Form 20-F
5falseFY0001372920--05-31http://fasb.org/us-gaap/2022#ImpairmentOfIntangibleAssetsExcludingGoodwillhttp://fasb.org/us-gaap/2022#OtherComprehensiveIncomeLossAvailableForSaleSecuritiesAdjustmentNetOfTaxhttp://fasb.org/us-gaap/2022#OtherComprehensiveIncomeLossAvailableForSaleSecuritiesAdjustmentNetOfTaxRetrospectively restated for the effect of stock split. (Note 15)Prepaid rents represent the prepayment of rent related to leases less than 12 months.Staff advances were provided to staff for travelling and business related use and are expensed as incurred.Others primarily included prepaid maintenance fees, other receivables and other miscellaneous prepayments.In July 2018, Education Industry Fund was established with the total committed capital of US$224,000. There are two general partners in the fund, which include an entity invested by Mr. Yu and an unrelated third party. The Group participates in Education Industry Fund as a limited partner and invested US$74,530 in Education Industry Fund as of May 31, 2022. The Group accounts for the investment under the equity method in accordance with ASC 323, Equity Method of Accounting (“ASC 323”) because the Group is a limited partner and owns 36.3% interest in Education Industry Fund.In June 2019, VM EDU Fund I, LP, a market-driven investment entity, was established with a total committed capital of US$100,000. The Group participates in VM EDU Fund I, LP as a limited partner and invested US$67,324 in VM EDU Fund I, LP as of May 31, 2022. The Group accounts for the investment under the equity method in accordance with ASC 323 because the Group is a limited partner and owns 49.69% interest in VM EDU Fund I, LP.The Group holds from 6.86% to 50.0% equity interests in other 14 third-party companies through investments in their common shares or in-substance common shares. The Group accounts for these investments under the equity method because the Group has the ability to exercise significant influence but does not have control over the investees. For the years ended May 31, 2020, 2021 and 2022, the Group recorded impairment loss of nil, nil and US$ 48,417, respectively.In April 2015, the Group invested 9.75% equity interests in Golden Finance, a company engaged in training program business associated with finance and business management. In November 2015, the Group further subscribed 9.75% equity interests. For the year ended May 31, 2019, the Group disposed of 7.2% equity interests in Golden Finance for a total consideration of US$33,156. The Group accounts for the investment as available-for-sale investments since the investee’s preferred shares held are redeemable and determined to be debt securities and measured at fair value.In August 2019, the Group invested 6.42% equity interests in Happy Seed, a company engaged in cultivating logical thinking skill. In September 2020, the Group further subscribed additional 1.57% equity interests. The Group accounts for the investment as available-for-sale investments since the investee’s preferred shares held are redeemable and determined to be debt securities and measured at fair value.In May 2015, the Group invested in Uhozz, a company providing oversea rental agency services, for a 10% equity interests with redemption and liquidation preferences. In March 2018, the Group further subscribed to 15.18% series B preferred shares. The Group accounted for the investment as available-for-sale investments since the investee’s preferred shares held are redeemable and determined to be debt securities and measured them at fair value.Other available-for-sale investments represent several insignificant individual investments classified as available-for-sale investments as of May 31, 2020, 2021 and 2022. Realized gains of US$407, US$3,535 and US$18,068 were recorded in realized gain from long-term investments for the years ended May 31, 2020, 2021 and 2022, respectively. The Group recorded US$22,654, US$27,675 and US$46,442 impairment loss on these investments for the years ended May 31, 2020, 2021 and 2022, respectively.As of May 31, 2022, the fair value of available-for-sale investments amounted to US$173,003, with original cost of US$86,024 and unrealized gain of US$86,979. As of May 31, 2021, the fair value of total available-for-sale investments amounted to US$224,315, with original cost of US$123,079 and unrealized gain of US$101,236.Amounts reimbursable to employees include travelling and business related expenses.Refundable fees received from students represent (1) the miscellaneous expenses other than tuition fees received from students which will be paid out on their behalf; and (2) tuition fees refundable to students for classes withdrawn.Royalty fees payable relate to payments to content providers for on-line learning programs and those to counterparties for copyrights and resource sharing.Others primarily include transportation expenses, utility fees, property management fees and other miscellaneous expenses payable.Starting in April 2010, the Group began renting a large portion of a building owned by Metropolis for office space. In March 2012, Metropolis was acquired by a company wholly-owned by Mr. Yu, the chairman of the Company. As a result, Metropolis became a related party of the Group. As of May 31, 2021 and 2022, the current amounts due from Metropolis were US$914 and US$998, respectively and the non-current amounts due from Metropolis were US$3,623 and US$2,770, respectively. Those represented prepaid rent related to a short-term lease and deposit for the building. As of May 31, 2021 and 2022, the ROU assets related to the leases rented from Metropolis were US$19,158 and US$7,891, respectively, and the relevant lease liabilities were US$18,965 and US$7,826, respectively.In April 2016, the Group sold 51% of its equity interest in Dianshi Jingwei which became an equity method investee of the Group. As of May 31, 2020, amounts due from Dianshi Jingwei included five outstanding loans provided by the Group with no interest accrued. For the year ended of May 31, 2021, Dianshi Jingwei fully repaid the loan balance. In October 2021, the Group entered into a purchase agreement with Dianshi Jingwei for the purchase of learning devices of which $52,380 was further recorded as cost. The remaining balance amounting to US$20,181 represents prepayment made to Dianshi Jingwei as of May 31, 2022. Subsequent to May 31, 2022, the Company transferred all its equity interest in Dianshi Jingwei to the founder of Dianshi Jingwei and ceased the business cooperation aforementioned.The Company measured the fair value of its investments in common shares using the market approach based on the quoted stock price of its investees in the active market and has classified it as Level 1 measurement.The refund liability is recognized for variable amount of the considerations received from the customers and recorded as refund liability as described in Note 2.The Group holds several insignificant investments in third-party private companies and has no ability to exercise significant influence over the investees. Those investments were accounted using the measurement alternative when there is no readily determinable fair value for the investments. The Group recorded US$ 9,096, US$12,532 and US$24,354 impairment loss on these investments for the years ended May 31, 2020, 2021 and 2022, respectively.In April 2017, the Group acquired 10% equity interests in EEO, a company engaged in the business of developing on-line classroom product. The Group accounted for the investment as equity securities without readily determinable fair value as EEO is a private company without readily determinable fair value. For the years ended May 31, 2020, 2021 and 2022, no impairment loss was recorded from this investment.In December 2018, the Group invested 5% equity interests in Tibet Tianli, a company engaged in developing educational products. In April 2020 and December 2020, the Group further subscribed 5% and 11% equity interests, respectively. The Group accounted for the investment as equity securities without readily determinable fair value as Tibet Tianli is a private company without readily determinable fair value. As of May 31, 2022 the Group holds 18.31% of the total equity interests in Tibet Tianli. The Group recorded nil, nil and US$10,137 impairment loss for the years ended May 31, 2020, 2021 and 2022, respectively.In January 2016, the Group invested US$12,310 in Sunlands, a company engaged in online education specific to vocational qualification training, and obtained the convertible bonds. In July 2016, the Group converted all of the convertible bonds into redeemable preferred shares of Sunlands for a 4.9% equity interests. Additionally, the Group also invested an additional US$12,205 redeemable preferred shares for another 4.9% equity interests in Sunlands during July 2016. Subsequent to the additional investment, the Group holds 9.8% equity interest in Sunlands. On March 23, 2018, Sunlands was listed in the New York Stock Exchange Market and the Group invested an additional US$10,000 and held 8% in aggregate equity interests in Sunlands. For the years ended May 31, 2020, 2021 and 2022, the stock price of Sunlands declined, and losses of US$16,362, US$5,501 and US$10,467 were recorded in loss from fair value change of long-term investments on the Group’s consolidated statements of operations, respectively.For the year ended May 31, 2022, the Group provided the loans in aggregate of US$38,130 to Beijing MaxEn, an equity method investee of the Group. 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Table of Contents
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM 20-F
 
 
(
Mark One)
REGISTRATION STATEMENT PURSUANT TO SECTION 12(B) OR 12(G) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended May 31, 2022.
OR
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
 
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report
                    
For the transition period from
                    
to
                    
Commission file number: 001-32993
 
 
NEW ORIENTAL EDUCATION & TECHNOLOGY GROUP INC.
(Exact name of Registrant as specified in its charter)
 
 
N/A
(Translation of Registrant’s name into English)
Cayman Islands
(Jurisdiction of incorporation or organization)
No. 6 Hai Dian Zhong Street
Haidian District, Beijing 100080
People’s Republic of China
(Address of principal executive offices)
Zhihui Yang, Executive President and Chief Financial Officer
Tel: +(86 10) 6090-8000
E-mail: yangzhihui@xdf.cn
Fax: +(86 10) 6260-5511
No. 6 Hai Dian Zhong Street
Haidian District, Beijing 100080
People’s Republic of China
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
 
 
Securities registered or to be registered pursuant to Section 12(b) of the Act:
 
Title of Each Class
 
Trading
Symbol(s)
 
Name of Exchange
on Which Registered
American depositary shares, each representing ten common shares*
 
EDU
 
New York Stock Exchange
Common shares, par value US$0.001 per share**
 
9901
 
The Stock Exchange of Hong Kong Limited
 
*
Effective on August 18, 2011, the ratio of ADSs to our common shares was changed from one ADS representing four common shares to one ADS representing one common share. Effective on April 8, 2022, the ratio of ADSs to our common shares was further changed from one ADS representing one common share to one ADS representing ten common shares.
**
Effective on March 10, 2021, we implemented a one-for-ten share split, in which each common share of par value of US$0.01 each were subdivided into ten common shares, with a par value of US$0.001 each.
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
(Title of Class)
 
 
Indicate the number of outstanding shares of each of the Issuer’s classes of capital or common stock as of the close of the period covered by the annual report. 1,696,966,183 common shares, par value US$0.001 per share, as of May 31, 2022.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.     Yes  ☒    No  ☐
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934.     Yes  ☐     No  ☒
Note — Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes  ☒     No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer
 
  
Accelerated filer
 
 
Non-accelerated filer
 
 
  
 
 
Emerging growth company
 
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐
 
The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.  
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
 
U.S. GAAP  ☒
 
International Financial Reporting Standards as issued by the International Accounting Standards Board
 
  
  
Other  ☐
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.   Item 17    ☐   Item 18    ☐
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).     Yes  ☐     No  ☒
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.     Yes  ☐     No  ☐
 
 
 

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INTRODUCTION
Unless otherwise indicated and except where the context otherwise requires, references in this annual report on Form 20-F to:
 
   
“we,” “us,” “our company” or “our” refers to New Oriental Education & Technology Group Inc., a Cayman Islands company, its predecessor entities and subsidiaries and, in the context of describing our operations and consolidated financial data, also includes the consolidated affiliated entities in China, including New Oriental China (as defined below), its schools and subsidiaries in China, and Beijing Xuncheng (as defined below) and its subsidiaries in China;
 
   
“New Oriental China” refers to New Oriental Education & Technology Group Co., Ltd., formerly known as Beijing New Oriental Education & Technology (Group) Co., Ltd., which is a domestic PRC company and a variable interest entity whose financial results are consolidated into our consolidated financial statements in accordance with U.S. GAAP;
 
   
“Beijing Xuncheng” refers to Beijing New Oriental Xuncheng Network Technology Co., Ltd., which is a domestic PRC company and the variable interest entity of our majority-owned subsidiary, Koolearn Technology Holding Limited, and whose financial results are consolidated into our consolidated financial statements in accordance with U.S. GAAP;
 
   
“VIEs” or “variable interest entities” refers to Beijing Xuncheng and New Oriental China, all of which are domestic PRC companies in which we do not have equity interests but whose financial results have been consolidated into our consolidated financial statements in accordance with U.S. GAAP;
 
   
“consolidated affiliated entities” refers to New Oriental China and its schools and subsidiaries in China and Beijing Xuncheng and its subsidiaries in China;
 
   
“CCASS” are to the Central Clearing and Settlement System established and operated by Hong Kong Securities Clearing Company Limited, a wholly-owned subsidiary of Hong Kong Exchange and Clearing Limited;
 
   
“China” or “PRC” refers to People’s Republic of China, and for the purpose of this annual report, excludes Taiwan, Hong Kong and Macau;
 
   
“Companies (WUMP) Ordinance” are to the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Chapter 32 of the Laws of Hong Kong), as amended or supplemented from time to time;
 
   
“FRC” refers to Financial Reporting Council;
 
   
“HK$” or “Hong Kong dollars” or “HK dollars” are to Hong Kong dollars, the lawful currency of Hong Kong;
 
   
“Hong Kong” or “HK” or “Hong Kong S.A.R.” are to the Hong Kong Special Administrative Region of the PRC;
 
   
“Hong Kong Listing Rules” are to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited, as amended or supplemented from time to time;
 
   
“Hong Kong Share Registrar” are to Computershare Hong Kong Investor Services Limited;
 
   
“Hong Kong Stock Exchange” are to The Stock Exchange of Hong Kong Limited;
 
   
“Main Board” are to the stock market (excluding the option market) operated by the Hong Kong Stock Exchange which is independent from and operated in parallel with the Growth Enterprise Market of the Hong Kong Stock Exchange;
 
   
“SFC” are to the Securities and Futures Commission of Hong Kong;
 
   
“SFO” are to the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong), as amended or supplemented from time to time;
 
   
“student enrollments” refers to the cumulative total number of courses enrolled in and paid for by our students, including multiple courses enrolled in and paid for by the same student but excluding students enrolled in our kindergarten;
 
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“shares” or “common shares” refers to our common shares, par value US$0.001 per share. Except as otherwise indicated, all share and per share data in this annual report give retroactive effect to the one-for-ten share split that became effective on March 10, 2021;
 
   
“ADSs” refers to our American depositary shares. Prior to August 18, 2011, each of our ADSs represented four common shares. On August 18, 2011, we effected a change in the ratio of our ADSs to common shares from one ADS representing four common shares to one ADS representing one common share. On April 8, 2022, the ratio of ADSs to our common shares was further changed from one ADS representing one common share to one ADS representing ten common shares. Except as otherwise noted, these changes in our ADS to common share ratio has been retroactively reflected in this annual report on Form 20-F; and
 
   
“RMB” or “Renminbi” refers to the legal currency of China and “$,” “dollars,” “US$” or “U.S. dollars” refers to the legal currency of the United States.
We refer to our teaching facilities in this annual report as either “schools” or “learning centers,” based primarily on a facility’s functions. Generally, our schools consist of classrooms and administrative facilities with student and administrative services, while our learning centers consist primarily of classroom facilities.
Our financial statements are expressed in U.S. dollars, which is our reporting currency. Certain of our financial data in this annual report on Form 20-F is translated into U.S. dollars solely for the reader’s convenience. Unless otherwise noted, all convenient translations from Renminbi and Hong Kong dollars to U.S. dollars in this annual report on Form 20-F were made at a rate of RMB6.6715 to US$1.00 and HK$7.8468 to US$1.00, the respective exchange rate set forth in the H.10 statistical release of the Federal Reserve Board on May 31, 2022. We make no representation that any Renminbi, Hong Kong dollars or U.S. dollar amounts could have been, or could be, converted into U.S. dollars, Hong Kong dollars or Renminbi, as the case may be, at any particular rate, at the rate stated above, or at all.
Glossary of Major Admissions and Assessment Tests
 
ACT    American College Test (US)
A Level    Advanced Level (Commonwealth countries)
AP    Advanced Placement (United States)
GCSE    General Certificate of Secondary Education (Commonwealth countries)
BEC    Business English Certificate (US)
CET 4    College English Test Level 4 (PRC)
CET 6    College English Test Level 6 (PRC)
GMAT    Graduate Management Admission Test (US)
GRE    Graduate Record Examination (US)
IELTS    International English Language Testing System (Commonwealth countries)
LSAT    Law School Admission Test (US)
SAT    SAT College Entrance Test (US)
SSAT    Secondary School Admission Test (US)
TOEFL    Test of English as a Foreign Language (US)
TOEFL Junior    Test of English as a Foreign Language for students aged 11 or above (US)
TOEIC    Test of English for International Communication (US)
FORWARD-LOOKING STATEMENTS
This annual report contains forward-looking statements that involve risks and uncertainties. All statements other than statements of historical facts are forward-looking statements. These forward-looking statements are made under the “safe harbor” provisions of the U.S. Private Securities Litigation Reform Act of 1995. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements.
You can identify these forward-looking statements by words or phrases such as “may,” “will,” “expect,” “is expected to,” “anticipate,” “aim,” “estimate,” “intend,” “plan,” “believe,” “is/are likely to” or other similar expressions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements include, but are not limited to:
 
   
our anticipated growth strategies;
 
   
our future business development, results of operations and financial condition;
 
   
expected changes in our revenues and certain cost and expense items;
 
   
competition in each type of educational program, service and product we provide;
 
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risks associated with our offering of new educational programs, services and products;
 
   
the expected increase in expenditures on education in China; and
 
   
PRC laws, regulations and policies relating to private education and providers of private educational services.
You should read thoroughly this annual report and the documents that we refer to herein with the understanding that our actual future results may be materially different from and/or worse than what we expect. We qualify all of our forward-looking statements by these cautionary statements. Other sections of this annual report include additional factors which could adversely impact our business and financial performance. Moreover, we operate in an evolving environment. New risk factors emerge from time to time and it is not possible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.
You should not rely upon forward-looking statements as predictions of future events. The forward-looking statements made in this annual report relate only to events or information as of the date on which the statements are made in this annual report. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.
PART I
 
ITEM 1.
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable.
 
ITEM 2.
OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
 
ITEM 3.
KEY INFORMATION
Our Holding Company Structure and Contractual Arrangements with the VIEs
New Oriental Education & Technology Group Co., Inc. is not a Chinese operating company but a Cayman Islands holding company with no equity ownership in the VIEs. We conduct our operations in China through (i) our PRC subsidiaries, (ii) the VIEs with which we have contractual arrangements, and (iii) the subsidiaries and/or schools of the VIEs. PRC laws and regulations restrict and impose conditions on foreign direct investment in companies involved in the provision of educational and value-added telecommunication services. Therefore, we operate such businesses in China through the consolidated affiliated entities and rely on contractual arrangements among our PRC subsidiaries, the VIEs and their shareholders to control the business operations of the consolidated affiliated entities. Revenues contributed by the consolidated affiliated entities accounted for 96.5%, 99.9% and 99.6% of our total net revenues for the fiscal years ended May 31, 2020, 2021 and 2022, respectively. As used in this annual report, “we,” “us,” “our company” or “our” refers to New Oriental Education & Technology Group Co., Inc. a Cayman Islands company, its predecessor entities and subsidiaries, and, in the context of describing our operations and the consolidated financial information, the consolidated affiliated entities, including New Oriental China and its schools and subsidiaries in China, and Beijing Xuncheng and its subsidiaries in China. Investors of our ADSs and/or common shares thus are not purchasing equity interest in the VIEs in China but instead are purchasing equity interests in a holding company incorporated in the Cayman Islands.
A series of contractual agreements, including equity pledge agreements, exclusive option agreement, powers of attorney, service agreements, have been entered into by and among our wholly-owned subsidiaries in China, the VIEs and their respective shareholders. As a result of the contractual arrangements, we are considered the primary beneficiary of the VIEs, and we have consolidated their financial results in our consolidated financial statements. For more details of these contractual arrangements, see “Item 4. Information on the Company—C. Organizational Structure— Contractual Arrangements with New Oriental China, Its Schools and Subsidiaries and Its Shareholder” and “—Contractual Arrangements with Beijing Xuncheng, Its Subsidiaries and Shareholders.”
 
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The following chart illustrates our company’s organizational structure, including our significant subsidiaries and VIEs as of May 31, 2022:
 
 
 
(1)
Beijing Century Friendship Education Investment Co., Ltd, or Century Friendship, is 99% owned by Mr. Michael Minhong Yu, our founder and executive chairman, and 1% owned by Mr. Zhihui Yang, our executive president and chief financial officer. In November 2019, Ms. Bamei Li, Mr. Yu’s mother, completed the transfer of the equity interest in Century Friendship held by her to Mr. Michael Minhong Yu and Mr. Zhihui Yang, prior to such transfer, Century Friendship was 80% owned by Mr. Yu and 20% owned by Ms. Bamei Li.
(2)
Excluding certain schools that are separate legal entities but have been counted to our learning centers and certain schools that have been counted as the same school in the same city or region from the perspective of our internal management and our kindergartens.
(3)
Consisting of various PRC companies operating our educational materials and distribution business, and overseas study consulting business in China.
 
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However, the contractual arrangements may not be as effective as direct ownership in providing us with control over the VIEs. If we had direct ownership of the VIEs, we would be able to exercise our rights as a shareholder to effect changes in the board of directors of these entities, which in turn could effect changes, subject to any applicable fiduciary obligations, at the management level. However, under the contractual agreements, we rely on the performance by the VIEs and their respective shareholders of their obligations under the contracts to exercise control over and receive economic benefits from the VIEs. In addition, we cannot assure you that when conflicts of interest arise, any or all of these individuals will act in the best interests of our company or such conflicts will be resolved in our favor. In addition, these individuals may breach, or cause the VIEs to breach, or refuse to renew, the existing contractual agreements. If we cannot resolve any conflict of interest or dispute between us and these individuals, we would have to rely on legal proceedings, which could result in disruption of our business and subject us to substantial uncertainty as to the outcome of any such legal proceedings. As such, we may incur substantial costs to enforce the terms of the arrangements. In addition, our contractual arrangements have not been tested in a court of law as of the date of this annual report. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure—We rely on contractual arrangements for our operations in China, which may not be as effective in providing operational control as direct ownership” and “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure—The controlling shareholder of Century Friendship, which is the sole shareholder of New Oriental China, may have potential conflicts of interest with us, and if any such conflicts of interest are not resolved in our favor, our business may be materially and adversely affected” for further details.
Our corporate structure is subject to unique risks associated with our contractual arrangements with the VIEs. If the PRC government deems that our contractual arrangements with the VIEs do not comply with PRC regulatory restrictions on foreign investment in the relevant industries, or if these regulations or the interpretation of existing regulations change or are interpreted differently in the future, we could be subject to severe penalties or be forced to relinquish our interests in those operations. The PRC regulatory authorities could disallow the variable interest entity structure, which would likely result in a material adverse change in our operations, and our ADSs and/or common shares may decline significantly in value or become worthless. Our holding company, our PRC subsidiaries and the VIEs, and investors of our company face uncertainty about potential future actions by the PRC government that could affect the enforceability of the contractual arrangements with the VIEs and, consequently, significantly affect the financial performance of the VIEs and our company as a whole. For a detailed description of the risks associated with our corporate structure, please refer to risks disclosed under “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure.”
There are also substantial uncertainties regarding the interpretation and application of current and future PRC laws, regulations and rules regarding the status of the rights of our Cayman Islands holding company with respect to its contractual arrangements with the VIEs and their nominee shareholders. It is uncertain whether any new PRC laws or regulations related to variable interest entity structures will be adopted or, if adopted, what they would provide. If we or any of the VIEs is found to be in violation of any existing or future PRC laws or regulations, or fail to obtain or maintain any of the required licenses, permits or approvals, the relevant PRC regulatory authorities would have broad discretion to take action in dealing with such violations or failures. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure—If the PRC government finds that the agreements that establish the structure for operating some of our China business do not comply with applicable PRC laws and 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 “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—Uncertainties exist with respect to the interpretation and implementation of the Foreign Investment Law and how it may impact the viability of our current corporate structure, corporate governance, business, financial condition and results of operations.”
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. For example, we face risks associated with regulatory approvals on offshore offerings, anti-monopoly regulatory actions, regulations on the use of variable interest entities, regulations on the education industry, and oversight on cybersecurity and data privacy, as well as the lack of inspection on our auditors by the Public Company Accounting Oversight Board, or the PCAOB, which may impact our ability to conduct certain businesses, accept foreign investments, or list and conduct offerings 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 and/or common shares, 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, “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China.”
The PRC government’s significant authority in regulating our operations and its oversight and control over offerings conducted overseas by, and foreign investment in, China-based issuers could significantly limit or completely hinder our ability to offer or continue to offer securities to investors. Implementation of industry-wide regulations in this nature may cause the value of such securities to significantly decline. For more details, see “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—The PRC government’s oversight and discretion over our business operations could result in a material adverse change in our operations and the value of our ADSs and/or common shares.”
Risks and uncertainties arising from the legal system in China, including risks and uncertainties regarding the enforcement of laws and quickly evolving rules and regulations in China, could result in a material adverse change in our operations and the value of our ADSs. For more details, see “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—Uncertainties with respect to the PRC legal system could adversely affect us.”
 
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Permissions Required from the PRC Authorities for Our Operations
Our operations in China are governed by PRC laws and regulations. As of the date of this annual report, other than disclosed in “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—We are required to obtain various operating licenses and permits and to make registrations and filings for our business operations in China; failure to comply with these requirements may materially adversely affect our business and results of operations” and “—If we fail to obtain and maintain the licenses and approvals required for online education in China, our business, financial condition and results of operations may be materially and adversely affected,” we believe our PRC subsidiaries and the consolidated affiliated entities have obtained the requisite licenses and permits from the PRC government authorities that are material for the business operations in China, including, among others, the private school operation permits and license for internet information services, or ICP license. Given the uncertainties of interpretation and implementation of relevant laws and regulations and the enforcement practice by relevant government authorities, we may be required to obtain additional licenses, permits, filings or approvals for the services of our company in the future. For more detailed information, see “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—We are required to obtain various operating licenses and permits and to make registrations and filings for our business operations in China; failure to comply with these requirements may materially adversely affect our business and results of operations,” and “—If we fail to obtain and maintain the licenses and approvals required for online education in China, our business, financial condition and results of operations may be materially and adversely affected.”
Furthermore, in connection with our issuance of securities to foreign investors in the past, under current PRC laws, regulations, and rules, as of the date of this annual report, we, our PRC subsidiaries, and the VIEs (i) have not been required to obtain permissions from or complete filings with the China Securities Regulatory Commission, or the CSRC, (ii) have not been required to go through cybersecurity review by the Cyberspace Administration of China, or the CAC, and (iii) have not received or nor have been denied such requisite permissions by the CSRC or the CAC. Our PRC legal counsel has consulted the relevant government authority, which confirmed that, under the currently effective PRC laws and regulations, a company already listed in a foreign stock exchange before promulgation of the latest Cybersecurity Review Measures is not required to go through a cybersecurity review by the CAC to conduct a securities offering or maintain its listing status on the foreign stock exchange on which its securities have been listed. Therefore, we believe that under the currently effective PRC laws and regulations, we are not required to go through a cybersecurity review by the CAC for conducting a securities offering or maintaining our listing status on the NYSE. In addition, on December 24, 2021, the CSRC published the Provisions of the State Council on the Administration of Overseas Securities Offering and Listing by Domestic Companies (Draft for Comments), or the Draft Overseas Listing Provisions, and the Administrative Measures for the Filing of Overseas Securities Offering and Listing by Domestic Companies (Draft for Comments), or the Draft Filing Measures, for public comments. Pursuant to these drafts, PRC domestic companies that directly or indirectly seek to offer or list their securities on an overseas stock exchange, including a PRC company limited by shares and an offshore company whose main business operations are in China and who intends to offer securities or be listed on an overseas stock exchange based on its onshore equities, assets, or similar interests, are required to file with the CSRC within three business days after submitting their application documents. The Draft Filing Measures also provides that a PRC domestic company must file with the CSRC within three business days for its follow-on offering of securities or issue of securities to purchase assets after it is listed in an overseas market. The period for which the CSRC solicits comments on these drafts ended on January 23, 2022, and there is no timetable as to when these drafts will be enacted. Our PRC legal counsel has advised us that, as of the date of this annual report, the Draft Overseas Listing Provisions and the Draft Filing Measures were released for public comments only and the final version and effective date of such regulations are subject to change with substantial uncertainty. As such, we believe that under the currently effective PRC laws and regulations, we are not required to obtain permissions from or complete filings with the CSRC in connection with any offering of securities to foreign investors as of the date of this annual report.
However, the PRC government has recently indicated an intent to exert more oversight over offerings that are conducted overseas and/or foreign investment in China-based issuers like us and published a series of proposed rules for public comments in this regard, the enaction timetable, final content, interpretation and implementation of most of which remains uncertain. Therefore, there are substantial uncertainties as to how PRC governmental authorities will regulate overseas listing in general and whether we are required to complete filing or obtain any specific regulatory approvals from the CSRC, CAC or any other PRC governmental authorities for our future offshore offerings. If we had inadvertently concluded that such approvals were not required, or if applicable laws, regulations or interpretations change in a way that requires us to obtain such approval in the future, we may be unable to obtain such necessary approvals in a timely manner, or at all, and such approvals may be rescinded even if obtained. Any such circumstance could subject us to penalties, including fines, suspension of business and revocation of required licenses, significantly limit or completely hinder our ability to continue to offer securities to investors and cause the value of such securities to significantly decline or be worthless. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China— The PRC government’s oversight and discretion over our business operations could result in a material adverse change in our operations and the value of our ADSs and/or common shares.”
 
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The Holding Foreign Companies Accountable Act
Our ADSs and shares will be prohibited from trading on a national securities exchange or in the over-the-counter market in the United States in 2024 under the Holding Foreign Companies Accountable Act, or the HFCAA, if the PCAOB is unable to inspect or fully investigate auditors located in China, or in 2023 if proposed changes to the law are enacted. The PCAOB has been unable, and is currently unable, to inspect our auditor in relation to their audit work performed for our financial statements. 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. The PCAOB identified our auditor, Deloitte Touche Tohmatsu Certified Public Accountants LLP, as one of the registered public accounting firms that the PCAOB is unable to inspect or investigate completely. Under the current law, prohibition from trading on a national securities exchange or in the over-the-counter market in the United States could take place in 2024. Such a prohibition would substantially impair your ability to sell or purchase our ADSs when you wish to do so, and the risk and uncertainty associated with delisting would have a negative impact on the price of our ADSs. In addition, the proposed changes to the law, or the Accelerating Holding Foreign Companies Accountable Act, would decrease the number of non-inspection years from three years to two, thus reducing the time period before our ADSs may be prohibited from trading in the United States. If the proposed provision is enacted, our ADS could be prohibited from trading in the United States in 2023. On August 26, 2022, the PCAOB signed a Statement of Protocol with the CSRC and Ministry of Finance, taking the first step toward opening access for the PCAOB to inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong. See “Item 3. Key Information—D. Risk Factors—Risk Factors Related to Doing Business in China—Our ADSs will be prohibited from trading in the United States under the Holding Foreign Companies Accountable Act, or the HFCAA, in 2024 if the PCAOB is unable to inspect or fully investigate auditors located in China, or in 2023 if proposed changes to the law are enacted. A prohibition on the trading of our ADSs, or the threat of their trading being prohibited, may materially and adversely affect the value of your investment.”
Cash and Asset Flows through Our Organization
New Oriental Education & Technology Group Inc. is a Cayman Islands holding company with no operations of its own. We conduct our operations in China primarily through our subsidiaries and the VIEs and their subsidiaries and/or schools in China. As a result, although other means are available for us to obtain financing at the holding company level, New Oriental Education & Technology Group Inc.’s ability to pay dividends to the shareholders and to service any debt it may incur depends upon dividends paid by our PRC subsidiaries and service fees paid by the VIEs. If any of our subsidiaries incurs debt on its own behalf in the future, the instruments governing such debt may restrict its ability to pay dividends to New Oriental Education & Technology Group Inc. In addition, our PRC subsidiaries are permitted to pay dividends to New Oriental Education & Technology Group Inc. only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. Further, our PRC subsidiaries and VIEs are required to make appropriations to certain statutory reserve funds or may make appropriations to certain discretionary funds, which are not distributable as cash dividends except in the event of a solvent liquidation of the companies. For more details, see “Item 5. Operating and Financial Review and Prospects— B. Liquidity and Capital Resources—Holding Company Structure.”
Under PRC laws and regulations, our subsidiaries and the VIEs and their subsidiaries and/or schools are subject to certain restrictions with respect to paying dividends or otherwise transferring any of their net assets to us. Remittance of dividends by a wholly foreign-owned enterprise out of China is also subject to examination by the banks designated by State Administration of Foreign Exchange, or SAFE. For risks relating to the fund flows of our operations in China, see “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—We may rely on dividends and other distributions on equity paid by our wholly-owned subsidiaries to fund any cash and financing requirements we may have, and any limitation on the ability of our subsidiaries or New Oriental China and its schools and subsidiaries to make payments to us could have a material adverse effect on our ability to conduct our business.”
Under PRC law, New Oriental Education & Technology Group Inc. may provide funding to our PRC subsidiaries only through capital contributions or loans, and to the VIEs and their subsidiaries and/or schools only through loans, subject to satisfaction of applicable government registration that we are not able to make direct capital contribution. For the fiscal years ended May 31, 2020, May 31, 2021, and May 31, 2022, New Oriental Education & Technology Group Inc. received repayment of loans of nil, nil, and US$282.1 million from our intermediate holding companies and subsidiaries, respectively. For the fiscal years ended May 31, 2020, May 31, 2021, and May 31, 2022, New Oriental Education & Technology Group Inc. provided loans of US$20.7 million, US$310.8 million, and US$330.4 million to our intermediate holding companies and subsidiaries, respectively.
On July 25, 2017, our board of directors declared a special cash dividend in the amount of US$0.45 per ADS. The cash dividend was paid in October 2017 to shareholders of record at the close of business on September 6, 2017. The aggregate amount of cash dividends paid was approximately US$71.2 million. We currently do not have any dividend policy. See “Item 8. Financial Information— A. Consolidated Statements and Other Financial Information—Dividend Policy.” For PRC and United States federal income tax considerations of an investment in our ADSs, see “Item 10. Additional Information— E. Taxation.”
We currently do not have cash management policies in place that dictate how funds are transferred between New Oriental Education & Technology Group Inc., our subsidiaries, the VIEs and the investors. Rather, the funds can be transferred in accordance with the applicable PRC laws and regulations.
 
7

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For purposes of illustration, the following discussion reflects the hypothetical taxes that might be required to be paid within China, assuming that: (i) we have taxable earnings, and (ii) we determine to pay a dividend in the future:
 
    
Taxation Scenario
(1)
 
    
Statutory Tax and Standard
Rates
 
Hypothetical pre-tax earnings
(2)
     100
Tax on earnings at statutory rate of 25%
(3)
     (25 %) 
Net earnings available for distribution
     75
Withholding tax at standard rate of 10%
(4)
     (7.5 %) 
Net distribution to Parent/Shareholders
     67.5
 
Notes:
 
(1)
For purposes of this example, the tax calculation has been simplified. The hypothetical book pre-tax earnings amount, not considering timing differences, is assumed to equal taxable income in China.
(2)
Under the terms of contractual agreements, our PRC subsidiaries may charge the VIEs for services provided to VIEs. These fees shall be recognized as expenses of consolidated affiliated entities, with a corresponding amount as service income by our PRC subsidiaries and eliminate in consolidation. For income tax purposes, our PRC subsidiaries and the VIEs file income tax returns on a separate company basis. The fees paid are recognized as a tax deduction by the VIEs and as income by our PRC subsidiaries and are tax neutral.
(3)
Certain of our subsidiaries and VIEs qualifies for a 15% preferential income tax rate in China. However, such rate is subject to qualification, is temporary in nature, and may not be available in a future period when distributions are paid. For purposes of this hypothetical example, the table above reflects a maximum tax scenario under which the full statutory rate would be effective.
(4)
The PRC Enterprise Income Tax Law imposes a withholding income tax of 10% on dividends distributed by a foreign invested enterprise, or FIE, to its immediate holding company outside of China. A lower withholding income tax rate of 5% is applied if the FIE’s immediate holding company is registered in Hong Kong or other jurisdictions that have a tax treaty arrangement with China, subject to a qualification review at the time of the distribution. For purposes of this hypothetical example, the table above assumes a maximum tax scenario under which the full withholding tax would be applied.
The table above has been prepared under the assumption that all profits of the VIEs will be distributed as fees to our PRC subsidiaries under tax neutral contractual arrangements. If, in the future, the accumulated earnings of the VIEs exceed the fees paid to our PRC subsidiaries (or if the current and contemplated fee structure between the intercompany entities is determined to be non-substantive and disallowed by Chinese tax authorities), the VIEs could, as a matter of last resort, make a non-deductible transfer to our wholly-owned subsidiaries in China for the amounts of the stranded cash in the VIEs. This would result in such transfer being non-deductible expenses for the VIEs but still taxable income for our PRC subsidiaries. Such a transfer and the related tax burdens would reduce our after-tax income.
A.
Selected Financial Data
Our Selected Consolidated Financial Data
The following tables present the selected consolidated financial data of our company. The selected consolidated statement of operations data for the fiscal years ended May 31, 2020, 2021 and 2022 and the consolidated balance sheet data as of May 31, 2021 and 2022 have been derived from our audited consolidated financial statements, which are included in this annual report beginning on page F-1. The selected consolidated statement of operations data for the fiscal years ended May 31, 2018 and 2019 and the selected consolidated balance sheet data as of May 31, 2018, 2019 and 2020 have been derived from our audited consolidated financial statements for the fiscal years ended May 31, 2018, 2019 and 2020, which are not included in this annual report. Our historical results do not necessarily indicate results expected for any future periods. The selected consolidated financial data should be read in conjunction with, and are qualified in their entirety by reference to, our audited consolidated financial statements and related notes included elsewhere in this annual report and “Item 5. Operating and Financial Review and Prospects—A. Operating Results.” Our audited consolidated financial statements are prepared and presented in accordance with generally accepted accounting principles in the United States, or U.S. GAAP.
 
    
For the Years Ended May 31,
 
(in thousands of US$ except share and per share data)
  
2018
   
2019
   
2020
   
2021
   
2022
 
Selected Consolidated Statement of Operations Data:
          
Net revenues:
          
Educational programs and services
     2,165,152       2,785,254       3,230,378       3,936,969       2,709,549  
Books and other services
     282,278       311,237       348,304       339,570       395,697  
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total net revenues
  
 
2,447,430
 
 
 
3,096,491
 
 
 
3,578,682
 
 
 
4,276,539
 
 
 
3,105,246
 
Operating cost and expenses:
(1)
          
Cost of revenues
     (1,065,740     (1,376,269     (1,588,899     (2,036,875     (1,754,291
Selling and marketing
     (324,249     (384,287     (445,259     (600,778     (466,895
General and administrative
     (794,482     (1,028,783     (1,145,521     (1,489,826     (1,866,573
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Impairment loss on intangible assets and goodwill
     —         (5,245     —         (31,794     —    
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
 
8

Table of Contents
    
For the Years Ended May 31,
 
(in thousands of US$ except share and per share data)
  
2018
   
2019
   
2020
   
2021
   
2022
 
Selected Consolidated Statement of Operations Data:
          
Total operating cost and expenses
  
 
(2,184,471
 
 
(2,794,584
 
 
(3,179,679
 
 
(4,159,273
 
 
(4,087,759
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Gain on disposal of a subsidiary
     —         3,627       —         —         —    
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Operating income/(loss)
  
 
262,959
 
 
 
305,534
 
 
 
399,003
 
 
 
117,266
 
 
 
(982,513
Other income, net:
          
Interest income
     84,838       97,530       116,117       141,511       123,542  
Interest expense
     —         (1,615     (4,627     (6,747     (4,050
Realized gain from long-term investments
     7,366       26,379       407       3,535       22,004  
Impairment loss from long-term investments
     (980     (5,919     (31,750     (40,207     (129,350
Loss from fair value change of long-term investments
     —         (104,636     (18,451     (3,824     (14,933
Loss on deconsolidation of subsidiaries
     —         —         —         —         (79,609
Miscellaneous income/(loss), net
     2,841       (1,424     27,137       103,443       32,411  
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Provision for income taxes:
          
Current
     (72,785     (103,031     (142,992     (127,313     (44,378
Deferred
     13,377       17,317       8,630       43,725       (91,934
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Provision for income taxes
  
 
(59,408
 
 
(85,714
 
 
(134,362
 
 
(83,588
 
 
(136,312
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
(Loss)/Gain from equity method investments
  
 
(379
 
 
(2,289
 
 
1,385
 
 
 
(1,368
 
 
(51,466
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Net income/(loss)
  
 
297,237
 
 
 
227,846
 
 
 
354,859
 
 
 
230,021
 
 
 
(1,220,276
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Less: Net income/(loss) attributable to noncontrolling interests
  
 
1,107
 
 
 
(10,219
 
 
(58,474
 
 
(104,393
 
 
(32,555
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Net income/(loss) attributable to New Oriental Education & Technology Group Inc.’s shareholders
     296,130       238,065       413,333       334,414       (1,187,721
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Net income/(loss) per common share attributable to shareholders of New Oriental Education & Technology Group Inc.
(2)
(3)
          
-Basic
     0.19       0.15       0.26       0.20       (0.70
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
-Diluted
     0.19       0.15       0.26       0.20       (0.70
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Weighted average shares used in calculating basic net income/(loss) per common share
(3)
     1,581,687,940       1,582,938,900       1,584,295,760       1,645,463,440       1,696,419,232  
Weighted average shares used in calculating diluted net income/(loss) per common share
(3)
     1,585,565,000       1,590,393,450       1,595,368,900       1,651,982,384       1,696,419,232  
 
(1)
Share-based compensation expenses are included in our operating cost and expenses as follows:
(2)
Each ADS represents ten common shares. For the years ended May 31, 2018, 2019, 2020 and 2021, the number of shares used in calculating basic and diluted net income per common share have been retrospectively adjusted to reflect the ADS ratio change from one ADS representing one common share to one ADS representing ten common shares, which became effective on April 8, 2022.
(3)
For the years ended May 31, 2018, 2019 and 2020, the number of shares used in calculating basic and diluted net income per common share have been retrospectively adjusted to reflect the 1-for-10 share split that became effective on March 10, 2021.
 
    
For the Years Ended May 31,
 
(in thousands of US$)
  
2018
    
2019
    
2020
    
2021
    
2022
 
Cost of revenues
     —          134        2,224        6,698        (131
Selling and marketing
     —          1,205        4,227        6,922        (2,437
General and administrative
     57,443        69,997        55,606        55,260        135,536  
  
 
 
    
 
 
    
 
 
    
 
 
    
 
 
 
Total
     57,443        71,336        62,057        68,880        132,968  
  
 
 
    
 
 
    
 
 
    
 
 
    
 
 
 
The following table presents our selected consolidated balance sheet data as of May 31, 2018, 2019, 2020, 2021 and 2022:
 
    
As of May 31,
 
(in thousands of US$)
  
2018
    
2019
    
2020
    
2021
    
2022
 
Selected Consolidated Balance Sheet Data:
              
Cash and cash equivalents
     983,319        1,414,171        915,057        1,612,211        1,148,637  
Total assets
     3,977,712        4,646,559        6,556,885        10,151,053        6,034,666  
Total current liabilities
     1,750,884        2,006,224        2,479,364        3,471,445        1,710,114  
Total liabilities
     1,763,017        2,121,462        3,687,074        5,132,877        2,241,142  
Total mezzanine equity
     206,624        —          —          —          —    
 
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Table of Contents
    
As of May 31,
 
(in thousands of US$)
  
2018
    
2019
    
2020
    
2021
    
2022
 
Selected Consolidated Balance Sheet Data:
              
Total New Oriental Education & Technology Group Inc. shareholders’ equity
     1,991,589        2,360,686        2,733,295        4,913,275        3,705,506  
Noncontrolling interests
     16,482        164,411        136,516        104,901        88,018  
Total equity
     2,008,071        2,525,097        2,869,811        5,018,176        3,793,524  
Financial Information Related to the Consolidated Affiliated Entities
The following tables present the condensed consolidating schedule of financial position for the consolidated affiliated entities and other entities for the years and as of the dates presented.
Selected Condensed Consolidated Statements of Operations Information
 
          
For the Year Ended May 31, 2022
 
    
New

Oriental

Education &

Technology

Group Inc.
   
Other

Subsidiaries
   
Primary

Beneficiaries

of

Consolidated

Affiliated

Entities
   
Consolidated

Affiliated

Entities
   
Eliminations
   
Consolidated

Total
 
                                      
          
US$
 
          
(In thousands)
 
Third-party net revenues
     —         7,265       4,641       3,093,340       —         3,105,246  
Inter-company revenues
     —         4,706       322,697       45,976       (373,379     —    
Total costs and operating expenses
     (100,182     (36,084     (274,050     (4,038,886     361,443       (4,087,759
Income (loss) from subsidiaries and VIEs
     (1,057,770     (1,022,764     (1,088,225     —         3,168,759       —    
Other income, net
     25,180       (15,184     14,621       (45,042     (29,560     (49,985
Income (loss) before income tax expenses
     (1,132,772     (1,062,061     (1,020,316     (944,612     3,127,263       (1,032,498
Less: income tax expenses
     —         (195     (8,405     (127,712     —         (136,312
Income (loss) from equity method investments
     (14,154     6,452       63       (43,827     —         (51,466
Net income
     (1,146,926     (1,055,804     (1,028,658     (1,116,151     3,127,263       (1,220,276
 
          
For the Year Ended May 31, 2021
 
    
New
Oriental
Education &
Technology
Group Inc.
   
Other
Subsidiaries
   
Primary

Beneficiaries

of

Consolidated

Affiliated

Entities
   
Consolidated

Affiliated

Entities
   
Eliminations
   
Consolidated
Total
 
                                      
          
US$
 
          
(In thousands)
 
Third-party net revenues
     —         6,424       (54     4,270,169       —         4,276,539  
Inter-company revenues
     —         12,016       485,500       73,580       (571,096     —    
Total costs and operating expenses
     (4,505     (581,858     (355,182     (3,802,889     585,161       (4,159,273
Income (loss) from subsidiaries and VIEs
     222,554       789,220       663,099       —         (1,674,873     —    
Other income, net
     1,432       (2,308     22,099       185,758       (9,270     197,711  
Income (loss) before income tax expenses
     219,481       223,494       815,462       726,618       (1,670,078     314,977  
Less: income tax expenses
     —         499       (25,583     (58,504     —         (83,588
Income (loss) from equity method investments
     5,745       (1,439     (659     (5,015     —         (1,368
Net income
     225,226       222,554       789,220       663,099       (1,670,078     230,021  
 
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Table of Contents
          
For the Year Ended May 31, 2020
 
    
New

Oriental

Education &

Technology

Group Inc.
   
Other

Subsidiaries
   
Primary

Beneficiaries

of

Consolidated

Affiliated

Entities
   
Consolidated

Affiliated

Entities
   
Eliminations
   
Consolidated

Total
 
                                      
          
US$
 
          
(In thousands)
 
Third-party net revenues
     —         95,299       29,828       3,453,555       —         3,578,682  
Inter-company revenues
     —         288       431,517       68,118       (499,923     —    
Total costs and operating expenses
     (42,862     (33,029     (779,630     (2,832,773     508,615       (3,179,679
Income (loss) from subsidiaries and VIEs
     404,128       366,930       711,446       —         (1,482,504     —    
Other income, net
     (6,963     (21,972     14,585       111,904       (8,721     88,833  
Income (loss) before income tax expenses
     354,303       407,516       407,746       800,804       (1,482,533     487,836  
Less: income tax expenses
     —         (3,049     (40,697     (90,616     —         (134,362
Income (loss) from equity method investments
     585       (339     (119     1,258       —         1,385  
Net income
     354,888       404,128       366,930       711,446       (1,482,533     354,859  
Selected Condensed Consolidated Balance Sheets Information
 
           
As of May 31, 2022
 
    
New

Oriental

Education &

Technology

Group Inc.
    
Other

Subsidiaries
    
Primary

Beneficiaries

of

Consolidated

Affiliated

Entities
    
Consolidated

Affiliated

Entities
    
Eliminations
   
Consolidated

Total
 
                                          
           
US$
 
           
(In thousands)
 
Assets
                
Cash and cash equivalents
     150,234        144,946        534,465        318,992        —         1,148,637  
Amount due from Group companies
     410,833        642,183        1,045,013        46,756        (2,144,785     —    
Other current assets
     738,284        104,578        891,789        1,590,671        —         3,325,322  
Total current assets
     1,299,351        891,707        2,471,267        1,956,419        (2,144,785     4,473,959  
Investment in subsidiaries and VIEs
     225,854        413,218        —          —          (639,072     —    
Property and equipment, net
     —          1,626        86,382        314,682        —         402,690  
Other non-current assets
     104,433        89,220        57,199        907,165        —         1,158,017  
Total non-current assets
     330,287        504,064        143,581        1,221,847        (639,072     1,560,707  
Total assets
     1,629,638        1,395,771        2,614,848        3,178,266        (2,783,857     6,034,666  
Liabilities
                
Deferred revenue-current
     —          1,244        4,631        927,187        —         933,062  
Amount due to Group companies
     79,670        712,723        359,627        999,505        (2,151,525     —    
Other current liabilities
     1,899        2,665        22,686        749,802        —         777,052  
Total current liabilities
     81,569        716,632        386,944        2,676,494        (2,151,525     1,710,114  
Total liabilities
     146,963        716,824        390,495        3,138,385        (2,151,525     2,241,142  
Total shareholders’ equity
     1,482,675        678,947        2,224,353        39,881        (632,332     3,793,524  
Total liabilities and equity
     1,629,638        1,395,771        2,614,848        3,178,266        (2,783,857     6,034,666  
 
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Table of Contents
           
As of May 31, 2021
 
    
New

Oriental

Education &

Technology

Group Inc.
    
Other

Subsidiaries
    
Primary

Beneficiaries

of

Consolidated

Affiliated

Entities
    
Consolidated

Affiliated

Entities
    
Eliminations
   
Consolidated

Total
 
                                          
           
US$
 
           
(In thousands)
 
Assets
                
Cash and cash equivalents
     332,080        260,088        82,670        937,373        —         1,612,211  
Amount due from Group companies
     391,186        301,781        837,944        58,816        (1,589,727     —    
Other current assets
     849,288        53,499        1,301,098        2,758,059        —         4,961,944  
Total current assets
     1,572,554        615,368        2,221,712        3,754,248        (1,589,727     6,574,155  
Investment in subsidiaries and VIEs
     225,854        368,949        —          —          (594,803     —    
Property and equipment, net
     —          1,580        103,036        760,414        —         865,030  
Other non-current assets
     100,682        85,655        78,125        2,447,406        —         2,711,868  
Total non-current assets
     326,536        456,184        181,161        3,207,820        (594,803     3,576,898  
Total assets
     1,899,090        1,071,552        2,402,873        6,962,068        (2,184,530     10,151,053  
Liabilities
                
Deferred revenue-current
     —          961        2,418        1,923,007        —         1,926,386  
Amount due to Group companies
     115,992        382,915        308,678        788,082        (1,595,667     —    
Other current liabilities
     14,398        2,244        44,180        1,484,239        —         1,545,061  
Total current liabilities
     130,390        386,120        355,276        4,195,328        (1,595,667     3,471,447  
Total liabilities
     428,021        386,120        372,190        5,542,213        (1,595,667     5,132,877  
Total shareholders’ equity
     1,471,069        685,432        2,030,683        1,419,855        (588,863     5,018,176  
Total liabilities and equity
     1,899,090        1,071,552        2,402,873        6,962,068        (2,184,530     10,151,053  
Selected Condensed Consolidated Cash Flows Information
 
          
For the Year Ended May 31, 2022
 
    
New

Oriental

Education &

Technology

Group Inc.
   
Other

Subsidiaries
   
Primary

Beneficiaries

of

Consolidated

Affiliated

Entities
   
Consolidated

Affiliated

Entities
   
Eliminations
   
Consolidated

Total
 
                                      
          
US$
 
          
(In thousands)
 
Net cash provided by/(used in) operating activities
     7,682       (3,470     233,032       (1,517,697     —         (1,280,453
Loan and fund pool to entities within the Group
     (330,364     (330,364     (155,917     —         816,645       —    
Repayment of loan to entities within the Group
     282,132       282,132       466       —         (564,730     —    
Investment in entities within the Group
     —         (44,269     —         —         44,269       —    
Other investing activities
     28,247       (24,610     (9,825     1,174,720       —         1,168,532  
Net cash provided by/(used in) investing activities
     (19,985     (117,111     (165,276     1,174,720       296,184       1,168,532  
Net proceeds from loan and fund pool from entities within the Group
     —         330,364       330,364       155,917       (816,645     —    
Repayment of loan to entities within the Group
     —         (282,132     (282,132     (466     564,730       —    
Proceeds from group capital contribution
     —         —         44,269       —         (44,269     —    
Other financing activities
     (221,997     —         (8,861     —         —         (230,858
Net cash (used in)/provided by financing activities
     (221,997     48,232       83,640       155,451       (296,184     (230,858
 
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For the Year Ended May 31, 2021
 
    
New

Oriental

Education &

Technology

Group Inc.
   
Other

Subsidiaries
   
Primary

Beneficiaries

of

Consolidated

Affiliated

Entities
   
Consolidated

Affiliated

Entities
   
Eliminations
   
Consolidated

Total
 
                                      
          
US$
 
          
(In thousands)
 
Net cash (used in)/provided by operating activities
     (13,407     (19,721     116,518       1,046,695       —         1,130,085  
Loan and fund pool to entities within the Group
     (310,767     (310,767     —         —         621,534       —    
Investment in entities within the Group
     (219,659     (216,764     —         —         436,423       —    
Other investing activities
     (825,526     (533,037     (29,956     (789,120     —         (2,177,639
Net cash used in investing activities
     (1,355,952     (1,060,568     (29,956     (789,120     1,057,957       (2,177,639
Net proceeds from loan and fund pool from entities within the Group
     —         310,767       310,767       —         (621,534     —    
Proceeds from group capital contribution
     —         219,659       216,764       —         (436,423     —    
Other financing activities
     1,659,851       12,142       (1,251     (16,658     —         1,654,084  
Net cash provided by/(used in) financing activities
     1,659,851       542,568       526,280       (16,658     (1,057,957     1,654,084  
 
          
For the Year Ended May 31, 2020
 
    
New

Oriental

Education &

Technology

Group Inc.
   
Other
Subsidiaries
   
Primary

Beneficiaries

of

Consolidated

Affiliated

Entities
   
Consolidated

Affiliated

Entities
   
Eliminations
   
Consolidated

Total
 
                                      
          
US$
 
          
(In thousands)
 
Net cash provided by operating activities
     6,342       3,769       119,329       675,015       —         804,455  
Loan and fund pool to entities within the Group
     (20,722     —         —         —         20,722       —    
Cash dividends received from entities within the Group
     —         58,562       —         —         (58,562     —    
Investment in entities within the Group
     —         (87,967     —         —         87,967       —    
Other investing activities
     (56,148     (321,385     (98,527     (780,310     —         (1,256,370
Net cash used in investing activities
     (76,870     (350,790     (98,527     (780,310     50,127       (1,256,370
Net proceeds from loan and fund pool from entities within the Group
     —         20,722       —         —         (20,722     —    
Dividends payment to entities within the Group
     —         —         (58,562     —         58,562       —    
Proceeds from group capital contribution
     —         —         87,967       —         (87,967     —    
Other financing activities
     23,629       (13,306     17,003       (45,188     —         (17,862
Net cash provided by/(used in) financing activities
     23,629       7,416       46,408       (45,188     (50,127     (17,862
Cessation of K-9 Academic AST Services
In compliance with regulatory policies promulgated in 2021, including the Opinions on Further Alleviating the Burden of Homework and After-School Tutoring for Students in Compulsory Education published in July 2021 by the General Office of the State Council and the General Office of Central Committee of the Communist Party of China, or the Alleviating Burden Opinion, we have ceased offering tutoring services related to academic subjects for students from kindergarten through grade nine (“K-9 Academic AST Services”) in China since the end of 2021. The cessation of K-9 Academic AST Services has had a substantial adverse impact on our financial performance for the fiscal year ended May 31, 2022 and is expected to have a negative impact on our financial performance for the fiscal year ending May 31, 2023 and subsequent periods. The impact of cessation of K-9 Academic AST Services in China includes the following items in our consolidated financial statements:
Net Revenues
Our total net revenues decreased by 27.4% from US$4,276.5 million for the fiscal year ended May 31, 2021 to US$3,105.2 million for the fiscal year ended May 31, 2022. The decrease was primarily due to cessation of K-9 Academic AST services since the end of 2021 to be in compliance with applicable regulations, rules and policies in China. Furthermore, for the fiscal years ended May 31, 2021 and 2022, the revenues from offering K-9 Academic AST Services accounted for a significant portion of our total net revenues for each fiscal year. We were not able to quantify such amounts as we did not maintain discrete financial information for our K-9 Academic AST services in the past.
 
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Property and Equipment
US$368.6 million impairment loss was recorded for certain property and equipment and the leasehold improvements of certain learning centers and offices in the fiscal year ended May 31, 2022, mostly due to the downsize of learning centers as result of regulatory changes and cessation of K-9 Academic AST Services in China.
Leases
Certain of our leases were terminated before the expiration of the lease term due to the downsized capacity relating to the cessation of K-9 Academic AST Services in China during the fiscal year ended May 31, 2022 and the relevant right-of-use assets, with a carrying amount totaling US$781.3 million. The corresponding liability was derecognized upon the effectiveness of the early termination.
B.
Capitalization and Indebtedness
Not applicable.
C.
Reasons for the Offer and Use of Proceeds
Not applicable.
D.
Risk Factors
Summary of Risk Factors
Investing in our ADSs and/or common shares involves significant risks. You should carefully consider all of the information in this annual report before making an investment in our ADSs and/or common shares. The following list summarizes some, but not all, of these risks.
Risks Related to Our Business
 
   
The cessation of the K-9 Academic AST Services in compliance with regulatory developments has materially and adversely affected, and may continue to materially and adversely affect, our business, financial condition, results of operations and prospect. Failure to effectively and efficiently manage changes of our existing business and new business may materially and adversely affect our ability to capitalize on new business opportunities.
 
   
If we fail to successfully execute our business strategies, our business and prospects may be materially and adversely affected.
 
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Significant uncertainties exist in relation to the interpretation and implementation of or proposed changes to, the PRC laws, regulations and policies regarding the private education industry. 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 thereunder by the relevant PRC government authorities has had, and could have further, material adverse effect on us.
 
   
If we are not able to attract students to enroll in our courses without a significant decrease in course fees, our revenues may decline and we may not be able to maintain profitability.
 
   
Our business depends on our “New Oriental” brand, and if we are not able to maintain and enhance our brand, our business and operating results may be harmed.
Risks Related to Our Corporate Structure
 
   
We are a Cayman Islands holding company with no equity ownership in the VIEs and we conduct our operations in China primarily through (i) our PRC subsidiaries, (ii) the VIEs with which we have contractual arrangements, and (iii) the subsidiaries and/or schools of the VIEs. Investors of our ADSs and/or common shares thus are not purchasing equity interest in the VIEs in China but instead are purchasing equity interests in a holding company incorporated in the Cayman Islands. If the PRC government deems that the contractual arrangements with the VIEs do not comply with the 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 severe penalties or be forced to relinquish our interests in those operations. Our holding company, our PRC subsidiaries and the VIEs, and investors of our company face uncertainty about potential future actions by the PRC government that could affect the enforceability of the contractual arrangements with the VIEs and, consequently, significantly affect the financial performance of the VIEs and our company as a group. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure—If the PRC government finds that the agreements that establish the structure for operating some of our China business do not comply with applicable PRC laws and 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” for details.
 
 
We rely on contractual arrangements for our operations in China, which may not be as effective in providing operational control as direct ownership.
 
   
Our ability to enforce the equity pledge agreements between us and the shareholders of the variable interest entities may be subject to limitations based on PRC laws and regulations.
 
   
The controlling shareholder of Century Friendship, which is the sole shareholder of New Oriental China, may have potential conflicts of interest with us, and if any such conflicts of interest are not resolved in our favor, our business may be materially and adversely affected.
Risks Related to Doing Business in China
 
   
Uncertainties with respect to the PRC legal system could have a material adverse effect on us. Certain laws and regulations are relatively new and can change quickly with little advance notice. In addition, the interpretations of many laws, regulations and rules are not always consistent, and enforcement of these laws, regulations and rules involve uncertainties, which may limit the available legal protections. Furthermore, the PRC administrative and court authorities have significant discretion in interpreting and implementing or enforcing statutory rules and contractual terms, and it may be more difficult to predict the outcome of administrative and court proceedings and the level of legal protection we may enjoy in China than under some more developed legal systems. These uncertainties may affect our judgment on the relevance of legal requirements and our decisions on the measures and actions to be taken to fully comply therewith and may affect our ability to enforce our contractual or tort rights. For more details, see “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—Uncertainties with respect to the PRC legal system could adversely affect us.”
 
   
We conduct our business primarily in China. Our operations in China are governed by PRC laws and regulations. The PRC government has significant oversight and discretion over the operation of our business, and it may influence our operations at any time, which could result in a material adverse change in our operation and the value of our ADSs. In addition, implementation of industry-wide regulations directly targeting our operations could cause the value of our securities to significantly decline. Therefore, investors of our company and our business face potential uncertainty from actions taken by the PRC government affecting our business. For more details, see “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—The PRC government’s oversight and discretion over our business operations could result in a material adverse change in our operations and the value of our ADSs and/or common shares.”
 
   
The approval of and filings with the CSRC or other PRC government authorities may be required in connection with our offshore offerings under PRC law, and, if required, we cannot predict whether we will be able to obtain such approval or complete such filings or how long they might take.
 
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Our ADSs will be prohibited from trading in the United States under the Holding Foreign Companies Accountable Act, or the HFCAA, in 2024 if the PCAOB is unable to inspect or fully investigate auditors located in China, or in 2023 if proposed changes to the law are enacted. A prohibition on the trading of our ADSs, or the threat of their trading being prohibited, may materially and adversely affect the value of your investment.
Risks Related to Our ADSs and Common Shares
 
   
We adopt different practices as to certain matters as compared with many other companies listed on the Hong Kong Stock Exchange.
 
   
The trading prices of our ADSs and common shares have been and are likely to continue to be volatile, which could result in substantial losses to holders of our common shares and/or ADSs.
 
   
If securities or industry analysts publish negative reports about our business, the price and trading volume of our common shares and/or ADSs securities could decline.
Risks Related to Our Business
The cessation of the K-9 Academic AST Services in compliance with regulatory developments has materially and adversely affected, and may continue to materially and adversely affect, our business, financial condition, results of operations and prospect. Failure to effectively and efficiently manage changes of our existing business and new business may materially and adversely affect our ability to capitalize on new business opportunities.
In compliance with the Alleviating Burden Opinion and its implementation measures, we have ceased offering K-9 Academic AST Services in China since the end of 2021. Such cessation has had a substantial adverse impact on our financial performance for the fiscal year ended May 31, 2022 and may continue to have negative impact on our business, financial condition, results of operations and prospect for the fiscal year ending May 31, 2023 and subsequent periods. In light of regulatory developments in China, in addition to the cessation of our K-9 Academic AST Services, we have made changes to our existing business, including closing of some of our schools and leaning centers and implementing staff optimization plan, while executing on new business strategies. The total number of schools and learning centers was 744 as of May 31, 2022, a decrease of 925 compared to 1,669 as of May 31, 2021.
We have shifted, and will continue to, shift our focus towards educational products and services that are not related to K-9 Academic AST Services, such as test preparation courses and educational materials and distribution, and explore other business opportunities by leveraging our brand recognition and educational resources accumulated over our operating history. For example, our new business initiatives include non-academic tutoring, intelligent learning systems and devices, study tours and research camps, educational materials and digitalized smart study solutions, as well as exam preparation courses designed to help students with junior college diplomas to obtain bachelor’s degrees. We may continue to operate in different geographic locations in China, which has resulted, and will continue to result, in substantial demands on our management, faculty and operational, technological and other resources. Our continued nationwide operations will also place significant demands on us to maintain the consistency of our teaching quality and our culture to ensure that our brand does not suffer as a result of any decreases, whether actual or perceived, in our teaching quality. In addition, Koolearn.com, our online education platform, continues to expand its online educational offerings to adults and university students, and seeks business opportunities in new areas. In fiscal year 2022, Koolearn established an e-commerce platform under the brand name DONG FANG ZHEN XUAN (东方甄选) for the sale of agricultural and other products. Koolearn has also begun to pilot livestreaming events on certain short-video social platforms, such as Douyin. To manage and support changes in our business and our future growth strategy, we must continue to improve our existing operational, administrative and technological systems and our financial and management controls, and recruit, train and retain additional qualified teachers, management personnel and other administrative and sales and marketing personnel, particularly as we enter into new areas. We cannot assure you that we will be able to effectively and efficiently manage our operations, recruit and retain qualified teachers and management personnel and integrate new businesses into our operations. Any failure to effectively and efficiently manage changes of our business may materially and adversely affect our ability to capitalize on new business opportunities, which in turn may have a material adverse impact on our financial condition and results of operations.
If we fail to successfully execute our business strategies, our business and prospects may be materially and adversely affected.
Following the cessation of the K-9 Academic AST Services since the end of 2021, we have shifted our business focus to expand our remaining program, service and product offerings, update and expand the content of our programs, services and products in a cost-effective and timely manner, investing in new business initiatives, as well as maintain and continue to establish strategic relationships with complementary businesses. The expansion of our programs, services and products in terms of types of offerings and the launch of new business initiatives may not succeed due to competition, failure to effectively market our new programs, services and products and maintain their quality and consistency, or other factors. In addition, we may be unable to identify new cities with sufficient growth potential to expand our network, and we may fail to attract students and increase student enrollments or recruit, train and retain qualified teachers or staff for our new programs or product and service offerings. Demand for our programs, services and products may not increase as rapidly as we expect.
 
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Furthermore, we may be unable to develop or license additional content on commercially reasonable terms and in a timely manner, or at all, to keep pace with changes in market demands. If we fail to successfully execute our business strategies, our business and prospects may be materially and adversely affected.
Significant uncertainties exist in relation to the interpretation and implementation of, or proposed changes to, the PRC laws, regulations and policies regarding the private education industry. 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 thereunder by the relevant PRC government authorities has had, and could have further, material adverse effect on us.
The PRC private education industry, especially the after-school tutoring sector, has experienced intense scrutiny and has been subject to significant regulatory changes recently. In particular, the Opinions on Further Alleviating the Burden of Homework and After-School Tutoring for Students in Compulsory Education jointly promulgated by the General Office of State Council and the General Office of Central Committee of the Communist Party of China on July 24, 2021, or the Alleviating Burden Opinion, sets out a series of operating requirements on after-school tutoring institutions, including, among other things, (i) local government authorities shall no longer approve any new after-school tutoring institutions providing tutoring services on academic subjects for students in compulsory education, or the Academic AST Institutions, and all the existing Academic AST Institutions shall be registered as non-profit, and local government authorities shall no longer approve any new after-school tutoring institutions providing tutoring services on academic subjects for pre-school-age children and students in grade ten to twelve; (ii) online Academic AST Institutions that have filed with the local education administration authorities will be subject to review and re-approval procedures by competent government authorities, and any failure to obtain such approval will result in the cancellation of its previous filing and ICP license; (iii) Academic AST Institutions are prohibited from raising funds by listing on stock markets or conducting any capitalization activities and listed companies are prohibited from investing in Academic AST Institutions through capital markets fund raising activities, or acquiring assets of Academic AST Institutions by paying cash or issuing securities; (iv) foreign capital is prohibited from controlling or participating in any Academic AST Institutions through mergers and acquisitions, entrusted operation, joining franchise or variable interest entities; (v) for non-academic tutoring, local authorities shall identify corresponding competent authorities for different tutoring categories, set forth standards and approve relevant non-academic tutoring institutions; and (vi) other compliance requirements for the operation of after-school tutoring institutions, including without limitation that after-school tutoring institutions shall not provide tutoring services during national holidays, weekends and winter and summer breaks, and requirements on risk management and control over the pre-collection of fees by after-school tutoring institutions. The Alleviating Burden Opinion further provides that administration and supervision over academic subjects tutoring institutions for students in grade ten to twelve shall be implemented by reference to the relevant provisions of the Alleviating Burden Opinion. Moreover, on February 8, 2022, the Chinese Ministry of Education, or the MOE issued its key tasks for 2022 on its website, which specifies that administration over academic subjects tutoring for students in grade ten to twelve shall be strictly implemented by reference to the relevant provisions regarding administration over academic subjects tutoring for students in compulsory education. It remains uncertain as to how and to what extent the administration over academic subjects tutoring institutions for students in grade ten to twelve will be implemented by reference of the Alleviating Burden Opinion. Therefore, we cannot assure you that we would not be required to take further actions regarding our academic tutoring services for students in grade ten to twelve to comply with the Alleviating Burden Opinion and its implementation measures. See “Item 4. Information on the Company—B. Business Overview—Regulation—Regulations on Private Education—Regulations on After-School Tutoring” for more details.
To implement the Alleviating Burden Opinion, on September 7, 2021, the MOE published on its official website that the MOE, together with two other government authorities, issued a circular requiring all Academic AST Institutions to complete registration as non-profit by the end of 2021, and all Academic AST Institutions shall, before completing such registration, suspend enrollment of students and charging fees. Moreover, in March 2022, the MOE and other two authorities further issued the Notice on Regulating Non-Academic After School Training Institutions. See “Item 4. Information on the Company—B. Business Overview—Regulation—Regulations on Private Education—Regulations on After-School Tutoring” for more details.
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 to be in compliance with the Alleviating Burden Opinion and its implementation measures. We have been closely monitoring the evolving regulatory environment and are making efforts to seek guidance from and cooperate with the government authorities to comply with the Alleviating Burden Opinion and its implementation measures. Among other things, we have ceased K-9 Academic AST Services in all of our schools and learning centers in China since the end of 2021, including closing of some of our schools and learning centers and implementing employee layoffs where necessary to maintain our continued operations. We have incurred considerable costs and expenses for the fiscal year ended May 31, 2022 resulting from termination of leases, dismissal of employees and other actions we have taken in light of the regulatory developments. Due to the complexity and substantial uncertainty of the regulatory environment, we cannot assure you that our operations would be in full compliance with applicable laws, regulations and policies, including the Alleviating Burden Opinion and its implementation measures, in a timely manner, or at all. We may become subject to fines or other penalties or be required to terminate certain operations, in which case our business, financial condition and results of operations could be materially and adversely affected further.
 
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We are continuously making efforts to comply with the requirements under these regulations and implementations. However, we cannot assure you that we will be able to comply with such requirements in a timely manner, or at all. For example, although we believe the provision of digital educational resources through our intelligent learning systems and devices shall not be considered as after-school tutoring activities, and we have not received any notice from the competent government authorities indicating that such activities are deemed as after-school tutoring activities, we cannot assure you that the competent government authorities will not take a contrary view to ours. In the event that the provision of digital academic educational resources through our intelligent learning systems and devices is deemed as after-school tutoring activities, the academic educational resources provided by our intelligent learning systems and devices to K-9 students shall comply with all regulations related to academic after-school tutoring, including, among others, the Alleviating Burden Opinion. Our PRC operating entities of the intelligent learning systems and devices may then be deemed as Academic AST Institutions, and these entities will be prohibited from being controlled by us as the Alleviating Burden Opinion prohibits foreign ownership in Academic AST Institutions, including through contractual arrangements. If we fail to comply with these requirements and any other applicable regulatory requirements, we may be subject to fines, regulatory orders to suspend our operations and other regulatory and disciplinary sanctions, or even orders to relinquish our contractual arrangements, all of which may materially and adversely affect our business and results of operations. Moreover, we cannot assure you that there will not be any new rules or regulations in China on the business we currently operate, or such new rules and regulations will not subject our business operations to further adjustments and in the event of such changes, our business operations may be adversely impacted.
If we are not able to attract students to enroll in our courses without a significant decrease in course fees, our revenues may decline and we may not be able to maintain profitability.
The success of our education business depends primarily on the number of student enrollments in our courses and the amount of course fees that our students are willing to pay. Therefore, our ability to attract students to enroll in our courses without a significant decrease in course fees is critical to the continued success and growth of our business. This in turn will depend on several factors, including our ability to develop new programs and enhance existing programs to respond to regulatory developments, changes in market trends and student demands, maintain the consistency of our teaching quality, effectively market our programs to a broader base of prospective students, develop and license additional high-quality educational content and respond to competitive pressures. If we are unable to attract students to enroll in our courses without a significant decrease in course fees, our revenue may decline and we may not be able to maintain profitability.
Our business depends on our “New Oriental” brand, and if we are not able to maintain and enhance our brand, our business and operating results may be harmed.
We believe that market awareness of our “New Oriental” brand has contributed significantly to the success of our business. We also believe that maintaining and enhancing the “New Oriental” brand is critical to maintaining our competitive advantage. We offer a diverse set of programs, services and products to student populations of all ages across China. Our future business strategy to develop new program, service and product offerings and extend our reach to new areas may make it more difficult to maintain quality and consistency.
We have mainly relied on word-of-mouth referrals to attract prospective students. We also use various marketing and promotion activities, such as online demo courses, social media promotions and outdoor advertising campaigns to promote our brand and course offerings. We cannot, however, assure you that these or our other marketing efforts will be successful in promoting our brand to remain competitive. If we are unable to further enhance our brand recognition and increase awareness of our programs, services and products, or if we incur excessive marketing and promotion expenses, our business and results of operations may be materially and adversely affected. In addition, any negative publicity relating to our company or our programs and services, regardless of its veracity, could harm our brand image and in turn materially and adversely affect our business and operating results.
We depend on our dedicated and capable faculty and staff, and if we are not able to maintain consistent teaching quality throughout our school network, or service quality throughout our brand, business and operating results may be materially and adversely affected.
Our teachers and staff are critical to maintaining the quality of our programs, services and products and maintaining our brand and reputation. It is critical for us to continue to attract qualified teachers who have a strong command of the subject areas to be taught and meet our qualification and staff who have strong professional capabilities. We also need to hire teachers and staff who are capable of delivering innovative and inspirational instruction or premium services. We must also provide continuous training to our teachers and staff so that they can stay up to date with changes in student demands, admissions and assessment tests, admissions standards, and other key trends necessary to effectively teach their respective courses or provide their services. We may not be able to hire, train and retain enough qualified teachers or staff to keep pace with our anticipated development while maintaining consistent teaching quality across our education services or service quality across our other services. In addition, PRC laws and regulations require our teachers and staff to have requisite licenses if they teach, among others, academic subject such as Chinese, mathematics, English, physics, chemistry, biography, history, geography, and teachers are also required to have relevant qualifications if they teach non-academic subjects. However, we cannot assure you that our teachers can all apply for and obtain the teaching licenses and relevant qualifications in a timely manner or at all due to various reasons, such as the time gap between the recruitment and the newly-recruited teachers taking the exam and ultimately obtaining the teacher license or relevant qualifications, and the cancellation and delay of teacher license examinations and other qualifications examinations in recent years due to COVID-19. If some of our teachers, due to various reasons, are unable to apply for and obtain the requisite teaching licenses on a timely basis, or at all, we may be required to rectify such non-compliance and may not be able to continue to retain such teachers. Shortages of qualified teachers and/or staff or decreases in the quality of our instruction or service, whether actual or perceived, in one or more of our markets may have a material and adverse effect on our business.
 
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Our historical financial and operating results are not indicative of our future performance; and our financial and operating results are difficult to forecast.
Our net revenues increased from US$3,578.7 million in the fiscal year ended May 31, 2020 to US$4,276.5 million in the fiscal year ended May 31, 2021 and decreased to $3,105.2 million in the fiscal year ended May 31, 2022. Any evaluation of our business and our prospects must be considered in light of the risks and uncertainties related to the recent change of regulatory policies on after-school tutoring services market. In addition, our past results may not be indicative of future performance because of the cessation of K9 Academic AST Services in the end of 2021 as well as any new businesses developed or acquired by us. Substantial uncertainties exist with respect to the profitability and cash generating capability of such new businesses. In addition to the fluctuations described above, our revenues, expenses and operating results may vary from quarter to quarter and from year to year in response to a variety of other factors beyond our control, including:
 
   
general economic conditions;
 
   
regulations or actions pertaining to the provision of private educational services in China;
 
   
detrimental negative publicity about us, our competitors or our industry;
 
   
changes in consumers’ spending patterns; and
 
   
non-recurring charges incurred in connection with acquisitions or other extraordinary transactions or unexpected circumstances.
Due to these and other factors, we believe that period-to-period comparisons of our operating results may not be indicative of our future performance, and therefore you should not rely on them to predict the future performance of our common shares and/or ADSs. In addition, our past results may not be indicative of future performance because of new businesses developed or acquired by us.
We may not be able to achieve the benefits we expect from recent and future acquisitions, and recent and future acquisitions may have an adverse effect on our ability to manage our business.
As part of our business strategy, we have pursued and intend to continue to pursue selective strategic acquisitions of businesses that complement our existing businesses. Acquisitions expose us to potential risks, including risks associated with the diversion of resources from our existing businesses, difficulties in successfully integrating the acquired businesses, failure to achieve expected growth by the acquired businesses and an inability to generate sufficient revenue to offset the costs and expenses of acquisitions. If the revenue and cost synergies that we expect to achieve from our acquisitions do not materialize, we may have to recognize impairment charges.
If any one or more of the aforementioned risks associated with acquisitions materialize, our acquisitions may not be beneficial to us and may have a material adverse effect on our business, financial condition and results of operations.
Third parties have in the past brought intellectual property infringement claims against us based on the content of the books and other teaching or marketing materials that we or our teachers authored and/or distributed and may bring similar claims against us in the future.
We may be subject to claims by educational institutions and organizations, content providers and publishers, competitors and others on the ground of intellectual property rights infringement, defamation, negligence or other legal theories based on the content of the materials that we or our teachers author and/or distribute as course materials. These types of claims have been brought, sometimes successfully, against print publications and educational institutions in the past, including ourselves. For example, in January 2001, the Graduate Management Admission Council, or GMAC, and Educational Testing Service, or ETS, filed three separate lawsuits against us in the Beijing No. 1 Intermediate People’s Court, alleging that we had violated the copyrights and trademarks relating to the GMAT test owned by GMAC and relating to the GRE and TOEFL tests owned by ETS by duplicating, selling and distributing their test materials without their authorization. In September 2003, the trial court found that we had violated GMAC’s and ETS’ respective copyrights and trademarks in connection with those admissions tests. The trial court’s judgment was partially affirmed in a final judgment issued by the Beijing Higher People’s Court in December 2004. The Beijing Higher People’s Court held that we had not misused the trademarks of GMAC or ETS. However, it also found that the TOEFL and GRE tests were the original works of ETS and the GMAT test was the original work of GMAC, all of which are protected under the PRC Copyright Law. The Beijing Higher People’s Court held that our duplication, sale and distribution of the test materials relating to these tests without ETS’ and GMAC’s prior permission were not a “reasonable use” of the test materials under the PRC Copyright Law, and that we, therefore, had infringed upon ETS’ and GMAC’s respective copyrights. We were ordered to pay damages in an aggregate of approximately RMB6.5 million, cease all infringing activities and destroy all copyright-infringing materials in our possession, all of which we have done. Since the Beijing Higher People’s Court issued the final judgment in 2004, we have endeavored to comply with the court order and applicable PRC laws and regulations relating to intellectual property, and we have adopted policies and procedures to prohibit our employees and contractors from engaging in any copyright, trademark or trade name infringing activities. However, we cannot assure you that every teacher or other personnel will strictly comply with these policies at our schools, learning centers or other locations or media through which we provide our programs, services and products.
 
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In order to develop, improve, promote and deliver new products and services, we cooperate with various leading international education content providers and are required to obtain licenses from others from time to time. For example, we have worked with Cambridge University Press, Oxford University Press, Educational Testing Service, Cengage Learning and other education content providers in distributing their education material in China. With access to such high-quality education content, we further develop localized products that best serve the needs for millions of students and families in the China market. There can be no assurance that we will be able to continue to obtain licenses on commercially reasonable terms or at all or that rights granted under any licenses will be valid and enforceable.
We have been involved in other claims and legal proceedings against us relating to infringement of third parties’ copyrights in materials distributed by us and the unauthorized use of a third party’s name in connection with the marketing and promotion of our programs, and may be subject to further claims in the future, particularly in light of the uncertainties in the interpretation and application of intellectual property laws and regulations. Furthermore, if printed publications or other materials that we or our teachers author and/or distribute contain materials that government authorities find objectionable, these publications may have to be recalled, which could result in increased expenses, loss in revenues and adverse publicity. Any claims against us, with or without merit, could be time-consuming and costly to defend or litigate, divert our management’s attention and resources or result in the loss of goodwill associated with our brand. If a lawsuit against us is successful, we may be required to pay substantial damages and/or enter into royalty or license agreements that may not be based upon commercially reasonable terms, or we may be unable to enter into such agreements at all. We may also lose, or be limited in, the rights to offer some of our programs, services and products or be required to make changes to our course materials or websites. As a result, the scope of our course materials could be reduced, which could adversely affect the effectiveness of our teaching, limit our ability to attract new students, harm our reputation and have a material adverse effect on our results of operations and financial position.
We may lose our competitive advantage and our reputation, brand and operations may suffer if we fail to prevent the loss or misappropriation of or disputes over, our intellectual property rights.
We consider our trademarks and trade name invaluable to our ability to continue to develop and enhance our brand recognition. We have spent over 20 years building our “New Oriental” brand by emphasizing quality and consistency and building trust among students and parents. From time to time, our trademarks and trade name have been used by third parties for or as part of other branded programs, services and products unrelated to us. We have sent cease and desist letters to such third parties in the past and will continue to do so in the future. However, preventing trademark and trade name infringement, particularly in China, is difficult, costly and time-consuming and continued unauthorized use of our trademarks and trade name by unrelated third parties may damage our reputation and brand. In addition, we have spent significant time and expense developing or licensing and localizing the content of our educational materials to enrich our product offerings and meet students’ needs. There can be no assurance that competitors will not independently develop similar intellectual property. If others are able to copy and use our programs and services, we may not be able to maintain our competitive position. The measures we take to protect our trademarks, copyrights and other intellectual property rights, which presently are based upon a combination of trademark, copyright and trade secret laws, may not be adequate to prevent unauthorized use by third parties. Furthermore, the application of laws governing intellectual property rights in China and abroad is uncertain and evolving, and could involve substantial risks to us. If we are unable to adequately protect our trademarks, copyrights and other intellectual property rights, we may lose these rights, our brand name may be harmed, and our business may suffer materially.
We face significant competition in each major program we offer and each geographic market in which we operate, and if we fail to compete effectively, we may lose our market share and our profitability may be adversely affected.
The private education sector in China is highly fragmented and competitive. We face competition in each major program we offer and each geographic market in which we operate. For example, we face competition from companies that focus on test preparation services in China.
Our student enrollments may decrease due to intense competition. Some of our competitors may have more resources and experiences than we do. These competitors may be able to devote greater resources than we can to the development, promotion and sale of their programs, services and products and respond more quickly than we can to changes in student needs, testing materials, admissions standards, or new technologies. In addition, we face competition from many different smaller sized organizations that focus on some of our targeted markets, and they may be able to respond more promptly to changes in student preferences in these markets. We also face competition from online educational service providers that offer online test preparation. These online education service providers use advanced technologies such as online live broadcasting technologies, to offer their programs, services and products quickly and cost-effectively to a large number of students. We may have to reduce course fees or increase spending in response to competition in order to retain or attract students or pursue new market opportunities, which could result in a decrease of our revenues and profitability. We cannot assure you that we will be able to compete successfully and grow our business. If we are unable to maintain our competitive position or otherwise respond to competitive pressures effectively, we may lose our market share and our profitability may be adversely affected.
 
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Our business, financial condition and results of operations have been and are likely to continue to be materially and adversely affected by the outbreak of COVID-19.
The worldwide outbreak of the COVID-19 pandemic has resulted in significant disruptions in the global economy. To contain the spread of COVID-19, the Chinese government has taken certain emergency measures, including implementation of travel bans, blockade of transportation and closure of factories, facilities and businesses, and encouragement of remote working arrangements and cancellation of public activities. Since early 2022, there has been a recurrence of COVID-19 outbreaks in certain provinces of China due to the Delta and Omicron variants. As a result, the Chinese local authorities have reinstated similar emergency measures to contain further spread of COVID-19.
The COVID-19 pandemic affected many aspects of our business since 2020. In the first half of 2020, we stopped the operation of all learning centers nationwide and moved our offline classes to small size online live broadcasting classes through the in-house developed OMO (online-merge-offline) system, which has played a fundamental role in reducing the impact of COVID-19 outbreak on our services and operation. We gradually resumed our offline operations from June 2020. However, we again were required to close our learning centers in certain regions from time to time where new cases of COVID-19 were discovered between the end of 2020 and 2022. To the extent that potential future waves of COVID-19 disrupt school or learning center operations and semester schedules in China, we may face operational challenges with respect to continuing to offer our offline courses and services to our students and teachers. In addition, COVID-19 pandemic has had a material and adverse impact, both economically and socially, in other countries, including the United States, the United Kingdom, Canada and other study-abroad destinations popular among Chinese students. The duration and intensity of disruptions resulting from the COVID-19 outbreak in these countries, the extent and severity of new waves of outbreak in these countries, the development and progress of distribution of COVID-19 vaccine and other medical treatment and the effectiveness of such vaccine and other medical treatment, remain uncertain. As a result, Chinese students may be discouraged from pursuing study-abroad in the near future, if not longer, which in turn may negatively affect the demand for our overseas test preparation courses and overseas study consulting services. We cannot assure you that the COVID-19 pandemic can be eliminated completely. Moreover, more waves or a similar outbreak may occur, which could materially and adversely affect our business, financial condition, and results of operations.
We face risks related to health epidemics and other outbreaks, which could result in reduced attendance or temporary closure of our schools, learning centers and bookstores.
In addition to the impact of COVID-19, our business could also be materially and adversely affected by other health epidemics, such as H1N1 swine influenza, H7N9 bird flu, avian influenza, severe acute respiratory syndrome (SARS), Ebola or other disease. For example, the influenza A (H1N1) outbreak from 2009 to 2010 adversely affected our business and results of operations in the first and second fiscal quarters of 2010 as we experienced slower-than-usual student enrollment growth and large numbers of cancelations and deferments in enrollments from registered students. In addition, we had to cancel classes whenever an enrolled student was diagnosed with influenza A (H1N1), as required by applicable health regulations. Any future outbreak of adverse public health developments in China may have a material and adverse effect on our business operations. These occurrences could cause cancelations or deferments of student enrollments and require the temporary closure of our schools, learning centers and bookstores while we remain obligated to pay rent and other expenses for these facilities, thus severely disrupting our business operations and materially and adversely affecting our liquidity, financial condition and results of operations.
We experienced and may continue to experience a decrease in our margins.
Many factors may cause our gross and net margins to decline. The regulatory developments regarding Academic AST Institutions’ after-school tutoring business have caused our gross and net margin to decline. In addition, new businesses may not have the same margins as we had in the past, and new investments and acquisitions may cause our margins to decline before we successfully integrate the acquired businesses into our operations and realize the full benefits of these investments and acquisitions. It is possible that our margins could continue to decline in the future due to these factors.
New programs, services and products that we develop may compete with our current offerings.
We are constantly developing new programs, services and products to meet changes in student demands and respond to changes in testing materials, admissions standards, market needs and trends and technological changes. While some of the programs, services and products that we develop will expand our current offerings and increase student enrollments, others may compete with or render obsolete our existing offerings without increasing our total student enrollments. For example, our online courses may attract students away from our existing classroom-based courses. If we are unable to expand our program, service and product offerings while increasing our total student enrollments and profitability, our business and growth may be adversely affected.
 
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Our business is subject to fluctuations caused by seasonality or other factors beyond our control, which may cause our operating results to fluctuate from quarter to quarter. This may result in volatility and adversely affect the price of our common shares and ADSs.
We have experienced, and expect to continue to experience, seasonal fluctuations in our revenues and results of operations, primarily due to seasonal changes in student enrollments. Historically, our test preparation courses tend to have the highest revenue in our first fiscal quarter, which runs from June 1 to August 31 of each year, primarily because a significant number of students enroll in our courses during summer vacation to prepare for admissions and assessment tests. In addition, we have generally experienced higher revenue in our third fiscal quarter, which runs from December 1 to February 28 of each year, primarily because many students enroll in our test preparation courses during the winter school holidays. However, our expenses vary, and certain of our expenses do not necessarily correspond with changes in our student enrollments and revenues. For example, we make investments in marketing and promotion, teacher recruitment and training, and product development throughout the year and we pay rent for our facilities based on the terms of the lease agreements. In addition, other factors beyond our control, including health epidemics and special events that take place during a quarter when our student enrollment would normally be high, may have a negative impact on our student enrollments. For example, the COVID-19 pandemic since the beginning of 2020 had adversely affected our financial and operating results in the third and fourth fiscal quarters of 2020. We expect quarterly fluctuations in our revenues and results of operations to continue. These fluctuations could result in volatility and adversely affect the price of our common shares and/or ADSs. As our revenues grow, these seasonal fluctuations may become more pronounced.
Our reputation, results of operations, financial condition and the trading price of our ADSs and/or common shares may be negatively affected by adverse publicity or other detrimental conduct against us.
Adverse publicity concerning our failure or perceived failure to comply with legal and regulatory requirements, alleged accounting or financial reporting irregularities, regulatory scrutiny and further regulatory action or litigation could harm our reputation, result in our incurrence of substantial costs and distract our management’s attention and cause the trading price of our ADSs and common shares to decline and fluctuate significantly. For example, after we issued a press release on July 17, 2012 disclosing that we were subject to the investigation by the U.S. Securities and Exchange Commission, or the SEC, and Muddy Waters LLC, an entity unrelated to us, which issued a report containing various allegations about us on July 18, 2012, the trading price of our ADSs declined sharply and we were inundated by numerous investor inquiries. In late 2016, there was negative media coverage referencing our small overseas study consulting division. The negative publicity and the resulting decline of the trading price of our ADSs also led to the filing of shareholder class action lawsuits against us and some of our senior executive officers. On July 24, 2021, China’s official state media, including Xinhua News Agency and China Central Television, announced the Alleviating Burden Opinion, issued by the General Office of the Central Committee of the Communist Party of China and the General Office of the State Council. The Alleviating Burden Opinion contains high-level directives about requirements and restrictions related to after-school tutoring services. The trading price of our ADSs and common shares declined sharply before and after the Alleviating Burden Opinion was issued. In addition, certain of our directors are subject to class actions due to their current or previous directorships in other listed companies. Our directors and executive officers may also face litigation or proceedings (including alleged or future securities class action) unrelated to their respective capacity as a director or executive officer of our company, and such litigation or proceedings may adversely affect our public image and reputation.
We may continue to be the target of adverse publicity and other detrimental conduct against us. Such conduct includes complaints, anonymous or otherwise, to regulatory agencies regarding our operations, accounting, revenues and regulatory compliance. Additionally, allegations against us may be posted on the internet by any person or entity which identifies itself or on an anonymous basis. We may be subject to government or regulatory investigation or inquiries as a result of such third-party conduct and may be required to incur significant time and substantial costs to defend ourselves, and there is no assurance that we will be able to conclusively refute each of the allegations within a reasonable period of time, or at all. Our reputation may also be negatively affected as a result of the public dissemination of allegations or malicious statements about us, which in turn may materially and adversely affect our business, results of operations and financial condition and the trading price of our ADSs and common shares.
Failure to adequately and promptly respond to changes in testing materials, admissions standards and PRC laws and regulations on school curriculum could cause our programs, services and products to be less attractive to students, or subject us to rectification measures.
Admissions and assessment tests undergo continuous change, in terms of the focus of the subjects and questions tested, the format of the tests and the manner in which the tests are administered. These changes require us to continually update and enhance our course materials and our teaching methods. In December 2017, the MOE issued the 2017 Curriculum Schemes and Curriculum Standards for Senior Secondary Schools, which was furthered amended in May 2020, and further issued the Opinions on the Implementing Work of the New Curriculums and the New Textbooks of Senior Secondary Schools in August 2018, both of which provides that the MOE developed a new nationwide senior secondary school curriculum system and organized the compilation of a group of new textbooks based on the new curriculum system, which shall be adopted in certain provinces from September 2019 and gradually expand to all other provinces by September 2022. On August 25, 2021, the General Office of MOE issued the Administrative Measures for After-School Tutoring Materials for Primary and Secondary School Students (for Trial Implementation). See “Item 4. Information on the Company —B. Business Overview—Regulation—Regulations on Private Education—Regulations on After-School Tutoring.”
 
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We adapt our tutoring programs and materials to new curriculum and tutoring material requirements promulgated from time to time. However, there can be no assurance that we are able to or we will comply with all such requirements, and any inability to comply with any of the requirements in a timely manner, or at all, may subject us to rectification measures, suspension of using tutoring materials or even revocation of our private school operation permit, which may materially and adversely affect our business, financial condition and results of operations. Furthermore, any inability to track and respond to these changes in a timely and cost-effective manner would make our programs, services and products less attractive to students, which may materially and adversely affect our reputation and ability to continue to attract students without a significant decrease in course fees.
If colleges, universities and other higher education institutions reduce their reliance on admissions and assessment tests, we may experience a decrease in demand for our services and products and our business may be materially and adversely affected.
The use of admissions tests in China may decline or fall out of favor with educational institutions and government authorities. For example, educational institutions and government authorities in China have had discussions and conducted early experiments in China on school admissions. Generally, these discussions and experiments exhibit a trend of admission decisions based less on entrance exam scores and more on a combination of other factors, such as past academic record, extracurricular activities and comprehensive aptitude evaluations. If we fail to respond to these changes, the demand for certain of our services may decline, and our business may be materially and adversely affected.
In the United States, there has been a continuing debate regarding the usefulness of admissions and assessment tests to assess qualifications of applicants and many people have criticized the use of admissions and assessment tests as unfairly discriminating against certain test takers. If a large number of educational institutions abandon the use of existing admissions and assessment tests as a requirement for admission, without replacing them with other admissions and assessment tests, we may experience a decrease in demand for our overseas test preparation courses and our business may be adversely affected.
We might not be able to fulfil our obligation in respect of deferred revenue, which might have impact on our cash/liquidity position.
Our recognition of deferred revenue is subject to future performance obligations and may not be representative of revenues for future periods. Tuition for our educational programs and services is generally collected in advance and is initially recorded as deferred revenue, which will be recognized when the services are delivered. Due to potential future changes in customer preferences and future changes in regulations and the need for us to satisfactorily perform product support and other services, deferred revenue at any particular date may not be representative of actual revenue for any current or future period. Any failure to fulfil the obligations in respect of deferred revenue may have an adverse impact on our results of operations and liquidity.
We may be required to recognize impairment losses with regard to intangible assets and goodwill.
We carry goodwill and other intangible assets on our consolidated balance sheet. As a result, we may be required to recognize impairment losses with regard to intangible assets and goodwill. In accordance with ASC 350, Goodwill and Other Intangible Assets, the recorded goodwill amounts are not amortized, but rather are tested for impairment annually or more frequently if there are indicators of impairment present. Any impairment losses for intangible assets and goodwill will adversely affect our results of operations and financial condition. We recorded nil, US$28.9 million and nil goodwill impairment losses for the years ended May 31, 2020, 2021 and 2022, respectively and recorded nil, US$2.9 million and nil intangible assets impairment losses for the years ended May 31, 2020, 2021 and 2022, respectively.