As filed with the Securities and Exchange Commission on June 21, 2021.

Registration No. 333-255891

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

Amendment No.1

to

FORM F-1

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

Golden Sun Education Group Limited

(Exact name of registrant as specified in its charter)

Profit Huiyin Square North Building,

Huashan 2018, Unit 1001,

Xuhui District, Shanghai, China

+86-0577-56765303

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Cogency Global Inc.

122 East 42nd Street, 18th Floor

New York, NY 10168

800-221-0102

(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies of all communications, including communications sent to agent for service, should be sent to:

Approximate date of commencement of proposed sale to the public: Promptly after the effective date of this registration statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. ☒

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering ☐

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933

Emerging growth company ☒

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act ☐

CALCULATION OF REGISTRATION FEE

The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to such Section 8(a), may determine.

SUBJECT TO COMPLETION

PRELIMINARY PROSPECTUS DATED June 21, 2021

5,000,000 Class A Ordinary Shares

Golden Sun Education Group Limited

This is an initial public offering of our Class A ordinary shares, par value $0.0005 per share (“Class A Ordinary Shares”). We are offering on a firm commitment basis our Class A Ordinary Shares. Prior to this offering, there has been no public market for our Class A Ordinary Shares. We expect the initial public offering price to be in the range of $4 to $5 per Class A Ordinary Share. We have reserved the symbol “GSUN” for purposes of listing our Class A Ordinary Shares on the Nasdaq Capital Market and plan to apply to list our Class A Ordinary Shares on the Nasdaq Capital Market. It is a condition to the closing of this offering that the Class A Ordinary Shares qualify for listing on a national securities exchange.

Our outstanding share capital consists of Class A Ordinary Shares and Class B ordinary shares, par value $0.0005 per share (“Class B Ordinary Shares”). Holders of Class A Ordinary Shares and Class B Ordinary Shares have the same rights except for voting and conversion rights. In respect of matters requiring the votes of shareholders, each Class A Ordinary Share is entitled to one vote, and each Class B Ordinary Share is entitled to five votes and 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. The Class B holders will be able to exercise approximately 60% of the total votes of our issued and outstanding share capital immediately following the completion of this offering, assuming the sale of 5,000,000 Class A Ordinary Shares, and excluding the effects of the exercise of the Underwriter Warrants and the over-allotment option.

Investing in our Class A Ordinary Shares involves a high degree of risk, including the risk of losing your entire investment. See “Risk Factors” beginning on page 10 to read about factors you should consider before buying our Class A Ordinary Shares.

We are an “emerging growth company” as defined under the federal securities laws and will be subject to reduced public company reporting requirements. Please read the disclosures beginning on page 6 of this prospectus for more information.

Following the completion of this offering, our largest shareholder will beneficially own approximately 60.2% of the aggregate voting power of our issued and outstanding Class A Ordinary Shares and Class B Ordinary Shares assuming no exercise of the over-allotment option, or approximately 59.1% assuming full exercise of the over-allotment option. As such, we will be deemed a “controlled company” under Nasdaq Marketplace Rules 5615(c). However, even if we are deemed as a “controlled company,” we do not intend to avail ourselves of the corporate governance exemptions afforded to a “controlled company” under the Nasdaq Marketplace Rules. See “Risk Factors” and “Management—Controlled Company.”

This offering is being conducted on a firm commitment basis. The Underwriter is obligated to take and pay for all of the Class A Ordinary Shares if any such Class A Ordinary Shares are taken. We have granted the Underwriter an option for a period of 45 days after the closing of this offering to purchase up to 15% of the total number of the Class A Ordinary Shares to be offered by us pursuant to this offering (excluding Class A Ordinary Shares subject to this option), solely for the purpose of covering over-allotments, at the public offering price less the underwriting discounts. If the Underwriter exercises the option in full, the total underwing discounts payable will be $[●] based on an assumed offering price of $[●] per Class A Ordinary Share, and the total gross proceeds to us, before underwriting discounts and expenses, will be $[●].

We have agreed to issue to the Underwriter share purchase warrants, exercisable from the date of commencement of sales of this offering for a period of five years after such date, to purchase Class A Ordinary Shares equal to 7.5% of the total number of Class A Ordinary Shares sold in this offering, exercisable at a per share price equal to 130% of the public offering price (the “Underwriter Warrants”). The registration statement of which this prospectus is a part also covers the Underwriter Warrants and the Class A Ordinary Shares issuable upon the exercise thereof.

The Underwriter expects to deliver the Class A Ordinary Shares against payment as set forth under “Underwriting,” on or about [●], 2021.

Neither the Securities and Exchange Commission nor any state securities commission nor any other regulatory body has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

Network 1 Financial Securities, Inc.

Prospectus dated [●], 2021.

TABLE OF CONTENTS

About this Prospectus

We and the Underwriter have not authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses prepared by us or on our behalf or to which we have referred you. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the Class A Ordinary Shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. We are not making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted or where the person making the offer or sale is not qualified to do so or to any person to whom it is not permitted to make such offer or sale. For the avoidance of doubt, no offer or invitation to subscribe for Class A Ordinary Shares is made to the public in the Cayman Islands. The information contained in this prospectus is current only as of the date on the front cover of the prospectus. Our business, financial condition, results of operations, and prospects may have changed since that date.

Conventions that Apply to this Prospectus

Unless otherwise indicated or the context requires otherwise, references in this prospectus to:

Unless the context indicates otherwise, all information in this prospectus assumes no exercise by the Underwriter of its over-allotment option.

Unless expressly indicated herein to the contrary, all references to share amounts in this prospectus give retroactive effect to share consolidations, the last of which was effected on April 24, 2021.

Our business is conducted by Golden Sun Wenzhou and Golden Sun Shanghai, and their subsidiaries and/or VIEs, using Renminbi (“RMB”), the currency of China. Our consolidated financial statements are presented in U.S. dollars. In this prospectus, we refer to assets, obligations, commitments, and liabilities in our consolidated financial statements in U.S. dollars. These dollar references are based on the exchange rate of RMB to U.S. dollars, determined as of a specific date or for a specific period. Changes in the exchange rate will affect the amount of our obligations and the value of our assets in terms of U.S. dollars which may result in an increase or decrease in the amount of our obligations (expressed in dollars) and the value of our assets, including accounts receivable (expressed in dollars).

 

In addition to offering primary and secondary school programs and tutorial programs, we have also been working, through our newly established subsidiary, Qinshang Education Technology Co., Ltd., or Qinshang, to partner with high schools to provide non-English foreign languages (currently Spanish as secondary language) tutoring services to their students since December 2019. As of February 2021, we worked with 41 partner schools serving approximately 1798 students in seven provinces in China. In addition to in-person on-site educational services, Qinshang also plans to provide online remote lessons for those students. Qinshang plans to conduct its foreign language programs following a dual-teacher, online-mobile end-offline learning model. No significant revenue from Qinshang has been recognized or included in the Company’s consolidated financial results for the years ended September 30, 2019 and 2020, because Qinshang started operations in December 2019. However, we believe that non-English foreign language as a subject in Gaokao has great potential to grow and to be chosen by much more Gaokao participants. Due to our strength and reputation in offering non-English foreign language courses to Gaokao participants, we expect Qinshang’s business to continue to grow in the near future.

 

Our revenue from providing primary and secondary education services at our primary and secondary schools, i.e., primary and secondary schools revenue, primarily consists of tuition fees and, in some instances, room and boarding fees. Our revenue from providing tutorial programs at our tutorial centers and Spanish language training program through Qingshang, i.e., tutorial fees revenue, primarily consists of training fees and, in some instances, of room and boarding fees as well. Additionally, we also generate a small percentage of our revenue from providing logistics and consulting services.

 

Both of our primary and secondary schools are located in Wenzhou city, while our tutorial centers span over eight locations across Wenzhou city and Hangzhou city in Zhejiang province, and Shanghai city, China. The following map illustrates the geographic location of our network of schools, including our primary school, our secondary school, tutorial centers and high schools that we provide remote and on-site non-English foreign languages services to the date of this prospectus:

 

 

 

		Our schools and tutorial centers
		Schools we partner with to provide non-English foreign language programs

 

RISK FACTORS

An investment in our Class A Ordinary Shares involves a high degree of risk. Before deciding whether to invest in our Class A Ordinary Shares, you should consider carefully the risks described below, together with all of the other information set forth in this prospectus, including the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes. If any of these risks actually occurs, our business, financial condition, results of operations or cash flow could be materially and adversely affected, which could cause the trading price of our Class A Ordinary Shares to decline, resulting in a loss of all or part of your investment. The risks described below and discussed in other parts of this prospectus are not the only ones that we face. Additional risks not presently known to us or that we currently deem immaterial may also affect our business. You should only consider investing in our Class A Ordinary Shares if you can bear the risk of loss of your entire investment.

Risks Relating to Our Business

We face intense competition in the PRC education sector, which could lead to adverse pricing pressure, reduced operating margins, loss of market share, departure of qualified teachers and increasing capital expenditure.

The education sector in China is fast evolving, highly fragmented and competitive, and we expect competition in this sector to continue and intensify. Furthermore, education institutions’ performance is highly sensitive to demographic changes in China. Student enrollment in primary and secondary education in China can be substantially affected by PRC government policies on family planning. In Zhejiang province and Shanghai where most of our operations are located, we compete with public and other private schools that offer fundamental education programs. We compete with these schools based on a range of factors, including, but not limited to, recruitment capability, expertise and reputation of teachers, students’ academic achievements, school locations and facilities. Public schools may enjoy favorable treatment from government authorities in respect of, among other things, tax exemptions and government subsidies. Our competitors may adopt similar or better curricula, student support services and marketing strategies, with more appealing pricing and service packages than what we are able to offer. In addition, some of our competitors may have more resources than we do and may be able to dedicate greater resources than we can to school development and promotion and respond more quickly than we can to changes in student demand, market needs and/or new technologies. As such, we may need to lower our tuition fees and boarding fees and tutorial fees, or increase our spending in order to be competitive by retaining or attracting students and qualified teachers or identifying and pursuing new market opportunities. Similarly, our non-primary and secondary education programs face similar competition and pricing pressure. Although we are leading in providing non-English foreign language courses and education nationally in the PRC, we cannot assure you that there will not be new competition in the field that replicate our business model or offer similar services to our target partnering schools and their students. If we are unable to successfully compete for new students or partners, maintain or increase our fee levels, attract and retain qualified teachers or other key personnel, enhance the quality of our educational services or control the costs of our operations, our business, results of operations and financial condition may be materially and adversely affected.

Our business and results of operations mainly depend on the level of tuition fees and tutorial fees we are able to charge and our ability to maintain and raise tuition fees and tutorial fees.

The amount of tuition and tutorial fees we are able to charge represents one of the most significant factors affecting our profitability. Substantially all our revenues are derived from and tutorial fees from our primary and secondary schools and training centers. Our fees have been determined based on demand for our educational programs and training courses, the cost of our operations, the geographic markets in which we operate our business, the fees charged by our competitors, our pricing strategy to gain market share and the general economic conditions in China and in the areas in which our schools and our tutorial centers are located, subject to applicable approvals by local government according to the nature of the private schools, e.g., for-profit or not-for-profit. Pursuant to the Law of the People’s Republic of China on the Promotion of Privately-run Schools amended in 2016 and further amended in 2018, the measures for the collection of fees by not-for-profit schools shall be formulated by local government of various provinces, autonomous regions and centrally-administrated municipalities. The company’s business, operations and revenue have not been affected, because local government regulations of Zhejiang and Shanghai, where our not-for-profit schools are located, have generally allowed school sponsors autonomy in running schools, including autonomy in pricing of tuition fees, and as a result we are able to charge tuition fees based on market conditions; the charging criteria of for-profit private schools are subject to market and shall be determined by the schools themselves. For the purposes of this law, among all of our schools and tutorial centers, Hangzhou Jicai is a for-profit private school, and Chongwen Middle School, Ouhai Art School, Yangfushan Tutorial, Shanghai Jicai and Hongkou Tutorial are not-for-profit schools. There can be no assurance that we will be able to maintain or raise the fee levels we charge in the future due to various reasons, many beyond our control, such as failure to obtain necessary approvals for fee increases, and even if we are able to maintain or raise fees, we are unsure how our fee rates will impact the number of student applications and enrollment. For the fiscal years 2020 and 2019, 96.8% and 96% of our revenue, respectively, was generated by our not-for-profit schools.  Our business, financial position and results of operations may be materially and adversely affected if we fail to maintain or raise our fees while attracting sufficient students.

We face risks related to health epidemics, natural disasters, or terrorist attacks in China.

China and elsewhere worldwide have recently experienced and, in some parts of the world, including the U.S., are still experiencing an outbreak of a pandemic of COVID-19, a disease caused by a novel and highly contagious form of coronavirus. The pandemic resulted in travel restrictions, massive closure of businesses and schools, and quarantine measures imposed by governments across the world. Because substantially all of our operations are conducted in China and our students had to remain home from January to early April, 2020. Although we implemented measures to proactively respond to the situation by training our teachers to adapt to remote teaching, the outbreak of COVID-19 has caused a disruption to our tutorial business. In April 2020, we resumed in-person teaching across our schools and tutorial centers, without substantial negative impact on the attendance of our teachers and students. Although China has temporarily controlled the outbreak, we currently are unable to predict the duration and severity of the spread of COVID-19, the responses thereto, and their impact on our business and operations, our results of operations, financial condition, cash flows and liquidity, as these depend on rapidly evolving developments, which are highly uncertain and will be a function of factors beyond our control. Such factors include, among others, the continued spread or recurrence of contagion, the implementation of effective preventative and containment measures, the development of effective medical solutions, and the extent to which governmental restrictions on travel, public gatherings, mobility and other activities remain in place or are augmented.

Additionally, our business could be materially and adversely affected by natural disasters, such as earthquakes, floods, landslides, tornados and tsunamis, and other outbreaks of health epidemics such as avian influenza and severe acute respiratory syndrome, or SARS, and Influenza A virus, such as H5N1 subtype and H5N2 subtype flu viruses, as well as terrorist attacks, other acts of violence or war or social instability in the region in which we operate or those generally affecting China. If any of these occur, our schools and facilities may be required to temporarily or permanently close and our business operations may be suspended or terminated. Our students, teachers and staff may also be negatively affected by such event. Our physical facilities may also be affected. In addition, any of these could adversely affect the Chinese economy and demographics of the affected region, which could cause significant declines in the number of our students in that region and could have a material adverse effect on our business, financial condition and results of operations.

Our business is heavily dependent on the reputation of our network of schools and tutorial centers.

Our ability to maintain our reputation depends on a number of factors, some of which are beyond our control. As we continue to grow in size and expand our programs and services, it may become difficult to maintain the quality and consistency of the services we offer, which may lead to diminishing confidence in our brand name.

Numerous factors can potentially impact the reputation of our network of schools and tutorial centers, including but not limited to, the degree of students’ and their parents’ satisfaction with our curriculum, our teachers and teaching quality, the grades of our students, accidents on campus, teacher or student scandals, negative press, interruptions to our educational services, failure to pass an inspection by a government educational authority, loss of certifications and approvals that enable us to operate our schools and tutorial centers in the manner they are currently operated, and unaffiliated parties using our brand without adhering to our standards of education. Any negative impact on the reputation of one or more of our schools or tutorial centers may lead to a decrease in students’ and their parents’ interest in our schools or tutorial centers or lead to termination of our cooperation with our partner schools, which would materially and adversely affect our business.

We have established and developed our student base primarily through a variety of marketing methods. However, we cannot assure you that these marketing efforts will be successful or sufficient in further promoting our brand or in helping us to maintain our competitiveness. If we are unable to further enhance our reputation and increase market awareness of our programs and services, or if we need to incur excessive marketing and promotional expenses in order to remain competitive, our business, financial condition and results of operations may be materially and adversely affected. If we are unable to maintain or strengthen our reputation and brand recognition, we may not be able to maintain or increase student enrollment, which could have a material adverse effect on our business, financial condition, results of operations and prospects.

We may fail to continue to attract and retain students in our schools and our tutorial centers.

The success of our business largely depends on the number of students enrolled in our schools and tutorial centers, as well as on the amount of fees our students and/or parents are willing to pay. Therefore, our ability to continue to attract students to enroll in our schools and tutorial centers is critical to the continued success and growth of our business. The success of our efforts to enroll students will depend on several factors, including without limitation our ability to:

In addition, local and provincial government authorities may restrict our schools and tutorial centers from providing academic education on the number of students we can recruit or the areas in which we can recruit students. Our business, financial condition and results of operations could be materially and adversely affected if we cannot maintain or increase our enrollment as we expand our programs.

We cannot assure you that we will successfully renew our agreement to manage Chongwen Middle School or that the agreement will not be terminated.

For the years ended September 30, 2020 and 2019, we generated 26% and 24% of our revenue from Chongwen Middle School. Chongwen Middle School is a school sponsored by our CEO and two other sponsors, and, via an entrustment agreement (the “Entrustment Agreement”), which was entered into on September 1, 2015 and amended on March 1, 2021, entrusted to us to manage. According to the Entrustment Agreement, as amended, we have the exclusive right to control the operations of Chongwen Middle School, including making operational and financial decisions, and in return, we are entitled to receive the residual return from Chongwen Middle School’s operation and at the same time to bear the risk of loss from the operation. Pursuant to the Entrustment Agreement prior to its amendment, the sponsors of Chongwen Middle School had the right to receive a fixed amount of return on annual basis, and we paid to the sponsors RMB1.6M for each of the school years of 2015, 2016, 2017 and 2018, and RMB2.0M for each of the school years of 2019 and 2020. Subsequently, the Law of the People’s Republic of China on the Promotion of Privately-run Schools was amended in 2016 (which became effective on September 1, 2017) and further amended in 2018; the 2016 amendment stipulated that the sponsors of not-for-profit schools shall not receive proceeds from school operation. Accordingly, the Entrustment Agreement was amended on March 1, 2021, and beginning in 2021 the sponsors will no longer receive a fixed amount of return on annual basis. The Entrustment Agreement, as amended, is valid from September 1, 2015 to September 1, 2023, and may be renewed for another seven years; however, Chongwen Middle School has the right to terminate the Entrustment Agreement, as amended, unilaterally if any of its provisions are materially breached by us, or a severe accident has happened on campus. We cannot assure you that the Entrustment Agreement will be renewed with substantially the same terms and conditions, or at all. Additionally, we cannot assure that this agreement will not be terminated by our CEO, Xueyuan Weng, based on the termination provisions. In the event that this entrustment agreement is not renewed or is renewed under different terms and conditions, our results of operations and financial condition may be materially and adversely affected.

If we are not able to continue to secure agreements with some or all of our existing partner schools, or secure new agreements with additional partner schools for our non-English foreign language program, our results of operations and financial condition may be materially and adversely affected.

In December 2019, we started generating revenue from our non-English foreign language program by partnering with high schools nationwide in China. We intend to continue to grow this segment of our business by actively seeking and partnering with more high schools and by expanding to various parts of China. Typically, our agreements with these partner schools are for three years, and afterwards, these schools are not obligated to renew their agreements with us. If any of our current or future partner schools discontinue our cooperation for reasons such as students’ inability to achieve the language proficiency for Gaokao, we cannot assure you that we will be able to timely secure other agreements with other schools, if at all, and therefore, our results of operations and financial condition may be affected.

Both our primary and secondary schools and tutorial centers offer refunds to students who withdraw from enrollment within a certain predetermined period, and we cannot assure you that our estimates of refund will be accurate, or that such refunds will remain insignificant to our results of operations and our financial condition.

For our schools and tutorial centers, we generally offer refunds for any remaining classes to students who decide to withdraw from a course within the predetermined period in the education contract the student has with the relevant school or center. The refund is equal, and limited, to the amount of fees that would be charged for any undelivered classes. Refund liability estimates are based on a historical refund ratio on a portfolio basis using the expected value method. As of September 30, 2019 and 2020, refund liability amounted to $108,798, and $246,935, respectively. The refund amount is currently insignificant to our results of operations and our financial condition. However, we cannot assure you that our estimates of refund will be accurate. Additionally, we cannot assure you that such refunds will remain insignificant to our results of operations and our financial condition.

We may fail to continue to attract and retain teachers and we may not be able to maintain consistent teaching quality throughout our schools and tutorial centers.

Our teachers are critical to maintaining and improving the quality of our educational programs and services, and to supporting the expansion of our network of schools and educational programs and services, maintaining our reputation. We must continue to attract qualified teachers who have a strong command of their subject areas and who meet our qualifications. Currently, there is a limited number of teachers in China with the necessary experience, expertise and qualifications that meet our requirements. We also have to provide competitive compensation packages to attract and retain qualified teachers.

Our teacher retention rates as of September 30, 2019 and 2020, were 78.2% and 80.4%, respectively. “Retention rate” is calculated as 100% minus the quotient of the number of teachers who cease being employed during the period by the number of teachers at the beginning of that period (not including teachers hired during that period). Shortages of qualified teachers, or significant decreases in the quality of our educational programs and services, whether actual or perceived in one or more of our schools and tutorial centers, or an increase in hiring costs, may have a material and adverse effect on our business and our reputation. In addition, we may not be able to hire and retain enough qualified teachers to maintain consistent teaching quality in different locations should we establish and/or acquire additional schools as anticipated. Further, any inability to retain teachers may adversely affect our Golden Sun brand and significantly increasing teacher salaries may have a material adverse effect on our business, financial condition and results of operations.

Our historical results, growth rate and profitability may not be indicative of our future performance.

We have experienced growth in revenue in recent years, primarily driven by the increasing number of enrolled students. For the year ended September 30, 2019, there were 9,541 students enrolled in our schools and tutorial centers, representing a 4% increase from 9,194 students in fiscal 2018. For the year ended September 30, 2020, there were 11,633 students enrolled in our schools and tutorial centers, representing a 22% increase from 9,541 students in the same period of fiscal 2019.

Our financial condition and results of operations may fluctuate due to a number of other factors, such as expansion and related costs in a given period, our ability to maintain and increase our profitability and to enhance our operational efficiency, increased competition and market perception and acceptance of any newly introduced educational programs in any given year. In addition, while we plan to further expand our network of schools, there is no guarantee that we will be able to do so successfully. Furthermore, we may not be successful in continuing to increase the number of students admitted to the schools we operate, and we may not be as successful as we expect in identifying and acquiring or sponsoring additional schools.

We may not sustain our past growth rates in future periods, and we may not sustain profitability on a quarterly or annual basis in the future. Our historical results, growth rates and profitability may not be indicative of our future performance. Our stocks could be subject to significant price volatility should our earnings fail to meet the expectations of the investment community. Any of these events could cause the price of our stocks to materially decrease.

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

We experienced steady growth and expansion in the last two years. Managing and supporting our growth require substantial management time and know-how, as well as the commitment of significant resources and expenditure. If any of these elements are not fulfilled, we may not be able to effectively and efficiently manage the growth of our operations, recruit and retain qualified personnel, and integrate entities we acquire into our business operations. Any failure to effectively and efficiently manage our expansion may materially and adversely affect our ability to capitalize on new business opportunities, which in turn may have a material adverse effect on our business and financial results.

We plan to leverage our existing operations and resources to further expand our network of schools by opening additional schools. In addition, we plan to explore acquisition opportunities. We may not succeed in executing our growth strategies due to a number of factors, including failure to do any of the following:

If we fail to successfully execute our growth strategies, we may not be able to maintain our growth rate and, as a result, our business, financial condition and results of operations may be materially and adversely affected.

Our primary and secondary education program, repeater programs and non-English foreign language program depend on our ability to promptly and adequately respond to changes in admission requirements for higher-level education and testing materials.

Our high school students are subject to college level admissions and assessment tests administered by educational authorities in China. Our middle and primary school students are subject to PRC high school and middle school entrance exams, as applicable. The admission scores for the various universities, high schools or middle schools in China usually change from year to year. Testing materials may also change in terms of focus areas, format and the manner in which such tests are administered. These changes require us to continually update and enhance the courses and course materials we offer and to continually train our students to take standardized tests so as to maximize their performance on these tests. If we fail to adequately prepare our students for admission tests in our everyday classroom teaching and any test preparation courses we offer, our students’ admissions rates to may decrease and our programs and services may become less attractive to students. Furthermore, if we fail to timely develop and introduce new educational services and programs in our primary and secondary schools based on the changing education standards, our ability to attract and retain students may decrease. As a result, our reputation, business, financial condition and results of operations may be materially and adversely affected.

The private for-profit primary and secondary education business is relatively new and may not gain wide acceptance in China.

45% and 46% of our total revenue was generated from our primary and secondary schools for the years ended September 30, 2019 and 2020. Our business and results of operations are dependent upon the acceptance, development and expansion of the market for private for-profit primary and secondary educational services in China. The primary and secondary private school market started to develop in the early 1990s in China and has grown significantly due to favorable policies enacted by the Chinese government. In 1997, the State Council of the PRC promulgated the first regulation to promote the private education industry in China. However, investors of private schools were not permitted to retain reasonable return in China until 2003 when the Law of the People’s Republic of China on the Promotion of Privately-run Schools became effective. The Standing Committee of the National People’s Congress amended the Law on the Promotion of Private Education (the “2016 Private Education Law”), effective on September 1, 2017. Pursuant to the 2016 Private Education Law, sponsors of private schools may choose to register their schools as either non-profit or for-profit schools but sponsors are not permitted to register for-profit schools that provide compulsory education services. Nevertheless, favorable policies and laws provide continuous support and establish standardization of China’s private education industry, which in turn boosts the confidence of students and parents in the industry.

Nevertheless, we face uncertainty as to whether favorable policies and laws will be adverted by the government. Additionally, as a private education provider, we charge relatively higher fees for our primary and secondary schools in comparison with public schools of similar level. The development of this market has been accompanied by significant press coverage and public debate concerning the management and operation of private for-profit schools. Significant uncertainty remains in China as to public acceptance of this business model. If this model fails to gain wide acceptance among the general public, especially among students and their parents, our results of operations will be adversely affected.

We are subject to taxation in multiple jurisdictions, which is complex and often requires making subjective determinations subject to scrutiny by, and disagreements with, tax regulators.

We are subject to many different forms of taxation in each of the countries and regions we form and/or conduct our business, of operation including, but not limited to, income tax, withholding tax, property tax, VAT and social security and other payroll-related taxes. Tax law and administration is complex, subject to change and varying interpretations and often requires us to make subjective determinations. In addition, we take positions in the course of our business with respect to various tax matters, including in connection with our operations. Tax authorities worldwide are increasingly rigorous in their scrutiny of corporate tax structures and may not agree with the determinations that are made, or the positions taken, by us with respect to the application of tax law. Such disagreements could result in lengthy legal disputes, an increased overall tax rate applicable to us and, ultimately, in the payment of substantial amounts of tax, interest and penalties, which could have a material adverse effect on our business, results of operations and financial condition.

An uncertain tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. Penalties and interest incurred related to underpayment of income tax are classified as income tax expense in the period incurred. No significant penalties or interest relating to income taxes have been incurred for the years ended September 30, 2019 and 2020.

According to PRC taxation regulation, if tax has not been fully paid, tax authorities may impose tax and late payment penalties within three years. In practice, since all of the taxes owed are local taxes, the local tax authority is typically more flexible and willing to provide incentives or settlements with local small and medium-size businesses to relieve their burden and to stimulate the local economy. There was no interest and penalty accrued as September 30, 2019 and 2020, as the Company has not received any penalty and interest charge notice from local tax authorities. As of the date of this prospectus, the tax years ended December 31, 2015 through December 31, 2020 for the Company’s PRC subsidiaries and VIEs remain open for statutory examination by PRC tax authorities. 

 We are subject to various approvals, licenses, permits, registrations and filings for our education and other services in the PRC.

In order to conduct and operate our education business, we are required to obtain and maintain various approvals, licenses and permits and to fulfill registration and filing requirements pursuant to applicable laws and regulations. For instance, to establish and operate a school, we are required to obtain a private school operation permit from the local education bureau and to register with the local civil affairs bureau to obtain a certificate of registration for a privately operated non-enterprise entity for not-for-profit private schools, or register with the local administration for industry and commerce for for-profit private schools.

Given the significant amount of discretion the local PRC authorities may have in interpreting, implementing and enforcing relevant rules and regulations, as well as other factors beyond our control, while we intend to use our best efforts to obtain all requisite permits and complete all necessary filings, renewals and registrations on a timely basis, we cannot assure you that we will be able to obtain all required permits. If we fail to receive any required permit in a timely manner or obtain or renew any permits and certificates, we may be subject to fines, confiscation of the gains derived from our noncompliant operations, suspension of our non-compliant operations, compensation payments for any economic loss suffered by our students or other relevant parties, which may materially and adversely affect our business, financial condition and results of operations.

New legislation or changes in the PRC regulatory requirements regarding private education may affect our business operations and prospects.

The private education sector in China is subject to regulations in various aspects. Relevant rules and regulations could be amended or updated from time to time. For instance, the Law on the Promotion of Private Schools of the PRC was amended in November 2016, which became effective on September 1, 2017, the Decision on Amending the Law for Promoting Private Education of the PRC (the “Decision”), which was further amended in December 2018. According to the Decision, private schools can be established as for-profit private schools or not-for-profit private schools, with the exception of schools that provide compulsory education, which can only be established as not-for-profit private schools. In addition, pursuant to the Decision, (i) school sponsors of for-profit private schools are allowed to receive the operating profits of the schools while the school sponsors of not-for-profit private schools are not permitted to do so; (ii) not-for-profit private schools shall enjoy the same preferential tax and supply of land treatment as public schools while for-profit private schools shall enjoy the preferential tax and supply of land treatment as stipulated by the government; and (iii) for-profit private schools have the discretion to determine the fees to be charged by taking into consideration various factors such as the school operating costs and market demand, and no prior approval from government authorities is required, while not-for-profit private schools shall collect fees pursuant to the measures stipulated by the local PRC government authorities. For details on the distinction between for-profit private schools and not-for-profit private schools under the amended Law on the Promotion of Private Schools of the PRC, please see “Regulations — Regulations Related to Private Education — Law for Promoting Private Education of PRC”.

On December 30, 2016, the Implementation Regulations for Classification Registration of Private Schools (the “Classification Registration Rules”) was promulgated by five PRC government authorities, including the MOE, which became effective on the same date. According to the Classification Registration Rules, existing private schools are required to choose to register either as not-for-profit or for-profit private schools with competent government authorities. If a school elects to register as a for-profit school, it is required to (i) undertake financial settlement, (ii) clarify the ownership of land, school premises and properties it accumulated during its operations, (iii) pay relevant taxes and fees, and (iv) obtain a new private school operation permit and re-register with relevant authorities. We are still unable to predict or estimate the potential costs and expenses in choosing and adjusting our structure. We may incur significant administration and financial costs when we choose to or we are required to complete the re-registration process, which may materially and adversely affect our business, financial condition and results of operations. However, we cannot assure you that the implementation of the relevant rules and regulations by the competent authorities will not deviate from our understanding.

Uncertainties exist with respect to the interpretation and enforcement of new and existing laws and regulations, including the interpretation and application of the Decision and the way in which the implementation regulations to be promulgated by the local government authorities may impact any of our schools and tutorial centers. We cannot assure you that we will be in compliance with the new rules and regulations, the interpretation of which may be uncertain, or that we will be able to timely and efficiently change our business practices in line with the new regulatory environment. Any such failure could materially and adversely affect our business, financial condition, results of operations and prospects.

As we currently provide meal catering services at our primary and secondary schools and Yangfushan Tutorial, we may be exposed to potential liabilities if we cannot maintain food quality standards, which could adversely and materially affect our business.

As we provide meal catering services at our primary and secondary schools and Yangfushan Tutorial, we may be exposed to potential liabilities if we are not able to maintain food quality standards. Although we strive to maintain the quality of food we provide, we cannot assure you that we will always meet the food quality standards required by applicable laws and regulations or maintain proper operations of our canteens at our primary and secondary schools and Yangfushan Tutorial. Therefore, we cannot assure you that incidents and other issues caused by poor food quality will not occur in the future and, if we are unable to manage these incidents effectively, our teachers’ and students’ health could suffer and medical emergencies could potentially occur. Any of the foregoing could seriously damage our reputation and affect our student enrollment, which would have a material and adverse effect on our business, financial condition and results of operations.

Accidents or injuries suffered by our students, our employees or other personnel at our school premises may adversely affect our reputation and subject us to liabilities.

We could be held liable for accidents or injuries or other harm to students or other people at our school premises, including those caused by or otherwise arising in connection with our school facilities or employees. We could also face claims alleging that we were negligent, did not adequately maintain our school facilities or provided insufficient supervision to our students and therefore may be held liable for accidents or injuries suffered by our students or other people at our school premises. In addition, if any of our students or teachers commits any acts of violence, we could face allegations that we failed to provide adequate security or were otherwise responsible for his or her actions. Furthermore, in such events, our schools and tutorial centers may be perceived to be unsafe, which may discourage prospective students from applying for or attending our schools and tutorial centers. Although we maintain certain liability insurance, this insurance coverage may not be adequate to fully protect us from these kinds of claims and liabilities. Further, we may not be able to renew our insurance policies in the future at reasonable prices or at all. A liability claim against us or any of our employees could adversely affect our reputation and student enrollment and retention. Also, such claim may create unfavorable publicity, cause us to pay compensation, incur costs in defending such claim, and divert the time and attention of our management, all of which may have a material adverse effect on our business, prospects, financial condition and results of operations.

We maintain limited insurance coverage.

We maintain various insurance policies such as liability insurance for all of our teachers and students to safeguard against risks and unexpected events. However, our insurance coverage is still limited in terms of amount, scope and benefit and we do not maintain property insurance for our buildings or premises, nor do we maintain business insurance for our operations. Consequently, we are exposed to various risks associated with our business and operations. We are nevertheless exposed to risks, including, but not limited to, accidents or injuries in our schools and tutorial centers that are beyond the scope of our insurance coverage, fires, explosions or other accidents for which we do not currently maintain insurance, loss of key management and personnel, business interruption, natural disasters, strikes, terrorist attacks and social instability or any other events beyond our control. The insurance industry in China is still at an early stage of development. Insurance companies in China offer limited business-related insurance products. We do not have any business disruption insurance or key-man life insurance. Any business disruption, litigation or legal proceedings or natural disaster, such as epidemics, pandemics or earthquakes, or other events beyond our control could result in substantial costs and the diversion of our resources. Our business, financial condition and results of operations may be materially and adversely affected as a result.

If we fail to protect our intellectual property rights or prevent the misappropriation of our intellectual property rights, we may lose our competitive edge and our brand, reputation and operations may be materially and adversely affected.

Unauthorized use of any of our intellectual property may adversely affect our business and reputation. We rely on a combination of trademark and trade secret laws to protect our intellectual property rights. Nevertheless, third parties may obtain and use our intellectual property without due authorization. The practice of intellectual property rights enforcement action by the PRC regulatory authorities is in its early stage of development and is subject to significant uncertainty. We may also need to resort to litigation and other legal proceedings to enforce our intellectual property rights. Any such action, litigation or other legal proceedings could result in substantial costs diversion of our management’s attention and resources and could disrupt our business. In addition, there is no assurance that we will be able to enforce our intellectual property rights effectively or otherwise prevent others from using our intellectual property without authorization. Failure to adequately protect our intellectual property could materially and adversely affect our brand name and reputation, and our business, financial condition and results of operations. We may face disputes from time to time relating to the intellectual property rights of third parties. We cannot assure you that materials and other educational content used in our educational programs do not or will not infringe the intellectual property rights of third parties. As of the date of this prospectus, we did not encounter any material claim for intellectual property infringement. However, we cannot assure you that in the future third parties will not claim that we have infringed their proprietary rights. Although we plan to defend ourselves vigorously in any such litigation or legal proceedings, there is no assurance that we will prevail in these matters. Participation in such litigation and legal proceedings may also cause us to incur substantial expenses and divert the time and attention of our management. We may be required to pay damages or incur settlement expenses. In addition, in case we are required to pay any royalties or enter into any licensing agreements with the owners of intellectual property rights, we may find that the terms are not commercially acceptable and we may lose the ability to use the related content or materials, which in turn could materially and adversely affect our educational programs and our operations. Any similar claim against us, even without any merit, could also hurt our reputation and brand image. Any such event could have a material and adverse effect on our business, financial condition and results of operations.

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

Pursuant to PRC laws and regulations, we are required to participate in various employee social insurance plans, including pension insurance, unemployment insurance, medical insurance, work-related injury insurance, maternity insurance, and the housing provident fund, and contribute to these plans and fund at the levels specified by the relevant local government authorities from time to time at locations where we operate our business. For the years ended September 30, 2019 and 2020, we did not make full contributions to the social insurance plans as required under the relevant laws and regulations. We had outstanding social insurance payments payable in the aggregate amount of approximately $230,349 and $264,902, respectively. However, we cannot assure you that the relevant local government authorities will not require us to pay the outstanding amount within a prescribed time or impose late fees or fines on us. A late fee of 0.05% per day and a fine of one to three times the outstanding amount may be imposed by the authority, which may materially and adversely affect our business, financial condition and results of operations.

We have a limited history of operating some of our business lines.

We have been offering non-English foreign language programs via our tutorial centers but have only been offering non-English foreign language programs by partnering with high schools since December 2019. Additionally, we have only been offering logistics services since December 2019 via our newly established logistics company. Our limited history of operating part of our business may not serve as an adequate basis for evaluating our future prospects and operating results, including net revenue, cash flows and profitability.

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

Maintaining our network security and internal controls over access rights is of critical importance because proprietary and confidential student and teacher information, such as names, addresses, and other personal information, is primarily stored in our computer database located at each of our schools and tutorial centers. If our security measures are breached as a result of actions by third-parties, employee error, malfeasance or otherwise, third parties may receive or be able to access student or teacher records, which could subject us to liabilities, interrupt our business and adversely impact our reputation. Additionally, we run the risk that our employees or third parties could misappropriate or illegally disclose confidential educational information in our possession. As a result, we may be required to expend significant resources to provide additional protection from the threat of these security breaches or to alleviate problems caused by these breaches.

We have limited sources of working capital, which have been primarily funded from operations, bank loans, and advances from shareholders, and we cannot assure you that our needs for additional financing will be met in the future

As of September 30, 2020, we had cash of approximately $3.2 million, total current assets of approximately $5.1 million and total current liabilities of approximately $19.0 million. The Company has limited source of working capital and historically has funded its working capital needs primarily from operations, bank loans, and advances from shareholders, and intends to continue doing so in the near future. No assurance can be given that we will have revenues sufficient to sustain our operations or that we would be able to obtain equity/debt financing in the current economic environment, or we will be able to obtain any additional capital through operations, bank loans, and advances from shareholders, or any combination thereof, on satisfactory terms or at all. Additionally, no assurance can be given that any such financing, if obtained, will be adequate to meet our capital needs and to support our operations. If we do not obtain adequate capital on a timely basis and on satisfactory terms, our revenues and operations would be materially negatively impacted.

Mr. Xueyuan Weng, the CEO and controlling shareholder of the Company, has provided us with working capital in the form of non-interesting bearing, unsecured and on demand loans, and we cannot assure you that these funds will always be available to us due to their on demand nature.

As of September 31, 2020 and 2019, the balance of the funds advanced by Mr. Xueyuan Weng, the CEO and controlling shareholder of the Company, for working capital, was $1,153,083 and $1,013,599, respectively. These funds are non-interest bearing, unsecured and due upon demand. Although Mr. Weng signed a written commitment letter on January 28, 2021 to guarantee that he would not seek repayment of the balance of the funds as long as the Company needs these funds as working capital until 2025, we cannot assure you that Mr. Weng will abide by the terms of the commitment letter and we may have to repay the loan back to him when we still in need of working capital, which may negatively impact our operations and revenues.

Ouhai Art School has started using its newly built teaching buildings and student dormitories without obtaining the completion acceptance certificate from governmental authorities, which may be found by the authorities to be in violation of applicable laws.

Ouhai Art School has newly built teaching buildings and student dormitories, but has not yet obtained the completion acceptance certificate from governmental authorities. According to Regulations on the Quality Management of Construction Projects, a construction project may not be delivered for use until it has passed the acceptance inspection. As of the date of this prospectus, most of the completion acceptance work has been completed, but due to recent changes in government land planning, the final acceptance report is expected to be obtained in December, 2021. In order not to affect the planned operation of the school, we obtained verbal permission from the government supervisor to use the newly built teaching buildings and student dormitories in September 2020. While there are risks that the use of the newly built teaching buildings and student dormitories without final acceptance inspection may be found to be in violation of the applicable laws, we believe such risk is relatively low.

Risks Relating to Our Corporate Structure

We control and receive the economic benefits of the business operations of Ouhai Art School and Chongwen Middle School through a series of contractual arrangements (the “VIE Arrangements”) among (i) Ouhai Art School and all the shareholders of Ouhai Art School (the “Ouhai Shareholders”), and (ii) Chongwen Middle School and certain shareholders of Chongwen Middle School, Xueyuan Weng and Dekai Ye, holding in the aggregate 60% of the equity interest in Chongwen Middle School (the “Chongwen Shareholders”) (the “Chongwen Agreements”). Such VIE Arrangements are subject to significant risks, as set forth in the following risk factors.

If the PRC government deems that the VIE Arrangements in relation to our VIEs do not comply with PRC regulatory restrictions on foreign investment in the relevant industries, or if these regulations or the interpretation of existing regulations change in the future, we could be subject to severe penalties or be forced to relinquish our interests in those operations.

We operate Ouhai Art School and Chongwen Middle School trough the VIE Arrangements. As a result of these VIE arrangements, under generally accepted accounting principles in the United States (“U.S. GAAP”), the assets and liabilities of Ouhai Art School and Chongwen Middle School are treated as our assets and liabilities and the results of operations of Ouhai Art School and Chongwen Middle School are treated in all aspects as if they were the results of our operations. For a description of these VIE Agreements, see “Corporate History and Structure—Our VIE Arrangements.”

In the opinion of our PRC counsel, Zhong Lun Law Firm (“Zhong Lun”), based on its understandings of the relevant PRC laws and regulations, (i) the ownership structures of Ouhai Art School and Chongwen Middle School in China, currently and immediately after giving effect to this offering, are not in violation of applicable PRC laws and regulations currently in effect; and (ii) each of the contracts among Ouhai Art School and the Ouhai Shareholders, and the contracts among Chongwen Middle School and certain of the Chongwen Shareholders is legal, valid, binding, and enforceable in accordance with its terms and applicable PRC laws. However, our PRC counsel has also advised us that there are substantial uncertainties regarding the interpretation and application of current or future PRC laws and regulations. Especially, the Implementing Regulation, which was promulgated on April 7, 2021 and will become effective on September 1, 2021, prohibits private schools that provide compulsory education to be controlled by means of agreements or to enter into any transactions with any related parties. The Implementing Regulation is silent on the legality of VIE structures that had been set up prior to its promulgation and we cannot predict how our existing VIE Arrangements will be affected when the Implementing Regulation becomes effective. See “Regulations – Regulations related to Private Education - 3. Implementation Rules for the Law for Promoting Private Education of PRC.” Accordingly, the PRC regulatory authorities may ultimately take a view contrary to the opinion of our PRC counsel. It is uncertain whether any new PRC laws or regulations relating to VIE structures will be adopted or, if adopted, what they would provide.

If our corporate structure and the VIE Arrangements are determined as illegal or invalid by the PRC court, arbitral tribunal, or regulatory authorities, we may lose control of our VIEs and have to modify such structure to comply with regulatory requirements. However, there can be no assurance that we can achieve this without material disruption to our business. Further, if our corporate structure and VIE Arrangements are found to be in violation of any existing or future PRC laws or regulations, or we or Ouhai Art School or Chongwen Middle School fail to obtain or maintain any required permits or approvals, the relevant regulatory authorities would have broad discretion in dealing with such violations, including:

The imposition of any of these penalties would result in a material and adverse effect on our ability to conduct our business. In addition, it is unclear what impact the PRC government actions would have on us and on our ability to consolidate the financial results of Ouhai Art School and Chongwen Middle School in our consolidated financial statements, if the PRC government authorities were to find our legal structure and VIE Arrangements to be in violation of PRC laws and regulations. If the imposition of any of these government actions causes us to lose our right to direct the activities of Ouhai Art School and Chongwen Middle School or our right to receive substantially all the economic benefits and residual returns from Ouhai Art School and Chongwen Middle School and we are not able to restructure our ownership structure and operations in a satisfactory manner, we would no longer be able to consolidate the financial results of Ouhai Art School and Chongwen Middle School in our consolidated financial statements. Either of these results, or any other significant penalties that might be imposed on us in this event, would have a material adverse effect on our financial condition and results of operations.

Our VIE Arrangements with Ouhai Art School and Chongwen Middle School and their respective shareholders may not be effective in providing control over Ouhai Art School and Chongwen Middle School.

For the years ended September 30, 2020 and 2019, 46% and 45% of our revenue were derived from our two VIEs. For the years ended September 30, 2020 and 2019, $200,488 and $1,908,897 of our net income were derived from our two VIEs, respectively. We do not have an entity ownership interest in Ouhai Art School or Chongwen Middle School but rely on the VIE Arrangements to control and operate their business. However, the VIE Arrangements may not be as effective in providing us with the necessary control over Ouhai Art School, Chongwen Middle School and their operations. Any deficiency in the VIE Arrangements may result in our loss of control over the management and operations of Ouhai Art School or Chongwen Middle School, which will result in a loss in the value of an investment in our company. We rely on contractual rights through our VIE Arrangements to effect control over and management of Ouhai Art School and Chongwen Middle School, which exposes us to the risk of potential breach of contract by the Ouhai Shareholders and the Chongwen Shareholders. In addition, as our CEO, Xueyuan Weng, and his wife, Xiulan Ye, as of the date of this prospectus, collectively own 100% of the shares in Ouhai Art School, it may be difficult for us to change our corporate structure if such shareholders refuse to cooperate with us. Similarly, Xueyuan Weng, Dekai Ye and Wenzhou City No. 25 Middle School collectively own 100% of the shares in Chongwen Middle School, and it may be difficult for us to change our corporate structure if such shareholders refuse to cooperate with us.

Our VIE Arrangements with Ouhai Art School and Chongwen Middle School are governed by the laws of the PRC and we may have difficulty in enforcing any rights we may have under the VIE Arrangements.

As our VIE Arrangements with Ouhai Art School and Chongwen Middle School are governed by PRC laws and provide for the resolution of disputes through arbitration in the PRC, they would be interpreted in accordance with PRC law and any disputes would be resolved in accordance with PRC legal procedures. Disputes arising from the VIE Arrangements between us and Ouhai Art School and Chongwen Middle School, respectively, will be resolved through arbitration in the PRC, although these disputes do not include claims arising under the United States federal securities law and thus do not prevent you from pursuing claims under the United States federal securities law. The legal environment in the PRC is not as developed as in the United States. As a result, uncertainties in the PRC legal system could further limit our ability to enforce the VIE Arrangements, through arbitration, litigation, and other legal proceedings remain in the PRC, which could limit our ability to enforce the VIE Arrangements and exert effective control over Ouhai Art School and Chongwen Middle School. Furthermore, these contracts may not be enforceable in the PRC if the PRC government authorities or courts take a view that such contracts contravene PRC laws and regulations or are otherwise not enforceable for public policy reasons. In the event we are unable to enforce the VIE Arrangements, we may not be able to exert effective control over Ouhai Art School and Chongwen Middle School, and our ability to conduct our business may be materially and adversely affected.

We may not be able to consolidate the financial results of some of our affiliated companies or such consolidation could materially adversely affect our operating results and financial condition.

A part of our business is conducted through Ouhai Art School and Chongwen Middle School, which currently are considered for accounting purposes as VIEs, and we are considered the primary beneficiary, enabling us to consolidate our financial results in our consolidated financial statements. In the event that in the future a company we hold as a VIE would no longer meet the definition of a VIE, or we are deemed not to be the primary beneficiary, we would not be able to consolidate line by line that entity’s financial results in our consolidated financial statements for PRC purposes. Also, if in the future an affiliate company becomes a VIE and we become the primary beneficiary, we would be required to consolidate that entity’s financial results in our consolidated financial statements for PRC purposes. If such entity’s financial results were negative, this could have a corresponding negative impact on our operating results for PRC purposes. However, any material variations in the accounting principles, practices, and methods used in preparing financial statements for PRC purposes from the principles, practices, and methods generally accepted in the United States and in the SEC accounting regulations must be discussed, quantified, and reconciled in financial statements for the United States and SEC purposes.

The VIE Arrangements between Golden Sun Wenzhou and Ouhai Art School, and those between Golden Sun Shanghai and Chongwen Middle School may result in adverse tax consequences.

PRC laws and regulations emphasize the requirement of an arm’s length basis for transfer pricing arrangements between related parties. The laws and regulations also require enterprises with related party transactions to prepare transfer pricing documentation to demonstrate the basis for determining pricing, the computation methodology, and detailed explanations. Related party arrangements and transactions may be subject to challenge or tax inspection by the PRC tax authorizes.

Under a tax inspection, if our transfer pricing arrangements between us and our VIEs are judged as tax avoidance, or related documentation does not meet the requirements, we and our VIEs may be subject to material adverse tax consequences, such as transfer pricing adjustment. A transfer pricing adjustment could result in a reduction, for PRC tax purpose, of adjustments recorded by us, which could adversely affect us by (i) increasing our VIEs’ tax liabilities without reducing our subsidiaries’ tax liabilities, which could further result in interest being levied to us for unpaid taxes; or (ii) imposing late payment fees and other penalties on our VIEs for the adjusted but unpaid taxes according to the applicable regulations. As a result, our financial position could be materially and adversely affected if our VIEs’ tax liabilities increase or if it is required to pay late payment fees and other penalties.

The Ouhai Shareholders and the Chongwen Shareholders have potential conflicts of interest with our company which may adversely affect our business and financial condition.

The Ouhai Shareholders and the Chongwen Shareholders may have potential conflicts of interest with us. These shareholders may not act in the best interest of our Company or may breach, or cause our VIEs to breach the existing VIE Arrangements we have with them, which would have a material and adverse effect on our ability to effectively control our VIEs and receive economic benefits from our VIEs. For example, the shareholders may be able to cause the VIE Arrangements to be performed in a manner adverse to us by, among other things, failing to remit payments due under the VIE Arrangements to us on a timely basis. We cannot assure you that when conflicts of interest arise, any or all of these shareholders will act in the best interests of our Company or such conflicts will be resolved in our favor. In particular, Wenzhou City No. 25 Middle School, a 40% shareholder of Chongwen Middle School is not a signatory to the Chongwen Agreements, and therefore, is not subject to the terms, conditions and restrictions of the Chongwen Agreements.

Currently, we do not have any arrangements to address potential conflicts of interest between these shareholders and our Company, except that we could exercise our purchase option under the exclusive option agreements with these shareholders to request them to transfer all of their equity interests in our VIEs to a PRC entity or individual designated by us, to the extent permitted by PRC law. If we cannot resolve any conflicts of interest or disputes between us and those individuals, we would have to rely on legal proceedings, which may materially disrupt our business. There is also substantial uncertainty as to the outcome of any such legal proceeding.

We rely on the approval certificates and business license held by our VIEs and any deterioration of the relationship between us and our VIEs could materially and adversely affect our overall business operations.

Pursuant to the VIE Arrangements, a substantial part of our business in the PRC will be undertaken on the basis of the approvals, certificates, business licenses, and other requisite licenses held by our VIEs. There is no assurance that our VIEs will be able to renew its licenses or certificates when their terms expire with substantially similar terms as the ones they currently hold.

Further, our relationship with our VIEs is governed by the VIE Arrangements, which are intended to provide us, through our indirect ownership of Golden Sun Wenzhou and Golden Sun Shanghai, with effective control over the business operations of Ouhai Art School and Chongwen Middle School. However, the VIE Arrangements may not be effective in providing control over the applications for and maintenance of the licenses required for our business operations. Our VIEs could violate the VIE Arrangements, go bankrupt, suffer from difficulties in its business, or otherwise become unable to perform its obligations under the VIE Arrangements and, as a result, our operations, reputation, business, and stock price could be severely harmed.

The exercise of our option to purchase part or all of the shares in Ouhai Art School under the exclusive option agreement might be subject to approval by the PRC government. Our failure to obtain this approval may impair our ability to substantially control Ouhai Art School and could result in actions by Ouhai Art School that conflict with our interests.

Our exclusive option agreement with Ouhai Art School gives Golden Sun Wenzhou the option to purchase all or part of the shares in Ouhai Art School. However, the option may not be exercised if the exercise would violate any applicable laws and regulations in the PRC or cause any license or permit necessary for the operation of Ouhai Art School to be cancelled or invalidated. Under PRC laws, in the event of a proposed change of the sponsor of a private school, upon agreement by the executive council or the board of directors of the school, the proposed change will be submitted to the examination and approval authority for verification and approval; if a foreign entity, through a foreign investment company that it invests in, acquires a domestic related company, China’s regulations regarding mergers and acquisitions would technically apply to the transaction. Application of these regulations requires an examination and approval of the transaction by Ministry of Commerce of the PRC (the “MOFCOM”), or its local counterparts. We cannot guarantee you that we can pass such examination or similar examination and get the approval to acquire Ouhai Art School. If we are not able to purchase the shares of Ouhai Art School, then we will lose a substantial portion of our ability to control Ouhai Art School and our ability to ensure that Ouhai Art School will act in our interests.

Risks Relating to Doing Business in the PRC

There are uncertainties under the Foreign Investment Law relating to the status of businesses in China controlled by foreign invested projects primarily through VIE Arrangements, such as our business.

All limited liability companies and joint stock limited companies incorporated and operating in the PRC are governed by the Company Law of the People’s Republic of China, or the Company Law, which was amended and promulgated by the Standing Committee of the National People’s Congress on October 26, 2018. In the latest amendment, paid-in capital registration, minimum requirements of registered capital and timing requirements of capital contributions were abolished. Foreign invested projects must also comply with the Company Law, with exceptions as specified in the Foreign Investment Law of PRC.

On March 15, 2019, the National People’s Congress approved the Foreign Investment Law of the PRC, which came into effect on January 1, 2020. On December 26, 2019, the State Council issued the Regulations on Implementing the Law of Foreign Investment of the PRC, which also came into effect on January 1, 2020. Foreign Investment Law and its implementation regulations replaced the trio of laws regulating foreign investment in China. Foreign Investment Law stipulates that, for foreign investment, the PRC implements a system of national treatment with the exception of Negative List. Foreign investors are not allowed to invest in fields or sectors prohibited in the market access Negative List for foreign investment. Foreign investors that intend to invest in the fields subject to access restrictions stipulated in market access negative list for foreign investment shall satisfy the conditions stipulated in such Negative List. These policies also apply to enterprises with foreign investment. The PRC does not impose expropriation on foreign investment. Under special circumstances, if required due to the need of public interest, expropriation shall be imposed on foreign investment according to legal procedures, and the foreign-invested enterprises concerned shall receive fair and reasonable compensation. Foreign-invested enterprises can raise funds through public issuance of stocks, corporate bonds and other securities in accordance with the law.

The MOFCOM and the National Development and Reform Commission, or the “NDRC,” promulgated the Special Measures for Foreign Investment Access (2020 version), or the “2020 Negative List,” on June 23, 2020, which became effective on July 23, 2020. According to the 2020 Negative List, the compulsory education business, in which we engage, falls in the “prohibited” category for foreign investors. To comply with PRC laws and regulations, we rely on contractual arrangements with our VIEs to operate such business in China.

Pursuant to the Foreign Investment Law, foreign investment refers to any investment activity directly or indirectly carried out by foreign natural persons, enterprises, or other organizations, including investment in new construction project, establishment of foreign funded enterprise or increase of investment, merger and acquisition, and investment in any other way stipulated under laws, administrative regulations, or provisions of the State Council of the PRC (the “State Council”). The Foreign Investment Law does not explicitly stipulate the contractual arrangements as a form of foreign investment. However, the Implementation Regulations on the Foreign Investment Law still remain silent on whether contractual arrangements should be deemed as a form of foreign investment. Though these regulations do not explicitly classify contractual arrangements as a form of foreign investment, there is still uncertainty regarding whether our VIEs would be identified as a foreign-invested enterprise in the future. As a result, there is no assurance that foreign investment via contractual arrangements would not be interpreted as a type of indirect foreign investment activities under the definition in the future.

If we are deemed to have a non-PRC entity as a controlling shareholder, the provisions regarding control through contractual arrangements could reach our VIE Arrangements, and as a result Ouhai Art School and Chongwen Middle School could become subject to restrictions on foreign investment, which may materially impact the viability of our current and future operations. Specifically, we may be required to modify our corporate structure, change our current scope of operations, obtain approvals, or face penalties or other additional requirements, compared to entities which do have PRC controlling shareholders. Uncertainties exist with respect to the interpretation and implementation of the Foreign Investment Law and how it may impact the viability of our current corporate structure, corporate governance, and business operations.

It is uncertain whether we would be considered as ultimately controlled by Chinese parties. Immediately prior to completion of this offering, Xueyuan Weng, our CEO and a PRC citizen and Peilin Ji, a PRC citizen, beneficially and indirectly own an aggregate of Class A and Class B Ordinary Shares representing approximately 76.34% of the voting rights in our Company. It is uncertain, however, if these factors would be sufficient to give them control over us under the Foreign Investment Law. If future revisions or implementation rules of the Foreign Investment Law mandate further actions, such as the MOFCOM market entry clearance or certain restructuring of our corporate structure and operations, there may be substantial uncertainties as to whether we can complete these actions in a timely manner, if at all, and our business and financial condition may be materially and adversely affected.

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

Substantially all of our assets and operations are currently located in China. Accordingly, our business, financial condition, results of operations, and prospects may be influenced to a significant degree by political, economic, and social conditions in China generally. The Chinese economy differs from the economies of most developed countries in many respects, including the level of government involvement, level of development, growth rate, control of foreign exchange, and allocation of resources. Although the Chinese government has implemented measures emphasizing the utilization of market forces for economic reform, including the reduction of state ownership of productive assets and the establishment of improved corporate governance in business enterprises, a substantial portion of productive assets in China is still owned by the government. In addition, the Chinese government continues to play a significant role in regulating industry development by imposing industrial policies. The Chinese government also exercises significant control over China’s economic growth by allocating resources, controlling payment of foreign currency-denominated obligations, setting monetary policy, and providing preferential treatment to particular industries or companies.

While the Chinese economy has experienced significant growth over the past decades, growth has been uneven, both geographically and among various sectors of the economy. Any adverse changes in economic conditions in China, in the policies of the Chinese government, or in the laws and regulations in China could have a material adverse effect on the overall economic growth of China. Such developments could adversely affect our business and operating results, reduce demand for our products, and weaken our competitive position. The Chinese government has implemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures may benefit the overall Chinese economy, but may have a negative effect on us. For example, our financial condition and results of operations may be adversely affected by government control over capital investments or changes in tax regulations. In addition, in the past the Chinese government has implemented certain measures, including interest rate adjustments, to control the pace of economic growth. These measures may cause decreased economic activities in China, which may adversely affect our business and operating results.

Uncertainties in the interpretation and enforcement of PRC laws and regulations could limit the legal protection available to you and us.

The PRC legal system is based on written statutes. Unlike common law systems, it is a system in which legal cases have limited value as precedents. In the late 1970s, the PRC government began to promulgate a comprehensive system of laws and regulations governing economic matters in general. The legislation over the past three decades has significantly increased the protection afforded to various forms of foreign or private-sector investment in China. Our PRC Affiliated Entities are subject to various PRC laws and regulations generally applicable to companies in China. Since these laws and regulations are relatively new and the PRC legal system continues to rapidly evolve, however, the interpretations of many laws, regulations, and rules are not always uniform and enforcement of these laws, regulations, and rules involve uncertainties.

From time to time, we may have to resort to administrative and court proceedings to enforce our legal rights. Since PRC administrative and court authorities have significant discretion in interpreting and implementing statutory and contractual terms, however, it may be more difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection we enjoy in the PRC legal system than in more developed legal systems. Furthermore, the PRC legal system is based in part on government policies and internal rules (some of which are not published in a timely manner or at all) that may have retroactive effect. As a result, we may not be aware of our violation of these policies and rules until sometime after the violation. Such uncertainties, including uncertainties over the scope and effect of our contractual, property (including intellectual property) and procedural rights, and any failure to respond to changes in the regulatory environment in China could materially and adversely affect our business and impede our ability to continue our operations.

You may experience difficulties in effecting service of legal process, enforcing foreign judgments, or bringing actions in China against us or our management named in the prospectus based on foreign laws. It may also be difficult for you or overseas regulators to conduct investigations or collect evidence within China.

As a company incorporated under the laws of the Cayman Islands, we conduct a majority of our operations in China and a majority of our assets are located in China. In addition, all of our senior executive officers reside within China for a significant portion of the time and are PRC nationals. As a result, it may be difficult for you to effect service of process upon those persons inside mainland China. It may be difficult for you to enforce judgements obtained in U.S. courts based on civil liability provisions of the U.S. federal securities laws against us and our officers and directors, as none of them currently resides in the U.S. or has substantial assets in the U.S. In addition, there is uncertainty as to whether the courts of the Cayman Islands or the PRC would recognize or enforce judgments of U.S. courts against us or such persons predicated upon the civil liability provisions of the securities laws of the U.S. or any state.

The recognition and enforcement of foreign judgments are provided for under the PRC Civil Procedures Law. PRC courts may recognize and enforce foreign judgments in accordance with the requirements of the PRC Civil Procedures Law based either on treaties between China and the country where the judgment is made or on principles of reciprocity between jurisdictions. China does not have any treaties or other forms of written arrangement with the United States that provide for the reciprocal recognition and enforcement of foreign judgments. In addition, according to the PRC Civil Procedures Law, the PRC courts will not enforce a foreign judgment against us or our directors and officers if they decide that the judgment violates the basic principles of PRC laws or national sovereignty, security, or public interest. As a result, it is uncertain whether and on what basis a PRC court would enforce a judgment rendered by a court in the United States. See “Enforceability of Civil Liabilities.”

It may also be difficult for you or overseas regulators to conduct investigations or collect evidence within China. For example, in China, there are significant legal and other obstacles to obtaining information, documents, and materials needed for regulatory investigations or litigation outside China. Although the authorities in China may establish a regulatory cooperation mechanism with its counterparts of another country or region to monitor and oversee cross border securities activities, such regulatory cooperation with the securities regulatory authorities in the Unities States may not be efficient in the absence of practical cooperation mechanism. Furthermore, according to Article 177 of the PRC Securities Law, or “Article 177,” which became effective in March 2020, no overseas securities regulator is allowed to directly conduct investigation or evidence collection activities within the territory of the PRC. Article 177 further provides that Chinese entities and individuals are not allowed to provide documents or materials related to securities business activities to foreign agencies without prior consent from the securities regulatory authority of the PRC State Council and the competent departments of the PRC State Council. While detailed interpretation of or implementing rules under Article 177 have yet to be promulgated, the inability for an overseas securities regulator to directly conduct investigation or evidence collection activities within China may further increase difficulties faced by you in protecting your interests.

Recent joint statement by the SEC and the Public Company Accounting Oversight Board (United States), or the “PCAOB,” proposed rule changes submitted by Nasdaq, and an act passed by the U.S. Senate all call for additional and more stringent criteria to be applied to emerging market companies upon assessing the qualification of their auditors, especially the non-U.S. auditors who are not inspected by the PCAOB. These developments could add uncertainties to our offering.

The recent joint statement by the SEC and PCAOB, proposed rule changes submitted by Nasdaq, and an act passed by the U.S. Senate and U.S. House of Representatives, the Holding Foreign Companies Accountable Act, all call for additional and more stringent criteria to be applied to emerging market companies upon assessing the qualification of their auditors, especially the non-U.S. auditors who are not inspected by the PCAOB. These developments could add uncertainties to our offering. 

On April 21, 2020, SEC Chairman Jay Clayton and PCAOB Chairman William D. Duhnke III, along with other senior SEC staff, released a joint statement highlighting the risks associated with investing in companies based in or have substantial operations in emerging markets including China. The joint statement emphasized the risks associated with lack of access for the PCAOB to inspect auditors and audit work papers in China and higher risks of fraud in emerging markets.

On May 18, 2020, Nasdaq filed three proposals with the SEC to (i) apply minimum offering size requirement for companies primarily operating in “Restrictive Market”, (ii) adopt a new requirement relating to the qualification of management or board of director for Restrictive Market companies, and (iii) apply additional and more stringent criteria to an applicant or listed company based on the qualifications of the company’s auditors.

On May 20, 2020, the Senate passed the Holding Foreign Companies Accountable Act requiring a foreign company to certify it is not owned or controlled by a foreign government if the PCAOB is unable to audit specified reports because the company uses a foreign auditor not subject to PCAOB inspection. If the PCAOB is unable to inspect the company’s auditors for three consecutive years, the issuer’s securities are prohibited to trade on a national exchange. On December 2, 2020, the U.S. House of Representatives approved the Holding Foreign Companies Accountable Act.

The lack of access to the PCAOB inspection in China prevents the PCAOB from fully evaluating audits and quality control procedures of the auditors based in China. As a result, the investors may be deprived of the benefits of such PCAOB inspections. The inability of the PCAOB to conduct inspections of auditors in China makes it more difficult to evaluate the effectiveness of these accounting firms’ audit procedures or quality control procedures as compared to auditors outside of China that are subject to the PCAOB inspections, which could cause existing and potential investors in our stock to lose confidence in our audit procedures and reported financial information and the quality of our financial statements.

Our auditor, the independent registered public accounting firm that issues the audit report included elsewhere in this prospectus, as an auditor of companies that are traded publicly in the United States and a firm registered with the PCAOB, is subject to laws in the United States pursuant to which the PCAOB conducts regular inspections to assess our auditor’s compliance with the applicable professional standards. Our auditor is headquartered in Manhattan, New York, and has been inspected by the PCAOB on a regular basis with the last inspection in November 2020. However, the recent developments would add uncertainties to our offering and we cannot assure you whether Nasdaq or regulatory authorities would apply additional and more stringent criteria to us after considering the effectiveness of our auditor’s audit procedures and quality control procedures, adequacy of personnel and training, or sufficiency of resources, geographic reach or experience as it relates to the audit of our financial statements.

Increases in labor costs in the PRC may adversely affect our business and our profitability.

China’s economy has experienced increases in labor costs in recent years. China’s overall economy and the average wage in China are expected to continue to grow. The average wage level for our employees has also increased in recent years. We expect that our labor costs, including wages and employee benefits, will continue to increase. Unless we are able to pass on these increased labor costs to our customers by increasing prices for our products or services, our profitability and results of operations may be materially and adversely affected.

In addition, we have been subject to stricter regulatory requirements in terms of entering into labor contracts with our employees and paying various statutory employee benefits, including pensions, housing fund, medical insurance, work-related injury insurance, unemployment insurance, and maternity insurance to designated government agencies for the benefit of our employees. Pursuant to the PRC Labor Contract Law, or the “Labor Contract Law,” that became effective in January 2008 and its amendments that became effective in July 2013 and its implementing rules that became effective in September 2008, employers are subject to stricter requirements in terms of signing labor contracts, minimum wages, paying remuneration, determining the term of employees’ probation, and unilaterally terminating labor contracts. In the event that we decide to terminate some of our employees or otherwise change our employment or labor practices, the Labor Contract Law and its implementation rules may limit our ability to effect those changes in a desirable or cost-effective manner, which could adversely affect our business and results of operations.

As the interpretation and implementation of labor-related laws and regulations are still evolving, we cannot assure you that our employment practice does not and will not violate labor-related laws and regulations in China, which may subject us to labor disputes or government investigations. If we are deemed to have violated relevant labor laws and regulations, we could be required to provide additional compensation to our employees and our business, financial condition and results of operations could be materially and adversely affected.

The outbreak of COVID-19 may have a material adverse impact on the general economic outlook, economic growth and business sentiment (see “— We face risks related to health epidemics, natural disasters, or terrorist attacks in China.” in this prospectus), and may in turn influence the labor cost. Additionally, certain restrictive measures, including quarantining policies and travel restrictions, implemented by China and other countries in response to the outbreak of COVID-19 may impose obstacles for us to recruit teachers and operational staff suitable for our business, and may in turn influence our labor cost. Such influence, if any, however, remains unclear at of the date of this prospectus.

Our PRC Affiliated Entities did not make adequate social insurance and housing fund contributions for all employees as required by PRC regulations previously, which may subject us to penalties.

According to the PRC Social Insurance Law and the Administrative Regulations on the Housing Funds, companies operating in China are required to participate in pension insurance, work-related injury insurance, medical insurance, unemployment insurance, maternity insurance (collectively known as “social insurance”), and housing funds plans, and the employers must pay all or a portion of the social insurance premiums and housing funds for their employees. For more details, please see “Regulations—Regulations Related to Employment and Social Welfare—Social Insurance and Housing Fund.” The requirement of social insurance and housing fund has not been implemented consistently by the local governments in China given the different levels of economic development in different locations.

Pursuant to the Social Insurance Law and the Regulations on Management of Housing Funds, an enterprise is required, within a prescribed time limit, to register with the relevant social security authority and housing fund management center, and to open the relevant accounts and make timely contributions for their employees; failure to do so may subject the enterprise to order for rectification, and certain fines if the enterprise fails to rectify in time. As of the date of this prospectus, we have not been paying the social insurance housing funds for our employees in full. Any failure to make sufficient provision of such outstanding amounts of contributions to such funds is a violation of applicable PRC laws and regulations and, if we could be required to make up the contributions and be subject to late fees, fines, and associated administrative penalties. For the years ended September 30, 2019 and 2020, we had outstanding social insurance payments payable in the aggregate amount of approximately $230,349 and $264,902, respectively. In the event that the relevant authorities determine that we have underpaid in the past two years, our PRC Affiliated Entities may be required to pay outstanding contributions and penalties to the extent we did not make full contributions to the social security and housing provident funds. A late fee of 0.05% per day and a fine of one to three times the outstanding amount may be imposed by the authority, which may materially and adversely affect our business, financial condition and results of operations.

With respect to housing fund, we may be required to pay and deposit housing funds in full and on time within the prescribed time limit. If we fail to do so, relevant authorities could file applications to competent courts for compulsory enforcement of payment and deposit.

PRC regulations relating to offshore investment activities by PRC residents may subject our PRC resident beneficial owners or our PRC subsidiaries to liability or penalties, limit our ability to inject capital into our PRC subsidiaries, limit our PRC subsidiaries’ ability to increase their registered capital or distribute profits to us, or may otherwise adversely affect us.

On July 4, 2014, State Administration of Foreign Exchange (“SAFE”) issued the Circular on Issues Concerning Foreign Exchange Control over the Overseas Investment and Financing and Round-trip Investment by Domestic Residents via Special Purpose Vehicles, or “SAFE Circular 37.” According to SAFE Circular 37, prior registration with the local SAFE branch is required for PRC residents, (including PRC individuals and PRC corporate entities as well as foreign individuals that are deemed as PRC residents for foreign exchange administration purpose), in connection with their direct or indirect contribution of domestic assets or interests to offshore special purpose vehicles, or “SPVs.” SAFE Circular 37 further requires amendments to the SAFE registrations in the event of any changes with respect to the basic information of the offshore SPV, such as change of a PRC individual shareholder, name and operation term, or any significant changes with respect to the offshore SPV, such as an increase or decrease of capital contribution, share transfer or exchange, or mergers or divisions. SAFE Circular 37 is applicable to our shareholders who are PRC residents and may be applicable to any offshore acquisitions that we make in the future. In February 2015, SAFE promulgated a Notice on Further Simplifying and Improving Foreign Exchange Administration Policy on Direct Investment, or “SAFE Notice 13,” effective in June 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 SAFE. The qualified banks will directly examine the applications and accept registrations under the supervision of SAFE.

In addition to SAFE Circular 37 and SAFE Notice 13, our ability to conduct foreign exchange activities in China may be subject to the interpretation and enforcement of the Implementation Rules of the Administrative Measures for Individual Foreign Exchange promulgated by SAFE in January 2007 (as amended and supplemented, the “Individual Foreign Exchange Rules”). Under the Individual Foreign Exchange Rules, any PRC individual seeking to make a direct investment overseas or engage in the issuance or trading of negotiable securities or derivatives overseas must make the appropriate registrations in accordance with SAFE provisions, the failure of which may subject such PRC individual to warnings, fines, or other liabilities.

All of the shareholders who are subject to the SAFE Circular 37 and Individual Foreign Exchange Rules, have completed the initial registrations with the qualified banks as required by the regulations. We may not be informed of the identities of all the PRC residents holding direct or indirect interest in our company, however, and we have no control over any of our future beneficial owners. Thus, we cannot provide any assurance that our current or future PRC resident beneficial owners will comply with our request to make or obtain any applicable registrations or continuously comply with all registration procedures set forth in these SAFE regulations. Such failure or inability of our PRC residents beneficial owners to comply with these SAFE regulations may subject us or our PRC resident beneficial owners to fines and legal sanctions, restrict our cross-border investment activities, or limit our PRC subsidiaries’ ability to distribute dividends to or obtain foreign-exchange-dominated loans from us, or prevent us from being able to make distributions or pay dividends, as a result of which our business operations and our ability to distribute profits to you could be materially and adversely affected.

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

We are a Cayman Islands holding company and we rely principally on dividends and other distributions on equity from our PRC subsidiaries for our cash requirements, including for services of any debt we may incur. Our PRC subsidiaries’ ability to distribute dividends is based upon its distributable earnings. Current PRC regulations permit our PRC subsidiaries to pay dividends to their respective shareholders only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, each of our PRC subsidiaries, our VIEs and their subsidiaries are required to set aside at least 10% of its after-tax profits each year, if any, to fund a statutory reserve until such reserve reaches 50% of its registered capital. Our PRC subsidiaries as FIE are also required to further set aside a portion of their after-tax profits to fund the employee welfare fund, although the amount to be set aside, if any, is determined at their discretion. These reserves are not distributable as cash dividends. If our PRC subsidiaries incur debt on their own behalf in the future, the instruments governing the debt may restrict their ability to pay dividends or make other payments to us. Any limitation on the ability of our PRC subsidiaries to distribute dividends or other payments to their respective shareholders could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our businesses, pay dividends or otherwise fund and conduct our business.

In addition, the Enterprise Income Tax Law and its implementation rules provide that a withholding tax rate of up to 10% will be applicable to dividends payable by Chinese companies to non-PRC-resident enterprises unless otherwise exempted or reduced according to treaties or arrangements between the PRC central government and governments of other countries or regions where the non-PRC resident enterprises are incorporated.

We are a holding company and currently we conduct part of our business operations within the PRC through Ouhai Art School, one of our VIEs. If the board and management of Ouhai Art School decide to keep the profits of Ouhai Art School for its business development and expansion instead of making dividends, Ouhai Art School might not be able to pay its service fees to the WFOE pursuant to the VIE Arrangements, and our WFOE will not be able to make dividend distribution to the Company.

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

Under PRC laws and regulations, we are permitted to utilize the proceeds from this offering to fund our PRC subsidiaries by making loans to or additional capital contributions to our PRC subsidiaries, subject to applicable government registration, statutory limitations on amount, and approval requirements.

Any loans to Golden Sun Wenzhou or Golden Sun Shanghai, which is treated as a foreign-invested enterprise under PRC law, are subject to PRC regulations and foreign exchange loan registrations. For example, loans by us to Golden Sun Wenzhou to finance its activities cannot exceed statutory limits and must be registered with the local counterpart of SAFE, or filed with SAFE in its information system. Pursuant to relevant PRC regulations, we may provide loans to Golden Sun Wenzhou or Golden Sun Shanghai up to the larger amount of (i) the balance between the registered total investment amount and registered capital of Golden Sun Wenzhou or Golden Sun Shanghai, respectively, or (ii) twice the amount of the net assets of Golden Sun Wenzhou or Golden Sun Shanghai, respectively, calculated in accordance with the Circular on Full-Coverage Macro-Prudent Management of Cross-Border Financing, or the “PBOC Circular 9.” Moreover, any medium or long-term loan to be provided by us to Golden Sun Wenzhou or Golden Sun Shanghai or other domestic PRC entities must also be filed and registered with the NDRC. We may also decide to finance Golden Sun Wenzhou or Golden Sun Shanghai by means of capital contributions. These capital contributions must be recorded with the MOFCOM or its local counterpart.

On March 30, 2015, SAFE issued the Circular of the State Administration of Foreign Exchange on Reforming the Administrative Approach Regarding the Settlement of the Foreign Exchange Capital of Foreign-invested Enterprises, or “SAFE Circular 19,” which took effect and replaced previous regulations effective on June 1, 2015. Pursuant to SAFE Circular 19, up to 100% of foreign currency capital of a foreign-invested enterprise may be converted into RMB capital according to the actual operation, and within the business scope, of the enterprise at its will. Although SAFE Circular 19 allows for the use of RMB converted from the foreign currency-denominated capital for equity investments in the PRC, the restrictions continue to apply as to foreign-invested enterprises’ use of the converted RMB for purposes beyond their business scope, for entrusted loans or for inter-company RMB loans. On June 9, 2016, SAFE promulgated the Notice of the State Administration of Foreign Exchange on Reforming and Standardizing the Foreign Exchange Settlement Management Policy of Capital Account, or “SAFE Circular 16,” effective on June 9, 2016, which reiterates some rules set forth in Circular 19, but changes the prohibition against using RMB capital converted from foreign currency-denominated registered capital of a foreign-invested company to issue RMB entrusted loans to a prohibition against using such capital to issue loans to non-affiliated enterprises. On October 23, 2019, the SAFE issued the Notice of the State Administration of Foreign Exchange on Further Facilitating Cross-border Trade and Investment, which, among other things, expanded the use of foreign exchange capital to domestic equity investment area. Non-investment foreign-funded enterprises are allowed to lawfully make domestic equity investments by using their capital on the premise without violation to prevailing special administrative measures for access of foreign investments (negative list) and the authenticity and compliance with the regulations of domestic investment projects. If our PRC Affiliated Entities require financial support from us or our wholly owned subsidiary in the future and we find it necessary to use foreign currency-denominated capital to provide such financial support, our ability to fund our PRC Affiliated Entities’ operations will be subject to statutory limits and restrictions, including those described above.

In light of the various requirements imposed by PRC regulations on loans to and direct investment in PRC entities by offshore holding companies, including SAFE Circular 19, SAFE Circular 16, and other relevant rules and regulations, we cannot assure you that we will be able to complete the necessary registrations or obtain the necessary government approvals on a timely basis, if at all, with respect to future loans to our PRC subsidiaries or future capital contributions by us to our PRC subsidiaries. If we fail to complete such registrations or obtain such approvals, our ability to use the proceeds we received or expect to receive from our offshore offerings and to capitalize or otherwise fund our PRC operations may be negatively affected, which could materially and adversely affect our business, including our liquidity and our ability to fund and expand our business.

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

The value of the RMB against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in political and economic conditions in China and by China’s foreign exchange policies. On July 21, 2005, the PRC government changed its decade-old policy of pegging the value of the RMB to the U.S. dollar, and the RMB appreciated more than 20% against the U.S. dollar over the following three years. Between July 2008 and June 2010, this appreciation halted and the exchange rate between the RMB and the U.S. dollar remained within a narrow band. Since June 2010, the RMB has fluctuated against the U.S. dollar, at times significantly and unpredictably. It is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate between the RMB and the U.S. dollar in the future.

Our business is conducted in the PRC, and our books and records are maintained in RMB, which is the currency of the PRC. The financial statements that we file with the SEC and provide to our shareholders are presented in U.S. dollars. Changes in the exchange rates between the RMB and U.S. dollar affect the value of our assets and the results of our operations, when presented in U.S. dollars. The value of the RMB against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in the PRC’s political and economic conditions and perceived changes in the economy of the PRC and the United States. Any significant revaluation of the RMB may materially and adversely affect our cash flows, revenue, and financial condition. Further, our Class A Ordinary Shares offered by this prospectus are offered in U.S. dollars, we will need to convert the net proceeds we receive into RMB in order to use the funds for our business. Changes in the conversion rate among the U.S. dollar and the RMB will affect the amount of proceeds we will have available for our business.

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

There are uncertainties under the PRC Securities Law relating to the procedures and requisite timing for the U.S. securities regulatory agencies to conduct investigations and collect evidence within the territory of the PRC.

On December 28, 2019, the newly amended Securities Law of the PRC (the “PRC Securities Law”) was promulgated, which became effective on March 1, 2020. According to Article 177 of the PRC Securities Law (“Article 177”), the securities regulatory authority of the State Council may establish a regulatory cooperation mechanism with securities regulatory authorities of another country or region for the implementation of cross-border supervision and administration. Article 177 further provides that overseas securities regulatory authorities shall not engage in activities pertaining to investigations or evidence collection directly conducted within the territories of the PRC, and that no Chinese entities or individuals shall provide documents and information in connection with securities business activities to any organizations and/or persons aboard without the prior consent of the securities regulatory authority of the State Council and the competent departments of the State Council. As of the date of this prospectus, we are not aware of any implementing rules or regulations which have been published regarding application of Article 177.

As advised by our PRC counsel, Article 177 is only applicable where the activities of overseas authorities constitute a direct investigation or evidence collection by such authorities within the territory of the PRC. Our principal business operation is conducted in the PRC. In the event that the U.S. securities regulatory agencies carry out an investigation on us such as an enforcement action by the Department of Justice, the SEC or other authorities, such agencies’ activities will constitute conducting an investigation or collecting evidence directly within the territory of the PRC and accordingly fall within the scope of Article 177. In that case, the U.S. securities regulatory agencies may have to consider establishing cross-border cooperation with the securities regulatory authority of the PRC by way of judicial assistance, diplomatic channels or establishing a regulatory cooperation mechanism with the securities regulatory authority of the PRC. However, there is no assurance that the U.S. securities regulatory agencies will succeed in establishing such cross-border cooperation in this particular case and/or establish such cooperation in a timely manner.

Furthermore, as Article 177 is a recently promulgated provision and, as the date of this prospectus, there have not been implementing rules or regulations regarding the application of Article 177, it remains unclear as to how it will be interpreted, implemented or applied by the Chinese Securities Regulatory Commission or other relevant government authorities. As such, there are uncertainties as to the procedures and requisite timing for the U.S. securities regulatory agencies to conduct investigations and collect evidence within the territory of the PRC. If the U.S. securities regulatory agencies are unable to conduct such investigations, there exists a risk that they may determine to suspend or de-register our registration with the SEC and may also delist our securities from Nasdaq or other applicable trading market within the US.

Under the PRC Enterprise Income Tax Law, we may be classified as a PRC “resident enterprise” for PRC enterprise income tax purposes. Such classification would likely result in unfavorable tax consequences to us and our non-PRC shareholders and have a material adverse effect on our results of operations and the value of your investment.

Under the PRC Enterprise Income Tax Law, or the “EIT Law,” that became effective in January 2008, an enterprise established outside the PRC with “de facto management bodies” within the PRC is considered a “resident enterprise” for PRC enterprise income tax purposes and is generally subject to a uniform 25% enterprise income tax rate on its worldwide income. Under the implementation rules to the EIT Law, a “de facto management body” is defined as a body that has material and overall management and control over the manufacturing and business operations, personnel and human resources, finances, and properties of an enterprise. In addition, a circular, known as SAT Circular 82, issued in April 2009 by the State Administration of Taxation, or the “SAT,” specifies that certain offshore incorporated enterprises controlled by PRC enterprises or PRC enterprise groups will be classified as PRC resident enterprises if the following are located or resident in the PRC: senior management personnel and departments that are responsible for daily production, operation and management; financial and personnel decision making bodies; key properties, accounting books, company seal, and minutes of board meetings and shareholders’ meetings; and half or more of the senior management or directors having voting rights. Further to SAT Circular 82, the SAT issued a bulletin, known as SAT Bulletin 45, which took effect in September 2011, to provide more guidance on the implementation of SAT Circular 82 and clarify the reporting and filing obligations of such “Chinese-controlled offshore incorporated resident enterprises.” SAT Bulletin 45 provides procedures and administrative details for the determination of resident status and administration on post-determination matters. Although both SAT Circular 82 and SAT Bulletin 45 only apply to offshore enterprises controlled by PRC enterprises or PRC enterprise groups, not those controlled by PRC individuals or foreign individuals, the determining criteria set forth in SAT Circular 82 and SAT Bulletin 45 may reflect the SAT’s general position on how the “de facto management body” test should be applied in determining the tax resident status of offshore enterprises, regardless of whether they are controlled by PRC enterprises, PRC enterprise groups, or by PRC or foreign individuals.

If the PRC tax authorities determine that the actual management organ of Golden Sun Cayman is within the territory of China, Golden Sun Cayman may be deemed to be a PRC resident enterprise for PRC enterprise income tax purposes and a number of unfavorable PRC tax consequences could follow. First, we will be subject to the uniform 25% enterprise income tax on our world-wide income, which could materially reduce our net income. In addition, we will also be subject to PRC enterprise income tax reporting obligations. Finally, dividends payable by us to our investors and gains on the sale of our shares may become subject to PRC withholding tax, at a rate of 10% in the case of non-PRC enterprises or 20% in the case of non-PRC individuals (in each case, subject to the provisions of any applicable tax treaty), if such gains are deemed to be from PRC sources. It is unclear whether non-PRC shareholders of our company would be able to claim the benefits of any tax treaties between their country of tax residence and the PRC in the event that we are treated as a PRC resident enterprise. Any such tax may reduce the returns on your investment in our shares. Although up to the date of this prospectus, Golden Sun Cayman has not been notified or informed by the PRC tax authorities that it has been deemed to be a resident enterprise for the purpose of the EIT Law, we cannot assure you that it will not be deemed to be a resident enterprise in the future.

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

In February 2015, SAT issued a Public Notice Regarding Certain Corporate Income Tax Matters on Indirect Transfer of Properties by Non-Tax Resident Enterprises, or “SAT Circular 7.” SAT Circular 7 provides comprehensive guidelines relating to indirect transfers of PRC taxable assets (including equity interests and real properties of a PRC resident enterprise) by a non-resident enterprise. In addition, in October 2017, SAT issued an Announcement on Issues Relating to Withholding at Source of Income Tax of Non-resident Enterprises, or “SAT Circular 37,” effective in December 2017, which, among others, amended certain provisions in SAT Circular 7 and further clarify the tax payable declaration obligation by non-resident enterprise. Indirect transfer of equity interest and/or real properties in a PRC resident enterprise by their non-PRC holding companies are subject to SAT Circular 7 and SAT Circular 37.

SAT Circular 7 provides clear criteria for an assessment of reasonable commercial purposes and has introduced safe harbors for internal group restructurings and the purchase and sale of equity through a public securities market. As stipulated in SAT Circular 7, indirect transfers of PRC taxable assets are considered as reasonable commercial purposes if the shareholding structure of both transaction parties falls within the following situations: i) the transferor directly or indirectly owns 80% or above equity interest of the transferee, or vice versa; ii) the transferor and the transferee are both 80% or above directly or indirectly owned by the same party; iii) the percentages in bullet points i) and ii) shall be 100% if over 50% the share value of a foreign enterprise is directly or indirectly derived from PRC real properties. Furthermore, SAT Circular 7 also brings challenges to both foreign transferor and transferee (or other person who is obligated to pay for the transfer) of taxable assets. Where a non-resident enterprise transfers PRC taxable assets indirectly by disposing of the equity interests of an overseas holding company, which is an indirect transfer, the non-resident enterprise as either transferor or transferee, or the PRC entity that directly owns the taxable assets, may report such indirect transfer to the relevant tax authority and the PRC tax authority may disregard the existence of the overseas holding company if it lacks a reasonable commercial purpose and was established for the purpose of reducing, avoiding, or deferring PRC tax. As a result, gains derived from such indirect transfer may be subject to PRC enterprise income tax, and the transferee or other person who is obligated to pay for the transfer is obligated to withhold the applicable taxes, currently at a rate of 10% for the transfer of equity interests in a PRC resident enterprise. Both the transferor and the transferee may be subject to penalties under PRC tax laws if the transferee fails to withhold the taxes and the transferor fails to pay the taxes.

According to SAT Circular 37, where the non-resident enterprise fails to declare the tax payable pursuant to Article 39 of the EIT Law, the tax authority may order it to pay the tax due within required time limits, and the non-resident enterprise shall declare and pay the tax payable within such time limits specified by the tax authority. If the non-resident enterprise, however, voluntarily declares and pays the tax payable before the tax authority orders it to do so within required time limits, it shall be deemed that such enterprise has paid the tax in time.

We face uncertainties as to the reporting and assessment of reasonable commercial purposes and future transactions where PRC taxable assets are involved, such as offshore restructuring, sale of the shares in our offshore subsidiaries, and investments. In the event of being assessed as having no reasonable commercial purposes in an indirect transfer transaction, we may be subject to filing obligations or taxed if we are a transferor in such transactions, and may be subject to withholding obligations (to be specific, a 10% withholding tax for the transfer of equity interests) if we are a transferee in such transactions, under SAT Circular 7 and SAT Circular 37. For transfer of shares by investors who are non-PRC resident enterprises, our PRC subsidiaries may be requested to assist in the filing under the SAT circulars. As a result, we may be required to expend valuable resources to comply with the SAT circulars or to request the relevant transferors from whom we purchase taxable assets to comply with these circulars, or to establish that we should not be taxed under these circulars, which may have a material adverse effect on our financial condition and results of operations.

Our PRC subsidiaries are subject to restrictions on paying dividends or making other payments to us, which may have a material adverse effect on our ability to conduct our business.

We are a holding company incorporated in the Cayman Islands. We may need dividends and other distributions on equity from our PRC subsidiaries to satisfy our liquidity requirements, including the funds necessary to pay dividends and other cash distributions to our shareholders and service any debt we may incur. If our PRC subsidiaries incur debt on their own behalf in the future, the instruments governing the debt may restrict their ability to pay dividends or make other distributions to us. In addition, the PRC tax authorities may require our PRC subsidiaries to adjust their taxable income under the contractual agreements between Golden Sun Wenzhou and Ouhai Art School in a manner that would materially and adversely affect their ability to pay dividends and other distribution to us. See “—Risks Relating to Our Corporate Structure—The VIE Agreements between Golden Sun Wenzhou and Ouhai Art School may result in adverse tax consequences.”

Current PRC regulations permit our PRC subsidiaries to pay dividends to us only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, our PRC subsidiaries are required to set aside at least 10% of their respective accumulated profits each year, if any, to fund certain reserve funds until the total amount set aside reaches 50% of their respective registered capital. Our PRC subsidiaries may also allocate a portion of their respective after-tax profits based on PRC accounting standards to employee welfare and bonus funds at their discretion. These reserves are not distributable as cash dividends. These limitation on the ability of our PRC subsidiaries to pay dividends or make other distributions to us could materially and adversely limit our ability to grow, make investments, or acquisitions that could be beneficial to our business, pay dividends, or otherwise fund and conduct our business.

Governmental control of currency conversion may affect the value of your investment and our payment of dividends.

The PRC government imposes controls on the convertibility of the RMB into foreign currencies and, in certain cases, the remittance of currency out of China. We receive substantially all of our revenue in the RMB. Under our current corporate structure, Golden Sun Cayman may rely on dividend payments from our PRC subsidiaries, Golden Sun Wenzhou and Golden Sun Shanghai, to fund any cash and financing requirements we may have. Under existing PRC foreign exchange regulations, payments of current account items, such as profit distributions and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior approval from SAFE by complying with certain procedural requirements. Therefore, our PRC subsidiaries are able to pay dividends in foreign currencies to us without prior approval from SAFE, subject to the condition that the remittance of such dividends outside of the PRC complies with certain procedures under PRC foreign exchange regulation, such as the overseas investment registrations by our shareholders or the ultimate shareholders of our corporate shareholders who are PRC residents. Approval from or registration with appropriate government authorities is, however, required where the RMB is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign currencies. The PRC government may also at its discretion restrict access in the future to foreign currencies for current account transactions. If the foreign exchange control system prevents us from obtaining sufficient foreign currencies to satisfy our foreign currency demand, we may not be able to pay dividends in foreign currencies to our shareholders.

There are significant uncertainties under the EIT Law relating to the withholding tax liabilities of Golden Sun Wenzhou, and dividends payable by Golden Sun Wenzhou to our offshore subsidiaries may not qualify to enjoy certain treaty benefits.

Under the EIT Law and its implementation rules, the profits of a foreign-invested enterprise generated through operations, which are distributed to its immediate holding company outside the PRC, will be subject to a withholding tax rate of 10%. Pursuant to the Arrangement between the Mainland China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and Tax Evasion on Income, or the “Double Tax Avoidance Arrangement,” a withholding tax rate of 10% may be lowered to 5% if the PRC enterprise is at least 25% held by a Hong Kong enterprise for at least 12 consecutive months prior to distribution of the dividends and is determined by the relevant PRC tax authority to have satisfied other conditions and requirements under the Double Tax Avoidance Arrangement and other applicable PRC laws.

However, based on the Circular on Certain Issues with Respect to the Enforcement of Dividend Provisions in Tax Treaties, or the “SAT Circular 81,” which became effective on February 20, 2009, if the relevant PRC tax authorities determine, in their discretion, that a company benefits from such reduced income tax rate due to a structure or arrangement that is primarily tax-driven, such PRC tax authorities may adjust the preferential tax treatment. According to Circular on Several Issues regarding the “Beneficial Owner” in Tax Treaties, which became effective as of April 1, 2018, when determining an applicant’s status as the “beneficial owner” regarding tax treatments in connection with dividends, interests, or royalties in the tax treaties, several factors will be taken into account. Such factors include whether the business operated by the applicant constitutes actual business activities, and whether the counterparty country or region to the tax treaties does not levy any tax, grant tax exemption on relevant incomes, or levy tax at an extremely low rate. This circular further requires any applicant who intends to be proved of being the “beneficial owner” to file relevant documents with the relevant tax authorities. Golden Sun Wenzhou is wholly owned by our Hong Kong subsidiary. However, we cannot assure you that our determination regarding our qualification to enjoy the preferential tax treatment will not be challenged by the relevant PRC tax authority or we will be able to complete the necessary filings with the relevant PRC tax authority and enjoy the preferential withholding tax rate of 5% under the Double Tax Avoidance Arrangement with respect to dividends to be paid by Golden Sun Wenzhou to our Hong Kong subsidiary, in which case, we would be subject to the higher withdrawing tax rate of 10% on dividends received.

If we become directly subject to the scrutiny, criticism, and negative publicity involving U.S.-listed Chinese companies, we may have to expend significant resources to investigate and resolve the matter which could harm our business operations, stock price, and reputation.

U.S. public companies that have substantially all of their operations in China have been the subject of intense scrutiny, criticism, and negative publicity by investors, financial commentators, and regulatory agencies, such as the SEC. Much of the scrutiny, criticism, and negative publicity has centered on financial and accounting irregularities and mistakes, a lack of effective internal controls over financial accounting, inadequate corporate governance policies or a lack of adherence thereto and, in many cases, allegations of fraud. As a result of the scrutiny, criticism, and negative publicity, the publicly traded stock of many U.S. listed Chinese companies sharply decreased in value and, in some cases, has become virtually worthless. Many of these companies are now subject to shareholder lawsuits and SEC enforcement actions and are conducting internal and external investigations into the allegations. It is not clear what effect this sector-wide scrutiny, criticism, and negative publicity will have on us, our business, and the price of our Class A Ordinary Shares. If we become the subject of any unfavorable allegations, whether such allegations are proven to be true or untrue, we will have to expend significant resources to investigate such allegations and/or defend our company. This situation will be costly and time consuming and distract our management from developing our business. If such allegations are not proven to be groundless, we and our business operations will be severely affected and you could sustain a significant decline in the value of our Class A Ordinary Shares.

The disclosures in our reports and other filings with the SEC and our other public pronouncements are not subject to the scrutiny of any regulatory bodies in the PRC.

We are regulated by the SEC, and our reports and other filings with the SEC are subject to SEC review in accordance with the rules and regulations promulgated by the SEC under the Securities Act and the Exchange Act. Our SEC reports and other disclosure and public pronouncements are not subject to the review or scrutiny of any PRC regulatory authority. For example, the disclosure in our SEC reports and other filings are not subject to the review by China Securities Regulatory Commission, a PRC regulator that is responsible for oversight of the capital markets in China. Accordingly, you should review our SEC reports, filings, and our other public pronouncements with the understanding that no local regulator has done any review of us, our SEC reports, other filings, or any of our other public pronouncements.

The approval of the China Securities Regulatory Commission, or the “CSRC,” may be required in connection with this offering under a regulation adopted in August 2006, and, if required, we cannot assure you that we will be able to obtain such approval, in which case we may face sanctions by the CSRC or other PRC regulatory agencies for failure to seek the CSRC approval for this offering.

The Regulations on Mergers and Acquisitions of Domestic Companies by Foreign Investors, or the “M&A Rules,” adopted by six PRC regulatory agencies in 2006 and amended in 2009, requires an overseas SPV formed for listing purposes through acquisitions of PRC domestic companies and controlled by PRC companies or individuals to obtain the approval of the CSRC, prior to the listing and trading of such SPV’s securities on an overseas stock exchange. In September 2006, the CSRC published a notice on its official website specifying documents and materials required to be submitted to it by an SPV seeking the CSRC approval of its overseas listings. The application of the M&A Rules remains unclear.

Our PRC legal counsel has advised us based on their understanding of the current PRC law, rules, and regulations that the CSRC’s approval is not required for the listing and trading of our shares on the Nasdaq Capital Market in the context of this offering, given that:

Our PRC legal counsel, however, has further advised us that there remains some uncertainty as to how the M&A Rules will be interpreted or implemented in the context of an overseas offering and its opinions summarized above are subject to any new laws, rules and regulations or detailed implementations and interpretations in any form relating to the M&A Rules. We cannot assure you that relevant PRC governmental agencies, including the CSRC, would reach the same conclusion as we do. If it is determined that the CSRC approval is required for this offering, we may face sanctions by the CSRC or other PRC regulatory agencies for failure to seek the CSRC approval for this offering. These sanctions may include fines and penalties on our operations in the PRC, limitations on our operating privileges in the PRC, delays in or restrictions on the repatriation of the proceeds from this offering into the PRC, restrictions on or prohibition of the payments or remittance of dividends by our PRC subsidiaries, or other actions that could have a material and adverse effect on our business, financial condition, results of operations, reputation, and prospects, as well as the trading price of our Class A Ordinary Shares. The CSRC or other PRC regulatory agencies may also take actions requiring us, or making it advisable for us, to halt this offering before the settlement and delivery of the Shares that we are offering. Consequently, if you engage in market trading or other activities in anticipation of and prior to the settlement and delivery of the shares we are offering, you would be doing so at the risk that the settlement and delivery may not occur.

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

The M&A Rules discussed in the preceding risk factor and recently adopted regulations and rules concerning mergers and acquisitions established additional procedures and requirements that could make merger and acquisition activities by foreign investors more time consuming and complex. For example, the M&A Rules require that the Ministry of Commerce be notified in advance of any change-of-control transaction in which a foreign investor takes control of a PRC domestic enterprise, if (i) any important industry is concerned, (ii) such transaction involves factors that have or may have impact on the national economic security, or (iii) such transaction will lead to a change in control of a domestic enterprise which holds a famous trademark or PRC time-honored brand. Mergers or acquisitions that allow one market player to take control of or to exert decisive impact on another market player must also be notified in advance to the Ministry of Commerce when the threshold under the Provisions on Thresholds for Prior Notification of Concentrations of Undertakings, or the “Prior Notification Rules,” issued by the State Council in August 2008 is triggered. In addition, the security review rules issued by the Ministry of Commerce that became effective in September 2011 specify that mergers and acquisitions by foreign investors that raise “national defense and security” concerns and mergers and acquisitions through which foreign investors may acquire de facto control over domestic enterprises that raise “national security” concerns are subject to strict review by the Ministry of Commerce, and the rules prohibit any activities attempting to bypass a security review, including by structuring the transaction through a proxy or contractual control arrangement. In the future, we may grow our business by acquiring complementary businesses. Complying with the requirements of the above-mentioned regulations and other relevant rules to complete such transactions could be time consuming, and any required approval processes, including obtaining approval from the Ministry of Commerce or its local counterparts may delay or inhibit our ability to complete such transactions. It is clear that our business would not be deemed to be in an industry that raises “national defense and security” or “national security” concerns. The Ministry of Commerce or other government agencies, however, may publish explanations in the future determining that our business is in an industry subject to the security review, in which case our future acquisitions in the PRC, including those by way of entering into contractual control arrangements with target entities, may be closely scrutinized or prohibited. Our ability to expand our business or maintain or expand our market share through future acquisitions would as such be materially and adversely affected.

Risks Relating to this Offering and the Trading Market

There has been no public market for our Class A Ordinary Shares prior to this offering, and you may not be able to resell our Class A Ordinary Shares at or above the price you pay for them, or at all.

Prior to this offering, there has not been a public market for our Class A Ordinary Shares. We plan to apply for the listing of our Class A Ordinary Shares on the Nasdaq Capital Market. An active public market for our Class A Ordinary Shares, however, may not develop or be sustained after the offering, in which case the market price and liquidity of our Class A Ordinary Shares will be materially and adversely affected.

The initial public offering price for our Class A Ordinary Shares may not be indicative of prices that will prevail in the trading market and such market prices may be volatile.

The initial public offering price for our Class A Ordinary Shares will be determined by negotiations between us and the Underwriter, and may not bear a direct relationship to our earnings, book value, or any other indicia of value. We cannot assure you that the market price of our Class A Ordinary Shares will not decline significantly below the initial public offering price. The financial markets in the United States and other countries have experienced significant price and volume fluctuations in the last few years. Volatility in the price of our Class A Ordinary Shares may be caused by factors outside of our control and may be unrelated or disproportionate to changes in our results of operations.

You will experience immediate and substantial dilution in the net tangible book value of Class A Ordinary Shares purchased.

The initial public offering price of our Class A Ordinary Shares is substantially higher than the (pro forma) net tangible book value per share of our Class A Ordinary Shares. Consequently, when you purchase our Class A Ordinary Shares in the offering, upon completion of the offering you will incur immediate dilution of $[●] per share if the over-allotment option is not exercised or $[●] per share if the over-allotment option is fully exercised, assuming an initial public offering price of $[●]. See “Dilution.” In addition, you may experience further dilution to the extent that additional Class A Ordinary Shares are issued upon exercise of outstanding options we may grant from time to time.

If we fail to implement and maintain an effective system of internal controls or fail to remediate the material weaknesses in our internal control over financial reporting that have been identified, we may fail to meet our reporting obligations or be unable to accurately report our results of operations or prevent fraud, and investor confidence and the market price of our Class A Ordinary Shares may be materially and adversely affected.

Prior to this offering, we have been a private company with limited accounting personnel and other resources with which to address our internal controls and procedures. Our independent registered public accounting firm has not conducted an audit of our internal control over financial reporting. However, in preparing our consolidated financial statements as of and for the fiscal years ended September 30, 2019 and 2020, we and our independent registered public accounting firm have identified material weaknesses in our internal control over financial reporting, as defined in the standards established by the Public Company Accounting Oversight Board of the United States, or “PCAOB,” and other control deficiencies. The material weaknesses identified included (i) a lack of accounting staff and resources with appropriate knowledge of U.S. GAAP and SEC reporting and compliance requirements; and (ii) a lack of independent directors and an audit committee. Following the identification of the material weaknesses and control deficiencies, we plan to continue to take remedial measures including (i) hiring more qualified accounting personnel with relevant U.S. GAAP and SEC reporting experience and qualifications to strengthen the financial reporting function and to set up a financial and system control framework; (ii) implementing regular and continuous U.S. GAAP accounting and financial reporting training programs for our accounting and financial reporting personnel; (iii) setting up an internal audit function as well as engaging an external consulting firm to assist us with assessment of Sarbanes-Oxley compliance requirements and improvement of overall internal control; and (iv) appointing independent directors, establishing an audit committee, and strengthening corporate governance. However, the implementation of these measures may not fully address the material weaknesses in our internal control over financial reporting. Our failure to correct the material weaknesses or our failure to discover and address any other material weaknesses or control deficiencies could result in inaccuracies in our financial statements and could also impair our ability to comply with applicable financial reporting requirements and related regulatory filings on a timely basis. As a result, our business, financial condition, results of operations and prospects, as well as the trading price of our Class A Ordinary Shares, may be materially and adversely affected. Moreover, ineffective internal control over financial reporting significantly hinders our ability to prevent fraud. 

Upon completion of this offering, we will become a public company in the United States subject to the Sarbanes-Oxley Act of 2002. Section 404 of the Sarbanes-Oxley Act of 2002 will require that we include a report of management on our internal control over financial reporting in our annual report on Form 20-F beginning with our annual report for the fiscal year ending September 30, [2022]. In addition, once we cease to be an “emerging growth company,” as such term is defined in the JOBS Act, our independent registered public accounting firm must attest to and report on the effectiveness of our internal control over financial reporting. Our management may conclude that our internal control over financial reporting is not effective. Moreover, even if our management concludes that our internal control over financial reporting is effective, our independent registered public accounting firm, after conducting its own independent testing, may issue a report that is qualified if it is not satisfied with our internal controls or the level at which our controls are documented, designed, operated, or reviewed, or if it interprets the relevant requirements differently from us. In addition, after we become a public company, our reporting obligations may place a significant strain on our management, operational, and financial resources and systems for the foreseeable future. We may be unable to complete our evaluation testing and any required remediation in a timely manner.

We will incur substantial increased costs as a result of being a public company.

Upon consummation of this offering, we will incur significant legal, accounting, and other expenses as a public company 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 Nasdaq, impose various requirements on the corporate governance practices of public companies.

Compliance with these rules and regulations increases our legal and financial compliance costs and makes some corporate activities more time-consuming and costlier. We have incurred additional costs in obtaining director and officer liability insurance. In addition, we incur additional costs associated with our public company reporting requirements. It may also be more difficult for us to find qualified persons to serve on our board of directors or as executive officers.

We are an “emerging growth company,” as defined in the JOBS Act and will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of this offering, (b) in which we have total annual gross revenue of at least $1.07 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our Class A Ordinary Shares that is held by non-affiliates exceeds $700 million as of the prior September 30, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period. An emerging growth company may take advantage of specified reduced reporting and other requirements that are otherwise applicable generally to public companies. These provisions include exemption from the auditor attestation requirement under Section 404 in the assessment of the emerging growth company’s internal control over financial reporting and permission to delay adopting new or revised accounting standards until such time as those standards apply to private companies.

After we are no longer an “emerging growth company,” or until five years following the completion of our initial public offering, whichever is earlier, we expect to incur significant additional expenses and devote substantial management effort toward ensuring compliance with the requirements of Section 404 and the other rules and regulations of the SEC. For example, as a public company, we have been required to increase the number of independent directors and adopt policies regarding internal controls and disclosure controls and procedures.

We are currently evaluating and monitoring developments with respect to these rules and regulations, and we cannot predict or estimate with any degree of certainty the amount of additional costs we may incur or the timing of such costs.

Our dual class share structure will concentrate a majority of voting power in our Chairman and Chief Executive Officer, who is the only owner of our Class B Ordinary Shares.

Our Class B Ordinary Shares have five votes per share, and our Class A Ordinary Shares, which are the shares we are offering pursuant to this prospectus, have one vote per share, on all matters subject to vote at general meetings of the Company. Following this offering, assuming the underwriter does not exercise its over-allotment option, Mr. Xueyuan Weng, our Chairman and CEO, will beneficially hold in the aggregate 59.1% to 60.2% of the total votes for our total issued and outstanding share capital, depending on whether the underwriter exercises its over-allotment option or not. Because of the five-to-one voting ratio between our Class B Ordinary Shares and Class A Ordinary Shares, the holder of our Class B Ordinary Shares could collectively control a majority of the aggregate voting power of our issued Ordinary Shares and therefore be able to control all matters submitted to our shareholders for approval. This concentrated control may limit or preclude your ability to influence corporate matters for the foreseeable future, including the election of directors, amendments of our organizational documents, and any merger, consolidation, sale of all or substantially all of our assets, or other major corporate actions requiring shareholder approval. In addition, this may prevent or discourage unsolicited acquisition proposals or offers for our share capital that you may feel are in your best interest as one of our shareholders. Such concentration of voting power could also have the effect of delaying, deterring, or preventing a change of control or other business combination, which could, in turn, have an adverse effect on the market price of our Class A Ordinary Shares or prevent our shareholders from realizing a premium over the then-prevailing market price for their Class A Ordinary Shares.

As a “controlled company” within the meaning of the Nasdaq listing rules, we may follow certain exemptions from certain corporate governance requirements that could adversely affect our public shareholders.

Following this offering, our largest shareholder will own more than a majority of the voting power of our outstanding ordinary shares. Under the Nasdaq listing rules, a company of which more than 50% of the voting power is held by an individual, group, or another company is a “controlled company” and is permitted to phase in its compliance with the independent committee requirements. Although we do not intend to rely on the “controlled company” exemptions under the Nasdaq listing rules even if we are deemed a “controlled company,” we could elect to rely on these exemptions in the future. If we were to elect to rely on the “controlled company” exemptions, a majority of the members of our board of directors might not be independent directors and our nominating and corporate governance and compensation committees might not consist entirely of independent directors. Accordingly, if we rely on the exemptions, during the period we remain a controlled company and during any transition period following a time when we are no longer a controlled company, you would not have the same protections afforded to shareholders of companies that are subject to all of the corporate governance requirements of Nasdaq.

Substantial future sales of our Class A Ordinary Shares or the anticipation of future sales of our Class A Ordinary Shares in the public market could cause the price of our Class A Ordinary Shares to decline.

Sales of substantial amounts of our Class A Ordinary Shares in the public market after this offering, or the perception that these sales could occur, could cause the market price of our Class A Ordinary Shares to decline. As of the date of this prospectus, an aggregate of 15,000,000 Ordinary Shares are outstanding, including 10,350,000 Class A Ordinary Shares and 4,650,000 Class B Ordinary Shares, before the consummation of this offering and 15,350,000 Class A Ordinary Shares will be outstanding immediately after the consummation of this offering if the Underwriter’s over-allotment option is not exercised, and 16,100,000 Class A Ordinary Shares will be outstanding immediately after the consummation of this offering if the Underwriter’s over-allotment option is fully exercised. Sales of these shares into the market could cause the market price of our Class A Ordinary Shares to decline.

We do not intend to pay dividends for the foreseeable future.

We currently intend to retain any future earnings to finance the operation and expansion of our business, and we do not expect to declare or pay any dividends in the foreseeable future. As a result, you may only receive a return on your investment in our Class A Ordinary Shares if the market price of our Class A Ordinary Shares increases.

If securities or industry analysts do not publish research or reports about our business, or if the publish a negative report regarding our Class A Ordinary Shares, the price of our Class A Ordinary Shares and trading volume could decline.

Any trading market for our Class A Ordinary Shares may depend in part on the research and reports that industry or securities analysts publish about us or our business. We do not have any control over these analysts. If one or more of the analysts who cover us downgrade us, the price of our Class A Ordinary Shares would likely decline. If one or more of these analysts cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause the price of our Class A Ordinary Shares and the trading volume to decline.

The market price of our Class A Ordinary Shares may be volatile or may decline regardless of our operating performance, and you may not be able to resell your shares at or above the initial public offering price.

The initial public offering price for our Class A Ordinary Shares will be determined through negotiations between the Underwriter and us and may vary from the market price of our Class A Ordinary Shares following our initial public offering. If you purchase our Class A Ordinary Shares in our initial public offering, you may not be able to resell those shares at or above the initial public offering price. We cannot assure you that the initial public offering price of our Class A Ordinary Shares, or the market price following our initial public offering, will equal or exceed prices in privately negotiated transactions of our shares that have occurred from time to time prior to our initial public offering. The market price of our Class A Ordinary Shares may fluctuate significantly in response to numerous factors, many of which are beyond our control, including:

In addition, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. Stock prices of many companies have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies. In the past, shareholders have filed securities class action litigation following periods of market volatility. If we were to become involved in securities litigation, it could subject us to substantial costs, divert resources and the attention of management from our business, and adversely affect our business.

Our management has broad discretion to determine how to use the funds raised in the offering and may use them in ways that may not enhance our results of operations or the price of our Class A Ordinary Shares.

We anticipate that we will use the net proceeds from this offering for working capital and other corporate purposes. Our management will have significant discretion as to the use of the net proceeds to us from this offering and could spend the proceeds in ways that do not improve our results of operations or enhance the market price of our Class A Ordinary Shares.

If we cease to qualify as a foreign private issuer, we would be required to comply fully with the reporting requirements of the Exchange Act applicable to U.S. domestic issuers, and we would incur significant additional legal, accounting and other expenses that we would not incur as a foreign private issuer.

We expect to qualify as a foreign private issuer upon the completion of this offering. As a foreign private issuer, we will be exempt from the rules under the Exchange Act prescribing the furnishing and content of proxy statements, and our officers, directors and principal shareholders will be exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we will not be required under the Exchange Act to file periodic reports and financial statements with the SEC as frequently or as promptly as United States domestic issuers, and we will not be required to disclose in our periodic reports all of the information that United States domestic issuers are required to disclose. While we currently expect to qualify as a foreign private issuer immediately following the completion of this offering, we may cease to qualify as a foreign private issuer in the future, in which case we would incur significant additional expenses that could have a material adverse effect on our results of operations.

Because we are a foreign private issuer and are exempt from certain Nasdaq corporate governance standards applicable to U.S. issuers, you will have less protection than you would have if we were a domestic issuer.

Nasdaq listing rules require listed companies to have, among other things, a majority of its board members be independent. As a foreign private issuer, however, we are permitted to, and we may follow home country practice in lieu of the above requirements, or we may choose to comply with the above requirement within one year of listing. The corporate governance practice in our home country, the Cayman Islands, does not require a majority of our board to consist of independent directors. Thus, although a director must act in the best interests of the Company, it is possible that fewer board members will be exercising independent judgment and the level of board oversight on the management of our company may decrease as a result. In addition, Nasdaq listing rules also require U.S. domestic issuers to have a compensation committee, a nominating/corporate governance committee composed entirely of independent directors, and an audit committee with a minimum of three members. We, as a foreign private issuer, are not subject to these requirements. Nasdaq listing rules may require shareholder approval for certain corporate matters, such as requiring that shareholders be given the opportunity to vote on all equity compensation plans and material revisions to those plans, certain ordinary share issuances. We intend to comply with the requirements of Nasdaq listing rules in determining whether shareholder approval is required on such matters and to appoint a nominating and corporate governance committee. We may, however, consider following home country practice in lieu of the requirements under Nasdaq listing rules with respect to certain corporate governance standards which may afford less protection to investors.

Although as a Foreign Private Issuer we are exempt from certain corporate governance standards applicable to U.S. issuers, if we cannot satisfy, or continue to satisfy, the initial listing requirements and other rules of the Nasdaq Capital Market, our securities may not be listed or may be delisted, which could negatively impact the price of our securities and your ability to sell them.

We will seek to have our securities approved for listing on the Nasdaq Capital Market upon consummation of this offering. We cannot assure you that we will be able to meet those initial listing requirements at that time. Even if our securities are listed on the Nasdaq Capital Market, we cannot assure you that our securities will continue to be listed on the Nasdaq Capital Market.

In addition, following this offering, in order to maintain our listing on the Nasdaq Capital Market, we will be required to comply with certain rules of the Nasdaq Capital Market, including those regarding minimum shareholders’ equity, minimum share price, minimum market value of publicly held shares, and various additional requirements. Even if we initially meet the listing requirements and other applicable rules of the Nasdaq Capital Market, we may not be able to continue to satisfy these requirements and applicable rules. If we are unable to satisfy the Nasdaq Capital Market criteria for maintaining our listing, our securities could be subject to delisting.

If the Nasdaq Capital Market does not list our securities, or subsequently delists our securities from trading, we could face significant consequences, including:

Anti-takeover provisions in our amended and restated memorandum and articles of association may discourage, delay, or prevent a change in control.

Some provisions of our amended and restated memorandum and articles of association, which will become effective on or before the completion of this offering, may discourage, delay or prevent a change in control of our company or management that shareholders may consider favorable, including, among other things, the following:

Our board of directors may decline to register transfers of Ordinary Shares in certain circumstances.

Our board of directors may, in its sole discretion, decline to register any transfer of any Ordinary Share which is not fully paid up or on which we have a lien. Our directors may also decline to register any transfer of any share unless (i) the instrument of transfer is lodged with us, accompanied by the certificate for the shares to which it relates and such other evidence as our board of directors may reasonably require to show the right of the transferor to make the transfer; (ii) the instrument of transfer is in respect of only one class of shares; (iii) the instrument of transfer is properly stamped, if required; (iv) in the case of a transfer to joint holders, the number of joint holders to whom the share is to be transferred does not exceed four; (v) the shares transferred are free of any lien in favor of us; or (vi) a fee of such maximum sum as the Nasdaq Capital Market may determine to be payable, or such lesser sum as our board of directors may from time to time require, is paid to us in respect thereof.

If our directors refuse to register a transfer they shall, within three months after the date on which the instrument of transfer was lodged, send to each of the transferor and the transferee notice of such refusal. The registration of transfers may, on 14 days’ notice being given by advertisement in such one or more newspapers or by electronic means, be suspended and the register closed at such times and for such periods as our board of directors may from time to time determine, provided, however, that the registration of transfers shall not be suspended nor the register closed for more than 30 days in any year.

This, however, is unlikely to affect market transactions of the Class A Ordinary Shares purchased by investors in the public offering. Once the Class A Ordinary Shares have been listed, the legal title to such Class A Ordinary Shares and the registration details of those Class A Ordinary Shares in the Company’s register of members will remain with DTC/Cede & Co. All market transactions with respect to those Class A Ordinary Shares will then be carried out without the need for any kind of registration by the directors, as the market transactions will all be conducted through the DTC systems.

Because we are an “emerging growth company,” we may not be subject to requirements that other public companies are subject to, which could affect investor confidence in us and our Class A Ordinary Shares.

For as long as we remain an “emerging growth company,” as defined in the JOBS Act, we will elect to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies”, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of shareholder approval of any golden parachute payments not previously approved. Because of these lessened regulatory requirements, our shareholders would be left without information or rights available to shareholders of more mature companies. If some investors find our Class A Ordinary Shares less attractive as a result, there may be a less active trading market for our Class A Ordinary Shares and our share price may be more volatile. See “Implications of Our Being an ‘Emerging Growth Company.’”

The laws of the Cayman Islands may not provide our shareholders with benefits comparable to those provided to shareholders of corporations incorporated in the United States.

We are an exempted company incorporated under the laws of the Cayman Islands with limited liability. Our corporate affairs are governed by our amended and restated memorandum and articles of association, by the Companies Act (2021 Revision) of the Cayman Islands and by the common law of the Cayman Islands. The rights of shareholders to take action against our directors, actions by minority shareholders and the fiduciary responsibilities of our directors to us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law in the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands and from English common law. Decisions of the Privy Council (which is the final Court of Appeal for British overseas territories such as the Cayman Islands) are binding on a court in the Cayman Islands. Decisions of the English courts, and particularly the Supreme Court and the Court of Appeal are generally of persuasive authority but are not binding in the courts of the Cayman Islands. Decisions of courts in other Commonwealth jurisdictions are similarly of persuasive but not binding authority. The rights of our shareholders and the fiduciary responsibilities of our directors under Cayman Islands law are not as clearly established as they would be under statutes or judicial precedents in the United States. In particular, the Cayman Islands has a less developed body of securities laws relative to the United States. Therefore, our public shareholders may have more difficulty protecting their interests in the face of actions by our management, directors or controlling shareholders than would shareholders of a corporation incorporated in a jurisdiction in the United States.

Shareholders of Cayman Islands exempted companies like us have no general rights under Cayman Islands law to inspect corporate records or to obtain copies of the register of members of these companies. Our directors have discretion under our articles of association to determine whether or not, and under what conditions, our corporate records may be inspected by our shareholders, but are not obliged to make them available to our shareholders. This may make it more difficult for you to obtain the information needed to establish any facts necessary for a shareholder motion or to solicit proxies from other shareholders in connection with a proxy contest.

As a result of all of the above, public shareholders may have more difficulty in protecting their interests in the face of actions taken by our management, members of the board of directors or controlling shareholders than they would as public shareholders of a company incorporated in the United States. For a discussion of significant differences between the provisions of the Companies Act (2021 Revision) of the Cayman Islands and the laws applicable to companies incorporated in the United States and their shareholders, see “Description of Share Capital — Differences in Corporate Law.”

You may be unable to present proposals before annual general meetings or extraordinary general meetings not called by shareholders.

Cayman Islands law provides shareholders with only limited rights to requisition a general meeting, and does not provide shareholders with any right to put any proposal before a general meeting. These rights, however, may be provided in a company’s articles of association. Our articles of association allow our shareholders holding shares representing in aggregate not less than 10% of our voting share capital in issue, to requisition a general meeting of our shareholders, in which case our directors are obliged to call such meeting. Advance notice of at least 21 clear days is required for the convening of our annual general shareholders’ meeting and at least 14 clear days’ notice any other general meeting of our shareholders. A quorum required for a meeting of shareholders consists of at least one shareholder present or by proxy, representing not less than one-third of the total issued shares carrying the right to vote at a general meeting of the Company. For these purposes, “clear days” means that period excluding (a) the day when the notice is given or deemed to be given and (b) the day for which it is given or on which it is to take effect.

If we are classified as a passive foreign investment company, United States taxpayers who own our Class A Ordinary Shares may have adverse United States federal income tax consequences.

A non-U.S. corporation such as ourselves will be classified as a passive foreign investment company, which is known as a PFIC, for any taxable year if, for such year, either:

Passive income generally includes dividends, interest, rents and royalties (other than rents or royalties derived from the active conduct of a trade or business), and gains from the disposition of passive assets.

If we are determined to be a PFIC for any taxable year (or portion thereof) that is included in the holding period of a U.S. taxpayer who holds our Class A Ordinary Shares, the U.S. taxpayer may be subject to increased U.S. federal income tax liability and may be subject to additional reporting requirements.

Depending on the amount of cash we raise in this offering, together with any other assets held for the production of passive income, it is possible that, for our 2021 taxable year or for any subsequent year, more than 50% of our assets may be assets which produce passive income, in which case we would be deemed a PFIC, which could have adverse US federal income tax consequences for US taxpayers who are shareholders. We will make this determination following the end of any particular tax year.

Although the U.S. tax law with regards to VIEs is unclear, we treat Ouhai Art School and Chongwen Middle School as being owned by us for United States federal income tax purposes, not only because we exercise effective control over the operations of such entities but also because we are entitled to substantially all of their economic benefits, and, as a result, we consolidate their operating results in our consolidated financial statements (see “Corporate History and Structure”). Therefore, the income and assets of Ouhai Art School and Chongwen Middle School should be included in the determination of whether or not we are a PFIC in any taxable year. For purposes of the PFIC analysis, in general, a non-U.S. corporation is deemed to own its pro rata share of the gross income and assets of any entity in which it is considered to own at least 25% of the equity by value. It is important to emphasize that there is little to no guidance other than the statute itself (Internal Revenue Code Section 1297(c)) and analogous portions of the code, treasury regulations and other accepted authorities and as such it is possible for the IRS to challenge the argument that the look through rule would apply in this case, especially since the statute explicitly says “stock”.

The classification of certain of our income as active or passive, and certain of our assets as producing active or passive income, and hence whether we are or will become a PFIC, depends on the interpretation of certain United States Treasury Regulations as well as certain IRS guidance relating to the classification of assets as producing active or passive income. Such regulations and guidance are potentially subject to different interpretations. If due to different interpretations of such regulations and guidance the percentage of our passive income or the percentage of our assets treated as producing passive income increases, we may be a PFIC in one or more taxable years.

For a more detailed discussion of the application of the PFIC rules to us and the consequences to U.S. taxpayers if we were or are determined to be a PFIC, see “Material Income Tax Consideration—United States Federal Income Taxation—Passive Foreign Investment Company.”

Our pre-IPO shareholders will be able to sell their shares upon completion of this offering subject to restrictions under Rule 144 under the Securities Act.

As of the date of this prospectus, 15,000,000 of our Ordinary Shares were issued and outstanding before this offering. Our pre-IPO shareholders may be able to sell their Class A Ordinary Shares under Rule 144 after the completion of this offering. See “Shares Eligible for Future Sale” below. Because these shareholders have paid a lower price per Ordinary Share than participants in this offering, when they are able to sell their pre-IPO shares under Rule 144, they may be more willing to accept a lower sales price than the IPO price. This fact could impact the trading price of the Class A Ordinary Shares following the completion of the offering, to the detriment of participants in this offering. Under Rule 144, before our pre-IPO shareholders can sell their shares, in addition to meeting other requirements, they must meet the required holding period. We do not expect any of the Class A Ordinary Shares to be sold pursuant to Rule 144 during the pendency of this offering.

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements that reflect our current expectations and views of future events, all of which are subject to risks and uncertainties. Forward-looking statements give our current expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historical or current facts. You can find many (but not all) of these statements by the use of words such as “approximates,” “believes,” “hopes,” “expects,” “anticipates,” “estimates,” “projects,” “intends,” “plans,” “will,” “would,” “should,” “could,” “may” or other similar expressions in this prospectus. These statements are likely to address our growth strategy, financial results and product and development programs. You must carefully consider any such statements and should understand that many factors could cause actual results to differ from our forward-looking statements. These factors may include inaccurate assumptions and a broad variety of other risks and uncertainties, including some that are known and some that are not. No forward-looking statement can be guaranteed and actual future results may vary materially. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to:

We describe certain material risks, uncertainties and assumptions that could affect our business, including our financial condition and results of operations, under “Risk Factors.” We base our forward-looking statements on our management’s beliefs and assumptions based on information available to our management at the time the statements are made. We caution you that actual outcomes and results may, and are likely to, differ materially from what is expressed, implied or forecast by our forward-looking statements. Accordingly, you should be careful about relying on any forward-looking statements. Except as required under the federal securities laws, we do not have any intention or obligation to update publicly any forward-looking statements after the distribution of this prospectus, whether as a result of new information, future events, changes in assumptions, or otherwise.

Industry Data and Forecasts

This prospectus contains data related to the education industry in China. This industry data includes projections that are based on a number of assumptions which have been derived from industry and government sources which we believe to be reasonable. The education industry may not grow at the rate projected by industry data, or at all. The failure of the industry to grow as anticipated is likely to have a material adverse effect on our business and the market price of our Class A Ordinary Shares. In addition, the rapidly changing nature of the education industry subjects any projections or estimates relating to the growth prospects or future condition of our industry to significant uncertainties. Furthermore, if any one or more of the assumptions underlying the industry data turns out to be incorrect, actual results may, and are likely to, differ from the projections based on these assumptions.

ENFORCEABILITY OF CIVIL LIABILITIES

We are incorporated under the laws of the Cayman Islands as an exempted company with limited liability. We incorporated under the laws of the Cayman Islands because of certain benefits associated with being a Cayman Islands company, such as political and economic stability, an effective judicial system, a favorable tax system, the absence of foreign exchange control or currency restrictions and the availability of professional and support services. The Cayman Islands, however, has a less developed body of securities laws as compared to the United States and provides significantly less protection for investors than the United States. Additionally, Cayman Islands companies may not have standing to sue in the Federal courts of the United States.

Substantially all of our assets are located in the PRC. In addition, a majority of our directors and officers are nationals or residents of the PRC and all or a substantial portion of their assets are located outside the United States. As a result, it may be difficult for investors to effect service of process within the United States upon us or these persons, or to enforce against us or them judgments obtained in United States courts, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States.

We have appointed Cogency Global Inc. as our agent to receive service of process with respect to any action brought against us in the United States District Court for the Southern District of New York under the federal securities laws of the United States or of any state in the United States or any action brought against us in the Supreme Court of the State of New York in the County of New York under the securities laws of the State of New York.

Ogier, our counsel with respect to the laws of the Cayman Islands, and Zhong Lun, our counsel with respect to PRC law, have advised us that there is uncertainty as to whether the courts of the Cayman Islands or the PRC would (i) recognize or enforce judgments of United States courts obtained against us or our directors or officers predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States or (ii) entertain original actions brought in the Cayman Islands or the PRC against us or our directors or officers predicated upon the securities laws of the United States or any state in the United States.

Ogier has further advised us that there is currently no statutory enforcement or treaty between the United States and the Cayman Islands providing for enforcement of judgments. A judgment obtained in the United States, however, may be recognized and enforced in the courts of the Cayman Islands at common law, without any re-examination on the merits of the underlying dispute, by an action commenced on the foreign judgment debt in the Grand Court of the Cayman Islands, provided such judgment: (i) is given by a foreign court of competent jurisdiction; (ii) is final; (iii) is not in respect of taxes, a fine or a penalty; and (iv) was not obtained in a manner and is not of a kind the enforcement of which is contrary to natural justice or public policy of the Cayman Islands. Furthermore, it is uncertain that Cayman Islands courts would enforce: (1) judgments of U.S. courts obtained in actions against us or other persons that are predicated upon the civil liability provisions of the U.S. federal securities laws; or (2) original actions brought against us or other persons predicated upon the Securities Act. Ogier has informed us that there is uncertainty with regard to Cayman Islands law relating to whether a judgment obtained from the U.S. courts under civil liability provisions of the securities laws will be determined by the courts of the Cayman Islands as penal or punitive in nature.

Zhong Lun has further advised us that the recognition and enforcement of foreign judgments are provided for under the PRC Civil Procedure Law. PRC courts may recognize and enforce foreign judgments in accordance with the requirements of the PRC Civil Procedure Law based either on treaties between China and the country where the judgment is made or on reciprocity between jurisdictions. There are no treaties or other forms of reciprocity between China and the United States for the mutual recognition and enforcement of court judgments. Zhong Lun has further advised us that under PRC law, PRC courts will not enforce a foreign judgment against us or our officers and directors if the court decides that such judgment violates the basic principles of PRC law or national sovereignty, security or public interest, thus making the recognition and enforcement of a U.S. court judgment in China difficult.

USE OF PROCEEDS

Based upon an assumed initial public offering price of $4.5 per Class A Ordinary Share, which is the midpoint of the estimated initial public offering price range set forth on the cover page of this prospectus, we estimate that we will receive net proceeds from this offering, after deducting the estimated underwriting discounts and the estimated offering expenses payable by us, of approximately $20.1 million if the Underwriter does not exercise its over-allotment option, and $23.2 million if the Underwriter exercises its over-allotment option in full.

We plan to use the net proceeds we receive from this offering for the following purposes:

The foregoing represents our current intentions based upon our present plans and business conditions to use and allocate the net proceeds of this offering. Our management, however, will have significant flexibility and discretion to apply the net proceeds of this offering. If an unforeseen event occurs or business conditions change, we may use the proceeds of this offering differently than as described in this prospectus. To the extent that the net proceeds we receive from this offering are not immediately used for the above purposes, we intend to invest our net proceeds in short-term, interest-bearing bank deposits or debt instruments.

DIVIDEND POLICY

We intend to keep any future earnings to finance the expansion of our business, and we do not anticipate that any cash dividends will be paid in the foreseeable future.

Under the Cayman Islands law, a Cayman Islands company may pay a dividend on its shares out of either profit or share premium amount, provided that in no circumstances may a dividend be paid if this would result in the company being unable to pay its debts due in the ordinary course of business.

If we determine to pay dividends on any of our Class A Ordinary Shares in the future, as a holding company, we will be dependent on receipt of funds from our direct subsidiaries, Golden Sun Shanghai and Golden Sun Hong Kong.

Current PRC regulations permit our PRC subsidiaries to pay dividends to Golden Sun Shanghai and Golden Sun Hong Kong only out of their accumulated profits, if any, determined in accordance with Chinese accounting standards and regulations. In addition, each of our Affiliated Entities in China is required to set aside at least 10% of its after-tax profits each year, if any, to fund a statutory reserve until such reserve reaches 50% of its registered capital. Each of such entity in China is also required to further set aside a portion of its after-tax profits to fund the employee welfare fund, although the amount to be set aside, if any, is determined at the discretion of its board of directors. Although the statutory reserves can be used, among other ways, to increase the registered capital and eliminate future losses in excess of retained earnings of the respective companies, the reserve funds are not distributable as cash dividends except in the event of liquidation.

The PRC government also imposes controls on the conversion of RMB into foreign currencies and the remittance of currencies out of the PRC. Therefore, we may experience difficulties in complying with the administrative requirements necessary to obtain and remit foreign currency for the payment of dividends from our profits, if any. Furthermore, if our Affiliated Entities in the PRC incur debt on their own in the future, the instruments governing the debt may restrict their ability to pay dividends or make other payments. If we or our PRC subsidiaries are unable to receive all of the revenue from our operations, we may be unable to pay dividends on our Class A Ordinary Shares.

Cash dividends, if any, on our Class A Ordinary Shares will be paid in U.S. dollars. Golden Sun Hong Kong may be considered a non-resident enterprise for tax purposes, so that any dividends Golden Sun Wenzhou pays to Golden Sun Hong Kong may be regarded as China-sourced income and as a result may be subject to PRC withholding tax at a rate of up to 10%. See “Material Income Tax Consideration—People’s Republic of China Enterprise Taxation.”

In order for us to pay dividends to our shareholders, we will rely on payments made from Chongwen Middle School to Golden Sun Shanghai and from Ouhai Art School to Golden Sun Wenzhou pursuant to the VIE Agreements among them and from subsidiaries of Golden Sun Wenzhou to Golden Sun Wenzhou, and the distribution of such payments to Golden Sun Hong Kong and Golden Sun Cayman as dividends from our subsidiaries. If Chongwen Middle School or Ouhai Art School incurs debt on its own behalves in the future, the instruments governing the debt may restrict its ability to pay dividends or make other distributions to us.

Pursuant to the Arrangement between Mainland China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and Tax Evasion on Income, or the Double Tax Avoidance Arrangement, the 10% withholding tax rate may be lowered to 5% if a Hong Kong resident enterprise owns no less than 25% of a PRC project. The 5% withholding tax rate, however, does not automatically apply and certain requirements must be satisfied, including without limitation that (a) the Hong Kong project must be the beneficial owner of the relevant dividends; and (b) the Hong Kong project must directly hold no less than 25% share ownership in the PRC project during the 12 consecutive months preceding its receipt of the dividends. In current practice, a Hong Kong project must obtain a tax resident certificate from the Hong Kong tax authority to apply for the 5% lower PRC withholding tax rate. As the Hong Kong tax authority will issue such a tax resident certificate on a case-by-case basis, we cannot assure you that we will be able to obtain the tax resident certificate from the relevant Hong Kong tax authority and enjoy the preferential withholding tax rate of 5% under the Double Taxation Arrangement with respect to any dividends paid by Golden Sun Wenzhou to its immediate holding company, Golden Sun Hong Kong. As of the date of this prospectus, we have not applied for the tax resident certificate from the relevant Hong Kong tax authority. Golden Sun Hong Kong intends to apply for the tax resident certificate if and when Golden Sun Wenzhou plans to declare and pay dividends to Golden Sun Hong Kong. See “Risk Factors—Risks Relating to Doing Business in the PRC—There are significant uncertainties under the EIT Law relating to the withholding tax liabilities of Golden Sun Wenzhou, and dividends payable by Golden Sun Wenzhou to our offshore subsidiaries may not qualify to enjoy certain treaty benefits.”

CAPITALIZATION

The following table sets forth our capitalization as of September 30, 2020:

You should read this capitalization table in conjunction with “Use of Proceeds,” “Selected Consolidated Financial and Operating Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and the related notes appearing elsewhere in this prospectus.

A $1.00 increase (decrease) in the assumed initial public offering price of $4.5 per Class A Ordinary Share would increase (decrease) each of additional paid-in capital, total shareholders’ equity and total capitalization by $4.6 million, assuming the number of Class A Ordinary Shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts, and estimated expenses payable by us.

DILUTION

If you invest in our Class A Ordinary Shares, your interest will be diluted for each Class A Ordinary Share you purchase to the extent of the difference between the initial public offering price per Class A Ordinary Share and our net tangible book value per Class A Ordinary Share after this offering. Dilution results from the fact that the initial public offering price per Class A Ordinary Share is substantially in excess of the net tangible book value per Class A Ordinary Share attributable to the existing shareholders for our presently outstanding Class A Ordinary Shares.

Our net tangible book value as of September 30, 2020, was deficit of $7.4 million, or $(0.49) per Ordinary Share. Net tangible book value represents the amount of our total consolidated tangible assets, less the amount of our total consolidated liabilities, non-controlling interest and deferred IPO cost. Dilution is determined by subtracting the net tangible book value per Class A Ordinary Share (as adjusted for the offering) from the initial public offering price per Class A Ordinary Share and after deducting the estimated underwriting discounts, and the estimated offering expenses payable by us.

After giving effect to our sale of 5,000,000 Class A Ordinary Shares offered in this offering based on the initial public offering price of $4.5 per Class A Ordinary Share after deduction of the estimated underwriting discounts, and the estimated offering expenses payable by us, our as adjusted net tangible book value as of September 30, 2020, would have been 13.0 million, or $0.65 per outstanding Ordinary Share. This represents an immediate increase in net tangible book value of $1.14 per Ordinary Share to the existing shareholders, and an immediate dilution in net tangible book value of $3.85 per Ordinary Share to investors purchasing Class A Ordinary Shares in this offering. The as adjusted information discussed above is illustrative only.

The following table illustrates such dilution:

The following tables summarize, on a pro forma as adjusted basis as of September 30, 2020, the differences between existing shareholders and the new investors with respect to the number of Class A Ordinary Shares purchased from us, the total consideration paid and the average price per Class A Ordinary Share before deducting the estimated underwriting discounts, and the estimated offering expenses payable by us.

The pro forma as adjusted information as discussed above is illustrative only. Our net tangible book value following the completion of this offering is subject to adjustment based on the actual initial public offering price of our Class A Ordinary Shares and other terms of this offering determined at the pricing.

CORPORATE HISTORY AND STRUCTURE

Our Corporate History

Golden Sun Education Group Limited, or Golden Sun Cayman, was incorporated in the Cayman Islands on September 20, 2018.

Our principal executive office is located at Profit Huiyin Square North Building, Huashan 2018, Unit 1001, Xuhui District, Shanghai, PRC. Our telephone at this address is +86-0577-56765303. Our registered office in the Cayman Islands is located at the offices of Vistra (Cayman) Limited, P.O. Box 31119 Grand Pavilion, Hibiscus Way, 802 West Bay Road, Grand Cayman, KY1 – 1205 Cayman Islands, and the phone number of our registered office is +1-345-769 9372. We maintain a corporate website at http://www.jtyjyjt.com. The information contained in, or accessible from, our website or any other website does not constitute a part of this prospectus.

The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC using its EDGAR system.

Our Corporate Structure

The following diagram illustrates our corporate structure upon completion of this offering based on a proposed number of 5,000,000 Class A Ordinary Shares being offered, assuming no exercise of the over-allotment, and 15,000,000 Ordinary Shares, including 10,350,000 Class A Ordinary Shares and 4,650,000 Class B Ordinary Shares, outstanding as of the date of this prospectus.

For details of each shareholder’s ownership, please refer to the beneficial ownership table in the section captioned “Principal Shareholders.”

Our VIE Arrangements

Neither we nor our subsidiaries own any share in Ouhai Art School or Chongwen Middle School. Instead, we control and receive the economic benefits of the business operations of Ouhai Art School and Chongwen Middle School through a series of contractual arrangements (the “VIE Arrangements”).

As a result of our direct ownership in Golden Sun Wenzhou and Golden Sun Shanghai, as well as the VIE Arrangements, we are regarded as the primary beneficiary of our VIEs under U.S. GAAP. We have consolidated the financial results of our VIEs in our consolidated financial statements in accordance with U.S. GAAP.

Each of the agreements under the VIE Arrangements is described in detail below. For the complete text of these agreements, please see the copies filed as exhibits to the registration statement of which this prospectus forms a part.

Ouhai Art School

On March 1, 2019, Golden Sun Wenzhou, Ouhai Art School, and Xiulan Ye and Xueyuan Weng, the shareholders of Ouhai (“Ouhai Shareholders”) entered into these contractual arrangements (the “Ouhai Agreements”) for a term of 10 years with preferred renewal rights. The Ouhai Agreements are designed to provide Golden Sun Wenzhou with the power, rights, and obligations equivalent in all material respects to those it would possess as the person with exclusive rights to control the operations of Ouhai Art School, including the power to control Ouhai Art School and the rights to the assets, property, and revenue of Ouhai Art School.

According to Article 19 of the Law on the Promotion of Privately-run School, the sponsor of a not-for-profit school shall not gain proceeds from school running, and the cash surplus of the school shall be used for school running. Golden Sun Wenzhou does not receive proceeds from Ouhai Art School. Golden Sun Wenzhou provides exclusive education consulting and services, and Ouhai Art School pays management fees, which are not in violation of the Law on the Promotion of Privately-run School.

In the opinion of Zhong Lun, our PRC counsel:

However, there are substantial uncertainties regarding the interpretation and application of current and future PRC laws, regulations, and rules. Especially, the Implementing Regulation, which was promulgated on April 7, 2021 and will become effective on September 1, 2021, prohibits private schools that provide compulsory education to be controlled by means of agreements or to enter into any transactions with any related parties. The Implementing Regulation is silent on the legality of VIE structures that had been set up prior to its promulgation and we cannot predict how our existing VIE Arrangements will be affected when the Implementing Regulation becomes effective. See “Regulations – Regulations related to Private Education - 3. Implementation Rules for the Law for Promoting Private Education of PRC.” Accordingly, the PRC regulatory authorities may in the future take a view that is contrary to or otherwise different from the above opinion of our PRC counsel. It is uncertain whether any new PRC laws or regulations relating to VIE structures will be adopted or if adopted, what they would provide. If the PRC government finds that the agreements that establish the structure for the operation of Ouhai Art School do not comply with PRC government restrictions on foreign investment in our business, we could be subject to severe penalties including being prohibited from continuing operations. See “Risk Factors—Risks Relating to Our Corporate Structure—If the PRC government deems that the VIE Arrangements do not comply with PRC regulatory restrictions on foreign investment in the relevant industries, or if these regulations or the interpretation of existing regulations change in the future, we could be subject to severe penalties or be forced to relinquish our interests in those operations” and “Risk Factors—Risks Relating to Doing Business in the PRC—Uncertainties in the interpretation and enforcement of PRC laws and regulations could limit the legal protection available to you and us” for more details.

Exclusive Education Consulting and Services Agreement

Pursuant to the Exclusive Education Consulting and Services Agreement between Ouhai Art School and Golden Sun Wenzhou, Golden Sun Wenzhou (the “Exclusive Services Agreement”) provides Ouhai Art School with education consulting and other management services relating to its day-to-day business operations and management, on an exclusive basis, utilizing its advantages in technology, human resources, and information. For services rendered to Ouhai Art School by Golden Sun Wenzhou under the Exclusive Services Agreement, Golden Sun Wenzhou is entitled to collect a service fee equal to 100% of the net income of Ouhai Art School, which is Ouhai Art School’s earnings before tax after deducting relevant costs and reasonable expenses.

The Exclusive Services Agreement became effective on March 1, 2019 and will remain effective for 10 years unless otherwise terminated as required by laws or regulations, or by relevant governmental or regulatory authorities.

There is no provision in the Exclusive Services Agreement prohibiting related party transactions. Upon the establishment of the audit committee at the consummation of this offering, the Company’s audit committee will be required to review and approve in advance any related party transactions, including transactions involving Golden Sun Wenzhou or Ouhai Art School.

Business Operations Agreement

Under the Business Operations Agreement between Golden Sun Wenzhou and the Ouhai Shareholders, together holding 100% of the shares in Ouhai Art School, the Ouhai Shareholders agreed to comprehensively guarantee the performance of Ouhai Art School’s obligations, including making payments for outstanding payables. Under the terms of the Business Operations Agreement, without prior written consent by Golden Sun Wenzhou, Ouhai Art School is prohibited from: (1) borrowing any loans or debts from a third party, (2) selling or obtaining any assets or rights to or from a third party, (3) providing any guaranty in connection with any assets or intellectual property of a third party, and (4) transferring any rights and obligations of this agreement to a third party. Additionally, Golden Sun Wenzhou has the exclusive rights to hire and fire employees of Ouhai Art School, to manage Ouhai Art School’s operations, and to operate Ouhai Art School’s finance.

The Business Operations Agreement can be terminated unilaterally by Golden Sun Wenzhou after any of the Ouhai Agreements is terminated or expires, including, without limitation, the Exclusive Services Agreement.

In order to guarantee the performance of Ouhai Art School’s obligations under any contracts, including those under the Exclusive Services Agreement and provide Golden Sun Wenzhou control over Ouhai Art School, Ouhai Art School provided Golden Sun Wenzhou with the Pledge Guarantee Agreement for Accounts Receivables (as discussed below) based on its income from March 1, 2019 to February 28, 2028, including tuition and fees, accommodation fees and other income.

Pledge Guarantee Agreement for Accounts Receivables

In order to guarantee the performance of Ohai Art Schools’ obligations under the Exclusive Services Agreement (the “Guaranteed Performance”), Ouhai Art School, as pledgor, and Golden Sun Wenzhou, as pledgee entered into a Pledge Guarantee Agreement for Accounts Receivables. Under this agreement, Ouhai Art School agreed to pledge to Golden Sun Wenzhou all accounts receivables (including from tuition fees and other services) generated from the operations of Ouhai Art School from March 1, 2019 to February 28, 2028. A list of accounts receivables being pledged was registered with the People’s Bank of China Credit Reference Center, as required. Golden Sun Wenzhou may exercise its rights under this agreement if the Guaranteed Performance is not fulfilled. This pledge will not lapse until the Guaranteed Performance is fully performed.

Exclusive Option Agreement

Under the Exclusive Option Agreement, the Ouhai Shareholders, together holding 100% of the shares in Ouhai Art School, irrevocably granted Golden Sun Wenzhou (or its designee) an exclusive option to purchase, to the extent permitted under PRC law, once or at multiple times, at any time, part or all of their shares in Ouhai Art School or the assets of Ouhai Art School. The option price is determined by the evaluation process authorized by the official agency at the time of purchase and no less than the minimum amount to the extent permitted under PRC law.

Under the Exclusive Option Agreement, Golden Sun Wenzhou may at any time under any circumstances, purchase or have its designee purchase, at its discretion, to the extent permitted under PRC law, all or part of the Ouhai Shareholders’ shares in Ouhai Art School or the assets of Ouhai Art School. The Exclusive Option Agreement, together with the Pledge Guarantee Agreement for Accounts Receivables, the Exclusive Services Agreement, and the Shareholders’ Powers of Attorney, enable Golden Sun Wenzhou to exercise effective control over Ouhai Art School.

The Exclusive Option Agreement remains effective for 10 years, unless terminated earlier by either party pursuant to the agreement or extended by Golden Sun Wenzhou. 

Shareholders’ Powers of Attorney

Under each of the Powers of Attorney, the Ouhai Shareholders authorized Golden Sun Wenzhou to act on their behalf as their exclusive agent and attorney with respect to all rights as shareholders, including but not limited to: (a) attending shareholders’ meetings; (b) exercising all the shareholder’s rights, including voting, that shareholders are entitled to under the laws of China and the Articles of Association, including but not limited to the sale or transfer or pledge or disposition of shares in part or in whole; and (c) designating and appointing on behalf of shareholders the legal representative, the executive director, supervisor, the chief executive officer, and other senior management members of Ouhai Art School.

The Powers of Attorney is irrevocable and continuously valid from the date of execution of the Powers of Attorney, so long as the Ouhai Shareholders are shareholders of Ouhai Art School.

Spousal Consent

The spouse of certain of Ouhai Shareholders agreed, via a spousal consent, to the execution of the “Transaction Documents” including: (a) Exclusive Option Agreement entered into with Golden Sun Wenzhou and Ouhai Art School; (b) Exclusive Education Consulting and Services Agreement entered into with Golden Sun Wenzhou; and (c) Powers of Attorney executed by the Ouhai Art School Shareholder, and the disposal of the shares of Ouhai Art School held by the Ouhai Art School Shareholder and registered in his or her name.

The spouse of certain of the Ouhai Shareholders further undertakes not to make any assertions in connection with the shares of Ouhai Art School which are held by the Ouhai Art School Shareholder. The spouse of the Ouhai Art School Shareholder confirms that the Ouhai Art School Shareholder can perform, amend, or terminate the Transaction Documents without his or her authorization or consent. He or she undertakes to execute all necessary documents and take all necessary actions to ensure appropriate performance of the agreements.

The spouse of certain of the Ouhai Shareholders also undertakes that if he or she obtains any share of Ouhai Art School which are held by the Ouhai Art School Shareholder for any reasons, he or she shall be bound by the Transaction Documents and comply with the obligations thereunder as a shareholder of Ouhai Art School. For this purpose, upon Golden Sun Wenzhou’s request, he or she shall sign a series of written documents in substantially the same format and content as the Transaction Documents and Exclusive Services Agreement (as amended from time to time).

Chongwen Middle School

On August 19, 2015, the Company, through its wholly-own subsidiary, Golden Sun Shanghai, entered into an entrustment agreement (“Entrustment Agreement”) with Chongwen Middle School and Xueyuan Weng for the period from September 1, 2015 to August 31, 2023, and may be renewed for an additional seven years if elected. The Entrustment Agreement was subsequently amended on March 1, 2021, pursuant to the Entrustment Agreement, as amended, Golden Sun Shanghai has the exclusive right to control the operations of Chongwen Middle School, including making operational and financial decisions. In return, the Company is entitled to receive the residual return from Chongwen Middle School’s operation and at the same time to bear the risk of loss from the operation. Prior to the amendment to the Entrustment Agreement, the sponsors of Chongwen had the right to receive a fixed amount of return on annual basis, and we paid to the sponsors RMB1.6M for each of the school years of 2015, 2016, 2017 and 2018, and RMB2.0M for each of the school year of 2019 and 2020.  

In 2016, the Law of the People’s Republic of China on the Promotion of Privately-run Schools was amended, which became effective in 2017, and was further amended in 2018. The 2016 amendment prohibits sponsors of not-for-profit schools to receive proceeds from school operation. Accordingly, the Entrustment Agreement was amended on March 1, 2021, pursuant to which, the sponsors will no longer receive the fixed amount of return on annual basis beginning in 2021. On March 3, 2021, Chongwen Middle School submitted a formal letter to the local education government authority asking that the authority to: (1) confirm the legality of the amendment to the Entrustment Agreement and (2) declare that no penalties or punishment will be imposed upon Chongwen Middle School and its sponsors for the payments made to the sponsors after the 2016 amendment to the Law of the People’s Republic of China on the Promotion of Privately-run Schools became effective on September 1, 2017. On March 15, 2021, Chongwen Middle School received an official letter from the local government authority (1) confirming the legality of the amendment to the Entrustment Agreement and (2) declaring that no penalties or punishment will be imposed upon Chongwen Middle School and its sponsors for the payments made to the sponsors after the 2016 amendment to the Law of the People’s Republic of China on the Promotion of Privately-run Schools became effective on September 1, 2017.

Currently, the shareholders of Chongwen Middle School are Wenzhou City No. 25 Middle School, Dekai Ye, and Xueyuan Weng, and the board of advisors, as the Chongwen Middle School’s highest authority, is composed of five members, three of them were appointed by each three shareholders of Chongwen Middle School, the local education bureau appointed one director, and all employees of Chongwen Middle School appointed one director.

In order to ensure our effective control over Chongwen Middle School, as well as the continuous and stable development of Chongwen Middle School, improve the efficiency of Chongwen Middle School and decision-making, and ensure the rights and interests of faculty and staff, on June 28, 2020, Xueyuan Weng, Dekai Ye, and Min Wang (representative of all employees of Chongwen Middle School) signed a Concerted Action Agreement pursuant to which the parties agreed that: (1) Dekai Ye shall act in concert with Xueyuan Weng on matters that shall be discussed and approved by the board of advisors of Chongwen Middle School, such as recommending advisors to sit on the board, and proposals for resolutions; (2) without infringing on the rights and interests of faculty, Min Wang, representing all employees, shall act in concert with Xueyuan Weng on matters that shall be discussed and approved by the board of advisors. As support to Min Wang’s authority to represent all employees of Chongwen Middle School, the workers’ congress passed a resolution to authorize Min Wang to sign the Concerted Action Agreement on June 28, 2020.

In the opinion of Zhong Lun, our PRC counsel:

However, there are substantial uncertainties regarding the interpretation and application of current and future PRC laws, regulations, and rules. Especially, the Implementing Regulation, which was promulgated on April 7, 2021 and will become effective in September 1, 2021, prohibits private schools that provide compulsory education to be controlled by means of agreements or to enter into any transactions with any related parties. The Implementing Regulation is silent on the legality of VIE structures that had been set up prior to its promulgation and we cannot predict how our existing VIE Arrangements will be affected when the Implementing Regulation becomes effective. See “Regulations – Regulations related to Private Education - 3. Implementation Rules for the Law for Promoting Private Education of PRC.” Accordingly, the PRC regulatory authorities may in the future take a view that is contrary to or otherwise different from the above opinion of our PRC counsel. It is uncertain whether any new PRC laws or regulations relating to VIE structures will be adopted or if adopted, what they would provide. If the PRC government finds that the agreements that establish the structure for the operation of Ouhai Art School or Chongwen Middle School do not comply with PRC government restrictions on foreign investment in our business, we could be subject to severe penalties including being prohibited from continuing operations. See “Risk Factors—Risks Relating to Our Corporate Structure—If the PRC government deems that the VIE Arrangements do not comply with PRC regulatory restrictions on foreign investment in the relevant industries, or if these regulations or the interpretation of existing regulations change in the future, we could be subject to severe penalties or be forced to relinquish our interests in those operations” and “Risk Factors—Risks Relating to Doing Business in the PRC—Uncertainties in the interpretation and enforcement of PRC laws and regulations could limit the legal protection available to you and us” for more details.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the section headed “Selected Consolidated Financial and Operating Data” and our consolidated financial statements and the related notes included elsewhere in this prospectus. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors” and elsewhere in this prospectus.

Overview

We are engaged in the provision of education and management services in the People’s Republic of China (“PRC”). We offer private educational services in primary and secondary schools, tutorial foreign language education services and education and other management services. We generate revenues from the following primary sources: (i) primary and secondary education services and, (ii) tutorial services and other education management services.

During the fiscal year ended September 30, 2020 (“fiscal year 2020”), our revenue decreased by approximately 8%, to approximately $14.0 million from $15.2 million for the fiscal year ended September 30, 2019 (“fiscal year 2019”). In fiscal year 2020, our net income decreased by approximately 98% to approximately $0.05 million in fiscal year 2020 from $3.5 million in fiscal year 2019. The decrease in revenue primarily attributable to negative impact on our tutorial service revenue in 2020 due to restrictions on in-person tutorial sessions caused by the outbreak of COVID-19 as well as less demands for our foreign language tutoring program due to the international travel ban or strict rules imposed by many countries in an effort to curb the spread of the virus. The decrease in net income was primarily attributable to the significant increase in general and administrative expenses, including the increased rent and salary expenses related to the new established entity, Qinshang Education; loss related to disposition of fixed assets; loss from expropriation of land use rights; and consulting and professional fees incurred related to our efforts to apply for the listing in Nasdaq capital market. Our primary and secondary schools revenue represented approximately 46% and 45% of total revenue in fiscal year 2020 and fiscal year 2019, respectively.

Factors Affecting Our Results of Operations

We believe the most significant factors that affect our business and results of operations include the following:

Because of the significant uncertainties surrounding the COVID-19 outbreak, the extent of the business disruption and the related financial impact due to any potential resurgence of COVID-19 cannot be reasonably estimated at this time.

Results of Operations

For the years ended September 30, 2020 and 2019

Impact of COVID-19

Beginning in late 2019, an outbreak of a novel strain of coronavirus (COVID-19) first emerged in China and has spread globally. In March 2020, the World Health Organization (“WHO”) declared the COVID-19 as a pandemic. Governments in affected countries are imposing travel bans, quarantines and other emergency public health measures, which have caused material disruption to businesses globally resulting in an economic slowdown. These measures, though intended to be temporary in nature, may continue and increase depending on developments in the COVID-19 outbreak or any reoccurrence of an outbreak.

Yangtze River Delta, where we conduct a substantial part of our business, was heavily impacted by COVID-19. We followed the recommendations of local health authorities to minimize exposure risk for our schools and tutorial centers, including the postponement of commencement of new semester, temporary closure of our tutorial centers and suspension of other office activities, and remote teaching. Our in-person classes has resumed gradually since April 2020.

The COVID-19 outbreak had limited impact on our results of operations and financial conditions for our primary and secondary schools, because we provided remote education to those students. The COVID-19 outbreak had however a significant negative impact on our tutorial services in fiscal year 2020. Revenue from our tutorial program decreased by 14%, or approximately $1.1 million, from $7.9 million in fiscal year 2019 to $6.8 million in fiscal year 2020, due to the closure of tutoring classes as a result of restrictions on in-person sessions caused by COVID-19 for the period from January 2020 to April 2020.

The full extent to which the COVID-19 outbreak in China impacts our financial condition and results of operations for our fiscal year ending September 30, 2021 is uncertain and will depend on future developments that currently cannot be predicted, including new information which may emerge concerning the severity of the COVID-19 outbreak and the actions necessary to contain the COVID-19 outbreak or treat its impact, the disruption to the general business activities of China and the impact on the economic growth and business of our production facility and distributors for the foreseeable future, among others.

In light of this uncertainty, we are closely monitoring the development of the COVID-19 pandemic and will plan to continually assess its potential impact to our business. We have observed a decrease in net income of approximately $3.5 million in fiscal year 2020 compared to net income of fiscal year 2019. However, we expect our net income for the fiscal year ending September 30, 2021 to increase and keep at least at the same level as fiscal year 2019 as we expect our revenue from our tutorial services to pick up again and we won’t expect some of the same significant expenses to recur in the coming year. 

Revenue

We generate revenues from the following main sources: (i) primary and secondary education services, (ii) tutorial service and (iii) other education management service. The following table sets forth the breakdown of our revenue for the periods presented:

Revenue decreased approximately $1.2 million, or 8%, to approximately $14.0 million for fiscal year 2020 from approximately $15.2 million in fiscal year 2019. The decrease in revenue was mainly due to an approximately $1.1 million decrease in tutorial service revenue in fiscal year 2020 as a result of the COVID-19 impact.

Primary and secondary education services

Primary and secondary schools education revenue decreased approximately $0.3 million or 5% to approximately $6.5 million in fiscal year 2020 from approximately $6.8 million in fiscal year 2019. With remote learning in effect mandated by the COVID-19 lockdown and no students staying on campus, we received less boarding and meal revenue from February to early April 2020. The total number of students enrolled in education services of our schools increased from 2,004 in fiscal year 2019 to 2,076 students in fiscal year 2020. The average revenue recognized per student for primary and secondary schools decreased by 8% from $3,403 per student in fiscal year 2019 to $3,118 per student in fiscal year 2020.

Tutorial services

Our tutorial services revenue decreased approximately $1.1 million, or 14%, to approximately $6.8 million in fiscal year 2020 from approximately $7.9 million in fiscal year 2019. The COVID-19 outbreak had a significant negative impact on our tutorial services in fiscal year 2020, due to restrictions on in-person sessions as a result of COVID-19 mandates, which significantly reduced the class sessions offered to our students. Our foreign language tutoring program for those who wants to study abroad took a hit as students changed their plan of going abroad for higher education due to the international travel ban or strict rules imposed by many countries in an effort to curb the spread of the virus. Although our total registered number of student enrollment in tutorial programs increased by 2,020 from an aggregate of 7,537 students in fiscal year 2019 to an aggregate of 9,557 students in fiscal year 2020, our average revenue recognized per student decreased by $337 from $1,052 per student in fiscal year 2019 to $714 per student in fiscal year 2020.

Other education management services

Our other education management services revenue increased approximately $0.2 million, or 57%, to approximately $0.7 million in fiscal year 2020 from approximately $0.4 million in fiscal year 2029. The increase was due to increase in our management consulting services offered to our affiliated schools and kindergartens. 

Cost of Revenues

Cost of revenues increased by approximately $0.6 million, or 9%, to approximately $7.7 million in fiscal year 2020 from approximately $7.1 million in fiscal year 2019. The higher cost of revenue in fiscal year 2020 was primarily due to (i) compensation to our teachers and staff increased by an approximately $0.4 million due to increased headcount in Chongwen Middle School and a new entity Qinshang Education; (ii) cafeteria costs increased by an approximately $0.2 million in Yangfushan Tutorial because we took over the operation of cafeteria since August 2019. The initial costs of self-operations can be a little more expensive but we will see the benefit in the long-term. Operating the cafeteria in Yangfushan Tutorial by ourselves instead of outsourcing to third parties can create more cafeteria revenue as well as enhance food safety.

Gross profit

Gross profit decreased by approximately $1.8 million, or 23%, to approximately $6.3 million in fiscal year 2020 from approximately $8.1 million in fiscal year 2019. Overall gross profit margin was approximately 45% in fiscal year 2020, as compared to approximately 54% in fiscal year 2019.

Gross profit of primary and secondary education services decreased by approximately $0.8 million, consisted of $0.3 million decrease in revenue and $0.5 million increase in cost. With less boarding and meal revenue and increased labor cost, gross profit margin of primary and secondary education services decreased from 52% in fiscal year 2019 to 42% in fiscal year 2020. Gross profit of tutorial services decreased by approximately $1.1 million primarily due to decreased revenue. Decreased cost from Hongkou School, Hangzhou Jicai and Shanghai Jicai, offset by the increased cost from Yangfushan Tutorial and Qinshang Education since December 2019 upon establishment. Overall, our cost of tutorial services was almost equivalent to that of fiscal year 2019. As a result, gross profit margin of tutorial services decreased from 56% in fiscal year 2019 to 49% in fiscal year 2020. Gross profit of other education management services increased by approximately $0.1 million as we offered more management consulting services to our affiliated schools and kindergartens. 

Operating Expenses

Operating expenses increased by approximately $2.2 million or 63% from approximately $3.4 million in fiscal year 2019 to approximately $5.6 million in fiscal year 2020. The increase in operating expenses was mainly due to approximately $2.0 million increase in general and administrative expenses in the fiscal years ended September 30, 2020.

Selling expenses

Selling expenses increased by approximately $0.2 million to approximately $0.8 million in fiscal year 2020 as compared to approximately $0.6 million in fiscal year 2019. We initiated more advertising and marketing activities to publicize non-English foreign language tutorial program and attract more middle school students. In fiscal year 2020, the Company incurred total of $0.3 million commission type fee paid to related agents to facilitate the related enrollment. The cost of $0.3 million is considered as the incremental costs of obtaining contracts and shall be capitalized and amortize over training service period. In fiscal year 2020, we recognized contract acquisition cost of $0.16 million and recorded related amortization costs of $0.12 million in the selling expense. In fiscal year 2019, there was no similar contract costs incurred.

General and administrative expenses

General and administrative expenses increased by approximately $2.0 million, or 69%, to approximately $4.8 million in fiscal year 2020 from approximately $2.8 million in fiscal year 2019. As a percentage of revenues, general and administrative expenses represented approximately 34% and 19% of our total revenues in fiscal year 2020 and 2019, respectively. The increase of general and administrative expenses was primarily attributable to the increase of rent and salary expenses of $0.5 million related to the new entity Qinshang Education, loss related to disposition of fixed assets of $0.3 million, loss from expropriation of land use rights of $0.5 million, and consulting and professional fees of $0.3 million incurred related to our efforts to launch our initial public offering. Much of the increase in general and administrative expenses are non-recurring and we do not expect to incur the same significant increase in general administrative expenses in the coming years.

Interest expense

Our net interest expense was approximately $0.6 million and $0.1 million in fiscal years 2020 and 2019, respectively. As of September 30, 2020 and 2019, we had an aggregate of approximately $3.3 million and $2.5 million bank loan balances outstanding, respectively, and we paid 8% interest on a note payable with balance of $3.9 million as of September 30, 2020. The average interest rate was approximately 7.2% and 7.6% in fiscal year 2020 and 2019 for the bank loans, respectively. In fiscal year 2020, we also recorded interest expense of approximately $0.3 million on note payable.

Income before income taxes

Income before income tax was approximately $0.3 million and $4.6 million in fiscal year 2020 and 2019, respectively. The decrease of approximately $4.3 million was primarily attributable to lower revenue and significantly higher general and administrative expenses occurred in fiscal year 2020 as stated above.

Provision for income taxes

Income tax provision was $0.3 million and $1.1 million in fiscal year 2020 and 2019, respectively. The decreased income tax provision was in line with decreased taxable income in the fiscal year ended September 30, 2020.

Under the Enterprise Income Tax (“EIT”) Law of PRC, domestic enterprises and Foreign Investment Enterprises (the “FIE”) are usually subject to a unified 25% enterprise income tax rate while preferential tax rates, tax holidays and even tax exemption may be granted on a case-by-case basis. According to the Law on the Promotion of Private Education (“2016 Private Education Law”) effective as of September 1, 2017, private schools may enjoy preferential tax treatment, and will be entitled to similar tax benefits as public schools. Our VIEs and subsidiaries are subject to statutory 25% income tax rate. Yangfushan Tutorial is entitled to preferential rate of 10% as a qualified as “small-scaled minimal profit enterprise.” Our other VIEs and PRC subsidiaries are subject to statutory 25% income tax rate.

Net income

Our net income was approximately $0.05 million in fiscal year 2020, representing a significant decrease of approximately $3.5 million from net income of approximately $3.5 million in fiscal year 2019. The decrease was primarily due to lower revenue and significantly higher general and administrative expenses in fiscal year 2020 as stated above.

Liquidity and Capital Resources

In assessing its liquidity, management monitors and analyzes the Company’s cash on-hand, its ability to generate sufficient revenue sources in the future, and its operating and capital expenditure commitments. For the years ended September 30, 2020 and 2019, the Company recorded net profit of approximately $0.05 million and $3.5 million, respectively, and the Company generated positive cash flow from operation of approximately $1.2 million and $6.8 million, respectively. While the Company had a negative working capital of approximately $13.9 million as of September 30, 2020, which was largely attributed to unearned tuition advances of approximately $10.0 million. These deferred tuition payments will be recognized as revenue in the next fiscal year when the services are provided. The Company has historically funded its working capital needs primarily from operations, bank loans, and advances from shareholders and intends to continue doing so in the near future.

Yangtze River Delta, where we conduct a substantial part of our business, was heavily impacted by COVID-19. We followed the recommendations of local health authorities to minimize exposure risk for our schools and tutorial centers, including the postponement of commencement of new semester, temporary closure of our tutorial centers and suspension of other office activities, and conducting remote teaching. The in-person classes of our primary and secondary schools have gradually resumed since April 2020. 

The COVID-19 outbreak had limited impact on our results of operations and financial conditions for our primary and secondary schools, because we were able to provide remote education to those students. Primary and secondary schools education revenue only decreased approximately $0.3 million or 5% to approximately $6.5 million in fiscal year 2020 from approximately $6.8 million in fiscal year 2019. The COVID-19 outbreak had however a significant negative impact on our tutorial services in fiscal year 2020. Revenue from our tutorial program decreased by 14%, or approximately $1.1 million, from $7.9 million in fiscal year 2019 to $6.8 million in fiscal year 2020, due to the closure of tutoring classes as a result of restrictions on in-person sessions caused by COVID-19 for the period from January 2020 to April 2020, as well as less demands for our foreign language tutoring program due to the international travel ban or strict rules imposed by many countries in an effort to curb the spread of the virus.

The Company currently plans to fund its operations mainly through cash flow from its operations, renewal of bank borrowings, supports from controlling shareholders if necessary, to ensure sufficient working capital. As of September 30, 2020, the Company had cash on hand of approximately $3.2 million and outstanding bank loans of approximately $3.3 million. Management expects that it would be able to renew all of its existing bank loans upon their maturity based on past experience and the Company’s good credit history. The Company believes that its cash on hand and internally generated cash flows will be sufficient to fund its operations over at least the next 12 months from the date of this report. However, the Company may need additional cash resources in the future if the Company experiences changed business conditions or other developments, and may also need additional cash resources in the future if the Company wishes to pursue opportunities for investment, acquisition, strategic cooperation or other similar actions. If it is determined that the cash requirements exceed the Company’s amounts of cash on hand, the Company may seek to issue additional debt or obtain financial supports from shareholders. The principal shareholder of the Company has made pledges to provide financial support to the Company whenever necessary.

Cash flows

For the years ended September 30, 2020 and 2019

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

Operating Activities

Net cash provided by operating activities was approximately $1.2 million in fiscal year 2020, compared to net cash provided by operating activities of approximately $6.8 million in fiscal year 2019. Net cash provided by operating activities in fiscal year 2020 mainly consisted of adjustments of $1.4 million non-cash items, an increase of approximately $0.8 million in deferred revenue, an increase of $0.5 million in tax payables, offset by an increase of approximately $0.7 million in prepayments and a decrease of approximately $0.8 million in accounts payable. 

Net cash provided by operating activities was approximately $6.8 million in fiscal year 2019, mainly consisted of approximately $3.5 million of net income, adjustments of $0.9 million non-cash items, an increase of approximately $1.3 million in deferred revenue due to more fees collected from the increasing number of students enrolled in our primary and secondary schools and an increase of $1.1 million tax payable due to higher taxable income. 

Investing Activities

Net cash used in investing activities was approximately $1.6 million in fiscal year 2020, mainly consisted of approximately $1.7 million to purchase of property and equipment used in school operation.

Net cash used in investing activities was approximately $0.6 million in fiscal year 2019 to purchase of property and equipment used in school operation. 

Financing Activities

Net cash provided by financing activities was approximately $0.4 million in fiscal year 2020, including net proceeds from bank loans of approximately $0.7 million, payment of approximately $0.3 million of issuance cost and repayment of note payable of $0.2 million.

Net cash used in financing activities was approximately $4.0 million in fiscal year 2019, primarily including repayment of due to related party of $5.1 million and repayment of note payable of $0.9 million, offset by the net proceeds from bank loans of approximately $1.9 million. 

Capital Expenditures

Our capital expenditures consist primarily of additions to fixed assets as a result of our business growth. Our capital expenditures amounted to approximately $1.7 million and $0.6 million in fiscal year 2020 and 2019, respectively.

Contractual Obligations 

We had various outstanding bank loans of approximately $3.3 million as of September 30, 2020. We have also entered into non-cancellable operating lease agreements for an office and operating facility. The leases are expiring through 2029.

The following table sets forth our contractual obligations and commercial commitments as of September 30, 2020:

Off-balance Sheet Commitments and Arrangements 

As of September 30, 2020, we have capital injection obligation in five entities totaled $10,289,124. Pursuant to the Chinese company laws, the timing of the contribution to the registered capital is specified in the article of incorporation, the remaining contribution can be made before year 2030, unless any subsequent shareholder meeting adjusts this capital injection plan.

Except for the capital injection obligation mentioned above, there were no off-balance sheet arrangements for the years ended September 30, 2020 and 2019, that have or that in the opinion of the management are likely to have, a current or future material effect on our financial condition or results of operations.

Impact of Inflation

We do not believe the impact of inflation on our Company is material. Our operations are in China and China’s inflation rates have been relatively stable in the last three years: approximately 2.1% in 2018, 2.9% in 2019 and 2.5% in 2020. 

Critical Accounting Policies

We prepare our consolidated financial statements in conformity with U.S. GAAP, which requires us to make judgments, estimates and assumptions that affect our reported amount of assets, liabilities, revenue, costs and expenses, and any related disclosures. Although there were no material changes made to the accounting estimates and assumptions in the past two years, we continually evaluate these estimates and assumptions based on the most recently available information, our own historical experience and various other assumptions that we believe to be reasonable under the circumstances. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from our expectations as a result of changes in our estimates.

We believe that the following accounting policies involve a higher degree of judgment and complexity in their application and require us to make significant accounting estimates. Accordingly, these are the policies we believe are the most critical to understanding and evaluating our consolidated financial condition and results of operations.

Uses of estimates

In preparing the consolidated financial statements in conformity with U.S. GAAP, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates are based on information as of the date of the consolidated financial statements. Significant estimates required to be made by management include, but are not limited to useful lives of property and equipment and intangible assets, the recoverability of long-lived assets, provision necessary for contingent liabilities, revenue recognition and advances from customers, valuation of prepayments and other assets and realization of deferred tax assets. Actual results could differ from those estimates.

Revenue recognition

The Company generates revenues primarily from tuitions fees and other fees collected from services provided. Revenue is recognized when the price is fixed or determinable, persuasive evidence of the arrangement exists, the service is performed or the product is delivered and collectability of the resulting receivable is reasonably assured

The Company has adopted ASC 606, “Revenue from Contracts with Customers” and all subsequent ASUs that modified ASC 606, using the modified retrospective approach for the year ended September 30, 2019 and has elected to apply it retrospectively for the year ended September 30, 2018. ASC 606 establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity’s contracts to provide goods or services to customers. The core principle requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that it expects to be entitled to receive in exchange for those goods or services recognized as performance obligations are satisfied. This new guidance provides a five-step analysis in determining when and how revenue is recognized. Under the new guidance, revenue is recognized when a customer obtains control of promised goods or services and is recognized in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. In addition, the new guidance requires disclosure of the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. 

The Company currently generated its revenue from the following main sources:

Primary and secondary schools revenue

The Company offers primary and secondary schools curriculum educational service, which provides full time curricula and coursework to students. The Company also offers accommodations, other ancillary school activities, tutorial materials and meal catering services for participating students. Tuition fees are generally collected before the beginning of each school year.

Each contract with a student in respect of the educational programs contains multiple performance obligations consisting of the provision of the curriculum education services, accommodations and meal catering services, as well as other ancillary school activities, if applicable, (collectively as “educational services”). These performance obligations are distinct in the context of the contract. The consideration expected to be received is allocated at contract inception among the performance obligations based on their stand-alone selling prices. Revenue attributable to educational services is recognized over time, based on a straight-line basis over the school year, as students simultaneously receive and consume the benefits of these services throughout the service period.

The tuition fees are generally collected in advance are initially recorded as deferred revenue. There are no variable considerations in the contracts with customers, except that the Company approves certain refunds to student who decides to withdraw. The Company generally offers refunds for any remaining classes to students who decide to withdraw from a course within the predetermined period in the contract. The refund is equal to and limited to the amount related to the undelivered classes. The Company estimates and records refund liability for the portion of fees the Company does not expect to retain based on historical refund ratio on a portfolio basis using the expected value method.

Tutorial service revenue

The Company offers various off-campus small-group foreign language tutoring programs. Each contract of tutorial service programs represents a series of distinct services, which is delivery of various courses. The services have substantially the same pattern of transfer to the students, as such, they are considered as a single performance obligation, which is satisfied proportionately based on a straight-line basis over the program term as students simultaneously receive and consume the benefits of these services throughout the program term. The Company is the principal in providing tutorial services as it controls such services before the services are transferred to the customer. The program fees are generally collected in advance and are initially recorded as deferred revenue. Generally, the Company approves refunds for any remaining classes to students who decide to withdraw from a course within the predetermined period in the contract. The refund is equal to and limited to the amount related to the undelivered classes. The Company estimates and records refund liability for the potion the Company does not expect to be entitled based on historical refund ratio on a portfolio basis using the expected value method.  

Other revenues

The Company also provides education and management services to schools and kindergartens, including but not limited to branding, academic management, basic education resources, human resources, procurement and logistics management services. The promised services in each education and management service contract are combined and accounted as a single performance obligation, as the promised services in a contract are not distinct and are considered as a significant integrated service. The revenue is recognized on a straight-line basis over the period of the education and management service, as customers simultaneously receive and consume the benefits of these services throughout the service period.

Practical expedient

As a practical expedient, the Company elects to record the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that the entity otherwise would have recognized is one year or less. The Company has applied the new revenue standard requirements to a portfolio of contracts (or performance obligations) with similar characteristics for transactions where it is expected that the effects on the financial statements of applying the revenue recognition guidance to the portfolio would not differ materially from applying this guidance to the individual contracts (or performance obligations) within that portfolio. Therefore, the Company elects the portfolio approach in applying the new revenue guidance. 

Contract assets

In accordance with ASC340-40-25-1, an entity shall recognize as an asset the incremental costs of obtaining a contract with a customer if the entity expects to recover those costs. Entities sometimes incur costs to obtain a contract that otherwise would not have been incurred. Entities also may incur costs to fulfill a contract before a good or service is provided to a customer. The revenue standard provides guidance on costs to obtain and fulfill a contract that should be recognized as assets. Costs that are recognized as assets are amortized over the period that the related goods or services transfer to the customer, and are periodically reviewed for impairment. Only incremental costs should be recognized as assets. Incremental costs of obtaining a contract are those costs that the entity would not have incurred if the contract had not been obtained.

For the year ended September 30, 2020, in order to develop non-English foreign language tutorial service for middle school students, we incurred total of RMB1.9 million commission type fee paid to related agents to facilitate the related contracts with students for the training service period, generally from 4 to 29 months training service periods. We will not incur such costs if the Company does not enter into the training service contracts with the students, as a result, the cost of RMB1.9 million is considered as the incremental costs of obtaining contracts and shall be capitalized and amortize over training service period. For the year ended September 30, 2020, we recognized contract acquisition cost of RMB1.1 million and recorded related amortization costs of RMB0.9 million in the selling expense. For the year ended September 30, 2019, there was no similar contract costs incurred.

Refund liability

Refund liability mainly relates to the estimated refunds that are expected to be provided to students if they decide they no longer want to take the course. Refund liability estimates are based on historical refund ratio on a portfolio basis using the expected value method.

Cost of revenues

Cost of revenues mainly consists of salaries to instructors and tutors, rental expenses for office space and learning centers, depreciation and amortization of properties and equipment and teaching materials used in the provision of educational services.

Income taxes

In China, the Company accounts for current income taxes in accordance with the laws of the relevant tax authorities. Deferred income taxes are recognized when temporary differences exist between the tax bases of assets and liabilities and their reported amounts in the consolidated financial statements. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period including the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

An uncertain tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. Penalties and interest incurred related to underpayment of income tax are classified as income tax expense in the period incurred. No significant penalties or interest relating to income taxes have been incurred for the years ended September 30, 2020, 2019 and 2018. All of the tax returns of the Company’s subsidiaries in PRC remain subject to examination by the tax authorities for five years from the date of filing.

Entities incorporated in Hong Kong are subject to profits tax in Hong Kong at the rate of 16.5%.

The Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains, or appreciation and there is no taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to us levied by the Government of the Cayman Islands except for stamp duties which may be applicable on instruments executed in, or, after execution, brought within the jurisdiction of the Cayman Islands. No stamp duty is payable in the Cayman Islands on the issue of shares by, or any transfers of shares of, Cayman Islands companies (except those which hold interests in land in the Cayman Islands). There are no exchange control regulations or currency restrictions in the Cayman Islands.

Payments of dividends and capital in respect of our Ordinary Shares will not be subject to taxation in the Cayman Islands and no withholding will be required on the payment of a dividend or capital to any holder of our Ordinary Shares, as the case may be, nor will gains derived from the disposal of our Ordinary Shares be subject to Cayman Islands income or corporation tax. 

Foreign currency translation

The functional currencies of the Company are the local currency of the county in which the subsidiaries operate. The Company’s financial statements are reported using U.S. Dollars. The results of operations and the consolidated statements of cash flows denominated in foreign currencies are translated at the average rates of exchange during the reporting period. Assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the applicable rates of exchange in effect on that date. The equity denominated in the functional currencies is translated at the historical rates of exchange at the time of capital contributions. Because cash flows are translated based on the average translation rates, amounts related to assets and liabilities reported on the consolidated statements of cash flows will not necessarily agree with changes in the corresponding balances on the consolidated balance sheets. Translation adjustments arising from the use of different exchange rates from period to period are included as a separate component in accumulated other comprehensive income included in consolidated statements of changes in equity. Gains and losses from foreign currency transactions are included in the consolidated statement of income and comprehensive income.

Since the Company operates primarily in the PRC, the Company’s functional currency is the Chinese Yuan (“RMB”). The Company’s consolidated financial statements have been translated into the reporting currency of U.S. Dollars (“US$”). The RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions. No representation is made that the RMB amounts could have been, or could be, converted into US$ at the rates used in the translation.

The following table outlines the currency exchange rates that were used in creating the consolidated financial statements in this report:

Comprehensive income

Comprehensive income consists of two components, net income and other comprehensive income (loss). Other comprehensive income (loss) refers to revenue, expenses, gains and losses that under U.S. GAAP are recorded as an element of shareholders’ equity but are excluded from net income. Other comprehensive income (loss) consists of foreign currency translation adjustment resulting from the Company not using US$ as its functional currency.

Segment reporting

In accordance with ASC 280, Segment Reporting, operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker (“CODM”), or decision-making group, in deciding how to allocate resources and in assessing performance. The Company has two operating segments: (i) primary and secondary schools services; (ii) tutorial and other services. The Company’s CODM, who has been identified as the Chief Executive Officer (“CEO”), evaluates performance based on the operating segment’s revenue and their operating results. The Company’s CEO does not review the financial position by operating segments, thus no total assets or liabilities of each operating segment are separately reported. As the Company’s long-lived assets are all located in the PRC and substantially all of the Company’s revenues are derived from the PRC. Therefore, no geographical segments are presented.  

Recent Accounting Pronouncements

The Company considers the applicability and impact of all accounting standards updates (“ASUs”). Management periodically reviews new accounting standards that are issued.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which requires lessees to recognize a right-of-use asset and lease liability on the balance sheet for all leases, including operating leases, with a term in excess of 12 months. The guidance also expands the quantitative and qualitative disclosure requirements. In July 2018, the FASB issued updates to the lease standard making transition requirements less burdensome. The update provides an option to apply the transition provisions of the new standard at its adoption date instead of at the earliest comparative period presented in the company’s financial statements. The new guidance requires the lessee to record operating leases on the balance sheet with a right-of-use asset and corresponding liability for future payment obligations. FASB further issued ASU 2018-11 “Target Improvement” and ASU 2018-20 “Narrow-scope Improvements for Lessors.” In June 2020, the FASB issued ASU No. 2020-05, “Revenue from Contracts with Customers (Topic 606) and Leases (Topic 842) Effective Dates for Certain Entities” (“ASU 2020-05”) in response to the ongoing impacts to businesses in response to the coronavirus (COVID-19) pandemic. ASU 2020-05 provides a limited deferral of the effective dates for implementing previously issued ASU 842 to give some relief to businesses and the difficulties they are facing during the pandemic. ASU 2020-05 affects entities in the “all other” category and public Not-For-Profit entities that have not gone into effect yet regarding ASU 2016-02, Leases (Topic 842). Entities in the “all other” category may defer to fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. As an emerging growth company, the Company will adopt this guidance effective October 1, 2022. The Company is evaluating the impact on its consolidated financial statements. 

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which requires the Company to measure and recognize expected credit losses for financial assets held and not accounted for at fair value through net income. In November 2018, April 2019 and May 2019, the FASB issued ASU No. 2018-19, “Codification Improvements to Topic 326, Financial Instruments - Credit Losses,” “ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses,” “Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments,” and “ASU No. 2019-05, Financial Instruments - Credit Losses (Topic 326): Targeted Transition Relief,” which provided additional implementation guidance on the previously issued ASU. The ASU is effective for fiscal years beginning after December 15, 2020. The ASU requires a modified retrospective adoption method. The Company is still evaluating the impact of adoption on its financial statements and disclosures.

In August 2018, the FASB Accounting Standards Board issued ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework Changes to the Disclosure Requirements for Fair Value Measurement” (“ASU 2018-13”). ASU 2018-13 modifies the disclosure requirements on fair value measurements. ASU 2018-13 is effective for public entities for fiscal years beginning after December 15, 2019, with early adoption permitted for any removed or modified disclosures. The removed and modified disclosures will be adopted on a retrospective basis and the new disclosures will be adopted on a prospective basis. The Company does not expect this guidance will have a material impact on its consolidated financial statements.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740)—Simplifying the Accounting for Income Taxes. ASU 2019-12 is intended to simplify accounting for income taxes. It removes certain exceptions to the general principles in Topic 740 and amends existing guidance to improve consistent application. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years, which is fiscal 2021 for us, with early adoption permitted. The Company does not expect adoption of the new guidance to have a significant impact on the Company’s financial statements.

Except for the above-mentioned pronouncements, there are no new recent issued accounting standards that will have a material impact on the consolidated financial position, statements of operations and cash flows.

INDUSTRY

All the information and data presented in this section have been derived from the industry report of Frost & Sullivan International Limited (“Frost & Sullivan”) commissioned by us in July 2020 entitled “Independent Market Study on China’s Premium Private Primary and Secondary Education, Non-English foreign Language Training and Zhongkao, Gaokao Training Market Study” (the “Industry Report”) unless otherwise noted. Frost & Sullivan has advised us that the statistical and graphical information contained herein is drawn from its database and other sources. The following discussion contains projections for future growth, which may not occur at the rates that are projected or at all.

Education Industry in China

All information and data presented in this section has been derived from the Frost & Sullivan Report. Frost & Sullivan has advised us that the statistical and graphical information contained herein is drawn from its database and other sources. The following discussion includes projections for future growth, which may not occur at the rates that are projected or at all.

ANALYSIS OF CHINA’S PREMIUM PRIVATE PRIMARY AND SECONDARY EDUCATION MARKET

China’s mass education system includes formal and informal education. Formal education is designed and delivered based on the predetermined teaching program of administrative authorities on education. After graduation, students will be granted official certificates/diplomas. Primarily, informal education is comprised of training for hobbies and interests, after-school education for academic subjects, language training, vocational training and higher informal education.

Market Size of China’s Premium Private Primary and Secondary Education Market

Premium private primary and secondary schools refer to private schools whose annual tuition fee is higher than the average per student public fiscal budget on education in each province. The standard for each province is very different considering the economic development and the fiscal budget of the province.

The total revenue of premium private primary and secondary education grows at a faster compound annual growth rate (“CAGR”) of 18.2% from 2015 to 2019 comparing with the overall private primary and secondary education, which was 9.4% during the same period. The market is expected to keep growing at a high CAGR in the coming years from 2019 to 2024, driven by the increasing income of Chinese households and their increasing expectation for quality of education.

Total Revenue of Premium Private Primary and Secondary Education (China), 2015 – 2024E

Source: Frost & Sullivan

The number of student enrollments in premium private primary and secondary schools accounts for around 20% of the total student enrollment in private primary and secondary schools in China. From 2015 to 2019, the number of students enrolled in premium private primary and secondary schools increased from 2.6 million to 3.9 million, representing a CAGR of approximately 10.7%. High school is the fastest growing segment with a CAGR of approximately 12.9%.

Total Number of Student Enrolments of Premium Private Primary and Secondary Education (China), 2015 – 2024E

Source: Frost & Sullivan

Market Size of Yangtze River Delta’s Premium Private Primary and Secondary Education Market

The average annual tuition fee of premium private education in Yangtze River Delta, which includes Shanghai, Zhejiang and Jiangsu, is within the range of RMB20,000-100,000.

The total revenue of premium private primary and secondary education in the region grew from RMB9.0 billion in 2014 to RMB15.8 billion in 2019 with a CAGR of approximately 15.1%. The revenue is expected to grow to RMB29.7 billion in 2024, mainly due to the higher disposable income and expenditure on education of residents in Yangtze River Delta.

Total Revenue of Premium Private Primary and Secondary Education (Yangtze River Delta), 2015 – 2024E

Source: Frost & Sullivan

The number of students enrolled in premium private primary and secondary schools in Yangtze River Delta increased from 384,700 in 2015 to 507,8000 in 2019, representing a CAGR of approximately 7.2%. Going forward, the total number enrollments is likely to grow to 679,500 in 2024 with a CAGR of approximately 6.0% from 2019 to 2024.

Total Number of Student Enrollments of Premium Private Primary and Secondary Education (Yangtze River Delta), 2015 – 2024E

Source: Frost & Sullivan

Market Drivers of China and Yangtze River Delta’s Premium Private Primary and Secondary Education Market

Great Attention on Children’s Education of Chinese Households: In China, children’s education has always been highly valued by parents. As long as their children receive high-quality education, parents have strong willingness to afford great cost. In addition, there are emerging Chinese parents who would like their children to receive not only exam-oriented education, but also differentiated education such as art and music training, which are usually provided by some premium private schools. Under this trend, the development of private primary and secondary education is likely to grow.

Supports from Central and Local Government: Since the 1980s, the Chinese government, both at Central and Local level, has launched a series of policies to encourage the development of private education institutions. In some regions, local government has taken many favorable policies to attract well-branded private schools to establish local branch such as free land, financial support for campus building and so on.

Improved Investment on Private Education of the Entire Society: The Chinese government has issued several regulations such as the Private Education Promotion Law to promote the development of private education. Advocated by the government and driven by market demand, the entire Chinese society has paid great attention to the development of private education. Many private capitals are interested in this field and have invested in the market. Under this circumstance, private primary and secondary education industry is likely to enjoy more investment from different sources and benefit from this trend.

Increase of Income and Wealth: As China’s economy grows, the disposable income of Chinese citizens has increased tremendously, from RMB34,700 in 2015 to RMB48,600 in 2019 with a CAGR of approximately 8.8%. Additionally, with more disposable income, Chinese are likely to further increase their investment in education, as most Chinese families highly value the importance of education of their children.

Competitive Landscape of Premium Private Primary and Secondary Education Market in Yangtze Delta

The premium private primary and secondary education market in Yangtze Delta is rather fragmented. In 2019, the top five providers together only occupied 17.1% of the market share in terms of student enrollments.

The student enrollments of the Company was 1,493 in 2019, taking approximately 0.3% market share in the premium private primary and secondary education market in Yangtze River Delta.

Source: Frost & Sullivan

Opportunities and Challenges of China and Yangtze River Delta’s Premium Private Primary and Secondary Education Market

Opportunities:

Increasing Demand of High-quality Education: The requirements of Chinese residents on educational resources, such as teachers, campus environment, and educational facilities are rising in recent years. Up to now, high-quality educational resources in China are still limited. In most cases, the limited education resources were unequally allocated in different schools. Chinese parents always tend to seek the schools with high-quality educational resources for their children.

Asset-light Development Model: Premium private primary and secondary school operators with high brand recognition and reputation could expand their business by hosting public and private schools and output education consultation and management services without owning the schools. The asset-light development model provides a large potential market for premium private school operators as the customer base is rather large in China.

Challenges:

Dominance of Public Education: Compared with public education system, private education is still in a developing stage in mainland China. Public education is dominant and has taken a majority of educational resources. For example, over 90 percent of public educational funds were spent on public schools. Additionally, a vast majority of teachers, approximately 90%, work in public schools. Therefore, most Chinese still default to attend public schools for primary and secondary education. It is not easy to change this status quo. Generally, public schools have longer history than private schools; hence, many believe public schools are more experienced and trustworthy. Also, private schools typically charge higher tuitions and fees than public schools. This has set barriers for many Chinese households who want to send their children to private schools. However, the continuous growth of Chinese people’s disposable income and wealth is likely to help weaken this negative challenge.

ANALYSIS OF CHINA’S NON-ENGLISH FOREIGN LANGUAGE TRAINING SERVICES MARKET

Non-English foreign languages refer to all the foreign languages other than English. China’s Non-English Foreign Language Training Market is defined as non-English foreign language teaching and training services market where students obtain non-English foreign language training and training services provided by training institutions. The services could be provided either online or offline. The market is further segmented into interest-oriented, study/work-oriented and College entrance examination, or Gaokao-oriented non-English foreign language trainings.

Market Size of China’s Non-English Foreign Language Training Services Market

The market of non-English foreign language training services increased from RMB10.7 billion in 2015 to RMB21.2 billion in 2019, representing a CAGR of approximately 18.6%, mainly due to the growing popularity of non-English foreign language among Chinese. In 2020, the market dropped due to the spread of COVID-19. However, it is expected that the market will recover soon after the spread of the disease is largely controlled in China.

Going forward, the market is likely to keep the growing trend as non-English foreign language talents are becoming increasingly important in China. The market is forecasted to grow at a CAGR of approximately 16.1% from 2019 to 2024, reaching RMB44.7 billion in 2024.

Japanese training services accounts for the largest part in the non-English foreign language training services market in China. In 2019, Japanese took approximately 53.8% of the total market share. Spanish accounted for approximately 3.3% of the total market in 2019, increasing from approximately 2.8% of the total market in 2015. The market is expected to keep the fast growing pace due to the promotion of non-English foreign language test in Gaokao.

Revenue of Non-English Foreign Language Training Services Market (China), 2015 – 2024E

Source: Frost & Sullivan

Market Drivers of China’s Non-English Foreign Language Training Services Market

Growing Number of Students Studying Abroad: Over the past years, the number of Chinese students studying abroad has been growing and China has become the world’s largest student origin country. As of 2019, the number of students to start studying abroad was 716,200. The CAGR of 2015 to 2019 was approximately 8.1%. The number of students studying abroad increased from 1,264,300 to 1,636,500 with a CAGR of approximately 6.7% from 2015 to 2019. Around 25% of the students choose to study in non-English speaking countries. For example, Chinese students studying in Spain increased from 8,400 in 2015 to 13,400 in 2019, representing a CAGR of approximately 12.4%. During the same period, Chinese students studying in Japan increased from 94,100 to 124,400 at a CAGR of 7.2%. Basic language skills are needed in order to live and study in these countries. Under these circumstances, an increasing number of Chinese students are enrolled in non-English foreign language training institutions before going abroad, which drives the development of non-English foreign language training services market.

Increasing Demand for Non-English foreign Language Talents: Chinese enterprises have accelerated their globalization process, creating an increasing demand for bilingual and multilingual talents. Proficiency in non-English foreign language is sometimes essential for conducting various business activities across different companies from other countries. Globalization has also raised the standard of career requirements. The awareness of the importance of non-English foreign language training has prompted an increasing number of adults to improve their language skills.

Competitive landscape of China’s Non-English foreign Language Training Services Market

China’s non-English foreign language training services market is extremely fragmented with top 3 players only accounting for 5.7% market in 2019.

The Company generated approximately RMB33.8 million from non-English foreign language training services in 2019, accounting for approximately 0.2% market share in China.

Source: Frost & Sullivan

China’s Spanish training services market is also fragmented. In 2019, the top 3 providers together took approximately 5.9% market share in terms of revenue.

Company H was China’s largest Spanish training service provider with a revenue of RMB16.9 million, accounting for approximately 2.4% market share in 2019. The Company ranked at the second place with a revenue of RMB13.9 million in 2019 and took approximately 2.0% market share.

Source: Frost & Sullivan

Market Size of China’s Gaokao-oriented Non-English Foreign Language Training Services Market

The market of Gaokao-oriented non-English foreign language training services witnessed a rapid growth from 2015 to 2019. In 2019, this segment reached RMB601.5 million, accounting for approximately 3% of the total non-English foreign language training service market. Compared to other segment of non-English foreign language training services market,this segment is the only segment that is not strongly impacted by the spread of COVID-19 in 2020 because Gaokao was held and students participated in the 2020 Gaokao.

Going forward, the market is expected to grow at a CAGR of approximately 73.7% from 2019 to 2024, reaching RMB9.5 billion in 2024.

Revenue of Gaokao-oriented Non-English foreign Language Training Services Market (China), 2015 – 2024E

Source: Frost & Sullivan

Market Drivers of China’s Gaokao-oriented Non-English Foreign Language Training Services Market

Fierce Competition: Gaokao is the most critical set of examinations for a student in China as many students and their parents believe that it determines the future of a student. Comparing with English, competition for students who take non-English foreign language test in Gaokao is less fierce as the tests are generally easier than that of English. For example, the vocabulary for Japanese test in Gaokao is around 2,000, much less than the number of 3,000 thousand in English test. Hence, students who are not good at English may prefer to choose non-English foreign languages. The tough competition has and is likely to further drive the development of Gaokao-oriented non-English foreign language training services market in China.

Growing Penetration Rate of Non-English Foreign Language Test in Gaokao: The penetration rate of non-English foreign language test in Gaokao is rather low at current stage. In 2019, approximately 0.5% of the total students participating in Gaokao chose non-English foreign language for the foreign language test. However, the PRC government initiated One Road One Belt strategy in recent years to invest in nearly 70 countries and international organizations. In line with the development of One Road One Belt strategy, the PRC government has noticed that it has become increasingly important to foster multilingual talents in order to cooperate with other countries. For example, the Ministry of Education issued the Letter Regarding the Reply to No.0013 (No.006 of Education Category) Proposal of the First Session of the 13th CPPCC National Committee in September 2018. In the letter, the Ministry of Education paid high attention on the set of courses of non-English foreign languages in primary and secondary schools, promoted multilingual curricula and the exams of non-English foreign language in Gaokao and encouraged the development of multilingual talents. In line with the promotion of the non-English foreign language tests, it is expected that around 4% of the total Gaokao takers would choose non-English foreign language by 2024. The growing penetration rate is likely to drive the market in the coming years.

Increasing Disposable Income and Expenditure on Education: Along with the growth of macro economy, the disposable income of Chinese residents has also witnessed stable growth from 2015 to 2019. Benefiting from the growing disposable income, the per capita annual expenditure on education in China grew from RMB1,456 in 2015 to RMB2,132 in 2019. Also, as Chinese parents pay much attention on children’s education and score of Gaokao, it is likely that an increasing share of students choose to take non-English foreign language test in Gaokao would participate in training to achieve higher score. The growing spending on training services is likely to sustain and further drive the development of Gaokao-oriented non-English foreign language training services market in China.

Opportunities and Challenges of China’s Non-English Foreign Language Training Services Market

Opportunities:

Online Education Revolution: With the increasing penetration rate of the Internet and electronic equipment such as laptops and smart phones, the online education market provided new development opportunities to the non-English foreign language training services market. Proper online learning tools and courses, such as live class, are more flexible and convenient for students to arrange study time. The online education enlarges the capability of training service providers as it allows a larger number of students to attend the same class. It also attracts students who are not able to attend offline classes. In addition, new technologies such as big data and artificial intelligence will provide innovation of learning scenes with more accuracy and interactivity. Under this circumstance, the revolution of online education is expected to present great development potential for the market.

Opportunities in Tier 3 and Lower Tier Cities: Compared with residents in tier 1 and tier 2 cities like Beijing and Shanghai, the willingness of taking part in non-English foreign language training of residents in tier 3 and lower tier cities is relatively lower due to the high training fee. The market in tier 3 and lower tier cities still shows large potential for market players. As the consumption power of citizens in tier 3 and lower tier cities increases, expanding the business to tier 3 and lower tier cities is likely to be new growth opportunities for the market players who plan to establish branches in these regions.

Challenges:

Fierce Competition on Resources: The non-English foreign language training services market in China has witnessed a growth in the past five years. With limited human resources in the market, it is extremely important for non-English foreign language training services providers to compete for talents by paying high-level salary and providing friendly working environment to teachers. Players have been competing for highly qualified teachers, as well as seeking for better school locations to attract students. Market players also need to invest on resources such as online software development, equipment updating and renting expenses. The scarcity of resources has become a big threat to the players, especially for small ones.

Increasing Labor Costs and Rental Expenses: As the labor costs increase in recent years, the Gaokao-oriented non-English foreign language training service providers are facing an increasing cost of wages and salaries. As teaching resources are relatively scare in the market, players need to pay higher wages and salaries in order to attract talents. In addition, the learning centers of the institutions are generally located in busy downtown areas in the cities where the rents are high. The increasing operating expenses are a challenge to the operation of Gaokao-oriented non-English foreign language training services operators.

ANALYSIS OF YANGTZE RIVER DELTA’S GAOKAO RETAKE TRAINING SERVICES MARKET

In order to be admitted to colleges in China, upper secondary school students are required to take the college entrance examinations, or Gaokao. Gaokao is the most critical set of examinations for a student as the results determine whether a student will be able to attend a high-ranked college, or any at all, which in turn has a significant impact on the student’s future job prospects. Students whose Gaokao results are not satisfactory may study for another year and retake the examinations the next year. Some of these students take the examinations for more than two times. Retake training service refers to the tutoring provided to students who decide to retake the exams of Gaokao, hoping that they would get better scores the next year.

Benefitting from the favorable policy that public schools are not allowed to enroll former students, the total revenue of specialized schools that provide Gaokao retake training services has witnessed a growth from 2015 to 2019 with a CAGR of approximately 3.6%. The market is likely to continue its growthing in the coming future due to the fierce competition of Gaokao. The number of students enrolled in Gaokao retake training services in Zhejiang increased from 9.1 thousand to 9.8 thousand from 2015 to 2019. The number is forecast to reach 11.4 thousand in 2024. 

Number of Former Students Enrolled in Specialized Gaokao Retake Training Schools (Zhejiang), 2015 – 2024E

Source: Frost & Sullivan

Competitive landscape of Zhejiang’s Gaokao Retake Training Services Market

The Gaokao retake training services market in Zhejiang province is relatively concentrated with dozens of services providers. In 2019, the top five providers together occupied 41.9% of the market share in terms of student enrollments.

Company J was the largest Gaokao retake training services providers in 2019, the total enrollment of Company J was 1.6 thousand students, accounting for 16.3% of the market. Company K ranked at the second place with a number of 1.5 thousand students. The Company ranked at the third place in the Gaokao retake training services market in Zhejiang province. The student enrollments of the Company was 0.4 thousand in 2019, taking approximately 4.1% market share in Zhejiang province. Followed by Company L and Company M, they each had approximately 0.3 thousand students enrolled in 2019.

Source: Frost & Sullivan

Opportunities and Challenges of Yangtze River Delta’s Gaokao Retake Training Services Market

Opportunities:

Increasing Penetration Rate of Specialized Schools: Although public schools are not allowed to enroll former students who want to retake Gaokao according to the Notice of the Ministry of Education on Several Issues about Strengthening School-Running Management of Basic Education issued by the Ministry of Education in February 2020, a large number of students still choose to study in formal upper secondary schools. However, as the supervision becomes stricter in China, it is likely that an increasing share of students would attend specialized schools focusing on providing retake training services in the future.

Challenges:

Growing Concentration Rate: Students and their parents prefer schools with high reputation, and high enrollment rate. Schools with good track record performance can attract more students. Hence the concentration rate of the market is likely to keep growing. It would become harder for small brands without good track record performance to recruit students.

BUSINESS

Overview

We are a premium private education service provider located in the Yangtze River Delta, China and a leading provider of Spanish tutorial services in China according to the Industry Report. Established in 1997 and headquartered in Shanghai, China, we have over 23 years of experience in providing educational services that focus on the development of each of our student’s strengths and potential, and promotion of his or her life-long skills and interests in learning. Through our subsidiaries and VIEs, we operate one premium primary private school, one premium secondary private school, three tutorial centers for children and adults, one educational company that partners with high schools to offer their students language classes, and one logistics company that provides logistic services to our schools and tutorial centers.

For the years ended September 30, 2019 and 2020, 45% and 46% of our total revenue was generated from our premium primary and secondary private schools, Ouhai Art School and Chongwen Middle school, respectively. Premium private schools in China, including our primary and secondary schools, offer higher quality education, more advanced educational facilities and a generally more satisfying learning environment to students through higher tuition fees than non-premium or mass market private schools. Ouhai Art School has been offering quality primary school education to our students since 1997. Besides academic courses, we place great emphasis on cultivating students’ artistic quality, believing that students benefit greatly from early exposure to art and music. Chongwen Middle School offers middle school program to students. Chongwen Middle School covers approximately 3 acres of land with garden-like design, and is equipped with advanced facilities, including designated classrooms for extracurricular courses such as calligraphy, art, dance and Chinese classics, and cafeteria with self-ordering system for students and teachers. The curricula offered at these two premium primary and secondary private schools are based on courses mandated by the PRC regulatory authorities, but are further optimized through our own research and development efforts to suit the learning ability and needs of our students. In 2016, we were recognized as one of the Top 10 Renowned Education Brands in Private Education, an award issued every five years by the China Private Educationist Association.

For the years ended September 30, 2019 and 2020, 52% and 49% of our total revenue was generated from our tutorial centers, respectively. Each of our three tutorial centers focuses on different groups of targeted students by offering different tutorial programs. Yangfushan Tutorial offers Gaokao repeater tutorial program to high school students who retake Gaokao. Yangfushan Tutorial, by contract, is also entrusted to offer high school program education to students of Central Radio & Television Secondary Specialized School. Hongkou Tutorial offer various English and other foreign language tutorial programs and Gaokao and Zhongkao repeater tutorial programs to individual students as well as companies and other organizations. Jicai Tutorial offers non-English foreign language tutorial programs to individual students, companies and other organizations. Our courses offered to repeaters are specifically designed and exam-oriented to ensure their success in the upcoming Gaokao or Zhongkao. As for foreign language tutoring, we offer English, Spanish, German, French and Japanese courses for our students who intend to study abroad for higher education, for individuals seeking jobs that require certain proficiency in these languages, or for companies or organizations whose workers need to have certain proficiency in these languages.

In addition to offering primary and secondary school programs and tutorial programs, we have also been working, through our newly established subsidiary, Qinshang Education Technology Co., Ltd., or Qinshang, to partner with high schools to provide non-English foreign languages (currently Spanish as secondary language) tutoring services to their students since December 2019. As of February 2021, we worked with 41 partner schools serving approximately 1798 students in seven provinces in China. In addition to in-person on-site educational services, Qinshang also plans to provide online remote lessons for those students. Qinshang plans to conduct its foreign language programs following a dual-teacher, online-mobile end-offline learning model. No significant revenue from Qinshang has been recognized or included in the Company’s consolidated financial results for the years ended September 30, 2019 and 2020, because Qinshang started operations in December 2019. However, we believe that non-English foreign language as a subject in Gaokao has great potential to grow and to be chosen by much more Gaokao participants. Due to our strength and reputation in offering non-English foreign language courses to Gaokao participants, we expect Qinshang’s business to continue to grow in the near future. 

Our revenue from providing primary and secondary education services at our primary and secondary schools, i.e., primary and secondary schools revenue, primarily consists of tuition fees and, in some instances, of room and boarding fees. Our revenue from providing tutorial programs at our tutorial centers and Spanish language training program through Qingshang, i.e., tutorial fees revenue, primarily consists of training fees and, in some instances, of room and boarding fees as well. Additionally, we also generate a small percentage of our revenue from providing logistics and consulting services.

Both of our primary and secondary schools are located in Wenzhou city, while our tutorial centers span over eight locations across Wenzhou city and Hangzhou city in Zhejiang province, and Shanghai city, China. The following map illustrates the geographic location of our network of schools, including our primary school, our secondary school, tutorial centers and high schools that we provide remote and on-site non-English foreign languages services to as of the date of this prospectus:

		Our self-owned or managed schools
		Schools we partner with to provide non-English foreign language programs

Our students have achieved outstanding results in various academic examinations and contests, as well as in extra-curricular activities. In 2020, 59.2% of our ninth grade students from Chongwen Middle School were admitted to key high schools on the province level. Students that are enrolled in our basic education programs regularly receive awards for their outstanding performances in competitions of academics, art, sports and other areas. For instance, in 2019, 46 students received award at the city and district levels, and exhibited more than 60 pieces of works; and in 2020, 77 students received award at the city and district levels, and exhibited more than 80 pieces of works. For students enrolled in our repeater programs, 40.1% and 40.3% of our Gaokao repeaters were admitted to Key Universities in China, and 100% and 100% of our Gaokao repeaters were admitted to universities in China; while 98% and 98% of our Zhongkao repeaters were admitted to high schools in each of 2019 and 2020, respectively.

Our revenue increased from approximately $11.9 million for the year ended September 30, 2018 to $15.2 million for the year ended September 30, 2019. Due to the impact of COVID-19, our revenue decreased to $14.0 million for the year ended September 30, 2020. Our net profit amounted to approximately $2.2 million, $3.5 million and $0.05 million for the years ended September 30, 2018 and 2019 and 2020, respectively. The following table sets forth the breakdown of our revenue for the years ended September 30, 2018, 2019 and 2020.

The education sector in China is fast evolving, highly fragmented and competitive, and is subject to government regulations. Pursuant to the Law of the People’s Republic of China on the Promotion of Privately-run Schools amended in 2016 and further amended in 2018, private schools are designated as for-profit and not-for-profit, and the main difference between a for-profit school and a not-for-profit school is whether the sponsor can obtain proceeds from school operation. The sponsor of a not-for-profit school shall not receive proceeds from school operation, and the cash surplus of the school shall be reinvested in the school for its operation. The sponsor of a for-profit private school may receive proceeds from school operation, and the cash surplus of the school shall be disposed of in accordance with the Company Law and other relevant laws and administrative regulations. Furthermore, the measures for the collection of fees by not-for-profit schools shall be formulated by the people’s government of various provinces, autonomous regions and centrally-administrated municipalities, and the charging criteria of for-profit schools are subject to market and shall be determined by the schools themselves. For the purposes of this law, among all of our schools and tutorial centers, Hangzhou Jicai is a for-profit school, and Chongwen Middle School, Ouhai Art School, Yangfushan Tutorial, Shanghai Jicai and Hongkou Tutorial are not-for-profit schools. 

To date, local government regulations of Zhejiang and Shanghai, where our not-for-profit schools are located, have generally allowed school sponsors autonomy in school operations, including autonomy in pricing of tuition fees. Accordingly, local governments in Shanghai and Zhejiang do not directly interfere with the determination of pricing of tuition fees of our not-for-profit schools-, and we are able to charge fees based on market conditions.

As such, to date, the company’s business, operations and revenue have not been affected by the designation of “for-profit” or “not-for-profit”. However, if local governments start to impose restrictions on the charging criteria for the collection of tuition fees by not-for-profit schools, then the revenue of our not-for profit schools could be negatively affected. See “Risk Factors - Our business and results of operations mainly depend on the level of tuition fees and tutorial fees we are able to charge and our ability to maintain and raise tuition fees and tutorial fees.”

Our Competitive Strengths

We believe that the following competitive strengths contribute to our business growth and differentiate us from our competitors:

Unique niche in non-English foreign language education with significant market coverage

Our non-English foreign language tutoring services generated 52% and 49% of our total revenues for the years ended September 30, 2019 and 2020, respectively. We partner with selective high schools throughout China to provide Spanish as secondary language to their students, offering them online lessons as well as on-site support. In 2019, we were the second largest Spanish as secondary language provider in China according to the Industry Report, and our market share of this service market was approximately 2.0% in the entire PRC, and approximately 9.3% in Shanghai, ranking at the first place in the market of Spanish training services market in Shanghai.

We believe that our leadership position, coupled with our strong brand and reputation in the market, have effectively created a substantial barrier to entry to new competitors in Shanghai and surrounding areas for non-English foreign language services, and nationwide for Spanish as a secondary language. We believe that we are well-positioned to compete in the highly fragmented non-English foreign language tutoring services market in China.

Well-positioned in Gaokao repeater tutoring market in Wenhzou City

Yangfushan Tutorial is the only full-time school for Gaokao repeaters in Wenzhou city, China. The campus of Yangfushan Tutorial covers approximately seven acres with a gross floor area, or GFA, of more than 50,000 sq. ft. Over 10 years, Yangfushan Tutorial has served more than 5,000 students, with over 3,500 successfully admitted to 4-year university programs. Currently, a majority of Yangfushan Tutorial’s teachers hold Advanced Teaching Qualifications, the highest primary and secondary school teacher qualification available in China and are recognized as leaders in their respective academic subjects on the county/city levels. Yangfushan Tutorial has been recognized as a Top 10 Gaokao repeater institutions by China Education Net (China’s largest and well-recognized education online resources center) in 2010, and School of Excellence evaluated by the county education bureau in 2018. With a 100% university acceptance rate in Gaokao in 2020, Yangfushan Tutorial has one of the highest acceptance rate and is the third largest in student enrollments among schools offering Gaokao repeater programs in Zhejiang province, and we believe that Yangfushan Tutorial is well-positioned to remain one of the top Gaokao repeater schools in the region.

Consistent high-quality education with excellent teachers

We are committed to provide high quality educational services. We have an excellent and highly-committed team of professional teachers and educational staff. As of March 1, 2021, we employed 384 teachers and educational staff across our primary and secondary schools and tutorial centers. Among these teachers and educational staff, 90.94% held bachelor’s degrees or higher. Our teachers and educational staff have an average of 12.8 years of educational experience. As of March 1, 2021, 3.2% of our teachers held Advanced Teaching Qualifications (高级教师), the highest primary and secondary teacher qualification available in China. We also show our commitment to teaching excellence by following a highly rigorous and selective recruiting policy, providing continuing training in teaching techniques and skills, offering opportunities for career advancement, and encouraging experienced teachers to mentor or give guidance to young teachers. Additionally, to reduce the turn-over rate of our teachers and for consistent education quality, we provide friendly working environment (such as providing employee dormitory and three meals on campus), clear career paths and opportunities to promotion, and competitive benefits and perks. Leveraging our highly-qualified faculty team, we have developed strong research and development capabilities. We have also published textbooks in Spanish, German, and French as second language.

Strong management team with rich education experience

Additionally, our management team has a proven track record in the education and education management industry. In particular, Mr. Xueyuan Weng, our CEO, has extensive experience as an educator and in corporate management. Mr. Weng has served as the CEO of Golden Sun Shanghai since November 2013 and has been involved with our schools and tutorial centers since April 2008. Prior to joining the Company, as a teacher, director and school principal at various schools for over 20 years. He has in-depth understanding of the operations of our Company, our schools and tutorial centers. Under Mr. Weng’s leadership and management, we have become a leading non-English foreign language provider in China.

We believe our management team’s extensive experience in the education sector has provided us with valuable industry insight and management expertise, enabling us to manage our operations and growth and promote our brand as a leading provider of private educational services in China.

Our Growth Strategies

Our goal is to continuously promote and improve our position as a premium private education service provider in the Yangtze River Delta Region and a leading Spanish as secondary language provider in the PRC by pursuing the following growth strategies:

Continue to build our brand and reputation

We plan to continue promoting our “Golden Sun” brand in China’s private education services market. We believe that building our brand and reputation for providing private primary and secondary education and other tutorial services will allow us to reach a broader base of students and increase our market share in student enrollment. We intend to expand our advertising on major Internet portals, the national media and reputable educational publications. We expect to market any newly acquired school using the “Golden Sun” brand in order to enhance our brand recognition in new geographic markets. In addition, we will hire additional school representatives to enhance our recruitment coverage in new regions that we plan to enter into from time to time.

Significantly expand our network of partner schools nationwide to offer Spanish as second language program

We plan to solidify our position as a top Spanish as second language educational services provider by not only ensuring our teachers are highly qualified and provide high quality services, but also significantly expand our network of high school partners. We have entered into cooperative agreements with 41 schools since December 2019. Leveraging our remote courses platform, in the next five years, we plan to work with at least 500 high schools across China to offer to their students Spanish as secondary language program, in order to prepare these students for Gaokao. We plan to achieve this goal by leveraging our sales network, increasing local advertising efforts, referrals made by our current and prospective partner schools, students, teachers and parents, as well as by acquiring non-English foreign language tutorial centers, in order to accelerate our service level and geographical coverage. We plan to partner with at least 100 schools in the next year, and with our development strategy, to greatly increase the number of partner schools from year to year. Our goal is to become the largest Spanish as second language program provider in China, with the most coverage among our competitors.

Expand our network of schools and tutorial centers through various measures and maximize synergies through integration of these entities

We plan to expand our network of schools and tutorial centers by organically establishing non-English foreign language and Gaokao repeater tutorial centers, duplicating our model of providing foreign language tutorial services to schools, and selectively pursuing acquisitions of one language school in the U.S. and one language school in Spain, in order to provide our non-English foreign language students opportunities to further their language studies outside of China. As of the date of this prospectus, we have not identified any particular locality to establish our tutorial centers, nor have we identified target schools for providing management services or identified acquisition target. We look for schools that share a common purpose with us and that focus on creating an environment of strong teaching and academic excellence. We expect the target schools to have an area of at least 10,000 sq. ft. with at least 500 enrolled students, and certified by the Cervantes Institute, a well-recognized non-profit organization created by the Spanish government for the promotion of the Spanish language. We also look for schools with sound financial health in areas with sufficient financial resources and economic foundation to support private education.

Our Schools and Our Tutorial Centers

We currently operate two schools through our PRC affiliated entities, namely Wenzhou Chongwen Middle School (“Chongwen Middle School) and Wenzhou Ouhai Art School (“Ouhai Art School”), and three tutorial centers Wenzhou City Ouhai District Yangfushan Tutorial School (“Yangfushan Tutorial”), Shanghai Hongkou Practical Foreign Language Tutorial School (“Hongkou Tutorial”) and Shanghai Jicai Non-English as Second Language Tutorial School (“Jicai Tutorial”). All of our schools and tutorial centers are located in either Wenzhou city, Hangzhou city, Zhejiang province or Shanghai in China. Through our schools and tutorial centers, we offer educational programs that cover primary and secondary and supplemental tutoring programs. In December, 2019, we established Qinshang to offer non-English foreign language to students enrolled in the high schools we select and partner with throughout the PRC, with a focus on Spanish language.

The following table sets forth the basic information of our schools and tutorial centers as of January 31, 2021.

As of January 31, 2021, we had an aggregate number of 8,920 students, including 707 students in Chongwen Middle School, 806 students in Ouhai Art School, 1,087 students in Yangfushan Tutorial, 851 in Hongkou Tutorial, 3,809 students in Jicai Tutorial and 1,660 in Qingshang Eduction. Our schools and tutorial centers employed an aggregate number of 384 teachers and educational staff and 166 non-teaching staff. We have experienced significant growth since 1997, as the national and local governments in the PRC have adopted various policies to encourage and support the growth of private primary and secondary education in China. Since the commencement of operation of our first school in 1997, an aggregate number of approximately 100,000 students have graduated from our schools and tutorial centers. Our schools and tutorial centers are either located in Wenzhou city, Hangzhou city or Shanghai. As of March 1, 2021, our schools and tutorial centers in aggregate had over 127 multi-media classrooms, all with wifi-coverage, three sports fields and 448 student dormitory rooms.

Our Primary and Secondary Schools

We operate two premium private schools, including one primary school and one secondary school. Typically, premium private schools in China, including our primary and secondary schools, offer higher quality education, more advanced educational facilities and a generally more satisfying learning environment to students through higher tuition fees than non-premium or mass market private schools.

Ouhai Art School has been offering quality primary school education to our students since 1997. Besides academic courses, we place great emphasis on cultivating students’ artistic quality, believing that students benefit greatly from early exposure to in art and music.

Chongwen Middle School is a school sponsored by our CEO and, via the Entrustment Agreement, as amended, entrusted to us to manage. According to the Entrustment Agreement, as amended, we have the exclusive right to control the operations of Chongwen Middle School, including making operational and financial decisions. In return, we are entitled to receive the residual return from Chongwen Middle School’s operation and at the same time to bear the risk of loss from the operation. The equity holders of Chongwen Middle School are not involved in the daily operation decisions of school but instead receive a fixed amount of return on annual basis. The Entrustment Agreement was first entered into on September 1, 2015, and was amended on March 1, 2021. It is valid until September 1, 2023, and may be renewed for another seven years. Chongwen Middle School has the right to terminate the Entrustment Agreement, as amended, unilaterally if any of its provisions are materially breached by us, or a severe accident has happened on campus. Chongwen Middle School offers middle school educations to its students. Before July 2020, Chongwen Middle school also offered a high school program, but we decided to terminate this program after the last class graduated in July 2020 because we believe that it is more profitable for us to focus on middle school student recruitment and education. Chongwen Middle School covers approximately 3 acres of land with garden-like design, and is equipped with advanced facilities, including designated classrooms for extracurricular courses such as calligraphy, art, dance and Chinese classics, and cafeteria with self-ordering system for students and teachers.

The following table summarizes some of the key elements of our basic educational programs for various level:

Both of our primary and secondary schools are boarding schools. We believe students will be offered a better opportunity to foster deeper connections with their teachers and peers for academic development and personal growth while being able to develop their independence and foster a sense of community by boarding and studying on campus with their classmates and have frequent direct access to teachers. Therefore, we incorporate certain design concepts and construct our campus in such a way as to enhance the accommodation experience of our boarding students. All of our students are housed in our boarding facilities. Currently, we have six student dormitory buildings, and each student dormitory building has the capacity to house 300-500 students. Currently, between 300 and 490 students are housed in each building. Average room and boarding fees are RMB1,867 (approximately $266) per school year.

Additionally, we pride ourselves to be able to offer a relatively low student to teacher ratio, because we believe a smaller class allows our teachers to devote more time and attention to each student, promoting interaction between teachers and students and improving quality of learning, student development and teacher-student connection. Despite the increasing demand for our educational services, we continue to control the size of classes in our primary and secondary schools. Each class in our high school and middle school programs typically has no more than 40 students, and each class in our elementary school programs typically has no more than 35 students. Our overall student-teacher ratio of our primary and secondary schools ranges from 11:1 to 14:1 as of the end of the 2018/2020 school year, as compared with the average student-teacher ratio of private primary and secondary schools in China which ranges from 17:1 to 18:1 according to the Industry Report.