EDTK 20-F
Skillful Craftsman Education Technology Ltd (EDTK)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
| 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
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:
(Exact name of Registrant as Specified in its Charter)
(Jurisdiction of Incorporation or Organization)
(Address of Principal Executive Offices)
Tel:
(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 | ||
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 ordinary shares as of the close of the period covered by the annual report. As of March 31, 2026, there were ordinary shares outstanding, par value $ per share and 1,000,000 Series A Preference Share outstanding par value $0.0002.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes
☐
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
☐
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.
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).
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 ☐ | 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 registrant’s 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:
| 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
| 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 subsidiaries; | |
| ● | “Skillful Craftsman” refers to Skillful Craftsman Education Technology Limited, a Cayman Islands exempted company; | |
| ● | “Hong Kong subsidiary” or “Easy Skills” refers to Easy Skills Technology Limited, a wholly owned subsidiary of Skillful Craftsman in Hong Kong; | |
| ● | “Craftsman Wuxi” or “WOFE” 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; | |
| ● | “Skilland Digital” refers to Skilland Digital Intelligence Limited, a company incorporated in Hong Kong and a wholly owned subsidiary of Skillful Craftsman. | |
| ● | “Singaporean subsidiary” refers to Le First Skillland Pte. Ltd., a 75% owned subsidiary of Skillful Craftsman; | |
| ● | “Giga Learning” or “U.S. subsidiary” refers to Giga Learning Inc., a wholly owned subsidiary of the Company and incorporated in the United States. | |
| ● | “VIE” or “Wuxi Wangdao” refers to Wuxi Kingway Technology Co., Ltd., that was the variable interest entity of the Company in China until March 17, 2025 when parties terminated the VIE Agreements; | |
| ● | “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 2024” refers to the fiscal year ended March 31, 2024; and | |
| ● | “fiscal year 2025” refers to the fiscal year ended March 31, 2025; and | |
| ● | “fiscal year 2026” refers to the fiscal year ended March 31, 2026. |
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, 2026 set forth in the H.10 statistical release of the Board of Governors of the Federal Reserve System, that is RMB 6.9194 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 previous Contractual Arrangements with 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 in China, 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. On March 17, 2025, Skillful Craftsman Network Technology (WUXI) Co. Ltd. entered into a Termination Agreement for VIE Agreements (“Termination Agreement”) with Wuxi Kingway Technology Co., Ltd., Xiaofeng Gao and Lugang Hua, who are the shareholders of the VIE to terminate the VIE Agreements, namely, the Exclusive Business Cooperation Agreement, the Exclusive Purchasing Right Agreement, the Equity Interest Pledge Agreement and the Authorization Agreement among the parties dated on July 17, 2019. Upon the termination of the VIE Agreements, the Company and WOFE no longer control the VIE and its subsidiaries and their business operations. On August 7, 2026, the Company entered into a Share Purchase Agreement (the “Agreement”) with Penguins Investing Carnival Ltd., a British Virgin Islands company (the “Buyer”) to transfer 100% equity interest of Easy Skill Technology Ltd. and all of its subsidiaries to the Buyer for a total price of $4.5 million (the “Purchase Price”), which shall be paid in two installments: (i) 20% of the Purchase Price shall be paid within 5 business days of the Agreement and (ii) 80% of the Purchase Price shall be paid within 1 year from the date of the Agreement (the “Transaction”). As of the date of this report, the Company has received the payment of 20% of the Purchase Price. Upon the closing of the Transaction, the Buyer shall become the 100% shareholder of Easy Skill Technology Ltd. and all of its subsidiaries. The Company is currently conducting their business primarily through Skilland Digital.
| 3 |
Doing Business in China
We 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 our subsidiaries in China and Hong Kong, and we are subject to complex and evolving PRC laws and regulations. The PRC government has 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 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 Notice on Filing Management Arrangements for Overseas Listings of Domestic Enterprises, promulgated by CSRC and took effect on February 17, 2023, aiming to enforcing the New Overseas Listing Rules orderly, domestic enterprises that have completed overseas listings before the effective date of the new rules, or those whose applications for indirect overseas securities offering and listing have obtained approval from overseas regulators or overseas stock exchanges, with no need to re-perform the offering and listing regulatory procedures of such overseas regulators or overseas stock exchanges, and the overseas offering and listing being completed by September 30, 2023, are not required to file with CSRC immediately, but shall carry out filing procedures as required if they conduct overseas’ offerings or fall within other circumstances that requires filing with the CSRC. The 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, Guangdong Prouden CPAs GP (“Prouden CPAs”) 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 WOFE and VIE
Skillful Craftsman Education Technology Limited, or Skillful Craftsman, is a Cayman Islands exempted company with operations primarily conducted by its subsidiaries. Cash was transferred through our organization in the manner as follows: (i) funds to Craftsman Wuxi, the WOFE, through our Hong Kong subsidiary, by additional capital contributions or shareholder loans, as the case may be; (ii) the WOFE may provide loans to the VIE, subject to statutory limits and restrictions; (iii) funds from the VIE to the WOFE are remitted as services fees; (iv) the WOFE may make dividends or other distributions to Skillful Craftsman through our Hong Kong subsidiary; and (v) intercompany borrowings between VIE and holding company.
| 4 |
The cash flows that occurred between the WOFE 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 WOFE are summarized as follows:
| For the Year Ended March 31, | ||||||||||||
| 2024 | 2025 | 2026 | ||||||||||
| US$ | ||||||||||||
| Cash paid by VIE to WOFE | 12,173 | — | — | |||||||||
| Cash paid by WOFE to VIE | 2,488 | — | — | |||||||||
| Cash paid by VIE to Cayman Islands exempted company | — | — | — | |||||||||
| Cash paid by Cayman Islands exempted company to VIE | — | — | — | |||||||||
| Cash paid by Cayman Islands exempted company to Hong Kong subsidiary | — | 3,704 | — | |||||||||
| Cash paid by Hong Kong subsidiary to VIE | — | — | — | |||||||||
| Cash paid by Hong Kong subsidiary to WOFE | — | — | — | |||||||||
By the end of March 31, 2026, the WOFE has cumulatively transferred RMB 4.0 million (approximately $582,098) to the VIE as repayment of the VIE’s loan to the WOFE in relation to the consideration for the WOFE’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 WOFE and the VIE as of the date of this annual report.
We had 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 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 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 subsidiaries 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 or our subsidiaries’ ability to transfer cash and assets.
Under our current corporate structure, we rely on dividend payments from our subsidiaries to fund any cash and financing requirements we may have. Current PRC regulations permit the WOFE 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 WOFE 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 WOFE 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 had before in a manner that would materially and adversely affect the WOFE’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 subsidiary to make payments to us may restrict our ability to satisfy our liquidity requirements.
| 5 |
Additionally, our operating subsidiaries receive 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 WOFE 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 WOFE 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 our subsidiaries’ 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 WOFE level | (25.00 | ) | ||
| Amount to be distributed as dividend from the WOFE 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]
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.
| 6 |
Risks Related to the Business and Industry
If we are not able to continue to attract and establish customers on our new business of artificial intelligence skills training, software development, artificial intelligence technology services, API interface services, our results of operations and prospects will be materially and adversely affected.
We have been transitioning from the business of vocational education and training platforms to the new business of artificial intelligence skills training, software development, artificial intelligence technology services, API interface services, and related product sales. We have incorporated Skilland Digital in Hong Kong to develop this new business. Therefore, our ability to continue to attract and establish customers 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 programs and systems to respond to changes in market trends and customers’ demands, manage the growth while maintaining consistent and high quality, broaden the relationships with strategic partners and market our apps and products effectively to a broader base of prospective customers. If we are unable to obtain and maintain the news customers, the net revenue may decline, which may have a material adverse effect on the business, financial condition and results of operations.
Our results of operations may fluctuate significantly and may not fully reflect the underlying performance of the business.
Our results of operations, including the operating revenue, expenses and other key metrics, may vary significantly in the future and period-to-period comparisons of the operating results may not be meaningful. Accordingly, the results for any one quarter are not necessarily an indication of future performance. Our financial results may fluctuate due to a variety of factors, some of which are outside of our control and, as a result, may not fully reflect the underlying performance of the business. Fluctuation in our operating results may adversely affect the price of our ordinary shares. Factors that may cause fluctuations in our quarterly results include:
| ● | the ability to attract new customers, maintain relationships with existing customers, and expand into new territories in international market; |
| ● | the amount and timing of operating expenses related to the maintenance and expansion of the business, operations and infrastructure; |
| ● | general economic, industry and market conditions; |
| ● | the emphasis on customer experience instead of near-term growth; and |
| ● | the timing of expenses related to the development or acquisition of technologies or businesses and potential future charges for impairment of goodwill from acquired technologies or businesses. |
| 7 |
Our subsidiaries face significant competition, and if they fail to compete effectively, our subsidiaries may not be able to gain market share, and the profitability may be adversely affected.
The artificial intelligence skills training, software development, artificial intelligence technology services, API interface services are rapidly evolving, highly fragmented and competitive, and we expect competition to persist and intensify. Our subsidiaries face competition in each type of products or services they offer and in each geographic market where they operate. Some of the competitors may be able to devote greater resources to the development, promotion and sale of their programs and services, respond more quickly to changes in customers’ needs, market trends or new technologies and have gained more experience in certain areas due to their longer operating history in this area.
We cannot assure you that our subsidiaries will be able to compete successfully against current or future competitors. They may be pressured to reduce fees charged or increase spending in response to competition in order to retain or attract more customers or pursue new market opportunities, which could result in a decrease in their revenue and profitability. If our subsidiaries are unable to maintain the competitive position or otherwise effectively respond to competition, they may not be able to gain additional market share, and the profitability may be adversely affected.
Failure to protect the confidential information of the customers of our subsidiaries against security breaches could damage the reputation and brand and substantially harm the business and results of operations.
A significant challenge to the industry is the secure storage of confidential information and its secure transmission over public networks. Maintaining complete security for the storage and transmission of confidential information on the technology platforms of our subsidiaries is essential to maintaining student or customer confidence.
Our subsidiaries have adopted security policies and measures to protect their proprietary data and customer information. However, advances in technology, the expertise of hackers, new discoveries in the field of cryptography or other events or developments could result in a compromise or breach of the technology that our subsidiaries use to protect confidential information. Our subsidiaries may not be able to prevent third parties, especially hackers or other individuals or entities engaging in similar activities, from illegally obtaining such confidential or private information. Such individuals or entities obtaining confidential or private information of the clients of our subsidiaries may further engage in various other illegal activities using such information. Any negative publicity regarding the websites’ safety or privacy protection mechanisms and policies, and any claims asserted against our subsidiaries or fines imposed upon them as a result of actual or perceived failures, could have a material and adverse effect on the public image, reputation, financial condition and results of operations.
Practices regarding the collection, use, storage, transmission and security of personal information by companies operating over the internet platforms have recently come under increased public scrutiny. Increased regulation by the PRC government of data privacy on the internet may occur and our subsidiaries may become subject to new laws and regulations applying to the solicitation, collection, processing or use of personal or consumer information that could affect how our subsidiaries store and process the data of the students and clients. Our subsidiaries generally comply with industry standards and are subject to the terms of their own privacy policies. Compliance with any additional laws could be expensive, and may place restrictions on the conduct of the business and the manner in which our subsidiaries interact with their clients. Any failure to comply with applicable regulations could also result in regulatory enforcement actions against us.
| 8 |
Significant capital and other resources may be required to protect against information security breaches or to alleviate problems caused by such breaches or to comply with the privacy policies or privacy-related legal obligations of our subsidiaries. The resources required may increase over time as the methods used by hackers and others engaged in online criminal activities are increasingly sophisticated and constantly evolving. Any failure or perceived failure by our subsidiaries to prevent information security breaches or to comply with privacy policies or privacy-related legal obligations, or any compromise of security that results in the unauthorized release or transfer of personally identifiable information or other student data, could cause the students to lose trust in our subsidiaries and could expose them to legal claims.
The business of our subsidiaries is subject to various evolving PRC laws and regulations regarding data privacy, cybersecurity and personal information protection. Failure of observing data privacy, cybersecurity and personal information protection concerns could subject us, our subsidiaries and to penalties, damage our or its reputation and brand, and harm the business and results of operations.
We face significant challenges with respect to cybersecurity and data privacy, including the storage, transmission, and sharing of confidential and private information of users, such as personal information, including names, user accounts, passwords, and payment or transaction-related information. Accordingly, we are subject to various regulatory requirements relating to cybersecurity and data privacy, including, but not limited to, the Cybersecurity Law of the PRC to ensure the confidentiality, integrity, availability, and authenticity of the information of the users, while providing relevant services.
Additionally, regulatory requirements on cybersecurity and data privacy in the PRC are constantly evolving and can be subject to varying interpretations or significant changes, resulting in uncertainties concerning the scope of our responsibilities in this regard. On June 10, 2021, the Standing Committee of the National People’s Congress promulgated the Data Security Law of the PRC, which took effect in September 2021. The Data Security Law of the PRC applies to data handling activities and security regulations carried out within the territory of the PRC, however, such activities carried out outside the territory of the PRC that may affect national security will be subject to relative regulations, and the data processing activities that may affect national security shall be subject to a security review procedure. We are a Cayman Islands exempted company and the WOFE and Jisen Information, are considered foreign-invested enterprises. During the operation, we also need to collect, use, disclose, retain and secure data provided by the users. Any violation of the regulations of the Data Security Law of the PRC may face government enforcement actions and investigations, fines, penalties, suspension of the non-compliant operations, or removal of the application from the relevant application stores, among other sanctions, which could materially and adversely affect the business and results of operations. Furthermore, the Personal Information Protection Law of PRC was published on August 20, 2021 by the Standing Committee of the National People’s Congress and took effect on November 1, 2021, according to which processing outside the territory of PRC of personal information of natural persons within the territory of PRC for the purpose of providing products or services to such natural person shall be regulated, and the processing of personal information shall have a clear and reasonable purpose. When processing personal information, the related rules, purpose, method and scope shall be disclosed. Except for certain exceptional circumstances, a personal information processor shall only process and disclose the personal information of an individual with the consent of such individual.
Under the ever-changing legal system, we a follow the principle of damage prevention in accordance with existing laws and regulations, establish a complaint and reporting system for network information security, publish information on how to make complaints and reports, and receive and handle them in a timely manner; follow the principle of adequate notification, use personal information with the consent of the individual, and follow the principles of legality, legitimacy and necessity. We have adopted the principle of security management and taken technical and other necessary measures to ensure information security. To prevent the leakage, destruction or loss of personal electronic information of citizens collected in the course of business activities, remedial measures are taken in a timely manner when information leakage, destruction or loss occurs or is likely to occur. Moreover, in order to cope with the changing laws and regulations, we a have made adequate preparations as follows: (i) planning of information collection: we take inventory of the types of personal information collected, used and stored, the containers and carriers of personal information, the positions of personnel who access, process, analyze and use such personal information internally, and the information systems in which such personal information is stored; (ii) based on the results of information collection, we assess whether the current status of business operations and system operations meet the requirements of relevant laws and regulations; (iii) we will regularly implement background checks on personnel, security training, regular network security drills, and security testing and evaluation; (iv) continuous improvement: based on the changes in the business and management information, we have established a sustainable and complete framework for personal information protection to respond to changing laws and regulations.
| 9 |
Moreover, pursuant to the Cybersecurity Law of the PRC, which was promulgated by the Standing Committee of the National People’s Congress on November 7, 2016 and took effect on June 1, 2017, personal information and important data collected and generated by a critical information infrastructure operator in the course of its operations in China must be stored in China, and if a critical information infrastructure operator purchases internet products and services that affect or may affect national security, it should be subject to a cyber security review by the Cyberspace Administration of the PRC. In addition, Measures for Cybersecurity Review, which became effective on June 1, 2020, set forth the cybersecurity review mechanism for critical information infrastructure operators, and provided that critical information infrastructure operators who intend to purchase Internet products and services that affect or may affect national security shall be subject to the cybersecurity review. On July 10, 2021, the Cyberspace Administration of China, or the CAC, published the Measures for Cybersecurity Review (Revised Draft for Comments), which further restated and expanded the applicable scope of the cybersecurity review. On December 28, 2021, the CAC and 12 other regulatory authorities jointly issued the Cybersecurity Review Measures, or the Review Measures, which took effect on February 15, 2022. The Review Measures provides, among others, that (i) the purchase of cyber products and services by critical information infrastructure operators, or the “CIIOs,” and the network platform operators, or Network Platform Operators, which engage in data processing activities that affect or may affect national security shall be subject to a cybersecurity review by the Cybersecurity Review Office, the department which is responsible for the implementation of cybersecurity review under the CAC; and (ii) the Network Platform Operators with personal information data of more than one million users that seek for listing in a foreign country are obliged to apply for a cybersecurity review by the Cybersecurity Review Office. Such review would focus on the potential risk of core data, important data, or a large amount of personal information being stolen, leaked, destroyed, illegally used or exported out of China, or critical information infrastructure being affected, controlled or maliciously used by foreign governments after such a listing. On July 7, 2022, the CAC promulgated the Security Assessment Measures for Outbound Data Transfer, or the Outbound Data Transfer Measures, effective on September 1, 2022, which regulate outbound data transfer activities, protect the rights and interests of personal information, safeguard national security and social public interests, and promote the cross-border security and free flow of data. The Outbound Data Transfer Measures provide that a data processor providing data abroad in the following situations shall report security assessment for its outbound data transfer to the CAC: (i) a data processor provides important data abroad; (ii) a critical information infrastructure operator or a data processor that processing the personal information of more than one million individuals provides personal information abroad; (iii) a data processor, who has cumulatively provided personal information of 100,000 individuals or sensitive personal information of 10,000 individuals abroad since January 1 of the previous year, provides personal information abroad; and (iv) other circumstances prescribed by the CAC for which report for security assessment for outbound data transfers are required. According to the Guidelines on Security Assessment Report for Outbound Data Transfer promulgated by the CAC, outbound data transfer means (i) a data processor transfers or stores the data collected or generated during its operation within the PRC abroad, (ii) data collected and generated by a data processor is stored within the PRC while offshore institutions or individuals are able to inquire, retrieve, download and obtain such data; and (iii) other outbound data transfer activities prescribed by the CAC. As advised by our PRC legal counsel, we believe that we, our PRC subsidiaries are not required to apply for a cyber security review with CAC, since we listed our ordinary shares on the Nasdaq before the effective date of the Review Measures and the requirement of Article 7 of the Review Measures that “Network Platform Operators with personal information of more than one million users that seek for listing in a foreign country are obliged to apply for a cybersecurity review by the Cybersecurity Review Office” should not be applicable to us, our PRC subsidiaries; thus our PRC subsidiaries would not be required to apply for a cybersecurity review by the CAC. The Review Measures do not provide any explanation or interpretation of “overseas listing” or “affect or may affect national security,” and the Chinese government may have broad discretion in interpreting and enforcing these laws and regulations. We cannot predict the impact of the Review Measures, if any, at this stage, and we will closely monitor and assess the statutory developments in this regard. However, if the CAC or other regulatory agencies later promulgate new rules or explanations requiring that our PRC subsidiaries obtain their approvals for this offering and any follow-on offering, our PRC subsidiaries may be unable to obtain such approvals and may face sanctions by the CAC or other PRC regulatory agencies for failure to seek their approval which could significantly limit or completely hinder our ability to offer or continue to offer securities to our investors and the securities currently being offered may substantially decline in value and be worthless. As of the date of this annual report, our PRC subsidiaries has not received any inquiry, notice, warning, or sanctions regarding offshore offerings from the CAC or any other PRC governmental authorities.
| 10 |
Our PRC subsidiaries collect, use, disclose, retain and secure data to the extent reasonably required only and within the parameters that could be reasonably expected during the normal course of business. We believe that our PRC subsidiaries have made best efforts to fully comply with the regulations published by the CAC and other PRC governmental authorities. However, advances in technology, the expertise of hackers, new discoveries in the field of cryptography or other events or developments could result in a compromise or breach of the technology that our PRC subsidiaries use to protect confidential information. If our PRC subsidiaries are unable to protect the systems, and hence the information stored in the systems, from unauthorized access, use, disclosure, disruption, modification, or destruction, such problems or security breaches could cause a loss, give rise to liabilities to the owners of confidential information, or subject us and our PRC subsidiaries to fines and other penalties. In addition, complying with various laws and regulations could cause our PRC subsidiaries to incur substantial costs or require us and our PRC subsidiaries to change business practices, including the data practices, in a manner adverse to the business.
In addition, the exact scope of CIIOs under the current regulatory regime remains unclear, and the PRC government authorities may have wide discretion in the interpretation and enforcement of these laws. Therefore, it is uncertain whether we would be deemed as a critical information infrastructure operator under PRC law. It also remains uncertain whether future regulatory changes would impose additional restrictions on companies like us and our PRC subsidiaries. We cannot predict the impact of the Revised Measures, if any, at this stage, and we will closely monitor and assess any development in the rule-making process. If we are not able to comply with the cybersecurity and data privacy requirements in a timely manner, or at all, we may be subject to government enforcement actions and investigations, fines, penalties, suspension of non-compliant operations, or removal of our application from the relevant application stores, among other sanctions, which could materially and adversely affect the business and results of operations.
If labor costs in the PRC increase substantially, the business and costs of operations may be adversely affected.
In recent years, the Chinese economy has experienced inflation and labor costs increase. Average wages are projected to continue to increase. Further, under PRC law, our PRC subsidiaries are required to pay various statutory employee benefits, including pensions, housing funds, medical insurance, work-related injury insurance, unemployment insurance and maternity insurance to designated government agencies for the benefit of their employees. The relevant government agencies may examine whether an employer has made adequate payments to the statutory employee benefits, and those employers who fail to make adequate payments may be subject to late payment fees, fines and/or other penalties. We expect that the labor costs, including wages and employee benefits, will continue to increase. If our PRC subsidiaries are unable to control the labor costs or pass such increased labor costs on to the customers by increasing the price of the products and services, their financial condition and results of operations may be adversely affected.
Competition for the employees is intense, and we may not be able to attract and retain the highly skilled employees needed to support the business.
As we continue to grow, we believe the business success depends on the efforts and talents of the employees, including software developers and financial personnel. The future success of us depends on the continued ability to attract, develop, motivate and retain highly qualified and skilled employees. Competition for highly skilled personnel is extremely intense. We may not be able to hire and retain these personnel at compensation levels consistent with the existing compensation and salary structure. Many of the companies with which we compete for experienced employees have greater resources than we have and may be able to offer more attractive terms of employment.
In addition, we invest significant time and expense in training the employees, which increases their value to competitors who may seek to recruit them. If we fail to retain the employees, we could incur significant expenses in hiring and training their replacements, and the quality of the services and ability to serve customers could diminish, resulting in a material adverse effect on the business.
| 11 |
The business depends on the continued efforts of our senior management, particularly Mr. Bin Fu. If Mr. Fu or one or more other of the key executives were unable or unwilling to continue in their present positions, the business may be severely disrupted.
The business operations depend on the continuing services of the senior management, particularly Mr. Bin Fu, our Chairman and Chief Executive Officer, and other executive officers named in this report. While we have provided different incentives to our management, we cannot assure you that we can continue to retain their services. If one or more of our key executives were unable or unwilling to continue in their present positions, we may not be able to replace them easily or at all, the future growth may be constrained, the business may be severely disrupted and the financial condition and results of operations may be materially and adversely affected, and we may incur additional expenses to recruit, train and retain qualified personnel. In addition, although we have entered into confidentiality and non-competition agreements with our key executives of our subsidiaries in the PRC, there is no assurance that any member of our management team will not join the competitors or form a competing business. If any dispute arises between us and our current or former officers, we may have to incur substantial costs and expenses in order to enforce such agreements in China or we may be unable to enforce them at all.
Our executive officers have limited experience in operating a U.S. public company, and their inability to operate the public company aspects of the business could harm us.
Our executive officers have limited experience in operating a U.S. public company, which makes our ability to comply with applicable laws, rules and regulations uncertain. Our failure to comply with all laws, rules and regulations applicable to U.S. public companies could subject us or our management to regulatory scrutiny or sanction, which could harm our reputation and share price.
From time to time, we may continue to evaluate and potentially consummate acquisitions or alliances, which could require significant management attention, disrupt the business, adversely affect the financial results, be unsuccessful or fail to achieve the desired result.
We may evaluate and consider strategic transactions, combinations, acquisitions or alliances to enhance the existing business or develop new products and services. These transactions could be material to our financial condition and results of operations if consummated. If we are able to identify an appropriate business opportunity, we may not be able to successfully consummate the transaction and, even if we consummate the transaction, we may be unable to obtain the benefits or avoid the difficulties and risks of such a transaction.
| 12 |
Any acquisition or alliance will involve risks commonly encountered in business relationships, including:
| ● | difficulties in assimilating and integrating the operations, personnel, systems, data, technologies, products and services of the acquired business; |
| ● | inability of the acquired technologies, products or businesses to achieve expected levels of revenue, profitability, productivity or other benefits; |
| ● | difficulties in retaining, training, motivating and integrating key personnel; |
| ● | diversion of management’s time and resources from normal daily operations; |
| ● | difficulties in successfully incorporating licensed or acquired technology and rights into our services; |
| ● | difficulties in retaining relationships with customers, employees and suppliers of the acquired business; |
| ● | regulatory risks; and |
| ● | liability for activities of the acquired business before the acquisition, including patent, copyright and trademark infringement claims, violations of laws, commercial disputes, tax liabilities and other known and unknown liabilities. |
We may not make any acquisitions or consummate any alliances, or any future acquisitions or alliances may not be successful. Furthermore, we may not benefit from such business strategies, nor generate sufficient revenue to offset the associated costs or may otherwise not result in the intended benefits. In addition, we cannot assure you that any future acquisition of, or alliance with respect to, new businesses or technology will lead to the successful development of new or enhanced products and services or that any new or enhanced products and services, if developed, will achieve market acceptance or prove to be profitable.
We may need additional capital, and financing may not be available on terms acceptable to us, or at all.
Although our current cash and cash equivalents and anticipated cash flows from operating activities will be sufficient to meet the anticipated working capital requirements and capital expenditures in the ordinary course of business for at least the next 12 months, there is a risk that we may need additional cash resources in the future to fund the growth plans or if we experience adverse changes in business conditions or other developments. We may also need additional cash resources in the future if we find and wish to pursue opportunities for new investments, acquisitions, capital expenditures or similar actions. If we determine that the cash requirements of us or our subsidiaries exceed the amount of cash and cash equivalents we have on hand at the time, we may seek to issue equity or debt securities or obtain credit facilities. We cannot assure you that financing will be available in amounts or on terms acceptable to us, if at all. The issuance and sale of additional equity would result in further dilution to our shareholders. The incurrence of debt could have a variety of negative effects, including:
| ● | default and foreclosure on the assets if the operating revenue is insufficient to repay debt obligations; |
| ● | acceleration of obligations to repay the indebtedness (or other outstanding indebtedness), even if we make all principal and interest payments when due, if we breach any covenants that require the maintenance of certain financial ratios or reserves without a waiver or renegotiation of that covenant; |
| ● | inability to obtain necessary additional financing if the debt security contains covenants restricting the ability to obtain such financing while the debt security is outstanding; |
| 13 |
| ● | diverting a substantial portion of cash flow to pay principal and interest on such debt, which would reduce the funds available for expenses, capital expenditures, acquisitions and other general corporate purposes; and |
| ● | creating potential limitations on the flexibility in planning for and reacting to changes in the business and in the industries in which our subsidiaries operate. |
The occurrence of any of these risks could adversely affect the operations or financial condition.
We are subject to changing laws, rules and regulations in the U.S. and other jurisdictions regarding regulatory matters, corporate governance and public disclosure that will increase both our costs and the risks associated with non-compliance.
We are subject to rules and regulations by various governing bodies, including, for example, the Securities and Exchange Commission, which are charged with the protection of investors and the oversight of companies whose securities are publicly traded, and to new and evolving regulatory measures under applicable law. Our efforts to comply with new and changing laws and regulations have resulted in and are likely to continue to result in increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities.
Moreover, because these laws, regulations and standards are subject to varying interpretations, their application in practice may evolve over time as new guidance becomes available. This evolution may result in continuing uncertainty regarding compliance matters and additional costs necessitated by ongoing revisions to our disclosure and governance practices. If we fail to address and comply with these regulations and any subsequent changes, we may be subject to penalty and the business may be harmed.
The business is subject to risks related to lawsuits and other claims brought by the clients or business partners. If the outcomes of these proceedings are adverse to us or our subsidiaries, it could have a material adverse effect on the business, results of operations and financial condition.
We are subject to lawsuits and other claims in the ordinary course of business. We are currently not involved in any lawsuits with the customers. However, claims arising out of actual or alleged violations of law could be asserted against us by individuals, companies, governmental or other entities in civil, administrative or criminal investigations and proceedings. These claims could be asserted under a variety of laws and regulations, including but not limited to contract laws, consumer protection laws or regulations, intellectual property laws, environmental laws, and labor and employment laws. These actions could expose us to adverse publicity and to monetary damages, fines and penalties, as well as suspension or revocation of licenses or permits to conduct business. Even if we eventually prevails in these matters, we could incur significant legal fees or suffer reputational harm, which could have a material adverse effect on the business and results of operations as well as the future growth and prospects.
Any failure to protect the proprietary intellectual property rights of our subsidiaries could impair the brand, negatively impact the business or both.
The success and ability to compete also depend in part on protecting the proprietary intellectual property rights of our subsidiaries. Our subsidiaries rely on a combination of copyrights, trade secrets and other rights, as well as confidentiality procedures and contractual provisions to protect their proprietary technology, processes and other intellectual property. However, the steps they take to protect their intellectual property rights may be inadequate.
| 14 |
Third parties may seek to challenge, invalidate or circumvent our subsidiaries’ copyrights, trade secrets, and other rights or applications for any of the foregoing. In order to protect their intellectual property rights, our subsidiaries may be required to spend significant resources. Litigation brought to protect and enforce intellectual property rights could be costly, time-consuming and distracting to management. The failure to secure, protect and enforce our subsidiaries’ intellectual property rights could adversely affect the brand and impact the business.
We may be sued by third parties for alleged infringement of their proprietary rights, which could harm the business.
The competitors, as well as a number of other entities and individuals, may own or claim to own intellectual property relating to the industry we compete in. From time to time, a third-party provider may claim that we are infringing on their intellectual property rights. We may, however, be unaware of the intellectual property rights that others may claim over some or all of the applications, technology or services. Any claims or litigation could cause us to incur significant expenses and, if successfully asserted against us, could require that we pay substantial damages or ongoing royalty payments, restrict us from conducting the business or require that we comply with other unfavorable terms. We may also be obligated to indemnify parties or pay substantial settlement costs, including royalty payments, in connection with any such claim or litigation and to obtain licenses, modify applications or refund fees, which could be costly. Even if our subsidiaries were to prevail in such a dispute, any litigation regarding the intellectual property could be costly and time-consuming and divert the attention of our management from the business operations.
Certain data and information in this report were obtained from third-party sources and were not independently verified by us.
This annual report contains certain data and information that we obtained from various government and private entity publications including industry information from government publications and publicly available third-party publications. Statistical data in these publications also include projections based on a number of assumptions. The online education industries may not grow at the rate projected by market data, or at all. Failure of these industries to grow at the projected rate may have a material adverse effect on the business and the market price of our ordinary shares. Furthermore, if any one or more of the assumptions underlying the market data is later found to be incorrect, actual results may differ from the projections based on these assumptions.
In addition, we have not independently verified the data and information contained in such third-party publications and reports and we did not commission any such third party for collecting or providing the data used in this report. Data and information contained in such third-party publications and reports may be collected using third-party methodologies, which may differ from the data collection methods used by us. In addition, these industry publications and reports generally indicate that the information contained therein is believed to be reliable, but do not guarantee the accuracy and completeness of such information.
Our subsidiaries may have exposure to greater than anticipated tax liabilities.
Our subsidiaries are subject to enterprise income tax, value-added tax, and other taxes in each province and city in China where they have operations. The tax structure of our subsidiaries is subject to review by various local tax authorities. The determination of the provision for income tax and other tax liabilities requires significant judgment. In the ordinary course of business, there are many transactions and calculations where the ultimate tax determination is uncertain. Although we believe the estimates are reasonable, the ultimate decisions by the relevant tax authorities may differ from the amounts recorded in our financial statements and may materially affect the financial results in the period or periods for which such determination is made.
| 15 |
We may be delayed in processing mail received at our registered office.
Mails addressed to us and received at its registered office will be forwarded unopened to the forwarding address supplied by the Company to be dealt with. None of the Company, its directors, officers, advisors or service providers (including the organization that provides registered office services in the Cayman Islands) will bear any responsibility for any delay howsoever caused in mail reaching the forwarding address.
Risks Related to Doing Business in China
The Chinese government may intervene or influence the operations at any time or may exert more control over offerings conducted overseas and foreign investment in China-based issuers, which could result in a material change in the operations and/or the value of our ordinary shares. Additionally, the PRC government has recently indicated an intent to exert more oversight over offerings that are conducted overseas and/or foreign investment in China-based issuers, which could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or be worthless.
Substantially all of the revenue is and will be derived in China and substantially all of the operations are conducted in China. Accordingly, the results of operations, financial condition and prospects are influenced by economic, political and legal developments in China, especially the government policies of the PRC government. The PRC government has significant oversight and authority to exert influence on the ability of a China-based company, such as us, to conduct its business. It regulates and may intervene or influence the operations at any time, which could result in a material adverse change in the operations and/or the value of our ordinary shares. Implementation of any industry-wide regulations directly targeting the business operations could cause our securities to significantly decline in value or become worthless. Also, the PRC government has recently indicated an intent to exert more oversight over offerings that are conducted overseas and/or foreign investment in China-based issuers and CSRC issued New Overseas Listing Rules for filing requirements with CSRC for initial public offerings and other overseas offerings, effective on March 31, 2023. Any such action could significantly limit or completely hinder our ability to offer or continue to offer securities to investors, and any uncertainties or negative publicity regarding such actions could also materially and adversely affect the business, prospects, financial condition, reputation, and the trading price of our ordinary shares, which may cause our securities to significantly decline in value or be worthless. Therefore, investors of our company and the business operations face potential uncertainty from the actions taken by the PRC government.
Moreover, the significant oversight of the PRC government could also be reflected in the uncertainties arising from the legal system in China. The laws and regulations of the PRC can change quickly without sufficient notice in advance, which makes it difficult for us to predict which kind of laws and regulations will come into force in the future and how they will influence our company and the business operations. Any actions by the Chinese government to exert more oversight and control over offerings that are conducted overseas and/or foreign investment in China-based issuers, including the filing requirement under New Overseas Listing Rules, could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or become worthless. You should refer to the risks disclosed in “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China” in this annual report for more detailed explanations of risks arising from legal systems in China, especially the recent changes concerning the offshore offerings, the use of variable interest entities, anti-monopoly regulatory actions, and oversight on cyber security and data privacy.
Due to the uncertainty and complexity of the regulatory environment, we cannot assure you that we, our PRC subsidiaries would always be in full compliance with applicable laws and regulations, the violation of which may have an adverse effect on us or indicated an intent to exert more oversight over offerings that are conducted overseas and/or foreign investment in China-based issuers. Any such action could significantly limit or completely hinder our ability to offer or continue to offer securities to investors. In addition, the implementation of industry-wide regulations directly targeting our subsidiaries’ operations could cause our securities to significantly decline in value or become worthless. Therefore, investors of our company face potential uncertainty from actions taken by the PRC government affecting our businesses.
| 16 |
China’s M&A Rules and certain other PRC regulations establish complex procedures for certain acquisitions of PRC companies by foreign investors, which could make it more difficult for us to pursue growth through acquisitions in China.
A number of PRC laws and regulations have established procedures and requirements that could make merger and acquisition activities in China by foreign investors more time consuming and complex. In addition to the Anti-Monopoly Law of PRC, these include the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rules, adopted by six PRC regulatory agencies in 2006 and amended in 2009, and the Rules of the Ministry of Commerce on Implementation of Security Review System of Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the Security Review Rules, promulgated in 2011. These laws and regulations impose requirements in some instances that the MOFCOM be notified in advance of any change-of-control transaction in which a foreign investor takes control of a PRC domestic enterprise. Moreover, the Security Review Rules specify that mergers and acquisitions by foreign investors that raise “national defense and security” concerns and mergers and acquisitions through which foreign investors may acquire de facto control over domestic enterprises that raise “national security” concerns are subject to strict review by the Ministry of Commerce, and prohibit any attempt to bypass a security review, including by structuring the transaction through a proxy or contractual control arrangement. On December 19, 2020, the NDRC and the MOFCOM jointly issued the Measures for the Security Review for Foreign Investment, which took effect on January 18, 2021. These measures set forth the provisions concerning the security review mechanism on foreign investment, including, among others, the types of investments subject to review, and the review scopes and procedures. In the future, we may grow the business by acquiring complementary businesses. Complying with the requirements of the relevant regulations to complete such transactions could be time consuming, and any required approval processes, including approval from the MOFCOM and other PRC governmental authorities, may delay or inhibit the ability to complete such transactions, which could affect the ability to expand the business or maintain the market share.
In addition, the Anti-Monopoly Law of the PRC requires that the anti-monopoly enforcement agencies and departments shall be notified in advance of any concentration of undertakings if certain thresholds are triggered. What’s more, the Anti-Monopoly Law is also undergoing its first major revision recently. On June 24, 2022, the 35th session of the Standing Committee of the 13th National People’s Congress of the People’s Republic of China adopted the Anti-Monopoly Law of the PRC, which became effective on August 1, 2022, providing the regulatory framework for the PRC anti-monopoly. In response to the abuse of market dominance in the field of the Internet platform economy, the Anti-Monopoly Law clearly stipulated that operators must not exploit any data or algorithms, technology, capital advantages, or platform rules or otherwise to engage in any monopolistic conduct prohibited by the Anti-Monopoly Law of the PRC. Utilizing data, algorithms, technology, platform rules and otherwise to set up obstacles to impose unreasonable restrictions on other operators by an operator with a dominant market position, shall be defined as an act of abusing the dominant market position.
As for the rapid development of the Internet platform economy in the PRC, relevant administrative and judicial agencies and departments published various opinions and guidelines to regulate certain activities involved. On February 7, 2021, the Anti-Monopoly Committee of the State Council published the Anti-Monopoly Guidelines for the Internet Platform Economy Sector, which stipulated that any concentration of undertakings involving variable interest entities is subject to anti-monopoly review, and elaborated on the issues related to the platform economy, such as “price discrimination against existing customers enabled by big data” and “tying arrangements.” At the press conference of the Supreme People’s Court of the PRC held on April 22, 2021, the Vice President of the Intellectual Property Tribunal in the Supreme People’s Court of the PRC stated that the Supreme People’s Court of the PRC supported and supervised the administrative law-enforcement departments in performing their duties in accordance with the laws and regulations concerning anti-monopoly, and promoted the cooperation of the administrative law-enforcement departments and the judicial system to stop and crack down monopolistic activities in the Internet industry. On August 17, 2021, the State Administration for Market Regulation, or the SAMR, solicited opinions on the Regulations on Prohibition of Internet Unfair Competition Behaviors (Draft for Public Comments), under which some Internet unfair competition behaviors will face stricter and more detailed supervision. On May 6, 2024, SAMR published the Interim Provisions on Anti Internet Unfair Competition, which became effective on September 1, 2024. The Interim Provisions on Anti Internet Unfair Competition aims to further detailing the Anti-Unfair Competition Law and the E-Commerce Law by refining and clarifying the traffic light rules for Internet competition behaviors, and supplementing and improving e-commerce competition rules combined with practical needs. Given the complex and ever-changing nature of Internet competition behaviors, the Interim Provisions on Anti Internet Unfair Competition classifies and refines these behaviors, establishing clear standards for their identification.
| 17 |
In the future, we may grow the business by acquiring complementary businesses. Complying with the requirements of the above-mentioned regulations and other relevant rules to complete such transactions could be time-consuming, and any required approval processes, including obtaining approval from the MOFCOM or its local counterparts may delay or inhibit the ability to complete such transactions. It is unclear whether the business would be deemed to be in an industry that raises “national defense and security” or “national security” concerns. However, the MOFCOM or other government agencies may publish explanations in the future determining that our business is in an industry subject to the security review, in which case the future acquisitions in the PRC, may be closely scrutinized or prohibited. The ability to expand the business or maintain or expand the market share through future acquisitions would as such be materially and adversely affected.
The filing with the China Securities Regulatory Commission (“CSRC”) is required in connection with any offerings and certain events of the Company under New Overseas Listing Rules, and we cannot assure you that we will be able to timely make such filing, in which case we may face sanctions by the CSRC or other PRC regulatory agencies for failure to timely file with the CSRC.
On February 17, 2023, the CSRC released the New Overseas Listing Rules, which took effect on March 31, 2023. The New Overseas Listing Rules require Chinese domestic enterprises to complete filings with relevant CSRC and report related information under certain circumstances, such as: a) an issuer making an application for initial public offering and listing in an overseas market; b) an issuer making an overseas securities offering after having been listed on an overseas market; c) a domestic company seeking an overseas direct or indirect listing of its assets through single or multiple acquisition(s), share swap, transfer of shares or other means. According to the Notice on Arrangements for Overseas Securities Offering and Listing by Domestic Enterprises, published by the CSRC on February 17, 2023, a company that (i) has already completed overseas listing or (ii) has already obtained the approval for the offering or listing from overseas securities regulators or exchanges but has not completed such offering or listing before effective date of the new rules and also completes the offering or listing before September 30, 2023 will be considered as an existing listed company and is not required to make any filing until it conducts a new offering in the future. Furthermore, upon the occurrence of any of the material events specified below after an issuer has completed its offering and listed its securities on an overseas stock exchange, the issuer shall submit a report thereof to the CSRC within 3 business days after the occurrence and public disclosure of the event: (i) change of control; (ii) investigations or sanctions imposed by overseas securities regulatory agencies or other competent authorities; (iii) change of listing status or transfer of listing segment; or (iv) voluntary or mandatory delisting. The New Overseas Listing Rules stipulate the legal consequences to the companies for breaches, including failure to fulfil filing obligations or filing documents having false statement or misleading information or material omissions, which may result in a fine ranging from RMB1 million to RMB10 million, and in cases of severe violations, the relevant responsible persons may also be barred from entering the securities market. Our PRC counsel has advised us based on their understanding of the current PRC laws, rules and regulations relating to the CSRC’s filing requirements, we are not required to file with CSRC in accordance with the New Overseas Listing Rules immediately, but shall carry out filing procedures as required if we conduct any overseas offerings or fall within other circumstances that require filing with the CSRC. Given the current PRC regulatory environment, it is uncertain when and whether we and our PRC subsidiaries will be required to obtain other permissions or approvals from the PRC government to list on U.S. exchanges in the future, and even if and when such permissions or approvals are obtained, whether they will be denied or rescinded. If we or any of our PRC subsidiaries do not receive or maintain such permissions or approvals, inadvertently conclude that such permissions or approvals are not required, or applicable laws, regulations, or interpretations change and we or our subsidiaries are required to obtain such permissions or approvals in the future, it could significantly limit or completely hinder our ability to offer or continue to offer our securities to investors and cause the value of our securities to significantly decline or become worthless.
| 18 |
PRC regulations on loans to, and direct investment in, PRC entities by offshore holding companies and governmental control in currency conversion may delay or prevent us from using the proceeds of our offshore financing to make loans or additional capital contributions to our PRC subsidiaries, which could materially and adversely affect such PRC entities’ liquidity and our ability to fund and expand the business.
We are a Cayman Islands exempted company with the operations being conducted by our PRC subsidiaries. As permitted under PRC laws and regulations, in utilizing the proceeds of our initial public offering, we may make loans to the WOFE subject to the approval from governmental authorities and limitation of amount, or we may make additional capital contributions to the WOFE. In particular, loans by us to our PRC subsidiaries to finance their activities cannot exceed statutory limits and must be registered with the local counterpart of the SAFE and capital contributions to our PRC subsidiaries are subject to the requirement of making necessary filings in the Foreign Investment Comprehensive Management Information System, and registration with other governmental authorities in China. Pursuant to currently applicable PRC regulations, the statutory limit for the total amount of foreign debts of a foreign-invested company such as the WOFE is either the difference between the amount of total investment as approved by the MOFCOM or its local counterpart and the amount of registered capital of such foreign-invested company or twice of the net worth of the foreign-invested company.
On March 30, 2015, SAFE promulgated the Circular on Reforming the Administration Measures on Conversion of Foreign Exchange Registered Capital of Foreign-invested Enterprises, or SAFE Circular 19 (2015). SAFE Circular 19 (2015) allows foreign invested enterprises in China to use their RMB registered capital converted from foreign currencies to make equity investments, but such registered capital must not be used, among other things, for investment in the security markets, or offering entrustment loans, unless otherwise regulated by other laws and regulations. On June 9, 2016, SAFE further issued the Circular of the State Administration of Foreign Exchange on Reforming and Regulating Policies on the Control over Foreign Exchange Settlement of Capital Accounts, or SAFE Circular 16 (2016), which, among other things, amended certain provisions of Circular 19 (2015). According to SAFE Circular 19 (2015) and SAFE Circular 16 (2016), the flow and use of the RMB capital converted from a foreign currency-denominated registered capital of a foreign invested company is regulated such that RMB capital may not be used for purposes beyond its business scope or to provide loans to non-affiliates unless otherwise permitted under its business scope. On October 23, 2019, SAFE promulgated the Circular of the State Administration of Foreign Exchange on Further Promoting the Facilitation of Cross-Border Trade and Investment, or SAFE Circular 28 (2019), which removes the restrictions on domestic equity investments by non-investment foreign-invested enterprises with their capital funds, provided that certain conditions are met. On April 10, 2020, SAFE promulgated Notice of the SAFE on Optimizing Foreign Exchange Administration to Support the Development of Foreign-related Business, or SAFE Circular 8 (2020), which simplifies the procedures of domestic payments with the use of registered capital, foreign debt and overseas listing by qualified enterprises. On December 31, 2020, the People’s Bank of China, together with the National Development and Reform Commission, Ministry of Commerce, State-owned Assets Supervision and Administration Commission of the State Council, China Banking and Insurance Regulatory Commission, and SAFE, jointly issued the Notice on Further Optimizing Cross-border RMB Policies to Support the Stabilization of Foreign Trade and Foreign Investment, or PBOC Notice 330 (2020), which came into force on February 4, 2021. The PBOC Notice 330 (2020) aims to optimize the administration of cross-border RMB investment and financing by taking measures to relax the restrictions on the use of RMB income under certain capital accounts, facilitating reinvestment in China by foreign-invested enterprises, cancelling the relevant special account management requirements for foreign direct investment, optimizing the administration of overseas RMB borrowings of domestic enterprises and simplifying the administration of overseas RMB loans of domestic enterprises. However, the implementation of PBOC Notice 330 (2020) may still have regional differences, which depends on the domestic banks located in different provinces.
| 19 |
On August 29, 2008, SAFE promulgated the Circular on the Relevant Operating Issues Concerning the Improvement of the Administration of the Payment and Settlement of Foreign Currency Capital of Foreign-Invested Enterprises, or SAFE Circular 142, regulating the conversion by a foreign-invested enterprise of foreign currency registered capital into RMB by restricting how the converted RMB may be used. SAFE Circular 142 provides that the RMB capital converted from foreign currency registered capital of a foreign-invested enterprise may only be used for purposes within the business scope approved by the applicable governmental authority and may not be used for equity investments within the PRC unless otherwise provided by law. In addition, SAFE strengthened its oversight of the flow and use of the RMB capital converted from foreign currency registered capital of a foreign-invested company. The use of such RMB capital may not be altered without SAFE approval, and such RMB capital may not in any case be used to repay RMB loans if the proceeds of such loans have not been used. Violations of SAFE Circular 142 could result in severe monetary or other penalties. On July 4, 2014, SAFE issued the Circular of the SAFE on Relevant Issues Concerning the Pilot Reform in Certain Areas of the Administrative Method of the Conversion of Foreign Exchange Funds by Foreign-invested Enterprises, or SAFE Circular 36, which launched the pilot reform of administration regarding the conversion of foreign currency registered capitals of foreign-invested enterprises in 16 pilot areas. According to SAFE Circular 36, some of the restrictions under SAFE Circular 142 will not apply to the settlement of the foreign exchange capital of an ordinary foreign-invested enterprise in the pilot areas, and such a foreign-invested enterprise is permitted to use Renminbi converted from its foreign-currency registered capital to make equity investments in the PRC within and in accordance with the authorized business scope of such foreign-invested enterprises, subject to certain registration and settlement procedures as set forth in SAFE Circular 36. As this circular is relatively new, there remains uncertainty as to its interpretation and application and any other future foreign exchange related rules. On March 30, 2015, SAFE promulgated the Circular on Reforming the Management Approach regarding the Settlement of Foreign Exchange Capital of Foreign-invested Enterprises, or SAFE Circular 19, which was last amended on March 23, 2023. However, SAFE Circular 19 continues to prohibit a foreign-invested enterprise from, among other things, using RMB funds converted from its foreign exchange capital for expenditure beyond its authorized business scope, providing entrusted loans or repaying loans between non-financial enterprises. On June 9, 2016, SAFE further issued the Circular on Management of Foreign Exchange Settlement under the Capital Account, or SAFE Circular 16, which, among other things, amended certain provisions of Circular 19. According to SAFE Circular 19 and SAFE Circular 16, the flow and use of the RMB capital converted from foreign currency-denominated registered capital of a foreign invested company is regulated such that Renminbi capital may not be used for purposes beyond its business scope or to provide loans to non-affiliates unless otherwise permitted under its business scope. On October 23, 2019, SAFE promulgated the Circular of the State Administration of Foreign Exchange on Further Promoting the Facilitation of Cross-Border Trade and Investment, or SAFE Circular 28 (2019), which removes the restrictions on domestic equity investments by non-investment foreign-invested enterprises with their capital funds, provided that certain conditions are met. On April 10, 2020, SAFE promulgated Notice of the SAFE on Optimizing Foreign Exchange Administration to Support the Development of Foreign-related Business, or SAFE Circular 8 (2020), which simplifies the procedures of domestic payments with the use of registered capital, foreign debt and overseas listing by qualified enterprises. On December 31, 2020, the People’s Bank of China, together with the National Development and Reform Commission, Ministry of Commerce, State-owned Assets Supervision and Administration Commission of the State Council, China Banking and Insurance Regulatory Commission, and SAFE, jointly issued the Notice on Further Optimizing Cross-border RMB Policies to Support the Stabilization of Foreign Trade and Foreign Investment, or PBOC Notice 330 (2020), which came into force on February 4, 2021. The PBOC Notice 330 (2020) aims to optimize the administration of cross-border RMB investment and financing by taking measures to relax the restrictions on the use of RMB income under certain capital accounts, facilitating reinvestment in China by foreign-invested enterprises, cancelling the relevant special account management requirements for foreign direct investment, optimizing the administration of overseas RMB borrowings of domestic enterprises and simplifying the administration of overseas RMB loans of domestic enterprises. However, the implementation of PBOC Notice 330 (2020) may still have regional differences, which depends on the domestic banks located in different provinces. The applicable foreign exchange circulars and rules may significantly limit the ability to use RMB converted from the net proceeds of our initial public offering to fund the establishment of new entities in China by the WOFE, to invest in or acquire any other PRC companies through the WOFE, or to establish new consolidated VIEs in the PRC.
In light of the various requirements imposed by PRC regulations on loans to, and direct investment in, PRC entities by offshore holding companies, we cannot assure you that we will be able to complete the necessary government registrations or obtain the necessary government approvals on a timely basis, if at all, with respect to future loans or capital contributions by us to the WOFE. If we fail to complete such registrations or obtain such approvals, our ability to use the proceeds from our offshore financing and to capitalize or otherwise fund our PRC subsidiaries’ operations may be negatively affected, which could materially and adversely affect the WOFE’s or our PRC subsidiaries’ liquidity and the ability to fund and expand our business.
| 20 |
We could be delisted if it is determined that the Public Company Accounting Oversight Board is unable to inspect or investigate our auditor completely.
The HFCAA was enacted on December 18, 2020. Pursuant to the HFCAA and related regulations, if we have filed an audit report issued by a registered public accounting firm that the PCAOB has determined that it is unable to inspect and investigate completely, the SEC will identify us as a “Commission-identified Issuer,” and the trading of our securities on any U.S. national securities exchanges, as well as any over-the-counter trading in the United States, will be prohibited if we are identified as a Commission-identified Issuer for two consecutive years. In August 2022, the PCAOB, the CSRC and the Ministry of Finance of the PRC signed the Statement of Protocol, which establishes a specific and accountable framework for the PCAOB to conduct inspections and investigations of PCAOB-governed accounting firms in mainland China and Hong Kong. On December 15, 2022, the PCAOB announced that it was able to secure complete access to inspect and investigate PCAOB-registered public accounting firms headquartered in mainland China and Hong Kong completely in 2022. The PCAOB Board vacated its previous 2021 determinations that the PCAOB was unable to inspect or investigate completely registered public accounting firms headquartered in mainland China and Hong Kong.
Our auditor Guangdong Prouden CPAs GP is based in China and not subject to the determinations announced by the PCAOB on December 16, 2021. However, whether the PCAOB will re-evaluate its determination as a result of any obstruction with the implementation of the Statement of Protocol in the future is subject to uncertainties and depends on a number of factors out of our and our auditor’s control. The PCAOB continues to demand complete access in mainland China and Hong Kong moving forward and to pursue ongoing investigations and initiate new investigations as needed. The PCAOB has also indicated that it will act immediately to consider the need to issue new determinations with the HFCAA if needed. If it is later determined that the PCAOB is unable to inspect or investigate completely our auditor because of a position taken by an authority in a foreign jurisdiction or any other reasons, the lack of inspection could cause the trading in our securities to be prohibited under the Holding Foreign Companies Accountable Act and related regulations, and as a result Nasdaq may delist our securities. If our securities are unable to be listed on another securities exchange, such a delisting would substantially impair your ability to sell or purchase our securities when you wish to do so, and the risk and uncertainty associated with a potential delisting would have a negative impact on the price of our ordinary shares. Further, new laws and regulations or changes in laws and regulations in both the United States and China could affect our ability to list our ordinary shares on Nasdaq, which could materially impair the market for and market price for our securities.
| 21 |
Uncertainties in the interpretation and enforcement of PRC laws and regulations could limit the legal protections available to you and us.
Our PRC subsidiaries are subject to various PRC laws and regulations generally applicable to companies in China. The PRC legal system is based on written statutes. Unlike common law systems, it is a system in which legal cases have limited value as precedents. In the late 1970s, the PRC government began to promulgate a comprehensive system of laws and regulations governing economic matters in general. The overall effect of legislation over the past four decades has significantly increased the protections afforded to various forms of foreign or private-sector investment in China.
There are substantial uncertainties regarding the interpretation and application of PRC laws and regulations, including, but not limited to, the laws and regulations governing our PRC subsidiaries’ business. These laws and regulations may be subject to change, the enforcement of laws and regulations in China could be uncertain and the rules and policies in China may change quickly with little advance notice, which could result in a material adverse change in the operations and the value of our ordinary shares. New laws and regulations that affect existing and proposed future businesses may also be applied retroactively. If we do not receive or maintain the approvals, or we inadvertently conclude that such approvals are not required, or if these applicable laws, regulations or interpretations change or are interpreted differently and our PRC subsidiaries is required by the CSRC, the CAC, or any other PRC regulatory authorities to obtain such approvals in the future, our shares may decline in value or become worthless if we can’t obtain such approvals. In any such event, these regulatory authorities may impose fines and penalties on the operations in China, limit the operating privileges in China, delay or restrict the repatriation of the proceeds from this offering into the PRC or take other actions that could have a material adverse effect on the business, financial condition, the value of securities, as well as our ability to offer or continue to offer securities to investors or cause such securities to significantly decline in value or become worthless.
From time to time, we may have to resort to administrative and court proceedings to enforce the legal rights of us or our PRC subsidiaries. However, since PRC administrative and court authorities have significant discretion in interpreting and implementing statutory and contractual terms, it may be more difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection we or our PRC subsidiaries enjoy than in more developed legal systems. Furthermore, the PRC legal system is based in part on government policies and internal rules (some of which are not published in a timely manner or at all) that may have retroactive effects. As a result, we may not be aware of the violation of these policies and rules until sometime after the violation. Such uncertainties, including uncertainty over the scope and effect of our contractual, property (including intellectual property) and procedural rights, and any failure to respond to changes in the regulatory environment in China could materially and adversely affect the business and impede the ability to continue the operations.
Additionally, shareholder claims that are common in the United States, including securities law class actions and fraud claims, generally are difficult to pursue as a matter of law or practicality in China. For example, in China, there are significant legal and other obstacles to obtaining information needed for shareholder investigations or litigation outside China or otherwise with respect to foreign entities. Although the local authorities in China may establish a regulatory cooperation mechanism with the securities regulatory authorities of another country or region to implement cross-border supervision and administration, such regulatory cooperation with the securities regulatory authorities in the United States has not been efficient in the absence of a mutual and practical cooperation mechanism. As per Article 177 of the PRC Securities Law which became effective on March 1, 2020, no overseas securities regulator is allowed to directly conduct investigation or evidence collection activities within the territory of the PRC. Hence, without the consent and approval of the competent PRC securities regulators and relevant authorities, no organization or individual may provide documents and materials relating to securities business activities to overseas securities regulators. Other similar expressions in existing regulations before the PRC Securities Law became effective include Article 3, Article 4 and Article 6 of the Provisions on Strengthening Confidentiality and Archives Administration in Overseas Issuance and Listing of Securities and Article 12 of the Notice of the Ministry of Finance on Issuing the Provisional Rules for Accounting Firms Engaged in Audit Services in Respect of Overseas Listing of Chinese Mainland Enterprises. Under the aforesaid existing regulations, in the event the working papers aforesaid involve any state secrets, national security or vital interests of China, such working papers shall not be carried or delivered overseas, or transmitted to overseas institutions or individuals by any means such as information technology without the approval of the relevant competent authorities.
| 22 |
The enforcement of the PRC Labor Contract Law and other labor-related regulations in the PRC may adversely affect our business and results of operations.
The PRC Labor Law and the Labor Contract Law require that employers must execute written employment contracts with full-time employees. All employers must compensate their employees with wages equal to at least the local minimum wage standards. Violations of the PRC Labor Law and the Labor Contract Law may result in the imposition of fines, compensations and other administrative sanctions, and serious violations may constitute criminal offenses.
The PRC Labor Contract Law became effective and was implemented on January 1, 2008, which was amended on December 28, 2012. It has reinforced the protection of employees who, under the PRC Labor Contract Law, have the right, among others, to have written labor contracts, to enter into labor contracts with no fixed terms under certain circumstances, to receive overtime wages and to terminate or alter terms in labor contracts. According to the PRC Social Insurance Law, which became effective on July 1, 2011 and was amended on December 29, 2018, and the Administrative Regulations on the Housing Funds, companies operating in China are required to participate in pension insurance, work-related injury insurance, medical insurance, unemployment insurance, maternity insurance and housing funds plans, and the employers must pay all or a portion of the social insurance premiums and housing funds for their employees.
As the interpretation and implementation of these laws and regulations are still evolving, our’s employment practices may not at all times be deemed in compliance with the new laws and regulations. If we or our PRC subsidiaries are subject to severe penalties or incurs significant liabilities in connection with labor disputes or investigations, the business and results of operations may be adversely affected.
Changes in China’s economic, political or social conditions or government policies could have a material adverse effect on the business and operations.
Currently, a lot of the business operations are conducted in China through our PRC subsidiaries and all of the sales are made in China. Accordingly, the business, financial condition, results of operations and prospects may be influenced to a significant degree by political, economic and social conditions in China generally and by continued economic growth in China as a whole.
China’s economy differs from the economies of most developed countries in many respects, including the level of government involvement, level of development, growth rate, control of foreign exchange and allocation of resources. Although the PRC government has implemented measures since the late 1970’s emphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive assets, and the establishment of improved corporate governance in business enterprises, which are generally viewed as a positive development for foreign business investment, a substantial portion of productive assets in China is still owned by the PRC government. In addition, the PRC government continues to play a significant role in regulating industry development by imposing industrial policies. The PRC government also exercises significant control over the PRC economic growth through allocating resources, controlling payments of foreign currency-denominated obligations, setting monetary policy, and providing preferential treatment to particular industries or companies. If the clients of our subsidiaries reduce their demand for their services due to the policies of the Chinese government, this could adversely impact the business, financial condition and operating results.
| 23 |
While China’s economy has experienced significant growth over the past decades, growth has been uneven, both geographically and among various sectors of the economy, and the rate of growth has been slowing. Some of the governmental measures may benefit the overall Chinese economy, but may have a negative effect on us. For example, the financial condition and results of operations may be adversely affected by government control over capital investments or changes in tax regulations. Any stimulus measures designed to boost the Chinese economy may contribute to higher inflation, which could adversely affect the results of operations and financial condition. For example, certain operating costs and expenses, such as employee compensation and office operating expenses, may increase as a result of higher inflation. In addition, the PRC government has implemented in the past certain measures to control the pace of economic growth. These measures may cause decreased economic activity, which in turn could lead to a reduction in demand for the services of our subsidiaries and consequently have a material adverse effect on the business, financial condition and results of operations.
PRC regulations relating to foreign exchange registration of overseas investment by PRC residents may subject our PRC resident beneficial owners or the WOFE to liability or penalties, limit our ability to inject capital into the WOFE, limit the WOFE’s ability to increase its registered capital or distribute profits to us, or may otherwise adversely affect us, the WOFE or our PRC subsidiaries.
On July 4, 2014, the State Administration of Foreign Exchange (“SAFE”) promulgated the Circular on Relevant Issues Relating to Domestic Resident’s Investment and Financing and Roundtrip Investment through Special Purpose Vehicles, or SAFE Circular 37, which replaced the former Notice on Relevant Issues Concerning Foreign Exchange Administration for PRC Residents to Engage in Financing and Inbound Investment via Overseas Special Purpose Vehicles (generally known as SAFE Circular 75) promulgated by SAFE on October 21, 2005. On February 13, 2015, SAFE further promulgated the Circular on Further Simplifying and Improving the Administration of the Foreign Exchange Concerning Direct Investment, or SAFE Circular 13, which took effect on June 1, 2015. The attachment of SAFE Circular 13 was last amended on December 30, 2019. This SAFE Circular 13 has amended SAFE Circular 37 by requiring PRC residents or entities to register with qualified banks rather than SAFE or its local branch in connection with their direct establishment or indirect control of an offshore entity established for the purpose of overseas investment or financing, for the purpose of overseas investment and financing, with such PRC residents’ legally owned assets or equity interests in domestic enterprises or offshore assets or interests. Qualified local banks will directly examine and accept foreign exchange registration for overseas direct investment, including the initial foreign exchange registration and amendment registration, under Circular 37 from June 1, 2015. The SAFE Circular 13 simplifies procedures for some direct investment-related foreign exchange transactions and cancels annual check of foreign exchange for direct investment and replaces it with registration for accumulated equity in domestic and overseas direct investment. Moreover, a failure to comply with the various registration requirements described above could result in liability under PRC law for evasion of foreign exchange controls.
These circulars further require amendments to the registration in the event of any significant changes with respect to the special purpose vehicle, such as an increase or decrease of capital contributed by PRC residents, share transfer or exchange, merger, division or other material events. In the event that a PRC resident holding interests in a special purpose vehicle fails to complete the required SAFE registration, the PRC subsidiary of that special purpose vehicle may be prohibited from making profit distributions to the offshore parent and from carrying out subsequent cross-border foreign exchange activities, and the special purpose vehicle may be restricted in its ability to contribute additional capital into its PRC subsidiary. Furthermore, it is unclear how this regulation, and any future regulation concerning offshore or cross-border transactions, will be interpreted, amended and implemented by the relevant PRC government authorities, and we cannot predict how these regulations will affect the business operations or future strategy. Failure to comply with the various SAFE registration requirements described above could result in liability under PRC law for evasion of foreign exchange controls. This may have a material adverse effect on the business, financial condition and results of operations.
According to Circular 37 and Circular 13, our shareholders or beneficial owners who are PRC residents are subject to Circular 37 or other foreign exchange administrative regulations in respect of their investment in our company. To the best of our knowledge, our PRC resident shareholders who directly or indirectly hold shares in our Cayman Islands exempted company and who are known to us have initiated the application for foreign exchange registrations for their foreign investment in our company in accordance with Circular 37 and Circular 13. We have taken steps to notify significant beneficial owners of ordinary shares whom we know are PRC residents of their filing obligations. However, we may not at all times be fully aware or informed of the identities of all our shareholders or beneficial owners that are required to make such registrations, and we may not always be able to compel them to comply with all relevant foreign exchange regulations. As a result, we cannot assure you that all of our shareholders or beneficial owners who are PRC residents will at all times comply with, or in the future make or obtain any applicable registrations or approvals required by all relevant foreign exchange regulations. The failure or inability of such individuals to comply with the registration procedures set forth in these regulations may subject us to fines or legal sanctions, restrictions on our cross-border investment activities or the WOFE’s ability to distribute dividends to, or obtain foreign-exchange-dominated loans from, our company, or prevent us from making distributions or paying dividends. As a result, the business operations and our ability to make distributions to you could be materially and adversely affected.
| 24 |
Furthermore, as these foreign exchange regulations are still relatively new and their interpretation and implementation have been constantly evolving, it is unclear how these regulations, and any future regulations concerning offshore or cross-border transactions, will be interpreted, amended and implemented by the relevant government authorities. We cannot predict how these regulations will affect the business operations or future strategy. In addition, if we decide to acquire a PRC domestic company, we cannot assure you that we or the owners of such company, as the case may be, will be able to obtain the necessary approvals or complete the necessary filings and registrations required by the foreign exchange regulations. This may restrict our ability to implement our acquisition strategy and could adversely affect the business and prospects.
Under the PRC Enterprise Income Tax Law, we may be classified as a PRC “resident enterprise” for PRC enterprise income tax purposes. Such classification would likely result in unfavorable tax consequences to us and our non-PRC shareholders and has a material adverse effect on the results of operations and the value of your investment.
Under the PRC Enterprise Income Tax Law, or the EIT Law, that became effective in January 2008 and was last amended in December 2018, as well as its implementing rules, an enterprise established outside the PRC with “de facto management bodies” within the PRC is considered a “resident enterprise” for PRC enterprise income tax purposes and is generally subject to a uniform 25% enterprise income tax rate on its worldwide income. Under the implementation rules of the EIT Law, a “de facto management body” is defined as a body that has material and overall management and control over the manufacturing and business operations, personnel and human resources, finances and properties of an enterprise. In addition, a circular, known as SAT Circular 82, issued in April 2009 by the State Administration of Taxation, or the SAT, specifies that certain offshore incorporated enterprises controlled by PRC enterprises or PRC enterprise groups will be classified as PRC resident enterprises if the following are located or resident in the PRC: senior management personnel and departments that are responsible for daily production, operation and management; financial and personnel decision making bodies; key properties, accounting books, company seal, and minutes of board meetings and shareholders’ meetings; and half or more of the senior management or directors having voting rights. Further to SAT Circular 82, the SAT issued a bulletin, known as SAT Bulletin 45, which took effect in September 2011, to provide more guidance on the implementation of SAT Circular 82 and clarify the reporting and filing obligations of such “Chinese-controlled offshore incorporated resident enterprises.” SAT Bulletin 45 provides procedures and administrative details for the determination of resident status and administration on post-determination matters. Although both SAT Circular 82 and SAT Bulletin 45 only apply to offshore enterprises controlled by PRC enterprises or PRC enterprise groups, not those controlled by PRC individuals or foreign individuals, the determining criteria set forth in SAT Circular 82 and SAT Bulletin 45 may reflect the SAT’s general position on how the “de facto management body” test should be applied in determining the tax resident status of offshore enterprises, regardless of whether they are controlled by PRC enterprises, PRC enterprise groups or by PRC or foreign individuals.
We do not believe that the Company meets all of the conditions above thus we do not believe that the Company is a PRC resident enterprise, though all members of our management team as well as the management team of our offshore holding company are located in China. However, if the PRC tax authorities determine that the Company is a PRC resident enterprise for PRC enterprise income tax purposes, a number of unfavorable PRC tax consequences could follow. First, we will be subject to the uniform 25% enterprise income tax on the world-wide income, which could materially reduce the net income. In addition, we will also be subject to PRC enterprise income tax reporting obligations. However, the tax resident status of an enterprise is subject to determination by the PRC tax authorities and uncertainties remain with respect to the interpretation of the term “de facto management body.”
Finally, dividends payable by us to our investors and gains on the sale of our shares may become subject to PRC withholding tax, at a rate of 10% in the case of non-PRC enterprises or 20% in the case of non-PRC individuals (in each case, subject to the provisions of any applicable tax treaty), if such gains are deemed to be from PRC sources. It is unclear whether non-PRC shareholders of our company would be able to claim the benefits of any tax treaties between their country of tax residence and the PRC in the event that we are treated as a PRC resident enterprise. Any such tax may reduce the returns on your investment in our ordinary shares.
| 25 |
There are significant uncertainties under the PRC Enterprise Income Tax Law relating to the withholding tax liabilities of our PRC subsidiaries, and dividends payable by our PRC subsidiaries to our offshore subsidiaries may not qualify to enjoy certain treaty benefits.
Under the PRC Enterprise Income Tax Law and its implementation rules, we, as a non-resident enterprise, that is, an enterprise lawfully incorporated pursuant to the laws of a foreign country (region) that has an office or premises established in China with no actual management functions performed in China, or an enterprise that has income derived from or accruing in China although it does not have an office or premises in China, will be subject to a withholding tax rate of 10%. Pursuant to a special arrangement between Hong Kong and China, such rate may be reduced to 5% if a Hong Kong resident enterprise owns more than 25% of the equity interest in the PRC company. Craftsman Wuxi is wholly owned by Easy Skills Technology Limited (“Hong Kong ES”). Accordingly, Hong Kong ES may qualify for a 5% tax rate in respect of distributions from Craftsman Wuxi. Under the Notice of the State Administration of Taxation on Issues regarding the Administration of the Dividend Provision in Tax Treaties promulgated on February 20, 2009, the taxpayer needs to satisfy certain conditions to enjoy the benefits under a tax treaty. These conditions include: (1) the taxpayer must be the beneficial owner of the relevant dividends, and (2) the corporate shareholder to receive dividends from the PRC subsidiary must have continuously met the direct ownership thresholds during the 12 consecutive months preceding the receipt of the dividends. Further, under the Announcement of the State Administration of Taxation on Issues Relating to “Beneficial Owner” in Tax Treaties, which took effect on April 1, 2018, a “Beneficial Owner” shall mean a person who has ownership and control over the income and the rights and property from which the income is derived. To determine the “beneficial owner” status of a resident of the treaty counterparty who needs to enjoy the tax treaty benefits, a comprehensive analysis shall be carried out, taking into account the actual conditions of the specific case.
Entitlement to a lower tax rate on dividends according to tax treaties or arrangements between the PRC central government and governments of other countries or regions is subject to State Administration of Taxation Circular 60 (“Circular 60”). Circular 60 provides that non-resident enterprises are not required to obtain pre-approval from the relevant tax authority in order to enjoy the reduced withholding tax. Instead, non-resident enterprises and their withholding agents may, by self-assessment and on confirmation that the prescribed criteria to enjoy the tax treaty benefits are met, directly apply the reduced withholding tax rate, and file necessary forms and supporting documents when performing tax filings, which will be subject to post-tax filing examinations by the relevant tax authorities. As a result, we cannot assure you that we will be entitled to any preferential withholding tax rate under tax treaties for dividends received from Craftsman Wuxi. In October 2019, the State Administration of Taxation published new rules on administrative measures for non-resident taxpayers to enjoy treatments under tax treaties, or Circular 35, which became effective on January 1, 2020. Circular 35 simplified the procedures to claim treaty benefits from “filing documents for record” to “retaining documents for follow-up.”
Enhanced scrutiny over acquisition transactions by the PRC tax authorities may have a negative impact on potential acquisitions we may pursue in the future.
Pursuant to the Notice on Strengthening Administration of Enterprise Income Tax for Share Transfers by Non-PRC Resident Enterprises, or SAT Circular 698, issued by the SAT on December 10, 2009, where a foreign investor transfers the equity interests of a resident enterprise indirectly via disposition of the equity interests of an overseas holding company, or an “indirect transfer,” and such overseas holding company is located in a tax jurisdiction that (i) has an effective tax rate less than 12.5% or (ii) does not tax the foreign income of its residents, the foreign investor shall report the indirect transfer to the competent tax authority. The PRC tax authority will examine the true nature of the indirect transfer, and if the tax authority considers that the foreign investor has adopted an “abusive arrangement” in order to avoid PRC tax, it may disregard the existence of the overseas holding company and re-characterize the indirect transfer and as a result, gains derived from such indirect transfer may be subject to PRC withholding tax at a rate of up to 10%.
On February 3, 2015, the SAT issued the Announcement of the State Administration of Taxation on Several Issues Concerning the Enterprise Income Tax on Indirect Property Transfer by Non-Resident Enterprises, or SAT Bulletin 7, to supersede existing provisions in relation to the “indirect transfer” as set forth in Circular 698, while the other provisions of Circular 698 remain in force. Pursuant to SAT Bulletin 7, where a non-resident enterprise indirectly transfers properties such as equity in PRC resident enterprises without any justifiable business purposes and aiming to avoid the payment of enterprise income tax, such indirect transfer must be reclassified as a direct transfer of equity in PRC resident enterprise. To assess whether an indirect transfer of PRC taxable properties has reasonable commercial purposes, all arrangements related to the indirect transfer must be considered comprehensively and factors set forth in SAT Bulletin 7 must be comprehensively analysed in light of the actual circumstances. SAT Bulletin 7 also provides that, where a non-PRC resident enterprise transfers its equity interests in a resident enterprise to its related parties at a price lower than the fair market value, the competent tax authority has the power to make a reasonable adjustment to the taxable income of the transaction.
| 26 |
On October 17, 2017, the SAT issued the Announcement of the State Administration of Taxation on Matters Concerning Withholding of Income Tax of Non-resident Enterprises as Source, or SAT Bulletin 37, which repealed the entire Circular 698 and the provision in relation to the time limit for the withholding agent to declare to the competent tax authority for payment of such tax of SAT Bulletin 7. Pursuant to SAT Bulletin 37, the income from a property transfer, as stipulated in the second item under Article 19 of the Law on Enterprise Income Tax, shall include the income derived from transferring such equity investment assets as stock equity. The balance after deducting the equity’s net value from the total income from equity transfer shall be taxable income from equity transfer. Where a withholding agent enters into a business contract, involving the income specified in the third paragraph of Article 3 of the Law on Enterprise Income Tax, with a non-resident enterprise, the tax-excluding income of the non-resident enterprise will be treated as the tax-including income, based on which the tax payment will be calculated and remitted, if it is agreed in the contract that the withholding agent shall assume the tax payable.
There has been limited application of SAT Bulletin 7 and SAT Bulletin 37 because these regulations were issued and came into force in February 2015 and December 2017, respectively. During the effective period of SAT Circular 698, some intermediary holding companies were actually looked through by the PRC tax authorities, and consequently the non-PRC resident investors were deemed to have transferred the PRC subsidiary and PRC corporate taxes were assessed accordingly. It is possible that we or our non-PRC resident investors may become at risk of being taxed under SAT Bulletin 7 and SAT Bulletin 37 and may be required to expend valuable resources to comply with SAT Bulletin 7 and SAT Bulletin 37 or to establish that we or our non-PRC resident investors should not be taxed under SAT Bulletin 7 and SAT Bulletin 37, which may have an adverse effect on the financial condition and results of operations or such non-PRC resident investors’ investment in us.
The WOFE is subject to restrictions on paying dividends or making other payments to us, which may restrict our ability to satisfy our liquidity requirements.
We are an exempted company incorporated in the Cayman Islands structured as a holding company. We may need dividends and other distributions on equity from the WOFE to satisfy our liquidity requirements. Current PRC regulations permit the WOFE to pay dividends to us only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, the WOFE 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 their respective registered capital. The WOFE 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 WOFE incurs debt on their own behalf in the future, the instruments governing the debt may restrict their 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 WOFE’s ability to pay dividends and other distributions to us. Any limitation on the ability of the WOFE to distribute dividends to us or to make payments to us may restrict our ability to satisfy our liquidity requirements.
In addition, the EIT Law, and its implementation rules provide that a withholding tax rate of up to 10% will be applicable to dividends payable by Chinese companies to non-PRC-resident enterprises unless otherwise exempted or reduced according to treaties or arrangements between the PRC central government and governments of other countries or regions where the non-PRC-resident enterprises are incorporated.
| 27 |
Governmental control of currency conversion may affect the value of your investment.
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. Substantially all of the revenue in RMB. Under our current corporate structure, our company in the Cayman Islands may rely on dividend payments from the WOFE to fund any cash and financing requirements we may have. 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 SAFE by complying with certain procedural requirements. Therefore, the WOFE is able to pay dividends in foreign currencies to us without prior approval from SAFE, 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. But approval from 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, we may not be able to pay dividends in foreign currencies to our shareholders, including holders of our ordinary shares.
If we are classified as a PRC resident enterprise for PRC enterprise income tax purposes, such classification could result in unfavorable tax consequences to us and our non-PRC shareholders.
Under the PRC Enterprise Income Tax Law and its implementation rules, an enterprise established outside of the PRC with its “de facto management body” within the PRC is considered a “resident enterprise” and will be subject to the enterprise income tax on its global income at the rate of 25%. The implementation rules define the term “de facto management body” as the body that exercises full and substantial control and overall management over the business, productions, personnel, accounts and properties of an enterprise. In 2009, the State Administration of Taxation, or SAT, issued a circular, known as SAT Circular 82, partially abolished on December 29, 2017, which provides certain specific criteria for determining whether the “de facto management body” of a PRC-controlled enterprise that is incorporated offshore is located in China. Although this circular applies only to offshore enterprises controlled by PRC enterprises or PRC enterprise groups, not those controlled by PRC individuals or foreigners, the criteria set forth in the circular may reflect the SAT’s general position on how the “de facto management body” text should be applied in determining the tax resident status of all offshore enterprises. According to SAT Circular 82, an offshore incorporated enterprise controlled by a PRC enterprise or a PRC enterprise group will be regarded as a PRC tax resident by virtue of having its “de facto management body” in China, and will be subject to PRC enterprise income tax on its global income only if all of the following conditions are met: (i) the primary location of the day-to-day operational management is in the PRC; (ii) decisions relating to the enterprise’s financial and human resource matters are made or are subject to approval by organizations or personnel in the PRC; (iii) the enterprise’s primary assets, accounting books and records, company seals, and board and shareholder resolutions are located or maintained in the PRC; and (iv) at least 50% of voting board members or senior executives habitually reside in the PRC.
We believe that, as a Cayman Islands exempted company, our company is not a PRC resident enterprise for PRC tax purposes. However, the tax resident status of an enterprise is subject to determination by the PRC tax authorities and uncertainties remain with respect to the interpretation of the term “de facto management body.” If the PRC tax authorities determine that our company is a PRC resident enterprise for enterprise income tax purposes, we would be subject to PRC enterprise income on our worldwide income at the rate of 25%. Furthermore, we would be required to withhold a 10% tax from dividends we pay to our shareholders that are non-resident enterprises, including the holders of our ordinary shares. In addition, non-resident enterprise shareholders may be subject to PRC tax on gains realized on the sale or other disposition of the ordinary shares, if such income is treated as sourced from within the PRC. Furthermore, if we are deemed a PRC resident enterprise, dividends paid to our non-PRC individual shareholders and any gain realized on the transfer of the ordinary shares by such shareholders may be subject to PRC tax at a rate of 20% (which, in the case of dividends, may be withheld at source by us). These rates may be reduced by an applicable tax treaty, but it is unclear whether non-PRC shareholders of our company would be able to claim the benefits of any tax treaties between their country of tax residence and the PRC in the event that we are treated as a PRC resident enterprise. Any such tax may reduce the returns on your investment in our ordinary shares.
| 28 |
Risks Related to Our Ordinary Shares
The trading price of our ordinary shares may be volatile, which could result in substantial losses to investors.
The trading price of our ordinary shares may be volatile and could fluctuate widely due to factors beyond our control. This may happen because of the broad market and industry factors, like the performance and fluctuation of the market prices of other companies with business operations located mainly in China that have listed their securities in the United States. A number of Chinese companies have listed or are in the process of listing their securities on U.S. stock markets. The securities of some of these companies have experienced significant volatility, including price declines after their initial public offerings. The trading performances of these Chinese companies’ securities after their offerings may affect the attitudes of investors toward Chinese companies listed in the United States in general and consequently may impact the trading performance of our ordinary shares, regardless of our actual operating performance.
In addition to market and industry factors, the price and trading volume for our ordinary shares may be highly volatile for factors specific to business operations, including the following:
| ● | variations in the revenue, earnings, cash flow and data related to our app user base or user engagement; | |
| ● | announcements of new investments, acquisitions, strategic partnerships or joint ventures by us, our subsidiaries or the competitors; | |
| ● | announcements of new services and expansions by us, our subsidiaries or the competitors; | |
| ● | changes in financial estimates by securities analysts; | |
| ● | detrimental adverse publicity about us, our subsidiaries, their services or the industries in which our subsidiaries operate; | |
| ● | additions or departures of key personnel; | |
| ● | release of lock-up or other transfer restrictions on our outstanding equity securities or sales of additional equity securities; and | |
| ● | potential litigation or regulatory investigations. |
| 29 |
Any of these factors may result in large and sudden changes in the volume and price at which our ordinary shares will trade. In addition, the securities market has from time to time experienced significant price and volume fluctuations that are not related to the operating performance of particular companies. There have been instances of extreme stock or share price run-ups followed by rapid price declines and strong stock or share price volatility with recent initial public offerings, especially among those with relatively smaller public floats. As a relatively small-capitalization company with relatively small public float, we may experience greater stock or share price volatility, extreme price run-ups, lower trading volume and less liquidity than large-capitalization companies. In particular, our Ordinary Shares may be subject to rapid and substantial price volatility, low volumes of trades and large spreads in bid and ask prices. Such volatility, including any stock or share-run up, may be unrelated to our actual or expected operating performance and financial condition or prospects, making it difficult for prospective investors to assess the rapidly changing value of our Ordinary Shares. These market fluctuations may also materially and adversely affect the market price of our Ordinary Shares.
In the past, shareholders of public companies have often brought securities class action suits against those companies following periods of instability in the market price of their securities. If we were involved in a class action suit, it could divert a significant amount of our management’s attention and other resources from the business and operations and require us to incur significant expenses to defend the suit, which could harm the results of operations. Any such class action suit, whether or not successful, could harm the reputation and restrict the ability to raise capital in the future. In addition, if a claim is successfully made against us, we may be required to pay significant damages, which could have a material adverse effect on the financial condition and results of operations.
Our ordinary shares may continue to trade under $5.00 per share in the future and thus could be penny stock. Trading in penny stocks has certain restrictions and these restrictions could negatively affect the price and liquidity of our ordinary shares.
Our ordinary shares may continue to trade below $5.00 per share in the future. As a result, our ordinary shares would be known as a “penny stock,” which is subject to various regulations involving disclosures to be given to you prior to the purchase of any penny stock. The SEC has adopted regulations which generally define a “penny stock” to be any equity security that has a market price of less than $5.00 per share, subject to certain exceptions. Depending on market fluctuations, our ordinary shares could be considered to be a “penny stock,” A penny stock is subject to rules that impose additional sales practice requirements on brokers/dealers who sell these securities to persons other than established members and accredited investors. For transactions covered by these rules, the broker/dealer must make a special suitability determination for the purchase of these securities. In addition, a broker/dealer must receive the purchaser’s written consent to the transaction prior to the purchase and must also provide certain written disclosures to the purchaser. Consequently, the “penny stock” rules may restrict the ability of brokers/dealers to sell our ordinary shares, and may negatively affect the ability of holders of our ordinary shares to resell them. These disclosures require you to acknowledge that you understand the risks associated with buying penny stocks and that you can absorb the loss of your entire investment. Penny stocks generally do not have a very high trading volume. Consequently, the price of the stock is often volatile and you may not be able to buy or sell the stock when you want to.
| 30 |
Raising additional capital may cause dilution to our holders, restrict the operations or require us to relinquish rights to the technologies or product candidates.
We expect that significant additional capital may be needed in the future to continue the planned operations, including developing and introducing new courses, conducting research and development activities and costs associated with operating a public company. Until such time, if ever, as we can generate substantial revenue through our business operations, we expect to finance the cash needs through any or a combination of securities offerings, debt financings, license and collaboration agreements and research grants. If we raise capital through securities offerings, such sales may also result in material dilution to our existing shareholders, and new investors could gain rights, preferences and privileges senior to the holders of our ordinary shares.
To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a shareholder. Debt financing and preferred equity financing, if available, could result in fixed payment obligations, and we may be required to accept terms that restrict our ability to incur additional indebtedness, force us to maintain specified liquidity or other ratios or restrict our ability to pay dividends or make acquisitions.
If we raise additional funds through collaborations, strategic alliances or other arrangements with third parties, we may be required to relinquish valuable rights to the technologies, future revenue streams, or to agree to terms that may not be favorable to us. In addition, we could also be required to seek funds through arrangements with collaborators or others at an earlier stage than otherwise would be desirable. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate product development or future commercialization efforts or grant rights to a third party to develop and market product candidates that would otherwise prefer to develop and market itself. Raising additional capital through any of these or other means could adversely affect the business and the holdings or rights of our shareholders, and may cause the market price of our ordinary shares to decline.
Our dual-class share structure with different voting rights will limit your ability to influence corporate matters and could discourage others from pursuing any change of control transactions that holders of our Ordinary Shares may view as beneficial.
We have adopted a dual-class share structure such that our shares consist of Ordinary Shares, Series A and Series B Preference Shares. In respect of matters requiring the votes of shareholders, each Ordinary Share is entitled to one vote and each Series A Preference Share is entitled to 50 votes and Series B Preference Share is entitled to 200 votes. Each of the Series A or Series B Preference Shares may be converted into Ordinary Shares by its holder at a ratio of one-for-one. Currently, our Chairman and Chief Executive Officer Mr. Bin Fu, beneficially owns all of the 1,000,000 issued and outstanding Series A Preference Shares and Mr. Xuejun Ji owns 666,666 issued and outstanding Series B Preference Shares. As a result of this dual-class share structure, the holder of our Series B Preference Shares will have concentrated control over the outcome of matters put to a vote of shareholders and have significant influence over our business, including decisions regarding mergers, consolidations, liquidations and the sale of all or substantially all of our assets, election of directors and other significant corporate actions. The holder of Series B Preference Shares may take actions that are not in the best interest of us or our other shareholders. This concentration of ownership may discourage, delay or prevent a change in control of our company, which could have the effect of depriving our other shareholders of the opportunity to receive a premium for their shares as part of a sale of our company and may reduce the price of the Ordinary Share. This concentrated control will limit your ability to influence corporate matters and could discourage others from pursuing any potential merger, takeover or other change of control transactions that holders of Ordinary Shares may view as beneficial.
We are a “controlled company” within the meaning of the NASDAQ Stock Market Rules and, as a result, may rely on exemptions from certain corporate governance requirements that provide protection to shareholders of other companies.
Because more than 50% of the voting power for the election of our directors are controlled by Mr. Xuejun Ji, we are a “controlled company” as defined under Rule 5615(c)(1) of the Nasdaq Listing Rules. As a “controlled company”, we qualify for, exemptions from several of Nasdaq’s corporate governance requirements, including:
| ● | an exemption from the rule that a majority of our board of directors must be independent directors; | |
| ● | an exemption from the rule that the compensation of our chief executive officer must be determined or recommended solely by independent directors; and | |
| ● | an exemption from the rule that our director nominees must be selected or recommended solely by independent directors. |
| 31 |
We currently do not intend to rely on the corporate governance exemptions available to “controlled companies”, however, we may choose to rely on such exemptions in the future. Accordingly, to the extent that we may choose to rely on one or more of these exemptions, our shareholders would not be afforded the same protections generally as shareholders of other Nasdaq-listed companies as long as Mr. Xuejun Ji controls more than 50% of the voting power of our Company and our board determines to rely upon one or more of such exemptions.
Mr. Xuejun Ji will have substantial influence over our Company and their interests may not be aligned with the interests of our other shareholders.
Mr. Xuejun Ji beneficially owns more than 50% of the voting power of our total issued and outstanding shares. As a result of his significant shareholding, Mr. Ji, has, substantial influence over our business, including decisions regarding mergers, consolidations and the sale of all or substantially all of our assets, appointment of directors and other significant corporate actions. He may take actions that are not in the best interests of us or our other shareholders. This concentration of voting power may discourage, delay or prevent a change in control of our Company, which could deprive our shareholders of an opportunity to receive a premium for their shares as part of a sale of our company and might reduce the market price of our ordinary shares. These actions may be taken even if they are opposed by our other shareholders.
If securities or industry analysts do not publish research or reports about the business, or if they adversely change their recommendations regarding our ordinary shares, the market price for our ordinary shares and trading volume could decline.
The trading market for our ordinary shares will be influenced by research or reports that industry or securities analysts publish about the business. If one or more analysts who cover us downgrade our ordinary shares, the market price for our ordinary shares would likely decline. If one or more of these analysts cease to cover us or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause the market price or trading volume for our ordinary shares to decline.
The sale or availability for the sale of substantial amounts of our ordinary shares could adversely affect their market price.
Sales of substantial amounts of our ordinary shares in the public market in the future, or the perception that these sales could occur, could adversely affect the market price of our ordinary shares and could materially impair our ability to raise capital through equity offerings in the future. We cannot predict what effect, if any, market sales of securities held by our significant shareholders or any other shareholder or the availability of these securities for future sale will have on the market price of our ordinary shares.
Because we do not expect to pay dividends in the foreseeable future, you must rely on the price appreciation of our ordinary shares for the return on your investment.
We currently intend to retain all of the available funds and any future earnings to fund the development and growth of the business. As a result, we do not expect to pay any cash dividends in the foreseeable future. Therefore, you should not rely on an investment in our ordinary shares as a source for any future dividend income.
Our board of directors has complete discretion as to whether to distribute dividends. Even if our board of directors decides to declare and pay dividends, the timing, amount and form of future dividends, if any, will depend on, among other things, the future results of operations and cash flow, our capital requirements and surplus, the amount of distributions, if any, received by us from our subsidiaries, the financial condition, contractual restrictions and other factors deemed relevant by our board of directors. Accordingly, the return on your investment in our ordinary shares will likely depend entirely upon any future price appreciation of our ordinary shares. There is no guarantee that our ordinary shares will appreciate in value in the future or even maintain the price at which you purchased our ordinary shares. You may not realize a return on your investment in our ordinary shares and you may even lose your entire investment.
If we were deemed to be an investment company under the Investment Company Act of 1940 (the “Investment Company Act”), as amended, applicable restrictions could make it impractical for us to continue our business as contemplated and could have a material adverse effect on our business, financial condition, and results of operations.
Under the Investment Company Act, absent an applicable exemption, a company generally will be deemed to be an “investment company” if (a) it is in the business of investing, reinvesting, owning, holding, or trading in securities and (b) it owns or proposes to acquire “investment securities” having a value exceeding 40% of its total assets (other than U.S. government securities and cash items) on an unconsolidated basis (such second prong, the “40% Test”). We do not believe that we or any of our subsidiaries are an “investment company” for purposes of the Investment Company Act, primarily in reliance on Section 3(b)(1) of the Investment Company Act because we are “primarily engaged” in a business other than that of investing, reinvesting, owning, holding or trading in securities.
We are engaged primarily in the business of artificial intelligence skills training, software development, artificial intelligence technology services, API interface services, and related product sales, and our historical development, public representations of policy, the activity of our officers and directors, the nature of our present assets, the sources of our present income, and the public perception of the nature of our business collectively support the conclusion that we are an operating company and not an investment company. We currently conduct, and intend to continue to conduct, our operations so that neither we, nor any of our subsidiaries, is required to register as an “investment company” under the Investment Company Act.
| 32 |
We have made purchases of equity interest of other entities in order to promote and support our primary operating business. On August 7, 2026, the Company entered into a Share Purchase Agreement (the “Agreement”) with Penguins Investing Carnival Ltd., a British Virgin Islands company (the “Buyer”) to transfer 100% equity interest of Easy Skill Technology Ltd. and all of its subsidiaries including the equity interest of these entities. If we were otherwise deemed to meet the definition of an investment company under the Investment Company Act, we would either have to register as an investment company under the Investment Company Act, obtain exemptive relief from the U.S. Securities and Exchange Commission (the “SEC”), or modify our business and organizational structure to fall outside the definition of an investment company. Registering as an investment company would subject us to substantial regulation concerning management, operations, transactions with affiliates, and portfolio composition, including restrictions with respect to diversification and industry concentration, and other matters. Accordingly, registration under the Investment Company Act would significantly affect our ability to operate as contemplated.
We intend to conduct our operations so that we will not be deemed an investment company. However, if it is determined later that the Company may not rely on Section 3(b)(1) or any other exemption under the Investment Company Act and we were to be deemed an investment company, restrictions imposed by the Investment Company Act, including limitations on our capital structure and our ability to transact with affiliates, could make it impractical for us to continue our business as contemplated and would have a material adverse effect on our business, financial condition, and results of operations. In addition, if we failed to register as an investment company when required to do so, we would be prohibited from engaging in certain business activities, and actions could be brought against us. Further, our contracts would be unenforceable unless a court were to find that under the circumstances enforcement would produce a more equitable result than non-enforcement and would not be inconsistent with the purposes of the Investment Company Act.
We monitor our holdings and structure our operations with the goal of maintaining compliance with the Investment Company Act and avoiding the need to register as an investment company. There can be no assurance that we will be able to successfully avoid being deemed as an investment company due to our previous ownership of equity interest of other entities. SEC may deem that we were an investment company under the Investment Company Act and impose sanctions on us, which could have a material adverse effect on our business.
Our previous indirect ownership of a 3% minority equity interest in a company subject to U.S. sanctions may expose us to enforcement actions, secondary sanctions designation and restrictions on access to U.S. capital markets.
Skillful Craftsman Network Technology (Wuxi) Co., Limited (“Craftsman Wuxi”), which is a subsidiary of Easy Skills that is being sold to an unrelated party pursuant to a Share Purchase Agreement dated August 7, 2026, holds a 3% minority equity interest in Fujian Pingtan Ocean Fisheries Group Co., Ltd. (“Pingtan”), a PRC company that was designated by the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) as a Specially Designated National (“SDN”) in December 2022.
Under the Global Magnitsky Regulations, all property and interests in property of designated persons that are in the United States, that come within the United States, or that are or come within the possession or control of any U.S. person are blocked and may not be transferred, paid, exported, withdrawn, or otherwise dealt in. The regulations prohibit both the provision of funds, goods, or services to or for the benefit of any blocked person, and the receipt of any contribution or provision of funds, goods, or services from any blocked person. OFAC issued general licenses permitting U.S. persons to divest Pingtan equity and wind down transactions with sanctioned vessels, but those general licenses expired on March 9, 2023. We did not divest our indirect interest in Pingtan until August 7, 2026 when Craftsman Wuxi that holds 3% equity interest of Pingtan is being sold to Penguins Investing Carnival Ltd., a British Virgin Islands company.
Although we are a Cayman Islands company with no offices, employees, or sales to customers in the United States, our shares are listed on NASDAQ, trades in our stock are executed through the U.S. trading system, and we engage U.S.-based professional service providers in connection with our SEC compliance obligations. Whether these contacts are sufficient to deem us a “person in the United States” subject to primary OFAC sanctions jurisdiction is not clearly addressed by existing regulations or judicial precedent. If we were determined to be a U.S. person for purposes of the Global Magnitsky Regulations, our continued financial transactions through intermediary entities with Pingtan could constitute a violation of the sanctions, including any receipt of dividends or other economic benefits from Pingtan and any disposition of the Pingtan equity without a specific license from OFAC.
Even if we are not deemed a U.S. person subject to primary sanctions, we may be exposed to secondary sanctions liability. OFAC has enforcement authority over non-U.S. persons who cause or conspire to cause U.S. persons to violate U.S. sanctions, or who engage in conduct that evades U.S. sanctions. The sale of the Pingtan equity without a specific OFAC license could result in violation of the sanctions if any proceeds flow to U.S. investors, although the proceeds were received in Hong Kong and we do not plan to send the proceeds to or use the proceeds in the U.S.
If OFAC were to determine that our conduct constitutes a secondary sanctions violation, we could ourselves be designated on the SDN list. Such a designation could result in enforcement actions against and have a material adverse effect on our business, financial condition, results of operations, and the value of our securities.
| 33 |
We are classified as a passive foreign investment company for fiscal year ended March 31, 2026, United States taxpayers who own our ordinary shares have adverse United States federal income tax consequences.
A non-U.S. corporation will be classified as a passive foreign investment company, which is known as a PFIC, for any taxable year if, for such year, either
| ● | At least 75% of gross income for the year is passive income; or | |
| ● | The average percentage of assets (determined at the end of each quarter) during the taxable year which produces passive income or which are held for the production of passive income is at least 50%. |
Passive income generally includes dividends, interest, rents, royalties (other than rents or royalties derived from the active conduct of a trade or business) and gains from the disposition of passive assets.
If we are determined to be a PFIC for any taxable year (or portion thereof) that is included in the holding period of a U.S. taxpayer who holds our ordinary shares, the U.S. taxpayer may be subject to increased U.S. federal income tax liability and may be subject to additional reporting requirements.
Based on our analysis of our income, assets, activities and market capitalization for our taxable year ended March 31, 2026, we believe that we were classified as a passive foreign investment company, for the taxable year ended March 31, 2026. Whether we are a PFIC for any taxable year will depend on our assets and income in each year, and because this is a factual determination made annually after the end of each taxable year, there can be no assurance that we will not be considered a PFIC in any taxable year. The market value of our assets may be determined in large part by reference to the market price of our ordinary shares, which is likely to fluctuate. Even if we determine that we are not a PFIC for a taxable year, there can be no assurance that the IRS would not successfully challenge our position. Accordingly, our U.S. counsel expresses no opinion regarding our conclusions or our expectations regarding our PFIC status.
Our current memorandum and articles of association that we have adopted contain anti-takeover provisions that could have a material adverse effect on the rights of holders of our ordinary shares.
Our current memorandum and articles of association contain provisions to limit the ability of others to acquire control of our company or cause us to engage in change-of-control transactions. These provisions could have the effect of depriving our shareholders of an opportunity to sell their shares at a premium over prevailing market prices by discouraging third parties from seeking to obtain control of our company in a tender offer or similar transaction. In addition, our board of directors has the authority, without further action by our shareholders, to issue preference shares in one or more series and to fix their designations, powers, preferences, privileges, and relative participating, optional or special rights and the qualifications, limitations or restrictions, including dividend rights, conversion rights, voting rights, terms of redemption and liquidation preferences, any or all of which may be greater than the rights associated with our ordinary shares. Preference shares could be issued quickly with terms calculated to delay or prevent a change in control of our company or make removal of management more difficult. If our board of directors decides to issue preference shares, the price of our ordinary shares may fall and the voting and other rights of the holders of our ordinary shares underlying the ordinary shares may be materially and adversely affected.
| 34 |
As an exempted company incorporated in the Cayman Islands, we are permitted to adopt certain home country practices in relation to corporate governance matters that differ significantly from Nasdaq corporate governance listing standards. These practices may afford less protection to shareholders than they would enjoy if we complied fully with Nasdaq corporate governance listing standards.
The Nasdaq Listing Rules require listed companies to have, among other things, a majority of its board members be independent. As a foreign private issuer, however, we are permitted to follow home country practice in lieu of the above requirements. The Company follows its home country practice in lieu of the provisions under Rule 5620(a), Rule 5635(a), Rule 5635(c) and Rule 5635(d) of the NASDAQ Stock Market Marketplace Rules (the “Rules”) by relying on the exemption provided for foreign private issuers under Marketplace Rule 5615(a)(3). Rule 5620(a) requires that the Company to hold an annual general meeting no later than one year after the end of the Company’s fiscal year-end; Rule 5635(a) of the Rules requires shareholder approval for the issuance of securities in connection with the acquisition of the stock or assets of another company; Rule 5635(c) of the Rules requires shareholder approval prior to the issuance of securities when a stock option or purchase plan is to be established or materially amended or other equity compensation arrangement made or materially amended, pursuant to which stock may be acquired by officers, directors, employees; and Rule 5635(d) of the Rules requires shareholder approval prior to an issuance of securities, other than in a public offering, equal to 20% or more of the voting power outstanding at a price less than the lower of: (i) the Nasdaq Official Closing Price (as reflected on Nasdaq.com) immediately preceding the signing of the binding agreement; or (ii) the average Nasdaq Official Closing Price of the common stock (as reflected on Nasdaq.com) for the five trading days immediately preceding the signing of the binding agreement. The corporate governance practice in our home country, the Cayman Islands, does not require the Company to follow or comply with the requirements of Rule 5620(a), Rule 5635(a), Rule 5635(c) and Rule 5635(d). We will comply with other corporate governance requirements of the Nasdaq Listing Rules. However, we may consider following home country practice in lieu of additional requirements under the Nasdaq Listing Rules with respect to certain corporate governance standards in the future which may afford less protection to investors.
You may face difficulties in protecting your interests, and your ability to protect your rights through U.S. courts may be limited, because we are incorporated under Cayman Islands law.
We are an exempted company incorporated under the laws of the Cayman Islands with limited liability. Our corporate affairs are governed by our memorandum and articles of association, the Companies Act (As Revised) of the Cayman Islands and the common law of the Cayman Islands. The rights of shareholders to take action against the directors, actions by minority shareholders and the fiduciary duties of our directors to us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from the common law of England, and whilst the decisions of whose courts are of persuasive authority, they are not binding on a court in the Cayman Islands. The rights of our shareholders and the fiduciary duties of our directors under Cayman Islands law are not as clearly established as they would be under statutes or judicial precedent in some jurisdictions in the United States. In particular, the Cayman Islands has a less developed body of securities laws than the United States. Some U.S. states, such as Delaware, have more fully developed and judicially interpreted bodies of corporate law than the Cayman Islands. In addition, while provisions do exist in Cayman Islands law for derivative actions to be brought in certain circumstances, shareholders of a Cayman Islands company may not have the standing to initiate a shareholder derivative action in a federal court of the United States. The circumstances in which any such action may be brought, and the procedures and defenses that may be available in respect to any such action, may result in the rights of shareholders of a Cayman Islands company being more limited than those of shareholders of a company organized in the United States. Accordingly, shareholders may have fewer alternatives available to them if they believe that corporate wrongdoing has occurred.
Shareholders of Cayman Islands exempted companies like us have no general rights under Cayman Islands law to inspect corporate records or to obtain copies of the register of members of these companies. Our directors have discretion under our articles of association to determine whether or not, and under what conditions, our corporate records may be inspected by our shareholders, but are not obliged to make them available to our shareholders. This may make it more difficult for you to obtain the information needed to establish any facts necessary for a shareholder motion or to solicit proxies from other shareholders in connection with a proxy contest.
We have been advised by Maples and Calder (Cayman) LLP, our Cayman Islands legal counsel, that the courts of the Cayman Islands are unlikely (1) to recognize or enforce against us judgments of courts of the United States based on certain civil liability provisions of U.S. securities laws or any state, (2) to recognize or enforce against us judgments of courts of the United States predicated upon the civil liability provisions of the federal securities laws of the United States or any state, and (3) in original actions brought in the Cayman Islands, to impose liabilities against us predicated upon the civil liability provisions of the federal securities laws of the United States or any state, so far as the liabilities imposed by those provisions are penal in nature
Although there is no statutory enforcement in the Cayman Islands of judgments obtained in the United States, the courts of the Cayman Islands will recognize and enforce a foreign money judgment of a foreign court of competent jurisdiction without retrial on the merits based on the principle that a judgment of a competent foreign court imposes upon the judgment debtor an obligation to pay the sum for which judgment has been given provided certain conditions are met. For a foreign judgment to be enforced in the Cayman Islands, such judgment must be final and conclusive and for a liquidated sum, and must not be in respect of taxes or a fine or penalty, inconsistent with a Cayman Islands judgment in respect of the same matter, impeachable on the grounds of fraud or obtained in a manner, or be of a kind the enforcement of which is, contrary to natural justice or the public policy of the Cayman Islands (awards of punitive or multiple damages may well be held to be contrary to public policy). A Cayman Islands Court may stay enforcement proceedings if concurrent proceedings are being brought elsewhere.
Subject to the above limitations, in appropriate circumstances, a Cayman Islands court may give effect in the Cayman Islands to other kinds of final foreign judgments such as declaratory orders, orders for performance of contracts and injunctions.
As a result of all of the above, public shareholders may have more difficulty in protecting their interests in the face of actions taken by our management, members of the board of directors or controlling shareholders than they would as public shareholders of a company incorporated in the United States.
| 35 |
Certain judgments obtained against us by our shareholders may not be enforceable.
We are a Cayman Islands exempted company and substantially all of the assets are located outside of the United States. All of the current operations are conducted in China and Hong Kong. In addition, all of our current directors and executive officers are nationals or residents of China. Substantially all of the assets of these persons are located outside the United States. As a result, it may be difficult or impossible for you to bring an action against us or against these individuals in the United States in the event that you believe that your rights have been infringed under the U.S. federal securities laws or otherwise. Even if you are successful in bringing an action of this kind, the laws of the Cayman Islands and of China may render you unable to enforce a judgment against our assets or the assets of our directors and executive officers.
The recognition and enforcement of foreign judgments are provided for under the PRC Civil Procedures Law. PRC courts may recognize and enforce foreign judgments in accordance with the requirements of the PRC Civil Procedures Law based either on treaties between China and the country where the judgment is made or on principles of reciprocity between jurisdictions. China does not have any treaties or other forms of reciprocity with the United States that provide for the reciprocal recognition and enforcement of foreign judgments. In addition, according to the PRC Civil Procedures Law, the PRC courts will not enforce a foreign judgment against us or our director and officers if they decide that the judgment violates the basic principles of PRC laws or national sovereignty, security or public interest. As a result, it is uncertain whether and on what basis a PRC court would enforce a judgment rendered by a court in the United States. Hence, our public shareholders may have more difficulty in protecting their interests through actions against us, our directors or officers than would shareholders of a corporation incorporated in a jurisdiction in the United States.
Maples and Calder (Cayman) LLP, our counsel as to Cayman Islands law, have advised us that there is uncertainty as to whether the courts of the Cayman Islands would: (i) recognize or enforce judgments of United States courts obtained against us or our directors or officers predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States; or (ii) entertain original actions brought in the Cayman Islands to impose liabilities against us or our directors or officers predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States, so far as the liabilities imposed by those provisions are penal in nature. Furthermore, Maples and Calder (Cayman) LLP have advised us that, as of the date of this prospectus, no treaty or other form of reciprocity exists between the Cayman Islands governing the recognition and enforcement of judgments.
Maples and Calder (Cayman) LLP has further advised us that although there is no statutory enforcement in the Cayman Islands of judgments obtained in the United States, a foreign money judgment obtained from a foreign court of competent jurisdiction without retrial on the merits based on the principle that a judgment of a competent foreign court imposes upon the judgment debtor an obligation to pay the sum for which judgment has been given provided certain conditions are met. For a foreign judgment to be enforced in the Cayman Islands, such judgment must be final and conclusive and for a liquidated sum, and must not be in respect of taxes or a fine or penalty, inconsistent with a Cayman Islands judgment in respect of the same matter, impeachable on the grounds of fraud or obtained in a manner, and or be of a kind the enforcement of which is, contrary to natural justice or the public policy of the Cayman Islands (awards of punitive or multiple damages may well be held to be contrary to public policy). A Cayman Islands Court may stay enforcement proceedings if concurrent proceedings are being brought elsewhere.
We are a foreign private issuer within the meaning of the rules under the Exchange Act, and as such we are exempt from certain provisions applicable to United States domestic public companies.
Because we are a foreign private issuer under the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”), we are exempt from certain provisions of the securities rules and regulations in the United States that are applicable to U.S. domestic issuers, including:
| ● | the rules under the Exchange Act requiring the filing of quarterly reports on Form 10-Q or current reports on Form 8-K with the SEC; | |
| ● | the sections of the Exchange Act regulating the solicitation of proxies, consents, or authorizations in respect of a security registered under the Exchange Act; | |
| ● | the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and liability for insiders who profit from trades made in a short period of time; and | |
| ● | the selective disclosure rules by issuers of material non-public information under Regulation FD. |
| 36 |
We will be required to file an annual report on Form 20-F within four months of the end of each fiscal year. In addition, we intend to publish the results on a semi-annual basis through press releases, distributed pursuant to the rules and regulations of the Nasdaq Capital Market. Press releases relating to financial results and material events will also be furnished to the SEC on Form 6-K. However, the information we are required to file with or furnish to the SEC will be less extensive and less timely compared to that required to be filed with the SEC by U.S. domestic issuers. As a result, you may not be afforded the same protections or information, which would be made available to you, were you investing in a U.S. domestic issuer.
We have incurred and will continue incurring additional costs and devoted substantial management time as a result of being a public reported company.
We have incurred and will continue incurring additional legal, accounting and other expenses as a public reporting company, particularly after we cease to qualify as an emerging growth company after the fiscal year ended March 31, 2026. For example, we are required to comply with the additional requirements of the rules and regulations of the SEC and the Nasdaq rules, including applicable corporate governance practices. We expect that compliance with these requirements will increase the legal and financial compliance costs and will make some activities more time-consuming and costly. In addition, we expect that our management and other personnel will need to divert attention from operational and other business matters to devote substantial time to these public company requirements. We cannot predict or estimate the number of additional costs we may incur as a result of becoming a public company or the timing of such costs.
In addition, changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs and making some activities more time-consuming. These laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidelines are provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of management’s time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to their application and practice, regulatory authorities may also initiate legal proceedings against us, our subsidiaries and the business may be adversely affected.
| Item 4. | Information on the Company |
4.A. History and Development of the Company
Skillful Craftsman Education Technology Limited, or Skillful Craftsman, was incorporated on June 14, 2019 under the laws of Cayman Islands as an exempted company. Easy Skills Technology Limited, a limited liability company formed under the laws of Hong Kong, was a wholly owned subsidiary of the Company that is being sold to an unrelated third party pursuant to a Share Purchase Agreement on August 7, 2026. Easy Skills Technology Limited owns Skillful Craftsman Network Technology (Wuxi) Co., Limited, or Craftsman Wuxi, a limited liability company under the laws of the PRC. Craftsman Wuxi has a wholly owned subsidiary, Shenzhen Qianhai Jisen Information Technology Ltd., a limited liability company under the laws of the PRC and holds 3% equity interest of Fujian Pingtan Ocean Fishery Corporation, a limited liability company incorporated under the laws of the PRC and 35% equity interest of Wuxi Talent Home Information Technology Co., Ltd, a limited liability company formed under the laws of the PRC, which are all being sold along with Easy Skills Technology Limited to an unrelated third party pursuant to a Share Purchase Agreement on August 7, 2026. We also had a 75% owned subsidiary Le First Skilland Pte. Ltd., a limited liability company incorporated under the laws of Singapore which was sold to an unrelated third party in March 2026. On August 7, 2026, the Company entered into a Share Purchase Agreement (the “Agreement”) with Penguins Investing Carnival Ltd., a British Virgin Islands company (the “Buyer”) to transfer 100% equity interest of Easy Skill Technology Ltd. and all of its subsidiaries to the Buyer for a total price of $4.5 million (the “Purchase Price”), which shall be paid in two installments: (i) 20% of the Purchase Price shall be paid within 5 business days of the Agreement and (ii) 80% of the Purchase Price shall be paid within 1 year from the date of the Agreement (the “Transaction”). As of the date of this report, the Company has received the payment of 20% of the Purchase Price. Upon the closing of the Transaction, the Buyer shall become the 100% shareholder of Easy Skill Technology Ltd. and all of its subsidiaries. After the completion of the transfer of Easy Skills Technology limited, we will have two wholly owned subsidiaries: Giga Learning Inc., a limited liability company incorporated under the laws of USA and Skilland Digital Intelligence Limited, a limited liability company incorporated under the law of Hong Kong.
| 37 |
We began operations in China in 2013 and previously conducted most of our business through our variable interest entity, Wuxi Kingway Technology Co., Ltd. In 2013, Wuxi Kingway Technology Co., Ltd., or Wuxi Wangdao, was formed under the laws of the PRC to primarily engage in the business of online education and technology services. Due to restrictions imposed by PRC law on foreign ownership of companies engaged in the online value-added telecommunications business, we do not own any equity interest in the operations of Wuxi Wangdao. Instead, Skillful Craftsman relies on a series of VIE Agreements among Craftsman Wuxi, Wuxi Wangdao and Wuxi Wangdao’s nominee shareholders to consolidate the financial results of Wuxi Wangdao in the consolidated financial statements in accordance with U.S. GAAP. Skillful Craftsman relies on dividends and other distributions paid to it by Craftsman Wuxi, the WOFE, which in turn depends on the service fees paid to the WOFE from Wuxi Wangdao pursuant to the VIE Agreements. Wuxi Wangdao contributed 100% and 13% of our consolidated revenue for the fiscal years ended March 31, 2024 and 2025, respectively. It contributed 94% of the consolidated assets and 98% of the consolidated liabilities as of March 31, 2024, 0% of the consolidated assets and 0% of the consolidated liabilities as of March 31, 2025, due to the VIE termination on March 17, 2025, and Wuxi Wangdao has been deconsolidated thereafter. We do not have unfettered access to revenue of the WOFE and variable interest entity due to PRC legal restrictions on the payment of dividends by PRC companies, foreign exchange control restrictions, and the restrictions on foreign investment.
On July 27, 2020, we closed our initial public offering of 3,000,000 ordinary shares, US$0.0002 par value per share, at an offering price of $5.00 per share, for a total of $15,000,000 in gross proceeds. After deducting the total expenses, we received net proceeds of approximately US$13.36 million from our initial public offering.
On May 25, 2021, Wuxi Wangdao acquired 100% equity interest in Jisen Information, an integrated financial education and service provider in China, for a total consideration of 2,900,000 newly issued ordinary shares of our company. The transaction was unanimously approved by our board of directors and closed in June 2021. On June 10, 2022, Wuxi Wangdao transferred 100% equity interest in Jisen Information to Craftsman Wuxi for a nominal consideration as a step of our internal re-organization.
On January 28, 2022, Wuxi Wangdao entered into an equity transfer agreement, or the Wuxi Talent Agreement to acquire 60% equity interest in Wuxi Talent Home Information Technology Co., Ltd., or Wuxi Talent Home, a flexible staffing platform, for a consideration consisting of RMB15 million (approximately US$2.37 million) in cash and 791,667 ordinary shares that are to be newly issued by Skillful Craftsman. On February 23, 2022, Craftsman Wuxi entered into a supplementary agreement with Wuxi Wangdao, Wuxi Talent Home and certain of its shareholders. Pursuant to the supplementary agreement, Craftsman Wuxi became the new transferee, replacing Wuxi Wangdao, to acquire 60% equity interest in Wuxi Talent Home under the Wuxi Talent Agreement. The transaction has been unanimously approved by our board of directors and closed in May 2022. On July 21, 2023, Skillful Craftsman Network Technology (Wuxi) Limited (“Craftsman Wuxi”), a wholly owned subsidiary of Skillful Craftsman Education Technology Limited (the “Company”), Wuxi Talent Home Information Technology Co., Ltd. (“Talent Home”) and certain shareholders of Talent Home (the “Shareholders”) entered into an Amendment Agreement (“Amendment Agreement”) to the Equity Transfer Agreement, which was originally entered by the parties on January 28, 2022 and supplemented by a Supplementary Agreement on February 23, 2022. Pursuant to the Amendment Agreement, parties agreed that: (i) the cash transfer price that has been paid by Craftsman Wuxi shall be used as investment in Talent Home for 35% of all equity interest of Talent Home; (ii) the Shareholders will not transfer any of their equity interest of Talent Home to Craftsman Wuxi; and (iii) all the ordinary shares issued by the Company to the Shareholders as a part of the purchase price stipulated in the original Equity Transfer Agreement shall be returned to the Company for cancellation which was completed by transfer agent of the Company on July 27, 2023.
On March 8, 2022, Skillful Craftsman issued to Tadpole Investing Carnival Limited, a British Virgin Islands company, a warrant to purchase the ordinary shares of Skillful Craftsman for an aggregate exercise price of no more than $10,000,000. Subject to certain limitations that are described below in this paragraph, up until January 3, 2025, the holder may exercise the warrant at the exercise price, which will be (x) $1.80 per share for any part of the warrant that is exercised between March 8, 2022 and January 3, 2023, (y) $2.50 per share for any part of the warrant that is exercised between January 4, 2023 and January 3, 2024, and (z) $3.00 per share for any part of the warrant that is exercised between January 4, 2024 and January 3, 2025, by delivering required documents to Skillful Craftsman. Without the prior written consent of Skillful Craftsman, the holder may not exercise the warrant for more than (i) $4,000,000 up until January 3, 2023, (ii) $7,000,000 up until January 3, 2024, and (iii) $10,000,000 up until January 3, 2025. As of the date of this annual report, no exercise of warrant has occurred and they have expired.
Due to the decreased demand and changes in the market environment for online education services in China, the Company has made changes to its business development strategies and the business of VIE is no longer align with the new strategic plan of the Company. On March 14, 2025, the Company held an extraordinary general meeting (the “Meeting”). At the Meeting, the shareholders of the Company approved (i) the termination of the VIE (variable interest entity) Agreements, namely, the Exclusive Business Cooperation Agreement, the Exclusive Purchasing Right Agreement, the Equity Interest Pledge Agreement and the Authorization Agreement dated July 17, 2019 (“Termination of VIE Agreements”), (ii) the Termination Agreement for VIE Agreements, (the “Termination Agreement”); and (iii) the Equity Interest Pledge Release Agreement to release the pledged equity interest of the VIE upon the termination of VIE Agreements (the “Pledge Release Agreement”).
On March 17, 2025, the WOFE entered into a Termination Agreement for VIE Agreements (“Termination Agreement”) with the VIE, Xiaofeng Gao and Lugang Hua, who are the shareholders of the VIE to terminate the VIE Agreements. Upon the termination of the VIE Agreements, the Company and WOFE are no longer control the VIE and its subsidiaries and their business operations. The Company and WOFE are currently conducting their business primarily through Jisen Information.
| 38 |
On March 17, 2025, WOFE also entered into an Equity Interest Pledge Release Agreement with the VIE, Xiaofeng Gao and Lugang Hua to release the pledged equity interest of the VIE upon the termination of VIE Agreements. In addition, the WOFE and the VIE entered into a Loan Repayment Agreement on March 17, 2025, pursuant to which the VIE agreed to repay the loan of RMB10.7 million (approximately $1.45 million) to the WOFE by June 30, 2026. The parties agreed that RMB 5 million plus interest of RMB535,000 shall be paid by June 30, 2025 and the remaining RMB 5.7 million plus interest of RMB285,000 shall be paid by June 30, 2026. On February 10, 2026, the parties entered into a Supplement Agreement to the Loan Repayment Contract to extend the repayment date to February 9, 2029 and Mr. Xiaofeng Gao and Mr. Lugang Hua used the 3,57,000 orindary shares of the Company that they own to pledge and guarantee the repayment.
In November 2024, the Company established Giga Learning which is to seek potential market opportunities in educational technology in the United States as its wholly-owned subsidiary in the United States.
On April 2, 2025, the Board of Directors of the Company approved to move its principal executive offices from Floor 4, Building l, No. 3ll, Yanxin Road, Huishan District, Wuxi, Jiangsu Province, PRC 214000 to 7th Floor, West Lobby, Building 7B, Shenzhen Bay Science and Technology Ecological Park, Nanshan District, Shenzhen, Guangdong Province, PRC 518000 as the Company currently conducts its business primarily through Shenzhen Qianhai Jisen Information Technology Ltd., a wholly owned subsidiary of the Company, located in Shenzhen China. The Company’s main phone number is also changed to 86- 0755 26652763.
On July 2, 2025, the Company held an extraordinary general meeting of the Company. At the Meeting, the shareholders of the Company approved the authorized share capital of the Company be increased from US$100,200 divided into 500,000,000 ordinary shares of US$0.0002 par value each and 1,000,000 preference shares of US$0.0002 par value each to US$101,000 divided into 500,000,000 ordinary shares of US$0.0002 par value each and 5,000,000 preference shares of US$0.0002 par value each by the creation of an additional 4,000,000 preference shares of US$0.0002 par value each (the “Share Capital Increase”).
On July 2, 2025, the shareholders of the Company approved that 1,000,000 preference shares of par value US$0.0002 be designated and issued to Mr. Bin Fu, the Chief Executive Officer and Chairman of the Board of Directors of the Company, as “Series A Preference Shares” such that the holder of a Series A Preference Share shall have 50 votes for every Series A Preference Share and is convertible into one ordinary share of the Company at the holder’s option. The designation and grant were approved by the special committee of the Board of Directors of the Company (“Board”) at the Special Committee meeting held on May 23, 2025.
On July 15, 2025, the Company announced the change and migration of its domain from www.kingwayedu.cn to www.edtk.ai. This change aligns with the Company’s strategic pivot from online training towards educational technology innovation and artificial intelligence training, reinforcing its commitment to becoming an AI technology provider in the education industry.
On October 10, 2025, the Company held an extraordinary general meeting of the Company (the “Meeting”). At the Meeting, the shareholders of the Company: (i) in an ordinary resolution, approved to designate 4,000,000 authorised but unissued preference shares of par value US$0.0002 as “Series B Preference Shares” such that the holder of a Series B Preference Share shall have 200 votes for every Series B Preference Share of which he is the holder subject to the Certificate of Designation (“Share Designation”), and (ii) immediately following the Share Designation becoming effective, in an ordinary resolution, approved the Securities Purchase Agreement (the “Agreement”) by and between the Company and Mr. Xuejun Ji, and the issuance of 4,000,000 Series B Preference Shares to Mr. Xuejun Ji, pursuant to the Agreement (the “Series B Preference Share Issue”, and together with the Certificate of Designation and Agreement, the “Series B Preference Share Transaction”).
On March 25, 2026, the Company entered into a Securities Purchase Agreement (the “Agreement”) with Mr. Xuejun Ji (the “Purchaser”). Pursuant to the Agreement, the Company sold 4,000,000 Series B Preference Shares of the Company (the “Shares”) to Mr. Ji at a price of US$0.75 per share, for an aggregate purchase price of US$3,000,000. The Purchaser shall pay the total purchase price of $3,000,000 to the Company and the Company shall issue the applicable Shares in installments: (i) $500,000 for 666,667 Shares on or before March 31, 2026; (ii) $500,000 for 666,666 Shares on or before September 30, 2026; (iii) $1,000,000 for 1,333,334 Shares on or before December 31, 2026; and (iv) $1,000,000 for 1,333,333 Shares on or before March 31, 2027. Each Series B Preference Share has 200 votes at the general meeting of shareholders and is convertible into one ordinary share of the Company at the holder’s option. The designation and issuance of Series B Preference Shares were approved by the Board of Directors and the Company’s shareholders at its extraordinary general meeting held on October 10, 2025. As of the date of this report, Mr. Ji has paid the first installment of $500,000 and 666,667 Series B Preference Shares have been issued to Mr. Ji, which provided Mr. Ji actually control over the Company and controlling person has changed from Mr. Bin Fu, the Chief Executive of the Company to Mr. Ji since July 2026.
On August 3, 2026, the Company established Skilland Digital which will focus on four new business directions: software development, artificial intelligence technology services, API interface services, and related product sales.
On August 7, 2026, the Company entered into a Share Purchase Agreement (the “Agreement”) with Penguins Investing Carnival Ltd., a British Virgin Islands company (the “Buyer”) to transfer 100% equity interest of Easy Skill Technology Ltd. and all of its subsidiaries to the Buyer for a total price of $4.5 million (the “Purchase Price”), which shall be paid in two installments: (i) 20% of the Purchase Price shall be paid within 5 business days of the Agreement and (ii) 80% of the Purchase Price shall be paid within 1 year from the date of the Agreement (the “Transaction”). As of the date of this report, the Company has received the payment of 20% of the Purchase Price. Upon the closing of the Transaction, the Buyer shall become the 100% shareholder of Easy Skill Technology Ltd. and all of its subsidiaries. After the completion of the transfer of Easy Skills Technology limited, we will have two wholly owned subsidiaries: Giga Learning Inc., a limited liability company incorporated under the laws of USA and Skilland Digital Intelligence Limited, a limited liability company incorporated under the law of Hong Kong.
| 39 |
4.B. Business Overview
All of the business operations are conducted in China and Hong Kong through our subsidiaries.
Wuxi Wangdao (the “VIE”), was a provider of online education and technology services in China. While the education services cover a wide range of subjects, including vocational education, continuing education, basic education and higher education, Wuxi Wangdao focused on vocational education since its inception in 2013 and provided vocational training courses that cover a wide range of subjects such as mechanics, electronics, auto repair and construction. The VIE’s online education services comprised two aspects: online vocational training and virtual simulation experimental training. Students who sign up for the online vocational training can log into the platform and access pre-recorded courses in the areas of their professional development. Virtual simulation technology training offers. It also provided technology services, including software development as well as comprehensive cloud services for private companies, academic institutions and government agencies in the PRC.
Due to the decreased demand and changes in the market environment for online education services in China, the Company has been transitioning from online education services to educational technology innovation, artificial intelligence skills training, and the digital transformation of educational institutions since the end of 2024. The WOFE’s wholly owned subsidiary, Jisen Information, conducted most of the new business for the Company in China and recently launched its communication enrichment app ‘Sesame Chat’ on iOS platforms in China. The app employs proprietary AI technology to analyze communication contexts and relationship dynamics. As the launch of Seseame Chat has not achieved its business goal, the Company decided to focus its strategic initiative aiming at expanding the Company’s international presence and exploring new growth opportunities through its newly established subsidiary of Skilland Digital and will focus on four new business directions: software development, artificial intelligence technology services, API interface services, and related product sales.
Our revenue was $1.99 million in the fiscal year 2024, $1.02 million in the fiscal year 2025 and $0.01 million in the fiscal year 2026. The discontinued operation, former VIE, contributed to 100% and 13% of our consolidated revenue for the fiscal years ended March 31, 2024 and 2025, respectively. Revenue from the online education services provided by the VIE accounted for 98.8%, and 11.9%, respectively, of the revenue for the fiscal years ended March 31, 2024 and March 31, 2025. Revenue from technology services provided by the VIE, and together with revenue from services provided by Jisen Information accounts for the balance for the fiscal years ended March 31, 2024 and March 31, 2025. All the revenues of the Company were generated by Jisen Information for the fiscal year ended March 31, 2026.
Our Services
AI Products Operation
EDTK’s AI product focuses on communication skills enhancement through proprietary EQ-driven large language models (EQ-LLMs). The Company’s Communication Skills Learning (CSL) product is designed for non-real-time communication scenarios. Products such as communication assistants support users in improving interpersonal interactions in both personal and workplace contexts. Commercialization is driven through direct-to-consumer subscription models and enterprise licensing to corporate learning platforms. In February 2026, the Company developed first enterprise client for the CSL products which bring revenue RMB 100,000 each month in next 12 month. During the service period, the client is authorized to access in and use the subsequent derived AI products for internal corporate training and employee competency improvement.
| 40 |
Technology; Research & Development
EDTK is a technology-driven education company committed to transforming how institutions and individuals engage with learning, communication, and organizational development. Our technology infrastructure supports three primary business lines.
We provide structured, data-informed consulting methodologies for education institutions undergoing digital transformation. Our proprietary tools include Matrix (for simulation and planning), and a modular consulting workflow engine. These are supported by an internal knowledge base of institutional transformation cases, enabling us to deliver efficient, scenario-adapted recommendations.
We have developed a suite of modular SaaS platforms tailored for educational ecosystems, including Learning Management Systems (LMS), academic administration systems, intelligent scheduling engines, and student progress dashboards. These platforms are built on a microservice architecture and support both hybrid and fully digital teaching models.
The proprietary CSL product lineup is powered by vertical-domain large language models subject to specialized fine-tuning, which excel at emotion perception, conversational-logic modelling and utterance optimization. For enterprise-facing workflows including prospect outreach, deal discussions and cross-regional teamwork, the CSL-AI Assistant supplies customized communication frameworks and wording guidance. Its built-in multi-turn inference pipelines, tone-matching components and instant-feedback modules support businesses in boosting their workforce’s interpersonal-communication skills and delivering systematic corporate training.
Key areas of our R&D focus include:
AI-Enhanced Consulting Tools: Development of a digital consulting assistant powered by LLMs to streamline diagnostic, planning, and reporting workflows in education transformation projects.
Scenario-Based Learning Algorithms: Optimization of learner path recommendations, risk detection, and micro-learning interventions based on behavioral analytics drawn from platform usage.
Global Platform Adaptation: Internationalization of our CSL products to support multilingual deployments, localized compliance, and regional pedagogical variations, particularly in Southeast Asia and North America.
Marketing
We develop our customers and clients primarily through referrals from industry professionals and existing clients. And we also expand our institutional client base by participating in third-party organized professional conferences and seminars within the education technology sector.
Intellectual Property
The intellectual property rights of our subsidiaries distinguish their services from those of the competitors and contribute to their ability to compete in the target markets. These entities rely on a combination of copyright law, trade secret protection and employment and confidentiality agreements with executive officers and most other employees, to protect their intellectual property rights. The employment agreements with the executive officers contain confidentiality and non-disclosure clauses that impose confidentiality obligations on the executive officers at all times during and after their employment. Furthermore, the executive officers acknowledge, pursuant to the employment agreements, that copyrightable works prepared by them within the scope of and during the period of their employment are “works for hire” and that the employer will be considered the author thereof. In addition, certain key employees are required to enter into separate confidentiality agreements under which they acknowledge that all inventions, utility models, designs, know-how, copyrights and other forms of intellectual property made by them within the scope of their employment, pursuant to job assignments or using employer’s materials and technology, or during the one year after their employment that relates to their employment, are the employer’s property and they should assign the same to the employer if the employer so requires. We also regularly monitor any infringement or misappropriation of our intellectual property rights.
The VIE has registered 45 software copyrights in relation to their platforms with the National Copyright Administration of the PRC, which it has licensed the Company to use for free as a part of the VIE Termination Agreements. Wuxi Talent Home has registered five copyrights, five trademarks and one domain name, rczj.cn, in the PRC. Jisen Information has registered two copyrights in the PRC. Giga Learning Inc. has registered one domain name, gigalearning.ai. Skillful Craftsman Education Technology Limited has registered two domain names, edtk.ai, in, and saseme.guide.
Seasonality
Given the constant demands for education related services throughout the year, the current operations have not demonstrated seasonality.
Competition
The education related services market in China is fragmented, rapidly evolving and highly competitive. Our subsidiaries face competition for customers and users from existing large providers of educational services, as well as smaller regional educational services providers in China. They may also face competition from providers that offer specialized programs targeting certain markets such as IT and accounting. In the future, they may also face competition from new entrants into the Chinese educational service market.
The Company’s Communication Skills Learning (CSL) products operate in the rapidly emerging AI-powered communication coaching and enterprise training market, which is expected to become increasingly competitive. The Company may face competition from large AI platform companies with advanced large language model capabilities, as well as specialized enterprise learning management system (LMS) providers and communication analytics software vendors.
| 41 |
We believe that the principal competitive factors in the markets include the following:
| ● | scope and quality of our offerings and services; | |
| ● | ability to independently operate the app that integrates a wide range of services; | |
| ● | Experienced technology and business team for new program development in innovative AI communication and the empowerment of AI and digital technology in education. |
We believe our subsidiaries are well-positioned to effectively compete in markets in which they respectively operate on the basis of the innovative educational service, broad scope of service offerings, expertise in training and experienced management team. However, some of their current or future competitors may have longer operating histories, greater brand recognition, or greater financial, technical or marketing resources than they do. For a discussion of risks relating to competition, see “Item 3. Key Information—D. Risk Factors—Risks Related to the Business and Industry”.
Insurance and Social Security Matters
Neither we nor our subsidiaries maintain any liability insurance or property insurance policies covering equipment and facilities for losses due to fire, earthquake, flood or any other disaster. Consistent with customary industry practice in China, they do not maintain business interruption insurance, nor do they maintain key-man life insurance. Our subsidiaries participate in various government statutory social security plans, including a pension contribution plan, a medical insurance plan, an unemployment insurance plan, a work-related injury insurance plan, a maternity insurance plan and a housing provident fund.
Legal Proceedings
We currently are not a party to, and is not aware of any threat of, any legal, arbitration or administrative proceedings that, in the opinion of our management, is likely to have a material and adverse effect on the business, financial condition or results of operations. From time to time, we or our subsidiaries may become, and may in the future become, a party to various legal or administrative proceedings or claims arising in the ordinary course of the business. Regardless of the outcome, legal or administrative proceedings or claims may have an adverse impact on us or our subsidiaries because of defence and settlement costs, diversion of management attention and other factors.
Regulations
This section sets forth a summary of the most significant laws, rules and regulations that affect the business and operations of our subsidiaries.
Regulations on Value-added Telecommunication Services
On September 25, 2000, the State Council promulgated the Telecommunications Regulations of the PRC, or the Telecom Regulations, which was amended on July 29, 2014 and February 6, 2016. The Telecom Regulations is the primary PRC law governing telecommunication services and sets out the general regulatory framework for telecommunication services provided by PRC companies. The Telecom Regulations distinguishes between “basic telecommunication services” and “value-added telecommunication services.” The Telecom Regulations defines value-added telecommunications services as telecommunications and information services provided through public network infrastructure. Pursuant to the Telecom Regulations, commercial operators of value-added telecommunications services must first obtain an operating license from the Ministry of Industry and Information Technology, or the MIIT (in cases the services cover multiple provinces), or its provincial counterparts (in cases the services cover individual province).
| 42 |
On July 3, 2017, the MIIT issued the Measures on the Administration of Telecommunications Business Operating Permits, or the Telecom License Measures, which became effective on September 1, 2017, to supplement the Telecom Regulations. The Telecom License Measures sets forth the types of licenses required to operate value-added telecommunications services and the qualifications and procedures for obtaining such licenses. The Telecom License Measures also provides that an operator providing value-added telecommunication services in multiple provinces is required to obtain an inter-regional license, whereas an operator providing value-added telecommunication services in one province is required to obtain an intra-provincial license. Any telecommunication services operator must conduct its business in accordance with the specifications in its license.
The VIE engaged in business activities that are value-added telecommunication services as defined in the Telecom Regulations and the Negative List. To comply with the relevant laws and regulations, Wuxi Wangdao/the VIE has obtained a Value-Added Telecommunications Services Operating License for providing information services via the internet, or the ICP License, which will remain effective until February 19, 2029.
Regulations on Foreign Investment in the Value-added Telecommunications Industry
Foreign direct investment in telecommunications companies in China is governed by the Provisions on the Administration of Foreign-Invested Telecommunications Enterprises, or the FITE Regulations, which was promulgated by the State Council on December 11, 2001 and amended on September 10, 2008, February 6, 2016 and March 29, 2022. These regulations require that foreign-invested value-added telecommunications enterprises in China must be established as Sino-foreign equity joint ventures and that foreign investors may not hold a majority equity interest in such joint ventures. Moreover, foreign investors that meet these requirements must obtain approvals from the MIIT to provide value-added telecommunication services in China, and the MIIT retain considerable discretion in granting such approvals.
On July 13, 2006, the Ministry of Information Industry (the predecessor of the MIIT) issued the Circular on Strengthening the Administration of Foreign Investment in and Operation of Value-added Telecommunications Business, pursuant to which a PRC company that holds an ICP License is prohibited from leasing, transferring or selling the ICP License to foreign investors in any form, and from providing any assistance, including resources, sites or facilities, to foreign investors that conduct value-added telecommunications business illegally in China. Moreover, the domain names and registered trademarks used by an operating company providing value-added telecommunications services shall be legally owned by such company and/or its shareholders. In addition, such company’s operation premises and equipment must comply with its approved ICP License, and such company must improve its internal internet and information security standards and emergency management procedures.
In view of these restrictions on foreign direct investment in value-added telecommunications services under which the business may fall, including internet audio-visual program services and radio/television programs production and operation businesses, due to the lack of interpretative guidance from relevant PRC governmental authorities, there are uncertainties regarding whether PRC governmental authorities would consider our corporate structure and contractual arrangements to constitute foreign ownership of a value-added telecommunications business. If our current ownership structure is found to be in violation of current or future PRC laws, rules or regulations regarding the legality of foreign investment in value-added telecommunications services and other types of businesses in which foreign investment is restricted or prohibited, we could be subject to severe penalties.
| 43 |
Regulations on Foreign Investment
The Special Administrative Measures (Negative List) for the Entrance of Foreign Investment (2024 version) (“the Negative List”)
On September 6, 2024, the National Development and Reform Commission (“NDRC”) and the MOFCOM promulgated the Special Administrative Measures (Negative List) for the Entrance of Foreign Investment (2024 version) (“the Negative List”), which became effective on November 1, 2024. If the investment falls within the “encouraged” category, such foreign investment will be entitled to certain preferential treatment and benefits extended by the government. If the investment falls within the “restricted” category, such foreign investment will be permitted to the extent that it satisfies certain restrictions under the PRC laws. If the investment falls within the “prohibited” category, such foreign investment will be prohibited. If the investment falls within an industry not included in the Negative List, such foreign investment will be allowed, unless it is specifically prohibited or restricted by other PRC laws and regulations. Foreign investment in value-added telecommunications services (except for e-commerce, domestic multi-party communication, storage and forwarding, call center) falls within the Negative List. As a result, foreign investors can only conduct investment activities through equity or contractual joint ventures with certain shareholding requirements (no more than 50%) and approvals from competent authorities. PRC partners are required to hold the majority interests in the joint ventures and approvals from the MOFCOM and the MIIT for the incorporation of the joint ventures and the business operations.
Company Law of the People’s Republic of China (2023 Amendment)
The establishment, operation and management of corporate entities in the PRC are governed by the Company Law of the People’s Republic of China (2023 Amendment) (“PRC Company Law”), which was initially promulgated by the Standing Committee of the National People’s Congress, on December 29, 1993, came into effect on July 1, 1994, and was subsequently amended on December 25, 1999, August 28, 2004, October 27, 2005, December 28, 2013, October 26, 2018 and December 29, 2023. The latest amended PRC Company Law became effective on July 1, 2024. The PRC Company Law generally governs two types of companies-limited liability companies and joint stock limited companies. The PRC Company Law also applies to foreign-invested companies. Where laws on foreign investment have other stipulations, such stipulations shall prevail.
Foreign Investment Law of the People’s Republic of China
On March 15, 2019, the National People’s Congress approved Foreign Investment Law of the People’s Republic of China (“the Foreign Investment Law”), which came into effect on January 1, 2020 and replaced the trio of existing laws regulating foreign investment in China, namely, the Sino-foreign Equity Joint Venture Enterprise Law, the Sino-foreign Cooperative Joint Venture Enterprise Law and the Wholly Foreign-owned Enterprise Law, together with their implementation rules and ancillary regulations. The organization form, organization and activities of foreign-invested enterprises shall be governed, among others, by the PRC Company Law and the PRC Partnership Enterprise Law. Foreign-invested enterprises established before the implementation of the Foreign Investment Law may retain the original business organization and so on within five years after the implementation of this Law.
The Foreign Investment Law is formulated to further expand opening-up, vigorously promote foreign investment and protect the legitimate rights and interests of foreign investors. According to the Foreign Investment Law, foreign investments are entitled to pre-entry national treatment and are subject to the management system under the Negative List mentioned above. The pre-entry national treatment means that the treatment given to foreign investors and their investments at the stage of investment access shall not be less favorable than that of domestic investors and their investments. The negative list management system means that the state implements special administrative measures for access to foreign investment in specific fields. The Foreign Investment Law does not mention the relevant concept and regulatory regime of VIE structures. However, since it is relatively new, uncertainties still exist in relation to its interpretation and implementation.
Foreign investors’ investment, earnings and other legitimate rights and interests within the territory of China shall be protected in accordance with the law, and all national policies on supporting the development of enterprises shall equally apply to foreign-invested enterprises. Among others, the state guarantees that foreign-invested enterprises participate in the formulation of standards in an equal manner and that foreign-invested enterprises participate in government procurement activities through fair competition in accordance with the law. Further, the state shall not expropriate any foreign investment except under special circumstances. In special circumstances, the state may levy or expropriate the investment of foreign investors in accordance with the law for the needs of the public interest. The expropriation and requisition shall be conducted in accordance with legal procedures and timely and reasonable compensation shall be given. In carrying out business activities, foreign-invested enterprises shall comply with relevant provisions on labor protection.
| 44 |
Regulations on Internet Content Providers
The Administrative Measures on Internet Information Services, or the Internet Content Measures, which was promulgated by the State Council on September 25, 2000, amended on January 8, 2011 and December 6, 2024, which came into effect on January 20, 2025, sets out guidelines on the provision of internet information services. The Internet Content Measures specifies that internet information services regarding news, publications, education, medical and health care, pharmacy and medical appliances, among other things, are required to be examined, approved and regulated by the relevant authorities.
Internet information providers are prohibited from providing services beyond those included in the scope of their licenses or filings. Furthermore, the Internet Content Measures specifies a list of prohibited content. Internet information providers are prohibited from producing, copying, publishing or distributing information that is humiliating or defamatory to others or that infringes the legal rights of others. Internet information providers that violate such prohibition may face criminal charges or administrative sanctions. Internet information providers must monitor and control the information posted on their websites. If any prohibited content is found, they must remove the content immediately, keep a record of such content and report to the relevant authorities.
The Internet Content Measures classifies internet information services into commercial internet information services and non-commercial internet information services. Commercial internet information services refer to services that provide information or services to internet users with charge. A provider of commercial internet information services must obtain an ICP License.
Regulations on Online and Distance Education
Pursuant to the Administrative Regulations on Educational Websites and Online and Distance Education Schools issued by the MOE on July 5, 2000 (“Education Websites and Online Education Regulations”, already repealed on March 13, 2017), educational websites and online education schools may provide educational services in relation to higher education, elementary education, pre-school education, teaching education, occupational education, adult education, other education and public educational information services. “Educational websites” refer to organizations providing education or education-related information services to website visitors by means of a database or online education platform connected via the Internet or an educational television station through an Internet Service Provider, or ISP. “Online education schools” refer to education websites providing academic education services or training services with the issuance of various certificates.
Setting up an education website and online education school is subject to approvals from relevant education authorities, depending on the specific types of education. Any education website and online education school shall, upon the receipt of approval, indicate on its website such approval information as well as the approval date and file number.
On June 29, 2004, the State Council promulgated the Decision on Setting Down Administrative Licenses for the Administrative Examination and Approval Items Really Necessary to be Retained, pursuant to which the administrative license for “online education schools” was maintained, while the administrative license for “educational websites” was not retained. Accordingly, Craftsman Wuxi, which holds ICP license for kingwayup.com website is not required to obtain approval to operate “educational websites” from the MOE. On January 28, 2014, the State Council promulgated the Decision on Abolishing and Delegating Certain Administrative Examination and Approval Items, pursuant to which the administrative approval for “online education schools” of higher education was abolished. On February 3, 2016, the State Council further promulgated the Decision on the Second Batch of Abolishing 152 Items of Administrative Examination and Approval Items Specified by the Central Government for Local Implementation, pursuant to which the administrative approval for “online education schools” was abolished, and based on which, the Ministry of Education promulgated the Circular on Strengthening Interim and Ex-post Supervision Following the Abolishment of Approval for Educational Websites and Online Education Schools on March 13, 2017, pursuant to which the Education Websites and Online Education Regulations were officially repealed.
On September 19, 2019, the MOE, jointly with certain other PRC government authorities, issued the Guidance Opinions on Promoting the Healthy Development of Online Education, which provides, among others, that (i) social forces are encouraged to establish online education institutions, develop online education resources, and provide high quality education services; and (ii) an online education negative list shall be promulgated and industries not included in the negative list are open for all types of entities to enter into.
| 45 |
Regulations on Internet Audio-Visual Program Services
Audio-Visual License
On December 20, 2007, the State Administration of Radio, Film and Television, or the SARFT (the predecessor of NRTA) and the MIII jointly promulgated the Administrative Provisions on Internet Audio-Visual Program Services, or the Audio-Visual Program Provisions, which became effective as of January 31, 2008 and were subsequently amended on August 28, 2015. Providers of internet audio-visual program services are required to obtain the license for online transmission of audio-visual programs, or the Audio-Visual License issued by SARFT, or complete record-filing procedures with SARFT. In general, providers of internet audio-visual program services must be either state-owned or state-controlled entities, and their businesses must satisfy the overall planning and guidance catalog for internet audio-visual program services determined by SARFT.
On May 21, 2008, SARFT issued a Notice on Relevant Issues Concerning Application and Approval of License for the Online Transmission of Audio-Visual Programs, which was amended on August 28, 2015. Such regulation further sets out detailed provisions concerning the application and approval process regarding the Audio-Visual License. The notice also stipulates that internet audio-visual program services providers that have engaged in such services prior to the promulgation of the Audio-Visual Program Provisions are able to apply for the license so long as (i) the violation of the laws and regulations is minor in scope and can be rectified in a timely manner, and (ii) the providers had no violations of laws during the last three months prior to the promulgation of the Audio-Visual Program Provisions.
On March 30, 2009, SARFT promulgated the Notice on Strengthening the Administration of the Content of Internet Audio-Visual Programs, which prohibits internet audio-visual programs containing violence, pornography, gambling, terrorism, superstition or other similarly prohibited elements.
Regulations on Publication and Distribution of Audio-Visual Programs through the Internet or Other Information Network
Under the Provisions on the Administration of the Publication Market, or Publications Market Measures, which was jointly promulgated by SAPPRFT and MOFCOM and became effective as of March 25, 2011 and was implemented on June 1, 2016, any enterprise or individual who engages in publication distribution activities shall obtain permission from SAPPRFT or its local counterpart. “Publication” is defined as “books, newspapers, periodicals, audio-video products, and electronic publications,” and “distributing” is defined as “wholesale, retail, rental, exhibition and other activities,” respectively, under the Publication Market Measures. Any enterprise or individual that engages in the retail of publications shall obtain a Publication Business Operating License issued by the local counterpart of SAPPRFT at the county level. In addition, any enterprise or individual that holds a Publication Business Operating License shall file with the relevant local counterpart of SAPPRFT that granted such license to it within 15 days since it begins to carry out any online publication distribution business. Where an entity or individual is engaged in the distribution of publications via the internet or other information networks, it or he/she shall obtain the operation permit for publications.
The SAPPRFT and the MIIT jointly promulgated the Administrative Provisions on Internet Audio-Visual Program Service, or the Audio-Visual Program Provisions, on December 20, 2007, which came into effect on January 31, 2008 and was amended and effective on August 8, 2015. Under the Audio-Visual Program Provisions, “internet audio-visual program services” is defined as activities of producing, redacting and integrating audio-visual programs, providing them to the general public via the internet, and providing service for other people to upload and transmits audio-visual programs.
On April 1, 2010, SAPPRFT promulgated the Provisional Implementation of the Tentative Categories of Internet Audio-Visual Program Services, or the Categories, which was modified on March 10, 2017. The Categories clarified the scope of Internet audio-video program services. According to the Categories, there are four categories of Internet audio-visual program services, which are further divided into seventeen sub-categories. The third sub-category to the second category covers the making and editing of certain specialized audio-video programs concerning, among other things, educational content, and broadcasting such content to the general public online. However, there are still significant uncertainties relating to the interpretation and implementation of the Audio-Visual Program Provisions, in particular, the scope of “internet audio-video programs.”
| 46 |
Regulations on Internet Publishing
On February 4, 2016, the SAPPRFT and the MIIT jointly issued the Rules for the Administration for Internet Publishing Services, or the Internet Publishing Rules, which became effective on March 10, 2016, to replace the Provisional Rules for the Administration for Internet Publishing that had been jointly issued by the SAPPRFT and the MIIT on June 27, 2002. The Internet Publishing Rules defines “internet publications” as digital works that are edited, produced, or processed to be published and provided to the public through the internet, including (a) original digital works, such as pictures, maps, games, and comics; (b) digital works with content that is consistent with the type of content that, prior to the internet age, typically was published in media such as books, newspapers, periodicals, audio-visual products, and electronic publications; (c) digital works in the form of online databases compiled by selecting, arranging, and compiling other types of digital works; and (d) other types of digital works identified by the SAPPRFT. Under the Internet Publishing Rules, internet operators distributing such publications via the internet are required to apply for an internet publishing license with the relevant governmental authorities and for SAPPRFT approval before distributing internet publications.
Regulations on Internet Security
Internet information in China is regulated and restricted from a national security standpoint. The Standing Committee of the National People’s Congress has enacted the Decisions on Maintaining Internet Security on December 28, 2000, amended on August 27, 2009, which may subject violators to criminal punishment in China for any effort to: (i) gain improper entry into a computer or system of strategic importance; (ii) disseminate politically disruptive information; (iii) leak state secrets; (iv) spread false commercial information; or (v) infringe intellectual property rights. In 1997, the Ministry of Public Security promulgated measures that prohibit the use of the internet in ways which, among other things, result in a leakage of state secrets or a spread of socially destabilizing content. If an internet information service provider violates these measures, the Ministry of Public Security and the local security bureaus may revoke its operating license and shut down its websites.
On November 7, 2016, the Standing Committee of the National People’s Congress promulgated the Cyber Security Law of the PRC, or the Cyber Security Law, which became effective on June 1, 2017 and was amended on October 28, 2025. The Cyber Security Law requires network operators, including online lending information intermediaries, to comply with laws and regulations and fulfill their obligations to safeguard the security of the network when conducting business and to provide services. The Cyber Security Law further requires network operators to take all necessary measures in accordance with applicable laws, regulations and compulsory national requirements to safeguard the safe and stable operation of the networks, respond to network security incidents effectively, prevent illegal and criminal activities, and maintain the integrity, confidentiality and usability of network data. The amended version stated that the State supports research on basic theories of artificial intelligence and the R&D of key technologies including algorithms, promotes the development of infrastructure such as training data resources and computing power, improves ethical norms for artificial intelligence, strengthens risk monitoring, assessment and safety supervision, and fosters the application and sound development of artificial intelligence. The amended version also strengthened and specified the penalty measures.
On December 28, 2021, the Cyberspace Administration of China, or the CAC, and 12 other regulatory authorities jointly issued the Cybersecurity Review Measures, or the Review Measures, which took effect on February 15, 2022. The Review Measures provides, among others, (i) the purchase of cyber products and services by critical information infrastructure operators, or the “CIIOs,” and the network platform operators, or Network Platform Operators, which engage in data processing activities that affects or may affect national security shall be subject to the cybersecurity review by the Cybersecurity Review Office, the department which is responsible for the implementation of cybersecurity review under the CAC; and (ii) the Network Platform Operators with personal information data of more than one million users that seek for listing in a foreign country are obliged to apply for a cybersecurity review by the Cybersecurity Review Office. Such review would focus on the potential risk of core data, important data, or a large amount of personal information being stolen, leaked, destroyed, illegally used or exported out of China, or critical information infrastructure being affected, controlled or maliciously used by foreign governments after such a listing.
| 47 |
Regulations on Data Security
On June 10, 2021, SCNPC published the PRC Data Security Law, which took effect on September 1, 2021. The PRC Data Security Law requires data processing, which includes the collection, storage, use, processing, transmission, provision, publication of data, to be conducted in a legitimate and proper manner. The PRC Data Security Law provides for data security and privacy obligations on entities and individuals carrying out data activities. The PRC Data Security Law also introduces a data classification and hierarchical protection system based on the importance of data in economic and social development, and the degree of harm it may cause to national security, public interests, or legitimate rights and interests of individuals or organizations if such data are tampered with, destroyed, leaked, illegally acquired or illegally used. The appropriate level of protection measures is required to be taken for each respective category of data. For example, a processor of important data is required to designate the personnel and the management body responsible for data security, carry out risk assessments of its data processing activities and file the risk assessment reports with the competent authorities. Core data, i.e., data concerning national security, the lifelines of the national economy, important aspects of people’s lives, and major public interests, shall be subject to stricter management system. Moreover, the PRC Data Security Law provides a national security review procedure for those data activities which affect or may affect national security and imposes export restrictions on certain data and information. In addition, the PRC Data Security Law also provides that any organization or individual within the territory of the PRC shall not provide any foreign judicial body and law enforcement body with any data stored within the territory of the PRC without the approval of the competent PRC governmental authorities.
On July 6, 2021, certain PRC regulatory authorities issued Opinions on Strictly Cracking Down on Illegal Securities Activities, which, among others, provides for improving relevant laws and regulations on data security, cross-border data transmission, and confidential information management. It provides that efforts will be made to revise the regulations on strengthening the confidentiality and file management relating to the offering and listing of securities overseas, to implement the responsibility on information security of overseas listed companies, and to strengthen the standardized management of cross-border information provision mechanisms and procedures.
On September 24, 2024, the State Council published the Regulations on Network Data Security Regulations, which took effect on January 1, 2025. The Network Data Security Regulations provides that network data processors refer to individuals or organizations that autonomously determine the purpose and the manner of processing network data, and the network data processors engaging in data processing activities that affect or may affect national security shall be subject to the national security review in accordance with relevant laws and regulations. If the important data collected and generated by network data processors during operations within the territory of the PRC really needs to be provided overseas, they shall be subject to the data export security assessment organized by CAC and other relevant administrative department. Additionally, the Network Data Security Regulations emphasize the obligations of important data processors, while the important data refers to data in specific fields, specific groups, specific regions or reaching a certain accuracy and scale, which may directly endanger national security, economic operation, social stability, public health and security once being tampered with, destroyed, leaked or illegally obtained or used illegally, and clarify the definition and obligations of “large-scale network platform” service providers, with the “large-scale network platform” referring to a network platform with more than 50 million registered users or more than 10 million monthly active users, complex business types, and network data processing activities having a significant impact on national security, economic operation, national welfare and people’s livelihood, etc.
Regulations on Personal Information Protection
On May 28, 2020, the NPC approved the PRC Civil Code, which came into effect on January 1, 2021. Pursuant to the PRC Civil Code, the collection, storage, use, process, transmission, provision, and disclosure of personal information should follow the principles of legitimacy, properness, and necessity.
On August 20, 2021, the SCNPC promulgated the PRC Personal Information Protection Law, which integrates the scattered rules with respect to personal information rights and privacy protection and took effect on November 1, 2021. Pursuant to the PRC Personal Information Protection Law, “personal information” refers to any kind of information related to an identified or identifiable individual as electronically or otherwise recorded but excluding the anonymized information. The processing of personal information includes the collection, storage, use, processing, transmission, provision, disclosure, and deletion of personal information. The PRC Personal Information Protection Law applies to the processing of personal information of individuals within the territory of the PRC, as well as personal information processing activities outside the territory of the PRC, for the purpose of providing products or services to natural persons located within China, for analyzing or evaluating the behaviors of individuals located within China, or for other circumstances as prescribed by laws and administrative regulations. The PRC Personal Information Protection Law provides a personal information processor may process the personal information of this individual only under the following circumstances: (i) where consent is obtained from the individual; (ii) where it is necessary for the execution or performance of a contract to which the individual is a party, or where it is necessary for carrying out human resource management pursuant to employment rules legally adopted or a collective contract legally concluded; (iii) where it is necessary for performing a statutory responsibility or statutory obligation; (iv) where it is necessary in response to a public health emergency, or for protecting the life, health or property safety of a natural person in the case of an emergency; (v) where the personal information is processed within a reasonable scope to carry out any news reporting, supervision by public opinions or any other activity for public interest purposes; (vi) where the personal information, which has already been disclosed by an individual or otherwise legally disclosed, is processed within a reasonable scope; or (vii) any other circumstance as provided by laws or administrative regulations. In principle, the consent of an individual must be obtained for the processing of his or her personal information, except under the circumstances of the aforementioned items (ii) to (vii). Where personal information is to be processed based on the consent of an individual, such consent shall be a voluntary and explicit indication of intent given by such individual on a fully informed basis. If laws or administrative regulations provide that the processing of personal information shall be subject to the separate consent or written consent of the individual concerned, such provisions shall prevail. In addition, the processing of the personal information of a minor under 14 years old must obtain the consent by a parent or a guardian of such minor and the personal information processors must adopt special rules for processing personal information of minors under 14 years old. The PRC Personal Information Protection Law also contains certain specific provisions with respect to the obligations of a personal information processor and imposes further obligations on a personal information processor that provides for basic internet platform services, has large number of users, or has complicated business activities. These obligations include, without limitation, formulation of an independent institution mainly comprising of outside members to supervise personal information processing activities, termination of provision of services for product or service providers on the platform whose personal information processing activities are in material violation of laws and regulations, and issuing personal information protection social responsibilities reports regularly.
| 48 |
Regulations on Intellectual Property
Regulations on Copyright
The Copyright Law of the PRC, or the Copyright Law, which took effect on June 1, 1991 and was amended in 2001, 2010 and 2020, and became effective on June 1, 2021, provides that Chinese citizens, legal persons, or other organizations shall, whether published or not, own copyright in their copyrightable works, which include, among others, works of literature, art, natural science, social science, engineering technology and computer software. Copyright owners enjoy certain legal rights, including the right of publication, right of authorship and right of reproduction. The Copyright Law as revised in 2010 extends copyright protection to Internet activities, products disseminated over the Internet and software products. In addition, the Copyright Law provides for a voluntary registration system administered by the China Copyright Protection Center, or the CPCC. According to the Copyright Law, an infringer of the copyrights shall be subject to various civil liabilities, which include ceasing infringement activities, apologizing to the copyright owners and compensating the loss of the copyright owner. Infringers of copyright may also be subject to fines and/or administrative or criminal liabilities in severe situations.
Pursuant to the Computer Software Copyright Protection Regulations promulgated by the State Council on June 4, 1991, and amended on December 20, 2001 and January 30, 2013, the software copyright owner may go through the registration formalities with a software registration authority recognized by the State Council’s copyright administrative department. The software copyright owner may authorize others to exercise that copyright and is entitled to receive remuneration.
On May 28, 2020 the National People’s Congress promulgated the Civil Code, which came into effect on January 1, 2021. Under the Civil Code, if an offender intentionally infringes upon the intellectual property rights of others and the circumstance is severe, the infringed party shall have the right to request for the corresponding punitive compensation.
Regulations on Domain Names
The MIIT promulgated the Measures on Administration of Internet Domain Names, or the Domain Name Measures, on August 24, 2017, which took effect on November 1, 2017 and replaced the Administrative Measures on China Internet Domain Name first promulgated by the MIIT on August 1, 2002. According to the Domain Name Measures, the MIIT is in charge of the administration of PRC internet domain names. The domain name registration follows a first-to-file principle. Applicants for registration of domain names must provide the true, accurate and complete information of their identities to domain name registration service institutions. The applicants will become the holder of such domain names upon the completion of the registration procedure.
Regulations on Foreign Exchange
General Administration of Foreign Exchange
Under the Regulation of the People’s Republic of China on Foreign Exchange Administration (2008 Revision)(“Foreign Exchange Administration Rules”) promulgated on January 29, 1996 and most recently amended on August 5, 2008 and various regulations issued by the State Administration of Foreign Exchange of the PRC, or the SAFE and other relevant PRC government authorities, Renminbi is convertible into other currencies for current account items, such as trade-related receipts and payments and payment of interest and dividends. The conversion of Renminbi into other currencies and remittance of the converted foreign currency outside the PRC for capital account items, such as direct equity investments, loans and repatriation of investment, require a prior approval from the SAFE or its local office.
Payments for transactions that take place within the PRC must be made in Renminbi. Unless otherwise approved, PRC companies may not repatriate foreign currency payments received from abroad or retain the same abroad. Foreign-invested enterprises may retain foreign exchange in accounts with designated foreign exchange banks under the current account items subject to a cap set by the SAFE or its local office. Foreign exchange proceeds under the current accounts may be either retained or sold to a financial institution engaged in settlement and sale of foreign exchange pursuant to relevant SAFE rules and regulations. For foreign exchange proceeds under the capital accounts, approval from the SAFE is generally required for the retention or sale of such proceeds to a financial institution engaged in settlement and sale of foreign exchange.
| 49 |
Pursuant to the Circular of the SAFE on Further Improving and Adjusting Foreign Exchange Administration Policies for Direct Investment, or the SAFE Circular 59, promulgated by SAFE on November 19, 2012, which became effective on December 17, 2012 and was further amended on May 4, 2015 and October 10, 2018 and was partly repealed on December 30, 2019, approval by SAFE is not required for opening a foreign exchange account and depositing foreign exchange into the accounts relating to the direct investments. The SAFE Circular 59 also simplified the foreign exchange-related registration required for foreign investors to acquire the equity interests of Chinese companies and further improve the administration of foreign exchange settlement for foreign-invested enterprises.
The Circular on Further Simplifying and Improving the Foreign Currency Management Policy on Direct Investment, or the SAFE Circular 13, effective from June 1, 2015 (partly repealed on December 30, 2019), cancels the administrative approvals of foreign exchange registration of direct domestic investment and direct overseas investment and simplifies the procedure of foreign exchange-related registration. Pursuant to the SAFE Circular 13, the investors shall register with banks for direct domestic investment and direct overseas investment.
The Circular on Reforming the Management Approach regarding the Settlement of Foreign Capital of Foreign-invested Enterprise, or the SAFE Circular 19, which was promulgated by the SAFE on March 30, 2015 and became effective on June 1, 2015 (partly repealed on December 30, 2019 and further amended on March 23, 2023), provides that a foreign-invested enterprise may, according to its actual business needs, settle with a bank the portion of the foreign exchange capital in its capital account for which the relevant foreign exchange administration has confirmed monetary capital contribution rights and interests (or for which the bank has registered the injection of the monetary capital contribution into the account). Pursuant to the SAFE Circular No. 19, for the time being, foreign-invested enterprises are allowed to settle 100% of their foreign exchange capitals on a discretionary basis; a foreign-invested enterprise shall truthfully use its capital for its own operational purposes within the scope of business; where an ordinary foreign-invested enterprise makes domestic equity investment with the amount of foreign exchanges settled, the invested enterprise must first go through domestic re-investment registration and open a corresponding account for foreign exchange settlement pending payment with the foreign exchange administration or the bank at the place where it is registered. The regulation repealed in 2019 was that foreign-exchange funds held in the special accounts for margin received from overseas and the special accounts for margin transferred from within the PRC shall not be settled into RMB for use.
The Circular on Reforming and Regulating Policies on the Control over Foreign Exchange Settlement of Capital Accounts, or the SAFE Circular 16, which was promulgated by the SAFE and became effective on June 9, 2016 and later amended on December 4, 2023, provides that enterprises registered in the PRC may also convert their foreign debts from foreign currency into Renminbi on self-discretionary basis. The SAFE Circular 16 also provides an integrated standard for conversion of foreign exchange under capital account items (including but not limited to foreign currency capital and foreign debts) on a self-discretionary basis, which applies to all enterprises registered in the PRC. Domestic institutions may, at their discretion, settle up to 100% of their foreign exchange receipts under the capital account for the time being, while the RMB funds obtained from discretionary settlement under the capital account shall be included in the account pending for foreign exchange settlement and payment. The WOFE may only use the RMB funds obtained from foreign exchange settlement for expenditures under the current account within the business scope or the expenditure under the capital account permitted by laws and regulations. In addition, the WOFE are required to comply with the following provisions in using their foreign exchange receipts under the capital account and RMB funds obtained from foreign exchange settlement: (1) such receipts and funds shall not, directly or indirectly, be used for the expenditures beyond the business scope of domestic institutions or the expenditures prohibited by laws and regulations of the State; (2) unless otherwise provided, such receipts and funds shall not, directly or indirectly, be used for investment in securities or other investments (except for wealth-management products and structured deposits with a risk rating no higher than Level 2); (3) such receipts and funds shall not be used for the granting of loans to non-affiliated enterprises, with the exception that such granting is expressly permitted in the business license; and (4) such receipts and funds shall not be used for purchasing residential real-estate properties for non-own-use purposes (excluding enterprises engaged in real-estate development and operation or real-estate leasing and operation businesses). Where there is any agreement on the use scope of receipt under the capital account between a domestic institution and other parties involved, the domestic institution shall not use such receipts and funds beyond the scope of such agreement and the contractual agreement shall not conflict with this Circular 16.
Under SAFE Circular 16, only FIEs with a registered business scope that includes investment activities are allowed to make domestic equity investments with their capital funds. On October 23, 2019, SAFE promulgated the Notice of the State Administration of Foreign Exchange on Further Promoting the Facilitation of Cross-border Trade and Investment, or Circular 28, later amended on December 4, 2023, which cancels such restriction. According to Circular 28, FIEs are allowed to make domestic equity investments with their capital funds subject to Negative List even though investment activities are not included in their registered business scope, with the condition that the projects invested thereby in China are true and compliant.
On April 10, 2020, SAFE promulgated Notice of the SAFE on Optimizing Foreign Exchange Administration to Support the Development of Foreign-related Business, or SAFE Circular 8 (2020), which simplifies the procedures of domestic payments with the use of registered capital, foreign debt and overseas listing by qualified enterprises.
| 50 |
According to the Provisional Measures, the Administrative Rules on the Registration of Market Entities, which was promulgated by the State Council on July 27, 2021, became effective on March 1, 2022, and other laws and regulations governing the foreign-invested enterprises and company registrations, the establishment of a foreign-invested enterprise and any capital increase and other major changes in a foreign-invested enterprise shall be registered with the SAMR or its local counterparts, and shall be filed via the foreign investment comprehensive administrative system, or the FICMIS, if such foreign-invested enterprise does not involve special access administrative measures prescribed by the PRC government.
Pursuant to the SAFE Circular No. 13 and other laws and regulations relating to foreign exchange, when setting up a new foreign-invested enterprise, the foreign-invested enterprise shall register with the bank located at its registered place after obtaining the business license, and if there is any change in capital or other changes relating to the basic information of the foreign-invested enterprise, including without limitation any increase in its registered capital or total investment, the foreign-invested enterprise must register such changes with the bank located at its registered place after obtaining the approval from or completing the filing with competent authorities. Pursuant to the relevant foreign exchange laws and regulations, the above-mentioned foreign exchange registration with the banks will typically take less than four weeks upon the acceptance of the registration application.
Loans by the Foreign Companies to their PRC Subsidiaries
A loan made by foreign investors as shareholders in a foreign-invested enterprise is considered to be foreign debt in China and is regulated by various laws and regulations, including the Regulation of the People’s Republic of China on Foreign Exchange Administration, the Interim Provisions on the Management of Foreign Debts, the Statistical Monitoring of Foreign Debts Tentative Provisions, the Detailed Rules for the Implementation of Provisional Regulations on Statistics and Supervision of External Debt, and the Administrative Measures for Registration of Foreign Debts. Under these rules and regulations, a shareholder loan in the form of foreign debt made to a PRC entity does not require the prior approval of SAFE. However, such foreign debt must be registered with and recorded by SAFE or its local branches within fifteen business days after entering into the foreign debt contract. Pursuant to these rules and regulations, the balance of the foreign debts of a foreign-invested enterprise shall not exceed the difference between the total investment and the registered capital of the foreign-invested enterprise, or Total Investment and Registered Capital Balance.
On January 12, 2017, the People’s Bank of China, or the PBOC, promulgated the Notice of the People’s Bank of China on Matters concerning the Macro-Prudential Management of Full-Covered Cross-Border Financing, or the PBOC Notice No. 9. Pursuant to the PBOC Notice No. 9, within a transition period of one year from January 12, 2017, the foreign-invested enterprises may adopt the currently valid foreign debt management mechanism, or Current Foreign Debt Mechanism, or the mechanism as provided in the PBOC Notice No. 9, or Notice No. 9 Foreign Debt Mechanism, at their own discretion. The PBOC Notice No. 9 provides that enterprises may conduct independent cross-border financing in RMB or foreign currencies as required. Pursuant to the PBOC Notice No. 9, the outstanding cross-border financing of an enterprise (the outstanding balance drawn, here and below) shall be calculated using a risk-weighted approach, or Risk-Weighted Approach, and shall not exceed the specified upper limit, namely: risk-weighted outstanding cross-border financing ≤ the upper limit of risk-weighted outstanding cross-border financing. Risk-weighted outstanding cross-border financing is calculated based on a formula set forth under such regulation. The PBOC Notice No. 9 further provides that the upper limit of risk-weighted outstanding cross-border financing for enterprises shall be 200% of its net assets, or Net Asset Limits. Enterprises shall file with SAFE in its capital item information system after entering into the relevant cross-border financing contracts and at least three business days before drawing any money from the foreign debts.
Based on the foregoing, if we provide funding to our wholly foreign-owned subsidiaries through shareholder loans, the balance of such loans shall not exceed the Total Investment and Registered Capital Balance and we will need to register such loans with SAFE or its local branches in the event that the Current Foreign Debt Mechanism applies, or the balance of such loans shall be subject to the Risk-Weighted Approach and the Net Asset Limits. According to PBOC Notice No. 9, after a transition period of one year from January 12, 2017, the PBOC and SAFE will determine the cross-border financing administration mechanism for the foreign-invested enterprises after evaluating the overall implementation of the PBOC Notice No. 9. As of the date hereof, neither PBOC nor SAFE has promulgated and made public any further rules, regulations, notices or circulars in this regard. It is uncertain which mechanism will be adopted by PBOC and SAFE in the future and what statutory limits will be imposed on us when providing loans to our PRC subsidiaries. We will need to file the loans with SAFE in its information system in the event that Notice No. 9 Mechanism applies.
| 51 |
On December 31, 2020, People’s Bank of China, together with National Development and Reform Commission, Ministry of Commerce, State-owned Assets Supervision and Administration Commission of the State Council, China Banking and Insurance Regulatory Commission, and SAFE, jointly issued the Notice on Further Optimizing Cross-border RMB Policies to Support the Stabilization of Foreign Trade and Foreign Investment, or PBOC Notice 330 (2020), which came into force on February 4, 2021. The PBOC Notice 330 (2020) aims to optimize the administration of cross-border RMB investment and financing by taking measures to relax the restrictions on the use of RMB income under certain capital accounts, facilitating reinvestment in China by foreign-invested enterprises, canceling the relevant special account management requirements for foreign direct investment, optimizing the administration of overseas RMB borrowings of domestic enterprises and simplifying the administration of overseas RMB loans of domestic enterprises. However, the implementation of PBOC Notice 330 (2020) may still has regional differences, which depends on the domestic banks located in different provinces.
Offshore Investment
Under the Circular of the State Administration of Foreign Exchange on Issues Concerning the Foreign Exchange Administration over the Overseas Investment and Financing and Round-trip Investment by Domestic Residents via Special Purpose Vehicles, or the SAFE Circular 37, issued by the SAFE and effective on July 4, 2014, PRC residents are required to register with the local SAFE branch prior to the establishment or control of an offshore special purpose vehicle, or SPV, which is defined as offshore enterprises directly established or indirectly controlled by PRC residents for offshore equity financing of the enterprise assets or interests they hold in China. An amendment to registration or subsequent filing with the local SAFE branch by such PRC resident is also required if there is any change in basic information of the offshore company or any material change with respect to the capital of the offshore company. At the same time, the SAFE has issued the Operation Guidance for the Issues Concerning Foreign Exchange Administration over Round-trip Investment regarding the procedures for SAFE registration under the SAFE Circular 37, which became effective on July 4, 2014 as an attachment of Circular 37.
The SAFE Notice Circular No. 13 has amended SAFE Circular 37, requiring PRC residents or entities to register with qualified banks rather than SAFE or its local branches in connection with their establishment or control of an offshore entity established for the purpose of seeking offshore investment or making offshore financing.
Under relevant rules, a failure to comply with the registration procedures set forth in SAFE Circular 37 may result in bans on the foreign exchange activities of the relevant onshore company, including the payment of dividends and other distributions to its offshore parent or affiliates, and may also subject relevant PRC residents to penalties under PRC foreign exchange administration regulations.
Regulations on Dividend Distribution
The principal laws and regulations regulating the dividend distribution of dividends by foreign-invested enterprises in the PRC include the Company Law and the Foreign Investment Law. Under the current regulatory regime in the PRC, foreign-invested enterprises in the PRC may pay dividends only out of their retained earnings, if any, determined in accordance with PRC accounting standards and regulations. A PRC company is required to set aside as statutory reserve funds at least 10% of its after-tax profit, until the cumulative amount of such reserve funds reaches 50% of its registered capital unless laws regarding foreign investment provide otherwise. A PRC company shall not distribute any profits until any losses from prior fiscal years have been offset. Profits retained from prior fiscal years may be distributed together with distributable profits from the current fiscal year.
| 52 |
Regulations on Tax
Enterprise Income Tax
On March 16, 2007, the Standing Committee of the National People’s Congress promulgated the Law of the PRC on Enterprise Income Tax, which came into effect on January 1, 2008 and was last amended on December 29, 2018, the State Council enacted the Regulations for the Implementation of the Law on Enterprise Income Tax, or collectively, the EIT Law. The EIT Law came into effect on January 1, 2008. Under the EIT Law, both resident enterprises and non-resident enterprises are subject to tax in the PRC. Resident enterprises are defined as enterprises that are established in China in accordance with PRC laws, or that are established in accordance with the laws of foreign countries but are actually or in effect controlled from within the PRC. Non-resident enterprises are defined as enterprises that are organized under the laws of foreign countries and whose actual management is conducted outside the PRC, but have established institutions or premises in the PRC, or have no such established institutions or premises but have income generated from inside the PRC. Under the EIT Law and relevant implementing regulations, a uniform corporate income tax rate of 25% is applied. However, if non-resident enterprises have not formed permanent establishments or premises in the PRC, or if they have formed permanent establishment or premises in the PRC but there is no actual relationship between the relevant income derived in the PRC and the established institutions or premises set up by them, enterprise income tax is set at the rate of 20% with respect to their income sourced from inside the PRC.
Value-added Tax
In November 2011, the Ministry of Finance and the State Administration of Taxation promulgated the Pilot Plan for Imposition of Value-Added Tax to Replace Business Tax. In March 2016, the Ministry of Finance and the State Administration of Taxation further promulgated the Notice on Fully Promoting the Pilot Plan for Replacing Business Tax by Value-Added Tax. On March 20, 2019, the Ministry of Finance, the State Administration of Taxation, General Administration of Customs issued Announcement on Policies for Deepening the VAT Reform jointly, under which the VAT rates under the basic mechanism is 13% for the sectors such as operating and financial leases of equipment, 9% for sectors such as transportation, postal, basic telecommunication, and construction services as well as sales and leases of real property and real property rights, 0% for exported services and 6% for all remaining services, including financial services. Unlike business tax, a taxpayer is allowed to offset the qualified input VAT paid on taxable purchases against the output VAT chargeable on the modern services provided. Furthermore, according to Announcement of the State Taxation Administration on Matters relating to Expanding the Scope of the Pilot Scheme for Issuance of Special VAT Invoices by Small-Scale Taxpayers issued by State Administration on February 3, 2019, the basic mechanism may not apply to small-scale taxpayers who may pay the VAT taxes at the levy rates of 3% and 5% on the basis of their sales amount.
The Value-added Tax Law of the PRC (the “VAT Law”) was promulgated by the SCNPC on December 25, 2024, and took effective on January 1, 2026. The VAT Law mainly makes the following changes: (i) the legislative level upgrades from administrative regulations to national law to enhance stability and authority; (ii) clarify the scope of taxable transactions, in which the use of self-produced goods for collective welfare and the free transfer of financial products are regarded as taxable transactions, while the free provision of services, employee salary services, administrative and institutional fees, deposit interest income, etc. are clearly not taxable transactions; (iii) specify the taxpayer standards and classification, among which the small-scale taxpayers gains less than 5 million RMB annual taxable sales, and those who meet the conditions can choose to become general taxpayers; (iv) clarify the specific scope of zero tax rate for cross-border sales of services and intangible assets by domestic units and individuals; (v) enhance the management of input tax management, in which the catering services, daily services for residents and entertainment services purchased and directly used for consumption is not deductible; (vi) optimize the list of tax incentives to support small and micro enterprises and key industries. Although the above mentioned changes are made in the VAT Law, the VAT rate will stay still, and further detailed supporting regulations are yet to be introduced.
Dividend Withholding Tax
The EIT Law provides that since January 1, 2008, an income tax rate of 10% will normally be applicable to dividends declared to non-PRC resident investors who do not have an establishment or place of business in the PRC, or who have such establishment or place of business, but the relevant income is not effectively connected with the establishment or place of business, to the extent such dividends are derived from sources within the PRC.
| 53 |
Pursuant to an Arrangement Between the Mainland of China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Incomes, or the Double Tax Avoidance Arrangement, and other applicable PRC laws, if a Hong Kong resident enterprise is determined by the competent PRC tax authority to have satisfied the relevant conditions and requirements under such Double Tax Avoidance Arrangement and other applicable laws, the 10% withholding tax on the dividends the Hong Kong resident enterprise receives from a PRC resident enterprise may be reduced to 5%. However, based on the Circular on Certain Issues with Respect to the Enforcement of Dividend Provisions in Tax Treaties, or the SAT Circular 81, issued on February 20, 2009 by the SAT, if the relevant PRC tax authorities determine, in their discretion, that a company benefits from such reduced income tax rate due to a structure or arrangement that is primarily tax-driven, such PRC tax authorities may adjust the preferential tax treatment. According to the Circular on Several Questions regarding the “beneficial owner” in Tax Treaties, which was issued on February 3, 2018 by the SAT and will take effect on April 1, 2018, when determining the applicant’s status of the “beneficial owner” regarding tax treatment in connection with dividends, interests or royalties in the tax treaties, several factors, including without limitation, whether the applicant is obligated to pay more than 50% of his or her income in twelve months to residents in third country or region, whether the business operated by the applicant constitutes the actual business activities, and whether the counterparty country or region to the tax treaties does not levy any tax or grant tax exemption on relevant incomes or levy tax at an extremely low rate, will be taken into account, and it will be analyzed according to the actual circumstances of the specific cases. This circular further provides that applicants who intend to prove his or her status as the “beneficial owner” shall submit the relevant documents to the relevant tax bureau according to the Announcement on Issuing the Measures for the Administration of Non-Resident Taxpayers’ Enjoyment of the Treatment under Tax Agreements.
Tax on Indirect Transfer
On February 3, 2015, the SAT issued the Circular on Issues of Enterprise Income Tax on Indirect Transfers of Assets by Non-PRC Resident Enterprises, or Circular 7 (partly repealed on December 1, 2017 and December 29, 2017). Pursuant to Circular 7, an “indirect transfer” of assets, including equity interests in a PRC resident enterprise, by non-PRC resident enterprises, may be recharacterized and treated as a direct transfer of PRC taxable assets, if such an arrangement does not have a reasonable commercial purpose and was established for the purpose of avoiding payment of PRC enterprise income tax. As a result, gains derived from such indirect transfer may be subject to PRC enterprise income tax. When determining whether there is a “reasonable commercial purpose” of the transaction arrangement, features to be taken into consideration include, inter alia, whether the main value of the equity interest of the relevant offshore enterprise derives directly or indirectly from PRC taxable assets; whether the assets of the relevant offshore enterprise mainly consists of direct or indirect investment in China or if its income is mainly derived from China; and whether the offshore enterprise and its subsidiaries directly or indirectly holding PRC taxable assets have real commercial nature which is evidenced by their actual function and risk exposure. According to Circular 7, where the payer fails to withhold any or sufficient tax, and the transferor fails to pay the tax, the tax authority may pursue the liability of the payer, except that the payer has submitted relevant documents according to the Circular 7 within 30 days upon signing the equity transfer agreement. Circular 7 does not apply to transactions of sale of shares by investors through a public stock exchange where such shares were acquired on a public stock exchange. On October 17, 2017, the SAT issued the Circular on Issues of Tax Withholding regarding Non-PRC Resident Enterprise Income Tax, or SAT Circular 37, which further elaborates the relevant implemental rules regarding the calculation, reporting and payment obligations of the withholding tax by the non-resident enterprises. Nonetheless, there remain uncertainties as to the interpretation and application of Circular 7. Circular 7 may be determined by the tax authorities to be applicable to our offshore transactions or sale of our shares or those of our offshore subsidiaries where non-resident enterprises, being the transferors, were involved.
Regulations on M&A Regulations and Overseas Listings
On August 8, 2006, six PRC governmental and regulatory agencies, including the MOFCOM and the China Securities Regulatory Commission, or the CSRC, promulgated the Rules on Acquisition of Domestic Enterprises by Foreign Investors, or the M&A Rules, governing the mergers and acquisitions of domestic enterprises by foreign investors that became effective on September 8, 2006 and was revised on June 22, 2009. The M&A Rules, among other things, requires that if an overseas company established or controlled by PRC companies or individuals, or PRC Citizens, intends to acquire equity interests or assets of any other PRC domestic company affiliated with the PRC Citizens, such acquisition must be submitted to the MOFCOM for approval. The M&A Rules also requires that an offshore special vehicle, or a special purpose vehicle formed for overseas listing purposes and controlled directly or indirectly by the PRC companies or individuals, shall obtain the approval of the CSRC prior to overseas listing and trading of such special purpose vehicle’s securities on an overseas stock exchange.
| 54 |
On December 19, 2020, the NDRC and the MOFCOM jointly issued the Measures for the Security Review for Foreign Investment, which took effect on January 18, 2021. These measures set forth the provisions concerning the security review mechanism on foreign investment, including, among others, the types of investments subject to review, and the review scopes and procedures. On April 21, 2021, the Standing Committee of the National People’s Congress released the 2021 Legislative Work Plan, in which the Law Proposal for Initial Deliberation included the draft revision of the Anti-Monopoly Law. On October 23, 2021, the 31st Meeting of the 13th Standing Committee of the National People’s Congress reviewed the Draft Amendment of the Anti-Monopoly Law of the PRC (the “Draft Amendment of Anti-Monopoly Law”) and solicited opinions from the public. In response to the abuse of market dominance in the field of Internet platform economy, the Draft Amendment of Anti-Monopoly Law clearly stipulated that operators must not abuse data and algorithms, technology, capital advantages, and platform rules to exclude or restrict competition. Utilizing data, algorithms, technology, and platform rules to set up obstacles to impose unreasonable restrictions on other operators by an operator with a dominant market position, shall be defined as an act of abusing the dominant market position. On June 24, 2022, the 35th session of the Standing Committee of the 13th National People’s Congress of the People’s Republic of China adopted the Anti-Monopoly Law of the PRC, which became effective on August 1, 2022, providing the regulatory framework for the PRC anti-monopoly. In response to the abuse of market dominance in the field of the Internet platform economy, the Anti-Monopoly Law clearly stipulated that operators must not exploit any data or algorithms, technology, capital advantages, or platform rules or otherwise to engage in any monopolistic conduct prohibited by the Anti-Monopoly Law of the PRC. Utilizing data, algorithms, technology, platform rules and otherwise to set up obstacles to impose unreasonable restrictions on other operators by an operator with a dominant market position, shall be defined as an act of abusing the dominant market position.
As for the rapid development of the Internet platform economy in the PRC, relevant administrative and judicial agencies and departments published various opinions and guidelines to regulate certain activities involved. On February 7, 2021, the Anti-Monopoly Committee of the State Council published the Anti-Monopoly Guidelines for the Internet Platform Economy Sector, which stipulated that any concentration of undertakings involving variable interest entities is subject to anti-monopoly review, and elaborated on the issues related to the platform economy, such as “price discrimination against existing customers enabled by big data” and “tying arrangements”. At the press conference of the Supreme People’s Court of PRC held on April 22, 2021, the Vice President of Intellectual Property Tribunal in the Supreme People’s Court of PRC stated that the Supreme People’s Court of PRC supported and supervised the administrative law-enforcement departments in performing their duties in accordance with the laws and regulations concerning anti-monopoly, and promotes the cooperation of the administrative law-enforcement departments and the judicial system to stop and crack down monopolistic activities in the Internet industry. On August 17, 2021, the State Administration for Market Regulation solicited opinions on the Regulations on Prohibition of Internet Unfair Competition Behaviors (Draft for Public Comments), under which some Internet unfair competition behaviors will face stricter and more detailed supervision. On May 6, 2024, SAMR published the Interim Provisions on Anti Internet Unfair Competition, which became effective on September 1, 2024. The Interim Provisions on Anti Internet Unfair Competition aims to further detailing the Anti-Unfair Competition Law and the E-Commerce Law by refining and clarifying the traffic light rules for Internet competition behaviors, and supplementing and improving e-commerce competition rules combined with practical needs. Given the complex and ever-changing nature of Internet competition behaviors, the Interim Provisions on Anti Internet Unfair Competition classifies and refines these behaviors, establishing clear standards for their identification.
On July 6, 2021, General Office of the State Council of the PRC together with another authority jointly promulgated the Opinions on Lawfully and Strictly Cracking Down Illegal Securities Activities, or the Securities Activities Opinions, which called for the enhanced administration and supervision of overseas-listed China-based companies, proposed to revise the relevant regulation governing the overseas issuance and listing of shares by such companies and clarified the responsibilities of competent domestic industry regulators and government authorities.
On February 17, 2023, 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 were formally implemented on March 31, 2023. According to the New Overseas Listing Trial Measures, (1) domestic companies that seek to offer or list securities overseas, both directly and indirectly, should fulfill the filing procedure and report relevant information to the CSRC; (2) if the issuer meets both of the following conditions, the overseas offering and listing shall be determined as an indirect overseas offering and listing by a domestic company: (i) any of the total assets, net assets, revenues or profits of the domestic operating entities of the issuer in the most recent accounting year accounts for more than 50% of the corresponding figure in the issuer’s audited consolidated financial statements for the same period; (ii) its major operational activities are carried out in China or its main places of business are located in China, or the senior managers in charge of operation and management of the issuer are mostly Chinese citizens or are domiciled in China; and (3) where a domestic company seeks to indirectly offer and list securities in an overseas market, the issuer shall designate a major domestic operating entity responsible for all filing procedures with the CSRC, and where an issuer makes an application for initial public offering and listing in an overseas market, the issuer shall submit filings with the CSRC within three working days after such application is submitted.
| 55 |
On the same day, the CSRC held a press conference for the release of the New Overseas Listing Rules and issued the Notice on Administration for the Filing of Overseas Offering and Listing by Domestic Companies, which, among others, clarifies that (1) domestic companies that have been listed on a foreign stock exchange prior to the effective date of the New Overseas Listing Rules are not required for the filing procedure immediately but are required to go through the filing procedure for any future overseas offerings; (2) a six-month transition period will be granted to domestic companies which, prior to the effective date of the New Overseas Listing Rules, have already obtained the approval from overseas regulatory authorities or stock exchanges (such as the completion of hearing in Hong Kong or the completion of registration in the United States), but have not completed the indirect overseas listing; if domestic companies fail to complete the overseas listing within such six-month transition period, they are required to file with the CSRC according to the requirements; and (3) the CSRC will solicit opinions from relevant regulatory authorities and complete the filing of the overseas listing of companies with contractual arrangements which duly meet the compliance requirements, and support the development and growth of these companies by enabling them to utilize two markets and two kinds of resources.
On February 24, 2023, the CSRC jointly with other government authorities issued the Provisions on Strengthening Confidentiality and Archives Administration of Overseas Securities Offering and Listing by Domestic Companies, or the Overseas Listing Archives Rules, as a supporting rule to the New Overseas Listing Rules, effective on March 31, 2023. Pursuant to the Overseas Listing Archives Rules, domestic companies that seek to offer or list securities overseas directly or indirectly, and securities companies and securities related service providers providing services to such domestic companies shall establish confidentiality and archives administration system, adopt requisite measures to perform the responsibilities of confidentiality and archives administration, and shall not divulge state secrets and state agencies’ work secrets, or harm state and public interests. The Overseas Listing Archives Rules provides, among others, that before providing or disclosing any document or material, which involves state secrets or state agencies’ work secrets, domestic companies shall apply to the competent government authorities for approval and file with the secrecy administration authorities for the record.
4.C. Organizational Structure
The following chart reflects our organizational structure as of the date of this annual report. For descriptions of our subsidiaries and variable interest entity, please see “Item 4. Information on the Company—A. History and Development of the Company.”
On August 7, 2026, the Company entered into a Share Purchase Agreement (the “Agreement”) with Penguins Investing Carnival Ltd., a British Virgin Islands company (the “Buyer”) to transfer 100% equity interest of Easy Skill Technology Ltd. and all of its subsidiaries to the Buyer for a total price of $4.5 million (the “Purchase Price”), which shall be paid in two installments: (i) 20% of the Purchase Price shall be paid within 5 business days of the Agreement and (ii) 80% of the Purchase Price shall be paid within 1 year from the date of the Agreement (the “Transaction”). As of the date of this report, the Company has received the payment of 20% of the Purchase Price. Upon the closing of the Transaction, the Buyer shall become the 100% shareholder of Easy Skill Technology Ltd. and all of its subsidiaries.
4.D. Property, Plants and Equipment
Our principal executive offices are located at 7th Floor, West Lobby, Building 7B, Shenzhen Bay ECO-Technology Park, Nanshan District, Shenzhen, Guangdong Province, PRC. This office currently accommodates our management headquarters, research and development and general and administrative activities. Jisen Information rented this facility from a related party for an annual rent of RMB 780,000 (approximately $ 107,871.88). We consider our presently leased premises adequate to satisfy our operational requirements over the foreseeable future. Following the completion of the transfer of Easy Skills and its subsidiaries including Jisen Information, the Company intends to secure sufficient office space via new property leases by Skilland Digital.
Under PRC law, land is owned by the state. “Land use rights” are granted to an individual or entity after payment of a land use right fee is made to the applicable state or rural collective economic organization. Land use rights allow the holder the right to use the land for a specified long-term period. We do not currently own any real estate or land use rights. For descriptions of the leased properties, please see “Item 4. Information on the Company—B. Business Overview—Facilities.”
| Item 4A. | Unresolved Staff Comments |
Not applicable
| Item 5. | Operating and Financial Review and Prospects |
The following discussion and analysis should be read in conjunction with our consolidated financial statements, the notes to those financial statements and other financial data that appear elsewhere in this annual report. In addition to historical information, the following discussion contains forward-looking statements based on current expectations that involve risks and uncertainties. Actual results and the timing of certain events may differ significantly from those projected in such forward-looking statements due to a number of factors, including those set forth in “Risk Factors” and elsewhere in this report. Our consolidated financial statements are prepared in conformity with U.S. GAAP.
| 56 |
5.A. Operating Results
Business Overview
All of the business operations are conducted in China through our PRC subsidiaries.
During the fiscal year ended March 31, 2026, the Company’s operations were primarily conducted through Jisen Information Technology Co., Ltd. (“Jisen”), the wholly owned subsidiary of the Company’s wholly foreign-owned enterprise (“WFOE”) in the PRC. Jisen provides API portal services, through which enterprise clients access the Company’s proprietary AI-powered communication skills learning (“CSL”) intelligent communication auxiliary system remotely via exclusive application programming interface (“API”) ports. The CSL system enables clients to integrate AI-driven dialogue optimization capabilities into their applications for employee training, customer service, and sales communication scenarios. Clients are charged a fixed monthly service fee under service contracts, with revenue recognized ratably over the service period. API portal services accounted for 100% of the Company’s revenue in fiscal year 2026.
The Company historically operated online education services through its consolidated variable interest entities (“VIEs”). Following the deconsolidation of the VIEs during fiscal year 2025, the online education business was presented as discontinued operations, and the Company’s continuing operations are now focused on technology innovation, AI-powered communication solutions, and the digital transformation of enterprises and institutions.
Our revenue was $14,133 in the fiscal year 2026, $1.02 million in the fiscal year 2025 and $1.99 million in the fiscal year 2024. Revenue from API portal services provided by Jisen accounted for 100% of total revenue in fiscal year 2026. In fiscal year 2025, revenue from technology services provided by Jisen and our other subsidiaries and online education services provided by the previously consolidated VIEs, which were deconsolidated during fiscal year 2025, accounted for approximately 88.2% and 11.8% of total revenue, respectively. In fiscal year 2024, revenue from online education services provided by the VIEs accounted for 98.8% of total revenue, with the remainder from technology services provided by Jisen and our other subsidiaries. The online education services of the VIEs are presented as discontinued operations in the consolidated financial statements.
EDTK is a technology-driven education company with a historical focus on education technology and an evolving focus on AI-powered communication solutions and enterprise digital transformation. Following the deconsolidation of the VIEs and the discontinuation of the related online education business, the Company’s continuing operations are primarily focused on providing AI-powered communication, enterprise training and digital transformation solutions to enterprise and institutional clients.
Educational Technology Consulting Services & Educational Institution Digital Transformation
We provide structured, data-informed consulting methodologies for education institutions undergoing digital transformation. Our proprietary tools include Matrix (for simulation and planning), and a modular consulting workflow engine. These are supported by an internal knowledge base of institutional transformation cases, enabling us to deliver efficient, scenario-adapted recommendations.
Digital Transformation Services for Educational Institutions
We have developed a suite of modular SaaS platforms tailored for educational ecosystems, including Learning Management Systems (LMS), academic administration systems, intelligent scheduling engines, and student progress dashboards. These platforms are built on a microservice architecture and support both hybrid and fully digital teaching models.
AI-Powered Communication Skill Learning Systems
Our proprietary CSL products leverage vertical large language models (LLMs) fine-tuned for emotional understanding, dialogue structure modeling, and expression optimization. Assistant products in the CSL series offer tailored expression recommendations for personal, professional, and social communication scenarios. It is powered by multi-turn reasoning chains, tone-matching engines, and real-time feedback modules, with applications across both C-end users and B-end enterprise learning contexts.
On August 5, 2026, Skilland Digital Intelligence Limited (“Skilland Digital” or “Party B”), a wholly owned subsidiary of the Company entered into an AI Technology Service and Development Training Agreement (“Agreement”) with Souche Holdings Ltd. (“Souche Holdings” or “Party A”), pursuant to which Skilland Digital will provide Souche Holdings with training and support services for overseas development personnel based on AI services and insights, including but not limited to: target market dealer analysis, target market data insights, localized communication optimization, market expansion strategy support, and ongoing follow-up on training effectiveness. The term of the Agreement is from August 5, 2026 to August 4, 2027 and the monthly training and service fee is HK$150,000 (approximately $19,230). The business data, training records, learning data, and other data generated by Party A during the use of the service shall belong to Party A. Skilland Digital’s software source code, algorithm logic, AI product technical documentation, and related technology shall belong to Skilland Digital.
Key areas of our R&D focus include:
AI-Enhanced Consulting Tools: Development of a digital consulting assistant powered by LLMs to streamline diagnostic, planning, and reporting workflows in education transformation projects.
Scenario-Based Learning Algorithms: Optimization of learner path recommendations, risk detection, and micro-learning interventions based on behavioral analytics drawn from platform usage.
Global Platform Adaptation: Internationalization of our CSL products to support multilingual deployments, localized compliance, and regional pedagogical variations, particularly in Southeast Asia and North America.
| 57 |
General Factors Affecting Our Results of Operation
Our results of operations and financial condition are affected by general economic conditions and the demand for AI-powered enterprise communication, training and digital transformation solutions in China. The businesses of our PRC subsidiaries may benefit from the increasing adoption of AI technologies, digital tools and cloud-based solutions by enterprises, as well as the continued development of China’s digital economy and internet infrastructure.
At the same time, our results are subject to changes in the regulatory regime governing China’s internet, data security, artificial intelligence and technology services industries. The PRC government regulates various aspects of internet-based and AI-related services, including applicable qualification, licensing, filing, data security and personal information protection requirements. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—Businesses of our PRC subsidiaries may be adversely affected by the complexity, uncertainties and changes in PRC regulation of internet-related business,” and “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—PRC regulations relating to foreign exchange registration of overseas investment by PRC residents may subject our PRC resident beneficial owners or the WOFE to liability or penalties, limit our ability to inject capital into WOFE, limit the WOFE’s ability to increase its registered capital or distribute profits to us, or may otherwise adversely affect us, the WOFE or our PRC subsidiaries.”
In particular, the businesses of our PRC subsidiaries have benefited and expect to continue to benefit from the following recent trends in China’s enterprise AI and digital transformation market:
Growing Adoption of AI-Powered Communication Solutions in Enterprise Operations
AI technologies are increasingly being adopted by enterprises to enhance employee training, customer service and sales communication. By analyzing dialogue patterns, communication contexts and user interactions, AI-powered communication solutions can provide real-time suggestions and feedback to improve the clarity, consistency and effectiveness of communications. AI-powered tools can also help enterprises standardize communication workflows, reduce the time required for training and quality review, and support employees in responding to customer inquiries and conducting sales communications. These tools may improve operating efficiency and service quality while allowing enterprises to apply communication guidance across a larger number of employees and business scenarios.
The Company believes that the increasing demand for AI-enabled enterprise communication and training solutions may create opportunities for its AI-powered communication skills learning, or CSL, system. The Company’s CSL system is designed to support enterprise clients through API-based access and may be integrated into clients’ applications for employee training, customer service and sales communication purposes.
| 58 |
Results of Operations
Year Ended March 31, 2026 as Compared to Year Ended March 31, 2025— Continuing Operations
| For the Year Ended March 31, | Change | |||||||||||||||
| 2026 | 2025 | Amount | ||||||||||||||
| US$ | US$ | US$ | % | |||||||||||||
| Revenue | 14,133 | 893,690 | (879,557 | ) | (98 | ) | ||||||||||
| Cost of revenue | (6,996 | ) | (194,582 | ) | 187,586 | (96 | ) | |||||||||
| Gross profit | 7,137 | 699,108 | (691,971 | ) | (99 | ) | ||||||||||
| Operating expenses | ||||||||||||||||
| Sales and marketing expenses | (12,991 | ) | — | (12,991 | ) | 100 | ||||||||||
| General and administrative expenses | (2,202,015 | ) | (1,739,759 | ) | (462,256 | ) | 27 | |||||||||
| Research and development | (434,854 | ) | — | (434,854 | ) | 100 | ||||||||||
| Total operating expense | (2,649,860 | ) | (1,739,759 | ) | (910,101 | ) | 52 | |||||||||
| Total loss from operations | (2,642,723 | ) | (1,040,651 | ) | (1,602,072 | ) | 154 | |||||||||
| Other income/(expenses) | ||||||||||||||||
| Interest income | 27,581 | 3,312 | 24,269 | 733 | ||||||||||||
| Interest expense | (49,482 | ) | (12,000 | ) | (37,482 | ) | 312 | |||||||||
| Investment income/(loss), net | 13,138 | (11,073 | ) | 24,211 | (219 | ) | ||||||||||
| Foreign currency exchange loss | — | (42,824 | ) | 42,824 | (100 | ) | ||||||||||
| Investment impairment loss | (5,305,764 | ) | (1,819,678 | ) | (3,486,086 | ) | 192 | |||||||||
| Credit loss impairment | (696,764 | ) | — | (696,764 | ) | 100 | ||||||||||
| Other income/(expenses), net | 154,961 | (3,075 | ) | 158,036 | (5,139 | ) | ||||||||||
| Loss before income taxes from continuing operations | (8,499,053 | ) | (2,925,989 | ) | (5,573,064 | ) | 190 | |||||||||
| Income tax expense | — | (53,048 | ) | 53,048 | (100 | ) | ||||||||||
| Net loss from continuing operations | (8,499,053 | ) | (2,979,037 | ) | (5,520,016 | ) | 185 | |||||||||
| Loss from discontinued operations, net of taxes | — | (1,451,327 | ) | 1,451,327 | (100 | ) | ||||||||||
| Loss on disposal of discontinued operations, net of taxes | — | (3,151,088 | ) | 3,151,088 | (100 | ) | ||||||||||
| Net (loss)/profit from discontinued operations | — | (4,602,415 | ) | 4,602,415 | (100 | ) | ||||||||||
| Net loss | (8,499,053 | ) | (7,581,452 | ) | (917,601 | ) | 12 | |||||||||
Discontinued operations are presented separately in the consolidated financial statements and are not included in the following discussion of continuing operations.
Revenue
Revenue decreased by 98% from $0.9 million for the fiscal year 2025 to $14,133 for the fiscal year 2026. The decrease was primarily attributable to a significant reduction in revenue from software development, software sales and technology consulting services provided by our PRC subsidiaries in fiscal year 2026, compared with fiscal year 2025. During fiscal year 2026, we generated $14,133 of revenue from a 12-month AI-powered CSL services arrangement with an enterprise customer, which provides for monthly service fees of RMB100,000, excluding tax. This change was driven by the Group’s strategic business restructuring, whereby we will focus on AI and technology services as its core business going forward.
Cost of Revenue
Cost of revenue for fiscal year 2026 consisted primarily of salaries for technical staff and traffic expenses incurred from operating the CSL model. Cost of revenue decreased from $0.2 million in the fiscal year 2025 to $6,996 in the fiscal year 2026, representing a decrease of $0.2 million, or 96%. The decrease was consistent with the significant decrease in continuing-operations revenue from the Company’s historical technology service activities.
Operating Expenses
Operating expenses increased from $1.7 million for the fiscal year ended March 31, 2025 to $2.6 million for the fiscal year ended March 31, 2026, representing an increase of $0.9 million, or 52%. Operating expenses primarily consisted of sales and marketing expenses, general and administrative expenses and research and development expenses.
Sales and marketing expenses increased by 100% from nil for the fiscal year ended March 31, 2025 to $13 thousand for the fiscal year ended March 31, 2026, representing an increase of $13 thousand, or 100%. The increase was mainly incurred in connection with the operation of the CSL business.
| 59 |
General and administrative expenses increased by 27% to $2.2 million for the fiscal year 2026 from $1.7 million for the fiscal year 2025. The increase was primarily attributable to a $0.5 million increase in share-based compensation expense and a $0.2 million increase in attorney fees, which were primarily related to the annual audit and the issuance of Series B preference shares. These increases were partially offset by a $0.2 million decrease in employee compensation and benefits, primarily attributable to the reduction of executive compensation to a nominal amount during the fiscal year.
Research and development expenses were $0.4 million for the fiscal year ended March 31, 2026, compared to nil for the fiscal year ended March 31, 2025. The research and development expenses were incurred by Jisen in connection with the development of AI-related technology capabilities and products, including algorithm development, product functionality and related technology infrastructure. The increase reflects the Company’s strategic transition toward AI-powered technology solutions following the deconsolidation of the VIEs.
Investment Impairment Loss
Investment impairment loss increased by 192% from $1.8 million for the fiscal year ended March 31, 2025 to $5.3 million for the fiscal year ended March 31, 2026. The increase was primarily attributable to an impairment charge of approximately $5.3 million recognized on our 3% equity interest in Fujian Pingtan Ocean Fishery Corporation (“Pingtan”). Effective April 1, 2025, we relinquished our right to appoint a director to Pingtan’s board, thereby losing significant influence. Consequently, we discontinued the equity method of accounting and accounted for the investment as an equity security under the measurement alternative, measuring it at cost, less impairment, plus or minus observable price changes. In early August 2026, we entered into a binding agreement to dispose of Easy Skills together with its subsidiaries for an aggregate consideration of US$4.5 million to an independent third party. Excluding other working capital items held by the disposed subsidiaries whose fair values approximated carrying amounts, approximately US$8.2 million of the consideration was attributable to our investment in Pingtan. Because negotiations for this disposal commenced prior to March 31, 2026, the August 2026 transaction demonstrated the existence of an impairment indicator for the investment in Pingtan as of March 31, 2026. Accordingly, we recognized an impairment loss on our investment in Pingtan for the fiscal year ended March 31, 2026, writing down its carrying amount to its fair value. We utilized this agreed transaction price, together with other relevant inputs, in estimating the investment’s fair value as of March 31, 2026, resulting in the $5.3 million impairment loss.
Credit Loss Impairment
The credit loss impairment was primarily driven by a full impairment charge of approximately $0.7 million recorded against receivables due from former deconsolidated VIEs.
Other Income (Expense), Net
Net other income was $155 thousand for the fiscal year ended March 31, 2026, compared with net other expense of $3 thousand for the fiscal year ended March 31, 2025. The increase was primarily attributable to agreements entered into by certain executives to waive the cash portion of their compensation for prior years, which resulted in the cancellation of related bonus liabilities and the recognition of $150,000 of other income during fiscal year 2026.
Loss Before Tax
Loss before tax was $8.5 million for the fiscal year 2026, compared with loss before tax of $2.9 million for the fiscal year 2025.
Net Loss
As a result of the foregoing, we had a net loss from continuing operations of $8.5 million for the fiscal year 2026, representing a change of $5.5 million from a net loss from continuing operations of $3.0 million for the fiscal year 2025.
Year Ended March 31, 2025 as Compared to Year Ended March 31, 2024
| For the Year Ended March 31, | Change | |||||||||||||||
| 2025 | 2024 | Amount | ||||||||||||||
| US$ | US$ | US$ | % | |||||||||||||
| Revenue | 1,024,305 | 1,999,056 | (974,751 | ) | (49 | ) | ||||||||||
| Cost of revenue | (1,592,217 | ) | (1,829,669 | ) | 237,452 | (13 | ) | |||||||||
| Gross profit | (567,912 | ) | 169,387 | (737,299 | ) | (435 | ) | |||||||||
| Operating expenses | ||||||||||||||||
| Sales and marketing expenses | (207,654 | ) | (242,447 | ) | 34,793 | (14 | ) | |||||||||
| General and administrative expenses | (2,257,645 | ) | (1,943,744 | ) | (313,901 | ) | 16 | |||||||||
| Total operating expense | (2,465,299 | ) | (2,186,191 | ) | (279,108 | ) | 13 | |||||||||
| Other income (expenses) | ||||||||||||||||
| Interest income | 36,848 | 72,555 | (35,707 | ) | (49 | ) | ||||||||||
| Interest expense | (769,640 | ) | (794,352 | ) | 24,712 | (3 | ) | |||||||||
| Investment income/(loss), net | (1,896,804 | ) | 1,699,870 | (3,596,674 | ) | (212 | ) | |||||||||
| Foreign currency exchange loss | (42,824 | ) | (115,247 | ) | 72,423 | (63 | ) | |||||||||
| Government grant | 661 | 1,395 | (734 | ) | (53 | ) | ||||||||||
| Impairment loss | (1,819,678 | ) | (4,334,717 | ) | 2,515,039 | (58 | ) | |||||||||
| Other income (expenses), net | (3,756 | ) | 737,881 | (741,637 | ) | (101 | ) | |||||||||
| Income (Loss) before tax | (7,528,404 | ) | (4,749,419 | ) | (2,778,985 | ) | 59 | |||||||||
| Income tax expense | (53,048 | ) | 27,273 | (80,321 | ) | (295 | ) | |||||||||
| Net profit (Loss) | (7,581,452 | ) | (4,722,146 | ) | (2,859,306 | ) | 61 | |||||||||
| 60 |
Revenue
Revenue decreased by 49% from $1.99 million for the fiscal year 2024 to $1.02 million for the fiscal year 2025. The decrease in revenue was primarily due to a 94% decrease in revenue generated from online education services from $1.99 million for the fiscal year 2024 to $0.12 million for the fiscal year 2025. The decrease in the revenue from the online education services was primarily due to a decrease in online VIP membership revenue from $1.6 million in the fiscal year 2024 to $0.12 million in the fiscal year 2025, as a result of the intensified competition and free courses provided in the vocational education market in China. In the fiscal year 2024 and 2025, certain competitors continued to provide free access to and courses on their online education platforms which started during the COVID-19, resulting in a decrease in the number of fee-paying members of the VIE and a decrease in the revenue generated from the VIE’s online education services.
Cost of Revenue
Cost of revenue decreased from $1.8 million in the fiscal year 2024 to $ 1.6 million in the fiscal year 2025, representing a decrease of $ 0.2 million, or 13%. The decrease of cost of revenue was mainly caused by decrease in website maintenance fee and virtual simulation fee for $0.2 million.
Operating Expenses
Operating expenses increased from $2.1 million for the fiscal year ended March 31, 2024 to $2.4 million for the fiscal year ended March 31, 2025, representing an increase of $0.3 million, or 13%. Operating expenses primarily consisted of sales and marketing expenses and general and administrative expenses.
Sales and marketing expenses decreased from $0.24 million for the fiscal year ended March 31, 2024 to $0.21 million for the fiscal year ended March 31, 2025. The decrease was mainly because a $0.03 million decrease of the promotion fee.
General and administrative expenses increased by 16% to $ 2.3 million for the fiscal year 2025 from $1.9 million for the fiscal year 2024. The increase was mainly due to the transition to new business from VIE’s online education courses, that the Company increased the certain employees’ salary and bonus.
Investment Income, Net
Net investment income decreased from an income of $1.7 million for the fiscal year 2024 to a loss of $1.9 million for the fiscal year 2025, representing a decrease of $3.6 million, or 212%. The decrease was primarily the Company assessed the investments in Pingtan in the course of VIE termination as discontinued operation, and recognized loss of $3.5 million on the investment based on the fair value result according to the valuation report.
Other Income
Net other expense was $3.7 thousand for the fiscal year ended March 31, 2025, compared with net other income of $0.7 million for the fiscal year ended March 31, 2024, and a sharp decrease due to the cancelation payment of bonus liability in FY2024.
Income (Loss) Before Tax
Loss before tax was $7.5 million for the fiscal year 2025, compared with loss before tax of $4.7 million for the fiscal year 2024.
Net Profit (Loss)
As a result of the foregoing, we had a net loss of $ 7.5 million for the fiscal year 2025, representing a change of $ 2.8 million from a net loss of $4.7 million for the fiscal year 2024.
| 61 |
5.B. Liquidity and Capital Resources
As of March 31, 2026, March 31, 2025 and March 31, 2024, we had cash and cash equivalents of $0.2 million, $1.2 million and $17.8 million, respectively. Historically, we have financed our operations primarily through net cash generated from operations and proceeds from borrowings and other financing arrangements.
For the fiscal year ended March 31, 2026, net cash used in operating activities was $1.3 million, primarily reflecting cash outflows for ongoing operational expenses, including payroll and employee benefits, professional fees, lease obligations, research and development activities, and other general and administrative expenses. Our new business initiatives remained in their early stages during the fiscal year ended March 31, 2026, and did not generate sufficient operating cash inflows to fully cover these operational expenditures. Net cash provided by financing activities was $0.4 million, from the proceeds of notes issued to certain shareholders and directors of the Company.
Subsequent to fiscal year end, the Company issued 666,667 Series B Preference Shares to a shareholder for total cash consideration of $0.5 million. In addition, in early August 2026, the Company entered into a binding equity transfer agreement to dispose of its Hong Kong entity together with the Hong Kong entity’s subsidiaries for aggregate consideration of US$4.5 million, payable in installments. The initial installment of US$0.9 million (20%) has been paid in August 2026, with the remainder payable per the contractual schedule within one year. Based on these cash inflows, together with existing cash balances and anticipated operating cash flows, management concluded in accordance with ASC 205-40 that no substantial doubt exists regarding our ability to continue as a going concern.
Additionally, our subsidiaries in China 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 WOFE 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 registrations with appropriate government authorities are 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.
We believe that our current levels of cash and cash flow from operations will be sufficient to meet the anticipated cash needs for the operations and expansion plans for at least the next 12 months. We may, however, in the future require additional cash resources due to changing business conditions, implementation of the strategies to expand the business, or other investments or acquisitions we may decide to pursue. If our financial resources are insufficient to satisfy the capital requirements, we may seek additional equity or debt financing or obtain credit facilities. The sale of additional equity securities could result in dilution to our shareholders. The incurrence of indebtedness would result in increased debt service obligations and could require us to agree to operating and financial covenants that would restrict the operations. Financing may not be available in amounts or on terms acceptable to us, if at all. Any failure by us to raise additional funds on terms favorable to us, or at all, could limit the ability to expand the business operations and could harm the overall business prospects.
| 62 |
Statement of Cash Flows
Year Ended March 31, 2026 as Compared to Year Ended March 31, 2025
| For the Year Ended March 31, | ||||||||
| 2026 | 2025 | |||||||
| US$ | US$ | |||||||
| Net cash used in operating activities | (1,296,107 | ) | (831,606 | ) | ||||
| Net cash (used in)/generated from investing activities | — | — | ||||||
| Net cash generated from financing activities | 351,181 | 600,000 | ||||||
| Effects of exchange rate changes on cash | (29,838 | ) | 704,002 | |||||
| Net cash (outflow)/inflow | (974,764 | ) | 472,396 | |||||
Net Cash Used in Operating Activities
For the year ended March 31, 2026, net cash used in operating activities was $1.3 million for the year ended March 31, 2026, which was primarily due to (a) our net loss of $8.5 million as mainly adjusted for (i) shares issued as consideration for employee compensation of $1.1 million, (ii) impairment loss related to long term investment of $5.3 million and (iii) impairment loss related to amounts due from a related party of $0.7 million; (b) adjustments for changes in operating assets and liabilities primarily consisted of a decrease of $0.1 million in operating lease liabilities.
The increase in net cash used in operating activities was primarily driven by a decline in cash collections from customers, reflecting the ongoing strategic transition of our business model and the early-stage development of new initiatives that have not yet contributed material revenue. This top-line impact was further compounded by sustained level of operating expenditures—principally consisting of payroll and employee-related expenses, professional fees, lease obligations, and general administrative costs—which remained relatively fixed relative to the decline in cash inflows.
Net Cash (used in)/generated from Investing Activities
For the year ended March 31, 2026 and 2025, we had no cash flow from investing activities.
Net Cash Generated from Financing Activities
| For the Year Ended March 31, | ||||||||
| 2026 | 2025 | |||||||
| US$ | US$ | |||||||
| Net cash generated from financing activities | 351,181 | 600,000 | ||||||
| Proceeds from bond issued | 400,000 | 600,000 | ||||||
| Proceeds from a related party | 12,478 | |||||||
| Repayment to related parties | (61,297 | ) | ||||||
For the year ended March 31, 2026 and 2025, we had a cash inflow from financing activities of $0.4 million and $0.6 million, respectively, which were mainly from the proceeds from bonds issued.
| 63 |
Year Ended March 31, 2025 as Compared to Year Ended March 31, 2024
| For the Year Ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| US$ | US$ | |||||||
| Net cash (used)/generated from operating activities | (831,606 | ) | (2,660,100 | ) | ||||
| Net cash used in investing activities | — | 4,788 | ||||||
| Net cash generated from financing activities | 600,000 | — | ||||||
| Effects of exchange rate changes on cash | 704,002 | (510,483 | ) | |||||
| Net cash inflow | 472,396 | (3,165,795 | ) | |||||
Net Cash Generated from Operating Activities
| For the Year Ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| US$ | US$ | |||||||
| Net cash generated from operating activities | (831,606 | ) | (2,660,100 | ) | ||||
| Cash received of membership fees with service period within one-year | — | 798,449 | ||||||
| Cash received of membership fees with two-year service period | 947,311 | — | ||||||
| Cash received from other operating activities | — | 368,766 | ||||||
| Cash paid for goods and services | (733,400 | ) | (2,534,140 | ) | ||||
| Cash paid for employees | (327,203 | ) | (970,314 | ) | ||||
| Cash paid for income tax | (23,723 | ) | — | |||||
| Cash paid for other operating activities | (694,591 | ) | (322,861 | ) | ||||
For the year ended March 31, 2025, we had a cash outflow from operating activities of $0.8 million, and a cash outflow of $2.6 million for the year ended March 31, 2024. The outflow was primarily due to the intensified competition in the vocational education market in China. Since fiscal year 2022, certain competitors started to provide free access and courses to their online education platforms due to the impact of COVID-19 which continued in 2023, 2024 and 2025 fiscal years, resulting in a decrease in the number of fee-paying members and cash received of membership fees from the fee-paying members. In addition, the recovery of economy from COVID has been slowed in China, which has discouraged the expensing by consumers.
Net Cash Used in Investing Activities
| For the Year Ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| US$ | US$ | |||||||
| Net cash (used in)/generated from investing activities | — | 4,788 | ||||||
| Proceed from disposal of property and equipment and intangible assets | — | 4,788 | ||||||
| 64 |
For the year ended March 31, 2025, we had no cash flow from investing activities. While for the year ended March 31, 2024, there was a cash inflow of $4.8 thousand gained from disposal of property and equipment.
Net Cash Generated from Financing Activities
| For the Year Ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| US$ | US$ | |||||||
| Net cash generated from financing activities | 600,000 | — | ||||||
| Proceeds from convertible bond | 600,000 | — | ||||||
For the year ended March 31, 2025, we had a cash inflow from financing activities of $0.6 million which was from the proceeds from notes issued for $0.6 million. While for the year ended March 31, 2024, there is not any financing activities.
Material Cash Requirements
As of March 31, 2026, the Company’s existing lease contract for its Shenzhen premises had expired. Since March 31, 2026, the Group executed a new operating lease agreement for its Shenzhen office space with a lease term from April 1, 2026 to March 31, 2028, representing total future lease payments of $249,070, consisting of $93,401, $124,535 and $31,134 payable as of March 31, 2026, 2027 and 2028, respectively. As this lease commenced subsequent to March 31, 2026, no lease liability or right-of-use asset was recognized on our consolidated balance sheet as of March 31, 2026. While this undiscounted obligation is not recognized on our consolidated balance sheet as of March 31, 2026, it represents a contractual liquidity commitment that will result in future cash outflows over the lease term.
No material cash payment in the financial year of 2026.
There have been no material changes to our contractual obligations since March 31, 2025.
Off-Balance Sheet Arrangements
As of March 31, 2026, we did not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources. We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties. In addition, we have not entered into any derivative contracts that are indexed to our own shares and classified as stockholders’ equity, or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity, or market risk support, nor do we hold any variable interest in any unconsolidated entity that provides financing, liquidity, market risk, or credit support to us or engages in leasing, hedging, or research and development services with us.
Critical Accounting Policies
Please refer to Note 2 of the Consolidated Financial Statements included in this Form 20-F for details of our critical accounting policies of long-term investment, income taxes and expected credit losses.
Recent Accounting Pronouncements
Please refer to Note 2 of the Consolidated Financial Statements included in Form 20-F for details of our recently issued accounting standards.
5.C. Research and Development, Patents and Licenses, etc.
See “Item 4. Information on the Company—B. Business Overview—Technology; Research and Development” and “Item 4. Information on the Company—B. Business Overview—Intellectual Property.”
5.D. Trend Information
Other than as disclosed elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or events for the year ended March 31, 2026 that are reasonably likely to have a material effect on our net revenues, income, profitability, liquidity or capital resources, or that would cause the disclosed financial information to be not necessarily indicative of future operating results or financial conditions.
5.E. Critical Accounting Estimates
We prepare our financial statements in conformity with U.S. GAAP, which requires us to make judgments, estimates and assumptions. We continually evaluate these estimates and assumptions based on the most recently available information, our own historical experiences and various other assumptions that we believe to be reasonable under the circumstances. In the fiscal year ended March 31, 2026, we also made such judgments, estimates and assumptions. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from our expectations as a result of changes in our estimates. Some of our accounting policies require a higher degree of judgment than others in their application and require us to make significant accounting estimates.
| 65 |
Valuation allowance for deferred tax assets
Deferred income taxes are provided using assets and liabilities method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Deferred tax assets are recognized to the extent that these assets are more likely than not to be realized. In making such a determination, we consider all positive and negative evidence, including future reversals of projected future taxable income and results of recent operation. The assumptions used in determining projected future taxable income require significant judgement. Actual operating results in future years could differ from our current assumptions, judgements and estimates. We establish a valuation allowance against deferred tax assets to the extent we believe that recovery is not likely.
The ultimate realization of deferred tax assets is dependent upon our ability to generate sufficient future taxable income within the carry-forward periods provided for in the tax law and during the periods in which the temporary differences become deductible. However, we expect to continue to incur losses over the next several years and expect not to have taxable income to utilize the deferred tax assets as of March 31, 2026 and 2025. We recorded $1,161,878 and $1,580,716 valuation allowance for deferred tax assets as of March 31, 2026 and 2025, respectively.
Impairment of long-term investment
Our long-term investments consist of investments in privately held company.
Our long-term investments in privately held companies are accounted for using either the equity method (when we exert significant influence, under ASC 323) or the measurement alternative (for equity securities without readily determinable fair values where we lack significant influence, measured at cost less impairment, adjusted for observable price changes under ASC 321). Evaluating these investments for impairment involves significant management judgment and critical accounting estimates. For equity method investments, we recognize an impairment loss when a decline in fair value below the carrying amount is determined to be other-than-temporary, based on critical judgments regarding the investee’s financial condition, operating trends, and our intent and ability to hold the investment until recovery. For investments under the measurement alternative, we perform a qualitative assessment at each reporting date to identify potential impairment indicators; if indicated, we estimate the investment’s fair value using critical inputs—such as valuation models, projected cash flows, discount rates, and transaction prices from recent share issuances or binding disposal agreements—and recognize an impairment loss equal to the excess of carrying value over fair value.
When quoted market prices are not available, the fair value of certain long-term investments is usually based on the present value of expected future cash flows using discount rates and other assumptions believed to be consistent with those used by principal market participants and observed market earnings multiples of comparable companies, if appropriate. Different assumptions could affect the timing and the amount of impairment of an investment in any period, those estimates and judgments may or may not ultimately prove appropriate.
As of March 31, 2026 and 2025, we recorded impairment of long-term investments of $5,305,764 and $1,819,678, respectively.
Allowance for expected credit losses
We maintain allowances for expected credit losses on our other receivables and amounts due from a related party, including both current and non-current portion, based on the expected credit loss model under ASC 326. We evaluate the credit risk of each receivable based on factors including the age of the receivable, the counterparty’s financial condition, historical collection experience, and forward-looking macroeconomic factors, which involves significant management judgment and uncertainty due to the unpredictability of customer payment behavior and volatility in economic conditions, and expected future conditions. We assess credit risk across different customer groups and incorporate forward-looking factors, such as expected economic conditions, to ensure our estimates remain robust. Uncollectible balances are written off after all collection efforts have been exhausted.
For the fiscal year ended March 31, 2026, we recognized a $696,764 provision for expected credit losses mainly consisting of receivables due from Wuxi Kingway ($93,686 classified as current and $566,853 as non-current). Despite share collateral provided by Mr. Xiaofeng Gao, management determined the balance to be impaired owing to Wuxi Kingway’s ongoing operational and liquidity challenges.
| 66 |
| Item 6. | Directors, Senior Management and Employees |
6.A. Directors, Executive Officers and Key Employees
The following table sets forth the name, age, positions and a brief description of the business experience of each of our directors, executive officers and key employees as of the date hereof.
| Name | Age | Position with our company | ||
| Bin Fu | 45 | Chief Executive Officer, Acting Chief Financial Officer, Director and Chairman of the Board | ||
| Peng Wang | 50 | Executive Director | ||
| Huiqing Ye | 74 | Director | ||
| Qin Zhang | 40 | Director | ||
| Shaowei Zhang | 42 | Director |
There are no family relationships among our directors and officers. There are no arrangements or understandings with major shareholders, customers, suppliers or others, pursuant to which any person referred to above was selected as a director or member of senior management. The address of each of our directors and executive officers is c/o Skillful Craftsman Education Technology Limited, 7th Floor, West Lobby, Building 7B, Shenzhen Bay Science and Technology Ecological Park, Nanshan District, Shenzhen, Guangdong Province, PRC 518000.
Executive Officers and Directors
Bin Fu has been serving as our Co-Chief Executive Officer since May 2021 and Chief Executive Officer since September 6, 2023. Mr. Fu was also appointed as acting Chief Financial Officer (“CFO”) of the Company on August 8, 2026 until the new CFO is appointed and Mr. Fu receives no additional compensation for the position of acting CFO. Mr. Fu has served as a member of our board of directors (the “Board”) since June 2021 and as our Chairman of the Board on July 22, 2024. He has also been serving as one of the directors of Jisen Information since June 2021 and Le First Skilland Pte. Ltd. since March 2023. Mr. Fu has been dedicated to financial vocational education for more than 10 years. From July 2018 to April 2020, he served as the chief operating officer of Columbus Fintec, a leading SaaS provider that provides financial technology systems and software services in China. Mr. Fu was responsible for the overall operation and management of Columbus Fintec. During his tenure at Columbus Fintec, he presided over the design of the “G+ Smart Investment Risk Control System,” a breakthrough innovation by leveraging his profound understanding of the global financial market and professional trading field. From July 2016 to June 2018, Mr. Fu served as the chief trainer and chief risk officer at SilverStone Investment, where Mr. Fu actively explored cooperation opportunities with universities to cultivate more financial talents. Under his leadership, SilverStone Investment has collaborated with five universities and colleges in China, and introduced special financial training programs to more than 10,000 students. With extensive industry experience and strategic vision, Mr. Fu has provided financial adviser services to a number of listed educational companies. Mr. Fu has a bachelor’s degree in computer science from Beihang University, and a master’s degree from the National University of Defense Technology.
Peng Wang has been serving as one of our directors since July 2024. Mr. Wang has served as the Chief Financial Officer of Puxin Education & Technology Group since October 1, 2017. Mr. Wang has served as a director of Jining Bank and chairman of Jining ShendeTaihe Investment Co., Ltd. since 2008. Mr. Wang received his Bachelor’s degree of engineering from Shandong University in 1997. Mr. Wang received his master’s degree in political economics and a doctorate degree in international finance from Renmin University of China in 2000 and 2003, respectively. The Board believes that Mr. Wang is well qualified to serve as a member of the Board due to his extensive experience in education and technology in China.
| 67 |
Huiqing Ye has been serving as one of our directors since June 2020. Mr. Ye served as an executive director of Suqian Zeda Vocational & Technical College from September 2014 to January 2016. From September 2012 to August 2014, Mr. Ye served as a Vice President and the Secretary-general of Xishan Education Society. Mr. Ye also served as a Vice President of Jiangsu College of Information Technology from April 2003 to August 2012. Mr. Ye received a Bachelor of Arts degree from Jiangsu Education College in 1989.
Qin Zhang has been serving as one of our directors since September 2024. Ms. Qin Zhang, age 38, has served as the head of accounting department for Columbus Digital Technology (Shen Zhen) Co., Ltd. since July 2014. Ms. Zhang received her bachelor’s degree in business administration from Anhui University of Technology in China in 2011. Ms. Zhang holds a middle level accounting professional qualification from China.
Shaowei Zhang has been serving as one of our directors since August 2021. Mr. Zhang is the founder of First High-School Education Group Co., Ltd (“First High-School Education”) (NYSE: FHS). Mr. Zhang has served as the chairman of board of directors and chief executive officer of First High-School Education since September 2018. Prior to founding First High-School Education, Mr. Zhang established and served as the principal of Kunming Qihang Education and Training School and Kunming Epoch Giant Tutorial School in 2006 and 2009, respectively. Mr. Zhang established Kunming College Student Private Tutorial Services Station and Kunming Xindenuo Accounting Training Center in 2003 and 2004, respectively. Mr. Zhang serves as a member of the Yunnan Provincial Committee of the Chinese People’s Political Consultative Conference and a director of Long-Spring Institute of Learning and Human Development of Tsinghua University. Mr. Zhang received his bachelor’s degree in accounting in 2006 and his master’s degree in business administration in 2012 from Kunming University of Science and Technology. Mr. Zhang is currently pursuing his doctorate degree in education from Tsinghua University.
Each of our directors will serve as a director until our next annual general meeting and until their successors are duly elected and qualified.
6.B. Compensation
For the fiscal years ended March 31, 2026, we paid an aggregate of $144,794 in cash and benefits in-kind granted to or accrued on behalf of all of our directors and members of senior management for their services, in all capacities, and we did not pay any additional compensation to our directors and members of senior management. We have not set aside or accrued any amount to provide pension, retirement or other similar benefits to our executive officers and directors. Other than Ms. Qin Zhang and the directors who concurrently serve as our executive officers, we have not entered into any service agreements with our directors. Our PRC subsidiaries are required by law to make contributions equal to certain percentages of each employee’s salary for his or her pension insurance, medical insurance, unemployment insurance and other statutory benefits and a housing provident fund.
Employment Agreements
We have entered into employment agreements with each of our executive officers. Under these agreements, each of our executive officers is employed for an initial term of one year and is subject to successive, automatic one-year extensions unless either party gives notice of non-extension to the other party at least 30 days prior to the end of the applicable term.
The executive officers are entitled to a fixed salary and to participate in our equity incentive plans, if any and other company benefits, each as determined by the Board from time to time.
| 68 |
We may terminate the executive officer’s employment for cause, at any time, without notice or remuneration, for certain acts, such as conviction or plea of guilty to a felony or grossly negligent or dishonest acts to our detriment, or misconduct or a failure to perform agreed duties. In such case, the executive officer will not be entitled to receive payment of any severance benefits or other amounts by reason of the termination, and his right to all other benefits will terminate, except as required by any applicable law. We may also terminate his employment without cause upon 30 days’ advance written notice. In such case of termination by us, we are required to provide the following severance payments and benefits to the executive officer: a cash payment of one month of base salary as of the date of such termination for each year that employee has worked in the Company (which is any period longer than six months but no more than one year) and a cash payment of half month of base salary as of the date of such termination for any period of employment no more than six months, provided that the total severance payments shall not exceed twelve months of base salary.
The executive officer may terminate his employment at any time with 30 days’ advance written notice if there is any significant change in his duties and responsibilities or a material reduction in his annual salary. In such a case, the executive officer will be entitled to receive compensation equivalent to 3 months of his base salary. In addition, if we or our successor terminates the employment agreements upon a merger, consolidation, or transfer or sale of all or substantially all of our assets with or to any other individual(s) or entity, the executive officer shall be entitled to the following severance payments and benefits upon such termination: (1) a lump sum cash payment equal to 3 months of base salary at a rate equal to the greater of his annual salary in effect immediately prior to the termination, or his then current annual salary as of the date of such termination; (2) a lump sum cash payment equal to a pro-rated amount of target annual bonus for the year immediately preceding the termination; (3) payment of premiums for continued health benefits under our health plans for 3 months following the termination; and (4) immediate vesting of 100% of the then-unvested portion of any outstanding equity awards held by the executive officer. The employment agreements also contain customary restrictive covenants relating to confidentiality, non-competition and non-solicitation, as well as indemnification of the executive officer against certain liabilities and expenses incurred by him in connection with claims made by reason of him being an officer of our company.
Stock Awards
On December 13, 2024, the Compensation Committee of the Board of Directors (the “Board”) of the Company approved the compensations to Mr. Bin (Bill) Fu, the Company’s Chief Executive Officer, Mr. Dawei Chen, the Company’s Chief Financial Officer and Mr. Peng Wang, a director of the Board for their services to the Company from October 1, 2024 to September 30, 2025. Each of Mr. Fu, Mr. Chen and Mr. Wang will receive compensation in the amount of $60,000 per year and each will also be granted 90,000 ordinary shares of the Company that will be vested on September 1, 2025, subject to his remaining in the continuous service of the Company or its affiliates on such date.
On May 1, 2025 (the “Grant Date”), the Compensation Committee (“Committee”) of the Board granted stock awards of 90,000 ordinary shares of the Company, par value $0.0002 (the “Award Shares”), to each of the Chief Technology Officer and Chief Product Officer of the Company (the “Grantees”) as a part of their new employment with the Company and the Award Shares shall be vested and the Restricted Period shall lapse on May 1, 2026, subject to the Grantees remaining in the continuous service of the Company or its subsidiaries.
On July 2, 2025, the shareholders of the Company approved that 1,000,000 preference shares of par value US$0.0002 be designated and issued to Mr. Bin Fu, the Chief Executive Officer and Chairman of the Board of Directors of the Company, as “Series A Preference Shares” such that the holder of a Series A Preference Share shall have 50 votes for every Series A Preference Share. The designation and grant were approved by the special committee of the Board of Directors of the Company (“Board”) at the Special Committee meeting held on May 23, 2025.
6.C. Board Practices
Terms of Directors and Officers
Expiration of Term of Directors
Our officers are appointed by and serve at the discretion of our board of directors. Our directors are not subject to a set term of office and hold office until the next annual general meeting and until their successor is duly appointed or such time as they die, resign or are removed from office by an ordinary resolution as a matter of Cayman Islands law (which requires the affirmative vote of a majority of the shareholders who attend and vote at a general meeting of the company). The office of a director will be vacated automatically if, among other things, the director resigns in writing, becomes bankrupt or makes any arrangement or composition with his/her creditors generally or is found to be or becomes of unsound mind.
Director Remuneration Upon Termination
The directors may receive such remuneration as our board of directors may determine from time to time. The compensation committee will assist the directors in reviewing and approving the compensation structure for the directors. Currently, our directors are not entitled to receive any remuneration upon termination of directorship.
| 69 |
Committee of the Board of Directors
Audit Committee
Our board of directors consists of five directors, including two executive directors and three independent directors. We have also established an Audit Committee, a Compensation Committee and a Nominating and Corporate Governance Committee. We have adopted a charter for each of the three committees. Each of the committees of our board of directors has the composition and responsibilities described below.
Qin Zhang, Huiqing Ye and Shaowei Zhang serve as members of our Audit Committee. Ms. Qin Zhang serves as the chairman of the Audit Committee. Each of our Audit Committee members satisfies the “independence” requirements of the Nasdaq listing rules and meet the independence standards under Rule 10A-3 under the Exchange Act. We have determined that Ms. Qin Zhang possesses accounting or related financial management experience that qualifies him as an “audit committee financial expert” as defined by the rules and regulations of the SEC. Our Audit Committee oversees our accounting and financial reporting processes and the audits of our financial statements. Our Audit Committee performs several functions, including:
| ● | evaluating the independence and performance of, and assesses the qualifications of, our independent auditor, and engages such independent auditor; |
| ● | approving the plan and fees for the annual audit, quarterly reviews, tax and other audit-related services, and approves in advance any non-audit service to be provided by the independent auditor; |
| ● | monitoring the independence of the independent auditor and the rotation of partners of the independent auditor on our engagement team as required by law; |
| ● | reviewing the financial statements to be included in our Annual Report on Form 20-F and Current Reports on Form 6-K and reviews with management and the independent auditors the results of the annual audit and reviews of our quarterly financial statements; | |
| ● | overseeing all aspects of our systems of internal accounting control and corporate governance functions on behalf of the board; |
| ● | reviewing and approving in advance any proposed related-party transactions and report to the full Board on any approved transactions; and |
| ● | providing oversight assistance in connection with legal, ethical and risk management compliance programs established by management and our board of directors, including Sarbanes-Oxley Act implementation, and makes recommendations to our board of directors regarding corporate governance issues and policy decisions. |
Compensation Committee
Shaowei Zhang, Huiqing Ye and Qin Zhang serve as members of our Compensation Committee. Mr. Shaowei Zhang serves as the chair of the Compensation Committee. All of our Compensation Committee members satisfy the “independence” requirements of the Nasdaq listing rules and meet the independence standards under Rule 10A-3 under the Exchange Act. Our Compensation Committee is responsible for overseeing and making recommendations to our board of our directors regarding the salaries and other compensation of our executive officers and general employees and providing assistance and recommendations with respect to our compensation policies and practices.
| 70 |
Nominating and Corporate Governance Committee
Huiqing Ye, Shaowei Zhang and Qin Zhang serve as members of our Nominating and Corporate Governance Committee. Mr. Ye serves as the chair of the Nominating and Corporate Governance Committee. All of our Nominating and Corporate Governance Committee members satisfy the “independence” requirements of the Nasdaq listing rules and meet the independence standards under Rule 10A-3 under the Exchange Act. Our Nominating and Corporate Governance Committee is responsible for identifying and proposing new potential director nominees to the board of directors for consideration and reviewing our corporate governance policies.
6.D. Employees
We are currently headquartered in Shenzhen City, Guangdong Province, China, where 11 employees are based in Shenzhen City. We also have 2 employees based in Wuhu, Anhui Province and 2 employees based in Wuxi, Jiangsu Province. We and our subsidiaries had a total of 15 full-time employees as of March 31, 2026. The following table sets forth the number of the employees, categorized by function:
| Number of | ||||
| Function | Employees | |||
| Research and Development | 8 | |||
| Marketing | 1 | |||
| Finance and Accounting | 3 | |||
| General and administration | 3 | |||
| Total | 15 | |||
We and our subsidiaries enter into employment contracts with all of their respective employees. They also enter into separate confidentiality agreements with certain key employees that impose confidentiality obligations until the relevant information becomes public or is no longer considered confidential. In addition to salaries and benefits, we and our subsidiaries provide performance-based bonuses for the employees.
As required by regulations in China, our subsidiaries participate in various employee social security plans that are organized by municipal and provincial governments, including pension, unemployment insurance, childbirth insurance, work-related injury insurance, medical insurance and housing insurance. These entities are required under PRC law to make contributions from time to time to employee benefit plans at specified percentages of the salaries, bonuses and certain allowances of the employees, up to a maximum amount specified by the local government.
We believe that we maintain a good working relationship with the employees, and none of us has experienced any significant labor disputes. As of the date of this report, none of the employees belongs to any union.
6.E. Share Ownership
As of August 10, 2026, 16,199,451 of our ordinary shares were outstanding. Holders of our ordinary shares are entitled to vote together as a single class on all matters submitted to shareholders for approval. No holder of ordinary shares has different voting rights from any other holders of ordinary shares. We are not aware of any arrangement that may, at a subsequent date, result in a change of control of our company.
We have adopted a dual-class share structure such that our shares consist of Ordinary Shares, Series A Preference Shares and Series B Preference Shares. In respect of matters requiring the votes of shareholders, each Ordinary Share is entitled to one (1) vote, each Series A Preference Share is entitled to fifty (50) votes and each Series B Preference Share is entitled to two hundred (200) votes. As of August 11, 2026, 1,000,000 of Series A Preference Shares were issued and outstanding and 666,667 Series B Preference Shares were issued and outstanding.
Beneficial ownership is determined in accordance with the rules and regulations of the SEC. The percentages of shares beneficially owned in the table below are based on 16,199,451 ordinary shares, 1,000,000 Series A Preference Shares and 666,667 Series B Preference Shares issued and outstanding as of August 10, 2026.
The following table sets forth information with respect to the beneficial ownership of our common shares as of August 10, 2026 by:
| ● | each of our directors and executive officers; and |
| ● | each person known to us to beneficially own more than 5% of our outstanding ordinary shares. |
Except as otherwise indicated in the table below, addresses of our directors, executive officers and named beneficial owners are in care of 7th Floor, West Lobby, Building 7B, Shenzhen Bay Science and Technology Ecological Park, Nanshan District, Shenzhen, Guangdong Province, PRC 518000.
| Ordinary Shares Beneficially Owned | Series A Preference Shares Beneficially Owned | Series B Preference Shares Beneficially Owned | Aggregated Voting Power | |||||||||||||||||||||||||||||
| Number of Shares (including Share Options) | Percentage of Shares | Number of Shares (including Share Options) | Percentage of Shares | Number of Shares (including Share Options) | Percentage of Shares | Number | Percentage | |||||||||||||||||||||||||
| Directors and Executive Officers: | ||||||||||||||||||||||||||||||||
| Bin Fu | 330,000 | (1) | 2 | % | 1,000,00 | (1) | 100 | % | — | — | 50,240,000 | 25.61 | % | |||||||||||||||||||
| Peng Wang | 90,000 | 0.5 | % | — | — | — | — | — | 0.05 | % | ||||||||||||||||||||||
| Shaowei Zhang | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
| Huiqing Ye | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
| Qin Zhang | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
| 71 |
| 5% or Greater Shareholders: | Ordinary Shares Beneficially Owned | Series A Preference Shares Beneficially Owned | Series B Preference Shares Beneficially Owned | Aggregated Voting Power | ||||||||||||||||||||||||||||
| Number of Shares (including Share Options) | Percentage of Shares | Number of Shares (including Share Options) | Percentage of Shares | Number of Shares (including Share Options) | Percentage of Shares | Number | Percentage | |||||||||||||||||||||||||
| Bin Fu(1) | 330,000 | 2 | % | 1,000,00 | 100 | % | 50,330,000 | 25.61 | % | |||||||||||||||||||||||
| Xiaofeng Gao(2) | 2,670,00 | 16.4 | % | 2,670,000 | 1.36 | % | ||||||||||||||||||||||||||
| Xuejun Ji(3) | 2,755,00 | 17 | % | 666,667 | 100 | % | 136,088,400 | 69.25 | % | |||||||||||||||||||||||
| Kuanying Zhang(4) | 1,200,00 | 7.4 | % | 1,200,000 | 0.61 | % | ||||||||||||||||||||||||||
| Lugang Hua(5) | 900,000 | 5.6 | % | 900,000 | 0.46 | % | ||||||||||||||||||||||||||
| (1) | Mr. Bin Fu, the Chief Executive Officer and Chairman of the Board, owns 1,000,000 of the Company’s Series A Preference Shares, par value US$0.0002 and each Series A Preference Share is entitled to fifty (50) votes. |
| (2) | The business address of Xiaofeng Gao is: Floor 4, Building 1, No. 311, Yanxin Road, Huishan District, Wuxi, Jiangsu Province, PRC 214000 |
| (3) | Mr. Xuejun Ji owns 666,667 Series B Preference Shares, par value US$0.0002 and each Series B Preference Share is entitled to two hundred (200) votes. The business address of Mr. Xuejun Ji is Flat A, Floor 6th, Tower 1, Phase 2, Bel-Air, No.38 Bel-Air Avenue, Hong Kong. |
| (4) | The business address of Kuanying Zhang is: Room 1902, Building 1, Lanqiying Community, No. 101 Chengfu Road, Haidian District, Beijing |
| (5) | The business address of Lugang Hua is: Floor 4, Building 1, No. 311, Yanxin Road, Huishan District, Wuxi, Jiangsu Province, PRC 214000 |
We are not aware of any arrangement that may, at a subsequent date, result in a change of control of our company.
To our knowledge, as of August 10, 2026, a total of 7,564,451 ordinary shares are held under CEDE & CO and none record holders in the United States held our ordinary shares. The number of beneficial owners of our ordinary shares in the United States is likely to be much larger than the number of record holders of our ordinary shares in the United States.
| Item 7. | Major Shareholders and Related Party Transactions |
7.A. Major Shareholders
See “Item 6. Directors, Senior Management and Employees—E. Share Ownership” for a description of our major shareholders.
7.B. Related Party Transactions
Transactions with Related Parties
| a) | The table below sets forth the related party and the relationship with the Company: |
| Name of related party | Relationship with the Company | |
| Xiaofeng Gao (“Mr. Gao”) | Former chairman of the Board of Directors and Co-Chief Executive Officer, and 15.52% beneficial owner of the Company* | |
| Bin Fu | Chairman of the Board of Directors and Chief Executive Office of the Company* | |
| Peng Wang | Director of the Company | |
| Xuejun Ji | 16.02% beneficial owner of the Company | |
| Hunan Medical Star Technology Co., Ltd. ( Medical Star) | Joint venture | |
| Wuxi Kingway Technology Co., Ltd. (“Wuxi Kingway”)** | Entity controlled by Xiaofeng Gao | |
| Columbus Digital Technology (Shenzhen) Co., Ltd. | Entity controlled by Xuejun Ji |
| * | On September 6, 2024, Mr. Xiaofeng Gao resigned as the chairman of the Board of Directors and Co-Chief Executive Officer of the Company and Mr. Bin Fu has become the sole Chief Executive Officer of the Company. |
| ** | Wuxi Kingway was a subsidiary of the Company before March 17, 2025 and deconsolidated from the Group upon the termination of the VIE Agreements on March 17, 2025. Since Wuxi Kingway is an entity controlled by Xiaofeng Gao, who is a major beneficiary owner of the Company, Wuxi Kingway becomes a related party to the Group thereafter. |
| b) | The Company had the following related party balances with the related parties mentioned above: |
| As of March 31, | ||||||||
| 2026 | 2025 | |||||||
| Amounts due to related parties | ||||||||
| Amounts due to Xiaofeng Gao (1) | $ | 29,254 | $ | 23,007 | ||||
| Amounts due to Xuejun Ji (1) | — | 11,145 | ||||||
| Amounts due to Bin Fu (1) | — | 39,007 | ||||||
| Amounts due to Columbus Digital Technology (Shenzhen) Co., Ltd.(2) | 79,759 | — | ||||||
| Total | 109,013 | 73,159 | ||||||
| (1) | The amounts result from the arrangements with related parties for temporary advances for operating purpose. These transactions are unsecured, interest free without fixed maturity date and being due on demand. |
| (2) | The amount due to Columbus Digital Technology (Shenzhen) Co., Ltd. represents accrued rental payables arising from an operating lease arrangement for office premises. The lease term covered the period from April 1, 2024 to March 31, 2026. As of March 31, 2026 , the outstanding balance of $79,759 comprises unpaid rent for the lease period. |
| As of March 31, | ||||||||
| 2026 | 2025 | |||||||
| Promissory note to related parties | ||||||||
| Amounts due to Xuejun Ji | 400,000 | 400,000 | ||||||
| Amounts due to Bin Fu | 200,000 | 200,000 | ||||||
| Amounts due to Peng Wang | 400,000 | - | ||||||
| Total | 1,000,000 | 600,000 | ||||||
Amounts owed to Xuejun Ji, Bin Fu and Peng Wang arise from promissory notes issued by the Company, which bear interest at 6% per annum.
| As of March 31, | ||||||||
| 2026 | 2025 | |||||||
| Amounts due from a related party | ||||||||
| Amounts due from Wuxi Kingway(1) | $ | — | $ | 660,539 | ||||
| (1) | As of March 31, 2026, the Group recorded a provision for expected credit losses on receivables due from Wuxi Kingway, which is collateralized by the pledge of shares owned by Mr. Gao, amounting to $660,539, of which $93,686 included in current portion and $566,853 included in non-current portion. Management concluded that such outstanding balances are not fully recoverable due to the prolonged business downturn and liquidity constraints experienced by Wuxi Kingway. |
| c) | The Company had the following related party transaction with the related party mentioned above: |
| For the years ended March 31, | ||||||||||||
| 2026 | 2025 | 2024 | ||||||||||
| Advance from Xiaofeng Gao | 12,478 | 20,908 | — | |||||||||
| Bond received from Xuejun Ji | — | 400,000 | — | |||||||||
| Bond received from Bin Fu | — | 200,000 | — | |||||||||
| Bond received from Peng Wang | 400,000 | — | — | |||||||||
| Sales to Medical Star | — | — | 17,235 | |||||||||
During the fiscal year ended March 31, 2026, the Company’s recognized interest expenses amounted to $12,167, $22,684 and $14,631, respectively, pertaining to promissory notes payable to Bin Fu, Xuejun Ji and Peng Wang.
During the fiscal year ended March 31, 2026, the Company’s recognized interest income amounted to $26,430, pertaining to loan receivable from Wuxi Kingway Technology Co., Ltd.
During the fiscal year ended March 31, 2026, the Company recognized rental expenses of $102,729 pertaining to Columbus Digital Technology (Shenzhen) Co., Ltd.
Contractual Arrangements with the Variable Interest Entity and Its Shareholders
For a description of these contractual arrangements with the variable Interest Entity and its Shareholders, see “Item 4. Information on the Company—C. Organizational Structure.”
7.C. Interests of Experts and Counsel
Not applicable.
| 72 |
| Item 8. | Financial Information |
8.A. Consolidated Statements and Other Financial Information
The financial statements required by this item may be found at the end of this report on 20-F, beginning on page F-1.
Legal Proceedings
We are not currently, and have not recently been, a party to any material legal or administrative proceedings. We are not aware of any material legal or administrative proceedings threatened against us. From time to time, we are subject to various legal or administrative proceedings arising in the ordinary course of business.
Dividend Policy
Subject to any rights and restrictions of any other class or series of shares, our board of directors may, from time to time, declare dividends on the shares issued and authorize payment of the dividends out of our lawfully available funds. As a matter of Cayman Islands law, dividends may be declared and paid only out of funds legally available therefor, namely out of either:
| ● | profits; or |
| ● | “share premium account,” which represents the excess of the price paid to our company on the issue of its shares over the par or “nominal” value of those shares, which is similar to the U.S. concept of additional paid in capital, provided that in no circumstances may a dividend be paid if this would result in our being unable to pay our debts as they fall due in the ordinary course of business. |
However, no dividend shall bear interest against our company.
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 our PRC subsidiaries’ operations and to expand the business.
8.B. No Significant Changes
Except as disclosed elsewhere in this annual report, no significant changes to our financial condition have occurred since the date of the annual financial statements contained herein.
| Item 9. | The Offer and Listing |
9.A. Offer and Listing Details
See “—C. Markets.”
9.B. Plan of Distribution
Not applicable.
9.C. Markets
Our ordinary shares have been traded on the NASDAQ Capital Market since July 23, 2020, under the symbol “EDTK.”
9.D. Selling Shareholders
Not applicable.
| 73 |
9.E. Dilution
Not applicable.
9.F. Expenses of the Issuer
Not applicable.
| Item 10. | Additional Information |
10.A. Share Capital
Not applicable.
10.B. Memorandum and Articles of Association
We are a Cayman Islands exempted company and our affairs are governed by our amended and restated memorandum and articles of association and the Companies Act (As Revised) of the Cayman Islands, which we refer to as the Companies Act below.
Our authorized share capital consists of 500,000,000 ordinary shares, par value $0.0002 per share, and 5,000,000 preference shares, par value $0.0002 per share. As of the date of this report, 16,199,451 ordinary shares were issued and outstanding, 1,000,000 Series A Preference Shares and 666,667 Series B Preference Shares were issued and outstanding.
On July 2, 2025, the Company held an extraordinary general meeting of the Company (the “Meeting”). At the Meeting, the shareholders of the Company approved the authorized share capital of the Company be increased from US$100,200 divided into 500,000,000 ordinary shares of US$0.0002 par value each and 1,000,000 preference shares of US$0.0002 par value each to US$101,000 divided into 500,000,000 ordinary shares of US$0.0002 par value each and 5,000,000 preference shares of US$0.0002 par value each by the creation of an additional 4,000,000 preference shares of US$0.0002 par value each (the “Share Capital Increase”)
Ordinary Shares
Dividends. Subject to any rights and restrictions of any other class or series of shares, our board of directors may, from time to time, declare dividends on the shares issued and authorize payment of the dividends out of our lawfully available funds. As a matter of Cayman Islands law, dividends may be declared and paid only out of funds legally available therefor, namely out of either:
| ● | profits; or |
| ● | “share premium account,” which represents the excess of the price paid to our company on the issue of its shares over the par or “nominal” value of those shares, which is similar to the U.S. concept of additional paid in capital, provided that in no circumstances may a dividend be paid if this would result in our being unable to pay our debts as they fall due in the ordinary course of business. |
However, no dividend shall bear interest against our company.
Voting Rights. Holders of our ordinary shares vote as a single class on all matters submitted to a vote of our shareholders, except as may otherwise be required by law. At any general meeting a resolution put to the vote of the meeting shall be decided by a poll.
As a matter of Cayman Islands law, (i) an ordinary resolution requires the affirmative vote of a majority of the shareholders who, being entitled to do so, attend, either in person or by proxy, and vote at a general meeting of the company; and (ii) a special resolution requires the affirmative vote of a majority of at least two-thirds of the shareholders who, being entitled to do so, attend, either in person or by proxy, and vote at a general meeting of the company.
Under Cayman Islands law, some matters, such as amending the memorandum and articles of association, changing the name or resolving to be registered by way of continuation in a jurisdiction outside the Cayman Islands, require the approval of shareholders by a special resolution.
There are no limitations on non-residents or foreign shareholders to hold or exercise voting rights on the ordinary shares imposed by foreign law or by the charter or other constituent documents of our company. However, no person will be entitled to vote at any general meeting or at any separate meeting of the holders of the ordinary shares unless the person is registered as of the record date for such meeting and unless all calls or other sums presently payable by the person in respect of our ordinary shares have been paid.
| 74 |
Winding Up; Liquidation. Upon the winding up of our company, after the full amount that holders of any issued shares ranking senior to the ordinary shares as to distribution on liquidation or winding up are entitled to receive has been paid or set aside for payment, the holders of our ordinary shares are entitled to receive any remaining assets of our company available for distribution as determined by the liquidator. The assets received by the holders of our ordinary shares in a liquidation may consist in whole or in part of a property, which is not required to be of the same kind for all shareholders.
Calls on Ordinary Shares and Forfeiture of Ordinary Shares. Our board of directors may from time to time make calls upon shareholders for any amounts unpaid on their ordinary shares in a notice served to such shareholders at least 14 days prior to the specified time and place of payment. Any ordinary shares that have been called upon and remain unpaid are subject to forfeiture.
Redemption of Ordinary Shares. We may issue shares that are, or at our option or at the option of the holders are, subject to redemption on such terms and in such manner as it may, before the issue of the shares, determine. Under the Companies Act, shares of a Cayman Islands exempted company may be redeemed or repurchased out of profits of the company, out of the proceeds of a fresh issue of shares made for that purpose or out of capital, provided the memorandum and articles of association authorize this and it has the ability to pay its debts as they come due in the ordinary course of business.
No Preemptive Rights. Holders of ordinary shares will have no preemptive or preferential right to purchase any securities of our company.
Variation of Rights Attaching to Shares. If at any time the share capital is divided into different classes of shares, the rights attaching to any class (unless otherwise provided by the terms of issue of the shares of that class) may, subject to the memorandum and articles of association, be varied or abrogated with the consent in writing of the holders of three-fourths of the issued shares of that class or with the sanction of a special resolution passed at a general meeting of the holders of the shares of that class.
Anti-Takeover Provisions. Some provisions of our amended and restated memorandum and articles of association may discourage, delay or prevent a change of control of our company or management that shareholders may consider favorable, including provisions that authorize our board of directors to issue preference shares in one or more series and to designate the price, rights, preferences, privileges and restrictions of such preference shares without any further vote or action by our shareholders.
Preference Shares
The board of directors is empowered to designate and issue from time to time one or more classes or series of preference shares and to fix and determine the relative rights, preferences, designations, qualifications, privileges, options, conversion rights, limitations and other special or relative rights of each such class or series so authorized. Such action could adversely affect the voting power and other rights of the holders of our ordinary shares or could have the effect of discouraging any attempt by a person or group to obtain control of us.
Series A Preference Shares
In accordance with the provisions of the Companies Act (As Revised) of the Cayman Islands and the amended and restated memorandum and articles of association of the Company (“Articles”), a Certificate of Designations was approved and adopted by the special committee of the Board of Directors of the Company (“Board”) at the Special Committee meeting held on May 23, 2025, by the Board at its Board meeting held on May 21, 2025 and by the shareholders of the Company at an extraordinary general meeting of the Company held on July 2, 2025, pursuant to which 1,000,000 Series A Preference Shares, par value US$0.0002 per share (the “Series A Preference Shares”) were designated and authorized for allotment and issuance with the following voting powers, preferences and relative, participating, optional and other special rights, and qualifications, limitations and restrictions thereof as follows:
| I. | Voting Right: At any general meeting of the Company, on a show of hands or poll, a holder of Series A Preference Shares present in person or by proxy, or if a corporation or other non-natural person by its duly authorised representative or proxy, shall have fifty (50) votes for every fully paid Series A Preference Share held by Such Member; and | |
| II. | Conversion Rights: A Series A Preference Share is convertible into one (1) ordinary share of the Company, par value US$0.0002 per share (“Ordinary Share”) at any time at the written option of the holder thereof. The right to convert shall be exercisable by a holder of Series A Preference Shares by delivering a written notice to the Company that such holder elects to convert a specified number of Series A Preference Shares into Ordinary Shares. In no event shall: (a) Ordinary Shares be convertible into Series A Preference Shares; and (b) any Series A Preference Share convert into Ordinary Shares at a ratio that is less than one-for-one; and |
| 75 |
| III. | Transfer: Upon any sale, transfer, assignment or disposition of any Series A Preference Share by the registered holder thereof to any person who is not an Affiliate of such registered holder, or upon a change of control of any Series A Preference Share to any person who is not an Affiliate of the registered holder of such Series A Preference Share, as determined by the Board, such Series A Preference Share shall be automatically and immediately converted into one Ordinary Share. For the avoidance of doubt, (i) a sale, transfer, assignment or disposition shall be effective upon the Company’s registration of such sale, transfer, assignment or disposition in the register of members of the Company; and (ii) the creation of any pledge, mortgage, charge, encumbrance or other third party right of whatever description on any Series A Preference Share to secure a holder’s contractual or legal obligations shall not be deemed as a sale, transfer, assignment or disposition unless and until any such pledge, mortgage, charge, encumbrance or other third party right is enforced and results in the third party holding legal title to the relevant Series A Preference Shares, in which case all the relevant Series A Preference Shares shall be automatically converted into the same number of Ordinary Shares; and | |
| IV. | Conversion: References herein to “converted” or “conversion” shall mean the compulsory repurchase without notice of Series A Preference Shares of any Member and, on behalf of such Member, automatic application of such repurchase proceeds in paying for such new Ordinary Shares into which the Series A Preference Shares have been converted at a price per Series A Preference Share necessary to give effect to a conversion calculated on the basis that the Ordinary Shares to be issued as part of the conversion will be issued at par. The Ordinary Shares to be issued on a conversion shall be registered in the name of such Member or in such name as the Member may direct. | |
| V. | Other rights: All other rights of the Series A Preference Shares will be the same as the Ordinary Shares as set out in the Articles and any other preference shares authorized by the Company. |
Series B Preference Shares
In accordance with the provisions of the Companies Act (As Revised) of the Cayman Islands and the amended and restated memorandum and articles of association of the Company (“Articles”), a Certificate of Designations was duly approved and adopted by the Board of Directors of the Company (“Board”) by way of unanimous written consent on September 5, 2025 and by the shareholders of the Company at an extraordinary general meeting of the Company held on October 10, 2025, pursuant to which 4,000,000 Series B Preference Shares, par value US$0.0002 per share (the “Series B Preference Shares”) were designated and authorized for allotment and issuance with the following voting powers, preferences and relative, participating, optional and other special rights, and qualifications, limitations and restrictions thereof as follows:
| I. | Voting Right: At any general meeting of the Company, on a show of hands or poll, a holder of Series B Preference Shares present in person or by proxy, or if a corporation or other non-natural person by its duly authorised representative or proxy, shall have two hundred (200) votes for every fully paid Series B Preference Share held by such Member; and | |
| II. | Conversion Rights: A Series B Preference Share is convertible into one (1) ordinary share of the Company, par value US$0.0002 per share (“Ordinary Share”) at any time at the written option of the holder thereof. The right to convert shall be exercisable by a holder of Series B Preference Shares by delivering a written notice to the Company that such holder elects to convert a specified number of Series B Preference Shares into Ordinary Shares. In no event shall: (a) Ordinary Shares be convertible into Series B Preference Shares; and (b) any Series B Preference Share convert into Ordinary Shares at a ratio that is less than one-for-one; and | |
| III. | Transfer: The Series B Preference Shares are freely transferable and any Member may sell, transfer, assign or otherwise dispose of any of his Series B Preference Share to any person subject to and in compliance with the terms of the Articles. Upon registration in the register of members of the Company, the new holder of such Series B Preference Shares shall have the same rights as described in this Certificate of Designations with respect to the Series B Preference Shares of which he/she/it is a registered holder; and | |
| IV. | Conversion: The conversion under paragraph II above shall be effected by way of a repurchase of the Series B Preference Shares held by the relevant Member and, on behalf of such Member, automatic application of such repurchase proceeds in paying for such new Ordinary Shares into which the Series B Preference Shares have been converted at a price per Series B Preference Share necessary to give effect to a conversion calculated on the basis that the Ordinary Shares to be issued as part of the conversion will be issued at par. The Ordinary Shares to be issued on a conversion shall be registered in the name of such Member or in such name as the Member may direct; and | |
| V. | Other rights: All other rights of the Series B Preference Shares will be the same as the Ordinary Shares as set out in the Articles and any other preference shares authorized by the Company. |
Comparison of Cayman Islands Corporate Law and U.S. Corporate Law
Cayman Islands companies are governed by the Companies Act. The Companies Act is modelled on English Law but does not follow recent English Law statutory enactments, and differs from laws applicable to United States corporations and their shareholders. Set forth below is a summary of the material differences between the provisions of the Companies Act applicable to us and the laws applicable to companies incorporated in the United States and their shareholders.
Mergers and Similar Arrangements
In certain circumstances, the Companies Act allows for mergers or consolidations between two Cayman Islands companies, or between a Cayman Islands exempted company and a company incorporated in another jurisdiction (provided that is facilitated by the laws of that other jurisdiction).
| 76 |
Where the merger or consolidation is between two Cayman Islands companies, the directors of each company must approve a written plan of merger or consolidation containing certain prescribed information. That plan of merger or consolidation must then be authorized by either (a) a special resolution (usually a majority of 66 2∕3% in value who attend and vote at a general meeting) of the shareholders of each company; or (b) such other authorization, if any, as may be specified in such constituent company’s articles of association. No shareholder resolution is required for a merger between a parent company (i.e., a company that owns at least 90% of the issued shares of each class in a subsidiary company) and its subsidiary company. The consent of each holder of a fixed or floating security interest of a constituent company must be obtained, unless the court waives such requirement. If the Cayman Islands Registrar of Companies is satisfied that the requirements of the Companies Act (which includes certain other formalities) have been complied with, the Registrar of Companies will register the plan of merger or consolidation.
Where the merger or consolidation involves a foreign company, the procedure is similar, save that with respect to the foreign company, the directors of the Cayman Islands exempted company are required to make a declaration to the effect that, having made due enquiry, they are of the opinion that the requirements set out below have been met: (1) that the merger or consolidation is permitted or not prohibited by the constitutional documents of the foreign company and by the laws of the jurisdiction in which the foreign company is incorporated, and that those laws and any requirements of those constitutional documents have been or will be complied with; (2) that no petition or other similar proceeding has been filed and remains outstanding or order made or resolution adopted to wind up or liquidate the foreign company in any jurisdictions; (3) that no receiver, trustee, administrator or other similar person has been appointed in any jurisdiction and is acting in respect of the foreign company, its affairs or its property or any part thereof; and (4) that no scheme, order, compromise or other similar arrangement has been entered into or made in any jurisdiction whereby the rights of creditors of the foreign company are and continue to be suspended or restricted.
Where the surviving company is the Cayman Islands exempted company, the directors of the Cayman Islands exempted company are further required to make a declaration to the effect that, having made due enquiry, they are of the opinion that the requirements set out below have been met: (1) that the foreign company is able to pay its debts as they fall due and that the merger or consolidated is bona fide and not intended to defraud unsecured creditors of the foreign company; (2) that in respect of the transfer of any security interest granted by the foreign company to the surviving or consolidated company (a) consent or approval to the transfer has been obtained, released or waived; (b) the transfer is permitted by and has been approved in accordance with the constitutional documents of the foreign company; and (c) the laws of the jurisdiction of the foreign company with respect to the transfer have been or will be complied with; (3) that the foreign company will, upon the merger or consolidation becoming effective, cease to be incorporated, registered or exist under the laws of the relevant foreign jurisdiction; and (4) that there is no other reason why it would be against the public interest to permit the merger or consolidation.
Where the above procedures are adopted, the Companies Act provides for a right of dissenting shareholders to be paid a payment of the fair value of his or her shares upon their dissenting to the merger or consolidation if they follow a prescribed procedure. In essence, that procedure is as follows: (a) the shareholder must give his or her written objection to the merger or consolidation to the constituent company before the vote on the merger or consolidation, including a statement that the shareholder proposes to demand payment for his or her shares if the merger or consolidation is authorized by the vote; (b) within 20 days following the date on which the merger or consolidation is approved by the shareholders, the constituent company must give written notice to each shareholder who made a written objection; (c) a shareholder must within 20 days following receipt of such notice from the constituent company, give the constituent company a written notice of his or her intention to dissent including, among other details, a demand for payment of the fair value of his or her shares; (d) within seven days following the date of the expiration of the period set out in paragraph (b) above or seven days following the date on which the plan of merger or consolidation is filed, whichever is later, the constituent company, the surviving company or the consolidated company must make a written offer to each dissenting shareholder to purchase his or her shares at a price that the company determines is the fair value and if the company and the shareholder agrees to the price within 30 days following the date on which the offer was made, the company must pay the shareholder such amount; and I if the company and the shareholder fails to agree to a price within such 30-day period, within 20 days following the date on which such 30-day period expires, the company (and any dissenting shareholder) must file a petition with the Cayman Islands Grand Court to determine the fair value and such petition must be accompanied by a list of the names and addresses of the dissenting shareholders with whom agreements as to the fair value of their shares have not been reached by the company. At the hearing of that petition, the court has the power to determine the fair value of the shares together with a fair rate of interest, if any, to be paid by the company upon the amount determined to be the fair value. Any dissenting shareholder whose name appears on the list filed by the company may participate fully in all proceedings until the determination of fair value is reached. These rights of a dissenting shareholder are not to be available in certain circumstances, for example, to dissenters holding shares of any class in respect of which an open market exists on a recognized stock exchange or recognized interdealer quotation system at the relevant date or where the consideration for such shares to be contributed are shares of any company listed on a national securities exchange or shares of the surviving or consolidated company.
| 77 |
Moreover, Cayman Islands law also has separate statutory provisions that facilitate the reconstruction or amalgamation of companies in certain circumstances, such schemes of arrangement will generally be more suited for complex mergers or other transactions involving widely held companies, commonly referred to in the Cayman Islands as a “scheme of arrangement” which may be tantamount to a merger. In the event that a merger was sought pursuant to a scheme of arrangement (the procedures of which are more rigorous and take longer to complete than the procedures typically required to consummate a merger in the United States), the arrangement in question must be approved by a majority in number of each class of shareholders and creditors with whom the arrangement is to be made and who must in addition represent three-fourths in value of each such class of shareholders or creditors, as the case may be, that are present and voting either in person or by proxy at a general meeting summoned for that purpose. The convening of the meetings and subsequently the terms of the arrangement must be sanctioned by the Grand Court of the Cayman Islands. While a dissenting shareholder would have the right to express to the court that the transaction should not be approved, the court can be expected to approve the arrangement if it is satisfied that:
| ● | we are not proposing to act illegally or beyond the scope of our corporate authority and we have complied with the statutory provisions as to majority vote; |
| ● | the shareholders have been fairly represented at the meeting in question; |
| ● | the arrangement is such as a business-person would reasonably approve; and | |
| ● | the arrangement is not one that would more properly be sanctioned under some other provision of the Companies Act or that would amount to a “fraud on the minority.” |
If a scheme of arrangement or takeover offer (as described below) is approved, any dissenting shareholder would have no rights comparable to appraisal rights, which would otherwise ordinarily be available to dissenting shareholders of U.S. corporations, providing rights to receive payment in cash for the judicially determined value of the shares.
Squeeze-out Provisions. When a takeover offer is made and accepted by holders of 90% of the shares to whom the offer relates within four months, the offeror may, within a two-month period, require the holders of the remaining shares to transfer such shares on the terms of the offer. An objection can be made to the Grand Court of the Cayman Islands, but this is unlikely to succeed unless there is evidence of fraud, bad faith, collusion or inequitable treatment of the shareholders.
Further, transactions similar to a merger, reconstruction and/or an amalgamation may in some circumstances be achieved through other means to these statutory provisions, such as a share capital exchange, asset acquisition or control, through contractual arrangements, of an operating business.
Shareholders’ Suits. Maples and Calder (Cayman) LLP, our Cayman Islands legal counsel, is not aware of any reported class action having been brought in a Cayman Islands court. Derivative actions have been brought in the Cayman Islands courts, and the Cayman Islands courts have confirmed the availability of such actions. In most cases, we will be the proper plaintiff in any claim based on a breach of duty owed to us, and a claim against (for example) our directors or officers usually may not be brought by a shareholder. However, based both on Cayman Islands authorities and on English authorities, which would in all likelihood be of persuasive authority and applied by a court in the Cayman Islands, exceptions to the foregoing principle apply in circumstances in which:
| ● | a company is acting, or proposing to act, illegally or beyond the scope of its authority; |
| ● | the act complained of, although not beyond the scope of the authority, could be effected if duly authorized by more than the number of votes that have actually been obtained; or |
| ● | those who control the company are perpetrating a “fraud on the minority.” |
A shareholder may have a direct right of action against us where the individual rights of that shareholder have been infringed or are about to be infringed.
Enforcement of Civil Liabilities. The Cayman Islands has a different body of securities laws as compared to the United States and provides less protection to investors. Additionally, Cayman Islands companies may not have standing to sue before the federal courts of the United States.
We have been advised by Maples and Calder (Cayman) LLP, our Cayman Islands legal counsel, that the courts of the Cayman Islands are unlikely (1) to recognize or enforce against us judgments of courts of the United States predicated upon the civil liability provisions of the federal securities laws of the United States or any state and (2) in original actions brought in the Cayman Islands, to impose liabilities against us predicated upon the civil liability provisions of the federal securities laws of the United States or any state, so far as the liabilities imposed by those provisions are penal in nature.
Although there is no statutory enforcement in the Cayman Islands of judgments obtained in the United States, the courts of the Cayman Islands will recognize and enforce a foreign money judgment of a foreign court of competent jurisdiction without retrial on the merits based on the principle that a judgment of a competent foreign court imposes upon the judgment debtor an obligation to pay the sum for which judgment has been given provided certain conditions are met. For a foreign judgment to be enforced in the Cayman Islands, such judgment must be final and conclusive and for a liquidated sum, and must not be in respect of taxes or a fine or penalty, inconsistent with a Cayman Islands judgment in respect of the same matter, impeachable on the grounds of fraud or obtained in a manner, or be of a kind the enforcement of which is, contrary to natural justice or the public policy of the Cayman Islands (awards of punitive or multiple damages may well be held to be contrary to public policy). A Cayman Islands Court may stay enforcement proceedings if concurrent proceedings are being brought elsewhere.
Subject to the above limitations, in appropriate circumstances, a Cayman Islands court may give effect in the Cayman Islands to other kinds of final foreign judgments such as declaratory orders, orders for performance of contracts and injunctions.
| 78 |
Special Considerations for Exempted Companies. We are an exempted company with limited liability under the Companies Act. The Companies Act distinguishes between ordinary resident companies and exempted companies. Any company that is registered in the Cayman Islands but conducts business mainly outside of the Cayman Islands may apply to be registered as an exempted company. The requirements for an exempted company are essentially the same as for an ordinary company except for the exemptions and privileges listed below:
| ● | an exempted company does not have to file an annual return of its shareholders with the Registrar of Companies; |
| ● | an exempted company’s register of members is not open to inspection; |
| ● | an exempted company does not have to hold an annual general meeting; |
| ● | an exempted company may issue shares with no par value; |
| ● | an exempted company may obtain an undertaking against the imposition of any future taxation (such undertakings are usually given for 30 years in the first instance); |
| ● | an exempted company may register by way of continuation in another jurisdiction and be deregistered in the Cayman Islands; |
| ● | an exempted company may register as a limited duration company; and |
| ● | an exempted company may register as a segregated portfolio company. |
“Limited liability” means that the liability of each shareholder is limited to the amount unpaid by the shareholder on the shares of the company (except in exceptional circumstances, such as involving fraud, the establishment of an agency relationship or an illegal or improper purpose or other circumstances in which a court may be prepared to pierce or life the corporate veil).
Anti-Money Laundering, Counter Terrorist Financing, Prevention of Proliferation Financing and Financial Sanctions Compliance — Cayman Islands
If any person in the Cayman Islands knows or suspects or has reasonable grounds for knowing or suspecting that another person is engaged in criminal conduct or money laundering or is involved with terrorism or terrorist financing and property and the information for that knowledge or suspicion came to their attention in the course of business in the regulated sector, or other trade, profession, business or employment, the person will be required to report such knowledge or suspicion to (1) the Financial Reporting Authority of the Cayman Islands, pursuant to the Proceeds of Crime Act (As Revised) of the Cayman Islands if the disclosure relates to criminal conduct or money laundering or (2) a police officer of the rank of constable or higher, or the Financial Reporting Authority, pursuant to the Terrorism Act (As Revised) of the Cayman Islands, if the disclosure relates to involvement with terrorism or terrorist financing and property. Such a report shall not be treated as a breach of confidence or of any restriction upon the disclosure of information imposed by any enactment or otherwise.
Economic Substance — Cayman Islands
The Cayman Islands, together with several other non-European Union jurisdictions, have introduced legislation aimed at addressing concerns raised by the Council of the European Union and the OECD as to offshore structures engaged in certain activities which attract profits without real economic activity. The International Tax Co-operation (Economic Substance) Act (As Revised) (the “Substance Act”) came into force in the Cayman Islands in January 2019, introducing certain economic substance requirements for in-scope Cayman Islands entities which are engaged in certain geographically mobile business activities (“relevant activities.”) As we are a Cayman Islands exempted company, compliance obligations include filing annual notifications, in which need to state whether we are carrying out any relevant activities and if so, whether we have satisfied economic substance tests to the extent required under the Substance Act. Failure to satisfy applicable requirements may subject us to penalties under the Substance Act.
Data Protection – Cayman Islands
We have certain duties under the Data Protection Act (As Revised) of the Cayman Islands (the “Data Protection Act”) based on internationally accepted principles of data privacy.
Privacy Notice
Introduction
This privacy notice puts our shareholders on notice that through your investment in the Company you will provide us with certain personal information which constitutes personal data within the meaning of the Data Protection Act (“personal data”). In the following discussion, the “company” refers to us and our affiliates and/or delegates, except where the context requires otherwise.
| 79 |
Investor Data
We will collect, use, disclose, retain and secure personal data to the extent reasonably required only and within the parameters that could be reasonably expected during the normal course of business. We will only process, disclose, transfer or retain personal data to the extent legitimately required to conduct our activities of on an ongoing basis or to comply with legal and regulatory obligations to which we are subject. We will only transfer personal data in accordance with the requirements of the Data Protection Act, and will apply appropriate technical and organizational information security measures designed to protect against unauthorized or unlawful processing of the personal data and against the accidental loss, destruction or damage to the personal data.
In our use of this personal data, we will be characterized as a “data controller” for the purposes of the Data Protection Act, while our affiliates and service providers who may receive this personal data from us in the conduct of our activities may either act as our “data processors” for the purposes of the Data Protection Act or may process personal information for their own lawful purposes in connection with services provided to us.
We may also obtain personal data from other public sources. Personal data includes, without limitation, the following information relating to a shareholder and/or any individuals connected with a shareholder as an investor: name, residential address, email address, contact details, corporate contact information, signature, nationality, place of birth, date of birth, tax identification, credit history, correspondence records, passport number, bank account details, source of funds details and details relating to the shareholder’s investment activity.
Who this Affects
If you are a natural person, this will affect you directly. If you are a corporate investor (including, for these purposes, legal arrangements such as trusts or exempted limited partnerships) that provides us with personal data on individuals connected to you for any reason in relation your investment in the company, this will be relevant for those individuals and you should transmit the content of this Privacy Notice to such individuals or otherwise advise them of its content.
How the Company May Use a Shareholder’s Personal Data
The company, as the data controller, may collect, store and use personal data for lawful purposes, including, in particular:
| a) | where this is necessary for the performance of our rights and obligations under any purchase agreements; |
| b) | where this is necessary for compliance with a legal and regulatory obligation to which we are subject (such as compliance with anti-money laundering and FATCA/CRS requirements); and/or |
| c) | where this is necessary for the purposes of our legitimate interests and such interests are not overridden by your interests, fundamental rights or freedoms. |
Should we wish to use personal data for other specific purposes (including, if applicable, any purpose that requires your consent), we will contact you.
Why We May Transfer Your Personal Data
In certain circumstances we may be legally obliged to share personal data and other information with respect to your shareholding with the relevant regulatory authorities such as the Cayman Islands Monetary Authority or the Tax Information Authority. They, in turn, may exchange this information with foreign authorities, including tax authorities.
We anticipate disclosing personal data to persons who provide services to us and their respective affiliates (which may include certain entities located outside the United States, the Cayman Islands or the European Economic Area), who will process your personal data on our behalf.
| 80 |
The Data Protection Measures We Take
Any transfer of personal data by us or our duly authorized affiliates and/or delegates outside of the Cayman Islands shall be in accordance with the requirements of the Data Protection Act.
We and our duly authorized affiliates and/or delegates shall apply appropriate technical and organizational information security measures designed to protect against unauthorized or unlawful processing of personal data, and against accidental loss or destruction of, or damage to, personal data.
We shall notify you of any personal data breach that is reasonably likely to result in a risk to your interests, fundamental rights or freedoms or those data subjects to whom the relevant personal data relates.
Indemnification of Directors and Executive Officers and Limitation of Liability. Cayman Islands law does not limit the extent to which a company’s memorandum and articles of association may provide for indemnification of officers and directors, except to the extent any such provision may be held by the Cayman Islands courts to be contrary to public policy, such as to provide indemnification against civil fraud or the consequences of committing a crime. Our amended and restated memorandum and articles of association permit indemnification of officers and directors for losses, damages, costs and expenses incurred in their capacities as such unless such losses or damages arise from actual fraud, willful default or willful neglect of such directors or officers. This standard of conduct is generally the same as permitted under the Delaware General Corporation Law for a Delaware corporation. In addition, our offer letters to our independent directors and our employment agreements with our executive officers provide such persons with additional indemnification beyond that provided in our amended and restated memorandum and articles of association.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers or persons controlling us under the foregoing provisions, we have been informed that in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
Directors’ Fiduciary Duties. Under Delaware General Corporation Law, a director of a Delaware corporation has a fiduciary duty to the corporation and its shareholders. This duty has two components: the duty of care and the duty of loyalty. The duty of care requires that a director act in good faith, with the care that an ordinarily prudent person would exercise under similar circumstances. Under this duty, a director must inform himself of, and disclose to shareholders, all material information reasonably available regarding a significant transaction. The duty of loyalty requires that a director acts in a manner he reasonably believes to be in the best interests of the corporation. He must not use his corporate position for personal gain or advantage. This duty prohibits self-dealing by a director and mandates that the best interest of the corporation and its shareholders take precedence over any interest possessed by a director, officer or controlling shareholder and not shared by the shareholders generally. In general, actions of a director are presumed to have been made on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the corporation. However, this presumption may be rebutted by evidence of a breach of one of the fiduciary duties. Should such evidence be presented concerning a transaction by a director, the director must prove the procedural fairness of the transaction, and that the transaction was of fair value to the corporation.
As a matter of Cayman Islands law, a director of a Cayman Islands exempted company is in the position of a fiduciary with respect to the company and therefore it is considered that he or she owes the following duties to the company: a duty to act bona fide in the best interests of the company, a duty not to make a profit based on his or her position as director (unless the company permits him or her to do so), and a duty not to put himself or herself in a position where the interests of the company conflict with his or her personal interest or his or her duty to a third party. A director of a Cayman Islands exempted company owes to the company a duty to act with skill and care. It was previously considered that a director need not exhibit in the performance of his or her duties a greater degree of skill than may reasonably be expected from a person of his or her knowledge and experience. However, English and Commonwealth courts have moved towards an objective standard with regard to the required skill and care and these authorities are likely to be followed in the Cayman Islands.
Shareholder Action by Written Consent. Under the Delaware General Corporation Law, a corporation may eliminate the right of shareholders to act by written consent in its certificate of incorporation. Our amended and restated articles of association provide that shareholders may not approve corporate matters by way of a unanimous written resolution signed by or on behalf of each shareholder who would have been entitled to vote on such matter at a general meeting without a meeting being held.
| 81 |
Shareholder Proposals. Under the Delaware General Corporation Law, a shareholder has the right to put any proposal before the annual general meeting, provided it complies with the notice provisions in the governing documents. An extraordinary general meeting may be called by the board of directors or any other person authorized to do so in the governing documents, but shareholders may be precluded from calling special meetings.
Cayman Islands law does not provide shareholders any right to put proposals before a general meeting or requisition a general meeting. However, these rights may be provided in articles of association. Our amended and restated articles of association allow our shareholders holding not less than one-third of all voting power of our share capital in issue to requisition a general meeting. Other than this right to requisition a general meeting, our current articles of association do not provide our shareholders other rights to put a proposal before a meeting. As an exempted Cayman Islands exempted company, we are not obliged by law to call annual general meetings.
Cumulative Voting. Under the Delaware General Corporation Law, cumulative voting for elections of directors is not permitted unless the corporation’s certificate of incorporation specifically provides for it. Cumulative voting potentially facilitates the representation of minority shareholders on a board of directors since it permits the minority shareholder to cast all the votes to which the shareholder is entitled on a single director, which increases the shareholder’s voting power with respect to electing such director. There are no prohibitions in relation to cumulative voting under the laws of the Cayman Islands but our amended and restated articles of association do not provide for cumulative voting. As a result, our shareholders are not afforded any fewer protections or rights on this issue than shareholders of a Delaware corporation.
Removal of Directors. Under the Delaware General Corporation Law, a director of a corporation with a classified board may be removed only for cause with the approval of a majority of the outstanding shares entitled to vote, unless the certificate of incorporation provides otherwise. Under our amended and restated articles of association, directors may be removed with or without cause, by an ordinary resolution as a matter of Cayman Islands law (which requires the affirmative vote of a majority of the shareholders who attend and vote at a general meeting of the company).
Transactions with Interested Shareholders. The Delaware General Corporation Law contains a business combination statute applicable to Delaware corporations whereby, unless the corporation has specifically elected not to be governed by such statute in its certificate of incorporation, it is prohibited from engaging in certain business combinations with an “interested shareholder” for three years following the date that such person becomes an interested shareholder. An interested shareholder generally is a person or a group who or which owns or owned 15% or more of the target’s outstanding voting share within the past three years. This has the effect of limiting the ability of a potential acquirer to make a two-tiered bid for the target in which all shareholders would not be treated equally. The statute does not apply if, among other things, prior to the date on which such shareholder becomes an interested shareholder, the board of directors approves either the business combination or the transaction which resulted in the person becoming an interested shareholder. This encourages any potential acquirer of a Delaware corporation to negotiate the terms of any acquisition transaction with the target’s board of directors.
| 82 |
Cayman Islands law has no comparable statute. As a result, we cannot avail ourselves of the types of protections afforded by the Delaware business combination statute. However, although Cayman Islands law does not regulate transactions between a company and its significant shareholders, it does provide that such transactions must be entered into bona fide in the best interests of the company and not with the effect of constituting a fraud on the minority shareholders.
Dissolution; Winding up. Under the Delaware General Corporation Law, unless the board of directors approves the proposal to dissolve, dissolution must be approved by shareholders holding 100% of the total voting power of the corporation. Only if the dissolution is initiated by the board of directors may it be approved by a simple majority of the corporation’s outstanding shares. Delaware law allows a Delaware corporation to include in its certificate of incorporation a supermajority voting requirement in connection with dissolutions initiated by the board. Under Cayman Islands law, a company may be wound up by either an order of the courts of the Cayman Islands or by a special resolution of its members or, if the company is unable to pay its debts as they fall due, by an ordinary resolution of its members. The court has authority to order winding up in a number of specified circumstances including where it is, in the opinion of the court, just and equitable to do so. Under the Companies Act and our amended and restated articles of association, our company may be wound up, liquidated or dissolved by a special resolution of our shareholders.
Variation of Rights of Shares. Under the Delaware General Corporation Law, a corporation may vary the rights of a class of shares with the approval of a majority of the outstanding shares of such class, unless the certificate of incorporation provides otherwise. Under Cayman Islands law and our amended and restated articles of association, if our share capital is divided into more than one class of shares, we may vary the rights attached to any class with the written consent of the holders of three-fourths of the issued shares of that class or with the sanction of a special resolution passed at a general meeting of the holders of the shares of that class.
Amendment of Governing Documents. Under the Delaware General Corporation Law, a corporation’s governing documents may be amended with the approval of a majority of the outstanding shares entitled to vote, unless the certificate of incorporation provides otherwise. As permitted by Cayman Islands law, our amended and restated memorandum and articles of association may only be amended with a special resolution of our shareholders.
Rights of Non-resident or Foreign Shareholders. There are no limitations imposed by our post-offering amended and restated memorandum and articles of association on the rights of non-resident or foreign shareholders to hold or exercise voting rights on our shares. In addition, there are no provisions in our amended and restated memorandum and articles of association governing the ownership threshold above which shareholder ownership must be disclosed.
10.C. Material Contracts
We have not entered into any material contracts other than in the ordinary course of business and other than those described in “Item 4. Information on the Company,” “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions,” this “Item 10. Additional Information—C. Material Contracts,” or filed (or incorporated by reference) as exhibits to or otherwise described or referenced in, this annual report on Form 20-F.
| 83 |
10.D. Exchange Controls
Cayman Islands
There are currently no exchange control regulations in the Cayman Islands applicable to us or our shareholders.
The PRC
China regulates foreign currency exchanges primarily through the following rules and regulations:
| ● | Foreign Currency Administration Rules of 1996, as amended on January 14,1997 and August 5, 2008; and |
| ● | Administrative Rules of the Settlement, Sale and Payment of Foreign Exchange of 1996. |
As we disclosed in the risk factors above, Renminbi is not a freely convertible currency at present. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—Governmental control of currency conversion may affect the value of your investment.” Under the current PRC regulations, conversion of Renminbi is permitted in China for routine current-account foreign exchange transactions, including trade- and service-related foreign exchange transactions, payment of dividends and service of foreign debts. Conversion of Renminbi for most capital-account items, such as direct investments, investments in the PRC securities markets and repatriation of investments, however, is still subject to the approval of SAFE.
Pursuant to the above-mentioned administrative rules, foreign-invested enterprises may buy, sell and/or remit foreign currencies for current account transactions at banks in China with authority to conduct foreign exchange business by complying with certain procedural requirements, such as presentment of valid commercial documents. For capital-account transactions involving foreign direct investment, foreign debts and outbound investment in securities and derivatives, approval from SAFE is a pre-condition. Capital investments by foreign-invested enterprises outside China are subject to limitations and requirements in China, such as prior approvals from the PRC Ministry of Commerce or SAFE.
10.E. Taxation
The following discussion of material Cayman Islands, PRC and United States federal income tax consequences for U.S. holders of an investment in our ordinary shares is based upon laws and relevant interpretations thereof in effect as of the date of this report, all of which are subject to change. This discussion does not deal with all possible tax consequences relating to an investment in our ordinary shares, such as the tax consequences under state, local and other tax laws. Investors should consult their own tax advisors with respect to the tax consequences of the acquisition, ownership and disposition of our ordinary shares.
Cayman Islands Taxation
The following is a discussion on certain Cayman Islands income tax consequences of an investment in the Shares. The discussion is a general summary of the present law, which is subject to prospective and retroactive change. It is not intended as tax advice, does not consider any investor’s particular circumstances, and does not consider tax consequences other than those arising under Cayman Islands law.
| 84 |
Under Existing Cayman Islands Laws:
Payments of dividends and capital in respect of the Shares will not be subject to taxation in the Cayman Islands and no withholding will be required on the payment of interest and principal or a dividend or capital to any holder of the Shares, as the case may be, nor will gains derived from the disposal of the Shares be subject to Cayman Islands income or corporate tax. The Cayman Islands currently has no income, corporate or capital gains tax and no estate duty, inheritance tax or gift tax.
No stamp duty is payable in respect of the issue of the Shares or on an instrument of transfer in respect of a Share.
We have been incorporated under the laws of the Cayman Islands as an exempted company with limited liability and, as such, has applied for and received an undertaking from the Financial Secretary of the Cayman Islands in the following form:
The Tax Concessions Act
(As Revised)
Undertaking as to Tax Concessions
In accordance with Section 6 of the Tax Concessions Act (As Revised) the Financial Secretary undertakes with Skillful Craftsman Education Technology Limited (Cayman Islands).
| (a) | that no Law which is hereafter enacted in the Islands imposing any tax to be levied on profits, income, gains or appreciations shall apply to us or our operations; and |
| (b) | in addition, that no tax to be levied on profits, income, gains or appreciations or which is in the nature of estate duty or inheritance tax shall be payable: |
| (i) | on or in respect of the shares, debentures or other obligations of our company; or |
| (ii) | by way of the withholding in whole or part, of any relevant payment as defined in Section 6(3) of the Tax Concessions Act (As Revised). |
These concessions shall be for a period of 20 years from the date of the undertaking.
People’s Republic of China Taxation
Enterprise Income Tax and Value Added Tax
Under the Enterprise Income Tax Law of the PRC, or the EIT Law, and its implementation rules, an enterprise established outside the PRC with a “de facto management body” within the PRC is considered a PRC resident enterprise for PRC enterprise income tax purposes and is generally subject to a uniform 25% enterprise income tax rate on its worldwide income as well as tax reporting obligations. Under the Implementation Rules to the EIT Law, a “de facto management body” is defined as a body that has material and overall management and control over the manufacturing and business operations, personnel and human resources, finances and properties of an enterprise.
The WOFE are companies incorporated under PRC law and, as such, are subject to PRC enterprise income tax on their taxable income in accordance with the relevant PRC income tax laws. Pursuant to the EIT Law, which became effective on January 1, 2008 and was amended on February 24, 2017 and December 29, 2018, a uniform 25% enterprise income tax rate is generally applicable to both foreign-invested enterprises and domestic enterprises, except where a special preferential rate applies. The enterprise income tax is calculated based on the entity’s global income as determined under PRC tax laws and accounting standards. The WOFE are subject to VAT at a rate of 6% on the services we provide, VAT at a rate of 3% on the online training services we provide, VAT at a rate of 13% on the goods we sell, less any deductible VAT our PRC entities have already paid or borne. Our PRC entities are also subject to surcharges on VAT payments in accordance with PRC law.
| 85 |
In addition, State Administration of Taxation (“SAT”) Circular 82 issued on April 22, 2009 specifies that certain offshore-incorporated enterprises controlled by PRC enterprises or PRC enterprise groups will be classified as PRC resident enterprises if all of the following conditions are met: (a) senior management personnel and core management departments in charge of the daily operations of the enterprises have their presence mainly in the PRC; (b) their financial and human resources decisions are subject to determination or approval by persons or bodies in the PRC; (c) major assets, accounting books and company seals of the enterprises, and minutes and files of their board’s and shareholders’ meetings are located or kept in the PRC; and (d) half or more of the enterprises’ directors or senior management personnel with voting rights habitually reside in the PRC. Further to SAT Circular 82, the SAT issued Announcement of the State Administration of Taxation on Printing and Distributing the Administrative Measures for Income Tax on Chinese-controlled Resident Enterprises Incorporated Overseas (Trial Implementation) (the “SAT Bulletin 45”) on July 27, 2011, which took effect on September 1, 2011, to provide more guidance on the implementation of SAT Circular 82. SAT Bulletin 45 provides for procedures and administration details of determination on PRC resident enterprise status and administration on post-determination matters. If the PRC tax authorities determine that Skillful Craftsman Education Technology Limited (Cayman Islands) is a PRC resident enterprise for PRC enterprise income tax purposes, a number of unfavorable PRC tax consequences could follow. For example, Skillful Craftsman Education Technology Limited (Cayman Islands) may be subject to enterprise income tax at a rate of 25% with respect to its worldwide taxable income. Also, a 10% withholding tax would be imposed on dividends we pay to our non-PRC enterprise shareholders and with respect to gains derived by our non-PRC enterprise shareholders from transferring our shares or ordinary shares and potentially a 20% of withholding tax would be imposed on dividends we pay to our non-PRC individual shareholders and with respect to gains derived by our non-PRC individual shareholders from transferring our shares or ordinary shares.
We believe that Skillful Craftsman Education Technology Limited is not a PRC resident enterprise for PRC tax purposes. It is not controlled by a PRC enterprise or PRC enterprise group and we do not believe that Skillful Craftsman Education Technology Limited meets all of the conditions above. Skillful Craftsman Education Technology Limited is a company incorporated outside China. As a holding company, its key assets are its ownership interests in its subsidiaries, and its key assets are located, and its records (including the resolutions of its board of directors and the resolutions of its shareholders) are maintained, outside China. In addition, we are not aware of any offshore holding companies with a similar corporate structure as ours ever having been deemed a PRC “resident enterprise” by the PRC tax authorities. However, the tax resident status of an enterprise is subject to determination by the PRC tax authorities and uncertainties remain with respect to the interpretation of the term “de facto management body.” There can be no assurance that the PRC government will ultimately take a view that is consistent with ours. It is unclear whether, if we are considered a PRC resident enterprise, holders of our shares or ordinary shares would be able to claim the benefit of income tax treaties or agreements entered into between China and other countries or areas.
Tax on Transferring Equity Interests
The SAT and the Ministry of Finance issued the Notice of Ministry of Finance and State Administration of Taxation on Several Issues relating to Treatment of Corporate Income Tax Pertaining to Restructured Business Operations of Enterprises (the “SAT Circular 59”) in April 2009, which became effective on January 1, 2008. On October 17, 2017, the SAT issued the Announcement of the State Administration of Matters Concerning Withholding of Income Tax of Non-resident Enterprises as Source, which became effective on December 1, 2017 and was amended on June 15, 2018 (the “SAT Bulletin 37”). Pursuant to SAT Bulletin 37, the income from property transfer, as stipulated in the second item under Article 19 of the Law on Enterprise Income Tax, shall include the income derived from transferring such equity investment assets as stock equity. The balance of deducting the equity’s net value from the total income from equity transfer shall be taxable income from equity transfer. Where a withholding agent enters into a business contract, involving the income specified in the third paragraph of Article 3 in the Law on Enterprise Income Tax, with a non-resident enterprise, the tax-excluding income of the non-resident enterprise will be treated as the tax-including income, based on which the tax payment will be calculated and remitted, if it is agreed in the contract that the withholding agent shall assume the tax payable. By promulgating and implementing the SAT Circular 59 and the SAT Bulletin 37, the PRC tax authorities have enhanced their scrutiny over the direct or indirect transfer of equity interests in a PRC resident enterprise by a non-PRC resident enterprise.
Tax Deduction Based on Tax Treaty between Mainland China and Hong Kong
Pursuant to the Arrangement between the Mainland China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and Tax Evasion on Income, or the Tax Arrangement, where a Hong Kong resident enterprise which is considered a non-PRC tax resident enterprise directly holds at least 25% of a PRC enterprise, the withholding tax rate in respect of the payment of dividends by such PRC enterprise to such Hong Kong resident enterprise is reduced to 5% from a standard rate of 10%, subject to approval of the PRC local tax authority.
| 86 |
Pursuant to the Circular of the State Administration of Taxation on the Issues concerning the Application of the Dividend Clauses of Tax Agreements (“Circular 81”) which was promulgated and took effect on February 20, 2009, a resident enterprise of the counter-party to such Tax Arrangement should meet the following conditions, among others, in order to enjoy the reduced withholding tax under the Tax Arrangement: (i) it must directly own the required percentage of equity interests and voting rights in such PRC resident enterprise; and (ii) it should directly own such percentage in the PRC resident enterprise anytime in the 12 months prior to receiving the dividends. Furthermore, the Administrative Measures for Non-Resident Enterprises to Enjoy Treatments under Tax Treaties (For Trial Implementation), or the Administrative Measures, which became effective in October 2009, requires that the non-resident enterprises must obtain the approval from the relevant tax authority in order to enjoy the reduced withholding tax rate under the tax treaties. There are also other conditions to qualify for such a reduced withholding tax rate according to other relevant tax rules and regulations. Accordingly, Hong Kong ES may be able to enjoy the 5% withholding tax rate for the dividends it receives from the WOFE, if it satisfies the conditions prescribed under Circular 81 and other relevant tax rules and regulations, and obtains the approvals as required under the Administrative Measures. However, according to Circular 81, if the relevant tax authorities consider the transactions or arrangements we have are for the primary purpose of enjoying a favorable tax treatment, the relevant tax authorities may adjust the favorable withholding tax in the future.
Urban Maintenance and Construction Tax
According to Urban Maintenance and Construction Tax Law of the PRC issued by the Standing Committee of the National People’s Congress on August 11, 2020, the rates of urban maintenance and construction tax shall be as follows: 7% for a taxpayer in a city, 5% for a taxpayer in a county town or town, 1% for a taxpayer living in a place other than a city, county-level town or town. The rate of urban maintenance and construction tax for each of Wuxi Wangdao, Craftsman Wuxi and Jisen Information is 7%, which is calculated based on the actually-paid amount of value-added tax, business tax and consumption tax.
Education Surcharge Tax
According to Provisional Regulations on the Collection of Education Surcharges (Amended in 2011) by the State Council on January 8, 2011, Computation and collection of education surcharges are based on the amount of value-added tax, business tax and consumption tax actually paid by entities and individuals. The rate of education surcharges is 3%, which shall be paid together with value-added tax, business tax or consumption tax respectively. The rate of education surcharge tax for each of Wuxi Wangdao, Craftsman Wuxi Jisen Information is 3%.
As per The Notice on relevant Issues on the unification of local education surcharge tax policy issued on November 7, 2010, the rate of local education surcharge tax of Wuxi Wangdao is 2% and the rate of local education surcharge tax of Craftsman Wuxi is 2%.
Material United States Federal Income Tax Considerations for U.S. Holders
The following is a discussion of the material United States federal income tax considerations relating to the acquisition, ownership, and disposition of our ordinary shares by a U.S. Holder, as defined below, that acquires our ordinary shares and holds our ordinary shares as “capital assets” (generally, property held for investment) under the United States Internal Revenue Code of 1986, as amended (the “Code”). U.S. tax consequences to non-U.S. holders are not discussed here. This discussion is based upon existing United States federal income tax law, which is subject to differing interpretations or change, possibly with retroactive effect. No ruling has been sought from the Internal Revenue Service (the “IRS”) with respect to any United States federal income tax consequences described below, and there can be no assurance that the IRS or a court will not take a contrary position. This discussion does not address all aspects of United States federal income taxation that may be important to particular investors in light of their individual circumstances, including investors subject to special tax rules (such as, for example, certain financial institutions, insurance companies, regulated investment companies, real estate investment trusts, broker-dealers, traders in securities that elect mark-to-market treatment, partnerships and their partners, tax-exempt organizations (including private foundations)), investors who are not U.S. Holders, investors that own (directly, indirectly, or constructively) 10% or more of our voting stock, investors that hold their ordinary shares as part of a straddle, hedge, conversion, constructive sale or other integrated transaction), or investors that have a functional currency other than the U.S. dollar, all of whom may be subject to tax rules that differ significantly from those summarized below. In addition, this discussion does not address any tax laws other than the United States federal income tax laws, including any state, local, alternative minimum tax or non-United States tax considerations, or the Medicare tax / net investment income tax. Each potential investor is urged to consult its tax advisor regarding the United States federal, state, local and non-United States income and other tax considerations of an investment in our ordinary shares.
General
For purposes of this discussion, a “U.S. Holder” is a beneficial owner of our ordinary shares that is, for United States federal income tax purposes, (i) an individual who is a citizen or treated as a tax resident of the United States, (ii) a corporation (or other entity treated as a corporation for United States federal income tax purposes) created in, or organized under the laws of, the United States or any state thereof or the District of Columbia, (iii) an estate the income of which is includible in gross income for United States federal income tax purposes regardless of its source, or (iv) a trust (A) the administration of which is subject to the primary supervision of a United States court and which has one or more United States persons who have the authority to control all substantial decisions of the trust or (B) that has otherwise elected to be treated as a United States person under the Code.
If a partnership (or other entity treated as a partnership for United States federal income tax purposes) is a beneficial owner of our ordinary shares, the tax treatment of a partner in the partnership will depend upon the status of the partner and the activities of the partnership. Partnerships and partners of a partnership holding our ordinary shares are urged to consult their tax advisors regarding an investment in our ordinary shares.
The discussion set forth below is addressed only to U.S. Holders that purchase ordinary shares. Prospective purchasers are urged to consult their own tax advisors about the application of the U.S. federal income tax rules to their particular circumstances as well as the state, local, foreign and other tax consequences to them of the purchase, ownership and disposition of our ordinary shares.
| 87 |
Taxation of Dividends and Other Distributions on our Ordinary Shares
Subject to the passive foreign investment company rules discussed below, the gross amount of distributions made by us to you with respect to the ordinary shares (including the amount of any taxes withheld therefrom) will generally be includable in your gross income as dividend income on the date of receipt by you, but only to the extent that the distribution is paid out of our current or accumulated earnings and profits (as determined under U.S. federal income tax principles). With respect to corporate U.S. Holders, the dividends will not be eligible for the dividends-received deduction allowed to corporations in respect of dividends received from other U.S. corporations.
With respect to non-corporate U.S. Holders, including individual U.S. Holders, dividends will be taxed at the lower capital gains rate applicable to qualified dividend income, provided that (1) the ordinary shares are readily tradable on an established securities market in the United States, or we are eligible for the benefits of a qualifying income tax treaty with the United States that includes an exchange of information program, (2) we are not a passive foreign investment company (as discussed below) for either our taxable year in which the dividend is paid or the preceding taxable year, and (3) certain holding period requirements are met. Because there is no income tax treaty between the United States and the Cayman Islands, clause (1) above can be satisfied only if the ordinary shares are readily tradable on an established securities market in the United States. Under applicable U.S. Internal Revenue Service authority, ordinary shares are considered readily tradeable for purposes of clause (1) above if they are listed on an established securities market in the United States, which presently includes the Nasdaq. You are urged to consult your tax advisors regarding the availability of the lower rate for dividends paid with respect to our ordinary shares, including the effects of any change in law, regulation or interpretation after the date of this report.
To the extent that the amount of the distribution exceeds our current and accumulated earnings and profits (as determined under U.S. federal income tax principles), such excess generally will be treated first as a tax-free return of your tax basis in your ordinary shares, and to the extent the amount of the distribution exceeds your tax basis, the excess will be taxed as capital gain. We do not intend to calculate our current or accumulated earnings and profits under U.S. federal income tax principles. Therefore, a U.S. Holder should expect that a distribution will be treated as a dividend even if that distribution would otherwise be treated as a non-taxable return of capital or as capital gain under the rules described above.
Taxation of Dispositions of Ordinary Shares
Subject to the passive foreign investment company rules discussed below, you will recognize taxable gain or loss on any sale, exchange or other taxable disposition of a share equal to the difference between the amount realized (in U.S. dollars) for the share and your tax basis (in U.S. dollars) in the ordinary shares. The gain or loss will be capital gain or loss. If you are a non-corporate U.S. Holder, including an individual U.S. Holder, who has held the ordinary shares for more than one year, you may be eligible for reduced tax rates on any such capital gains. The deductibility of capital losses is subject to limitations.
Passive Foreign Investment Company (“PFIC”)
A non-U.S. corporation is considered a PFIC for any taxable year if either:
| ● | at least 75% of its gross income for such taxable year is passive income; or | |
| ● | at least 50% of the value of its assets (based on an average of the quarterly values of the assets during a taxable year) is attributable to assets that produce or are held for the production of passive income (the “asset test”). |
Passive income generally includes dividends, interest, rents and royalties (other than rents or royalties derived from the active conduct of a trade or business) and gains from the disposition of passive assets. We will be treated as owning our proportionate share of the assets and earning our proportionate share of the income of any other corporation in which we own, directly or indirectly, at least 25% (by value) of the stock. In determining the value and composition of our assets for purposes of the PFIC asset test, (1) the cash we hold will generally be considered to be held for the production of passive income and (2) the value of our assets must be determined based on the market value of our ordinary shares from time to time, which could cause the value of our non-passive assets to be less than 50% of the value of all of our assets (including the cash raised in any offering) on any particular quarterly testing date for purposes of the asset test.
| 88 |
We must make a separate determination each year as to whether we are a PFIC. Depending on the amount of cash we hold, together with any other assets held for the production of passive income, it is possible that, for our current taxable year or for any subsequent taxable year, at least 50% of our assets may be assets held for the production of passive income. We will make this determination following the end of any particular tax year, and no assurance can be given regarding our PFIC status for any taxable year. In particular, because the value of our assets for purposes of the asset test will generally be determined based on the market price of our ordinary shares and because cash is generally considered to be an asset held for the production of passive income, our PFIC status will depend in large part on the market price of our ordinary shares and the amount of cash we hold. Accordingly, fluctuations in the market price of the ordinary shares may cause us to become a PFIC. In addition, the application of the PFIC rules is subject to uncertainty in several respects. We are under no obligation to take steps to reduce the risk of our being classified as a PFIC, and as stated above, the determination of the value of our assets will depend upon material facts (including the market price of our ordinary shares from time to time that may not be within our control). If we are a PFIC for any year during which you hold ordinary shares, the shares will continue to be treated as stock in a PFIC for all succeeding years during which you hold ordinary shares. However, if we cease to be a PFIC and you did not previously make a timely “mark-to-market” election as described below, you may avoid some of the adverse effects of the PFIC regime by making a “purging election” (as described below) with respect to the ordinary shares. Prospective investors should assume that PFIC status is uncertain and consult their own tax advisors regarding the PFIC rules and the consequences to them if we are or become a PFIC.
If we are a PFIC for your taxable year(s) during which you hold ordinary shares, you will be subject to special tax rules with respect to any “excess distribution” that you receive and any gain you realize from a sale or other disposition (including a pledge) of the ordinary shares, unless you make a “mark-to-market” election as discussed below. Distributions you receive in a taxable year that are greater than 125% of the average annual distributions you received during the shorter of the three preceding taxable years or your holding period for the ordinary shares will be treated as an excess distribution. Under these special tax rules:
| ● | the excess distribution or gain will be allocated ratably over your holding period for the ordinary shares; | |
| ● | the amount allocated to your current taxable year, and any amount allocated to any of your taxable year(s) prior to the first taxable year in which we were a PFIC, will be treated as ordinary income, and | |
| ● | the amount allocated to each of your other taxable year(s) will be subject to the highest tax rate in effect for that year and the interest charge generally applicable to underpayments of tax will be imposed on the resulting tax attributable to each such year. |
The tax liability for amounts allocated to years prior to the year of disposition or “excess distribution” cannot be offset by any net operating losses for such years, and gains (but not losses) realized on the sale of the ordinary shares cannot be treated as capital, even if you hold the ordinary shares as capital assets.
A U.S. Holder of “marketable stock” (as defined below) in a PFIC may make a mark-to-market election for such stock to elect out of the tax treatment discussed above. If you make a mark-to-market election for first taxable year which you hold (or are deemed to hold) ordinary shares and for which we are determined to be a PFIC, you will include in your income each year an amount equal to the excess, if any, of the fair market value of the ordinary shares as of the close of such taxable year over your adjusted basis in such ordinary shares, which excess will be treated as ordinary income and not capital gain. You are allowed an ordinary loss for the excess, if any, of the adjusted basis of the ordinary shares over their fair market value as of the close of the taxable year. However, such ordinary loss is allowable only to the extent of any net mark-to-market gains on the ordinary shares included in your income for prior taxable years. Amounts included in your income under a mark-to-market election, as well as gain on the actual sale or other disposition of the ordinary shares, are treated as ordinary income. Ordinary loss treatment also applies to any loss realized on the actual sale or disposition of the ordinary shares, to the extent that the amount of such loss does not exceed the net mark-to-market gains previously included for such ordinary shares. Your basis in the ordinary shares will be adjusted to reflect any such income or loss amounts. If you make a valid mark-to-market election, the tax rules that apply to distributions by corporations which are not PFICs would apply to distributions by us, except that the lower applicable capital gains rate for qualified dividend income discussed above under “— Taxation of Dividends and Other Distributions on our ordinary shares” generally would not apply.
The mark-to-market election is available only for “marketable stock”, which is stock that is traded in other than de minimis quantities on at least 15 days during each calendar quarter (“regularly traded”) on a qualified exchange or other market (as defined in applicable U.S. Treasury regulations), including Nasdaq. If the ordinary shares are regularly traded on Nasdaq and if you are a holder of ordinary shares, the mark-to-market election would be available to you were we to be or become a PFIC.
Alternatively, a U.S. Holder of stock in a PFIC may make a “qualified electing fund” election with respect to such PFIC to elect out of the tax treatment discussed above. A U.S. Holder who makes a valid qualified electing fund election with respect to a PFIC will generally include in gross income for a taxable year such holder’s pro rata share of the corporation’s earnings and profits for the taxable year. However, the qualified electing fund election is available only if such PFIC provides such U.S. Holder with certain information regarding its earnings and profits as required under applicable U.S. Treasury regulations.
| 89 |
We do not currently intend to prepare or provide the information that would enable you to make a qualified electing fund election. If you hold ordinary shares in any taxable year in which we are a PFIC, you will be required to file U.S. Internal Revenue Service Form 8621 in each such year and provide certain annual information regarding such ordinary shares, including regarding distributions received on the ordinary shares and any gain realized on the disposition of the ordinary shares.
If you do not make a timely “mark-to-market” election (as described above), and if we were a PFIC at any time during the period you hold our ordinary shares, then such ordinary shares will continue to be treated as stock of a PFIC with respect to you even if we cease to be a PFIC in a future year, unless you make a “purging election” for the year we cease to be a PFIC. A “purging election” creates a deemed sale of such ordinary shares at their fair market value on the last day of the last year in which we are treated as a PFIC. The gain recognized by the purging election will be subject to the special tax and interest charge rules treating the gain as an excess distribution, as described above. As a result of the purging election, you will have a new basis (equal to the fair market value of the ordinary shares on the last day of the last year in which we are treated as a PFIC) and holding period (which new holding period will begin the day after such last day) in your ordinary shares for tax purposes.
You are urged to consult your tax advisors regarding the application of the PFIC rules to your investment in our ordinary shares and the elections discussed above.
Information Reporting and Backup Withholding
Payments of dividends and sales proceeds that are made within the United States or through certain U.S.-related intermediaries may be subject to information reporting and backup withholding, unless (i) the U.S. Holder is a corporation or other “exempt recipient” or (ii) in the case of backup withholding, the U.S. Holder provides a correct taxpayer identification number and certifies that it is not subject to backup withholding. Backup withholding is not an additional tax. The amount of any backup withholding from a payment to a U.S. Holder will be allowed as a credit against the U.S. Holder’s U.S. federal income tax liability and may entitle it to a refund, provided that the required information is timely furnished to the IRS.
Information with respect to foreign financial assets
Certain U.S. Holders who are individuals (and, under proposed regulations, certain entities) may be required to report information relating to an interest in our ordinary shares, subject to certain exceptions (including an exception for ordinary shares held in accounts maintained by certain U.S. financial institutions). U.S. Holders should consult their tax advisors regarding the effect, if any, of this legislation on their ownership and disposition of our ordinary shares.
10.F. Dividends and Paying Agents
Not applicable.
10.G. Statement by Experts
Not applicable.
10.H. Documents on Display
The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended, and will file reports, registration statements and other information with the SEC. The Company’s reports, registration statements and other information can be inspected on the SEC’s website at www.sec.gov. You may also visit us on the website at www.edtk.ai. However, information contained on the website does not constitute a part of this annual report.
10.I. Subsidiary Information
Not applicable.
| Item 11. | Quantitative and Qualitative Disclosures about Market Risk |
Foreign Exchange Risk
Our functional currency is RMB, and our financial statements are presented in U.S. dollars. The average exchange rate for U.S. dollars against RMB has changed from US$1.00 for RMB7.2308 in the year ended March 31, 2024, US$1.00 for RMB7.1782 in the year ended March 31, 2025 and US$1.00 for RMB6.9194 in the year ended March 31, 2026. The change in the value of RMB relative to the U.S. dollar may affect our financial results reported in the U.S . dollar terms without giving effect to any underlying change in the business or results of operation.
| 90 |
Currently, our assets, liabilities, revenue and costs are denominated in RMB, our exposure to foreign exchange risk will primarily relate to those financial assets denominated in U.S. dollars. Any significant revaluation of RMB against U.S. dollar may materially affect our earnings and financial position, and the value of, and any dividends payable on, our ordinary shares in U.S. dollars in the future.
Credit Risk
As March 31, 2026, we had cash of $0.24 million. Our cash is held at financial institutions in the PRC and the United States. While U.S. federal-chartered depository institutions are statutorily required to maintain FDIC deposit-insurance subject to coverage limits, certain limited-exception U.S. institutions are not subject to mandatory deposit-insurance requirements. Under the Deposit Insurance Ordinance (State Council Decree No. 660) of the PRC, banking institutions authorized to accept deposits are mandatorily required to join China’s deposit-insurance system, with statutory maximum payout limits and certain prescribed deposit exclusions.
Accounts receivable are typically unsecured and derived from revenue earned from customers, thereby exposed to credit risk. The risk is mitigated by the Company’s assessment of its customers’ creditworthiness and its ongoing monitoring of outstanding balances.
Inflation Risk
Inflationary factors such as increases in the cost of product and overhead costs may adversely affect our operating results. Although we do not believe that inflation has had a material effect on our financial position or results of operations to date, a high rate of inflation in the future may have an adverse effect on the ability to maintain current levels of gross profit and selling, general and administrative expenses as a percentage of net sales if the selling prices of the services do not increase with these increased costs.
| Item 12. | Description of Securities other than Equity Securities |
12.A. Debt Securities
Not applicable.
12.B. Warrants and Rights
Not applicable.
12.C. Other Securities
Not applicable.
12.D. American Depositary Shares
Not applicable.
| 91 |
PART II
| Item 13. | Defaults, Dividend Arrearages and Delinquencies |
Not applicable.
| Item 14. | Material Modifications to the Rights of Security Holders and Use of Proceeds |
See “Item 10. Additional Information—B. Memorandum and Articles of Association—Ordinary Shares” for a description of the rights of securities holders, which remain unchanged.
Use of Proceeds
Not applicable.
| Item 15. | Controls and Procedures |
Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our principal executive officer and our principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended. Our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this annual report. This conclusion was based on the material weakness in our internal control over financial reporting further described below.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such item is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, for our company. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements in accordance with U.S. GAAP and includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of a company’s assets, (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with generally accepted accounting principles, and that a company’s receipts and expenditures are being made only in accordance with authorizations of a company’s management and directors, and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of a company’s assets that could have a material effect on the consolidated financial statements.
| 92 |
Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our financial statements would be prevented or detected. Also, projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management has conducted an assessment, including testing of the design and the effectiveness of our internal control over financial reporting as of March 31, 2026. In making its assessment, management used the criteria in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework (2013).
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected and corrected on a timely basis.
In connection with the preparation of our consolidated financial statements included in this annual report, following material weaknesses have been identified in our internal control over financial reporting:
1. lacked sufficient financial reporting and accounting personnel with appropriate knowledge of U.S. GAAP and SEC reporting requirements to properly address complex U.S. GAAP technical accounting issues and to prepare and review financial statements and related disclosures in accordance with U.S. GAAP and the reporting requirements set forth by the SEC.
2. lacked a formal risk assessment process and internal control framework over financial reporting necessary to identify, assess, and manage risks of material misstatement in its financial statements.
Following the identification of the material weaknesses, we have taken measures and plan to continue to take measures to remedy the material weakness. See “Remediation Initiatives” below. However, the implementation of these measures may not fully address the material weaknesses in our internal control over financial reporting, and we cannot conclude that they have been fully remediated. Our failure to remediate the material weaknesses or our failure to discover and address any other material weaknesses could result in inaccuracies in our consolidated financial statements and impair our ability to comply with applicable financial reporting requirements and related regulatory filings on a timely basis. Moreover, ineffective internal control over financial reporting could significantly hinder our ability to prevent fraud.
Based on this assessment, management concluded that our internal controls over financial reporting were not effective as of March 31, 2026 due to the material weakness related to management’s application of disclosure requirements for SEC reporting and documentation of our financial statement reporting process.
Attestation Report of Independent Registered Public Accounting Firm
We are a non-accelerated filer under the rules of the Securities and Exchange Commission. Accordingly, we are not required to include in this annual report an attestation report of our independent registered public accounting firm.
Changes in Internal Control over Financial Reporting
There were no changes in our internal controls over financial reporting during our fiscal year ended March 31, 2026 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Remediation Initiatives
For the fiscal year ended March 31, 2026, we continued to implement our preliminary remediation plan which was prepared to address the underlying causes of the material weakness described above. The preliminary remediation plan includes:
● hiring additional accounting and financial reporting personnel with U.S. GAAP and SEC reporting experience;
● expanding the capabilities of existing accounting and financial reporting personnel through continuous training and education in the accounting and reporting requirements under U.S. GAAP, and SEC rules and regulations;
● engaging external advisors and consultants with GAAP and SEC reporting expertise to supplement our internal accounting resources and to assist in the review of complex accounting matters and the preparation of financial statements and related disclosures.
● developing, communicating and implementing an accounting policy manual for our accounting and financial reporting personnel for recurring transactions and period-end closing processes; and
● establishing effective monitoring and oversight controls for non-recurring and complex transactions to ensure the accuracy and completeness of our company’s consolidated financial statements and related disclosures.
| 93 |
Our management, including our Chief Executive Officer and Acting Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent or detect 100% of all errors and fraud that may occur. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected.
| Item 16A. | Audit Committee Financial Expert |
Our audit committee consists of Qin Zhang, Shaowei Zhang and Huiqing Ye. Our board of directors has determined that Qin Zhang, Shaowei Zhang and Huiqing Ye are “independent directors” within the meaning of NASDAQ Stock Market Rule 5605(a)(2) and meet the criteria for independence set forth in Rule 10A-3(b) of the Exchange Act. Ms. Qin Zhang meets the criteria of an audit committee financial expert as set forth under the applicable rules of the SEC.
| Item 16B. | Code of Ethics |
Our board of directors has adopted a code of ethics that applies to all of our executive officers, directors and employees in accordance with the rules of the NASDAQ and the SEC. The purpose of the code is to promote ethical conduct and deter wrongdoing. The policies outlined in the Code are designed to ensure that our directors, executive officers and employees act in accordance with not only the laws but also the spirit of the laws and regulations that apply to the business. We expect our directors, executive officers and employees to exercise good judgment, to uphold these standards in their day-to-day activities, and to comply with all applicable policies and procedures in the course of their relationship with the company. Any amendment to or waivers of the Code for members of our board of directors and our executive officers that are required to be disclosed by the rules of the SEC or NASDAQ will be disclosed on the website at www.edtk.ai within four business days following the amendment or waiver. During fiscal year ended March 31, 2026, no amendments to or waivers from the Code were made or given for any of our executive officers.
We have filed our code of business conduct and ethics as Exhibit 99.5 of our registration statement on Form F-1 (File Number: 333-237815), as amended, initially filed with the SEC on April 24, 2020.
| Item 16C. | Principal Accountant Fees and Services |
The following table sets forth the aggregate fees by categories specified below in connection with certain professional services rendered by Guangdong Prouden CPAs GP, our independent registered public accounting firm, for the year ended March 31, 2026 and by HTL International, LLC, our former independent registered public accounting firm, for the years ended March 31, 2025.
| Year Ended March 31, | ||||||||
| 2026 | 2025 | |||||||
| US$ | US$ | |||||||
| Audit fees* | 150,302 | 260,500 | ||||||
| * | Audit Fees - This category includes the audit of our annual financial statements, review of financial statements included in our six months report and services that are normally provided by the independent registered public accounting firm in connection with engagements for those years and services that are normally provided by our independent registered public accounting firm in connection with statutory audits and Securities and Exchange Commission regulatory filings or engagements. |
The policy of our audit committee and our board of directors is to pre-approve all audit and non-audit services provided by our principal auditors, including audit services, audit-related services, and other services as described above, other than those for de minimis services which are approved by the audit committee or our board of directors prior to the completion of the services.
All services rendered by TPS Thayer, LLC prior to December 19, 2024, and as of and after December 19, 2024, by HTL International, LLC to the Company are permissible under any applicable laws and regulations. During fiscal year ended March 31, 2024, all services performed by TPS Thayer, LLC were approved in advance by the Audit Committee. During fiscal year ended March 31, 2025 and as of June 22, 2026, all services performed by HTL International, LLC were approved in advance by the Audit Committee. For the fiscal year ended March 31, 2026, all services performed by Guangdong Prouden CPAs GP were approved in advance by the Audit Committee.
| 94 |
| Item 16D. | Exemptions from the Listing Standards for Audit Committees |
Not applicable.
| Item 16E. | Purchases of Equity Securities by the Issuer and Affiliated Purchasers |
None.
| Item 16F. | Change in Registrant’s Certifying Accountant |
On December 19, 2024, the Audit Committee (the “Audit Committee”) of Board of Directors of the Company approved the dismissal of TPS Thayer, LLC (“Thayer”) as the Company’s independent registered public accounting firm and engaged of HTL International, LLC (“HTL”) on December 30, 2024 to serve as the independent registered public accounting firm of the Company.
The audit report of TPS Thayer, LLC on the consolidated financial statements of the Company for the fiscal year ended March 31, 2024 did not contain an adverse opinion or disclaimer of opinion, and was not qualified or modified as to uncertainty, audit scope or accounting principles.
During the two fiscal years ended March 31, 2024 and through the subsequent interim period through December 18, 2024, there were (i) no disagreements, as defined in Item 16F(a)(1)(iv) of Form 20-F and the related instructions thereto, between the Company and TPS Thayer, LLC on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which, if not resolved to TPS Thayer, LLC’s satisfaction, would have caused TPS Thayer, LLC to make reference thereto in its report on the financial statements for such year, and (ii) no “reportable events” (as defined set forth in Item 16F(a)(1)(v) of Form 20-F), other than the material weaknesses reported by management in Item 15 of the Company’s Form 20-F filed with the U.S. Securities and Exchange Commission (the “Commission”) on August 19, 2024.
During the two fiscal years ended March 31, 2024 and through the subsequent interim period to December 18, 2024, neither the Company nor anyone on its behalf consulted HTL International, LLC with respect to either (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company’s consolidated financial statements, and neither a written report nor oral advice was provided to the Company by HTL International, LLC that was an important factor considered by the Company in reaching a decision as to any accounting, auditing or financial reporting issue; or (ii) any matter that was either the subject of a disagreement with TPS Thayer, LLC (as that term is used in Item 16F (a)(1)(iv) of Form 20-F and the related instructions to Item 16F) or a reportable event (as described in Item 16F (a)(1)(v) of Form 20-F).
On June 22, 2026, Skillful Craftsman Education Technology Limited (the “Company”) received a resignation letter from HTL International, LLC (“HTL International”) to resign as the Company’s independent registered public accounting firm, effectively immediately. Consequently, HTL International will not complete the audit or issue an audit report on the Company’s financial statements for the fiscal year ended March 31, 2026.
The audit report of HTL International on the consolidated financial statements of the Company for the fiscal year ended March 31, 2025 did not contain an adverse opinion or disclaimer of opinion, and was not qualified or modified as to uncertainty, audit scope or accounting principles.
During the fiscal year ended March 31, 2025 and through the subsequent interim period through June 21, 2026, there were (i) no disagreements, as defined in Item 16F(a)(1)(iv) of Form 20-F and the related instructions thereto, between the Company and HTL International on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which, if not resolved to HTL International’s satisfaction, would have caused HTL International to make reference thereto in its report on the financial statements for such year, and (ii) no “reportable events” (as defined set forth in Item 16F(a)(1)(v) of Form 20-F), other than the material weaknesses reported by management in Item 15 of the Company’s Form 20-F filed with the U.S. Securities and Exchange Commission (the “Commission”) on August 8, 2025.
On June 25, 2026, the Audit Committee (the “Audit Committee”) of Board of Directors of the Company approved the engagement of Guangdong Prouden CPAs GP (“Prouden CPAs”) to serve as the independent registered public accounting firm of the Company.
During the two fiscal years ended March 31, 2026 and through the subsequent interim period to June 25, 2026, neither the Company nor anyone on its behalf consulted Prouden CPAs with respect to either (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company’s consolidated financial statements, and neither a written report nor oral advice was provided to the Company by Prouden CPAs that was an important factor considered by the Company in reaching a decision as to any accounting, auditing or financial reporting issue; or (ii) any matter that was either the subject of a disagreement (as that term is used in Item 16F (a)(1)(iv) of Form 20-F and the related instructions to Item 16F) or a reportable event (as described in Item 16F (a)(1)(v) of Form 20-F).
| 95 |
| Item 16G. | Corporate Governance |
Our ordinary shares are listed on the Nasdaq Capital Market, or Nasdaq. As such, we are subject to corporate governance requirements imposed by Nasdaq. Under Nasdaq rules, foreign private issuers such as ourselves may, in general, follow their home country corporate governance practices in lieu of some of the Nasdaq corporate governance requirements. Certain corporate governance practices in the Cayman Islands, which is our home country, may differ significantly from the Nasdaq Stock Market Rules. See “Item 3. Key Information—D. Risk Factors— Risks Related to Our Ordinary Shares—You may face difficulties in protecting your interests, and your ability to protect your rights through U.S. courts may be limited, because we are incorporated under Cayman Islands law.”
The Company follows its home country practice in lieu of the provisions under Rule 5620(a), Rule 5635(a), Rule 5635(c) and Rule 5635(d) of the NASDAQ Stock Market Marketplace Rules (the “Rules”) by relying on the exemption provided for foreign private issuers under Marketplace Rule 5615(a)(3). Rule 5620(a) requires that the Company to hold an annual general meeting no later than one year after the end of the Company’s fiscal year-end; Rule 5635(a) of the Rules requires shareholder approval for the issuance of securities in connection with the acquisition of the stock or assets of another company; Rule 5635(c) of the Rules requires shareholder approval prior to the issuance of securities when a stock option or purchase plan is to be established or materially amended or other equity compensation arrangement made or materially amended, pursuant to which stock may be acquired by officers, directors, employees; and Rule 5635(d) of the Rules requires shareholder approval prior to an issuance of securities, other than in a public offering, equal to 20% or more of the voting power outstanding at a price less than the lower of: (i) the Nasdaq Official Closing Price (as reflected on Nasdaq.com) immediately preceding the signing of the binding agreement; or (ii) the average Nasdaq Official Closing Price of the common stock (as reflected on Nasdaq.com) for the five trading days immediately preceding the signing of the binding agreement. The corporate governance practice in our home country, the Cayman Islands, does not require the Company to follow or comply with the requirements of Rule 5620(a), Rule 5635(a), Rule 5635(c) and Rule 5635(d). We will comply with other corporate governance requirements of the Nasdaq Listing Rules. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Ordinary Shares—As an exempted company incorporated in the Cayman Islands, we are permitted to adopt certain home country practices in relation to corporate governance matters that differ significantly from Nasdaq corporate governance listing standards. These practices may afford less protection to shareholders than they would enjoy if we complied fully with Nasdaq corporate governance listing standards.” Other than the home country practice described above, we are not aware of any significant differences between our corporate governance practices and those followed by U.S. domestic companies under Nasdaq Rules.
Furthermore, we are also permitted to rely on exemptions afforded to controlled companies. We are a “controlled company” as defined under the Nasdaq Stock Market Rules because Mr. Xuejun Ji, beneficially owns 666,667 Series B Preference Shares and is able to exercise over 50% of our total voting power. For so long as we remain a controlled company under that definition, we are permitted to elect to rely, and may rely, on certain exemptions from corporate governance rules. If we choose to rely on these exemptions in the future, our shareholders may not be afforded the same protection that they would otherwise enjoy under these exempted Nasdaq corporate governance rules.
See “Item 3. Key Information — D. Risk Factors— Risks Related to Our Ordinary Shares—”We are a “controlled company” within the meaning of the NASDAQ Stock Market Rules and, as a result, may rely on exemptions from certain corporate governance requirements that provide protection to shareholders of other companies”.
| Item 16H. | Mine Safety Disclosure |
Not applicable.
| Item 16I. | Disclosure Regarding Foreign Jurisdictions that Prevent Inspections |
Not applicable.
| Item 16J. | Insider Trading Policies |
The
Company has
| Item 16K. | Cybersecurity |
To
maintain a consistently high level of service experience for our clients, preserve the confidentiality, integrity, and availability of
our information systems, safeguard our assets, data, intellectual property, and network infrastructure, while meeting regulatory requirements,
it is crucial to effectively manage cybersecurity risks. To achieve this,
| 96 |
Our dedicated cybersecurity staff is tasked with assessing, identifying and managing risks related to cybersecurity threats and, under the leadership of our head of cybersecurity, is responsible for:
● risk assessments designed to help identify material cybersecurity risks to our critical systems, information, products, services, and our broader enterprise IT environment;
● development of risk-based action plans to manage identified vulnerabilities and implementation of new protocols and infrastructure improvements;
● cybersecurity incident investigations;
● monitoring threats to sensitive data and unauthorized access to our systems;
● secure access control measures applied to critical IT systems, equipment and devices, designed to prevent unauthorized users, processes, and devices from assessing IT systems and data;
● developing and executing protocols to ensure that information regarding cybersecurity incidents is promptly shared with the board of directors, as appropriate, to allow for risk and materiality assessments and to consider disclosure and notice requirements; and
● developing and implementing training on cybersecurity, information security and threat awareness.
There were no cybersecurity incidents during the year ended March 31, 2025, that resulted in an interruption to our operations, known losses of any critical data or otherwise had a material impact on our strategy, financial condition or results of operations. However, the scope and impact of any future incident cannot be predicted. See “Item 3D—Risk Factors” for more information on how material cybersecurity attacks may impact our business.
Our board of directors acknowledges the significance of robust cybersecurity management programs and actively participates in overseeing and reviewing our cybersecurity risk profile and exposures.
The board of directors receives reports on cybersecurity risks, including recent legislative developments and evolving standards on cybersecurity, key issues, priorities and challenges in our cybersecurity management, and relevant data or metrics. The board of directors also receives prompt and timely information regarding any significant cybersecurity incidents, as well as ongoing updates regarding any such incidents. Furthermore, in the event of any significant updates or adjustments to our cybersecurity related policies, the head of cybersecurity will present them to the board of directors for their review and approval.
Our head of cybersecurity leads the overall assessment, identification and management of risks related to cybersecurity threats. He works collaboratively within our Group and receives regular briefings on cybersecurity matters, such as report on cybersecurity incidents and responses and remedial measures. Our head of cybersecurity has more than 10 years of relevant experience in risk management, cybersecurity and information technology.
| 97 |
PART III
| Item 17. | Financial Statements |
Not applicable.
| Item 18. | Financial Statements |
The consolidated financial statements and related notes required by this item are included at the end of this annual report.
| Item 19. | Exhibits |
| 98 |
| 99 |
| * | Filed as an exhibit hereto. |
| ** | Furnished herewith. |
| 100 |
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
| SKILLFUL CRAFTSMAN EDUCATION TECHNOLOGY LIMITED | ||
| /s/ Bin Fu | ||
| Name: | Bin Fu | |
| Title: | Chairman of Board of Directors and Chief Executive Officer | |
| Date: August 12, 2026 | ||
| 101 |
SKILLFUL CRAFTSMAN EDUCATION TECHNOLOGY LIMITED
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| Consolidated Financial Statements | |
| Report of Independent Registered Public Accounting Firm (Guangdong Prouden CPAs GP, PCAOB ID:
|
F-2 |
| Report of Independent Registered Public Accounting Firm (HTL International, LLC, PCAOB ID: |
F-3 |
| Report of Independent Registered Public Accounting Firm (TPS Thayer, LLC,
PCAOB ID: |
F-4 |
| Consolidated Balance Sheets as of March 31, 2026 and 2025 | F-5 |
| Consolidated Statements of Operations and Comprehensive Loss for the years ended March 31, 2026, 2025 and 2024 | F-6 |
| Consolidated Statements of Changes in Shareholders’ Equity for the years ended March 31, 2026, 2025 and 2024 | F-7 |
| Consolidated Statements of Cash Flows for the years ended March 31, 2026, 2025 and 2024 | F-8 |
| Notes to the Consolidated Financial Statements | F-9-F-32 |
| F-1 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of
Skillful Craftsman Education Technology Limited
Opinion on the Financial Statements
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
Critical Audit Matters
Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.
/s/
Guangdong Prouden CPAs GP
We have served as the Company’s auditor since 2026.
August 12, 2026
| F-2 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Skillful Craftsman Education Technology Limited
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Skillful Craftsman Education Technology Limited and its subsidiaries (collectively, the “Company”) as of March 31, 2025, and the related consolidated statements of operations and comprehensive income, changes in shareholders’ equity, and cash flow for the year ended March 31, 2025, including the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of March 31, 2025 and the results of its operations and its cash flow for the year ended March 31, 2025, in conformity with accounting principles generally accepted in the United States of America.
Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered recurring significant losses, and has an accumulated deficiency in shareholders’ equity and negative working capital. In addition, the Company continues to experience negative cash flows from operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to this matter are also discussed in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provide a reasonable basis for our opinion.
Retrospective Reclassification
We have also audited the reclassifications that were applied to retrospectively present the consolidated balance sheet as of March 31, 2024, and the consolidated statements of operations and comprehensive income, and cash flows for the years ended March 31, 2024 and 2023, to reflect the discontinued operation. In our opinion, such reclassifications are appropriate and have been properly applied. We were not engaged to audit, review, or apply any procedures to the Company’s consolidated financial statements as of and for the years ended March 31, 2024 and 2023, other than with respect to these reclassifications. Accordingly, we do not express an opinion or any other form of assurance on the consolidated financial statements for those years, taken as a whole.
| /s/
| |
| We have served as the Company’s auditor since 2024. | |
| August 8, 2025 | |
| F-3 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
Skillful Craftsman Education Technology Limited
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Skillful Craftsman Education Technology Limited (“the Company”), as of March 31, 2024 and 2023, and the related consolidated statements of operations and comprehensive income, changes in shareholders’ equity and cash flows for each of the three years in the period ended March 31, 2024, and the related notes (collectively referred to as the “financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of March 31, 2024 and 2023, and the consolidated results of its operations and its cash flows for each of the three years in the period ended March 31, 2024, in conformity with U.S generally accepted accounting principles.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatements of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provided a reasonable basis for our opinion.
/s/
We have served as the Company’s auditor since 2020
August 16, 2024
| F-4 |
SKILLFUL CRAFTSMAN EDUCATION TECHNOLOGY LIMITED
CONSOLIDATED BALANCE SHEETS
| As of March 31, | ||||||||
| 2026 | 2025 | |||||||
ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Prepayments and other current assets | ||||||||
| Other receivables | ||||||||
| Amounts due from a related party, current | ||||||||
| Total current assets | ||||||||
| Non-current assets | ||||||||
| Long-term investment, net | ||||||||
| Property and equipment, net | ||||||||
| Operating Right-of-use asset, net | ||||||||
| Amounts due from a related party, non-current | ||||||||
| Total non-current assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES | ||||||||
| Current liabilities | ||||||||
| Taxes payable | $ | $ | ||||||
| Amounts due to related parties | ||||||||
| Accrued expenses | ||||||||
| Operating Lease Liability-current | ||||||||
| Promissory note to related parties | ||||||||
| Total current liabilities | ||||||||
| Non-current liabilities | ||||||||
| Total non-current liabilities | ||||||||
| TOTAL LIABILITIES | $ | $ | ||||||
| COMMITMENTS AND CONTIGENCIES | ||||||||
| SHAREHOLDERS’ EQUITY: | ||||||||
| Ordinary shares, par value $ per share, shares authorized; and shares issued and outstanding as of March 31, 2026 and March 31, 2025, respectively | ||||||||
| Preference shares, par value $ per share, shares authorized; and shares issued and outstanding as of March 31, 2026 and March 31, 2025, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Statutory reserve | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive income | ||||||||
| TOTAL SHAREHOLDERS’ EQUITY | ||||||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-5 |
SKILLFUL CRAFTSMAN EDUCATION TECHNOLOGY LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
| For the Year Ended March 31, | ||||||||||||
| 2026 | 2025 | 2024 | ||||||||||
| Revenue | $ | $ | $ | |||||||||
| Cost of revenue | ( | ) | ( | ) | ( | ) | ||||||
| Gross profit/(loss) | ( | ) | ||||||||||
| Operating expenses: | ||||||||||||
| Selling and marketing expenses | ( | ) | ||||||||||
| General and administrative expenses | ( | ) | ( | ) | ( | ) | ||||||
| Research and development | ( | ) | ||||||||||
| Total operating expenses | ( | ) | ( | ) | ( | ) | ||||||
| Total loss from operations | ( | ) | ( | ) | ( | ) | ||||||
| Interest income | ||||||||||||
| Interest expense | ( | ) | ( | ) | ||||||||
| Investment income / (loss) | ( | ) | ( | ) | ||||||||
| Foreign currency exchange loss | ( | ) | ( | ) | ||||||||
| Investment impairment loss | ( | ) | ( | ) | ( | ) | ||||||
| Credit loss impairment | ( | ) | ||||||||||
| Other income (expenses), net | ( | ) | ||||||||||
| Loss before income taxes from continuing operations | ( | ) | ( | ) | ( | ) | ||||||
| Income tax (expense)/credit | ( | ) | ||||||||||
| Net loss from continuing operations | $ | ( | ) | $ | ( | ) | ( | ) | ||||
| (Loss)/profit from discontinued operations, net of taxes | ( | ) | ||||||||||
| Loss on disposal of discontinued operations, net of taxes | ( | ) | ||||||||||
| Net (loss)/profit from discontinued operations | ( | ) | ||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ||||||
| Other comprehensive income/(loss): | ||||||||||||
| Foreign currency translation adjustment | ( | ) | ||||||||||
| Total comprehensive loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Net loss per ordinary share, basic and diluted | ||||||||||||
| From continuing operation | $ | ) | $ | ) | ) | |||||||
| From discontinued operation | $ | $ | ) | |||||||||
| Weighted average number of shares, basic and diluted | ||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-6 |
SKILLFUL CRAFTSMAN EDUCATION TECHNOLOGY LIMITED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
| Ordinary Shares | Series A Preference Shares | Additional paid- | Statutory | Retained earnings/(accumulated | Accumulated other comprehensive (loss)/ | |||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | in cap | reserve | deficit) | income | Total | ||||||||||||||||||||||||||||
| Balance as of March 31, 2023 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||||
| Net loss for the year | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Mandatory conversion of convertible note | — | ( | ) | |||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Balance as of March 31, 2024 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||||
| Net loss for the year | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Shares issued to management | — | |||||||||||||||||||||||||||||||||||
| Appropriation to statutory reserve | — | — | ( | ) | ||||||||||||||||||||||||||||||||
| Disposal of VIE | — | — | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | ||||||||||||||||||||||||||||||||||
| Balance as of March 31, 2025 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||||||||||||||
| Net loss for the year | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | ||||||||||||||||||||||||||||||||||
| as of March 31, 2026 | ( | ) | ||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-7 |
SKILLFUL CRAFTSMAN EDUCATION TECHNOLOGY LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
| For the Year Ended March 31, | ||||||||||||
| 2026 | 2025 | 2024 | ||||||||||
| Cash Flows from Operating Activities | ||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ( | ) | ||||
| Less: net loss from discontinued operations | ( | ) | ||||||||||
| Net loss from continuing operations | ( | ) | ( | ) | ( | ) | ||||||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||
| Depreciation of property and equipment | ||||||||||||
| Amortization of intangible assets | ||||||||||||
| Amortization of operating right-of-use assets | ||||||||||||
| Loss from long-term investment | ||||||||||||
| Interest income from loans to a related party | ( | ) | ||||||||||
| Impairment loss related to long-term investment | ||||||||||||
| Impairment loss related to intangible asset | ||||||||||||
| Credit loss impairment related to amounts due from a related party | ||||||||||||
| Impairment loss related to goodwill | ||||||||||||
| Allowance for credit losses on accounts receivable | ||||||||||||
| Shares issued as consideration for employee compensation | ||||||||||||
| Changes in operating assets and liabilities: | ||||||||||||
| Accounts receivables | ||||||||||||
| Prepayments and other current assets | ( | ) | ( | ) | ||||||||
| Amounts due from related parties, non-current | ( | ) | ||||||||||
| Other receivables | ||||||||||||
| Amounts due from a related party | ( | ) | ||||||||||
| Interest payable | ||||||||||||
| Amounts due to a related party | ( | ) | ||||||||||
| Accrued expenses | ( | ) | ||||||||||
| Taxes payable | ( | ) | ( | ) | ||||||||
| Operating lease liability | ( | ) | ( | ) | ( | ) | ||||||
| Deferred tax liabilities | ( | ) | ||||||||||
| Net cash used in operating activities – continuing operations | ( | ) | ( | ) | ( | ) | ||||||
| Net cash used in operating activities – discontinued operations | ( | ) | ( | ) | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ( | ) | ||||||
| Cash flows from investing activities | ||||||||||||
| Net cash provided by investing activities – discontinued operations | ||||||||||||
| Net cash generated from investing activities | $ | $ | $ | |||||||||
| Cash flows from financing activities | ||||||||||||
| Proceeds from bond issued | ||||||||||||
| Proceeds from due to a related party | ||||||||||||
| Repayment to related parties | ( | ) | ||||||||||
| Net cash provided by financing activities – Continued operations | ||||||||||||
| Net cash generated from financing activities | $ | $ | $ | |||||||||
| Effects of foreign currency translation | ( | ) | ( | ) | ||||||||
| Effects of foreign currency translation – Continuing operations | ( | ) | ||||||||||
| Effects of foreign currency translation – Discontinued operations | ( | ) | ||||||||||
| Net decrease in cash | ( | ) | ( | ) | ( | ) | ||||||
| Net (decrease) / increase in cash and cash equivalents – Continuing operations | ( | ) | ( | ) | ||||||||
| Net decrease in cash and cash equivalents – Discontinued operations | ( | ) | ( | ) | ||||||||
| Cash and cash equivalents at beginning of year – continuing operations | ||||||||||||
| Cash and cash equivalents at beginning of year – discontinued operations | ||||||||||||
| Cash at beginning of period | ||||||||||||
| Cash and cash equivalents at end of the period including discontinued operations | ||||||||||||
| Less: Cash and cash equivalents at end of the period – discontinued operations | ||||||||||||
| Cash and cash equivalents at end of year – continuing operations | $ | $ | $ | |||||||||
| Supplemental disclosures of cash flow information | ||||||||||||
| Cash paid for income taxes | $ | $ | ||||||||||
| Non-cash transactions | ||||||||||||
| Mandatory conversion of convertible note | ||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-8 |
SKILLFUL CRAFTSMAN EDUCATION TECHNOLOGY LIMITED.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 1. | Organization and basis of financial statements |
Skillful Craftsman Education Technology Limited (“the Company” or “the Group”) is an exempted company incorporated under the laws of Cayman Islands on June 14, 2019. The Group operates its business primarily through its subsidiaries established in the PRC. The Group is currently engaged in the provision of AI algorithm consulting and AI-powered communication learning services. The Company’s shareholders approved the full termination of all VIE contractual arrangements at an extraordinary general meeting. All termination and equity pledge release agreements were formally executed and became effective on March 17, 2025. Upon termination, all equity pledges held by the WOFE over the VIE’s shares were fully released, and the Group lost all contractual control rights over Wuxi Kingway Technology Co., Ltd. (“Wuxi Kingway”)’s business, assets and cash flows. The VIE was fully deconsolidated under ASC 810, with its previously recorded restricted net assets excluded from current period computation.
Details of the Company’s consolidated subsidiaries were as follows:
| Percentage | ||||||||||||||
| of direct or | ||||||||||||||
| indirect | ||||||||||||||
| ownership | ||||||||||||||
| Date of | Place of | by the | Principal | |||||||||||
| Name of Entity | incorporation | incorporation | Company | activities | ||||||||||
| Subsidiaries: | Direct | |||||||||||||
| Easy Skills Technology Limited (“Hong Kong ES”) | % | |||||||||||||
| Skillful Craftsman Network Technology (Wuxi) Co., Ltd. (“WOFE” or “Craftsman Wuxi”) | % | |||||||||||||
| Shenzhen Jisen Information Tech Limited (“Jisen Information”) | % | |||||||||||||
| Giga Learning Inc (“GIGA”) | % | |||||||||||||
| F-9 |
SKILLFUL CRAFTSMAN EDUCATION TECHNOLOGY LIMITED.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 2. | Summary of Significant Accounting Policies |
| a) | Basis of presentation |
The accompanying consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), and with the rules and regulations of the United States Securities and Exchange Commission (the “SEC”).
| b) | Principles of consolidation |
The consolidated financial statements include the financial statements of the Company, and its subsidiaries. All significant inter-company transactions and balances between the Company and its subsidiaries have been eliminated upon consolidation.
| c) | Use of estimates |
In preparing the consolidated financial statements in conformity with US GAAP, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates are based on information as of the date of the consolidated financial statements. Significant estimates required to be made by management include, but are not limited to, the allowance of credit losses of accounts receivable, current and non-current amounts due from related parties, prepayments and other receivables, valuation of share-based compensation and valuation of long-term investments, valuation allowance for deferred tax assets, useful lives of property and equipment and intangible assets, the recoverability of long-lived assets, and discount rates applied in measuring right-of-use assets and lease liabilities.
| d) | Cash |
Cash
includes cash on hand, bank accounts, interest bearing savings accounts. The Group maintains most of the bank accounts in the PRC. As
of March 31, 2026 and 2025, the Group’s bank deposits were held in financial institutions located in the PRC. Bank deposits held
in the PRC are insured by the Deposit Insurance Scheme administered by the People’s Bank of China, which provides coverage up to
RMB
| e) | Accounts receivable, net |
Accounts receivable represent revenue recognized for the amounts due from customers for revenue recognized when the Group has satisfied its performance obligation and recognized revenue. These receivables are uncollateralized, which include amounts earned less payments received and allowances for expected credit losses. Management continually monitors and adjusts its allowances associated with the Group’s receivables to address any credit risks associated with the accounts receivable, and periodically writes off receivables when collection is not considered probable. The Group does not charge interest on past due accounts. When uncertainty exists as to the collection of receivables, the Group records an allowance for expected credit losses and a corresponding charge to expected credit losses expense.
f) Expected credit losses
Commencing April 1, 2023, the Group adopted ASC326, Financial Instruments-Credit Losses (“ASC326”), using modified-retrospective transition approach. ASC 326 requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their expected credit loss estimates. Pursuant to ASC 326, an allowance for expected credit losses for financial assets is carried at amortized cost to present the net amount expected to be collected as of the balance sheet date.
Such allowance is based on expected credit losses expected to arise over the life of the financial asset’s contractual term, which includes consideration of accounts receivable, prepayments and other current assets, current and non-current amounts due from related parties, other receivables, etc. Assets are written off when the Group determines that such financial assets are deemed uncollectible and are recognized as a deduction from the allowance for expected credit losses. Expected recoveries of amounts previously written off, not to exceed the aggregate of the amount previously written off, are included in determining the necessary reserve at the balance sheet date.
Following
the adoption of this guidance, no cumulative-effect adjustment in accumulated deficit was recognized as of April 1, 2023. The
adoption of ASC 326 did not have an impact on the Group’s financial statements. The Group pools financial assets based on
similar risk characteristics to estimate expected credit losses. The Group estimates expected credit losses on financial assets
individually when those assets do not share similar risk characteristics. The Group has adopted an aging schedule and individual
method to calculate expected credit loss and considered the relevant factors of the historical and future conditions of the Group to
make reasonable estimation of the loss rate. The Group’s allowance for credit losses was $
| F-10 |
SKILLFUL CRAFTSMAN EDUCATION TECHNOLOGY LIMITED.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| g) | Long-term investment |
Long-term investments represent the Group’s investment in privately held company. The Group applies the equity method of accounting to account for an equity investment, in common stock or in-substance common stock, according to ASC Topic 323, Investment—Equity Method and Joint Ventures (“ASC 323”), over which it has significant influence but does not own a majority equity interest or otherwise control. Under the equity method, the Group’s share of the post-acquisition profits or losses of the equity investees are recorded in share of results of equity investees in the consolidated statements of operations and comprehensive income/(loss) and its share of post-acquisition movements of accumulated other comprehensive income/(loss) are recorded in accumulated other comprehensive income/(loss) as a component of shareholders’ equity. The Group records its share of the results of equity investments on one quarter in arrears basis. When the Group’s share of losses in the equity investee equals or exceeds its interest in the equity investee, the Group does not recognize further losses, unless the Group has incurred obligations or made payments or guarantees on behalf of the equity investee, or the Group holds other investments in the equity investee.
When the Group loses significant influence over an investee while retaining its equity interest, equity method accounting is discontinued prospectively as of the date significant influence is lost, with no restatement of prior period financial statements. The total carrying amount of the investment under the equity method, including the Group’s cumulative share of the investee’s profit or loss, dividends received, historical impairment charges and related accumulated other comprehensive income, serves as the initial cost basis of the financial asset reclassified under ASC Topic 321, Investments—Equity Securities. No gain or loss is recognized upon the reclassification. Indicators of the loss of significant influence include the forfeiture of contractual rights to appoint board directors, together with the absence of other indicators of significant influence such as material recurring intercompany transactions, exclusive technical dependency and voting agreements.
These privately held equity securities do not have readily determinable fair values, and the Group elects the measurement alternative practical expedient under ASC Topic 321, Investment—Equity Securities (“ASC 321”) for subsequent measurement. The Group applies the measurement alternative to equity securities without readily determinable fair values. Under this alternative, the investments are measured at cost, less impairment, if any, adjusted for observable price changes resulting from orderly transactions for identical or similar investments of the same issuer, with all resulting adjustments recorded in net income; the updated fair value becomes the new cost basis for subsequent measurement. For investments denominated in Renminbi, the exchange rate as of the reclassification date is retained as the baseline conversion rate; the exchange rate is only updated upon impairment recognition or fair value remeasurement, and all resulting foreign exchange fluctuations are recorded in net income.
| h) | Property and equipment, net |
Property and equipment are recorded at cost including the cost of improvements and stated at cost less accumulated depreciation. Maintenance and repairs are charged to expense as incurred. Depreciation and amortization are provided on the straight-line method based on the estimated useful lives of the assets as follows:
| Server hardware | ||||
| Vehicles |
Expenditures for maintenance and repairs, which do not materially extend the useful lives of the assets, are charged to expense as incurred. Expenditures for major renewals and betterment which substantially extend the useful life of assets are capitalized. The cost and related accumulated depreciation of assets retired or sold are removed from the respective accounts, and any gain or loss is recognized in the consolidated statements of operations and comprehensive income in other income or expenses.
Direct costs that are related to the construction of property and equipment and incurred in connection with bringing the assets to their intended use are capitalized as construction in progress. Construction in progress is transferred to specific property and equipment, and the depreciation of these assets commences when the assets are ready for their intended use.
| F-11 |
SKILLFUL CRAFTSMAN EDUCATION TECHNOLOGY LIMITED.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| i) | Lease |
Leases are classified at lease commencement date as either a finance lease or an operating lease. A lease is a finance lease if it meets any of the following criteria: (a) the lease transfers ownership of the underlying asset to the lessee by the end of the lease term. (b) the lease grants the lessee an option to purchase the underlying asset that the lessee is reasonably certain to exercise, (c) the lease term is for the major part of the remaining economic life of the underlying asset, (d) the present value of the sum of the lease payments and any residual value guaranteed by the lessee that is not already reflected in the lease payments equals or exceeds substantially all of the fair value of the underlying asset or (e) the underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term. When none of the foregoing criteria is met, the lease shall be classified as an operating lease.
For a lessee, an operating lease is recognized as a right-of-use asset with a corresponding liability at lease commencement date. The lease liability is calculated at the present value of the lease payments not yet paid by using the lease term and discount rate determined at lease commencement. The right-of-use asset is calculated as the lease liability, increased by any initial direct costs and prepaid lease payments, reduced by any lease incentives received before lease commencement. The right-of-use asset itself is amortized on systematic method reflects how the underlying asset will be used by and benefits the lessee over the lease term.
The Company estimates its incremental borrowing rate for its leases at the commencement date to determine the present value of future lease payments when the implicit rate is not readily determinable in the lease. In estimating its incremental borrowing rate, the Company considers its credit rating and publicly available data of borrowing rates for loans of similar amount, currency and term as the lease.
| j) | Impairment of long-lived assets |
The Group evaluates its long-lived assets with finite lives for impairment in accordance with ASC 360-10 whenever events or changes in circumstances (such as a significant adverse change to market conditions that will impact the future use of the assets) indicate that the carrying amount of an asset may not be fully recoverable. When these events occur, the Group evaluates the impairment by comparing carrying amount of the assets to an estimate of future undiscounted cash flows expected to be generated from the use of the assets and their eventual disposition. If the sum of the expected future undiscounted cash flows is less than the carrying amount of the assets, the Group recognizes an impairment loss based on the excess of the carrying amount of the long-lived assets over their fair value.
| F-12 |
SKILLFUL CRAFTSMAN EDUCATION TECHNOLOGY LIMITED.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| k) | Fair value of financial instruments |
ASC 825-10 requires certain disclosures regarding the fair value of financial instruments. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A three-level fair value hierarchy prioritizes the inputs used to measure fair value. The hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:
| ● | Level 1 - Quoted prices in active markets for identical assets and liabilities. |
| ● | Level 2 - Quoted prices in active markets for similar assets and liabilities, or other inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. |
| ● | Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs. |
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., an exit price) in an orderly transaction between market participants in the principal or most advantageous market as of the measurement date.
The carrying amounts of the Group’s short-term financial instruments — including cash, other receivables, amounts due from related parties, prepaid expenses and other current assets, accounts payable, amounts due to related parties, related party promissory notes, and other current liabilities — approximate their respective fair values due to their short-term maturities. The carrying amounts of the Group’s long-term interest-bearing receivables approximate their respective fair values as the interest rates applied are commensurate with current market rates for similar instruments.
In addition, the Group’s long-term investment measured under ASC321 was impaired on March 31, 2026 to the fair value determined based on the amount attributable to contractual sale prices set forth in a fully executed purchase and sale agreements. Accordingly, the fair value measurement of the investment is classified within Level 2 of the fair value hierarchy.
| l) | Revenue recognition |
The Group has adopted Accounting Standards Codification Topic 606, “Revenue from Contracts with Customers” (“ASC 606”) effective as of April 1, 2018. Under ASC 606, the Group recognizes revenue when a customer obtains control of promised goods, in an amount that reflects the consideration which the Group expects to receive in exchange for the goods. To determine revenue recognition for arrangements within the scope of ASC 606, the Group performs the following five steps: (1) identify the contracts with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when or as the entity satisfies a performance obligation. The Group applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods it transfers to the customer.
Historically, the Company’s revenue was principally derived from technology services, including software development and comprehensive cloud services provided to private companies, academic institutions and government agencies, which were recognized over time throughout the service period. Also, the Company generated revenue from software system sales for the purpose of intelligent office operation, resource scheduling and management for private companies in PRC, which were recognized upon the time the customer signs the acceptance note. Prior to the termination of the VIE structure on March 17, 2025, the Company also generated revenue from online VIP and SVIP membership education services through an online education platform operated by Wuxi Kingway. Such membership education services were recognized over time throughout the membership period. Upon the termination of the VIE structure, the Company ceased providing the online VIP and SVIP membership education services.
During the fiscal year ended March 31, 2026, the Company provided AI API integration and communication technical services via its proprietary CSL intelligent communication system. Because customers do not have the contractual right to take possession of the software, nor can they host the software independently or through a third-party vendor, the arrangement is accounted for as a service contract rather than a software license. The services generally have a contract term of 12 months and are accounted for as a single performance obligation satisfied over time because the customer simultaneously receives and consumes the benefits of the services as they are provided. Revenue is recognized on a straight-line basis over the service term, which faithfully depicts the pattern of transfer of the services to customers. The transaction price generally consists of fixed monthly service fees. The Company does not provide material refunds, rebates, credits, or other forms of variable consideration. However, the contracts include service-level remedies for qualifying system downtime. Any resulting service fee abatements are considered variable consideration. Based on the Company’s historical experience, such abatements have been nil or immaterial, and the Company does not expect their inclusion in the transaction price to result in a significant revenue reversal. Accordingly, no material reduction to the fixed monthly service fee is estimated at contract inception. At each month-end, management reviews system records and customer communications for qualifying downtime and adjusts revenue for any applicable abatement or service-period extension. No material abatements or service-period extensions were identified for the year ended March 31, 2026. The contracts do not contain a significant financing component because the period between payment and the transfer of services is one year or less. The Company acts as principal because it controls the services before they are transferred to customers and therefore recognizes revenue on a gross basis.
| F-13 |
SKILLFUL CRAFTSMAN EDUCATION TECHNOLOGY LIMITED.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Contract balances
When either party to a revenue contract has performed, the Group presents the contract in the consolidated balance sheets as a contract asset or a contract liability, depending on the relationship between the Group’s performance and the customer’s payment. Accounts receivable represents revenues recognized for the amounts when the Group has satisfied its performance obligation and has unconditional right to the payment. A contract asset is recorded when the Group transfers a good or service to the customer before being unconditionally entitled to the consideration payment. The contract liabilities consist of advances from customers, which represent the cash received for services in advance of revenue recognition and is recognized as revenue when the Group fulfills its performance obligation.
Other
than accounts receivable, no contract assets were recorded on consolidated balance sheets as of March 31, 2025 and 2026, respectively.
The Group’s contract liabilities amounted to $ and $ as of March 31, 2025 and 2026, respectively. Revenue of $
Transaction price allocated to remaining performance obligation
Revenue allocated to remaining performance obligations represents contracted revenue that has not yet been recognized, which includes deferred revenue and amounts that will be invoiced and recognized as revenue in future periods. The Group has elected, as a practical expedient, not to disclose the transaction price allocated to unsatisfied or partially unsatisfied performance obligations that are part of a contract that has an original expected duration of one year or less. As of March 31, 2025 and 2026, all revenue contracts with customers have an original expected duration of one year or less.
| m) | Employee welfare benefit expenses |
All eligible employees of the Group are entitled to staff welfare benefits including medical care, welfare subsidies, unemployment insurance, pension benefits and housing funds through a PRC government-mandated multi-employer defined contribution plan. The Group is required to make contributions to the plan and accrues for these benefits based on certain percentages of the qualified employees’ salaries. The Group recorded employee benefit expenses of $ and $ for the years ended March 31, 2026 and 2025, respectively.
The Company grants share-based compensations to the management. The ordinary shares of the Company will be vested on the maturity date as assigned on bonus letter to the management, subject to there remaining in the continuous service of the Company or its affiliates on such date. The Company recorded employee benefit expenses over the period of service-term as assigned in the bonus letter.
| n) | Selling and marketing expenses |
Selling
and marketing are expensed as incurred in accordance with ASC 720-35. Among these, marketing and promotion costs were $
| o) | Income taxes |
The Group follows the liability method of accounting for income taxes in accordance with ASC 740 (“ASC 740”), Income Taxes. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect in the period in which the differences are expected to reverse. The Group records a valuation allowance to offset deferred tax assets if based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rate is recognized in tax expense in the period that includes the enactment date of the change in tax rate.
| F-14 |
SKILLFUL CRAFTSMAN EDUCATION TECHNOLOGY LIMITED.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Uncertain tax positions
The
guidance on accounting for uncertainties in income taxes prescribes a more-likely-than-not threshold for financial statement recognition
and measurement of a tax position taken or expected to be taken in a tax return. Guidance also applies to the recognition of income tax
assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties
associated with tax positions, accounting for income taxes in interim periods, and income tax disclosures. The Group recognizes interest
and penalties, if any, under accrued expenses n its balance sheet and under other expenses in its consolidated statement of operations.
There were
| p) | Value added tax (“VAT”) |
The Group is subject to VAT and related surcharges on revenue generated from the rendering of technical services to customers. The Group records revenue net of output VAT. This output VAT may be offset by qualified input VAT paid by the Group to suppliers. Net VAT balance between input VAT and output VAT is recorded in the line item of tax payable on the consolidated balance sheets.
The
Group is subject to VAT at the rate of
| q) | Related parties |
The Company identifies related parties, and accounts for and discloses related party transactions in accordance with ASC 850, Related Party Disclosures, and other relevant ASC standards.
Parties, which can be a corporation or individual, are considered to be related if they have the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operational decisions. Entities are also considered to be related if they are subject to common control or common significant influence.
Transactions involving related parties cannot be presumed to be carried out on an arm’s-length basis, as the requisite conditions of competitive, free market dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm’s-length transactions unless such representations can be substantiated.
| r) | Statutory reserves |
The Company’s PRC subsidiaries are required to make appropriations to certain non-distributable reserve funds.
In accordance with China’s Company Laws, the Company’s PRC subsidiary, must make appropriations from their after-tax profit (as determined under the Accounting Standards for Business Enterprises as promulgated by the Ministry of Finance of the People’s Republic of China (“PRC GAAP”)) to non-distributable reserve funds including (i) statutory surplus fund and (ii) discretionary surplus fund. The appropriation to the statutory surplus fund must be 10% of the after-tax profits calculated in accordance with PRC GAAP. Appropriation is not required if the statutory surplus fund has reached 50% of the registered capital of the respective company. Appropriation to the discretionary surplus fund is made at the discretion of the respective company.
Effective January 1, 2025, in alignment with the full implementation of the Foreign Investment Law and the updated PRC Company Law, foreign-invested enterprises (“FIEs”) in China are no longer required to set aside the former reserve fund, enterprise expansion fund, and staff bonus and welfare fund, and are governed by the same statutory surplus fund requirements applicable to all PRC companies under the PRC Company Law. The general reserve fund and statutory surplus fund are restricted to offsetting cumulative losses or increasing the registered capital of the respective company. These reserves are not distributable as cash dividends, loans, or advances, nor can they be distributed except under liquidation.
| s) | Earnings per share |
The Company computes earnings per share (“EPS”) in accordance with ASC 260, “Earnings per Share”. ASC 260 requires companies with complex capital structures to present basic and diluted EPS. Basic EPS is measured as Net profit divided by the weighted average common shares outstanding for the period. Diluted EPS is similar to basic EPS but presents the dilutive effect on a per share basis of potential common shares (e.g., convertible securities, options and warrants) as if they had been converted at the beginning of the periods presented, or issuance date, if later. Potential common shares that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS.
| F-15 |
SKILLFUL CRAFTSMAN EDUCATION TECHNOLOGY LIMITED.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| t) | Foreign currency translation |
The Group’s principal country of operations is the PRC. The financial position and results of its operations are determined using RMB, the local currency, as the functional currency. The consolidated financial statements are reported using U.S. Dollars as the reporting currency. The results of operations and the statement of cash flows denominated in currencies other than U.S. Dollars are translated at the average rate of exchange during the reporting period. Assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the applicable rates of exchange in effect at that date. The equity denominated in currencies other than U.S. Dollars are translated at the historical rate of exchange at the time of capital contribution. Because cash flows are translated based on the average translation rate, amounts related to assets and liabilities reported on the consolidated statements of cash flows will not necessarily agree with changes in the corresponding balances on the consolidated balance sheets. Translation adjustments arising from the use of different exchange rates from period to period are included as a separate component of accumulated other comprehensive income (loss) included in consolidated statements of changes in equity. Gains and losses from foreign currency transactions are included in the consolidated statement of operations and comprehensive income.
The value of RMB against U.S. Dollar may fluctuate and is affected by, among other things, changes in the PRC’s political and economic conditions. Any significant revaluation of RMB may materially affect the Group’s consolidated financial condition in terms of reporting. The following table outlines the currency exchange rates that were used in the consolidated financial statements:
| March 31, 2026 | March 31, 2025 | March 31, 2024 | ||||||||||
| Year-end spot rate | US$1= | US$1= | US$1= | |||||||||
| Average rate | US$1= | US$1= | US$1= |
| u) | Comprehensive income / (loss) |
Comprehensive income/(loss) is defined as the changes in shareholders’ equity during a period arising from transactions and other events and circumstances excluding transactions resulting from investments by shareholders and distributions to shareholders. Comprehensive income or loss is reported in the consolidated statements of comprehensive income/(loss). Accumulated other comprehensive income/(loss), as presented on the accompanying consolidated balance sheets, consists of accumulated foreign currency translation adjustments.
| v) | Dividends |
Dividends
are recognized when declared.
| w) | Warrants |
According to the Securities Purchase Agreement (the “SPA”), the Company issued a purchase right to the Investor under which the Company will issue predetermined ordinary shares for a fixed cash consideration at a future date (the “Warrants”).
The Warrants were accounted for as equity instruments to the Company, since:
| i) | The Warrants were indexed to the Company’s own stock, since: |
| ● | The Warrants will be exercised upon the ODI approval, which is not based on an observable market, or an observable index. | |
| ● | The exercise price is fixed by the SPA and Supplement Agreement, and the number of Underlying Shares to be issued is also fixed divided by the fixed purchase price per share. |
| ii) | The Warrants were classified in shareholders’ equity, since: |
| ● | The Warrants will be settled only by gross physical delivery of ordinary shares by the Company. | |
| ● | The Company has the ability to settle the Private Placement in ordinary shares. | |
| ● | The number of Underlying Shares to be issued is explicitly fixed at the total consideration divided by the fixed purchase price per share, with no adjustment provision. | |
| ● | No requirement for cash settlement in the agreements. | |
| ● | There are no cash settled top-off or make-whole provisions. |
| F-16 |
SKILLFUL CRAFTSMAN EDUCATION TECHNOLOGY LIMITED.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| x) | Segment reporting |
In
accordance with ASC 280, Segment Reporting, operating segments are defined as components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating decision maker (“CODM”), or decision making group,
in deciding how to allocate resources and in assessing performance. The Group has only
| y) | Risks and uncertainties |
Exchange Rate Risks
The
Company’s Chinese subsidiaries may be exposed to significant foreign currency risks from fluctuations and the degree of volatility
of foreign exchange rates between the U.S. Dollar and the RMB. As of March 31, 2026 and March 31, 2025, the RMB denominated cash and
cash equivalents amounted to $
Currency Convertibility Risks
Substantially all of the Group’s operating activities are transacted in RMB, which is not freely convertible into foreign currencies. All foreign exchange transactions take place either through the People’s Bank of China or other banks authorized to buy and sell foreign currencies at the exchange rates quoted by the People’s Bank of China. Approval of foreign currency payments by the People’s Bank of China or other regulatory institutions requires submitting a payment application form together with other information such as suppliers’ invoices, shipping documents and signed contracts.
Concentration of Credit Risks
Financial instruments that potentially subject the Group to concentration of credit risks consist primarily of cash and cash equivalents and accounts receivable, the balances of which stated on the consolidated balance sheets represented the Group’s maximum exposure. The Group places its cash and cash equivalents in good credit quality financial institutions in China. The Group maintains its bank accounts with reputable financial institutions and, based on information currently available to management, believes that the risk of loss arising from bank failure is remote. Management believes that the credit risk on cash in bank is limited because the counterparties are recognized financial institutions. To date, the Group has not experienced any losses in such accounts.
| z) | Recently announced accounting standards |
The Group considers the applicability and impact of all accounting standards updates (“ASU”). Management periodically reviews new accounting standards that are issued.
The Group does not believe recently issued but not yet effective accounting standards would have a material effect on the consolidated financial position, statements of operations and cash flows.
| aa) | Recently adopted accounting standards |
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (ASU 2023-09), which requires disclosure of incremental income tax information within the rate reconciliation and expanded disclosures of income taxes paid, among other disclosure requirements. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company’s management does not believe the adoption of ASU 2023-09 have a material impact on its financial statements and disclosures.
None of the new standards above have a material impact on the financial statement of the Company by the Company’s evaluation.
| F-17 |
SKILLFUL CRAFTSMAN EDUCATION TECHNOLOGY LIMITED.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| ab) | New Accounting Pronouncements Not Yet Adopted |
In November 2024, the FASB issued ASU 2024-03, Income Statement (Topic 220): Disaggregation of Income Statement Expenses: The amendments in this ASU require public companies to disclose, in interim and year-end reporting periods, additional information about certain expenses in the financial statements. These disclosures are effective beginning with 2027 annual reports, and interim reports beginning with the first quarter of 2028. Early adoption is permitted on either a prospective or retrospective basis. The Company is currently assessing the potential impact of adoption of these provisions on the consolidated financial statements.
In July 2025, the FASB issued ASU 2025-05 “Financial Instruments — Credit Losses (Topic 326) — Measurement of Credit Losses for Accounts Receivable and Contract Assets.” It applies to entities that use the practical expedient and accounting policy election (if applicable) when estimating expected credit losses on current accounts receivable and/or current contract assets from transactions under Topic 606, including such assets acquired in a business combination accounted for under Topic 805. The amendments will be effective for annual reporting periods beginning after December 15, 2025, and interim reporting periods within those annual periods. Early adoption is permitted. The Group does not expect to adopt this guidance early and does not expect the adoption of this ASU to have a material impact on its future consolidated financial statements.
| 3. | Discontinued Operations |
On March 17, 2025, WOFE signed agreements to terminate its VIE arrangements with Wuxi Kingway, resulting in loss of control, deconsolidation of the VIE, and release of the related equity pledge. The VIE disposal was deemed a strategic shift under ASC 205-20, so the VIE’s assets, liabilities, and results are reported as discontinued operations and prior-period financial statements were retrospectively adjusted to reflect the discontinued operations’ impact.
The following table summarizes the operating results of discontinued operations for the period from April 1, 2024 to March 17, 2025, together with comparable prior period data covering April 1, 2023 to March 31, 2024.
| From April 1, 2024 to March 17, 2025 | For the years ended March 31, 2024 | |||||||
| Revenue | $ | |||||||
| Net loss | $ | ( | ) | |||||
| From April 1, 2024 to March 17, 2025 | For the years ended March 31, 2024 | |||||||
| Net cash used in operating activities | $ | ( | ) | ( | ) | |||
| Net cash provided by investing activities | ||||||||
| Net cash provided by (used in) financing activities | ||||||||
| Effects of exchange rate changes on cash | ( | ) | ||||||
| Net decrease in cash and cash equivalents – Discontinued operations | $ | ( | ) | ( | ) | |||
| F-18 |
SKILLFUL CRAFTSMAN EDUCATION TECHNOLOGY LIMITED.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 4. | Cash |
Cash consisted of the following:
| As of March 31, | ||||||||
| 2026 | 2025 | |||||||
| Cash on hand | $ | $ | ||||||
| Bank balances | ||||||||
| Funds held in brokerage account | ||||||||
| Total | $ | $ | ||||||
| 5. | Accounts receivable, net |
Accounts receivable, net consisted of the following:
| As of March 31, | ||||||||
| 2026 | 2025 | |||||||
| Accounts receivable, gross | $ | $ | ||||||
| Less: allowance for credit losses | ( | ) | ||||||
| Total Accounts receivable, net | $ | $ | ||||||
The credit losses are recorded in General and administrative expenses in the consolidated statements of operations and comprehensive income.
During
the year ended March 31, 2026, the Group fully wrote off outstanding accounts receivable totaling $
| 6. | Prepayments and other current assets |
Prepayments and other current assets consisted of the following:
| As of March 31, | ||||||||
| 2026 | 2025 | |||||||
| Prepaid VAT | ||||||||
| Prepaid service fees | $ | $ | ||||||
| Total | $ | $ | ||||||
Prepaid service fees for the years ended March 31, 2025 represent telecommunications service fees and resource usage fees paid in advance to institutions of higher education to obtain access to their online course resources.
Prepaid service fees for the years ended March 31, 2026 refer to promotional expenses incurred for marketing purposes. The prepayments are generally short-term in nature and are amortized over the related service period.
| 7. | Other receivables, net |
| As of March 31, | ||||||||
| 2026 | 2025 | |||||||
| Other receivables | $ | $ | ||||||
| Less: allowance for credit losses | ( | ) | ( | ) | ||||
| Other receivables, net | $ | $ | ||||||
The allowance for credit loss was made on receivable due from Hunan Medical Star Technology Co., Ltd. (“Medical Star”). The Company believed collectability was remote, as Medical Star had sustained ongoing operating losses and lacked the financial capacity to settle its outstanding payables, which was consistent with the full impairment already recorded against the Company’s equity investment in Medical Star as disclosed in Note 8, Long-term Investments.
| F-19 |
SKILLFUL CRAFTSMAN EDUCATION TECHNOLOGY LIMITED.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 8. | Long-term investment, net |
Long-term investment, net consists of investments in privately held company. The following table sets forth the changes in the Group’s Long-term investments:
| Investment-1 | Investment-2 | Investment-3 | Total | |||||||||||||
| USD | USD | USD | USD | |||||||||||||
| Balance as of March 31, 2025 | ||||||||||||||||
| Share gain (loss) from equity investments | ||||||||||||||||
| Loss due to valuation | ||||||||||||||||
| Impairment | ( | ) | ( | ) | ||||||||||||
| Foreign currency translation adjustments | ||||||||||||||||
| Balance as of March 31, 2026 | ||||||||||||||||
Investment-1:
In August 2021, the Group entered into an agreement with Fu Zhi Zhong He (Beijing) Health Technology Co., Ltd., Changsha Tangshi Yipai
Medical Technology Co., Ltd., and Yaping Zhou to establish a joint venture, Medical Star, in China for the development of a traditional
Chinese medicine learning platform and the training of interdisciplinary talents proficient in both traditional Chinese and Western medicine.
The Group acquired a
Medical
Star’s board of directors comprises seven directors. Per the joint venture agreement, the Company holds the right to appoint 3
directors to Medical Star’s board, granting the Group
As of March 31, 2023, the Company assessed that Medical Star would continue to incur operating losses and would be unable to secure additional financing within the next twelve months. Accordingly, the Company recognized a full impairment loss on this investment, and the carrying amount was nil as of March 31, 2023.
Investment-2:
In January 2022, the Group reached an agreement with China Agriculture Industry Development Foundation Co., Ltd., to purchase its
Fujian
Fishery has 5 directors on its board. According to the shareholders minute, the Company appointed 1 director to the board of Fujian Fishery,
thus it has
Wuxi
Kingway transferred its
On April 1, 2025, WOFE entered into an agreement with the investee to waive its right to appoint a director to the board of Fujian Fishery. Following the waiver of board representation rights, the Group no longer possessed significant influence over the investee. The investment was therefore accounted for under ASC 321. Since there was no readily determinable fair value for the investment, the Group elected the measurement alternative and carried the investment at cost.
Prior
to March 31, 2026, the Group commenced the disposal process for its
Investment-3:
The Company made a down payment to the shareholder of Wuxi Talent Home Information Technology Co. Ltd., (“Wuxi Talent”)
as a part of
Wuxi
Talent has
For
the fiscal year ended March 31, 2025, the Company recorded a proportionate loss of $
| F-20 |
SKILLFUL CRAFTSMAN EDUCATION TECHNOLOGY LIMITED.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 9. | Property and equipment, net |
Property and equipment consisted of the following:
| As of March 31, | ||||||||
| 2026 | 2025 | |||||||
| Server hardware | $ | $ | ||||||
| Vehicles | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Property and equipment, net | ||||||||
There
was
Total
depreciation expenses were $
| 10. | Operating lease |
| March 31, | Increase/ | Exchange rate | March 31, | |||||||||||||
| 2025 | (Decrease) | translation | 2026 | |||||||||||||
| Office lease - Shenzhen Wan | $ | $ | $ | $ | ||||||||||||
| Total right-of-use assets, at cost | ||||||||||||||||
| Less: accumulated amortization | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Right-of-use assets, net | $ | $ | ( | ) | $ | $ | ||||||||||
| Office lease - Shenzhen Wan | $ | $ | ( | ) | $ | $ | ||||||||||
| Total operating lease liability | $ | $ | ( | ) | $ | $ | ||||||||||
The
Company recognized lease expense for the operating lease of an office at Shenzhen Wan for a two-year
period over a straight-line basis. ROU amortization of $
During
the fiscal years ended March 31, 2026 and 2025, the Company’s recognized rental expenses amounted to $
The
Company’s lease agreements do not have a discount rate that is readily determinable. The incremental borrowing rate is determined
at lease commencement or lease modification and represents the rate of interest the Company would have to pay to borrow on a collateralized
basis over a similar term and an amount equal to the lease payments in a similar economic environment. As of March 31, 2026, the weighted
average discount rate was
| F-21 |
SKILLFUL CRAFTSMAN EDUCATION TECHNOLOGY LIMITED.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 11. | Accrued expenses |
Accrued expenses consisted of the following:
| As of March 31, | ||||||||
| 2026 | 2025 | |||||||
| Accrued payroll | $ | $ | ||||||
| Audit fees | ||||||||
| Legal costs | ||||||||
| Accrued Interest | ||||||||
| Accrued rental fee | ||||||||
| Accrued Nasdaq annual listing and registrar fees | ||||||||
| Accrued financial advisory fee | ||||||||
| Other | ||||||||
| Total | $ | $ | ||||||
| 12. | Promissory note to related parties |
On
September 24, 2024, the Company entered into a one-year promissory note purchase agreement with Bin Fu, Xuejun Ji and Peng Wang, the
management of the Company, relating to the issue and sale of a promissory note in the principal amount of $
| F-22 |
SKILLFUL CRAFTSMAN EDUCATION TECHNOLOGY LIMITED.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 13. | Revenue |
Disaggregated revenue by type consisted of the following:
| For the years ended March 31, | ||||||||||||
| 2026 | 2025 | 2024 | ||||||||||
| Revenue from continuing operations: | ||||||||||||
| Technical services revenue | $ | |||||||||||
| Revenue from discontinued operations: | ||||||||||||
| Online VIP membership revenue | $ | $ | ||||||||||
| Online SVIP membership revenue | ||||||||||||
| Technical services revenue | ||||||||||||
| Total Revenue from discontinued operations | $ | $ | $ | |||||||||
Substantially all of the Group’s revenues were generated from customers located in the PRC, and substantially all of the Group’s long-lived assets were located in the PRC. Accordingly, no geographical segment information is presented.
| 14. | Cost of revenue |
Cost of revenue consisted of the following:
| For the years ended March 31, | ||||||||||||
| 2026 | 2025 | 2024 | ||||||||||
| Amortization expenses | $ | $ | $ | |||||||||
| Employee compensation | ||||||||||||
| Employee benefit expenses | ||||||||||||
| Other | ||||||||||||
| Cost of revenue – Continuing operations | $ | $ | $ | |||||||||
| Cost of revenue – Discontinued operations | ||||||||||||
| F-23 |
SKILLFUL CRAFTSMAN EDUCATION TECHNOLOGY LIMITED.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 15. | Operating expenses |
Operating expenses consisted of the following:
| For the years ended March 31, | ||||||||||||
| 2026 | 2025 | 2024 | ||||||||||
| Selling and marketing expenses: | ||||||||||||
| $ | $ | $ | ||||||||||
| General and administrative expenses: | ||||||||||||
| Share-based compensation | $ | $ | $ | |||||||||
| Audit fees | ||||||||||||
| Attorney fee | ||||||||||||
| Employee compensation and benefit | ||||||||||||
| Rental fee(1) | ||||||||||||
| Nasdaq annual listing and registrar fees | ||||||||||||
| Consulting fees | ||||||||||||
| Investment relationship fee | ||||||||||||
| Depreciation expenses | ||||||||||||
| Office expense | ||||||||||||
| Entertainment | ||||||||||||
| Amortization of intangible assets | ||||||||||||
| Credit losses on AR | ||||||||||||
| Others | ||||||||||||
| $ | $ | $ | ||||||||||
| Research and development expenses: | ||||||||||||
| $ | $ | $ | ||||||||||
| Operating expenses – Continuing operations | $ | $ | $ | |||||||||
| Operating expenses – Discontinued operations | ||||||||||||
| (1) |
| 16. | Other income (expenses), net |
Other income (expenses) consisted of the following:
| For the years ended March 31, | ||||||||||||
| 2026 | 2025 | 2024 | ||||||||||
| Cancellation of bonus liability | $ | $ | $ | |||||||||
| Government grant | ||||||||||||
| Other income (expenses), net | ( | ) | ( | ) | ||||||||
| Total Other income (expenses) – Continuing operations | $ | $ | ( | ) | $ | |||||||
| Total Other income (expenses) – Discontinued operations | ( | ) | ||||||||||
| F-24 |
SKILLFUL CRAFTSMAN EDUCATION TECHNOLOGY LIMITED.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 17. | Taxation |
The Company is registered in the Cayman Islands. The Group generated substantially all of its income from its PRC operations for the years ended March 31, 2026, 2025 and 2024.
Cayman Islands
Under the current laws of the Cayman Islands, the Company is not subject to tax on income or capital gain, and no withholding tax is imposed to any dividends and payment made to shareholders.
Hong Kong
The
Company’s subsidiary Easy Skills Technology Limited is located in Hong Kong and is subject to an income tax rate of
PRC
Income Tax
The
Company’s subsidiaries in the PRC are subject to the statutory rate of
Dividends,
interests, rent or royalties payable by the Group’s PRC subsidiaries, to non-PRC resident enterprises, and proceeds from any such
non-resident enterprise investor’s disposition of assets (after deducting the net value of such assets) shall be subject to
Although there are undistributed earnings of the Company’s subsidiaries in the PRC that are available for distribution to the Company, the undistributed earnings of the Company’s subsidiaries located in the PRC are considered to be indefinitely reinvested, because the Company does not have any present plan to pay any cash dividends on its ordinary shares in the foreseeable future and intends to retain most of its available funds and any future earnings for use in the operation and expansion of its business. Accordingly, no deferred tax liability has been accrued for the PRC dividend withholding taxes that would be payable upon the distribution of those amounts to the Company as of March 31, 2026 and 2025. In general, the PRC tax authority has up to five years to conduct examinations of the Company’s tax filings. Accordingly, the tax years from 2021 to 2025 of the Company’s PRC subsidiaries remain open to examination by the taxing jurisdictions.
| F-25 |
SKILLFUL CRAFTSMAN EDUCATION TECHNOLOGY LIMITED.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The components of the loss before income taxes are as follows:
| For the years ended March 31, | ||||||||||||
| 2026 | 2025 | 2024 | ||||||||||
| PRC | ||||||||||||
| Non PRC | $ | $ | ||||||||||
| Total loss before income tax expenses - Continuing operations | $ | $ | $ | |||||||||
| Total loss/(income) before income tax expenses - Discontinued | ( | ) | ||||||||||
The current and deferred portions of income tax (expense)/credit included in the consolidated statements of loss were as follows:
| For the years ended March 31, | ||||||||||||
| 2026 | 2025 | 2024 | ||||||||||
| Current | ||||||||||||
| - PRC | ( | ) | ||||||||||
| - Non PRC | ||||||||||||
| Total current tax expense | $ | $ | ( | ) | $ | |||||||
| Deferred | ||||||||||||
| - PRC | ||||||||||||
| - Non PRC | ||||||||||||
| Total deferred tax credit | $ | $ | $ | |||||||||
| Income tax (expense)/credit | $ | $ | ( | ) | $ | |||||||
Income tax paid by jurisdiction is as follows:
| For the years ended March 31, | ||||||||||||
| Income tax paid | 2026 | 2025 | 2024 | |||||||||
| - PRC | ||||||||||||
| - Non PRC | ||||||||||||
| Total income tax paid | $ | $ | $ | |||||||||
Upon adoption of ASU 2023-09, Improvements to Income Tax Disclosures, as described in Note 2, Summary of Significant Accounting Policies, the reconciliation of taxes at the PRC statutory rate to our provision for income taxes for the year ended March 31, 2026 was as follows:
For the year ended March 31, 2026 | ||||||||
| Amount | Percent | |||||||
| USD | ||||||||
| Income before income taxes | ( | ) | ||||||
| PRC statutory income tax rate | % | |||||||
of 25% | ( | ) | % | |||||
| Domestic tax effects | ||||||||
| Effect of preferential tax rates | ( | %) | ||||||
| Effect of non-tax deductible expenses and loss | ( | %) | ||||||
| Change in valuation allowance | ( | %) | ||||||
| Foreign tax effects | ||||||||
| Cayman Islands | ||||||||
| Statutory tax rate difference between PRC and other jurisdictions | ( | %) | ||||||
| Hong Kong | ||||||||
| Statutory tax rate difference between PRC and other jurisdictions | ( | %) | ||||||
| Effect of non-tax deductible expenses and loss | ( | %) | ||||||
| Singapore | ||||||||
| Statutory tax rate difference between PRC and other jurisdictions | ( | %) | ||||||
| Effect of non-tax deductible expenses and loss | ( | %) | ||||||
| United States | ||||||||
| Statutory tax rate difference between PRC and other jurisdictions | ( | %) | ||||||
| Effect of non-tax deductible expenses and loss | ( | %) | ||||||
| Income tax expense | — | |||||||
| Effective tax rate | — | |||||||
| Deferred tax assets | — | |||||||
| Valuation allowance | ( | ) | — | |||||
| Deferred tax assets, net of valuation allowance | — | |||||||
| Deferred tax liability | — | |||||||
| Deferred tax assets, net | — |
As
of March 31, 2026, the Company’s total deferred tax assets (“DTA”) amounted to USD
| F-26 |
SKILLFUL CRAFTSMAN EDUCATION TECHNOLOGY LIMITED.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The reconciliation of taxes at the PRC statutory rate to our provision for (benefit from) income taxes for the years ended March 31, 2025 and 2024 in accordance with the guidance prior to the adoption of ASU 2023-09 was as follows:
| For the years ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| Income before income taxes | $ | ( |
) | $ | ( |
) | ||
| Tax rate | % | % | ||||||
| $ | ( |
) | $ | ( |
) | |||
| Effect of tax-exempt entity | ||||||||
| Effect of previous year over-paid tax expenses | ||||||||
| Effect of non-tax deductible expenses and loss | ||||||||
| Effect of deductible prior year loss | ||||||||
| Effect of tax loss not recognized | ||||||||
| Effect of previous year over-accrued tax expenses | ||||||||
| Effect of investment (income)/loss not recognized | ( |
|||||||
| Effect of impairment not recognized | ||||||||
| Income tax expense/(credit) | $ | $ | ( |
) | ||||
| Deferred tax assets | ||||||||
| Valuation allowance | ( |
( |
||||||
| Deferred tax assets, net of valuation allowance | ||||||||
| Deferred tax liability | ||||||||
| Deferred tax assets, net |
The Group operates through subsidiaries and valuation allowance is considered for each of the entities on an individual basis. The Group recorded valuation allowance against deferred tax assets of those entities that are in a cumulative financial loss position and are not forecasting profits in the near future as of March 31, 2026 and 2025.
For
the year ended March 31, 2026, the valuation allowance had a balance of $
During the year ended March 31, 2026, the Group reversed valuation allowance of $
For
entities incorporated in PRC mainland, net loss can be carried forward for five years. As of March 31, 2026, the Group had deferred tax
assets of net operating loss carrying forwards of approximately of $
| Amount | ||||
| 2027 | $ | |||
| 2028 | ||||
| 2029 | ||||
| 2030 | ||||
| 2031 | ||||
| Total | $ | |||
Value Added Tax (“VAT”)
The
Group’s technical service revenue are subject to a VAT rate of
Uncertain tax positions
The
Group evaluates each uncertain tax position (including the potential application of interest and penalties) based on the technical merits,
and measure the unrecognized benefits associated with the tax positions. As of March 31, 2026 and 2025, the Group did
For
the years ended March 31, 2024, 2025 and 2026, the Group incurred
As of March 31, 2026,
| F-27 |
SKILLFUL CRAFTSMAN EDUCATION TECHNOLOGY LIMITED.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Taxes payable consisted of the following:
| As of March 31, | ||||||||
| 2026 | 2025 | |||||||
| Income tax payable | $ | $ | ||||||
| VAT payable | ||||||||
| Other tax payables | ||||||||
| Total | $ | $ | ||||||
| 18. | Share based compensation |
On May 10, 2024, ordinary shares of par value $ per share were issued as stock compensation to Bin Fu, CEO, for ordinary shares and to Dawei Chen, CFO, for ordinary shares.
On October 1, 2024, the Company granted an aggregate of ordinary shares under its equity incentive plan to three individual senior managements and director, with each recipient allocated ordinary shares: Bill Fu Bin, Chief Executive Officer; Dawei Chen, Chief Financial Officer; and Peng Wang, Board Director. These share awards were subject to a one-year continuous service vesting condition and had a weighted average grant-date fair value of $ per share. All three grantees satisfied the vesting requirements, and the corresponding shares were fully delivered to each grantee on October 21, 2025.
On May 1, 2025, the Company granted stock awards of ordinary shares, par value $, to each of the Chief Technology Officer and Chief Product Officer of the Company as a part of their new employment with the Company. The weighted average grant-date fair value of the Award Shares was $ per share. The Award Shares were scheduled to vest and the Restricted Period was to lapse on May 1, 2026, subject to the Grantees remaining in the continuous service of the Company or its subsidiaries. Both Grantees departed the Company in January 2026, and accordingly, all Award Shares were forfeited.
On July 2, 2025, the Company issued Series A Preference Shares to Bin Fu at no consideration. These shares were measured under ASC 718 — Share-based Compensation, had a weighted average grant-date fair value of $ per share, and were fully vested upon grant with no service, performance, or any other conditions.
| 19. | Equity |
Ordinary Shares
On
May 10, 2024, ordinary shares of par value $ per share were issued as stock compensation to Bin Fu, CEO, for ordinary
shares and to Dawei Chen, CFO, for ordinary shares. The shares were issued as equity-classified awards in accordance with ASC
718. The Company then increased ordinary shares at amount of $
On
October 1, 2024 (the grant date), the Company granted an aggregate of
ordinary shares under its equity incentive plan to three individual senior managements and director, with each recipient allocated
ordinary shares: Bill Fu Bin, Chief Executive Officer; Dawei Chen, Chief Financial Officer; and Peng Wang, Board Director. These
ordinary shares were issued without registration with the SEC at the grant date and were initially subject to restrictions on
transfer. Upon vesting, the shares were registered with the SEC, the applicable restrictions were lifted, and the shares were
delivered to each grantee on October 21, 2025. The share awards were subject to a one-year continuous service vesting condition and
were accounted for as equity-classified share-based compensation in accordance with ASC 718. All three grantees satisfied the
vesting requirements, and the corresponding shares were fully delivered to each grantee on October 21, 2025. Accordingly, the
Company’s ordinary shares increased by $
Preference shares
Pursuant to the Amended and Restated Memorandum and Articles of Association approved by shareholder resolution dated October 10, 2025 and filed with the Cayman Islands Registrar of Companies on October 15, 2025, we have authorized preference shares with a par value of $ per share, designated into two separate series: Series A and Series B.
Series
A Preference Shares: shares authorized, par value of $ per share, fully issued and outstanding to Mr. Bin Fu on July
2, 2025, which were issued at no consideration and hence measured under ASC 718 - Share-based Compensation.
Series
B Preference Shares: shares authorized, par value of $ per share, approved by the shareholder resolution dated October
10, 2025. The Company entered into a Securities Purchase Agreement with Mr. Xuejun Ji on March 25, 2026 for the issuance of all Series
B Preference Shares. Tranche issuance and registration of Series B Preference Shares commenced in June 2026, and Series B Preference
Shares were issued and outstanding as at March 31, 2026.
Warrants
In
July 2020, we issued non-redeemable warrants to purchase an aggregate of
| F-28 |
SKILLFUL CRAFTSMAN EDUCATION TECHNOLOGY LIMITED.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 20. | Related parties |
| a) | The table below sets forth the related party and the relationship with the Company: |
| Name of related party | Relationship with the Company | |
| Xiaofeng Gao | ||
| Bin Fu | ||
| Peng Wang | ||
| Xuejun Ji | ||
| Hunan Medical Star Technology Co., Ltd. ( Medical Star) | ||
| Wuxi Kingway Technology Co., Ltd. (“Wuxi Kingway”)** | ||
| Columbus Digital Technology (Shenzhen) Co., Ltd. |
| * |
| ** |
| b) | The Company had the following related party balances with the related parties mentioned above: |
| As of March 31, | ||||||||
| 2026 | 2025 | |||||||
| Amounts due to related parties | ||||||||
| Amounts due to Xiaofeng Gao (1) | $ | $ | ||||||
| Amounts due to Xuejun Ji (1) | ||||||||
| Amounts due to Bin Fu (1) | ||||||||
| Amounts due to Columbus Digital Technology (Shenzhen) Co., Ltd.(2) | ||||||||
| Total | ||||||||
| (1) | |
| (2) |
| As of March 31, | ||||||||
| 2026 | 2025 | |||||||
| Promissory note to related parties | ||||||||
| Amounts due to Xuejun Ji | ||||||||
| Amounts due to Bin Fu | ||||||||
| Amounts due to Peng Wang | ||||||||
| Total | ||||||||
Amounts
owed to Xuejun Ji, Bin Fu and Peng Wang arise from promissory notes issued by the Company, which bear interest at
| As of March 31, | ||||||||
| 2026 | 2025 | |||||||
| Amounts due from a related party | ||||||||
| Amounts due from Wuxi Kingway(1) | $ | $ | ||||||
| (1) |
| c) | The Company had the following related party transaction with the related party mentioned above: |
| For the years ended March 31, | ||||||||||||
| 2026 | 2025 | 2024 | ||||||||||
| Advance from Xiaofeng Gao | ||||||||||||
| Bond received from Xuejun Ji | ||||||||||||
| Bond received from Bin Fu | ||||||||||||
| Bond received from Peng Wang | ||||||||||||
| Sales to Medical Star | ||||||||||||
During
the fiscal year ended March 31, 2026, the Company’s recognized interest expenses amounted to $
During
the fiscal year ended March 31, 2026, the Company’s recognized interest income amounted to $
During
the fiscal year ended March 31, 2026, the Company recognized rental expenses of $
| F-29 |
SKILLFUL CRAFTSMAN EDUCATION TECHNOLOGY LIMITED.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 21. | Commitments and Contingencies |
The Group’s lease consisted of operating leases for administrative office spaces in Shenzhen and Beijing in the PRC. As of March 31, 2026, the Group had no obligation under long-term financing lease requiring minimum rental. As of March 31, 2026, the Group’s existing lease contract for its office at Shenzhen Wan expired, and the Group executed a new lease agreement with a lease term from April 1, 2026 to March 31, 2028 with payment schedule as below:
| Total scheduled payment | ||||
| 2026 | $ | |||
| 2027 | ||||
| 2028 | ||||
| Total | $ | |||
Total
operating lease expenses for the year ended March 31, 2026 was $
| 22. | Restricted net assets |
PRC
laws and regulations permit payments of dividends by the Company’s subsidiaries incorporated in the PRC only out of their retained
earnings, if any, as determined in accordance with PRC accounting standards and regulations. In addition, the Company’s subsidiaries
incorporated in the PRC are required to annually appropriate 10% of their net income to the statutory reserve prior to payment of any
dividends, unless the reserve has reached 50% of their respective registered capital. Furthermore, registered share capital and capital
reserve accounts are also restricted from distribution. As a result of the restrictions described above and elsewhere under PRC laws
and regulations, the Company’s subsidiaries incorporated in the PRC are restricted in their ability to transfer a portion of their
net assets to the Company in the form of dividends. The restriction amounted to $
| 23. | Net Loss Per Share |
| For the years ended March 31, | ||||||||||||
| 2026 | 2025 | 2024 | ||||||||||
| Numerator: | ||||||||||||
| Net loss from continuing operations | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Net (loss)/profit from discontinued operations | ( | ) | ||||||||||
| Denominator: | ||||||||||||
| Weighted average shares outstanding – basic and diluted | ||||||||||||
| Net loss per share – basic and diluted | ||||||||||||
| From continuing operations | ) | ) | ) | |||||||||
| From discontinued operations | $ | $ | ) | $ | ||||||||
| Total | $ | ) | $ | ) | $ | ) | ||||||
| 24. | Subsequent events |
On
June 25, 2026, the Company entered into the Second Amendment Agreement with the aforesaid purchasers to further extend the maturity date
of such promissory notes for six more months from
In
July 2026, the first tranche of Series B Preference Shares was issued to a shareholder for a total cash consideration of USD
In
early August 2026, the Company entered into a binding equity transfer agreement with an independent third party, to dispose of its
Hong Kong entity together with the Hong Kong entity’s subsidiaries for an aggregate consideration of US$
The Group has evaluated other subsequent events through the date of issuance of the consolidated financial statements, the Group did not identify any other subsequent events with material financial impact on the Group’s consolidated financial statements.
| F-30 |
SKILLFUL CRAFTSMAN EDUCATION TECHNOLOGY LIMITED.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 25. | Condensed financial information of the Company |
The following is the condensed financial information of the Company on a parent company only basis.
Condensed balance sheets
| As of March 31, | ||||||||
| 2026 | 2025 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Deferred expenses | ||||||||
| Amounts due from subsidiaries | ||||||||
| Amounts due from related parties | ||||||||
| Investment in subsidiaries | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES | ||||||||
| Current liabilities: | ||||||||
| Amounts due to related parties | ||||||||
| Interest payable | ||||||||
| Accrued expenses and liabilities | ||||||||
| Promissory note to related parties | ||||||||
| TOTAL LIABILITIES | $ | $ | ||||||
| SHAREHOLDERS’ EQUITY: | ||||||||
| Ordinary shares, par value $ per share, shares authorized; and shares issued and outstanding as of March 31, 2026 and March 31, 2025, respectively | ||||||||
| Preference shares, par value $ per share, shares authorized; and shares issued and outstanding as of March 31, 2026 and March 31, 2025, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Statutory reserve | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive income | ||||||||
| TOTAL SHAREHOLDERS’ EQUITY | $ | $ | ||||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | $ | ||||||
Condensed statements of loss
| For the years ended March 31, | ||||||||||||
| 2026 | 2025 | 2024 | ||||||||||
| Revenue | $ | $ | $ | |||||||||
| Cost of revenue | ||||||||||||
| Gross profit | ||||||||||||
| Operating expenses: | ||||||||||||
| General and administrative expenses | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Share of loss in subsidiaries | ( | ) | ( | ) | ( | ) | ||||||
| Others, net | ( | ) | ( | ) | ||||||||
| Loss before income tax provision | ( | ) | ( | ) | ( | ) | ||||||
| Provision for income tax | ||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| F-31 |
SKILLFUL CRAFTSMAN EDUCATION TECHNOLOGY LIMITED.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Condensed statements of comprehensive loss
| For the years ended March 31, | ||||||||||||
| 2026 | 2025 | 2024 | ||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Other comprehensive income/(loss) | ( | ) | ||||||||||
| Total comprehensive loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
Condensed cash flow
| For the years ended March 31, | ||||||||||||
| 2026 | 2025 | 2024 | ||||||||||
| Net cash used in operating activities | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Net cash used in investing activities | ||||||||||||
| Net cash provided by financing activities | ||||||||||||
| Net cash outflow | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
Basis of presentation
Condensed financial information is used for the presentation of the Company, or the parent company. The condensed financial information of the parent company has been prepared using the same accounting policies as set out in the Company’s consolidated financial statements.
The parent company only condensed financial information is not the general-purpose financial statements of the reporting entity and should be read in conjunction with the consolidated financial statements of the Company.
| F-32 |