Lixiang Education Holding Co., Ltd. — FY2021 Form 20-F
Reporting period: Fiscal year ended December 31, 2021; this is an annual report, not a stand-alone Q4 filing. Financial statements are prepared under U.S. GAAP and reported in RMB. U.S. dollar equivalents are included in the filing for convenience.
Business context
The company is a Cayman Islands holding company operating in China through subsidiaries and contractual arrangements with variable interest entities (VIEs). Its business shifted from primary and middle-school education toward high-school education and planned vocational education. In November 2021, it completed its acquisition of Qingtian International School. Hangzhou Youxi, acquired in February 2021, was intended to support online education.
Following PRC private-education rules effective September 1, 2021, the company concluded it had lost control of Lianwai School, which provided compulsory education. It deconsolidated the school from that date and reported it as a discontinued operation. The company continued providing essential services to the school without recognizing revenue for those services after August 31, 2021.
Financial performance and position
| Metric | FY2021 | FY2020 |
|---|---|---|
| Continuing-operations revenue | RMB 34.4 million (US$5.4 million) | RMB 25.7 million |
| Gross profit / margin | RMB 17.1 million / 49.6% | RMB 15.0 million / 58.2% |
| Operating income (loss) | RMB (1.3) million | RMB 4.8 million |
| Income from continuing operations, net | RMB 0.25 million | RMB 3.95 million |
| Discontinued-operations income (loss), net | RMB (244.1) million | RMB 29.6 million |
| Net income (loss) | RMB (243.8) million | RMB 33.6 million |
| Operating cash flow, continuing operations | RMB 63.1 million | RMB 46.8 million |
| Operating cash flow, total | RMB 30.6 million | RMB 49.5 million |
| Cash and cash equivalents at year-end | RMB 199.4 million | RMB 203.6 million |
| Short-term bank borrowings | RMB 77.0 million | RMB 24.9 million |
FY2021 investing cash outflow was RMB 155.1 million, principally reflecting a RMB 100 million advance deposit related to a planned vocational-education acquisition and RMB 12.2 million for Qingtian International School. Financing cash inflow was RMB 115.7 million, including RMB 97 million of short-term bank borrowing proceeds. Total assets were RMB 532.7 million, total liabilities RMB 413.7 million, and shareholders’ equity RMB 119.1 million at year-end.
The balance sheet shows current assets of RMB 301.1 million against current liabilities of RMB 413.7 million, or net current liabilities of approximately RMB 112.6 million. A substantial component was RMB 308.8 million due to Lianwai School, which management said would be settled through negotiation. The filing’s liquidity discussion contains an internally inconsistent statement referring to both net current assets and net current liabilities; the consolidated balance sheet supports net current liabilities.
Material changes and unusual items
- Revenue rose 34.0% year over year, mainly due to food-procurement services and Qingtian International School tuition. However, 72.6% of reported FY2021 continuing revenue was attributed to the affected entity, principally Lianwai School-related rental and procurement activity. The company says it stopped recognizing revenue from Lianwai School services after August 31, 2021.
- Gross margin fell from 58.2% to 49.6%, primarily because Qingtian International School operated at a lower gross margin. General and administrative expenses increased 81.5% to RMB 18.4 million, and the company moved from operating profit to operating loss.
- The reported net loss includes a one-off RMB 249.4 million loss on deconsolidation of Lianwai School. Excluding discontinued operations, continuing operations reported net income of RMB 0.25 million.
- Other income was RMB 4.6 million, including government grants and a RMB 2.8 million gain recognized on the acquisition of Hangzhou Youxi. The gain resulted from the recorded fair value of acquired deferred tax assets exceeding consideration.
- Year-end cash declined by RMB 13.4 million overall. Cash-flow figures include discontinued operations; continuing operations generated RMB 63.1 million of operating cash, while discontinued operations used RMB 32.5 million.
Outlook, risks and contingencies
The filing provides no quantified earnings or revenue guidance. Management says it expects sufficient funding for operations and commitments over the next 12 months, based on cash-flow projections and available loan facilities, while identifying execution of business plans and access to financing as dependencies. The company intends to expand into vocational education; planned or subsequent transactions should not be treated as completed FY2021 results.
- Regulatory and VIE risk: PRC rules materially affected the company’s ability to control and transact with compulsory-education schools. The enforceability of VIE contracts and the company’s ability to receive economic benefits remain uncertain.
- Business concentration and transition: Operations are concentrated in one region and rely on Qingtian International School, while reported continuing revenue remained substantially connected to Lianwai School-related activity. Student enrollment, school classification, fee approvals and integration of acquired businesses are key uncertainties.
- Liquidity and cash access: Short-term debt increased, net current liabilities were substantial, and the large amount due to Lianwai School requires negotiation. PRC rules restrict transfers of cash and profits to the offshore holding company.
- Expansion and acquisition risk: The RMB 100 million deposit was tied to a planned acquisition involving Beijing S.K. Subsequent filings describe agreements to acquire vocational-education assets, but some administrative registration procedures were still incomplete as of the report date.
- China and listing risks: The filing highlights changing PRC oversight of education and offshore listings, currency controls, data and cybersecurity regulation, and possible future auditor-inspection requirements. The auditor stated it was headquartered in the United States and was not then subject to the PCAOB’s mainland China/Hong Kong inspection determination.
- Other disclosures: Management reported no material legal proceedings. It assessed internal control over financial reporting as effective and said earlier material weaknesses had been remediated; the auditor did not attest to internal controls because the company qualified as an emerging growth company.
Most important facts for investors to verify
- Reconcile the RMB 249.4 million deconsolidation loss and the discontinued-operations presentation with the audited notes and carrying values removed.
- Confirm the status, terms and collectability or settlement plan for the RMB 308.8 million payable to Lianwai School, and assess the company’s net current-liability position.
- Verify the actual post-2021 revenue base and dependence on Lianwai School-related procurement and rental activity, given the stated cessation of recognized school-service revenue after August 31, 2021.
- Track the use and recovery or application of the RMB 100 million acquisition deposit, and completion, consideration and registration of the vocational-education transactions.
- Check Qingtian International School’s classification registration, licensing, enrollment, utilization and fee approvals, as well as whether its VIE arrangements remain effective under PRC rules.
- Review the audited statements and subsequent filings for debt maturities, collateral and guarantees, cash availability across jurisdictions, and any changes in auditor or internal-control disclosures.