Wah Fu Education Group Ltd. — Form 20-F Summary
Reporting period: Fiscal year ended March 31, 2021, with comparisons to fiscal 2020 and 2019. This is an annual report, not a report for calendar-year 2020 Q4. Financial statements are prepared under U.S. GAAP and audited by YCM CPA, Inc., which issued an unqualified opinion on the financial statements.
Business context
Wah Fu provides online exam-preparation and continuing-education services, education platforms, and related technology services in China. Its business is conducted through PRC subsidiaries and a variable interest entity (VIE); the VIE holds the ICP license used for its online platform. Online education accounted for almost all fiscal 2021 revenue, with B2B2C services through institutions the largest channel.
Key financial metrics
| Metric (USD unless stated) | FY2021 | FY2020 |
|---|---|---|
| Revenue | $8.516 million | $5.637 million |
| Gross profit / margin | $4.518 million / 53% | $2.250 million / 40% |
| Operating income (loss) | $1.091 million | ($1.571 million) |
| Consolidated net income (loss) | $1.021 million | ($1.641 million) |
| Net income (loss) attributable to Wah Fu | $0.680 million | ($1.689 million) |
| Operating cash flow | $2.328 million | $0.938 million |
| Cash at year-end | $12.054 million | $6.834 million |
| Current assets / current liabilities | $15.033 million / $6.059 million | $10.251 million / $2.905 million |
| Working capital | $8.974 million | $7.346 million |
| Total assets / total liabilities | $16.973 million / $6.165 million | $12.565 million / $3.266 million |
Online education revenue rose 53.8% to $8.258 million; technology development and operation revenue declined 3.6% to $0.257 million. B2B2C revenue was $7.601 million, B2C revenue $0.657 million. The filing reports no outstanding bank or third-party loans due. Operating lease liabilities totaled approximately $0.362 million; disclosed future lease payments were $0.375 million. No material capital commitments or contingent liabilities were reported.
Material changes versus FY2020
- Revenue increased 51.1%, driven by online education, including more courses and 165 new cooperating colleges and training institutions.
- Gross margin improved to 53% from 40%; the company attributed the improvement primarily to higher online-education revenue and lower cost of revenue as a share of sales.
- Operating results swung from a $1.571 million loss to $1.091 million income. General and administrative expenses fell 14%, partly because there was no investment impairment charge in FY2021 versus $0.262 million in FY2020.
- Operating cash flow increased to $2.328 million. Deferred revenue rose by $2.406 million, while accounts receivable increased by $1.422 million, reflecting higher sales and longer service periods for some contracts.
- Investing cash flow was positive $2.355 million, principally reflecting repayment of related-party loans; FY2020 investing cash flow was negative $2.619 million, largely from lending to a related party. Financing cash flow was minimal in FY2021, compared with $4.851 million in FY2020, which included IPO proceeds.
Outlook, risks and unusual items
- Management said cash and expected operating cash flows should cover working-capital needs for at least 12 months. It plans to prioritize online education, expand institutional relationships and courses, and continue its provincial-partnership model. The filing gives no quantified revenue or earnings guidance.
- COVID-19 disrupted examination schedules and school operations, contributed to delayed customer payments, and created uncertainty around future continuing-education demand. Management said online delivery helped sustain operations, but future effects could not be reliably estimated.
- Net accounts receivable was $1.919 million, up from $0.543 million; the allowance for doubtful accounts was $0.694 million. Some receivables were more than 12 months old. The company warns that collection delays or failures could lead to additional bad-debt expense.
- Management concluded that disclosure controls and internal control over financial reporting were ineffective at March 31, 2021 because of a material weakness involving SEC disclosure requirements and documentation of financial reporting. Remediation includes hiring and training accounting staff and improving review procedures. The auditor did not provide an ICFR attestation.
- Key structural and regulatory risks include reliance on contractual VIE arrangements, uncertainty around PRC rules for foreign investment and online education, and the possibility that required licenses or permits could change. The company also cites foreign-exchange, cash-repatriation, data-security, competition, and market risks.
- A related party repaid $2.502 million of loans during FY2021; $0.079 million remained due at year-end. After year-end, the IPO underwriter exercised warrants for 59,052 shares at $6.50 per share; the filing says the transaction was completed April 30, 2021. Shares outstanding were 4,381,033 at March 31 and 4,440,085 as of July 2021.
- The company reported no material legal proceedings and has never paid a dividend; it does not anticipate paying one. It changed auditors in June 2021: Friedman LLP was dismissed and YCM CPA, Inc. appointed for the FY2021 audit. The filing reports no disagreements or reportable events involving the former auditor.
Important facts for investors to verify
- Reconcile consolidated net income of $1.021 million with $0.680 million attributable to Wah Fu, and assess the contribution of non-controlling interests.
- Review collection status and subsequent receipts for aged receivables, the allowance, and the large increase in accounts receivable.
- Track remediation of the material weakness and whether management later concludes reporting controls are effective.
- Assess the legal and operational enforceability of the VIE arrangements, required PRC licenses, and any effects of evolving education regulations.
- Confirm post-year-end warrant proceeds, the resulting share count, and cash availability across mainland China and Hong Kong; some mainland deposits are uninsured.