SEC Company Response from Mynd.ai, Inc. (MYND) (CIK 0001708441) (MYND) — Aug 23, 2022
Mynd.ai, Inc. (MYND) (CIK 0001708441)
Date: Aug. 23, 2022 · CIK: 0001708441 · Accession: 0001104659-22-093567
AI Filing Summary & Sentiment
File numbers found in text: 001-38203
Referenced dates: July 26, 2022
Letter
VIA EDGAR Division of Corporation Finance Office of Trade & Services Securities and Exchange Commission Re: Gravitas Education Holdings, Inc. (the “Company”) Form 20-F for the Fiscal Year Ended December 31, Filed May 11, 2022 File No. 001-38203
Dear Messrs. Nalbantian and Field:
This letter sets forth the Company’s responses to the comments contained in the letter dated July 26, 2022, from the staff (the “Staff”) of the Securities and Exchange Commission (the “Commission”) regarding the Company’s Form 20-F for the fiscal year ended December 31, 2021 filed with the Commission on May 11, 2022 (the “2021 Form 20-F”). The Staff’s comments are repeated below in bold and are followed by the Company’s responses thereto. All capitalized terms used but not defined in this letter shall have the meaning ascribed to such terms in the 2021 Form 20-F.
FORM 20-F FOR THE FISCAL YEAR ENDED DECEMBER 31, 2021
Item 3. Key Information, page 3
1. Please revise the disclosure in the Introduction section on page 1 to remove the exclusion of Hong Kong and Macau from the definition of the PRC and China.
In response to the Staff’s comment, the Company respectfully proposes to revise and include the following underlined disclosure in Introduction and make conforming adjustments throughout the annual report in its future Form 20-F filings:
“‘China’ or the ‘PRC’ are to the People’s Republic of China, excluding, for the purposes of this annual report only, including Hong Kong, and Macau and Taiwan.”
Gravitas Education Holdings, Inc.
August 23, 2022
Page 2
2. We note the “Our Holding Company Structure and Contractual Arrangements with the VIE” section on page 3 discusses legal and operational risks associated with being based in or having the majority of your operations in China and that your business operations may be subject to complex and evolving PRC laws and regulations. We also note that this section is drafted from a hypothetical or theoretical standpoint versus discussing in detail the recent regulatory changes which drove the divestiture of your kindergarten business. Please revise to discuss in detail the relevant laws and regulations (including the Opinions of the State Council on Deepening Reform and Standardized Development of Preschool Education, the Regulations on the Implementation of the Law on the Promotion of Private Education, and the Preschool Education Law (Draft for Comments)) which directly impacted the company’s business, the company’s compliance with these new laws and regulations and all material financial impacts related to the divestiture. In this regard, we note certain information is contained on pages 99 and F-60 but given the significance of the divestiture a more fulsome discussion should be provided in this section.
The Company respectfully advises the Staff that our commercial objective drove the divestiture of our PRC kindergarten business, which simultaneously advanced our compliance obligations. Fundamentally, the divestiture reflects a major strategic shift in the Company’s business to become a new educational services output platform, which at the same time serves as a proactive solution for the Company to comport with the regulatory trend regarding the early-education industry in China. In lieu of operating these kindergartens by ourselves, we provide educational services to them. This way, we transition from an asset-heavy business model, with high capital overhead and inherent operational risks, to an asset-light business model, with scalability and strong margin. We are well positioned to provide services to early educational institutions across the country as we leverage the experience and insights accumulated over 20 years of operating play-and-learn centers, kindergartens and student care centers domestically and abroad. The Company respectfully further advises the Staff that the Company’s current understanding of all material financial impacts related to the divestiture is sufficiently reflected by the information disclosed in the subsequent event of the consolidated financial statements contained in the Form 20-F, which will be added as cross-references as shown below.
Gravitas Education Holdings, Inc.
August 23, 2022
Page 3
In response to the Staff’s comment, the Company respectfully proposes to revise and include the following underlined disclosure in Item 3. Key Information as shown below in its future Form 20-F filings, subject to updates and adjustments to be made in connection with any material development of the subject matter being disclosed:
“The divestiture of our PRC kindergarten business was mainly motivated by our commercial objectives. We planned on transitioning our business model to become an educational services output platform and would derive significant revenue through such transition. As a result of the divestiture, an aggregate amount of RMB158.5 million will be paid in installments to our subsidiaries as compensation for the termination of VIE agreements. Additionally, we have entered into a series of service agreements with a term of 15 years with the former VIE, at arm’s-length terms under which our subsidiaries will continuingly provide brand royalty, training, management IT system, recruitment, and curriculum design services to the former VIE and the kindergartens operated by them. For detailed information regarding all material financial impacts related to the divestiture, see ‘Item 5. Operating and Financial Review and Prospects—A. Operating Results—Financial Impact by the Divestiture’ and ‘Notes to Consolidated Financial Statements for the Years Ended December 31, 2019, 2020 and 2021—26. Subsequent Event.’
We face various risks and uncertainties related to doing business in China. Our business operations are primarily conducted in China, and we are subject to complex and evolving PRC laws and regulations. The PRC government authorities amend and/or issue the rules, regulations and guidelines regarding the preschool education industry from time to time, such as the Opinions of the Central Committee of the Communist Party of China and State Council on Deepening Reform and Standardized Development in Preschool Education issued in November 2018, the Implementing Regulations for the Law for Promoting Private Education of the PRC newly amended and became effective on September 1, 2021, and the PRC Preschool Education Law (Draft for Comments) promulgated on September 7, 2020, and has not officially become effective. According to the aforementioned regulations, (i) private schools are divided into non-profit or for-profit private schools, (ii) social capital is not allowed to control non-profit kindergartens or kindergartens that are sponsored by state-owned assets or collectively-owned assets, (iii) private schools providing compulsory education shall not conduct any transaction with any related party. We are of the view that we are in material compliance with the aforementioned regulations, which are currently and officially effective. However, there are substantial uncertainties regarding the interpretation and application of current and future PRC laws and regulations, and the PRC regulatory authorities may take a view that is contrary to the opinion of ours. We are also of the view that government enforcement of the aforementioned regulations is strong, and the divestiture of our PRC kindergarten business aligned with the facts that (i) an increasing number of private kindergartens directly operated by us were requested by local education authorities to transfer into public kindergartens that are sponsored by the local education authorities or their designated entities, (ii) during the actual operation of some kindergartens that leased and/or are leasing government properties, the lessors were and/or are not willing to renew the leases; (iii) we noticed some public news reported that several private schools were donated to the government as a whole and turned into government-run schools. For example Also, we face risks associated with regulatory approvals on offshore offerings, anti-monopoly regulatory actions, and oversight on cybersecurity and data privacy, as well as the possible lack of inspection by the Public Company Accounting Oversight Board, or the PCAOB, on our auditors pursuant to the announcement of the PCAOB issued on December 16, 2021. This may impact our ability to conduct certain businesses, accept foreign investments, or list on a United States or other foreign exchange. These risks could result in a material adverse change in our operations and the value of our ADSs, significantly limit or completely hinder our ability to continue to offer securities to investors, or cause the value of such securities to significantly decline. For a detailed description of risks related to doing business in China, please refer to risks disclosed under ‘Item 3.D. Key Information—Risk Factors—Risks Related to Doing Business in China.’”
Gravitas Education Holdings, Inc.
August 23, 2022
Page 4
3. We note your disclosure that you are not a Chinese operating company but a Cayman Islands holding company and that you conduct our business in China through (i) your PRC subsidiaries and (ii) the former VIE and the new VIE with which you maintained contractual arrangements. Please disclose that this structure involves unique risks to investors. Your disclosure should acknowledge that Chinese regulatory authorities could disallow this structure, which would likely result in a material change in your 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 as a result of this structure.
In response to the Staff’s comment, the Company respectfully proposes to include the following underlined disclosure in Item 3. Key Information as shown below in its future Form 20-F filings, subject to updates and adjustments to be made in connection with any material development of the subject matter being disclosed:
“GEHI is not a Chinese operating company but a Cayman Islands holding company with no equity ownership in its variable interest entity, or VIE. We conduct our business in China through (i) our PRC subsidiaries and (ii) the former VIE and the new VIE with which we maintained contractual arrangements. Foreign investment in the education industry and value-added telecommunication industry in China is extensively regulated and subject to numerous restrictions. Accordingly, we historically operated these businesses in China through the former VIE, and relied on contractual arrangements among our PRC subsidiaries, the former VIE and their shareholders to control the business operations of the former VIE. We have entered into agreements with former VIE to terminate the contractual arrangements in March 2022, pursuant to which the previous contractual arrangements were terminated, and we divested our directly operated kindergarten business on April 30, 2022. Pursuant to PRC laws and regulations, ICP license can only be held by companies with an ultimate capital contribution percentage by foreign investor(s) not exceed 50%. Accordingly, in April 2022, we entered into a series of contractual agreements with Zhudou Investment, or the new VIE, and its shareholders and its subsidiaries for licensing concern. See ‘Item 4. Information on the Company—C. Organizational Structure’ for further details. This structure involves unique risks to investors. Chinese regulatory authorities could disallow this structure, which would likely result in a material change in our operations and/or a material change in the value of our securities, including that it could cause the value of our securities to significantly decline or become worthless. For a detailed discussion of risks facing the Company as a result of this structure, see ‘Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure.’ Holders of our ADSs are not holding equity interest in the VIE in China but instead are holding equity interest in Gravitas Education Holdings, Inc., a holding company incorporated and domiciled in the Cayman Islands. Investors of GEHI may never hold equity interests in our Chinese operating companies.”
Gravitas Education Holdings, Inc.
August 23, 2022
Page 5
4. Please disclose whether your auditor is subject to the determinations announced by the PCAOB on December 16, 2021, and whether and how the Holding Foreign Companies Accountable Act and related regulations will affect your company. In this regard, 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. Please revise the disclosure to include a cross-reference to the applicable risk factor.
In response to the Staff’s comment, the Company respectfully proposes to include the following disclosure in Item 3. Key Information in its future Form 20-F filings, subject to updates and adjustments to be made in connection with any material development of the subject matter being disclosed:
“The Holding Foreign Companies Accountable Act
The Holding Foreign Companies Accountable Act, or the HFCAA, was enacted on December 18, 2020. The HFCAA states that if the SEC determines that we have filed audit reports issued by a registered public accounting firm that has not been subject to inspection by the PCAOB for three consecutive years beginning in 2021, the SEC shall prohibit our shares or ADSs from being traded on a national securities exchange or in the over-the-counter trading market in the United States. The related risks and uncertainties could cause the value of our ADSs to significantly decline or be worthless. On December 16, 2021, the PCAOB issued a report to notify the SEC of its determination that the PCAOB is unable to inspect or investigate completely registered public accounting firms headquartered in mainland China and Hong Kong. Our auditor, Friedman LLP, the independent registered public accounting firm that issues the audit report included elsewhere in this annual report, as an auditor of companies that are traded publicly in the United States and a firm registered with the PCAOB, is not subject to the determinations announced by the PCAOB issued on December 16, 2021. Our auditor is subject to laws in the United States pursuant to which the PCAOB conducts regular inspections to assess our auditor’s compliance with the applicable professional standards. We cannot assure you whether regulatory authorities would apply additional and more stringent criteria to us after considering the effectiveness of our auditor’s audit procedures and quality control procedures, adequacy of personnel and training, or sufficiency of resources, geographic reach or experience as it relates to the audit of our financial statements. In the event it is later determined that the PCAOB is unable to inspect or investigate completely our auditor, then such lack of inspection could cause trading in our securities to be prohibited under the HFCAA ultimately result in a determination by a securities exchange to delist our securities.
Gravitas Education Holdings, Inc.
August 23, 2022
Page 6
On June 22, 2021, the U.S. Senate passed a bill which proposed to reduce the number of consecutive non-inspection years required for triggering the prohibitions under the HFCAA from three
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CORRESP
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filename1.htm
Gravitas Education Holdings, Inc.
4/F, No. 29 Building, Fangguyuan Section 1
Fangzhuang, Fengtai District
Beijing 100078
People’s Republic of China
August 23, 2022
VIA EDGAR
Mr. Nicholas Nalbantian
Mr. Donald Field
Division of Corporation Finance
Office of Trade & Services
Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549
Re: Gravitas Education Holdings, Inc. (the “Company”)
Form 20-F for the Fiscal Year Ended December 31,
2021
Filed May 11, 2022
File
No. 001-38203
Dear Messrs. Nalbantian and Field:
This letter sets forth the
Company’s responses to the comments contained in the letter dated July 26, 2022, from the staff (the “Staff”)
of the Securities and Exchange Commission (the “Commission”) regarding the Company’s Form 20-F for the fiscal
year ended December 31, 2021 filed with the Commission on May 11, 2022 (the “2021 Form 20-F”). The Staff’s
comments are repeated below in bold and are followed by the Company’s responses thereto. All capitalized terms used but not defined
in this letter shall have the meaning ascribed to such terms in the 2021 Form 20-F.
FORM 20-F FOR THE FISCAL YEAR ENDED DECEMBER 31, 2021
Item 3. Key Information, page 3
1. Please revise the disclosure in the Introduction section on page 1 to remove the exclusion of
Hong Kong and Macau from the definition of the PRC and China.
In response to the Staff’s comment,
the Company respectfully proposes to revise and include the following underlined disclosure in Introduction and make conforming adjustments
throughout the annual report in its future Form 20-F filings:
“‘China’ or the ‘PRC’
are to the People’s Republic of China, excluding, for the purposes of this annual report only, including
Hong Kong, and Macau and Taiwan.”
Gravitas
Education Holdings, Inc.
August 23, 2022
Page 2
2. We note the “Our Holding Company Structure and Contractual Arrangements with the VIE” section
on page 3 discusses legal and operational risks associated with being based in or having the majority of your operations in China
and that your business operations may be subject to complex and evolving PRC laws and regulations. We also note that this section is drafted
from a hypothetical or theoretical standpoint versus discussing in detail the recent regulatory changes which drove the divestiture of your
kindergarten business. Please revise to discuss in detail the relevant laws and regulations (including the Opinions of the State Council
on Deepening Reform and Standardized Development of Preschool Education, the Regulations on the Implementation of the Law on the Promotion
of Private Education, and the Preschool Education Law (Draft for Comments)) which directly impacted the company’s business, the
company’s compliance with these new laws and regulations and all material financial impacts related to the divestiture. In this regard,
we note certain information is contained on pages 99 and F-60 but given the significance of the divestiture a more fulsome discussion
should be provided in this section.
The Company respectfully advises
the Staff that our commercial objective drove the divestiture of our PRC kindergarten business, which simultaneously advanced our
compliance obligations. Fundamentally, the divestiture reflects a major strategic shift in the Company’s business to become a
new educational services output platform, which at the same time serves as a proactive solution for the Company to comport with the
regulatory trend regarding the early-education industry in China. In lieu of operating these kindergartens by ourselves, we provide
educational services to them. This way, we transition from an asset-heavy business model, with high capital overhead and inherent
operational risks, to an asset-light business model, with scalability and strong margin. We are well positioned to provide services
to early educational institutions across the country as we leverage the experience and insights accumulated over 20 years of
operating play-and-learn centers, kindergartens and student care centers domestically and abroad. The Company respectfully further
advises the Staff that the Company’s current understanding of all material financial impacts related to the divestiture is
sufficiently reflected by the information disclosed in the subsequent event of the consolidated financial statements contained in the Form 20-F, which will
be added as cross-references as shown below.
Gravitas
Education Holdings, Inc.
August 23, 2022
Page 3
In response to the Staff’s comment,
the Company respectfully proposes to revise and include the following underlined disclosure in Item 3. Key Information as shown below
in its future Form 20-F filings, subject to updates and adjustments to be made in connection with any material development of the
subject matter being disclosed:
“The divestiture of our PRC kindergarten
business was mainly motivated by our commercial objectives. We planned on transitioning our business model to become an educational services
output platform and would derive significant revenue through such transition. As a result of the divestiture, an aggregate amount of RMB158.5
million will be paid in installments to our subsidiaries as compensation for the termination of VIE agreements. Additionally, we have
entered into a series of service agreements with a term of 15 years with the former VIE, at arm’s-length terms under which our subsidiaries
will continuingly provide brand royalty, training, management IT system, recruitment, and curriculum design services to the former VIE
and the kindergartens operated by them. For detailed information regarding all material financial impacts related to the divestiture, see
‘Item 5. Operating and Financial Review and Prospects—A. Operating Results—Financial Impact by the Divestiture’
and ‘Notes to Consolidated Financial Statements for the Years Ended December 31, 2019, 2020 and 2021—26. Subsequent Event.’
We face various risks and uncertainties
related to doing business in China. Our business operations are primarily conducted in China, and we are subject to complex and evolving
PRC laws and regulations. The PRC government authorities amend and/or issue the rules, regulations and guidelines regarding the preschool
education industry from time to time, such as the Opinions of the Central Committee of the Communist Party of China and State Council
on Deepening Reform and Standardized Development in Preschool Education issued in November 2018, the Implementing Regulations for
the Law for Promoting Private Education of the PRC newly amended and became effective on September 1, 2021, and the PRC Preschool
Education Law (Draft for Comments) promulgated on September 7, 2020, and has not officially become effective. According to the aforementioned
regulations, (i) private schools are divided into non-profit or for-profit private schools, (ii) social capital is not allowed
to control non-profit kindergartens or kindergartens that are sponsored by state-owned assets or collectively-owned assets, (iii) private
schools providing compulsory education shall not conduct any transaction with any related party. We are of the view that we are in material
compliance with the aforementioned regulations, which are currently and officially effective. However, there are substantial uncertainties
regarding the interpretation and application of current and future PRC laws and regulations, and the PRC regulatory authorities may take
a view that is contrary to the opinion of ours. We are also of the view that government enforcement of the aforementioned regulations
is strong, and the divestiture of our PRC kindergarten business aligned with the facts that (i) an increasing number of private kindergartens
directly operated by us were requested by local education authorities to transfer into public kindergartens that are sponsored by the
local education authorities or their designated entities, (ii) during the actual operation of some kindergartens that leased and/or
are leasing government properties, the lessors were and/or are not willing to renew the leases; (iii) we noticed some public news
reported that several private schools were donated to the government as a whole and turned into government-run schools. For
example Also, we face risks associated with regulatory approvals on offshore offerings, anti-monopoly regulatory actions,
and oversight on cybersecurity and data privacy, as well as the possible lack of inspection by the Public Company Accounting Oversight
Board, or the PCAOB, on our auditors pursuant to the announcement of the PCAOB issued on December 16, 2021. This may impact our ability
to conduct certain businesses, accept foreign investments, or list on a United States or other foreign exchange. These risks could result
in a material adverse change in our operations and the value of our ADSs, significantly limit or completely hinder our ability to continue
to offer securities to investors, or cause the value of such securities to significantly decline. For a detailed description of risks
related to doing business in China, please refer to risks disclosed under ‘Item 3.D. Key Information—Risk Factors—Risks
Related to Doing Business in China.’”
Gravitas
Education Holdings, Inc.
August 23, 2022
Page 4
3. We note your disclosure that you are not a Chinese operating company but a Cayman Islands holding company
and that you conduct our business in China through (i) your PRC subsidiaries and (ii) the former VIE and the new VIE with which
you maintained contractual arrangements. Please disclose that this structure involves unique risks to investors. Your disclosure should
acknowledge that Chinese regulatory authorities could disallow this structure, which would likely result in a material change in your
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 as a result of this structure.
In response to the Staff’s comment,
the Company respectfully proposes to include the following underlined disclosure in Item 3. Key Information as shown below in its future
Form 20-F filings, subject to updates and adjustments to be made in connection with any material development of the subject matter
being disclosed:
“GEHI is not a Chinese operating
company but a Cayman Islands holding company with no equity ownership in its variable interest entity, or VIE. We conduct our business
in China through (i) our PRC subsidiaries and (ii) the former VIE and the new VIE with which we maintained contractual arrangements.
Foreign investment in the education industry and value-added telecommunication industry in China is extensively regulated and subject
to numerous restrictions. Accordingly, we historically operated these businesses in China through the former VIE, and relied on contractual
arrangements among our PRC subsidiaries, the former VIE and their shareholders to control the business operations of the former VIE. We
have entered into agreements with former VIE to terminate the contractual arrangements in March 2022, pursuant to which the previous
contractual arrangements were terminated, and we divested our directly operated kindergarten business on April 30, 2022. Pursuant
to PRC laws and regulations, ICP license can only be held by companies with an ultimate capital contribution percentage by foreign
investor(s) not exceed 50%. Accordingly, in April 2022, we entered into a series of contractual agreements with Zhudou Investment,
or the new VIE, and its shareholders and its subsidiaries for licensing concern. See ‘Item 4. Information on the Company—C.
Organizational Structure’ for further details. This structure involves unique risks to investors. Chinese regulatory authorities
could disallow this structure, which would likely result in a material change in our operations and/or a material change in the value
of our securities, including that it could cause the value of our securities to significantly decline or become worthless. For a detailed
discussion of risks facing the Company as a result of this structure, see ‘Item 3. Key Information—D. Risk Factors—Risks
Related to Our Corporate Structure.’ Holders of our ADSs are not holding equity interest in the VIE in China but instead are
holding equity interest in Gravitas Education Holdings, Inc., a holding company incorporated and domiciled in the Cayman Islands.
Investors of GEHI may never hold equity interests in our Chinese operating companies.”
Gravitas
Education Holdings, Inc.
August 23, 2022
Page 5
4. Please disclose whether your auditor is subject to the determinations announced by the PCAOB on December 16,
2021, and whether and how the Holding Foreign Companies Accountable Act and related regulations will affect your company. In this regard,
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.
Please revise the disclosure to include a cross-reference to the applicable risk factor.
In response to the Staff’s comment,
the Company respectfully proposes to include the following disclosure in Item 3. Key Information in its future Form 20-F filings,
subject to updates and adjustments to be made in connection with any material development of the subject matter being disclosed:
“The Holding
Foreign Companies Accountable Act
The Holding Foreign Companies Accountable
Act, or the HFCAA, was enacted on December 18, 2020. The HFCAA states that if the SEC determines that we have filed audit reports
issued by a registered public accounting firm that has not been subject to inspection by the PCAOB for three consecutive years beginning
in 2021, the SEC shall prohibit our shares or ADSs from being traded on a national securities exchange or in the over-the-counter trading
market in the United States. The related risks and uncertainties could cause the value of our ADSs to significantly decline or be worthless.
On December 16, 2021, the PCAOB issued a report to notify the SEC of its determination that the PCAOB is unable to inspect or investigate
completely registered public accounting firms headquartered in mainland China and Hong Kong. Our auditor, Friedman LLP, the independent
registered public accounting firm that issues the audit report included elsewhere in this annual report, as an auditor of companies that
are traded publicly in the United States and a firm registered with the PCAOB, is not subject to the determinations announced by the PCAOB
issued on December 16, 2021. Our auditor is subject to laws in the United States pursuant to which the PCAOB conducts regular inspections
to assess our auditor’s compliance with the applicable professional standards. We cannot assure you whether regulatory authorities
would apply additional and more stringent criteria to us after considering the effectiveness of our auditor’s audit procedures and
quality control procedures, adequacy of personnel and training, or sufficiency of resources, geographic reach or experience as it relates
to the audit of our financial statements. In the event it is later determined that the PCAOB is unable to inspect or investigate completely
our auditor, then such lack of inspection could cause trading in our securities to be prohibited under the HFCAA ultimately result in
a determination by a securities exchange to delist our securities.
Gravitas
Education Holdings, Inc.
August 23, 2022
Page 6
On June 22, 2021, the U.S. Senate
passed a bill which proposed to reduce the number of consecutive non-inspection years required for triggering the prohibitions under the
HFCAA from three