Business Context and Reporting Period
Scienjoy Holding Corporation, formerly Wealthbridge Acquisition Limited, completed its acquisition of 100% of Scienjoy Inc. on May 7, 2020 and ceased to be a shell company. Scienjoy operates Chinese mobile and PC live-streaming platforms, principally Showself, Lehai, and Haixiu, through subsidiaries and variable interest entities. The filing presents unaudited Scienjoy financial information for the three months ended March 31, 2020, compared with the same period in 2019, prepared under U.S. GAAP.
Key Financial Metrics
| Metric | Q1 2019 | Q1 2020 | Change |
|---|---|---|---|
| Total revenue | RMB188.6 million | RMB216.3 million | 15% increase |
| Gross profit | RMB35.4 million | RMB51.8 million | 47% increase |
| Gross margin | Approximately 19% | Approximately 24% | Improved |
| Income from operations | RMB28.5 million | RMB40.1 million | 40% increase |
| Income before tax | RMB28.3 million | RMB39.7 million | 40% increase |
| Net income | RMB26.9 million | RMB37.7 million | 40% increase |
| Net margin | Approximately 14% | Approximately 17% | Improved |
| Operating cash flow | RMB33.4 million | RMB47.9 million | Increase |
Revenue was primarily generated from consumable virtual items, which increased from RMB182.0 million to RMB209.6 million. Time-based virtual item revenue declined from RMB6.6 million to RMB5.7 million, while technical services generated RMB1.0 million in Q1 2020.
As of March 31, 2020, cash and cash equivalents were RMB183.4 million, compared with RMB137.4 million at December 31, 2019. Total current assets were RMB296.0 million and total current liabilities were RMB95.3 million, implying reported working capital of approximately RMB200.7 million. Accounts receivable declined to RMB100.0 million from RMB120.1 million at December 31, 2019.
Net cash used in investing activities was RMB31 thousand, and net cash used in financing activities was RMB1.8 million. Cash increased by RMB46.1 million during Q1 2020. The filing does not present a separate consolidated debt balance for Scienjoy; it reports current liabilities and related-party balances but does not clearly identify total interest-bearing debt.
Material Changes Versus the Prior Comparable Period
- Paying users increased 74%, from 139,165 to 242,265, while active users increased 10% to approximately 12.2 million.
- Broadcasters increased 24%, from 10,881 to 13,494.
- Overall average revenue per paying user declined from RMB1,355 to RMB889, with revenue growth driven primarily by the larger paying-user base.
- Showself revenue increased modestly to RMB115.4 million; Lehai revenue declined to RMB37.3 million; Haixiu revenue increased to RMB62.5 million.
- Revenue-sharing fees increased 11% to RMB139.2 million, but declined to approximately 64% of revenue from 66%.
- User acquisition costs declined 22% to RMB17.5 million, and bandwidth costs declined 49% to RMB1.0 million.
- Sales and marketing, general and administrative, and research and development expenses increased to RMB1.4 million, RMB3.5 million, and RMB6.4 million, respectively, reflecting increased promotional activity, personnel, professional fees, and Nasdaq-related costs.
- On April 2, 2020, the company’s VIE, Zhihui Qiyuan, agreed to lend RMB50 million to an unrelated borrower at a People’s Bank of China benchmark interest rate, maturing April 1, 2021. The default rate is 24% per annum.
- The Business Combination resulted in approximately 23.25 million shares outstanding immediately after closing, after redemptions. Sellers received or were issued shares and may receive additional earn-out shares based on 2020 and 2021 income targets and specified share-price conditions.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
Management stated that COVID-19 did not have a material net impact on consolidated financial position or Q1 2020 results. Operations were closed during January and February under government mandates, employees largely returned to offices beginning in March, and management reported increased online engagement. Management cautioned that the pandemic could materially adversely affect future operations, liquidity, financial condition, and results depending on duration, severity, resurgence, government actions, and broader economic conditions.
Management believes cash on hand and internally generated operating cash flow will be sufficient to fund operations for at least the next 12 months. The company may seek additional financing or equity capital, which could dilute shareholders, while debt financing could impose repayment obligations and restrictive covenants.
Contractual obligations as of March 31, 2020 totaled RMB35.0 million, consisting of RMB12.6 million payable to related parties and RMB22.4 million of operating lease obligations. Future operating lease commitments were not yet recognized on the balance sheet under the then-applicable accounting guidance.
The company disclosed PRC foreign-exchange restrictions, concentration of cash and receivables in China, dependence on VIE structures, live-streaming regulatory and platform risks, and uncertainty regarding collection of receivables. A Lehai-related unfair-competition case resulted in a RMB210,000 first-trial judgment; Scienjoy appealed and was awaiting a decision.
The company changed its independent registered public accounting firm from Marcum LLP to Friedman LLP effective May 12, 2020. The filing states that there were no disagreements or reportable events with Marcum. The board and executive team also changed following the Business Combination, with Xiaowu He becoming CEO and chairman, Bo Wan becoming COO, and Denny Tang becoming CFO.
Important Facts for Investors to Verify
- Review the final post-merger capitalization, including seller shares, escrow shares, earn-out shares, warrants, advisory shares, and potential dilution.
- Confirm the terms, enforceability, and credit exposure associated with the RMB50 million loan to the unrelated borrower.
- Reconcile the unaudited Q1 2020 financial statements and updated pro forma information filed as Exhibits 99.2 and 99.3.
- Assess the sustainability of user growth and the decline in average revenue per paying user.
- Evaluate COVID-19 effects after Q1 2020, including potential impacts on user spending, broadcasters, employees, liquidity, and regulatory conditions.
- Review VIE arrangements, PRC ownership and foreign-exchange restrictions, and the company’s ability to move cash from PRC operating entities to the holding company.
- Monitor the Lehai litigation appeal and other legal, regulatory, content, and platform-compliance risks.
- Confirm the implications of the auditor transition and the company’s post-combination governance and executive changes.