RYB Education, Inc.
Annual Report 2020

Plain-text annual report

Table of ContentsUNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549FORM 20-F(Mark One)☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934OR⌧ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2020.OR☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934OR☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934Date of event requiring this shell company reportFor the transition period from toCommission file number 001-38203RYB 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, FangzhuangFengtai District, Beijing 100078People’s Republic of China(Address of principal executive offices)Hao Gu, Chief Financial Officer4/F, No. 29 Building, Fangguyuan Section 1, FangzhuangFengtai District, Beijing 100078People’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 classTrading SymbolName of each exchange on which registeredAmerican depositary shares, each representing one Class A ordinary share Class A ordinary shares, par value US$0.001 per share*RYBNew York Stock Exchange*Not for trading, but only in connection with the listing on the New York Stock Exchange of American depositary shares.Securities registered or to be registered pursuant to Section 12(g) of the Act:None(Title of Class)Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:None(Title of Class)Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.As of December 31, 2020, there were 29,213,801 ordinary shares issued and 27,586,346 ordinary shares outstanding, par value US$0.001 per share, being the sum of 20,637,205 Class A ordinary shares and6,949,141 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 ⌧ NoIf 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 ⌧ NoNote - 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. ⌧ Yes ☐ NoIndicate 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). Table of Contents⌧ 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 ☐Non-accelerated filer ⌧Emerging growth company ⌧If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with anynew or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ⌧†The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of theSarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accountant firm that prepared or issued its audit report.☐ Yes ⌧ NoIndicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:U.S. GAAP ⌧International Financial Reporting Standards as issued by the International Accounting Standards Board ☐Other ☐If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. ☐ Item 17 ☐ Item 18If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ⌧ No(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities undera plan confirmed by a court.☐ Yes ☐ No Table of ContentsiTABLE OF CONTENTSINTRODUCTION 1FORWARD-LOOKING STATEMENTS2Item 1.IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS3Item 2.OFFER STATISTICS AND EXPECTED TIMETABLE3Item 3.KEY INFORMATION3Item 4.INFORMATION ON THE COMPANY40Item 4A.UNRESOLVED STAFF COMMENTS66Item 5.OPERATING AND FINANCIAL REVIEW AND PROSPECTS67Item 6.DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES85Item 7.MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS95Item 8.FINANCIAL INFORMATION96Item 9.THE OFFER AND LISTING97Item 10.ADDITIONAL INFORMATION97Item 11.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK108Item 12.DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES109Item 13.DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES111Item 14.MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OFPROCEEDS111Item 15.CONTROLS AND PROCEDURES111Item 16.AUDIT COMMITTEE FINANCIAL EXPERT112Item 16B.CODE OF ETHICS112Item 16C.PRINCIPAL ACCOUNTANT FEES AND SERVICES112Item 16D.EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES112Item 16E.PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS112Item 16F.CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT113Item 16G.CORPORATE GOVERNANCE114Item 16H.MINE SAFETY DISCLOSURE114Item 17.FINANCIAL STATEMENTS115Item 18.FINANCIAL STATEMENTS115Item 19.EXHIBITS115SIGNATURES117 Table of Contents1INTRODUCTIONUnless otherwise indicated and except where the context otherwise requires, references in this annual report on Form 20-Fto:●“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, andits subsidiary, its consolidated variable interest entity, the subsidiaries of the consolidated variable interest entity andthe 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 andstudent care centers that are in operation, and references to our directly operated kindergartens include facilities thatare 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. Table of Contents2FORWARD-LOOKING STATEMENTSThis annual report on Form 20-F contains forward-looking statements that relate to our current expectations and views offuture 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. Thesestatements 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 webelieve may affect our financial condition, results of operations, business strategy and financial needs. These forward-lookingstatements 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 ourother 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 thisannual 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 topredict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combinationof factors, may cause actual results to differ materially from those contained in any forward-looking statements. We qualify all ofour forward-looking statements by these cautionary statements.You should not rely upon forward-looking statements as predictions of future events. The forward-looking statements madein 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 aresult of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence ofunanticipated events. Table of Contents3PART IITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERSNot applicable.ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLENot applicable.ITEM 3. KEY INFORMATIONA. Selected Financial DataOur Selected Consolidated Financial DataThe following selected consolidated statements of comprehensive income data for the years ended December 31, 2018,2019 and 2020, selected consolidated balance sheet data as of December 31, 2019 and 2020, and selected consolidated cash flowdata for the years ended December 31, 2018, 2019 and 2020, have been derived from our audited consolidated financial statementsincluded elsewhere in this annual report. The following selected consolidated statement of comprehensive income data for the yearsended December 31, 2016 and 2017, selected consolidated balance sheet data as of December 31, 2016, 2017 and 2018 and selectedconsolidated cash flow data for the years ended December 31, 2016 and 2017 have been derived from our audited consolidatedfinancial statements not included in this annual report. Our historical results do not necessarily indicate results expected for anyfuture periods. Our consolidated financial statements are prepared and presented in accordance with accounting principles generallyaccepted in the United States of America, or U.S. GAAP. Table of Contents4You should read the selected consolidated financial information in conjunction with our consolidated financial statements andrelated notes and “Item 5. Operating and Financial Review and Prospects” included elsewhere in this annual report. Our historicalresults are not necessarily indicative of our results expected for future periods.Years Ended December 31, 2016 2017 2018 2019 2020(in thousands of US$, except for share andper share data)Selected Consolidated Comprehensive Statement ofOperations Data:Net revenues: Services 95,936 122,869 139,216 166,183 103,073Products 12,577 17,934 17,282 16,100 6,642Total net revenues 108,513 140,803 156,498 182,283 109,715Cost of revenues: Services 85,356 101,522 121,549 147,669 113,285Products 6,260 9,755 9,315 7,865 3,616Total cost of revenues 91,616 111,277 130,864 155,534 116,901Gross profit (loss) 16,897 29,526 25,634 26,749 (7,186)Operating expenses: Selling expenses 1,922 1,774 2,233 2,808 1,285General and administrative expenses 7,424 18,418 26,428 23,775 24,313Impairment loss on goodwill — — — — 8,454Impairment loss on long-lived assets — — — — 2,148Total operating expenses 9,346 20,192 28,661 26,583 36,200Operating income (loss) 7,551 9,334 (3,027) 166 (43,386)Government subsidy income 573 863 683 499 4,591Impairment loss on long-term investments — — — — (2,432)Income (loss) before income taxes 8,231 10,592 1,037 2,015 (40,783)Less: Income tax expenses 2,155 3,812 2,459 3,541 215Income (loss) before loss in equity method investments 6,076 6,780 (1,422) (1,526) (40,998)Loss from equity method investments (189) (239) (291) (664) (185)Net income (loss) 5,887 6,541 (1,713) (2,190) (41,183)Less: Net (loss) income attributable to noncontrolling interest (618) (574) (93) 387 (3,903)Increase(decrease) in redeemable noncontrolling interest— — 169 (143) —Net income (loss) attributable to ordinary shareholders of RYBEducation, Inc. 6,505 7,115 (1,789) (2,434) (37,280)Net income (loss) per share attributable to ordinary shareholdersof RYB Education, Inc.: Basic 0.28 0.29 (0.06) (0.09) (1.33)Diluted 0.26 0.27 (0.06) (0.09) (1.33)Weighted average shares used in calculating net income (loss)per ordinary share: Basic 23,163,801 24,735,445 29,213,801 28,074,624 28,122,851Diluted 24,682,525 26,566,657 29,213,801 28,074,624 28,122,851As of December 31, 2016 2017 2018 2019 2020(in thousands of US$)Selected Consolidated Balance Sheet Data:Cash and cash equivalents 46,256 158,691 104,084 68,728 53,454Total current assets 63,983 172,808 121,596 91,570 70,105Total assets 104,410 229,738 243,455 336,094 302,491Total current liabilities 80,287 97,022 108,339 125,908 128,357Total liabilities 100,449 124,444 128,487 219,377 224,824Total equity 3,961 105,294 113,340 107,916 67,679 Table of Contents5As of December 31, 2016 2017 2018 2019 2020(in thousands of US$)Selected Consolidated Cash Flow Data:Net cash generated from/(used in) operating activities 35,053 25,099 828 12,982 (6,526)Net cash used in investing activities (12,122) (8,655) (51,735) (34,378) (2,585)Net cash generated from/(used in) financing activities 1,422 92,496 (756) (13,454) 556Exchange rate effect on cash and cash equivalents and restrictedcash (2,690) 3,666 (2,741) (542) (6,302)Net increase/(decrease) in cash and cash equivalents and restrictedcash 21,663 112,606 (54,404) (35,392) (14,857)Cash and cash equivalents and restricted cash at beginning of year 24,965 46,628 159,234 104,830 69,438Cash and cash equivalents and restricted cash at end of year 46,628 159,234 104,830 69,438 54,581B. Capitalization and IndebtednessNot applicable.C. Reasons for the Offer and Use of ProceedsNot applicable.D. Risk FactorsRisks Related to Our BusinessNew legislations and changes in the regulatory requirement regarding private education and preschool education in countrieswhere 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 fromtime to time. In the preschool education industry, PRC government authorities have recently issued new rules, regulations andguidelines 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 thePRC.”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 December, 2018 (the “Amended Law for Promoting Private Education”). There remainuncertainties in the interpretation and implementation of the Amended Law for Promoting Private Education with respect to variousaspects of the operations of a for-profit private school and whether such implementation regulations would have any materialadverse impact on our business. In particular, (i) specific procedures regarding the conversion of an existing private school into afor-profit school have not yet been promulgated by most local authorities and (ii) specific conditions or requirements in respect ofany 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 forPromoting Private Education of the PRC (Revised Draft) (the “Draft for Review”), for public consultation purposes. Article 5 of thisDraft for Review prohibits foreign-invested enterprises established in China and social organizations whose controllers are foreignparties from sponsoring, participating in the establishment of or controlling private schools which provides compulsory education inChina. Article 12 of this Draft for Review prohibits group-based education institutions from controlling not-for-profit privateschools through mergers and acquisitions, franchise, agreement or any other similar manner. Article 45 of this Draft for Reviewrequires that related party transactions entered into by private schools shall be open, fair and just and shall not harm nationalinterests, interest of the school or the rights and interests of the teachers and students. Table of Contents6The Opinions of the Central Committee of the Communist Party of China (“CPC”) and State Council on DeepeningReform and Standardized Development in Preschool Education, or Reform Opinions, issued by the CPC and the State Council inNovember 2018 is another regulation that might cast great uncertainties on our operation. It stipulates, among others, (i) socialcapital is not allowed to control not-for-profit kindergartens or kindergartens that are sponsored by state-owned assets orcollectively-owned assets through ways such as mergers and acquisitions, delegating operation, franchising, variable interest entitiesor contractual arrangements, in breach of which, the kindergartens shall not be allowed to issue additional share capital until theeducation department jointly with other relevant authorities have remedied such breach, and (ii) public companies are not allowed toinvest in for-profit kindergartens through ways such as financing from the capital market, or acquire assets of for-profitkindergartens 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 wouldbecome 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) the Legislation Law of the PRC provides thatlaws, administrative regulations, local regulations, autonomous regulations, and separate regulations do not have retrospective effectother than special provisions; (iii) there is no provision in the Draft for Review or Reform Opinions providing that it will haveretrospective 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 theDraft for Review or Reform Opinions promulgation, our PRC legal counsel Commerce & Finance Law Offices is of the view thatour contractual arrangements will continue to be legal, valid and binding on the parties so long as our contractual arrangements hadbeen 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 ourkindergarten business. According to the Reform Opinions and the Draft for Review, assuming the latter were formally promulgatedas in the current draft form, we would only be allowed to (a) acquire for-profit kindergartens or control them through ways such asfranchising or “contractual arrangements”, or (b) expand business by organic growth, while we would not be allowed to expand ourbusiness 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, 2020,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 orshare issuance. Our existing contractual arrangements might be also subject to the review and audit by the relevant authorities, and ifthe authorities are of the view that contractual arrangements would be amended, terminated or canceled, the contractualarrangements may not be executed in whole or in part. We might be also restricted from further raising capital equity financing.In January 2019, the General Office of the State Council issued another circular that might have material impact on ouroperation. The Circular on Initiating the Rectification of Kindergartens Affiliated to Residential Communities in Urban Areas, orCircular on Initiating the Rectification, requires existing community-affiliated kindergartens to be handed over to local educationauthorities and shall be held by local education authorities as public kindergartens or turn into inclusive kindergartens by authorizedsocial parties. It also provides that community-affiliated kindergartens shall be not-for-profit. Some of our kindergartens arecommunity-affiliated facilities, and as of December 31, 2020, 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 orinclusive kindergartens which may affect our profitability and results of operations.Given the evolving regulatory environment, there is uncertainty as to whether the Draft for Review will be legislated in thesame form as published for public consultation, and how the Draft for Review, Reform Opinions or Circular on Initiating theRectification will be interpreted and implemented. To the extent that we are not able to fully comply with these requirements, ourbusiness, financial condition and results of operations may be materially and adversely affected. We are unable to predict withcertainty the impact, if any, that future legislation or regulations relating to the implementation of the laws promoting privateeducation in the PRC will have on our business, financial condition and results of operations. However, if our existing groupstructure or our contractual arrangements were deemed to violate any rules, laws or regulations, we may be required to terminate oramend 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 suchsituations occur, our business, financial condition and prospects would be materially and adversely affected. Table of Contents7In Singapore, the operation of kindergartens is regulated by the Early Childhood Development Centres Act, which waspassed in 2017. This act set forth certain prerequisite requirements that must be met in order to obtain a license to operate akindergarten, such as physical requirements, staffing requirements and financial requirements. The Early Childhood DevelopmentAgency, 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 ofchildren’s development, such as the setting up and licensing of kindergartens. Any change or addition to the laws and regulationsimposed by authorities overseeing the preschool education sector in Singapore may have a material adverse effect on our Singaporeoperations, 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 materiallyand adversely affected.Our track record in providing quality education services established “RYB (紅黃藍)” as a leading brand in the industry. Webelieve that market recognition of our brand is a key factor to ensure our future success. As we continue to grow in size and broadenthe scope of our curricula and services, however, it may become increasingly difficult to maintain the quality and consistency of theservices 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; someof them are based on first-hand observation of our service quality while others may be based on indirect information from media orother sources. Incidents and any negative publicity related thereto, even if factually incorrect, may lead to significant deterioration ofour brand image and reputation, and consequently negatively affect students’ and their parents’ interests in our services and productsas well as franchisees and potential franchisees’ interest in joining our franchise network. Particularly in the age of digital media andsocial network, impacts of negative publicity associated with any single incident could be easily amplified and potentially causeimpacts 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 inBeijing was found to have used sewing needles as a way to “discipline” children during post-lunch naptime in late 2017. She wassubsequently discharged from our company and was criminally charged with “maltreatment of children under care” in connectionwith a class she taught. We refer to this incident in this annual report as the “2017 Incident.” On December 28, 2018, she wassentenced to one and a half years’ imprisonment by Beijing Chaoyang District People’s Court and prohibited from child-caringemployment for a term of five years following her release from prison. At the time, despite the fact only one teacher was chargedand the case remained under investigation, rumors and negative publicity surrounding the 2017 Incident was widely circulated onthe internet, and subsequently affected our reputation and brand goodwill. Consequently, some parents lost confidence in our safetymanagement, and utilization of the kindergarten involved in the 2017 Incident was directly and negatively impacted, and somefranchisees also requested to terminate their franchise relationships with us.In addition, scientific studies on early childhood education are constantly evolving and new or innovative conclusions oneducation methodologies or philosophies may affect customers’ perception of our services and products. If we are unable tomaintain our reputation, enhance our brand recognition or increase positive awareness of our education products and services, it maybe difficult to maintain and grow student enrollment at our directly operated or franchise teaching facilities or attract more businesspartners to join our network, and our business and growth prospects may be materially and adversely affected. Table of Contents8Misbehavior or unsatisfactory performance by our teachers will hurt our reputation and potentially our operation results andfinancial performance.Our teachers are the ones who interact directly with our students and their families. Despite our constant emphasis onservice quality, our continuous training of our teachers as well as our close supervision, we cannot assure that our teachers willcompletely follow our service manual and standards at all times. Any misbehavior or unsatisfactory performance by our teacherswill hurt our reputation and potentially our operation results and financial performance. For example, the significant negativepublicity associated with the 2017 Incident directly affected our operation results, as some children chose to temporarily stopcoming to our teaching facilities, some families decided to withdraw their children’s enrollments, and some franchisees and businesspartners requested to terminate our relationships or delay the opening of their franchised RYB teaching facilities. The price of ourADSs was also significantly affected by the 2017 Incident and the associated negative publicity related thereto, and dipped heavilyon 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 ourfranchisees 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 ourstudents and other people visiting or working at our teaching facilities. We could face negligence claims for inadequate maintenanceof our teaching facilities or lack of supervision of our teachers and other employees. In addition, any defects in indoor and outdoorplayground equipment in our teaching facilities or educational tools we use in classrooms may cause harm to students. We thereforecould be liable for accidents, injuries, food quality incidents or other harm to students or other people at our teaching facilities. Evenif we are found not legally liable for such accidents or injuries, disputes on liabilities or general complaints by parents regardingfood quality, students wellbeing or, from time to time, air quality and renovation fumes within our teaching facilities may createunfavorable publicity and our reputation may be damaged on such occasions. Additionally, although we maintain certain liabilityinsurance, the insurance coverage may not be adequate to fully protect us from claims and liabilities, and reoccurrence of similaraccidents may make it difficult for us to obtain liability insurance at reasonable prices in the future. Defending such claims may alsocause us to incur substantial expenses and divert the time and attention of our management. For measures we have taken to enhancethe safety of students and employees, please see “Item 4. Information on the Company—B. Business Overview—Insurance andSafety.”If we fail to maintain and increase student enrollment in our kindergartens and play-and-learn centers, our revenues maydecline 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 thewillingness of our franchisees to re-invest in and expand or continue their franchise operations within our network. We may facedifficulties in increasing or maintaining the level of fees that we charge the franchisees or selling our educational merchandisethrough 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 whilemaintaining consistent and high teaching and service quality, effectively market and precisely target our products and services to abroader base of prospective students and parents, and respond effectively to competitions.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 themajority of “RYB branded” kindergartens and most of our play-and-learn centers, are operated through franchisees. Our franchiseesare an integral constituent in our business model and ecosystem and are expected to play an instrumental role in our futureexpansion. We are therefore subject to risks that are typically associated with the franchise business model. Table of Contents9A sizeable portion of our revenues is affected by the ability of our franchisees to grow their businesses. For example, partof our revenues is derived from sales of teaching tools and courses to franchisees in addition to the basic course package. Throughour franchisees, we also sell educational merchandise to children enrolled in franchise kindergartens and play-and-learn centers. Ifour franchisees are unable to grow their business or cease to procure educational merchandise from us, our revenues will benegatively affected. Also, deterioration in the business operations of our franchisees can result in, among other things, their facilityclosures, delayed, reduced or no payments of annual and other fees and charges to us. In the event of any franchisee closure, we mayneed to take over the children originally enrolled in the closed facility and arrange to settle them in our directly operated or otherfranchisees’ 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 andstrategies, including upgrades of equipment and interior decoration of teaching facilities and to remain aligned with us on businessupgrade, promotional activities or capital-intensive reinvestment plans. Our control over our franchisees is based on the contractswith 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 ofkindergartens and play-and-learn centers—including requiring all our franchisees to obtain all required licenses and permits andonly hire teaching staff with proper qualification and certification—and require all teachers and management personnel of ourfranchise teaching facilities to complete our mandatory trainings, our franchisees manage their businesses independently and aretherefore responsible for the day-to-day operation of the franchise facilities and compliance with our franchise agreements. Inaddition, it is the franchisees and their teachers and employees that interact directly with students and their parents. In the event ofany unsatisfactory performance or illegal actions by the franchisees or their employees or any incidents or operational issues in thefranchise 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, includingdisagreements or disputes between the franchisee and us, their non-compliance with our franchise agreement, the franchisee’s failureto maintain requisite approvals, licenses or permits or to comply with other governmental regulations, or changing regulatoryenvironment. 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 in Chinaremains 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 toobtain 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. Wemay not be able to find replacements for those franchisees timely or at all. Any resulting service disruption could materially andadversely 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. Thedecision to operate a teaching facility directly or under franchise is driven by many factors. Our ability to grow our business andachieve the benefits of an optimal ownership mix will depend on various factors, including our ability to timely and effectivelyselect franchisees that meet our rigorous standards. If we are unable to effectively address risks associated with the franchisebusiness model, our reputation and results of operations may be materially and adversely affected.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 ourfranchisees to, recruit, train and retain qualified and dedicated teachers with necessary licenses and permits required by law, as wellas principals who manage our teaching facilities. There is, however, a limited pool of teachers with the attributes we require. Inaddition, 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 franchiseesoffer, we may still not be able to recruit, train and retain sufficient qualified teachers and principals to keep pace with our growthwhile maintaining consistent teaching quality in the different markets we serve. A shortage of qualified teachers or a deterioration inthe quality of our teachers’ services, whether actual or perceived, or a significant increase in the average compensation of thekindergarten teachers, would have a material adverse effect on our business, financial condition and results of operations. Table of Contents10Our business and results of operations depend on our ability to maintain and raise the fee levels and prices of our services andproducts.An important factor affecting our profitability is the tuition fees we charge at our directly operated teaching facilities aswell as the fees that we charge our franchisees and other business partners. We are currently in the process of applying certain of ourdirectly operated kindergartens as for-profit schools where local authorities have allowed for such application, and certain of ourdirectly operated kindergartens have been successfully applied as for-profit schools. We also derive a portion of revenues from salesof educational merchandise. The amounts of those fees and prices we charge, except for inclusive kindergartens, are primarilydetermined based on the demand and popularity among children and their parents for our education services and products, the costof our operations, the geographic markets where we operate, our competitors’ pricing levels, our pricing strategy to gain marketshare 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 “inclusivekindergartens” where tuition is determined by local educational authorities. We also operate certain of our kindergartens on premisesleased from government bodies as of December 31, 2020. If we are encouraged or required by relevant educational authorities tooperate 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 teachingfacilities in the future due to various reasons, including the failure to complete pricing filings with governmental authorities andsome of our facilities being converted into inclusive kindergartens, and our business, financial position and results of operations maybe materially and adversely affected in the event of our failure to maintain or steadily raise our fee levels and prices of our servicesand products.Moreover, the Amended Law for Promoting Private Education sets out certain restrictions as to the use of profits earned bynot-for-profit schools. We in general plan to submit applications and designate our directly operated kindergartens as for-profitschools, but there is no guarantee that our for-profit school designation applications will be approved. See “Item 4. Information onthe Company—B. Business Overview—Regulation—Regulations Relating to Private Education in the PRC—The Amendment tothe Law for Promoting Private Education” for further details. As a result, we may not be able to maintain our current tuition fees andmay 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 theframework 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 forour 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 maintainvarious approvals, licenses and permits and to fulfill registration and filing requirements pursuant to applicable laws and regulationsin China. For instance, to establish a kindergarten, a private school operation permit from the local education bureau and registrationcertificate for private non-enterprise entities issued by the local civil affairs bureau will be required. In addition, private schooloperation permits are subject to periodic renewal and kindergartens are subject to annual inspections by the competent governmentauthorities.Given the significant amount of discretion the local PRC authorities may have in the interpretation, implementation andenforcement of the relevant rules and regulations, as well as other factors beyond our control, while we intend to and ourfranchisees, under the terms of their franchise agreements with us, are required to obtain and maintain all requisite permits andcomplete necessary filings and registrations on a timely basis, we cannot assure you that we and our franchisees will be able toobtain all required permits and complete the necessary filings or registrations in time. We and some of our franchisees are in theprocess of applying for or renewing private school operation permits and/or registration certificates for private non-enterpriseentities in connection with certain kindergartens. As an interim measure pending the issuance of these permits or certificates, feesfor the services we provide at the directly operated kindergartens are collected by our other consolidated entities. Table of Contents11Additional requirements on permits and licenses may also apply to our operations, including the requirement to pass a firecontrol assessment for all our teaching facilities, to obtain a license for online transmission of audio-visual programs for providingonline video-audio contents on our website or mobile apps, to obtain food operation licenses for kindergartens where regular mealsare served and to have all teaching staff obtain teachers’ licenses and work permits, among others. Although we are in the process ofapplying for food operation licenses and passing fire control assessments for certain of our directly operated kindergartens, wecannot 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 filingrequirements in order to conduct and operate education and other services in Singapore. For instance, to establish and operate akindergarten in Singapore, we are required to obtain a license from the Early Childhood Development Agency. To establish andoperate a school-based student care center and kindergarten care center in Singapore, we are required to obtain license agreementwith the government. In addition, the engagement of foreign teachers in Singapore also requires approval from the Ministry ofManpower 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 do so nor has therebeen any material non-compliance in this regard, we are not able to give any assurance that we will be able to obtain all requiredpermits and approvals in a timely manner or at all. If we fail to obtain required permits or approvals in a timely manner or obtain orrenew any permits or approvals, we may be subject to fines, the suspension of our non-compliant operations or the reduction orcancellation of government subsidies granted to us, which may materially and adversely affect our business and results ofoperations.Certain of our operations may be deemed by PRC government to be carried out by entities beyond their authorized businessscope.Currently, some of our consolidated entities in China providing certain training programs directly to children or teachers donot list “educational training,” “children training” or similar items in their business scopes. In addition, certain of our consolidatedentities provide training and education programs at the locations that are not registered in their business licenses or private schooloperation permits.We are in the process of applying to expand business scopes of those entities or establish new branches that engage inproviding training and education programs to include “educational training,” “children training” or items of similar nature andapplying for private education permit for the facilities at these locations. There is, however, no assurance that our application will beaccepted by local AIC or education bureau in a timely fashion or at all. If it comes to the attention of the relevant PRC governmentauthorities that the above entities operate beyond their authorized business scopes, or conduct business at locations that are notregistered in their licenses or permits, they may be ordered to complete the registration for change of business scope within a givenperiod, the failing of which may subject these entities to fines, confiscation of the gains derived from the noncompliant operations orcease 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 thatkindergarten’s charter documents and its private school operation permit. However, due to variances in certain local educationbureaus’ registration practices, in some cases we are not able to register kindergarten sponsors to accurately reflect the actualsponsorship structure. For certain of our directly operated kindergartens, we are shown as the sole sponsor in the education bureauregistration and our private school operation permits without reflecting the minority interests of other investors. We have enteredinto cooperation agreements with those investors and the relevant charter documents and/or capital verification reports show them ascosponsors, thus resulting in inconsistencies with the education bureau registrations. For certain of our directly operatedkindergartens, certain individuals were registered as sole sponsors with the competent local education bureaus, while we are theactual kindergarten sponsor only in the charter documents and/or capital verification reports. Table of Contents12There 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 thosekindergartens, if we were to be held responsible for those inconsistencies in registration, we may be subject to fines, confiscation ofthe gains derived from our noncompliant operations, suspension of our noncompliant operations, revocation of private schooloperation permits, or liability to indemnify economic loss suffered by our students. Moreover, these inconsistencies might put ourcontrol of the directly operated kindergartens at risk. Materialization of any of the aforementioned risks may materially andadversely 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 globalhealth 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 governmentstook a number of unprecedented public actions to limit or ban public interactions, which included extending the Chinese New Yearholiday in China, quarantining individuals infected with or suspected of having COVID-19, prohibiting free travel, encouragingworking remotely from home, cancelling public activities and prohibiting public aggregation, among others. The COVID-19pandemic 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 atour facilities, introducing online educational content to facilitate home-based education and holding parent-teacher meetings onlineto proactively communicate our crisis relief plan and effectively retain students, among others. The extent to which COVID-19impacts our financial condition and results of operations will depend on the future development of the outbreak, including the globalseverity and duration of the pandemic and actions taken to contain the outbreak, which are highly uncertain and unpredictable. Tothe extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heighteningmany 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 from2009 to 2010, adversely affected our business and results of operations as we experienced temporary closure of our facilities. Anyfuture outbreak of avian influenza, SARS, H1N1 or other adverse public health situation in China or other countries in which weoperate may have a material and adverse effect on our business operations. These occurrences could cause cancellation or defermentof student enrollment and require temporary closure of our facilities, while we could still be obligated to pay rent and other expensesfor these facilities. We may also face litigation if we are found negligent in the prevention and control of these health epidemics inour facilities. Such occurrences therefore may severely disrupt our business operations and may have a material adverse effect onour 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 newcourse 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 meetevolving market demands. Revisions to our existing courses and our newly developed courses or services may not be well receivedby existing or prospective students or their parents. Even if we are able to develop new courses or services that are well received, wemay not be able to introduce them in a timely or cost-effective manner. If we do not respond adequately to changes in marketdemands, 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, increasemarketing efforts and re-allocate resources away from other uses. We may have limited experience with the content of new coursesor services and may need to adjust our systems and strategies to incorporate new courses or services into our existing offerings. Ifwe 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. Table of Contents13We face intense competition in our industry, which could lead to pricing pressure, reduced operating margins, loss of marketshare, 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 thecompetition in this industry to persist and intensify. We compete with public and private kindergartens, play-and-learn centers andother teaching and child-caring institutions that offer similar programs. We compete with them in many aspects, including thequality of program and curriculum offerings, service quality, tuition fee levels, competent teachers and other key personnel andfacility locations and conditions. Our competitors may adopt similar or superior curricula, teacher training systems, facilityconditions and marketing approaches, with different pricing and service packages that may have greater appeal than our offerings. Inaddition, some of our competitors may have more resources than we do and may be able to devote greater resources than we can tothe development and promotion of their schools and respond more quickly than we can to the changes in student demand or marketneeds. In particular, the PRC public education system continues to improve in terms of resources and teaching quality, andgovernment funding subsidies enable public kindergartens to offer services at competitive price levels, which leads to increasedcompetition for us. As such, we may have to reduce tuition fees or increase capital expenditure in response to competition in orderto retain or attract students or pursue new market opportunities. Moreover, we face intense competition in the early childhoodeducation 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 competitioncosts, 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, maintenanceand our leasehold interest in these premises, nor can we guarantee that we and our franchisees will be able to successfully renewor 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 effectivelymanage the condition of such premises, buildings and facilities. In the event that the condition of the school premises, buildings andfacilities deteriorates, or if any or all of our landlords fail to properly maintain and renovate such premises, buildings or facilities ina timely manner or at all, the operation of our teaching facilities could be materially and adversely affected. In addition, if any of ourlandlords terminate the existing lease agreements before expiration, refuse to continue to lease the premises to us or our franchiseeswhen such lease agreements expire, or increase rent to a level not acceptable to us or our franchisees, we will be forced to relocatethe teaching facilities. Given parents prefer to send their children to kindergartens and play-and-learn centers in the vicinity of theirneighborhoods, we may lose students if we cannot secure replacement premises nearby. Moreover, under the current regulatoryenvironment, we may be subject to restrictions with respect to the fees we are able to charge for kindergartens leased on governmentproperty 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 agreementsmay be deemed invalid or we may face challenges from the property owners or other third parties regarding our right to occupy thepremises. If such lease is terminated as a result of challenges by third parties, we may be forced to relocate the affected teachingfacilities and incur significant expenses.Under the applicable PRC laws and regulations, we are required to register and file with the relevant governmentauthorities executed leases but have failed to do so in certain instances. While the lack of registration will not affect the validity andenforceability of the lease agreements under the PRC Law, a fine ranging from RMB1,000 to RMB10,000 may be imposed on theparties for each non-registered lease, if the requirement of registration failed to be fulfilled after a period of time demanded by arelevant local authority. Table of Contents14We may not be able to achieve the benefits we expect from recent and future acquisitions and investments, which may have amaterial 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 andinvestments in businesses which we deem to be complementary or beneficial to our existing business. Given the trend of theregulatory environment, our future acquisitions may be subject to more stringent regulations. For example, the Draft for Reviewprohibits group-based education institutions from controlling not-for-profit private schools through mergers and acquisitions, whichmay limit our acquisition targets and negatively affect our growth strategies. Acquisitions and investments also expose us topotential risks, including risks associated with the diversion of resources from our existing businesses, difficulties in successfullyintegrating the acquired businesses, failure to achieve expected growth by the acquired businesses as well as inability to generatesufficient revenue to offset the costs and expenses of the acquisitions. Materialization of any of the aforementioned risks may lead toa material adverse effect on our business, financial conditions and results of operations.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 chiefexecutive officer. If one or more of our senior executives or other key personnel are unable or unwilling to continue in their presentpositions, we may not be able to find their replacements successfully, and our business may be disrupted. Competition forexperienced management personnel in the private education industry is intense with a small pool of qualified candidates, and wemay not be able to retain services of our senior executives or key personnel, or attract and retain high-quality senior executives orkey personnel in the future. In addition, if any member of our senior management team or any of our other key personnel joins acompetitor or forms a competing company, we may lose teachers, students and staff members. Each of our executive officers andkey employees is subject to the duty of confidentiality and non-competition restrictions. However, if any disputes arise between anyof our senior executives or key personnel and us, it may be difficult to successfully pursue legal actions against these individualsbecause of the uncertainties of China’s legal system.Any interruption to or discontinuation of our course management and information technology systems may affect the teachingactivities of us and our franchisees.Our information technology infrastructure provides the backbone to maintain consistency in our service quality. OurWhiteboard information system works as a centralized platform for our teachers to prepare their courses online, serves as amultimedia teaching tool in the classrooms and operates as an efficient and secure channel for us to release curriculum content andupgrades to kindergartens and play-and-learn centers within our network. In addition, the operation of certain of our online productand services, such as our e-commerce platform of Qingtian Youpin and our mobile app Zhu Dou, are highly dependent on the properoperation of our information technology system. As such, material breakdown of our information technology system and any loss ofthe 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 2020, revenues generated from our business ofdirectly operated kindergartens represented a significant portion of our total revenues. We plan to mainly operate for-profitkindergartens and seek growth opportunities by continuing to open new kindergartens under our direct operation in the future, butuncertainties and risks exist with this strategy.It is oftentimes difficult to locate desired premises for kindergartens. Generally, kindergartens should not be built close torailways, highways, airports and main traffic artery. In addition, a kindergarten is not allowed to be located in a high-rise buildingand is required to have its independent entrance and courtyard. Kindergartens also need to be within easy access from largeresidential 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 anew directly operated kindergarten, the preparation period between handover of the leased property from the landlord to us and thefacility opening typically lasts six to ten months, and no revenue can be generated during this period. In addition, in a typical case, ittakes a kindergarten about another three to four years of operation to ramp up student enrollment to near its capacity. Table of Contents15We may not be able to execute our growth strategies successfully, which may hinder our ability to capitalize on new businessopportunities.We seek and will continue to implement various strategies to grow our business, including expanding the teaching facilitynetwork, 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 dueto 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 growthpotential;●we may be unable to successfully integrate acquired businesses, if any, with our current service offerings and achieveanticipated synergies;●our analysis for selecting suitable new facility locations may not be accurate and the demand for our services at thenewly 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 obtaininggovernment approvals or licenses, shortages of key construction supplies and skilled labor, construction accidents, ornatural 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 andour 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 currentbusiness, 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 andcondition may be adversely affected.We constantly seek to expand our business lines and extend our business coverage in addressable markets that weidentified. For example, in addition to our core “RYB” brand kindergartens and play-and-learn centers, and leveraging our expertisein early childhood education, we expand our specially developed courses to kindergartens outside of our network with otherbusiness partners. Our efforts in exploring these new business opportunities and developing new brands may divert managementattention and resources from our existing business. Moreover, if these new brands and the service offerings thereunder are not wellreceived by the market, we may not be able to generate sufficient revenue to offset the costs and expenses we incurred for them, andour overall financial performance and condition may be adversely affected. Table of Contents16Non-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 theirregulatory compliance failures, which may affect our business activities and reputation and, in turn, our results of operations. Inaddition, we cannot be certain whether any of these counterparties has infringed or will infringe any third parties’ legal rights orviolate any regulatory requirements. We require the business counterparties to confirm that they are in compliance with regulatoryrequirements to conduct the business, but we cannot assure you that these counterparties strictly comply with all applicableregulatory requirements in respect of permits and approvals, and any noncompliance on the part of these counterparties may causepotential 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 toprovide 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 in2021 and 2022, respectively. In the event any of the license agreements are terminated or failed to be renewed upon expiration orearlier, we may not be able to find suitable educational content providers to continue to offer international courses appealing to ourstudents. We may also encounter disputes with those partners from time to time. Should this occur, students attracted to our teachingfacilities because of these courses may cease to enroll, and our business, results of operations, prospects and reputation may bematerially and adversely affected.Unauthorized disclosure or manipulation of sensitive personal data of our students and their parents, whether through breach ofour 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 andconfidential personal information, such as names, addresses, phone numbers of our students and their parents, as well as recordingsof our CCTV monitoring system installed in our kindergartens and play-and-learn centers, which are primarily stored in ourcomputer database or in our security centers. If our security measures are breached as a result of actions by third parties, employeeerror, malfeasance or otherwise, third parties may receive or be able to access confidential information of our students andpotentially infringe students’ right to privacy and portrait, which could subject us to liabilities, interrupt our business and adverselyimpact our reputation. Additionally, we run the risk that our employees or third parties could misappropriate or illegally discloseconfidential information in our possession. As a result, we may be required to expend significant resources to provide additionalprotection 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 havea 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, 2020 from our operations inBeijing, and we expect our operations there to continue to contribute an important portion of our revenues. If there occurs an eventin Beijing that negatively affects private education or if Beijing adopts regulations relating to private education that place additionalrestrictions 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 beable 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 beable 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 forcontinued services. If we fail to expand our network of teaching facilities as quickly as the demand for our services grows, we couldlose potential students to our competitors, and our results of operations and business prospects could suffer. Table of Contents17If 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 rightsinvaluable to our ability to continue to develop and enhance our brand recognition. Unauthorized use of our intellectual propertyrights may damage our brand reputation. Our RYB brand and logo is a registered trademark in China. Our proprietary curricula andcourse materials are protected by copyrights. However, preventing infringement on or misuse of intellectual property rights could bedifficult, costly and time-consuming, particularly in China. The measures we take to protect our intellectual property rights may notbe adequate to prevent unauthorized uses. Furthermore, application of laws governing intellectual property rights in China isuncertain and evolving, and could involve substantial risks to us. There have been several incidents in the past where third partiesused our brand RYB without our authorization, and on certain occasions we have resorted to litigation to protect our intellectualproperty rights. We cannot assure you that the relevant governmental authorities will grant us the approval to register ourtrademarks. As a result, we may be unable to prevent third parties from utilizing this brand name, which may have an adverseimpact on our brand image. If we are unable to adequately protect our intellectual property rights in the future, we may lose theserights, our brand name may be harmed, and our business may suffer materially. Furthermore, our management’s attention may bediverted by those violations of our intellectual property rights, and we may have to enter into costly litigation to protect ourproprietary 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 developedor used by us do not or will not infringe upon valid copyrights or other intellectual property rights held by third parties. We mayencounter disputes from time to time over rights and obligations concerning intellectual property, and we may not prevail in thosedisputes. We have adopted policies and procedures to prohibit our employees and contractors from infringing upon third-partycopyright or intellectual property rights. However, we cannot ensure that our teachers or other personnel will not, against ourpolicies, use third-party copyrighted materials or intellectual property without proper authorization in our classes or via any mediumthrough which we provide our services. We may incur liability for unauthorized duplication or distribution of materials posted onour websites or used in our classes. We have been involved in claims against us alleging our infringement of third-party intellectualproperty rights and we may be subject to such claims in the future. Any such intellectual property infringement claim could result incostly 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 ChildhoodDevelopment Agency will receive a basic subsidy from the government of Singapore. The amount will depend on the mainapplicant’s working status and the program type that the child is enrolled in. In addition, all parents with a child of Singaporeancitizenship that enrolled in a student care center registered with Ministry of Social and Family Development of Singapore willreceive 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 affordableprograms that our competitors may offer, which may have a material adverse effect on our business, financial condition and resultsof 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 theQingtian Youpin e-commerce platform where we sell high-quality maternal and children products. Contractual disputes overwarranties can arise in the ordinary course of business. In extreme situations, we may be exposed to potential injury liabilities as aresult 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 ableto defend such claims at a contained level of cost. We currently do not have product liability insurance and we cannot assure youthat we would be able to obtain insurance coverage with sufficient coverage at an acceptable cost in the future. A successful claimbrought against us in excess of our available insurance coverage may have a material adverse effect on our business. Table of Contents18We 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 claimagainst us due to injuries suffered by our students or other people on our premises could materially and adversely affect our financialconditions, results of operations and reputation. Even if unsuccessful, such a claim could cause adverse publicity to us and requiresubstantial 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 studentsor employees at the facilities we and our franchisees operate may damage our reputation and subject us to liabilities. In addition, wedo not have any business disruption insurance. Any business disruption event could result in substantial cost to us and diversion ofour 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 dueto seasonal changes in student enrolments. The number of students at our facilities is typically the lowest at the start of each calendaryear, due to the graduation of kindergarten students at the end of the preceding year, before gradually being replaced over the courseof the year by new enrolments. As our revenue is directly affected by the headcount of students at our facilities, such seasonalfluctuations in student enrolments generally give rise to a corresponding seasonal fluctuation in our revenue over the course of ayear. We expect fluctuations in our revenue and results of operations to continue. These fluctuations could adversely affect ourbusiness, financial condition and results of operations.A severe or prolonged downturn in the Chinese or global economy could materially and adversely affect our business andfinancial condition.COVID-19 had a severe and negative impact on the Chinese and the global economy in the first quarter of 2020. Whetherthis will lead to a prolonged downturn in the economy is still unknown. Even before the outbreak of COVID-19, the globalmacroeconomic environment was facing numerous challenges. The growth rate of the Chinese economy had already been slowingsince 2010. There is considerable uncertainty over the long-term effects of the expansionary monetary and fiscal policies which hadbeen adopted by the central banks and financial authorities of some of the world’s leading economies, including the United Statesand China, even before 2020. Unrest, terrorist threats and the potential for war in the Middle East and elsewhere may increasemarket 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 significantuncertainty about the future relationship between the United States and China with respect to trade policies, treaties, governmentregulations and tariffs. Any severe or prolonged slowdown in the global or Chinese economy may materially and adversely affectour 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 ofoperations, meet our reporting obligations or prevent fraud, investor confidence and the market price of our ADSs may beadversely affected.We are subject to reporting obligations under the U.S. securities laws. The SEC, as required by Section 404 of theSarbanes-Oxley Act of 2002, adopted rules requiring every public company to include a management report on the company’sinternal control over financial reporting in its annual report, which contains management’s assessment of the effectiveness of ourinternal control over financial reporting. Our management has concluded that our internal control over financial reporting waseffective as of December 31, 2020. See “Item 15. Controls and Procedures—Management’s Report on Internal Control overFinancial Reporting.” In addition, once we cease to be an “emerging growth company” as such term is defined in the JOBS Act, ourindependent registered public accounting firm must attest to and report on the effectiveness of our internal control over financialreporting. Table of Contents19Even if our management concludes that our internal control over financial reporting is effective, our independent registeredpublic accounting firm, after conducting its own independent testing, may issue a report that is qualified if it is not satisfied with ourinternal controls or the level at which our controls are documented, designed, operated or reviewed, or if it interprets the relevantrequirements differently from us. Any failure to achieve and maintain effective internal control over financial reporting could resultin the loss of investor confidence in the reliability of our consolidated financial statements, which in turn could harm our businessand negatively impact the market price of the ADSs. Furthermore, we have incurred and anticipate that we will continue to incurconsiderable costs, management time and other resources in an effort to comply with Section 404 and other requirements of theSarbanes-Oxley Act.Failure to make adequate contributions to various employee benefits plans as required by PRC regulations may subject us topenalties.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 inamounts equal to certain percentages of salaries, including bonuses and allowances, of employees up to a maximum amountspecified by the local government from time to time at locations where they operate their businesses. The requirement of employeebenefit plans has not been implemented consistently by the local governments in China given the different levels of economicdevelopment in different locations. Our failure in making contributions to various employee benefit plans and in complying withapplicable PRC labor-related laws may subject us to late payment penalties. We may be required to make up the contributions forthese 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 StructureIf the PRC government decides that the agreements that establish the structure for operating certain of our operations in Chinado not comply with PRC regulations relating to the relevant industries, or if these regulations or the interpretation of existingregulations change in the future, we could be subject to severe penalties or be forced to relinquish our contract or other interestsin 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 andthe MOFCOM on June 23, 2020 and became effective on July 23, 2020 (the “Negative List”), the provision of preschool educationin the PRC is under the category of “restricted industries” for foreign investors. Foreign investments in preschool education isrestricted to cooperation with PRC domestic parties who are required to play a dominant role in the cooperation. In addition, theImplementation Opinions of the MOE on Encouraging and Guiding the Entry of Private Capital in the Fields of Education andPromoting the Healthy Development of Private Education issued by the MOE on June 18, 2012 also stipulates that the foreignportion of the total investment in a Sino-foreign joint venture kindergarten is restricted to less than 50%. In terms of the identity ofthe foreign investors, according to the Regulation on Operating Sino-foreign Schools of the PRC, or the Sino-foreign SchoolsRegulation, which was promulgated by the State Council on March 1, 2003, became effective on September 1, 2003 and amendedon July 18, 2013 and March 2, 2019, and its implementation measures, foreign investors in kindergartens must be foreign educationinstitutions 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 withthe PRC laws and regulations, we conduct such business activities through Beijing RYB, our consolidated variable interest entity, orVIE, and its subsidiaries. RYB Technology, our wholly owned subsidiary in China, has entered into a series of contractualarrangements with our VIE and its shareholders, which enable us to (1) exercise effective control over our VIE, (2) receivesubstantially all of the economic benefits of our VIE, and (3) have an exclusive option to purchase all or part of the equity interestsand assets in our VIE when and to the extent permitted by PRC law. As a result of these contractual arrangements, we have controlover and are the primary beneficiary of our VIE and hence consolidate its financial results as our VIE under U.S. GAAP. See “Item4. Information on the Company—C. Organizational Structure” for further details. Table of Contents20If the PRC government decides that our contractual arrangements do not comply with its restrictions on foreign investmentin kindergarten education, or if the PRC government otherwise finds that we, our VIE, or any of its subsidiaries are in violation ofPRC 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 ourPRC subsidiary and our VIE;●imposing fines, confiscating the income from our PRC subsidiary or our VIE, or imposing other requirements withwhich we or our VIE may not be able to comply;●requiring us to restructure our ownership structure or operations, including terminating the contractual arrangementswith 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 inChina.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 theseoccurrences results in our inability to direct the activities of our VIE that most significantly impact its economic performance, and/orour failure to receive the economic benefits from our VIE, we may not be able to consolidate the entity in our consolidated financialstatements in accordance with U.S. GAAP.Substantial uncertainties exist with respect to the interpretation and implementation of the Foreign Investment Law and how itmay 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 becameeffective on January 1, 2020. The Foreign Investment Law replaced the Law on Sino-Foreign Equity Joint Ventures, the Law onSino-Foreign Contractual Joint Ventures and the Law on Foreign-Capital Enterprises to become the legal foundation for foreigninvestment 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 orprohibitions in China. The Foreign Investment Law stipulates four forms of foreign investment. However, the Foreign InvestmentLaw does not explicitly stipulate the contractual arrangements as a form of foreign investment. Since contractual arrangements arenot specified as foreign investment under the Foreign Investment Law, and if the future laws, administrative regulations orprovisions prescribed by the State Council do not incorporate contractual arrangements as a form of foreign investment and theoperation of preschool education is still in the Negative List, our contractual arrangements as a whole and each of the agreementscomprising the contractual arrangements will not be affected and will continue to be legal, valid and binding on the parties. If thePRC government finds that our contractual arrangements do not comply with its restrictions on foreign investment, or if the ourcontractual arrangements are in violation of any further PRC laws and regulations, as a result, we may not be able to operate ourkindergartens through the contractual arrangements and we would lose our rights to receive the economic benefits of ourkindergartens and our VIE. Therefore, the financial results of our kindergartens and our VIE would no longer be consolidated intoour Group’s financial results and we would have to derecognize their assets and liabilities according to the relevant accountingstandards. An investment loss would be recognized as a result of such derecognition.In the extreme case-scenario, we may be required to terminate our contractual arrangements and/or dispose of ourkindergartens, our VIE and its subsidiaries, which could have a material and adverse effect on our business, financial condition andresult of operations. Table of Contents21Therefore, there is no guarantee that our contractual arrangements and the business of our VIE and its subsidiaries will notbe 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 aseffective 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 operatekindergarten education services in China. For a description of these contractual arrangements, see “Item 4. Information on theCompany—C. Organizational Structure.” These contractual arrangements may not be as effective as direct ownership in providingus 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 ourinterests. The revenues contributed by our VIE and the VIE’s subsidiaries or kindergartens sponsored by our VIE constituted thevast majority of our net revenues in 2020.If we had direct ownership of our VIE, we would be able to exercise our rights as a shareholder to effect changes in theboard of directors of our VIE, which in turn could implement changes, subject to any applicable fiduciary obligations, at themanagement and operational level. However, under the current contractual arrangements, we rely on the performance by our VIEand its shareholders of their obligations under the contracts to exercise control over our VIE. The shareholders of our consolidatedVIE may not act in the best interests of our company or may not perform their obligations under these contracts. Such risks existthroughout the period in which we intend to operate certain portion of our business through the contractual arrangements with ourVIE. If any dispute relating to these contracts remains unresolved, we will have to enforce our rights under these contracts throughthe operations of PRC law and arbitration, litigation and other legal proceedings and therefore will be subject to uncertainties in thePRC legal system. Therefore, our contractual arrangements with our VIE may not be as effective in ensuring our control over therelevant 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 wouldhave 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 haveto incur substantial costs and expend additional resources to enforce such arrangements. We may also have to rely on legal remediesunder PRC law, including seeking specific performance or injunctive relief, and claiming damages, which we cannot assure will beeffective under PRC law. For example, if the shareholders of our VIE refuse to transfer their equity interest in our VIE to us or ourdesignee if we exercise the purchase option pursuant to these contractual arrangements, or if they otherwise act in bad faith towardus, then we may have to take legal actions to compel them to perform their contractual obligations. In addition, if any third partiesclaim any interest in such shareholders’ equity interests in our VIE, our ability to exercise shareholders’ rights or foreclose the sharepledge according to the contractual arrangements may be impaired. If these or other disputes between the shareholders of our VIEand third parties were to impair our control over our VIE, our ability to consolidate the financial results of our VIE would beaffected, 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 ofdisputes through arbitration in China. Accordingly, these contracts would be interpreted in accordance with PRC law and anydisputes would be resolved in accordance with PRC legal procedures. The legal system in the PRC is not as developed as in someother jurisdictions, such as the United States. As a result, uncertainties in the PRC legal system could limit our ability to enforcethese contractual arrangements. Meanwhile, there are very few precedents and little formal guidance as to how contractualarrangements in the context of a VIE should be interpreted or enforced under PRC law. There remain significant uncertaintiesregarding the ultimate outcome of such arbitration should legal action become necessary. In addition, under PRC law, rulings byarbitrators are final, parties cannot appeal the arbitration results in courts, and if the losing parties fail to carry out the arbitrationawards within a prescribed time limit, the prevailing parties may only enforce the arbitration awards in PRC courts througharbitration award recognition proceedings, which would require additional expenses and delay. In the event we are unable to enforcethese contractual arrangements, or if we suffer significant delays or other obstacles in the process of enforcing these contractualarrangements, we may not be able to exert effective control over our VIE, and our ability to conduct our business may be negativelyaffected. Table of Contents22The shareholders of our VIE may have potential conflicts of interest with us, which may materially and adversely affect ourbusiness and financial condition.The shareholders of our VIE may have potential conflicts of interest with us. These shareholders may breach, or cause ourVIE to breach, or refuse to renew, the existing contractual arrangements we have with them and our VIE, which would have amaterial and adverse effect on our ability to effectively control our VIE and receive economic benefits from it. For example, theshareholders 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 conflictsof interest arise any or all of these shareholders will act in the best interests of our company or such conflicts will be resolved in ourfavor. Currently, we do not have any arrangements to address potential conflicts of interest between these shareholders and ourcompany. If we cannot resolve any conflict of interest or dispute between us and these shareholders, we would have to rely on legalproceedings, which could result in disruption of our business and subject us to substantial uncertainty as to the outcome of any suchlegal proceedings.Contractual arrangements in relation to our VIE may be subject to scrutiny by the PRC tax authorities and they may determinethat 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 orchallenge by the PRC tax authorities within ten years after the taxable year when the transactions are conducted. We could facematerial and adverse tax consequences if the PRC tax authorities determine that the VIE contractual arrangements were not enteredinto on an arm’s-length basis in such a way as to result in an impermissible reduction in taxes under applicable PRC laws, rules andregulations, 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 turnincrease its tax liabilities without reducing our PRC subsidiary’s tax expenses. In addition, the PRC tax authorities may impose latepayment fees and other penalties on our VIE for the adjusted but unpaid taxes according to the applicable regulations. Our financialposition could be materially and adversely affected if our VIE’s tax liabilities increase or if it is required to pay late payment feesand 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 ourbusiness 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 tothe operation of certain portion of our business. If our VIE goes bankrupt and all or part of its assets become subject to liens or therights of third-party creditors, we may be unable to continue some or all of our business activities, which could materially andadversely affect our business, financial condition and results of operations. Under the contractual arrangements, our VIE may not, inany manner, sell, transfer, mortgage or dispose of their assets or legal or beneficial interests in the business without our priorconsent. If our VIE undergoes a voluntary or involuntary liquidation proceeding, the independent third-party creditors may claimrights to some or all of these assets, thereby hindering our ability to operate our business, which could materially and adverselyaffect 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 relatedparties.As a holding company, our ability to pay dividends and other cash distributions to our shareholders depends on our abilityto receive dividends and other distributions from our PRC subsidiary. The amount of dividends and other distributions our PRCsubsidiary is able to be paid to us depends on the amount of service fees paid by our VIE and its subsidiaries pursuant to thecontractual arrangements. However, if the PRC government authorities promulgate any new policies, such authorities may seek toconfiscate any or all of the service fees that have been paid by our VIE or its subsidiaries, including retrospectively, if, among otherthings, such service fees are viewed as in violation of PRC laws and regulations, or our contractual arrangements are viewed as inviolation of PRC laws and regulations by PRC authorities and are terminated or canceled. The relevant PRC authorities may alsoseek 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. Table of Contents23Certain terms of our Contractual Arrangements may not be enforceable under PRC lawsOur contractual arrangements provide for dispute resolution by way of arbitration in accordance with the arbitrationrules of the China International Economic and Trade Arbitration Commission in Beijing, the PRC. Our contractual arrangementsprovide that the arbitral body may award remedies over the equity interests, property interests and/or assets of the VIE, injunctiverelief or order of winding up of the VIE. However, we have been advised by our PRC Legal counsel that the above-mentionedprovisions contained in the contractual arrangements may not be enforceable. Under PRC laws, an arbitral body does not have thepower to grant any injunctive relief or provisional or final winding-up order to preserve the assets of or any equity interest in ourVIE in case of disputes. Therefore, such remedies may not be available to us, notwithstanding the relevant contractual provisionscontained in our contractual arrangements. PRC laws allow an arbitral body to award the transfer of assets of or equity interest in theVIE in favor of an aggrieved party. In the event of non-compliance with such award, enforcement measures may be sought from thecourt. However, the court may or may not support the award of an arbitral body when deciding whether to take enforcementmeasures. Under PRC laws, courts of judicial authorities in the PRC generally would not grant injunctive relief or the winding-uporder against the VIE as interim remedies to preserve the assets or equity interests in favor of any aggrieved party. As a result, wemay not be able to obtain sufficient remedies in a timely manner, and our ability to exert effective control over our VIE and itssubsidiaries and conduct our education business could be materially and adversely affected.Risks Related to Doing Business in ChinaChanges in China’s economic, political or social conditions or government policies could have a material adverse effect on ourbusiness and operations.The majority of our assets and operations are located in China. Accordingly, our business, financial condition, results ofoperations 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 governmentinvolvement, level of development, growth rate, control of foreign exchange and allocation of resources. Although the Chinesegovernment has implemented measures emphasizing the utilization of market forces for economic reform, the reduction of stateownership of productive assets, and the establishment of improved corporate governance in business enterprises, a substantialportion of productive assets in China is still owned by the government. In addition, the Chinese government continues to play asignificant role in regulating industry development by imposing industrial policies. The Chinese government also exercisessignificant 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, bothgeographically and among various sectors of the economy, and the rate of growth has been slowing since 2012. Any adversechanges in economic conditions in China, in the policies of the Chinese government or in the laws and regulations in China couldhave a material adverse effect on the overall economic growth of China. Such developments could adversely affect our business andoperating results, lead to reduction in demand for our services and adversely affect our competitive position. The Chinesegovernment has implemented various measures to encourage economic growth and guide the allocation of resources. Some of thesemeasures may benefit the overall Chinese economy, but may have a negative effect on us. For example, our financial condition andresults of operations may be adversely affected by government control over capital investments or changes in tax regulations. Inaddition, although the spread of the COVID-19 had been tamed and stabilized thanks to the fast reaction and unprecedented effortsby the Chinese government, the COVID-19 is still likely to have regional impact in China in 2021. Any prolonged slowdown in theChinese economy may reduce the demand for our products and services and materially and adversely affect our financial conditionand 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 decisionsunder the civil law system may be cited for reference but have limited precedential value. Table of Contents24In 1979, the PRC government began to promulgate a comprehensive system of laws and regulations governing economicmatters in general. The overall effect of legislation over the past three decades has significantly enhanced the protections afforded tovarious forms of foreign investments in China. However, China has not developed a fully integrated legal system, and recentlyenacted laws and regulations may not sufficiently cover all aspects of economic activities in China. In particular, the interpretationand enforcement of these laws and regulations involve uncertainties. Since PRC administrative and court authorities have significantdiscretion in interpreting and implementing statutory provisions and contractual terms, it may be difficult to evaluate the outcome ofadministrative and court proceedings and the level of legal protection we enjoy. These uncertainties may affect our judgment on therelevance of legal requirements and our ability to enforce our contractual rights or tort claims. In addition, the regulatoryuncertainties may be exploited through unmerited or frivolous legal actions or threats in attempts to extract payments or benefitsfrom us.Furthermore, the PRC legal system is based in part on government policies and internal rules, some of which are notpublished 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 ofthese policies and rules until sometime after the violation. In addition, any administrative and court proceedings in China may beprotracted, 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 Chinaagainst 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 most of ouroperations in China and substantially most of our assets are located in China. In addition, all our senior executive officers residewithin China for a significant portion of the time and most are PRC nationals. As a result, it may be difficult for our shareholders toeffect service of process upon us or those persons inside mainland China. In addition, China does not have treaties providing for thereciprocal 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 anymatter 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 financingrequirements we may have, and any limitation on the ability of our PRC subsidiary to make payments to us could have a materialand 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 ourPRC subsidiary for our cash requirements, including for services of any debt we may incur. Our PRC subsidiary’s ability todistribute dividends is based upon its distributable earnings. Current PRC regulations permit our PRC subsidiary to pay dividends toits respective shareholders only out of their accumulated profits, if any, determined in accordance with PRC accounting standardsand regulations. In addition, each of our PRC subsidiary, our VIE and its subsidiaries are required to set aside at least 10% of itsafter-tax profits each year, if any, to fund a statutory reserve until such reserve reaches 50% of its registered capital. Our PRCsubsidiary as a foreign invested enterprise, or FIE, is also required to further set aside a portion of its after-tax profit to fund anemployee welfare fund, although the amount to be set aside, if any, is determined at its discretion. These reserves are notdistributable as cash dividends. If our PRC subsidiary incurs debt on their own behalf in the future, the instruments governing thedebt may restrict their ability to pay dividends or make other payments to us. Any limitation on the ability of our PRC subsidiary todistribute dividends or other payments to their respective shareholders could materially and adversely limit our ability to grow, makeinvestments or acquisitions that could be beneficial to our businesses, pay dividends or otherwise fund and conduct our business. Table of Contents25Our current corporate structure and business operations may be affected by the newly enacted Foreign Investment Law.On March 15, 2019, the National People’s Congress, or NPC, promulgated the Foreign Investment Law, which took effecton January 1, 2020. Since it is relatively new, uncertainties exist in relation to its interpretation and implementation. The ForeignInvestment Law does not explicitly classify whether VIE that are controlled through contractual arrangements would be deemed asforeign invested enterprises if they are ultimately “controlled” by foreign investors. However, it has a catch-all provision underdefinition of “foreign investment” that includes investments made by foreign investors in China through other means as provided bylaws, administrative regulations or the State Council. Therefore, it still leaves leeway for future laws, administrative regulations orprovisions of the State Council to provide for contractual arrangements as a form of foreign investment, and it remains uncertainwhether our contractual arrangements will be deemed to be in violation of the market access requirements for foreign investment inthe PRC and if yes, how our contractual arrangements should be dealt with.The Foreign Investment Law grants national treatment to foreign-invested entities, except for those foreign-investedentities that operate in industries specified as either “restricted” or “prohibited” from foreign investment in the SpecialAdministrative Measures (Negative List)(2020 Edition) for Foreign Investment Access jointly promulgated by the MOFCOM andNDRC, as amended from time to time. The Foreign Investment Law provides that foreign-invested entities are barred fromoperating in “prohibited” industries and will require market entry clearance and other approvals from relevant PRC governmentauthorities if operating in “prohibited” industries. On December 26, 2019, the Supreme People’s Court issued the Interpretations onCertain Issues Regarding the Application of Foreign Investment Law, or the FIL Interpretations, which came into effect on January1, 2020. In accordance with the FIL Interpretations, any claim to invalidate an investment agreement will be supported by courts ifsuch agreement is found to be entered into for purposes of making investments in the “prohibited industries” under the negative listor for purposes of investing in “restricted industries” while failing to satisfy the conditions set out in the Negative List. If our controlover our VIEs through contractual arrangements are deemed as foreign investment in the future, and any business of our VIEs is“restricted” or “prohibited” from foreign investment under the “negative list” effective at the time, we may be deemed to be inviolation of the Foreign Investment Law, the contractual arrangements that allow us to have control over our VIEs may be deemedas invalid and illegal, and we may be required to unwind such contractual arrangements and/or restructure our business operations,any of which may have a material adverse effect on our business operation.Furthermore, if future laws, administrative regulations or provisions mandate further actions to be taken by companies withrespect to existing contractual arrangements, we may face substantial uncertainties as to whether we can complete such actions in atimely manner, or at all. Failure to take timely and appropriate measures to cope with any of these or similar regulatory compliancechallenges could materially and adversely affect our current corporate structure and business operations.PRC regulation of loans to and direct investment in PRC entities by offshore holding companies and governmental control ofcurrency conversion may delay or prevent us from using the proceeds of our initial offering to make loans to our PRCsubsidiary, 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 subjectto approval by or registration with relevant governmental authorities in China. In addition, (a) any foreign loan procured by our PRCsubsidiary 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 localbranches. Any medium-or long- term loan to be provided by us to our VIE must be approved by the NDRC and the SAFE or itslocal branches. We may not obtain these government approvals or complete such registrations on a timely basis, if at all, withrespect to future capital contributions or foreign loans by us to our PRC subsidiary. If we fail to receive such approvals or completesuch registration, our ability to use the proceeds of our initial public offering and to capitalize our PRC operations may be negativelyaffected, which could adversely affect our liquidity and our ability to fund and expand our business. Table of Contents26On March 30, 2015, the SAFE promulgated the Circular on Reforming the Management Approach Regarding the ForeignExchange Capital Settlement of Foreign-Invested Enterprises, or SAFE Circular 19, which took effect as of June 1, 2015. SAFECircular 19 launched a nationwide reform of the administration of the settlement of the foreign exchange capitals of FIEs and allowsFIEs to settle their foreign exchange capital at their discretion, but continues to prohibit FIEs from using the Renminbi fundconverted from their foreign exchange capitals for expenditure beyond their business scopes, providing entrusted loans or repayingloans between non-financial enterprises. The SAFE issued the Circular on Reforming and Regulating Policies on the Control overForeign Exchange Settlement of Capital Accounts, or SAFE Circular 16, effective in June 9, 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 notlimited to foreign currency capital and foreign debts) on a self-discretionary basis which applies to all enterprises registered inChina. SAFE Circular 16 reiterates the principle that Renminbi converted from foreign currency-denominated capital of a companymay not be directly or indirectly used for purposes beyond its business scope or prohibited by PRC laws or regulations, while suchconverted Renminbi shall not be provided as loans to its non-affiliated entities. On October 23, 2019, the SAFE issued the Circularon Further Promoting the Facilitation of Cross-border Trade and Investment, or SAFE Circular 28, which, among other things,allows all foreign-invested companies to use Renminbi converted from foreign currency-denominated capital for equity investmentsin China, as long as the equity investment is genuine, does not violate applicable laws, and complies with the negative list on foreigninvestment. As this circular is relatively new, it is unclear how SAFE and competent banks will carry this out in practice.Fluctuations in exchange rates could have a material and adverse effect on our results of operations and the value of yourinvestment.The conversion of Renminbi into foreign currencies, including U.S. dollars, is based on rates set by the People’s Bank ofChina. The Renminbi has fluctuated against the U.S. dollar, at times significantly and unpredictably. The value of Renminbi againstthe U.S. dollar and other currencies is affected by changes in China’s political and economic conditions and by China’s foreignexchange policies, among other things. We cannot assure you that Renminbi will not appreciate or depreciate significantly in valueagainst the U.S. dollar in the future. It is difficult to predict how market forces or PRC or U.S. government policy may impact theexchange 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 andfinancial position, and the value of, and any dividends payable on, our ADSs in U.S. dollars. For example, to the extent that we needto convert U.S. dollars we receive into Renminbi to pay our operating expenses, appreciation of Renminbi against the U.S. dollarwould have an adverse effect on the RMB amount we would receive from the conversion. Conversely, a significant depreciation ofRenminbi against the U.S. dollar may significantly reduce the U.S. dollar equivalent of our earnings, which in turn could adverselyaffect the price of our ADSs.Very limited hedging options are available in China to reduce our exposure to exchange rate fluctuations. To date, we havenot entered into any hedging transactions in an effort to reduce our exposure to foreign currency exchange risk. While we maydecide to enter into hedging transactions in the future, the availability and effectiveness of these hedges may be limited and we maynot be able to adequately hedge our exposure or at all. In addition, our currency exchange losses may be magnified by PRCexchange control regulations that restrict our ability to convert Renminbi into foreign currency. As a result, fluctuations in exchangerates may have a material adverse effect on your investment. Table of Contents27Governmental control of currency conversion may limit our ability to utilize our net revenues effectively and affect the value ofyour 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 corporatestructure, our Cayman Islands holding company primarily relies on dividend payments from our PRC subsidiary to fund any cashand 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 foreigncurrencies without prior approval of the SAFE by complying with certain procedural requirements. Specifically, under the existingexchange restrictions, without prior approval of the SAFE, cash generated from the operations of our PRC subsidiary in China maybe used to pay dividends to our company. However, approval from or registration with appropriate governmental authorities isrequired where Renminbi is to be converted into foreign currency and remitted out of China to pay capital expenses such as therepayment of loans denominated in foreign currencies. As a result, we need to obtain SAFE approval to use cash generated from theoperations of our PRC subsidiary and VIE to pay off their respective debt in a currency other than Renminbi owed to entities outsideChina, or to make other capital expenditure payments outside China in a currency other than Renminbi. In light of the flood ofcapital outflows of China, the PRC government may from time to time impose more restrictive foreign exchange policies and stepup scrutiny of major outbound capital movement. More restrictions and substantial vetting process may be required by the SAFE orother government authorities to regulate cross-border transactions falling under the capital account. If any of our shareholdersregulated by such policies fails to satisfy the applicable overseas direct investment filing or approval requirement timely or at all, itmay be subject to penalties from the relevant PRC authorities. The PRC government may at its discretion restrict access to foreigncurrencies for current account transactions in the future. If the foreign exchange control system prevents us from obtaining sufficientforeign currencies to satisfy our foreign currency demands, we may not be able to pay dividends in foreign currencies to ourshareholders, 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 theM&A Rules, established additional procedures and requirements that could make merger and acquisition activities by foreigninvestors more time-consuming and complex. Such regulation requires, among other things, that the MOFCOM be notified inadvance of any change-of-control transaction in which a foreign investor acquires control of a PRC domestic enterprise or a foreigncompany with substantial PRC operations, if certain thresholds under the Provisions on Thresholds for Prior Notification ofConcentrations of Undertakings, issued by the State Council in 2008, were triggered. Moreover, the Anti-Monopoly Lawpromulgated by the Standing Committee of the NPC which became effective in 2008 requires that transactions which are deemedconcentrations and involve parties with specified turnover thresholds must be examined by the MOFCOM before they can becompleted. On February 7, 2021, the Anti-monopoly Commission of the State Council, published the Anti-Monopoly Guidelines forthe Internet Platform Economy Sector that aims at specifying some of the circumstances under which an activity of internetplatforms may be identified as monopolistic act as well as classifying that concentrations involving variable interest entities shall besubject to anti-monopoly review. In addition, PRC national security review rules which became effective in September 2011 requireacquisitions by foreign investors of PRC companies engaged in military related or certain other industries that are crucial to nationalsecurity 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 shallnot 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 onNovember 15, 2018, which regulates that social capital is not allowed to control not-for-profit kindergartens or kindergartens thatare sponsored by state-owned assets or collectively-owned assets through ways such as mergers and acquisitions, delegatingoperation, franchising, variable interest entities or contractual arrangements, and listed companies are not allowed to invest for-profitkindergartens through ways such as financing from share market, or acquire assets of for-profit kindergartens through ways such asissuing shares or paying cash. Such stipulation may have a negative impact on both the type and number of the target of ourexpansion strategy, as we may no longer be able to acquire not-for-profit private schools or control them through ways such asfranchising or “contractual arrangements”, and we may no longer to invest for-profit kindergartens through ways such as financingfrom share market, or acquire assets of for-profit kindergartens through ways such as issuing shares or paying cash. Table of Contents28We may pursue potential strategic acquisitions that are complementary to our business and operations. Complying with therequirements 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 andlimit the scope and amount of our acquisition, which could affect our ability to expand our business or maintain our market share.PRC regulations relating to the establishment of offshore special purpose companies by PRC residents may subject our PRCresident beneficial owners or our PRC subsidiary to liability or penalties, limit our ability to inject capital into our PRCsubsidiary, limit our PRC subsidiary’s ability to increase their registered capital or distribute profits to us, or may otherwiseadversely affect us.In July 2014, SAFE promulgated the Circular on Relevant Issues Concerning Foreign Exchange Control on DomesticResidents’ 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 andRoundtrip Investment Through Offshore Special Purpose Vehicles, or SAFE Circular 75, which ceased to be effective upon thepromulgation of SAFE Circular 37. SAFE Circular 37 requires PRC residents (including PRC individuals and PRC corporateentities) to register with local branches of SAFE in connection with their direct or indirect offshore investment activities. SAFECircular 37 is applicable to our shareholders who are PRC residents and may be applicable to any offshore acquisitions that wemake in the future.Under SAFE Circular 37, PRC residents who make, or have prior to the implementation of SAFE Circular 37 made, director indirect investments in offshore special purpose vehicles, or SPVs, will be required to register such investments with localbranches of SAFE. In addition, any PRC resident who is a direct or indirect shareholder of an SPV is required to update its filedregistration with the local branch of the SAFE with respect to that SPV, to reflect any material change. Moreover, any subsidiary ofsuch 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, thesubsidiary of such SPV in China may be prohibited from distributing its profits or the proceeds from any capital reduction, sharetransfer or liquidation to the SPV, and the SPV may also be prohibited from making additional capital contribution into its subsidiaryin China. On February 13, 2015, the SAFE promulgated a Notice on Further Simplifying and Improving Foreign ExchangeAdministration 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 willdirectly 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 necessaryregistrations with the local SAFE branch or qualified banks as required by SAFE Circular 37. We cannot assure you, however, thatall of these individuals may continue to make required filings or updates on a timely manner, or at all. We can provide no assurancethat we are or will in the future continue to be informed of identities of all PRC residents holding direct or indirect interest in ourcompany. Any failure or inability by such individuals to comply with the SAFE regulations may subject us to fines or legalsanctions, such as restrictions on our cross-border investment activities or our PRC subsidiary’s ability to distribute dividends to, orobtain foreign exchange-denominated loans from, our company or prevent us from making distributions or paying dividends. As aresult, 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 hasbeen constantly evolving, it is unclear how these regulations, and any future regulation concerning offshore or cross-bordertransactions, will be interpreted, amended and implemented by the relevant governmental authorities. For example, we may besubject to a more stringent review and approval process with respect to our foreign exchange activities, such as remittance ofdividends and foreign-currency-denominated borrowings, which may adversely affect our financial condition and results ofoperations. In addition, if we decide to acquire a PRC domestic company, we cannot assure you that we or the owners of suchcompany, as the case may be, will be able to obtain the necessary approvals or complete the necessary filings and registrationsrequired by the foreign exchange regulations. This may restrict our ability to implement our acquisition strategy and could adverselyaffect our business and prospects. Table of Contents29Any failure to comply with PRC regulations regarding the registration requirements for employee stock incentive plans of anoverseas 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 forDomestic Individuals Participating in Stock Incentive Plan of Overseas Publicly-Listed Company, replacing earlierrules promulgated in 2007. Pursuant to these rules, PRC citizens and non-PRC citizens who reside in China for a continuous periodof not less than one year who participate in any stock incentive plan of an overseas listed company, subject to a few exceptions, arerequired to register with the SAFE through a domestic qualified agent, which could be the PRC subsidiaries of such overseas listedcompany, and complete certain other procedures. In addition, an overseas-entrusted institution must be retained to handle matters inconnection with the exercise or sale of stock options and the purchase or sale of shares and interests. We and our executive officersand other employees who are PRC citizens or who reside in the PRC for a continuous period of not less than one year and who havebeen granted options are subject to these regulations as our company became an overseas listed company upon the completion of ourinitial public offering. Failure to complete the SAFE registrations may subject them to fines of up to RMB300,000 for entities andup to RMB50,000 for individuals, and legal sanctions, and may also limit our ability to contribute additional capital into our PRCsubsidiary and limit our PRC subsidiary’s ability to distribute dividends to us. We also face regulatory uncertainties that couldrestrict our ability to adopt additional incentive plans for our directors, executive officers and employees under PRC law. See “Item4. Information on the Company—B. Business Overview—Regulation—Regulations Relating to Employee Stock Incentive Plan ofOverseas Publicly-Listed Company.”The State Administration of Taxation, or SAT, has issued certain circulars concerning employee share options and restrictedshares. Under these circulars, our employees working in China who exercise share options or are granted restricted shares will besubject to PRC individual income tax. Our PRC subsidiary have obligations to file documents related to employee share options orrestricted shares with relevant tax authorities and to withhold individual income taxes of those employees who exercise their shareoptions. If our employees fail to pay or we fail to withhold their income taxes according to relevant laws and regulations, we mayface 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 unfavorabletax 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 onits global income at the rate of 25%. The implementation rules define the term “de facto management body” as the body thatexercises full and substantial control and overall management over the business, productions, personnel, accounts and properties ofan enterprise. In 2009, the SAT, issued a circular, known as SAT Circular 82, which provides certain specific criteria for determiningwhether the “de facto management body” of a PRC-controlled enterprise that is incorporated offshore is located in China. Althoughthis circular only applies to offshore enterprises controlled by PRC enterprises or PRC enterprise groups, not those controlled byPRC individuals or foreigners, the criteria set forth in the circular may reflect the SAT’s general position on how the “de factomanagement body” text should be applied in determining the tax resident status of all offshore enterprises. According to SATCircular 82, an offshore incorporated enterprise controlled by a PRC enterprise or a PRC enterprise group will be regarded as a PRCtax resident by virtue of having its “de facto management body” in China, and will be subject to PRC enterprise income tax on itsglobal income only if all of the following conditions are met: (i) the primary location of the day-to-day operational management is inthe PRC; (ii) decisions relating to the enterprise’s financial and human resource matters are made or are subject to approval byorganizations or personnel in the PRC; (iii) the enterprise’s primary assets, accounting books and records, company seals, and boardand shareholder resolutions are located or maintained in the PRC; and (iv) at least 50% of voting board members or seniorexecutives habitually reside in the PRC. Table of Contents30We believe RYB Education, Inc. is not a PRC resident enterprise for PRC tax purposes. See “Item 4. Information on theCompany—B. Business Overview—Regulation—Regulations Relating to Tax in the PRC—Income Tax.” However, the tax residentstatus of an enterprise is subject to determination by the PRC tax authorities and uncertainties remain with respect to theinterpretation of the term “de facto management body.” If the PRC tax authorities determine that RYB Education, Inc. is a PRCresident enterprise for enterprise income tax purposes, we will be subject to PRC enterprise income tax on our worldwide income atthe rate of 25%. Furthermore, we may be required to withhold a 10% withholding tax from dividends we pay to our shareholdersthat are non-resident enterprises, including the holders of our ADSs. In addition, non-resident enterprise shareholders (including ourADS holders) may be subject to PRC tax on gains realized on the sale or other disposition of ADSs or ordinary shares, if suchincome is treated as sourced from within the PRC. Furthermore, if we are deemed a PRC resident enterprise, dividends payable toour non-PRC individual shareholders (including our ADS holders) and any gain realized on the transfer of ADSs or ordinary sharesby such shareholders may be subject to PRC tax at a rate of 20% unless a reduced rate is available under an applicable tax treaty. Itis unclear whether non-PRC shareholders of RYB Education, Inc. would be able to claim the benefits of any tax treaties betweentheir country of tax residence and the PRC in the event that RYB Education, Inc. is treated as a PRC resident enterprise.We face uncertainty with respect to indirect transfers of equity interests in PRC resident enterprises by their non-PRC holdingcompanies.On February 3, 2015, the SAT issued a Public Notice Regarding Certain Corporate Income Tax Matters on IndirectTransfer of Properties by Non-Tax Resident Enterprises, or SAT Bulletin 7. SAT Bulletin 7 extends its tax jurisdiction totransactions involving transfer of other taxable assets through offshore transfer of a foreign intermediate holding company. Inaddition, SAT Bulletin 7 has introduced safe harbors for internal group restructurings and the purchase and sale of equity through apublic securities market. SAT Bulletin 7 also brings challenges to both foreign transferor and transferee (or other person who isobligated 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 theWithholding 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 anonresident enterprise transfers taxable assets indirectly by disposing of the equity interests of an overseas holding company, whichis an Indirect Transfer, the non-resident enterprise as either transferor or transferee, or the PRC entity that directly owns the taxableassets, may report such Indirect Transfer to the relevant tax authority. Using a “substance over form” principle, the PRC taxauthority may disregard the existence of the overseas holding company if it lacks a reasonable commercial purpose and wasestablished for the purpose of reducing, avoiding or deferring PRC tax. As a result, gains derived from such Indirect Transfer maybe subject to PRC enterprise income tax, and the transferee or other person who is obligated to pay for the transfer is obligated towithhold the applicable taxes, currently at a rate of 10% for the transfer of equity interests in a PRC resident enterprise. Both thetransferor and the transferee may be subject to penalties under PRC tax laws if the transferee fails to withhold the taxes and thetransferor fails to pay the taxes.We face uncertainties as to the reporting and other implications of certain past and future transactions where PRC taxableassets are involved, such as offshore restructuring, sale of the shares in our offshore subsidiaries or investments. Our company maybe subject to filing obligations or taxed if our company is transferor in such transactions, and may be subject to withholdingobligations if our company is transferee in such transactions under SAT Bulletin 7 and/or SAT Bulletin 37. For transfer of shares inour company by investors who are non-PRC resident enterprises, our PRC subsidiary may be requested to assist in the filing underSAT Bulletin 7 and/or SAT Bulletin 37. As a result, we may be required to expend valuable resources to comply with SAT Bulletin 7and/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 financialcondition and results of operations. Table of Contents31Our ADSs may be delisted under the Holding Foreign Companies Accountable Act if the PCAOB is unable to inspect auditorswho are located in China. The delisting of our ADSs, or the threat of their being delisted, may materially and adversely affect thevalue of your investment. Additionally, the inability of the PCAOB to conduct inspections deprives our investors with the benefitsof such inspections.The Holding Foreign Companies Accountable Act, or the HFCA Act, was enacted on December 18, 2020. The HFCA Actstates if the SEC determines that we have filed audit reports issued by a registered public accounting firm that has not been subjectto inspection by the Public Company Accounting Oversight Board (United States), or the PCAOB, for three consecutive yearsbeginning in 2021, the SEC shall prohibit our shares or ADSs from being traded on a national securities exchange or in the “over-the-counter” trading market in the U.S.Our auditors, the independent registered public accounting firms that issue the audit reports included elsewhere in thisannual report, as auditors of companies that are traded publicly in the United States and firms registered with the PCAOB, aresubject to laws in the United States pursuant to which the PCAOB conducts regular inspections to assess their compliance with theapplicable professional standards. Since our auditors are located in China, a jurisdiction where the PCAOB has been unable toconduct inspections without the approval of the Chinese authorities, our auditors are currently not inspected by the PCAOB.On March 24, 2021, the SEC adopted interim final rules relating to the implementation of certain disclosure anddocumentation requirements of the HFCA Act. We will be required to comply with these rules if the SEC identifies us as having a“non-inspection” year under a process to be subsequently established by the SEC. The SEC is assessing how to implement otherrequirements of the HFCA Act, including the listing and trading prohibition requirements described above.The SEC may propose additional rules or guidance that could impact us if our auditors are not subject to PCAOBinspection. For example, on August 6, 2020, the President’s Working Group on Financial Markets, or the PWG, issued the Report onProtecting United States Investors from Significant Risks from Chinese Companies to the then President of the United States. Thisreport recommended the SEC implement five recommendations to address companies from jurisdictions that do not provide thePCAOB with sufficient access to fulfil its statutory mandate. Some of the concepts of these recommendations were implementedwith the enactment of the HFCA Act. However, some of the recommendations were more stringent than the HFCA Act. Forexample, if a company was not subject to PCAOB inspection, the report recommended that the transition period before a companywould be delisted would end on January 1, 2022.The SEC has announced that the SEC staff is preparing a consolidated proposal for the rules regarding the implementationof the HFCA Act and to address the recommendations in the PWG report. It is unclear when the SEC will complete its rulemakingand when such rules will become effective and what, if any, of the PWG recommendations will be adopted. The implications of thispossible regulation in addition the requirements of the HFCA Act are uncertain. Such uncertainty could cause the market price ofour ADSs to be materially and adversely affected, and our securities could be delisted or prohibited from being traded “over-the-counter” earlier than would be required by the HFCA Act. If our securities are unable to be listed on another securities exchange bythen, such a delisting would substantially impair your ability to sell or purchase our ADSs when you wish to do so, and the risk anduncertainty associated with a potential delisting would have a negative impact on the price of our ADSs.The PCAOB’s inability to conduct inspections in China prevents it from fully evaluating the audits and quality controlprocedures of our independent registered public accounting firm. As a result, we and investors in our ordinary shares are deprived ofthe benefits of such PCAOB inspections. The inability of the PCAOB to conduct inspections of auditors in China makes it moredifficult to evaluate the effectiveness of our independent registered public accounting firm’s audit procedures or quality controlprocedures as compared to auditors outside of China that are subject to the PCAOB inspections, which could cause investors andpotential investors in our stock to lose confidence in our audit procedures and reported financial information and the quality of ourfinancial statements.In May 2013, the PCAOB announced that it had entered into a Memorandum of Understanding on EnforcementCooperation with the CSRC and the PRC Ministry of Finance, which establishes a cooperative framework between the parties forthe production and exchange of audit documents relevant to investigations undertaken by the PCAOB in the PRC or by the CSRC orthe PRC Ministry of Finance in the United States. The PCAOB continues to be in discussions with the CSRC and the PRC Ministryof Finance to permit joint inspections in the PRC of audit firms that are registered with the PCAOB and audit Chinese companiesthat trade on U.S. exchanges. Table of Contents32Proceedings instituted by the SEC against Chinese affiliates of the “big four” accounting firms, including our independentregistered public accounting firm, could result in financial statements being determined to not be in compliance with therequirements of the Exchange Act.Starting in 2011 the Chinese affiliates of the “big four” accounting firms, including our independent registered publicaccounting firm, were affected by a conflict between U.S. and Chinese law. Specifically, for certain U.S.-listed companies operatingand audited in mainland China, the SEC and the PCAOB sought to obtain from the Chinese firms access to their audit work papersand related documents. The firms were, however, advised and directed that under Chinese law, they could not respond directly to theU.S. regulators on those requests, and that requests by foreign regulators for access to such papers in China had to be channeledthrough the CSRC.In late 2012, this impasse led the SEC to commence administrative proceedings under Rule 102(e) of its Rules of Practiceand also under the Sarbanes-Oxley Act of 2002 against the Chinese accounting firms, including our independent registered publicaccounting firm. A first instance trial of the proceedings in July 2013 in the SEC’s internal administrative court resulted in anadverse judgment against the firms. The administrative law judge proposed penalties on the firms including a temporary suspensionof their right to practice before the SEC, although that proposed penalty did not take effect pending review by the Commissioners ofthe 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 tothe CSRC. The firms would receive matching Section 106 requests, and would be required to abide by a detailed set of procedureswith respect to such requests, which in substance would require them to facilitate production via the CSRC. The CSRC initiated aprocedure through which, under its supervision and subject to its approval, requested classes of documents held by the accountingfirms could be sanitized of problematic and sensitive content in order to render them capable of being made available by the CSRCto U.S. regulators.Under the terms of the settlement, the underlying proceeding against the four PRC-based accounting firms was deemeddismissed with prejudice at the end of four years starting from the settlement date, which was on February 6, 2019. Despite the finalending of the proceedings, the presumption is that all parties will continue to apply the same procedures: i.e. the SEC will continueto make its requests for the production of documents to the CSRC, and the CSRC will normally process those requests applying thesanitization procedure. We cannot predict whether, in cases where the CSRC does not authorize production of requested documentsto the SEC, the SEC will further challenge the four PRC-based accounting firms’ compliance with U.S. law. If additional challengesare imposed on the Chinese affiliates of the “big four” accounting firms, we could be unable to timely file future financial statementsin compliance with the requirements of the Exchange Act.In the event that the SEC restarts the administrative proceedings, depending upon the final outcome, listed companies in theUnited States with major PRC operations may find it difficult or impossible to retain auditors in respect of their operations in thePRC, which could result in financial statements being determined to not be in compliance with the requirements of the ExchangeAct, including possible delisting. Moreover, any negative news about any such future proceedings against these audit firms maycause investor uncertainty regarding China-based, U.S.-listed companies, and the market price of our common stock may beadversely affected.If our independent registered public accounting firm was denied, even temporarily, the ability to practice before the SECand we were unable to timely find another registered public accounting firm to audit and issue an opinion on our financialstatements, our financial statements could be determined not to be in compliance with the requirements of the Exchange Act. Such adetermination could ultimately lead to the delisting of our ADSs from the New York Stock Exchange or deregistration from theSEC, or both, which would substantially reduce or effectively terminate the trading of our ADSs in the United States. Table of Contents33Risks Related to Our American Depositary SharesThe 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$2.22 to US$5.97 per ADS in 2020. The trading price of our ADSs is likelyto remain volatile and could fluctuate widely due to factors beyond our control. This may happen because of broad market andindustry factors, including the performance and fluctuation of the market prices of other companies with business operations locatedmainly in China that have listed their securities in the United States. In addition to market and industry factors, the price and tradingvolume 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 equitysecurities; 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 companiesfollowing periods of instability in the market price of their securities. If we were involved in a class action suit, it could divert asignificant amount of our management’s attention and other resources from our business and operations and require us to incursignificant expenses to defend the suit, which could harm our results of operations. Any such class action suit, whether or notsuccessful, could harm our reputation and restrict our ability to raise capital in the future. In addition, if a claim is successfully madeagainst us, we may be required to pay significant damages, which could have a material adverse effect on our financial conditionand results of operations.We have granted, and may continue to grant, options and other types of awards under our share incentive plan, which may resultin 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 Planand 2017 Share Incentive Plan, which we refer to as the 2009 Plan and the 2017 Plan in this annual report, respectively. We accountfor compensation costs for all share options using a fair-value based method and recognize expenses in our consolidated statementof income in accordance with U.S. GAAP. We believe the granting of share-based compensation is of significant importance to ourability to attract and retain key personnel and employees, and we will continue to grant share-based compensation to employees inthe future. As a result, our expenses associated with share-based compensation may increase, which may have an adverse effect onour results of operations. Table of Contents34If securities or industry analysts do not publish research or reports about our business, or if they adversely change theirrecommendations 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 aboutour business. If one or more analysts who cover us downgrade our ADSs, the market price for our ADSs would likely decline. If oneor 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, couldadversely affect the market price of our ADSs and could materially impair our ability to raise capital through equity offerings in thefuture. We cannot predict what effect, if any, market sales of securities held by our significant shareholders or any other shareholderor 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 totaloutstanding ordinary shares.Pursuant 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 respectof 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 wouldresult in these shares becoming freely tradable without restriction immediately upon the effectiveness of the registration statement. Ifpart or all of these shares are sold in the public market, the prevailing market price for our ADSs could be adversely affected. Suchsales 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 deemappropriate.Our dual-class voting structure will limit your ability to influence corporate matters and could discourage others frompursuing 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 ordinaryshares. In respect of matters requiring the votes of shareholders, each Class A ordinary share shall entitle the holder thereof to onevote, 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, whileClass 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 ofsuch shareholder, or upon a change of ultimate beneficial ownership of any Class B ordinary shares to any person who is not anaffiliate of the registered shareholder of such share, such Class B ordinary shares shall be automatically and immediately convertedinto the equal number of Class A ordinary shares. Further, each Class B ordinary share shall automatically be re-designated into oneClass A ordinary share, if at any time Mr. Chimin Cao, Ms. Yanlai Shi and their respective affiliates collectively hold less than fivepercent (5%) of the issued and outstanding ordinary shares in the capital of the Company, and no Class B ordinary shares shall beissued by the Company thereafter.As of March 31, 2021, Mr. Cao, Ms. Shi and Ascendent Rainbow (Cayman) Limited collectively beneficially own anaggregate of approximately 69.9% of our total issued and outstanding ordinary shares and 90.5% of the voting power of our issuedand outstanding shares.Therefore, Mr. Cao, Ms. Shi and Ascendent Rainbow (Cayman) Limited have considerable influence over matters requiringshareholders’ approval, including election of directors and significant corporate transactions, such as a merger or sale of ourcompany or our assets. This concentrated control will limit your ability to influence corporate matters and could discourage othersfrom pursuing any potential merger, takeover or other change of control transactions that holders of Class A ordinary shares andADSs may view as beneficial. Table of Contents35Because we do not expect to pay dividends in the foreseeable future, you must rely on price appreciation of our ADSs for returnon your investment.We currently intend to retain most, if not all, of our available funds and any future earnings to fund the development andgrowth of our business. As a result, we do not expect to pay any cash dividends in the foreseeable future. Therefore, you should notrely 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 CaymanIslands law. In addition, our shareholders may by ordinary resolution declare dividends, but no dividend may exceed the amountrecommended by our directors. Under Cayman Islands law, a Cayman Islands company may pay dividends out of either profit orshare premium account, provided that in no circumstances may dividends be paid if this would result in the company being unableto pay its debts as they fall due in the ordinary course of business. Even if our board of directors decides to declare and paydividends, the timing, amount and form of future dividends, if any, will depend on our future results of operations and cash flow, ourcapital 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 inour ADSs will likely depend entirely upon any future price appreciation of our ADSs. There is no guarantee that our ADSs willappreciate in value or even maintain the price at which you purchased the ADSs. You may not realize a return on your investment inour 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 therights 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 ourcompany or cause us to engage in change-of-control transactions. For example, these provisions include a dual-class share structurethat 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 apremium over prevailing market prices by discouraging third parties from seeking to obtain control of our company in a tender offeror similar transaction. Our board of directors has the authority, without further action by our shareholders, to issue preferred sharesin one or more series and to fix their designations, powers, preferences, privileges, and relative participating, optional or specialrights, and the qualifications, limitations or restrictions, including dividend rights, conversion rights, voting rights, terms ofredemption and liquidation preferences, any or all of which may be greater than the rights associated with our ordinary shares, in theform of ADS or otherwise. Preferred shares could be issued quickly with terms calculated to delay or prevent a change in control ofour company or make removal of management more difficult. If our board of directors decides to issue preferred shares, the price ofour ADSs may fall and the voting and other rights of the holders of our ordinary shares and ADSs may be materially and adverselyaffected.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 byour memorandum and articles of association, the Companies Act (As Revised) of the Cayman Islands and the common law of theCayman Islands. The rights of shareholders to take action against our directors, actions by minority shareholders and the fiduciaryduties 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 aswell as from the common law of England, the decisions of whose courts are of persuasive authority, but are not binding, on a courtin the Cayman Islands. The rights of our shareholders and the fiduciary duties of our directors under Cayman Islands law are not asclearly established as they would be under statutes or judicial precedent in some jurisdictions in the United States. In particular, theCayman Islands has a less developed body of securities laws than the United States. Some U.S. states, such as Delaware, have morefully developed and judicially interpreted bodies of corporate law than the Cayman Islands. In addition, Cayman Islands companiesmay not have standing to initiate a shareholder derivative action in a federal court of the United States. Table of Contents36Shareholders of Cayman Islands exempted companies like us have no general rights under Cayman Islands law to inspectcorporate records (apart from our memorandum and articles of association) or to obtain copies of lists of shareholders of thesecompanies. Our directors have discretion under our memorandum and articles of association to determine whether or not, and underwhat conditions, our corporate records may be inspected by our shareholders, but are not obliged to make them available to ourshareholders. This may make it more difficult for you to obtain the information needed to establish any facts necessary for ashareholder 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 fromrequirements for companies incorporated in other jurisdictions such as the United States. To the extent we choose to follow homecountry practice with respect to corporate governance matters, our shareholders may be afforded less protection than they otherwisewould 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 ofactions taken by our management, members of the board of directors or controlling shareholders than they would as publicshareholders 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 and Singapore. In addition, most of our current directors andofficers are nationals and residents of countries other than the United States. Substantially all of the assets of these persons arelocated outside the United States. As a result, it may be difficult or impossible for you to bring an action against us or against theseindividuals in the United States in the event that you believe that your rights have been infringed under the U.S. federal securitieslaws or otherwise. Even if you are successful in bringing an action of this kind, the laws of the Cayman Islands and of China mayrender you unable to enforce a judgment against our assets or the assets of our directors and officers. Table of Contents37The voting rights of holders of ADSs are limited by the terms of the deposit agreement, and you may not be able to exercise yourright 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 haveany direct right to attend general meetings of our shareholders or to cast any votes at such meetings. You will only be able toexercise the voting rights which are carried by the underlying Class A ordinary shares which are represented by your ADSsindirectly by giving voting instructions to the depositary in accordance with the provisions of the deposit agreement. Under thedeposit agreement, you may vote only by giving voting instructions to the depositary. Upon receipt of your voting instructions, thedepositary will try, as far as is practicable, to vote the underlying Class A ordinary shares represented by your ADSs in accordancewith your instructions. If we ask for your instructions, then upon receipt of your voting instructions, the depositary will try to votethe underlying Class A ordinary shares represented by your ADSs in accordance with your instructions. If we do not instruct thedepositary to ask for your instructions, the depositary may still vote in accordance with instructions you give, but it is not required todo so. You will not be able to directly exercise your right to vote with respect to the underlying Class A ordinary shares representedby your ADSs unless you withdraw such shares and become the registered holder of such shares prior to the record date for thegeneral meeting. When a general meeting is convened, you may not receive sufficient advance notice of the meeting to withdraw theunderlying Class A ordinary shares represented by your ADSs and become the registered holder of such shares to allow you toattend the general meeting and to vote directly with respect to any specific matter or resolution to be considered and voted upon atthe general meeting. In addition, under our memorandum and articles of association, for the purposes of determining thoseshareholders who are entitled to attend and vote at any general meeting, our directors may close our register of members and/or fixin advance a record date for such meeting, and such closure of our register of members or the setting of such a record date mayprevent you from withdrawing the underlying Class A ordinary shares represented by your ADSs and becoming the registeredholder 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 weask 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 tencalendar days. When a general meeting is convened, you may not receive the voting materials in time to ensure that you can instructthe depositary to vote the underlying Class A ordinary shares represented by your ADSs or withdraw the underlying Class Aordinary shares represented by your ADSs to allow you to vote at such meeting. In addition, the depositary and its agents are notresponsible for failing to carry out voting instructions or for their manner of carrying out your voting instructions. The depositagreement 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 adiscretionary proxy to a person designated by us to vote the underlying Class A ordinary shares represented by ADSs, with certainlimited exceptions. This means that you may not be able to exercise your right to direct how the underlying Class A ordinary sharesrepresented by your ADSs are voted and you may have no legal remedy if the underlying Class A ordinary shares represented byyour ADSs are not voted as you requested.You may experience dilution of your holdings due to the inability to participate in rights offerings.We may, from time to time, distribute rights to our shareholders, including rights to acquire securities. Under the depositagreement, the depositary will not distribute rights to holders of ADSs unless the distribution and sale of rights and the securities towhich these rights relate are either exempt from registration under the Securities Act with respect to all holders of ADSs, or areregistered under the provisions of the Securities Act. The depositary may, but is not required to, attempt to sell these undistributedrights to third parties, and may allow the rights to lapse. We may be unable to establish an exemption from registration under theSecurities Act, and we are under no obligation to file a registration statement with respect to these rights or underlying securities orto endeavor to have a registration statement declared effective. Accordingly, holders of ADSs may be unable to participate in ourrights offerings and may experience dilution of their holdings as a result. Table of Contents38You 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 orfrom time to time when it deems expedient in connection with the performance of its duties. The depositary may close its booksfrom time to time for a number of reasons, including in connection with corporate events such as a rights offering, during whichtime the depositary needs to maintain an exact number of ADS holders on its books for a specified period. The depositary may alsoclose its books in emergencies, and on weekends and public holidays. The depositary may refuse to deliver, transfer or registertransfers of our ADSs generally when our share register or the books of the depositary are closed, or at any time if we or thedepositary thinks it is advisable to do so because of any requirement of law or of any government or governmental body, or underany 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 reducedreporting requirements.We are an “emerging growth company,” as defined in the JOBS Act, and we may take advantage of certain exemptionsfrom requirements applicable to other public companies that are not emerging growth companies, including, most significantly, notbeing required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002 for so long aswe remain an emerging growth company. As a result, if we elect not to comply with such auditor attestation requirements, ourinvestors 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 “emerginggrowth 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, imposevarious requirements on the corporate governance practices of public companies. As a company with less than US$1.07 billion inrevenues for our last fiscal year, we qualify as an “emerging growth company” pursuant to the JOBS Act. An emerging growthcompany may take advantage of specified reduced reporting and other requirements that are otherwise applicable generally to publiccompanies. These provisions include exemption from the auditor attestation requirement under Section 404 of the Sarbanes-OxleyAct of 2002, or Section 404, in the assessment of the emerging growth company’s internal control over financial reporting. TheJOBS Act also permits an emerging growth company to delay adopting new or revised accounting standards until such time as thosestandards apply to private companies. However, we have elected to “opt out” of this provision and, as a result, we will comply withnew or revised accounting standards as required when they are adopted for public companies. This decision to opt out of theextended transition period under the JOBS Act is irrevocable.We expect these rules and regulations to increase our legal and financial compliance costs and to make some corporateactivities more time-consuming and costly. After we are no longer an “emerging growth company,” we expect to incur significantexpenses and devote substantial management effort toward ensuring compliance with the requirements of Section 404 of theSarbanes-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 controlsand procedures. We also expect that operating as a public company will make it more difficult and more expensive for us to obtaindirector and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantiallyhigher costs to obtain the same or similar coverage. In addition, we will incur additional costs associated with our public companyreporting requirements. It may also be more difficult for us to find qualified persons to serve on our board of directors or asexecutive officers. We are currently evaluating and monitoring developments with respect to these rules and regulations, and wecannot predict or estimate with any degree of certainty the amount of additional costs we may incur or the timing of such costs. Table of Contents39As a company incorporated in the Cayman Islands, we are permitted to, and do, adopt certain home country practices in relationto corporate governance matters that differ significantly from the New York Stock Exchange corporate governance listingstandards; these practices may afford less protection to shareholders than they would enjoy if we complied fully with the NewYork 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 StockExchange corporate governance listing standards. However, New York Stock Exchange rules permit a foreign private issuer like usto 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 andcorporate 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 corporategovernance 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 certainprovisions 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 securitiesrules and regulations in the United States that are applicable to U.S. domestic issuers, including: (i) the rules under the ExchangeAct requiring the filing of quarterly reports on Form 10-Q or current reports on Form 8-K with the SEC; (ii) the sections of theExchange Act regulating the solicitation of proxies, consents, or authorizations in respect of a security registered under theExchange Act; (iii) the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and tradingactivities and liability for insiders who profit from trades made in a short period of time; and (iv) the selective disclosure rules byissuers 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, weintend to publish our results on a quarterly basis through press releases, distributed pursuant to the rules and regulations of the NewYork 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 thatrequired to be filed with the SEC by U.S. domestic issuers. As a result, you may not be afforded the same protections orinformation, which would be made available to you, were you investing in a U.S. domestic issuer.There can be no assurance that we will not be a passive foreign investment company, or PFIC, for U.S. federal income taxpurposes for any taxable year, which could result in adverse U.S. federal income tax consequences to U.S. holders of our ADSsor ordinary shares.A non-U.S. corporation will be a passive foreign investment company, or PFIC, for any taxable year if either (1) at least75% 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 orare 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, 2020 and do not anticipate becoming a PFIC in theforeseeable future. However, no assurance can be given in this regard because the determination of whether we are or will become aPFIC 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 thevalue of our assets for the purpose of the asset test may be determined by reference to the market price of our ADSs. Recentfluctuations in the market price of our ADSs increased our risk of becoming a PFIC. The market price of the ADSs may continue tofluctuate considerably; consequently, we cannot assure you of our PFIC status for any taxable year. The composition of our incomeand 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. AdditionalInformation—E. Taxation—United States Federal Income Tax Considerations”) holds our ADSs or ordinary shares, certain adverseU.S. federal income tax consequences could apply to such U.S. Holder. See “Item 10. Additional Information—E. Taxation—UnitedStates Federal Income Tax Considerations—Passive Foreign Investment Company Rules.” Table of Contents40ITEM 4. INFORMATION ON THE COMPANYA. History and Development of the CompanyWe opened our first play-and-learn center in 1998 in Beijing. Later in July 2001, we incorporated Beijing RYB ChildrenPotential Education Entertainment Co., Ltd. to expand the operation of play-and-learn centers and kindergartens. In May 2006, wechanged the name of Beijing RYB Children Potential Education Entertainment Co., Ltd. to Beijing RYB Children EducationTechnology 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 ouroffshore holding company to facilitate financing and offshore listing. Shortly following its incorporation, our company issuedordinary shares to the holding vehicles of the then shareholders of Beijing RYB, in proportion to these shareholders’ then respectiveequity interest percentages in Beijing RYB. Later in 2007, we also established a wholly owned subsidiary, Beijing RYB TechnologyDevelopment Co., Ltd., which we refer to as RYB Technology in this annual report, through which we obtained control over BeijingRYB based on a series of contractual arrangements. These contractual arrangements include the business operation agreement, theexclusive consultation and service agreement, the equity disposal agreement, the equity pledge agreement, the power of attorney andthe spousal consent.As a result of these contractual arrangements, we have effective control over, and are the primary beneficiary of, BeijingRYB. We therefore treat Beijing RYB and its subsidiaries as our consolidated affiliated entities under U.S. GAAP and haveconsolidated their financial results in our consolidated financial statements in accordance with U.S. GAAP. However, thosecontractual 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. RYBEducation, Inc. is a holding company. We conduct substantially all of our business in China through our VIE, its subsidiaries andsponsored kindergartens.On September 26, 2017, our ADSs commenced trading on the New York Stock Exchange under the symbol “RYB.” Weraised from our initial public offering approximately US$90.1 million in net proceeds after deducting underwriting commissions andthe offering expenses payable by us.In April 2019, we acquired a Singapore-based private education group for a total consideration of RMB146.2 million.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 theCayman Islands is located at the offices of Maples Corporate Services Limited, PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands.B. Business OverviewWe provide kindergarten services, play-and-learn center services, student care services, as well as at-home educationproducts and services through our VIEs, their subsidiaries and consolidated kindergartens. Outside of our network, we license ourseparately developed courses, sell educational products and also provide kindergarten operation solutions, training and otheradvisory services.Our Early Childhood Education Network and AllianceWe directly operate and franchise play-and-learn centers, kindergartens and student care centers across the country andabroad. In addition, we also license separately developed kindergarten courses, and offer operational solutions, training and otheradvisory services through other business partners, to kindergartens outside of our network. Table of Contents41KindergartensOur kindergartens serve 2-6-year-old children. Each kindergarten normally houses classrooms, playgrounds andmultifunction rooms that can serve as music classrooms, conference rooms and indoor activity areas. A typical kindergarten in ournetwork 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 propertyfrom the landlord to us and the facility opening typically lasts six to ten months. In a typical case, it takes a kindergarten anotherthree to four years of operation to ramp up student enrollment to near its capacity. For such reason, we refer to a kindergarten withover four years of operating history as a mature kindergarten.As of December 31, 2020, we had 98 directly operated and 246 franchise kindergartens in operation in 27 provinces andmunicipalities in China. Total student enrollment and total teaching staff at our directly operated kindergartens in China was 28,648and 3,424 as of December 31, 2020, respectively.The locations of our kindergartens are carefully planned based on a number of specific factors, including the estimatedpopulation 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 numberof 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 ourkindergartens also provide Chinese-English bilingual curricula or English-only curricula.Play-and-learn centersOur play-and-learn centers offer flexible and engaging classes, designed for joint participation by 0-6-year-old children andtheir adult family members, to promote the children’s development, foster bonding with family, and prepare them for their entry intokindergartens or primary schools.Our typical play-and-learn centers occupy 500 to 800 square meters of indoor floor area, with classrooms and caregiverwaiting zones.We operate a small number of facilities directly as flagship models and have expanded our network primarily withfranchise play-and-learn centers. As of December 31, 2020, there were a total of 5 directly-operated and 1,158 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 inclass schedule and course fee arrangement, play-and-learn centers generally can cover a wider geographic area and attract families atdifferent income levels, as compared to kindergartens.Singapore operationsIn April 2019, we acquired a Singapore-based private education group, which has contributed to our existing educationalofferings by expanding our directly operated facility network and diversifying our operations geographically. The Singaporeoperations have the potential to create synergy with our existing operations in additional and integrated early childhood educationcontent and products.Our Singapore operations offer kindergarten services and student care services, and deliver quality and innovativeeducation contents to students in Singapore and other countries. Table of Contents42As of December 31, 2020, we had 19 directly operated and 6 franchised kindergartens, and 33 directly operated and 3franchised student care centers in operation in Singapore. Total student enrollment and total teaching staff at the directly operatedkindergartens and directly operated student care centers in Singapore was 5,363 and 610 as of December 31, 2020, respectively.Our kindergartens in Singapore are operated under several brands which help address the needs of various customersegments. Differentiated curriculum has been separately developed for each brand, which incorporates pedagogies such as ReggioEmilia 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, homeworkguidance and other services. Most of the student care services are school-based.Network controlWe expect all of our franchisees to be committed to early childhood education and share our vision, and we employstringent selection standards in evaluating franchisee candidates. For kindergarten franchisees, we prefer candidates with substantialexperience in preschool education. For play-and-learn center franchisees, we favor candidates who are equipped with experience inbusiness operations and sales. Upon joining our network, a franchisee receives our standardized operation manual with detailedrequirements that the franchisee must follow. Our franchisees are required to establish and implement proper human resourcesmanagement, financial reporting and other policies and procedures. We require our franchisees and their facility principals toundergo training regularly.We strive to maintain high service quality consistently at our franchise facilities. The layout and interior design of eachfacility 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 helpthem identify suitable candidates. Prior to opening, we require all recruited teachers to go through our orientation, training andcertification 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 whiteboardsystem stores and displays recorded teaching videos from our model teachers for others to follow. Our franchise supervisors visitand follow up with our franchisees regularly in order to ensure that our requirements are complied with and to offer support inimproving teaching quality when needed.We also actively seek feedback directly from parents, through both online and offline channels. We have developed amobile app for our directly operated kindergartens that allows parents to send their feedback to teachers and facility principalsconveniently on their mobile devices. In addition, we operate a national customer service hotline at our headquarters so that parentscan reach out to us directly.Our efforts to ensure high-quality and consistent service delivery across our network extend to the suppliers of teachingtools, educational toys and other products. We require our franchisees to purchase certain goods, including teaching aids, studentuniforms, school bags and other educational merchandise, exclusively from us or from vendors approved by us.Our Products and ServicesWe offer a full spectrum of early childhood education services and products at our directly operated teaching facilities, andprovide course content, training, support and guidance and other services to our franchisees and licensees. Additionally, we alsodevelop and sell early childhood education products and other products and services in adjacent markets.Services at our directly operated facilitiesWe offer high-quality preschool education to 2-6-year-old children at our directly operated kindergartens, including ourmandatory core curricula and feature courses. We also offer after-school academic enrichment, homework guidance, and othereducational content and services at our student care centers in Singapore. Tuition fees at our directly operated facilities are chargedby month of enrollment. Table of Contents43We also hire bilingual teachers and, in some premium classes, foreign teachers, to teach classes in English at some of ourkindergartens 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 familymembers, promote physical, intellectual and emotional development of the children, and prepare these children for their entry intokindergartens or primary schools. Courses offered at play-and-learn centers include play and explore, talent talk shows, The MusicClass, intelligence cultivation, as well as transition to kindergartens and primary schools. Play-and-learn centers charge students bysessions attended. Parents purchase prepaid cards for classes, with credit typically ranging from 36 sessions to 160 sessions in mostplay-and-learn centers. Each session typically lasts forty to fifty minutes. Those pre-paid session cards normally have set expirationdates. For example, a 96-session prepaid card generally has a term of two years, and any unused sessions will expire at the end ofthe two-year term. The per-session price varies across the country for prepaid cards with different number of sessions, rangingtypically from approximately RMB100 to approximately RMB500.We allow refunds of tuition fees in certain circumstances. Where there are specific requirements by local educationbureaus, we follow their guidance. For example, for kindergartens for which no local requirement exists, if a child does not attendclasses for a whole calendar month, we may allow a refund of 50% of the tuition fee for that month; and if a child only attendsclasses 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 forunused sessions (after deducting certain processing fees) if customers have only used less than half of the total sessions that theypurchased; 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 holidaysand 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 franchiseesWe provide course content, training, support and guidance, and other services to our franchisees. After franchisees arequalified to join our network, we work with them in selecting suitable premises for their kindergartens or play-and-learn centers. Wethen 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. Prior toopening, every teacher at our franchise teaching facilities is required to go through a training of at least 20 days at our headquartersand 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 receivecourse content from us (or, in certain cases, detailed, paper-based teaching plans) with practical and useful classroom teachingguidance and suggestions.In addition, our franchise supervisors, who are usually experienced teachers or teaching facility principals, visit and followup closely with our franchisees to monitor teaching facilities’ service quality and offer professional advice on various topics rangingfrom 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, andare renewable with our consent and payment of a renewal fee. These franchise agreements set out in detail what services we provideand 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, 2020, we had a total of 1,404 franchise facilities in China and 9 in Singapore. We believe our franchisebusiness model not only helps franchisees achieve personal success, but also increasingly adds value to our own business andreputation. Table of Contents44Product and service extensionsTo supplement our classroom teaching and reach a wider customer base beyond our networks, we launched Zhu DouParenting 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 toparents.We also distribute educational merchandise such as teaching aids, educational toys, at-home educational products andschool uniforms through our franchisees and other business partners. We maintain high standards when we procure educationalmerchandise from vendors to ensure that the products are well designed, meet relevant industrial standards and appeal to the targetage group. In addition to leveraging our internal product design capabilities, we work with educational merchandise designers and/orvendors 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. Theseproducts are not only available online, but are also sold in our numerous teaching facilities across the country.We have been constantly exploring new growth opportunities in the early childhood education industry. For example, werolled out pilot programs of daycare services for 0-3-year old children, tutorials on traditional Chinese culture and arts, and started toprovide internal design services to kindergarten outside our network.Our Curriculum and R&D CapabilityOur curriculumOur kindergarten curriculum in China consists of our self-developed Multi-Dimension Education Courses, which cover thesix principal fields of early childhood education, preparation for entry into kindergartens and primary schools, Scholastic Early-ageEnglish, 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 andaffordable. 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 Emiliaapproach, Habits of Mind and Multiple Intelligences. We offer differentiated curriculum for different brands.Curricula DevelopmentOur curricula are constantly evolving in response to the needs of children and their parents. We identify needs for newcourses or course updates through various channels, including initiatives from our in-house education experts and feedback from ourcustomers. 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. Werequire our teachers to incorporate course upgrades to their teaching promptly. In the event of any major upgrade or release of newcourses, we will hold various training sessions for teachers in our network.We have a strong early childhood educational content development team, with solid credentials and rich experience fueledby a spirit of innovation. Our research and development department is headed by renowned figures in the education industry andbenefits from insights offered by a highly engaged advisory board of industry leaders, including Mr. Xiping Tao, a former generaladvisor of the Supervisory Board for China National Education and the honorary Chairman of the Asia-Pacific Regional Associationof the United Nations Educational, Scientific and Cultural Organization. Our development department hosts separate teams that aredevoted to each of our product and service lines, including play-and-learn centers, kindergartens, other business partners and ZhuDou Parenting products. These teams specialize in their respective areas to develop tailored contents while collaborating with eachother at the same time to ensure an integrated overall curriculum system. Table of Contents45As of December 31, 2020, our dedicated content development team consisted of 37 members. Over 83.7% of them heldbachelor’s degrees or above, approximately 64.9% of them graduated with education-related majors, and they have an average ofover 10 years’ experience in early childhood education. Many of our teaching staff and facility principals also actively participate inour 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 thecomprehensiveness and diversity of our curricula. We introduced the Scholastic Early-age English course and The Music Class intoour curricula in 2008 and 2016, respectively.Our Teaching Staff, Principals and Other EmployeesWe employ a large body of principals and teaching staff and also maintain a team of sales representatives and othersupporting staff, including doctors, kitchen crew and security guards, in our directly operated kindergartens and play-and-learncenters.As of December 31, 2020, we employed a total of 4,087 teaching staff in our directly operated facilities, almost all ofwhom had received professional training from colleges or other institutions in the areas of pedagogy, arts and language beforejoining 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 ourculture and teaching philosophy.We have established a system for teachers to advance and develop within our system. We maintain a standardized internalevaluation process with clearly defined key performance indicators, and our four-tier teacher ranking system promotes and rewardsteachers based on their teaching quality and experience. A good portion of our management term is promoted from experienced andoutstanding teachers. We require each of our directly operated kindergartens to develop at least one person to become qualified as afacility 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 RecruitmentWe position ourselves as a provider of early childhood educational services tailored to the needs of each child at thedifferent stages of her or his growth. We believe parents of prospective students are attracted to our teaching facilities by ourexcellent brand name and reputation, the quality of our curricula and our long operating history in the private early childhoodeducation sector. Therefore, our student enrollment has grown primarily through word-of-mouth and referrals by parents. Asidefrom that, we also employ the following marketing methods to attract students:●Social Events and Activities. We participate in and host community events designed to promote awareness of thevirtues of early childhood education. For example, we from time to time host themed open-house events at ourfacilities to allow children and parents to have direct interactions with our existing students, parents and facilityemployees. 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 flyersin 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 opportunityto advertise our offerings in other markets. With a variety of products and services aimed at children of different agegroups, our goal is to create a brand name that permeates every stage of a child’s educational progression. Table of Contents46Information TechnologyOur 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 availableand 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-homeeducational content, books and educational toys; Qingtian Youpin, an e-commerce platform for high-quality maternity and children’sproducts; and mobile app for kindergartens and play-and-learn centers that keeps parents updated on facility news, course progressupdates and updates for their children. We have also created service account and public account on WeChat to enhance thecommunications 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 forall key systems to enable us to respond quickly to potential problems. Our websites are hosted at cloud servers maintained by areputable cloud computing service provider.In addition to continuous development and improvement of our technology infrastructure, we have also upgraded certaintechnology equipment to enhance the security of our facilities. For example, we have installed CCTV monitoring system in all ofour directly operated kindergartens in PRC.Intellectual PropertyOur brands, trademarks, service marks, copyrights, patents and other intellectual property rights distinguish and protect ourcourse offerings and services from infringement, and contribute to our competitive advantages. As of March 31, 2021, ourintellectual property rights include the following:●753 trademark registrations for our brand and logo in China, among them RYB Kindergarten ( ) andRYB Play-and-learn Center ( ) have been recognized as “well-known trademarks ( )” bythe Trademark Review and Adjudication Board of the State Administration for Industry and Commerce in China;●867 copyrights for content that we developed in-house;●63 domain names; and●8 patents relating to our educational toys granted in China.Insurance and SafetyWe endeavor to provide a safe environment for children at our teaching facilities. We apply stringent safety standards in thedesign and construction of our teaching facilities. We have established and strictly implemented security and safety protocols. Safetyis an important factor in the evaluation scale we apply to the performance of our facility principals and our own managementpersonnel, and we also take into consideration safety maintenance when deciding whether to renew a franchise agreement with afranchisee or to expand our cooperation with it. Table of Contents47Our teachers, however, may not follow our safety manual and standards at all times, and any misbehavior by our teachersmay cause harm to children in our teaching facilities. For example, the 2017 Incident caused harm to our students, and the ensuingnegative publicity associated with it directly affected our operation results. As a result of the 2017 Incident, some parents lostconfidence 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 specialtask force under the leadership of our independent directors to conduct a thorough self-inspection across our teaching facilities. Wehave 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 toimprove the security monitoring and management system of our teaching facilities. All of our directly operated kindergartens inPRC are now equipped with CCTV monitoring systems. We have also invited parents to participate in open classes and other effortsaimed 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 toour students and others at our facilities, which reduces the likelihood of food poisoning or food quality incidents on our premises asa result of purchasing food from the outside.We maintain various insurance policies to safeguard against risks and unexpected events. We have purchased certainliability insurance covering our directly operated kindergartens and play-and-learn centers. We also provide social securityinsurance, including pension insurance, unemployment insurance, work-related injury insurance and medical insurance, to ouremployees.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 policiesas needed.CompetitionThe early childhood education market in China is rapidly evolving, highly fragmented and competitive. We facecompetition in each type of service and product we offer and in each geographic market where we operate. Our competitors at thenational 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 ProceedingsWe may from time to time be subject to various legal or administrative claims and proceedings arising in the ordinarycourse of business. For more information, see “Item 8. Financial Information—A. Consolidated Statements and Other FinancialInformation—Legal Proceedings.” Table of Contents48RegulationThis section sets forth a summary of the most significant rules and regulations that affect our business activities in China orour shareholders’ rights to receive dividends and other distributions from us.Regulations Relating to Foreign Investment in the PRCThe Foreign Investment LawOn March 15, 2019, the Foreign Investment Law was formally passed by the 13th National People’s Congress and it hastaken effect on January 1, 2020. The Foreign Investment Law is the fundamental law for foreign investment in PRC, which replacesthe Law on Sino-Foreign Equity joint ventures, the Law on Sino-Foreign Contractual Joint Ventures and the Law on Foreign-CapitalEnterprises 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 thePRC by one or more foreign natural persons, enterprises or other organizations, and specifically stipulates four forms of investmentactivities as foreign investment, namely, (i) establishment of a foreign-invested enterprise in the PRC by a Foreign Investor, eitherindividually or collectively with any other investor, (ii) obtaining shares, equities, assets interests or any other similar rights orinterests of an enterprise in the PRC by a foreign investor, (iii) investment in any new project in the PRC by a foreign investor, eitherindividually or collectively with any other investor, and (iv) investment in any other manners stipulated under laws, administrativeregulations 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. Thesaid systems, together with other administration measures stipulated under the Foreign Investment Law, constitute the frame offoreign investment administration. The pre-establishment national treatment refers to granting to foreign investors and theirinvestments, in the stage of investment access, the treatment no less favorable than that granted to domestic investors and theirinvestments; the negative list refers to special administrative measures for access of foreign investment in specific fields asstipulated by the State. The State will give national treatment to foreign investments outside the negative list. The negative list willbe 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 specificallyprovides 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 InvestmentLaw coming into effect may retain their original form of organizations within five years after the Foreign Investment Law comesinto 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 VentureEnterprise Law, Provisional Regulations on the Duration of Sino-Foreign Equity Joint Venture Enterprise Law, the Regulations onImplementing the Wholly Foreign-Owned Enterprise Law and the Regulations on Implementing the Sino-Foreign Cooperative JointVenture Enterprise Law.Catalogue of Industries for Encouraging Foreign Investment (2020 Edition) and Special Administrative Measures for Access ofForeign Investment (Negative List) (2020)Under the Catalogue of Industries for Encouraging Foreign Investment (2020 Edition), or the Foreign InvestmentCatalogue, which was promulgated by the NDRC and the MOFCOM on December 27, 2020 and became effective on January 27,2021, foreign-invested industries are classified into two categories, namely (i) those included on the Catalogue of Industries forEncouraging Foreign Investment and (ii) those included on the Catalogue of Priority Industries for Foreign Investment in Centraland Western China. Table of Contents49The Negative List further reduced restrictions on the foreign investment. After the implementation of the ForeignInvestment Catalogue and the Negative List, the Catalogue for the Guidance of Foreign Investment Industries (2017 Revision) andthe Special Administrative Measures for Access of Foreign Investment (Negative List) (2018 Version) were repealedsimultaneously.Under the Negative List, the provision of pre-school, ordinary senior high school and higher education services in the PRCis under the category of restricted industries for foreign investors. Foreign investments in such education institutions are onlyallowed in the form of Sino-foreign cooperative educational institutions in which the domestic party shall play a dominant role. Itsuggests that the principal or the chief executive officer of an education institutions shall be a PRC national and the representativesof the domestic party shall account for no less than half of the total number of members of the board of directors, the executivecouncil or the joint administration committee of a Sino-foreign cooperative educational institution.Regulations on Sino-Foreign Investment in Operating SchoolsThe Regulation on Operating Sino-foreign Schools and its Implementing Rules apply to the activities of educationalinstitutions established in the PRC cooperatively by foreign educational institutions and Chinese educational institutions, thestudents of which are to be recruited primarily among PRC citizens, and encourage substantial cooperation between overseaseducational organizations, with relevant qualifications and experience in providing high-quality education, and PRC educationalorganizations to jointly operate various types of schools in the PRC, especially in the areas of higher education and occupationaleducation. 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 mustprovide to the competent PRC government authority to demonstrate that it meets the qualification requirement. PRC-foreigncooperative schools are not permitted, however, to engage in compulsory education and military, police, political and other kinds ofeducation that are of a special nature in the PRC. Any PRC-foreign cooperative school and cooperation program shall be approvedby relevant education authorities and obtain an Operation Permit for Sino-foreign Cooperative School, and a Sino-foreigncooperative school established without the above approval or permit may be prohibited by the relevant authorities, ordered to refundthe fees collected from its students and subjected to a fine of no more than RMB100,000, while a Sino-foreign cooperation programestablished 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 andPromoting the Healthy Development of Private EducationOn June 18, 2012, the MOE issued the Implementation Opinions of the MOE on Encouraging and Guiding the Entry ofPrivate Capital in the Fields of Education and Promoting the Healthy Development of Private Education to encourage privateinvestment and foreign investment in the field of education. According to these opinions, the proportion of foreign capital in a Sino-foreign cooperative educational institute must be less than 50 percent.Regulations Relating to Private Education in the PRCEducation Law of the PRCOn March 18, 1995, the NPC enacted the Education Law of the PRC, which became effective on September 1, 1995, andwas 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 governmentformulates plans for the development of education and establishes and operates schools and other institutions of education, and, inprinciple, that enterprises, social organizations and individuals are encouraged to establish and operate schools and other types ofeducational institutions in accordance with PRC laws and regulations. The Education Law also stipulates that some basic conditionsmust be fulfilled for the establishment of a school or any other educational institution; accordingly, the establishment, modificationor termination of a school or any other education institution shall, in accordance with the relevant PRC laws and regulations, followspecific examination, verification, approval, registration or filing procedures. Table of Contents50Pursuant 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 andaccordingly, no private schools shall be established for profit-making purposes. Pursuant to the Implementation Rules, privateschools are classified into three categories, namely, (i) schools established by donations, (ii) schools whose sponsors do not requirereasonable returns and (iii) schools whose sponsors require reasonable returns.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 EducationLaw 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 RulesOn December 28, 2002, the NPC Standing Committee promulgated the Law for Promoting Private Education, or thePrivate Education Law, which became effective on September 1, 2003, and was amended on June 29, 2013 and was amended onNovember 7, 2016 and December 29, 2018. On March 5, 2004, the PRC State Council promulgated the Implementation Rules forthe Law for Promoting Private Education, or the PE Implementation Rules, which became effective on April 1, 2004. The PrivateEducation Law and the PE Law Implementation Rules provide rules for social organizations or individuals to establish schools orother educational organizations using nongovernment funds in the PRC; such schools or educational organizations established usingnongovernment 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 ofthe Education Law and the relevant laws and regulations. The standards for the establishment of private schools shall becommensurate with those for the establishment of public schools of the same grade and category. In addition, the establishment ofprivate schools providing academic qualifications education, kindergarten education, education for self-study examination and othercultural education shall be subject to approval by the education authorities at or above the county level, while the establishment ofprivate schools engaging in vocational qualification training and vocational skill training shall be subject to approval by theauthorities in charge of human resources and social security at or above the county level. A duly approved private school will begranted a permit for operating a private school and shall be registered in accordance with relevant laws and regulations. Accordingto the Interim Regulations on Registration Administration of Private Non-enterprise Units promulgated by the State Council andbecame effective on October 25, 1998, private non-enterprise units, which referred to social organizations which are established byenterprises, 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 thecounty level as a private non-enterprise unit.Under the above regulations, private schools have the same legal status as public schools, though private schools areprohibited from providing military, police, political and other kinds of education which are of a special nature. The operations of aprivate school are highly regulated.The Amendment to the Law for Promoting Private EducationOn November 7, 2016, the Decision of the Standing Committee of the National People’s Congress on Amending the Lawfor Promoting Private Education of the PRC was promulgated by Order No. 55 of the President of the PRC, or the Amended Lawfor Promoting Private Education, which became effective on September 1, 2017. On 29 December 2018, the Decision of theStanding Committee of the National People’s Congress on Amending the Seven Laws Including the Labor Law of the PRC waspromulgated by Order No. 24 of the President of the PRC and took into effect on the same date, which made two minor adjusts toArticle 26 and Article 64 of the Amended Private Education Promotion Law. Table of Contents51The Amended Law for Promoting Private Education establishes a new classification system for private schools. Privateschools are now classified by whether they are established and operated for profit-making purposes. Under the Amended Law forPromoting 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 incomefrom the operation of the school, and the balance of running such schools is permitted to be handled in accordance with the PRCCompany Law and other relevant laws and administrative regulations. School sponsors of not-for-profit private schools areprohibited from getting income from the operation of the schools, and all school-running balances shall be used for running schools.Furthermore, the remaining assets upon liquidation of for-profit private schools are permitted to be handled in accordance with therelevant provisions of the PRC Company Law and that of not-for-profit private schools may only be used for the operation of othernot-for-profit schools. For-profit private schools are entitled to make their own decisions about collection of fees in accordance withthe market situation, while collection of fees for not-for-profit private schools shall be subject to concrete measures to bepromulgated by the provincial, autonomous regional or municipal government. In addition, private schools are entitled topreferential tax policies and land policies in accordance with PRC laws, with the emphasis that not-for-profit private schools shallenjoy preferential tax policies and land policies equivalent to those applicable to public schools.If the school sponsors of private schools established prior to the promulgation date of this decision choose to register andoperate their schools as not-for-profit private schools, they shall cause the school to amend its articles of association in accordancewith this decision and continue the school operation pursuant to such revised articles of association. Furthermore, upon thetermination of such not-for-profit private schools, the government authority may grant some compensation or reward to the schoolsponsors who have made capital contributions to such school from the remaining assets of such schools upon their liquidation andmay then apply the rest of the assets to the operation of other not-for-profit private schools. If the school sponsors of private schoolsestablished 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 propertyright, paying relevant taxes and expenses and making renewed registration, the details of which shall be subject to concretemeasures 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 Operationof 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 StateCouncil Opinions also provide that each level of the people’s government shall increase its support to private schools in terms offinancial investment, financial support, autonomous policies, preferential tax treatments, land policies, fee policies, autonomousoperation and protection of teachers’ and students’ rights. The opinions further require each level of the people’s government toimprove 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 for Market Regulation, or SAMR,the Ministry of Human Resources and Social Security, or MOHRSS, and the State Commission Office of Public Sectors Reformjointly issued the Implementation Rules on the Classification Registration of Private Schools, reflecting the new classificationsystem 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 beregistered as a not-for-profit school, it shall amend its articles of association, continue its operation and complete the newregistration procedure. If such a private school chooses to be registered as a for-profit school, it shall conduct the financialsettlement process, have the property rights of its assets such as lands, school buildings and net balance being authenticated byrelevant governmental authorities. In addition, such a private school shall pay the relevant taxes, apply for a new private schooloperation permit, and apply to be transformed into a limited liability company and registered as a for-profit school and continue itsoperation.On December 30, 2016, the MOE, SAMR and the MOHRSS jointly issued the Implementation Rules on the Supervisionand Administration of For-profit Private Schools, pursuant to which the establishment, division, merger, termination and othermaterial changes of a for-profit private school shall first be reported by the board of directors of the relevant school to and getapprovals from the relevant authorities, and subsequently be registered with the competent branch of SAMR. Table of Contents52On August 31, 2017, the MOE and the SAMR issued the Notice on the Registration and Administration of the Name ofFor-Profit Private Schools, which became effective on 1 September 2017, pursuant to which the private school shall be registered asa limited liability company or a joint stock limited company according to the Company Law of the PRC and the Amended Law forPromoting Private Education and its name shall comply with the relevant laws and regulations on company registration andeducation.In addition to the Amended Private Education Promotion Law and the rules above mentioned, more implementingregulations will be introduced to further provide detailed requirements for the operation of not-for-profit and for-profit privateschools:●the amendment to the Implementation Rules for the Law on the Promotion of Private Education of the PRC;●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 theadministration of private schools in the provinces in which our schools are located, including but not limited to thespecific measures for registration of pre-existing private schools, the specific requirements for authenticating variousparties’ property rights and payment of taxes and fees of for-profit private schools, taxation policies for for-profitprivate schools and measures for collection of not-for-profit private schools’ fees.Draft for ReviewOn April 20, 2018, the MOE released for public consultation purposes the MOE Draft for Comments, namely, theImplementing 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”), andits 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, whichmay 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 foreignparties shall not sponsor, or participate in the establishment of or control private schools which provides compulsoryeducation in China;●Article 12: A social organization, if simultaneously sponsors or actually controls more than one private school orimplements 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 beresponsible for the management and supervision of its private schools. Group-based education institution shall notcontrol 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 harmnational interests, interest of the school or the rights and interests of the teachers and students. Table of Contents53Private schools shall set up an information disclosure system to deal with related parties. The educational administrativedepartment and the human resources and social security departments shall strengthen supervision of the agreements signed betweennot-for-profit private schools and their related parties, and if these agreements involve major interests or will be performed over along period of time and repetitively, they shall examine and audit the necessity, legality and compliance of these agreements. Whenthe executive council, the board of directors or decision-making body in other forms deliberates on the transactions with relatedparties, the members of the decision-making body who have an interest in such transactions shall abstain from voting and may notexercise their voting rights on behalf of other members.Opinions of the CPC Central Committee and State Council on Deepening Reform in Preschool EducationOn November 7, 2018, the Central Committee of the Communist Party of China and the State Council promulgated theOpinions 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 fromlisting on stock markets; (ii) non-governmental capital is prohibited from controlling state-owned or collectively-ownedkindergartens and not-for-profit kindergartens by ways of mergers and acquisitions, entrusted management, franchising, variableinterest 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 publicagreements entered into with relevant interested enterprises; (iv) listed companies are prohibited from investing in for-profitkindergartens through financing through stock markets, and should not purchase assets of for-profit kindergartens by cash, issuanceof shares or other similar means; and (v) provincial legislative bodies should promulgate implementing measures by June 2019 withregard to the election of private kindergartens to be registered as not-for-profit or for-profit schools and specify time-framerequirements for such registration.Circular on Initiating the Rectification of Kindergartens Affiliated to Residential Communities in Urban AreasOn January 9, 2019, the General Office of the State Council issued the Circular on Initiating the Rectification ofKindergartens Affiliated to Residential Communities in Urban Areas, or Circular on Initiating the Rectification, according to whichthe completed community-affiliated kindergartens should be handed over to the local education authorities. Those which are nothanded over to the local education authorities should complete this procedure within a limited time, and those are used for otherpurposes shall be taken back by the local education authorities. After the existing community-affiliated kindergartens been handedover to local education authorities, they shall be held by local education authorities as public kindergartens or turn into inclusivekindergartens 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 FeesThe 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, thetypes and amounts of fees charged by a private school providing academic qualifications education shall be examined by educationauthorities or labor and social welfare authorities and approved by the governmental pricing authority. A private school that providesnonacademic qualifications education shall file its pricing information with the governmental pricing authority and publicly disclosesuch information. If a school raises its tuition levels without obtaining the proper approval or making the requisite filings with therelevant government pricing authorities, the school will be required to return the additional tuition fees obtained through such tuitionincrease and become liable for compensation of any losses caused to the students in accordance with relevant PRC laws. FromJanuary 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 FeeCharge Permit Certificates shall be abolished nationwide from January 1, 2015, and the system of Fee Charge Permit Certificatesshall be abolished nationwide from January 1, 2016. Accordingly, our kindergartens are not required to apply for or renew any FeeCharge Permit Certificate after January 1, 2016. Table of Contents54On October 12, 2015, the State Council and the Central Committee of the Communist Party of China jointly issued CertainOpinions of the Central Committee of the Communist Party of China and the State Council on Promoting the Price MechanismReform, 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 localcircumstances.Regulations on Safety and Health Protection of SchoolsPursuant to the Food Safety Law of the PRC, which was amended on December 29, 2018 and became effective onDecember 29, 2018, collective canteens of schools and kindergartens shall obtain licenses in accordance with law and strictly abideby all laws, regulations and food safety standards. Schools and kindergartens should only order meals from off-site providers thathave 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 waspromulgated on February 20, 2019, became effective on April 1, 2019, school (including kindergartens) concentrated dining shouldfollow the principle of prevention first, full process monitoring, territorial management, school implementation. Schools (includingkindergartens) should regard the food safety as an important part of school safety work, establish and implement relevant food safetymanagement systems and work requirements, and organize regular inspections of food safety hazards. Kindergartens shouldestablish a centralized meal catering system, and equipped with full-time(part-time) food safety managers and nutrition and healthmanagers.According to the Circular on Strengthening Hygiene and Epidemic Prevention and Food Hygiene and Safety of PrivateSchools, which was promulgated on April 29, 2006, private schools should pay high attention to and strengthen schools’ hygieneand epidemic prevention and food hygiene and safety.According to the Administrative Measures for the Safety of Kindergartens and Primary and Middle Schools, which werepromulgated on June 30, 2006 and became effective on September 1, 2006, schools should strictly implement Regulations onHygiene Administration of School Canteens and Collective Provision of Meals for Students and Standards on Hygiene of CateringIndustry and Delivery Entity of Collective Dining, and should strictly comply with the hygiene operation norms. In order to ensurethe hygiene and safety of food and beverages for teachers and students, schools should (a) establish a system of procurement ofcanteen 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 drinkingwater.Pursuant to the Circular on Further Strengthening Food Safety of School Canteens issued on August 11, 2011, schoolcanteens are comprehensively required to carry out food safety self-inspections. Local food and drug administrations at all levels arerequired to comprehensively strengthen supervision and inspection on food safety of school canteens before commencement of eachterm, and, before the commencement of every spring term and every autumn term, should consider school canteens as key points ofsupervision and strengthen their supervision and inspection. The school food safety responsibility system should becomprehensively carried out.According to the Law on the Protection of Minors of the PRC, which was amended on October 26, 2012 and becameeffective in January 2013, and was amended on October 17, 2020 and will become effective on June 1, 2021, schools, kindergartensand nurseries shall establish a safety system, improve safety education among minors and adopt measures to guarantee their personalsafety.In accordance with the Regulation on Safety Management of Middle and Primary Schools and Kindergartens, which waspromulgated on June 30, 2006 and became effective on September 1, 2006, schools shall be responsible for safety management andeducation, 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 effectiveon the same day, schools shall carry out sanitary work. The main tasks of the sanitary work include monitoring health conditions ofstudents, carrying out health education among students, helping students develop good health habits, improving health environmentand health conditions for teachers and enhancing prevention and treatment of infectious disease and common diseases amongstudents. Table of Contents55Regulations on Qualifications of TeachersPursuant to the Implementation Rules for the Law on the Promotion of Private Education of the PRC, teachers employedby a private school shall have the qualifications specified for teachers and meet the conditions provided for in the Teachers Law andthe other relevant laws and regulations, and there shall be a definite number of full-time teachers in a private school. Pursuant to theTeachers Law of the PRC issued by Standing Committee of the NPC, the Teachers Law shall apply to teachers specifically engagedin education and teaching at schools of various levels and categories or other institutions of education. “Schools of various levelsand 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 toShaoNianGong, 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 inthe light of the actual conditions to the educational and teaching assistants of schools or other institutions of education, as well asteachers and the educational and teaching assistants of schools of other categories.Regulations Relating to Management of KindergartensOn 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 ofkindergartens enrolling children aged three years and older, and call for local regulations following such principles. On the onehand, 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) professionalqualifications of the teaching and administrative staff, (3) financial capacity of the sponsors, and (4) procedures for approval bycompetent authorities. On the other hand, the Kindergarten Management Regulations set out provisions on the operation andmanagement of a kindergarten, including: (1) educational practice shall be suitable for the children’s developments; (2) no corporalpunishment is allowed; (3) sanitation and hygiene rules and safety protection system shall be made and followed; and (4) financialmanagement shall be enhanced to prevent inappropriate applications of the kindergarten funding. Any entity or person who violatesthe Kindergarten Management Regulations could be penalized by the MOE.Regulations Relating to Licenses for Value-Added Telecommunications ServicesOn September 25, 2000, the State Council issued the Regulations on Telecommunications of China, or theTelecommunications Regulations, which was amended on July 29, 2014, and was amended again on February 6,2016, to regulatetelecommunications activities in China. The Telecommunications Regulations divide telecommunications services into twocategories, namely “infrastructure telecommunications services” and “value-added telecommunications services.” Pursuant to theTelecommunications Regulations, operators of value-added telecommunications services must first obtain a Value-addedTelecommunications Business Operating License, or a VAT License, from the Ministry of Industry and Information Technology, orMIIT, or its provincial level counterparts. The Administrative Measures for Telecommunications Businesses Operating Licensingwas promulgated by the MIIT on March 1, 2009 and amended on July 3, 2017, which set forth more specific provisions regardingthe types of licenses required to operate value-added telecommunications services, the qualifications and procedures for obtainingsuch licenses and the administration and supervision of such licenses. Table of Contents56According to the Catalog of Classification of Telecommunications Businesses effective from April 1, 2003, Internetinformation services, also called Internet content services, or ICP services, are deemed to be a type of value-addedtelecommunications services. On December 28, 2015, the MIIT published a revised Catalog of Classification of TelecommunicationBusiness, or the 2015 MIIT Catalog, which took effect on March 1, 2016, and was amended on June 6, 2019. According to the 2015MIIT Catalog, Internet information services, which include information release and delivery services, information search and queryservices, information community platform services, information real-times interactive services, and information protection andprocessing services, continue to be classified as a category of value-added telecommunication services. The AdministrativeMeasures on Internet Information Services, or ICP Measures, also promulgated by the PRC State Council on September 25, 2000and amended on January 8, 2011, set forth more specific rules on the provision of ICP services. According to the ICP Measures, anycompany that engages in the provision of commercial ICP services shall obtain a sub-category VAT License for Internet InformationServices, or ICP license, from the relevant government authorities before providing any commercial Internet content services withinthe PRC; when the ICP services involve areas of news, publication, education, medical treatment, health, pharmaceuticals andmedical equipment, and if required by law or relevant regulations, specific approval from the respective regulatory authorities mustbe obtained prior to applying for the ICP License from the MIIT or its provincial level counterpart. Pursuant to the above mentionedregulations, “commercial ICP services” generally refers to provision of specific information content, online advertising, webpage construction and other online application services through Internet for profit making purposes.Regulations Relating to Franchise BusinessesOn 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 businessshall register with the Ministry of Commerce, or the MOC, and any enterprise engaging in franchise business within one provinceshall 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 anddocuments required for such filing, including, among other things, the franchise agreement entered into with the franchisee, thefranchise market plan and trademarks and patents relating to the franchise.Regulations Relating to Publication DistributionUnder the Administrative Measures for the Publication Market, or Publication Market Measures, which were jointlypromulgated by SAPPRFT and the Ministry of Commerce and became effective on June 1, 2016, any enterprise or individual whoengages in publication distribution activities shall obtain permission from SAPPRFT or its local counterpart. “Publication” isdefined 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 Licenseissued by the local counterpart of SAPPRFT at the county level. In addition, any enterprise or individual that holds a PublicationBusiness Operating License must make filings with the relevant local counterpart of SAPPRFT that granted such license to it withinfifteen days of beginning to carry out any online publication distribution business.Regulations Relating to Intellectual Property in the PRCCopyrightPursuant to the Copyright Law of the PRC, copyrights include personal rights such as the right of publication and that ofattribution 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 withoutpermission from the owner of the copyright therein, unless otherwise provided in the Copyright Law of the PRC, shall constituteinfringements 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. Table of Contents57TrademarkPursuant to the Trademark Law of the PRC, the right to exclusive use of a registered trademark shall be limited totrademarks which have been approved for registration and to goods for which the use of such trademark has been approved. Theperiod of validity of a registered trademark shall be ten years, counted from the day the registration is approved. According to thislaw, using a trademark that is identical to or similar to a registered trademark in connection with the same or similar goods withoutthe authorization of the owner of the registered trademark constitutes an infringement of the exclusive right to use a registeredtrademark. The infringer shall, in accordance with the regulations, undertake to cease the infringement, take remedial action, andpay damages, etc.PatentPursuant to the Patent Law of the PRC, after the grant of the patent right for an invention or utility model, except whereotherwise provided for in the Patent Law, no entity or individual may, without the authorization of the patent owner, exploit thepatent, that is, make, use, offer to sell, sell or import the patented product, or use the patented process, or use, offer to sell, sell orimport any product which is a direct result of the use of the patented process, for production or business purposes. And after a patentright is granted for a design, no entity or individual shall, without the permission of the patent owner, exploit the patent, that is, forproduction or business purposes, manufacture, offer to sell, sell, or import any product containing the patented design. Where theinfringement of patent is decided, the infringer shall, in accordance with the regulations, undertake to cease the infringement, takeremedial action, and pay damages, etc.Domain NamePursuant to the Measures for the Administration of Internet Domain Names, “domain name” shall refer to the charactermark of hierarchical structure, which identifies and locates a computer on the Internet and corresponds to IP address of thatcomputer. And the principle of “first come, first serve” is followed for the domain name registration service. After completing thedomain name registration, the applicant becomes the holder of the domain name registered by him/it.Regulations Relating to Labor Protection in the PRCAccording to the Labor Law of the PRC, or the Labor Law, which was promulgated by the Standing Committee of the NPCon July 5, 1994, came into effect on January 1, 1995, and was amended on August 27, 2009 and on December 29, 2018, anemployer shall develop and improve its rules and regulations to safeguard the rights of its workers. An employer shall develop andimprove 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 safetyand health facilities must comply with relevant national standards. An employer must provide workers with the necessary laborprotection gear that complies with labor safety and health conditions stipulated under national regulations, as well as provide regularhealth checks for workers that are engaged in operations with occupational hazards. Laborers engaged in special operations shallhave received specialized training and have obtained the pertinent qualifications. An employer shall develop a vocational trainingsystem. Vocational training funds shall be set aside and used in accordance with national regulations and vocational training forworkers shall be carried out systematically based on the actual conditions of the company.The Labor Contract Law of the PRC, which was promulgated by the SCNPC on June 29, 2007, came into effect onJanuary 1, 2008, and was amended on December 28, 2012, and the Implementation Regulations on Labor Contract Law, which waspromulgated 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 stipulatedunder the Labor Contract Law and the Implementation Regulations on Labor Contract Law that a labor contract must be made inwriting. An employer and an employee may enter into a fixed-term labor contract, an un-fixed term labor contract, or a laborcontract that concludes upon the completion of certain work assignments, after reaching agreement upon due negotiations. Anemployer may legally terminate a labor contract and dismiss its employees after reaching agreement upon due negotiations with theemployee or by fulfilling the statutory conditions. Labor contracts concluded prior to the enactment of the Labor Law and subsistingwithin the validity period thereof shall continue to be honored. With respect to a circumstance where a labor relationship has alreadybeen established but no formal contract has been made, a written labor contract shall be entered into within one month from theeffective date of the Labor Contract Law. Table of Contents58According to the Interim Regulations on the Collection and Payment of Social Insurance Premiums, the Regulations onWork Injury Insurance, the Regulations on Unemployment Insurance and the Trial Measures on Employee Maternity Insurance ofEnterprises, 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 providesocial insurance by processing social insurance registration with local social insurance agencies, and shall pay or withhold relevantsocial insurance premiums for or on behalf of employees. The Law on Social Insurance of the PRC, which was promulgated onOctober 28, 2010, and became effective on July 1, 2011, amended on December 29, 2018 and took effect on the same day, hasconsolidated pertinent provisions for basic pension insurance, unemployment insurance, maternity insurance, work injury insuranceand basic medical insurance, and has elaborated in detail the legal obligations and liabilities of employers who do not comply withrelevant laws and regulations on social insurance.According to the Interim Measures for Participation in the Social Insurance System by Foreigners Working within theTerritory of China, which was promulgated by the Ministry of Human Resources and Social Security on September 6, 2011, andbecame 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 withthe relevant law, with the social insurance premiums to be contributed respectively by the employers and foreigner employees asrequired. In accordance with such Interim Measures, the social insurance administrative agencies shall exercise their right tosupervise and examine the legal compliance of foreign employees and employers and the employers who do not pay social insurancepremiums in conformity with the laws shall be subject to the administrative provisions provided in the Social Insurance Law and therelevant regulations and rules mentioned above.According to the Regulations on the Administration of Housing Provident Fund, which was promulgated and becameeffective on April 3, 1999, and was amended on March 24, 2002, and was amended on March 24, 2019, housing provident fundcontributions by an individual employee and housing provident fund contributions by his or her employer shall belong to theindividual employee.The employer shall timely pay up and deposit housing provident fund contributions in full amount and late or insufficientpayments shall be prohibited. The employer shall process housing provident fund payment and deposit registrations with thehousing provident fund administration center. With respect to companies who violate the above regulations and fail to processhousing provident fund payment and deposit registrations or open housing provident fund accounts for their employees, suchcompanies shall be ordered by the housing provident fund administration center to complete such procedures within a designatedperiod. Those who fail to process their registrations within the designated period shall be subject to a fine ranging from RMB10,000to RMB50,000. When companies breach these regulations and fail to pay up housing provident fund contributions in full amount asdue, the housing provident fund administration center shall order such companies to pay up within a designated period, and mayfurther apply to the People’s Court for mandatory enforcement against those who still fail to comply after the expiry of such period.On September 18, 2018, the general meeting of State Council announced that the policies for social insurance shall remainunchanged until the reform has been completed for the transfer of the authority for social insurance from the Ministry of HumanResources and Social Security to the State Administration of Taxation on January 1, 2019. On September 21, 2018, the Ministry ofHuman Resources and Social Security released an Urgent Notice on Enforcing the Requirement of the General Meeting of the StateCouncil and Stabilization the Levy of Social Insurance Payment and required that the policies for both the rate and basis of socialinsurance contributions shall remain unchanged until the reform on the transfer of the authority for social insurance has beencompleted. On November 16, 2018, the State Administration of Taxation released the Notice of Certain Measures on FurtherSupporting and Serving the Development of Private Economy, which provided that the policy for social insurance shall remainstable and the State Administration of Taxation will pursue to lower the social insurance contribution rates with the relevantauthorities, and ensure the overall burden of social insurance contribution on enterprises will be lowered. Table of Contents59Regulations Relating to Tax in the PRCIncome TaxThe PRC Enterprise Income Tax Law took effect on January 1, 2008 and amended on February 24, 2017 and amended onDecember 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 thePRC Enterprise Income Tax Law and its implementation regulations, dividends generated from the business of a PRC subsidiaryafter January 1, 2008, and payable to its foreign investor may be subject to a withholding tax rate of 10 percent if the PRC taxauthorities determine that the foreign investor is a Non-resident Enterprise, unless there is a tax treaty with China that provides for apreferential 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 25percent enterprise income tax rate on its worldwide income. A circular issued by the State Administration of Taxation in April 2009regarding the standards used to classify certain Chinese-invested enterprises controlled by Chinese enterprises or Chinese enterprisegroups 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 reportingrequirements with the PRC tax authorities. Under the implementation regulations to the PRC Enterprise Income Tax Law, a “defacto management body” is defined as a body that has material and overall management and control over the manufacturing andbusiness operations, personnel and human resources, finances and properties of an enterprise. In addition, the tax circular mentionedabove specifies that certain PRC-invested overseas enterprises controlled by a Chinese enterprise or a Chinese enterprise group inthe PRC will be classified as PRC resident enterprises if the following are located or resided in the PRC: (i) senior managementpersonnel and departments that are responsible for daily production, operation and management; (ii) financial and personneldecision 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 IssuesConcerning the Enterprise Income Tax on Indirect Property Transfer by Non-resident Enterprises, or SAT Bulletin 7. SAT Bulletin 7extends its tax jurisdiction to capture transactions involving transfer of immovable property in China and assets held under theestablishment, and placement in China, of a foreign company through the offshore transfer of a foreign intermediate holdingcompany. SAT Bulletin 7 also addresses transfer of the equity interest in a foreign intermediate holding company broadly. Inaddition, SAT Bulletin 7 provides criteria on how to assess reasonable commercial purposes and introduces safe harbor scenariosapplicable to internal group restructurings. However, it also brings challenges to both the foreign transferor and transferee of theIndirect Transfer as they have to assess on whether the transaction should be subject to PRC tax and to file or withhold the PRC taxaccordingly.On October 17, 2017, the SAT issued the Announcement of the State Administration of Taxation on Issues Concerning theWithholding 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 non-resident investors were involved in our private equity financing, if such transactions were determined by the taxauthorities to lack reasonable commercial purpose, we and our non-resident investors may be at risk of being required to file a returnand be taxed under SAT Bulletin 7 and/or SAT Bulletin 37 and we may be required to expend valuable resources to comply withSAT Bulletin 7 and/or SAT Bulletin 37 or to establish that we should not be held liable for any obligations under SAT Bulletin 7and/or SAT Bulletin 37. Table of Contents60According to Notice of the Ministry of Finance and the State Administration of Taxation on Tax Policies Relating toEducation, or Circular 39, schools established by government are not required to pay Enterprise Income Tax, or EIT on fees theyhave collected upon approval and have incorporated under the fiscal budget management or the special account management of thefunds outside the fiscal budget. Schools are not required to pay EIT on the financial allocations they have received and specialsubsidies they have obtained from their administrative departments or institutions at higher levels. Nonetheless, our main business isthe operation of kindergartens, which is not explicitly exempted from the requirement to pay EIT under Circular 39, and we havepaid our EIT for our income generated in 2018.According to the Amended Law for Promoting Private Education, private schools will be entitled to preferential taxtreatments, among which not-for-profit private schools will be entitled to the same preferential tax treatment as public schools, andtaxation policies for for-profit private schools after the Amended Law for Promoting Private Education takes effect are yet to beannounced.Other Tax ExemptionsAccording to Circular 39, the real properties and land used by schools, nurseries and kindergartens established byenterprises shall be exempt from house property tax and urban land use tax. Schools expropriating arable land upon approval shallbe exempt from arable land use tax. Schools and educational institutions established by any enterprises, government affiliatedinstitutions, social groups or other social organizations or individuals and citizens with non-state fiscal funds for education and opento the public upon the approval of the administrative department for education or for labor of the relevant people’s government at thecounty level or above which has also issued the relevant school running license, shall be exempted from deed tax on their ownershipof land and houses used for teaching activities.Value-Added TaxPursuant to the Provisional Regulations on Value-Added Tax of the PRC amended on November 19, 2017, and itsImplementation Rules promulgated by the Ministry of Finance, or the MOF and last amended on 28 October 2011, tax payersengaging in sale of goods, provision of processing services, repairs and replacement services, sales of services, intangible assets orreal property, or importation of goods within the territory of the PRC shall pay value-added tax, or the VAT.On November 16, 2011, the MOF and the SAT jointly promulgated the Pilot Plan for Levying Value-Added Tax in lieu ofBusiness Tax. Starting from January 1, 2012, the PRC Government has been gradually implementing a pilot program in certainprovinces 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 May 6, 2016 by the SAT, and revisedaccording to the Notice of State Administration of Taxation on Revising Some Normative Documents on Taxation on June 15, 2018,provides that if a domestic enterprise provides cross-border taxable activities such as professional technology services, technologytransfer, software service etc., the above mentioned cross-border taxable activities shall be exempted from the VAT.On March 23, 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 May 1, 2016.Pursuant to Notice of the Ministry of Finance and the State Administration of Taxation on Adjusting Value-added TaxRates issued by the MOF and SAT on April 4, 2018 and effective on May 1, 2018, the applicable VAT for VAT-taxable salesactivities or imported goods are adjusted respectively from 17% and 11% to 16% and 10%.In accordance with Ministry of Finance, General Administration of Taxation, General Administration of CustomsAnnouncement No. 39 of 2019, the applicable VAT for VAT-taxable sales activities or imported goods are adjusted respectively from16% to 13% since April 1, 2019. Table of Contents61Tuition fees generated from kindergarten services in the PRC are qualified for VAT exemption pursuant to a circular jointlyreleased by the Ministry of Finance and Finance and State Administration of Taxation. Revenue generated from other services in thePRC, namely play-and-learn center services, franchise fees, royalty fees, and training services, is reported net of VAT, at a rate of6%, collected on behalf of PRC tax authorities, except for an entity who is designated as a small scale VAT payer. Small scale VATpayer is subject to VAT at a rate of 3% on play-and-learn center services and training services, which was reduced to 1% fromMarch 1, 2020 to December 31, 2021, due to the pandemic of COVID-19.Regulations Relating to Foreign ExchangeForeign Currency ExchangePursuant to the Foreign Currency Administration Rules, as amended, and various regulations issued by the SAFE and otherrelevant PRC government authorities, Renminbi is freely convertible to the extent of current account items, such as trade relatedreceipts and payments, interest and dividends. Capital account items, such as direct equity investments, loans and repatriation ofinvestment, unless expressly exempted by laws and regulations, still require prior approval from SAFE or its provincial branch forconversion 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 PRCcompanies may be repatriated into China or retained outside of China in accordance with requirements and terms specified bySAFE.Dividend DistributionWholly foreign-owned enterprises and Sino-foreign equity joint ventures in the PRC may pay dividends only out of theiraccumulated profits, if any, as determined in accordance with PRC accounting standards and regulations. Additionally, theseforeign-invested enterprises may not pay dividends unless they set aside at least 10 percent of their respective accumulated profitsafter tax each year, if any, to fund certain reserve funds, until such time as the accumulative amount of such fund reaches 50 percentof the enterprise’s registered capital. In addition, these companies also may allocate a portion of their after-tax profits based on PRCaccounting 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 companiesAccording to the Implementation Rules for the Provisional Regulations on Statistics and Supervision of Foreign Debtpromulgated by SAFE on September 24, 1997 and the Interim Provisions on the Management of Foreign Debts promulgated bySAFE, the NDRC and the MOF and effective from March 1, 2003, loans by foreign companies to their subsidiaries in China, whichaccordingly are foreign-invested enterprises, are considered foreign debt, and such loans must be registered with the local branchesof the SAFE. Under the provisions, the total amount of accumulated medium-term and long-term foreign debt and the balance ofshort-term debt borrowed by a foreign-invested enterprise is limited to the difference between the total investment and the registeredcapital 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 Mattersrelating to the Macro-prudential Management of Comprehensive Cross-border Financing, or PBOC Circular 9, which took effect onthe 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 upperlimit. The upper limit is calculated as capital or assets multiplied by a cross-border financing leverage ratio and multiplied by amacro-prudential regulation parameter.In addition, according to PBOC Circular 9, as of the date of the promulgation of PBOC Circular 9, a transition period ofone year is set for foreign-invested enterprises and during such transition period, foreign-invested enterprises may apply either thecurrent cross-border financing management mode, namely the mode provided by Implementation Rules for the ProvisionalRegulations on Statistics and Supervision of Foreign Debt and the Interim Provisions on the Management of Foreign Debts, or themode in this PBOC Circular 9 at its sole discretion. After the end of the transition period, the cross-border financing managementmode for foreign-invested enterprises will be determined by the People’s Bank of China and SAFE after assessment based on theoverall implementation of this PBOC Circular 9. Table of Contents62According to applicable PRC regulations on foreign-invested enterprises, the foreign exchange capital of foreign-investedenterprises 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 ofmonetary contribution has been confirmed by the local foreign exchange bureau (or the book-entry registration of monetarycontribution by the banks) can be settled at the banks based on the actual operational needs of the foreign-invested enterprise. Theproportion of Discretional Foreign Exchange Settlement of the foreign exchange capital of a foreign-invested enterprise istemporarily determined as 100%. The Renminbi converted from the foreign exchange capital will be kept in a designated accountand if a foreign-invested enterprise needs to make further payment from such account, it still needs to provide supporting documentsand go through the review process with the banks.Regulations Relating to Employee Stock Incentive Plan of Overseas Publicly-Listed CompanyPursuant to the Notice on Issues Concerning the Foreign Exchange Administration for Domestic Individuals Participatingin 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 companywho are PRC citizens or who are non-PRC citizens residing in China for a continuous period of not less than one year, subject to afew exceptions, are required to register with the SAFE through a domestic qualified agent, which could be a PRC subsidiary of suchoverseas listed company, and complete certain other procedures. If we fail to complete the SAFE registrations, such failure maysubject us to fines and legal sanctions and may also limit our ability to contribute additional capital into our wholly foreign-ownedsubsidiary 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 orrestricted shares. Under these circulars, the employees working in the PRC who exercise share options or are granted restrictedshares will be subject to PRC individual income tax. The PRC subsidiaries of such overseas listed company have obligations to filedocuments related to employee share options or restricted shares with relevant tax authorities and to withhold individual incometaxes of those employees who exercise their share options. If the employees fail to pay or the PRC subsidiaries fail to withhold theirincome taxes according to relevant laws and regulations, the PRC subsidiaries may face sanctions imposed by the tax authorities orother PRC government authorities.Regulations Relating to Anti Long-Arm JurisdictionThe MOFCOM issued the Provisions on the List of Unreliable Entities, or the MOFCOM Order No. 4 of 2020, on September19, 2020. Pursuant to the MOFCOM Order No. 4 of 2020, a working committee shall decide whether or not to include a foreignentity concerned in the list of unreliable entities and make an announcement on such inclusion based on investigation of followingfactors: (i) the extent of damage caused to China′s sovereignty, security and development interests; (ii) the extent of the damage tothe legitimate rights and interests of Chinese enterprises, other organizations or individuals; (iii) whether or not the internationaleconomic and trade rules are followed; and (iv) any other relevant factors. If a foreign entity is included in the list of unreliableentities, the working committee may decide to take one or more of the following measures: (i) restricting or prohibiting the foreignentity from engaging in import or export activities related to China; (ii) restricting or prohibiting the foreign entity’s investmentwithin the territory of China; (iii) restricting or prohibiting the entry of the foreign entity’s relevant personnel or transport vehiclesinto the territory of China; (iv) restricting or cancelling the work permit, stay or residence qualification of the foreign entity’srelevant personnel in China; (v) imposing a fine corresponding to the seriousness of the case against the foreign entity; or (vi) anyother necessary measures. Table of Contents63On January 9, 2021, the MOFCOM promulgated the Rules on Counteracting Unjustified Extra-Territorial Application ofForeign Legislation and Other Measures, or the MOFCOM Order No. 1 of 2021. Pursuant to the MOFCOM Order No. 1 of 2021,where a citizen, legal person or other organization of China is prohibited or restricted by foreign legislation and other measures fromengaging in normal economic, trade and related activities with a third State (or region) or its citizens, legal persons or otherorganizations, he/she/it shall truthfully report such matters to the competent department of commerce of the State Council within 30days. A working committee will take the following factors into consideration when assessing whether there exists unjustified extra-territorial application of foreign legislation and other measures: (i) whether international law or the basic principles of internationalrelations are violated; (ii) potential impact on China′s national sovereignty, security and development interests; (iii) potential impacton the legitimate rights and interests of the citizens, legal persons or other organizations of China; and (iv) any other relevantfactors. In case it is confirmed that there exists unjustified extra-territorial application of foreign legislation and other measures, theMOFCOM may issue an injunction against such relevant foreign legislation and other measures. A citizen, legal person or otherorganization in China may apply for exemption from compliance with an injunction. Table of Contents64C. Organizational StructureThe following chart illustrates our company’s organizational structure, including our significant subsidiaries andconsolidated affiliated entities:(1)Messrs. Chimin Cao and Yanlai Shi are beneficial owners of the shares of RYB Education, Inc. and hold 24.18% 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, sponsor and control of 89 out of 117 of our directly operated kindergartens. Inaddition to these 89 kindergartens, we also had 9 directly operated kindergartens in China and 19 directly operatedkindergartens in Singapore as of December 31, 2020, all of which are sponsored or controlled by Precious Companion GroupLimited or its subsidiaries.The following is a summary of the currently effective contractual arrangements by and among RYB Technology, ourwholly-owned subsidiary, Beijing RYB, our consolidated affiliated entity, and the shareholders of Table of Contents65Beijing RYB. We also consolidate two additional entities that are not material to our overall operation through similar contractualarrangements.Agreements that provide us with effective control over Beijing RYBBusiness Operation Agreement. Pursuant to the amended and restated Business Operation Agreement among RYBTechnology, 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 onits businesses, assets, human resources, rights, obligations, or business operations. Beijing RYB and those shareholders further agreethat they will accept and strictly follow RYB Technology’s instructions in relation to Beijing RYB’s daily operations, financialmanagement, and election of directors appointed by RYB Technology. Those shareholders agree to transfer any dividends or anyother 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 byRYB Technology, parties to this agreement shall extend the term of this agreement prior to its expiration. Beijing RYB and thoseshareholders 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 RYBTechnology 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 conveneshareholders’ meetings, vote and sign any resolution as a shareholder, appoint directors, supervisors and officers, amend articles ofassociation, as well as the right to sell, transfer, pledge and dispose of all or a portion of the shares held by such shareholder. Thepower of attorney will remain in force for 10 years. Upon request by RYB Technology, parties to this agreement shall extend theterm of this agreement prior to its expiration.Spousal Consent. Spouses of 20 shareholders of Beijing RYB, who collectively holds 98.69% equity interest, have eachsigned a spousal consent letter. Under the spousal consent letters, each signing spouse acknowledges that the shares of Beijing RYBheld 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 economicrights or interests to which he or she may be entitled pursuant to applicable laws and undertakes not to make any assertion of rightsto such shares and the underlying assets. Each signing spouse agrees and undertakes that he or she will not carry out in anycircumstances 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 29aforementioned shareholders of Beijing RYB, those shareholders have pledged 99.88% equity interest in Beijing RYB to RYBTechnology to guarantee the performance by Beijing RYB and its shareholders of their obligations under the business operationagreement, the power of attorney, the equity disposal agreement and the exclusive consultation and service agreement. If BeijingRYB or those shareholders breach their contractual obligations under these agreements, RYB Technology, as pledgee, will have theright 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 equityinterests or create or allow any encumbrance on the pledged equity interests. We have completed registering the equity pledge withthe 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 RYBExclusive Consultation and Service Agreement. Pursuant to the amended and restated Exclusive Consultation and ServiceAgreement among RYB Technology, Beijing RYB and the 29 aforementioned shareholders of Beijing RYB, RYB Technology or itsdesignated 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 thirdparty. 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 thevalue and comparable price on the market of the service provided. RYB Technology will have the exclusive ownership of allintellectual property rights created as a result of the performance of this agreement. Beijing RYB also granted RYB Technology anirrevocable and exclusive right to purchase part or all of Beijing RYB’s assets at the lowest price permitted by the PRC laws. Toguarantee Beijing RYB’s performance of this agreement, upon request from RYB Technology, Beijing RYB shall Table of Contents66pledge or mortgage part or all of its accounts receivable and part or all of its assets to RYB Technology. Unless RYB Technologyterminates this agreement in advance, this agreement will remain effective for ten years. Upon request by RYB Technology, partiesto this agreement shall extend the term of this agreement prior to its expiration. Other parties to this agreement may not terminatethis agreement unilaterally. Certain kindergartens that elected not-for-profit status, pursuant to the Law on the Promotion of PrivateEducation as disclosed in Item 4. Information on the Company—B. Business Overview—Regulation—Regulations Relating toPrivate Education in the PRC— The Amendment to the Law for Promoting Private Education, are not within the scope of thisagreement. Those kindergartens engage Beijing RYB and its subsidiaries as their exclusive operational consultants through aseparate set of exclusive consultation and service arrangements. The terms are substantially similar to the aforementioned agreementbetween Beijing RYB and RYB Technology.Agreement that provides us with the option to purchase the equity interests in Beijing RYBEquity 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 orany third party designated by RYB Technology an exclusive option to purchase all or part of their equity interests in Beijing RYB atthe lowest price permitted by applicable PRC laws. Those shareholders further undertake that they will neither create any pledge orencumbrance on their equity interests in Beijing RYB, nor transfer, gift or otherwise dispose of their equity interests in Beijing RYBto any person other than RYB Technology or its designated third party. Without RYB Technology or its designated third party’s priorwritten consent, those shareholders agree not to, among other things, amend its articles of association, permit Beijing RYB to enterinto transactions which materially and adversely affect Beijing RYB’s assets, liabilities, business operations, equity interests andother legal interests, or merge with any other entities or make any investments, or distribute dividends. This agreement will remaineffective 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 regulationscurrently in effect; and●the contractual arrangements among RYB Technology, Beijing RYB, and the shareholders of Beijing RYB, governedby PRC law, are valid and binding under PRC law, and do not and will not result in any violation of applicable PRClaws 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 otherwisedifferent from the above opinion of our PRC legal counsel. If the PRC government finds that the agreements that establish thestructure for operating our early childhood education business do not comply with PRC government restrictions on foreigninvestment in education businesses, the operation of kindergartens, we could be subject to severe penalties, including beingprohibited 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 donot comply with PRC regulations relating to the relevant industries, or if these regulations or the interpretation of existingregulations change in the future, we could be subject to severe penalties or be forced to relinquish our contracts or other interests inthose operations” and “—Risks Related to Doing Business in China—Uncertainties with respect to the PRC legal system couldadversely affect us.”D. Property, Plant and EquipmentAs of December 31, 2020, we leased office space and facilities for our directly operated teaching facilities in China andSingapore with an aggregate gross floor area of approximately 356,660 square meters. Our leases have terms of 1 to 20 years. Theareas of our leased premises are based on figures specified in the relevant land use right certificates or lease agreements, whereavailable, or our operational records. We lease properties from third parties on an as-is basis. A majority of our directly operatedkindergartens are located on leased premises designated for educational use.ITEM 4A. UNRESOLVED STAFF COMMENTSNone. Table of Contents67ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTSYou should read the following discussion and analysis of our financial condition and results of operations in conjunctionwith our consolidated financial statements and the related notes included elsewhere in this annual report on Form 20-F. Thisdiscussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. Our actualresults may differ materially from those anticipated in these forward-looking statements as a result of various factors, includingthose set forth under “Item 3. Key Information—D. Risk Factors” or in other parts of this annual report on Form 20-F.A. Operating ResultsMajor Factors Affecting Our Results of OperationsOur business and operating results are affected by factors affecting China and Singapore’s early childhood educationindustry generally. We have benefited from the rapid economic growth, significant urbanization and higher per capita disposableincome 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 inSingapore, we see our Singapore operations as a solid step forward in dedicating our continuous efforts in improving and expandingour educational offerings globally.Fluctuations in birth rate of China and Singapore may have some impact on our student enrollment. A higher birth ratecould 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 andlicensing requirements for entities that provide education services, standards for the operations of teaching facilities and foreigninvestments in the education industry.As with other education service providers, our quarterly business and operating results are affected by seasonality. Due tothe 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, webelieve our results of operations are more directly affected by company-specific factors, including the following major factors.Size of Our Network and Student EnrollmentOur revenue growth is primarily driven by the expansion of our network in terms of the number of our directly operatedfacilities, student enrollment at those facilities and the number of franchise facilities. We derive a large portion of our revenues fromtuition fees, which are primarily driven by student enrollment at our directly operated facilities. With respect to our franchisefacilities, our revenues from initial franchise fees are mainly affected by the number of new franchisees, while revenues fromrecurring 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 scalestrengthens 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 modeland to attract and retain more franchisees, the ability of us and our franchisees to successfully launch new teaching facilities, thequality of our services and products as well as the ability of us and our franchisees to respond to competition and achieve highutilization rates.We have achieved steady growth in recent years. Our directly operated kindergartens and student care centers increasedfrom 101 as of December 31, 2018 to 144 as of December 31, 2019, and further to 150 as of December 31, 2020, including 52 inSingapore as of December 31, 2020. We had 23,627, 30,806 and 34,011 students enrolled at our directly operated kindergartens andstudent care centers as of December 31, 2018, 2019, and 2020, respectively, Table of Contents68including 5,363 in Singapore as of December 31, 2020. The number of our franchise kindergartens and student care centersincreased from 247 as of December 31, 2018 to 258 as of December 31, 2019, and decreased to 255 as of December 31, 2020including 9 in Singapore as of December 31, 2020. The total number of our directly operated and franchise play-and-learn centersincreased from 1,102 as of December 31, 2018 to 1,158 as of December 31, 2019, and further to 1,163 as of December 31, 2020. Weexpect the size of our network and our student enrollment to continue to grow steadily.Ability to Increase Tuition FeesThe 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 generalincome level of the relevant neighborhood and the popularity of our facilities where we have discretion. We seek to graduallyincrease our tuition fee level without compromising our student enrollment. After years of development, we are generally able tocharge higher fees with our mature facilities within our network than when they were in their initial ramp-up period. Due toeconomic disparity across different regions in China and Singapore, the geographical mix of our directly operated facilities can alsoaffect our overall tuition fee level. Our tuition fees cannot exceed the maximum amounts on file with the local governmental pricingauthorities.We may elect to qualify our kindergartens within PRC as either for-profit or not-for-profit private schools under theframework of the Amended Law for Promoting Private Education. According to the Amended Law for Promoting PrivateEducation, for-profit private schools have the discretion to determine the amount of their tuition fees without the need forgovernmental approval while fee levels at not-for-profit private schools will remain subject to approval. Those two types of privateschools will also have different tax treatments. Due to uncertainties regarding the local implementation measures of the AmendedLaw for Promoting Private Education across China, we plan to analyze and determine whether to qualify all or part of our directlyoperated 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 clearwhether 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 forPromoting Private Education.”Regulatory environment of private education and preschool education in ChinaWe operate in a challenging regulatory environment. Private education in China, particularly the preschool sector, is subjectto a set of complex and evolving laws, rules and regulations. We may have to adjust our business operations and acquisitionstrategies from time to time in order to remain fully compliant with the most current laws and regulations, which could materiallyaffect 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 paymentor share issuance, which could prohibit us from investing in any for-profit kindergartens through financing through capital market oracquiring assets of for-profit kindergartens through cash payments or share issuance. The Reform Opinions also stipulates that socialcapital is not allowed to control not-for-profit kindergartens or kindergartens that are sponsored by state-owned assets orcollectively-owned assets through ways such as mergers and acquisitions, which could restrict us from conducting any acquisitionsof 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 documentsin the most stringent ways the government authorities may interpret and enforce, which may require us to expend significantresources to adjust our business operations, thus affecting our operating results. For risk relating to the challenging regulatoryenvironment, see “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business—New Legislations and changes inthe PRC regulatory requirement regarding private education and preschool education in countries where we operate may materiallyaffect our business operations and prospects.”Moreover, we are exposed to public scrutiny, and our potential customers, usually parents of young children, areparticularly sensitive to news relating to the safety and compliance of our kindergartens. If our facilities or operations are perceivedby parents as unsafe or in violation of any relevant laws, rules, or regulations, student enrollment is likely to be negatively affected. Table of Contents69Ability to Improve Our Operating Efficiency and ProfitabilityOur cost of revenues mainly consists of costs and expenses for our directly operated kindergartens. Costs and expenses of akindergarten is typically affected by its capacity, which is determined by the number of classes that can be feasibly set up on thefacility, and the number of students in each class. We normally assign two teachers and one nursery aide to each class, andregardless 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 ascompensation to all other facility staff, costs and expenses to sustain the running of the facility, rental and related payments anddepreciation and amortization remain relatively stable. An increase in the number of new directly operated kindergartens in theoverall mix of directly operated kindergartens may place a constraint on our operating efficiency.Gross margin of our directly operated kindergartens, which represents profit before income tax for kindergarten as all costsand expenses for the running of the kindergartens are charged to our cost of revenues, has a significant impact on our overallprofitability. In general, larger kindergartens with more classes operating at higher utilizations and charging premium prices yieldhigher gross margin.Scope and Quality of Our Product Offerings and ServicesHigh-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 thecompetitiveness of our franchisees’ teaching facilities. As a result, high-quality course offerings and franchise support help us tobetter attract and retain franchisees and the scope of our course offerings determines, in a certain degree, our level of ongoingtraining fees. Furthermore, we can more effectively recruit and retain other business partners with kindergarten course content that isdesigned to address their needs. The diversity and quality of our educational merchandise that we sell directly affect the salesvolume of these products, which is also a major component of our revenue.Impact of COVID-19 On Our OperationsThe majority of our net revenues are derived from tuition fees from directly operated kindergartens and student care centersand franchise fees from franchise play-and-learn centers. The outbreak of COVID-19 has substantially affected our results ofoperations and financial conditions during the year of 2020. Since the outbreak, the Chinese government with the aim to contain thespread of COVID-19 has taken a number of actions and imposed strict measures, including mandatory quarantine requirements,travel restrictions, contact tracing efforts, encouraging employees of enterprises to work remotely from home, and cancelling publicactivities, among others. The pandemic of COVID-19 has disrupted our operations in China and Singapore resulting in temporaryclosure of our facilities for most of the first half of 2020 as requirement by the government.During the period of temporary facility closure, we have taken prompt and proactive measures in response, which includedtaking preventive measures to ensure the health and safety of our students and staff at our facilities, holding parent-teacher meetingsonline to proactively communicate our crisis relief plan and effectively retain students, as well as in-school health protocols andsupportive measures for franchisees. In addition, we introduced online educational content to facilitate home-based education andcontinue to work towards an integrated OMO (online-merge-offline) model. We also carried out stringent cost control measures tostrengthen balance sheet and liquidity position.Thanks to the effective control of COVID-19 in China, following the guidance of local governments, our facilities havebegun a phased reopening in late May of 2020. By the end of September 2020, most of our directly operated facilities in both Chinaand Singapore had reopened. As of December 31, 2020, all of our directly operated facilities in both China and Singapore and over80% of our franchise play-and-learn centers resumed operations.Despite these efforts, the broad ramifications of COVID-19, its future development including the global severity and itsduration, decisions by government authorities and measures imposed to contain outbreak(s), scope of continuing disruption, andimpact and its extent on our operating and financial results cannot be predicted. Our results of operations may also be affected to theextent that the outbreak harm the Chinese economy in general. Given these factors, we expect the effects of COVID-19 on ourbusiness likely to adversely affect our results of operations in 2021. Table of Contents70Key Components of Results of OperationsNet RevenuesOur net revenues include tuition fees generated from kindergarten services, student care services and play-and-learn centerservices, franchising fees, sale of educational merchandise, royalty fees and training and other services. We provide privatekindergarten services, student care services and play-and-learn center services to students and charge tuition fees. We recordedUS$117.1 million, US$147.4 million and US$92.1 million in tuition fees from our directly operated facilities in 2018, 2019 and2020, respectively. Tuition fees are collected in advance and are initially recorded as deferred revenue and recognized ratably overthe course of the programs.We generate franchise fees through the provision of initial setup services as well as ongoing franchisee support services. Atthe start of each franchise relationship, we charge the franchisee a one-time initial franchise fee, the first-year annual franchise feeand the initial merchandise fee. During the term of the franchise, we charge each franchisee recurring annual franchise fees for theuse of our brand and core course materials and one advice session per year. We recorded US$14.4 million, US$12.3 million andUS$9.1 million in franchise fees in 2018, 2019 and 2020, respectively.We generate training and other services revenues through provision of services such as training to our franchisees and theirteaching staff, as well as other services. We recorded US$7.2 million, US$6.2 million and US$1.6 million from training and otherservices provided to franchise business in 2018, 2019 and 2020, respectively.We generate royalty fees through course licensing and provision of educational merchandise, kindergarten operationalservices, training and other advisory services through other business partners to the kindergartners beyond our directly operated andfranchised kindergartens. We recorded US$0.6 million, US$0.3 million and US$0.3 million in royalty fees in 2018, 2019 and 2020,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 offamilies. We recorded US$17.3 million, US$16.1 million and US$6.6 million from the sale of educational merchandise to ourfranchisees and end-users in 2018, 2019 and 2020, respectively.The following table sets forth the breakdown of our net revenues, both in absolute amount and as a percentage of our totalnet revenues, for the periods presented.Year Ended December 31, 201820192020 US$ % US$ % US$ % (in thousands, except for percentages) Services:Tuition fees from kindergartens, student care centers and play-and-learn centers 117,080 74.8% 147,417 80.9% 92,123 83.9%Franchise fees 14,365 9.2% 12,269 6.7% 9,065 8.3%Training and other services 7,161 4.6% 6,156 3.4% 1,632 1.5%Royalty fees 610 0.4% 341 0.2% 253 0.2% 139,216 89.0% 166,183 91.2% 103,073 93.9%Products: Sale of educational merchandise 17,282 11.0% 16,100 8.8% 6,642 6.1%Total net revenues 156,498 100% 182,283 100% 109,715 100%Cost of RevenuesOur cost of revenues related to tuition fees from our directly operated facilities consists primarily of all costs and expensesin 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 teachersand one nursery aide to each Table of Contents71kindergarten class. Our food and supplies cost represents the cost of the raw ingredients for the meals and cost of raw materials forthe educational products we provide at our directly operated teaching facilities. We expect our facility staff cost and ingredient andraw material cost to be in line with the size of our business. We expect the amount of our facility rental cost to continue to increaseas we grow. Our depreciation and amortization cost relates to the depreciation charges of the furniture, fixtures and equipment usedin rendering teaching services, the leasehold improvement for our teaching facilities, and amortization charges of the acquiredintangible 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 supervisionteam members for (i) the signing and onboarding of new franchisees, (ii) the support and services to franchisees for their facilityestablishment, marketing and operation optimization and (iii) ongoing quality supervision. As we continue to expand our franchisenetwork and employ more staff for our franchise service and supervision team, we expect our franchisee support and service cost toincrease in absolute amounts.Our cost of revenues relating to sale of merchandise consists of the cost of educational toys, teaching aids, textbooks andother goods and our cost of revenues relating to training and other services mainly consists of the costs and expenses incurred for theprovision of training and other services for franchisees.Selling ExpensesOur selling expenses primarily consist of advertising, marketing and brand promotion expenses as well as compensation toour selling personnel. We expect that our selling expenses will continue to increase in absolute amounts as we continue to marketour products and services and expand into new geographic regions but will remain relatively stable as a percentage of our netrevenues.General and Administrative ExpensesOur general and administrative expenses mainly consist of (i) compensation to our management, administrative and R&Dpersonnel, including base salaries, performance-based bonuses and share-based and other compensation, (ii) rental expenses foradministrative facilities and (iii) professional service expense. We expect that our general and administrative expenses will increasein absolute amounts in the foreseeable future as we incur additional costs for becoming and being a public company but will in timedecrease as a percentage of our net revenues as we continue to benefit from economies of scale and improve our operatingefficiency.The following table sets forth our operating expenses, both in absolute amount and as a percentage of our net revenues, forthe periods presented.Year Ended December 31, 201820192020 US$ % US$ % US$ % (in thousands, except for percentages) Operating expenses:Selling expenses 2,233 1.4% 2,808 1.5% 1,285 1.2%General and administrative expenses 26,428 16.9% 23,775 13.1% 24,313 22.1%Impairment loss on goodwill — — — — 8,454 7.7%Impairment loss on long-lived assets — — — — 2,148 2.0%Total operating expenses 28,661 18.3% 26,583 14.6% 36,200 33.0% Table of Contents72Results of OperationsThe following table sets forth a summary of our consolidated results of operations for the periods presented, both inabsolute amount and as a percentage of our net revenues for the periods presented. This information should be read together withour consolidated financial statements and related notes included elsewhere in this annual report. The results of operations in anyperiod are not necessarily indicative of our future trends.Year Ended December 31, 201820192020 US$ % US$ % US$ % (in thousands, except for percentages) Net RevenuesServices Tuition fees from kindergartens, student care centersand play-and-learn centers 117,080 74.8% 147,417 80.9% 92,123 83.9%Franchise fees 14,365 9.2% 12,269 6.7% 9,065 8.3%Training and other services 7,161 4.6% 6,156 3.4% 1,632 1.5%Royalty fees 610 0.4% 341 0.2% 253 0.2%Products Sale of education merchandise 17,282 11.0% 16,100 8.8% 6,642 6.1%Total net revenues 156,498 100.0% 182,283 100.0% 109,715 100.0%Cost of revenues Services 121,549 77.6% 147,669 81.0% 113,285 103.2%Products 9,315 6.0% 7,865 4.3% 3,616 3.3%Total cost of revenues 130,864 83.6% 155,534 85.3% 116,901 106.5%Gross profit (loss) 25,634 16.4% 26,749 14.7% (7,186) (6.5)%Operating expenses Selling expenses 2,233 1.4% 2,808 1.5% 1,285 1.2%General and administrative expenses 26,428 16.9% 23,775 13.1% 24,313 22.1%Impairment loss on goodwill — — — — 8,454 7.7%Impairment loss on long-lived assets — — — — 2,148 2.0%Total operating expenses 28,661 18.3% 26,583 14.6% 36,200 33.0%Operating (loss) income (3,027) (1.9)% 166 0.1% (43,386) (39.5)%Interest income 2,147 1.4% 858 0.5% 348 0.3%Government subsidy income 683 0.4% 499 0.3% 4,591 4.1%Gain on disposal of subsidiaries 1,234 0.8% 492 0.3% 96 0.1%Impairment loss on long-term investments — — — — (2,432) (2.2)%Income (loss) before income taxes 1,037 0.7% 2,015 1.1% (40,783) (37.2)%Income tax expenses 2,459 1.6% 3,541 1.9% 215 0.2%Loss before loss in equity method investments (1,422) (0.9)% (1,526) (0.8)% (40,998) (37.4)%Loss from equity method investments (291) (0.2)% (664) (0.4)% (185) (0.1)%Net loss (1,713) (1.1)% (2,190) (1.2)% (41,183) (37.5)% Table of Contents73The following table lists our net revenue and cost of revenues by reportable segment for the periods indicated, and financialdata has been retrospectively presented to give effect to the current structure.Years Ended December 31, 2018 2019 2020(in thousands of US$)Net revenuesPRC Kindergartens 124,175 131,427 68,319PRC Play-and-learn centers 26,777 24,901 12,215Singapore kindergartens, student care centers and others — 19,073 25,964Others 5,546 6,882 3,217Total net revenues 156,498 182,283 109,715Cost of revenues PRC Kindergartens 108,140 113,315 78,901PRC Play-and-learn centers 15,694 14,269 8,610Singapore kindergartens, student care centers and others — 16,200 21,513Others 7,030 11,750 7,877Total cost of revenues 130,864 155,534 116,901Gross profit (loss) PRC Kindergartens 16,035 18,112 (10,582)PRC Play-and-learn centers 11,083 10,632 3,605Singapore kindergartens, student care centers and others — 2,873 4,451Others (1,484) (4,868) (4,660)Total gross profit (loss) 25,634 26,749 (7,186)Year Ended December 31, 2020 Compared to Year Ended December 31, 2019Net RevenuesOur directly operated facilities increased from 144 in 2019 to 150 in 2020, with the student enrollment at our directlyoperated facilities increased from 30,806 as of December 31, 2019 and 34,011 as of December 31, 2020. The increase in our studentenrollment was mainly driven by higher utilization rates at ramping facilities and contribution from our Singapore operations.Our net revenues decreased by 39.8% from US$182.3 million in 2019 to US$109.7 million in 2020. This decrease wasprimarily attributable to a US$55.3 million decrease in tuition fees from our directly operated kindergartens, play-and-learn centersand student care centers. This was mainly due to the temporary closure of our facilities in PRC during most of the first nine monthsin 2020, which was caused by the COVID-19 pandemic.Our revenues from franchise fees decrease by 26.1% from US$12.3 million in 2019 to US$9.1 million in 2020, as ourfranchise facilities in PRC also temporarily suspended operation during most of the first nine months of 2020 due to the COVID-19pandemic.Our revenues from the sale of educational merchandise decrease by 58.7% from US$16.1 million in 2019 to US$6.6million in 2020. This decrease was primarily due to a decrease in the amount of merchandise sold through our franchise network, asour facilities in PRC suspended operation during most of the first nine months of 2020 due to the COVID-19 pandemic.Cost of RevenuesOur cost of revenues decreased by 24.8% from US$155.5 million in 2019 to US$116.9 million in 2020, primarily due to adecrease in staff compensation and direct costs in our directly operated kindergartens.Gross profit/(loss)As a result of the factors set out above, our gross loss in 2020 was US$7.2 million, compared with gross profit of US$26.7million. Table of Contents74Operating ExpensesOur selling expenses decreased by 54.2% from US$2.8 million in 2019 to US$1.3 million in 2020. This decrease wasprimarily due to our reduction in marketing activities, as our business was disrupted by the COVID-19 outbreak for the first ninemonths of 2020. Selling expenses constituted 1.5% and 1.2% of our net revenues in 2019 and 2020, respectively.Our general and administrative expenses increased by 2.3% from US$23.8 million in 2019 to US$24.3 million in 2020.This increase was mainly contributed by credit loss expenses incurred in the fourth quarter of 2020, which was partially offset by thedecrease of share-based compensation expenses and administrative expenses as a result of our stringent cost control measures tocombat the challenges by COVID-19.Our impairment loss on goodwill in 2020 was US$8.5 million, compared to nil in 2019. Due to the impact of COVID-19 onoperations and financial results, the Company concluded that an impairment indicator existed at the end of the first quarter and thefair value of its certain reporting units, primarily those with new initiatives, were less than their carrying value. As a result of theimpairment assessments, the Company determined that there was an impairment loss on goodwill of $8.5 million at the end of thefirst quarter 2020.Our impairment loss on long-lived assets in 2020 was US$2.1 million, compared to nil in 2019. This was mainly due to theimpairment loss on intangible assets arisen from the acquisition of certain new initiatives and long-lived assets of a few directly-operated kindergartens such as leasehold improvements and furniture.Operating Income/(loss)We had US$0.2 million operating income in 2019, and US$43.4 million operating loss in 2020, respectively.Government SubsidiesWe recognized US$0.5 million and US$4.6 million in government subsidies for 2019 and 2020, respectively. We receivegovernment subsidies at the discretion of the local government based on certain criteria in relation to our kindergarten operations.Government subsidies are recognized as liabilities when the government subsidies are received, and released to consolidatedstatements of operations as government subsidy income when we are not subject to further obligation or future refunds. Governmentsubsidies granted to specific kindergartens to subsidize their rental and teacher training costs were recorded to offset the cost ofrevenues when the conditions were met. For the years ended December 31, 2019 and 2020, US$6.0 million and US$12.7 millionwere recognized as reduction of cost of revenues, respectively.Income Tax ExpensesOur income tax expenses decreased from US$3.5 million in 2019 to US$0.2 million in 2020, primarily due to the impact ofCOVID-19 on operations and financial results.Net LossAs a result of the foregoing, we had net loss of US$2.2 million in 2019 and net loss of US$41.2 million in 2020,respectively.Year Ended December 31, 2019 Compared to Year Ended December 31, 2018Net RevenuesOur net revenues increased by 16.5% from US$156.5 million in 2018 to US$182.3 million in 2019. This increase wasprimarily attributable to a US$30.3 million increase in tuition fees from our directly operated kindergartens, play-and-learn centersand student care centers.Our directly operated facilities increased from 101 in 2018 to 144 in 2019, with the student enrollment at our directlyoperated facilities increased from 23,627 as of December 31, 2018 to 30,806 as of December 31, 2019. The increase in our studentenrollment was mainly driven by higher utilization rates at ramping facilities and contribution from our Singapore operations. Table of Contents75Our revenues from franchise fees decreased by 14.6% from US$14.4 million in 2018 to US$12.3 million in 2019, asfranchise 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$16.1million in 2019. This decrease was primarily due to a decrease in the amount of merchandise sold through our franchise network.Cost of RevenuesOur cost of revenues increased by 18.9% from US$130.9 million in 2018 to US$155.5 million in 2019, primarily due to anincrease in staff compensation and higher operating cost, such as rental and material consumption as the Company continued tomoderately expand its facilities network.Gross profit and gross marginAs a result of the factors set out above, our gross profit increased by 4.3% from US$25.6 million in 2018 to US$26.7million in 2019. Gross margin decreased from 16.4% in 2018 to 14.7% in 2019. The decrease in our gross margin was primarily dueto increase in staff compensation and operating costs as the Company continued to moderately expand its facilities network anddecrease in franchise fees revenue.Operating ExpensesOur selling expenses increased by 25.8% from US$2.2 million in 2018 to US$2.8 million in 2019. This increase wasgenerally in line with the increase of our net revenue. Selling expenses constituted 1.4% and 1.5% of our net revenues in 2018 and2019, 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 controlmeasures.Operating Income/(loss)We had US$3.0 million operating loss in 2018, and US$0.2 million operating income in 2019, respectively.Government SubsidiesWe recognized US$0.7 million and US$0.5 million in government subsidies for 2018 and 2019, respectively. Governmentsubsidies consist mainly of compensation to certain of our directly operated kindergartens, “inclusive kindergartens”, where tuitionis determined by local educational authorities. Government subsidies granted to specific kindergartens to subsidize their rental andteacher 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 ExpensesOur income tax expenses increased from US$2.5 million in 2018 to US$3.5 million in 2019, primarily due to increase intaxable income.Net LossAs a result of the foregoing, we had net loss of US$1.7 million in 2018 and net loss of US$2.2 million in 2019,respectively.TaxationWe generate the majority of our operating income from our PRC operations. Income tax liability is calculated based on aseparate return basis as if we had filed separate tax returns for all the periods presented. Table of Contents76The Cayman IslandsThe Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains orappreciation and there is no taxation in the nature of inheritance tax or estate duty. In addition, the Cayman Islands does not imposewithholding tax on dividend payments. There are no other taxes likely to be material to us levied by the government of the CaymanIslands except for stamp duties which may be applicable on instruments executed in, or after execution, brought within thejurisdiction of the Cayman Islands.Hong KongUnder the current Hong Kong Inland Revenue Ordinance, our Hong Kong subsidiary is subject to a 8.25% profit tax rateon assessable profits on the first Hong Kong Dollars (“HK$”) 2 million and 16.5% on any assessable profits in excess of HK$2million starting from April 1, 2018. Under the Hong Kong tax laws, we are exempted from the Hong Kong income tax on ourforeign-derived income. In addition, payments of dividends from our Hong Kong subsidiary to us are not subject to any Hong Kongwithholding tax.PRCUnder the PRC Enterprise Income Tax Law, or EIT Law, our PRC subsidiaries and consolidated affiliated entities aresubject to enterprise income tax at a statutory rate of 25%. In accordance with the EIT Law, dividends, which arise from profits offoreign invested enterprises, or FIEs, earned after January 1, 2008, are subject to a 10% withholding income tax. In addition, undertax treaty between the PRC and Hong Kong, if the foreign investor is incorporated in Hong Kong and qualifies as the beneficialowner, the applicable withholding tax rate is reduced to 5%, if the investor holds at least 25% in the FIE, or 10%, if the investorholds less than 25% in the FIE. Under the Circular on Comprehensively Promoting the Pilot Program of the Collection of Value-added Tax in Lieu of Business Tax, our PRC subsidiaries and consolidated affiliated entities, except for entities who are designatedas small scale VAT payers, are subject to value added tax, or VAT, at a rate of 6% to 17% on proceeds received from customers, andare entitled to a refund for VAT already paid or borne on the goods purchased by it and utilized in the production of goods orprovisions of services that have generated the gross sales proceeds. Small scale VAT payer is subject to VAT at a rate of 3% on play-and-learn center services and training services, which was reduced to 1% from March 1, 2020 to December 31, 2021, due to thepandemic of COVID-19.SingaporeOur subsidiaries located in Singapore are subject to Singapore corporate income tax at a rate of 17% in 2019 and a taxrelief enabling companies to deduct unutilized capital allowances, trade losses and donations of one company from the assessableincome 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 fromtax for the next SGD$190,000 for the year ended December 31, 2019.Critical Accounting PoliciesWe prepare our financial statements in accordance with U.S. GAAP, which requires our management to make estimates andassumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the balancesheet dates and the reported amounts of revenues and expenses during the reporting periods. We continually evaluate thesejudgments and estimates based on our own historical experience, knowledge and assessment of current business and otherconditions, 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 ofestimates is an integral component of the financial reporting process, our actual results could differ from those estimates. Some ofour 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 policiesand the sensitivity of reported results to changes in conditions and assumptions are factors that should be considered when reviewingour financial statements. We believe the following accounting policies involve the most significant judgments and estimates used inthe preparation of our financial statements. You should read the following description of critical accounting policies, judgments andestimates in conjunction with our consolidated financial statements and other disclosures included in this annual report. Table of Contents77Revenue RecognitionPrior to January 1, 2018, we recognized revenues, under FASB Revenue Recognition (Topic 605), when the following fourrevenue recognition criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the service has been performed andreceived by the customer, (iii) the amount of fees from the customer is fixed or determinable, and (iv) collectability is reasonablyassured.On January 1, 2018, we adopted ASC 606 applying the modified retrospective method to all contracts that were notcompleted as of January 1, 2018. Results for period beginning after January 1, 2018 are presented under ASC 606, while priorperiod amounts are not adjusted and continue to be reported under the accounting standards in effect for the prior period. Revenuesare recognized when control of the promised goods or services are transferred to the customers, in an amount that reflects theconsideration that we expect to receive in exchange for those goods or services.We follow five steps for our revenue recognition under ASC 606: (i) identify the contract(s) with a customer, (ii) identifythe performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to theperformance 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 center services to students.Tuition fees are collected in advance and are initially recorded as deferred revenue.Kindergarten services consist of a series of classes which are highly interdependent and interrelated in the context of thecontract and each class is not distinct and not sold standalone. Therefore, the kindergarten services are accounted for as a singleperformance obligation.Play-and-learn center services provide a different series of classes which are highly interdependent and interrelated in thecontext of the contract and each class is not distinct and not sold standalone. Therefore, play-and-learn center services are accountedfor as a single performance obligation.Student care services provide a separate series of classes which are highly interdependent and interrelated in the context ofthe contract and each class is not distinct and not sold standalone. Therefore, student care services are accounted for as a singleperformance obligation.The transaction prices for kindergarten services, play-and-learn center services and students care center services aredetermined by the contract amount net of refund. For the kindergarten program, the students can claim certain amount of the tuitionrefund, upon withdrawal, if more than a certain number of classes are missed. For the play-and-learn program, students are entitledto refund, upon withdrawal, for unused portion of the prepaid course fees. For the student care services, the students can claimrefund, upon withdrawal, if classes are missed due to illness. The refund amount is subject to the refund policy at each facility andthe timing of the student’s withdrawal.Revenues for the kindergarten services and student care services are recognized on a straight line basis over the serviceperiod. 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 collectfrom franchisees the initial franchising fees and annual franchise fee. As the initial franchising service and annual franchisingservice are distinct from each other, we identify two performance obligations accordingly. The transaction price is allocated to eachperformance 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 asprepayments from customers. The set-up period usually begins with the site renovation or training services, whichever is earlier, tothe time point when kindergartens or play-and-learn centers commence operations, which is approximately 7 or 8 months. Initialfranchising fees are recognized over time throughout the set-up period.Annual franchise fees represent supporting services provided by us to the franchised kindergartens or play-and-learncenters. The related annual franchise fees are received upfront and recorded as deferred revenue. Annual franchise fees arerecognized over time throughout the contract terms. Table of Contents78Our educational merchandise consists of educational toys, teaching aids, textbooks and other goods. We consider bothfranchisees and end-users are our customers. Prepayments for sales of educational merchandise is recognized as prepayments fromcustomers. Sales of educational merchandise is accounted for as a single performance obligation, and recognize at the point of timewhen the control of promised goods is transferred to the customers.We provide training services to the franchisees of the franchised kindergartens and play-and-learn centers. We identified thetraining 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.We authorizes its business partners the right to use its educational courses and relevant solutions. The royalty fees arereceived upfront and recorded as deferred revenue. We identified the royalty fees as a single performance obligation, and revenuesare recognized over time throughout the contract terms.Consolidation of Variable Interest EntitiesOur consolidated financial statements include the financial statements of RYB Education, Inc., its subsidiaries, its VIEs andthe VIEs’ subsidiaries and kindergartens. All profits, transactions and balances among RYB Education, Inc., its subsidiaries, itsVIEs 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. AsRYB 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 ofkindergarten services. To comply with these foreign ownership restrictions, we operate substantially all of its education servicesthrough VIEs and the VIEs’ subsidiaries and kindergartens in the PRC. The VIEs and their subsidiaries and kindergartens holdleases and other assets necessary to provide education services and generate revenues.As a result of these contractual arrangements, we believe we are entitled to direct the activities that most significantly affectthe economic performance of Beijing RYB, Beiyao and Bozhi, and receive the economic benefits of Beijing RYB, Beiyao andBozhi. In making the conclusion that we are the primary beneficiaries of Beijing RYB, Beiyao and Bozhi, we believe our rightsunder 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 andenforceable under PRC laws and regulations currently in effect. We also believe that the minimum amount of considerationpermitted by the applicable PRC law to exercise the option has not represented a financial barrier or disincentive for us to currentlyexercise our rights under the equity disposal agreement and exclusive option agreement. In addition, our rights under the businessoperation agreement and powers of attorney have reinforced our abilities to direct the activities most significantly impacting BeijingRYB, 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, andby ensuring that service agreements are executed and renewed indefinitely, we have the rights to receive substantially all of theeconomic benefits from Beijing RYB, Beiyao and Bozhi. Accordingly, as the primary beneficiaries of Beijing RYB, Beiyao andBozhi and in accordance with U.S. GAAP, we consolidate its financial results and assets and liabilities in our consolidated financialstatements.In 2019 and 2020, 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-profitkindergartens as “for-profit” entities for accounting purposes. These not-for-profit kindergartens generally cannot declare dividendsor 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 ofliquidation of these not-for-profit kindergartens, the net proceeds can only continue to be used for another not-for-profit kindergartenwith similar purposes. In the unlikely case of liquidation of the not-for-profit kindergarten, we may be able to retain the residualvalue by naming another not-for-profit kindergarten of us in the PRC as the recipient, if one exists; however, we generally cannotname a for-profit entity as the recipient. Moreover, because the kindergarten generally would be required to provide for thecontinued education of its students, liquidation would not be a likely course of action and would be unlikely to result in significantresidual assets available for distribution. Table of Contents79We maintain control of these not-for-profit kindergartens through our rights to designate a majority of the governingentities’ 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 throughconsultation and service arrangements in which fees for such consultation and service are determined at our discretion. We have theability to provide additional contractual arrangements for educational and other services. We also have the ability to transfer oursponsor rights to govern these not-for-profit kindergartens to other parties, which could yield a return if and when these rights aretransferred.Under ASC 810-10, “Consolidation,” we believe we are the primary beneficiary of these not-for-profit kindergartensbecause we have, as further described herein: (1) the power to direct the activities of these not-for-profit kindergartens that mostsignificantly affect their educational and economic performance and (2) the right to receive economic benefits from contractual andother arrangements with these not-for-profit kindergartens that could potentially be significant to these not-for-profit kindergartens.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 andapplication of PRC laws and regulations, and we cannot assure you that the PRC government would agree that our corporatestructure or any of the above contractual arrangements comply with current or future PRC laws or regulations. PRC laws andregulations governing the validity of these contractual arrangements are uncertain and the relevant government authorities may havebroad discretion in interpreting these laws and regulations.Business CombinationsBusiness combinations are recorded using the acquisition method of accounting. The purchase price of the acquisition isallocated to the tangible assets, liabilities, identifiable intangible assets acquired and non-controlling interest, if any, based on theirestimated 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 TaxesCurrent income taxes are provided for in accordance with the laws of the relevant tax authorities. Deferred income taxesare recognized when temporary differences exist between the tax bases of assets and liabilities and their reported amounts in thefinancial statements. Net operating loss carry forwards and credits are applied using enacted statutory tax rates applicable to futureyears. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more-likely-than-not thata portion of or all of the deferred tax assets will not be realized. The impact of an uncertain income tax position is recognized at thelargest amount that is more-likely-than-not to be sustained upon audit by the relevant tax authority. An uncertain income tax positionwill not be recognized if it has less than a 50% likelihood of being sustained. Interest and penalties on income taxes will beclassified as a component of the provisions for income taxes.Fair Value of OptionsThe fair value of the options granted is estimated on the dates of grant using the binomial option pricing model with thefollowing assumptions used.Grant date 2018 2020 Risk-free interest rate(1) 2.73% 0.86%-0.93%Expected volatility(2) 38% 40%Expected dividend yield(3) — —Expected multiples(4) 2.2 2.2Fair value of underlying ordinary share(5) 17.40 2.38-2.7(1)We estimate risk-free interest rate based on the daily treasury long term rate of U.S. Department of the Treasury with a maturityperiod close to the expected term of the options. Table of Contents80(2)We estimated expected volatility based on the annualized standard deviation of the daily return embedded in historical shareprices 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 ourordinary 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 optionis 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 aretrospective valuation with the assistance of a third-party appraiser before September 27, 2017, and based on the Company’sshare price since September 27, 2017.Share-based CompensationShare-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 withcorresponding impact reflected in additional paid-in capital. When no future services are required to be performed by grantees inexchange for an award of equity instruments, the cost of the award is expensed on the grant date. We elect to recognize forfeitureswhen 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 allawards under the 2009 and 2017 Share Incentive Plans was 6,354,767 ordinary shares as of March 31, 2021.For share options, we used the binomial option pricing model determine the estimated fair value. For options grantedbefore our initial public offering, the volatility assumption was estimated based on the annualized standard deviation of the dailyreturn embedded in historical share prices of comparable companies with a time horizon close to the expected expiry of the term ofthe options. For options granted after our initial public offering, the volatility assumption was also considered the historical volatilityof 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 isdetermined by the closing quoted market price.Impairment Assessment on Long-Lived Assets and GoodwillLong-lived assets, including property, plant and equipment, operating lease right-of-use assets, intangible assets withdefinite lives, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of theasset may not be recoverable. When these events occur, we measure impairment by comparing the carrying amount of long-livedassets or asset group to the estimated undiscounted future cash flows expected to result from the use of the assets and their eventualdisposition. If the sum of the expected undiscounted cash flow is less than the carrying amount of the assets, we would recognize animpairment loss based on the fair value of the assets. Fair value is estimated based on various valuation techniques, including thediscounted value of estimated future cash flows. The evaluation of asset impairment requires us to make assumptions about futurecash flows over the life of the asset being evaluated. These assumptions require significant judgment and actual results may differfrom assumed and estimated amounts. We recorded impairment loss on property, plant, and equipment and operating lease right-of-use assets of nil, nil and US$428,000 during the years ended December 31, 2018, 2019 and 2020. We recorded impairment losses onintangible assets with definite lives of nil, US$79,000 and US$1,720,000 during the years ended December 31, 2018, 2019 and2020.The impairment test for intangible assets not subject to amortization consists of a comparison of the fair value of theintangible asset with its carrying value. If the carrying value of the intangible asset exceeds its fair value, an impairment loss isrecognized in an amount equal to that excess. No impairment charge was recognized for the years ended December 31, 2018, 2019and 2020. Table of Contents81The excess of the purchase price over the fair value of net assets acquired is recorded on the consolidated balance sheet asgoodwill. The guidance permits us to first assess qualitative factors to determine whether it is “more likely than not” that the fairvalue of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-stepgoodwill impairment test.We performed annual impairment test, at December 31, using a two-step approach. The first step compares the fair value ofa 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 carryingamount, the second step of the impairment test measures the amount of the impairment loss, if any, by comparing the implied fairvalue of goodwill to its carrying amount. If the carrying amount of goodwill exceeds its implied fair value, an impairment loss isrecognized equal to that excess. The implied fair value of goodwill is calculated in the same manner that goodwill is calculated in abusiness combination, whereby the fair value of the reporting unit is allocated to all of the assets and liabilities of that unit, with theexcess purchase price over the amounts assigned to assets and liabilities representing the implied fair value of goodwill. Werecorded impairment losses on goodwill of nil, US$337,000 and US$8,454,000 during the years ended December 31, 2018, 2019and 2020.Depreciation and AmortizationThe costs of property and equipment and acquired finite-lived intangible assets are charged ratably as depreciation andamortization expenses, respectively, over the estimated useful lives of the respective assets using the straight-line method. Weperiodically review changes in technology and industry conditions, asset retirement activity and residual values to determineadjustments to estimated remaining useful lives and depreciation and amortization rates. Actual economic lives may differ fromestimated useful lives. Periodic reviews could result in a change in estimated useful lives and therefore depreciation andamortization expenses in future periods.LeasesWe have lease contracts for offices, kindergartens, play-and-learn centers and student care centers in different cities in thePRC and Singapore under operating leases. We determine whether an arrangement constitutes a lease and record lease liabilities andright-of-use assets on our consolidated balance sheets at the lease commencement. We measure our lease liabilities based on thepresent value of the total lease payments not yet paid discounted based on the more readily determinable of the rate implicit in thelease or its incremental borrowing rate, which is the estimated rate we would be required to pay for a collateralized borrowing equalto the total lease payments over the term of the lease. We estimate our incremental borrowing rate based on an analysis of publiclytraded debt securities of companies with credit and financial profiles similar to us. We measure right-of-use assets based on thecorresponding lease liability adjusted for payments made to the lessor at or before the commencement date, and initial direct costs itincurs under the lease. We begin recognizing rent expense when the lessor makes the underlying asset available to us. Our leaseshave remaining lease terms of up to 19 years, none of them include options to extend or terminate the leases.For leases with lease term less than one year (short-term leases), the Group records operating lease expense in itsconsolidated statements of operations on a straight-line basis over the lease term and record variable lease payments as incurred.Recent Accounting PronouncementsA list of recent accounting pronouncements that are relevant to us is included in note 2 to our consolidated financialstatements, which are included in this annual report. Table of Contents82B. Liquidity and Capital ResourcesThe following table sets forth the movements of our cash and cash equivalents for the periods presented:Years Ended December 31, 2018 2019 2020(in thousands of US$)Summary Consolidated Cash Flow:Net cash generated from/(used in) operating activities 828 12,982 (6,526)Net cash used in investing activities (51,735) (34,378) (2,585)Net cash (used in)/generated from financing activities (756) (13,454) 556Exchange rate effect on cash and cash equivalents and restricted cash (2,741) (542) (6,302)Net decrease in cash and cash equivalents and restricted cash (54,404) (35,392) (14,857)Cash and cash equivalents and restricted cash at beginning of year 159,234 104,830 69,438Cash and cash equivalents and restricted cash at end of year 104,830 69,438 54,581To date, we have financed our operations primarily through cash generated by operating activities and historical equityfinancing activities. As of December 31, 2018, 2019 and 2020, our cash and cash equivalents and restricted cash were US$104.8million, US$69.4 million and US$54.6 million, respectively. Restricted cash represents Renminbi deposits in restricted bankaccounts for operating kindergartens required by certain local regulations. The deposits in restricted bank accounts cannot bewithdrawn until these kindergartens are closed. As of December 31, 2018, 2019 and 2020 restricted cash were approximatelyUS$0.7 million, US$0.7 million and US$1.1 million, respectively. Approximately 89.4% of our cash and cash equivalents andrestricted cash as of December 31, 2020 were held in China. Approximately 42.6% of our cash and cash equivalents and restrictedcash 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 ourfinancial condition and operations during the first three quarters of 2020. Since February 2020, most of our facilities in China havebeen closed until May 2020 when our facilities began a phased reopening. As of December 31, 2020, all of our directly operatedkindergartens, play-and-learn centers and student care centers in both China and Singapore have resumed operation. During the year,we have taken various mitigating steps to cope with COVID-19’s adverse impact on our operations and liquidity, including (i)reducing labor costs and operational expenses, (ii) postponing discretionary capital expenditures and (iii) obtaining bank facilities ifnecessary. By cutting expenses and reducing costs reasonably, streamlining team structure and adjusting personnel, the Companysuccessfully overcome the challenges brought by the COVID-19 pandemic and maintained a healthy cash position by the end of2020.We may also decide to enhance our liquidity position or increase our cash reserve for future expansions and acquisitionsthrough additional financing activities. The issuance and sale of additional equity would result in further dilution to ourshareholders. The incurrence of indebtedness would result in increased fixed obligations and could result in operating covenants thatmay restrict our operations and ability to make distributions. However, financing may not be available in amounts or on termsfavorable to us.Although we consolidate the results of our consolidated variable interest entity and its subsidiaries, we only have access tothe 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 capitalresources as a result of our corporate structure, see “Item 5. Operating and Financial Review and Prospects—B. Liquidity andCapital Resources—Holding Company Structure.”In utilizing the proceeds we received from our initial public offering and the other cash that we hold offshore, we maymake additional capital contributions to our PRC subsidiaries, establish new PRC operating entities, make loans to our PRCoperating entities, or acquire offshore entities with business operations in China in offshore transactions. Most of these uses aresubject to PRC regulations and approvals. Table of Contents83Operating ActivitiesNet cash used in operating activities in the year ended December 31, 2020 was US$6.5 million. The difference between ournet loss of US$41.2 million and the net cash used in operating activities was due to (i) an adjustment to add back US$44.7 million innon-cash and non-operating items, which mainly consist of US$15.6 million from the reduction in the carrying amount of the right-of-use assets, US$13.0 million from impairment losses, US$11.7 million from depreciation and amortization, and (ii) changes incertain working capital accounts that affected operating cash flow, primarily including a US$14.3 million decrease in operating leaseliabilities, a US$1.7 million decrease in accrued expenses and other current liabilities, and a US$1.4 million decrease in deferredrevenue; which was partially offset by a US$1.7 million decrease in our inventories, and a US$3.7 million increase in our incometax payable. Operating lease liabilities were decreased mainly due to the lease payment. Accrued expenses and other currentliabilities were decreased mainly due to the decrease in salary and welfare payable as a result of our cost control measures tomitigate impacts by COVID-19.Net cash generated from operating activities in the year ended December 31, 2019 was US$13.0 million. The differencebetween our net loss of US$2.2 million and the net cash generated from operating activities was due to (i) an adjustment to add backUS$16.2 million in non-cash and non-operating items, which mainly consist of US$11.5 million from depreciation and amortizationand US$4.0 million from share-based compensation, (ii) a decrease of cash as result of increase in working capital. In 2019, ouraccounts receivable increased for US$1.7 million, inventories increased for US$2.0 million, other non-current assets increased forUS$2.3 million, prepayment from customers decreased for US$1.4 million and deferred tax assets increased for US$2.7 million, thiseffect was partially offset by an increase of US$5.6 million in accrued expenses and other liabilities and an increase of US$3.4million in income tax payable. Prepayment from customers decreased mainly due to our proactive slowdown of expansion infranchise network in the second half of 2019. Deferred tax assets increased mainly because several of our subsidiaries and directlyoperated facilities recorded loss in 2019. Accrued expenses and other current liabilities increased mainly due to the increase insalary and welfare payable that accompanied the increase in the number of employees and network expansion. Current income taxesare provided for in accordance with the laws of the relevant tax authorities. It increased in 2019 due to the increase in our taxableincome in the fourth quarter of 2019.Net cash generated from operating activities in the year ended December 31, 2018 was US$0.8 million. The differencebetween our net loss of US$1.7 million and the net cash used in operating activities was due to (i) an adjustment to add backUS$13.9 million in non-cash and non-operating items, which mainly consist of US$7.5 million from depreciation and US$6.7million from share-based compensation, (ii) a decrease of cash as result of increase in working capital. In 2018, our prepaymentfrom customers decreased for US$12.9 million and deferred tax assets increased for US$4.6 million, and this effect was partiallyoffset by an increase of US$5.3 million in accrued expense and other liabilities and an increase of US$1.7 million in income taxpayable. We lease property and own furniture, fixtures, equipment and leasehold improvement for the operation of kindergartens andplay-and-learn centers, and they are depreciated over their estimated useful life. Prepayment from customers decreased as wesuspended new franchise applications and made some one-time refunds to certain franchisees during the year of 2018. Accruedexpenses and other current liabilities increased mainly because of the increase in salary and welfare payable that accompanied theincrease in the number of employees. Current income taxes are provided for in accordance with the laws of the relevant taxauthorities. It increased in 2018 due to the increase in our taxable income in the fourth quarter of 2018. Several of our subsidiariesand directly operated kindergartens recorded loss in 2018, which contributed to the increase in our deferred tax assets.Investing ActivitiesNet cash used in investing activities was US$2.6 million in the year ended December 31, 2020, primarily due to US$4.0million used in purchase of property, plant and equipment and spending on leasehold improvement.Net cash used in investing activities was US$34.4 million in the year ended December 31, 2019, primarily due to US$17.9million used in acquisition related payments and US$12.5 million used in purchase of property, plant and equipment and spendingon 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$39.8million used in acquisition related payments and US$11.5 million used in purchase of property, plant and equipment and spendingon leasehold improvement to support our expansion of directly operated kindergartens. Table of Contents84Financing ActivitiesNet cash generated from financing activities in the year ended December 31, 2020 was US$0.6 million, which wasprimarily attributable to capital contribution from noncontrolling interests of US$0.8 million.Net cash used in financing activities in the year ended December 31, 2019 was US$13.5 million, which was primarilyattributable 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 primarilyattributable to payment of initial public offering expenses of US$1.4 million, partially offset by capital contribution fromnoncontrolling interests of US$0.8 million.Capital ExpendituresOur capital expenditures are incurred mainly for new teaching facility establishment and existing facility renovations. Wemade capital expenditures of US$16.3 million, US$14.1 million and US$4.8 million in 2018, 2019 and 2020, respectively. Thedecrease of capital expenditures was mainly due to the slowdown of our directly operated facilities expansion in 2020 caused by theCOVID-19 impact.We will continue to make capital expenditures to support the expected growth of our business.Holding Company StructureRYB Education, Inc. is a holding company with no material operations of its own. We conduct our operations primarilythrough our subsidiary, our consolidated variable interest entity and its subsidiaries in China. As a result, RYB Education, Inc.’sability to pay dividends depends upon dividends paid by our PRC subsidiary. In addition, our wholly foreign-owned subsidiary inChina is permitted to pay dividends to us only out of its retained earnings, if any, as determined in accordance with PRC accountingstandards and regulations. Under PRC law, each of our subsidiary and our consolidated variable interest entity in China is requiredto set aside at least 10% of its after-tax profits each year, if any, to fund certain statutory reserve funds until such reserve funds reach50% of their registered capital. In addition, our wholly foreign-owned subsidiary in China may allocate a portion of its after-taxprofits based on PRC accounting standards to enterprise expansion funds and staff bonus and welfare funds at its discretion, and ourconsolidated variable interest entity may allocate a portion of its after-tax profits based on PRC accounting standards to a surplusfund at its discretion. The statutory reserve funds and the discretionary funds are not distributable as cash dividends. Remittance ofdividends by a wholly foreign-owned company out of China is subject to examination by the banks designated by SAFE. Our PRCsubsidiary has not paid dividends and will not be able to pay dividends until they generate accumulated profits and meet therequirements 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 InformationOther than as disclosed elsewhere in this annual report, we are not aware of any trends, uncertainties, demands,commitments or events since January 1, 2020 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 indicativeof future operating results or financial conditions.E. Off-balance Sheet ArrangementsWe have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any thirdparties. In addition, we have not entered into any derivative contracts that are indexed to our shares and classified as shareholder’sequity or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingentinterest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We donot have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us orengages in leasing, hedging or product development services with us. Table of Contents85F. Tabular Disclosure of Contractual ObligationsThe following table sets forth our contractual obligations as of December 31, 2020:Payment Due by Period Less than 1 More than 5Total year1-3 years3-5 yearsyears(in thousands of US$)Operating Lease Obligations 123,429 17,838 31,278 22,983 51,330Purchase Obligations 4,628 558 815 464 2,791Total 128,057 18,396 32,093 23,447 54,121Our operating lease obligations relate to our leases of office premises. We lease our office premises under non-cancelableoperating lease arrangements. Rental expenses under operating leases for 2018, 2019 and 2020 were US$16.2 million, US$20.3million and US$16.9 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, orguarantees as of December 31, 2020.G. Safe HarborSee “Forward-Looking Statements” on page 1 of this annual report.ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEESA. Directors and Senior ManagementThe following table sets forth information regarding our directors and executive officers as of March 31, 2021.Directors and Executive Officers Age Position/Title Chimin Cao57Co-founder, Executive Director and Chairman of theBoardYanlai Shi50Co-founder, Executive Director and Chief ExecutiveOfficerCen Shi45DirectorJoel A. Getz56Independent DirectorDennis Demiao Zhu57Independent DirectorZhengong Chang70Independent DirectorHao Gu39Chief Financial OfficerMr. Chimin Cao is our co-founder and has served as chairman of the board since our inception. Mr. Cao has a wealth ofexperience in the early childhood education industry. Together with Ms. Yanlai Shi, Mr. Cao established our first play-and-learncenter in 1998 and then incorporated Beijing RYB to expand our operations in July 2001. Prior to that, Mr. Cao founded BeijingDongrun Fandoule Kepu Entertainment Co. Ltd. in 1996 as the first franchise to introduce Fun Dazzle indoor playgrounds toBeijing. Mr. Chimin Cao received his joint master’s degree of management from the Australian National University and TsinghuaUniversity in 2007.Ms. Yanlai Shi is our co-founder and has served as director and chief executive officer since our inception. Ms. Shi is apioneer of the early childhood education industry in China. Ms. Shi also holds various positions, including a member of NationalCommittee of the Chinese People’s Political Consultative Conference of Fengtai District, Beijing, and a representative of the 11thNational Congress of Chinese Women. Ms. Shi has received many honors in the business world as well. To name a few, she wasawarded “Leader of Education Industry” in 2016 and “The Most Influential Business Women in China” in 2014. Ms. Shi receivedher bachelor’s degree in law from Peking University and joint master’s degree in management from the Australian NationalUniversity and Tsinghua University. Table of Contents86Mr. Cen Shi joined our board as a director in December 2020. Mr. Shi is a partner of Ascendent Capital Partners, a China-based private equity firm. Prior to joining Ascendent, Mr. Shi was senior vice president of D. E. Shaw & Co., responsible for itsGreater China private equity investment business. Prior to that, Mr. Shi served as vice president at CCMP Capital Asia Pte Ltd.(formerly known as JP Morgan Partners Asia), where he focused on buyouts and other private equity investments in the Asia Pacificregion. He began his career at Goldman Sachs Investment Banking division, where he worked on equity offerings and cross-bordermergers and acquisitions for Chinese companies. Mr. Shi received his bachelor’s degree and master’s degree in economics fromTsinghua University.Mr. Joel A. Getz started to serve as our director in September 2017. Mr. Getz is now the Deputy Dean for Alumni,Development, and Special Initiatives at the Yale School of Management. In addition to that, Mr. Getz serves as secretary andindependent director of Stephan Co., a publicly traded manufacturer and distributor of hair care, skincare and personal care items inthe U.S. Prior to that, Mr. Getz held senior development roles at several non-profit organizations. From 1990 to 1997, Mr. Getz wasthe president and co-founder of Rim Pacific, a manufacturing and distribution firm focusing on art reproductions. Mr. Getz receivedhis B.A. in 1986 from Harvard University.Mr. Dennis Demiao Zhu started to serve as our director in September 2017. Mr. Zhu worked at Oaktree Capital (HongKong) 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 Committeeat JPMorgan Chase. Between 1994 and 1999, Mr. Zhu worked at Credit Suisse First Boston in the Equity Capital Markets andInvestment Banking departments as Head of China Businesses. From 1992 to 1994, Mr. Zhu worked at FMC Corporation’sInvestment Analysis Department and was based in Chicago. Mr. Zhang received his M.B.A. degree from the University of ChicagoBooth School of Business in 1993 and is currently the co-chairman of Asia Regional Cabinet of the Global Advisory Board of theUniversity 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 FYJSInvestment Inc. Between April 2013 and April 2014, Mr. Chang served as a consultant to Huawei Technologies Co., Ltd, and he wasan independent director of the board of BOYA Software Group between April 2011 and April 2015. From September 2011 toSeptember 2013, Mr. Chang was an independent director of the board of Beijing Yucheng Technologies Limited. Mr. ZhengongChang has been the co-chairman of the Federation of Sino-Canadian Business Marketing Association since 2006. Mr. Chang alsofounded and served as the president of CBL Data Recovery Technologies Inc. from March 1992 to May 2010. Mr. Chang receivedhis 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 inthe investment banking division at the Hong Kong branch of UBS AG. Between 2017 and 2018, Mr. Gu was vice president in theinvestment banking division at Credit Suisse (Hong Kong) Limited, where he originated and executed various transactions focusingon social media, education and IT services. Mr. Gu received his B.A. from Beijing Foreign Studies University and M.B.A. fromCornell University.Employment Agreements and Indemnification AgreementsWe have entered into employment agreements with each of our executive officers. Under these agreements, each of ourexecutive officers is employed for a specified time period. We may terminate employment for cause, at any time, without advancenotice or remuneration, for certain acts of the executive officer, such as conviction or plea of guilty to a felony or any crimeinvolving moral turpitude, negligent or dishonest acts to our detriment, or misconduct or a failure to perform agreed duties. We mayalso terminate an executive officer’s employment without cause upon three-month advance written notice. In such case oftermination by us, we will provide severance payments to the executive officer as expressly required by applicable law of thejurisdiction where the executive officer is based. The executive officer may resign at any time with a three-month advance writtennotice. Table of Contents87Each executive officer has agreed to hold, both during and after the termination or expiry of his or her employmentagreement, in strict confidence and not to use, except as required in the performance of his or her duties in connection with theemployment or pursuant to applicable law, any of our confidential information or trade secrets, any confidential information or tradesecrets of our clients or prospective clients, or the confidential or proprietary information of any third party received by us and forwhich 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 andto assign all right, title and interest in them to us, and assist us in obtaining and enforcing patents, copyrights and other legal rightsfor these inventions, designs and trade secrets.In addition, each executive officer has agreed to be bound by non-competition and non-solicitation restrictions during theterm of his or her employment and typically for one year following the last date of employment. Specifically, each executive officerhas agreed not to; (i) approach our suppliers, clients, customers or contacts or other persons or entities introduced to the executiveofficer in his or her capacity as a representative of us for the purpose of doing business with such persons or entities that will harmour 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) seekdirectly or indirectly, to solicit the services of any of our employees who is employed by us on or after the date of the executiveofficer’s termination, or in the year preceding such termination, without our express consent.We have also entered into indemnification agreements with each of our directors and executive officers. Under theseagreements, we agree to indemnify our directors and executive officers against certain liabilities and expenses incurred by suchpersons in connection with claims made by reason of their being a director or officer of our company.B. Compensation of Directors and Executive OfficersFor the fiscal year ended December 31, 2020, we paid an aggregate of approximately RMB12.4 million in cash to ourdirectors and executive officers. We have not set aside or accrued any amount to provide pension, retirement or other similarbenefits to our directors and executive officers. Our PRC subsidiaries and variable interest entity are required by law to makecontributions 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 PlanIn September 2009, our board of directors approved the 2009 Share Incentive Plan, which we refer to as the 2009 Plan inthis annual report, to attract and retain the best available personnel, provide additional incentives to employees, directors andconsultants and promote the success of our business. The maximum aggregate number of shares that may be issued under the 2009Plan 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, 2021, options topurchase 2,019,256 ordinary shares have been granted and outstanding, excluding awards that were forfeited or cancelled after therelevant 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 theparticipants 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 thegrantee’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% vestingat the 1st, 2nd and 3rd anniversary. Table of Contents88Exercise of Options. The plan administrator determines the exercise price for each award, which is stated in the awardagreement. The vested portion of option will expire if not exercised prior to the time as the plan administrator determines at the timeof its grant. However, the maximum exercisable term is nine years from the date of a grant.The following table summarizes, as of March 31, 2021, the options granted under our 2009 Plan to our directors andexecutive officers, excluding awards that were forfeited or cancelled after the relevant grant dates. Ordinary Shares Underlying OptionsExercise PriceNameAwarded(US$/Share)Date of GrantDate of ExpirationChimin Cao * 3.11 September 29, 2013 From November 17, 2023 to July 15, 2024Yanlai Shi 583,460 1.08 September 11, 2009 From April 27, 2018 to May 27, 2024 * 3.11 September 29, 2013 From November 17, 2023 to July 15, 2024* 1.08November 5, 2015November 4, 2023 789,096 3.11 November 5, 2015 November 4, 2023* 1.08July 1, 2017June 30, 2025 * 3.11 July 1, 2017 June 30, 2025* Less than 1% of our total outstanding shares.As of March 31, 2021, other employees as a group held options to purchase 791,450 ordinary shares of our company, withexercise prices ranging from US$1.08 to US$3.11 per share.2017 Share Incentive PlanIn 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 additionalincentives to employees, directors and consultants and promote the success of our business. Under the 2017 Plan, the maximumaggregate number of shares which may be issued pursuant to all awards is initially 2,059,005 Class A ordinary shares, plus anannual increase in the maximum number of Class A ordinary shares on the first day of each of our fiscal year during the term of the2017 Plan commencing with the fiscal year beginning January 1, 2018, by an amount equal to the lesser of (i) 2.0% of the totalnumber of ordinary shares issued and outstanding on the last day of the immediately preceding fiscal year, and (ii) such number asmay be determined by the board of directors. As of March 31, 2021, the maximum aggregate number of shares which may be issuedpursuant to all awards under the 2017 Plan was 4,331,011 Class A ordinary shares, and options to purchase 2,780,486 ordinaryshares and restricted shares have been granted and outstanding, excluding awards that were forfeited or cancelled after the relevantgrant 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 thecommittee decides.Plan Administration. Our board of directors or a committee of one or more members of the board of directors willadminister the 2017 Plan. The committee or the full board of directors, as applicable, will determine the participants to receiveawards, 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 thegrantee’s employment or service terminates, and our authority to unilaterally or bilaterally amend, modify, suspend, cancel orrescind the award.Eligibility. We may grant awards to our employees, directors and consultants of our company. However, we may grantoptions that are intended to qualify as incentive share options only to our employees and employees of our parent companies andsubsidiaries.Vesting Schedule. In general, the plan administrator determines the vesting schedule, which is specified in the relevantaward agreement. Table of Contents89Exercise of Options. The plan administrator determines the exercise price for each award, which is stated in the awardagreement. The vested portion of option will expire if not exercised prior to the time as the plan administrator determines at the timeof 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 ofdescent 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 boardof directors has the authority to amend or terminate the plan. However, no such action may adversely affect in any material way anyawards previously granted unless agreed by the recipient.The following table summarizes, as of March 31, 2021, the options granted under our 2017 Plan to our directors andexecutive officers, excluding awards that were forfeited or cancelled after the relevant grant dates. Ordinary Shares Underlying Optionsand Restricted SharesExercise PriceNameAwarded(US$/Share)Date of GrantDate of ExpirationChimin Cao 514,751 11.66 June 22, 2017 June 21, 2027 *(1) N/A March 14, 2018 March 13, 2028 *(1) N/A August 20, 2019 August 19, 2029*(1) N/AAugust 27, 2020August 26, 2030Yanlai Shi 772,127 11.66 June 22, 2017 June 21, 2027 *(1) N/A March 14, 2018 March 13, 2028 *(1) N/A August 20, 2019 August 19, 2029*(1) N/AAugust 27, 2020August 26, 2030Hao Gu *(1) N/A July 29, 2019 July 28, 2029*(1) N/ADecember 4, 2019December 3, 2029 *(1) N/A August 27, 2020 August 26, 2030(1)Restricted shares* Less than 1% of our total outstanding shares.As of March 31, 2021, other employees as a group held options to purchase 1,296,324 ordinary shares of our company,with exercise price ranging from US$0.001 to US$11.66 per share.C. Board PracticesOur board of directors consists of six directors. A director is not required to hold any shares in our company to qualify toserve as a director. A director who is in any way, whether directly or indirectly, interested in a contract or transaction or proposedcontract or transaction with our company is required to declare the nature of his interest at a meeting of our directors. A director mayvote in respect of any contract or transaction, proposed contract or transaction notwithstanding that he may be interested therein, andif 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 suchcontract or transaction or proposed contract or transaction is considered. The directors may exercise all the powers of the companyto raise or borrow money, mortgage or charge its undertaking, property and assets (present and future) and uncalled capital or anyparty thereof, and issue debentures, debenture stock, bonds and other securities, whether outright or as collateral security for anydebt, liability or obligation of the company or of any third party. None of our non-executive directors has a service contract with usthat provides for benefits upon termination of service.Committees of the Board of DirectorsWe have established three committees under the board of directors: an audit committee, a compensation committee and anominating and corporate governance committee. We have adopted a charter for each of the three committees. Each committee’smembers and functions are described below. Table of Contents90Audit 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 auditcommittee oversees our accounting and financial reporting processes and the audits of the financial statements of our company. Theaudit committee is responsible for, among other things:●appointing the independent auditors and pre-approving all auditing and non-auditing services permitted to beperformed 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 stepstaken 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●monitoring compliance with our code of business conduct and ethics, including reviewing the adequacy andeffectiveness of our procedures to ensure proper compliance.Compensation Committee. Our compensation committee consists of Mr. Joel A. Getz, Mr. Dennis Demiao Zhu andMr. Zhengong Chang. Mr. Chang is the chairman of our compensation committee. We have determined that Mr. Getz, Mr. Zhu andMr. Chang satisfy the “independence” requirements of Section 303A of the Corporate Governance Rules of the New York StockExchange. The compensation committee assists the board in reviewing and approving the compensation structure, including allforms of compensation, relating to our directors and executive officers. Our chief executive officer may not be present at anycommittee meeting during which his compensation is deliberated. The compensation committee is responsible for, among otherthings:●reviewing and approving, or recommending to the board for its approval, the compensation for our chief executiveofficer and other executive officers;●reviewing and recommending to the board for determination with respect to the compensation of our non-employeedirectors;●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 factorsrelevant to that person’s independence from management.Nominating and Corporate Governance Committee. Our nominating and corporate governance committee consists ofMr. Chimin Cao, Mr. Dennis Demiao Zhu and Mr. Zhengong Chang. Mr. Cao is the chairperson of our nominating and corporategovernance committee. Each of Mr. Zhu and Mr. Chang satisfies the “independence” requirements of Section 303A of the CorporateGovernance Rules of the New York Stock Exchange. The nominating and corporate governance committee assists the board ofdirectors in selecting individuals qualified to become our directors and in determining the composition of the board and itscommittees. 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 asindependence, knowledge, skills, experience and diversity; Table of Contents91●making recommendations on the frequency and structure of board meetings and monitoring the functioning of thecommittees of the board; and●advising the board periodically with regards to significant developments in the law and practice of corporategovernance as well as our compliance with applicable laws and regulations, and making recommendations to theboard on all matters of corporate governance and on any remedial action to be taken.Duties of DirectorsUnder Cayman Islands law, our directors owe fiduciary duties to our company, including a duty of loyalty, a duty to acthonestly, and a duty to act in what they consider in good faith to be in our best interests. Our directors must also exercise theirpowers only for a proper purpose. Our directors owe to our company a duty to exercise the care, and diligence that a reasonablyprudent person would exercise in comparable circumstances and a duty to exercise the skill they actually possess. It was previouslyconsidered that a director need not exhibit in the performance of his duties a greater degree of skill than may reasonably be expectedfrom a person of his knowledge and experience. However, English and Commonwealth courts have moved towards an objectivestandard with regard to the required skill and care and these authorities are likely to be followed in the Cayman Islands. In fulfillingtheir duty of care to us, our directors must ensure compliance with our memorandum and articles of association, as amended andrestated from time to time, and the class rights vested thereunder in the holders of the shares. In certain limited exceptionalcircumstances, a shareholder may have the right to seek damages in our name if a duty owed by our directors is breached.Our board of directors has all the powers necessary for managing, and for directing and supervising, our business affairs.The functions and powers of our board of directors include, among others:●convening shareholders’ annual 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 OfficersOur directors may be appointed by an ordinary resolution of our shareholders. Our directors are not subject to a term ofoffice, unless such term is expressly specified in a written agreement between the company and the director or otherwise, and holdoffice until such time as they are removed from office by ordinary resolution of the shareholders. A director will also cease to be adirector automatically if, among other things, the director (i) becomes bankrupt or makes any arrangement or composition with hiscreditors; (ii) dies or is found by our company to be or becomes of unsound mind; (iii) resigns his office by notice in writing to ourcompany; or (iv) without special leave of absence from our board, is absent from three consecutive board meetings and our boardresolves 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 thevacancy so created. Our officers are elected by and serve at the discretion of the board of directors. Table of Contents92D. EmployeesAs of December 31, 2018, 2019 and 2020, we had a total of 5,785, 6,547 and 6,338 employees, respectively. The majorityof our employees are located in China. The following table sets forth the breakdown of our own employees as of December 31, 2020by function: NumberofFunctions:EmployeesTeaching staff in directly operated teaching facilities 4,087Other staff in directly operated teaching facilities and supporting branch offices 1,770Network support and supervision 193Research and development* 37Selling, general and administrative 251Total 6,338* Note: Aside from our dedicated research and development team, many of our teaching staff and facility principals also activelyparticipate in our daily content development activities.We believe we offer our employees competitive compensation packages and a merit-based work environment thatencourages proactivity and responsibility, and, as a result, we have generally been able to attract and retain qualified personnel.We believe we offer our employees competitive compensation packages and a merit-based work environment thatencourages initiative, and as a result, we have generally been able to attract and retain qualified personnel and maintain a stable coremanagement team.As required by PRC regulations, we participate in various government statutory employee benefit plans, including socialinsurance funds, namely a pension contribution plan, a medical insurance plan, an unemployment insurance plan, a work-relatedinjury insurance plan, a maternity insurance plan, and a housing provident fund. We are required by PRC law to make contributionsto employee benefit plans at specified percentages of the salaries, bonuses and certain allowances of our employees, up to amaximum 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 intellectualproperty rights agreements with our key employees.We believe that we maintain a good working relationship with our employees, and we have not experienced any majorlabor disputes.E. Share OwnershipThe following table sets forth information with respect to the beneficial ownership of our ordinary shares as of March 31,2021 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 sharesoutstanding as of March 31, 2021, excluding the Company’s repurchase of 1,627,455 Class A ordinary shares in the form of ADSsmade by December 31, 2020. Table of Contents93Beneficial ownership is determined in accordance with the rules and regulations of the SEC. In computing the number ofshares beneficially owned by a person and the percentage ownership of that person, we have included shares that the person has theright to acquire within 60 days after March 31, 2021, including through the exercise of any option, warrant or other right or theconversion of any other security. These shares, however, are not included in the computation of the percentage ownership of anyother person.Ordinary Shares Beneficially Owned Percentage of Class AClass BPercentage ofaggregate ordinaryordinaryTotal ordinarytotal ordinaryvoting shares sharessharesshares power† Directors and Executive Officers:**Chimin Cao(1) 4,738,433 2,059,005 6,797,438 24.1% 27.9%Yanlai Shi(2) 2,342,416 2,059,005 4,401,421 14.9% 24.9%Cen Shi(3) 5,713,612 2,831,131 8,544,743 31.0% 37.8%Joel A. Getz — — — — —Dennis Demiao Zhu — — — — —Zhengong Chang — — — — —Hao Gu(4) * — * * *All Directors and Executive Officers as a Group 12,905,745 6,949,141 19,854,886 70.3% 90.7%Principal Shareholders: Ascendent Rainbow (Cayman) Limited(5) 5,713,612 2,831,131 8,544,743 31.0% 37.8%Joy Year Limited(6) 4,135,854 2,059,005 6,194,859 22.0% 27.4%Trump Creation Limited(7) 2,108,691 — 2,108,691 7.6% 2.3%Bloom Star Limited(8) — 1,194,865 1,194,865 4.0% 13.3%RYB Education Limited(9) 300,741 864,140 1,164,881 3.9% 9.9%† For each person and group included in this column, percentage of voting power is calculated by dividing the voting powerbeneficially owned by such person or group by the voting power of all of our Class A and Class B ordinary shares as a singleclass. Each holder of Class A ordinary shares is entitled to one vote per share and each holder of our Class B ordinary shares isentitled to ten votes per share on all matters submitted to them for a vote. Our Class A ordinary shares and Class B ordinaryshares vote together as a single class on all matters submitted to a vote of our shareholders, except as may otherwise be requiredby 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. Cen Shi, Dennis Demiao Zhu and Zhengong Chang, the business address of our directors and executiveofficers 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. Cen Shi’s is Suite 3501, 35/F, Jardine House, 1 Connaught Place, Central, Hong Kong. Thebusiness address of Mr. Dennis Demiao Zhu is Park Avenue 2-29G, 6 Chaoyang Park Nanlu, Beijing, 100026, People’sRepublic 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 BritishVirgin Islands company, (ii) 497,579 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, 2021, and (iii) 105,000 restricted share unitsissuable to Mr. Cao within 60 days after March 31, 2021. Both Joy Year Limited and Top Genius Ventures Limited areultimately held by The Top Genius Trust, a trust established with the laws of Guernsey and managed by Credit Suisse TrustLimited as the trustee. Mr. Chimin Cao is the settlor of The Top Genius Trust, and Mr. Cao and his family members are thetrust’s beneficiaries. Under the terms of this trust, Mr. Cao has the power to direct the trustee with respect to the retention ordisposal of, and the exercise of any voting and other rights attached to the shares held by Joy Year Limited and Top GeniusVentures Limited in our company. Table of Contents94(2)Represents (i) 1,194,865 Class B ordinary shares held by Bloom Star Limited, a British Virgin Islands company, (ii) 300,741Class A ordinary shares and 864,140 Class B ordinary shares held by RYB Education Limited, a Cayman Islands company,(iii) 1,936,675 Class A ordinary shares Noble Hero Holdings Limited, a British Virgin Islands company, has the right to acquireupon exercise of option within 60 days after March 31, 2021, and (iv) 105,000 restricted share units issuable to Ms. Shi within60 days after March 31, 2021. Bloom Star Limited, Noble Hero Holdings Limited and RYB Education Limited are allultimately held by The Noble Hero Trust, a trust established with the laws of Guernsey and managed by Credit Suisse TrustLimited as the trustee. Ms. Yanlai Shi is the settlor of The Noble Hero Trust, and Ms. Shi and her family members are the trust’sbeneficiaries. Under the terms of this trust, Ms. Shi has the power to direct the trustee with respect to the retention or disposalof, and the exercise of any voting and other rights attached to the shares held by Bloom Star Limited, Noble Hero HoldingsLimited 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. Cen Shi is partner of Ascendent Capital Partners II, L.P., the sole shareholder of Ascendent Rainbow (Cayman)Limited.(4)Represents the 111,284 Class A ordinary shares Mr. Hao Gu has the right to acquire upon exercise of option or vesting ofrestricted shares within 60 days after March 31, 2021.(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, whosegeneral partner is Ascendent Capital Partners II GP, L.P., another Cayman Islands limited partnership. The general partner ofAscendent Capital Partners II GP., L.P. is Ascendent Capital Partners II GP Limited, a Cayman Islands company.(6)Represents the 4,135,854 Class A ordinary shares and 2,059,005 Class B ordinary shares held by Joy Year Limited, a BritishVirgin Islands company. Joy Year Limited is ultimately held by The Top Genius Trust. Mr. Chimin Cao is the settlor and proctorof The Top Genius Trust, and Mr. Cao and his family members are its beneficiaries. Under the terms of this trust, Mr. Cao hasthe power to direct the trustee with respect to the retention or disposal of, and the exercise of any voting and other rightsattached 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. Theregistered address of Trump Creation Limited is P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, BritishVirgin Islands.(8)Represents the 1,194,865 Class B ordinary shares held by Bloom Star Limited, a British Virgin Islands company. Bloom StarLimited is ultimately held by The Noble Hero Trust, a trust established with the laws of Guernsey and managed by CreditSuisse Trust Limited as the trustee. Ms. Yanlai Shi is the settlor of The Noble Hero Trust, and Ms. Shi and her family membersare the trust’s beneficiaries. Under the terms of this trust, Ms. Shi has the power to direct the trustee with respect to the retentionor disposal of, and the exercise of any voting and other rights attached to the shares held by Bloom Star Limited in ourcompany.(9)Represents the 300,741 Class A ordinary shares and 864,140 Class B ordinary shares held by RYB Education Limited, aCayman Islands company. RYB Education Limited is ultimately held by The Noble Hero Trust. Ms. Yanlai Shi is the settlor andproctor 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 otherrights attached to the shares held by RYB Education Limited in our company.To our knowledge, as of March 31, 2021, 9,938,323 of our ordinary shares were held by one record holder in the UnitedStates, which was Citibank, N.A., the depositary of our ADS program. The number of beneficial owners of our ADSs in the UnitedStates is likely to be much larger than the number of record holders of our ordinary shares in the United States. Table of Contents95ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONSA. Major ShareholdersPlease refer to “Item 6. Directors, Senior Management and Employees—E. Share Ownership.”B. Related Party TransactionsContractual Arrangements with our Variable Interest Entity and its ShareholdersSee “Item 4. Information on the Company—C. Organizational Structure.”Registration Rights AgreementWe have granted certain registration rights to Ascendent. Set forth below is a description of the registration rights grantedunder our agreement with Ascendent.Demand Registration Rights. At any time after 180 days after the effective date of the registration statement for a publicoffering, Ascendent has the right to demand that we file a registration statement covering the registration of any of its registrablesecurities. We are not obligated to effect more than two demand registrations, other than demand registration to be effected pursuantto 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, wemust offer Ascendent an opportunity to include in the registration the number of registrable securities of the same class or series asthose proposed to be registered. If the managing underwriters of any underwritten offering determine in its view the number ofregistrable securities exceeds the maximum offering size, the registrable securities shall allocate first to us, second to Ascendent andthird to any other holders of our securities; provided that Ascendent shall be entitled to register the offer and sale or distribute atleast 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 statementson 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 AgreementsSee “Item 6. Directors, Senior Management and Employees—A. Directors and Senior Management—EmploymentAgreements and Indemnification Agreements.”Share Incentive PlanSee “Item 6. Directors, Senior Management and Employees—B. Compensation of Directors and Executive Officers—2009Share Incentive Plan” and “—2017 Share Incentive Plan.”Other Transactions with Related PartiesWe have rented certain office space from Ms. Zhiying Li, the spouse of Mr. Chimin Cao, our co-founder and Chairman ofthe Board. During 2018, 2019 and 2020, we incurred US$0.3 million, US$0.5 million and US$0.6 million, in rental expenses toMs. Li. We had nil, nil and nil million due from Ms. Li as of December 31, 2018, 2019 and 2020, respectively, as prepaid rentalexpenses 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 ofDecember 31, 2016, the outstanding principal amount under such loans extended to Mr. Cao and an entity controlled by him wasUS$0.1 million. These loans were fully repaid in June 2017. Table of Contents96We have historically extended such loans to Ms. Yanlai Shi and entities controlled by her for her personal use. As ofDecember 31, 2016, the outstanding principal amount under such loans extended to Ms. Shi and entities controlled by her wasUS$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, forworking capital use. As of December 31, 2020, 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, acompany controlled by Mr. Chimin Cao and Ms. Yanlai Shi, made capital contribution to our company in the amount of US$2.0million. 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 thiscapital contribution. US$1.01 million of the return of capital was used to offset a US$1.01 million interest-free loan extended toGlossy 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 CounselNot applicable.ITEM 8. FINANCIAL INFORMATIONA. Consolidated Statements and Other Financial InformationWe have appended consolidated financial statements filed as part of this annual report.Legal ProceedingsWe, certain of our directors and officers, and certain underwriters for our initial public offering were also named asdefendants in a putative class action filed in the Superior Court of the State of California for the County of San Mateo: Qian v. RYBEducation, Inc. et al., Case No. 17CIV05494. The complaint alleges that our registration statements contained misstatements oromissions regarding our business, operations and prospects in violation of the U.S. securities laws. The complaint states that theplaintiffs seek to represent a class of persons who allegedly suffered damages as a result of their purchase or other acquisition of oursecurities 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 November 2, 2020, the consolidated action was voluntarily dismissed withoutprejudice.We and certain of our directors and officers were also named as defendants in a putative class action filed in the SupremeCourt of the State of New York for the County of Queens: Zhang v. RYB Education, Inc. et al., Index No. 717923/2018. Thecomplaint alleges that our registration statements contained misstatements or omissions regarding our business, operations andprospects in violation of the U.S. securities laws. The complaint states that the plaintiffs seek to represent a class of persons whoallegedly suffered damages as a result of their purchase or other acquisition of our securities in connection with our initial publicoffering on or about September 27, 2017, and alleges violations of Sections 11, 12(a)(2) and 15 of the Securities Act of 1933. OnOctober 19, 2020, the consolidated action was voluntarily discontinued.Dividend PolicyOur board of directors has discretion on whether to distribute dividends, subject to certain restrictions under CaymanIslands law. In addition, our shareholders may by ordinary resolution declare a dividend, but no dividend may exceed the amountrecommended by our board of directors. Under Cayman Islands law, our company may only pay dividends out of either profits orshare premium account, and provided always that in no circumstances may a dividend be paid if this would result in our companybeing unable to pay its debts as they fall due in the ordinary course of business. Even if our board of directors decides to paydividends on our ordinary shares, the form, frequency and amount will depend upon our future operations and earnings, capitalrequirements and surplus, general financial condition, contractual restrictions and other factors that our board of directors may deemrelevant. Table of Contents97We do not have any present plan to pay any cash dividends on our ordinary shares in the foreseeable future. We currentlyintend 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 Chinafor our cash requirements, including any payment of dividends to our shareholders. PRC regulations may restrict the ability of ourPRC 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 Aordinary shares underlying our ADSs to the depositary, as the registered holder of such Class A ordinary shares, and the depositarythen will pay such amounts to our ADS holders in proportion to Class A ordinary shares underlying the ADSs held by such ADSholders, subject to the terms of the deposit agreement, including the fees and expenses payable thereunder. Cash dividends on ourordinary shares, if any, will be paid in U.S. dollars.B. Significant ChangesWe have not experienced any significant changes since the date of our audited consolidated financial statements included inthis annual report.ITEM 9. THE OFFER AND LISTINGA. Offering and Listing DetailsSee “—C. Markets.”B. Plan of DistributionNot applicable.C. MarketsOur ADSs, each representing one Class A ordinary share of ours, have been listed on the New York Stock Exchange sinceSeptember 27, 2017 under the symbol “RYB.”D. Selling ShareholdersNot applicable.E. DilutionNot applicable.F. Expenses of the IssueNot applicable.ITEM 10. ADDITIONAL INFORMATIONA. Share CapitalNot applicable.B. Memorandum and Articles of AssociationThe following are summaries of material provisions of our fifth amended and restated memorandum and articles ofassociation, as well as the Companies Act (As Revised) insofar as they relate to the material terms of our ordinary shares. Table of Contents98Objects of Our Company. Under our memorandum and articles of association, the objects of our company are unrestrictedand 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 ofshareholders. We may not issue share to bearer. Our shareholders who are nonresidents of the Cayman Islands may freely hold andvote their shares.Conversion. Each Class B ordinary share is convertible into one Class A ordinary share at any time at the option of theholder 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 ordinaryshare to any person or entity that is not an Affiliate of the registered holder of such shares, such Class B ordinary shares will beautomatically and immediately converted into an equal number of Class A ordinary shares. In addition, if at any time, Mr. ChiminCao, Ms. Yanlai Shi and their respective affiliates collectively hold less than 5% of the issued and outstanding share capital of ourcompany, 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 recommendedby our directors. Our articles of association provide that dividends may be declared and paid out of the funds of our companylawfully available therefor, which under Cayman law includes our profits, realized or unrealized, and any reserve set aside fromfunds legally available for distribution. Under the laws of the Cayman Islands, our company may pay a dividend out of either profitsor share premium account, provided that in no circumstances may a dividend be paid if this would result in our company beingunable 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 thedeclaration of the result of the show of hands). A poll may be demanded by the chairman of such meeting or any shareholder presentin 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 ofthe votes cast by shareholders entitled to do so at a meeting, while a special resolution requires the affirmative vote of no less thantwo-thirds of the votes cast by shareholders entitled to do so at a meeting. A special resolution will be required for important matterssuch 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 Act tocall shareholders’ annual general meetings. Our memorandum and articles of association provide that we may (but are not obligedto) in each year hold a general meeting as our annual general meeting in which case we shall specify the meeting as such in thenotices 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) andany other general meeting of our shareholders. A quorum required for any general meeting of shareholders consists of at least oneshareholder present or representing by proxy, representing not less than one-third of all votes attaching to all of our shares in issueand entitled to vote. Table of Contents99The Companies Act provides shareholders with only limited rights to requisition a general meeting, and does not provideshareholders with any right to put any proposal before a general meeting. However, these rights may be provided in a company’sarticles of association. Our memorandum and articles of association provide that upon the requisition of shareholders representing inaggregate not less than one-third of the votes attaching to the issued and outstanding shares of our company entitled to vote atgeneral meetings as at the date of the deposit, our board will convene an extraordinary general meeting and put the resolutions sorequisitioned to a vote at such meeting. However, our memorandum and articles of association do not provide our shareholders withany 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 ofhis or her ordinary shares by an instrument of transfer in the usual or common form or such other form approved by our board ofdirectors.Our board of directors may, in its absolute discretion, decline to register any transfer of any ordinary share which is notfully paid up or on which we have a lien. Our board of directors may also decline to register any transfer of any ordinary shareunless:●the instrument of transfer is lodged with us, accompanied by the certificate for the ordinary shares to which it relatesand such other evidence as our board of directors may reasonably require to show the right of the transferor to makethe 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 transferreddoes 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 ourdirectors 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 instrumentof 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 morenewspapers by electronic means or by any other means in accordance with the rules of the New York Stock Exchange, be suspendedand the register closed at such times and for such periods as our board of directors may from time to time determine, providedalways that the registration of transfers shall not be suspended nor the register closed for more than 30 calendar days in any calendaryear.Liquidation. On the winding up of our company, if the assets available for distribution amongst our shareholders shall bemore than sufficient to repay the whole of the share capital at the commencement of the winding up, the surplus shall be distributedamongst our shareholders in proportion to the par value of the shares held by them at the commencement of the winding up, subjectto a deduction from those shares in respect of which there are monies due, of all monies payable to our company for unpaid calls orotherwise. If our assets available for distribution are insufficient to repay the whole of the share capital, the assets will be distributedso 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 inrespect of any moneys unpaid on their shares in a notice served to such shareholders at least 14 calendar days prior to the specifiedtime of payment. The shares that have been called upon and remain unpaid are subject to forfeiture. Table of Contents100Redemption, Repurchase and Surrender of Shares. We may issue shares on terms that such shares are subject toredemption, at our option or at the option of the holders thereof, on such terms and in such manner as may be determined, before theissue of such shares, by either our board of directors or by a special resolution of our shareholders. Our company may alsorepurchase any of our shares on such terms and in such manner as have been approved by our board of directors or by an ordinaryresolution of our shareholders, or are otherwise authorized by our memorandum and articles of association. Under the CompaniesAct, 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 ofshares made for the purpose of such redemption or repurchase, or out of capital (including share premium account and capitalredemption reserve) if our company can, immediately following such payment, pay its debts as they fall due in the ordinary courseof business. In addition, under the Companies Act no such share may be redeemed or repurchased (a) unless it is fully paid up, (b) ifsuch 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 of shares, the rightsattached to any class of shares (subject to any rights or restrictions for the time being attached to any class of shares), may bematerially adversely varied with the consent in writing of the holders of two-thirds of the issued shares of that class or with thesanction of a special resolution passed at a separate meeting of the holders of the shares of that class. The rights conferred upon theholders of the shares of any class issued shall not, subject to any rights or restrictions for the time being attached to the shares of thatclass, be deemed to be materially adversely varied by the creation or issue of further shares ranking pari passu with or subsequent tosuch existing class of shares or the redemption or purchase of any shares of any class. The rights of the holders of shares shall not bedeemed to be materially adversely varied by the creation or issue of shares with preferred or other rights including, withoutlimitation, the creation of shares with enhanced or weighted voting rights.Issuance of Additional Shares. Our memorandum and articles of association authorizes our board of directors to issueadditional ordinary shares from time to time as our board of directors shall determine, to the extent of available authorized butunissued shares.Our memorandum and articles of association also authorizes our board of directors to establish from time to time one ormore 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 butunissued. 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 toinspect or obtain copies of our list of shareholders or our corporate records (save for our memorandum and articles of associationand our register of mortgages and charges). However, our board of director may from time to time determine whether the accountsand 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 orprevent 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 ourshareholders; and●limit the ability of shareholders to requisition and convene general meetings of shareholders. Table of Contents101However, under Cayman Islands law, our directors may only exercise the rights and powers granted to them under ourmemorandum and articles of association for a proper purpose and for what they believe in good faith to be in the best interests of ourcompany.Exempted Company. We are an exempted company with limited liability incorporated under the Companies Act. TheCompanies Act distinguishes between ordinary resident companies and exempted companies. Any company that is registered in theCayman 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 20years 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 theshares of the company.C. Material ContractsWe have not entered into any material contracts other than in the ordinary course of business and other than those describedin “Item 4. Information on the Company”, “Item 7. Major Shareholders and Related Party Transactions—B. Related PartyTransactions,” in this “Item 10. Additional Information—C. Material Contracts” or elsewhere in this annual report on Form 20-F.D. Exchange ControlsSee “Item 4. Information on the Company—B. Business Overview—Regulation—Regulations Relating to ForeignExchange.”E. TaxationThe following summary of the material Cayman Islands, PRC and U.S. federal income tax consequences of an investmentin our ADSs or ordinary shares is based upon laws and relevant interpretations thereof in effect as of March 31, 2021, all of whichare subject to change. This summary does not deal with all possible tax consequences relating to an investment in our ADSs orordinary shares, such as the tax consequences under U.S. state and local tax laws or under the tax laws of jurisdictions other than theCayman Islands, the People’s Republic of China and the United States.Cayman Islands TaxationThe Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains orappreciation and there is no taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material tous levied by the government of the Cayman Islands except for stamp duties which may be applicable on instruments executed in, orafter execution brought within the jurisdiction of the Cayman Islands. The Cayman Islands is not party to any double tax treaties thatare applicable to any payments made to or by our company. There are no exchange control regulations or currency restrictions in theCayman Islands. Table of Contents102Payments of dividends and capital in respect of the ADSs and ordinary shares will not be subject to taxation in the CaymanIslands and no withholding will be required on the payment of a dividend or capital to any holder of our ordinary shares, nor willgain derived from the disposal of the shares be subject to Cayman Islands income or corporation tax.No stamp duty is payable in respect of the issue of our ordinary shares or on an instrument of transfer in respect of ourordinary shares.People’s Republic of China TaxationUnder 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 factomanagement 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 asCircular 82, which provides certain specific criteria for determining whether the “de facto management body” of a PRC-controlledenterprise that is incorporated offshore is located in China. Although this circular only applies to offshore enterprises controlled byPRC enterprises or PRC enterprise groups, not those controlled by PRC individuals or foreigners, the criteria set forth in the circularmay reflect the State Administration of Taxation’s general position on how the “de facto management body” test should be appliedin determining the tax resident status of all offshore enterprises. According to Circular 82, an offshore incorporated enterprisecontrolled by a PRC enterprise or a PRC enterprise group will be regarded as a PRC tax resident by virtue of having its “de factomanagement body” in China only if all of the following conditions are met: (i) the primary location of the day-to-day operationalmanagement is in the PRC; (ii) decisions relating to the enterprise’s financial and human resource matters are made or are subject toapproval by organizations or personnel in the PRC; (iii) the enterprise’s primary assets, accounting books and records, companyseals, and board and shareholder resolutions, are located or maintained in the PRC; and (iv) at least 50% of voting board members orsenior 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 notcontrolled by a PRC enterprise or PRC enterprise group and we do not believe that RYB Education, Inc. meets all of the conditionsabove. RYB Education, Inc. is a company incorporated outside the PRC. As a holding company, its key assets are its ownershipinterests in its subsidiaries, and its key assets are located, and its records (including the resolutions of its board of directors and theresolutions of its shareholders) are maintained, outside the PRC. However, the tax resident status of an enterprise is subject todetermination by the PRC tax authorities and uncertainties remain with respect to the interpretation of the term “de factomanagement body.”If the PRC tax authorities determine that RYB Education, Inc. is a PRC resident enterprise for enterprise income taxpurposes, we will be subject to PRC enterprise income tax on our worldwide income at the rate of 25%. Furthermore, we may berequired to withhold a 10% withholding tax from dividends we pay to our shareholders that are non-resident enterprises, includingthe 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 fromwithin the PRC. Furthermore, if we are deemed a PRC resident enterprise, dividends payable to our non-PRC individualshareholders (including our ADS holders) and any gain realized on the transfer of ADSs or ordinary shares by such shareholdersmay 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 whethernon-PRC shareholders of RYB Education, Inc. would be able to claim the benefits of any tax treaties between their country of taxresidence 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 ofWithholding of Enterprise Income Tax for Non-resident Enterprises, pursuant to which the entities that have the direct obligation tomake certain payments to a non-resident enterprise should be the relevant tax withholders for the non-resident enterprise, and suchpayments include: income from equity investments (including dividends and other return on investment), interest, rents, royaltiesand income from assignment of property as well as other incomes subject to enterprise income tax received by non-residententerprises in China. Further, the measures provide that in case of an equity transfer between two non-resident enterprises whichoccurs 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 PRCcompany whose equity has been transferred should assist the tax authorities to collect taxes from the relevant non-residententerprise. Table of Contents103The State Administration of Taxation issued an SAT Circular 59 together with the Ministry of Finance in April 2009 and aSAT Circular 698 in December 2009. By promulgating and implementing these two circulars, the PRC tax authorities haveenhanced their scrutiny over the direct or indirect transfer of equity interests in a PRC resident enterprise by a non-residententerprise. 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 atax jurisdiction that: (1) has an effective tax rate less than 12.5% or (2) does not tax foreign income of its residents, the non-residententerprise, being the transferor, must report to the relevant tax authority of the PRC “resident enterprise” the indirect transfer. OnFebruary 3, 2015, the SAT issued a Public Notice Regarding Certain Corporate Income Tax Matters on Indirect Transfer ofProperties by Non-Tax Resident Enterprises, or SAT Bulletin 7, to supersede the rules with respect to the Indirect Transfer underSAT Circular 698. SAT Bulletin 7 has introduced a new tax regime that is significantly different from the previous one under SATCircular 698. SAT Bulletin 7 extends its tax jurisdiction to not only Indirect Transfers set forth under SAT Circular 698 but alsotransactions involving transfer of other taxable assets through offshore transfer of a foreign intermediate holding company. Inaddition, SAT Bulletin 7 provides clearer criteria than SAT Circular 698 for assessment of reasonable commercial purposes and hasintroduced safe harbors for internal group restructurings and the purchase and sale of equity through a public securities market. SATBulletin 7 also brings challenges to both foreign transferor and transferee (or other person who is obligated to pay for the transfer) oftaxable assets.On October 17, 2017, the SAT issued the Announcement of the State Administration of Taxation on Issues Concerning theWithholding of Nonresident Enterprise Income Tax at Source, or SAT Bulletin 37, which came into effect on December 1, 2017 andwas amended on June 15, 2018. The SAT Bulletin 37 further clarifies the practice and procedure of the withholding of non-residententerprise income tax. Where a nonresident enterprise transfers taxable assets indirectly by disposing of the equity interests of anoverseas holding company, which is an Indirect Transfer, the non-resident enterprise as either transferor or transferee, or the PRCentity that directly owns the taxable assets, may report such Indirect Transfer to the relevant tax authority. Using a “substance overform” principle, the PRC tax authority may disregard the existence of the overseas holding company if it lacks a reasonablecommercial purpose and was established for the purpose of reducing, avoiding or deferring PRC tax. As a result, gains derived fromsuch Indirect Transfer may be subject to PRC enterprise income tax, and the transferee or other person who is obligated to pay forthe transfer is obligated to withhold the applicable taxes, currently at a rate of 10% for the transfer of equity interests in a PRCresident enterprise. Both the transferor and the transferee may be subject to penalties under PRC tax laws if the transferee fails towithhold 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 besubject 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 toassist in the filing under SAT Bulletin 7 and/or SAT Bulletin 37. As a result, we may be required to expend valuable resources tocomply with SAT Bulletin 7 and/or SAT Bulletin 37 or to request the relevant transferors from whom we purchase taxable assets tocomply with these circulars, or to establish that our company should not be taxed under these circulars, which may have a materialadverse effect on our financial condition and results of operations.United States Federal Income Tax ConsiderationsThe following discussion is a summary of U.S. federal income tax considerations generally applicable to the ownership anddisposition 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 isbased upon existing U.S. federal tax law, which is subject to differing interpretations or change, possibly with retroactive effect. Noruling has been sought from the Internal Revenue Service, or the IRS, with respect to any U.S. federal income tax considerationsdescribed 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 taxconsiderations, information reporting or backup withholding, or any state, local and non-U.S. tax considerations, relating to theownership 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 inspecial tax situations such as:●banks and other financial institutions; Table of Contents104●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 ascompensation;●investors that will hold their ADSs or Class A ordinary shares as part of a straddle, hedge, conversion, constructivesale 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 commonstock 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 particularcircumstances, and the state, local, non-U.S. and other tax considerations of the ownership and disposition of our ADSs or Class Aordinary shares.GeneralFor purposes of this discussion, a “U.S. Holder” is a beneficial owner of our ADSs or Class A ordinary shares that is, forU.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 organizedunder 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 itssource; or●a trust (A) the administration of which is subject to the primary supervision of a U.S. court and which has one or moreU.S. persons who have the authority to control all substantial decisions of the trust or (B) that has otherwise validlyelected to be treated as a U.S. person under the Code. Table of Contents105If a partnership (or other entity treated as a partnership for U.S. federal income tax purposes) is a beneficial owner of ourADSs or Class A ordinary shares, the tax treatment of a partner in the partnership will generally depend upon the status of thepartner and the activities of the partnership. Partnerships holding our ADSs or Class A ordinary shares and their partners are urgedto 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 beneficialowner of the underlying shares represented by the ADSs. The remainder of this discussion assumes that a U.S. Holder of our ADSswill be treated in this manner. Accordingly, deposits or withdrawals of Class A ordinary shares for ADSs will generally not besubject to U.S. federal income tax.Passive Foreign Investment Company ConsiderationsA non-U.S. corporation, such as our company, will be classified as a PFIC, for U.S. federal income tax purposes for anytaxable year, if either (i) 75% or more of its gross income for such year consists of certain types of “passive” income or (ii) 50% ormore of the value of its assets (determined on the basis of a quarterly average) during such year is attributable to assets that produceor are held for the production of passive income. For this purpose, cash and assets readily convertible into cash are categorized as apassive 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 asowning a proportionate share of the assets and earning a proportionate share of the income of any other corporation in which weown, 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. federalincome tax purposes because we control its management decisions and are entitled to substantially all of the economic benefitsassociated 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 wouldlikely 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 projectedincome and assets and the market value of our ADSs, we do not believe we are a PFIC for the taxable year ended December 31,2020 and do not anticipate becoming a PFIC in the foreseeable future. While we do not anticipate being or becoming a PFIC in thecurrent or foreseeable taxable years, no assurance can be given in this regard because the determination of whether we will be orbecome 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 becausethe value of our assets for purposes of the asset test, including the value of our goodwill and unbooked intangibles, may bedetermined by reference to the market price of our ADSs from time to time (which may be volatile). If our market capitalizationsubsequently declines, we may be or become classified as a PFIC for the current taxable year or future taxable years. Recentfluctuations in the market price of our ADSs increased our risk of becoming a PFIC. The market price of the ADSs may continue tofluctuate considerably; consequently, we cannot assure you of our PFIC status for any taxable year. Furthermore, the composition ofour income and assets may also be affected by how, and how quickly, we use our liquid assets. Under circumstances where ourrevenue 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 becomingclassified 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 PFICrules discussed below under “—Passive Foreign Investment Company Rules” generally will apply to such U.S. Holder for suchtaxable 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 orbecome classified as a PFIC for U.S. federal income tax purposes. The U.S. federal income tax rules that apply generally if we aretreated as a PFIC are discussed below under “—Passive Foreign Investment Company Rules.” Table of Contents106DividendsSubject to the discussion below under “Passive Foreign Investment Company Rules,” any cash distributions (including theamount of any PRC tax withheld) paid on our ADSs or Class A ordinary shares out of our current or accumulated earnings andprofits, as determined under U.S. federal income tax principles, will generally be includible in the gross income of a U.S. Holder asdividend income on the day actually or constructively received by the U.S. Holder, in the case of Class A ordinary shares, or by thedepositary, in the case of ADSs. Because we do not intend to determine our earnings and profits on the basis of U.S. federal incometax principles, any distribution we pay will generally be treated as a “dividend” for U.S. federal income tax purposes. Dividendsreceived 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 dividendincome,” provided that certain conditions are satisfied, including that (1) our ADSs are readily tradeable on an established securitiesmarket in the United States, or, in the event that we are deemed to be a PRC resident enterprise under the PRC tax law, we areeligible for the benefit of the United States-PRC income tax treaty, (2) we are neither a PFIC nor treated as such with respect to aU.S. Holder (as discussed below) for the taxable year in which the dividend is paid and the preceding taxable year, and (3) certainholding period requirements are met. Our ADSs (but not our Class A ordinary shares) are readily tradeable on the New York StockExchange. There can be no assurance, however, that our ADSs will be considered readily tradeable on an established securitiesmarket 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 UnitedStates-PRC income tax treaty. If we are eligible for such benefits, dividends we pay on our Class A ordinary shares, regardless ofwhether such shares are represented by the ADSs, and regardless of whether our ADSs are readily tradeable on an establishedsecurities market in the United States, would be eligible for the reduced rates of taxation applicable to qualified dividend income, asdescribed 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 asincome from foreign sources and generally will constitute passive category income. If PRC withholding taxes apply to dividendspaid to you with respect to our ADSs or Class A ordinary shares, you may be able to obtain a reduced rate of PRC withholding taxesunder the United States-PRC income tax treaty if certain requirements are met. In addition, subject to certain conditions andlimitations, PRC withholding taxes on dividends that are non-refundable under United States-PRC income tax treaty may be treatedas foreign taxes eligible for credit against your U.S. federal income tax liability. If you do not elect to claim a foreign tax credit, youmay instead claim a deduction for U.S. federal income tax purposes in respect of such withholding, but only for a year in which youelect 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 DispositionSubject to the discussion below under “Passive Foreign Investment Company Rules,” a U.S. Holder will generallyrecognize capital gain or loss upon the sale or other disposition of ADSs or Class A ordinary shares in an amount equal to thedifference between the amount realized upon the disposition and the holder’s adjusted tax basis in such ADSs or Class A ordinaryshares. 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 andwill generally be U.S.-source gain or loss for U.S. foreign tax credit purposes. In the event that gain from the disposition of theADSs 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 theirtax 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. Table of Contents107Passive Foreign Investment Company RulesIf 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 tospecial tax rules on (i) any excess distribution that we make to the U.S. Holder (which generally means any distribution paid duringa taxable year to a U.S. Holder that is greater than 125% of the average annual distributions paid in the three preceding taxable yearsor, 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 orother disposition of ADSs or Class A ordinary shares. Under the PFIC rules:●the excess distribution or gain will be allocated ratably over the U.S. Holder’s holding period for the ADSs or Class Aordinary shares;●the amount allocated to the current taxable year and any taxable years in the U.S. Holder’s holding period prior to thefirst 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 ratein 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 attributableto 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 ofour subsidiary, our variable interest entity or any of the subsidiaries or sponsored entities of our variable interest entity is also aPFIC, such U.S. Holder would be treated as owning a proportionate amount (by value) of the shares of the lower-tier PFIC forpurposes of the application of these rules. U.S. Holders are urged to consult their tax advisors regarding the application of the PFICrules to any of our subsidiary, our variable interest entity or any of the subsidiaries or sponsored entities of our variable interestentity.As an alternative to the foregoing rules, a U.S. Holder of “marketable stock” in a PFIC may make a mark-to-marketelection with respect to such stock, provided that such stock is regularly traded. For those purposes, our ADSs, but not our Class Aordinary shares, are treated as marketable stock as they are listed on the New York Stock Exchange. We anticipate that our ADSsshould qualify as being regularly traded, but no assurances may be given in this regard. If a U.S. Holder makes this election withrespect to our ADSs, the holder will generally (i) include as ordinary income for each taxable year that we are a PFIC the excess, ifany, 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 asan 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 ofthe taxable year, but such deduction will only be allowed to the extent of the amount previously included in income as a result of themark-to-market election. The U.S. Holder’s adjusted tax basis in the ADSs would be adjusted to reflect any income or loss resultingfrom the mark-to-market election. If a U.S. Holder makes a mark-to-market election in respect of a corporation classified as a PFICand such corporation ceases to be classified as a PFIC, the holder will not be required to take into account the gain or loss describedabove during any period that such corporation is not classified as a PFIC. If a U.S. Holder makes a mark-to-market election, anygain 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 asordinary income and any loss will be treated as ordinary loss, but such loss will only be treated as ordinary loss to the extent of thenet 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 byus 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, ifavailable, would result in tax treatment different from (and generally less adverse than) the general tax treatment for PFICsdescribed above. Table of Contents108If a U.S. Holder owns our ADSs or Class A ordinary shares during any taxable year that we are a PFIC, the holder mustgenerally file an annual IRS Form 8621. You should consult your tax advisors regarding the U.S. federal income tax consequencesof owning and disposing of our ADSs or Class A ordinary shares if we are or become a PFIC.F. Dividends and Paying AgentsNot applicable.G. Statement by ExpertsNot applicable.H. Documents on DisplayWe are subject to the periodic reporting and other informational requirements of the Exchange Act. Under the ExchangeAct, we are required to file reports and other information with the SEC. Specifically, we are required to file annually a Form 20-F nolater than four months after the close of each fiscal year. Copies of reports and other information, when so filed, may be inspectedwithout 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 Roomby calling the SEC at 1-800-SEC-0330. The SEC also maintains a web site at www.sec.gov that contains reports, proxy andinformation statements, and other information regarding registrants that make electronic filings with the SEC using its EDGARsystem. As a foreign private issuer, we are exempt from the rules under the Exchange Act prescribing the furnishing and content ofquarterly 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 ofoperations and annual audited consolidated financial statements prepared in conformity with U.S. GAAP, and all notices ofshareholders’ meetings and other reports and communications that are made generally available to our shareholders. The depositarywill make such notices, reports and communications available to holders of ADSs and, upon our request, will mail to all recordholders of ADSs the information contained in any notice of a shareholders’ meeting received by the depositary from us.I. Subsidiary InformationNot applicable.ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKInflationTo date, inflation in China has not materially impacted our results of operations. According to the National Bureau ofStatistics of China, the year-over-year percent changes in the consumer price index for December 2018, 2019 and 2020 wereincreases of 1.9%, 4.5% and 2.5%, respectively. Although we have not been materially affected by inflation in the past, we canprovide no assurance that we will not be affected by higher rates of inflation in China in the future.Market RisksForeign Exchange RiskThe majority of our revenues and expenses are denominated in RMB, and a small portion is denominated in SGD. We donot believe that we currently have any significant direct foreign exchange risk and have not used any derivative financialinstruments to hedge exposure to such risk. Although our exposure to foreign exchange risks should be limited in general, the valueof your investment in our ADSs will be affected by the exchange rate between U.S. dollar and Renminbi because the value of ourbusiness is effectively denominated in RMB, while our ADSs will be traded in U.S. dollars. Table of Contents109The conversion of Renminbi into foreign currencies, including U.S. dollars, is based on rates set by the People’s Bank ofChina. The Renminbi has fluctuated against the U.S. dollar, at times significantly and unpredictably. It is difficult to predict howmarket 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 againstthe U.S. dollar would have an adverse effect on the RMB amount we receive from the conversion. Conversely, if we decide toconvert Renminbi into U.S. dollars for the purpose of making payments for dividends on our ordinary shares or ADSs or for otherbusiness purposes, appreciation of the U.S. dollar against the Renminbi would have a negative effect on the U.S. dollar amountsavailable to us.As of December 31, 2020, we had Renminbi-denominated cash and cash equivalents, accrued expenses and other currentliabilities and deferred revenue of RMB144.4 million, RMB332.5 million and RMB231.8 million, respectively. A 10% depreciationof Renminbi against the U.S. dollar based on the foreign exchange rate on December 31, 2020 would result in a decrease of US$2.2million in cash and cash equivalents. A 10% appreciation of Renminbi against the U.S. dollar based on the foreign exchange rate onDecember 31, 2020 would result in an increase of US$5.1 million and US$3.6 million in accrued expenses and other currentliabilities and deferred revenue, respectively.Interest Rate RiskOur exposure to interest rate risk primarily relates to the interest income generated by excess cash, which is mostly held ininterest-bearing bank deposits. Interest-earning instruments carry a degree of interest rate risk. We have not been exposed to materialrisks 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 SECURITIESA. Debt SecuritiesNot applicable.B. Warrants and RightsNot applicable.C. Other SecuritiesNot applicable.D. American Depositary SharesFees and Charges Our ADS Holders May Have to PayCitibank, N.A. is our depositary. The depositary collects its fees for delivery and surrender of ADSs directly from investorsdepositing ordinary shares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting for them. Thedepositary collects fees for making distributions to investors by deducting those fees from the amounts distributed or by selling aportion of distributable property to pay the fees. The depositary may collect its annual fee for depositary services by deduction fromcash distributions or by directly billing investors or by charging the book-entry system accounts of participants acting for them. Thedepositary may generally refuse to provide fee-attracting services until its fees for those services are paid. Table of Contents110An ADS holder will be required to pay the following fees under the terms of the deposit agreement:Services: Fees:· Issuance of ADSs upon deposit of shares (excludingissuances as a result of distributions of shares)· Up to US$0.05 per ADS issued· Cancellation of ADSs· Up to US$0.05 per ADS cancelled· Distribution of cash dividends or other cash distributions(e.g., sale of rights and other entitlements)· Up to US$0.05 per ADS held· Distribution of ADSs pursuant to (i) stock dividends or otherfree stock distributions, or (ii) exercise of rights to purchaseadditional ADSs· Up to US$0.05 per ADS held· Distribution of securities other than ADSs or rights topurchase additional ADSs (e.g., spin-off shares)· Up to US$0.05 per ADS held· ADS Services· Up to US$0.05 per ADS held on the applicable recorddate(s) established by the depositaryFees and Other Payments Made by the Depositary to UsThe depositary may reimburse us for expenses we incur that are related to the establishment and maintenance of the ADRprogram, by making available to us a set amount or a portion of the depositary fees charged in respect of the ADR program orotherwise, upon such terms and conditions as we and the depositary may agree from time to time. For the year ended December 31,2020, we received reimbursement in the amount of US$0.1 million from the depositary. Table of Contents111PART IIITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIESNone.ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDSMaterial Modifications to the Rights of Security HoldersSee “Item 10. Additional Information—B. Memorandum and Articles of Association” for a description of the rights ofsecurities holders, which remain unchanged.Use of ProceedsThe following “Use of Proceeds” information relates to the registration statement on Form F-1, as amended (File Number333-220259) (the “F-1 Registration Statement”) in relation to our initial public offering of 5,500,000 ADSs representing 5,500,000Class 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 forour initial public offering. We received net proceeds of approximately US$90.1 million from our initial public offering. None of thetransaction 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 orindirectly, to any of our directors or officers or their associates, persons owning 10% or more of our equity securities or ouraffiliates.We still intend to use the proceeds from our initial public offering as disclosed in the F-1 Registration Statement, subject tothe changes of laws and regulations that may restrict our intended use of the proceeds.ITEM 15. CONTROLS AND PROCEDURESEvaluation of Disclosure Controls and ProceduresUnder the supervision and with the participation of our management, including our chief executive officer and our chieffinancial officer, we carried out an evaluation of the effectiveness of our disclosure controls and procedures, which is defined inRules 13a-15(e) of the Exchange Act, as of December 31, 2020. Based upon that evaluation, our management, with the participationof our chief executive officer and chief financial officer, has concluded that, as of the end of the period covered by this annualreport, our disclosure controls and procedures were effective in ensuring that the information required to be disclosed by us in thisannual report is recorded, processed, summarized and reported to them for assessment, and required disclosure is made within thetime period specified in the rules and forms of the SEC.Management’s Report on Internal Control over Financial ReportingOur management is responsible for establishing and maintaining adequate internal control over financial reporting, asdefined in Rules 13a-15 (f) under the Exchange Act. Our management, with the participation of our chief executive officer and ourchief financial officer, evaluated the effectiveness of our internal control over financial reporting based on criteria established in theframework in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of theTreadway Commission. Based on this evaluation, our management has concluded that our internal control over financial reportingwas effective as of December 31, 2020.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 becauseof changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate. Table of Contents112Changes in Internal Control over Financial ReportingThere were no changes in our internal control over financial reporting that occurred during the period covered by thisannual report on Form 20-F that have materially affected, or are reasonably likely to materially affect, our internal control overfinancial reporting.ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERTOur 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-3under the Securities Exchange Act of 1934), is an audit committee financial expert.ITEM 16B. CODE OF ETHICSOur board of directors adopted a code of business conduct and ethics that applies to our directors, officers and employees inAugust 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 SERVICESThe following table sets forth the aggregate fees by categories specified below in connection with certain professionalservices rendered by our independent registered public accounting firms for the periods indicated. We did not pay any other fees toour auditors during the periods indicated below.For the Year Ended December 31,20192020(in thousands of US$)Audit fees(1)Deloitte Touche Tohmatsu Certified Public Accountants LLP 1,201 647KPMG Huazhen LLP(2) — 999Other fees — —(1)“Audit fees” means the aggregate fees billed for professional services rendered by our principal auditors for the audit of ourannual financial statements and the review of our comparative interim financial statements.(2)On November 18, 2020, we replaced Deloitte Touche Tohmatsu Certified Public Accountant LLP (“Deloitte”) and engagedKPMG Huazhen LLP (“KPMG”) as our independent registered public accounting firm. See also “Item 16F. Change inRegistrant’s Certifying Accountant.”The policy of our audit committee is to pre-approve all audit and other service provided by our independent registeredpublic accounting firms as described above, other than those for de minimis services which are approved by the Audit Committeeprior to the completion of the audit.ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEESNone.ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERSOn December 16, 2018, our board of directors authorized a share repurchase program, under which we may purchase up toUS$12 million of our ADSs over the next 12 months from December 18, 2018 through December 17, 2019. The share repurchaseprogram was publicly announced on December 18, 2018. Table of Contents113The following table sets forth a summary of our repurchase of our ADSs made in 2019 under the share repurchase programdescribed in the paragraph above. All shares were repurchased in the open market pursuant to the share repurchase programannounced on December 16, 2018. Total Number ofADSsPurchased asPart of theTotal NumberPubliclyApproximate Dollar Valueof ADSsAverage PriceAnnouncedof ADSs that May Yet BePurchasedPaid Per ADSPlanPurchased Under the PlanJanuary, 2019 19,464 US$ 6.866800 19,464 US$ 11,866,345February, 2019 229,667 US$ 7.747914 229,667 US$ 10,086,904March, 2019 262,922 US$ 7.380455 262,922 US$ 8,146,420April, 2019 649,007 US$ 7.275642 649,007 US$ 3,424,478May, 2019 338,777 US$ 7.596043 338,777 US$ 851,113June, 2019 127,618 US$ 6.669192 127,618 US$ 4Total 1,627,455 N/A 1,627,455 N/AITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANTOn November 18, 2020, we replaced Deloitte Touche Tohmatsu Certified Public Accountant LLP (“Deloitte”) as ourindependent registered public accounting firm. We engaged KPMG Huazhen LLP (“KPMG”) as our independent registered publicaccounting firm. The change of our independent registered public accounting firm had been approved by the audit committee of ourboard. The decision to replace Deloitte was not made due to any disagreements between us and Deloitte.The report of Deloitte on our consolidated financial statements for the fiscal years ended December 31, 2018 and 2019 didnot contain an adverse opinion or a disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope oraccounting principle.During the fiscal years ended December 31, 2018 and 2019 and the subsequent interim period through November 18, 2020,there have been no (i) disagreements between us and Deloitte on any matter of accounting principles or practices, financialstatement disclosure, or audit scope or procedure, which disagreements if not resolved to the satisfaction of Deloitte would havecaused them to make reference thereto in their report on the consolidated financial statements for such years, or (ii) reportable eventsas defined in Item 16F(a)(1)(v) of the instructions to Form 20-F.We have provided Deloitte with a copy of the disclosures hereunder and required under Item 16F of Form 20-F andrequested from Deloitte a letter addressed to the SEC indicating whether it agrees with such disclosures. A copy of Deloitte’s letterdated May 14, 2021 is attached as Exhibit 15.5.During each of the fiscal years ended December 31, 2018 and 2019 and the subsequent interim period through November18, 2020, neither we nor anyone on behalf of us has consulted with KPMG regarding (i) the application of accounting principles to aspecific transaction, either completed or proposed, or the type of audit opinion that might be rendered on our consolidated financialstatements, and neither a written report nor oral advice was provided to us that KPMG concluded was an important factor consideredby us in reaching a decision as to any accounting, audit, or financial reporting issue, (ii) any matter that was the subject of adisagreement pursuant to Item 16F(a)(1)(iv) of the instructions to Form 20-F, or (iii) any reportable event pursuant to Item 16F(a)(1)(v) of the instructions to Form 20-F. Table of Contents114ITEM 16G. CORPORATE GOVERNANCEAs a Cayman Islands exempted company listed on the New York Stock Exchange, we are subject to the New York StockExchange corporate governance listing standards. However, New York Stock Exchange rules permit a foreign private issuer like usto 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 andcorporate 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 corporategovernance listing standards applicable to U.S. domestic issuers. See “Item 3. Key Information—D. Risk Factors—Risks Related toOur American Depositary Shares—As a company incorporated in the Cayman Islands, we are permitted to, and do, adopt certainhome country practices in relation to corporate governance matters that differ significantly from the New York Stock Exchangecorporate governance listing standards; these practices may afford less protection to shareholders than they would enjoy if wecomplied fully with the New York Stock Exchange corporate governance listing standards.”ITEM 16H. MINE SAFETY DISCLOSURENot applicable. Table of Contents115PART IIIITEM 17. FINANCIAL STATEMENTSWe have elected to provide financial statements pursuant to Item 18.ITEM 18. FINANCIAL STATEMENTSThe consolidated financial statements of RYB Education, Inc. are included at the end of this annual report.ITEM 19. EXHIBITSExhibit Number Description of Document1.1Fifth 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 (FileNo. 333220259))2.1Registrant’s Specimen American Depositary Receipt (incorporated herein by reference to Exhibit 4.3 to theForm F-1/A filed on September 13, 2017 (File No. 333-220259))2.2Registrant’s Specimen Certificate for Ordinary Shares (incorporated herein by reference to Exhibit 4.2 to theForm F-1/A filed on September 13, 2017 (File No. 333-220259))2.3Form of Deposit Agreement, among the Registrant, the depositary and the holders and beneficial owners of theAmerican Depositary Shares issued thereunder (incorporated herein by reference to Exhibit 4.3 to the Form F-1/Afiled on September 13, 2017 (File No. 333-220259))2.4Shareholder 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))2.5Description of American Depositary Shares of the Registrant (incorporated herein by reference to Exhibit 2.5 tothe annual report on Form 20-F filed on April 30, 2020 (File No. 001-38203))2.6Description of Class A Ordinary Shares of the Registrant (incorporated herein by reference to Exhibit 2.6 to theannual report on Form 20-F filed on April 30, 2020 (File No. 001-38203))4.1English summary of 2009 Share Incentive Plan (incorporated herein by reference to Exhibit 10.1 to the Form F-1filed on August 30, 2017 (File No. 333-220259))4.22017 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))4.3Form of Indemnification Agreement between the Registrant and its directors and executive officers (incorporatedherein by reference to Exhibit 10.3 to the Form F-1 filed on August 30, 2017 (File No. 333-220259))4.4Form of Employment Agreement between the Registrant and its executive officers (incorporated herein byreference to Exhibit 10.4 to the Form F-1 filed on August 30, 2017 (File No. 333-220259))4.5English translation of amended and restated Exclusive Consultation and Services Agreement among RYBTechnology, Beijing RYB and shareholders of Beijing RYB dated November 4, 2015 (incorporated herein byreference to Exhibit 10.5 to the Form F-1 filed on August 30, 2017 (File No. 333-220259))4.6English translation of amended and restated Business Operation Agreement among RYB Technology, BeijingRYB and shareholders of Beijing RYB dated November 4, 2015 (incorporated herein by reference to Exhibit 10.6to the Form F-1 filed on August 30, 2017 (File No. 333-220259))4.7English translation of Equity Pledge Agreement among RYB Technology, Beijing RYB and shareholders ofBeijing RYB dated November 4, 2015 (incorporated herein by reference to Exhibit 10.7 to the Form F-1 filed onAugust 30, 2017 (File No. 333-220259))4.8English translation of amended and restated Equity Disposal Agreement among RYB Technology, Beijing RYBand shareholders of Beijing RYB dated November 4, 2015 (incorporated herein by reference to Exhibit 10.8 tothe Form F-1 filed on August 30, 2017 (File No. 333-220259))4.9English 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)) Table of Contents1164.10Registration Rights Agreement between the Registrant and Ascendent Rainbow (Cayman) Limited datedSeptember 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))8.1*Significant Subsidiaries and Consolidated Affiliates Entities of the Registrant11.1Code of Business Conduct and Ethics of the Registrant (incorporated herein by reference to Exhibit 99.1 to theForm F-1 filed on August 30, 2017 (File No. 333-220259))12.1*CEO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 200212.2*CFO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 200213.1**CEO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 200213.2**CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 200215.1*Consent of Maples and Calder (Hong Kong) LLP15.2*Consent of Commerce & Finance Law Offices15.3*Consent of KPMG Huazhen LLP, an independent registered public accounting firm15.4*Consent of Deloitte Touche Tohmatsu Certified Public Accountants LLP, an independent registered publicaccounting firm15.5*Letter from Deloitte Touche Tohmatsu Certified Public Accountants LLP to the Securities and ExchangeCommittee101.INS*XBRL Instance Document101.SCH*XBRL Taxonomy Extension Scheme Document101.CAL*XBRL Taxonomy Extension Calculation Linkbase Document101.DEF*XBRL Taxonomy Extension Definition Linkbase Document101.LAB*XBRL Taxonomy Extension Label Linkbase Document101.PRE*XBRL Taxonomy Extension Presentation Linkbase Document104*Cover Page Interactive Data File* Filed with this Annual Report on Form 20-F.** Furnished with this Annual Report on Form 20-F. Table of Contents117SIGNATURESThe registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused andauthorized the undersigned to sign this annual report on its behalf. RYB Education, Inc. By:/s/ Yanlai Shi Name:Yanlai Shi Title:Executive Director and Chief Executive Officer Date: May 14, 2021 Table of ContentsF-1CONTENTS PAGE REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMF - 2 CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2019 AND 2020F - 4 CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2018, 2019AND 2020F - 5 CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS FOR THE YEARS ENDED DECEMBER 31,2018, 2019 AND 2020F - 6 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE YEARS ENDEDDECEMBER 31, 2018, 2019 AND 2020F - 7 CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2018, 2019AND 2020F - 8 NOTES TO CONSOLIDATED FINANCIAL STATEMENTSF - 9 Table of ContentsF-2REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the shareholders and the Board of Directors RYB Education, Inc.:Opinion on the Consolidated Financial StatementsWe have audited the accompanying consolidated balance sheet of RYB Education, Inc. and subsidiaries (the Company) as ofDecember 31, 2020, the related consolidated statements of operations, comprehensive loss, changes in shareholders’ equity, andcash flows for the year ended December 31, 2020, and the related notes (collectively, the consolidated financial statements). In ouropinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as ofDecember 31, 2020, and the results of its operations and its cash flows for the year ended December 31, 2020, in conformity withU.S. generally accepted accounting principles.Basis for OpinionThese consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express anopinion on these consolidated financial statements based on our audit. We are a public accounting firm registered with the PublicCompany Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company inaccordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and ExchangeCommission and the PCAOB.We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the auditto obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due toerror or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financialreporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for thepurpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, weexpress no such opinion.Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements,whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a testbasis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluatingthe accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of theconsolidated financial statements. We believe that our audit provides a reasonable basis for our opinion./s/ KPMG Huazhen LLPWe have served as the Company’s auditor since 2020.Beijing, ChinaMay 14, 2021 Table of ContentsF-3REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the shareholders and the Board of Directors of RYB Education, Inc.Opinion on the Financial StatementsWe have audited the accompanying consolidated balance sheet of RYB Education Inc. and its subsidiaries (the “Company”) as ofDecember 31, 2019, the related consolidated statements of operations, comprehensive loss, changes in shareholders’ equity and cashflows for each of the two 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 theCompany as of December 31, 2019, and the results of its operations and its cash flows for each of the two years in the period endedDecember 31, 2019, in conformity with accounting principles generally accepted in the United States of America.Change in Accounting PrincipleAs discussed in Note 2 to the financial statements, the Company has changed its method of accounting for leases on January 1, 2019due to the adoption of Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842).Basis for OpinionThese financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on theCompany’s financial statements based on our audits. We are a public accounting firm registered with the Public CompanyAccounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company inaccordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and ExchangeCommission and the PCAOB.We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform theaudit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to erroror fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financialreporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for thepurpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, weexpress no such opinion.Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due toerror or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidenceregarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles usedand significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believethat our audits provide a reasonable basis for our opinion./s/ Deloitte Touche Tohmatsu Certified Public Accountants LLPDeloitte Touche Tohmatsu Certified Public Accountants LLPBeijing, the People’s Republic of ChinaApril 30, 2020We began serving as the Company’s auditor in 2016. In 2020 we became the predecessor auditor. Table of ContentsF-4CONSOLIDATED BALANCE SHEETS(In thousands of U.S. dollars, except share and per share data, or otherwise noted)As of December 31 2019 2020ASSETS Current assets Cash and cash equivalents 68,728 53,454Term deposits 1,005 —Accounts receivable (net of allowance for doubtful accounts of $92 and $467 as of December 31, 2019 and 2020, respectively) 2,804 1,844Inventories 7,256 5,773Prepaid expenses and other current assets 10,279 8,927Loan receivables1,149107Amounts due from related parties 349 —Total current assets 91,570 70,105Non-current assets Restricted cash 710 1,127Property, plant and equipment, net 50,142 47,638Goodwill 52,687 46,147Intangible assets, net17,70014,179Long-term investments 5,237 217Deferred tax assets 18,161 21,168Other non-current assets 16,484 14,438Operating lease right-of-use assets83,40387,472TOTAL ASSETS 336,094 302,491LIABILITIES Current liabilities Prepayments from customers, current portion (including prepayments from customers of the consolidated VIEs without recourse to theGroup of $5,904 and $4,145 as of December 31, 2019 and 2020, respectively) 5,904 4,145Accrued expenses and other current liabilities (including accrued expenses and other current liabilities of the consolidated VIEs withoutrecourse to the Group of $47,825 and $42,703 as of December 31, 2019 and 2020, respectively) 56,472 54,406Income tax payable (including income tax payable of the consolidated VIEs without recourse to the Group of $14,364 and $17,865 as ofDecember 31, 2019 and 2020, respectively) 14,929 18,592Operating lease liabilities, current portion (including operating lease liabilities of the consolidated VIEs without recourse to the Group of$13,068 and $12,277 as of December 31, 2019 and 2020, respectively) 16,399 16,856Deferred revenue, current portion (including deferred revenue of the consolidated VIEs without recourse to the Group of $30,266 and$29,367 as of December 31, 2019 and 2020, respectively)31,99334,351Long-term debt, current portion (including long-term debt of the consolidated VIEs without recourse to the Group of $nil and $nil as ofDecember 31, 2019 and 2020, respectively)877Amounts due to related parties (including amounts due to related parties of the consolidated VIEs without recourse to the Group of $124 and$nil as of December 31, 2019 and 2020, respectively)124—Total current liabilities 125,908 128,357Non-current liabilities Prepayments from customers, non-current portion (including prepayments from customers of the consolidated VIEs without recourse to theGroup of $2,508, and $4,024 as of December 31, 2019 and 2020, respectively) 2,508 4,024Deferred revenue, non-current portion (including deferred revenue of the consolidated VIEs without recourse to the Group of $4,206, and$709 as of December 31, 2019 and 2020, respectively) 5,531 1,726Other non-current liabilities (including other non-current liabilities of the consolidated VIEs without recourse to the Group of $9,167 and$9,307 as of December 31, 2019 and 2020, respectively) 11,034 12,519Deferred income tax liabilities (including deferred income tax liabilities of the consolidated VIEs without recourse to the Group of $1,271and $nil as of December 31, 2019 and 2020, respectively)3,3841,890Operating lease liabilities, non-current portion (including operating lease liabilities of the consolidated VIEs without recourse to the Group of$68,509 and $67,726 as of December 31, 2019 and 2020, respectively)71,01276,308TOTAL LIABILITIES 219,377 224,824MEZZANINE EQUITY Redeemable non-controlling interests8,8019,988EQUITY Ordinary shares (par value of $0.001 per share; 990,000,000 shares authorized; 29,213,801 shares issued and 27,586,346 shares outstandingas of December 31, 2019; 29,213,801 shares issued and 27,812,754 shares outstanding as of December 31, 2020) 29 29Treasury stock(12,000)(10,321)Additional paid-in capital 139,843 141,094Statutory reserve 4,060 4,652Accumulated other comprehensive income (loss) 141 (1,468)Accumulated deficit (33,553) (71,837)Total RYB Education, Inc. shareholders’ equity 98,520 62,149Non-controlling interest 9,396 5,530TOTAL EQUITY 107,916 67,679TOTAL LIABILITIES, MEZZANINE EQUITY AND TOTAL EQUITY 336,094 302,491The accompanying notes are an integral part of the consolidated financial statements. Table of ContentsF-5CONSOLIDATED STATEMENTS OF OPERATIONS(In thousands of U.S. dollars, except share and per share data, or otherwise noted)Years ended December 31, 2018 2019 2020Net revenues: Services 139,216 166,183 103,073Products 17,282 16,100 6,642Total net revenues 156,498 182,283 109,715Cost of revenues: Services 121,549 147,669 113,285Products 9,315 7,865 3,616Total cost of revenues 130,864 155,534 116,901Gross profit (loss) 25,634 26,749 (7,186)Operating expenses: Selling expenses 2,233 2,808 1,285General and administrative expenses 26,428 23,775 24,313Impairment loss on goodwill——8,454Impairment loss on long-lived assets——2,148Total operating expenses 28,661 26,583 36,200Operating (loss) income (3,027) 166 (43,386)Interest income 2,147 858 348Government subsidy income 683 499 4,591Gain on disposal of subsidiaries 1,234 492 96Impairment loss on long-term investments——(2,432)Income (loss) before income taxes 1,037 2,015 (40,783)Less: Income tax expenses 2,459 3,541 215Loss before loss in equity method investments (1,422) (1,526) (40,998)Loss from equity method investments (291) (664) (185)Net loss (1,713) (2,190) (41,183)Less:Net (loss) income attributable to noncontrolling interest (93) 387 (3,903)Increase (decrease) in redeemable non-controlling interest169(143)—Net loss attributable to ordinary shareholders of RYB Education, Inc. (1,789) (2,434) (37,280)Net loss per share attributable to ordinary shareholders of RYBEducation, Inc. Basic and diluted (0.06) (0.09) (1.33)Weighted average shares used in calculating net loss per ordinary share Basic and diluted 29,213,801 28,074,624 28,122,851The accompanying notes are an integral part of the consolidated financial statements. Table of ContentsF-6CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS(In thousands of U.S. dollars)Years ended December 31 2018 2019 2020Net loss(1,713) (2,190) (41,183)Other comprehensive income (loss), net of tax of nil: Change in cumulative foreign currency translation adjustments(983) 269 (1,036)Total comprehensive loss(2,696) (1,921) (42,219)Less: comprehensive (loss) income attributable to noncontrolling interest(171) 289 (3,330)Comprehensive loss attributable to RYB Education, Inc.(2,525) (2,210) (38,889)The accompanying notes are an integral part of the consolidated financial statements. Table of ContentsF-7CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY(In thousands of U.S. dollars, except share data)RYB Education, Inc. ShareholdersAccumulatedTotal RYBRedeemableNumber ofAdditionalotherEducation, Inc.Non-non-ordinaryOrdinaryTreasurypaid-inStatutorycomprehensiveAccumulatedshareholders’controllingTotalcontrolling share share stock capital reserve income (loss) deficit equity interest equity interestBalance as of January 1, 2018 29,213,801 29 — 129,134 2,678 783 (28,879) 103,745 1,549 105,294—Net loss for the year — — — — — — (1,620) (1,620) (121) (1,741)28Cumulative effect adjustmentrelated to Opening retainedearnings for adoption ofASC606——————931931—931—Provision of statutory reserve — — — — 684 — (684) — — ——Share-based payments———6,747———6,747—6,747—Recognition of redeemable non-controlling interest——————————1,431Adjustment of redeemable non-controlling interest——————(169)(169)—(169)169Foreign currency translationadjustment — — — — — (905) — (905) (78) (983)—Contribution by minority interest — — — — — — — — 3,330 3,330—Disposal of non-whollysubsidiaries————————121121—Acquisition of additional equityinterest———————————From non-controlling shareholders————————(190)(190)—Balance as of December 31, 2018 29,213,801 29 — 135,881 3,362 (122) (30,421) 108,729 4,611 113,3401,628Net loss for the year ——————(2,577)(2,577)70(2,507)317Repurchase of shares——(12,000)————(12,000)—(12,000)—Provision of statutory reserve————698—(698)————Share-based payments———3,962———3,962—3,962—Recognition of redeemable non-controlling interest——————————6,895Adjustment of redeemable non-controlling interest——————143143—143(143)Foreign currency translationadjustment—————263—263(98)165104Contribution by minority interest————————420420—Disposal of non-whollysubsidiaries————————(758)(758)—Business acquisitions————————5,1515,151—Balance as of December 31, 2019 29,213,80129(12,000)139,8434,060141(33,553)98,5209,396107,9168,801Cumulative effect adjustment uponadoption of ASC 326——————(412)(412)—(412)—Balance as of January 1, 202029,213,80129(12,000)139,8434,060141(33,965)98,1089,396107,5048,801Net loss for the year——————(37,280)(37,280)(4,915)(42,195)1,012Settlement of vested shares usingtreasury shares——1,679(1,679)———————Provision of statutory reserve————592—(592)————Share-based payments———2,930———2,930—2,930—Foreign currency translationadjustment—————(1,609)—(1,609)398(1,211)175Contribution by minority interest————————760760—Disposal of non-whollysubsidiaries————————(109)(109)—Balance as of December 31, 202029,213,80129(10,321)141,0944,652(1,468)(71,837)62,1495,53067,6799,988The accompanying notes are an integral part of the consolidated financial statements. Table of ContentsF-8CONSOLIDATED STATEMENTS OF CASH FLOWS(In thousands of U.S. dollars)Years ended December 31 2018 2019 2020CASH FLOWS FROM OPERATING ACTIVITIES Net loss (1,713) (2,190) (41,183)Adjustments to reconcile net loss to net cash generated from (used in) operating activities: Depreciation of property, plant and equipment 7,530 9,296 9,239Amortization of intangible assets5292,2242,431Reduction in the carrying amount of the right-of-use assets——15,634Share-based compensation6,7473,9622,930Change in allowance for doubtful accounts receivable and other receivables — 477 2,893Change in allowance for loan receivables——1,464Inventories write-down——199Loss on disposal of property, plant and equipment 20 100 11Loss from equity method investments 291 664 185Impairment loss on long-term investments——2,432Net gain on disposal of subsidiaries (1,234) (492) (96)Impairment loss on goodwill — — 8,454Impairment loss on long-lived assets——2,148Deferred tax benefit——(3,223)Changes in operating assets and liabilities, net of the effect of acquisition: Accounts receivable (271) (1,724) 631Inventories (1,512) (1,992) 1,664Prepaid expenses and other current assets 1,558 884 157Amounts due from related parties (51) — —Deferred tax assets (4,583) (2,689) —Other non-current assets (1,110) (2,255) 719Prepayments from customers (12,872) (1,415) (243)Accrued expenses and other current liabilities 5,307 5,582 (1,708)Operating lease liabilities——(14,289)Income tax payable 1,749 3,353 3,663Deferred revenue (91) 516 (1,447)Other non-current liabilities 534 (1,319) 809Net cash generated from (used in) operating activities 828 12,982 (6,526)CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of businesses, net of cash acquired (39,786) (17,949) (417)Collection of prepayment for investment——279Investments in term deposits (55,454) (1,881) —Proceeds from maturity of term deposits55,4548681,005Proceeds from disposal of subsidiaries8321,218374Purchase of long-term investments (894) (4,800) (22)Purchase of property, plant and equipment (11,480) (12,492) (3,975)Proceeds from disposal of property, plant and equipment 804 658 554Loans to third parties (1,665) — —Loan to an investee——(536)Collection of loans to third parties 454 — 153Net cash used in investing activities (51,735) (34,378) (2,585)CASH FLOWS FROM FINANCING ACTIVITIES Capital contribution from noncontrolling interests 811 420 760Payment of initial public offering costs(1,377)——Acquisition of businesses—(1,936)—Acquisition of additional equity interest from non-controlling shareholders (190) — —Amount due to related parties—125—Repayment of advances from an investee——(124)Payment made in connection with repurchase of shares—(12,000)—Repayment of long-term debt—(63)(80)Net cash generated from (used in) financing activities (756) (13,454) 556Exchange rate effect on cash and cash equivalents, and restricted cash (2,741) (542) (6,302)Net decrease in cash and cash equivalents, and restricted cash (54,404) (35,392) (14,857)Cash and cash equivalents, and restricted cash at beginning of the year 159,234 104,830 69,438Cash and cash equivalents, and restricted cash at end of the year 104,830 69,438 54,581Supplemental schedule of cash flow information Income taxes paid (5,213) (3,451) (921)Supplemental schedule of non-cash activities Acquisition of property, plant and equipment through payable4144781,042Payable for investment and business acquisition5,719575613The accompanying notes are an integral part of the consolidated financial statements. Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2018, 2019 AND 2020(In thousands of U.S. dollars, except share and per share data, or otherwise noted)F-91. ORGANIZATION AND BASIS OF PRESENTATIONTop 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 center services, student care services and sale of educational merchandise in the People’s Republic of China (“PRC”) and in Singapore.As of December 31, 2020, details of the Company’s subsidiaries, its VIEs and VIEs’ major subsidiaries and kindergartenswere as follows:Date ofPercentage ofestablishmentPlace oflegal ownershipName or acquisition establishment by the Company Principal activitiesSubsidiaries: Beijing RYB Technology Development Co., Ltd. (“RYB Technology”) December 24,2007 PRC 100%Investment holding and provision ofeducational servicesQIYUAN Education Technology (Tianjin) Co., Ltd (“TJ Qiyuan”)May 18, 2018 PRC 100%Investment holding and provision ofeducational servicesBeijing Beilin International Education Co., Ltd. (“BJ Beilin”)September 28,2018PRC 90%Investment holding and provision ofeducational servicesPrecious Companion Group LimitedAugust 4, 2018Hong Kong100%Investment holding and provision ofeducational servicesDigital Knowledge World Co., Ltd.September 1,2018Cayman Islands90%Investment holding and provision ofeducational servicesDigital Education Co., Ltd.September 1,2018Hong Kong90%Investment holding and provision ofeducational servicesBeilin International Education LimitedSeptember 1,2018Hong Kong90%Investment holding and provision ofeducational servicesGlobal Eduhub Pte Ltd.April 1, 2019Singapore77%Investment holding and provision ofeducational servicesGlobal Edu (SG) Holding Pte Ltd.April 1, 2019Singapore77%Investment holding and provision ofeducational servicesGlobal Eduhub Holding LimitedApril 1, 2019Hong Kong77%Investment holding and provision ofeducational servicesVariable interest entities: Beijing RYB Children Education Technology Development Co., Ltd.(“Beijing RYB”) July 3, 2001 PRC Consolidated VIE Investment holding and provision ofeducational servicesBeiyao Technology Development Co., Ltd. (“Beiyao”)June 15, 2018PRC Consolidated VIE Investment holding and provision ofeducational servicesBeijing Haidian District Bozhi Training School (“Bozhi”)September 28,2018PRC Consolidated VIE Training servicesShanghai Huiliang Technology Development Co., Ltd. (“ShanghaiHuiliang”)April 1, 2020PRC Consolidated VIE Investment holding and provision ofeducational servicesMajor subsidiaries and kindergartens (1): Shenzhen RYB Children Education Technology Development Co., Ltd. June 20, 2007 PRC Consolidated VIE Sale of educational merchandise and provisionof educational servicesBeijing Youer Lezhi Technology Development Co., Ltd. April 2, 2014 PRC Consolidated VIE Play-and-learn center servicesShanghai Geleli Technology Development Co.,June 4, 2019PRCConsolidated VIE Sale of educational merchandise and provisionof educational servicesNASCANS Pte. Ltd.April 1, 2019Singapore77%Provision of educational servicesBeijing Haidian District RYB Multi-Dimension IntelligenceExperimental Kindergarten (2) January 10, 2005 PRC Consolidated VIE Kindergarten servicesBeijing Fengtai District RYB Multi-Dimension IntelligenceExperimental Kindergarten (2) April 14, 2005 PRC Consolidated VIE Kindergarten servicesBeijing Development RYB Bilingual Kindergarten (2) February 21,2006 PRC Consolidated VIE Kindergarten servicesMulberry Learning Centre International Pte LtdApril 1, 2019Singapore77%Kindergarten servicesMulberry Learning Centre @ Tanjong Pagar Pte LtdApril 1, 2019Singapore77%Kindergarten servicesBeijing Chaoyang District RYB Xintiandi Kindergarten (2) April 11, 2011 PRC Consolidated VIE Kindergarten servicesChangsha Kaifu District RYB Kindergarten (2) March 30, 2012 PRC Consolidated VIE Kindergarten servicesHefei Faneng Sunshine Beach Kindergarten (2)January 18, 2013PRC Consolidated VIE Kindergarten servicesBeijing Chaoyang District Mulberry Kindergarten (2) July 5, 2013 PRC Consolidated VIE Kindergarten servicesChangsha Kaifu District Vanke City RYB Kindergarten (2)January 8, 2014 PRC Consolidated VIE Kindergarten servicesChangzhou Wujin District RYB New City Villa Kindergarten (2) February 17,2014 PRC Consolidated VIE Kindergarten servicesGuangzhou Liwan District RYB Tangning Garden Kindergarten (2) May 1, 2014 PRC Consolidated VIE Kindergarten services Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2018, 2019 AND 2020(In thousands of U.S. dollars, except share and per share data, or otherwise noted)F-10Chongqing North Bank RYB Huarun Central Park KindergartenMay 26, 2014PRC Consolidated VIE Kindergarten servicesChangzhou Tianning District Huarun International RYB KindergartenSeptember 25,2014PRC Consolidated VIE Kindergarten servicesJinan Licheng District RYB Wanxiang New Sky Kindergarten (2) October 30, 2014 PRC Consolidated VIE Kindergarten servicesXiamen Siming District RYB Yongniantianshu Kindergarten (2) July 10, 2015 PRC Consolidated VIE Kindergarten servicesJinan Licheng District Wangsheren Street RYB Kindergarten (2)October 30, 2016 PRC Consolidated VIE Kindergarten servicesBeijing Shunyi District RYB City Garden Kindergarten (2)November 1,2016PRC Consolidated VIE Kindergarten servicesBeijing XueErLe Education Technology Co., LtdDecember 13,2016PRC Consolidated VIE Kindergarten servicesBeijing Xicheng District RYB Kindergarten (2)January 16, 2017PRC Consolidated VIE Kindergarten servicesXiamen Jimei District RYB Kindergarten (2) April 19, 2017 PRC Consolidated VIE Kindergarten servicesZaoZhuang RYB Kindergarten (2)May 1, 2018PRC Consolidated VIE Kindergarten servicesChongqing Liangjiang New District RYB Leyuan Kindergarten Co.,Ltd.June 1, 2018PRC Consolidated VIE Kindergarten servicesTengzhou RYB Renhe Tiandi Kindergarten (2)May 1, 2018PRC Consolidated VIE Kindergarten servicesShanghai Peidi Culture Communication Co., LtdJuly 1, 2018PRC Consolidated VIE Kindergarten servicesAlphabet Playhouse Childcare and Learning Centre Pte LtdApril 1, 2019Singapore77%Kindergarten servicesAlphabet Playhouse @ East Coast Pte LtdApril 1, 2019Singapore77%Kindergarten servicesBeijing RYB Children Education Technology Development Co., Ltd.July 3, 2001PRCConsolidated VIE Investment holding and provision ofeducational servicesBeijing Digital Knowledge Dream Flying Wanliu KindergartenHaidian Co. LTDSeptember 30,2018PRCConsolidated VIE Kindergarten servicesChangsha Boyu Education Technology Development Co., LTDOctober 21, 2019PRCConsolidated VIE Sale of educational merchandise and provisionof educational servicesMulberry Learning Centre Alexandra Pte LtdNovember 1,2019Singapore77%Kindergarten servicesShenzhen Longhua District Mulberry Kindergarten (2)January 1, 2019PRCConsolidated VIEKindergarten servicesGuangzhou Liwan District Small Green Castle Poly City KindergartenSeptember 30,2019PRCConsolidated VIEKindergarten servicesLittle Greenhouse @ Bukit Batok Pte LtdApril 1, 2019Singapore77%Kindergarten servicesGlobal Eduhub Pte Ltd.April 1, 2019Singapore77%Investment holding and provision ofeducational servicesBeijing Chaoyang District Digital Knowledge Dream FlyingKindergarten (2)September 30,2018PRCConsolidated VIEKindergarten servicesLittle Greenhouse @ Sengkang Pte LtdApril 1, 2019Singapore77%Kindergarten servicesChangsha Tianxin District Yuwentai RYB Kindergarten (2)September 1,2018PRCConsolidated VIEKindergarten servicesChongqing RYB leyuan Art Training Co. LTDFebruary 25,2011PRCConsolidated VIESale of educational merchandise and provisionof educational servicesGuangzhou Yuexiu District RYB Donghai Jiayuan Kindergarten (2)February 29,2012PRCConsolidated VIEKindergarten servicesChangsha Yuhua District Liudu RYB Kindergarten (2)October 1, 2017PRCConsolidated VIEKindergarten servicesChangsha Furong District RYB Kindergarten Co. LTDSeptember 30,2017PRCConsolidated VIEKindergarten servicesLittle Greenhouse @ S540 Pte LtdApril 1, 2019Singapore77%Kindergarten servicesGuiyang Wudang District RYB Poly Hot Spring Kindergarten (2)August 31, 2013PRCConsolidated VIEKindergarten servicesChongqing Liangjiang New District RYB Investment Garden CityKindergarten (2)February 28,2015PRCConsolidated VIEKindergarten servicesLittle Greenhouse Childcare & Development Pte LtdApril 1, 2019Singapore77%Kindergarten servicesGuangzhou Liwan District RYB China Railway International CityKindergartenAugust 31, 2016PRCConsolidated VIEKindergarten servicesGuangzhou Yuexiu District RYB Wende Road Kindergarten (2)March 30, 2018PRCConsolidated VIEKindergarten servicesZhuzhou Tianyuan District RYB Kindergarten (2)August 31, 2016PRCConsolidated VIEKindergarten servicesShenzhen Futian District RYB Tian Golf Longyuan Kindergarten (2)August 31, 2011PRCConsolidated VIEKindergarten servicesChangsha Quantang Street RYB Kindergarten (2)September 1,2018PRCConsolidated VIEKindergarten servicesAllegiance (Edu) Ptd LtdApril 1, 2020Singapore77%Kindergarten servicesChangsha Yuhua District Jinyu Huafu RYB Kindergarten (2)February 28,2014PRCConsolidated VIEKindergarten servicesLittle Greenhouse @ S553 Pte LtdApril 1, 2019Singapore77%Kindergarten servicesChangsha Tianxin District RYB Kindergarten (2)February 28,2017PRCConsolidated VIEKindergarten services(1)The net revenues generated from these major subsidiaries and kindergartens accounted for approximately 70% ofGroup’s total net revenues for the year ended December 31, 2020. The English name is for identification purpose only. Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2018, 2019 AND 2020(In thousands of U.S. dollars, except share and per share data, or otherwise noted)F-111. ORGANIZATION AND BASIS OF PRESENTATION - continued(2)These kindergartens are established and controlled by Beijing RYB, Beiyao or their subsidiaries. Under PRC laws andregulations, 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 ofownership with respect to legal, regulatory and tax matters.The VIE arrangementsPRC 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 arrangementswith Beiyao, and the shareholders of Beiyao, through which the Company obtained effective control over, and became theprimary 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 contractualarrangements with Bozhi, and the shareholders of Bozhi, through which the Company obtained effective control over, andbecame the primary beneficiary of Bozhi. The terms of these contractual agreements of Beiyao and Bozhi are substantiallysimilar to the agreements of Beijing RYB, except that the agreements of Bozhi will remain effective for twenty years, whencontract duration is applicable.●Agreements that transfer economic benefits to the Group:Exclusive Consultation and Service AgreementPursuant to the exclusive consultation and service agreement, Beijing RYB engages RYB Technology as its exclusiveoperational consultant, and RYB Technology agrees to provide necessary education related consulting services to assistBeijing 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 suchconsultation and service are determined at RYB Technology’s discretion. Unless RYB Technology terminates thisagreement 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 contractualparties to this agreement cannot terminate this agreement unilaterally.For the years ended December 31, 2018, 2019 and 2020, $1,461, $9,877 and $4,129 service fees, respectively, werecharged by RYB Technology, TJ Qiyuan and BJ Beilin. Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2018, 2019 AND 2020(In thousands of U.S. dollars, except share and per share data, or otherwise noted)F-121. ORGANIZATION AND BASIS OF PRESENTATION - continuedThe VIE arrangements - continued●Agreements that provide the Company effective control over VIEs:Business Operation AgreementPursuant to the business operation agreement, Beijing RYB and its shareholders agreed to, (i) without prior writtenconsent of RYB Technology, Beijing RYB will not conduct any transactions that may have substantial effects on itsassets, businesses, personnel, obligations, rights, or business operations. (ii) Beijing RYB will accept and follow RYBTechnology’s instructions in relation to Beijing RYB’s daily operational and financial management, election ofdirectors, general manager, financial controller, kindergarten principals, and other senior management executivesdesignated by RYB Technology. (iii) the shareholders will transfer any dividends, income, or interests received as theshareholders of Beijing RYB immediately and unconditionally to RYB Technology. Unless RYB Technologyterminates this agreement in advance, this agreement will remain effective for ten years. Upon request by RYBTechnology, contractual parties to this agreement shall extend the term of this agreement prior to its expiration. Othercontractual parties to this agreement cannot terminate this agreement unilaterally.Power of AttorneyPursuant to the power of attorney, each of Beijing RYB’s shareholders irrevocably authorized RYB Technology, or anyperson(s) designated by RYB Technology, as the attorney-in-fact to act on his or her behalf on all matters pertaining toBeijing RYB and to exercise all of his or her rights as a shareholder of Beijing RYB, including but not limited toconvene shareholders’ meeting, vote and sign any resolution as a shareholder, appoint directors, supervisors andofficers, amend article of association, as well as the right to sell, transfer, pledge and dispose of all or a portion of theshares held by such shareholder. In addition, each such shareholders also undertakes that he or she will not engage inany activities in violation of this power of attorney or cause conflict of interest between RYB Technology and BeijingRYB or its subsidiaries and kindergartens. The power of attorney will remain in force and irrevocable as long as theapplicable shareholder remains a shareholder of Beijing RYB, unless RYB Technology instructs to the contrary inwriting.Equity Pledge AgreementPursuant to the equity pledge agreement, Beijing RYB’s shareholders pledged their respective equity interests inBeijing RYB to RYB Technology to guarantee Beijing RYB’s performance, and shareholders’ obligations under thecontractual arrangements between the Beijing RYB, its shareholders and RYB Technology. If Beijing RYB or itsshareholders breach their contractual obligations under these agreements, RYB Technology, as a pledgee, will have theright to dispose of the pledged equity interests in Beijing RYB and priority in receiving the proceeds from suchdisposal. Beijing RYB’s shareholders also agree that, during the term of the equity pledge agreement, they will notdispose of the pledged equity interests or create or allow any encumbrance on the pledged equity interests. Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2018, 2019 AND 2020(In thousands of U.S. dollars, except share and per share data, or otherwise noted)F-131. ORGANIZATION AND BASIS OF PRESENTATION - continuedThe VIE arrangements - continued●Agreements that provide the Company effective control over VIEs: - continuedEquity Disposal AgreementPursuant to the equity disposal agreement, Beijing RYB’s shareholders irrevocably granted RYB Technology or anythird parties designated by RYB Technology an exclusive option to purchase all or part of those shareholders’ equityinterests in Beijing RYB at any time that RYB Technology deems fit. The purchase price would be the minimumamount of consideration permitted under applicable PRC law at the time when the option is exercised. Thoseshareholders further undertake that they will not create any pledge or encumbrance on their equity interests in BeijingRYB, and transfer, gift or otherwise dispose of their equity interests in Beijing RYB to any person(s) other than RYBTechnology or its designated third parties. This agreement will remain effective for ten years. Upon request by RYBTechnology, 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 mostsignificantly affected the economic performance of Beijing RYB, and (2) received the economic benefits of BeijingRYB. In making the conclusion that the RYB Technology, a wholly owned subsidiary of the Company, is the primarybeneficiary of Beijing RYB, the Company believes the Company’s rights under the terms of the equity disposalagreement has provided it with a substantive kick out right. More specifically, the Company believes the terms of theequity disposal agreement are valid, binding and enforceable under PRC laws and regulations currently in effect. TheCompany also believes that the minimum amount of consideration permitted by the applicable PRC law to exercise theoption has not represented a financial barrier or disincentive for the Company to currently exercise its rights under theequity disposal agreement. In addition, the articles of association of Beijing RYB provided that the shareholders ofBeijing 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 annualbudget and earnings distribution plan.Consequently, the Company’s rights under the business operation agreement and powers of attorney have reinforcedthe Company’s abilities to direct the activities most significantly impacting Beijing RYB’s economic performance. TheCompany also believes that this ability to exercise control ensured that Beijing RYB would continue to execute andrenew service agreements and pay service fees to the Company. By charging service fees, and by ensuring that serviceagreements were executed and renewed indefinitely, the Company has the rights to receive substantially all of theeconomic benefits from Beijing RYB.In 2019 and 2020, 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. The Group believes such change does not impact that RYB Beijing is the primary beneficiary of these not-for-profit kindergartens because it has: (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. Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2018, 2019 AND 2020(In thousands of U.S. dollars, except share and per share data, or otherwise noted)F-141. ORGANIZATION AND BASIS OF PRESENTATION - continuedThe VIE arrangements - continued●Risks in relation to VIE structureThe 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 maylead them to pursue opportunities in violation of the aforementioned contractual agreements. If the Group cannotresolve any conflicts of interest or disputes between the Group and the shareholders of VIEs, the Group wouldhave to rely on legal proceedings, which could result in disruption of its business, and there is substantialuncertainty 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 otherregulatory requirements. As a result, the PRC government could impose fines, new requirements or otherpenalties 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 conductbusiness.●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 laws and regulations to effectuate such contractual arrangements.●If the legal structure and contractual arrangements were found to be in violation of PRC laws and regulations, thePRC 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.As of December 31, 2019 and 2020, the VIEs and their subsidiaries and kindergartens accounted for an aggregate of68% and 62%, respectively, of the Group’s consolidated total assets, and 90% and 84% respectively of the Group’sconsolidated total liabilities. Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2018, 2019 AND 2020(In thousands of U.S. dollars, except share and per share data, or otherwise noted)F-151. ORGANIZATION AND BASIS OF PRESENTATION - continuedThe VIE arrangements - continued●Risks in relation to VIE structure - continuedThe following financial information of the Company’s VIEs and VIEs’ subsidiaries and kindergartens after the eliminationof inter-company transactions and balances as of December 31, 2019 and 2020, and for the three years ended December 31,2020 was included in the accompanying consolidated financial statements:As of December 31, 2019 2020Cash and cash equivalents 37,54821,111Prepaid expenses and other current assets 9,5487,378Total current assets 57,02335,314Total assets 230,975186,948Total current liabilities 111,551106,357Total liabilities 197,212188,123For the years ended December 31, 2018 2019 2020Net revenues 155,946 162,644 80,107Net income/(loss) 14,610 13,743 (34,938)Net cash provided by (used in) operating activities (2,159) 14,691 (12,007)Net cash used in investing activities (18,866) (16,360) (2,368)Net cash provided by (used in) financing activities 436 (1,457) 460Effects of exchange rate changes (2,701) (495) (1,395)There are no consolidated VIEs’ assets that are collateral for the VIEs’ obligations and which can only be used to settle theVIEs’ obligations. No creditors (or beneficial interest holders) of the VIEs have recourse to the general credit of theCompany or any of its consolidated subsidiaries. No terms in any arrangements, considering both explicit arrangements andimplicit variable interests, require the Company or its subsidiaries to provide financial support to the VIEs. However, if theVIEs ever need financial support, the Company or its subsidiaries may, at its option and subject to statutory limits andrestrictions, provide financial support to the VIEs through loans to the shareholders of the VIEs or entrustment loans to theVIEs. Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2018, 2019 AND 2020(In thousands of U.S. dollars, except share and per share data, or otherwise noted)F-162. SIGNIFICANT ACCOUNTING POLICIESBasis of presentation and use of estimatesThe accompanying consolidated financial statements have been prepared in accordance with U.S. GAAP.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, goodwill and long term investments, and incremental borrowing rate for leases. Actual results could materially differ from those estimates.Principles of consolidationThe 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 translationThe 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 onthe balance sheet date. Equity accounts are translated at historical exchange rates, and revenues and expenses are translatedusing the average rate of exchange in effect during the reporting period. Translation adjustments are reported and shown asa separate component of other comprehensive income in the consolidated statements of changes in equity and consolidatedstatements of comprehensive 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. Monetary assets and liabilities denominated in currencies other than the functional currencies are remeasured into the functional currency using the applicable exchange rate at the balance sheet date. Exchange gains and losses are recognized in the consolidated statements of operations. Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2018, 2019 AND 2020(In thousands of U.S. dollars, except share and per share data, or otherwise noted)F-172. SIGNIFICANT ACCOUNTING POLICIES - continuedBusiness CombinationsBusiness combinations are recorded using the acquisition method of accounting. The purchase price of the acquisition isallocated to the tangible assets, liabilities, identifiable intangible assets acquired and non-controlling interest, if any, basedon their estimated fair values as of the acquisition date. The excess of the purchase price over those fair values is recordedas goodwill. Acquisition-related expenses are expensed as incurred.Cash and cash equivalentsCash and cash equivalents comprise cash at banks, on hand, which have original maturities of three months or less whenpurchased and are readily convertible into known amounts of cash. The carrying value of cash equivalents approximatesfair value.Term depositsTerm deposits consist of deposits placed with financial institutions with an original maturity of greater than three monthsand less than one year.Restricted cashRestricted cash represents RMB deposits in restricted bank accounts for operating kindergartens as required by certain localregulations. The deposits in restricted bank accounts cannot be withdrawn until these kindergartens are closed. Restrictedcash is classified as either current or non-current based on when the funds will be released in accordance with the terms ofthe respective agreement.InventoriesInventories, mainly consisting of educational toys, teaching aids, and textbooks, are stated at the lower of cost or netrealized value. Cost is determined using the weighted average method.Fair valueFair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transactionbetween market participants at the measurement date. When determining the fair value measurements for assets andliabilities required or permitted to be recorded at fair value, the Group considers the principal or most advantageous marketin which it would transact and it considers assumptions that market participants would use when pricing the asset orliability.Authoritative literature provides a fair value hierarchy which prioritizes the inputs to valuation techniques used to measurefair value into three broad levels. The level in the hierarchy within which the fair value measurement in its entirety falls isbased upon the lowest level of input that is significant to the fair value measurement as follows:Level 1Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities. Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2018, 2019 AND 2020(In thousands of U.S. dollars, except share and per share data, or otherwise noted)F-182. SIGNIFICANT ACCOUNTING POLICIES - continuedFair value - continuedLevel 2Level 2 applies to assets or liabilities for which there are inputs other than quoted prices included within Level 1 that areobservable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices foridentical 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 3Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that aresignificant to the measurement of the fair value of the assets or liabilities.Financial instrumentsThe 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 fromrelated parties, current portion of long-term debt, amount due to related parties and other payables. The carrying amounts ofcash 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 payableapproximate their fair values due to the short-term maturities of these instruments. Available-for-sale securities are carriedat fair value. The carrying amount of non-current loan receivables approximates fair value as its interest rates are at thesame level of current market yield for comparable loans.Allowance for doubtful accountsPrior to January 1, 2020, an allowance for doubtful accounts is recorded in the period in which a loss is determined to beprobable based on an assessment of specific evidence indicating doubtful collection, historical experience, account balanceaging and prevailing economic conditions. Allowance is reversed when the underlying balance of doubtful accounts aresubsequently collected. Receivable balances are written off when the Group determines that the balance is uncollectible.On January 1, 2020, the Group adopted ASC 326 Financial Instruments – Credit Losses (“ASC 326”) using the modifiedretrospective approach through a cumulative-effect adjustment to accumulated deficit. Upon adoption, the Group changedits impairment model to utilize a current expected credit losses model in place of the incurred loss methodology forfinancial instruments measured at amortized cost, including accounts receivable, loans receivables, government subsidyreceivables, receivables from the disposal of subsidiaries, receivables from third party payment platform, deposit and otherreceivables. The Group recorded an increase to opening accumulated deficit of $412 as of January 1, 2020 due to thecumulative impact of adopting ASC 326.Management used an expected credit loss model for the impairment of financial instruments mentioned above as of periodends. Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2018, 2019 AND 2020(In thousands of U.S. dollars, except share and per share data, or otherwise noted)F-192. SIGNIFICANT ACCOUNTING POLICIES - continuedAllowance for doubtful accounts - continuedFor the allowance of the accounts receivable, management believes the aging of accounts receivable is a reasonableparameter to estimate expected credit loss, and determines expected credit losses for accounts receivables using an agingschedule as of period ends. The expected credit loss rates under each aging schedule were developed on basis of theaverage historical loss rates from previous years, and adjusted to reflect the effects of those differences in currentconditions and forecasted changes. Management measured the expected credit losses of accounts receivable on a collectivebasis. When an accounts receivable does not share risk characteristics with other accounts receivables, management willevaluate such accounts receivable for expected credit loss on an individual basis. Doubtful accounts balances are written offand deducted from allowance for credit loss, when receivables are deemed uncollectible, after all collection efforts havebeen exhausted and the potential for recovery is considered remote.For the allowance of the financial instruments other than accounts receivable and loan receivables, the Group has identifiedthe relevant risk characteristics which include size, type of the services the Group provides, or a combination of thesecharacteristics. Receivables with similar risk characteristics have been grouped into pools. For each pool, the Groupconsiders the historical credit loss experience, current economic conditions, supportable forecasts of future economicconditions, and any recoveries in assessing the lifetime expected credit losses. When specific customers are identified as nolonger sharing the same risk profile as their current pool, they are removed from the pool and evaluated separately.Loan receivablesLoan receivables are recorded at unpaid principal balances, net of unearned interest income.Prior to January 1, 2020, allowance is recorded to reflect the Group’s best estimate of the amounts that may not becollected.On January 1, 2020, upon adoption of ASC 326 starting from January 1, 2020, the Group establishes current expectedcredit losses model for loan receivables. The Group calculates the allowance on loan receivables by using a loss-rateapproach whereby the loss-rate is determined based on the expectation of future economic conditions, historical collectionexperience and the possibility of default.The Group determined that the cumulative effect from the adoption of ASC 326 as of January 1, 2020 is immaterial. TheGroup recorded $nil, $nil and $1,464 allowance of loan receivables for the years ended December 31, 2018, 2019 and2020.Property, plant and equipment, netProperty, plant and equipment are stated at cost and are depreciated using the straight-line method over the estimated usefullives of the assets, as follows:Category Estimated useful lifeBuildings 35 yearsFurniture, fixture and equipment 5 yearsMotor vehicles5 yearsLeasehold improvement Shorter of lease term or economic lifeRepair and maintenance costs are charged to expense as incurred, whereas the cost of renewals and betterment that extendsthe useful lives of property, plant and equipment are capitalized as additions to the related assets. Retirements, sales anddisposals of assets are recorded by removing the cost and accumulated depreciation from the assets and accumulateddepreciation accounts with any resulting gain or loss reflected in the consolidated statements of operations. Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2018, 2019 AND 2020(In thousands of U.S. dollars, except share and per share data, or otherwise noted)F-202. SIGNIFICANT ACCOUNTING POLICIES - continuedLeasesThe Group adopted Topic 842 on January 1, 2019 using the modified retrospective transition approach.The Group has lease contracts for offices, kindergartens, play-and-learn centers and student care centers in different citiesin the PRC and Singapore under operating leases. The Group determines whether an arrangement constitutes a lease andrecords lease liabilities and right-of-use assets on its consolidated balance sheets at lease commencement. The Groupmeasures its lease liabilities based on the present value of the total lease payments not yet paid discounted based on themore readily determinable of the rate implicit in the lease or its incremental borrowing rate, which is the estimated rate theGroup 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 companieswith credit and financial profiles similar to its own. The Group measures right-of-use assets based on the correspondinglease liability adjusted for payments made to the lessor at or before the commencement date, and initial direct costs it incursunder the lease. The Group begins recognizing lease expense when the lessor makes the underlying asset available to theGroup.For leases with lease term less than one year (short-term leases), the Group records operating lease expense in itsconsolidated statements of operations on a straight-line basis over the lease term and record variable lease payments asincurred.In April 2020, the FASB issued guidance for lease concessions provided to lessees in response to the effects of COVID-19.Such guidance allows lessees to make an election not to evaluate whether a lease concession provided by a lessor should beaccounted for as a lease modification, in the event the concession does not result in a substantial increase in the rights of thelessor or the obligations of the lessee. Such concessions would be recorded as negative lease expense in the period of relief.The Group has elected to apply the practical expedient. See Note 15.Intangible assets, netIntangible assets with definite lives are carried at cost less accumulated amortization and impairment. The amortization ofsuch intangible assets is recognized over the expected useful lives of the assets.Intangible assets with indefinite lives are not amortized, but tested for impairment annually or more frequently if event andcircumstances indicate that it might be impaired.Impairment of long-lived assets with definite livesLong-lived assets, including property, plant and equipment, operating lease right-of-use assets, intangible assets with definite lives, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset or asset group may not be recoverable. When these events occur, the Group measures impairment by comparing the carrying value of the long-lived assets or assets group to the estimated undiscounted future cash flows expected to result from the use of the assets or asset group and their eventual disposition. If the sum of the expected undiscounted cash flow is less than the carrying amount of the assets or assets group, the Group would recognize an impairment loss based on the fair value of the assets or assets group. The Group recorded impairment loss on property, plant, and equipment and operating lease right-of-use assets of $nil, $nil and $428 during the years ended December 31, 2018, 2019 and 2020. TheGroup recorded impairment losses on intangible assets with definite lives of $nil, $79 and $1,720 during the years endedDecember 31, 2018, 2019 and 2020. Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2018, 2019 AND 2020(In thousands of U.S. dollars, except share and per share data, or otherwise noted)F-212. SIGNIFICANT ACCOUNTING POLICIES - continuedImpairment of goodwill and indefinite-lived intangible assetsGoodwill is not amortized, but tested for impairment annually or more frequently if event and circumstances indicate that itmight be impaired. The guidance permits the Group to first assess qualitative factors to determine whether it is “more likelythan not” that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it isnecessary to perform the goodwill impairment test. Absent from any impairment indicators, the Group performs its annualimpairment test on the last day of each fiscal yearPrior to January 1, 2020, the Group performed its annual impairment test using a two-step approach. The first stepcompares the fair value of a reporting unit to its carrying amount, including goodwill. If the fair value of the reporting unitis greater than its carrying amount, goodwill is not considered impaired and the second step is not required. If the fair valueof the reporting unit is less than its carrying amount, the second step of the impairment test measures the amount of theimpairment loss, if any, by comparing the implied fair value of goodwill to its carrying amount. If the carrying amount ofgoodwill exceeds its implied fair value, an impairment loss is recognized equal to that excess. The implied fair value ofgoodwill is calculated in the same manner that goodwill is calculated in a business combination, whereby the fair value ofthe reporting unit is allocated to all of the assets and liabilities of that unit, with the excess purchase price over the amountsassigned to assets and liabilities representing the implied fair value of goodwill.On January 1, 2020, the Group adopted ASU No. 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying theTest for Goodwill Impairment (“ASU 2017-04”), which removes the requirement to compare the implied fair value ofgoodwill with its carrying amount as part of step 2 of the goodwill impairment test. Instead, the Group performed itsgoodwill impairment tests by comparing the fair value of a reporting unit with its carrying amount, and recognized animpairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value but not to exceedthe total amount of the goodwill of the reporting unit.The impairment test for intangible assets not subject to amortization consists of a comparison of the fair value of theintangible asset with its carrying value. If the carrying value of the intangible asset exceeds its fair value, an impairmentloss is recognized in an amount equal to that excess.The Group recorded impairment losses on goodwill of $nil, $337 and $8,454 during the years ended December 31, 2018,2019 and 2020. No impairment loss was recorded for the indefinite-lived intangible assets.Long-term investmentsThe Group’s long-term investments consist of equity method investments and available-for-sale security.(a) Equity method investmentsFor 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 proportionateshare of each equity investee’s net income or loss after the date of investment into earnings and accordingly adjusts thecarrying amount of the investment.An impairment charge is recorded if the carrying amount of the investment exceeds its fair value and this condition isdetermined to be other-than-temporary. The Group estimates the fair value of the investee company using discounted cashflow approach which requires significant judgments, including the estimation of future cash flows, which is dependent oninternal forecasts, the estimation of long-term growth rate of a company’s business, the estimation of the useful life overwhich cash flows will occur, and the determination of the weighted average cost of capital. The Group recorded $nil, $nil,$1,819 of impairment losses on its equity method investments during the years ended December 31, 2018, 2019 and 2020. Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2018, 2019 AND 2020(In thousands of U.S. dollars, except share and per share data, or otherwise noted)F-222. SIGNIFICANT ACCOUNTING POLICIES - continuedLong-term investments - continued(a) Available-for-sale securitiesFor investment in preferred shares which is determined to be debt securities, the Group accounts for them as long-termavailable-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 areincluded in accumulated other comprehensive income (loss).The Group reviews its investment in available-for-sale securities, for other-than-temporary impairment based on thespecific identification method. The Group considers available quantitative and qualitative evidence in evaluating potentialimpairment of its investments. When assessing investments for other-than-temporary declines in value, the Groupconsiders, among other factors, general market conditions, government economic plans, the duration and the extent towhich the fair value of the investment is less than the cost, and the Group’s intent and ability to hold the investment, indetermining if impairment is needed. The Group recorded $nil, $nil, $613 of impairment losses on its available-for-salesecurities during the years ended December 31, 2018, 2019 and 2020.Revenue recognitionOn January 1, 2018, the Group adopted ASC 606 applying the modified retrospective method to all contracts that were notcompleted as of January 1, 2018. Results for reporting period beginning after January 1, 2018 are presented under ASC606, while prior period amounts are not adjusted and continue to be reported under the accounting standards in effect forthe prior period. The Group recorded a net reduction to opening accumulated deficit of $931 as of January 1, 2018 due tothe cumulative impact of adopting ASC 606. The impacts to revenue for the year 2018 were an increase of $1,151 as aresult 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 priceto the performance obligations in the contract, and (v) recognize revenue when (or as) the entity satisfies a performanceobligation.The Group generated its revenues from the following revenue sources:(i) Tuition fees generated from kindergarten services, play-and- learn center services and student care servicesThe Group provides private kindergarten services, play-and-learn centers services and students care centers services tostudents. Tuition fees are collected in advance and are initially recorded as deferred revenue.Kindergarten services consist of a series of classes which are highly interdependent and interrelated in the context of thecontract and each class is not distinct and not sold standalone. Therefore, the kindergarten services are accounted for as asingle performance obligation.Play-and-learn center services provide a different series of classes which are highly interdependent and interrelated in thecontext of the contract and each class is not distinct and not sold standalone. Therefore, play-and-learn center services areaccounted for as a single performance obligation.Student care services provide a separate series of classes which are highly interdependent and interrelated in the context ofthe contract and each class is not distinct and not sold standalone. Therefore, student care services are accounted for as asingle performance obligation. Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2018, 2019 AND 2020(In thousands of U.S. dollars, except share and per share data, or otherwise noted)F-232. SIGNIFICANT ACCOUNTING POLICIES - continuedRevenue recognition - continued(i) Tuition fees generated from kindergarten services, play-and- learn center services and student care services - continuedThe transaction prices for kindergarten services, play-and-learn centers services and student care services are determined bythe contract amount net of refund. For the kindergarten program, the students can claim certain amount of the tuitionrefund, upon withdrawal, if more than a certain number of classes are missed. For the play-and-learn program, students areentitled to refund, upon withdrawal, for unused portion of the prepaid course fees. For the student care services, thestudents can claim refund, upon withdrawal, if classes are missed due to illness. The refund amount is subject to the refundpolicy 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 theservice period. Revenues for the play-and-learn centers services are recognized ratably over the course of the programs.(ii) Franchising feesThe Group generates revenues by franchising kindergartens and play-and-learn centers under the brand name of RYB. TheGroup collects from franchisees the initial franchising fees and annual franchise fee. As the initial franchising service andannual franchising service are distinct from each other, the Group identifies two performance obligations accordingly. Thetransaction 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 asprepayments from customers. The set-up period usually begins with the site renovation or training services, whichever isearlier, to the time point when kindergartens or play-and-learn centers commence operations, which is approximately 7 or 8months. 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. The related annual franchise fees are received upfront and recorded as deferred revenue. Annual franchisefees are recognized over time throughout the contract terms.(iii) Sales of educational merchandiseThe Group’s educational merchandise consists of educational toys, teaching aids, textbooks and other goods. The Groupconsiders both franchisees and end-users as its customers. Prepayments for sales of educational merchandise is recognizedas prepayments from customers. Sales of educational merchandise is accounted for as a single performance obligation, andrecognized at the point of time when the control of promised goods is transferred to the customers.(iv) Training servicesThe Group provides training services to the franchised kindergartens and play-and-learn centers. The Group identified thetraining services as a single performance obligation, and given the trainings are usually performed during a short period oftime, revenues are recognized at the point of time when training services are delivered. Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2018, 2019 AND 2020(In thousands of U.S. dollars, except share and per share data, or otherwise noted)F-242. SIGNIFICANT ACCOUNTING POLICIES - continuedRevenue recognition - continued(v) Royalty feesThe Group authorizes its business partners the right to use its educational courses and relevant solutions. The royalty feesare received upfront and recorded as deferred revenue. The Group identified the royalty fees as a single performanceobligation, and revenues are recognized over time throughout the contract terms.Disaggregation of revenueThe following table presents the Group’s revenues disaggregated by revenue sources.Years ended December 31, 2018 2019 2020Net revenues: PRC kindergartens 124,175 131,427 68,319PRC play-and-learn centers 26,777 24,901 12,215Singapore kindergartens, student care centers and others—19,07325,964Others 5,546 6,882 3,217 Total net revenues 156,498 182,283 109,715The following table presents the Group’s revenues disaggregated by revenue types.Years ended December 31, 2018 2019 2020Services: Tuition fees from kindergartens, play-and-learn centers and student carecenters 117,080147,417 92,123Franchise fees 14,36512,269 9,065Training and other services 7,1616,156 1,632Royalty fees610341253 139,216166,183 103,073Products: Sale of educational merchandise 17,28216,100 6,642Total net revenues 156,498182,283 109,715Contract liabilitiesThe Group’s contract liabilities consists of prepayments from customers and deferred revenue, primarily relate to theadvance consideration received from customers, which include tuition fees received from customers, initial franchise feesand annual franchise fees received from franchisees, advance consideration of educational merchandise received fromcustomers, and royalty fees received from other business partners. The amount from customers before provision of serviceis recognized as prepayments and when the service is provided, the advance received was recorded in deferred revenue.The prepayments from customers and deferred revenue are recognized as revenue once the criteria for revenue recognitionare met. Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2018, 2019 AND 2020(In thousands of U.S. dollars, except share and per share data, or otherwise noted)F-252. SIGNIFICANT ACCOUNTING POLICIES - continuedRevenue recognition - continuedContract liabilities - continuedThe table below reflects the Group’s contract liabilities: As of December 31, 20192020Prepayments from customers, current portion 5,904 4,145Prepayments from customers, non-current portion 2,508 4,024Deferred revenue, current portion 31,993 34,351Deferred revenue, non-current portion 5,531 1,726The Group recognized $28,000 and $29,000 in revenue for the year ended December 31, 2020 and December 31, 2019,respectively, which related to contract liabilities that existed at December 31, 2019 and 2018, respectively. The balances asof December 31, 2019 and 2020 is are expected to be recognized as revenue within one to two years.There was no contract asset recorded as of December 31, 2019 and 2020.Value added taxesPursuant to the PRC tax laws, in case of any product sales, generally the value added tax (“VAT”) rate is 17% of the grosssales for general VAT payer before May 1, 2018. Some subsidiaries of the Group are deemed as general VAT payer for thesales of educational merchandise and the intercompany sales. The net VAT balance, after netting off the input VAT, isrecorded 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 at16% 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 calculatedat 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 jointlyreleased by the Ministry of Finance and Finance and State Administration of Taxation. Revenue generated from otherservices in the PRC, namely play-and-learn center services, franchise fees, royalty fees, and training services, is reportednet of VAT, at a rate of 6%, collected on behalf of PRC tax authorities, except for entities who are designated as small scaleVAT payers. Small scale VAT payer is subject to VAT at a rate of 3% on play-and-learn center services and trainingservices, which was reduced to 1% from March 1, 2020 to December 31, 2021, due to the pandemic of COVID-19. Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2018, 2019 AND 2020(In thousands of U.S. dollars, except share and per share data, or otherwise noted)F-262. SIGNIFICANT ACCOUNTING POLICIES - continuedValue added taxes - continuedGoods and Services Tax (“GST”) is a broad-based value added tax in Singapore, which is imposed on all supplies of goodsand services in Singapore made by a taxable person for business purposes. GST rate is 7% of the gross sales. Singapore’sentities whose taxable turnover for the past 12 months exceeds SGD$1 million or the taxable turnover in the next 12months to be more than SGD$1 million should be registered as GST-registered companies. For GST-registered entities,their revenue generated from kindergarten services, student care services and others, is reported net of GST collected onbehalf of Singapore tax authorities. For Non-GST registered entities, they are qualified for GST exemption for all kinds ofrevenue.Income taxesCurrent income taxes are provided for in accordance with the laws of the relevant tax authorities. Deferred income taxesare recognized when temporary differences exist between the tax bases of assets and liabilities and their reported amountsin the financial statements. Net operating loss carry forwards and credits are applied using enacted statutory tax ratesapplicable to future years. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, itis more-likely-than-not that a portion of or all of the deferred tax assets will not be realized. The impact of an uncertainincome tax position is recognized at the largest amount that is more-likely-than-not to be sustained upon audit by therelevant tax authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of beingsustained. Interest and penalties on income taxes will be classified as a component of the provisions for income taxes.Share-based compensationShare-based compensation are measured based on the grant date fair value of the equity instrument. Share-basedcompensation expenses are recognized over the requisite service period based on the graded vesting attribution methodwith corresponding impact reflected in additional paid-in capital. When no future services are required to be performed bygrantees in exchange for an award of equity instruments, the cost of the award is expensed on the grant date. The Groupelects to recognize forfeitures when they occur.Government subsidiesThe Group receives government subsidies at the discretion of the local government based on certain criteria in relation tothe Group’s kindergarten operations. Government subsidies are recognized as liabilities when the government subsidies arereceived, and released to consolidated statements of operations as government subsidy income when the Group is notsubject to further obligation or future refunds. For government subsidies granted to specific kindergartens to subsidize theirrental and teacher training costs are recorded by offset to the cost of revenues when the conditions are met.For the years ended December 31, 2018, 2019 and 2020, $683, $499 and $4,591 were recognized as government subsidyincome, respectively; $1,098, $6,022 and $12,703 were recognized as reduction of cost of revenues, respectively.Net loss per shareBasic net loss per share is computed by dividing loss attributable to holders of ordinary shares by the weighted average number of ordinary shares outstanding during the period. The share options exercisable for little to no consideration are considered as issuable ordinary shares, and therefore included in basic shares outstanding. Diluted net loss 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 loss per share by application of the treasury stock method. Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2018, 2019 AND 2020(In thousands of U.S. dollars, except share and per share data, or otherwise noted)F-272. SIGNIFICANT ACCOUNTING POLICIES - continuedComprehensive income (loss)Comprehensive income (loss) includes net income (loss) and foreign currency translation adjustments and is reported in theconsolidated statements of comprehensive income (loss). The Group presents the components of net income (loss), thecomponents of other comprehensive income (loss) and total comprehensive income (loss) in two separate but consecutivestatements.ContingencyThe Group is subject to lawsuits, investigations and other claims related to the operation of its kindergartens, product, andother matters, and are required to assess the likelihood of any adverse judgments or outcomes to these matters, as well aspotential 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.Significant risks and uncertaintiesForeign currency riskRMB is not a freely convertible currency. The State Administration for Foreign Exchange, under the authority of thePeople’s Bank of China, controls the conversion of RMB into foreign currencies. The value of RMB is subject to changesin central government policies and to international economic and political developments affecting supply and demand inthe China Foreign Exchange Trading System market. The cash and cash equivalents and restricted cash of the Groupincluded aggregate amounts of $39,020 and $23,263, which were denominated in RMB, at December 31, 2019 and 2020,respectively, representing 56% and 43% of the cash and cash equivalents and restricted cash at December 31, 2019 and2020, respectively.Concentration of credit riskFinancial instruments that potentially expose the Group to significant concentration of credit risk primarily consist of cashand cash equivalents, term deposits, accounts receivable, loan receivables, amounts due from related parties and prepaidexpenses and other current assets. As of December 31, 2020, all of the Group’s cash and cash equivalents and term depositswere deposited in financial institutions located in the PRC, the United States of America and Singapore. Accountsreceivable are typically unsecured and are derived from revenue earned from customers in the PRC and Singapore. The riskwith respect to accounts receivable is mitigated by credit evaluations the Group performs on its customers and its ongoingmonitoring process of outstanding balances.There are no revenues or accounts receivable from customers which individually represent greater than 10% of the total netrevenues in the three years ended December 31, 2020 or accounts receivable as of December 31, 2019 and 2020. Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2018, 2019 AND 2020(In thousands of U.S. dollars, except share and per share data, or otherwise noted)F-282. SIGNIFICANT ACCOUNTING POLICIES - continuedRecent accounting pronouncements adoptedIn June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses (Topic 326), Measurement of CreditLosses on Financial Statements. This ASU requires a financial asset (or group of financial assets) measured at amortizedcost basis to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation accountthat is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amountexpected to be collected on the financial asset. This ASU affects entities holding financial assets and net investment inleases that are not accounted for at fair value through net income. The amendments affect loans, debt securities, tradereceivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financialassets not excluded from the scope that have the contractual rights to receive cash. For public business entities, theamendments in this update are effective for fiscal years beginning after December 15, 2019, including interim periodswithin those fiscal years. All entities may adopt the amendments in this update through a cumulative-effect adjustment toretained earnings as of the beginning of the first reporting period in which the guidance is effective (that is, a modified-retrospective approach The Group adopted ASC 326 Financial Instruments – Credit Losses (“ASC 326”) using themodified retrospective approach through a cumulative-effect adjustment to increase the accumulated deficit in the amountof $412 as of January 1, 2020.In January 2017, FASB issued ASU No. 2017-04: Simplifying the Test for Goodwill Impairment. Under the new accountingguidance, an entity will no longer determine goodwill impairment by calculating the implied fair value of goodwill byassigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in abusiness combination. Instead, an entity will perform its goodwill impairment tests by comparing the fair value of areporting unit with its carrying amount. An entity will recognize an impairment charge for the amount by which thecarrying amount exceeds the reporting unit’s fair value but not to exceed the total amount of the goodwill of the reportingunit. In addition, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount ofthe reporting unit when measuring the goodwill impairment, if applicable. The provisions of the new accounting guidanceare required to be applied prospectively. The new accounting guidance is effective for the Company for goodwillimpairment tests performed in fiscal years beginning after December 15, 2019. The Group adopted ASU No. 2017-04 fromJanuary 1, 2020 and concluded the adoption of this ASU did not have impact on the results of the Group’s goodwillimpairment test.In October 2018, the FASB issued ASU 2018-17, Consolidation (Topic 810): Targeted Improvements to the Related PartyGuidance for Variable Interest Entities. ASU 2018-17 changes how entities evaluate decision-making fees under thevariable interest entity guidance. To determine whether decision-making fees represent a variable interest, an entityconsiders indirect interests held through related parties under common control on a proportional basis, rather than in theirentirety. This guidance will be adopted using a retrospective approach and is effective for the Company on January 1, 2020.The Group adopted ASU 2018-17 as of January 1, 2020. The adoption of this standard did not impact the Group’sconsolidated financial statements.In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework—Changesto the Disclosure Requirements for Fair Value”. ASU 2018-13 removes and modifies existing disclosure requirements onfair value measurement, namely regarding transfers between levels of the fair value hierarchy and the valuation processesfor Level 3 fair value measurements. Additionally, ASU 2018-13 adds further disclosure requirements for Level 3 fairvalue measurements, specifically changes in unrealized gains and losses and other quantitative information. ASU 2018-13is effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2019, with earlyadoption permitted. The Group adopted ASU 2018-13 as of January 1, 2020. The adoption of this standard did not have anymaterial impact on the Group’s consolidated financial statements. Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2018, 2019 AND 2020(In thousands of U.S. dollars, except share and per share data, or otherwise noted)F-293. BUSINESS ACQUISITIONSAcquisition 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 Hengdaoperates 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 ofaccounting. 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 ofacquisition: Depreciation oramortization periodCash and cash equivalents 310 Other current assets 50 Property, plant and equipment, net 535 5 - 10 yearsIntangible asset: Student base 104 4 yearsOther current liabilities (361) Deferred tax liabilities (26) Goodwill 333 Total 945 The results of operations attributable to BJ Hengda are included in the consolidated statement of operations beginning onMay 2, 2018, which included net revenue of $481 and pre-tax net loss of $748 for the year ended December 31, 2018.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 businessacquisition and recorded using the acquisition method of accounting. The acquired assets and liabilities were recorded attheir 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 ofacquisition: Depreciation oramortization periodCash and cash equivalents 134 Other current assets 21 Property, plant and equipment, net 1,819 5 - 8 yearsIntangible asset: Student base 942 4 yearsOther current liabilities (3,927) Deferred tax liabilities (236) Non-controlling interest (915) Goodwill 6,737 Total 4,575 Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2018, 2019 AND 2020(In thousands of U.S. dollars, except share and per share data, or otherwise noted)F-303. BUSINESS ACQUISITIONS - continuedAcquisition of Shandong Buladun Education Information Consultation Co., Ltd. (“Shandong Buladun”) - continuedThe results of operations attributable to Shandong Buladun are included in the consolidated statement of operationsbeginning on May 1, 2018, which included net revenue of $2,393 and pre-tax net income of $958 for the year endedDecember 31, 2018.Acquisition of Shanghai Peidi Culture Communication Co., Ltd. (“Shanghai Peidi ”) and Shanghai JingdepuEducation School (“Shanghai Jingdepu”)On July 1, 2018, the Group acquired 80% equity interest in Shanghai Peidi and 100% equity interest of Shanghai Jingdepufor a total cash consideration of $4,197. Shanghai Peidi and Shanghai Jingdepu operate two kindergartens in Shanghai. Thetransaction was considered a business acquisition and was recorded using the acquisition method of accounting. Theacquired 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 ofacquisition:Depreciation or amortization periodOther current assets1,477Property, plant and equipment, net 32 4 - 8 yearsDeferred tax assets 123 Intangible assets: Student base 865 4 yearsTrademark 305 5 yearsOther current liabilities (1,144) Deferred tax liabilities (302) Non-controlling interest (1,431) Goodwill 4,272 Total 4,197 The results of operations attributable to Shanghai Peidi and Shanghai Jingdepu are included in the consolidated statementof operations beginning on July 1, 2018, which included net revenue of $1,781 and pre-tax net income of $257 for the yearended December 31, 2018.As part of this acquisition, the non-controlling shareholder also received a put option to sell its entire non-controllinginterest of Shanghai Peidi to the Group based on multiple of Shanghai Peidi’s net profit (excluding non-recurring items) atthe year when option is exercised. The non-controlling interest has been recorded as a redeemable non-controlling interestpresented in the mezzanine equity section of the consolidated balance sheets at an initial amount of $1,431 estimated by themanagement with the assistance from an independent appraiser. Subsequently, the non-controlling interest was carried atthe higher of (1) the initial carrying amount, increased or decreased for the non-controlling interest’s share of net income orloss or (2) the expected redemption value. Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2018, 2019 AND 2020(In thousands of U.S. dollars, except share and per share data, or otherwise noted)F-313. BUSINESS ACQUISITIONS - continuedAcquisition 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. DKWoperates three international kindergartens in Beijing. The transaction was considered a business acquisition and recordedusing the acquisition method of accounting. The acquired assets and liabilities were recorded at their fair market value atthe date of acquisition.The management performed a purchase price allocation with the assistance from an independent appraiser, as of the date ofacquisition:Depreciation or amortization periodCash and cash equivalents 4,773 Other current assets 4,013 Property, plant and equipment, net 1,322 5 yearsIntangible assets: Student base 1,721 4 yearsTrademark 1,062 5 yearsOther current liabilities (7,235) Deferred tax liabilities (696) Non-controlling interest (1,523) Goodwill 13,693 Total 17,130 The results of operations attributable to DKW are included in the consolidated statement of operations beginning onSeptember 1, 2018, which included net revenue of $3,493 and pre-tax net income of $463 for the year ended December 31,2018.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 businessacquisition and recorded using the acquisition method of accounting. The acquired assets and liabilities assumed wererecorded 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 theacquisition date:Depreciation or amortization periodCash and cash equivalents 576 Other current assets 789 Property, plant and equipment, net 4,462 5-10 yearsOperating lease right-of-use assets 2,612 Intangible assets: Student base 145 4 yearsOther current liabilities (477) Deferred tax liabilities (36) Deferred revenue (245) Operating lease liabilities (2,612) Goodwill 771 Total 5,985 Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2018, 2019 AND 2020(In thousands of U.S. dollars, except share and per share data, or otherwise noted)F-323. BUSINESS ACQUISITIONS - continuedAcquisition in Shenzhen Ranlo Education investment Co., Ltd. (“Shenzhen Ranlo”) - continuedThe results of operations attributable to Shenzhen Ranlo are included in the consolidated statement of operations beginningon January 1, 2019, which included net revenue of $1,716 and pre-tax net loss of $661 for the year ended December 31,2019.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 operateskindergartens 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 ofaccounting. 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 theacquisition date:Depreciation or amortization periodCash and cash equivalents 663 Other current assets 2,224 Property, plant and equipment, net 2,920 5-10 yearsOperating lease right-of-use assets 5,924 Intangible assets: Student base 3,650 5.67 yearsTrademark 7,766 IndefiniteInitial franchise 1,626 3.75 yearsOther current liabilities (6,266) Deferred tax liabilities (2,217) Operating lease liabilities (6,062)Non-controlling interest (6,895) Goodwill 18,081 Total 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-controllinginterests of GEH to the Group based on multiple of GEH’s earnings before interest, taxes, depreciation and amortization forthe financial year preceding the date when option is exercised. The non-controlling interests have been recorded asredeemable non-controlling interests presented in the mezzanine equity section of the consolidated balance sheets at aninitial amount of $6,895 estimated by the management with the assistance from an independent appraiser. Subsequently, thenon-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. Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2018, 2019 AND 2020(In thousands of U.S. dollars, except share and per share data, or otherwise noted)F-333. BUSINESS ACQUISITIONS - continuedAcquisition 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. ShanghaiGeleli is primarily engaged in sale of children toys and teaching aid tools. The acquisition would further enrich Group’soffering on educational merchandise and services to customers. The transaction was considered a business acquisition andtherefore was recorded using the acquisition method of accounting. The acquired assets and liabilities assumed wererecorded 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 theacquisition date: Depreciation or amortization periodCash and cash equivalents1,190 Other current assets611 Operating lease right-of-use assets64 Intangible assets: Brand1,129 5 yearsNon-compete agreement347 5 yearsCustomer relationship87 9.5 yearsOther current liabilities(177) Deferred tax liabilities(391) Operating lease liabilities(64)Non-controlling interest(4,050) Goodwill6,564 Total5,310 The results of operations attributable to Shanghai Geleli are included in the consolidated statement of operations beginningon June 4, 2019, which included net revenue of $1,088 and pre-tax net loss of $77 for the year ended December 31, 2019.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. BeijingXingqiba mainly engages in providing interactive learning software and child art courses, which would supplement well theGroup’s online learning platform. This transaction was considered a business acquisition and therefore was recorded usingthe acquisition method of accounting. The acquired assets and liabilities assumed were recorded at their fair market value atthe acquisition date. As of December 31, 2020, consideration payable of $613 remained outstanding. Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2018, 2019 AND 2020(In thousands of U.S. dollars, except share and per share data, or otherwise noted)F-343. BUSINESS ACQUISITIONS - continuedAcquisition in Beijing Xingqiba Network Technology Co., Ltd. (“Beijing Xingqiba”) - continuedThe management performed a purchase price allocation with the assistance from an independent appraiser, as of theacquisition date:Depreciation or amortization periodCash and cash equivalents2 Other current assets20 Intangible assets: Software and courses2085 yearsNon-compete agreement2976 yearsExclusive agent agreement300.67 yearOther current liabilities(26) Deferred tax liabilities(134) Non-controlling interest(1,130) Goodwill2,030 Total1,297 The results of operations attributable to Beijing Xingqiba are included in the consolidated statement of operationsbeginning on May 1, 2019, which included net revenue of $230 and pre-tax net loss of $343 for the year ended December31, 2019.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., akindergarten located in Singapore, for cash consideration of $1,047. This transaction was considered a business acquisitionand therefore was recorded using the acquisition method of accounting. The acquired assets and liabilities assumed wererecorded 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 theacquisition date: Depreciation oramortization periodCash and cash equivalents 283 Other current assets 67 Property and equipment, net 91 5-10 yearsOperating lease right-of-use assets 557 Intangible assets: Student base 190 5.17 yearsOther current liabilities (431) Deferred tax liabilities (47) Operating lease liabilities (557) Goodwill 894 Total 1,047 The results of operations attributable to Mulberry Alexandra are included in the consolidated statement of operationsbeginning on November 1, 2019, which included net revenue of $236 and pre-tax net income of $70 for the year endedDecember 31, 2019. Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2018, 2019 AND 2020(In thousands of U.S. dollars, except share and per share data, or otherwise noted)F-353. BUSINESS ACQUISITIONS - continuedAcquisition in Mulberry Learning Centre Alexandra Pte. Ltd. (“Mulberry Alexandra”) - continuedThe following summary of unaudited pro forma result of operations for the years ended December 31, 2018 and 2019 waspresented 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 occurredhad the acquisitions been completed at January 1, 2018, nor are they indicative of future operating results.Years ended December 31, 20182019Pro forma net revenue 181,964 189,907Pro forma net loss attributable to RYB Education, Inc. (2,279) (2,791)Pro forma net loss per ordinary share-basic (0.08) (0.10)Pro forma net loss per ordinary share-diluted (0.08) (0.10)4. CASH AND CASH EQUIVALENTS, AND RESTRICTED CASHA reconciliation of cash and cash equivalents, and restricted cash in the consolidated balance sheets to the amounts in theconsolidated statement of cash flows is as follows:As of December 31, 2019 2020Cash and cash equivalents 68,728 53,454Restricted cash 710 1,127Cash and cash equivalents, and restricted cash 69,438 54,5815. ACCOUNTS RECEIVABLE, NETAccounts receivable, net consisted of the following:As of December 31, 2019 2020Accounts receivable 2,896 2,311Less: allowance for doubtful accounts (92) (467)Accounts receivable, net 2,804 1,844Movement of allowance for doubtful accounts was as follows:As of December 31, 2019 2020Balance at beginning of the year 34 92Adoption of ASC326—343Addition5815Foreign currency adjustment — 17Balance at end of the year 92 467 Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2018, 2019 AND 2020(In thousands of U.S. dollars, except share and per share data, or otherwise noted)F-366. INVENTORIESInventories consisted of the following:As of December 31, 2019 2020Educational merchandise 7,256 5,773 The Group recorded $nil and $199 write-downs of inventories from the carrying amount to their net realizable values forthe years ended December 31, 2019 and 2020.7. PREPAID EXPENSES AND OTHER CURRENT ASSETSPrepaid expenses and other current assets consisted of the following:As of December 31, 2019 2020Prepaid service fees 3,392 2,196Prepaid rental expenses (1) 607 637Staff advances 1,730 528Prepayment for inventories and others186368Government subsidy receivables9312,856Receivables from the disposal of subsidiaries and investment (2) 486 2,589Receivables from third party payment platform 346 306Project deposit431—Interest receivables176—Others 1,994 2,325 10,279 11,805Less: allowance for doubtful accounts—(2,878)10,2798,927(1)The Group adopted Topic 842 on January 1, 2019 using the modified retrospective transition approach allowed underASU 2018-11 as described in Note 2. The balance as of December 31, 2019 and 2020 represent prepaid rentalexpenses for short-term leases which the Group elected not to record on balance sheets under Topic 842. The prepaidrental expenses for operating lease expenses over one year as of December 31, 2019 and 2020 were included in theGroup’s operating lease right-of-use assets on its consolidated balance sheet.(2)The balance as of December 31, 2020 included $1,909 receivable from the principle shareholder of the Company’sinvestee, Beijing Da Ai Pre-school Management Education Technology Co., Ltd. 100% valuation allowance fordoubtful accounts was recorded for the total balance of the receivable as of December 31, 2020. (see Note 12).8. LOAN RECEIVABLESOn May 21, 2018, the Group provided a loan of $574 to a third party supplier, and the interest rate was set at thecommercial bank deposit rate. The maturity date of the loan was December 30, 2019. In 2019, the maturity date wasextended to December 31, 2020. The Group recorded $574 credit loss for the year ended December 31, 2020. No creditloss was recorded for the years ended December 31, 2018 and 2019.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 andthe loan will be repaid on the second anniversary of the loan origination. The borrower repaid $153 in December 2020 andthe maturity date of remaining balance was extended to March 30, 2021 at the same time. The Group recorded $354 creditloss for the year ended December 31, 2020. No credit loss was recorded for the year ended December 31, 2018 and 2019. Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2018, 2019 AND 2020(In thousands of U.S. dollars, except share and per share data, or otherwise noted)F-378. LOAN RECEIVABLES - continuedFrom July to December 2020, the Group provided interest-free loans of $536 in total to Beijing Rui Le Further EducationTechnology Co., Ltd (“Beijing Rui Le”), an investee of the Group (See Note 10). The maturity date was 6 months from the loan origination. The Group recorded the total amount of loan receivables as credit loss for the year ended December 31, 2020.On January 1, 2020, upon adoption of ASC 326, the Group establishes current expected credit losses model for loanreceivables and determined that the cumulative effect from the adoption of ASC 326 is immaterial.9. PROPERTY, PLANT AND EQUIPMENT, NETProperty, plant and equipment consisted of the following:As of December 31, 2019 2020Buildings 896 956Furniture, fixture and equipment 13,684 14,913Leasehold improvement 73,163 80,464Motor vehicles 1,040 1,130Total 88,783 97,463Less: Accumulated depreciation (38,641) (49,428)Impairment loss — (397)50,14247,638Depreciation expenses were $7,530, $9,296 and $9,239 for the years ended December 31, 2018, 2019 and 2020,respectively.The Group recorded impairment loss for the property, plant and equipment of $nil, $nil and $374 for the years endedDecember 31, 2018, 2019 and 2020, respectively.10. GOODWILLThe Group has ten reporting units where they carry goodwill resulting from acquisitions. The changes in carrying amountof goodwill for the years ended December 31, 2019 and 2020 were as follows.As of December 31, 2019 2020Costs:Beginning balance 25,096 53,024Addition 28,340 210Foreign currency adjustment (412) 1,704Ending balance 53,024 54,938Goodwill impairment loss (337) (8,791)Goodwill, net 52,687 46,147Goodwill is tested for impairment annually or more frequently if events or changes in circumstances indicate that it mightbe impaired. When determining the fair value of each reporting unit, the Group used discounted cash flow model thatincluded 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) anestimated terminal value using a terminal year long-term future growth rate determined based on the growth prospects ofthe reporting units; and (c) a discount rate that reflects the weighted-average cost of capital adjusted for the relevant riskassociated with each reporting unit’s operation and the uncertainty inherent in the Group’s internally developed forecast. Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2018, 2019 AND 2020(In thousands of U.S. dollars, except share and per share data, or otherwise noted)F-3810. GOODWILL - continuedBased on the impairment analysis, the Group considered that the goodwill and intangible assets of the reporting units ofShanghai Geleli and Beijing Xingqiba (See Note 3) were fully impaired. As such, $8,454 impairment loss of goodwill and$1,720 impairment loss of intangible assets was recorded for the year ended December 31, 2020.The Group recorded $nil and $337 impairment of goodwill for the years ended December 31, 2018 and 2019.11. INTANGIBLE ASSETS, NETIntangible assets, net, consisted of the following:As of December 31, 2019 2020Intangible assets not subject to amortization: Trademark 7,766 7,766Intangible assets subject to amortization:Trademark1,3501,551Student base 7,526 7,939Initial franchise1,6261,626Brand1,1201,195Non-compete agreement632674Customer relationship8692Software and courses340545Contracts2931Total costs 20,475 21,419Less: accumulated amortization (2,696) (5,334)impairment loss(79)(1,906)Intangible assets, net 17,700 14,179Amortization expenses for intangible assets for the years ended December 31, 2018, 2019 and 2020 were $529, $2,224 and$2,431, respectively. As of December 31, 2020, the estimated amortization expenses related to intangible assets for nextfive years is expected to be $2,372, $1,972, $1,017, $770, $27 respectively, and $255 thereafter.The Group recorded impairment loss for the intangible assets of $nil, $79 and $1,720 for the years ended December 31,2018, 2019 and 2020, respectively.12. LONG-TERM INVESTMENTSEquity method investmentsIn April 2016, the Group invested cash consideration of $231 to set up a joint venture, Hainan RYB InternationalKindergarten 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 ofHainan RYB, the adoption of any resolution of the board of directors shall require the affirmative vote of all directors ofHainan RYB. The Group used the equity method to account for the investment, because the Group had the ability toexercise significant influence but did not have control over the investee. Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2018, 2019 AND 2020(In thousands of U.S. dollars, except share and per share data, or otherwise noted)F-3912. LONG-TERM INVESTMENTS - continuedEquity method investments - continuedIn September 2016, the Group invested cash consideration of $301 to acquire 16% equity interest in Beijing SevenChildren Education Technology Co., Ltd. (“Seven Children”). The Group holds one seat out of three of the board ofdirectors of Seven Children. The Group used the equity method to account for the investment, because the Group had theability 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-schoolManagement Education Technology Co., Ltd. (“Beijing Da Ai”). The Group holds one seat out of three of the board ofdirectors of Beijing Da Ai. The Group accounts for the investment using equity method, because the Group has the abilityto exercise significant influence but does not have control over the investee. In March 2020, the Company recorded animpairment loss of $1,819 for this investment based on the fair value. In August 2020, pursuant to the investmentagreement dated in November 2018, the Group sold the investment in Beijing Da Ai to the principle shareholder at aconsideration of the original consideration the Group paid. The Group recorded the receivables of $1,909 from the principleshareholder in the prepaid expenses and other current assets. As of December 31, 2020, full valuation allowance wasrecorded to the receivables as the Group believe the collectability is remote (see Note 7).The Group shared loss of $291, $664 and $185 from its equity method investments during the years ended December 31,2018, 2019 and 2020, respectively.Available-for-sale securitiesOn June 25, 2018, the Group entered into an investment agreement with the owners of Beijing Borderless EducationConsulting Co., Ltd. (“Beijing Borderless”), a company established in the PRC, principally engaged in providing educationcontent and operating traditional cultural service platforms. The Group purchased 20% equity ownership interest for a cashconsideration of $436. The investment was classified as available-for-sale security and measured at fair value as the Groupdetermined that investment was debt security due to the redemption option available to the investor. The unrealized holdinggains or losses of nil was reported in other comprehensive income for the years ended December 31, 2019 and 2020. InJuly 2020, the Group entered into agreements with the principle shareholder of Beijing Borderless and Beijing Borderless,respectively. According to the agreements, the principle shareholder of Beijing Borderless purchased all of the equityinterest held by the Group and the consideration was settled by transferring certain courses from Beijing Borderless to theGroup. The Group recorded the courses as intangible assets at the fair value. In addition, as the fair value of the coursesapproximated the carrying amount of this investment, there was no gain or loss recognized as a result of this transaction.On July 2, 2019, the Group entered into an investment agreement with the owners of Beijing Rui Le, a companyestablished 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 andmeasured at fair value as the Group determined that investment was debt security due to the redemption option available tothe investor. In 2020, the Group determined that the investment was impaired and the impairment was other-than-temporary. The Group recorded $nil, $nil, $613 of impairment losses during the years ended December 31, 2018, 2019 and2020. Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2018, 2019 AND 2020(In thousands of U.S. dollars, except share and per share data, or otherwise noted)F-4013. OTHER NON-CURRENT ASSETSOther non-current assets consisted of the following:As of December 31, 2019 2020Rental deposits (1) 6,638 5,964Prepayment for investments (2)6,2956,017Prepayment for property, plant and equipment2,8801,943Others671514 16,484 14,438(1)Rental deposits represent office and kindergartens rental deposits for the Group’s operations, which will not berefunded within one year.(2)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 thisacquisition of $1,362 in cash. The transaction has not yet been completed as of December 21, 2020.On July 15, 2019, the Group entered into an agreement with third parties to acquire 80% equity interest in fivekindergartens in Singapore. As of December 31, 2019, the group has partially paid consideration for this acquisition of$297 in cash. In 2020, the transaction was terminated and the prepayment for investment was repaid to the Group.On September 6, 2019, the Group entered into agreement to acquire 10% equity interest, from the non-controllinginterest holder, of DKW. As of December 31, 2019, the group has paid consideration for this acquisition of $4,636 incash. The transaction has not yet been completed as of December 31, 2020.14. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIESThe components of accrued expenses and other current liabilities are as follows:As of December 31, 2019 2020Salary and welfare payable 29,724 29,862Accrued expenses 11,510 9,534Payables for purchase of property, plant and equipment 2,861 2,416Payables for purchase of educational merchandise 3,741 4,351Other tax payable 917 294Acquisition consideration payable575613Others 7,144 7,336 56,472 54,406 Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2018, 2019 AND 2020(In thousands of U.S. dollars, except share and per share data, or otherwise noted)F-4115. LEASESOperating leasesThe Group’s leases consist of various operating lease contracts for offices, kindergartens, play-and-learn centers andstudent care centers in different cities in the PRC and in Singapore. The Group determines if an arrangement is a lease atinception. The Group’s leases have remaining lease terms of up to eighteen years, none of them include options to extendor terminate the leases. Some lease agreements contain lease and non-lease components, which the Group chooses toaccount for as separate components. The allocation of the consideration between the lease and the non-lease components isbased on the relative stand-alone prices included in the lease contracts. None of the amounts disclosed below for theseleases contains variable payments, residual value guarantees or options that were recognized as part of the right-of-useassets and lease liabilities. As of December 31, 2019 and 2020, the Group had no leases that were classified as a financinglease. As of December 31, 2019 and 2020, the Group did not have additional operating leases that have not yet commencedbut create significant rights and obligations for the Group.Total operating lease expenses for the years ended December 31, 2019 and 2020 was $16,956 and $15,634, respectively,which was recorded in cost of revenues, and general and administrative expenses on the consolidated statements ofoperations.The short term lease expenses for the years ended December 31, 2019 and 2020 was $3,363 and $1,219, respectively,which was recorded in cost of revenues, and general and administrative expenses on the consolidated statements ofoperations.The Group recorded impairment loss for operating lease right-of-use assets of $nil, and $54 for the years ended December31, 2019 and 2020, respectively. For the year ended December 31, 2020: Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows used in operating leases (1) 14,535Right-of-use assets obtained in exchange for new lease obligations: 20,465As of December 31, 2020:Weighted average remaining lease term 8.53 YearWeighted average discount rate 6.32%(1)During the year ended December 31, 2020, the Group was granted lease concessions of $1,193 by certain landlordsdue to the effects of the COVID-19 pandemic. The lease concessions were primarily in the form of rent reduction. TheGroup elected to apply the practical expedient that enables lessees not to characterize the lease concessions motivatedby the COVID-19 pandemic as an agreement modification and recognized the lease concession as variable lease creditin the period when the concession was granted. Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2018, 2019 AND 2020(In thousands of U.S. dollars, except share and per share data, or otherwise noted)F-4215. LEASES - continuedOperating leases - continuedThe following is a maturity analysis of the annual undiscounted cash flows for the annual periods ended December 31:Years ending December 31, 2021 17,8382022 15,4522023 15,8262024 11,5732025 11,4102026 and thereafter51,330Less: imputed interest 30,265Total operating lease liabilities93,164Less: current operating lease liabilities16,856Non-current operating lease liabilities76,30816. FAIR VALUE MEASUREMENTMeasured or disclosed at fair value on a recurring basisThe Group’s financial assets and liabilities primarily include cash and cash equivalents, term deposits, available-for-salesecurities, restricted cash, accounts receivable, loan receivables, amounts due from related parties, other receivables, long-term debt, amount due to related parties and other payables.The carrying amounts of cash and cash equivalents, term deposits, restricted cash, accounts receivables, loan receivables,amounts due from related parties, other receivables, amount due to related parties and other payables approximate their fairvalues. The carrying amount of long-term debt approximates fair value as its interest rates are at the same level of currentmarket yield for comparable loans.The Group measured available-for-sale securities based on a valuation which utilizes income approach to determine theequity value and the options-pricing method to determine the allocated values between preferred shares and commonshares. The available-for-sale securities are classified within Level 3 of the fair value hierarchy because the Group usedunobservable inputs to value the investments. The significant unobservable inputs include the forecast financialperformance of the investee business and discount rate to determine the fair value of the business. Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2018, 2019 AND 2020(In thousands of U.S. dollars, except share and per share data, or otherwise noted)F-4316. FAIR VALUE MEASUREMENT - continuedMeasured or disclosed at fair value on a non-recurring basis - continuedThe Group’s goodwill and intangible assets are primarily acquired through business acquisitions. Purchase price allocationare measured at fair value on a nonrecurring basis as of the acquisition dates. The Group measures its goodwill andintangible assets at fair value on a nonrecurring basis annually or whenever events or changes in circumstances indicatethat 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 nolonger be recoverable. For goodwill impairment testing, refer to Note 10 for details. The Group recognized impairment lossof $nil, $416 and $8,454 related to goodwill and $nil, $79 and $1,720 related to intangible assets acquired for the yearsended December 31, 2018, 2019 and 2020.The Group measures property, plant and equipment and operating lease right-of-use assets at fair value on a non-recurringbasis when events or changes in circumstances indicate that the carrying amount of these assets or asset group may not berecoverable. The fair value is determined using models with significant unobservable inputs (Level 3 inputs), primarily themanagement projection of discounted future cash flow and the discount rate. The Group recorded impairment loss onproperty, plant, and equipment and operating lease right-of-use assets of $nil, $nil and $428 during the years endedDecember 31, 2018, 2019 and 2020.The Group measures long-term equity method investment at fair value on a non-recurring basis whenever events orchanges in circumstances indicate that the carrying value may no longer be recoverable. The fair value is determined usingmodels with significant unobservable inputs (Level 3 inputs), primarily the management projection of discounted futurecash flow and the discount rate. The Group recognized impairment loss of $nil, $nil, and $1,819 related to the long-termequity method investment for the years ended December 31, 2018, 2019 and 2020. The Group recognized impairment lossof $nil, $nil, and $613 related to the available-for-sale investment for the years ended December 31, 2018, 2019 and 2020.17. ORDINARY SHARESThe Company’s fifth amended and restated Memorandum and Article of Association authorized the Company to issue990,000,000 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 companyestablished 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 futureinvestor financing transaction, which shall not be declared in favor of or distributed to any Class A ordinary shareholders.Pursuant to the 5th Amended and Restated Memorandum of Association of the Company dated August 30, 2017, upon thecompletion of IPO, each 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. Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2018, 2019 AND 2020(In thousands of U.S. dollars, except share and per share data, or otherwise noted)F-4417. ORDINARY SHARES - continuedUpon 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-designatedClass A ordinary shares on a one-for-one basis, (iii) the golden share was redeemed by the Company, and (iv) the Companyoffered and issued 5,500,000 Class A ordinary shares with a par value $0.001 per share at the total proceeds of $94,627through 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, 2020, there were 29,213,801 shares issued and 27,812,754 shares outstanding.Share repurchase programOn November 24, 2017, the Company announced that the board of directors of the Company has approved a sharerepurchase program whereby the Company is authorized to repurchase its own ordinary shares in the form of Americandepositary shares with an aggregate value of up to $50,000 during the next 12 months. As of December 31, 2020, theCompany 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 sharerepurchase program whereby the Company is authorized to repurchase its own ordinary shares in the form of Americandepositary shares with an aggregate value of up to $12,000 during the next 12 months. Pursuant to this share repurchaseplan, the Company repurchased 1,627,455 shares in 2019, with a total consideration of approximately $12,000 at a pricerange of $6.50 to $8.00 per share, including brokerage commissions. The shares repurchased by the Company wereaccounted for at cost as treasury stock. The Company has re-issued 226,408 repurchased shares for settlement of restrictedshares vested as of December 31, 2020.18. SHARE INCENTIVE PLANThe Company adopted the 2009 and 2017 Share Incentive Plans for the grant of share options to employees, directors andnon-employees to provide incentive for their services.The maximum number of ordinary shares that may be delivered pursuant to compensatory awards granted to theemployees, directors and non-employees under the 2009 Share Incentive Plan should not exceed 2,573,756 ordinary sharesof 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 anannual 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 ordinaryshares 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 peroption. 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. Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2018, 2019 AND 2020(In thousands of U.S. dollars, except share and per share data, or otherwise noted)F-4518. SHARE INCENTIVE PLAN - continuedIf 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 1st trading date of the IPO, and will expire onJune 21, 2027;(ii)75% of the share options will be vested quarterly in twelve quarters with equal quarterly installments after the 1sttrading 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 peroption. 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.On July 1, 2017, the Company granted a total of 50,300 share options to a director and a consultant at weighted averageexercise 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. Theoptions will vest in accordance with the vesting schedules set out in the respective share option agreements. The vestingand 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.In 2020, the Company granted 554,000 share options to employees at an exercise price of $0.001 per option. 25% of theshare options will be vested and exercisable upon 1st anniversary year following the grant date, and the remaining 75% ofthe share options will be vested quarterly in twelve quarters with equal quarterly installments from the vesting date of thefirst installment, and the contract term is 10 years from grant date.A summary of the share option activities is as follows:NumberWeightedWeighted averageWeighted averageAggregateof optionsaveragegrant-dateremaining contractualintrinsic outstanding exercise price fair value per option term (years) valueOptions outstanding at January 1, 2020 4,008,558 7.02 3.545.146,084Granted554,0000.012.699.821,312Forfeited(6,100)8.498.51——Options outstanding at December 31,2020 4,556,458 6.16 3.435.362,175Options vested and expected to vest atDecember 31, 20204,556,458 6.16 3.435.362,175Options exercisable at December 31,20203,754,6836.703.404.622,175 Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2018, 2019 AND 2020(In thousands of U.S. dollars, except share and per share data, or otherwise noted)F-4618. SHARE INCENTIVE PLAN - continuedThe weighted average grant date fair value of options granted during the years ended December 31, 2018, 2019 and 2020were $17.39, $ nil and $2.69, respectively. The total fair value of options vested during the year ended December 31, 2018,2019 and 2020 were $14,782, $3,320 and $2,990, respectively. The total intrinsic value of options exercised during the yearended December 31, 2018, 2019 and 2020 were $nil, $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 shareoptions, the Company recognizes the compensation cost over the requisite service period for each separately vestingportion of the award as if the award is, in substance, multiple awards. The Company recorded share-based compensationexpenses relating to share options of $4,869, $2,069 and $1,198 for the years ended December 31, 2018, 2019 and 2020,respectively.As of December 31, 2020, total unrecognized compensation expenses relating to share options were $1,469, which isexpected to be recognized over a weighted average period of 1.51 years.The fair value of the options granted is estimated on the dates of grant using the binomial option pricing model with thefollowing assumptions used.As of December 31, Grant date 2018 2020 Risk-free interest rate 2.73% 0.86%-0.93%Expected volatility 38% 40%Expected dividend yield ——Exercise multiples 2.2 2.2Fair value of underlying ordinary share 17.40 2.38~2.7(1) Risk-free interest rateRisk-free interest rate was estimated based on the treasury long term rate of U.S. Treasury Department with amaturity period close to the expected term of the options.(2) Expected volatilityExpected volatility of the underlying ordinary shares during the lives of the options was estimated based on thehistorical stock price volatility of comparable listed companies over a period comparable to the expected term ofthe options.(3) Expected dividend yieldExpected dividend yield was estimated by the Company based on its expected dividend policy over the expectedterm of the options.(4) Exercise multiplesExercise 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 sharesThe estimated fair value of the ordinary shares underlying the options as of the respective grant dates wasdetermined based on the Company’s share price. Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2018, 2019 AND 2020(In thousands of U.S. dollars, except share and per share data, or otherwise noted)F-4718. SHARE INCENTIVE PLAN - continuedNonvested sharesOn March 14, 2018, the Company granted 200,000 nonvested shares to three directors and executive officers. 25% of thenonvested shares will be vested on March 14, 2019. 75% of the nonvested will be vested quarterly in twelve quarters withequal 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 periodof 4 years. On October 24, 2018, the Company granted 18,000 nonvested shares to a non-employee. 25% of the nonvested will bevested on October 23, 2019. 75% of the nonvested will be vested quarterly in twelve quarters with equal quarterlyinstallments after October 23, 2019. The grant date fair value of the nonvested shares was $17.11 per share, which was theclosing price of the Company’s ordinary share on NYSE on October 24, 2018. This grant resulted in a total share-basedcompensation 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 onJuly 29, 2020. 75% of the nonvested will be vested quarterly in twelve quarters with equal quarterly installments after July29, 2020. The grant date fair value of the nonvested shares was $6.06 per share, which was the closing price of theCompany’s ordinary share on NYSE on July 29, 2019. This grant resulted in a total share-based compensation of $51, to berecognized 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 thenonvested will be vested on August 20, 2020. 75% of the nonvested will be vested quarterly in twelve quarters with equalquarterly installments after August 20, 2020. The grant date fair value of the nonvested shares was $6.69 per share, whichwas 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 vestedon December 4, 2020. 75% of the nonvested will be vested quarterly in twelve quarters with equal quarterly installmentsafter December 4, 2020. The grant date fair value of the nonvested shares was $5.55 per share, which was the closing priceof the Company’s ordinary share on NYSE on December 4, 2019. This grant resulted in a total share-based compensationof $51, to be recognized ratably over the requisite service period of 4 years.On August 27, 2020, the Company granted 333,750 nonvested shares to three directors and executive officers. 25% of thenonvested will be vested on August 27, 2021. 75% of the nonvested will be vested quarterly in twelve quarters with equalquarterly installments after August 27, 2020. The grant date fair value of the nonvested shares was $3.03 per share, whichwas the closing price of the Company’s ordinary share on NYSE on August 27, 2020. This grant resulted in a total share-based compensation of $1,011, to be recognized ratably over the requisite service period of 4 years. Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2018, 2019 AND 2020(In thousands of U.S. dollars, except share and per share data, or otherwise noted)F-4818. SHARE INCENTIVE PLAN - continuedNonvested shares - continuedA summary of the nonvested shares activities is as follows: Number Weighted of nonvested shares average grant date Aggregate outstanding fair value intrinsic valueNonvested shares outstanding at January 1, 2020 383,534 11.05 2,090Granted333,7503.03Vested(134,408)12.12Nonvested shares outstanding at December 31, 2020582,8766.211,381The weighted average grant date fair value of nonvested shares granted during the years ended December 31, 2018, 2019and 2020 were $20.16, $6.63 and $3.03, respectively. The total fair value of nonvested shares vested during the years endedDecember 31, 2018, 2019 and 2020 were $nil, $669 and $403, respectively.The Group recognized compensation expense over the requisite service period for each separately vesting portion of theaward as if the award is in substance, multiple awards. The Company recorded share-based compensation expenses relatingto nonvested shares of $1,878, $1,893 and $1,732 for the years ended December 31, 2018, 2019 and 2020, respectively. Asof December 31, 2020, total unrecognized compensation expenses relating to nonvested shares were $1,610, which isexpected to be recognized over a weighted average period of 1.58 years.19. INCOME TAXESCayman IslandsThe Company is a tax-exempt entity incorporated in Cayman Islands.Hong KongThe Company’s subsidiaries located in Hong Kong and are subject to a profits tax rate of 8.25% on assessable profits onthe first Hong Kong Dollars (“HK$”) 2 million and 16.5% for any assessable profits in excess of HK$2 million startingfrom the financial commencing on April 1, 2018.SingaporeThe Company’s subsidiaries located in Singapore are generally subject to Singapore corporate income tax at a rate of 17%in 2020. Under the group relief system, subject to meeting the requisite conditions, the companies may deduct unutilizedcapital allowances, trade losses, and donations for the current year against the assessable income of another company in thesame group. The Company’s subsidiaries located in Singapore should also benefit from the partial tax exemption scheme,which provides 75% exemption from tax for the first SGD$10 thousand chargeable income and 50% exemption from taxfor the next SGD$190 thousand chargeable income for the year ended December 31, 2020.ChinaThe Company’s subsidiaries, the VIEs and the VIEs’ subsidiaries and kindergartens, which were entities established in thePRC (the “PRC entities”) are subject to PRC Enterprise Income Tax (EIT), on the taxable income in accordance with therelevant PRC income tax laws, which have adopted a unified income tax rate of 25% since January 1, 2008. Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2018, 2019 AND 2020(In thousands of U.S. dollars, except share and per share data, or otherwise noted)F-4919. INCOME TAXES - continuedThe current and deferred components of the income tax expense appearing in the consolidated statements of operations areas follows:Years ended December 31, 2018 2019 2020Current tax expense 6,351 6,010 3,438Deferred tax benefit (3,892) (2,469) (3,223) 2,459 3,541 215The principle components of deferred tax assets and deferred tax liabilities are as follows:Years ended December 31, 2019 2020Deferred tax assets Accrued expenses 5,551 3,407Net operating loss carry-forwards 15,469 24,223Operating lease liabilities19,20922,397Inventory write-down—50Allowance for doubtful accounts receivables and other receivables—758Allowance for loan receivables—366Impairment loss of long-term investments—153Impairment loss of long-lived assets other than intangible assets—113Total deferred tax assets 40,229 51,467Less: valuation allowance (2,859) (9,646)Total deferred tax assets, net37,37041,821Deferred tax liabilitiesAcquired intangible assets, net3,3842,499Operating lease right-of-use assets19,20920,044Total deferred tax liabilities 22,593 22,543Deferred income tax assets, net18,16121,168Deferred tax liabilities, net3,3841,890The rollforward of valuation allowances of deferred tax assets were as follows:Years ended December 31 2019 2020 Balance as of beginning of year (2,022) (2,859)Additions of valuation allowance (837) (6,234)Foreign currency translation adjustments — (553)Balance as of end of year (2,859) (9,646)As of December 31, 2020, the Group had net operating loss carried forward from the PRC entities of $96,758. The carryforward loss of $3,242, $11,213, $19,123, $14,467 and $48,713 will expire by 2021, 2022, 2023, 2024 and 2025,respectively, if not utilized. Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2018, 2019 AND 2020(In thousands of U.S. dollars, except share and per share data, or otherwise noted)F-5019. INCOME TAXES - continuedThe reconciliation of the effective tax rate and the statutory income tax rate applicable to PRC operations is as follows:Years ended December 31, 2018 2019 2020Income (loss) before income taxes 1,037 2,015 (40,783)Income tax expense computed at an applicable tax rate of 25% 259 504 (10,196)Permanent differences 10 108 2,975Effect of income tax rate difference in other jurisdictions 2,690 2,092 1,202Change in valuation allowance (500) 837 6,234 2,459 3,541 215In addition, uncertainties exist with respect to how the current income tax law in the PRC applies to the Group’s overalloperations, and more specifically, with regard to tax residency status. The New EIT Law includes a provision specifyingthat legal entities organized outside of the PRC will be considered residents for Chinese Income tax purposes if the place ofeffective 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 themanufacturing and business operations, personnel, accounting and properties, occurs within the PRC. Despite the presentuncertainties resulting from the limited PRC tax guidance on the issue, the Group does not believe that the legal entitiesorganized outside of the PRC within the Group should be treated as residents for EIT law purposes. If the PRC taxauthorities subsequently determine that the Company should be deemed resident enterprises, the Company will be subjectto 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 itout 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, 2020, the Company’s subsidiaries, theVIEs, 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.The Group did not identify significant unrecognized tax benefits for the years ended December 31, 2018, 2019 and 2020.The Group did not incur any interest and penalties related to potential underpaid income tax expenses and also does notanticipate any significant increases or decreases in unrecognized tax benefits in the next 12 months from December 31,2020.20. EMPLOYEE DEFINED CONTRIBUTION PLANFull time employees of the Group in the PRC participate in a government mandated defined contribution plan, pursuant towhich certain pension benefits, medical care, employee housing fund, unemployment insurance and other welfare benefitsare provided to employees. Chinese labor regulations require that the Group’s PRC entities make contributions to thegovernment for these benefits based on certain percentages of the employees’ salaries. The Group has no legal obligationfor the benefits beyond the contributions made. The total amounts for such employee benefits, which were expensed asincurred, were $12,868, $13,041 and $9,136 for the years ended December 31, 2018, 2019 and 2020, respectively. As aresult of COVID-19, the PRC government exempted or reduced certain enterprises’ contributions to basic pensioninsurance, unemployment insurance, and work injury insurance (“certain social insurance”). The Company’s PRCsubsidiaries and VIEs were exempted from contributions to certain social insurance between February 2020 and December2020. The exemption was recognized as a reduction of cost of revenues and operating expenses in the amount of $3,491 forthe year ended December 31, 2020. Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2018, 2019 AND 2020(In thousands of U.S. dollars, except share and per share data, or otherwise noted)F-5121. NET LOSS PER SHAREBasic and diluted net loss per share for each of the periods presented were calculated as follows. Shares issuable for littleconsideration have been included in the number of outstanding shares used for basic and diluted loss per ordinary share.Years ended December 31, 2018 2019 2020Numerator: Net loss attributable to ordinary shareholders of RYB Education,Inc. for computing basic and diluted net loss per ordinary share (1,789) (2,434) (37,280)Denominator: Weighted average ordinary shares outstanding used in computingbasic net loss per ordinary share 29,213,801 28,074,624 28,122,851Weighted average ordinary shares outstanding used in computingdiluted net income per ordinary share 29,213,801 28,074,624 28,122,851Net loss per ordinary share-basic and diluted (0.06) (0.09) (1.33)For the years ended December 31, 2018, 2019 and 2020, the following shares outstanding were excluded from thecalculation of diluted net loss per ordinary share, as their inclusion would have been anti-dilutive for the periods presented.Years ended December 31, 20182019 2020Share options 4,057,0114,008,558 4,556,458Nonvested shares 218,000383,534 582,876 4,275,0114,392,092 5,139,33422. RELATED PARTY TRANSACTION(1) Related partiesName of related parties Relationship with the GroupMr. Chimin CaoChairman of the Board of Directors of the CompanyMs. Zhiying LiSpouse of Mr. Chimin CaoShanghai Huiliang Technology Development Co., Ltd.(“Shanghai Huiliang”)Equity method long-term investee of the Group beforeit was acquired by the Group in April 2020(2) The related party transactions are as follows:Years ended December 31, 2018 2019 2020Rental expense recorded: Ms. Zhiying Li (i) 332 492 586 332 492 586(3) The balances between the Group and its related parties are as follows:As of December 31, 2019 2020Amounts due from: Shanghai Huiliang (ii) 349 — 349 — Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2018, 2019 AND 2020(In thousands of U.S. dollars, except share and per share data, or otherwise noted)F-5222. RELATED PARTY TRANSACTION - continuedAs of December 31, 2019 2020Amounts due to: Shanghai Huiliang (iii) 124 — 124 —(i)The transactions with the related party shown above represent the office rental expenses recorded in each year.(ii)The balance with related party was interest-free, unsecured and repayable on demand. Shanghai Huiliang has beenacquired as a subsidiary of the Group in April 2020, and the amount was eliminated upon consolidation.(iii)The balance represents advances payable to the related party, and was paid by the Group in January 2020.23. COMMITMENTS AND CONTINGENCIESPurchase commitmentsFuture minimum purchase obligations payments under non-cancelable purchase agreements related to curriculumcollaboration with international institutions consisted of the following at December 31, 2020:Years ending December 31, 2021 5582022 4752023 3402024 34220251222026 and thereafter2,791 4,628ContingenciesIn order to operate kindergartens, the Group is required to obtain and maintain various approvals, licenses, and permits andto fulfill registration and filing requirements pursuant to applicable laws and regulations. For instance, to establish akindergarten, 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 theprivate 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 enforcingrelevant rules and regulations, as well as other factors beyond control of the Group, while the Group intends to obtain allrequisite permits and complete necessary filings and registrations on a timely basis for the Group’s operations, the Groupcannot assure to obtain all required permits in time. Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2018, 2019 AND 2020(In thousands of U.S. dollars, except share and per share data, or otherwise noted)F-5323. COMMITMENTS AND CONTINGENCIES - continuedContingencies - continuedIf 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 orliability to indemnify economic loss suffered by the Group’s students, which may materially and adversely affect theGroup’s business, financial conditions and results of operations.Currently, the Group has not received private school operation permits or registration certificates for private non-enterpriseentities for certain directly operated kindergartens, and the Group is in the process of obtaining the permits or certificatesfor these kindergartens. During the years ended December 31, 2018, 2019, 2020, net revenues generated from thesekindergartens were $11,685, $9,559 and $6,110, respectively.On November 7, 2016, the Standing Committee of the National People’s Congress promulgated the Decision on Amendingthe Law on the Promotion of Private Education of the PRC (the “Amended Private Education Law”), which becameeffective on September 1, 2017. On December 29, 2018, the Decision of the Standing Committee of the National PeoplesCongress on Amending the Seven Laws of the Labor Law of the PRC was promulgated by Order No. 24 of the President ofthe PRC and took into effect on the same date, which made two minor adjusts to Article 26 and Article 64 of the AmendedPrivate Education Promotion Law. Due to lack of authoritative interpretation and implementation guidance, the potentialimpact related to the Group not fully complying with the Amended Private Education Law or any relevant regulationscannot be reasonably estimated at the issuance of this report.The Company, three of its directors and officers, and certain underwriters for the Company’s initial public offering werenamed as defendants in a putative class action filed in the Superior Court of the State of California for the County of SanMateo. The complaint alleges that the Company’s registration statements contained misstatements or omissions regardingits business, operations and prospects in violation of the U.S. securities laws. On November 2, 2020, the class action wasvoluntarily dismissed without prejudice.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. On October 19, 2020, the class action was voluntarily discontinued.24. SEGMENT INFORMATIONThe 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 assessingperformance of the Group. An operating segment is a component of the Group that engages in business activities fromwhich it may earn revenues and incur costs, and is identified on the basis of the internal financial reports that are providedto and regularly reviewed by the Group’s CODM.For the year ended December 31, 2018, the Group’s CODM identified three operating segments, including kindergartens,play-and-learn centers and others. For the years ended December 31, 2019 and 2020, the Group’s CODM added anoperating segment when making decisions about allocating resources and assessing performance of the Group due to newbusiness and developments acquired in Singapore, and accordingly identified four operating segments, including PRCkindergartens, PRC play-and-learn centers, Singapore kindergartens, student care centers and others, and others. Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2018, 2019 AND 2020(In thousands of U.S. dollars, except share and per share data, or otherwise noted)F-5424. SEGMENT INFORMATION - continuedThe Group’s CODM evaluates performance based on each reporting segment’s revenue, costs of revenues and gross profit(loss). Revenues, cost of revenues and gross profits (loss) by segment are presented below. Separate financial informationof operating income by segment is not available.Years ended December 31, 2018 2019 2020Net revenues:PRC kindergartens 124,175 131,427 68,319PRC play-and-learn centers 26,777 24,901 12,215Singapore kindergartens, student care centers and others—19,07325,964Others 5,546 6,882 3,217Total net revenues 156,498 182,283 109,715Cost of revenues:PRC kindergartens 108,140 113,315 78,901PRC play-and-learn centers 15,694 14,269 8,610Singapore kindergartens, student care centers and others—16,20021,513Others 7,030 11,750 7,877Total cost of revenues 130,864 155,534 116,901Gross profit (loss)PRC kindergartens 16,035 18,112 (10,582)PRC play-and-learn centers 11,083 10,632 3,605Singapore kindergartens, student care centers and others—2,8734,451Others (1,484) (4,868) (4,660)Total gross profit (loss) 25,634 26,749 (7,186)The Group’s CODM does not review the financial position by operating segments, thus total assets by operating segment isnot presented.Geographical informationThe Company’s operations are located in the PRC and Singapore. The Company’s revenues and long lived assets bygeographic areas (based on location of customers) are detailed below:Years ended December 31, 2018 2019 2020Net Revenues:PRC 156,498 163,210 83,751Singapore — 19,073 25,964 156,498 182,283 109,715As of December 31, 2019 2020Long-lived assets:PRC208,579128,206Singapore9,76515,600218,344143,806 Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2018, 2019 AND 2020(In thousands of U.S. dollars, except share and per share data, or otherwise noted)F-5525. RESTRICTED NET ASSETSRelevant PRC statutory laws and regulations permit payments of dividends by the Group’s PRC entities only out of their retainedearnings, if any, as determined in accordance with PRC accounting standards and regulations. The results of operations reflectedin the financial statements prepared in accordance with U.S. GAAP differ from those reflected in the statutory financialstatements of the Company’s entities.Prior to payment of dividends, pursuant to the PRC laws and regulations, enterprises incorporated in the PRC must makeappropriations 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 determinedunder PRC laws and regulations at each year-end until the balance reaches 50% of the PRC entity registered capital; the otherreserve appropriations are at the Company’s discretion. These reserves can only be used for specific purposes of enterpriseexpansion 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, 2019 and 2020, respectively.PRC laws and regulations require kindergartens that require reasonable returns to contribute 25% of after-tax income beforepayments of dividend to a fund to be used for the construction or maintenance of the kindergarten or procurement or upgrading ofeducational 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. Forthe Group’s kindergartens, amounts contributed to the reserve of $698 and $592 for the years ended December 31, 2019 and 2020,respectively.These reserves are included as statutory reserves in the consolidated statements of changes in equity. The statutory reservescannot be transferred to the Company in the form of loans or advances and are not distributable as cash dividends except in theevent of liquidation.Because the Group’s PRC entities can only be paid out of distributable profits reported in accordance with PRC accountingstandards, the Group’s PRC entities are restricted from transferring their net assets to the Company. The restricted amountsinclude the paid-in capital and statutory reserves of the Group’s PRC entities. The Group’s restricted net assets was $7,150as of December 31, 2020. 1Exhibit 8.1List of Significant Subsidiaries and Consolidated Affiliated Entities of RYB Education, Inc.SubsidiariesPlace of IncorporationBeijing RYB Technology Development Co., Ltd. (北京红黄蓝科技发展有限公司)PRCPrecious Companion Group Limited(启元教育集团有限公司)Hong KongConsolidated Variable Interest EntityPlace of IncorporationBeijing RYB Children Education Technology Development Co., Ltd. (北京红黄蓝儿童教育科技发展有限公司)PRCSubsidiaries and Sponsored Entities of Consolidated Variable Interest EntityPlace of IncorporationBeijing Aizhudou Culture Development Co., Ltd.(北京爱竹兜文化发展有限公司)PRCShenzhen RYB Children Education Technology Development Co., Ltd.(深圳红黄蓝儿童教育科技有限公司)PRCBeijing Youer Lezhi Technology Development Co., Ltd.(北京优儿乐智科技发展有限公司)PRC* Other subsidiaries and sponsored entities of the consolidated variable interest entity of RYB Education, Inc. have been omitted from this listsince, considered in the aggregate as a single entity, they would not constitute a significant subsidiary. 1EXHIBIT 12.1Certification by the Principal Executive OfficerPursuant to Section 302 of the Sarbanes-Oxley Act of 2002I, 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 makethe statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period coveredby this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all materialrespects 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 definedin 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 oursupervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us byothers 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 oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statementsfor 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 theeffectiveness 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 bythis annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financialreporting;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 arereasonably 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 internalcontrol over financial reporting.Date:May 14, 2021 By:/s/ Yanlai Shi Name:Yanlai Shi Title:Chief Executive Officer 1EXHIBIT 12.2Certification by the Principal Financial OfficerPursuant to Section 302 of the Sarbanes-Oxley Act of 2002I, 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 makethe statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period coveredby this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all materialrespects 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 definedin 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 oursupervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us byothers 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 oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statementsfor 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 theeffectiveness 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 bythe annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financialreporting;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 arereasonably 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 internalcontrol over financial reporting.Date:May 14, 2021 By:/s/ Hao Gu Name:Hao Gu Title:Chief Financial Officer 1EXHIBIT 13.1Certification by the Principal Executive OfficerPursuant to Section 906 of the Sarbanes-Oxley Act of 2002In connection with the Annual Report of RYB Education, Inc. (the “Company”) on Form 20-F for the fiscal year ended December 31, 2020 asfiled 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 ofthe Company.Date:May 14, 2021 By:/s/ Yanlai Shi Name:Yanlai Shi Title:Chief Executive Officer 1EXHIBIT 13.2Certification by the Principal Financial OfficerPursuant to Section 906 of the Sarbanes-Oxley Act of 2002In connection with the Annual Report of RYB Education, Inc. (the “Company”) on Form 20-F for the fiscal year ended December 31, 2020 asfiled 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 ofthe Company.Date:May 14, 2021 By:/s/ Hao Gu Name:Hao Gu Title:Chief Financial Officer 1EXHIBIT 15.1RYB Education, Inc.4/F, No. 29 Building, Fangguyuan Section 1, FangzhuangFengtai District, Beijing 100078People’s Republic of China14 May 2021Dear 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 CaymanIslands with limited liability (the “Company”), in connection with the filing by the Company with the United States Securities and ExchangeCommission (the “SEC”) of an annual report on Form 20-F for the year ended 31 December 2020 (the “Annual Report”).We hereby consent to the incorporation by reference of the summary of our opinions under these headings into the Company’s registrationstatement 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 2017Share 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 thatwe come within the category of persons whose consent is required under Section 7 of the Securities Act of 1933, or under the Securities ExchangeAct 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 1EXHIBIT 15.2May 14, 2021RYB Education, Inc.4/F, No. 29 Building, Fangguyuan Section 1, FangzhuangFengtai District, Beijing 100078People’s Republic of ChinaRe: Consent of Commerce & Finance Law OfficesWe 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’sfiscal year ended December 31, 2020 to be filed with the U.S. Securities and Exchange Commission (the “SEC”) on or about May 14, 2021 (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 theSEC 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 OfficesCommerce & Finance Law Offices 1EXHIBIT 15.3CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMThe Board of DirectorsRYB Education, Inc.:We consent to the incorporation by reference in the registration statement (No. 333-223864) on Form S-8 of RYB Education, Inc. of our reportdated May 14, 2021, with respect to the consolidated balance sheet of RYB Education, Inc. as of December 31, 2020, the related consolidatedstatements of operations, comprehensive loss, changes in shareholders’ equity, and cash flows for the year ended December 31, 2020, and therelated notes, which report appears in the December 31, 2020 annual report on Form 20-F of RYB Education, Inc./s/ KPMG Huazhen LLPBeijing, ChinaMay 14, 2021 EXHIBIT 15.4CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe consent to the incorporation by reference in Registration Statement No. 333-223864 on Form S-8 of our report dated April 30, 2020, relating tothe financial statements of RYB Education, Inc. appearing in this Annual Report on Form 20-F of RYB Education, Inc. for the year endedDecember 31, 2020./s/ Deloitte Touche Tohmatsu Certified Public Accountants LLPDeloitte Touche Tohmatsu Certified Public Accountants LLPBeijing, the People’s Republic of ChinaMay 14, 2021 EXHIBIT 15.5May 14, 2021Securities and Exchange Commission100 F Street, N.E.Washington, D.C. 20549-7561Dear Sirs/Madams:We have read Item 16F of RYB Education, Inc.'s Form 20-F dated May 14, 2021, and have the following comments:1.We agree with the statements made in the first and fourth sentences of paragraph 1 and in paragraphs 2, 3 and 4 of Item 16F, for which wehave a basis on which to comment on, and we agree with, the disclosures.2.We have no basis on which to agree or disagree with the statements made in the second and third sentences of paragraph 1 and inparagraph 5 of Item 16F.Yours truly,/s/ Deloitte Touche Tohmatsu Certified Public Accountants LLPDeloitte Touche Tohmatsu Certified Public Accountants LLPBeijing, the People’s Republic of China

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