Skillful Craftsman(EDTK) - 2023 Q2 - Quarterly Report

Consolidated Financial Statements Consolidated Balance Sheets The company's total assets and liabilities decreased, leading to a reduction in shareholders' equity due to net loss and currency adjustments Consolidated Balance Sheet Highlights (in US$) | Account | As of September 30, 2022 (Unaudited) | As of March 31, 2022 (Audited) | | :----------------------------------------- | :----------------------------------- | :----------------------------- | | Total Assets | $61,142,847 | $73,092,885 | | Total Current Assets | $25,395,387 | $27,523,924 | | Total Non-current Assets | $35,747,460 | $45,568,961 | | Total Liabilities | $18,480,410 | $22,829,600 | | Total Current Liabilities | $5,177,680 | $8,016,585 | | Total Non-current Liabilities | $13,302,730 | $14,813,015 | | Total Shareholders' Equity | $42,662,437 | $50,263,285 | Consolidated Statements of Operations and Comprehensive Income Revenue significantly declined, resulting in a gross loss and a substantial increase in net loss for the period Statement of Operations Highlights (in US$) | Metric | For the six months ended Sep 30, 2022 (Unaudited) | For the six months ended Sep 30, 2021 (Unaudited) | | :----------------------------------------- | :------------------------------------------------ | :------------------------------------------------ | | Revenue | $7,294,700 | $11,851,792 | | Cost of revenue | ($7,336,425) | ($8,255,007) | | Gross (Loss) / Income | ($41,725) | $3,596,785 | | Total operating expenses | ($2,141,392) | ($3,013,202) | | Net Loss | ($2,984,116) | ($43,364) | | Net earnings per share, basic and diluted | ($0.20) | $0.00 | | Total Comprehensive (Loss) / Income | ($7,600,848) | $486,542 | Consolidated Statements of Changes in Shareholders' Equity Shareholders' equity declined due to net loss and negative foreign currency translation adjustments during the six-month period Reconciliation of Shareholders' Equity (Six Months Ended Sep 30, 2022, in US$) | Description | Amount | | :---------------------------------------- | :------------ | | Balance as of March 31, 2022 | $50,263,285 | | Net loss for the period | ($2,984,116) | | Foreign currency translation adjustment | ($4,616,732) | | Balance as of September 30, 2022 | $42,662,437 | Consolidated Statements of Cash Flows Operating cash flow sharply decreased, and investing activities resulted in an overall decline in cash and cash equivalents Cash Flow Highlights (in US$) | Cash Flow Activity | For the six months ended Sep 30, 2022 | For the six months ended Sep 30, 2021 | | :----------------------------------------------- | :------------------------------------ | :------------------------------------ | | Net cash generated from operating activities | $556,282 | $1,765,733 | | Net cash (used in)/generated from investing activities | ($304,981) | $4,447,027 | | Net cash generated from financing activities | $— | $— | | Net (decrease)/increase in cash | ($1,289,232) | $6,258,999 | | Cash and cash equivalents at end of period | $22,544,893 | $23,712,359 | Notes to the Consolidated Financial Statements Detailed disclosures cover the company's organization, accounting policies, business combinations, and financial account specifics Note 1: Organization and basis of financial statements The company operates its PRC vocational education business through a VIE structure, posing regulatory risks and significantly impacting financials - The company operates its primary business of vocational online education in the PRC through a VIE structure to comply with PRC legal restrictions on foreign ownership in the education and telecommunication sectors[20][24][25] - The VIE structure carries significant risks, as PRC regulatory authorities could find the contractual agreements in violation of laws, potentially leading to severe penalties, including the revocation of business licenses or the inability to continue consolidating the VIE[32] VIE Contribution to Consolidated Financials | Metric | Six Months Ended Sep 30, 2022 | As of Sep 30, 2022 | | :----------------------------------- | :---------------------------- | :----------------- | | Revenue Contribution | 92% | N/A | | Total Asset Contribution | N/A | 87% | | Total Liabilities Contribution | N/A | 95% | Note 2: Summary of Significant Accounting Policies Key accounting policies cover US GAAP, VIE consolidation, revenue recognition, intangible asset amortization, and ASC 842 lease accounting - Revenue from membership services is recognized proportionally over the contract period, as the company has a stand-ready obligation to provide services, with unamortized fees recorded as deferred revenue[62] - Intangible assets, including software, courseware, and copyrights, are amortized on a straight-line basis over an estimated useful life of 5 years[48][49] - The company adopted lease accounting standard ASC 842 using a modified retrospective approach, which had an immaterial impact on its financial position[53] - The Group's functional currency is the Chinese Renminbi (RMB), and the financial statements are presented in U.S. Dollars (USD), with translation adjustments recorded in other comprehensive income[82] Note 3: Business Combination The company acquired Shenzhen Jisen Information Tech Limited for $4.64 million, resulting in $4.58 million in non-tax-deductible goodwill Purchase Price Allocation for Jisen Information Acquisition (in US$) | Item | Amount | | :------------------------------------------------ | :---------- | | Equity instrument (2.9 million common shares) | $4,640,000 | | Cash acquired from business combination | ($50,427) | | Subtotal | $4,589,573 | | Total identifiable net assets | $8,461 | | Goodwill | $4,581,112 | - The goodwill was generated from expected synergies, including lowering platform construction costs and gaining potential customer resources from Jisen Information's existing cooperation with five Chinese colleges and universities[101] Note 4: Cash and cash equivalents Cash and cash equivalents decreased to $22.54 million as of September 30, 2022, primarily consisting of bank balances Cash and Cash Equivalents Breakdown (in US$) | Component | September 30, 2022 | March 31, 2022 | | :-------------- | :----------------- | :------------- | | Bank balances | $22,544,298 | $23,833,460 | | Total | $22,544,893 | $23,834,125 | Note 7: Advance for investment An advance for investment of $1.84 million represents a down payment for the pending acquisition of Wuxi Talent Home - The company made a down payment of $1.84 million (RMB 13,070,000) for the acquisition of Wuxi Talent Home Information Technology Co Ltd, with the transaction incomplete as of September 30, 2022[110] Note 9: Long-term investment Long-term investments, primarily in Hunan Medical Star and Fujian Fishery, decreased to $13.27 million due to losses and currency adjustments Changes in Long-term Investment (in US$) | Description | Total | | :--------------------------------------- | :------------ | | Balance as of March 31, 2022 | $14,956,443 | | Share of Loss of Equity method investees | ($104,354) | | Foreign currency translation adjustments | ($1,578,728) | | Balance as of September 30, 2022 | $13,273,361 | - The company holds a 20% stake in Hunan Medical Star (cost $281,698) and a 3% stake in Fujian Fishery (cost $13,241,558), both providing significant influence through board representation[113][115] Note 10: Goodwill Goodwill decreased to $4.17 million due to negative foreign currency translation adjustments, with no impairment recorded Goodwill Reconciliation (in US$) | Description | Amount | | :--------------------------------------- | :---------- | | Balance as of March 31, 2022 | $4,581,112 | | Foreign currency translation adjustments | ($412,893) | | Balance as of September 30, 2022 | $4,168,219 | Note 11: Property and equipment, net Net property and equipment, primarily server hardware, decreased to $7.61 million, with $2.05 million in depreciation expense Property and Equipment, Net (in US$) | Category | September 30, 2022 | March 31, 2022 | | :------------------------ | :----------------- | :------------- | | Server hardware | $19,406,241 | $21,703,857 | | Less: accum. depreciation | ($12,000,901) | ($11,234,271) | | Net Value | $7,610,476 | $10,699,010 | - Depreciation expense was $2,045,964 for the six months ended September 30, 2022, compared to $2,051,081 for the same period in 2021[120] Note 12: Intangible assets, net Net intangible assets decreased to $10.53 million, with $3.33 million in amortization expense for the period Intangible Assets, Net (in US$) | Category | September 30, 2022 | March 31, 2022 | | :------------------------ | :----------------- | :------------- | | Gross Value | $46,768,619 | $52,302,731 | | Less: accum. amortization | ($36,237,781) | ($36,970,335) | | Net Value | $10,530,838 | $15,332,396 | - Amortization expense was $3,327,665 for the six months ended September 30, 2022, compared to $3,948,391 for the same period in 2021[122] Note 17: Long-term loans The company holds a $13.24 million long-term loan from Fujian Xinqiao Ocean Fishery Group, maturing in January 2027 - The Group has a five-year long-term loan of $13.24 million (RMB 94,012,410) from Fujian Xinqiao Ocean Fishery Group Co Ltd, with a 6% annual interest rate, maturing in January 2027[131] Note 19: Cost of revenue Cost of revenue decreased to $7.34 million, driven by lower amortization of intangible assets and server hardware depreciation Cost of Revenue Breakdown (in US$) | Component | Six Months Ended Sep 30, 2022 | Six Months Ended Sep 30, 2021 | | :--------------------------------------- | :---------------------------- | :---------------------------- | | Amortization expenses | $3,310,928 | $3,948,391 | | Depreciation expenses of server hardware | $2,033,556 | $2,051,081 | | Resource usage fees | $766,135 | $806,014 | | Total | $7,336,425 | $8,255,007 | Note 20: Operating expenses Total operating expenses decreased to $2.14 million, driven by reductions in selling and marketing and G&A costs Operating Expenses Breakdown (in US$) | Category | Six Months Ended Sep 30, 2022 | Six Months Ended Sep 30, 2021 | | :------------------------------------ | :---------------------------- | :---------------------------- | | Selling and marketing expenses | $278,988 | $720,191 | | General and administrative expenses | $1,862,404 | $2,293,011 | | Total Operating Expenses | $2,141,392 | $3,013,202 | Note 21: Taxation The company recorded an income tax benefit of $8,112 for the period, with PRC entities subject to a 25% EIT rate - The company is tax-exempt in the Cayman Islands, while its PRC entities are subject to a 25% statutory EIT rate, with dividends from PRC subsidiaries to non-PRC resident enterprises subject to a 10% withholding tax[139][142] Income Tax (Benefit) / Expense (in US$) | Component | Six Months Ended Sep 30, 2022 | Six Months Ended Sep 30, 2021 | | :-------------------- | :---------------------------- | :---------------------------- | | Current | $378,849 | $550,933 | | Deferred | ($386,961) | $734 | | Income Tax (Benefit) / Expense | ($8,112) | $551,667 | Note 24: Subsequent events No significant subsequent events were identified through January 5, 2023, the date of financial statement issuance - No significant subsequent events were noted through January 5, 2023[154] Note 25: Condensed financial information of the Company The parent company's condensed financials show a net loss of $2.98 million, reflecting its share of subsidiary and VIE losses - The parent company's financial information is presented on a condensed basis, with its investment in subsidiaries and VIEs accounted for under the equity method[162][163] Parent Company Condensed Statement of Income (Unaudited, in US$) | Description | Six Months Ended Sep 30, 2022 | Six Months Ended Sep 30, 2021 | | :---------------------------------------- | :---------------------------- | :---------------------------- | | General and administrative expenses | ($1,245,367) | ($1,587,311) | | Share of (loss)/profit in subsidiaries and VIE | ($1,737,721) | $1,600,703 | | Net (Loss)/Profit | ($2,984,116) | ($43,364) |