Executive Summary / Key Takeaways

• Wah Fu Education Group Limited operates as a specialized online education and technology solutions provider in China, leveraging its proprietary platforms and established institutional partnerships, particularly in self-study examination preparation and vocational training.
• The company recently reported net losses of $372,848 and $376,860 for fiscal years 2025 and 2024, respectively, a significant shift from the $1.67 million net income in fiscal year 2023. This decline is primarily attributed to adverse policy changes in Hunan province impacting its B2B2C online education services.
• Wah Fu's competitive edge stems from its long operating history, brand recognition, and a suite of customized technological platforms, including an AI examination system that enhances grading efficiency, fostering strong ties with over 200 universities.
• Significant investment risks include the inherent uncertainties of its Variable Interest Entity (VIE) structure in China, the potential for delisting under the Holding Foreign Companies Accountable Act (HFCAA), and the concentrated voting power of its Chairman due to a dual-class share structure.
• The company anticipates continued pressure on B2B2C revenue from policy changes but expects slight growth in technological development services, alongside increased future R&D expenditure to maintain its technological advantage.

A Specialized EdTech Player in China's Evolving Landscape

Wah Fu Education Group Limited has cultivated a distinct position within China's dynamic online education sector over two decades, specializing in online exam preparation services and related technology solutions. The company's core strategy revolves around leveraging its proprietary cloud-based platforms and deep-seated relationships with educational institutions across China. This approach allows Wah Fu to cater to a growing demand for higher and professional education, particularly as individuals seek to differentiate themselves in a competitive job market. The broader industry benefits from increasing internet and broadband penetration rates in China, making online learning an increasingly accessible and convenient pathway for educational and career advancement.

Wah Fu's operational foundation is built upon its comprehensive suite of proprietary online education platforms. These platforms are designed for diverse applications, including standard examination preparation, professional training, and interactive educational programs. The company's technological differentiators are substantial, encompassing a self-study examination platform, a continuing education platform, a non-diploma training platform, a Vocational Education 1+X and Higher Vocational Enrollment Expansion Teaching and Educational Administration Platform, the Huafu E-School System, and a paperless examination platform. These systems are compatible across multiple operating environments, including Windows, H5, Android, and iOS.

A key technological advantage is Wah Fu's AI examination platform, which provides a complete online solution for paperless examinations. This platform integrates question databases, test paper management, grading, and monitoring, with "AI technology [assisting] teachers in automatically grading subjective questions, improving grading efficiency." This innovation offers a tangible benefit by streamlining assessment processes and potentially reducing operational costs for client institutions. The company's research and development efforts are strategically focused on "improving our online training data collection, programs focused on intelligent study, education resource integration and technology service," with an anticipated increase in future R&D expenditure. Wah Fu's intellectual property portfolio, including 147 software registrations and 24 trademarks, underscores its commitment to technological leadership. For investors, these technological capabilities are crucial, forming a competitive moat that supports long-term client retention and potentially higher-value service offerings, thereby contributing to sustained financial performance and market positioning.

Business Model and Financial Performance

Wah Fu's business model is primarily structured around two segments: Online Education Services and Technological Development and Operation Service. The Online Education Services segment is further divided into B2B2C (Online Education Cloud Service) and B2C (Online Training Service). The B2B2C model provides online education platforms to over 200 universities and training institutions, offering more than 12,936 courses. In fiscal year 2025, approximately 3.20 million courses were delivered through these platforms. The B2C service directly provides online training and exam preparation to students, with around 340,000 courses provided in fiscal year 2025. Revenue for both B2B2C and B2C services is typically generated from fees paid by students or institutions based on the number of courses taken. The Technological Development and Operation Service segment focuses on designing, developing, and maintaining online education platforms and courses for clients, charging fees based on development and maintenance costs plus a 30% profit margin.

The company's financial performance in recent years reflects a challenging operating environment. Total revenue for fiscal year 2025 was $6.19 million, a notable decrease from $7.22 million in fiscal year 2024 and $10.69 million in fiscal year 2023. This decline was primarily driven by the Online Education Services segment, which saw revenue fall by 18.94% to $5.68 million in fiscal year 2025 from $7.01 million in fiscal year 2024. The B2B2C component was particularly affected by a new policy in Hunan province, which suspended the use of process assessment scores for newly enrolled self-study examination students from April 2024. Conversely, revenue from Technological Development and Operation Services demonstrated robust growth, increasing by 138.44% to $502,556 in fiscal year 2025 from $210,768 in fiscal year 2024, mainly due to increased technological support for server clients.

Despite efforts to manage costs, Wah Fu reported net losses of $372,848 in fiscal year 2025 and $376,860 in fiscal year 2024, a stark contrast to the net income of $1.67 million in fiscal year 2023. The gross margin remained relatively stable at 42% in fiscal year 2025 compared to 41% in fiscal year 2024, though it represents a significant decrease from 53% in fiscal year 2023. This indicates that while commission fees for online education services decreased, fixed costs did not decline proportionally with the revenue drop. Selling expenses decreased by 20.07% in fiscal year 2025, and general and administrative expenses decreased by 2.22%, reflecting management's efforts to reduce workforce and associated costs in response to revenue pressures.

Liquidity and Capital Resources

As of March 31, 2025, Wah Fu maintained a cash balance of $10.13 million, a decrease from $11.05 million in the prior year.

Working capital also saw a slight reduction, decreasing by 1.72% to $10.56 million from $10.75 million. A critical trend for investors is the company's shift to negative operating cash flow, with net cash used in operating activities amounting to $965,592 in fiscal year 2025 and $767,310 in fiscal year 2024, reversing a positive cash flow of $1.61 million in fiscal year 2023. This trend highlights the impact of declining revenues and the challenges in maintaining profitability.

Wah Fu operates as a British Virgin Islands holding company, relying on dividends from its PRC subsidiaries for its cash and financing needs. However, PRC regulations impose significant restrictions on these transfers, including requirements for statutory reserve appropriations (at least 10% of after-tax profits until 50% of registered capital) and controls on currency conversion. As of March 31, 2025, $975,014 was restricted from distribution by PRC subsidiaries. Historically, there have been no cash flows between the holding company and its subsidiaries, with funds primarily transferred among PRC subsidiaries for working capital. Despite these constraints, management asserts that current cash and future operations will be sufficient to meet working capital needs for at least the next 12 months. The company's low reliance on property and equipment is reflected in its minimal capital expenditures in recent fiscal years.

Competitive Landscape and Positioning

The private education market in China is highly fragmented, rapidly evolving, and intensely competitive. Wah Fu positions itself as a leading service provider in the self-study online training area, particularly for its B2B2C services. Its primary direct competitors in this segment include Beijing Shangde Online Education Technology Co., Ltd., Suzhou Qingying Feifan Software Technology Co., Ltd., Beijing Aopeng Long Distance Education Center Co., Ltd., and Hongcheng Technology Development Co. Ltd. Wah Fu asserts competitive advantages in "geographic coverage, the number of partner schools, the number of courses and our years of operating experience in the industry." For its B2C services, key competitors are Beijing Shangde Online Education Technology Co. Ltd. and Bejing Dongda Zhengbao Technology Co., Ltd., alongside traditional offline institutions. Here, Wah Fu's "long operating history, our brand recognition and the number and types of courses that we offer" are cited as competitive strengths. In technology services, the company faces rivals such as Shenzhen Youxuepai World Education Development Co., Ltd., Teewon Digital Media Technology Co., Ltd., Founder Tech Co., Ltd., and Hanwon Technology Co., Ltd. Wah Fu believes its "long-established relationship with our clients, experienced technology team and many years experience will provide us an edge" against new market entrants.

Compared to larger, more diversified Chinese EdTech players like New Oriental Education & Technology Group Inc. (EDU), TAL Education Group (TAL), and Gaotu Techedu Inc. (GOTU), Wah Fu occupies a more specialized niche. While EDU and TAL often target broader K-12 and test preparation markets with significant brand recognition and scale, Wah Fu's strength lies in its customized technological solutions for institutional clients, particularly in self-study examinations and vocational training. For instance, Wah Fu's proprietary platforms offer tailored integration for universities, potentially providing greater operational efficiency in course delivery and administration compared to the more generalized approaches of its larger counterparts. This focus on specialized tech integration and institutional relationships provides a defensive moat against competitors whose primary focus is direct-to-consumer tutoring. However, Wah Fu's smaller scale may result in higher operating costs and slower innovation compared to the extensive resources and R&D capabilities of its larger rivals, potentially impacting its growth rates and profitability. The company's ability to secure stable revenue streams through institutional contracts helps to mitigate some of the competitive pressures faced by more consumer-oriented models.

Risks and Challenges

Investing in Wah Fu's ordinary shares involves a high degree of risk, particularly given its operational structure and the regulatory environment in China. A paramount concern is the company's Variable Interest Entity (VIE) structure, necessitated by PRC legal restrictions on foreign ownership in internet-based businesses. Wah Fu does not hold equity interest in its VIE, Beijing Digital Information, relying instead on contractual arrangements. These arrangements "have not been tested in court," and Chinese regulatory authorities "could disallow this variable interest entity structure, which would likely result in a material change in Wah Fu’s operations and/or a material change in the value of the securities we have registered for sale, including that it could cause the value of Wah Fu’s securities to significantly decline or become worthless."

Furthermore, the company faces substantial uncertainties related to the evolving PRC regulatory landscape. Recent government actions concerning business operations, cybersecurity reviews, and anti-monopoly enforcement create an unpredictable environment. While Wah Fu's PRC legal counsel advises that the company is not directly subject to these actions, "it is highly uncertain what the potential impact such modified or new laws and regulations will have either on the WFOEs or VIE’s daily business operation, the ability to accept foreign investments and list on a U.S. or other foreign exchange."

Another significant risk is the potential for delisting under the Holding Foreign Companies Accountable Act (HFCAA). Although Wah Fu's auditor, YCM CPA INC., is a PCAOB-registered public accounting firm headquartered in the United States and subject to regular inspections, the HFCAA mandates delisting if the PCAOB is unable to inspect an issuer's auditor for two consecutive years. Any future obstruction by PRC authorities could trigger this provision, severely limiting access to U.S. capital markets.

Specific policy changes have already demonstrated a direct impact on Wah Fu's financial performance. The government of Hunan Province's decision, effective April 2024, to no longer recognize examination scores from online self-taught examination platforms has "negatively affect[ed] our results of operations." The company explicitly states, "We do not expect to generate any revenue from the same source in Hunan Province for the foreseeable future," and acknowledges the risk that "there is no guarantee that those provinces will not follow suit and put forward similar policies in the future."

Finally, a dual-class share structure, adopted in January 2025, concentrates approximately 89.39% of the total voting power in Chairman Yang Yu. This "may prevent or discourage potential transactions that could benefit our other shareholders, including transactions involving a change of control," limiting the influence of public shareholders on critical corporate decisions.

Outlook and Strategic Direction

Wah Fu's outlook reflects a strategic pivot in response to recent challenges. The company anticipates a continued decrease in income from its B2B2C online education services, particularly due to the policy changes in Hunan province. This necessitates a greater focus on other growth avenues. Conversely, the technological development and operation services segment is expected to see a "slightly increase in the future," indicating a potential shift in revenue mix.

Management plans to "continue to increase the expenditure of research and development in the future," signaling a commitment to enhancing its proprietary technology and maintaining a competitive edge in intelligent study programs and education resource integration. The company is also addressing internal control deficiencies, with a remediation plan for fiscal year 2026 that includes reassessing controls, providing U.S. GAAP and SEC reporting training for accounting personnel, and increasing staffing levels. These initiatives are crucial for strengthening financial reporting and operational efficiency.

Regarding liquidity, while management projects sufficient cash flow for the next 12 months, the ongoing restrictions on cash transfers from PRC subsidiaries and the historical absence of dividends from these entities to the holding company suggest a constrained capital allocation environment. The company has remaining performance obligations of approximately $0.96 million for online education services, expected to be recognized by December 2027, and $37,374 for technological development services, expected by June 2025, providing some visibility into future revenue streams.

Conclusion

Wah Fu Education Group Limited stands at a critical juncture, defined by its specialized technological platforms and established institutional relationships within China's online education market. While its proprietary AI examination system and customized cloud services offer a distinct competitive advantage, particularly in the B2B2C segment, the company's recent financial performance has been significantly impacted by adverse regulatory changes. The shift to net losses in fiscal years 2025 and 2024 underscores the challenges of operating in a highly regulated and competitive environment, particularly with the direct impact of provincial policies on its core revenue streams.

For investors, the investment thesis hinges on Wah Fu's ability to effectively adapt its strategy, leverage its technological leadership, and navigate the complex regulatory and competitive landscape. The anticipated increase in R&D expenditure and efforts to strengthen internal controls are positive indicators of strategic intent. However, the inherent risks of the VIE structure, potential HFCAA delisting, and concentrated voting power demand careful consideration. Wah Fu's future success will depend on its capacity to expand its market presence beyond affected regions, innovate its service offerings, and demonstrate a clear path to sustainable profitability amidst ongoing policy evolution and intense competition.