SecProbe.io

CORRESP
1
filename1.htm

January 17, 2023

Division
of Corporation Finance

U.S. Securities
& Exchange Commission

100 F Street, NE

Washington,
D.C. 20549

 Re: Zhangmen Education Inc.

Form 20-F
for Fiscal Year Ended December 31, 2021

Filed May 3, 2022

File No.
001-40455

 Attn: Division of Corporation Finance

                                                                                Office of Trade & Services

VIA EDGAR

Dear Blaise Rhodes, Angela Lumley, Rucha
Pandit and Donald Field:

This letter sets forth
the responses of Zhangmen Education Inc. (the “Company”), including the proposed amendments to its annual report on Form
20-F for the fiscal year ended December 31, 2021 (the “2021 Annual Report”), to the comments the Company received from the
staff (the “Staff”) of the Securities and Exchange Commission (the “Commission”) in a letter dated December 23,
2022.

For the Staff’s convenience,
we have included below the comments in bold, and the Company’s responses and/or proposed amendments to the 2021 Annual Report are
set forth immediately below the comments (with new language indicated by underlines and deleted language indicated by strike-through marks).
The Company undertakes to include the proposed amendments substantially as set forth below in its annual report on Form 20-F for the fiscal
year ended December 31, 2022 (the “2022 Annual Report”), with appropriate revisions and updates to reflect the Company’s
circumstances at the time when the Company files the 2022 Annual Report.

Form 20-F for Fiscal Year Ended
December 31, 2021

Introduction,
page ii

1.
We note that your definition of China and the PRC excludes Hong Kong, Macau and Taiwan. Please revise to clarify that the legal
and operational risks associated with operating in China also apply to operations in Hong Kong and Macau. This disclosure may appear
in the definition itself or in another appropriate discussion of legal and operational risks applicable to the company.

Response

The Company
respectfully advises the Staff that it currently does not have operations in Hong Kong or Macau. As a result, the Company believes that
it is not subject to material operational risks associated with operating in Hong Kong or Macau. Nonetheless, for the sake of completeness,
the Company intends to revise the fourth paragraph on page 11 of the 2021 Annual
Report as follows and make conforming disclosures in the 2022 Annual Report:

    1

Below
please find a summary of the principal risks and uncertainties we face, organized under relevant headings. The operational risks associated
with being based in and having operations in mainland China also apply to operations in Hong Kong and Macau. While entities and businesses
in Hong Kong and Macau operate under different sets of laws from mainland China, the legal risks associated with being based in and having
operations in mainland China could apply to a company’s operations in Hong Kong and Macau, if the laws applicable to mainland China
become applicable to entities and business in Hong Kong and Macau in the future. As of the date of this Annual Report, we do not have
operations in Hong Kong or Macau. In particular, as we are a China-based company incorporated in the Cayman Islands, you should pay
special attention to subsections headed “Item 3. Key Information-3.D. Risk Factors-Risks Relating to Doing Business in China”
and “Item 3. Key Information-3.D. Risk Factors-Risks Relating to Our Corporate Structure.”

Item 3, Key Information, page 1

2.
Please refer to the section captioned "Contractual Arrangements and Corporate Structure." Please disclose prominently
here 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. If true, disclose 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 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.

Response

In response to the Staff’s
comment, the Company intends to replace the entire disclosure under “Item 3. Key Information – Contractual Arrangements and
Corporate Structure” on page 1 of the 2021 Annual Report with the following disclosure previously included under “Item 3.
Key Information – Item 3.D. Risk Factors” on page 11 of the 2021 Annual Report, which would be further revised as follows,
and make conforming disclosures in the 2022 Annual Report:

Zhangmen
Education Inc. is a Cayman Islands holding company. It conducts its operations in China through its PRC subsidiariesy
and consolidated variable interest entitiesy, or the VIEs. Current PRC laws and regulations
impose certain restrictions or prohibitions on restrict foreign ownership of investment in
companies that engage in value-added telecommunication services and certain other businesses. Therefore, we have, through our subsidiary,
entered into a series of contractual arrangements, as amended and restated, with the VIEs as well as theirits
shareholders. This structure allows us to exercise effective control over the VIEs, and is designed to replicate
substantially the same economic benefits as would be provided by direct ownership, and allows us to considered the primary beneficiary
of the VIEs for accounting purposes and to consolidate its operating results in our financial statements
under the U.S. GAAP, to the extent the conditions for consolidation of the VIE under U.S. GAAP are satisfied. Nonetheless, The VIEs
are is owned by certain nominee shareholders, not us.

    2

All of these nominee
shareholders are also beneficial owners of the Company. Investors in our ADSs are purchasing equity securities of a Cayman Islands holding
company rather than equity securities issued by our subsidiaries and the VIEs. Investors who are non-PRC residents may
never directly hold equity interests in the VIEs under current PRC laws and regulations. Neither such investors nor
the holding company itself have an equity ownership in, direct investment in, or control of, through such ownership or investment, the
VIE. As used in this annual report, “we,” “us,” “our company,”
or “our,” refers to Zhangmen Education Inc. and its subsidiaries, and, in the context of describing our consolidated financial
information, business operations and operating data, our consolidated VIEs, “Shenzhen Zhangmenren”
refers to Shenzhen Zhangmenren Education Consultation Co., Ltd., and “Shanghai Zhangshi” refers to Shanghai Zhangshi Education
and Training Co., Ltd., and “Shanghai Zhangda” refers to “Shanghai Zhangda Education Technology Co., Ltd.”
We refer to Shanghai Zhangxue Education Technology Co., Ltd (“Shanghai Zhangxue”)Shanghai Zhangxinrui
Technology Co., Ltd. (“Shanghai Zhangxinrui”) as the PRC subsidiary in the context of describing of its activities. We
refer to Shenzhen Zhangmenren, Shanghai Zhangshi and Shanghai Zhangda as the VIEs in the context of
describing its activities and contractual arrangements with us. The VIEs conducts operations in China, and the
VIEs are consolidated for accounting purposes but are not entities is not an entity in which we own equity, and
our Company does not conduct operations by ourselves.

Our
corporateThe VIE structure involves unique risks to investors in the ADSs. In 2019, 2020 and 2021 2020,
2021 and 2022, the amount of net revenues generated by the VIEs accounted for [100]%, [100]% and [100·]%,
respectively, of our total net revenues. As of December 31, 2019, 2020 and 20212020, 2021 and 2022, total assets of
the VIEs, excluding amounts due from other companies in the Group, equaled to 44.4%, [34.9]%
and , [26.8]% and [·]% of our consolidated
total assets as of the same dates, respectively. As of the date of this annual report, to our best knowledge, the Our
contractual arrangements agreements with the VIEs have not been tested in court of law in
the PRC. If the PRC government deems that the contractual agreements our contractual arrangements with the
VIEs does not comply with PRC regulatory restrictions on foreign investment in the relevant industries, or if
these regulations or the interpretation of existing regulations change in the future, we could be subject to material penalties or be
forced to relinquish our interests in those operations or otherwise significantly change our corporate structure. We and our investors
face significant uncertainty about potential future actions by the PRC government that could affect the legality and enforceability of
the contractual arrangements with the VIEs and, consequently, significantly affect our ability to consolidate the financial
results of the VIEs and the financial performance of our company as a whole. Our ADSs may decline in value or
become worthless if we are unable to effectively enforce our contractual control rights over the assets and operations of the VIEs that
conduct a significant portion of our business in China. The PRC regulatory authorities could further disallow the VIE structure,
which would likely result in a material change in our operations and the value of our securities or 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. For a detailed discussion of the risk and uncertainties associated with the VIE structure, Ssee
“Item 3. Key Information-3.D. Risk Factor-Risks Relating to Our Corporate Structure-There are substantial uncertainties regarding
the interpretation and application of current and future PRC laws, regulations, and rules relating to the agreements that establish the
VIE structure for our operations in China, including potential future actions by the PRC government, which could affect the enforceability
of our contractual arrangements with the VIE and, consequently, significantly affect our financial condition and results of operations
performance. If the PRC government finds that the agreements that establish the structure for operating certain of our operations in
China do not comply with PRC regulations
relating to the relevant industries, or if these regulations or the interpretation of existing regulations change in the future, we could
be subject to severe penalties or be forced to relinquish our interests in those operations” and the other risk factors discussed
under “Risk Factors— Risks relating to Our Corporate Structure.” for detailed discussion.

    3

We
face various legal and operational significant regulatory, liquidity and enforcement risks and uncertainties as
a company based in and primarily operating in China, including risks and uncertainties regarding that the rules and regulations in
China can change quickly with little advance notice, which could result in a material change in our operations and/or the value of our
securities or 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. We also face risks associated with recent statements and regulatory
actions by the PRC government, including those related to the use of variable interest entities, education and after-school tutoring,
anti-monopoly regulatory actions, as well as cybersecurity and data privacy. In particular, our business, financial condition, results
of operations and prospect have been and may continue to be materially and adversely affected by the actions we have taken to date and
consider taking to be in compliance with the Alleviating Burden Opinion and other applicable PRC regulatory requirements. We have historically
generated a significant portion of our net revenues from the Academic AST Business. In 2021, the net revenues from our Academic AST Business
accounted for 45.5% of our total revenues. In order to fully comply with applicable PRC regulatory requirements adopted by the PRC government
in the second half of 2021, we have terminated our Academic AST Business. In September 2022, we entered into a definitive share purchase
agreement with Eternal Zenith Limited (“Eternal Zenith”), an entity controlled by Mr. Jiajun Wu, a senior management member
of the Company affiliated to our controlling shareholder, pursuant to which Mr. Jiajun Wu, through Eternal Zenith, would acquire all of
our K-12 after-school tutoring business, including all associated assets and liabilities (the “K-12 Business”), for a nominal
consideration. The disposed business, primarily including the K-12 Business in mainland China, accounted for approximately 90% of our
total revenues in 2021. The disposal of the K-12 Business, together with the accompanying internal reorganization, are crucial steps for
us to fully comply with the latest PRC regulatory requirements. We will continue to closely monitor the evolving regulatory environment
and make efforts to seek guidance from and cooperate with the government authorities to comply with the Alleviating Burden Opinion and
other applicable PRC regulatory requirements. For details, see “Item 3. Key Information-3.D. Risk Factors-Risks Relating to Our
Business and Industry-Significant uncertainties exist in relation to interpretation and implementation of, or proposed changes to, PRC
laws, regulations and policies regarding the private education industry, which may materially and adversely affect our business, financial
condition and results of operations. In particular, our compliance with the Opinions on Further Alleviating the Burden of Homework and
After-School Tutoring for Students in Compulsory Education and the implementation measures issued by the relevant PRC government authorities
has materially and adversely affected and may continue to affect our business, financial condition, results of operations and prospect”
for detailed discussion.

The
PRC government may also intervene with or influence our operations at any time by adopting new laws and regulations as the government
deems appropriate to further regulatory, political and societal goals, 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 our operations and/or the value of the securities
we have previously registered for sale. The PRC government has recently published new policies that significantly affected our
industry certain industries such as the education and internet industries, and we cannot rule out the possibility that
it will in the future further release regulations or policies regarding our industry that could adversely affect our
business, financial condition and results of

    4

operations. Any such action,
once taken by the PRC government, 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 in extreme cases, becomebe
worthless. See “Item 3. Key Information-3.D. Risk Factors-Risks Relating to Doing Business in China-Uncertainties in the interpretation
and enforcement of PRC laws and regulations could limit the legal protections available to you and us” for detailed discussion.

3.
Please refer t