Annual Report for Fiscal Year Ending June 30, 2024 (Form 20-F)

Operating and Financial Review and Prospects

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our combined financial statements and the related notes included elsewhere in this annual report. This discussion contains forward-looking statements that involve risks and uncertainties about our business and operations. Our actual results and the timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those we describe under "Item 3. Key Information-D. Risk Factors" and elsewhere in this annual report.

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Historically, we also operated in China through its subsidiaries and contractual arrangements with VIEs. On June 28, 2024, we exited the wealth management businesses in China by terminating the VIE arrangements with Hywin Wealth Management. Although the contractual arrangements with the remaining VIEs, namely Shanghai Hywin Network Technology and Shenzhen Panying, have not yet been terminated, we have not been able to exercise control over any of our PRC subsidiaries or VIEs given that all of the Company's PRC subsidiaries and VIEs are effectively owned or controlled by Han Hongwei and are seized in the PRC subsequent to Mr. Han's detention. Accordingly, Santech deems to have lost de facto control of all of its PRC subsidiaries, VIEs, and their associated assets and operations, and deems its contractual agreements with its VIEs as invalid. Accordingly, our combined financial statements for the year ended June 30, 2024 were prepared excluding such PRC subsidiaries and VIEs. For comparative purposes, for the years ended June 30, 2022 and 2023, our combined financial statements are recast to exclude PRC subsidiaries and VIEs as well.

As a result of such accounting treatment, historically for the years ended June 30, 2022, 2023 and 2024, our primary businesses reported in our financial statements were overseas wealth management and asset management business conducted outside the PRC. Subsequent to fiscal year ended June 2024, we have ceased to seek new business in overseas wealth management and asset management services, and have been phasing out the remaining business in this regard. We have repositioned to become a technology company and shifted our business focus to exploring consumer technology, consumer healthcare and enterprise technology as of the date of this annual report.

A.Operating Results

Key Factors Affecting Our Results of Operations

Key factors affecting our results of operations during the reported periods include the following. Due to the Company's change in business focus subsequent to the year ended June 30, 2024, our historical results may not be indicative of our future performance.

Business and Product Mix

We offered overseas wealth management services and asset management services, conducted outside the PRC during the years ended June 30, 2022, 2023 and 2024. Our revenues, operating profit and other aspects of our results of operations were affected by the degree of success of each business segment. In particular, wealth management services business was the larger business segment. The composition and level of net revenues that we derived from such services for a particular period were primarily affected by the types of products we distributed and the composition of different product types, as the product types determined the fee rates of one-time fees we can receive, which concurrently affected our revenues and operating costs and expenses.

Productivity of Client Relationship Manager Team

The client relationship manager team was essential to brand recognition, client base and servicing capacity and therefore, the productivity of our client relationship manager team was essential to our revenues and business operations during the years ended June 30, 2022, 2023 and 2024. The productivity of our client relationship manager team was also supported by our management and administration staff. Therefore, we measured our productivity by average revenue per employee, which were US$0.4 million, US$0.6 million, and US$0.8 million for the years ended June 30, 2022, 2023 and 2024, respectively.

Number of Active Clients

Revenue growth was primarily driven by the number of clients. We closely monitor the number of our active clients as a key operating metric. For the years ended June 30, 2022, 2023 and 2024, we had approximately 173, 885 and 478 active clients in overseas wealth management, defined as those who purchased products distributed or referred by us during any given period, and we had approximately 372, 380 and 343 active clients in asset management, defined as those who maintained as holders of our products or services within the given period, respectively. As a result of the redemption issues of its historical wealth management VIE in China, which the Company has now terminated and is no longer affiliated with, the Company suffered significant disruption to its brand, operations, and confidence of clients, which resulted in a significant loss of clients in the fiscal year ended 2024 and subsequently.

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Key Components of Results of Operations

Revenues

We generated revenues primarily from (i) wealth management services and (ii) asset management services. The table below sets forth the components of our revenues for the periods indicated. Our insurance brokerage services were included in wealth management services for reporting purposes.

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Wealth Management Services

For the three years ended June 30, 2024, we derived fee incomes from insurance referral and insurance brokerage services by referring clients to insurance brokers or insurance companies to purchase insurance products through our Hong Kong subsidiaries. These insurance products we offered included (i) life insurance products such as individual whole life insurance, individual term life insurance, universal life insurance and individual health insurance, (ii) annuity insurance products, and (iii) critical illness insurance products (including personal accident insurance products). The one-time referral fee incomes were computed as a pre-agreed percentage of insurance premiums received by the insurance companies from sales facilitated by our Hong Kong subsidiaries.

Asset Management Services

For the three years ended June 30, 2024, under asset management services, we provided asset management services in the offshore space through our licensed subsidiary in Hong Kong. Our revenues from the asset management services primarily consisted of management fees calculated either as a percentage of the asset under management of the funds or mandates, and to a lesser extent, retrocession from custodian banks, commissions from trade, and performance-based fees.

Operating Costs and Expenses

Our operating costs and expenses primarily consist of (i) compensation and benefits; (ii) sales and marketing expenses; (iii) general and administrative expenses; and (iv) share-based compensation expenses. The following table sets forth the components of our operating costs and expenses for the periods indicated.

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Compensation and benefits expenses

Our compensation and benefits are operating costs relating to wealth management and asset management services, which primarily include base salary, sales commission and other compensation and benefits of our relationship managers and insurance brokers, who directly contribute to our revenues generation activities, such as distribution of fund products and insurance products.

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Unpaid commissions were separately presented as commission payable and commission payable-long term on our combined balance sheets, depending on whether the amounts are expected to be paid within or after one year of each reporting date.

Sales and Marketing Expenses

Our sales and marketing expenses primarily include salaries and bonus for our sales and marketing staff, and other expenses related to marketing activities such as events and travel.

General and Administrative Expenses

Our general and administrative expenses primarily include compensation of management and administrative staff, rental and other expenses of our headquarters.

Share-based Compensation Expenses

On December 6, 2020, we adopted a share incentive plan, or the 2020 Plan. Under the Share Incentive Plan, the maximum aggregate number of ordinary shares available for issuance will be 5,000,000 ordinary shares, equal to 10% of the total outstanding ordinary shares of our company immediately prior to completion of our public offering. As of the date of this annual report, 1,776,000 restricted shares have been granted to our executive officers and directors under the 2020 Plan. For details of the 2020 Plan, see "Item 6. Directors, Senior Management and Employees-B. Compensation-Share Incentive Plans-2020 Plan." For the years ended June 30, 2022, 2023 and 2024, US$1.1 million, US$0.8 million and US$0.1 million were recorded in share-based compensation expenses, respectively.

Asset impairment loss

Impairment losses on long-lived assets are recorded in the year ended June 30, 2023 and 2024, related to our impairment of assets held in the PRC, and our intangible assets including software and licenses, as a result of significant disruption to our brand and our licensed financial services operations in Hong Kong during 2024.

Other (Expenses) /Income

Interest Income, Net

Our net interest income primarily represented interests from bank deposits for the years ended June 30, 2022, 2023 and 2024.

Other (Expenses)/Income, Net

Our net other income or expenses are recorded as a result of non-operating income or expenses. For the year ended June 30, 2022, 2023 and 2024, our other income or expenses mainly represented foreign exchange related losses.

Income Tax Expense

Cayman Islands

Santech Holdings Limited is incorporated in the Cayman Islands as an exempted company. Under the current laws of the Cayman Islands, our company is not subject to income or capital gains taxes. In addition, dividend payments are not subject to withholdings tax in the Cayman Islands.

British Virgin Islands ("BVI")

Under the current laws of the BVI, our subsidiaries incorporated in BVI are not subject to tax on income or capital gains. Additionally, upon payments of dividends by these BVI companies to their respective shareholders, no BVI withholding tax will be imposed.

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Hong Kong

Our subsidiaries incorporated in Hong Kong are subject to Hong Kong profits tax rate of 16.5% for taxable income generated from operations in Hong Kong. Effective from April 1, 2018, a two-tier corporate profits tax system was officially implemented in Hong Kong, which is 8.25% for the first HK$2.0 million of assessable profits, and 16.5% for the subsequent profits. In addition, the 8.25% tax rate can only be utilized by one entity in a controlled group, while all other entities in the controlled group utilize the 16.5% tax rate.

Results of Operations

The following table sets forth a summary of our combined results of operations for the periods indicated. The information should be read in conjunction with our combined financial statements and related notes included elsewhere in this annual report. The operating results in any period are not necessarily indicative of results that may be expected for any further period.

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Year Ended June 30, 2024 Compared to Year Ended June 30, 2023

Net Revenues

Our net revenues increased from US$18.6 million for the year ended June 30, 2023 to US$28.0 million for the year ended June 30, 2024, primarily due to a drop in our wealth management revenue in 2024.

Wealth management services

Our net revenues from wealth management services increased from US$15.6 million for the year ended June 30, 2023 to US$24.1 million for the year ended June 30, 2024, primarily due to a strong surge in demand for overseas insurance products post Covid-19 reopening in Hong Kong, particularly during the first half of the fiscal year, partially offset by a loss in the number of clients and as a result a reduction in the transaction value of overseas insurance products distributed on our platform during the second half of the fiscal year.

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Asset management services

Our net revenues from asset management services increased from US$3.0 million for the year ended June 30, 2023 to US$3.9 million for the year ended June 30, 2024, driven by growth in our total assets under management, partially offset by some loss of clients in the second half of the fiscal year.

Operating Cost and Expenses

Our total operating costs and expenses increased from US$22.2 million for the year ended June 30, 2023 to US$28.5 million for the year ended June 30, 2024.

Compensation and benefits

Our cost of compensation and benefits increased from US$6.5 million for the year ended June 30, 2023 to US$17.3 million for the year ended June 30, 2024, primarily due to increase in direct compensation to grow wealth management revenue and asset management revenue.

Sales and marketing expenses

Our sales and marketing expenses increased from US$2.7 million for the year ended June 30, 2023 to US$3.5 million for the year ended June 30, 2024, primarily due to increase in sales and marketing activities devoted to overseas wealth management and asset management businesses.

General and administrative expenses

Our general and administrative expenses decreased from US$7.0 million for the year ended June 30, 2023 to US$5.5 million for the year ended June 30, 2024, primarily due to reduction in overhead in the second half of the year ended June 30, 2024.

Share-based compensation expenses

Our share-based compensation expenses decreased from US$0.8 million for the year ended June 30, 2023 to US$0.1 million for the year ended June 30, 2024, primarily because most of the options issued by the 2018 and 2019 Plan have been fully vested in prior years. For details, see "Item 6. Directors, Senior Management and Employees-B. Compensation-Share Incentive Plans."

Asset impairment loss

Asset impairment loss are recorded in the year ended June 30, 2024, related to our intangible assets including software and licenses, as a result of significant disruption to our brand and our licensed financial services operations in Hong Kong during 2024.

Interest Income/(Expenses), Net

We recorded net interest income of 0.1 million for the year ended June 30, 2023 and net interest expenses of 0.1 million for the year ended June 30, 2024.

Other Income/(Expenses), Net

We recorded net other income of nil for the years ended June 30, 2023, and June 30, 2024.

Income Tax Expense

Our income tax expense increased from nil for the year ended June 30, 2023 to US$0.2 million for the year ended June 30, 2024, primarily due to use-up of tax losses carried forward in our Hong Kong subsidiary.

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Net Loss

As a result of the foregoing, our net loss decreased from US$3.5 million for the year ended June 30, 2023 to US$0.7 million for the year ended June 30, 2024.

Year Ended June 30, 2023 Compared to Year Ended June 30, 2022

Revenues

Our revenues increased from US$9.0 million for the year ended June 30, 2022 to US$18.6 million for the year ended June 30, 2023, primarily due to an increase in wealth management revenue.

Wealth management services

Our revenues from wealth management services increased by from US$6.8 million for the year ended June 30, 2022 to US$15.6 million for the year ended June 30, 2023, primarily due to an increase in transaction value of overseas insurance products we referred to our clients, in particular after Covid-19 reopening in Hong Kong.

Asset management services

Our revenues from asset management services increased from US$2.2 million for the year ended June 30, 2022 to US$3.0 million for the year ended June 30, 2023, driven by growing client interest in offshore funds and discretionary mandates managed by us.

Operating Cost and Expenses

Our total operating costs and expenses increased from US$14.5 million for the year ended June 30, 2022 to US$22.2 million for the year ended June 30, 2023.

Compensation and benefits

Our cost of compensation and benefits increased from US$4.2 million for the year ended June 30, 2022 to US$6.5 million for the year ended June 30, 2023, primarily due to increase in the amount of direct compensation related to the increase in the transaction value of overseas insurance products we referred to our clients.

Sales and marketing expenses

Our sales and marketing expenses increased from US$2.4 million for the year ended June 30, 2022 to US$2.7 million for the year ended June 30, 2023, primarily due to increase in sales and marketing activities devoted to overseas wealth management and asset management businesses.

General and administrative expenses

Our general and administrative expenses increased from US$6.8 million for the year ended June 30, 2022 to US$7.0 million for the year ended June 30, 2023, which is mostly in line with our historical level of overhead and fixed costs.

Share-based compensation expenses

Our share-based compensation expenses decreased from US$1.1 million for the year ended June 30, 2022 to US$0.8 million for the year ended June 30, 2023, primarily because most of the options issued by the 2018 and 2019 Plan have been fully vested in prior years. For details, see "Item 6. Directors, Senior Management and Employees-B. Compensation-Share Incentive Plans."

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Asset impairment loss

Asset impairment loss are recorded in the year ended June 30, 2023, related to our cash deposits held at bank accounts in the PRC.

Interest Income, Net

We recorded net interest income of US$0.1 million for the year ended June 30, 2022 and US$0.1 million for the year ended June 30, 2023.

Other Income/(Expenses), Net

We recorded net other expenses of US0.9 million for the year ended June 30, 2022, primarily representing foreign exchange related losses.

Income Tax Expense

Our income tax expense were $5,000 and nil for the year ended June 30, 2022 and 2023.

Net Loss

As a result of the foregoing, our net loss decreased from US$6.3 million for the year ended June 30, 2022 to US$3.5 million for the year ended June 30, 2023.

B.Liquidity and Capital Resources

To date, we have financed our operations primarily through cash flows from operations. We had net loss of approximately US$0.7 million, US$3.5 million and US$6.3 million for the years ended June 30, 2024, 2023 and 2022, respectively. As of June 30, 2024 and 2023, we had cash and cash equivalents of US$15.2 million and US$12.6 million respectively.

As of June 30, 2024, we had approximately US$15.1 million of cash and cash equivalents under our bank accounts or our subsidiaries' bank accounts that were located in China. As disclosed in this annual report, we deem to have lost de facto control of all of our subsidiaries, VIEs, assets and operations in China as of the date of this annual report.

We believe that our current cash and anticipated cash flow from operations will be sufficient to meet our anticipated cash needs, including our cash needs for at least the next 12 months. We may, however, need additional capital in the future to fund our continued operations and strategic initiatives. For example, we may need a substantial amount of capital to develop or acquire our consumer technology, consumer healthcare and enterprise technology businesses. If we determine that our cash requirements exceed the amount of cash and cash equivalents we have on hand at the time, we may seek to issue equity or debt securities or obtain credit facilities. The issuance and sale of additional equity or debt securities would result in further dilution to our shareholders. The incurrence of indebtedness would result in increased fixed obligations and could result in operating covenants that might restrict our operations. We cannot assure you that financing will be available in amounts or on terms acceptable to us, if at all.

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The following table sets forth a summary of our cash flows for the periods indicated.

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Operating Activities

Net cash provided by operating activities for the year ended June 30, 2024 was US$2.6 million. This reflected net loss of US$0.7 million, as adjusted by non-cash and non-operating items primarily including asset impairment losses of $2.2 million , net changes in related parties balances of $1.4 million, depreciation and amortization of $1.0 million, offset by decrease in lease liability $1.0 million.

Net cash provided by operating activities for the year ended June 30, 2023 was US$9.4 million. This reflected net loss of US$3.5 million, as adjusted by non-cash and non-operating items primarily including net changes in related party balances of $11.5 million, depreciation and amortization of $1.2 million, offset by decrease in lease liability of 1.0 million.

Net cash used by operating activities for the year ended June 30, 2022 was US$0.1 million. This reflected net loss of US$6.3 million, as adjusted by non-cash and non-operating items primarily including net changes in related party balances of $10.7 million, depreciation and amortization of 1.7 million, offset by decrease in commissions payable of $6.1 million, and decrease in lease liabilty of $1.6 million.

Investing Activity

Net cash used in or provided by investing activity for the year ended June 30, 2024 was nil.

Net cash used in investing activity for the year ended June 30, 2023 was $0.3 million, due to investment in long-lived assets related to our software.

Net cash used in or provided by investing activity for the year ended June 30, 2022 was nil.

Financing Activities

Net cash used or provided in financing activities for the years ended June 30, 2024, 2023 and 2022 was nil.

Holding Company Structure

Our company, Santech Holdings Limited, is a holding company with no material operations of its own. As most of our operations are conducted through our Hong Kong subsidiaries, our ability to pay dividends is primarily dependent on receiving distributions of funds from our Hong Kong subsidiaries.

C.Research and Development, Patents and Licenses, etc.

See "Item 4. Information on the Company-B. Business Overview-Information Technology" and "Item 4. Information on the Company-B. Business Overview-Intellectual Property."

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D.Trend Information

Other than as disclosed elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or events for the year ended June 30, 2024 that are reasonably likely to have a material and adverse effect on our net revenues, income, profitability, liquidity or capital resources, or that would cause the disclosed financial information to be not necessarily indicative of future results of operations or financial conditions.

E.Critical Accounting Estimates

We prepare financial statements in accordance with U.S. GAAP, which requires us to make judgments, estimates and assumptions that affect the reported amounts of our assets and liabilities and the disclosure of our contingent assets and liabilities at the end of each fiscal period and the reported amounts of revenues and expenses during each fiscal period. We continually evaluate these judgments and estimates based on our own historical experience, knowledge and assessment of current business and other conditions, our expectations regarding the future based on available information and assumptions that we believe to be reasonable, which together form our basis for making judgments about matters that are not readily apparent from other sources. Since the use of estimates is an integral component of the financial reporting process, our actual results could differ from those estimates.

The selection of critical accounting policies, the judgments and other uncertainties affecting application of those policies and the sensitivity of reported results to changes in conditions and assumptions are factors that should be considered when reviewing our financial statements. Out of our significant accounting policies, which are described in Note 3 - Summary of Significant Accounting Policies included elsewhere in this annual report, certain accounting policies are deemed "critical", as they require management's highest degree of judgment, estimates and assumptions, including (i) impairment loss of assets.

We consider an accounting estimate to be critical if: (i) the accounting estimate requires us to make assumptions about matters that were highly uncertain at the time the accounting estimate was made, and (ii) changes in the estimate that are reasonably likely to occur from period to period or use of different estimates that we reasonably could have used in the current period, would have a material impact on our financial condition or results of operations. We believe the following accounting estimates involve the most significant judgments used in the preparation of our financial statements.

Impairment loss of assets

All long-lived assets, which include tangible long-lived assets and intangible long-lived assets with finite lives, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of long-lived assets to be held and used is measured by a comparison of the carrying amount of the asset to the estimated undiscounted future cash flows expected to be generated by the assets. If the carrying amount of an asset exceeds its estimated future undiscounted cash flows, an impairment loss is recognized for the difference between the carrying amount of the asset and its fair value. For the years ended June 30, 2022, 2023 and 2024, the Company recognized impairment of long-lived assets of nil, nil and US$192 respectively.

An intangible asset that is not subject to amortization shall be tested for impairment annually and more frequently if events or changes in circumstances indicate that it is more likely than not that the asset is impaired. Based on the qualitative assessment, if it is more likely than not that the fair value of an indefinite-lived intangible asset is less than the carrying value, a quantitative test to measure the amount of impairment must be performed. The quantitative impairment test compares the fair value of the asset with the carrying amount. If the carrying amount exceeds the fair value, then an impairment loss equal to that excess is recorded. For the years ended June 30, 2022, 2023 and 2024, the Company recognized impairment of indefinite-lived intangible assets of nil, nil and US$1,966 respectively.

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