EDTK Skillful Craftsman Education Technology Ltd

RISK FACTORS

Investing in our ordinary shares involves a high degree of risk. You should carefully review the risks and uncertainties described under the heading “Risk Factors” in Item 3.D. to our Annual Report on Form 20-F filed with the SEC on August 1, 2022 and incorporated by reference in this prospectus, as the same may be amended, supplemented or superseded by the risks and uncertainties described under similar headings in the other documents that filed after the date hereof and incorporated by reference into this prospectus, before deciding whether to purchase any of the securities being offered. Each of the risk factors could adversely affect the business, operating results and financial condition, as well as adversely affect the value of an investment in our ordinary shares, and the occurrence of any of these risks might cause you to lose all or part of your investment. Additional risks not presently known to us or that we currently believe are immaterial may also significantly impair the business operations.

Risks Related to the Business and Industry

The business of the VIE and our PRC subsidiaries is subject to various evolving PRC laws and regulations regarding data privacy, cybersecurity and personal information protection. Failure of observing data privacy, cybersecurity and personal information protection concerns could subject us, our PRC subsidiaries and the VIE to penalties, damage our, our PRC subsidiaries’ or the VIE’s reputation and brand, and harm the business and results of operations.

We, our PRC subsidiaries and the VIE face significant challenges with respect to cybersecurity and data privacy, including the storage, transmission, and sharing of confidential and private information of users, such as personal information, including names, user accounts, passwords, and payment or transaction-related information. We, our PRC subsidiaries and the VIE are subject to various regulatory requirements relating to cybersecurity and data privacy, including, but not limited to, the Cybersecurity Law of the PRC to ensure the confidentiality, integrity, availability, and authenticity of the information of the users, while providing relevant services.

In addition, regulatory requirements on cybersecurity and data privacy in the PRC are constantly evolving and can be subject to varying interpretations or significant changes, resulting in uncertainties about the scope of our, our PRC subsidiaries’ and the VIE's responsibilities in this regard. On June 10, 2021, the Standing Committee of the National People’s Congress promulgated the Data Security Law of the PRC, which took effect in September 2021. The Data Security Law of the PRC applies to data handling activities and security regulations carried out within the territory of the PRC. However, such activities carried out outside the territory of PRC that may affect national security will be subject to relative regulations, and the data processing activities that may affect national security shall be subject to a security review procedure. We are a Cayman Islands company and the WFOE, Craftsman Wuxi, is considered a foreign-invested enterprise. To comply with PRC laws and regulations, the website, www.kingwayup.com, is operated by the VIE, Wuxi Wangdao, which holds an ICP license for www.kingwayup.com. The WFOE’s subsidiary, Wuxi Talent Home, also holds an ICP license and operate its website. Thus, we, our PRC subsidiaries and the VIE may face the regulation and supervision of national education department, public security organs, state security organs and the state information departments. During the operation, we, our PRC subsidiaries and the VIE also need to collect, use, disclose, retain and secure data provided by the users. Any violation of the regulations of Data Security Law of the PRC may face government enforcement actions and investigations, fines, penalties, suspension of the non-compliant operations, or removal of the application from the relevant application stores, among other sanctions, which could materially and adversely affect the business and results of operations. Furthermore, Personal Information Protection Law of the PRC was published on August 20, 2021 by the Standing Committee of the National People’s Congress and took effect on November 1, 2021, according to which processing outside the territory of PRC of personal information of natural persons within the territory of PRC for the purpose of providing products or services to such natural person shall be regulated, and the processing of personal information shall have a clear and reasonable purpose. When processing personal information, the related rules, purpose, method and scope shall be disclosed. Except for certain exceptional circumstances, a personal information processor shall only process and disclose the personal information of an individual with the consent of such individual.

Under the ever-changing legal system, we, our PRC subsidiaries and the VIE follow the principle of damage prevention in accordance with existing laws and regulations, establish a complaint and reporting system for network information security, publish information on how to make complaints and reports, and receive and handle them in a timely manner; follow the principle of adequate notification, use personal information with the consent of the individual, and follow the principles of legality, legitimacy and necessity. We, our PRC subsidiaries and the VIE have adopted the principle of security management and taken technical and other necessary measures to ensure information security. To prevent the leakage, destruction or loss of personal electronic information of citizens collected in the course of business activities, remedial measures are taken in a timely manner when information leakage, destruction or loss occurs or is likely to occur. Moreover, in order to cope with the changing laws and regulations, we, our PRC subsidiaries and the VIE have made adequate preparations as follows: (i) planning of information collection; we, our PRC subsidiaries and the VIE take inventory of the types of personal information collected, used and stored, the containers and carriers of personal information, the positions of personnel who access, process, analyze and use such personal information internally, and the information systems in which such personal information is stored; (ii) based on the results of information collection, we, our PRC subsidiaries and the VIE assess whether the current status of business operations and system operations meet the requirements of relevant laws and regulations; (iii) we, our PRC subsidiaries and the VIE will regularly implement background checks on personnel, security training, regular network security drills, and security testing and evaluation; (iv) continuous improvement: based on the changes in the business and management information, we, our PRC subsidiaries and the VIE have established a sustainable and complete framework for personal information protection to respond to changing laws and regulations.

Moreover, pursuant to the Cyber security Law of the PRC, which was promulgated by the Standing Committee of the National People’s Congress on November 7, 2016 and took effect on June 1, 2017, personal information and important data collected and generated by a critical information infrastructure operator in the course of its operations in China must be stored in China, and if a critical information infrastructure operator purchases internet products and services that affect or may affect national security, it should be subject to a cyber security review by the CAC. In addition, Measures for Cybersecurity Review, which became effective on June 1, 2020, set forth the cybersecurity review mechanism for critical information infrastructure operators, and provided that critical information infrastructure operators who intend to purchase Internet products and services that affect or may affect national security shall be subject to the cybersecurity review. On July 10, 2021, the CAC published the Measures for Cybersecurity Review (Revised Draft for Comments), which further restated and expanded the applicable scope of the cybersecurity review. On December 28, 2021, the CAC and 12 other regulatory authorities jointly issued the Cybersecurity Review Measures, or the Review Measures, which took effect on February 15, 2022. The Review Measures provides, among others, that (i) the purchase of cyber products and services by critical information infrastructure operators, or the CIIOs, and the network platform operators, or Network Platform Operators, which engage in data processing activities that affect or may affect national security shall be subject to a cybersecurity review by the Cybersecurity Review Office, the department which is responsible for the implementation of cybersecurity review under the CAC; and (ii) the Network Platform Operators with personal information data of more than one million users that seek for listing in a foreign country are obliged to apply for a cybersecurity review by the Cybersecurity Review Office. Such review would focus on the potential risk of core data, important data, or a large amount of personal information being stolen, leaked, destroyed, illegally used or exported out of China, or critical information infrastructure being affected, controlled or maliciously used by foreign governments after such a listing. As advised by our PRC legal counsel, V&T Law Firm, we believe that we, our PRC subsidiaries and the VIE are not required to apply for a cyber security review with the CAC. Since we listed our ordinary shares on the Nasdaq before the effective date of the Review Measures, the requirement of Article 7 of the Review Measures that “Network Platform Operators with personal information of more than one million users that seek for listing in a foreign country are obliged to apply for a cybersecurity review by the Cybersecurity Review Office” should not be applicable to us, our PRC subsidiaries or the VIE. Thus, we, our PRC subsidiaries and the VIE would not be required to apply for a cybersecurity review by the CAC. The Review Measures do not provide any explanation or interpretation of “overseas listing” or “affect or may affect national security,” and the Chinese government may have broad discretion in interpreting and enforcing these laws and regulations. We cannot predict the impact of the Review Measures, if any, at this stage, and we will closely monitor and assess the statutory developments in this regard. However, if the CAC or other regulatory agencies later promulgate new rules or explanations requiring that we, our PRC subsidiaries or the VIE obtain their approvals for this offering and any follow-on offering, we, our PRC subsidiaries or the VIE may be unable to obtain such approvals and may face sanctions by the CAC or other PRC regulatory agencies for failure to seek their approval which could significantly limit or completely hinder our ability to offer or continue to offer securities to our investors and the securities currently being offered may substantially decline in value and be worthless. As of the date of this prospectus, we, our PRC subsidiaries or the VIE has not received any inquiry, notice, warning, or sanctions regarding offshore offerings from the CAC or any other PRC governmental authorities.

Furthermore, we, our PRC subsidiaries and the VIE are subject to various regulations published by the CAC, such as Opinions on Further Compacting the Main Responsibility of the Information Content of the Website Platform issued on September 15, 2021, which requires the Website Platform to act as the one primarily responsible for information content management and the improvement of community platform rules, the strengthening of account management, the optimization of the data review mechanism. We, our PRC subsidiaries and the VIE collect, use, disclose, retain and secure data to the extent reasonably required only and within the parameters that could be reasonably expected during the normal course of business. Moreover, the VIE's education platforms are built upon cloud computing technology. The cloud-based education platform integrates telecommunication networks, broadcast networks and Internet into a unified network and enables a higher amount of data sharing compared to other types of platforms. By leveraging a combination of software, applications and hardware, the VIE provides effective tools like instant computer infrastructures and platforms for its online training programs and content sharing between the VIE and its strategic partners such as universities and vocational schools. With such infrastructures, the VIE can easily develop additional platforms or add additional features to its existing platforms without spending a significant amount of additional time and resources. It also facilitates the connection between its platforms and that of its partner universities. Compared to the VIE's competitors that are using third party cloud system, the data of the VIE's members and their activities on the platforms are not available to third party cloud computing service providers, which increases the data security. We believe that we, our PRC subsidiaries or the VIE has made best efforts to fully comply with the regulations published by the CAC and other PRC governmental authorities. However, advances in technology, the expertise of hackers, new discoveries in the field of cryptography or other events or developments could result in a compromise or breach of the technology that we, our PRC subsidiaries or the VIE uses to protect confidential information. If we, our PRC subsidiaries or the VIE is unable to protect the systems, and hence the information stored in the systems, from unauthorized access, use, disclosure, disruption, modification, or destruction, such problems or security breaches could cause a loss, give rise to liabilities to the owners of confidential information, or subject us, our PRC subsidiaries or the VIE to fines and other penalties. In addition, complying with various laws and regulations could cause us, our PRC subsidiaries or the VIE to incur substantial costs or require us, our PRC subsidiaries and the VIE to change business practices, including the data practices, in a manner adverse to the business.

Additionally, the exact scope of CIIOs under the current regulatory regime remains unclear, and the PRC government authorities may have wide discretion in the interpretation and enforcement of these laws. Therefore, it is uncertain whether we, our PRC subsidiaries or the VIE would be deemed as CIIOs under the PRC law. It also remains uncertain whether the future regulatory changes would impose additional restrictions on companies like us, our PRC subsidiaries or the VIE. We cannot predict the impact of the Revised Measures, if any, at this stage, and we will closely monitor and assess any development in the rule-making process. If we, our PRC subsidiaries or the VIE is not able to comply with the cybersecurity and data privacy requirements in a timely manner, or at all, we, our PRC subsidiaries or the VIE may be subject to government enforcement actions and investigations, fines, penalties, suspension of non-compliant operations, or removal of the VIE's application from the relevant application stores, among other sanctions, which could materially and adversely affect the business and results of operations.

We could be delisted if it is determined that the Public Company Accounting Oversight Board is unable to inspect or investigate our auditor completely.

The independent registered public accounting firm that issues the audit report included in our Annual Report on Form 20-F for the fiscal year ended March 31, 2022, which is incorporated by reference into this prospectus, as an auditor of companies that are traded publicly in the United States and a firm registered with the Public Company Accounting Oversight Board, or the PCAOB, is required by the laws of the United States to undergo regular inspections by the PCAOB to assess its compliance with the laws of the United States and applicable professional standards. Our independent registered public accounting firm is based in the United States and is currently subject to PCAOB inspections on a regular basis. However, if it is determined in the future that the PCAOB is unable to inspect or investigate our auditor completely, or if our future audit reports are prepared by auditors that are not completely inspected by the PCAOB, our ordinary shares may be delisted or trading in our ordinary shares may be prohibited under the HFCA Act.

The lack of PCAOB inspections of audit work in foreign countries prevents the PCAOB from regularly evaluating auditors’ audits and their quality control procedures. As a result, investors would be deprived of the benefits of PCAOB inspections. To tackle this problem, the Holding Foreign Companies Accountable Act, or the HFCA Act, was enacted on December 18, 2020. In essence, the HFCA Act requires the SEC to prohibit securities of any foreign companies from being listed on U.S. securities exchanges or traded “over-the-counter” if a company retains a foreign accounting firm that cannot be inspected by the PCAOB for three consecutive years, beginning in 2021. On June 22, 2021, the U.S. Senate passed the Accelerating Holding Foreign Companies Accountable Act, which, if enacted, would decrease the number of “non-inspection years” from three years to two years, and thus, would reduce the time before our securities may be prohibited from trading or delisted. On September 22, 2021, the PCAOB adopted a final rule implementing the HFCA Act. On December 2, 2021, the SEC issued amendments to finalize the interim final rules previously adopted in March 2021 to implement the submission and disclosure requirements in the HFCA Act. On December 16, 2021, the PCAOB issued a report relaying to the SEC its determinations that PCAOB is unable to inspect or investigate completely registered public accounting firms in mainland China and Hong Kong due to positions taken by Chinese authorities. On February 4, 2022, the U.S. House of Representatives passed the America Competes Act of 2022, which includes the exact same amendments as the bill passed by the U.S. Senate in 2021. The America Competes Act, however, includes a broader range of legislation not related to the HFCA Act in response to the U.S. Innovation and Competition Act passed by the Senate in 2021. The U.S. House of Representatives and the U.S. Senate will need to agree on amendments to these respective bills to align the legislation and pass their amended bills before the President can sign them into law. It is unclear when the U.S. Senate and U.S. House of Representatives will resolve the differences in the U.S. Innovation and Competition Act and the America Competes Act of 2022 bills currently passed, or when the U.S. President will sign the bill to make the amendment into law, or at all. In the event that the bill becomes law, it will reduce the period before a security could be delisted from the exchange and prohibited from over-the-counter trading in the U.S. and accelerate such delisting from 2024 to 2023.

Our independent registered public accounting firm is based in the United States and thus is not subject to such determinations announced by the PCAOB on December 16, 2021. However, recent developments with respect to audits of companies with China operations, such as our company, create uncertainty about the ability of our auditors to fully cooperate with the PCAOB’s request for audit workpapers without the approval of the Chinese authorities. There is a risk that our auditor cannot be inspected by the PCAOB completely because of a position taken by the Chinese authorities.

For example, on April 2, 2022, the CSRC, the Ministry of Finance of the People’s Republic of China, the National Administration of State Secrets Protection, and the National Archives Administration of China, have jointly revised the Provisions on Strengthening Confidentiality and Archives Administration for Overseas Securities Offering and Listing (Announcement No.29 [2009] of the CSRC) (the “Provisions”) for public comments. Article 5 of the Provisions prohibits domestic entities from providing accounting records to offshore auditing firms that have not gone through the required procedures stipulated by applicable PRC laws and regulations. Article 9 of the Provisions states that archives, including working papers, that have been produced in PRC by securities companies and securities service providers, including offshore auditing firms, for overseas securities offering shall be retained in PRC and can only be transferred or transmitted overseas after completing relevant approving procedures stipulated by PRC laws and regulations. However, the Provisions do not provide any specific regulations concerning such approving procedures, and Chinese government or relevant authorities may have broad discretion in interpreting and enforcing these regulations. We cannot predict how the Provisions will be implemented in practice and the impact of the Provisions, if any, at this stage, and we will closely monitor and assess the statutory developments in this regard.

On August 26, 2022, the PCAOB signed a Statement of Protocol with the CSRC and the Ministry of Finance of the PRC, taking the first step toward opening access for the PCAOB to inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong. The Statement of Protocol gives the PCAOB sole discretion to select the firms, audit engagements and potential violations it inspects and investigates and put in place procedures for PCAOB inspectors and investigators to view complete audit work papers with all information included and for the PCAOB to retain information as needed. In addition, the Statement of Protocol grants the PCAOB direct access to interview and take testimony from all personnel associated with the audits the PCAOB inspects or investigates. While significant, the Statement of Protocol is only a first step. Uncertainties still exist as to whether and how this Statement of Protocol will be implemented.

There can be no assurance that we will continue to be able to comply with requirements imposed by U.S. regulators. If it be determined that the PCAOB is unable to inspect or investigate completely our auditor because of a position taken by an authority in a foreign jurisdiction for three consecutive years, the trading in our ordinary shares would be prohibited, and as a result, Nasdaq may determine to delist our ordinary shares. The delisting of our ordinary shares would force holders of our ordinary shares to sell their shares. The market price of our ordinary shares could be adversely affected as a result of anticipated negative impacts of these executive or legislative actions upon, as well as negative investor sentiment towards, companies with significant operations in China that are listed in the United States, regardless of whether these executive or legislative actions are implemented and regardless of the actual operating performance.

Risks Related to Doing Business in China

The Chinese government may intervene or influence the operations at any time or may exert more control over offerings conducted overseas and foreign investment in China-based issuers, which could result in a material change in the operations and/or the value of the securities we are registering for sale. Additionally, the PRC government has recently indicated an intent to exert more oversight over offerings that are conducted overseas and/or foreign investment in China-based issuers, which could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or be worthless. 

Substantially all of the revenue is and will be derived in China and substantially all of the operations are conducted in China. Accordingly, the results of operations, financial condition and prospects are influenced by economic, political and legal developments in China, especially the government policies of PRC government. The PRC government has significant oversight and authority to exert influence on the ability of a China-based company, such as our company, to conduct the business. It regulates and may intervene or influence the operations at any time, which could result in a material adverse change in the operations and/or the value of the securities we are registering for sale. Implementation of any industry-wide regulations directly targeting the business operations could cause our securities to significantly decline in value or become worthless. Also, the PRC government has recently indicated an intent to exert more oversight over offerings that are conducted overseas and/or foreign investment in China-based issuers. Any such action could significantly limit or completely hinder our ability to offer or continue to offer securities to investors, and any uncertainties or negative publicity regarding such actions could also materially and adversely affect the business, prospects, financial condition, reputation, and the trading price of our ordinary shares, which may cause our securities to significantly decline in value or be worthless. Therefore, investors of our company and the business operations face potential uncertainty from the actions taken by the PRC government.

Moreover, the significant oversight of the PRC government could also be reflected from the uncertainties arising from the legal system in China. The laws and regulations of the PRC can change quickly without sufficient notice in advance, which makes it difficult for us to predict which kind of laws and regulations will come into force in the future and how it will influence our company and the business operations. Any actions by the Chinese government to exert more oversight and control over offerings that are conducted overseas and/or foreign investment in China-based issuers could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or become worthless. You should refer to risks disclosed in “Risk Factors—Risks Related to Doing Business in China” and “Risk Factors—Risks Related to the Business and Industry” in this prospectus, and risks disclosed in “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China” in our Annual Report on Form 20-F for the fiscal year ended March 31, 2022, which is incorporated by reference in this prospectus, for more detailed explanations of risks arising from legal systems in China, especially the recent changes concerning the offshore offerings, the use of variable interest entities, anti-monopoly regulatory actions, and oversight on cyber security and data privacy.

There are substantial uncertainties regarding the interpretation and application of PRC laws and regulations, including, but not limited to, the laws and regulations governing our PRC subsidiaries’ and the VIE’s business, or the enforcement and performance of the WFOE’s contractual arrangements with the VIE and its shareholders. These laws and regulations may be subject to change, the enforcement of laws and regulations in China could be uncertain and the of rules and policies in China may change quickly with little advance notice, which could result in a material adverse change in the business operations and the value of the securities we are registering for sale. New laws and regulations that affect existing and proposed future businesses may also be applied retroactively. If we, our PRC subsidiaries or the VIE do not receive or maintain the approvals, or we, our PRC subsidiaries or the VIE inadvertently conclude that such approvals are not required, or if these applicable laws, regulations or interpretation change or are interpreted differently and we, our subsidiaries or the VIE are required by the CSRC, the CAC, or any other PRC regulatory authorities to obtain such approvals in the future, our shares may decline in value or become worthless if the WFOE is unable to assert the contractual rights over the assets of the VIE that conducts substantially all of the business operations. In any such event, these regulatory authorities may impose fines and penalties on the operations in China, limit the operating privileges in China, delay or restrict the repatriation of the proceeds from this offering into the PRC or take other actions that could have a material adverse effect on the business, financial condition, the value of securities, as well as our ability to offer or continue to offer securities to investors or cause such securities to significantly decline in value or become worthless.

Due to the uncertainty and complexity of the regulatory environment, we cannot assure you that we, our PRC subsidiaries and the VIE would always be in full compliance with applicable laws and regulations, the violation of which may have adverse effect on our, our PRC subsidiaries’ and the VIE’s business operations and the value of our ordinary shares. Any actions by the PRC government to exert more oversight over offerings that are conducted overseas and/or foreign investment in China-based issuers could significantly limit or completely hinder our ability to offer or continue to offer securities to investors. In addition, implementation of industry-wide regulations directly targeting our PRC subsidiaries’ and the VIE's operations could cause our securities to significantly decline in value or become worthless. Therefore, investors of our company face potential uncertainty from actions taken by the PRC government affecting our, our PRC subsidiaries’ and the VIE's business.

The VIE and our PRC subsidiaries are required to obtain various operating licenses and permits and to make registrations and filings for the business operations in China and any failure to comply with these requirements may materially adversely affect the business and results of operations.

The VIE and our PRC subsidiaries are required to obtain various operating licenses and permits and to make registrations and filings for the business operations in China and any failure to comply with these requirements may materially adversely affect the business and results of operations. Currently, the VIE, Wuxi Wangdao, holds (i) an ICP license for the websites, which is valid through December 29, 2018 to December 29, 2023 and is subject to annual review; (ii) a Publication Business Operation License for online distribution of course books or other course materials, including electronic version, to members of the platforms, which is valid through April 8, 2020 to March 31, 2024; and (iii) a Broadcasting and Television Programme Production and Operation License, for producing and distributing broadcasting and television programs (excluding topics and columns concerning current political affairs and news), which is valid through April 1, 2021 to April 1, 2023. Wuxi Talent Home, holds (i) an ICP license for the website, which is valid through March 25, 2020 to March 25, 2025, and is subject to annual review; (ii) a Human Resources Service license for proving information service concerning human resources, which is valid through May 21, 2019 to May 2024; and (iii) a Labor Dispatch Operating License for proving labor dispatching service with the PRC, which is valid through February 16, 2020 to February 15, 2023, and is subject to annual review. As advised by our PRC legal counsel, V&T Law Firm, based on its understanding of the current PRC law and regulations, (i) the VIE and our PRC subsidiaries have obtained all permissions and approvals that are required to obtain to operate their businesses in accordance with the PRC laws and regulations as of the date of this prospectus; (ii) no permissions or approvals have been denied by relevant PRC government authorities concerning the VIE’s and our PRC subsidiaries’ operations till now; and (iii) the VIE and our PRC subsidiaries have never received any inquiry, notice, warning, or sanctions from any PRC government authorities regarding their operations as of the date of this prospectus. However, we cannot assure you that the PRC government authorities would reach the same conclusion as our PRC legal counsel due to the continuously evolving of the PRC legal systems, including new interpretation and implementation of current PRC laws and regulations and new laws and regulations to be promulgated. Accordingly, the VIE and our PRC subsidiaries may be required to obtain additional licenses or expand the authorized business scope covered under the licenses it currently holds. For example, the contents the VIE use on its websites, primarily including the course materials, may be deemed “Internet cultural products,” and its use of those contents may be regarded as “Internet cultural activities,” thus the VIE may be required to obtain an Internet Culture Business Operating License for provision of those contents through the online platforms as currently there is no further official or publicly-available interpretation of those definitions. Also, providing content through the VIE’s online platform may be regarded as “online publishing” and may thus subject it to the requirement of obtaining an Online Publishing License. In addition, the VIE may be required to obtain an Internet Audio-Visual Programmes Service License for online distribution of audio or visual programs or contents. If the VIE and our PRC subsidiaries fail to obtain or maintain any of the required licenses or approvals, their continued business operations in their respective industries may subject them to various penalties, such as confiscation of illegal revenues, fines and the discontinuation or restriction of their operations.

China’s M&A rules and certain other PRC regulations establish complex procedures for certain acquisitions of PRC companies by foreign investors, which could make it more difficult for us, our subsidiaries and the VIE to pursue growth through acquisitions in China.

A number of PRC laws and regulations have established procedures and requirements that could make merger and acquisition activities in China by foreign investors more time consuming and complex. In addition to the Anti-Monopoly Law of PRC, these include the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rules, adopted by six PRC regulatory agencies in 2006 and amended in 2009, and the Rules of the Ministry of Commerce on Implementation of Security Review System of Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the Security Review Rules, promulgated in 2011. These laws and regulations impose requirements in some instances that the Ministry of Commerce, or the MOFCOM, be notified in advance of any change-of-control transaction in which a foreign investor takes control of a PRC domestic enterprise. Moreover, the Security Review Rules 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 prohibit any attempt to bypass a security review, including by structuring the transaction through a proxy or contractual control arrangement. On December 19, 2020, the NDRC and the MOFCOM jointly issued the Measures for the Security Review for Foreign Investment, which took effect on January 18, 2021. These measures set forth the provisions concerning the security review mechanism on foreign investment, including, among others, the types of investments subject to review, and the review scopes and procedures. In the future, we, our PRC subsidiaries and the VIE may grow the business by acquiring complementary businesses. Complying with the requirements of the relevant regulations to complete such transactions could be time consuming, and any required approval processes, including approval from the MOFCOM and other PRC government authorities, may delay or inhibit the ability to complete such transactions, which could affect the ability to expand the business or maintain the market share.

In addition, the Anti-Monopoly Law of PRC requires that the anti-monopoly enforcement agencies and departments shall be notified in advance of any concentration of undertaking if certain thresholds are triggered. What’s more, the Anti-Monopoly Law is also undergoing its first major revision recently. On April 21, 2021, the Standing Committee of the National People’s Congress released the 2021 Legislative Work Plan, in which the Law Proposal for Initial Deliberation included the draft revision of the Anti-Monopoly Law. On October 23, 2021, the 31st Meeting of the 13th Standing Committee of the National People's Congress reviewed the Draft Amendment of the Anti-Monopoly Law of the PRC (the “Draft Amendment of Anti-Monopoly Law”) and solicited opinions from the public. In response to the abuse of market dominance in the field of Internet platform economy, the Draft Amendment of Anti-Monopoly Law clearly stipulated that operators must not abuse data and algorithms, technology, capital advantages, and platform rules to exclude or restrict competition. Utilizing data, algorithms, technology, and platform rules to set up obstacles to impose unreasonable restrictions on other operators by an operator with a dominant market position, shall be defined as an act of abusing the dominant market position.

As for the rapid development of the Internet platform economy in PRC, relevant administrative and judicial agencies and departments published various opinions and guidelines to regulate certain activities involved. On February 7, 2021, the Anti-Monopoly Committee of the State Council published the Anti-Monopoly Guidelines for the Internet Platform Economy Sector, which stipulated that any concentration of undertakings involving variable interest entities is subject to anti-monopoly review, and elaborated on the issues related to the platform economy, such as "price discrimination against existing customers enabled by big data” and "tying arrangements". At the press conference of the Supreme People’s Court of PRC (“the Supreme People’s Court”) held on April 22, 2021, the Vice President of Intellectual Property Tribunal in the Supreme People’s Court stated that the Supreme People’s Court supported and supervised the administrative law-enforcement departments in performing their duties in accordance with the laws and regulations concerning anti-monopoly, and promotes the cooperation of the administrative law-enforcement departments and the judicial system to stop and crack down monopolistic activities in the Internet industry. On August 17, 2021, the State Administration for Market Regulation solicited opinions on the Regulations on Prohibition of Internet Unfair Competition Behaviors (Draft for Public Comments), under which some Internet unfair competition behaviors will face stricter and more detailed supervision. On August 30, 2021, the 21st Meeting of the Central Committee for Comprehensive Deepening Reform deliberated and approved the Opinions on Strengthening Anti-monopoly and Deepening the Implementation of Fair Competition Policies, which pointed out the direction, clarified tasks, and put forward requirements for strengthening anti-monopoly work. The State Administration for Market Regulation released the Annual Report on China's Anti-monopoly Law Enforcement (2020) in September 2021, which specifically mentioned the strengthening of anti-monopoly supervision in the field of platform economy, and relevant departments would strengthen Anti-Monopoly Law enforcement in the field of platform economy and guide enterprises to operate in compliance with laws and regulations, to promote the orderly, innovative and healthy development of the platform economy.

In the future, we, our PRC subsidiaries or the VIE may grow the 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 MOFCOM or its local counterparts may delay or inhibit the ability to complete such transactions. It is unclear whether the business would be deemed to be in an industry that raises “national defense and security” or “national security” concerns. However, the MOFCOM or other government agencies may publish explanations in the future determining that our PRC subsidiaries’ and the VIE’s businesses are in industries subject to the security review, in which case the future acquisitions in the PRC, including those by way of entering into contractual arrangements with target entities, may be closely scrutinized or prohibited. The ability to expand the business or maintain or expand the market share through future acquisitions would as such be materially and adversely affected.

The approval of the CSRC or other PRC government authorities may be required in connection with our offshore offerings under the PRC law, and, if required, we cannot predict whether or for how long we, our PRC subsidiaries or the VIE will be able to obtain such approval.

The M&A Rules requires an overseas special purpose vehicle formed for listing purposes through acquisitions of PRC domestic companies and controlled by PRC persons or entities to obtain the approval of the CSRC prior to the listing and trading of such special purpose vehicle’s securities on an overseas stock exchange. The interpretation and application of the regulations remain unclear, and our offshore offerings may ultimately require approval of the CSRC. If the CSRC approval is required, it is uncertain whether we, our PRC subsidiaries or the VIE can or how long it will take to obtain the approval and, even if we, our PRC subsidiaries or the VIE obtains such CSRC approval, the approval could be rescinded. Any failure to obtain or delay in obtaining the CSRC approval for any of our offshore offerings, or a rescission of such approval if obtained by us, our PRC subsidiaries or the VIE, would subject us, our PRC subsidiaries and the VIE to sanctions imposed by the CSRC or other PRC regulatory authorities, which could include fines and penalties on the business operations in China, restrictions or limitations on the ability to pay dividends outside of China, conduction of regulatory conversations on us, our PRC subsidiaries or the VIE, issuance of regulatory concern letters and warning letters, designation of intermediaries to conduct inspection on the operations in China, prohibition of transferring or disposing of the property, and other forms of sanctions that may materially and adversely affect the business, financial condition, and results of operations. 

Our PRC legal counsel, V&T Law Firm, has advised us that, based on its understanding of the current PRC laws and regulations, we, our PRC subsidiaries and the VIE are not currently required to submit an application to the CSRC or the CAC or other PRC regulatory authorities for the approval of the listing and trading of our ordinary shares or the offering of the securities being registered in this prospectus because (i) the CSRC or the CAC or other PRC regulatory authorities currently has not issued any definitive rule or interpretation concerning whether offerings like ours under this prospectus are subject to this regulation, (ii) the WFOE was not established through a merger or requisition of the equity or assets of a “PRC domestic company” as such term is defined under the M&A Rules, and (iii) no provision in this regulation clearly classifies contractual arrangements as a type of transaction subject to its regulation. However, we cannot assure you that relevant PRC government authorities, including the CSRC, would reach the same conclusion as our PRC legal counsel. If it is determined that the CSRC or the CAC or other PRC regulatory authorities’ approval is required for our offshore offerings, we, our PRC subsidiaries or the VIE may face regulatory actions or other sanctions from the CSRC or the CAC or other PRC regulatory authorities. Currently, we, our PRC subsidiaries or the VIE have not submitted any application to the CSRC or the CAC or other PRC regulatory authorities for the approval of listing and trading of our ordinary shares, since relevant official guidance and implementation rules have not been issued yet and remain unclear at this stage concerning the offshore offering of China-based overseas-listed companies. We cannot assure you that any new rules or regulations promulgated in the future will not impose additional requirements on us, our PRC subsidiaries or the VIE. If it is determined in the future that approval from the CSRC or other regulatory authorities or other procedures are required for our offshore offerings, it is uncertain whether we, our PRC subsidiaries or the VIE can or how long it will take us, our PRC subsidiaries or the VIE to obtain such approval or complete such procedures and any such approval or completion could be rescinded. Any failure to obtain or delay in obtaining such approval or completing such procedures for our offshore offerings, or a rescission of any such approval if obtained by us, our PRC subsidiaries or the VIE, would subject us, our PRC subsidiaries or the VIE to sanctions by the CSRC, the CAC or other PRC regulatory authorities for failure to seek the approval from such regulatory authorities for our offshore offerings. These regulatory authorities may impose fines and penalties on our PRC subsidiaries’ and the VIE's operations in China, limit the ability to pay dividends outside of China, limit our PRC subsidiaries’ and the VIE's operating privileges in China, delay or restrict the repatriation of the proceeds from our offshore offerings into China or take other actions that could materially and adversely affect our PRC subsidiaries’ and the VIE's business, financial condition, results of operations, and prospects, as well as the trading price of our shares. The CSRC, the CAC or other PRC regulatory authorities also may take actions requiring us, our PRC subsidiaries or the VIE, or making it advisable for us, our PRC subsidiaries or the VIE, to halt our offshore offerings before settlement and delivery of the shares offered hereby. Consequently, if you engage in market trading or other activities in anticipation of and prior to settlement and delivery, you do so at the risk that settlement and delivery may not occur. In addition, if the CSRC, the CAC or other PRC regulatory authorities later promulgate new rules or explanations requiring that we, our PRC subsidiaries or the VIE obtain their approvals or accomplish the required filing or other regulatory procedures for our offshore offerings, we, our PRC subsidiaries or the VIE may be unable to obtain a waiver of such approval requirements, if and when procedures are established to obtain such a waiver. Any uncertainties or negative publicity regarding such approval requirement could materially and adversely affect our, our PRC subsidiaries’ and the VIE's business, prospects, financial condition, reputation, and the trading price of the shares.

PRC regulations on loans to, and direct investment in, PRC entities by offshore holding companies and governmental control in currency conversion may delay or prevent us from using the proceeds of our offshore financing to make loans or additional capital contributions to our PRC subsidiaries and the VIE, which could materially and adversely affect such PRC entities' liquidity and the ability to fund and expand the business.

We may transfer funds to our PRC subsidiaries and the VIE or finance such PRC entities by means of shareholder’s loans or capital contributions using proceeds of our offshore financing. Any loans to our PRC subsidiaries and the VIE, which are foreign-invested enterprises, cannot exceed a statutory limit, and shall be filed with the State Administration of Foreign Exchange, or SAFE, or its local counterparts. Furthermore, any capital contributions we make to our PRC subsidiaries and the VIE shall be registered with the PRC State Administration for Market Regulation or its local counterparts, and filed with the Ministry of Commerce or its local counterparts.

On March 30, 2015, SAFE promulgated the Circular on Reforming the Administration Measures on Conversion of Foreign Exchange Registered Capital of Foreign-invested Enterprises, or SAFE Circular 19 (2015). SAFE Circular 19 (2015) allows foreign invested enterprises in China to use their RMB registered capital converted from foreign currencies to make equity investments, but such registered capital must not be used, among other things, for investment in the security markets, or offering entrustment loans, unless otherwise regulated by other laws and regulations. On June 9, 2016, SAFE further issued the Circular of the State Administration of Foreign Exchange on Reforming and Regulating Policies on the Control over Foreign Exchange Settlement of Capital Accounts, or SAFE Circular 16 (2016), which, among other things, amended certain provisions of Circular 19 (2015). According to SAFE Circular 19 (2015) and SAFE Circular 16 (2016), the flow and use of the RMB capital converted from foreign currency-denominated registered capital of a foreign invested company is regulated such that RMB capital may not be used for purposes beyond its business scope or to provide loans to non-affiliates unless otherwise permitted under its business scope. On October 23, 2019, SAFE promulgated the Circular of the State Administration of Foreign Exchange on Further Promoting the Facilitation of Cross-Border Trade and Investment, or SAFE Circular 28 (2019), which removes the restrictions on domestic equity investments by non-investment foreign-invested enterprises with their capital funds, provided that certain conditions are met. On April 10, 2020, SAFE promulgated Notice of the SAFE on Optimizing Foreign Exchange Administration to Support the Development of Foreign-related Business, or SAFE Circular 8 (2020), which simplifies the procedures of domestic payments with the use of registered capital, foreign debt and overseas listing by qualified enterprises. On December 31, 2020, People's Bank of China, together with National Development and Reform Commission, Ministry of Commerce, State-owned Assets Supervision and Administration Commission of the State Council, China Banking and Insurance Regulatory Commission, and SAFE, jointly issued the Notice on Further Optimizing Cross-border RMB Policies to Support the Stabilization of Foreign Trade and Foreign Investment, or PBOC Notice 330 (2020), which came into force on February 4, 2021. The PBOC Notice 330 (2020) aims to optimize the administration of cross-border RMB investment and financing by taking measures to relax the restrictions on the use of RMB income under certain capital accounts, facilitating reinvestment in China by foreign-invested enterprises, canceling the relevant special account management requirements for foreign direct investment, optimizing the administration of overseas RMB borrowings of domestic enterprises and simplifying the administration of overseas RMB loans of domestic enterprises. However, the implementation of PBOC Notice 330 (2020) may still has regional differences, which depends on the domestic banks located in different provinces.

In light of the various requirements imposed by PRC regulations on loans to, and direct investment in, PRC entities by offshore holding companies, we cannot assure you that we and the Hong Kong subsidiary will be able to complete the necessary government registrations or obtain the necessary government approvals on a timely basis, if at all, with respect to future loans or capital contributions by us and the Hong Kong subsidiary to our PRC subsidiaries and the VIE. If we and the Hong Kong subsidiary fail to complete such registrations or obtain such approvals, the ability to use the proceeds from our offshore financing and to capitalize or otherwise fund the PRC operations may be negatively affected, which could materially and adversely affect our PRC subsidiaries’ and the VIE's liquidity and the ability to fund and expand our PRC subsidiaries’ and the VIE's business.

Risks Related to Our Corporate Structure

If the PRC government determines that the contractual arrangements constituting part of the VIE structure do not comply with PRC regulations, or if these regulations change or are interpreted differently in the future, our shares may decline in value or become worthless if the WFOE is unable to assert the contractual rights over the assets of the VIE that conduct substantially all of the operations.

Foreign ownership in entities that provide value-added telecommunication services is subject to restrictions under current PRC laws and regulations. Skillful Craftsman Education Technology Limited is a Cayman Islands holding company and its wholly owned PRC subsidiary, Craftsman Wuxi, is considered a foreign-invested enterprise. To comply with PRC laws and regulations, the VIE, Wuxi Wangdao, which holds the ICP License for www.kingwayup.com, operates the website. Wuxi Wangdao is 60% owned by Xiaofeng Gao and 40% owned by Lugang Hua. Both shareholders of Wuxi Wangdao are PRC citizens. Craftsman Wuxi entered into a series of contractual arrangements with Wuxi Wangdao and its shareholders. Because of these contractual arrangements and Skillful Craftsman's direct ownership in the WFOE, Skillful Craftsman is the primary beneficiary of the VIE for accounting purposes and is able to consolidate the financial results of the VIE in the consolidated financial statements in accordance with U.S. GAAP. Neither Skillful Craftsman nor its investors have any equity ownership in, direct foreign investment in, or control over the VIE, and Skillful Craftsman does not have business operations as the holding company. These contractual arrangements have not been tested in a court of law in the PRC. For a detailed description of these contractual arrangements, see “Item 4. Information on the Company—C. Organizational Structure” in our Annual Report on Form 20-F for the fiscal year ended March 31, 2022, which is incorporated by reference.

In the opinion of our PRC legal counsel, V&T Law Firm, (i) the current ownership structure does not result in any violation of PRC laws or regulations currently in effect; (ii) the operations of the current ownership structure have obtained all requisite permissions in accordance with the PRC laws currently in effect; (iii) the contractual arrangements among Craftsman Wuxi, Wuxi Wangdao and Wuxi Wangdao’s shareholders governed by PRC laws are valid, binding and enforceable, and will not result in any violation of PRC laws or regulations currently in effect; and (iv) Craftsman Wuxi and Wuxi Wangdao have never received any inquiry, notice, warning, or sanctions from any PRC regulatory authorities regarding the contractual arrangements and ownership structure as of the date of this prospectus. Our PRC legal counsel was also of the opinion that there are, however, substantial uncertainties regarding the interpretation and application of current or future PRC laws and regulations concerning foreign investment in the PRC, and their application to and effect on the legality, binding effect and enforceability of the contractual arrangements. In particular, we cannot rule out the possibility that PRC regulatory authorities, courts or arbitral tribunals may in the future adopt a different or contrary interpretation or take a view that is inconsistent with the opinion of our PRC legal counsel. In addition, it is uncertain whether any new PRC laws, rules or regulations relating to VIE structures will be adopted or if adopted, what effect they may have on our corporate structure. The Foreign Investment Law that came into effect on January 1, 2020, does not mention concepts including “de facto control” and “controlling through contractual arrangements,” nor does it specify the regulation on controlling through contractual arrangements. The Reply of the Spokesman of CSRC concerning the Reporters’ questions (the “December 5th Reply”), published on the official website of CSRC on December 5, 2021, stated that CSRC and relevant regulatory authorities have always maintained an open attitude towards companies choosing overseas listing, and fully respected companies' independent choice of listing locations in accordance with relevant laws and regulations. The December 5th Reply also clarified that recent media reports which asserted that PRC regulatory authorities would prohibit agreement-controlled (VIE) enterprises from listing overseas and promote the delisting of Chinese companies listed in the United States is a complete misunderstanding. Moreover, some PRC companies are actively communicating with domestic and foreign regulatory agencies to promote listing in the United States according to the December 5th Reply. Also, the December 5th Reply acknowledged that recent laws and regulations concerning cybersecurity, personal information protection, and financial activities are aimed at promoting a healthier and more sustainable development of the economy, instead of a suppression of specific industries or private enterprises or prohibition of overseas listing activities of PRC companies. Due to the uncertainty regarding the legal system in China, especially the enforcement of laws and the rules and regulations in China can change quickly with little advance notice, we still face risks concerning the legality of overseas issuance of securities. If more oversight and control over overseas offerings and/or foreign investment are imposed on PRC companies, or China-based issuers, any such action may significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or be worthless.

If, as a result of the contractual arrangements with Wuxi Wangdao, Craftsman Wuxi or Wuxi Wangdao is found to be in violation of any existing or future PRC laws or regulations, or such contractual arrangement is determined as illegal and invalid by the PRC courts, arbitral tribunals or regulatory authorities, or Craftsman Wuxi or Wuxi Wangdao fails to obtain, maintain or renew any of the required permits or approvals, the relevant PRC regulatory authorities would have broad discretion to take action in dealing with such violations or failures, including: (i) revoking the business licenses and/or operating licenses of Craftsman Wuxi and/or Wuxi Wangdao; (ii) discontinuing or restricting the conduct of any transactions between Craftsman Wuxi and Wuxi Wangdao; (iii) limiting the business expansion in China by way of entering into contractual arrangements; (iv) imposing fines, confiscating the income from Wuxi Wangdao, or imposing other requirements with which Craftsman Wuxi or Wuxi Wangdao may not be able to comply with; (v) shutting down the servers or blocking the websites; (vi) requiring us to restructure the ownership structure or operations, including terminating the contractual arrangements with Wuxi Wangdao and deregistering the equity pledges of Wuxi Wangdao; (vii) restricting or prohibiting the use of the proceeds of our initial public offering to finance the business and operations in China; (viii) imposing additional conditions or requirements with which Craftsman Wuxi or Wuxi Wangdao may not be able to comply with; or (xi) take other regulatory or enforcement actions against Craftsman Wuxi or Wuxi Wangdao that could be harmful to the business.

The imposition of any of these penalties could result in a material and adverse effect on Craftsman Wuxi’s or Wuxi Wangdao's ability to conduct the business and on the results of operations. If any of these penalties results in Skillful Craftsman’s cessation to be the primary beneficiary of Wuxi Wangdao for accounting purposes, Skillful Craftsman may not be able to consolidate Wuxi Wangdao in the consolidated financial statements in accordance with U.S. GAAP. As a result, Skillful Craftsman’s shares may decline in value or become worthless.

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

Under our current corporate structure, our ability to pay dividends depends upon dividends paid by the Hong Kong subsidiary, which in turn depends on dividends paid by the WFOE, which further depends on payments from the VIE under the VIE Agreements. To the extent cash or assets in the business is in the PRC or Hong Kong or a PRC or Hong Kong entity, and may need to be used to fund operations outside of the PRC or Hong Kong, the funds and assets may not be available to fund operations or for other uses outside of the PRC or Hong Kong due to interventions in or the imposition of restrictions and limitations by the government on our, our subsidiaries’ or the VIE’s ability to transfer cash and assets.

Although we consolidate the results of the VIE, we only have access to the assets or earnings of the VIE through the VIE Agreements. If the PRC authorities determine that the contractual arrangements constituting part of the VIE structure do not comply with PRC regulations, or if current regulations change or are interpreted differently in the future, our ability to settle amount owed by the VIE under the VIE agreements may be seriously hindered. In addition, if our existing PRC subsidiaries or any newly formed ones incur debt on their own behalf in the future, the instruments governing their debt may restrict their ability to pay dividends to us.

The WFOE is permitted to pay dividends to the Hong Kong subsidiary only out of the WFOE’s retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. Under PRC laws, each of our PRC subsidiaries and the VIE is required to set aside at least 10% of its after-tax profits each year, if any, to fund certain statutory reserve funds until such reserve funds reach 50% of its registered capital. In addition, after making an allocation to the statutory reserve funds from their after-tax profits, our PRC subsidiaries and the VIE may allocate a portion of their after-tax profits based on PRC accounting standards to a discretionary surplus fund at their discretion. The statutory reserve funds and the discretionary funds are not distributable as cash dividends.

Remittance of dividends by the Hong Kong subsidiary is subject to examination by the banks designated by SAFE. Approvals by or registration with appropriate government authorities is required where 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 the WFOE from obtaining sufficient foreign currencies to satisfy the foreign currency demands, the WFOE may not be able to pay dividends in foreign currencies to us and our access to cash generated from the operations will be restricted.

The Hong Kong subsidiary may be considered a non-resident enterprise for tax purposes, so that any dividends the WFOE pays to the Hong Kong subsidiary 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%. If the Hong Kong subsidiary is required under the PRC Enterprise Income Tax Law to pay income tax for any dividends it receives from the WFOE, or if the Hong Kong subsidiary is determined by PRC government authority as receiving benefits from reduced income tax rate due to a structure or arrangement that is primarily tax-driven, it would materially and adversely affect the amount of dividends, if any, we may pay to our shareholders.

If the PRC tax authorities determine that our Cayman Islands holding company is a PRC resident enterprise for enterprise income tax purposes, we may be required to withhold a 10% tax from dividends we pay to our shareholders that are non-resident enterprises. In addition, non-resident enterprise shareholders may be subject to PRC tax at a rate of 10% on gains realized on the sale or other disposition of ordinary shares if such income is treated as sourced from within the PRC. Furthermore, if we are deemed a PRC resident enterprise, dividends paid to our non-PRC individual shareholders and any gain realized on the transfer of ordinary shares by such shareholders may be subject to PRC tax at a rate of 20% which in the case of dividends may be withheld at source. Any such tax may reduce the returns on your investment in our ordinary shares.

Risks Related to Our Ordinary Shares

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

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

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 reciprocity 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 director 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. Hence, our public shareholders may have more difficulty in protecting their interests through actions against us, our directors or officers than would shareholders of a corporation incorporated in a jurisdiction in the United States.

Sales by the selling shareholder of the ordinary shares could adversely affect the trading price of our ordinary shares.

We are registering with this registration statement for resale of 2,900,000 ordinary shares issued by us to the selling shareholders according to certain equity transfer agreement. The ordinary shares registered by this registration statement represent approximately 18.5% of our issued and outstanding ordinary shares as of the date of this prospectus, which but exclude ordinary shares being registered hereunder. Consequently, the resale of all or a substantial portion of the ordinary shares in the public market, or the perception that these sales might occur, could cause the market price of our ordinary shares to decrease and may make it difficult for us to sell our equity securities in the future at a time and upon terms we deem appropriate.

In addition, our issuance of these ordinary shares has caused the proportionate ownership interest in us of our existing shareholders, to decrease, with a corresponding decrease in the relative voting power of such existing shareholders.

Raising additional capital may cause dilution to our holders, including purchasers of our ordinary shares in this offering, restrict the operations or require us to relinquish rights to the technologies or product candidates.

We expect that significant additional capital may be needed in the future to continue the planned operations, including developing and introducing new courses, conducting research and development activities and costs associated with operating a public company. Until such time, if ever, as we can generate substantial revenue through the VIE's and our subsidiaries’ business operations, we expect to finance the cash needs through any or a combination of securities offerings, debt financings, license and collaboration agreements and research grants. If we raise capital through securities offerings, such sales may also result in material dilution to our existing shareholders, and new investors could gain rights, preferences and privileges senior to the holders of our ordinary shares.

To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a shareholder. Debt financing and preferred equity financing, if available, could result in fixed payment obligations, and we may be required to accept terms that restrict our ability to incur additional indebtedness, force us to maintain specified liquidity or other ratios or restrict our ability to pay dividends or make acquisitions.

If we raise additional funds through collaborations, strategic alliances or other arrangements with third parties, we may be required to relinquish valuable rights to the technologies, future revenue streams, or to agree to terms that may not be favorable to us. In addition, we could also be required to seek funds through arrangements with collaborators or others at an earlier stage than otherwise would be desirable. If we are unable to raise additional funds through equity or debt financings when needed, our subsidiaries or the VIE may be required to delay, limit, reduce or terminate product development or marketing efforts. Raising additional capital through any of these or other means could adversely affect the business and the holdings or rights of our shareholders, and may cause the market price of our ordinary shares to decline.