{"url_path":"/sec/cik-0001734262/10-k/2026/item-5","section_key":"item-5","section_title":"Item 5 ****OPERATING AND FINANCIAL REVIEW AND PROSPECTS**","topic":"sec","document":{"doc_type":"20-F","doc_date":"2026-04-27","source_url":"https://www.sec.gov/Archives/edgar/data/1734262/0001104659-26-048866-index.html","accession_number":"0001104659-26-048866","cik":"0001734262","ticker":null,"issuer_name":"CooTek(Cayman)Inc.","edgar_url":"https://www.sec.gov/Archives/edgar/data/1734262/0001104659-26-048866-index.html","primary_entity_key":"0001734262","primary_entity_name":"CooTek(Cayman)Inc."},"word_count":11149,"has_tables":true,"body_markdown":"**ITEM 5.****OPERATING AND FINANCIAL REVIEW AND PROSPECTS**\n\n*You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and the related notes included elsewhere in this annual report on Form 20-F This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Item 3. Key Information—D. Risk Factors” or in other parts of this annual report on Form 20-F.*\n\n**A.****Operating Results**\n\n**Overview**\n\nWe operate a global portfolio of mobile applications with a large and diverse user base. Our portfolio mainly includes online literature and casual games which we operate in China and oversea markets. We leverage our ability to derive sophisticated user insights to deliver targeted advertisements that are relevant to users across our various mobile applications.\n\nWe generate revenues primarily from mobile advertising and in-app purchases from users of our applications. Most of our advertisers are represented by third-party advertising exchanges and agencies. We also generate revenues from license fees for our intellectual properties.\n\nWe have implemented a balanced development approach between growth and profitability. We are continually restructuring our portfolio products by focusing our resources on more profitable businesses, such as pan-entertainment mobile applications, reducing investment of resources on non-performing or under-performing products and improving operation efficiency. We recorded a net loss of US$2.6 million in 2023, a net income of US$0.1 million in 2024 and a net loss of US$0.1 million in 2025.\n\nIn recent years, we experienced a downturn in domestic internet advertisement industry. To counter the challenging macro environment, we suspended and terminated the operations of several non-performing and under-performing utility mobile apps and mobile games in China and global markets, which led to the decreases in MAUs and DAUs from 2023 to 2025, which in turn negatively impacted our revenues during the same periods. We implemented cost control initiatives, which led to a significant reduction in our sales and marketing expenses, decreasing from US$17.7 million in 2023 to US$15.1 million in 2024, and further down to US$9.8 million in 2025.\n\nIn terms of our global strategy, we intend to maintain our global presence by increasing our portfolio products in overseas markets. The proportion of total net revenues from our pan-entertainment mobile applications operated in overseas market increased from 62% in 2023 to 89% in 2024, and further to 94% in 2025, constituting an important source of our revenues. Since different countries and regions are in different industry cycles, we believe this strategy will help improve our resilience against industry headwind.\n\nTo further diversify our monetization, we combine in-app advertising with in-app purchases to generate revenues from our mobile applications. We believe this strategy will allow us to balance monetization with user experience and improve our resilience to the volatility of advertising market. Our in-app purchase revenues as a percentage of our total net revenue increased from 20.2% in 2023 to 64.4% in 2024, and further to 64.8% in 2025.\n\nWe also diversify our revenue by out-licensing our original novels on Fengdu Literature Platform to produce audiobooks, short videos, etc. Our other revenues as a percentage of our total net revenue increased from 3.9% in 2022 to 4.8% in 2025.\n\n104\n\n[Table of Contents](#TOC)\n\nWe will continue to implement these development approach and monetization strategies. Although such efforts led to declines in the DAUs, MAUs and revenues in the past three fiscal years and we are unable to predict whether such trend will continue into future periods as of the date of this annual report, we believe that these efforts will, in the long term, lead to sustainable growth in our operating metrics and revenues. However, the future trend in its DAUs, MAUs and revenues will depend on a variety of factors, many of which are beyond our control and subject to significant uncertainties. These factors include market acceptance of our products, effectiveness of our monetization strategy, market competition, macroeconomic and regulatory environment, and customers’ discretionary spending on advertising. Advertising is particularly sensitive to changes in economic conditions, advertising trends and other external events beyond our control.\n\n**Key Factors Affecting Our Results of Operations**\n\nWhile our business is influenced by general factors affecting our industry, our results of operations are more directly affected by company specific factors, including the following major factors:\n\nOur ability to maintain our user base\n\nOur business depends on our ability to maintain our global user base. As our revenues are primarily derived from our advertising services, the number of users and the frequency with which they use our products and services directly affect the number of advertisements we are able to show and the value of those advertisements.\n\nThe following table sets forth the average DAUs and MAUs of our portfolio products for periods indicated:\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n**For the Months Ended December 31, **\n\n​\n\n  ​ ​ ​\n\n**2021**\n\n  ​ ​ ​\n\n**2022**\n\n  ​ ​ ​\n\n**2023**\n\n  ​ ​ ​\n\n**2024**\n\n  ​ ​ ​\n\n**2025**\n\n​\n\n​\n\n**(in millions)**\n\n**Pan-entertainment Mobile Applications**\n\n \n\n  ​\n\n \n\n  ​\n\n \n\n  ​\n\n \n\n  ​\n\n \n\n  ​\n\naverage DAUs\n\n \n\n16.0\n\n \n\n5.2\n\n \n\n1.9\n\n​\n\n0.8\n\n​\n\n0.4\n\nMAUs\n\n \n\n58.0\n\n \n\n19.6\n\n \n\n5.0\n\n​\n\n1.8\n\n​\n\n1.0\n\n**Utility Mobile Applications**\n\n \n\n​\n\n \n\n​\n\n \n\n​\n\n​\n\n​\n\n​\n\n​\n\naverage DAUs\n\n \n\n2.4\n\n \n\n1.0\n\n \n\n0.1\n\n​\n\n0.03\n\n​\n\n0.003\n\nMAUs\n\n \n\n4.6\n\n \n\n1.8\n\n \n\n0.1\n\n​\n\n0.05\n\n​\n\n0.01\n\n​\n\nWe have implemented a balanced development approach between growth and profitability by continuous transition of the strategy in relation to the acquisition of new users and the retention of existing users. As a part of this execution plan, we suspended and terminated the operations of several non-performing and under-performing scenario-based mobile apps, and reduced sales and marketing expenses to acquire new users. As a result, MAUs and DAUs decreased from 2023 to 2025.\n\nAlthough the restructuring efforts led to declines in the DAUs and MAUs from time to time and we are unable to predict whether such trend will continue into future periods as of the date of this annual report, we believe that these efforts will, in the long term, lead to sustainable growth in our user base. Our efforts to improve operational efficiency have resulted in a decrease in the percentage of sales and marketing expenses of the total net revenues from 55.3% in 2023 to 49.7% in 2024, and further to 45.0% in 2025. We achieved this by controlling expenses related to non-performing or under-performing products in our sales and marketing operations. We also plan to develop and offer innovative and diversified products and services to meet the interests and demands of our mobile internet users and to further improve our users’ experience with our products to achieve a sustained high level of user satisfaction, which we believe is the most cost-effective way to attract, engage and retain our users as a long-term strategy.\n\nOur ability to enlarge our user base is dependent on a range of factors, including our improved relevance of the content we deliver with our technology, continuous innovation of and improvements in user experience with our products and services, effective user acquisition through online distribution platforms and third-party platforms, all of which are guided and driven by our in-depth user insights, as well as many factors beyond our control and subject to significant uncertainties, including market acceptance of our products, market competition, and macroeconomic and regulatory environment. See also “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business—If we fail to maintain or expand our active user base, our business, financial condition and operating results may be materially and adversely affected,” and “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business—We have international operations and plan to continue maintaining our global presence. We may face challenges and risks presented by our global operations, which may have a material and adverse impact on our business and operating results.”\n\n105\n\n[Table of Contents](#TOC)\n\nEffectiveness of monetization\n\nWe monetize our user base primarily through in-app advertising, combined with in-app purchases. Our advertising revenues decreased from US$22.8 million in 2023 to US$8.8 million in 2024, and further to US$6.6 million in 2025, along with the decreases of DAUs and MAUs. Our in-app purchase revenues increased from US$6.5 million in 2023 to US$19.5 million in 2024, and decreased to US$14.1 million in 2025.\n\nThe effectiveness of our monetization and our results of operations are affected by a number of factors, including the number of our available advertising spaces, our ability to attract and retain advertising customers, our ability to deliver targeted advertisements to our users, our pricing strategy and perceived value of our in-app purchase offerings, and the quality and attractiveness of the special features or tools, and extra content in our portfolio products.\n\n*Our available advertising spaces*\n\nOur available advertising spaces represent the number, size and prominence of advertisements we can display, which in turn affect our revenues and results of operations. As we have continued to launch new products, and grow our user base, the number of our available advertising spaces increased rapidly in recent years. We plan to continue to invest in the development of innovative products catering to users’ interests in and demands for content relevant to users in order to create more advertising spaces.\n\n*Our ability to attract and retain advertising customers*\n\nWe attract our advertisers primarily through our network of advertising exchanges and agencies, and to a lesser extent, direct contractual arrangements with individual advertisers. Our revenues and results of operations depend largely on our ability to engage, directly or indirectly, more advertisers with our advertising services. We generate advertising revenue primarily from performance-based advertisements and we also offer brand advertising arrangements. In 2025, our top two advertising customers, which are advertising exchanges, contributed 18.4% of our total revenues. Our business may be significantly and adversely affected if our cooperation with these two advertising customers is impaired or terminated. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business—We depend on certain third-party advertising exchanges and agencies for a large portion of our mobile advertising revenues.” We plan to maximize the value of our services to the advertisers by improving our targeting capability, increasing our user base while maintaining quality business relationship with third-party advertising exchanges.\n\n*Our ability to deliver targeted advertisements*\n\nWe help advertisers reach their desired audiences and our advertising exchange customers charge them advertising fees based primarily on valid clicks, conversions or other measurable actions of the audience. Our ability to deliver advertisements that are relevant to our users across our various mobile applications is critical to maintaining high click-through rates or conversion rates, which in turn directly impacts the value of our advertising services. We strive to deepen our understanding of our users’ content interests and demands in order to improve our targeted delivery of advertising services, which will ultimately increase the effectiveness of the monetization of our use base and advertising spaces.\n\n*Our ability to diversify our revenue source*\n\nWe have been exploring various ways of monetization to diversify our revenue source. In addition to in-app advertisements, we introduced in-app purchases in mobile games allowing users to purchase additional features or tools and in online literature products allowing users to unlock new chapter or extra content. Our in-app purchase revenues increased from US$6.5 million in 2023 to US$19.5 million in 2024, and then decreased to US$14.1 million in 2025. We explored IP-based monetization by out-licensing our original novels on Fengdu Literature Platform to produce audiobooks, short videos, etc. Our other revenue contributed 8.4%, 6.8% and 4.8% of our total net revenues in 2023, 2024 and 2025, respectively.\n\n106\n\n[Table of Contents](#TOC)\n\nEffective investment in technology and talent\n\nTo maintain our advanced technological capabilities and in order to be able to keep up with any future technological developments, we have continued to make significant investments in enhancing our technology infrastructure and in acquiring and retaining talent with technological expertise. Our investment in technology and talent has effectively met our needs for technology upgrades and increases in product development capacity along with the growth of our business. As of December 31, 2025, we had 67 full-time employees, of which 40 were software engineers and product designers. Our research and development expenses decreased by 47.0% from US$7.2 million in 2023 to US$3.8 million in 2024, and further decreased by 7.6% to US$3.5 million in 2025.\n\nAbility to manage costs and expenses\n\nOur results of operations depend on our ability to manage our costs and expenses. Except for user acquisition costs, we spend primarily on staff costs, content costs, server and bandwidth costs, and payment processing fees paid to digital distribution platform such as Apple App Store and Google Play. In the short term, we plan to continue to implement our cost-control initiatives so as to improve our cost and expense efficiency. Specifically, we plan to maintain and further improve our economic efficiency of user acquisition cost for our existing products as a result of the economies of scale and our accumulated knowledge and experience related to user growth. The user acquisition costs for our new products may currently be higher than our existing products, and we plan to keep improving our economic efficiency of user acquisition cost for our new products.\n\n**Key Components of Results of Operations**\n\nNet Revenues. The following table sets forth the components of our net revenues, both in absolute amount and as a percentage of our total net revenues, for the periods presented:\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n**For the Years Ended December 31, **\n\n​\n\n  ​ ​ ​\n\n**2023**\n\n  ​ ​ ​\n\n**2024**\n\n  ​ ​ ​\n\n**2025**\n\n​\n\n**  ​ ​ ​**\n\n**US$**  \n\n  ​ ​ ​\n\n**%** \n\n  ​ ​ ​\n\n**US$**  \n\n  ​ ​ ​\n\n**%** \n\n  ​ ​ ​\n\n**US$**  \n\n  ​ ​ ​\n\n**%** \n\n**Net Revenues:**\n\n \n\n  ​\n\n \n\n  ​\n\n \n\n  ​\n\n \n\n  ​\n\n \n\n  ​\n\n \n\n  ​\n\nIn-app purchase revenue\n\n​\n\n6,470,995\n\n​\n\n20.2\n\n​\n\n19,510,797\n\n​\n\n64.4\n\n​\n\n14,064,545\n\n​\n\n64.8\n\nAdvertising revenue\n\n \n\n22,822,094\n\n \n\n71.4\n\n \n\n8,760,291\n\n \n\n28.9\n\n \n\n6,605,671\n\n​\n\n30.4\n\nOther revenue\n\n \n\n2,683,179\n\n \n\n8.4\n\n \n\n2,047,728\n\n \n\n6.7\n\n \n\n1,042,504\n\n​\n\n4.8\n\n**Total net revenues**\n\n** **\n\n**31,976,268**\n\n** **\n\n**100.0**\n\n** **\n\n**30,318,816**\n\n** **\n\n**100.0**\n\n** **\n\n**21,712,720**\n\n​\n\n**100.0**\n\n​\n\n*In-app Purchase Revenue*\n\nWe provide our users with the option to make in-app purchases that enhance or enrich their game playing or online reading experience. We generate in-app purchase revenue primarily through the sale of in-app virtual currency in our mobile games and online literature products, and subscription fees charged to users who subscribe to our membership packages for our online literature products. We offer virtual currency that customers can use to acquire virtual items in mobile games or unlock extra content in our online literature products. Additionally, we offer membership packages for our online literature products, charging users subscription fees based on weekly, monthly, quarterly, and annual plan, and provide subscribers with an ad-free online reading experience, more access to the online content, among other benefits, within the selected plan’s duration.\n\nPayments from users for the in-app purchases are made at a fixed price and collected by digital distribution platforms such as Google Play and Apple App Store, who will then pay the funds to us after deducting the payment processing fees. We are primarily responsible for providing the service and virtual items, maintaining control over the content and operation of applications, and have the discretion to set the pricing for the in-app purchases.\n\nRevenue from our in-app purchase services accounted for 20.2%, 64.4% and 64.8% of our total net revenues in 2023, 2024 and 2025, respectively. We expect that the in-app purchase services will contribute to a majority of our revenue in the future.\n\n107\n\n[Table of Contents](#TOC)\n\n*Advertising Revenue*\n\nWe generate advertising revenue primarily from delivering advertisements through our products. Based on our in-depth user insights, we target users who are likely to have interests and demands for the advertised products and services. We generally enter into arrangements with advertising exchanges and agencies that purchase advertising services and spaces from us on behalf of the end advertisers, and we also enter into advertising arrangements with individual advertisers directly. Our advertising revenue is primarily generated from performance-based advertisements, and we also offer brand advertising arrangements. For performance-based advertisements, we are paid by our advertising exchange customers based on the effective price per impression, which is impacted by the number of valid clicks, conversions or other measurable actions of our users in relation to the advertisements.\n\nRevenue from our advertising services accounted for 71.4%, 28.9% and 30.4% of our total net revenues in 2023, 2024 and 2025, respectively. We estimate that, of our total advertising revenue, online literature and mobile games aggregately contributed approximately 95.9%, 94.4% and 98.1% in 2023, 2024 and 2025, respectively. From time to time, we provide sales rebates to certain advertising agencies to incentivize their referral of more brand advertising arrangements to us. Our advertising revenue is presented net of sales rebates to these advertising agencies.\n\n*Other Revenue*\n\nWe generate other revenue from out-licensing of our TouchPal Smart Input to certain device manufacturers for pre-installation and out-licensing of online literature works. Attributable to our efforts of diversifying our revenue sources, other revenues contributed 8.4%, 6.7% and 4.8% of our total net revenues in 2023, 2024 and 2025, respectively.\n\nCost of revenues\n\nThe following table sets forth our cost of revenues and gross profit, both in absolute amount and as a percentage of our total net revenues, for the periods presented.\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n**For the Years Ended December 31, **\n\n​\n\n​\n\n**2023**\n\n​\n\n**2024**\n\n​\n\n**2025**\n\n​\n\n  ​ ​ ​\n\n**US$**\n\n  ​ ​ ​\n\n**%  **\n\n  ​ ​ ​\n\n**US$**\n\n  ​ ​ ​\n\n**%  **\n\n  ​ ​ ​\n\n**US$**\n\n  ​ ​ ​\n\n**%  **\n\nCost of revenues\n\n \n\n6,035,768\n\n \n\n18.9\n\n​\n\n8,762,910\n\n​\n\n28.9\n\n​\n\n6,472,133\n\n​\n\n29.8\n\nGross profit\n\n \n\n25,940,500\n\n \n\n81.1\n\n​\n\n21,555,906\n\n​\n\n71.1\n\n​\n\n15,240,587\n\n​\n\n70.2\n\n​\n\nOur cost of revenues consists primarily of payment processing fees paid to digital distribution platforms such as Apple App Store and Google Play, content costs, bandwidth costs and staff costs. Content costs are the fees we pay to our signed authors and third-party content providers for the publishing and licensing of online literature works. Bandwidth costs are the fees we pay to telecommunications carriers and other service providers for telecommunications and other content delivery-related services. Staff costs consist of salaries and benefits for our employees involved in the operation and maintenance of our network and mobile applications. Our other costs of revenues include hardware, server and internet equipment depreciation expenses and internet data center service fees. As a percentage of total net revenues, our cost of revenue accounted for 29.8% in 2025, compared with 18.9% and 28.9% in 2023 and 2024, respectively. In the foreseeable future, we expect the absolute amount of our total cost of revenues to increase in line with the growth of our in-app purchase revenue. We will continue to implement our cost-control initiatives on bandwidth costs.\n\n108\n\n[Table of Contents](#TOC)\n\nOperating Expenses\n\nThe following table sets forth the components of our operating expenses, both in absolute amount and as a percentage of our total net revenues, for the periods presented.\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n**For the Years Ended December 31, **\n\n​\n\n  ​ ​ ​\n\n**2023**\n\n  ​ ​ ​\n\n**2024**\n\n  ​ ​ ​\n\n**2025**\n\n​\n\n**  ​ ​ ​**\n\n**US**\n\n  ​ ​ ​\n\n**%**\n\n  ​ ​ ​\n\n**US$**\n\n  ​ ​ ​\n\n**%**\n\n  ​ ​ ​\n\n**US$**\n\n  ​ ​ ​\n\n**%**\n\n**Operating expenses:**\n\n \n\n  ​\n\n \n\n  ​\n\n \n\n  ​\n\n \n\n  ​\n\n \n\n  ​\n\n \n\n  ​\n\nSales and marketing expenses\n\n \n\n17,674,610\n\n \n\n55.3\n\n \n\n15,056,063\n\n \n\n49.7\n\n \n\n9,778,603\n\n​\n\n45.0\n\nResearch and development expenses\n\n \n\n7,210,687\n\n \n\n22.6\n\n \n\n3,818,394\n\n \n\n12.6\n\n \n\n3,530,046\n\n​\n\n16.3\n\nGeneral and administrative expenses\n\n \n\n4,384,720\n\n \n\n13.7\n\n \n\n2,990,392\n\n \n\n9.9\n\n \n\n2,253,979\n\n​\n\n10.4\n\nOther operating (income) loss, net\n\n \n\n(793,685)\n\n \n\n(2.5)\n\n \n\n(462,284)\n\n \n\n(1.5)\n\n \n\n(283,252)\n\n​\n\n(1.3)\n\nTotal operating expenses\n\n** **\n\n28,476,332\n\n \n\n89.1\n\n \n\n21,402,565\n\n \n\n70.6\n\n \n\n15,279,376\n\n​\n\n70.4\n\n​\n\n*Sales and Marketing Expenses*\n\nOur sales and marketing expenses consist primarily of advertising and promotion expenses, expenses incurred for the user incentive programs and salaries and benefits of sales and marketing personnel. Our user acquisition costs represent expenses for acquiring new users of our products, including expenses on targeted campaigns to acquire users. As a percentage of total net revenues, our sales and marketing expenses accounted for 45.0% in 2025, compared with 55.3% and 49.7% in 2023 and 2024, respectively. We expect our sales and marketing expenses to increase in the foreseeable future as we plan to acquire new users and enlarge our user base to grow our oversea business.\n\n*Research and Development Expenses*\n\nResearch and development expenses consist primarily of salaries and benefits, including share-based compensation, for our technology and product development personnel, and depreciation and other expenses associated with the use of facilities for research and development purposes. As a percentage of total net revenues, research and development expenses accounted for 16.3% in 2025, compared with 22.6% and 12.6% in 2023 and 2024, respectively. We expect our research and development expenses to slightly decrease in absolute amount in the short term as we implement our cost-control initiatives but to increase thereafter as we continue our investment in our technology infrastructure.\n\n*General and Administrative Expenses*\n\nOur general and administrative expenses consist primarily of salaries and benefits, including share-based compensation, for our employees involved in general corporate operations, facility rental, as well as professional service fees related to various corporate activities. As a percentage of total net revenues, general and administrative expenses accounted for 10.4% in 2025, compared with 13.7% and 9.9% in 2023 and 2024, respectively. We expect our general and administrative expenses to slightly decrease in absolute amount in the foreseeable future as we continue to implement our cost-control initiatives.\n\n*Other Operating (Income) Loss, net*\n\nOther operating income primarily consisted of reversal of previously accrued expenses and government subsidies and other operating loss primarily consisted of provision and reversal of contingent losses mainly for lawsuit.\n\n​\n\n109\n\n[Table of Contents](#TOC)\n\n**Results of Operations**\n\nThe following table sets forth a summary of our consolidated results of operations for the periods presented, both in absolute amount and as a percentage of our total net revenues for the periods presented. This information should be read together with our consolidated financial statements and related notes included elsewhere in this annual report. The results of operations in any period are not necessarily indicative of our future trends.\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n**For the Years Ended December 31, **\n\n​\n\n**  ​ ​ ​**\n\n**2023**\n\n**  ​ ​ ​**\n\n**2024**\n\n**  ​ ​ ​**\n\n**2025**\n\n​\n\n**  ​ ​ ​**\n\n**US$**\n\n**  ​ ​ ​**\n\n**%**\n\n**  ​ ​ ​**\n\n**US$**\n\n**  ​ ​ ​**\n\n**%**\n\n**  ​ ​ ​**\n\n**US$**\n\n**  ​ ​ ​**\n\n**%**\n\n**Net revenues:**\n\n \n\n  ​\n\n \n\n  ​\n\n​\n\n  ​\n\n \n\n  ​\n\n​\n\n  ​\n\n \n\n  ​\n\nIn-app purchase revenue\n\n​\n\n6,470,995\n\n​\n\n20.2\n\n​\n\n19,510,797\n\n​\n\n64.4\n\n​\n\n14,064,545\n\n​\n\n64.8\n\nAdvertising revenue\n\n \n\n22,822,094\n\n \n\n71.4\n\n​\n\n8,760,291\n\n \n\n28.9\n\n​\n\n6,605,671\n\n​\n\n30.4\n\nOther revenue\n\n \n\n2,683,179\n\n \n\n8.4\n\n​\n\n2,047,728\n\n \n\n6.7\n\n​\n\n1,042,504\n\n​\n\n4.8\n\n**Total net revenues**\n\n** **\n\n**31,976,268**\n\n** **\n\n**100.0**\n\n​\n\n**30,318,816**\n\n** **\n\n**100.0**\n\n​\n\n**21,712,720**\n\n​\n\n**100**\n\nCost of revenues(1)\n\n \n\n(6,035,768)\n\n \n\n(18.9)\n\n​\n\n(8,762,910)\n\n \n\n(28.9)\n\n​\n\n(6,472,133)\n\n​\n\n(29.8)\n\nGross profit\n\n \n\n25,940,500\n\n \n\n81.1\n\n​\n\n21,555,906\n\n \n\n71.1\n\n​\n\n15,240,587\n\n​\n\n70.2\n\nOperating expenses:\n\n \n\n​\n\n \n\n​\n\n​\n\n​\n\n \n\n​\n\n​\n\n​\n\n​\n\n​\n\nSales and marketing expenses(1)\n\n \n\n(17,674,610)\n\n \n\n(55.3)\n\n​\n\n(15,056,063)\n\n \n\n(49.7)\n\n​\n\n(9,778,603)\n\n​\n\n(45.0)\n\nResearch and development expenses(1)\n\n \n\n(7,210,687)\n\n \n\n(22.6)\n\n​\n\n(3,818,394)\n\n \n\n(12.6)\n\n​\n\n(3,530,046)\n\n​\n\n(16.3)\n\nGeneral and administrative expenses(1)\n\n \n\n(4,384,720)\n\n \n\n(13.7)\n\n​\n\n(2,990,392)\n\n \n\n(9.9)\n\n​\n\n(2,253,979)\n\n​\n\n(10.4)\n\nOther operating income (loss), net\n\n \n\n793,685\n\n \n\n2.5\n\n​\n\n462,284\n\n \n\n1.5\n\n​\n\n283,252\n\n​\n\n(1.3)\n\n**Total operating expenses**\n\n** **\n\n**(28,476,332)**\n\n** **\n\n**(89.1)**\n\n​\n\n**(21,402,565)**\n\n** **\n\n**(70.6)**\n\n​\n\n**(15,279,376)**\n\n​\n\n**(70.4)**\n\n**Income (loss) from operations**\n\n** **\n\n**(2,535,832)**\n\n** **\n\n**(7.9)**\n\n​\n\n**153,341**\n\n** **\n\n**0.5**\n\n​\n\n**(38,789)**\n\n​\n\n**(0.2)**\n\nInterest (expenses) income, net\n\n​\n\n(28,443)\n\n​\n\n(0.1)\n\n​\n\n(65,742)\n\n​\n\n(0.2)\n\n​\n\n(30,911)\n\n​\n\n(0.1)\n\nForeign exchange gains (losses), net\n\n \n\n(10,829)\n\n \n\n(0.0)\n\n​\n\n(15,034)\n\n \n\n(0.0)\n\n​\n\n(5,628)\n\n​\n\n(0.0)\n\n**Income (loss) before income taxes**\n\n** **\n\n**(2,575,104)**\n\n** **\n\n**(8.1)**\n\n​\n\n**72,565**\n\n** **\n\n**0.2**\n\n​\n\n**(75,328)**\n\n​\n\n**(0.3)**\n\nIncome tax expenses\n\n \n\n(20,837)\n\n \n\n(0.1)\n\n​\n\n(8,996)\n\n \n\n(0.0)\n\n​\n\n(2,851)\n\n​\n\n(0.0)\n\n**Net (loss) income**\n\n​\n\n**(2,595,941)**\n\n​\n\n**(8.1)**\n\n​\n\n**63,569**\n\n​\n\n**0.2**\n\n​\n\n**(78,179)**\n\n​\n\n**(0.3)**\n\n(1)Share-based compensation was allocated in cost of revenues and operating expenses as follows:\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n**For the Years Ended December 31, **\n\n​\n\n**  ​ ​ ​**\n\n**2023**\n\n**  ​ ​ ​**\n\n**2024**\n\n**  ​ ​ ​**\n\n**2025**\n\n​\n\n**  ​ ​ ​**\n\n**US$**\n\n**  ​ ​ ​**\n\n**US$**\n\n**  ​ ​ ​**\n\n**US$**\n\nCost of revenues\n\n \n\n21,434\n\n \n\n20,456\n\n \n\n8,160\n\nSales and marketing expenses\n\n \n\n(10,061)\n\n \n\n517\n\n \n\n—\n\nResearch and development expenses\n\n \n\n180,355\n\n \n\n60,297\n\n \n\n24,033\n\nGeneral and administrative expenses\n\n \n\n512,837\n\n \n\n53,290\n\n \n\n5,532\n\n**Total**\n\n** **\n\n**704,565**\n\n** **\n\n**134,560**\n\n** **\n\n**37,725**\n\n​\n\n110\n\n[Table of Contents](#TOC)\n\n**Year Ended December 31, 2025 Compared to Year Ended December 31, 2024**\n\nNet Revenues\n\nOur net revenues decreased by 28.4% from US$30.3 million in 2024 to US$21.7 million in 2025, primarily due to a decrease in our In-app purchase revenue and mobile advertising revenue.\n\n*In-app Purchase revenue*. Our in-app purchase revenue decreased by 27.9% from US$19.5 million in 2024 to US$14.1 million in 2025. The decrease of in-app purchase revenue was primarily due to the decrease in the sale of in-app virtual currency in our online literature products operated in overseas market.\n\n*Advertising revenue*. Our advertising revenue decreased by 24.6% from US$8.8 million in 2024 to US$6.6 million in 2025. The decrease in advertising revenue was primarily due to the suspension and termination of advertising operations of several non-performing and underperforming applications, especially the online literature products in China.\n\n*Other Revenue*. We generate other revenue from out-licensing of our TouchPal Smart Input to certain device manufacturers for pre-installation and out-licensing of online literature works. Our other revenue decreased from US$2.0 million 2024 to US$1.0 million 2025.\n\nCost of revenues\n\nOur cost of revenues decreased by 26.1% from US$8.8 million in 2024 to US$6.5 million in 2025. This decrease was primarily due to decrease in payment processing fees paid to digital distribution platforms such as Apple App Store and Google Play in line with the decrease of our in-app purchase revenue.\n\nGross profit\n\nAs a result of the foregoing, we recorded gross profit of US$15.2 million in 2025, as compared to gross profit of US$21.6 million in 2024. Our gross margin slightly decreased from 71.1% in 2024 to 70.2% in 2025, primarily due to the increased proportion of in-app purchase revenue, which incurred higher payment processing fees to digital distribution platforms compared to advertising revenue.\n\nOperating expenses\n\nOur total operating expenses decreased by 28.6% from US$21.4 million in 2024 to US$15.3 million in 2025, due to decreases in all expense items along with our cost-control and profit-improving operation strategy.\n\n*Sales and marketing expenses*. Our sales and marketing expenses decreased by 35.1% from US$15.1 million in 2024 to US$9.8 million in 2025. The decrease was primarily due to the continuous transition of our strategy in relation to the acquisition of new users and retention of existing users, which resulted in a decrease in the user acquisition costs.\n\n*Research and development expenses*. Our research and development expenses decreased by 7.6% from US$3.8 million in 2024 to US$3.5 million in 2025. The decrease was primarily due to a decrease in salary and payroll expenses associated with technology research and development staff and share-based compensation expenses.\n\n*General and administrative expenses*. Our general and administrative expenses decreased by 24.6% from US$3.0 million in 2024 to US$2.3 million in 2025. The decrease was primarily due to a decrease in salary and payroll expenses associated with general and administrative staff, share-based compensation expenses, and expenses for provision of credit losses.\n\nOther operating income (loss), net. We recorded other operating income of US$0.3 million in 2025, which primarily consisted of government subsidies we received and reversal of previously accrued expenses, partially offset by the provision of contingent losses mainly mainly relating to litigation, compared to other operating income of US$0.5 million in 2024.\n\n111\n\n[Table of Contents](#TOC)\n\n(Loss) Income from operations\n\nAs a result of the foregoing, we recorded loss from operations of US$0.04 million in 2025, compared to income from operations of US$0.2 million in 2024.\n\nInterest (expenses) income, net\n\nWe had net interest expenses of US$0.07 million and US$0.03 million in 2024 and 2025, respectively. The decrease in our net interest expense was mainly due to the decrease of interest expenses in 2025.\n\nForeign exchange (losses) gains, net\n\nWe incurred net foreign exchange losses of US$0.02 million and US$0.01 million in 2024 and 2025, respectively, primarily due to the costs incurred on foreign exchange conversion.\n\nIncome tax expense\n\nWe recorded income tax expenses of US$8,996 and US$2,851 in 2024 and 2025, respectively.\n\nNet (loss) income\n\nAs a result of the foregoing, we recorded a net loss of US$0.1 million in 2025, compared to a net income of US$0.1 million in 2024.\n\n**Year Ended December 31, 2024 Compared to Year Ended December 31, 2023**\n\nNet Revenues\n\nOur net revenues decreased by 5.2% from US$32.0 million in 2023 to US$30.3 million in 2024, primarily due to a decrease in our mobile advertising revenue.\n\n*Advertising revenue*. Our advertising revenue decreased by 61.6% from US$22.8 million in 2023 to US$8.8 million in 2024. The decrease in advertising revenue was primarily due to the suspension and termination of advertising operations of several non-performing and underperforming applications, especially the online literature products in China.\n\n*In-app Purchase revenue*. Our in-app purchase revenue increased by 201.5% from US$6.5 million in 2023 to US$19.5 million in 2024. The increase of in-app purchase revenue was primarily due to the increase in the sale of in-app virtual currency in our online literature products operated in overseas market.\n\n*Other Revenue*. We generate other revenue from out-licensing of our TouchPal Smart Input to certain device manufacturers for pre-installation and out-licensing of online literature works. Our other revenue decreased from US$2.7 million 2023 to US$2.0 million 2024.\n\nCost of revenues\n\nOur cost of revenues increased by 45.2% from US$6.0 million in 2023 to US$8.8 million in 2024. This increase was primarily due to increase in payment processing fees paid to digital distribution platforms such as Apple App Store and Google Play in line with the growth of our in-app purchase revenue, and partially offset by the decreases in cloud service costs and internet data center service fees.\n\n112\n\n[Table of Contents](#TOC)\n\nGross profit\n\nAs a result of the foregoing, we recorded gross profit of US$21.6 million in 2024, as compared to gross profit of US$25.9 million in 2023. Our gross margin decreased from 81.1% in 2023 to 71.1% in 2024, primarily due to the increased proportion of in-app purchase revenue, which incurred higher payment processing fees to digital distribution platforms compared to advertising revenue.\n\nOperating expenses\n\nOur total operating expenses decreased by 24.8% from US$28.5 million in 2023 to US$21.4 million in 2024, due to decreases in all expense items along with our cost-control and profit-improving operation strategy.\n\n*Sales and marketing expenses*. Our sales and marketing expenses decreased by 14.8% from US$17.7 million in 2023 to US$15.1 million in 2024. The decrease was primarily due to the continuous transition of our strategy in relation to the acquisition of new users and retention of existing users, which resulted in a decrease in the user acquisition costs in China.\n\n*Research and development expenses*. Our research and development expenses decreased by 47.0% from US$7.2 million in 2023 to US$3.8 million in 2024. The decrease was primarily due to a decrease in salary and payroll expenses associated with technology research and development staff and share-based compensation expenses.\n\n*General and administrative expenses*. Our general and administrative expenses decreased by 31.8% from US$4.4 million in 2023 to US$3.0 million in 2024. The decrease was primarily due to a decrease in salary and payroll expenses associated with general and administrative staff, share-based compensation expenses, and professional service fee.\n\n*Other operating income (loss), net*. We recorded other operating income of US$0.5 million in 2024, which primarily consisted of government subsidies we received, compared to other operating income of US$0.8 million in 2023.\n\n(Loss) Income from operations\n\nAs a result of the foregoing, we recorded income from operations of US$0.2 million in 2024, compared to loss from operations of US$2.5 million in 2023.\n\nInterest (expenses) income, net\n\nWe had net interest expenses of US$0.03 million and US$0.07 million in 2023 and 2024, respectively. The increase in our net interest expense was mainly due to the decrease of interest income in 2024.\n\nForeign exchange (losses) gains, net\n\nWe incurred net foreign exchange losses of US$0.01 million and US$0.02 million in 2023 and 2024, respectively, primarily due to the costs incurred on foreign exchange conversion.\n\nIncome tax expense\n\nWe recorded income tax expenses of US$20,837 and US$8,996 in 2023 and 2024, respectively.\n\nNet (loss) income\n\nAs a result of the foregoing, we recorded a net income of US$0.1 million in 2024, compared to a net loss of US$2.6 million in 2023.\n\n113\n\n[Table of Contents](#TOC)\n\n**Taxation**\n\nCayman Islands\n\nWe are an exempted company incorporated in the Cayman Islands. The Cayman Islands currently levies no taxes on corporations based upon profits, income, gains or appreciation. There are no other taxes likely to be material to us levied by the government of the Cayman Islands except for stamp duties which may be applicable on instruments executed in, or after execution brought within the jurisdiction of the Cayman Islands. The Cayman Islands is not party to any double tax treaties that are applicable to any payments made to or by our company. There are no exchange control regulations or currency restrictions in the Cayman Islands. In addition, the Cayman Islands does not impose withholding tax on dividend payments.\n\nUnited States\n\nU.S. corporations are subject to U.S. federal corporate income tax at a rate of 21%, and those doing business in California are also subject to state income tax at a rate of 8.84% in California.\n\nHong Kong\n\nCompanies registered in Hong Kong are subject to Hong Kong profits tax on the taxable income as reported in their respective statutory financial statements adjusted in accordance with Hong Kong tax laws. The applicable tax rate is 8.25% or 16.5% in Hong Kong commencing on or after April 1, 2018. The profits tax rate is 8.25% for the first HK$2 million of profits, and the profits above that amount will be subject to the tax rate of 16.5%. Under the Hong Kong tax law, our subsidiaries are exempted from income tax on its foreign-derived income and there are no withholding taxes in Hong Kong on remittance of dividends.\n\nPRC\n\n*Enterprise Income Tax*\n\nGenerally, our PRC subsidiary, the VIEs and their subsidiaries, which are considered PRC resident enterprises under PRC tax law, are subject to enterprise income tax on their worldwide taxable income as determined under PRC tax laws and accounting standards at a rate of 25%. A “high and new technology enterprise” is entitled to a favorable statutory tax rate of 15% and this qualification is reassessed by government authorities every three years. Our PRC subsidiary, Shanghai Chule has qualified as a high and new technology enterprise. It is entitled to the preferential tax rate of 15% to the extent it has taxable income under the PRC Enterprise Income Tax Law till 2025. If our holding company in the Cayman Islands or any of our subsidiaries outside mainland China is considered as a PRC resident enterprise for tax purposes, then our global income will be subject to PRC enterprise income tax at the rate of 25%. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—Under the PRC Enterprise Income Tax Law, we may be classified as a PRC “resident enterprise,” which could result in unfavorable tax consequences to us and our shareholders and have a material adverse effect on our results of operations and the value of your investment.”\n\n*Value-Added Tax*\n\nWe are subject to Value-Added Tax(“VAT”) at a rate of 6% on the services we provide to advertising customers in mainland China, less any deductible VAT we have already paid or borne. We are also subject to surcharges on VAT payments in accordance with PRC law.\n\n*Withholding Tax on Dividends*\n\nDividends paid by our wholly foreign-owned subsidiary in mainland China to our intermediary holding company in Hong Kong will be subject to a withholding tax rate of 10%, unless the Hong Kong entity satisfies all the requirements under the Arrangement between the mainland China and the Hong Kong Special Administrative Region on the Avoidance of Double Taxation and Prevention of Fiscal Evasion with respect to Taxes on Income and Capital and receives approval from the tax authority. If our Hong Kong subsidiary satisfies the requirements under the tax arrangement and receives approval from the tax authority, then the dividends paid to the Hong Kong subsidiary would be subject to withholding tax at a reduced tax rate of 5%. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—There are significant uncertainties under the PRC Enterprise Income Tax Law relating to the withholding tax liabilities of our PRC subsidiary, and dividends payable by our PRC subsidiary to our offshore subsidiaries may not qualify to enjoy certain treaty benefits.”\n\n114\n\n[Table of Contents](#TOC)\n\n**B.****Liquidity and Capital Resources**\n\nCash Flows and Working Capital\n\nThe following table sets forth a summary of our cash flows for the periods presented:\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n**For the Years Ended**\n\n​\n\n​\n\n**December 31**\n\n​\n\n**  ​ ​ ​**\n\n**2023**\n\n**  ​ ​ ​**\n\n**2024**\n\n**  ​ ​ ​**\n\n**2025**\n\n​\n\n**  ​ ​ ​**\n\n**US$**\n\n**  ​ ​ ​**\n\n**US$**\n\n**  ​ ​ ​**\n\n**US$**\n\n**Summary Consolidated Cash Flow Data:**\n\n​\n\n  ​\n\n \n\n  ​\n\n \n\n  ​\n\nNet cash (used in) provided by operating activities\n\n​\n\n(6,560,679)\n\n \n\n(286,786)\n\n \n\n(77,289)\n\nNet cash provided by (used in) investing activities\n\n​\n\n960,056\n\n \n\n80,885\n\n \n\n(45,142)\n\nNet cash (used in) provided by financing activities\n\n​\n\n(1,957,236)\n\n \n\n1,832,070\n\n \n\n(489,683)\n\nNet (decrease) increase in cash, cash equivalents, and restricted cash\n\n​\n\n(7,557,859)\n\n \n\n1,626,169\n\n \n\n(612,114)\n\nCash, cash equivalents, and restricted cash at beginning of year\n\n​\n\n9,785,131\n\n \n\n2,476,571\n\n \n\n4,159,290\n\nEffect of exchange rate changes on cash, cash equivalents, and restricted cash\n\n​\n\n249,299\n\n \n\n56,550\n\n \n\n39,608\n\nCash, cash equivalents, and restricted cash at end of year\n\n​\n\n2,476,571\n\n \n\n4,159,290\n\n \n\n3,586,784\n\n​\n\nHistorically, we have financed our operations primarily through the proceeds we received from private issuances of preferred shares, loans from commercial banks, public offering of equity and debt securities and other financing activities. As of December 31, 2023, 2024 and 2025, we had US$2.5 million, US$4.2 million and US$3.6 million in cash, cash equivalents and restricted cash, respectively. Our cash and cash equivalents consist of cash on hand, demand deposits and floating rate financial instruments which are unrestricted as to withdrawal or use, and which have original maturities of three months or less when purchased. Our restricted cash represents amounts held in our bank account as guarantee deposit for payments processing services and loan facility provided by the bank.\n\nOn March 19, 2021, entered into a securities purchase agreement and a convertible note with YA II PN, Ltd., pursuant to which YA II PN, Ltd. will purchase a convertible promissory note in the principal amount of US$20,000,000 with an annual interest rate of 5%, which may be convertible into our Class A ordinary shares in exchange for our ADSs, due March 19, 2022, or the March 2021 Note. Beginning on June 1, 2021 and continuing on the first day of each calendar month thereafter through January 2022, the principal amount plus an 8% redemption premium and plus accrued and unpaid interest will be subject to monthly redemption in the event that the daily VWAP on each of the five consecutive trading days immediately prior to the redemption date does not exceed a price equal to 108% of the fixed conversion price. In September 2021, we entered into a letter agreement with YA II PN, Ltd. to amend the schedule of redemptions, which was subsequently replaced by the one signed on October 29, 2021. On October 29, 2021, we entered into a letter agreement with YA II PN, Ltd. to amend and restate the March 2021 Note so as to, among others, extend the maturity date to August 31, 2022, and reduced the floor price from US$0.015 per Class A ordinary share to US$0.01 per Class A ordinary share. On January 10 and February 28, 2022, we entered into two letter agreements, pursuant to which the floor price was reduced to US$0.006 per Class A ordinary share and US$0.004 per Class A ordinary share, respectively. On May 11, 2022, we and YA II PN, Ltd. agreed to change the floor price to US$0.50 per ADS. On July 8, 2022, we entered into a letter agreement with YA II PN, Ltd. to amend the schedule of redemptions, which was subsequently replaced by the one signed on October 11, 2022. On October 11, 2022, we entered into a letter agreement with YA II PN, Ltd. to, among other things, extend the maturity date to April 1, 2023, and amend the schedule of redemptions. This note has been partially converted to 1,543,601,450 Class A ordinary shares with the weighted average conversion price of US$0.0081 per ordinary share and fully redeemed as of March 31, 2023.\n\nWe incurred a net loss of US$2.6 million and negative cash flows from operations of US$6.6 million in 2023. We incurred a net income of US$0.1 million and negative cash flows from operations of US$0.3 million in 2024. We incurred a net loss of US$0.1 million and negative cash flows from operations of US$0.1 million in 2025. Our revenue declined from US$32.0 million in 2023 to US$30.3 million in 2024, and further to US$21.7 million in 2025. We accumulated a deficit of US$216.9 million as of December 31, 2025. We had negative working capital, which equals the result of current assets *minus* current liabilities, of US$1.2 million, US$0.6 million and US$0.7 million as of December 31, 2023, 2024 and 2025, respectively.\n\n115\n\n[Table of Contents](#TOC)\n\nThese adverse conditions indicate that there is substantial doubt about the Company’s ability to continue as a going concern. The liquidity of our company is dependent on our ability to enhance our operating cash flow, obtain capital financing from investors and borrowings from commercial banks to fund our general operations including marketing activities. Our ability to continue as a going concern is dependent on our ability to successfully execute our business plans including the implementation of a balanced development approach between growth and profitability. We plan to restructure our portfolio products by focusing resources on more profitable businesses, such as pan-entertainment mobile applications in overseas markets. We also plan to continue implementing our cost-control initiatives to improve cost and expense efficiency. In February 2025, we entered into a credit facility agreement with a commercial bank with a credit facility of US$2.0 million, which will expire by January 2028. Each drawdown under the facility has a loan term of 12 months from the date of disbursement. We plan to renew our short-term bank borrowings if needed. While there can be no assurance that we will be able to refinance our short-term bank borrowings as they become due, historically, we have renewed our short-term credit facility upon the maturity of the loans, and we believe we will continue to be able to do so. In addition, we will continue to seek external financing to improve our liquidity position to fund continuing operations, though there is no assurance that we will be successful in obtaining sufficient funding on terms acceptable to us.\n\nWith the implementation of the above plans, we are of the view that we have addressed contrary indicators of our ability to continue as a going concern. We believe that, with the foregoing potential sources of cash flow and potential cost control measures, we have sufficient financial resources for continuous operations and will be able to meet its payment obligations from operations for the next twelve months from the issuance of the consolidated financial statements.\n\nWe may, however, need additional capital in the future. 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 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 would restrict our operations.\n\nHowever, there are material uncertainties relating to our successful implementation of our management’s business plans, which lack sufficient historical data for evidence. Furthermore, there is no assurance that we will be able to obtain additional financings or renew our current bank borrowings to fund our operations. These adverse conditions and events, as well as the material uncertainties relating to our management’s plans, give rise to substantial doubt as to whether we will continue as a going concern. For a discussion of these risks, see “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business—We had incurred declining revenue and negative working capital in the past, and we cannot assure you that we will sustain or improve profitability.”\n\nThe total outstanding balance of our short-term bank borrowings as of December 31, 2025 was US$2.0 million.\n\nWe have entered into the following short-term loan transactions:\n\n●In April 2023, we entered into a credit facility agreement with a commercial bank under which we could draw down up to US$0.7 million by April 2024 with an annual interest rate of 4.15%. In 2023, we drew down the credit facility of US$0.7 million, and fully repaid the amount in April 2024.\n\n●In January 2024, we entered into a credit facility agreement with a commercial bank under which we could draw down up to US$2.5 million by January 2025. The annual interest rate for the agreement was the loan prime rate *minus* 0.25%. In 2024, we drew down the credit facility of US$2.5 million, and fully repaid the amount in January 2025.\n\n●In February 2025, we entered into a credit facility agreement with a commercial bank under which we could draw down up to US$2.0 million by January 2028, with interest rate of 2.88%. Each drawdown under the facility has a loan term of 12 months from the date of disbursement. In 2025, the Group has drawn down the credit facility of US$2.0 million and has made no repayment as of the date of this annual report.\n\n116\n\n[Table of Contents](#TOC)\n\nWhile there can be no assurance that we will be able to refinance our short-term bank borrowings as they become due, historically, we have renewed or rolled over most of our short-term bank loans upon the maturity of such loans and believe we will continue to be able to do so. Meanwhile, we will seek additional credit facility with more financing banks. Additionally, we continue to monitor the daily expenditure regarding matters such as launching new products or upgrading existing products for experimental features, investing in research and development and IT infrastructure, spending in user acquisition and marketing expenses and determine the future business development plan when the necessary financial resources are available.\n\nWe believe that our current cash, cash equivalents and restricted cash, the available credit under our existing credit facilities, and our anticipated cash flows from operations will be sufficient to meet our anticipated working capital requirements and capital expenditures in the ordinary course of business for the next 12 months. We may, however, need additional capital for business expansion in the future.\n\nAs of December 31, 2025, 23.3% of our cash, cash equivalents and restricted cash were held in mainland China, and 16.2% were held by the VIEs and denominated in Renminbi. Most of the remaining cash and cash equivalents we held as of December 31, 2025, were held in Hong Kong and United States, and mainly denominated in Hong Kong dollars and U.S. dollars. Although we consolidate the results of the VIEs, we only have access to the assets or earnings of the VIEs through our contractual arrangements with the VIEs and their shareholders. See “Item 4. Information on the Company—C. Organizational Structure.” For restrictions and limitations on liquidity and capital resources as a result of our corporate structure, see “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Holding Company Structure.”\n\nTo utilize the proceeds we received from our overseas offerings, we may make additional capital contributions to our PRC subsidiary, establish new PRC subsidiaries and make capital contributions to these new PRC subsidiaries, or make loans to the PRC subsidiaries. However, most of these uses are subject to PRC regulations. Foreign direct investment and loans must be approved by and/or registered with SAFE and its local branches. The total amount of loans we can make to our PRC subsidiary cannot exceed statutory limits and must be registered with the local counterpart of SAFE. The statutory limit for the total amount of foreign debts of a foreign-invested company is the difference between the amount of total investment as approved by the Ministry of Commerce or its local counterpart and the amount of registered capital of such foreign-invested company. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—PRC regulation of loans to, and direct investment in, PRC entities by offshore holding companies and governmental control of currency conversion may restrict or prevent us from using the proceeds of our overseas offerings to make loans to our PRC subsidiary and the VIEs, or to make additional capital contributions to our PRC subsidiary.”\n\nA portion of our future revenues are likely to continue to be in the form of Renminbi. Under existing PRC foreign exchange regulations, Renminbi may be converted into foreign exchange for current account items, including profit distributions, interest payments and trade-and service-related foreign exchange transactions without prior SAFE approval by following certain routine procedural requirements. However, current PRC regulations permit our PRC subsidiary to pay dividends to us only out of its accumulated profits, if any, determined in accordance with Chinese accounting standards and regulations. Our PRC subsidiary is required to set aside at least 10% of its after-tax profits after making up previous years’ accumulated losses each year, if any, to fund certain reserve funds until the total amount set aside reaches 50% of its registered capital. These reserves are not distributable as cash dividends. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure—We may rely on dividends paid by our PRC subsidiary to fund cash and financing requirements. Any limitation on the ability of our PRC subsidiary to pay dividends to us could have a material adverse effect on our ability to conduct our business and to pay dividends to holders of the ADSs and our ordinary shares.”\n\nOperating Activities\n\nNet cash used in operating activities in 2025 was US$0.1 million, as compared to net loss of US$0.1 million in the same period. The difference was primarily due to (i) a decrease of US$1.2 million in accounts payable driven primarily by the decrease in payment of our user acquisition costs, (ii) a decrease of US$0.3 million in deferred revenues, (iii) a decrease of US$0.2 million in accrued salary and benefits, and (iv) a decrease of US$0.2 million in operating lease liabilities, partially offset by an increase of US$1.1 million in accounts receivables and increase of US$0.4 prepaid expenses and other current assets. The principal non-cash items affecting the difference between our net income and our net cash used in operating activities in 2025 primarily consisted of US$0.3 million in provision for credit losses and US$0.3 million in non-cash lease expenses.\n\n117\n\n[Table of Contents](#TOC)\n\nNet cash used in operating activities in 2024 was US$0.3 million, as compared to net income of US$0.1 million in the same period. The difference was primarily due to (i) a decrease of US$1.0 million in accounts payable driven primarily by the decrease in payment of our user acquisition costs, (ii) a decrease of US$0.9 million in accrued expenses and other current liabilities, (iii) a decrease of US$0.4 million in accrued salary and benefits, and (iv) a decrease of US$0.6 million in accounts receivables, partially offset by an increase of US$1.9 million in prepaid expenses and other current assets and increase of US$0.4 million in deferred revenues. The principal non-cash items affecting the difference between our net income and our net cash used in operating activities in 2024 primarily consisted of US$0.1 million in depreciation expenses and US$0.1 million in share-based compensation expenses.\n\nNet cash used in operating activities in 2023 was US$6.6 million, as compared to net loss of US$2.6 million in the same period. The difference was primarily due to (i) a decrease of US$3.6 million in accounts payable driven primarily by the decrease in payment of our user acquisition costs, (ii) a decrease of US$2.2 million in accrued expenses and other current liabilities, and (iii) a decrease of US$2.8 million in accrued salary and benefits, partially offset by an increase of US$2.7 million in accounts receivables and US$1.1 million in prepaid expenses and other current assets. The principal non-cash items affecting the difference between our net loss and our net cash used in operating activities in 2023 primarily consisted of (i) US$0.4 million in depreciation expenses, (ii) US$0.7 million in share-based compensation expenses, and (iii) US$0.3 million in non-cash lease expenses, and partially offset by US$0.4 million in gain on disposal of property and equipment.\n\nInvesting Activities\n\nNet cash used in investing activities in 2025 was US$0.05 million, primarily due to purchases of property and equipment and of US$0.06 million, partially offset by proceeds from disposal of property and equipment US$0.01 million.\n\nNet cash provided by investing activities in 2024 was US$0.1 million, primarily due to proceeds from reclaim of short-term investments.\n\nNet cash provided by investing activities in 2023 was US$1.0 million, primarily due to proceeds from disposal of property and equipment of US$1.0 million.\n\nFinancing Activities\n\nNet cash used in financing activities in 2025 was US$0.5 million, primarily due to net repayments of bank borrowings.\n\nNet cash provided by financing activities in 2024 was US$1.8 million, primarily due to net proceeds from bank borrowings.\n\nNet cash used in financing activities in 2023 was US$2.0 million, primarily due to repayment of convertible notes of US$1.8 million.\n\n**Material Cash Requirements**\n\nOur material cash requirements as of December 31, 2025 and any subsequent interim period primarily include our operating lease obligations and short-term bank debt obligations.\n\nOur operating lease obligations consist of the commitments under the lease agreements for our office premises. We lease our office facilities under non-cancelable operating leases with various expiration dates. Our leasing expense was US$0.5 million, US$0.5 million and US$0.3 million for the years ended December 31, 2023, 2024 and 2025, respectively. The majority of our operating lease commitments are related to our office lease agreements in mainland China.\n\nWe made capital expenditures of US$0.08 million, nil and US$0.06 million in 2023, 2024 and 2025, respectively. In 2023, we sold a majority of our servers, terminated leases with internet data centers who hosted those servers, and completed the transition of our data and services to cloud service providers, such as Tencent Cloud and Huoshan Cloud, as a part of our cost-control initiatives. We plan to continue to make capital expenditures to meet the needs that result from the expected growth of our business in the future.\n\n118\n\n[Table of Contents](#TOC)\n\nWe intend to fund our existing and future material cash requirements with our existing cash balance and future cash from our operations and financings. We will continue to make cash commitments, including capital expenditures, to support the growth of our business.\n\nWe have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties. We do not have retained or contingent interests in assets transferred. We have not entered into contractual arrangements that support the credit, liquidity or market risk for transferred assets. We do not have obligations that arise or could arise from variable interests held in an unconsolidated entity, or obligations related to derivative instruments that are both indexed to and classified in our own equity, or not reflected in the statement of financial position.\n\nOther than as discussed above, we did not have any significant capital and other commitments, long-term obligations or guarantees as of December 31, 2025.\n\n**Holding Company Structure**\n\nCooTek (Cayman) Inc. is a holding company with no material operations of its own. We conduct our operations primarily through our PRC subsidiaries, the VIEs and the VIEs’ subsidiaries in mainland China. As a result, CooTek (Cayman) Inc.’s ability to pay dividends depends on dividends paid by our PRC subsidiaries. If our existing subsidiaries or any newly formed ones incur debt on their own behalf in the future, the instruments governing their debt may restrict their ability to pay dividends to us. In addition, our wholly foreign-owned subsidiary in mainland China is permitted to pay dividends to us only out of its retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. Under PRC law, each of our subsidiary and the VIEs in mainland China is required to set aside at least 10% of its after-tax profits each year, if any, to fund certain statutory reserve funds until such reserve funds reach 50% of its registered capital. In addition, our wholly foreign-owned subsidiary in mainland China may allocate a portion of its after-tax profits based on PRC accounting standards to enterprise expansion funds and staff bonus and welfare funds at its discretion, and the VIEs may allocate a portion of their after-tax profits based on PRC accounting standards to a discretionary surplus fund at their discretion. The statutory reserve funds and the discretionary funds are not distributable as cash dividends. Remittance of dividends by a wholly foreign-owned company out of mainland China is subject to examination by the banks designated by SAFE. Our PRC subsidiary has not paid dividends and will not be able to pay dividends until it generates accumulated profits and meets the requirements for statutory reserve funds.\n\n**C.****Research and Development, Patents and Licenses, Etc.**\n\nSee “Item 4. Information On the Company—B. Business Overview—Intellectual Property.”\n\n**D.****Trend Information**\n\nOther than as disclosed elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or events for the period since January 1, 2026, that are reasonably likely to have a material 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 operating results or financial conditions.\n\n**E.****Critical Accounting Estimates**\n\nWe prepare our consolidated financial statements in accordance with U.S. GAAP, which requires our management to make estimates that affect the reported amounts of assets, liabilities and disclosures of contingent assets and liabilities at the balance sheet dates, as well as the reported amounts of revenues and expenses during the reporting periods. To the extent that there are material differences between these estimates and actual results, our financial condition or results of operations would be affected. We base our estimates on our own historical experience and other assumptions that we believe are reasonable after taking account of our circumstances and expectations for the future based on available information. We evaluate these estimates on an ongoing basis.\n\n119\n\n[Table of Contents](#TOC)\n\nWe 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. There are other items within our financial statements that require estimation but are not deemed critical, as defined above. Changes in estimates used in these and other items could have a material impact on our financial statements. For a detailed discussion of our significant accounting policies and related judgments, see “Notes to Consolidated Financial Statements–Note 2 Summary of Significant Accounting Policies” of our audited consolidated financial statements included in this annual report. We believe the following critical accounting estimates are used in the preparation of our financial statements.\n\nRevenue Recognition - In-app purchase\n\nWe operate applications that allow users to download for free and also offer in-app purchases to users. In-app purchase revenue is primarily derived in the form of subscriptions and sale of in-app virtual currency to obtain virtual items in mobile games or extra content in our online literature products.\n\nPayments from users are non-refundable and relate to non-cancellable contracts for a fixed price that specify our obligations. We are primarily responsible for providing the service and virtual items, have control over the content and operation of applications, and have the discretion to establish the in-app purchases’ prices. Therefore, we are the principal and accordingly revenues are recorded on a gross basis. The digital distribution platforms such as Apple App Store and Google Play collect proceeds from the users and remit the proceeds to us after deducting their respective platform fees. Payment processing fees paid to platforms are recorded within cost of revenues.\n\nIn-app purchase revenue derived in the form of subscription is initially deferred and is recognized using the straight-line method over the term of the applicable subscription period.\n\nFor in-app purchase revenue derived from the sale of in-app virtual currency, the satisfaction of our performance obligation is dependent on the nature of the virtual item purchased which is categorized as either consumable or durable.\n\n●*Consumable:* Consumable virtual items represent items that can be consumed by a specific user action. Consumable virtual items do not provide the user any continuing benefit after a short period of time following consumption. For the sale of consumable virtual items, we recognize revenue as the items are consumed which approximates 60 days. We have determined through a review of user behavior that users generally do not purchase additional virtual currency until their existing virtual currency balances have been substantially consumed. This review, performed on an app-by-app basis, includes an analysis of users’ historical purchase behavior and consumption behavior. Based upon this analysis, we have estimated the rate at which virtual items are consumed within each application. Accordingly, revenues are recognized using these estimated consumption rates. We monitor this analysis of user behavior on a quarterly basis.\n\n●*Durable:* Durable virtual items represent items that are accessible to the user over an extended period of time. We recognize revenue from the sale of durable virtual items ratably over the estimated service period for the applicable applications, which represents our best estimate of the average life of the durable virtual item.\n\nThe substantial majority of virtual items in our applications are consumable virtual items. We expect that in future periods, there will not be significant changes in the mix of consumable and durable virtual items offered and sold.\n\nShare-based Compensation\n\nOur share-based payment transactions with our employees are measured based on the grant date fair value of the equity instrument we issued and recognized as compensation expense over the requisite service period based on the straight-line method, with a corresponding impact reflected in additional paid-in capital.\n\n120\n\n[Table of Contents](#TOC)\n\nOur share-based compensation expenses are measured at the fair value of the awards as calculated under the binomial option-pricing model. Changes in the assumptions used in the binomial model could significantly affect the fair value of stock options and hence the amount of compensation expenses we recognize in our consolidated financial statements. Using this model, fair value is calculated based on assumptions with respect to (i) expected volatility of our ADS price, (ii) contractual term stated in the agreement (iii) expected dividend yield on our ADS, and (iv) risk-free interest rates, which are based on quoted U.S. Treasury rates for securities with maturities approximating the options’ expected lives. Expected volatility is estimated based on annualized standard deviation of daily stock price return of comparable companies for the period before valuation date and with similar span as the expected expiration term. The expected dividend yield is zero as we have never paid dividends and do not currently anticipate paying any in the foreseeable future.\n\nIncome Tax\n\nCurrent income taxes are provided on the basis of net income for financial reporting purposes, adjusted for income and expense items which are not assessable or deductible for income tax purposes, in accordance with the regulations of the tax jurisdictions. We follow the asset and liability method of accounting for income taxes.\n\nIn accordance with the provisions of ASC 740, we recognize in the financial statements the benefit of a tax position if the tax position is “more likely than not” to prevail based on the facts and technical merits of the position. Tax positions that meet the “more likely than not” recognition threshold are measured at the largest amount of tax benefit that has a greater than fifty percent likelihood of being realized upon settlement. We estimate liability for unrecognized tax benefits which are periodically assessed and may be affected by changing interpretations of laws, rulings by tax authorities, changes and/or developments with respect to tax audits, and expiration of the statute of limitations. The ultimate outcome for a particular tax position may not be determined with certainty prior to the conclusion of a tax audit and, in some cases, appeal or litigation process.\n\nUnder this method, deferred tax assets and liabilities are determined based on the temporary differences between the financial statements carrying amounts and tax bases of assets and liabilities by applying enacted statutory tax rates that will be in effect in the period in which the temporary differences are expected to reverse. We consider positive and negative evidence when determining whether some portion or all of the deferred tax assets will not be realized. This assessment considers, among other matters, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability, the duration of statutory carry-forward periods, historical results of operations, and tax planning strategies. We record a valuation allowance to offset deferred tax assets if based on the weight of available evidence, it is more likely than not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rate is recognized in our consolidated financial statements in the period of change. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.\n\n**Recent Accounting Pronouncements**\n\nA list of recently issued accounting pronouncements that are relevant to us is included in “Summary of Significant Accounting Policies-(z) Recent Accounting Pronouncements” of our audited consolidated financial statements included elsewhere in this annual report.\n\n​\n\n​\n\n121\n\n[Table of Contents](#TOC)"}