Skillful Craftsman(EDTK) - 2022 Q2 - Quarterly Report

markdown Unaudited Consolidated Financial Statements [Consolidated Balance Sheets](index=2&type=section&id=Consolidated%20Balance%20Sheets) Total assets increased to **$61.3 million**, liabilities decreased, and shareholders' equity grew to **$50.7 million** Consolidated Balance Sheet Highlights (in US$) | Account | September 30, 2021 (Unaudited) | March 31, 2021 (Audited) | | :--- | :--- | :--- | | **Total Current Assets** | $26,852,463 | $25,035,069 | | Cash and cash equivalents | $23,712,359 | $17,453,360 | | **Total Non-current Assets** | $34,494,126 | $34,170,824 | | Goodwill | $4,581,112 | $— | | **TOTAL ASSETS** | **$61,346,589** | **$59,205,893** | | **Total Current Liabilities** | $10,654,875 | $13,327,825 | | Deferred revenue-current | $9,270,561 | $11,456,667 | | **TOTAL LIABILITIES** | **$10,654,875** | **$13,640,721** | | **TOTAL SHAREHOLDERS' EQUITY** | **$50,691,714** | **$45,565,172** | [Consolidated Statements of Operations and Comprehensive Income](index=3&type=section&id=Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income) Revenue declined **22.6%** to **$11.9 million**, swinging from **$4.4 million** net income to a **$43,364** net loss Statement of Operations Highlights (in US$) | Metric | Six Months Ended Sep 30, 2021 (Unaudited) | Six Months Ended Sep 30, 2020 (Unaudited) | Change (YoY) | | :--- | :--- | :--- | :--- | | Revenue | $11,851,792 | $15,313,780 | -22.6% | | Gross Income | $3,596,785 | $8,486,901 | -57.6% | | Income from operations | $583,583 | $6,107,315 | -90.4% | | Net (loss)/income | $(43,364) | $4,392,693 | N/A | | Net earnings per share, basic and diluted | $0.00 | $0.44 | N/A | [Consolidated Statements of Changes in Shareholders' Equity](index=4&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Shareholders'%20Equity) Shareholders' equity grew from **$45.6 million** to **$50.7 million**, primarily due to a **$4.64 million** share issuance - Issued **2,900,000** ordinary shares for a business combination, increasing common stock by **$580** and additional paid-in capital by **$4,639,420**[12](index=12&type=chunk) - The period's net loss of **$43,364** reduced accumulated profits[12](index=12&type=chunk) - A foreign currency translation adjustment added **$529,906** to accumulated other comprehensive income[12](index=12&type=chunk) [Consolidated Statements of Cash Flows](index=5&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Net cash and cash equivalents increased by **$6.3 million** to **$23.7 million**, despite lower operating cash flow Consolidated Cash Flow Highlights (in US$) | Cash Flow Activity | Six Months Ended Sep 30, 2021 (Unaudited) | Six Months Ended Sep 30, 2020 (Unaudited) | | :--- | :--- | :--- | | Net cash generated from operating activities | $1,765,733 | $6,584,842 | | Net cash generated from/(used in) investing activities | $4,447,027 | $(14,242,349) | | Net cash generated from financing activities | $— | $13,243,554 | | **Net increase in cash and cash equivalents** | **$6,258,999** | **$5,518,925** | | **Cash and cash equivalents at end of period** | **$23,712,359** | **$17,450,639** | - A significant non-cash transaction involved the issuance of ordinary shares valued at **$4,640,000** for a business combination[16](index=16&type=chunk) [Notes to the Consolidated Financial Statements](index=6&type=section&id=Notes%20to%20the%20Consolidated%20Financial%20Statements) Detailed notes provide context for financial statements, covering accounting policies, business combinations, and key financial items [Note 1: Organization and basis of financial statements](index=6&type=section&id=1.%20Organization%20and%20basis%20of%20financial%20statements) The company operates its PRC vocational online education via a VIE structure, facing regulatory risks from foreign ownership restrictions - The company operates its primary business in the PRC through a VIE, Wuxi Kingway Technology Co., Ltd. ("Wuxi Wangdao"), due to legal restrictions on foreign ownership in the education and telecommunication sectors[18](index=18&type=chunk)[22](index=22&type=chunk)[23](index=23&type=chunk) - On September 1, 2021, the VIE acquired **100%** of Shenzhen Jisen Information Tech Limited ("Jisen Information") through an issuance of **2,900,000** new ordinary shares[19](index=19&type=chunk) VIE Financial Contribution | Metric | As of/For Six Months Ended Sep 30, 2021 | | :--- | :--- | | Contribution to Group Revenue | 100% | | % of Consolidated Total Assets | 86% | | % of Consolidated Total Liabilities | 95% | - The VIE structure is subject to risks from the PRC legal system, where regulatory authorities could find the arrangements in violation of laws, potentially leading to severe penalties and the inability to consolidate the VIE[31](index=31&type=chunk) [Note 2: Summary of Significant Accounting Policies](index=11&type=section&id=2.%20Summary%20of%20Significant%20Accounting%20Policies) Financial statements adhere to US GAAP, consolidating the VIE, recognizing membership revenue proportionally, and noting RMB exchange risks - Revenue from membership services is treated as a single performance obligation and recognized proportionally over the service period, as it is considered a stand-ready obligation[57](index=57&type=chunk) Contract Liabilities (Deferred Revenue) (in US$) | Account | September 30, 2021 | March 31, 2021 | | :--- | :--- | :--- | | Total Deferred Revenue | $9,270,561 | $11,769,563 | | Revenue recognized from deferred revenue balance (for the six months ended) | $11,015,146 | $11,941,674 (for period ended Sep 30, 2020) | - The company has only one reportable segment as the CEO reviews consolidated results to allocate resources and assess performance. All revenue is generated in the PRC[80](index=80&type=chunk) - The company is exposed to exchange rate risks as its PRC operations use RMB, and currency convertibility risks as RMB is not freely convertible[81](index=81&type=chunk) [Note 3: Business Combination](index=23&type=section&id=3.%20Business%20Combination) The VIE acquired Jisen Information for **$4.64 million** in shares, resulting in **$4.58 million** goodwill from synergies and new customer resources - Acquired **100%** of Jisen Information for **2,900,000** newly issued ordinary shares valued at **$1.60** per share, for a total consideration of **$4,640,000**[90](index=90&type=chunk)[93](index=93&type=chunk) Purchase Price Allocation (in US$) | Item | Amount | | :--- | :--- | | Total Consideration Transferred | $4,640,000 | | Fair Value of Net Identifiable Assets Acquired | $8,659 | | **Goodwill** | **$4,581,112** | - Goodwill is attributed to expected synergies, Jisen's complementary cloud education technology, and access to its established cooperation with five Chinese colleges and universities[93](index=93&type=chunk) [Note 4: Cash and cash equivalents](index=25&type=section&id=4.%20Cash%20and%20cash%20equivalents) Cash and cash equivalents increased to **$23.7 million** from **$17.5 million**, primarily composed of bank balances Composition of Cash and Cash Equivalents (in US$) | Component | September 30, 2021 | March 31, 2021 | | :--- | :--- | :--- | | Cash on hand | $433 | $42 | | Bank balances | $23,711,695 | $17,453,318 | | **Total** | **$23,712,359** | **$17,453,360** | [Note 5: Accounts receivable, net](index=26&type=section&id=5.%20Accounts%20receivable,%20net) Net accounts receivable decreased to **$50,246** from **$83,980**, with no allowance for doubtful accounts recorded Accounts Receivable, Net (in US$) | Account | September 30, 2021 | March 31, 2021 | | :--- | :--- | :--- | | Accounts receivable, gross | $50,246 | $83,980 | | Less: allowance for doubtful accounts | $— | $— | | **Accounts receivable, net** | **$50,246** | **$83,980** | [Note 6: Prepayments](index=26&type=section&id=6.%20Prepayments) Total prepayments increased to **$2.9 million** from **$1.8 million**, driven by higher prepaid service fees Composition of Prepayments (in US$) | Component | September 30, 2021 | March 31, 2021 | | :--- | :--- | :--- | | Prepaid service fees | $2,787,311 | $1,708,093 | | Prepaid insurance fee | $116,222 | $68,110 | | **Total** | **$2,903,533** | **$1,784,537** | [Note 7: Other receivables](index=26&type=section&id=7.%20Other%20receivables) Other receivables decreased from **$5.7 million** to **$186,325** due to the divestment of **$5.56 million** in financial assets - The company fully divested its investment in financial assets held for trading, which amounted to **$5,563,191** as of March 31, 2021[101](index=101&type=chunk)[102](index=102&type=chunk) [Note 8: Long-term investment](index=26&type=section&id=8.%20Long-term%20investment) The company invested **$308,385** for a **20%** stake in Hunan Medical Star Technology Co., Ltd., accounted for using the equity method - Invested **$308,385** in cash for a **20%** shareholding interest in the joint venture Hunan Medical Star Technology Co., Ltd. ("Medical Star")[105](index=105&type=chunk) Long-term Investment Activity (in US$) | Description | Amount | | :--- | :--- | | Balance as of March 31, 2021 | $— | | Investment made | $308,385 | | Loss from long-term investment | $(1,897) | | **Balance as of September 30, 2021** | **$306,498** | [Note 9: Property and equipment, net](index=27&type=section&id=9.%20Property%20and%20equipment,%20net) Net property and equipment decreased to **$12.5 million**, with depreciation increasing to **$2.1 million** and additions significantly lower YoY Property and Equipment, Net (in US$) | Component | September 30, 2021 | March 31, 2021 | | :--- | :--- | :--- | | Server hardware | $21,240,348 | $22,242,229 | | Less: accumulated depreciation | $(8,896,823) | $(8,633,295) | | **Property and equipment, net** | **$12,462,098** | **$13,725,957** | - Depreciation expenses were **$2,051,081** for the six months ended Sep 30, 2021, compared to **$1,657,961** for the same period in 2020[108](index=108&type=chunk) - Additions to property and equipment were **$653,189** for the six months ended Sep 30, 2021, a sharp decrease from **$3,988,249** in the prior year period[108](index=108&type=chunk) [Note 10: Intangible assets, net](index=27&type=section&id=10.%20Intangible%20assets,%20net) Net intangible assets decreased to **$17.1 million** due to amortization, with **$7.0 million** projected for fiscal 2022 Intangible Assets, Net (in US$) | Component | September 30, 2021 | March 31, 2021 | | :--- | :--- | :--- | | Gross Intangible Assets | $49,580,955 | $48,552,546 | | Less: accumulated amortization | $(32,436,537) | $(28,136,085) | | **Intangible assets, net** | **$17,144,418** | **$20,416,461** | - Amortization expenses were **$3,948,391** for the six months ended Sep 30, 2021, compared to **$3,157,605** for the same period in 2020[111](index=111&type=chunk) Future Amortization Schedule (in US$) | Year | Amount | | :--- | :--- | | 2022 | $7,006,241 | | 2023 | $4,265,070 | | 2024 | $3,046,814 | | 2025 | $2,150,571 | | Thereafter | $675,722 | | **Total** | **$17,144,418** | [Note 11: Accounts payable](index=28&type=section&id=11.%20Accounts%20payable) Accounts payable remained stable at **$122,119**, primarily owed to a virtual simulation software supplier Accounts Payable Breakdown (in US$) | Component | September 30, 2021 | March 31, 2021 | | :--- | :--- | :--- | | Payable to a supplier of virtual simulation software | $116,877 | $108,381 | | **Total** | **$122,119** | **$113,707** | [Note 12: Accrued expenses](index=28&type=section&id=12.%20Accrued%20expenses) Accrued expenses decreased to **$920,665** from **$1.05 million**, mainly due to the settlement of a **$200,000** financing consultant fee Accrued Expenses Breakdown (in US$) | Component | September 30, 2021 | March 31, 2021 | | :--- | :--- | :--- | | Accrued payroll | $545,781 | $544,183 | | Accrued rental fee | $274,074 | $227,076 | | Financing consultant fee payable | $— | $200,000 | | **Total** | **$920,665** | **$1,051,929** | [Note 13: Revenue](index=28&type=section&id=13.%20Revenue) Total revenue was **$11.85 million**, down from **$15.31 million**, driven by a **28%** drop in Online VIP membership revenue Disaggregated Revenue by Type (in US$) | Revenue Type | Six Months Ended Sep 30, 2021 | Six Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Online VIP membership revenue | $9,390,420 | $13,026,851 | | Online SVIP membership revenue | $2,348,454 | $2,147,052 | | Technology services revenue | $112,918 | $139,877 | | **Total** | **$11,851,792** | **$15,313,780** | [Note 14: Cost of revenue](index=29&type=section&id=14.%20Cost%20of%20revenue) Cost of revenue increased to **$8.26 million** from **$6.83 million**, primarily due to higher amortization and depreciation expenses (**73%** of total) Cost of Revenue Components (in US$) | Component | Six Months Ended Sep 30, 2021 | Six Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Amortization expenses | $3,948,391 | $3,157,605 | | Depreciation expenses of server hardware | $2,051,081 | $1,657,961 | | Resource usage fees | $806,014 | $1,297,077 | | Virtual simulation fee | $604,727 | $— | | **Total** | **$8,255,007** | **$6,826,879** | [Note 15: Operating expenses](index=29&type=section&id=15.%20Operating%20expenses) Total operating expenses rose to **$3.01 million** from **$2.38 million**, driven by increased general and administrative expenses from higher employee and professional fees Operating Expenses Breakdown (in US$) | Expense Category | Six Months Ended Sep 30, 2021 | Six Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | **Selling and marketing expenses** | **$720,191** | **$879,812** | | Promotion expenses | $373,535 | $478,881 | | **General and administrative expenses** | **$2,293,011** | **$1,499,774** | | Employee compensation | $1,399,552 | $1,113,316 | | Audit fee | $352,100 | $12,119 | | **Total Operating Expenses** | **$3,013,202** | **$2,379,586** | [Note 16: Taxation](index=30&type=section&id=16.%20Taxation) The company is subject to a **25%** PRC EIT rate, with income tax expense of **$551,667** on pre-tax income of **$508,303** - The company's PRC subsidiaries are subject to a statutory EIT rate of **25%**[123](index=123&type=chunk) Income Tax Expense (in US$) | Component | Six Months Ended Sep 30, 2021 | Six Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Current | $550,933 | $1,744,005 | | Deferred | $734 | $— | | **Total Income tax expense** | **$551,667** | **$1,744,005** | Taxes Payable (in US$) | Component | September 30, 2021 | March 31, 2021 | | :--- | :--- | :--- | | Income tax payable | $244,373 | $375,467 | | VAT payable | $36,848 | $54,961 | | **Total** | **$292,532** | **$448,485** | [Note 17: Related parties](index=31&type=section&id=17.%20Related%20parties) Amounts due to Chairman and CEO Xiaofeng Gao decreased significantly from **$257,037** to **$5,764** following repayments - The primary related party is Xiaofeng Gao, the Chairman, CEO, and **25.97%** beneficial owner of the Company[129](index=129&type=chunk) Related Party Transactions with Xiaofeng Gao (in US$) | Transaction | Six Months Ended Sep 30, 2021 | Six Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Expense paid by Xiaofeng Gao | $1,297 | $1,256,522 | | Repayment to Xiaofeng Gao | $252,602 | $750,181 | [Note 18: Commitments and Contingencies](index=31&type=section&id=18.%20Commitments%20and%20Contingencies) The company had a **$58,439** capital commitment for hardware and **$20,408** in future minimum operating lease payments - The company has an unpaid hardware purchase commitment of **$58,439** (RMB 379,000) due in February 2022[132](index=132&type=chunk) - Future minimum payments under non-cancelable operating leases total **$20,408**, all due within one year[134](index=134&type=chunk) [Note 19: Subsequent events](index=32&type=section&id=19.%20Subsequent%20events) No significant subsequent events were noted after the financial statements' issuance date - No significant subsequent events were noted[135](index=135&type=chunk) [Note 20: Condensed financial information of the Company (Parent)](index=32&type=section&id=20.%20Condensed%20financial%20information%20of%20the%20Company) The parent company's condensed financial statements show a net loss of **$43,364**, with assets primarily investments in subsidiaries and VIE - The parent company's financial information is presented on a condensed basis, using the equity method to account for its investment in subsidiaries and the VIE[143](index=143&type=chunk)[144](index=144&type=chunk) Parent Company Condensed Balance Sheet (in US$) | Account | September 30, 2021 | March 31, 2021 | | :--- | :--- | :--- | | Investment in subsidiaries and VIE | $42,852,027 | $38,701,420 | | **TOTAL ASSETS** | **$51,977,651** | **$47,278,324** | | **TOTAL LIABILITIES** | **$1,285,937** | **$1,713,152** | | **Total shareholders' equity** | **$50,691,714** | **$45,565,172** | Parent Company Condensed Statement of Income (in US$) | Account | Six Months Ended Sep 30, 2021 | Six Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Share of profit in subsidiaries and VIE | $1,600,703 | $5,400,957 | | General and administrative expenses | $(1,587,311) | $(1,008,264) | | **Net (loss)/profit** | **$(43,364)** | **$4,392,693** |