Skillful Craftsman(EDTK) - 2024 Q2 - Quarterly Report

Consolidated Financial Statements Consolidated Balance Sheets As of September 30, 2023, the company's total assets were $41.03 million, a decrease from $43.64 million on March 31, 2023, driven by reduced current assets; total liabilities decreased to $15.42 million, and equity fell to $25.61 million due to net loss and currency adjustments Consolidated Balance Sheet Summary (in US$) | Balance Sheet Item | September 30, 2023 (Unaudited) | March 31, 2023 (Audited) | | :--- | :--- | :--- | | Total Current Assets | $21,946,955 | $24,530,478 | | Total Non-current Assets | $19,080,760 | $19,112,160 | | TOTAL ASSETS | $41,027,715 | $43,642,638 | | Total Current Liabilities | $2,324,190 | $3,003,867 | | Total Non-current Liabilities | $13,097,298 | $13,684,529 | | TOTAL LIABILITIES | $15,421,488 | $16,688,396 | | TOTAL SHAREHOLDERS' EQUITY | $25,606,227 | $26,954,242 | Consolidated Statements of Operations and Comprehensive Income For the six months ended September 30, 2023, revenue declined to $1.49 million, resulting in a gross income of $0.55 million and a net loss of $0.37 million, with total comprehensive loss at $1.35 million primarily due to foreign currency adjustments Statement of Operations Highlights (in US$) | Metric | Six Months Ended Sep 30, 2023 | Six Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Revenue | $1,493,709 | $7,294,700 | | Gross income / (loss) | $549,362 | ($41,725) | | Loss from operations | ($804,717) | ($2,183,117) | | Net loss | ($366,973) | ($2,984,116) | | Total comprehensive loss | ($1,348,015) | ($7,600,848) | | Net loss per share | ($0.02) | ($0.20) | Consolidated Statements of Changes in Shareholders' Equity Shareholders' equity decreased from $26.95 million to $25.61 million due to a $0.37 million net loss and a $0.98 million negative foreign currency translation adjustment, alongside new share issuance from a convertible note conversion Changes in Shareholders' Equity (Six Months Ended Sep 30, 2023) | Item | Amount (in US$) | | :--- | :--- | | Balance as of March 31, 2023 | $26,954,242 | | Net loss for the period | ($366,973) | | Foreign currency translation adjustment | ($981,042) | | Balance as of September 30, 2023 | $25,606,227 | - The company issued 549,451 ordinary shares due to a mandatory conversion of a convertible note[10] Consolidated Statements of Cash Flows For the six months ended September 30, 2023, operating activities used $0.61 million cash, reversing prior-year generation, with negligible investing and no financing cash flow, leading to a $1.27 million overall cash decrease and an ending balance of $19.72 million Cash Flow Summary (in US$) | Cash Flow Activity | Six Months Ended Sep 30, 2023 | Six Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Net cash (used in)/generated from operating activities | ($605,398) | $556,282 | | Net cash generated from/(used in) investing activities | $4,785 | ($304,981) | | Net cash generated from financing activities | $0 | $0 | | Net increase in cash | ($1,274,071) | ($1,289,232) | | Cash at end of period | $19,724,715 | $22,544,893 | Notes to the Consolidated Financial Statements Note 1. Organization and basis of financial statements Skillful Craftsman, a Cayman Islands company, operates in PRC vocational online education via a Variable Interest Entity (VIE), Wuxi Wangdao, which is crucial, contributing 100% of revenue and 84% of total assets for the period - The company operates in the PRC's vocational online education sector through a Variable Interest Entity (VIE) structure to comply with local laws restricting foreign investment in education[13][17][19] - The VIE is critical to the Group's operations, contributing 100% of revenue for the six months ended Sep 30, 2023, and representing 84% of total assets and 93% of total liabilities as of that date[28] VIE Financial Highlights (Wuxi Wangdao) | Metric | As of/For Six Months Ended Sep 30, 2023 | As of/For Six Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Total Assets | $34,345,776 | $35,481,771 (as of Mar 31, 2023) | | Total Liabilities | $14,403,576 | $15,409,316 (as of Mar 31, 2023) | | Revenue | $1,493,709 | $6,721,036 | | Net Income / (Loss) | $737,179 | ($1,533,605) | Note 2. Summary of Significant Accounting Policies Financial statements are prepared under U.S. GAAP on a going concern basis, despite an 80% revenue decrease and $605,398 negative operating cash flow, with management asserting $19.6 million working capital sufficiency for 12 months - The company experienced a sharp 80% decrease in revenue ($5.8 million) and net cash used in operating activities of $605,398 for the 6 months ended September 30, 2023[32] - Despite significant revenue decline and operating cash outflow, management believes the company's working capital of $19.6 million is sufficient to meet obligations for the next 12 months, preparing financials on a going concern basis[32] Revenue recognition%20Revenue%20recognition) Revenue from online vocational training and virtual simulation services is recognized proportionally over time, with deferred revenue totaling $0.55 million as of September 30, 2023 - The Group's main revenue sources are online vocational training and virtual simulation experimental training, with fees recognized over the service period[57] Contract Liabilities (Deferred Revenue) in US$ | Deferred Revenue | September 30, 2023 | March 31, 2023 | | :--- | :--- | :--- | | Current | $551,040 | $1,357,236 | | Non-current | $3,283 | $3,430 | | Total | $554,323 | $1,360,666 | - As of September 30, 2023, the company has remaining performance obligations of $551,040, which it expects to recognize as revenue over the next 12 months[61] Concentration of risks%20Concentration%20of%20risks) The company faces significant exchange rate risk from $19.2 million in RMB-denominated cash, currency convertibility risks due to PRC regulations, and credit risk from cash and receivables - The company faces significant foreign currency risk, holding $19.2 million in RMB-denominated cash as of September 30, 2023[82] - Operations are subject to PRC currency convertibility risks, as the RMB is not freely convertible and foreign exchange transactions require regulatory approval[83] Note 3. Business Combination On September 1, 2021, the company acquired Jisen Information for 2.9 million shares, resulting in $4.58 million goodwill, which decreased to $4.12 million by September 30, 2023, due to foreign currency translation - The company acquired Jisen Information on September 1, 2021, for a consideration of 2.9 million ordinary shares[92] Purchase Price Allocation (in USD) | Item | Amount | | :--- | :--- | | Fair value of total consideration transferred | $4,640,000 | | Total identifiable net assets | $8,461 | | Goodwill | $4,581,112 | - The carrying amount of goodwill decreased from $4.31 million at March 31, 2023, to $4.12 million at September 30, 2023, due to foreign currency translation adjustments of ($184,804)[95] Note 7. Advance for investment The company holds a $1.82 million advance for a 35% equity interest in Wuxi Talent Home Information Technology Co. Ltd., with the equity transfer finalized in October 2023 after the reporting date - The company paid $1,820,385 (RMB 13.07 million) for a 35% equity interest in Wuxi Talent. The transfer of this interest was completed in October 2023, subsequent to the reporting period[103] Note 9. Long-term investment Long-term investments totaled $14.61 million, including a fully impaired 20% stake in Medical Star and a 3% stake in Fujian Fishery that generated a $0.94 million gain for the period - The investment in Medical Star was fully impaired during the six months ended September 30, 2023, due to its net loss and poor financing prospects[107][108] - The investment in Fujian Fishery generated a gain of $0.94 million for the six months ended September 30, 2023, as the investee was profitable[107][109] Note 10. Property and equipment, net Net property and equipment was $62,883, with depreciation expense significantly decreasing to $11,827 from $2.05 million in the prior-year period due to a major impairment in fiscal year 2023 Property and Equipment, Net (in US$) | Category | September 30, 2023 | March 31, 2023 | | :--- | :--- | :--- | | Gross Value | $19,285,755 | $20,262,360 | | Less: Accumulated Depreciation | ($13,709,142) | ($14,420,101) | | Less: Impairment | ($5,513,730) | ($5,760,944) | | Net Value | $62,883 | $81,315 | - Depreciation expense dropped significantly to $11,827 for the six months ended Sep 30, 2023, compared to $2.05 million for the same period in 2022[113] Note 11. Intangible assets, net Net intangible assets were $208,976, with amortization expense sharply reduced to $35,032 from $3.33 million in the prior-year period, following an $8.1 million impairment in fiscal year 2023 Intangible Assets, Net (in US$) | Category | September 30, 2023 | March 31, 2023 | | :--- | :--- | :--- | | Gross Value | $46,247,506 | $48,321,062 | | Less: Accumulated Amortization | ($38,317,331) | ($39,999,028) | | Less: Impairment | ($7,721,199) | ($8,067,388) | | Net Value | $208,976 | $254,646 | - Amortization expense fell sharply to $35,032 for the six months ended Sep 30, 2023, from $3.33 million in the prior-year period, following a major impairment[115] Note 15. Long-term loans The company has an outstanding $13.1 million unsecured long-term loan from Fujian Xinqiao Ocean Fishery Group Co., Ltd., bearing a 6% annual interest rate and maturing in January 2027 - The Group has a five-year, unsecured long-term loan of $13.09 million from Fujian Xinqiao Ocean Fishery Group Co., Ltd., with a 6% annual interest rate, due in January 2027[124] Note 16. Revenue Total revenue for the six months ended September 30, 2023, plummeted to $1.49 million from $7.29 million, with broad-based declines across Online VIP membership and Technology services Disaggregated Revenue by Type (in US$) | Revenue Type | Six Months Ended Sep 30, 2023 | Six Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Online VIP membership revenue | $1,135,548 | $5,284,761 | | Online SVIP membership revenue | $342,925 | $1,395,327 | | Technology services revenue | $15,236 | $614,612 | | Total | $1,493,709 | $7,294,700 | Note 17. Cost of revenue Cost of revenue dramatically decreased to $0.94 million from $7.34 million, primarily due to the absence of amortization and depreciation expenses following significant asset impairments Cost of Revenue Breakdown (in US$) | Component | Six Months Ended Sep 30, 2023 | Six Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Amortization expenses | - | $3,310,928 | | Depreciation expenses | - | $2,033,556 | | Resource usage fees | $730,281 | $766,135 | | Website maintenance fee | $121,714 | $766,135 | | Total | $944,347 | $7,336,425 | Note 18. Operating expenses Total operating expenses decreased to $1.35 million from $2.14 million, with selling and marketing expenses more than halved and general and administrative expenses reduced due to lower employee compensation Operating Expenses Breakdown (in US$) | Expense Category | Six Months Ended Sep 30, 2023 | Six Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Selling and marketing expenses | $127,586 | $278,988 | | General and administrative expenses | $1,226,493 | $1,862,404 | | Total Operating Expenses | $1,354,079 | $2,141,392 | Note 19. Taxation The company is tax-exempt in the Cayman Islands, while its PRC entities face a 25% EIT rate, resulting in a $3,988 income tax benefit for the period due to various reconciling factors - The company is not subject to tax in the Cayman Islands. Its PRC subsidiary and VIE are subject to a 25% EIT rate, while its Hong Kong subsidiary is subject to a 16.5% rate (8.25% on the first HKD 2M of profit)[129][130][131] Income Tax Reconciliation (Six Months Ended Sep 30, 2023) | Description | Amount (in US$) | | :--- | :--- | | Loss before income taxes | ($370,961) | | Provision at statutory rate (25%) | ($92,740) | | Effect of tax exempt entity | $164,743 | | Effect of tax loss not recognized | $158,607 | | Effect of investment income not recognized | ($232,990) | | Income tax benefit | ($3,988) | Note 23. Condensed financial information of the Company (Parent Only) The parent company's condensed financial statements, prepared using the equity method, report total assets of $26.3 million and a net loss of $0.37 million for the six-month period - The parent company's condensed financial information is presented using the equity method to account for its investments in subsidiaries and the VIE[153][154] Parent Company Condensed Balance Sheet (in US$) | Item | September 30, 2023 | March 31, 2023 | | :--- | :--- | :--- | | Investment in subsidiaries and VIE | $22,029,451 | $22,721,204 | | Total Assets | $26,321,038 | $27,732,222 | | Total Liabilities | $714,811 | $777,980 | | Total Shareholders' Equity | $25,606,227 | $26,954,242 | Parent Company Condensed Statement of Income (in US$) | Item | Six Months Ended Sep 30, 2023 | Six Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | General and administrative expenses | ($658,803) | ($1,245,367) | | Share of profit in subsidiaries and VIE | $289,289 | ($1,737,721) | | Net (loss)/profit | ($366,973) | ($2,984,116) |