Skillful Craftsman(EDTK) - 2019 Q4 - Annual Report

Consolidated Financial Statements The company's financial position, operations, cash flows, and equity changes are presented in accordance with U.S. GAAP, along with detailed explanatory notes Report of Independent Registered Public Accounting Firm The independent auditor issued an unqualified opinion on the March 31, 2019 financial statements, confirming fair presentation under U.S. GAAP and PCAOB standards - The auditor issued an unqualified opinion, stating the financial statements present fairly the consolidated financial position of the Company as of March 31, 2019[5] - The audit was conducted in accordance with PCAOB standards. The auditor's responsibility is to express an opinion on the financial statements, which are the responsibility of the Company's management[6][7] - TPS Thayer, LLC has served as the Company's auditor since 2020[8] Consolidated Balance Sheets As of March 31, 2019, total assets were $43.5 million, liabilities $24.5 million, and equity $19.0 million, driven by intangible assets and deferred revenue Consolidated Balance Sheet as of March 31, 2019 (in USD) | Category | Amount ($) | | :--- | :--- | | Total Current Assets | 11,716,226 | | Cash and cash equivalents | 10,362,283 | | Accounts receivable, net | 451,132 | | Total Non-current Assets | 31,821,447 | | Property and equipment, net | 14,022,240 | | Intangible assets, net | 17,799,207 | | TOTAL ASSETS | 43,537,673 | | Total Current Liabilities | 15,845,805 | | Deferred revenue-current | 15,308,898 | | Total Non-current Liabilities | 8,672,836 | | Deferred revenue-noncurrent | 8,672,836 | | TOTAL LIABILITIES | 24,518,641 | | TOTAL SHAREHOLDERS' EQUITY | 19,019,032 | Consolidated Statements of Operations and Comprehensive Income For the fiscal year ended March 31, 2019, the company reported $24.7 million revenue, $15.2 million gross profit, $11.5 million income from operations, and $8.7 million net income Statement of Operations for the year ended March 31, 2019 (in USD) | Item | Amount ($) | | :--- | :--- | | Revenue | 24,668,840 | | Cost of revenue | (9,458,559) | | Gross income | 15,210,281 | | Total operating expenses | (3,731,116) | | Income from operations | 11,479,165 | | Income before income taxes | 11,567,558 | | Income tax expense | (2,892,500) | | Net income | 8,675,058 | | Total comprehensive income | 7,939,866 | | Net earnings per ordinary share, basic and diluted | 0.96 | Consolidated Statements of Changes in Shareholders' Equity Shareholders' equity increased from $11.1 million to $19.0 million as of March 31, 2019, primarily due to $8.7 million net income, offset by foreign currency translation Changes in Shareholders' Equity for the year ended March 31, 2019 (in USD) | Description | Amount ($) | | :--- | :--- | | Balance as of March 31, 2018 | 11,079,166 | | Net income for the year | 8,675,058 | | Foreign currency translation adjustment | (735,192) | | Balance as of March 31, 2019 | 19,019,032 | Consolidated Statements of Cash Flows For the year ended March 31, 2019, the company generated $20.3 million from operations, used $15.7 million in investing, resulting in a $5.5 million cash increase to $10.4 million Statement of Cash Flows for the year ended March 31, 2019 (in USD) | Category | Amount ($) | | :--- | :--- | | Net cash generated from operating activities | 20,292,760 | | Net income | 8,675,058 | | Depreciation & Amortization | 7,246,894 | | Change in Deferred revenue | 13,423,585 | | Net cash used in investing activities | (15,746,284) | | Purchase of property and equipment | (13,963,669) | | Purchase of intangible assets | (1,782,615) | | Net cash flows from financing activities | - | | Net increase in cash and cash equivalents | 5,466,216 | | Cash and cash equivalents at end of period | 10,362,283 | Notes to the Consolidated Financial Statements This section provides detailed disclosures on the company's organization, accounting policies, and specific financial statement items, including VIE structure, revenue, taxes, and subsequent events Note 1: Organization and basis of financial statements Skillful Craftsman operates its vocational online education business in the PRC through a VIE (Wuxi Wangdao) due to foreign investment restrictions, controlling it via contractual agreements - The Company conducts its primary business of vocational online education in the PRC through a VIE structure to comply with PRC legal restrictions on foreign ownership[22][26] - Control over the VIE (Wuxi Wangdao) is maintained through a series of contractual arrangements, including an Exclusive Business Cooperation Agreement, Equity Interest Pledge Agreement, and Authorization Agreement[28][30][31] - The company acknowledges risks related to the VIE structure, as PRC authorities could find the arrangements in violation of laws, potentially leading to severe penalties[37] VIE Financial Data Contribution (FY 2019) | Item | Contribution | Amount ($) | | :--- | :--- | :--- | | Revenue | 100% | 24,668,840 | | Total Assets | 100% | 43,535,830 | | Total Liabilities | 100% | 24,518,641 | | Net cash from operating activities | 100% | 20,292,760 | Note 2: Summary of Significant Accounting Policies Financial statements adhere to U.S. GAAP, with revenue recognized proportionally under ASC 606, intangible assets amortized over 5 years, and all revenue generated in the PRC as a single segment - The company adopted ASC 606 "Revenue from Contracts with Customers" on April 1, 2018. Revenue from online education services is recognized proportionally over the service period[60][62] - Intangible assets, including acquired software, purchased courseware, and copyrights, are amortized on a straight-line basis over an estimated useful life of 5 years[51] - The company operates as a single reportable segment as the CEO reviews consolidated results to allocate resources. All revenue is generated in the PRC[87] - The company adopted new lease accounting standards (ASC 842) but had no right-of-use assets or lease liabilities as of March 31, 2019, as it had no lease agreements with terms over 12 months[97] Note 3: Cash and cash equivalents As of March 31, 2019, the company's cash and cash equivalents totaled $10,362,283, consisting almost entirely of bank balances Cash and Cash Equivalents as of March 31, 2019 (in USD) | Component | Amount ($) | | :--- | :--- | | Cash on hand | 110 | | Bank balances | 10,362,173 | | Total | 10,362,283 | Note 6: Property and equipment, net Net property and equipment was $14.0 million as of March 31, 2019, primarily server hardware and development in progress, with $922,770 in depreciation expense Property and Equipment, Net as of March 31, 2019 (in USD) | Item | Amount ($) | | :--- | :--- | | Server hardware | 8,479,493 | | Vehicles | 114,204 | | Less: accumulated depreciation | (1,997,016) | | Server development in progress | 7,425,559 | | Property and equipment, net | 14,022,240 | - Depreciation expenses for the year ended March 31, 2019, were $922,770[113] Note 7: Intangible assets, net Net intangible assets totaled $17.8 million as of March 31, 2019, with purchased courseware as the largest component, and $6.3 million in amortization expense Intangible Assets, Net as of March 31, 2019 (in USD) | Item | Gross Amount ($) | | :--- | :--- | | Software | 1,567,387 | | Courseware | 27,355,662 | | Copyrights | 3,118,735 | | Total Gross | 32,041,784 | | Less: accumulated amortization | (14,242,577) | | Intangible assets, net | 17,799,207 | - Amortization expenses for the year ended March 31, 2019, were $6,324,124[114] Note 10: Revenue For the year ended March 31, 2019, total revenue was $24.7 million, primarily from online VIP and SVIP membership fees, all generated in the PRC Disaggregation of Revenue for the year ended March 31, 2019 (in USD) | Category | Amount ($) | | :--- | :--- | | Online VIP membership revenue | 19,271,739 | | Online SVIP membership revenue | 5,054,983 | | Technical service revenue | 342,118 | | Total | 24,668,840 | Note 11: Cost of revenue Cost of revenue for fiscal year 2019 was $9.5 million, mainly comprising $6.3 million in intangible asset amortization and $1.6 million in resource usage fees Cost of Revenue for the year ended March 31, 2019 (in USD) | Component | Amount ($) | | :--- | :--- | | Amortization expenses | 6,324,124 | | Resource usage fees | 1,573,653 | | Depreciation expenses of server hardware | 900,608 | | Website maintenance fee | 356,523 | | Other | 303,651 | | Total | 9,458,559 | Note 13: Taxes Payable PRC operations are subject to a 25% EIT rate, resulting in $2.9 million income tax expense for FY2019, with total taxes payable of $375,337 as of March 31, 2019 - The Company's PRC subsidiaries and VIEs are subject to a statutory EIT rate of 25%[127] Income Tax Expense for the year ended March 31, 2019 (in USD) | Item | Amount ($) | | :--- | :--- | | Current | 2,892,500 | | Deferred | - | | Total Income tax expense | 2,892,500 | Taxes Payable as of March 31, 2019 (in USD) | Component | Amount ($) | | :--- | :--- | | Income tax payable | 224,882 | | VAT payable | 134,172 | | Other tax payables | 16,283 | | Total | 375,337 | Note 15: Commitments and Contingencies As of March 31, 2019, the company had a $7.0 million capital commitment for website construction with Jimei University and minimal operating lease commitments of $58,677 - The company has a capital commitment of $6,972,599 for the construction and maintenance of a website with Jimei University[136] - Future minimum payments under non-cancelable operating leases were $58,677, all due within one year[137][138] Note 16: Subsequent events Post-fiscal year, the company completed a $13.4 million IPO, agreed to acquire Jisen Information, incurred a $2.4 million investment loss, and assessed new PRC data regulations - On July 27, 2020, the Company closed its initial public offering (IPO) of 3,000,000 ordinary shares, raising net proceeds of $13,357,409[141] - In May 2021, the Group announced a definitive agreement to acquire 100% of Shenzhen Jishen Information Tech Limited for 2,900,000 newly issued ordinary shares[142] - In August 2020, the Company invested $8,000,000 in financial assets. The fund was redeemed in March 2021, resulting in a loss of $2,436,809[143] - The company evaluated new PRC data regulations and concluded it would not be subject to cybersecurity review as it is not a "critical information infrastructure operator" or a "data processor" affecting national security[146] Note 17: Condensed financial information of the Company This note presents the parent company's condensed financial information, showing $19.0 million in total assets and $8.7 million net income from its investment in subsidiaries and VIE Parent Company Condensed Balance Sheet (as of March 31, 2019) | Item | Amount ($) | | :--- | :--- | | Investment in subsidiaries and VIE | 19,017,189 | | Total assets | 19,019,032 | | Total shareholders' equity | 19,019,032 | Parent Company Condensed Statement of Income (for year ended March 31, 2019) | Item | Amount ($) | | :--- | :--- | | Share of profit in subsidiaries and VIE | 8,675,058 | | Net income | 8,675,058 |