| Organization and Principal Activities | 1. Organization
and Principal Activities
(a) Principal
activities Meten Holding Group Ltd. (formerly
known as “Meten EdtechX Education Group Ltd.”) (the “Company”) was incorporated on September 27, 2019 under the
law of Cayman Islands as an exempted company with limited liability. As of December 31, 2021, the Company, through its subsidiaries and
consolidated variable interest entities (“VIEs”) (collectively referred to as the “Group”) was primarily engaged
in providing a wide range of educational programs, services and products, consisting primarily of classroom-based English training services,
overseas training services, online English training services and operation of education software. All of the Group’s operations
and customers are located in the People’s Republic of China(“PRC”). The Company does not conduct any substantive operations
of its own. On August 11, 2021, the Company changed its name from “Meten
EdtechX Education Group Ltd” to “Meten Holding Group Ltd”. As
of December 31, 2021, the details of the Company's major subsidiaries, consolidated VIEs and the major subsidiaries of the VIEs are as
follows:
Entity Date
of Place
of Percentage of Principal
activities
Major subsidiaries:
Meten
International Education Group July 10, 2018 Cayman Islands 100% Investment holding
Meten
Education Investment Limited (“Meten BVI”) July 18, 2018 British Virgin Islands (“BVI”) Investment holding
Likeshuo
Education Investment Limited (“Likeshuo BVI”) July 18, 2018 British Virgin Islands (“BVI”) Investment holding
Meten
Education (Hong Kong) Limited (“Meten HK”) August 22, 2018 Hong Kong Investment holding
Likeshuo
Education (Hong Kong) Limited (“Likeshuo HK”) August 22, 2018 Hong Kong Investment holding
Zhuhai
Meizhilian Education Technology Co., Ltd.(“Zhuhai Meizhilian”) September 20, 2018 PRC 100% Technology development and education consulting service
Zhuhai
Likeshuo Education Technology Co., Ltd. (“Zhuhai Likeshuo”) September 20, 2018 PRC 100% Technology development and education consulting service
VIEs:
Shenzhen
Meten International Education Co., Limited (“Shenzhen Meten”) PRC
Shenzhen
Likeshuo Education Co., Ltd. (‘‘Shenzhen Likeshuo’’) October 26, 2018 PRC Online English training
VIEs’
major subsidiaries and schools:
Shenzhen
Likeshuo Network Technology Co., Ltd October 30, 2013 PRC
Meten
Education (Shenzhen) Co., Ltd November 24, 2015 PRC 100% Offline English training
Nanjing
Meten Foreign Language Training Co., Ltd December 6, 2013 PRC 100% Offline English training
Chengdu
Meten Education Technology Co., Ltd April 20, 2016 PRC 100% Offline English training
Guangzhou
Meten Education Technology Co., Ltd March 29, 2016 PRC 100% Offline English training
Beijing
Jingchengying Education and Culture Development Co., Ltd. September 16, 2002 PRC 80% Offline English training
Beijing
Jingcheng Education Network Technology Co., Ltd. July 15, 2005 PRC 80% Offline English training
Beijing
Fengtai District ABC Foreign Language Training School May 27, 2005 PRC 80% Offline English training
Beijing
Xicheng District ABC Foreign Language Training School February 16, 2007 PRC 80% Offline English training
Harbin
ABC Foreign Language School February 28, 2000 PRC 80% Offline English training
Harbin
ABC Culture Training School November 18,2016 PRC 80% Offline English training
Harbin
Xiangfang District ABC Foreign Language School July 31, 2006 PRC 80% Offline English training
(b) History
of the Group and reorganization Organization
and General The
Company is authorized to issue 16,666,667 ordinary shares with a par value of $0.003 per share. On September 27, 2019, the Company issued
one ordinary share to its sole director Richard Fear for a purchase price of $ 0.0001. On the same day, the one ordinary share owned
by Richard Fear was transferred to Guo Yupeng. Reverse
recapitalization On
December 12, 2019, the Company entered into an Agreement and Plan of Reorganization (the “Merger Agreement”) by and among
the Company, EdtechX Holdings Acquisition Corp., a Delaware corporation (“EdtechX”), Meten Education Inc., a Delaware corporation
and wholly owned subsidiary of the Company (“EdtechX Merger Sub”), Meten Education Group Ltd.(“Meten International”),
a Cayman Islands exempted company which incorporated on July 10,2018 and wholly owned subsidiary of the Company (“Meten Merger
Sub”, and together with EdtechX Merger Sub, the“Merger Subs”). EdtechX was a blank check company incorporated in Delaware
on May 15, 2018 for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar
business combination with one or more businesses or entities. On
March 30, 2020, the Company consummated its acquisition of Meten International and EdtechX, pursuant to the Merger Agreement, where the
Company acquired 100% of the issued and outstanding ordinary shares of Meten International and EdtechX, i.e., 318,601,222 ordinary shares
of Meten International and 1,971,505 ordinary shares of EdtechX for 1,613,054 and 65,717 ordinary shares of the Company respectively. Meten
International was determined to be the accounting acquirer given the controller of Meten International effectively controlled the combined
entity Meten EdtechX Education Group Ltd after the SPAC transaction. The
transaction is not a business combination because EdtechX was not a business. The transaction is accounted for as a reverse recapitalization,
which is equivalent to the issuance of shares by Meten International for the net monetary assets of EdtechX, accompanied by a recapitalization.
Meten International is determined as the predecessor and the historical financial statements of Meten International became the Company’s
historical financial statements, with retrospective adjustments to give effect of the reverse recapitalization. The equity is restated
using the exchange ratio of 0.1519 established in the reverse recapitalization transaction, which is 48,391,607 divided by 318,601,222,
to reflect the equity structure of the Company. Loss (income) per share is retrospectively restated using the historical weighted-average
number of ordinary shares outstanding multiplied by the exchange ratio. The share and per share data is retrospectively restated using
the exchange ratio in the share-based compensation footnote, see Note 20. The
par value of ordinary shares was adjusted retrospectively from RMB219 to RMB34, the subscription receivable was adjusted retrospectively
from negative RMB 2 to RMB nil, and the difference of RMB183 was adjusted retrospectively as in addition paid-in capital as of December
31, 2019. The consolidated statements of changes in equity (deficit) for the years ended December 31, 2019 was also adjusted retrospectively
to reflect these changes. The
weighted average number of ordinary shares outstanding used in computing net loss per ordinary share - basic and diluted was adjusted
retrospectively from 318,601,222 to 1,613,054 for the year ended December 31, 2019. The
loss per share before and after the retrospective adjustments are as follows.
2019
Before
adjustment After
adjustment
RMB RMB
Net loss per share attributable to Meten International’
shareholders – per share
-Basic (0.69 ) (136.02 )
-Diluted (0.69 ) (136.02 ) Immediately
prior to the merger transaction, Azimut Enterprises Holdings S.r.l. invested $20,000 in EdtechX to purchase 2,000,000 units of EdtechX,
which were converted into same number of units of the Company upon closing of the merger transaction. In
connection with merger transaction, on February 28, 2020, March 19, 2020 and March 26, 2020, three unrelated investors agreed to invest
USD6,000, USD4,000 and USD6,000 to purchase shares of the Company. The financing of the USD12,000 was completed on March 30, 2020, and
the USD4,000 financing was terminated on April 14, 2020 as the investor failed to pay the purchase price by the agreed deadline. Reorganization
of Meten International Prior
to the SPAC Transaction, the Meten International undertook a series of steps to restructure its business. Meten
International’s history began in April 2006 with the commencement of operations of Shenzhen Meten, a limited liability company
incorporated in the PRC by Mr. Jishuang Zhao, Mr. Siguang Peng and Mr. Yupeng Guo. On December 18, 2017, Shenzhen Meten converted into
a joint stock limited liability company and 30,000,000 shares of RMB1 each were issued. From
March 2012 to August 2018, Mr. Yun Feng, Shenzhen Daoge Growth No.3 Investment Fund Partnership (Limited Partnership), Shenzhen Daoge
Growth No.5 Investment Fund Partnership (Limited Partnership), Shenzhen Daoge Growth No.6 Investment Fund Partnership (Limited Partnership),
Shenzhen Daoge Growth No.11 Investment Fund Partnership (Limited Partnership), Shenzhen Daoge Growth No.21 Investment Fund Partnership
(Limited Partnership), Zhihan (Shanghai) Investment Center (Limited Partnership), Hangzhou Muhua Equity Investment Fund Partnership (Limited
Partnership) (collectively known as the “Pre-listing Investors”) each acquired certain equity interests in Shenzhen Meten. In
preparation of the listing in capital markets of Shenzhen Meten’s general adult English training, overseas training services, online
English training and other English language-related services businesses (“the Business”), Shenzhen Meten has undergone a
series of reorganization transactions (“Reorganization”) in 2018. The main purpose of the Reorganization is to establish
a Cayman holding company for the Business in preparation for its overseas listing. The
Reorganization was executed in the following steps:
1) Meten
International was incorporated as an exempted company with limited liability in the Cayman
Islands on September 27, 2019 and as offshore holding company of the Group. In July and August
2018, the Founders and Pre-listing Investors subscribed for ordinary shares of Meten International
at par value, all in the same proportions as the percentage of the then equity interest they
held in Shenzhen Meten. Upon the issuance of ordinary shares to the Founders and Pre-listing
Investors, the equity structure of the Meten International is identical to that of Shenzhen
Meten.
2) In
July 2018, Meten International further established two wholly-owned subsidiaries in the British
Virgin Islands, Meten BVI and Likeshuo BVI.
3) In
August 2018, Meten BVI and Likeshuo BVI established two wholly-owned subsidiaries in Hong
Kong, Meten HK and Likeshuo HK, respectively.
4) In
September 2018, Meten HK and Likeshuo HK established two wholly-owned subsidiaries in China,
named Zhuhai Meten and Zhuhai Likeshuo, respectively.
5) In
October 2018, Shenzhen Meten was split into three separate legal entities, namely Shenzhen
Meten, Shenzhen Likeshuo and Shenzhen Yilian Education Investment Co. Ltd. (“Shenzhen
Yilian Investment”).
6) In
November 2018, Zhuhai Meten and Zhuhai Likeshuo (collectively the “WFOEs”) entered
into a series of contractual arrangements, including a business cooperation agreement, exclusive
technical service and management consultancy agreement, exclusive call option agreement,
equity pledge agreement and shareholders’ rights entrustment agreement (collectively
referred to as the “Contractual Arrangements” as further described below) with
Shenzhen Meten, Shenzhen Likeshuo and their shareholders, respectively. Consequently, Shenzhen
Meten and Shenzhen Likeshuo became consolidated VIEs of Meten International upon the completion
of the relevant reorganization steps.
7) As part of the Reorganization, Shenzhen Meten transferred its equity interests in certain operations that are not a part of the Business to Shenzhen Yilian Investment and made a net cash distribution of approximately RMB148,270. Such net payment is recorded as distributions in connection with Reorganization in the accompanying consolidated statements of changes in shareholders’ deficit for the year ended December 31, 2018. The
Reorganization involved the restructuring of the legal structure of the Business, which was under common control and did not result in
any changes in the economic substance of the ownership and the Business. The accompanying consolidated financial statements have been
prepared as if the current corporate structure had been in existence throughout the periods presented. Upon
completion of the Reorganization, Meten International’s shares and per share information including the basic and diluted income/(loss)
per share have been presented retrospectively as if the number of ordinary shares outstanding immediately after the completion of the
Reorganization had been outstanding from the beginning of the earliest period presented, except for the ordinary shares issued in connection
with the exchange of Redeemable Owner’s Investment held by the Pre-listing investors during the Reorganization have been weighted
for the portion of the period that they were outstanding.
(c) VIE
arrangements Given
the uncertainties as to whether applicable PRC laws and regulations prohibit foreign investors from providing English language training
and value-added telecommunications services in the PRC, the Company operates substantially all of its business through its VIEs. To provide
the Company the control of the VIEs, Zhuhai Meten and Zhuhai Likeshuo entered into a series of contractual arrangements with the VIEs
and their respective equity holders as follows: Business
Cooperation Agreements Pursuant
to the business cooperation agreements, the WFOEs shall provide management support, consulting services and technical services necessary
for the English training and relevant services, and in return, the VIEs shall pay services fees to the WFOEs accordingly as described
under the exclusive technical service and management consultancy agreement. Without the prior written consent of the WFOEs, the VIEs
and its affiliated entities cannot accept services provided by or establishing similar corporation relationship with any third party. Exclusive
Technical Service and Management Consultancy Agreements Pursuant
to the exclusive technical service and management consultancy agreements, the WFOEs agreed to provide exclusive technical services to
the VIEs and its affiliated entities. Without the prior written consent of the WFOEs, the VIEs and their respective affiliated entities
cannot accept services provided by or establishing similar corporation relationship with any third party. The WFOEs owns the exclusive
intellectual property rights created as a result of the performance of this agreement unless otherwise provided by the PRC laws or regulations.
In consideration of the technical and management consultancy services provided by the WFOEs, the VIEs and their respective affiliated
entities agreed to pay annual service fees to the WFOEs in an amount at the WFOEs’ discretion. As of December 31, 2018, no service
fee had been paid by and or was payable from the VIEs to the WFOEs. Exclusive
Call Option Agreements Under
the exclusive call option agreements, entered into among the VIEs, the WFOEs and each of the equity holders of the VIEs, each of the
equity holders of the VIEs irrevocably granted the WFOEs an exclusive option to purchase, or have its designated representatives to purchase,
to the extent permitted under PRC law, all or part of his or its equity interests in the VIEs. The WFOEs or its designated representatives
have sole discretion as to when to exercise such options, either in part or in full. The exercise prices for the VIEs is equal to the
lowest price as permitted under applicable PRC law and regulations. Without the WFOEs’ prior written consent, the VIEs’ equity
holders shall not sell or otherwise dispose of their beneficial interest, increase or decrease the registered capital, amend its articles
of association, create or allow any encumbrance on its assets or other beneficial interests and provide any loans or guarantees, etc..
The agreements expire upon transfer of all equity interest and assets of the VIEs to the WFOEs or its designated representatives. Equity
Pledge Agreements Pursuant
to the equity pledge agreements among the WFOEs, the VIEs and the equity holders of the VIEs, the equity holders of the VIEs shall pledge
all of their equity interests in the VIEs to the WFOEs to guarantee the performance by the VIEs and the equity holders’ performance
of their respective obligations under the Contractual Arrangements. In enforcing the pledge, if the VIEs and/or their shareholders breach
their contractual obligations under those agreements, the WFOEs, as pledgee, will be entitled to certain rights, including the right
to dispose of the pledged equity interests. This agreement is not terminated until all of the VIEs’ obligations have been fulfilled
under the Contractual Arrangements. Shareholders’
Rights Entrustment Agreements Pursuant
to the shareholders’ rights entrustment agreement signed between the WFOEs, the VIEs and the equity holders of the VIEs, the equity
holders of the VIEs irrevocably appointed the WFOEs as its attorney-in-fact to exercise on such shareholder’s behalf any and all
rights that such shareholder has in respect of its equity interest in the VIEs, including but not limited to executing the exclusive
right to convene and attend shareholders’ meeting, vote on all matters of the VIEs under their Articles of Association, nominate
and appoint directors and other senior management members of the VIEs. These agreements remain effective and irrevocable in the period
which can be extended under PRC laws until the WFOEs has purchased all equity of the VIEs under the exclusive call option agreements. Spousal
Undertakings Pursuant
to the spouse undertakings, the respective spouse of the individual shareholders of the VIEs has irrevocably agreed to the execution
of business cooperation agreement, exclusive technical service and management consultancy agreement, exclusive call option agreement,
equity pledge agreement and shareholders’ rights entrustment agreement. The respective spouse of the individual shareholders of
the VIEs further undertakes that he or she has not participated, is not participating and shall not in the future participate in the
operation, management, liquidation, dissolution and other matters in relation to the VIEs and its affiliated entities, and confirms that
the respective shareholder or its designated person can execute all necessary documents and perform all necessary procedures and give
effect to the fundamental purposes under the contractual arrangements mentioned above, and further confirms and agrees to all such documents
and procedures in relation to the spouse’s equity interest in the VIEs. Through
the aforementioned contractual agreements, the Company has the ability to:
● exercise
effective control over the VIEs whereby having the power to direct Shenzhen Meten and Shenzhen
Likeshuo’s activities that most significantly drive the economic results of them;
● receive
substantially all of the economic benefits and residual returns, and absorb substantially
all the risks and expected losses from Shenzhen Meten and Shenzhen Likeshuo as if it was
their sole shareholder; and
● have
an exclusive option to purchase all of the equity interests in Shenzhen Meten and Shenzhen
Likeshuo. Management
therefore concluded that the Company, through the above Contractual Arrangements, has the power to direct the activities that most significantly
impact the VIEs’ economic performance, bears the risks of and enjoys the rewards normally associated with ownership of the VIEs,
and therefore the Company is the ultimate primary beneficiary of these VIEs. Consequently, the financial results of the VIEs were included
in the Group’s consolidated financial statements. The
table sets forth the assets and liabilities of the VIEs included in the Company’s consolidated balance sheets:
As
of December 31,
2020 2021
RMB’000 RMB’000
ASSETS
Current
assets
Cash and cash
equivalents 66,987 61,535
Contract assets 6,194 5,323
Accounts receivable 26,731 44,118
Other contract costs 33,153 31,869
Prepayments and other current
assets 49,153 39,716
Amounts due from related parties 7,934 7,265
Prepaid
income tax 13,046 13,267
Total
current assets 203,198 203,093
Non-current
assets
Restricted cash 10,358 8,840
Other contract costs 19,995 11,149
Equity method investments 24,552 24,403
Property and equipment, net 146,215 85,290
Operating lease right-of-use
assets 322,559 105,551
Intangible assets, net 18,277 13,721
Deferred tax assets 6,997 25,991
Goodwill 274,567 192,962
Long-term prepayments and
other non-current assets 40,648 26,015
Total
non-current assets 864,168 493,922
Total
assets 1,067,366 697,015
Current
liabilities
Accounts payable 9,762 15,881
Bank loans 133,900 6,000
Deferred revenue 341,934 213,006
Salary and welfare payable 65,927 26,075
Financial liabilities from
contracts with customers 384,561 337,932
Accrued expenses and other
payables 43,009 7,733
Current operating lease liabilities 131,151 35,817
Income taxes payable 267 195
Amounts due to related parties 159,739 685,287
Total
current liabilities 1,270,250 1,327,926
Non-current
liabilities
Deferred revenue 46,927 35,546
Deferred tax liabilities 7,661 4,433
Operating lease liabilities 200,409 34,137
Non-current tax payable 33,718 59,824
Total
non-current liabilities 288,715 133,940
Total
liabilities 1,558,965 1,461,866 The
table sets forth the results of operations of the VIE included in the Company’s consolidated statements of comprehensive income/(loss):
Years
ended December 31,
2019 2020 2021
RMB’000 RMB’000 RMB’000
Net revenues 1,447,899 897,035 728,996
Net
loss (121,363 ) (283,829 ) (227,071 ) The
table sets forth the cash flows of the VIE included in the Company’s consolidated statements of cash flows:
Years
ended December 31,
2019 2020 2021
RMB’000 RMB’000 RMB’000
Net cash used in operating activities (16,195 ) (164,268 ) (375,922 )
Net cash used in investing
activities (99,087 ) (54 ) (2,685 )
Net cash generated from financing activities 72,778 91,241 371,637 The
unrecognized revenue producing assets that are held by the VIEs comprise of assembly workforce and intellectual property and trademarks
which were not recorded on the Company’s consolidated balance sheets as they do not meet all the capitalization criteria. In
accordance with the Contractual Arrangements, the Company has power to direct activities of the VIEs, and can have assets transferred
freely out of the VIEs without restrictions. Therefore the Company considers that there is no asset in the VIEs that can be used only
to settle obligations of the respective VIE, except for registered capital and the PRC statutory
reserves Relevant PRC laws and regulations restrict the VIEs from transferring a portion
of its net assets, equivalent to the balance of their capital and statutory reserves,
to the Company in the form of loans and advances or cash dividends. Please refer to Note 24 for disclosure of the restricted net
assets. As
the VIEs are incorporated as limited liability companies under the PRC Company Law, the creditors of the VIEs do not have recourse to
the general credit of the Company. There is currently no contractual arrangement that would require the Company to provide additional
financial support to the VIEs. Risks
associated with VIE arrangements There
are substantial uncertainties regarding the interpretation and application of the PRC laws and regulations, and the Company cannot assure
you that the PRC government would agree that the Group’s corporate structure or any of the above-mentioned Contractual Arrangements
comply with current or future PRC laws or regulations. The PRC laws and regulations governing the validity of these Contractual Arrangements
are uncertain and the relevant government authorities may have broad discretion in interpreting these laws and regulations. If the Company
and its consolidated VIEs are found to be in violation of any existing or future PRC laws or regulations, or fail to obtain any of the
required licenses and permits, the relevant PRC regulatory authorities would have broad discretion in dealing with such violations, including:
(a) revoking
the business licenses of such entities;
(b) discontinuing
or restricting the operations of any transactions among the Company’s PRC subsidiaries
and the VIEs;
(c) limiting
the Company’s business expansion in China by way of entering into contractual arrangements;
(d) confiscating
the income of the VIEs or the Company’s PRC subsidiaries;
(e) imposing
fines, penalties or other requirements with which the Company, its PRC subsidiaries or consolidated
VIEs may not be able to comply;
(f) requiring
the Company to restructure its ownership structure or operations, terminate the Contractual
Arrangements with the VIEs and deregistering the equity pledges on the equity interest in
the VIEs, which in turn would affect its ability to consolidate, derive economic interests
from, or exert effective control over the VIEs;
(g) restricting
or prohibiting its use of the proceeds of any offering to finance its business and operations
in China; or
(h) restricting
the use of financing sources by the Company or the VIEs, or otherwise restricting the Company
or the VIEs’ ability to conduct business. If
the imposition of any of these penalties precludes the Company from operating its business, it would no longer be in a position to generate
revenue or cash from it. If the imposition of any of these penalties causes the Company to lose its rights to direct the activities of
its consolidated VIEs or its rights to receive its economic benefits, the Company would no longer be able to consolidate these entities,
and its financial statements would no longer reflect the results of operations from the business conducted by VIEs except to the extent
that the Company receives payments from VIEs under the Contractual Arrangements. Either of these results, or any other significant penalties
that might be imposed on the Company in this event, would have a material adverse effect on its financial condition and results of operations.
(d) Basis
of presentation The
accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (‘‘GAAP’’). The
consolidated financial statements are presented in Renminbi (“RMB”), rounded to the nearest thousands except share data and
per share data, or otherwise noted.
(e) Principles
of consolidation The
Group’s consolidated financial statements include the financial statements of the Company, its subsidiaries and its VIEs. All transactions
and balances among the Company, its subsidiaries and its VIEs have been eliminated upon consolidation. Subsidiaries
are those entities in which the Company, directly or indirectly, controls more than one half of the voting powers; has the power to appoint
or remove the majority of the members of the board of directors; or to cast a majority of votes at the meeting of directors; or has the
power to govern the financial and operating policies of the investee under a statute or agreement among the shareholders or equity holders. A
consolidated VIE is an entity in which the Company, or its subsidiary, through contractual agreements, bears the risks of, and enjoys
the rewards normally associated with ownership of the entity. In determining whether the Company or its subsidiaries are the primary
beneficiary, the Company considered whether it has the power to direct activities that are significant to the VIE’s economic performance,
and also the Group’s obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive
benefits from the VIE that could potentially be significant to the VIE. The Company, through the WFOEs holds all the variable interests
of the VIEs, and has been determined to be the primary beneficiary of the VIEs. |
