Interpreting the new US stock market | Behind the significant reduction in fundraising amount, the continuous expansion of losses for Soft Cloud Technology (RYET.US)

Soft Cloud Technology RYET.US) Going Public in the US May Face Cold Reception. In the latest version of the F-1/A filing submitted on December 9, Soft Cloud Technology said it will issue 3.75 million shares at a price between $4-5 per share, raising $15-18.75 million. In the F-1 filing submitted to the SEC on December 29, 2023, Soft Cloud Technology stated that it will issue 5 million common shares at a price of $5-6 per share, raising $25-30 million. Clearly, the revised issuance plan in the latest version has reduced the number of shares issued and the price from the initial plan, resulting in a significant reduction in the fundraising scale, which is often a result of a lack of market enthusiasm for the company going public. This may be related to Soft Cloud Technology's poor performance. As a provider of AI learning software focused on China's K12 education, Soft Cloud Technology's revenue for fiscal years 2021-2024 (12 months ending March 31) was $11.4994 million, $12.8031 million, $9.1329 million, and $9.154 million, respectively. The net profit for the same period was $0.4724 million, -$0.7395 million, -$1.2426 million, and -$2.1041 million. It is evident that over the past four years, Soft Cloud Technology's revenue has declined overall, and the losses have increased significantly after a turn from profit to loss. Smart Homework Learning Platform has approximately 230,000 monthly active users Since its establishment in 2012, Soft Cloud Technology has focused on the K-12 education sector in China. It has introduced AI technology into schools, aiming to reform traditional education and learning methods in China, providing new teaching, learning, and assessment methods for schools, teachers, and students in the AI era to enhance efficiency and reduce the burden of modern education. As of now, Soft Cloud Technology has two main product lines, SmartExam Solution (intelligent exam) and SmartHomework Solution (intelligent homework). The SmartExam solution refers to creating computer room exams for degree-level exams for clients. This business has two main sources of revenue, including the development and implementation of the SmartExam platform, as well as comprehensive professional exam services that include software customization, hardware sales, and other services. Soft Cloud Technology's SmartExam solution has provided academic exam services for the subject of biology since 2013 and expanded to all 11 assessment subjects in 2017, covering exam content, scoring and evaluation, on-site management, training and supervision, and standard security. The SmartHomework solution refers to providing personalized learning solutions for students to help them study more effectively, allowing teachers to adjust guidance based on specific students' needs. In terms of revenue structure, Soft Cloud Technology's SmartHomework solution has developed a diversified monetization model, including platform development, software customization and content development, licensing services, personalized exercise books, MOTK Pro, and digital services in various categories. Platform development involves creating digital teaching platforms, including AI study rooms, for clients to distribute, submit, correct, and analyze homework in a completely online and digital manner, greatly reducing the burden on teachers and improving student performance accurately. Software customization and content development involve designing, developing, and installing customized software for clients and developing educational content for them. This is a new product line launched by Soft Cloud Technology in 2022. Licensing services involve Soft Cloud Technology licensing its exercise question bank to schools or educational companies and charging monthly or annual fees for it. Personalized exercise books and MOTK Pro are VIP services introduced by Soft Cloud Technology in its system for students. These two services cover all subjects from grades 4 to 12, and students pay a subscription fee to enjoy these services, which sets them apart from the free services for students. Digital services involve converting publishers' publications into digital format and charging service fees for it. According to the prospectus, Soft Cloud Technology's online academic exercise question bank within the SmartHomework solution has accumulated over 10 billion test data as of now. These data come from approximately 16,700 schools (13,400 schools in Jiangxi Province and over 3,300 schools in other provinces) and about 15.1 million user-generated data. With the continuous upgrade of online learning data and AI algorithms, Soft Cloud Technology's internal evaluation accuracy for providing tailored effective learning strategies to students has reached 97%. As of March 31, 2024, Soft Cloud Technology had approximately 20,177 paying premium subscribers and a total of about 80,452 subscribers. There were approximately 329,092 monthly active users. The company is establishing and deepening strategic business alliances with large national publishers, China Mobile Limited, and other companies with vast customer resources to acquire new paying subscribers. As of September 30, 2024, over 15.1 million K-12 students were using Soft Cloud Technology's online SmartHomework learning platform, with approximately 230,000 being monthly active users. Losses Continue to Increase due to Accelerated Expansion in the B-side Soft Cloud Technology's overall revenue has been declining since fiscal year 2021, which is somewhat related to the Double Reduction policy implemented in the education industry on July 24, 2021. This policy caused numerous educational institutions to close or transform, resulting in significantly reduced customer demand. As a result, Soft Cloud Technology's two main product lines experienced a slight shrink in business scale in fiscal year 2023, with total revenue falling by 28.66% to $9.1329 million. In fact, with reduced market demand and increased competition, Soft Cloud Technology's SmartExam solution business is struggling. The proportion of this business in the company's total revenue decreased from 20.3% in fiscal year 2021 to 6.3% in fiscal year 2024, and the corresponding revenue decreased from $2.34 million to $0.5758 million. Based on market conditions, Soft Cloud Technology adjusted its marketing strategy to focus more on the SmartHomework solution. In terms of effectiveness, Soft Cloud Technology's SmartHomework solution in fiscal year 2024 has shown signs of growth, with increased revenue compared to the previous year. The company is optimistic about the future potential of this product line and plans to continue developing and expanding it in the coming years.Although the income has not returned to the level of the 2021 and 2022 fiscal years, it has increased by 14% compared to the 2023 fiscal year, indicating that the smart homework solution business may have reached its bottom.However, upon detailed analysis, it is not difficult to find that in recent years, the revenue structure of Winox Technologies' smart homework solution business has undergone significant changes. In the 2021 fiscal year, the major sources of revenue in the smart homework solution are digital services, personalized exercise books, and MOTK Pro services, which account for 44.1% and 16.8% of the total revenue respectively. These are the two core businesses in the smart homework solution, while the revenue from platform development accounts for 10.9% and licensing revenue accounts for 7.9%. By the 2024 fiscal year, the core businesses of Winox Technologies' smart homework solution are digital services and platform development services, which account for 57.6% and 34.3% of the total company revenue respectively. The revenue from personalized exercise books and MOTK Pro services now only accounts for 1%, a significant decrease from the 16.8% in the 2021 fiscal year. This is mainly due to new policies implemented from the 2022 fiscal year onwards that restrict the company's distribution capabilities, which hindered the sales of products and services aimed at consumers. In response to this situation, Winox Technologies has redeployed its smart homework solution services. The company has not only built a new distribution model for personalized exercise books and MOTK Pro services through telecommunications operators to ensure the continued operation of consumer-end businesses, but has also increased its focus on developing business-to-business services such as platform development, software customization, and content development to ensure the steady growth of the smart homework solution. Thanks to the continuous efforts in the business-to-business sector, the revenue from the smart homework solution services grew by 14% in the 2024 fiscal year. However, while adjusting the business structure to achieve revenue growth in the smart homework solution services, there have been some "side effects." Specifically, the significant increase in sales and marketing expenses when developing business-to-business customers has led to a noticeable increase in the proportion of total operating expenses, which has affected the company's overall profitability. This is a key reason for the increasing losses in Winox Technologies' profit from a profit in the 2022 fiscal year to a larger loss. According to the prospectus, in the 2021 fiscal year, Winox Technologies' total operating expenses accounted for only 33.7% of the revenue, but in the 2022-2024 fiscal years, the proportion of total operating expenses to total revenue increased to 50%, 51%, and 55%, showing a continuous upward trend. Looking closer, the fastest growing component of total operating expenses is sales and marketing expenses, which accounted for 12.9%, 17.1%, 27.4%, and 25.9% of the total revenue in the 2021-2024 fiscal years respectively, significantly impacting the company's profitability level. Therefore, it is not surprising that Winox Technologies has lowered its fundraising target, as various potential operational challenges pose a concern to its fundamentals. The smart exam solution continues to be weak in a backdrop of reduced market demand and intensified competition, and although the company has increased its efforts in expanding the smart homework solution business to achieve growth, consumer-end products have not shown a stabilizing trend yet, and the continuous development of business-to-business has affected the company's profitability and increased losses. Winox Technologies will need to demonstrate better performance in the future to prove its strength.