Business context and reporting period
This Form 20-F is the annual report of Meten Holding Group Ltd., not BTC Digital Ltd. It covers the fiscal year ended December 31, 2021 and was filed May 16, 2022. The company was a Cayman Islands holding company whose operating business was conducted primarily through PRC subsidiaries and variable interest entities (VIEs).
At December 31, 2021, the business was primarily China-based English language training, including general adult ELT, junior ELT, overseas training and online ELT through the Likeshuo platform. The filing also describes a planned transition into blockchain, cryptocurrency mining and metaverse education beginning in 2022; cryptocurrency revenue was not part of the 2021 operating results.
Financial performance and liquidity
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Revenue | RMB728.996 million | RMB897.035 million | Down 18.7% |
| Gross profit | RMB245.295 million | RMB289.958 million | Down 15.4% |
| Gross margin | 33.6% | 32.3% | Up 1.3 percentage points |
| Loss from operations | RMB365.423 million | RMB400.788 million | Improved 8.8% |
| Net loss | RMB386.297 million | RMB412.783 million | Improved 6.4% |
| Net loss attributable to shareholders | RMB384.299 million | RMB410.985 million | Improved 6.5% |
| Operating cash flow | $(RMB459.303 million) | $(RMB343.218 million) | Outflow increased |
| Investing cash flow | $(RMB71.943 million) | $(RMB0.680 million) | Higher outflow |
| Financing cash flow | RMB608.017 million | RMB292.640 million | Higher inflow |
Revenue mix shifted toward online ELT. Online ELT revenue was RMB290.352 million, or approximately 39.8% of revenue, versus RMB289.715 million, or 32.3%, in 2020. General adult ELT revenue fell to RMB176.795 million from RMB333.500 million, while overseas training revenue increased to RMB151.110 million from RMB130.567 million and junior ELT revenue declined to RMB97.984 million from RMB130.348 million.
Cash and cash equivalents were RMB168.404 million at year-end, with total cash, cash equivalents and restricted cash of RMB177.244 million. Total liabilities were RMB848.791 million, including RMB6.000 million of current bank loans, RMB337.932 million of current financial liabilities from customer contracts, RMB213.006 million of current deferred revenue and RMB41.758 million due to related parties. Current liabilities exceeded current assets by RMB325.113 million, and the auditor reported substantial doubt about the company’s ability to continue as a going concern.
Material changes versus the prior comparable period
- COVID-19 resurgence and the reduction and closure of offline learning centers drove the revenue decline and lower student enrollment.
- Total student enrollment was 64,067 in 2021, compared with 70,310 in 2020. Self-operated learning centers declined from 105 at December 31, 2020 to 32 at December 31, 2021.
- Cost of revenue fell 20.3% to RMB483.701 million, and gross margin improved despite lower revenue, reflecting cost controls and center closures.
- Selling and marketing expense decreased 19.2% to RMB250.850 million; general and administrative expense decreased 2.0% to RMB341.455 million; research and development expense decreased 42.2% to RMB18.413 million.
- Significant unusual or non-operating items included RMB81.605 million of goodwill impairment, RMB37.829 million of losses on disposal and closure of subsidiaries and branches, RMB9.678 million of foreign exchange losses, RMB23.334 million of share-based compensation and RMB7.969 million of government grants.
- Financing inflows were substantial: the company recorded RMB744.351 million of equity contributions and raised additional funds through 2021 offerings. Proceeds were used for working capital, new businesses and acquisition of mining machines.
- The company completed a 30-for-1 reverse share split on May 4, 2022. The filing presents many historical share and per-share amounts retrospectively adjusted for the split.
Guidance, outlook, risks and contingencies
The filing does not provide quantified 2022 revenue, earnings or cash-flow guidance. Management expected cryptocurrency mining to represent a material portion of total revenue for the year ending December 31, 2022. As of the filing date, approximately 1,482 bitcoin miners had been deployed in Tennessee and Pennsylvania, and 600 additional miners had been purchased for expected delivery in the second half of 2022.
- Going concern: The company reported recurring losses, negative operating cash flow and net current liabilities. Management’s liquidity plan depends on cost reductions, reopening operations, cash on hand, operating cash flow and available credit facilities, but the auditor stated that substantial doubt remains.
- VIE and PRC regulatory risk: The company does not own the principal PRC operating entities and relies on contractual arrangements. Changes in PRC law or enforcement could restrict the arrangements, cause penalties or require deconsolidation of the VIEs.
- Education regulation: Seven self-operated centers lacked required permits or licenses or operated beyond authorized business scope; these centers represented approximately 10.7% of 2021 gross billings. Online operations also lacked certain potentially required audio-visual, internet culture and online publishing permits.
- Cryptocurrency transition: Future results may depend heavily on bitcoin prices, mining difficulty, mining rewards, electricity costs, access to banking services, regulatory developments, equipment availability and the company’s limited operating experience in the sector.
- Internal controls: Management concluded that internal control over financial reporting was ineffective due to insufficiently trained accounting personnel, inadequate U.S. GAAP and SEC reporting resources, and weaknesses in approval and user-access review procedures. The company is exempt from auditor attestation as an emerging growth company.
- Refund and installment exposure: 2021 refunds were RMB108.5 million, with a 16.4% course withdrawal rate. Approximately 24% of gross billings used third-party installment arrangements, whose participants had an approximately 27.1% withdrawal rate versus 9.0% for lump-sum customers.
- Listing risk: Nasdaq notified the company of a minimum bid-price deficiency. The reverse split was intended to address the deficiency, but the filing stated that compliance had not yet been regained as of the filing date.
- Dividend and cash-transfer constraints: The company does not expect to pay dividends in the foreseeable future. PRC foreign-exchange controls, statutory reserves and VIE restrictions may limit transfers of cash to the Cayman Islands holding company.
Most important facts for investors to verify
- Confirm the issuer identity: the supplied filing is for Meten Holding Group Ltd. under Nasdaq symbols METX and METXW, not BTC Digital Ltd.
- Review the auditor’s going-concern language and reconcile reported cash with RMB325.113 million of net current liabilities and RMB459.303 million of operating cash outflow.
- Assess whether the planned cryptocurrency mining transition generated sustainable revenue and cash flow after 2021, including miner deployment, electricity costs, bitcoin production and asset financing.
- Verify the status of the Nasdaq minimum-bid-price deficiency and any subsequent listing or delisting actions.
- Evaluate the consequences of the two material weaknesses in internal control and whether remediation has been completed.
- Verify licensing and permit status for the seven affected learning centers and the online education platform.
- Review the VIE contractual arrangements, PRC regulatory developments and the ability to move cash from PRC entities to the offshore holding company.
- Confirm the impact of the 30-for-1 reverse split and any subsequent dilution from warrants, equity incentives or additional offerings.