20-F 1 edtk-20230331x20f.htm 20-F
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 20-F

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended March 31, 2023

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to _____________.

OR

SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report:

Commission file number: 001-39360

Skillful Craftsman Education Technology Limited

(Exact name of Registrant as Specified in its Charter)

Cayman Islands

(Jurisdiction of Incorporation or Organization)

Floor 4, Building 1, No. 311, Yanxin Road

Huishan District, Wuxi

Jiangsu Province, PRC 214000

(Address of Principal Executive Offices)

Xiaofeng Gao

Tel: (86) 0510-81805788

Floor 4, Building 1, No. 311, Yanxin Road

Huishan District, Wuxi

Jiangsu Province, PRC 214000

(Name, Telephone, E-mail and/or Facsimile Number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Title of Each Class

    

Trading symbol

    

Name of Each Exchange
On Which Registered

Ordinary shares, par value
$0.0002 per share

 

EDTK

 

NASDAQ Capital Market

Securities registered or to be registered pursuant to Section 12(g) of the Act:

None

(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None

(Title of Class)

The number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report As of March 31, 2023, there were 15,691,667 ordinary shares outstanding, par value $0.0002 per share.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes    No 

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

Yes    No 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes    No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes    No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer

Accelerated filer

Non-accelerated filer

Emerging growth company

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. Yes  No 

† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.  Yes  No

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrants executive officers during the relevant recovery period pursuant to §240.10D-1(b).

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP 

International Financial Reporting Standards as
issued by the International Accounting Standards Board

Other

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow:

Item 17   Item 18 

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes    No 

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

Yes    No 

SKILLFUL CRAFTSMAN EDUCATION TECHNOLOGY LIMITED

FORM 20-F ANNUAL REPORT

TABLE OF CONTENTS

Page

INTRODUCTION

1

FORWARD-LOOKING STATEMENTS

2

PART I

3

Item 1.

Identity of Directors, Senior Management and Advisers

3

Item 2.

Offer Statistics and Expected Timetable

3

Item 3.

Key Information

3

Item 4.

Information on the Company

54

Item 4A.

Unresolved Staff Comments

78

Item 5.

Operating and Financial Review and Prospects

78

Item 6.

Directors, Senior Management and Employees

94

Item 7.

Major Shareholders and Related Party Transactions

101

Item 8.

Financial Information

102

Item 9.

The Offer and Listing

102

Item 10.

Additional Information

103

Item 11.

Quantitative and Qualitative Disclosures about Market Risk

122

Item 12.

Description of Securities other than Equity Securities

124

PART II

125

Item 13.

Defaults, Dividend Arrearages and Delinquencies

125

Item 14.

Material Modifications to the Rights of Security Holders and Use of Proceeds

125

Item 15.

Controls and Procedures

125

Item 16A.

Audit Committee Financial Expert

127

Item 16B.

Code of Ethics

127

Item 16C.

Principal Accountant Fees and Services

127

Item 16D.

Exemptions from the Listing Standards for Audit Committees

127

Item 16E.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

128

Item 16F.

Change in Registrant’s Certifying Accountant

128

Item 16G.

Corporate Governance

128

Item 16H.

Mine Safety Disclosure

128

Item 16I.

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

128

PART III

129

Item 17.

Financial Statements

129

Item 18.

Financial Statements

129

Item 19.

Exhibits

129

i

INTRODUCTION

In this annual report on Form 20-F, unless otherwise indicated or the context otherwise requires:

“we,” “us,” “our,” the “Company,” “our company” or similar terms refers to Skillful Craftsman Education Technology Limited, a Cayman Islands exempted company, and its wholly owned Hong Kong subsidiary Easy Skills Technology Limited, 75% owned Singaporean subsidiary Le First Skillland Pte. Ltd., wholly owned PRC subsidiary Skillful Craftsman Network Technology (Wuxi) Limited and its subsidiaries, and when describing our consolidated financial information and corporate structure, also includes the VIE;
“Skillful Craftsman” refers to Skillful Craftsman Education Technology Limited, a Cayman Islands exempted company;
“Hong Kong subsidiary” refers to Easy Skills Technology Limited, a wholly owned subsidiary of Skillful Craftsman in Hong Kong;
“Craftsman Wuxi” or “WFOE” refers to Skillful Craftsman Network Technology (Wuxi) Limited, a wholly owned subsidiary of Skillful Craftsman in China through Hong Kong subsidiary;
“Jisen Information” refers to Shenzhen Qianhai Jisen Information Technology Ltd., a wholly owned subsidiary of Craftsman Wuxi in China;
“Kingway Cloud” refers to Wuxi Kingway Cloud Technology Co., Ltd., a wholly owned subsidiary of Wuxi Wangdao in China;
“Wuxi Talent Home” refers to Wuxi Talent Home Information Technology Co., Ltd., a minority owned subsidiary of Craftsman Wuxi in China;
“PRC subsidiaries” refers to Craftsman Wuxi, Jisen Information and Wuxi Talent Home;
“Singaporean subsidiary” refers to Le First Skillland Pte. Ltd., a 75% owned subsidiary of Skillful Craftsman;
“VIE” or “Wuxi Wangdao” refers to Wuxi Kingway Technology Co., Ltd., the variable interest entity in China;
“China” or the “PRC” refers to the People’s Republic of China;
“Renminbi” or “RMB” refers to the legal currency of the People’s Republic of China;
“U.S. dollars,” “dollars” or “$” refers to the legal currency of the United States;
“fiscal year 2021” refers to the fiscal year ended March 31, 2021; and
“fiscal year 2022” refers to the fiscal year ended March 31, 2022; and
“fiscal year 2023” refers to the fiscal year ended March 31, 2023.

This annual report contains translations of Renminbi amounts into U.S. dollars at specified rates solely for the convenience of the reader. We make no representation that the Renminbi or U.S. dollar amounts referred to in this report could have been or could be converted into U.S. dollars or Renminbi, as the case may be, at any particular rate or at all. Unless otherwise noted, all translations from Renminbi amounts into U.S. dollars and from U.S. dollars to Renminbi amounts in this annual report were made at the exchange rate on March 31, 2023 set forth in the H.10 statistical release of the Board of Governors of the Federal Reserve System, that is RMB6.8717 to $1.00.

1

FORWARD-LOOKING STATEMENTS

This report contains “forward-looking statements” for purposes of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 that represent our beliefs, projections and predictions about future events. All statements other than statements of historical fact are “forward-looking statements,” including any projections of earnings, revenue or other financial items, any statements of the plans, strategies and objectives of management for future operations, any statements concerning proposed new projects or other developments, any statements regarding future economic conditions or performance, any statements of management’s beliefs, goals, strategies, intentions and objectives, and any statements of assumptions underlying any of the foregoing. Words such as “may,” “will,” “should,” “could,” “would,” “predicts,” “potential,” “continue,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates” and similar expressions, as well as statements in the future tense, identify forward-looking statements.

These statements are necessarily subjective and involve known and unknown risks, uncertainties and other important factors that could cause our actual results, performance or achievements, or industry results, to differ materially from any future results, performance or achievements described in or implied by such statements. Actual results may differ materially from expected results described in our forward-looking statements, including with respect to correct measurement and identification of factors affecting the business or the extent of their likely impact, and the accuracy and completeness of the publicly available information with respect to the factors upon which our business strategy is based or the success of the business.

Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of whether, or the times by which, our performance or results may be achieved. Forward-looking statements are based on information available at the time those statements are made and management’s belief as of that time with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Important factors that could cause such differences include, but are not limited to, those factors discussed under the headings “Risk Factors,” “Operating and Financial Review and Prospects,” and elsewhere in this report.

2

PART I

Item 1.

Identity of Directors, Senior Management and Advisers

Not applicable.

Item 2.

Offer Statistics and Expected Timetable

Not applicable.

Item 3.

Key Information

Investing in our securities involves a high degree of risk. Please carefully consider the risks discussed under the section entitled “Item 3. Key Information—D. Risk Factors” in this annual report. We provide the following disclosure to help investors better understand our corporate structure, operations in China and the associated risks.

Our Corporate Structure and Contractual Arrangements with the VIE and Its Shareholders

Skillful Craftsman Education Technology Limited, or Skillful Craftsman, is not a Chinese operating company but a Cayman Islands exempted company with operations primarily conducted by its subsidiaries and variable interest entity, or the VIE, which involves unique risks to investors. Neither Skillful Craftsman nor its subsidiaries own any equity interest or direct foreign investment in the VIE, Wuxi Kingway Technology Co., Ltd. The VIE structure is used to provide investors with exposure to foreign investment in China-based companies where PRC law prohibits direct foreign investment in the operating companies in China. PRC laws and regulations restrict and impose conditions on foreign investment in internet-based businesses, including online education services. Accordingly, these businesses are operated by the VIE in China. Skillful Craftsman does not own these operations but relies on contractual arrangements among the WFOE, the VIE and the VIE’s nominee shareholders, which allow Skillful Craftsman to (i) direct the activities of the VIE that most significantly impact the VIE’s economic performance, (ii) receive substantially all of the economic benefits and absorb substantially all of the losses of the VIE, and (iii) have an exclusive option to purchase all or part of the equity interests in the VIE when and to the extent permitted by PRC law. Because of these contractual arrangements, Skillful Craftsman is considered the primary beneficiary of the VIE for accounting purposes and is able to consolidate the financial results of the VIE in the consolidated financial statements in accordance with U.S. GAAP. Investors in our ordinary shares are purchasing equity interest in Skillful Craftsman, a Cayman Islands exempted company, and may never hold equity interests in the Chinese operating VIE.

Our corporate structure is subject to risks associated with our contractual arrangements with the VIE. These contractual arrangements have not been tested in a court of law in the PRC. If the PRC government finds that these contractual arrangements do not comply with PRC laws and regulations, or if these regulations or the interpretation of existing regulations change or are interpreted differently in the future, we and the VIE could be subject to severe penalties or be forced to relinquish our interests in the operations of the VIE. This would result in the VIE being deconsolidated. The majority of the assets, including the necessary licenses to conduct business in China, are held by the VIE. A significant part of the revenue is generated by the VIE. An event that results in the deconsolidation of the VIEs would have a material negative effect on the business operations and result in the value of the securities diminish substantially or even become worthless. There is substantial uncertainty about potential future actions by the PRC government that could affect the enforceability of the contractual arrangements with the VIE and, consequently, significantly affect the financial performance of the VIE and our company as a whole. For a detailed description of the risks associated with our corporate structure, please refer to risks disclosed under “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure” in this annual report.

3

Doing Business in China

We and the VIE face various legal and operational risks and uncertainties related to doing business in China. A significant part of the business operations in China are conducted through the VIE, and we and the VIE are subject to complex and evolving PRC laws and regulations. Recently, the PRC government initiated a series of regulatory actions and statements to regulate business operations in China with little advance notice, including cracking down on illegal activities in the securities market, enhancing supervision over China-based companies listed overseas, adopting new measures to extend the scope of cybersecurity reviews, and expanding the efforts in anti-monopoly enforcement. We and the VIE face risks relating to regulatory approvals on overseas listings, anti-monopoly regulatory actions and oversight on cybersecurity and data privacy, among others. On February 17, 2023, China Securities Regulatory Commission (“CSRC”) released several regulations regarding the filing requirements for overseas offerings and listings by domestic companies, including the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Enterprises and five supporting guidelines (collectively, the “New Overseas Listing Rules”), which took effect on March 31, 2023. According to the New Overseas Listing Rules, domestic enterprises that have completed overseas listings before the effective date of the new rules are not required to file with CSRC immediately, but shall carry our filing procedures as required if they conduct overseas’ offerings or fall within other circumstances that requires filing with the CSRC. Recent statements made and regulatory actions undertaken by China’s government, including the New Overseas Listing Rules, the recent enactment of China’s new Data Security Law, and recent promulgation of Cybersecurity Review Measures, as well as the obligations to comply with Personal Information Protection Law and any other future laws and regulations may require us to incur significant expenses and could materially affect the ability to conduct the business, accept foreign investments or list on a U.S. or foreign exchange. These risks could result in a material adverse change in the business operations and the value of the securities we are registering for sale, significantly limit or completely hinder our ability to offer or continue to offer securities to investors, or cause such securities to significantly decline in value or become worthless. For a detailed description of risks related to doing business in China, see “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China” in this annual report.

The Holding Foreign Companies Accountable Act

Our securities will be prohibited from trading if our auditor cannot be fully inspected by the PCAOB for three consecutive years pursuant to the Holding Foreign Companies Accountable Act, which was enacted on December 18, 2020. On December 29, 2022, a legislation entitled “Consolidated Appropriations Act, 2023” (the “Consolidated Appropriations Act”) was signed into law by President Biden, which has shortened the Holding Foreign Companies Accountable Act’s timeline for a potential trading prohibition from three years to two years, thus reducing the time period before our securities may be prohibited from trading or delisted if our auditor is unable to meet the PCAOB inspection requirement. Our independent registered public accounting firm, TPS Thayer, LLC, is based in the United States and it is not subject to such determinations announced by the PCAOB on December 16, 2021 which determinations were vacated on December 15, 2022. However, if it is determined in the future that the PCAOB is unable to inspect or investigate our auditor completely, or if our future audit reports are prepared by auditors that are not completely inspected by the PCAOB, our ordinary shares may be delisted or trading in our ordinary shares may be prohibited under the Holding Foreign Companies Accountable Act. For more information on these risks, see “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—We could be delisted if it is determined that the Public Company Accounting Oversight Board is unable to inspect or investigate our auditor completely.”

Transfer of Cash to and from the VIE

Skillful Craftsman Education Technology Limited, or Skillful Craftsman, is a Cayman Islands exempted company with operations primarily conducted by its subsidiaries and the VIE. To date, the VIE’s operations have been primarily financed through net cash flow from operations and the net proceeds of our initial public offering. Most of the cash balances are located in the PRC and the rest are located in the U.S. under Skillful Craftsman, our Cayman Islands exempted company. Our access to cash balances or future earnings of the VIE is only through our contractual arrangements with the VIE and its shareholders. Cash is transferred through our organization in the manner as follows: (i) we may transfer funds to Craftsman Wuxi, the WFOE, through our Hong Kong subsidiary, by additional capital contributions or shareholder loans, as the case may be; (ii) the WFOE may provide loans to the VIE, subject to statutory limits and restrictions; (iii) funds from the VIE to the WFOE are remitted as services fees; (iv) the WFOE may make dividends or other distributions to Skillful Craftsman through our Hong Kong subsidiary; and (v) intercompany borrowings between VIE and holding company. As of the date of this annual report, there was no service fee owed by the VIE to the WFOE under the exclusive business cooperation agreement as part of the VIE Agreements.

4

The cash flows that have occurred between the WFOE and the VIE, between our Cayman Islands exempted company and the VIE, between our Cayman Islands exempted company and our Hong Kong subsidiary, and between our Hong Kong subsidiary and the WFOE are summarized as follows:

For the Year   Ended March 31,

    

2021

    

2022

    

2023

US$

Cash paid by VIE to WFOE

 

6,107

 

2,341

 

Cash paid by WFOE to VIE

 

 

503,252

 

509,335

Cash paid by VIE to Cayman Islands exempted company

 

818,761

 

 

Cash paid by Cayman Islands exempted company to VIE

 

 

464,240

 

Cash paid by Cayman Islands exempted company to Hong Kong subsidiary

 

 

2,520,000

 

645,000

Cash paid by Hong Kong subsidiary to VIE

 

 

2,510,000

 

Cash paid by Hong Kong subsidiary to WOFE

 

 

 

640,000

By the end of March 31, 2023, the WFOE has cumulatively transferred RMB4.0 million (approximately $582,098) to the VIE as repayment of the VIE’s loan to the WFOE in relation to the consideration for the WFOE’s acquisition of Wuxi Talent Home.

The above cash flows include all distributions and transfers between our Cayman Islands exempted company, our Hong Kong subsidiary, our Singaporean subsidiary, the WFOE and the VIE as of the date of this annual report.

We have adopted stringent cash management policies dictating how funds are transferred throughout our organization. As required by our cash management policies, a substantial amount of cash generated from the VIE’s operations must be deposited with designated reputable banks. Each cash transfer within our organization is in the forms of capital contributions, dividends or distributions, subject to approvals by the board of directors or shareholders of Skillful Craftsman, or is based on a contract or agreement. Any intra-organization investment agreement and the any contract with a contract value of over RMB 5 million must be approved by the board of directors of Skillful Craftsman, and cash transfers under such agreements and contracts must follow the established procedures adopted to ensure effective internal control over cash. To meet the liquidity needs of our Cayman Islands exempted company, our subsidiaries and the VIE in their daily operations, there is no limit on the amount of cash that can be transferred through our organization. The cash should be primarily used to finance the daily operation of the VIE and to support future business expansion. Any changes in our current cash management policies are subject to the approval of our board of directors.

Restrictions and Limitations on Transfer of Cash

To the extent cash or assets in the business is in the PRC or Hong Kong or in a PRC or Hong Kong entity, and may need to be used to fund operations outside of the PRC or Hong Kong, the funds and assets may not be available to fund operations or for other uses outside of the PRC or Hong Kong due to interventions in or the imposition of restrictions and limitations by the government on our, our subsidiaries’ or the VIE’s ability to transfer cash and assets.

Under our current corporate structure, we rely on dividend payments from Craftsman Wuxi to fund any cash and financing requirements we may have. Current PRC regulations permit the WFOE to pay dividends to us only out of its accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, a PRC company is required to set aside at least 10% of its accumulated profits each year, if any, to fund certain reserve funds until the total amount set aside reaches 50% of its registered capital. The WFOE may also allocate a portion of its after-tax profits based on PRC accounting standards to employee welfare and bonus funds at their discretion. These reserves are not distributable as cash dividends. Furthermore, if the WFOE incurs debt on its own behalf in the future, the instruments governing the debt may restrict its ability to pay dividends or make other payments to us. In addition, the PRC tax authorities may require us to adjust our taxable income under the contractual arrangements we currently have in place in a manner that would materially and adversely affect the WFOE’s ability to pay dividends and other distributions to us. Any limitation on the ability of our subsidiary to distribute dividends to us or on the ability of the VIE to make payments to us may restrict our ability to satisfy our liquidity requirements.

5

Additionally, the VIE receives substantially all of the revenue in RMB and the PRC government imposes controls on the convertibility of the RMB into foreign currencies and, in certain cases, the remittance of currency out of China. Under existing PRC foreign exchange regulations, payments of current account items, such as profit distributions and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior approval from the State Administration of Foreign Exchange of the PRC, or the SAFE, by complying with certain procedural requirements. Dividends payments to us by the WFOE in foreign currencies are subject to the condition that the remittance of such dividends outside of the PRC complies with certain procedures under PRC foreign exchange regulations, such as the overseas investment registrations by our shareholders or the ultimate shareholders of our corporate shareholders who are PRC residents. Approvals by or registration with appropriate government authorities is required where RMB is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign currencies. The PRC government may also at its discretion restrict access in the future to foreign currencies for current account transactions. If the foreign exchange control system prevents us from obtaining sufficient foreign currencies to satisfy our foreign currency demands, the WFOE may not be able to pay dividends in foreign currencies to us and our access to cash generated from its operations will be restricted.

Taxation on Dividends or Distributions

We have never declared or paid any dividend on our ordinary shares and we do not anticipate paying any dividends on our ordinary shares in the future. We currently intend to retain all future earnings to finance the VIE’s operations and to expand its business.

For purposes of illustration, the following discussion reflects the hypothetical taxes that might be required to be paid in Mainland China and Hong Kong, assuming that: (i) we have taxable earnings, and (ii) we determine to pay a dividend in the future:

Hypothetical pre-tax earnings(1)

    

100.00

Tax on earnings at statutory rate of 25% at the WFOE level

 

(25.00)

Amount to be distributed as dividend from the WFOE to Hong   Kong subsidiary(2)

 

75.00

Withholding tax at tax treaty rate of 5%

  

(3.75)

Amount to be distributed as dividend at Hong Kong subsidiary level and net distribution to Skillful Craftsman

 

71.25

Notes:

(1)For purposes of this example, the tax calculation has been simplified. The hypothetical book pre-tax earnings amount is assumed to equal Chinese taxable income.
(2)China’s Enterprise Income Tax Law imposes a withholding income tax of 10% on dividends distributed by a Foreign Invested Enterprise to its immediate holding company outside Mainland China. A lower withholding income tax rate of 5% is applied if the Foreign Invested Enterprise’s immediate holding company is registered in Hong Kong or other jurisdictions that have a tax treaty arrangement with Mainland China, subject to a qualification review at the time of the distribution. There is no incremental tax at Hong Kong subsidiary level for any dividend distribution to Skillful Craftsman.

3.A.    [Reserved]

Financial Information Related to the VIE and Parent

The VIE contributed to 100%, 100% and 94% of the consolidated revenue for the fiscal years ended March 31, 2021 and 2022 and 2023, respectively. The VIE contributed to 87% of the consolidated assets and 93% of the consolidated liabilities as of March 31, 2021. The VIE contributed to 86% of the consolidated assets and 90% of the consolidated liabilities as of March 31, 2022. The VIE contributed to 86% of the consolidated assets and 88% of the consolidated liabilities as of March 31, 2023. We demonstrate the reconciliation of the financial position results of operations and cash flows as follows:

6

Selected Condensed Consolidated Statement of Operations and Comprehensive Income

For the Year Ended March 31, 2023

Skillful

Hong Kong

Eliminating

    

Craftsman

    

VIE

    

Subsidiary

    

WFOE

    

Entries

    

Total

 

US$

Revenue

 

 

10,250,708

 

 

1,073,036

 

 

11,323,744

Cost of revenue

 

 

(27,111,057)

 

 

(189,833)

 

 

(27,300,890)

Gross income

 

 

(16,860,349)

 

 

883,203

 

 

(15,977,146)

Operating expenses:

Selling and marketing expenses

 

 

(464,209)

 

 

 

 

(464,209)

General and administrative expenses

 

(2,226,956)

 

(827,343)

 

(480)

 

(604,754)

 

 

(3,659,533)

Total operating expenses

 

(2,226,956)

 

(1,291,552)

 

(480)

 

(604,754)

 

 

(4,123,742)

Loss from operations

 

(2,226,956)

 

(18,151,901)

 

(480)

 

278,449

 

 

(20,100,888)

Interest income

 

942

 

68,473

 

28

 

1,466

 

 

70,909

Interest expense

 

 

(819,219)

 

 

 

 

(819,219)

Investment income/(loss), net

 

 

739,327

 

 

(14,899)

 

 

724,428

Government grant

 

 

 

 

272

 

 

272

Impairment loss

(306,595)

(306,595)

Foreign currency exchange loss

 

 

 

 

(198,808)

 

 

(198,808)

Share of profit in subsidiaries and VIE

 

(18,678,368)

 

 

 

 

18,678,368

 

Other income (expenses), net

 

(2,603)

 

148,138

 

(174)

 

467

 

 

145,828

Loss before income taxes

 

(20,906,985)

 

(18,015,182)

 

(626)

 

(239,648)

 

18,678,368

 

(20,484,073)

Income tax expense

 

 

(295,780)

 

 

(127,132)

 

 

(422,912)

Net income

 

(20,906,985)

 

(18,310,962)

 

(626)

 

(366,780)

 

18,678,368

 

(20,906,985)

Other comprehensive income/(loss):

 

  

 

  

 

  

 

 

  

 

  

Foreign currency translation adjustment

 

(3,402,058)

 

(3,206,676)

 

 

(187,516)

 

3,394,192

 

(3,402,058)

Total comprehensive income

 

(24,309,043)

 

(21,517,638)

 

(626)

 

(554,296)

 

22,072,560

 

(24,309,043)

    

For the Year Ended March 31, 2022

Skillful

Hong Kong

Eliminating

Craftsman

   

VIE

   

Subsidiary

    

WFOE

  

Entries

   

Total

US$

Revenue

 

 

23,050,619

 

 

 

 

23,050,619

Cost of revenue

 

 

(17,648,467)

 

(24,732)

 

 

 

(17,673,199)

Gross income

 

 

5,402,152

 

(24,732)

 

 

 

5,377,420

Operating expenses:

 

  

 

  

 

  

 

  

 

  

 

  

Selling and marketing expenses

 

 

(1,794,510)

 

  

 

  

 

  

 

(1,794,510)

General and administrative expenses

 

(2,790,459)

 

(1,153,383)

 

(524)

 

(199,935)

 

 

(4,144,301)

Total operating expenses

 

(2,790,459)

 

(2,947,893)

 

(524)

 

(199,935)

 

 

(5,938,811)

Income from operations

 

(2,790,459)

 

2,454,259

 

(524)

 

(224,667)

 

 

(561,391)

Interest income

 

2,410

 

63,463

 

6

 

372

 

 

66,251

Interest expense

 

 

(217,041)

 

 

 

 

(217,041)

Investment loss, net

 

 

(134,134)

 

 

(32,200)

 

 

(166,334)

Government grant

 

 

1,157

 

 

 

 

1,157

Foreign currency exchange loss

 

(79,336)

 

 

 

(16,795)

 

 

(96,131)

Share of profit in subsidiaries and VIE

 

1,476,806

 

 

 

 

(1,476,806)

 

Other income (expenses), net

 

(9,713)

 

191,752

 

(133)

 

(89)

 

 

181,817

Income before income taxes

 

(1,400,292)

 

2,359,456

 

(651)

 

(273,379)

 

(1,476,806)

 

(791,672)

Income tax expense

 

 

(608,620)

 

 

 

 

(608,620)

Net income

 

(1,400,292)

 

1,750,836

 

(651)

 

(273,379)

 

 

(1,400,292)

Other comprehensive income/(loss):

 

  

 

  

 

  

 

  

 

  

 

  

Foreign currency translation adjustment

 

1,458,405

 

1,376,594

 

(31)

 

22,067

 

(1,398,630)

 

1,458,405

Total comprehensive income

 

58,113

 

3,127,430

 

(682)

 

(251,312)

 

(2,875,436)

 

58,113

7

    

For the Year Ended March 31, 2021

Skillful

Hong Kong

Eliminating

Craftsman

    

VIE

   

Subsidiary

   

WFOE

   

Entries

   

Total

US$

Revenue

 

 

29,168,546

 

 

 

 

29,168,546

Cost of revenue

 

 

(14,712,411)

 

 

 

 

(14,712,411)

Gross income

 

 

14,456,135

 

 

 

 

14,456,135

Operating expenses:

 

  

 

  

 

  

 

  

 

  

 

  

Selling and marketing expenses

 

 

(1,807,132)

 

 

 

 

(1,807,132)

General and administrative expenses

 

(2,493,845)

 

(1,153,173)

 

3,809

 

(6,811)

 

(4,429)

 

(3,654,449)

Total operating expenses

 

(2,493,845)

 

(2,960,305)

 

3,809

 

(6,811)

 

(4,429)

 

(5,461,581)

Income from operations

 

(2,493,845)

 

11,495,830

 

3,809

 

(6,811)

 

(4,429)

 

8,994,554

Interest income

 

 

57,165

 

 

 

1,781

 

58,946

Investment loss

 

(2,436,809)

 

 

 

 

 

(2,436,809)

Government grant

 

 

369,170

 

 

 

 

369,170

Share of profit in subsidiaries and VIE

 

8,428,844

 

 

 

 

(8,428,844)

 

Others, net

 

(185)

 

(6,655)

 

 

68

 

(1,781)

 

(8,553)

Income before income taxes

 

3,498,005

 

11,915,510

 

3,809

 

(6,743)

 

(8,433,273)

 

6,977,308

Income tax expense

 

 

(3,479,303)

 

 

 

 

(3,479,303)

Net income

 

3,498,005

 

8,436,207

 

3,809

 

(6,743)

 

(8,433,273)

 

3,498,005

Other comprehensive income/(loss):

 

  

 

  

 

  

 

  

 

  

 

  

Foreign currency translation adjustment

 

2,388,306

 

2,388,306

 

(455)

 

 

(2,387,851)

 

2,388,306

Total comprehensive income

 

5,886,311

 

10,824,513

 

(3,354)

 

(6,734)

 

(10,821,124)

 

5,886,311

8

Selected Condensed Consolidated Balance Sheets

    

As of March 31, 2023

Skillful

    

Hong Kong

    

Eliminating

    

    

    

Craftsman

VIE

Subsidiary

WFOE

Entries

Total

US$

ASSETS

 

  

 

  

 

  

 

  

 

  

 

  

Current assets

 

  

 

  

 

  

 

  

 

  

 

  

Cash and cash equivalents

 

1,198,204

 

19,142,721

 

9,503

 

648,358

 

 

20,998,786

Accounts receivable, net

 

 

8,572

 

 

449,532

 

 

458,104

Prepayments and other current assets

 

 

129,148

 

 

21,869

 

 

151,017

Deferred expenses

 

46,500

 

939,252

 

 

 

 

985,752

Advance for investment

 

 

 

 

1,902,004

 

 

1,902,004

Investment in subsidiaries and VIE

 

22,721,204

 

 

3,150,000

 

 

(25,871,204)

 

Amounts due from subsidiaries and VIE

 

3,766,314

 

955,061

 

 

 

(4,721,375)

 

Amounts due from a related party

 

 

 

 

 

 

Other receivables

 

 

3,573

 

 

31,242

 

 

34,815

Total current assets

 

27,732,222

 

21,178,327

 

3,159,503

 

3,053,005

 

(30,592,579)

 

24,530,478

Non-current assets

 

  

 

  

 

  

 

  

 

  

 

  

Long-term investment

 

 

14,296,824

 

 

 

 

14,296,824

Goodwill

 

 

 

 

4,306,579

 

 

4,306,579

Property and equipment, net

 

 

6,620

 

 

74,695

 

 

81,315

Intangible assets, net

 

 

 

 

254,646

 

 

254,646

Operating Right-of-use asset current, net

 

 

 

 

172,796

 

 

172,796

Total non-current assets

 

 

14,303,444

 

 

4,808,716

 

 

19,112,160

TOTAL ASSETS

 

27,732,222

 

35,481,771

 

3,159,503

 

7,861,721

 

(30,592,579)

 

43,642,638

LIABILITIES

 

  

 

 

  

 

 

  

 

  

Current liabilities

 

  

 

  

 

  

 

 

  

 

  

Accounts payable

 

 

21,894

 

 

 

 

21,894

Taxes payable

 

 

8,488

 

 

249,895

 

 

258,383

Amounts due to a related party

 

2,107

 

 

 

52,481

 

 

54,588

Accrued expenses

 

775,873

 

340,599

 

150

 

4,665,140

 

(4,723,059)

 

1,058,703

Deferred revenue-current

 

 

1,357,236

 

 

 

 

1,357,236

Deferred tax liabilities

 

 

 

 

28,241

 

 

28,241

Operating Lease Liability-current

 

 

 

 

224,822

 

 

224,822

Total current liabilities

 

777,980

 

1,728,217

 

150

 

5,220,579

 

(4,723,059)

 

3,003,867

Non-current liabilities

 

  

 

  

 

  

 

  

 

  

 

  

Long-term loans

 

 

13,681,099

 

 

 

 

13,681,099

Deferred revenue-noncurrent

 

 

 

 

3,430

 

 

3,430

Bond Payable

 

 

 

 

 

 

Total non-current liabilities

 

 

13,681,099

 

 

3,430

 

 

13,684,529

TOTAL LIABILITIES

 

777,980

 

15,409,316

 

150

 

5,224,009

 

(4,723,059)

 

16,688,396

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

 

SHAREHOLDERS’ EQUITY

 

  

 

  

 

  

 

  

 

  

 

  

Ordinary shares, par value $0.0002 per share, 500,000,000 shares authorized; 14,900,000 and 12,000,000 shares issued and outstanding as of March 31, 2022 and 2021, respectively

 

2,980

 

1,619,774

 

3,165,000

 

3,150,000

 

(7,934,774)

 

2,980

Additional paid-in capital

 

19,055,407

 

 

 

 

 

19,055,407

Statutory reserve

 

745,590

 

745,590

 

 

 

(745,590)

 

745,590

Accumulated profits

 

8,111,900

 

18,504,475

 

(5,388)

 

(346,611)

 

(18,152,476)

 

8,111,900

Accumulated other comprehensive income/(loss)

 

(961,635)

 

(797,384)

 

(259)

 

(165,677)

 

963,320

 

(961,635)

TOTAL SHAREHOLDERS’ EQUITY

 

26,954,242

 

20,072,455

 

3,159,353

 

2,637,712

 

(25,869,520)

 

26,954,242

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

 

27,732,222

 

35,481,771

 

3,159,503

 

7,861,721

 

(30,592,579)

 

43,642,638

9

    

As of March 31, 2022

Skillful

    

    

Hong Kong

    

   

Eliminating

    

Craftsman

VIE

Subsidiary

WFOE

Entries

Total

US$

ASSETS

 

  

 

  

 

  

 

  

 

  

 

  

Current assets

 

  

 

  

 

  

 

  

 

  

 

  

Cash and cash equivalents

 

2,622,624

 

20,651,502

 

5,129

 

554,870

 

 

23,834,125

Accounts receivable, net

 

 

252,215

 

 

 

 

252,215

Prepayments and other current assets

 

54,519

 

466,846

 

 

 

 

521,365

Deferred expenses

 

48,624

 

1,101,761

 

 

 

 

1,150,385

Advance for investment

 

 

 

 

1,732,775

 

 

1,732,775

Investment in subsidiaries and VIE

 

48,796,630

 

 

 

 

(48,796,630)

 

Other receivables

 

93,836

 

1,589,182

 

 

996,556

 

(2,646,515)

 

33,059

Total current assets

 

51,616,233

 

24,061,506

 

5,129

 

3,284,201

 

(51,443,145)

 

27,523,924

Non-current assets

 

  

 

  

 

  

 

  

 

  

 

  

Long-term investment

 

 

14,673,898

 

2,510,000

 

282,545

 

(2,510,000)

 

14,956,443

Goodwill

 

 

4,581,112

 

 

 

 

4,581,112

Property and equipment, net

 

 

10,597,580

 

 

101,430

 

 

10,699,010

Intangible assets, net

 

 

15,143,366

 

 

189,030

 

 

15,332,396

Total non-current assets

 

 

44,995,956

 

2,510,000

 

573,005

 

(2,510,000)

 

45,568,961

TOTAL ASSETS

 

51,616,223

 

69,057,462

 

2,515,129

 

3,857,206

 

(53,953,145)

 

73,092,885

LIABILITIES

 

  

 

  

 

  

 

  

 

  

 

  

Current liabilities

 

  

 

  

 

  

 

  

 

  

 

  

Accounts payable

 

 

77,266

 

 

 

 

77,266

Taxes payable

 

 

127,645

 

 

 

 

127,645

Amounts due to a related party

 

2,443

 

44,107

 

 

99

 

 

46,649

Accrued expenses

 

382,983

 

5,201,217

 

150

 

1,605,742

 

(6,328,542)

 

861,550

Amounts due to subsidiaries and VIE

 

967,522

 

 

 

 

(967,522)

 

Deferred revenue-current

 

 

6,864,731

 

 

 

 

6,864,731

Deferred tax liabilities

 

 

38,744

 

 

 

 

38,744

Total current liabilities

 

1,352,948

 

12,353,710

 

150

 

1,605,841

 

(7,296,064)

 

8,016,585

Non-current liabilities

 

  

 

  

 

  

 

  

 

  

 

  

Long-term loans

 

 

14,809,302

 

 

 

 

14,809,302

Deferred revenue-noncurrent

 

 

3,713

 

 

 

 

3,713

Total non-current liabilities

 

 

14,813,015

 

 

 

 

14,813,015

TOTAL LIABILITIES

 

1,352,948

 

27,166,725

 

150

 

1,605,841

 

(7,296,064)

 

22,829,600

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

 

SHAREHOLDERS’ EQUITY

 

  

 

  

 

  

 

  

 

  

 

  

Ordinary shares, par value $0.0002 per share, 500,000,000 shares authorized; 14,900,000 and 12,000,000 shares issued and outstanding as of March 31, 2022 and 2021, respectively

 

2,980

 

1,619,774

 

2,520,000

 

2,510,000

 

(6,649,774)

 

2,980

Additional paid-in capital

 

18,055,407

 

 

 

 

 

18,055,407

Statutory reserve

 

745,590

 

745,590

 

 

 

(745,590)

 

745,590

Accumulated profits

 

29,018,885

 

37,116,081

 

(4,762)

 

(280,474)

 

(36,830,845)

 

29,018,885

Accumulated other comprehensive income/(loss)

 

2,440,423

 

2,409,292

 

(259)

 

21,839

 

(2,430,872)

 

2,440,423

TOTAL SHAREHOLDERS’ EQUITY

 

50,263,285

 

41,890,737

 

2,514,979

 

2,251,365

 

(46,657,081)

 

50,263,285

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

 

51,616,223

 

69,057,462

 

2,515,129

 

3,857,206

 

(53,953,145)

 

73,092,885

10

    

As of March 31, 2021

Skillful

Hong Kong

Eliminating

Craftsman

VIE

Subsidiary

WFOE

Entries

Total

US$

ASSETS

 

  

 

  

 

  

 

  

 

  

 

  

Current assets

 

  

 

  

 

  

 

  

 

  

 

  

Cash and cash equivalents

 

2,736,708

 

14,716,543

 

 

109

 

 

17,453,360

Accounts receivable, net

 

 

83,980

 

 

 

 

83,980

Prepayments and other current assets

 

5,789,634

 

1,657,531

 

8,272

 

 

(5,670,900)

 

1,784,537

Deferred expenses

 

50,562

 

 

 

 

(50,562)

 

Investment in subsidiaries and VIE

 

38,701,420

 

 

 

 

(38,701,420)

 

Other receivables

 

 

850,517

 

 

 

4,862,675

 

5,713,192

Total current assets

 

47,278,324

 

17,308,571

 

8,272

 

109

 

(39,560,207)

 

25,035,069

Non-current assets

 

  

 

  

 

  

 

  

 

  

 

  

Property and equipment, net

 

 

13,725,957

 

 

 

 

13,725,957

Intangible assets, net

 

 

20,416,461

 

 

 

 

20,416,461

Long-term prepayments and other non-current assets

 

 

28,406

 

 

 

 

28,406

Total non-current assets

 

 

34,170,824

 

 

 

 

34,170,824

TOTAL ASSETS

 

47,278,324

 

51,479,395

 

8,272

 

109

 

(39,560,207)

 

59,205,893

LIABILITIES

 

  

 

  

 

  

 

  

 

  

 

  

Current liabilities

 

  

 

  

 

  

 

  

 

  

 

  

Accounts payable

 

 

113,707

 

 

 

 

113,707

Taxes payable

 

 

448,485

 

 

 

 

448,485

Amounts due to a related party

 

252,602

 

 

61,878

 

96

 

(57,539)

 

257,037

Accrued expenses

 

562,715

 

385,292

 

 

7,335

 

96,587

 

1,051,929

Amounts due to subsidiaries and VIE

 

897,835

 

 

 

 

(897,835)

 

Deferred revenue-current

 

 

11,456,667

 

 

 

 

11,456,667

Total current liabilities

 

1,713,152

 

12,404,151

 

61,878

 

7,431

 

(858,787)

 

13,327,825

Non-current liabilities

 

  

 

  

 

  

 

  

 

  

 

  

Deferred revenue-noncurrent

 

 

312,896

 

 

 

 

312,896

Total non-current liabilities

 

 

312,896

 

 

 

 

312,896

TOTAL LIABILITIES

 

1,713,152

 

12,717,047

 

61,878

 

7,431

 

(858,787)

 

13,640,721

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

 

SHAREHOLDERS’ EQUITY

 

  

 

  

 

  

 

  

 

  

 

  

Ordinary shares, par value $0.0002 per share, 500,000,000 shares authorized; 12,000,000 and 9,000,000 shares issued and outstanding as of March 31, 2021 and 2020, respectively

 

2,400

 

1,619,774

 

 

 

(1,619,774)

 

2,400

Additional paid-in capital

 

13,415,987

 

 

 

 

 

13,415,987

Statutory reserve

 

745,590

 

745,590

 

 

 

(745,590)

 

745,590

Accumulated profits

 

30,419,177

 

35,365,243

 

4.161

 

(7,095)

 

(35,362,309)

 

30,419,177

Accumulated other comprehensive income/(loss)

 

982,018

 

1,031,741

 

(57,994)

 

(227)

 

(973,747)

 

982,018

TOTAL SHAREHOLDERS’ EQUITY

 

45,565,172

 

38,762,348

 

(53,606)

 

(7,322)

 

(38,701,420)

 

45,565,172

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

 

47,278,324

 

51,479,395

 

8,272

 

109

 

(39,560,207)

 

59,205,893

11

Selected Condensed Consolidated Cash Flows

    

For the Year Ended March 31, 2023

Skillful

Hong Kong

Eliminating

Craftsman

    

VIE

   

Subsidiary

   

WFOE

   

Entries

   

Total

US$

Net cash generated from operating activities

 

(1,779,420)

 

148,162

 

(626)

 

(926,554)

 

 

(2,558,438)

Net cash used in investing activities

 

(645,000)

 

(529,511)

 

(640,000)

 

228,880

 

1,285,000

 

(300,631)

Net cash generated from financing activities

 

1,000,000

 

 

645,000

 

640,000

 

(1,285,000)

 

1,000,000

Effects of exchange rate changes on cash

 

 

(1,127,433)

 

 

151,163

 

 

(976,270)

Net cash inflow

 

(1,424,420)

 

(1,508,782)

 

4,374

 

93,489

 

 

(2,835,339)

    

For the Year Ended March 31, 2022

Skillful

Hong Kong

Eliminating

Craftsman

   

VIE

   

Subsidiary

   

WFOE

   

Entries

   

Total

US$

Net cash generated from operating activities

 

(3,157,113)

 

9,390,281

 

(4,871)

 

(1,399,364)

 

 

4,828,933

Net cash used in investing activities

 

3,043,030

 

(18,530,989)

 

(2,510,000)

 

(627,646)

 

5,030,000

 

(13,595,605)

Net cash generated from financing activities

 

 

14,809,302

 

2,520,000

 

2,510,000

 

(5,030,000)

 

14,809,302

Effects of exchange rate changes on cash

 

 

266,364

 

 

71,771

 

 

338,135

Net cash inflow

 

(114,083)

 

5,934,959

 

5,129

 

554,760

 

 

6,380,765

    

For the Year Ended March 31, 2021

Skillful

Hong Kong

Eliminating

Craftsman

   

VIE

   

Subsidiary

   

WFOE

    

Entries

   

Total

US$

Net cash generated from operating activities

 

(2,506,846)

 

13,927,170

 

 

109

 

(665,949)

 

10,754,484

Net cash used in investing activities

 

(8,000,000)

 

(12,864,697)

 

 

 

(1)

 

(20,864,698)

Net cash generated from financing activities

 

13,243,554

 

 

 

 

 

13,243,554

Effects of exchange rate changes on cash

 

 

1,722,356

 

 

 

665,950

 

2,388,306

Net cash inflow

 

2,736,708

 

2,784,829

 

 

109

 

 

5,521,646

3.B.    Capitalization and Indebtedness

Not applicable.

3.C.    Reasons for the Offer and Use of Proceeds

Not applicable.

3.D.    Risk Factors

An investment in our ordinary shares involves a high degree of risk. You should carefully consider the risks and uncertainties described below together with all other information contained in this annual report, including the matters discussed under the headings “Forward-Looking Statements” and “Operating and Financial Review and Prospects” before you decide to invest in our ordinary shares. We are a holding company with substantial operations in China and are subject to a legal and regulatory environment that in many respects differs from the United States. If any of the following risks, or any other risks and uncertainties that are not presently foreseeable to us, actually occur, the business, financial condition, results of operations, liquidity and the future growth prospects could be materially and adversely affected.

12

Risks Related to the Business and Industry

If the VIE is not able to continue to attract students to register on its training platforms or successfully convert the nonpaying registered members to fee-paying members, its business and prospects will be materially and adversely affected.

The success of the business operations depends primarily on the number of student members enrolled in the training platforms. Therefore, the VIE’s ability to continue to attract students to register on its training platform is critical to the continued success and growth of the business. This in turn will depend on several factors, including the ability to develop new courses and enhance existing courses to respond to changes in market trends and student demands, manage the growth while maintaining consistent and high education quality, broaden the relationships with strategic partners and market the courses effectively to a broader base of prospective students. Furthermore, the ability to attract students also depends on the ability to provide educational content that is perceived as more effective than the standard curricula of universities in China in terms of practical job-oriented training. If the VIE is unable to continue to attract students to register on its platform, the net revenue may decline, which may have a material adverse effect on the business, financial condition and results of operations.

In addition, the majority of the revenue is derived from fees paid by the VIE’s members. The conversion of the VIE’s nonpaying registered members to fee-paying members is key to the ability to generate revenue. As of March 31, 2023, only approximately 2% of the VIE’s total registered members were fee-paying members. We cannot assure you that the VIE’s nonpaying registered members will convert into fee-paying members in the future. Such conversion is subject to a number of factors such as compatibility of the VIE’s fee-paying programs with market demands for vocational and other skills, changes in policies of the Ministry of Education of the PRC, or the MOE, and the ability to maintain and expand the strategic cooperation with education industry associations, vocational schools and universities. If the VIE’s nonpaying registered members do not convert into fee-paying members, the business, financial condition and results of operations will be adversely affected.

The VIE and our subsidiaries may not be able to improve the content of the existing courses or develop and introduce new courses or services in a timely or cost-effective manner.

Since its inception, the VIE has primarily focused on providing vocational education services while expanding its course offerings to include college student training. The WFOE also made a minority investment in August 2021 in Hunan Medical Star Technology Co., Ltd. to provide doctors and medical school students in Hunan Province with education services in traditional Chinese medical science. The WFOE’s subsidiary, Jisen Information, offers several financial investment courses through its financial investment education platform. Both the VIE and our subsidiaries constantly update and improve the content of the existing courses and develop new courses or services to meet changing market demands. Revisions to the existing courses and the newly developed courses or services may not be well received by existing or prospective students. If the VIE and our subsidiaries cannot respond effectively to changes in market demands, the business may be adversely affected. Even if the VIE and our subsidiaries are able to develop new courses or services that are well received, they may not be able to introduce them in a timely or cost-effective manner. If the VIE and our subsidiaries do not respond adequately to changes in market demands, the ability to attract and retain students may be impaired and the financial results could suffer.

The effectiveness of the VIE’s program depends on the success of its personalized learning approach to vocational education, which in turn is determined by the efficiency of its data analytics know-how. The VIE might not be able to continue to efficiently monitor and analyze relevant data important for the business to provide a personalized learning experience for the students, or to continue to drive the curriculum development and other operational aspects of the platforms.

The timing of the introduction of new courses is subject to risks and uncertainties, including the ability to attract students. Offering new courses or services or modifying existing courses may require the VIE and our subsidiaries to invest in content development, increase marketing efforts and re-allocate resources away from other uses. Unexpected technical, operational, logistical or other problems could delay or prevent the introduction of one or more new courses. Moreover, we cannot assure you that any of these courses or programs will match the quality or popularity of those developed by the competitors, achieve widespread market acceptance or contribute to the desired level of income. The VIE and our subsidiaries may have limited experience with the content of new courses or services and may need to adjust their systems and strategies to incorporate new courses or services into the existing course catalogue. If the VIE and our subsidiaries are unable to continuously improve the content of the existing courses, or offer new courses or services in a timely or cost-effective manner, the results of operations and financial condition could be adversely affected.

13

If the VIE and our subsidiaries are not able to continually tailor the curriculum to market demand and enhance the courses to adequately and promptly respond to developments in the PRC job market, the courses may become less attractive to students.

The VIE’s existing curriculum mainly focus