Filing identity and reporting period
Important mismatch: The supplied document is RISE Education Cayman Ltd’s annual report on Form 20-F for the fiscal year ended December 31, 2021. It is not a Naas Technology Inc. filing and does not report 2020 Q4 results. The filing discusses a proposed merger with NaaS, but the transaction had not closed as of the report date.
RISE sold substantially all its operating assets in December 2021 following Chinese regulatory restrictions on academic after-school tutoring. At year-end, it was a shell company with no business operations. Financial statements are prepared under U.S. GAAP and reported in RMB.
Financial results and liquidity
Amounts below are RMB millions unless stated otherwise. 2021 operating-business results are presented as discontinued operations; continuing operations chiefly reflect the remaining holding company and transaction-related items.
| Metric | 2021 | 2020 | Change or context |
|---|---|---|---|
| Revenue, discontinued operations | 890.4 | 958.5 | Down 7.1% |
| Gross profit, discontinued operations | 294.0 | 355.5 | Gross margin was approximately 33.0%, versus 37.1% |
| Operating loss, discontinued operations | (315.2) | (120.8) | Loss widened |
| Net loss, discontinued operations | (507.3) | (123.9) | Includes a reported loss on sale of discontinued operations of 97.8 |
| Continuing-operations income | 249.1 | (17.6) | 2021 included a 279.1 gain on troubled debt restructuring |
| Consolidated net loss | (258.2) | (141.4) | Loss widened |
| Operating cash flow | (539.8) | (205.7) | Large outflow, mostly from discontinued operations |
| Cash, cash equivalents and restricted cash at year-end | 16.0 | 639.2 | 2021 balance relates to continuing operations |
Year-end total assets were RMB30.7 million and total liabilities RMB119.8 million; shareholders’ equity was a deficit of RMB89.1 million. The company reported a working-capital surplus of RMB22.0 million. Liabilities included a RMB108.3 million interest-free convertible loan from major shareholder Bain Capital, due June 30, 2023 after an amendment. The filing reports no continuing-operations revenue and no specific forward financial guidance.
2021 investing cash outflow was RMB37.6 million and financing cash outflow RMB39.1 million. Cash and cash equivalents, excluding restricted cash, were RMB16.0 million at year-end.
Material changes, outlook and risks
- COVID-19 disruptions and China’s 2021 tutoring regulations materially affected the former education business. The company completed sales of substantially all assets on December 28 and 30, 2021.
- The lender settlement released approximately US$55.7 million of obligations in exchange for approximately US$10.4 million and transfer of the Edge business; the restructuring generated the RMB279.1 million accounting gain.
- On February 8, 2022, RISE agreed to acquire NaaS through an all-share merger. Shareholders approved the transaction on April 29, 2022; completion remained subject to closing conditions, including regulatory approvals and continued Nasdaq listing. Management expected the transaction to provide funding and alleviate going-concern doubt, but completion was not assured.
- Nasdaq had granted continued listing through June 30, 2022 subject to conditions, including completion of the business combination and meeting initial listing standards. Failure to meet them could result in delisting.
- The filing identifies material weaknesses in internal controls due to insufficient personnel with U.S. GAAP and SEC reporting expertise; management concluded disclosure controls were ineffective at December 31, 2021. Management planned remediation, including adding accounting resources.
- Auditor Ernst & Young resigned in November 2021, citing unresolved matters relating to the regulatory impact and going concern that prevented it from progressing the 2021 audit. BDO was appointed in January 2022 and issued an unqualified opinion on the 2021 financial statements; the auditor did not attest to internal control effectiveness.
- Additional investor risks include the company’s shell status and limited liquidity, dependence on the merger, potential conflicts involving Bain Capital and other interested parties, China regulatory and currency risks, and potential U.S. trading restrictions if PCAOB inspection requirements are not met. The filing states that no dividends are expected in the foreseeable future.
Most important facts to verify
- Confirm the issuer and period: this is RISE Education Cayman Ltd’s FY2021 Form 20-F, not a Naas Technology Inc. 2020 Q4 report.
- Check the final status and terms of the NaaS merger, including closing, share issuance and Nasdaq listing compliance; the filing describes a pending transaction.
- Review the debt settlement documents and convertible-loan terms, including the stated maturity and any conversion or repayment events.
- Assess the basis for the RMB279.1 million restructuring gain and the RMB97.8 million disposal loss, which materially affect reported results.
- Evaluate the company’s post-sale cash needs, going-concern assumptions and progress in remediating internal-control weaknesses.