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ORGANIZATION AND BASIS OF PRESENTATION | 12 Months Ended
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Dec. 31, 2018
ORGANIZATION AND BASIS OF PRESENTATION |
ORGANIZATION AND BASIS OF PRESENTATION | 1. ORGANIZATION AND BASIS OF PRESENTATION Top Margin Limited was incorporated under the laws of the Cayman Islands on January 11, 2007. In June 2017, Top Margin Limited changed the corporate name into RYB Education, Inc. (the "Company"). The Company, its subsidiaries, its consolidated variable interest entities ("VIEs") and VIEs' subsidiaries and kindergartens (collectively the "Group") are primarily engaged in providing kindergarten educational services, play-and-learn centers services and sale of educational merchandise in the People's Republic of China ("PRC"). As of December 31, 2018, details of the Company’s subsidiaries, its VIEs and VIEs’ major subsidiaries and kindergartens were as follows:
|  | Date of |  |  |  | Percentage of |  |
|  | establishment |  | Place of |  | legal ownership |  |
Name |  | or acquisition |  | establishment |  | by the Company |  | Principal activities
Subsidiaries: |  |  |  |  |  |  |  |
Beijing RYB Technology Development Co., Ltd. ("RYB Technology") |  | December 24, 2007 |  | PRC |  | 100 | % | Investment holding and provision of educational services
QIYUAN Education Technology (Tianjin) Co., Ltd ("TJ Qiyuan") |  | May 18, 2018 |  | PRC |  | 100 | % | Investment holding and provision of educational services
Beijing Beilin International Education Co., Ltd. ("BJ Beilin") |  | September 28, 2018 |  | PRC |  | 90 | % | Investment holding and provision of educational services
Precious Companion Group Limited |  | August 4, 2018 |  | Hong Kong |  | 100 | % | Investment holding and provision of educational services
Digital Knowledge World Co., Ltd. |  | September 1, 2018 |  | Cayman Islands |  | 90 | % | Investment holding and provision of educational services
Digital Education Co., Ltd. |  | September 1, 2018 |  | Hong Kong |  | 90 | % | Investment holding and provision of educational services
Beilin International Education Limited |  | September 1, 2018 |  | Hong Kong |  | 90 | % | Investment holding and provision of educational services
Variable interest entities: |  |  |  |  |  |  |  |
Beijing RYB Children Education Technology Development Co., Ltd. ("Beijing RYB") |  | July 3, 2001 |  | PRC |  | Consolidated VIE |  | Investment holding and provision of educational services
Beiyao Technology Development Co., Ltd. ("Beiyao") |  | June 15, 2018 |  | PRC |  | Consolidated VIE |  | Investment holding and provision of educational services
Beijing Haidian Distric Bozhi Training School ("Bozhi") |  | September 28, 2018 |  | PRC |  | Consolidated VIE |  | Training Services
VIEs’ major subsidiaries and kindergartens (1): |  |  |  |  |  |  |  |
Shenzhen RYB Children Education Technology Development Co., Ltd. |  | June 20, 2007 |  | PRC |  | Consolidated VIE |  | Sale of educational merchandise and provision of educational services
Hunan RYB Education Development Co., Ltd. |  | September 22, 2011 |  | PRC |  | Consolidated VIE |  | Provision of educational services
Beijing Youer Lezhi Technology Development Co., Ltd. |  | April 2, 2014 |  | PRC |  | Consolidated VIE |  | Play-and-learn centers services
Beijing Qingtian Youpin E-Commerce Co., Ltd. |  | June 8, 2015 |  | PRC |  | Consolidated VIE |  | Sale of educational merchandise
Beijing XueErLe Education Technology Co., Ltd. |  | December 13, 2016 |  | PRC |  | Consolidated VIE |  | Kindergarten services
Beijing RYB Jincheng Technology Development Co., Ltd |  | August 29, 2017 |  | PRC |  | Consolidated VIE |  | Play-and-learn centers services
Beijing Haidian District RYB Multi-Dimension Intelligence Experimental Kindergarten (2) |  | January 10, 2005 |  | PRC |  | Consolidated VIE |  | Kindergarten services
Beijing Fengtai District RYB Multi-Dimension Intelligence Experimental Kindergarten (2) |  | April 14, 2005 |  | PRC |  | Consolidated VIE |  | Kindergarten services
Beijing Development RYB Bilingual Kindergarten (2) |  | February 21, 2006 |  | PRC |  | Consolidated VIE |  | Kindergarten services
Beijing Daxing District RYB Kindergarten (2) |  | July 17, 2008 |  | PRC |  | Consolidated VIE |  | Kindergarten services
Beijing Changping District Huilongguan RYB Kindergarten (2) |  | November 4, 2008 |  | PRC |  | Consolidated VIE |  | Kindergarten services
Beijing Chaoyang District Century Jiahua Kindergarten (2) |  | August 27, 2009 |  | PRC |  | Consolidated VIE |  | Kindergarten services
Beijing Chaoyang District RYB Kindergarten (2) |  | August 27, 2009 |  | PRC |  | Consolidated VIE |  | Kindergarten services
Beijing Chaoyang District RYB Zhongcanyuan Kindergarten (2) |  | September 14, 2010 |  | PRC |  | Consolidated VIE |  | Kindergarten services
Beijing Chaoyang District RYB Xintiandi Kindergarten (2) |  | April 11, 2011 |  | PRC |  | Consolidated VIE |  | Kindergarten services
Beijing Chaoyang District RYB Hepingli Kindergarten (2) |  | April 11, 2011 |  | PRC |  | Consolidated VIE |  | Kindergarten services
Beijingn Chaoyang District RYB Dongba Kindergarten (2) |  | July 5, 2011 |  | PRC |  | Consolidated VIE |  | Kindergarten services
Dalian Jinzhou New District RYB Hongxinghai Kindergarten (2) |  | November 20, 2011 |  | PRC |  | Consolidated VIE |  | Kindergarten services
Changsha Kaifu District RYB Kindergarten (2) |  | March 30, 2012 |  | PRC |  | Consolidated VIE |  | Kindergarten services
Beijing Shidaixinyuan Kindergarten (2) |  | September 12, 2012 |  | PRC |  | Consolidated VIE |  | Kindergarten services
Hefei Faneng Sunshine Beach Kindergarten (2) |  | January 18, 2013 |  | PRC |  | Consolidated VIE |  | Kindergarten services
Guiyang Guanshanhu District RYB Jinyuan Kindergarten |  | June 3, 2013 |  | PRC |  | Consolidated VIE |  | Kindergarten services
Beijing Chaoyang District Jingsong RYB Kindergarten (2) |  | July 5, 2013 |  | PRC |  | Consolidated VIE |  | Kindergarten services
Changsha Kaifu District Vanke City RYB Kindergarten (2) |  | January 8, 2014 |  | PRC |  | Consolidated VIE |  | Kindergarten services
Changzhou Wujin District RYB New City Villa Kindergarten (2) |  | February 17, 2014 |  | PRC |  | Consolidated VIE |  | Kindergarten services
Qingdao Shibei District RYB Vanke City Kindergarten (2) |  | February 21, 2014 |  | PRC |  | Consolidated VIE |  | Kindergarten services
Guangzhou Liwan District RYB Tangning Garden Kindergarten (2) |  | May 1, 2014 |  | PRC |  | Consolidated VIE |  | Kindergarten services
Jinan Licheng District RYB Wanxiang New Sky Kindergarten (2) |  | October 30, 2014 |  | PRC |  | Consolidated VIE |  | Kindergarten services
Xiamen Siming District RYB Yongniantianshu Kindergarten (2) |  | July 10, 2015 |  | PRC |  | Consolidated VIE |  | Kindergarten services
Beijing Guofengmeitang Kindergarten (2) |  | September 14, 2015 |  | PRC |  | Consolidated VIE |  | Kindergarten services
Beijing Chaoyang District RYB Zhuhuanian Kindergarten (2) |  | October 10, 2015 |  | PRC |  | Consolidated VIE |  | Kindergarten services
Beijing Fangshan District RYB ChangyangPeninsula Kindergarten (2) |  | May 3, 2016 |  | PRC |  | Consolidated VIE |  | Kindergarten services
Beijing FangShan District RYB XinYueDu Kindergarten (2) |  | October 8, 2016 |  | PRC |  | Consolidated VIE |  | Kindergarten services
Jinan Licheng District Wangsheren Street RYB Kindergarten (2) |  | October 30, 2016 |  | PRC |  | Consolidated VIE |  | Kindergarten services
Beijing Shunyi District RYB City Garden Kindergarten (2) |  | November 1, 2016 |  | PRC |  | Consolidated VIE |  | Kindergarten services
Beijing Mentougou District RYB Yongsheng Jiayuan Kindergarten (2) |  | November 16, 2016 |  | PRC |  | Consolidated VIE |  | Kindergarten services
Beijing Haidian District RYB Yidongyuan Kindergarten (2) |  | December 15, 2016 |  | PRC |  | Consolidated VIE |  | Kindergarten services
Beijing Xicheng District RYB Kindergarten (2) |  | January 16, 2017 |  | PRC |  | Consolidated VIE |  | Kindergarten services
Shenyang Hunnan District RYB Shouchuang International City Kindergarten (2) |  | February 22, 2017 |  | PRC |  | Consolidated VIE |  | Kindergarten services
| (1) |  | The net revenues generated from these major subsidiaries and kindergartens accounted for approximately 70% of Group’s total net revenues for the year ended December 31, 2018. The English name is for identification purpose only.
| (2) |  | These kindergartens are established and controlled by Beijing RYB or its subsidiaries. Under PRC laws and regulations, entities who establish kindergartens are commonly referred to as "sponsors" instead of "owners" or "shareholders". The economic substance of "sponsorship" in respect of kindergartens is substantially similar to that of ownership with respect to legal, regulatory and tax matters.
The VIE arrangements PRC laws and regulations restrict foreign ownership and investment in the education industry at the kindergarten level. As the Company is deemed a foreign legal person under PRC laws, accordingly the Company's subsidiary is not eligible to engage in the provision of kindergarten services. To comply with these foreign ownership restrictions, the Company operates substantially all of its education services through VIEs and the VIEs' subsidiaries and kindergartens in the PRC. The VIEs and their subsidiaries and kindergartens hold leases and other assets necessary to provide education services and generate revenues. On July 3, 2008, RYB Technology, a wholly-owned subsidiary of the Group, entered into a series of contractual arrangements with Beijing RYB, and the shareholders of Beijing RYB, through which the Company obtained effective control over, and became the primary beneficiary of, Beijing RYB. The contractual arrangements were modified on September 19, 2011 and November 4, 2015 when there were changes in the shareholders in Beijing RYB. On June 15, 2018, TJ Qiyuan, a wholly-owned subsidiary of the Group, entered into a series of contractual arrangements with Beiyao, and the shareholders of Beiyao, through which the Company obtained effective control over, and became the primary beneficiary of, Beiyao. In September 2018, the Group acquired BJ Beilin and Bozhi through the acquisition of Digital Knowledge World Co., Ltd.. On September 28, 2018, BJ Beilin, a wholly-owned subsidiary of the Group, entered into a series of contractual arrangements with Bozhi, and the shareholders of Bozhi, through which the Company obtained effective control over, and became the primary beneficiary of, Bozhi. The terms of these contractual agreements of Beiyao and Bozhi are substantially similar to the agreements of Beijing RYB, except that the agreements of Bozhi will remain effective for twenty years, when contract duration is applicable.
| · |  | Agreements that transfer economic benefits to the Group:
Exclusive Consultation and Service Agreement Pursuant to the exclusive consultation and service agreement, Beijing RYB engages RYB Technology as its exclusive operational consultant, and RYB Technology agrees to provide necessary education related consulting services to assist Beijing RYB's operational activities and business development. Without the prior written consent of RYB Technology, Beijing RYB shall not accept any services subject to this agreement from any third parties. The fees for such consultation and service are determined at RYB Technology's discretion. Unless RYB Technology terminates this agreement in advance, this agreement will remain effective for ten years. Upon request by RYB Technology, contractual parties to this agreement shall extend the term of this agreement prior to its expiration. Other contractual parties to this agreement cannot terminate this agreement unilaterally. For the years ended December 31, 2016, 2017 and 2018, $2,139, $6,075 and $1,461 service fees were charged by RYB Technology, TJ Qiyuan and BJ Beilin, respectively.
| · |  | Agreements that provide the Company effective control over VIEs:
Business Operation Agreement Pursuant to the business operation agreement, Beijing RYB and its shareholders agreed to, (i) without prior written consent of RYB Technology, Beijing RYB will not conduct any transactions that may have substantial effects on its assets, businesses, personnel, obligations, rights, or business operations. (ii) Beijing RYB will accept and follow RYB Technology's instructions in relation to Beijing RYB's daily operational and financial management, election of directors, general manager, financial controller, kindergarten principals, and other senior management executives designated by RYB Technology. (iii) the shareholders will transfer any dividends, income, or interests received as the shareholders of Beijing RYB immediately and unconditionally to RYB Technology. Unless RYB Technology terminates this agreement in advance, this agreement will remain effective for ten years. Upon request by RYB Technology, contractual parties to this agreement shall extend the term of this agreement prior to its expiration. Other contractual parties to this agreement cannot terminate this agreement unilaterally. Power of Attorney Pursuant to the power of attorney, each of Beijing RYB's shareholders irrevocably authorized RYB Technology, or any person(s) designated by RYB Technology, as the attorney-in-fact to act on his or her behalf on all matters pertaining to Beijing RYB and to exercise all of his or her rights as a shareholder of Beijing RYB, including but not limited to convene shareholders' meeting, vote and sign any resolution as a shareholder, appoint directors, supervisors and officers, amend article of association, as well as the right to sell, transfer, pledge and dispose of all or a portion of the shares held by such shareholder. In addition, each such shareholders also undertakes that he or she will not engage in any activities in violation of this power of attorney or cause conflict of interest between RYB Technology and Beijing RYB or its subsidiaries and kindergartens. The power of attorney will remain in force and irrevocable as long as the applicable shareholder remains a shareholder of Beijing RYB, unless RYB Technology instructs to the contrary in writing. Equity Pledge Agreement Pursuant to the equity pledge agreement, Beijing RYB's shareholders pledged their respective equity interests in Beijing RYB to RYB Technology to guarantee Beijing RYB's performance, and shareholders' obligations under the contractual arrangements between the Beijing RYB, its shareholders and RYB Technology. If Beijing RYB or its shareholders breach their contractual obligations under these agreements, RYB Technology, as a pledgee, will have the right to dispose of the pledged equity interests in Beijing RYB and priority in receiving the proceeds from such disposal. Beijing RYB's shareholders also agree that, during the term of the equity pledge agreement, they will not dispose of the pledged equity interests or create or allow any encumbrance on the pledged equity interests. Equity Disposal Agreement Pursuant to the equity disposal agreement, Beijing RYB's shareholders irrevocably granted RYB Technology or any third parties designated by RYB Technology an exclusive option to purchase all or part of those shareholders' equity interests in Beijing RYB at any time that RYB Technology deems fit. The purchase price would be the minimum amount of consideration permitted under applicable PRC law at the time when the option is exercised. Those shareholders further undertake that they will not create any pledge or encumbrance on their equity interests in Beijing RYB, and transfer, gift or otherwise dispose of their equity interests in Beijing RYB to any person(s) other than RYB Technology or its designated third parties. This agreement will remain effective for ten years. Upon request by RYB Technology, contractual parties to this agreement shall extend the term of this agreement prior to its expiration. As a result of these contractual arrangements, RYB Technology (1) has the power to direct the activities that most significantly affected the economic performance of Beijing RYB, and (2) received the economic benefits of Beijing RYB. In making the conclusion that the RYB Technology, a wholly owned subsidiary of the Company, is the primary beneficiary of Beijing RYB, the Company believes the Company's rights under the terms of the equity disposal agreement has provided it with a substantive kick out right. More specifically, the Company believes the terms of the equity disposal agreement are valid, binding and enforceable under PRC laws and regulations currently in effect. The Company also believes that the minimum amount of consideration permitted by the applicable PRC law to exercise the option has not represented a financial barrier or disincentive for the Company to currently exercise its rights under the equity disposal agreement. In addition, the articles of association of Beijing RYB provided that the shareholders of Beijing RYB have the power to, in a shareholders' meeting: (i) approve the operating strategy and investment plan; (ii) elect the members of board of directors and approve their compensation; and (iii) review and approve the annual budget and earnings distribution plan. Consequently, the Company's rights under the business operation agreement and powers of attorney have reinforced the Company's abilities to direct the activities most significantly impacting Beijing RYB's economic performance. The Company also believes that this ability to exercise control ensured that Beijing RYB would continue to execute and renew service agreements and pay service fees to the Company. By charging service fees, and by ensuring that service agreements were executed and renewed indefinitely, the Company has the rights to receive substantially all of the economic benefits from Beijing RYB.
| · |  | Risks in relation to VIE structure
The Company believes that the contractual arrangements with VIEs and their shareholders are in compliance with existing PRC laws and regulations and are legally enforceable. However, the contractual arrangements are subject to risks and uncertainties, including:
| · |  | VIEs and their shareholders may have or develop interests that conflict with the Group's interests, which may lead them to pursue opportunities in violation of the aforementioned contractual agreements. If the Group cannot resolve any conflicts of interest or disputes between the Group and the shareholders of VIEs, the Group would have to rely on legal proceedings, which could result in disruption of its business, and there is substantial uncertainty as to the outcome of any such legal proceedings.
| · |  | VIEs and their shareholders could fail to obtain the proper operating licenses or fail to comply with other regulatory requirements. As a result, the PRC government could impose fines, new requirements or other penalties on VIEs or the Group, mandate a change in ownership structure or operations for VIEs or the Group, restrict VIEs or the Group's use of financing sources or otherwise restrict VIEs or the Group's ability to conduct business.
| · |  | The PRC government may declare the aforementioned contractual arrangements invalid. They may modify the relevant regulations, have a different interpretation of such regulations, or otherwise determine that the Group or VIEs have failed to comply with the legal obligations required to effectuate such contractual arrangements.
| · |  | If the legal structure and contractual arrangements were found to be in violation of PRC laws and regulations, the PRC government may restrict or prohibit the Group's business and operations in China.
The Group's ability to conduct its business may be negatively affected if the PRC government were to carry out of any of the aforementioned actions. As a result, the Group may not be able to consolidate VIEs and their subsidiaries and kindergartens in the consolidated financial statements as the Group may lose the ability to exert effective control over VIEs and their shareholders, and the Group may lose the ability to receive economic benefits from VIEs. The Group's business has been directly operated by the VIEs and their subsidiaries and kindergartens. For the years ended December 31, 2017 and 2018, the VIEs and their subsidiaries and kindergartens accounted for an aggregate of 58% and 65%, respectively, of the Group's consolidated total assets, and 95% and 94% respectively of the Group's consolidated total liabilities. The following financial information of the Company's VIEs and VIEs' subsidiaries and kindergartens after the elimination of inter-company transactions and balances as of December 31, 2017 and 2018, and for the three years ended December 31, 2018 was included in the accompanying consolidated financial statements:
|  | As of December 31,
|  | 2017 |  | 2018
Cash and cash equivalents |  | 64,626 |  | 41,133
Prepaid expenses and other current assets |  | 9,392 |  | 11,101
Total current assets |  | 78,594 |  | 58,503
Total assets |  | 133,897 |  | 157,834
Total current liabilities |  | 92,537 |  | 101,966
Total liabilities |  | 118,068 |  | 120,766
|  | For the years ended December 31,
|  | 2016 |  | 2017 |  | 2018
Net revenues |  | 107,747 |  | 140,012 |  | 155,946
Net income |  | 7,378 |  | 17,925 |  | 14,610
Net cash provided by (used in) operating activities |  | 32,181 |  | 25,453 |  | (2,159)
Net cash used in investing activities |  | (12,119) |  | (7,573) |  | (18,866)
Net cash provided by financing activities |  | 1,422 |  | 381 |  | 436
Effects of exchange rate changes |  | (2,572) |  | 3,609 |  | (2,701)
There are no consolidated VIEs’ assets that are collateral for the VIEs’ obligations and which can only be used to settle the VIEs’ obligations. No creditors (or beneficial interest holders) of the VIEs have recourse to the general credit of the Company or any of its consolidated subsidiaries. No terms in any arrangements, considering both explicit arrangements and implicit variable interests, require the Company or its subsidiaries to provide financial support to the VIEs. However, if the VIEs ever need financial support, the Company or its subsidiaries may, at its option and subject to statutory limits and restrictions, provide financial support to the VIEs through loans to the shareholders of the VIEs or entrustment loans to the VIEs.

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