United States securities and exchange commission logo
August 10, 2022
Biao Wei
Chief Executive Officer
Lixiang Education Holding Co. Ltd.
No. 818 Hua Yuan Street
Liandu District, Lishui City, Zhejiang Province, 323000
People s Republic of China
Re: Lixiang Education
Holding Co. Ltd.
Form 20-F for the
Fiscal Year Ended December 31, 2021
Filed April 29,
2022
File No. 001-39559
Dear Mr. Wei:
We have reviewed your filing and have the following comments. In
some of our
comments, we may ask you to provide us with information so we may better
understand your
disclosure.
Please respond to these comments within ten business days by
providing the requested
information or advise us as soon as possible when you will respond. If
you do not believe our
comments apply to your facts and circumstances, please tell us why in
your response.
After reviewing your
response to these comments, we may have additional comments.
Form 20-F filed April 29, 2022
Item 3. Key Information, page 4
1. We note your disclosure
in the first paragraph on page 4. Please revise to state
specifically that you
are not a Chinese operating company but a Cayman Islands holding
company with operations
conducted by your subsidiaries and through contractual
arrangements with a
variable interest entity (VIE) based in China and that this structure
involves unique risks
to investors. Additionally, on page 4, please prominently disclose, if
true, that these
contracts have not been tested in court. Explain whether the VIE structure
is used to provide
investors with exposure to foreign investment in China-based
companies where Chinese
law prohibits direct foreign investment in the operating
companies, and disclose
that investors may never hold equity interests in the Chinese
operating company. Your
disclosure should acknowledge that Chinese regulatory
authorities disallow
this structure, which would likely result in a material change in your
Biao Wei
FirstName LastNameBiao
Lixiang Education HoldingWei
Co. Ltd.
Comapany
August 10, NameLixiang
2022 Education Holding Co. Ltd.
August
Page 2 10, 2022 Page 2
FirstName LastName
operations and/or a material change in the value of your securities,
including that it could
cause the value of such securities to significantly decline or become
worthless. Provide a
cross-reference to your detailed discussion of risks facing the
company and the offering as
a result of this structure.
2. We note your disclosure on page 7 in the sections titled "Permissions
Required for Our
Operations in China" and "The Holding Foreign Companies Accountable
Act." Please
revise to provide this disclosure in a more prominent place in the Key
Information section.
With respect to your disclosure regarding the HFCAA, please
specifically name the
Accelerating Holding Foreign Companies Accountable Act when discussing
the reduction
from three years to two.
3. Clearly disclose how you will refer to the holding company,
subsidiaries, and VIEs when
providing the disclosure throughout the document so that it is clear
to investors which
entity the disclosure is referencing and which subsidiaries or
entities are conducting the
business operations. Refrain from using terms such as we or
our when describing
activities or functions of a VIE. For example, disclose, if true, that
your subsidiaries
and/or the VIE conduct operations in China, that the VIE is
consolidated for accounting
purposes but is not an entity in which you own equity, and that the
holding company does
not conduct operations. Disclose clearly the entity (including the
domicile) in which
investors are purchasing an interest. Additionally, we note that your
definition of "China"
and "PRC" excludes Hong Kong and Macau. Please revise to clarify that
the legal and
operational risks associated with operating in China also apply to any
operations in Hong
Kong and/or Macau. Additionally, in an appropriate section, please
revise to discuss the
regulations that apply to your business operations in Hong Kong.
4. We note your disclosure starting on page 12 describing how cash and
assets flow through
your organization. Your disclosure in this section should name the
specific entities that
have and are able to conduct transfers, provide loans, and establish
and/or acquire new
foreign-invested enterprises, etc., instead of referencing "we." In
that light, please provide
a description of how cash is transferred through your organization and
disclose your
intentions to distribute earnings or settle amounts owed under the VIE
agreements. State
whether any transfers, dividends, or distributions have been made to
date between the
holding company, its subsidiaries, and consolidated VIEs, or to
investors, and quantify the
amounts where applicable. Provide cross-references to the condensed
consolidating
schedule and the consolidated financial statements. Additionally:
Please amend your disclosure here and in the summary risk
factors and risk factors
sections to state that, to the extent cash in the business is in
the PRC/Hong Kong or a
PRC/Hong Kong entity, the funds may not be available to fund
operations or for
other use outside of the PRC/Hong Kong due to interventions in or
the imposition of
restrictions and limitations on the ability of you, your
subsidiaries, or the
consolidated VIEs by the PRC government to transfer cash. On the
cover page,
provide cross-references to these other discussions.
Biao Wei
FirstName LastNameBiao
Lixiang Education HoldingWei
Co. Ltd.
Comapany
August 10, NameLixiang
2022 Education Holding Co. Ltd.
August
Page 3 10, 2022 Page 3
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Discuss whether there are limitations on your ability to
transfer cash between you,
your subsidiaries, the consolidated VIEs or investors. Provide a
cross-reference to
your discussion of this issue in your summary, summary risk
factors, and risk factors
sections, as well.
To the extent you have cash management policies that dictate
how funds are
transferred between you, your subsidiaries, the consolidated VIEs
or investors,
summarize the policies on your cover and disclose the source of
such policies (e.g.,
whether they are contractual in nature, pursuant to regulations,
etc.); alternatively,
state on the cover page that you have no such cash management
policies that dictate
how funds are transferred.
The disclosure here should not be qualified by materiality.
Please make appropriate
revisions to your disclosure, if needed.
5. Disclose clearly that you use a structure that involves VIEs based in
China and what that
entails and identify the person or entity that owns the equity in each
depicted entity,
including the sponsorship interest and the ownership of the 57%
interest in Beijing
Xinxiang. Describe all contracts and arrangements through which you
claim to have
economic rights and exercise control that results in consolidation of
the VIEs' operations
and financial results into your financial statements. Identify clearly
the entity in which
investors are purchasing their interest and the entity(ies) in which
the company s
operations are conducted. Describe the relevant contractual agreements
between the
entities and how this type of corporate structure may affect investors
and the value of their
investment, including how and why the contractual arrangements may be
less effective
than direct ownership and that the company may incur substantial costs
to enforce the
terms of the arrangements. Disclose the uncertainties regarding the
status of the rights of
the Cayman Islands holding company with respect to its contractual
arrangements with the
VIEs, their founders and owners, and the challenges you may face
enforcing these
contractual agreements due to legal uncertainties and jurisdictional
limits. Additionally,
we note the dashed line with the arrow from Liandu WFOE to various PRC
entities.
Please clarify whether there are VIE arrangements with each of the PRC
entities. Further,
please revise so that the diagram does not use solid lines to denote
relationships with the
VIEs, but instead uses dashed lines without arrows.
6. Please revise to disclose your Risk Factors Summary in a more
prominent place in your
disclosure. In your summary of risk factors, disclose the risks that
your corporate structure
and being based in or having the majority of the company s
operations in China poses to
investors. In particular, describe the significant regulatory,
liquidity, and enforcement
risks with cross-references to the more detailed discussion of these
risks in the document.
For example, specifically discuss risks arising from the legal system
in China, including
risks and uncertainties regarding the enforcement of laws and that
rules and regulations in
China can change quickly with little advance notice; and the risk that
the Chinese
Biao Wei
FirstName LastNameBiao
Lixiang Education HoldingWei
Co. Ltd.
Comapany
August 10, NameLixiang
2022 Education Holding Co. Ltd.
August
Page 4 10, 2022 Page 4
FirstName LastName
government may intervene or influence your operations at any time, or
may exert more
control over offerings conducted overseas and/or foreign investment in
China-based
issuers, which could result in a material change in your operations
and/or the value of
your securities. Acknowledge any risks that 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 your
ability to offer or continue to offer securities to investors and
cause the value of such
securities to significantly decline or be worthless. Please include a
cross-reference from
each summary risk factor to the relevant individual detailed risk
factor.
7. In the Permissions Required for Our Operations in China section on
page 7, please
disclose each permission or approval that you, your subsidiaries, or
the VIEs are required
to obtain from Chinese authorities to operate your business and to
offer the securities
being registered to foreign investors. State whether you, your
subsidiaries, or VIEs are
covered by permissions requirements from the China Securities
Regulatory Commission
(CSRC), Cyberspace Administration of China (CAC) or any other
governmental agency
that is required to approve the VIEs' operations, and state
affirmatively whether you have
received all requisite permissions or approvals and whether any
permissions or approvals
have been denied. Please also describe the consequences to you and
your investors if you,
your subsidiaries, or the VIEs: (i) do not receive or maintain such
permissions or
approvals, (ii) inadvertently conclude that such permissions or
approvals are not required,
or (iii) applicable laws, regulations, or interpretations change and
you are required to
obtain such permissions or approvals in the future. Additionally, we
note that you do not
appear to have relied upon an opinion of counsel with respect to your
conclusions
regarding permissions and approvals to operate your business and to
offer securities to
investors. If true, state as much and explain why such an opinion was
not obtained.
However, we also note that you did consult with your PRC counsel with
respect to your
ownership structure and contractual arrangements, as disclosed on page
89. Please revise
to name counsel in that disclosure.
8. We note your disclosure on page 12. Provide a clear description of how
cash is transferred
through your organization. Disclose your intentions to distribute
earnings or settle
amounts owed under the VIE agreements. Quantify any cash flows and
transfers of other
assets by type that have occurred between each of the holding company,
its subsidiaries,
and the consolidated VIEs, and direction of transfer. Quantify any
dividends or
distributions that a subsidiary or consolidated VIE have made to the
holding company and
which entity made such transfer, and their tax consequences. Similarly
quantify dividends
or distributions made to U.S. investors, the source, and their tax
consequences. Your
disclosure should make clear if no transfers, dividends, or
distributions have been made to
date, not just for the years ended 2019, 2020, and 2021. We also note
your disclosure on
page 13. Describe any restrictions on foreign exchange and your
ability to transfer cash
between entities, across borders, and to U.S. investors. Describe any
restrictions and
limitations on your ability to distribute earnings from the company,
including your
subsidiaries and/or the consolidated VIEs, to the parent company and
U.S. investors as
Biao Wei
FirstName LastNameBiao
Lixiang Education HoldingWei
Co. Ltd.
Comapany
August 10, NameLixiang
2022 Education Holding Co. Ltd.
August
Page 5 10, 2022 Page 5
FirstName LastName
well as the ability to settle amounts owed under the VIE agreements.
Please describe here
the PRC requirements for appropriation to the statutory reserves and
further restrictions
applicable to non-profit private schools. Provide cross-references to
the condensed
consolidating schedule and the consolidated financial statements.
9. We note your risk factor disclosure at the bottom of page 37. Please
revise to also
acknowledge that if such regulations change or are interpreted
differently, it may result in
your inability to assert contractual control over the assets of your
PRC subsidiaries or the
VIEs that conduct all or substantially all of your operations.
10. We note your risk factor disclosure on page 32 regarding the Holding
Foreign Companies
Accountable Act. Where you discuss that "the U.S. Senate passed a
bill, which would
reduce the number of consecutive non-inspection years required for
triggering the
prohibitions under the HFCAA from three years to two," please revise
to name the
Accelerating Holding Foreign Companies Accountable Act and disclose
that if enacted, in
addition to reducing the number of consecutive non-inspection years
from three to two, it
would reduce the time before your securities may be prohibited from
trading or delisted.
11. We note your risk factor disclosure on page 50 regarding the CAC.
Please revise your
disclosure to explain how this oversight may impact your business and
your offering. We
also note your determination that you believe that you "currently are
not required to obtain
clearance from the Cyberspace Administration of China for our offering
under the
Measures for Cybersecurity Review or the Opinions on Strictly Cracking
Down on Illegal
Securities Activities." We note that you do not appear to have relied
upon an opinion of
counsel with respect to your conclusions that you do not need any
permissions and
approvals to operate your business and to offer securities to
investors. If true, state as
much and explain why such an opinion was not obtained.
12. We note several statements in your annual report regarding the impact
that certain
education-related regulations may have on your business. Please
revise, as appropriate, to
disclose:
When you expect that the local government and education
authorities in Qingtian
County, Lishui City and/or Zhejiang Province to issue rules,
guidelines or opinions
on the interpretation, application and implementation of the 2021
Implementation
Rules and/or separate education-related. If such statements have
been made, please
revise to summarize the material information and disclose how
such regulations have
or may impact your business.
Which government authorities you are seeking guidance from and
cooperating with
in order to comply with the 2021 Implementation Rules. In that
light, we note that
you are "carefully evaluating the possible impact of the 2021
Implementation Rules
on [y]our business development and financial performance." To the
extent possible,
please quantify such impacts.
Biao Wei
FirstName LastNameBiao
Lixiang Education HoldingWei
Co. Ltd.
Comapany
August 10, NameLixiang
2022 Education Holding Co. Ltd.
August
Page 6 10, 2022 Page 6
FirstName LastName
The expected substantial costs and significant resources that
you may incur in
exercising your option to acquire school sponsor's interest in
Qingtian International
School.
13. We note your disclosure on page 7 regarding the Holding Foreign
Companies
Accountable Act. Please revise to specifically disclose that trading
in your securities may
be prohibited under the Holding Foreign Companies Accountable Act if
the PCAOB
determines that it cannot inspect or investigate completely your
auditor, and that as a
result an exchange may determine to delist your securities. Disclose
whether your auditor
is subject to the determinations announced by the PCAOB on December
16, 2021.
Item 19. Exhibits
Exhibits 12.1 and 12.2, page 140
14. We note the certifications provided in Exhibits 12.1 and 12.2 do not
include paragraph
4(b) referring to internal control over financial reporting after the
end of the transition
period that allows these omissions. Please amend the filing to provide
revised
certifications. You may file an abbreviated amendment that is limited
to the cover page,
explanatory note, signature page and paragraphs 1, 2, 4 and 5 of the
certification. Refer to
Exchange Act Rule 13a-14(a) and Item 601(b)(31) of Regulation S-K.
Consolidated Balance Sheets, page F-3
15. Please tell us why you adjusted total assets and total liabilities
balances from those
included in your Form 20-F for the year ended December 31, 2020 and
your basis in
GAAP for doing so. Please also tell us your basis in GAAP for
separately presenting
assets and liabilities that belong to discontinued operations.
Note 3. Discontinued operation, page F-24
16. Please tell us the nature of the line items titled Amounts due from/to
continuing operations
in your schedule of major assets and liabilities from discontinued
operations on page F-24
and why amounts were not eliminated upon consolidation with Amounts
due from/to
continuing operations recorded on the face of your consolidated
balance sheets on page F-
3 consistent with the prior year presentation. Also, please tell us
your consideration of
disclosing if the Lianwai School was disposed of by sale, abandonment
or in a distribution
to owners in a spinoff. Refer to ASC 205-20-45-1B.
17. Please tell us why you disclose assets and liabilities as of December
31, 2021 considering
the deconsolidation of the Affected Entity in fiscal 2021. In this
regard, these amounts do
not appear to be in your December 31, 2021 consolidated balance sheet.
18. Please tell us your consideration of impairing Affected Entity's
assets prior to
deconsolidation.
Biao Wei
Lixiang Education Holding Co. Ltd.
August 10, 2022
Page 7
19. We note your disclosure on page 101 that the amounts due to Lianwai
School will be
settled through a negotiation between Lianwai School and you. Please tell
us about the
anticipated negotiation, the parties involved and how each was considered
in your
accounting prior to and at deconsolidation.
General
20. In an appropriate place in your annual report, for example, in your risk
factor on page 43
where you discuss service of legal process, please name the directors,
officers, or
members of senior management located in the PRC/Hong Kong and include a
separate
"Enforceability" section that addresses whether or not investors may
being actions under
the civil liability provisions of the U.S. federal securities laws
against you, your officers or
directors who are residents of a foreign country, and whether investors
may enforce these
civil liability provisions when your assets, officers, and directors are
located outside of the
United States.
21. We note your risk factor disclosure on page 70 regarding the Guidelines
for Further
Easing the Burden of Excessive Homework and Off-campus Tutoring for
Students at the
Stage of Compulsory Education. Please revise to disclose the impact, if
any, that these
measures had or may have on your operational decisions, business, and
results of
operations. Specifically, please disclose the impact, if any, on Qingtian
International
School and Vocational Training Institutions. To the extent that these
measures present
additional material risks, please revise your risk factor to state as
much.
We remind you that the company and its management are responsible for
the accuracy
and adequacy of their disclosures, notwithstanding any review, comments, action
or absence of
action by the staff.
You may contact Tony Watson at (202) 551-3318 or Adam Phippen at (202)
551-3336 if
you have questions regarding comments on the financial statements and related
matters. Please
contact Cara Wirth at (202) 551-7127 with any other questions.
Sincerely,
FirstName LastNameBiao Wei
Division of
Corporation Finance
Comapany NameLixiang Education Holding Co. Ltd.
Office of Trade &
Services
August 10, 2022 Page 7
cc: Biao Wei
FirstName LastName