Skillful Craftsman(EDTK) - 2022 Q4 - Annual Report

Introduction and Forward-Looking Statements Introduction This section defines key terms, entities, and the currency conversion rate used for financial reporting - The report refers to Skillful Craftsman Education Technology Limited, its subsidiaries, and VIE as "we," "us," or "our company"[9] - All translations from RMB to USD were made at an exchange rate of RMB6.3393 to $1.00 as of March 31, 2022[10] Forward-Looking Statements This section cautions that the report contains forward-looking statements subject to significant risks and uncertainties - The report contains forward-looking statements based on management's beliefs and projections about future events[11][12] - Readers are warned not to treat forward-looking statements as guarantees, as actual results may differ materially[13] PART I Key Information This section details the company's VIE structure, significant China-related risks, and key financial performance - The company operates through a VIE structure because PRC laws restrict foreign investment in online education services[16] - The VIE contributed 100% of consolidated revenue for fiscal years 2020-2022 and represented 86% of consolidated assets as of March 31, 2022[30] - The company's auditor, TPS Thayer, LLC, is US-based and not currently subject to PCAOB inspection restrictions, but a change could lead to delisting under the Holding Foreign Companies Accountable Act (HFCAA)[20] Selected Financial Data (Fiscal Years Ended March 31) | Metric | 2022 (USD) | 2021 (USD) | 2020 (USD) | | :--- | :--- | :--- | :--- | | Revenue | 23,050,619 | 29,168,546 | 28,601,071 | | Gross Profit | 5,377,420 | 14,456,135 | 16,803,201 | | Net (Loss)/Profit | (1,400,292) | 3,498,005 | 9,975,225 | | Net (Loss)/Earnings Per Share | (0.10) | 0.32 | 1.11 | Cash Flow Summary (Fiscal Years Ended March 31) | Cash Flow | 2022 (USD) | 2021 (USD) | 2020 (USD) | | :--- | :--- | :--- | :--- | | From Operating Activities | 4,828,933 | 10,754,484 | 11,480,117 | | From Investing Activities | (13,595,605) | (20,864,698) | (10,401,263) | | From Financing Activities | 14,809,302 | 13,243,554 | — | Risk Factors Key risks include intense competition, VIE unenforceability, regulatory uncertainty, and potential PFIC classification - The company faces intense competition from other online education platforms, including a free national smart education platform[66] - The VIE structure's contractual arrangements have not been tested in a PRC court and could be deemed non-compliant, rendering shares worthless[17][192] - The company believes it was classified as a passive foreign investment company (PFIC) for FY2022, which may result in adverse U.S. tax consequences[244][599] - As of March 31, 2022, only approximately 2% of the VIE's total registered members were fee-paying, highlighting user conversion risk[54] Information on the Company This section describes the company's history, business operations, organizational structure, and properties - The company operates through its VIE (online vocational training) and subsidiaries (financial education and flexible employment services)[273][274][275] - The company is developing a 'Meta-Factory' platform using Metaverse technology for online simulation training[277][305] - The company's organizational structure centers on VIE agreements that allow it to control and consolidate its PRC operating entity[377][378][380] User Statistics (as of March 31) | Metric | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Total Registered Members | 99.3 million | 83.4 million | 68.5 million | | Fee-Paying Members | 1.2 million | 1.6 million | 3.1 million | Operating and Financial Review and Prospects Management discusses the financial results, attributing the FY2022 revenue decline and net loss to intensified competition - The 21% revenue decrease in FY2022 was primarily due to a 23% drop in online education service revenue from intensified competition[422] - Cost of revenue increased by 20% in FY2022, driven by a $1.3 million maintenance fee and $1.0 million in increased depreciation[423] - As of March 31, 2022, the company had cash of $23.8 million and believes it has sufficient liquidity for the next 12 months[440][446] Fiscal Year 2022 vs. 2021 Performance | Metric | FY 2022 (USD) | FY 2021 (USD) | Change (%) | | :--- | :--- | :--- | :--- | | Revenue | 23,050,619 | 29,168,546 | (21%) | | Cost of Revenue | 17,673,199 | 14,712,411 | 20% | | Gross Profit | 5,377,420 | 14,456,135 | (63%) | | Net (Loss)/Profit | (1,400,292) | 3,498,005 | N/A | Directors, Senior Management and Employees This section provides information on leadership, compensation, board structure, and employee composition - For FY2022, the aggregate cash compensation paid to all directors and senior management was $989,847[486] - As of June 30, 2022, all directors and executive officers as a group beneficially owned approximately 32.0% of outstanding shares[504] - The company has 71 full-time employees, with the largest group (33 employees) in Research and Development[499][500] - The board has an Audit Committee, a Compensation Committee, and a Nominating and Corporate Governance Committee[493][495][496] Major Shareholders and Related Party Transactions This section details the company's major shareholders and transactions with related parties - The company engaged in loan transactions with directors Xiaofeng Gao and Bin Fu for working capital purposes during FY2022[507] - As of March 31, 2022, the company had an aggregate amount of $46,649 due to related parties[509] - The contractual arrangements with the VIE and its shareholders are considered fundamental related party transactions[510] Financial Information This section directs to the full financial statements and outlines the company's dividend policy - The company's audited consolidated financial statements are included at the end of the annual report, beginning on page F-1[511] - The company has never declared or paid dividends and does not intend to do so in the foreseeable future[513] Additional Information This section provides detailed corporate information, including material contracts, exchange controls, and tax analysis - The company's authorized share capital consists of 500,000,000 ordinary shares, with 14,900,000 ordinary shares outstanding[515] - Material contracts include acquisition agreements for Wuxi Talent Home and Jisen Information and key partnership agreements[561][562][565][568] - The company is subject to a 25% Enterprise Income Tax rate in the PRC, with a potential 5% to 10% withholding tax on dividends[579][580][584] - For U.S. tax purposes, the company believes it was a Passive Foreign Investment Company (PFIC) for FY2022[599] Quantitative and Qualitative Disclosures about Market Risk This section discusses the company's exposure to foreign exchange, credit, and inflation risks - The company's primary market risk is foreign exchange risk, as its functional currency (RMB) differs from its reporting currency (USD)[614][615] - Credit risk exists as cash balances are held at financial institutions in the PRC where deposits are not insured[616] Material Modifications to the Rights of Security Holders and Use of Proceeds This section reports on the use of proceeds from the company's Initial Public Offering - From its IPO, the company received net proceeds of approximately $13.36 million[620] - As of March 31, 2022, proceeds have been used for course development, platform improvements, an $8 million fund investment (subsequently divested), and acquisitions[620] Controls and Procedures Management concluded that internal controls over financial reporting were not effective as of March 31, 2022 - Management concluded that the company's disclosure controls and procedures were not effective as of March 31, 2022[621] - A material weakness in internal control was identified, related to applying SEC disclosure requirements and financial reporting documentation[624][626] - The company's remediation plan includes hiring and training accounting personnel on U.S. GAAP and SEC reporting[629] Corporate Governance and Other Disclosures This section covers corporate governance practices, including audit committee details and auditor changes - The company follows its home country practice and is exempt from the Nasdaq rule requiring an annual shareholder meeting[639] - In April 2021, the company appointed TPS Thayer, LLC as its new independent registered public accounting firm[638] Principal Accountant Fees | Fee Type | FY 2022 (USD) | FY 2021 (USD) | | :--- | :--- | :--- | | Audit Fees | 432,100 | 152,925 | Financial Statements Consolidated Financial Statements This section presents the company's audited consolidated financial statements and accompanying notes for the last three fiscal years - The company adopted ASC 606 and recognizes revenue from membership services proportionally over the service period[718][720] - On September 1, 2021, the company acquired 100% of Jisen Information, resulting in the recognition of $4,581,112 in goodwill[756][760] Consolidated Balance Sheet Summary (as of March 31) | Account | 2022 (USD) | 2021 (USD) | | :--- | :--- | :--- | | Total Current Assets | 27,523,924 | 25,035,069 | | Total Assets | 73,092,885 | 59,205,893 | | Total Current Liabilities | 8,016,585 | 13,327,825 | | Total Liabilities | 22,829,600 | 13,640,721 | | Total Shareholders' Equity | 50,263,285 | 45,565,172 | Consolidated Statement of Operations Summary (for the year ended March 31) | Account | 2022 (USD) | 2021 (USD) | 2020 (USD) | | :--- | :--- | :--- | :--- | | Revenue | 23,050,619 | 29,168,546 | 28,601,071 | | Gross Profit | 5,377,420 | 14,456,135 | 16,803,201 | | Income from Operations | (561,391) | 8,994,554 | 13,243,832 | | Net (Loss)/Profit | (1,400,292) | 3,498,005 | 9,975,225 |