VIEs and Revenue Structure - VIEs contributed 100%, 97.6%, and 99.3% of the company's net revenues for the fiscal years ended February 28, 2022, 2023, and February 29, 2024, respectively[18]. - In the 2024 fiscal year, Shanghai Fuxi received service fees of RMB3.6 million (US$0.5 million) from the VIEs and did not distribute any dividends[31]. - The company relies on service fees from the VIEs for its revenue, which are subject to PRC legal restrictions[31]. - The company’s ability to pay dividends is contingent upon the financial performance of its PRC subsidiaries and VIEs[56]. - The VIEs paid RMB 3.6 million to the WFOE as service fees and repaid RMB 25.2 million in working capital support[61]. - The company relies on dividends from its PRC subsidiaries, which can only be paid out of accumulated profits after statutory reserves are funded[52]. - The company has invested RMB 20.9 million in Other Subsidiaries for the year ended February 28, 2023[59]. - For the fiscal year ended February 29, 2024, the WFOE transferred RMB 2.0 million to Other Subsidiaries and RMB 23.5 million to VIEs as working capital support[61]. Regulatory Environment and Compliance - The company ceased offering K-9 Academic AST Services in mainland China at the end of 2021 due to regulatory changes[21]. - The PRC government has increased scrutiny over overseas listed PRC businesses, which may adversely affect operations and the ability to offer securities to overseas investors[34]. - The Overseas Listing Trial Measures, effective March 31, 2023, require PRC domestic companies to file with the CSRC for overseas offerings, with potential sanctions for non-compliance[37]. - The company must comply with evolving PRC laws and regulations regarding data privacy and cybersecurity, which could lead to penalties if not adhered to[35]. - The company is closely monitoring regulatory changes and is cooperating with government authorities to ensure compliance[39]. - The company is required to obtain various operating licenses and permits for its business operations in China, and failure to comply may adversely affect its results[85]. - The PRC government has lifted many COVID-19 restrictions since December 2022, but future impacts on operations remain uncertain[124]. - The company is not currently subject to cybersecurity review as it does not possess a large amount of personal information and its business does not impact national security[164]. Financial Performance and Risks - Revenue for the year ended February 28, 2023, was RMB 34,216 thousand, a significant increase from RMB 250,223 thousand for the year ended February 28, 2022[65]. - Operating loss for the year ended February 28, 2023, was RMB 35,665 thousand, compared to an operating loss of RMB 66,214 thousand for the previous year[65]. - Net loss attributable to Four Seasons Education (Cayman) Inc. for the year ended February 28, 2023, was RMB 29,666 thousand, a decrease from RMB 113,462 thousand in the prior year[67]. - The company reported a net cash increase of RMB 125,188,000 in cash, cash equivalents, and restricted cash during the year[77]. - The company faces significant risks related to the inability to develop new learning products under recent regulatory policies in China, which could adversely affect its business and operations[44]. - The company's historical financial results may not be indicative of future performance, posing risks to investors[44]. - The trading price of the company's ADSs is likely to be volatile, potentially resulting in substantial losses for investors[55]. - The company may face unfavorable tax consequences if classified as a PRC "resident enterprise" for tax purposes[59]. Operational Challenges and Market Conditions - The company faces significant competition in the learning services and tourism services markets in China, which is rapidly evolving and highly fragmented[108]. - The company has limited experience in responding quickly to changes in the market and may face challenges in executing new initiatives[84]. - The company may not be able to improve its current business to meet the demands of learners and educational institutions, potentially leading to a decline in customer satisfaction and financial performance[44]. - The company may face difficulties in recruiting and retaining qualified faculty members due to regulatory restrictions and competition[95]. - The company’s ability to attract learners and customers with new products and services is critical for future revenue growth[93]. - The company may face challenges in integrating future acquisitions, which could adversely affect its business and operating results[112]. Legal and Taxation Risks - The PRC tax authorities may scrutinize the contractual arrangements with VIEs, potentially leading to increased tax liabilities and reduced net income[141]. - A transfer pricing adjustment could result in additional tax obligations for the VIEs, affecting the company's net income[142]. - If any VIE undergoes bankruptcy or liquidation, the company may lose access to critical assets, adversely impacting operations and financial condition[143]. - The SAT Circular 698 requires foreign investors to report indirect transfers of equity interests in PRC resident enterprises, with potential re-characterization of such transfers for tax purposes[185]. - The company faces potential taxation risks related to the disposition of ordinary shares or ADS, which may adversely affect its financial condition and operations[190]. Internal Control and Governance - The company identified a material weakness in internal control over financial reporting, which could impair its ability to comply with financial reporting requirements[127]. - The company has taken measures to improve internal controls but cannot assure full remediation of identified weaknesses[127]. - The largest shareholder, Mr. Peiqing Tian, may have potential conflicts of interest that could adversely affect the company[140]. - The company relies on Mr. Peiqing Tian to comply with contractual obligations regarding Variable Interest Entities (VIEs), which could impact control and economic benefits[140]. Currency and Exchange Risks - Revenue is primarily denominated in Renminbi, and currency exchange restrictions may limit the company's ability to utilize this revenue for business activities outside of China[191]. - Fluctuations in the Renminbi's value against the U.S. dollar could materially impact the company's financial results and the value of its ADS[196]. - Current PRC regulations allow dividends from subsidiaries to be paid only from accumulated profits, which may restrict the company's cash flow[195]. Future Outlook and Strategic Initiatives - Future outlook includes a focus on market expansion and new product development to enhance revenue streams[69]. - The company’s growth strategies include enhancing services, technology, and content solutions, but execution may be hindered by various factors[93]. - The company relies on innovative technology, such as its self-developed intelligent class content development system, to fuel growth[101].
Four Seasons Education(FEDU) - 2024 Q4 - Annual Report