
 
 
 
 
 
 
 
 
 
 
 
 
You will have the right to withdraw the securities represented by your ADSs at any time except for:

·                   Temporary delays that may arise because (i) the transfer books for the Class A ordinary shares or ADSs are closed, or (ii) Class A ordinary

shares are immobilized on account of a shareholders’ meeting or a payment of dividends.

·                   Obligations to pay fees, taxes and similar charges.

·                   Restrictions imposed because of laws or regulations applicable to ADSs or the withdrawal of securities on deposit.

The deposit agreement may not be modified to impair your right to withdraw the securities represented by your ADSs except to comply with

mandatory provisions of law.

Voting Rights

As a holder, you generally have the right under the deposit agreement to instruct the depositary bank to exercise the voting rights for the Class A

ordinary shares represented by your ADSs. The voting rights of holders of Class A ordinary shares are described in “Description of Share Capital.”

At our request, the depositary bank will distribute to you any notice of shareholders’ meeting received from us together with information explaining

how to instruct the depositary bank to exercise the voting rights of the securities represented by ADSs.

If the depositary bank timely receives voting instructions from a holder of ADSs, it will endeavor to vote the securities (in person or by proxy)

represented by the holder’s ADSs in accordance with such voting instructions as follows:

·                   In the event of voting by show of hands , the depositary bank will vote (or cause the custodian to vote) all Class A ordinary shares held on
deposit at that time in accordance with the voting instructions received from a majority of holders of ADSs who provide timely voting
instructions.

·                   In the event of voting by poll , the depositary bank will vote (or cause the Custodian to vote) the Class A ordinary shares held on deposit in

accordance with the voting instructions received from the holders of ADSs.

In the event of voting by poll, holders of ADSs in respect of which no timely voting instructions have been received shall be deemed to have

instructed the depositary bank to give a discretionary proxy to a person designated by us to vote the Class A ordinary shares represented by such holders’
ADSs; provided, that no such instructions shall be deemed given and no such discretionary proxy shall be given with respect to any matter as to which we
inform the depositary bank that we do not wish such proxy to be given; provided, further, that no such discretionary proxy shall be given (x) with respect to
any matter as to which we inform the depositary that (i) there exists substantial opposition, or (ii) the rights of holders of ADSs or the shareholders of our
company will be materially adversely affected, and (y) in the event that the vote is on a show of hands.

8

 
 
 
 
 
 
 
 
 
 
 
 
 
Please note that the ability of the depositary bank to carry out voting instructions may be limited by practical and legal limitations and the terms of

the securities on deposit. We cannot assure you that you will receive voting materials in time to enable you to return voting instructions to the depositary bank
in a timely manner.

Fees and Charges

As an ADS holder, you will be required to pay the following fees under the terms of the deposit agreement:

Service
·       Issuance of ADSs (e.g., an issuance of ADS upon a deposit of
Class A ordinary shares, upon a change in the ADS(s)-to-
Class A ordinary share(s) ratio, or for any other reason),
excluding ADS issuances as a result of distributions of Class A
ordinary shares

Up to U.S. 5¢ per ADS issued

Fees

·         Cancellation of ADSs (e.g., a cancellation of ADSs for delivery
of deposited property, upon a change in the ADS(s)-to-Class A
ordinary share(s) ratio, or for any other reason)

Up to U.S. 5¢ per ADS cancelled

·         Distribution of cash dividends or other cash distributions (e.g.,

Up to U.S. 5¢ per ADS held

upon a sale of rights and other entitlements)

·         Distribution of ADSs pursuant to (i) stock dividends or other
free stock distributions, or (ii) exercise of rights to purchase
additional ADSs

Up to U.S. 5¢ per ADS held

·         Distribution of securities other than ADSs or rights to purchase

Up to U.S. 5¢ per ADS held

additional ADSs (e.g., upon a spin-off)

·         ADS Services

Up to U.S. 5¢ per ADS held on the applicable record date(s) established by
the depositary bank

9

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As an ADS holder you will also be responsible to pay certain charges such as:

·                   taxes (including applicable interest and penalties) and other governmental charges;

·                   the registration fees as may from time to time be in effect for the registration of Class A ordinary shares on the share register and applicable
to transfers of Class A ordinary shares to or from the name of the custodian, the depositary bank or any nominees upon the making of
deposits and withdrawals, respectively;

·                   certain cable, telex and facsimile transmission and delivery expenses;

·                   the expenses and charges incurred by the depositary bank in the conversion of foreign currency;

·                   the fees and expenses incurred by the depositary bank in connection with compliance with exchange control regulations and other

regulatory requirements applicable to Class A ordinary shares, ADSs and ADRs; and

·                   the fees and expenses incurred by the depositary bank, the custodian, or any nominee in connection with the servicing or delivery of

deposited property.

ADS fees and charges payable upon (i) the issuance of ADSs, and (ii) the cancellation of ADSs are charged to the person to whom the ADSs are
issued (in the case of ADS issuances) and to the person whose ADSs are cancelled (in the case of ADS cancellations). In the case of ADSs issued by the
depositary bank into DTC, the ADS issuance and cancellation fees and charges may be deductedfrom distributions made through DTC, and may be charged
to the DTC participant(s) receiving the ADSs being issued or the DTC participant(s) holding the ADSs being cancelled, as the case may be, on behalf of the
beneficial owner(s) and will be charged by the DTC participant(s) to the account of the applicable beneficial owner(s) in accordance with the procedures and
practices of the DTC participants as in effect at the time. ADS fees and charges in respect of distributions and the ADS service fee are charged to the holders
as of the applicable ADS record date. In the case of distributions of cash, the amount of the applicable ADS fees and charges is deducted from the funds being
distributed. In the case of (i) distributions other than cash and (ii) the ADS service fee, holders as of the ADS record date will be invoiced for the amount of
the ADS fees and charges and such ADS fees and charges may be deducted from distributions made to holders of ADSs. For ADSs held through DTC, the
ADS fees and charges for distributions other than cash and the ADS service fee may be deducted from distributions made through DTC, and may be charged
to the DTC participants in accordance with the procedures and practices prescribed by DTC and the DTC participants in turn charge the amount of such ADS
fees and charges to the beneficial owners for whom they hold ADSs.

10

 
 
 
 
 
 
 
 
 
In the event of refusal to pay the depositary bank fees, the depositary bank may, under the terms of the deposit agreement, refuse the requested

service until payment is received or may set off the amount of the depositary bank fees from any distribution to be made to the ADS holder. Certain of the
depositary fees and charges (such as the ADS services fee) may become payable shortly after the closing of the ADS offering. Note that the fees and charges
you may be required to pay may vary over time and may be changed by us and by the depositary bank. You will receive prior notice of such changes. The
depositary bank may reimburse us for certain expenses incurred by us in respect of the ADR program, by making available a portion of the ADS fees charged
in respect of the ADR program or otherwise, upon such terms and conditions as we and the depositary bank agree from time to time.

Amendments and Termination

We may agree with the depositary bank to modify the deposit agreement at any time without your consent. We undertake to give holders 30 days’

prior notice of any modifications that would materially prejudice any of their substantial rights under the deposit agreement. We will not consider to be
materially prejudicial to your substantial rights any modifications or supplements that are reasonably necessary for the ADSs to be registered under the
Securities Act or to be eligible for book-entry settlement, in each case without imposing or increasing the fees and charges you are required to pay. In
addition, we may not be able to provide you with prior notice of any modifications or supplements that are required to accommodate compliance with
applicable provisions of law.

You will be bound by the modifications to the deposit agreement if you continue to hold your ADSs after the modifications to the deposit agreement
become effective. The deposit agreement cannot be amended to prevent you from withdrawing the Class A ordinary shares represented by your ADSs (except
as permitted by law).

We have the right to direct the depositary bank to terminate the deposit agreement. Similarly, the depositary bank may in certain circumstances on its

own initiative terminate the deposit agreement. In either case, the depositary bank must give notice to the holders at least 30 days before termination. Until
termination, your rights under the deposit agreement will be unaffected.

After termination, the depositary bank will continue to collect distributions received (but will not distribute any such property until you request the

cancellation of your ADSs) and may sell the securities held on deposit. After the sale, the depositary bank will hold the proceeds from such sale and any other
funds then held for the holders of ADSs in a non-interest bearing account. At that point, the depositary bank will have no further obligations to holders other
than to account for the funds then held for the holders of ADSs still outstanding (after deduction of applicable fees, taxes and expenses).

Books of Depositary

The deposit agreement limits our obligations and the depositary bank’s obligations to you. Please note the following:

11

 
 
 
 
 
 
 
 
 
·                   We and the depositary bank are obligated only to take the actions specifically stated in the deposit agreement without negligence or bad

faith.

·                   The depositary bank disclaims any liability for any failure to carry out voting instructions, for any manner in which a vote is cast or for the

effect of any vote, provided it acts in good faith and in accordance with the terms of the deposit agreement.

·                   The depositary bank disclaims any liability for any failure to determine the lawfulness or practicality of any action, for the content of any

document forwarded to you on our behalf or for the accuracy of any translation of such a document, for the investment risks associated with
investing in Class A ordinary shares, for the validity or worth of the Class A ordinary shares, for any tax consequences that result from the
ownership of ADSs, for the credit-worthiness of any third party, for allowing any rights to lapse under the terms of the deposit agreement,
for the timeliness of any of our notices or for our failure to give notice.

·                   We and the depositary bank will not be obligated to perform any act that is inconsistent with the terms of the deposit agreement.

·                   We and the depositary bank disclaim any liability if we or the depositary bank are prevented or forbidden from or subject to any civil or
criminal penalty or restraint on account of, or delayed in, doing or performing any act or thing required by the terms of the deposit
agreement, by reason of any provision, present or future of any law or regulation, or by reason of present or future provision of any
provision of our Articles of Association, or any provision of or governing the securities on deposit, or by reason of any act of God or war or
other circumstances beyond our control.

·                   We and the depositary bank disclaim any liability by reason of any exercise of, or failure to exercise, any discretion provided for in the

deposit agreement or in our Articles of Association or in any provisions of or governing the securities on deposit.

·                   We and the depositary bank further disclaim any liability for any action or inaction in reliance on the advice or information received from

legal counsel, accountants, any person presenting Class A ordinary shares for deposit, any holder of ADSs or authorized representatives
thereof, or any other person believed by either of us in good faith to be competent to give such advice or information.

·                   We and the depositary bank also disclaim liability for the inability by a holder to benefit from any distribution, offering, right or other

benefit that is made available to holders of Class A ordinary shares but is not, under the terms of the deposit agreement, made available to
you.

12

 
 
 
 
 
 
 
 
 
·                   We and the depositary bank may rely without any liability upon any written notice, request or other document believed to be genuine and to

have been signed or presented by the proper parties.

·                   We and the depositary bank also disclaim liability for any consequential or punitive damages for any breach of the terms of the deposit

agreement.

·                   No disclaimer of any Securities Act liability is intended by any provision of the deposit agreement.

·                   Nothing in the deposit agreement gives rise to a partnership or joint venture, or establishes a fiduciary relationship, among us, the

depositary bank and you as ADS holder.

·                   Nothing in the deposit agreement precludes the depositary bank (or its affiliates) from engaging in transactions in which parties adverse to
us or the ADS owners have interests, and nothing in the deposit agreement obligates the depositary bank to disclose those transactions, or
any information obtained in the course of those transactions, to us or to the ADS owners, or to account for any payment received as part of
those transactions.

Pre-Release Transactions

Subject to the terms and conditions of the deposit agreement, the depositary bank may issue to broker/dealers ADSs before receiving a deposit of

Class A ordinary shares or release Class A ordinary shares to broker/dealers before receiving ADSs for cancellation. These transactions are commonly
referred to as “pre-release transactions,” and are entered into between the depositary bank and the applicable broker/dealer. The deposit agreement limits the
aggregate size of pre-release transactions (not to exceed 30% of the Class A ordinary shares on deposit in the aggregate) and imposes a number of conditions
on such transactions (e.g., the need to receive collateral, the type of collateral required, the representations required from brokers, etc.). The depositary bank
may retain the compensation received from the pre-release transactions.

Taxes

You will be responsible for the taxes and other governmental charges payable on the ADSs and the securities represented by the ADSs. We, the

depositary bank and the custodian may deduct from any distribution the taxes and governmental charges payable by holders and may sell any and all property
on deposit to pay the taxes and governmental charges payable by holders. You will be liable for any deficiency if the sale proceeds do not cover the taxes that
are due.

The depositary bank may refuse to issue ADSs, to deliver, transfer, split and combine ADRs or to release securities on deposit until all taxes and

charges are paid by the applicable holder. The depositary bank and the custodian may take reasonable administrative actions to obtain tax refunds and reduced
tax withholding for any distributions on your behalf. However, you may be required to provide to the depositary bank and to the custodian proof of taxpayer
status and residence and such other information as the depositary bank and the custodian may require to fulfill legal obligations. You are required to
indemnify us, the depositary bank and the custodian for any claims with respect to taxes based on any tax benefit obtained for you.

13

 
 
 
 
 
 
 
 
 
 
 
Foreign Currency Conversion

The depositary bank will arrange for the conversion of all foreign currency received into U.S. dollars if such conversion is practical, and it will
distribute the U.S. dollars in accordance with the terms of the deposit agreement. You may have to pay fees and expenses incurred in converting foreign
currency, such as fees and expenses incurred in complying with currency exchange controls and other governmental requirements.

If the conversion of foreign currency is not practical or lawful, or if any required approvals are denied or not obtainable at a reasonable cost or

within a reasonable period, the depositary bank may take the following actions in its discretion:

·                   Convert the foreign currency to the extent practical and lawful and distribute the U.S. dollars to the holders for whom the conversion and

distribution is lawful and practical.

·                   Distribute the foreign currency to holders for whom the distribution is lawful and practical.

·                   Hold the foreign currency (without liability for interest) for the applicable holders.

Governing Law/Waiver of Jury Trial

The deposit agreement and the ADRs will be interpreted in accordance with the laws of the State of New York. The rights of holders of Class A

ordinary shares (including Class A ordinary shares represented by ADSs) is governed by the laws of the Cayman Islands.

By holding an ADS or an interest therein, you irrevocably agree that any legal suit, action or proceeding against or involving us or the Depositary,

arising out of or based upon the deposit agreement, ADSs or ADRs, may only be instituted in a state or federal court in the City of New York, and you
irrevocably waiver any objection to the laying of venue and irrevocably submit to the exclusive jurisdiction of such courts with respect to any such suit,
action or proceeding.

AS A PARTY TO THE DEPOSIT AGREEMENT, YOU IRREVOCABLY WAIVE YOUR RIGHT TO TRIAL BY JURY IN ANY LEGAL

PROCEEDING ARISING OUT OF THE DEPOSIT AGREEMENT OR THE ADRs AGAINST US AND/OR THE DEPOSITARY BANK.

14

 
 
 
 
 
 
 
 
 
 
 
Description of Class A Ordinary Shares

Exhibit 2.6

Ordinary Shares. Our ordinary shares are issued in registered form, and are issued when registered in our register of shareholders. We may not issue

share to bearer. Our shareholders who are nonresidents of the Cayman Islands may freely hold and vote their shares.

Conversion. Each Class B ordinary share is convertible into one Class A ordinary share at any time at the option of the holder thereof. Class A

ordinary shares are not convertible into Class B ordinary shares under any circumstances. Upon any sale, transfer, assignment or disposition of any Class B
ordinary shares by a holder thereof to any person or entity that is not an Affiliate (as defined in our articles of association) of such holder, or upon a change of
ultimate beneficial ownership of any Class B ordinary share to any person or entity that is not an Affiliate of the registered holder of such shares, such
Class B ordinary shares will be automatically and immediately converted into an equal number of Class A ordinary shares. In addition, if at any time,
Mr. Chimin Cao, Ms. Yanlai Shi and their respective affiliates collectively hold less than 5% of the issued and outstanding share capital of our company, each
issued and outstanding Class B ordinary share shall be automatically re-designated into one Class A ordinary share, and we will not issue any Class B
ordinary shares thereafter.

Dividends. The holders of our ordinary shares are entitled to such dividends as may be declared by our board of directors. In addition, our
shareholders may declare dividends by ordinary resolution, but no dividend shall exceed the amount recommended by our directors. Our articles of
association provide that dividends may be declared and paid out of the funds of our company lawfully available therefor, which under Cayman law includes
our profits, realized or unrealized, and any reserve set aside from funds legally available for distribution. Under the laws of the Cayman Islands, our company
may pay a dividend out of either profits or share premium account, provided that in no circumstances may a dividend be paid if this would result in our
company being unable to pay its debts as they fall due in the ordinary course of business.

Voting Rights. Voting at any shareholders’ meeting is by show of hands unless a poll is demanded (before or on the declaration of the result of the

show of hands). A poll may be demanded by the chairman of such meeting or any shareholder present in person or by proxy at the meeting.

An ordinary resolution to be passed at a meeting by the shareholders requires the affirmative vote of a simple majority of the votes cast by
shareholders entitled to do so at a meeting, while a special resolution requires the affirmative vote of no less than two-thirds of the votes cast by shareholders
entitled to do so at a meeting. A special resolution will be required for important matters such as a change of name or making changes to our memorandum
and articles of association. Holders of the ordinary shares may, among other things, divide or combine their shares by ordinary resolution.

General Meetings of Shareholders.   As a Cayman Islands exempted company, we are not obliged by the Companies Law to call shareholders’

annual general meetings. Our memorandum and articles of association provide that we may (but are not obliged to) in each year hold a general meeting as our
annual general meeting in which case we shall specify the meeting as such in the notices calling it, and the annual general meeting shall be held at such time
and place as may be determined by our directors.

 
 
 
 
 
 
 
 
Shareholders’ general meetings may be convened by the chairman of our board or a majority of our board of directors. Advance notice of at least ten
calendar days is required for the convening of our annual general shareholders’ meeting (if any) and any other general meeting of our shareholders. A quorum
required for any general meeting of shareholders consists of at least one shareholder present or representing by proxy, representing not less than one-third of
all votes attaching to all of our shares in issue and entitled to vote.

The Companies Law provides shareholders with only limited rights to requisition a general meeting, and does not provide shareholders with any
right to put any proposal before a general meeting. However, these rights may be provided in a company’s articles of association. Our memorandum and
articles of association provide that upon the requisition of shareholders representing in aggregate not less than one-third of the votes attaching to the issued
and outstanding shares of our company entitled to vote at general meetings as at the date of the deposit, our board will convene an extraordinary general
meeting and put the resolutions so requisitioned to a vote at such meeting. However, our memorandum and articles of association do not provide our
shareholders with any right to put any proposals before annual general meetings or extraordinary general meetings not called by such shareholders.

Transfer of Ordinary Shares. Subject to the restrictions set out below, any of our shareholders may transfer all or any of his or her ordinary shares

by an instrument of transfer in the usual or common form or such other form approved by our board of directors.

Our board of directors may, in its absolute discretion, decline to register any transfer of any ordinary share which is not fully paid up or on which we

have a lien. Our board of directors may also decline to register any transfer of any ordinary share unless:

·                   the instrument of transfer is lodged with us, accompanied by the certificate for the ordinary shares to which it relates and such other evidence as

our board of directors may reasonably require to show the right of the transferor to make the transfer;

·                   the instrument of transfer is in respect of only one class of ordinary shares;

·                   the instrument of transfer is properly stamped, if required; and

·                   in the case of a transfer to joint holders, the number of joint holders to whom the ordinary share is to be transferred does not exceed four.

·                   a fee of such maximum sum as the New York Stock Exchange may determine to be payable or such lesser sum as our directors may from time

to time require is paid to us in respect thereof.

2

 
 
 
 
 
 
 
 
 
 
If our directors refuse to register a transfer they shall, within three calendar months after the date on which the instrument of transfer was lodged,

send to each of the transferor and the transferee notice of such refusal.

The registration of transfers may, on ten calendar days’ notice being given by advertisement in such one or more newspapers by electronic means or
by any other means in accordance with the rules of the New York Stock Exchange, be suspended and the register closed at such times and for such periods as
our board of directors may from time to time determine, provided always that the registration of transfers shall not be suspended nor the register closed for
more than 30 calendar days in any calendar year.

Liquidation. On the winding up of our company, if the assets available for distribution amongst our shareholders shall be more than sufficient to
repay the whole of the share capital at the commencement of the winding up, the surplus shall be distributed amongst our shareholders in proportion to the
par value of the shares held by them at the commencement of the winding up, subject to a deduction from those shares in respect of which there are monies
due, of all monies payable to our company for unpaid calls or otherwise. If our assets available for distribution are insufficient to repay the whole of the share
capital, the assets will be distributed so that, as nearly as may be, the losses are borne by our shareholders in proportion to the par value of the shares held by
them.

Calls on Shares and Forfeiture of Shares. Our board of directors may from time to time make calls upon shareholders in respect of any moneys

unpaid on their shares in a notice served to such shareholders at least 14 calendar days prior to the specified time of payment. The shares that have been
called upon and remain unpaid are subject to forfeiture.

Redemption, Repurchase and Surrender of Shares. We may issue shares on terms that such shares are subject to redemption, at our option or at the
option of the holders thereof, on such terms and in such manner as may be determined, before the issue of such shares, by either our board of directors or by a
special resolution of our shareholders. Our company may also repurchase any of our shares on such terms and in such manner as have been approved by our
board of directors or by an ordinary resolution of our shareholders, or are otherwise authorized by our memorandum and articles of association. Under the
Companies Law, the redemption or repurchase of any share may be paid out of our company’s profits or out of the proceeds of a new issue of shares made for
the purpose of such redemption or repurchase, or out of capital (including share premium account and capital redemption reserve) if our company can,
immediately following such payment, pay its debts as they fall due in the ordinary course of business. In addition, under the Companies Law no such share
may be redeemed or repurchased (a) unless it is fully paid up, (b) if such redemption or repurchase would result in there being no shares outstanding or (c) if
the company has commenced liquidation. In addition, our company may accept the surrender of any fully paid share for no consideration.

Variations of Rights of Shares. If at any time, our share capital is divided into different classes or series of shares, the rights attached to any class or
series of shares (unless otherwise provided by the terms of issue of the shares of that class or series), whether or not our company is being wound-up, may be
materially adversely varied with the consent in writing of the holders of two-thirds of the issued shares of that class or series or with the sanction of a special
resolution passed at a separate meeting of the holders of the shares of that class or series. The rights conferred upon the holders of the shares of any class
issued shall not, unless otherwise expressly provided by the terms of issue of the shares of that class, be deemed to be materially adversely varied by the
creation or issue of further shares ranking pari passu with such existing class of shares.

3

 
 
 
 
 
 
 
Issuance of Additional Shares. Our memorandum and articles of association authorizes our board of directors to issue additional ordinary shares

from time to time as our board of directors shall determine, to the extent of available authorized but unissued shares.

Our memorandum and articles of association also authorizes our board of directors to establish from time to time one or more series of preference

shares and to determine, with respect to any series of preference shares, the terms and rights of that series, including:

·                   the designation of the series;

·                   the number of shares of the series;

·                   the dividend rights, dividend rates, conversion rights, voting rights; and

·                   the rights and terms of redemption and liquidation preferences.

Our board of directors may issue preference shares without action by our shareholders to the extent authorized but unissued. Issuance of these shares

may dilute the voting power of holders of ordinary shares.

Inspection of Books and Records. Holders of our ordinary shares will have no general right under Cayman Islands law to inspect or obtain copies of

our list of shareholders or our corporate records. However, our board of director may from time to time determine whether the accounts and books of the
Company shall be open to the inspection of our shareholders.

Anti-Takeover Provisions. Some provisions of our memorandum and articles of association may discourage, delay or prevent a change of control of

our company or management that shareholders may consider favorable, including provisions that:

·                   authorize our board of directors to issue preference shares in one or more series and to designate the price, rights, preferences, privileges and

restrictions of such preference shares without any further vote or action by our shareholders; and

·                   limit the ability of shareholders to requisition and convene general meetings of shareholders.

However, under Cayman Islands law, our directors may only exercise the rights and powers granted to them under our memorandum and articles of

association for a proper purpose and for what they believe in good faith to be in the best interests of our company.

Exempted Company. We are an exempted company with limited liability incorporated under the Companies Law. The Companies Law distinguishes

between ordinary resident companies and exempted companies. Any company that is registered in the Cayman Islands but conducts business mainly outside
of the Cayman Islands may apply to be registered as an exempted company. The requirements for an exempted company are essentially the same as for an
ordinary company except that an exempted company:

4

 
 
 
 
 
 
 
 
 
 
 
 
 
 
·                   does not have to file an annual return of its shareholders with the Registrar of Companies;

·                   is not required to open its register of members for inspection;

·                   does not have to hold an annual general meeting;

·                   may issue negotiable or bearer shares or shares with no par value;

·                   may obtain an undertaking against the imposition of any future taxation (such undertakings are usually given for 20 years in the first instance);

·                   may register by way of continuation in another jurisdiction and be deregistered in the Cayman Islands;

·                   may register as a limited duration company; and

·                   may register as a segregated portfolio company.

“Limited liability” means that the liability of each shareholder is limited to the amount unpaid by the shareholder on the shares of the company.

5

 
 
 
 
 
 
 
 
 
 
List of Significant Subsidiaries and Consolidated Affiliated Entities of RYB Education, Inc.

Subsidiaries

Beijing RYB Technology Development Co., Ltd. 
(北京红黄è“科技å‘展有é™å…¬å¸)
Precious Companion Group Limited 
(å¯å…ƒæ•™è‚²é›†å›¢æœ‰é™å…¬å¸)

Consolidated Variable Interest Entity

Beijing RYB Children Education Technology Development Co., Ltd. 
(北京红黄è“儿童教育科技å‘展有é™å…¬å¸)

Subsidiaries and Sponsored Entities of Consolidated Variable Interest Entity

Beijing Aizhudou Culture Development Co., Ltd. 
(北京爱竹兜文化å‘展有é™å…¬å¸)
Shenzhen RYB Children Education Technology Development Co., Ltd. 
(深圳红黄è“儿童教育科技有é™å…¬å¸)
Beijing Youer Lezhi Technology Development Co., Ltd. 
(北京优儿ä¹智科技å‘展有é™å…¬å¸)

Exhibit 8.1

Place of 
Incorporation

PRC

Hong Kong

Place of 
Incorporation

PRC

Place of 
Incorporation

PRC

PRC

PRC

* Other subsidiaries and sponsored entities of the consolidated variable interest entity of RYB Education, Inc. have been omitted from this list since,
considered in the aggregate as a single entity, they would not constitute a significant subsidiary.

1

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Certification by the Principal Executive Officer 
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

EXHIBIT 12.1

I, Yanlai Shi, certify that:

1.     I have reviewed this annual report on Form 20-F of RYB Education, Inc.;

2.     Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the

statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.     Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the

financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;

4.     The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
company and have:

(a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure

that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;

(b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our

supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;

(c)   Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness

of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)   Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by this annual

report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting;

5.     The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the

company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):

(a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably

likely to adversely affect the company’s ability to record, process, summarize and report financial information; and

(b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over

financial reporting.

Date:

April 30, 2020

/s/ Yanlai Shi

By:
Name: Yanlai Shi

Title:

Chief Executive Officer

1

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Certification by the Principal Financial Officer 
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

EXHIBIT 12.2

I, Hao Gu, certify that:

1.               I have reviewed this annual report on Form 20-F of RYB Education, Inc.;

2.               Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the

statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.               Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the

financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;

4.               The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
company and have:

(a)          Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to

ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;

(b)          Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our

supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;

(c)           Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness

of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)          Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual

report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting;

5.               The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the

company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent function):

(a)          All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably

likely to adversely affect the company’s ability to record, process, summarize and report financial information; and

(b)          Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over

financial reporting.

Date:

April 30, 2020

By:
Name:

/s/ Hao Gu
Hao Gu

Title:

Chief Financial Officer

1

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Certification by the Principal Executive Officer 
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

EXHIBIT 13.1

In connection with the Annual Report of RYB Education, Inc. (the “Company”) on Form 20-F for the fiscal year ended December 31, 2019 as filed with

the Securities and Exchange Commission on the date hereof (the “Report”), I, Yanlai Shi, Chief Executive Officer of the Company, certify, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1)          The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)          The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:

April 30, 2020

By:
Name:

/s/ Yanlai Shi
Yanlai Shi

Title:

Chief Executive Officer

1

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Certification by the Principal Financial Officer 
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

EXHIBIT 13.2

In connection with the Annual Report of RYB Education, Inc. (the “Company”) on Form 20-F for the fiscal year ended December 31, 2019 as filed with
the Securities and Exchange Commission on the date hereof (the “Report”), I, Hao Gu, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1)          The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)          The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the

Company.

Date:

April 30, 2020

By:
Name:

/s/ Hao Gu
Hao Gu

Title:

Chief Financial Officer

1

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EXHIBIT 15.1

RYB Education, Inc.

4/F, No. 29 Building, Fangguyuan Section 1, Fangzhuang
Fengtai District, Beijing 100078
People’s Republic of China

30 April 2020

Dear Sirs and/or Madams,

RYB Education, Inc.

We have acted as legal advisers as to the laws of the Cayman Islands to RYB Education, Inc., an exempted company incorporated in the Cayman Islands with
limited liability (the “ Company ”), in connection with the filing by the Company with the United States Securities and Exchange Commission (the “ SEC ”)
of an annual report on Form 20-F for the year ended 31 December 2019 (the “ Annual Report ”).

We hereby consent to the incorporation by reference of the summary of our opinions under these headings into the Company’s registration statement on
Form S-8 (File No. 333-223864) that was filed on March 23, 2018, pertaining to the Company’s 2009 Share Incentive Plan and 2017 Share Incentive Plan.

We consent to the filing with the SEC of this consent letter as an exhibit to the Annual Report. In giving such consent, we do not thereby admit that we come
within the category of persons whose consent is required under Section 7 of the Securities Act of 1933, or under the Securities Exchange Act of 1934, in each
case, as amended, or the regulations promulgated thereunder.

Yours faithfully,

/s/ Maples and Calder (Hong Kong) LLP
Maples and Calder (Hong Kong) LLP

1

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EXHIBIT 15.2

April 30, 2020

RYB Education, Inc.

4/F, No. 29 Building, Fangguyuan Section 1, Fangzhuang
Fengtai District, Beijing 100078
People’s Republic of China

Re:  Consent of Commerce & Finance Law Offices

We hereby consent to the use of our firm name and summaries of our firm’s opinions under the headings “Risk Factors,” “Business Overview — PRC
Regulation” and “Organizational Structure” in the annual report on Form 20-F of RYB Education, Inc. (the “Company”) for the Company’s fiscal year ended
December 31, 2019 to be filed with the U.S. Securities and Exchange Commission (the “SEC”) on or about April 30, 2020 (the “Form 20-F”), and to the
incorporation by reference in the Company’s Registration Statement on Form S-8 (File No. 333-223864) filed with the SEC on March 23, 2018 of such
references to our firm and summaries of our firm’s opinions included under such headings.

We also hereby consent to the filing of this consent letter as an exhibit to the Form 20-F.

In giving such consent, we do not thereby admit that we fall within the category of the person whose consent is required under Section 7 of the U.S.
Securities Act of 1933, as amended, or the regulation promulgated thereunder.

Yours sincerely,

/s/ Commerce & Finance Law Offices
Commerce & Finance Law Offices

1

 
 
 
 
 
 
 
 
 
 
 
 
 
 
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement No. 333-223864 on Form S-8 of our report dated April 30, 2020, relating to the
financial statements of RYB Education, Inc. appearing in this Annual Report on Form 20-F of RYB Education, Inc. for the year ended December 31, 2019.

EXHIBIT 15.3

/s/ Deloitte Touche Tohmatsu Certified Public Accountants LLP
Deloitte Touche Tohmatsu Certified Public Accountants LLP
Beijing, the People’s Republic of China
April 30, 2020

1