{"url_path":"/sec/tc/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":"2026-05-08","source_url":"https://www.sec.gov/Archives/edgar/data/1743340/0001213900-26-053942-index.html","accession_number":"0001213900-26-053942","cik":"0001743340","ticker":"TC","issuer_name":"Token Cat Ltd","edgar_url":"https://www.sec.gov/Archives/edgar/data/1743340/0001213900-26-053942-index.html","primary_entity_key":"0001743340","primary_entity_name":"Token Cat Ltd"},"word_count":8985,"has_tables":true,"body_markdown":"** **\n\n**ITEM\n5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS**\n\n \n\n*You\nshould read the following description of our results of operations and financial condition in conjunction with the consolidated audited\nfinancial statements and related notes for the years ended December 31, 2025 and 2024. This discussion may contain forward-looking statements\nabout our business and operations. Our actual results may differ materially from those we currently anticipate as a result of many factors,\nincluding those we describe under “Item 3. Key Information-3.D. Risk Factors” and elsewhere in this annual report.*\n\n \n\nThe\nfollowing discussion of our financial condition and results of operations is based upon and should be read in conjunction with our consolidated\nfinancial statements and their related notes included in this annual report. This report contains forward-looking statements. In evaluating\nour business, you should carefully consider the information provided under the caption “Item 3. Key Information-D. Risk Factors”\nin this annual report. We caution you that our businesses and financial performance are subject to substantial risks and uncertainties.\n\n \n\n**A.\nOperating Results**\n\n \n\n**Overview**\n\n \n\nIn 2025, we began a significant\ntransition from its historical automotive marketplace and related marketing businesses to a narrower continuing business conducted through\nretained PRC subsidiaries, while also taking initial steps to expand into our planned new MCN business segment. Historically, our operations\nincluded auto shows, special promotion event services, referral services for a commercial bank, online marketing services, live streaming\npromotion events, customer referral services and social CRM cloud services, which were conducted through subsidiaries, VIEs and subsidiaries\nof VIEs. In the last quarter of 2025, we expanded our retained business through PRC subsidiaries engaged in electronic equipment trading.\nWe plan to expand into a new business segment in 2026 based on our planned MCN platform.\n\n \n\nA\nsubstantial portion of our historical business consisted of an integrated automotive marketplace in China, including the organization\nof auto shows and the provision of related marketing and technology services to automakers, dealers and other automotive industry participants.\nIn the 2025 Dispositions, we disposed of this business, and it constitutes discontinued operations. For 2025, the discontinued operations\ngenerated net revenues of RMB25.6 million and a net loss of RMB40.3 million, and as of December 31, 2025 the discontinued operations\nreflected total assets of RMB46.7 million and total liabilities of RMB277.4 million. As a result, management believes that period-to-period\ncomparisons are more meaningful if investors distinguish between the legacy businesses that have been disposed of and the retained operations\nthat remained after the transaction.\n\n \n\nThe\nCompany’s continuing business after the 2025 Dispositions is centered on retained PRC subsidiaries and new subsidiaries, including\nShenzhen Feixingjia Information Technology Co., Ltd., Beijing Feixingjia Information Technology Co., Ltd. and Changsha Feixingjia Information\nTechnology Co., Ltd., whose stated principal activities include electronic equipment trading and technical support and consulting services.\nIn 2025, continuing operations generated net revenue of RMB5.9 million, consisting principally of RMB5.8 million from the resale of automotive\nelectronic components and RMB0.1 million from our advertising business.\n\n \n\nOur continuing auto resale\nbusiness consists of the sourcing, holding and resale of automotive electronic components through our retained PRC subsidiaries. We procure\nthese products from third-party suppliers and sell them to customers through our sales channels. In 2025, revenue from the resale of automotive\nelectronic components was RMB5.8 million (US$826 thousand), representing 97.5% of our total continuing operations revenue for the year.\nThis business was launched in the last quarter of 2025, and its performance depends on our ability to secure product supply on acceptable\nterms, manage inventory and working capital efficiently, and maintain competitive pricing and service.\n\n \n\nOur\ncontinuing advertising business currently consists primarily of proxy advertising services, through which we help clients promote their\nbrands, services and products on third-party online platforms rather than through the legacy marketing businesses that were disposed\nof in the 2025 Dispositions. Revenue from this continuing advertising business was RMB0.1 million (US$21 thousand) in 2025, representing\n2.5% of our total continuing operations revenue for the year.\n\n \n\n60\n\n \n\n \n\nIn 2025, our cost of revenues\nfor the continuing business consisted primarily of the purchase costs of automotive electronic components and certain direct costs associated\nwith online marketing activities. Although the continuing business generated only RMB0.2 million of gross profit in 2025 and recorded\na loss from continuing operations after other income and expenses of RMB34.5 million, the Company reported income from continuing operations\nbefore income taxes of RMB42.5 million, largely consisting of a RMB49.0 million gain from disposal of subsidiaries and a RMB28.0 million\ngain from the change in fair value of warrant liabilities in 2025. Net loss from discontinued operations in 2025 was RMB40.3 million.\nAccordingly, in evaluating the continuing business on a go-forward basis, management believes investors should focus not only on reported\nearnings, but also on the limited current revenue base of the retained operations and the extent to which future revenue growth and margin\nexpansion are generated from the Company’s new operating platform rather than from non-operating items.\n\n \n\nOur\ncontinuing operations also were highly concentrated in a small number of customers in 2025. All of our 2025 revenue was generated from\nfive customers, and four customers accounted for approximately 97.5% of total revenue. As a result, changes in demand from, or the loss\nof, any of these customers, or adverse changes in their payment practices, credit terms or purchasing schedules, could materially affect\nour revenue, accounts receivable, working capital and short-term liquidity. This concentration also reduces forecasting visibility, because\nthe timing, size and renewal of a limited number of customer orders may cause substantial volatility in period-to-period operating results\nand make it more difficult for us to plan inventory, procurement and cash needs.\n\n \n\nWe\nplan to expand into an MCN platform business and related live-streaming activities as part of our post 2025 Dispositions strategy. MCN\nwill aim to connect content creators and key opinion leaders with brands and advertisers. Our primary services are planned to include\ncomprehensive support such as content creation guidance, business partnership matchmaking, brand promotion, and data analysis. We intend\nto help influencers enhance their influence while assisting outstanding supply chain companies in expanding their market channels. We\nalso intend to undertake functions such as content incubation, commercial monetization, and traffic operations. We have made preliminary\npreparations to launch the MCN business, including departmental setup, personnel recruitment, related technology development, and equipment\nprocurement. However, this project carries certain uncertainties and has not generated revenue as of the date of this Annual Report.\n\n \n\nAt the same time, we are\nactively exploring new business channels and plan to incorporate new business models such as AI and MCN live streaming in the future to\nfurther develop our company’s business. The company’s management also notes that due to the impact of regional geopolitical\nevents, the automotive industry faces increased related costs and reduced consumer willingness to spend. The automotive market is filled\nwith certain uncertainties, which to some extent presents challenges for the company’s future business development. We derive our\nrevenue from two reportable operating segments: (i) Sales of automotive electronic component equipment and accessories, mainly consisting\nof communication device, power module, etc. and (ii) Advertising business.\n\n \n\n**Results\nof Operations**\n\n \n\n**Revenues**\n\n \n\nWe derive our revenue from\ntwo reportable operating segments: (i) Sales of automotive electronic component equipment and accessories, mainly consisting of communication\ndevice, power module, etc. and (ii) Advertising business. The following table sets forth our revenues by segment and as a percentage\nof total revenues for the periods indicated:\n\n \n\n  \nFor the year ended December 31, \n\n  \n2023  \n2024  \n2025 \n\n  \nRMB  \n%  \nRMB  \n%  \nRMB  \nUS$  \n% \n\n  \n(in thousands, except for percentages) \n\nResale of automotive electronic components from third party \n —  \n —  \n —  \n —  \n 5,772  \n 826  \n 97.5 \n\nAdvertising business \n —  \n —  \n —  \n —  \n 148  \n 21  \n 2.5 \n\nTotal revenue \n —  \n —  \n —  \n —  \n 5,920  \n 847  \n 100.0 \n\n \n\n61\n\n \n\n \n\n**Resale\nof automotive electronic components from third party**\n\n \n\nSince the 2025 Dispositions,\nwe generate the majority of our revenues from the sales of resale of automotive electronic components from third parties. Our resales\nof sourced equipment and accessories from third parties include new energy-related products. It contributed 97.5% of our total revenues\nin 2025. For the year ended December 31, 2025, revenues from resales of sourced equipment and accessories from third parties were $0.8\nmillion.\n\n \n\n**Cost\nof Revenues**\n\n \n\nOur cost of revenues\nof resale of automotive electronic components is as follows:\n\n \n\nFor\nautomotive electronic components, we procure a variety of raw materials and components from third-party suppliers, and outsource our\nmanufacturing and order fulfillment activities to third parties. Our product costs fluctuate with the costs of raw materials and underlying\nproduct components as well as the prices we are able to negotiate with our contract manufacturers and raw material and component suppliers.\nShipping costs for raw materials and components are borne by our suppliers and contract manufacturers.\n\n \n\nWe\noffer a warranty ranging from 0 to 2 years. We have the warranty obligations. However, no separate accrual has been made as historical\nwarranty repair costs were nil/immaterial. Warranty provisions will be recognized in the future if and when such costs are probable,\nestimable, and material.\n\n \n\nThe\nfollowing table sets forth our cost of revenues by segment and as a percentage of total cost of revenues for the periods indicated:\n\n \n\n  \nFor the year ended December 31, \n\n  \n2023 \n2024 \n2025 \n\n  \nRMB \n% \nRMB \n% \nRMB \nUS$ \n% \n\n  \n(in thousands, except for percentages) \n\nResale of automotive electronic components from third party \n— \n — \n — \n— \n5,752 \n823 \n100.0 \n\nAdvertising business \n— \n — \n — \n— \n**—** \n**—** \n**—** \n\nTotal cost of revenues \n— \n — \n — \n— \n5,752 \n823 \n100.0 \n\n \n\n**Gross\nProfit and Gross Margin**\n\n \n\nThe\nfollowing table sets forth the gross profit and gross margin by segment:\n\n \n\n  \nFor the year ended December 31, \n\n  \n2023  \n2024  \n2025 \n\n  \nRMB  \n%  \nRMB  \n%  \nRMB  \nUS$  \n% \n\n  \n(in thousands, except for percentages) \n\nResale of automotive electronic components from third party \n —  \n —  \n —  \n —  \n 20  \n 3  \n 11.9 \n\nAdvertising business \n —  \n —  \n —  \n —  \n 148  \n 21  \n 88.1 \n\nTotal gross profit \n —  \n —  \n —  \n —  \n 168  \n 24  \n 100.0 \n\n \n\n**General\nand administrative expenses**\n\n \n\nGeneral and administrative\nexpenses decreased by 7.8% from RMB37.6 million for the year ended December 31, 2024 to RMB34.6 million ($5.0 million) for the year ended\nDecember 31, 2025.\n\n \n\n**Net\nincome (loss)**\n\n \n\nFor the year ended December 31, 2025, we recorded a net income of RMB42.5\nmillion ($6.1 million) from continuing operations, compared to a net loss of RMB94.3 million for the year ended December 31, 2024. Such\nchange was primarily driven by gain from disposal of subsidiaries and change in fair value of warrant liability. We recorded a total net\nincome for 2025 of RMB2.3 million after a RMB40.3 million loss from discontinued operations.\n\n \n\n62\n\n \n\n \n\n**Concentrations**\n\n \n\nOur\ncontinuing operations are highly concentrated in a small number of customers in 2025. All of our 2025 revenue from continuing operations\nwas generated from five customers, and four customers accounted for approximately 97.5% of total revenue. As a result, changes in demand\nfrom, or the loss of, any of these customers, or adverse changes in their payment practices, credit terms or purchasing schedules, could\nmaterially affect our revenue, accounts receivable, working capital and short-term liquidity. This concentration also reduces forecasting\nvisibility, because the timing, size and renewal of a limited number of customer orders may cause substantial volatility in period-to-period\noperating results and make it more difficult for us to plan inventory, procurement and cash needs. \n\n \n\n**Discontinued\nOperations**\n\n \n\nWe historically generated\nnet revenue primarily from offline marketing services, referral services for commercial banks, online marketing services and other services.\nThese historical operations have been classified as discontinued operations.\n\n \n\nFor\nthe years ended December 31, 2023, 2024 and 2025, net revenues from discontinued operations were RMB162.4 million, RMB49.2 million and\nRMB25.6 million, respectively.\n\n \n\nFor\nthe years ended December 31, 2023, 2024 and 2025, cost of revenues from discontinued operations were RMB68.9 million, RMB15.6 million\nand RMB6.3 million, respectively.\n\n \n\nAs\na result of the foregoing, our gross profit was RMB93.4 million, RMB33.6 million and RMB19.2 million in 2023, 2024 and 2025, respectively,\nand our gross profit margin was 57.5%, 68.3% and 75.2% in 2023, 2024 and 2025, respectively. \n\n** **\n\n**B.\nLiquidity and Capital Resources**\n\n \n\n**For\nthe years ended December 31, 2025 and 2024**\n\n \n\nAs\nof December 31, 2025 and 2024, we had RMB1.0 million ($0.1 million) and RMB4.6 million in cash and cash equivalents, respectively. However,\ncurrent assets as of December 31, 2025 were driven primarily by prepayments and other current assets of RMB165.4 million, including RMB165.3\nmillion of procurement advances, rather than by cash or other immediately available liquid resources. As a result, the size of our current\nasset balance should not be viewed as indicating comparable near-term liquidity. Our short-term liquidity depends in significant part\non the timing of the delivery, use, recovery or monetization of these prepayments, together with our ability to collect receivables,\ncontrol operating cash outflows and obtain additional financing as needed.\n\n \n\nThe accompanying consolidated financial statements and related notes\nhave been prepared in conformity with U.S. GAAP and Securities and Exchange Commission regulations, assuming the Company will continue\nas a going concern. In evaluating the Company’s ability to continue as a going concern, management considered the conditions and\nevents that could raise substantial doubt about our ability to continue as a going concern. As of December 31, 2025, we had an accumulated\ndeficit of approximately RMB1,418.8 million, cash and cash equivalents of RMB1.0 million, and net cash used in operating activities of\nRMB176.4 million for 2025. In addition, although we reported current assets of RMB172.9 million as of December 31, 2025, those current\nassets were driven primarily by prepayments and other current assets of RMB165.4 million, including RMB165.3 million of procurement advances,\nrather than by cash or other immediately available liquid resources. We had net income from operations of RMB2.3 million, driven by income\nfrom continuing operations of RMB42.5 million primarily due to non-operating items including a RMB49.0 million gain on disposal of subsidiaries\nand a RMB28.0 million fair value gain on warrants; loss from operations was RMB34.5 million. These conditions raise substantial doubt\nabout our ability to continue as a going concern.\n\n \n\nThe accompanying consolidated financial statements have been prepared\nassuming that the Company will continue as a going concern, which contemplates the realization of assets and the discharge of liabilities\nin the normal course of business for the foreseeable future. Our independent registered public accounting firm’s report on the consolidated\nfinancial statements for the year ended December 31, 2025 includes an explanatory paragraph regarding substantial doubt about our ability\nto continue as a going concern.\n\n \n\nThese\nconditions raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements\ndo not include any adjustments that might result from the outcome of this uncertainty, such as those relating to the recoverability and\nclassification of recorded asset amounts or the amounts and classification of liabilities.\n\n \n\nIn\nresponse to the conditions described above, management has taken and plans to take the following actions to improve the Company’s\nfinancial position and operations:\n\n \n\na.\nIn 2025, the Company optimized its capital structure by disposing of its loss-making operations.\n\n \n\nb.\nThe Company will fund its development and future operations through aggressive business growth and non-dilutive equity\nfinancing.\n\n \n\nc. Should we fail to achieve\nthe above objectives, we may require additional financing to execute our business plans. Such financing may be in the form of equity or\ndebt, the timing, terms, and availability of which cannot be assured. If we are unable to secure necessary capital on acceptable terms\nor at all, or if we fail to improve gross margins and reduce operating expenses, it may be unable to implement its current expansion strategy.\n\n \n\n63\n\n \n\n \n\nManagement believes that\nthe actions it is presently taking—which include seeking additional funding and implementing the above strategic plan—will\nmitigate the conditions that raise substantial doubt and provide the opportunity for us to continue as a going concern. However, these\nplans are subject to significant uncertainties, and there can be no assurance that we will successfully improve operating cash flows,\nrecover or monetize prepayments on a timely basis, improve gross margins, reduce operating expenses, or obtain additional financing on\nacceptable terms, if at all.\n\n \n\nThis discussion should be\nread together with Note 2 to our consolidated financial statements and the related risk factor under “Item 3. Key Information—D.\nRisk Factors.”\n\n \n\nThe\nfollowing table summarizes the company’s cash flow data as of December 31, 2025, December 31, 2024 and December 31, 2023:\n\n \n\n  \nFor the year ended December 31, \n\n  \n2023  \n2024  \n2025 \n\n  \nRMB  \nRMB  \nRMB  \nUS$ \n\nNet cash generated from/(used in) operating activities-continuing operations \n 4,075  \n (5,518) \n (176,898) \n (25,296)\n\nNet cash (used in)/generated from operating activities-discontinued operations \n (78,967) \n (29,204) \n 534  \n 76 \n\nNet cash used in operating activities \n (74,892) \n (34,722) \n (176,364) \n (25,220)\n\nCash flows from investing activities: \n    \n    \n    \n   \n\nDisposal of subsidiaries \n —  \n —  \n (4,904) \n (701)\n\nNet cash used in investing activities-continuing operations \n —  \n —  \n (4,904) \n (701)\n\nNet cash used in investing activities-discontinued operations \n —  \n (19) \n —  \n — \n\nNet cash used in investing activities \n —  \n (19) \n (4,904) \n (701)\n\nCash flows from financing activities: \n    \n    \n    \n   \n\nProceeds of offering, net of listing fee \n —  \n 7,112  \n 165,039  \n 23,600 \n\nNet cash generated from financing activities-continuing operations \n —  \n 7,112  \n 165,039  \n 23,600 \n\nNet cash generated from/(used in) financing activities-discontinued operations \n 13,972  \n 23,047  \n (1,450) \n (207)\n\nNet cash generated from financing activities \n 13,972  \n 30,159  \n 163,589  \n 23,393 \n\nEffect of exchange rate changes on cash \n 70  \n (1,071) \n 8,315  \n 1,189 \n\nNet decrease in cash and restricted cash \n (60,850) \n (5,653) \n (9,364) \n (1,339)\n\nCash, cash equivalents and restricted cash at beginning of the year \n 76,843  \n 15,993  \n 10,340  \n 1,479 \n\nCash, cash equivalents and restricted cash at end of the year \n 15,993  \n 10,340  \n 976  \n 140 \n\n \n\n**Operating\nActivities **\n\n \n\nNet cash used in operating activities consists primarily of net loss\nadjusted for non-cash items, including, share-based compensation, gain from disposal of subsidiaries, change in fair value of warrant\nliability and is adjusted for the impact of changes in working capital. Net cash used in operations for the year ended December 31, 2025\nwas RMB176.4 million ($25.2 million), representing an increase of RMB141.6 million compared to net cash used in operating activities of\nRMB34.7 million for the year ended December 31, 2024. The increase in cash used in operating activities is due to the increase in prepayment\nand other current assets.\n\n \n\n**Investing\nActivities **\n\n \n\nNet cash used in investing\nactivities was RMB4.9 million ($0.7 million) for the year ended December 31, 2025, an increase of RMB4.9 million as compared to RMB19\nthousand for the year ended December 31, 2024. The increase in cash used in investing activities is due to the disposal of subsidiaries.\n\n \n\n**Financing\nActivities**\n\n \n\nNet cash provided by financing\nactivities was RMB163.6 million ($23.4 million) for the year ended December 31, 2025, an increase of RMB133.4 million, as compared to\nRMB30.2 million net cash provided by financing activities for the year ended December 31, 2024. The increase in cash provided by financing\nactivities was due to a significant increase in cash proceeds from share issuance.** **\n\n \n\n64\n\n \n\n \n\n**Cash\nflows from continuing operations：**\n\n** **\n\n**Operating\nActivities **\n\n \n\nNet cash used in operating activities consists primarily of net loss\nadjusted for non-cash items, gain from disposal of subsidiaries, and is adjusted for the impact of changes in working capital. Net cash\nused in operations for the year ended December 31, 2025 was RMB176.9 million ($25.3 million), compared to net cash used in operating activities\nof RMB5.5 million for the year ended December 31, 2024. The increase in cash used in operating activities is due to the increase in prepayment\nand other current assets.\n\n \n\n**Investing Activities **\n\n \n\nNet cash used in investing\nactivities was RMB4.9 million ($0.7 million) for the year ended December 31, 2025, an increase of RMB4.9 million as compared to nil for\nthe year ended December 31, 2024. The increase in cash used in investing activities is due to the disposal of subsidiaries.\n\n \n\n**Financing\nActivities**\n\n \n\nNet cash provided by financing\nactivities was RMB165.0 million ($23.6 million) for the year ended December 31, 2025, an increase of RMB157.9 million, as compared to\nRMB7.1 million net cash provided by financing activities for the year ended December 31, 2024. The increase in cash provided by financing\nactivities was due to a significant increase in cash proceeds from share issuance. \n\n** **\n\n**Cash flows from discontinued operations:**\n\n** **\n\n**Operating\nActivities **\n\n \n\nNet cash provided by operating activities consists primarily of net\nloss adjusted for non-cash items, is adjusted for the impact of changes in working capital. Net cash provided in operations as of December\n31, 2025 was RMB0.5 million ($76 thousand), representing an increase of RMB29.7 million compared to net cash used in operating activities\nof RMB29.2 million for year ended December 31, 2024. The increase in cash provided in operating activities is due to the changes in working\ncapital. \n\n \n\n**Investing\nActivities **\n\n \n\nNet cash used in investing activities\nwere nil and RMB19 thousand for year ended December 31, 2025 and 2024.\n\n \n\n**Financing\nActivities**\n\n \n\nNet cash used in financing\nactivities was RMB1.5 million ($0.2 million) for year ended December 31, 2025, a decrease of RMB24.5 million, as compared to RMB 23.0\nmillion net cash provided by financing activities for year ended December 31, 2024. The decrease in cash provided by financing activities\nwas due to a significant decrease in cash received from short-term borrowings.\n\n \n\n**Off-Balance\nSheet Arrangements**\n\n** **\n\nOther\nthan as disclosed elsewhere in this annual report, we have not entered into any financial guarantees or other commitments to guarantee\nthe payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to its shares and classified\nas shareholder’s equity or that are not reflected in its consolidated financial statements. Furthermore, we do not have any retained\nor contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such\nentity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support\nto us or that engages in leasing, hedging or research and development services with us.\n\n  \n\n65\n\n \n\n \n\n**Critical\nAccounting Policies**\n\n \n\nThe\ndiscussion and analysis of our financial condition and results of operations are based upon our financial statements, which have\nbeen prepared in accordance with GAAP. These principles require our management to make estimates and judgments that affect the reported\namounts of assets, liabilities, sales and expenses, cash flow and related disclosure of contingent assets and liabilities. The estimates\ninclude, but are not limited to, accounts receivable, revenue recognition, inventory realization, impairment of long-lived assets and\nincome taxes. We base our estimates on historical experience and on various other assumptions that it believes to be reasonable under\nthe circumstances. Actual results may differ from these estimates. To the extent that there are material differences between these estimates\nand the actual results, future financial statements will be affected.\n\n \n\nOur management believes that among their significant accounting policies,\nwhich are described in Note 3 to the audited consolidated financial statements included in this Annual Report, the following accounting\npolicies involve a greater degree of judgment and complexity. Accordingly, our management believes these are the most critical to fully\nunderstand and evaluate its financial condition and results of operations.\n\n \n\nUse\nof Estimates\n\n \n\nThe\npreparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires\nmanagement to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. Actual results\nand outcomes may differ from management’s estimates and assumptions.\n\n   \n\nRevenue\nrecognition\n\n \n\nThe\nGroup recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration\nto which the entity expects to receive in exchange for those goods or services using the five steps defined under ASC Topic 606.\n\n \n\nThe\nGroup determines revenue recognition through the following steps:\n\n \n\n \n●\nidentification\nof the contract, or contracts, with a customer;\n\n \n\n \n●\nidentification\nof the performance obligations in the contract;\n\n \n\n \n●\ndetermination\nof the transaction price;\n\n \n\n \n●\nallocation\nof the transaction price to the performance obligations in the contract; and\n\n \n\n \n●\nrecognition\nof revenue when, or as, the Group satisfies a performance obligation\n\n \n\nRevenue\nis recognized upon transfer of control of promised goods or services to a customer.\n\n \n\nRevenue\nis recorded net of Value Added Tax (“VAT”) and related surcharges collected from customers, which are subsequently remitted\nto government authorities.\n\n \n\n**Revenue recognition (Continuing operations)**\n\n** **\n\n**Revenue\nfrom the resale of automotive electronic components**\n\n \n\nThe\nGroup generates revenue from the resale of automotive electronic components. The Group identified a single performance obligation, which\nis to deliver the specified automotive electronic components to customers. The sale price of the electronic component equipment and its\naccessories are clearly stated in the agreement signed with customers. The Group acts as a principal in these transactions in accordance\nwith ASC 606 and recognizes revenue at a point in time when control of the automotive electronic components is transferred to customers.\n\n** **\n\n66\n\n \n\n** **\n\n**Advertising business **\n\n \n\nFor\nthe marketing information services, the Group generates consumers’ demand information through its online channels and provides\nto the industry customers upon consumers’ consent. The Group identified only one performance obligation that is to provide consumer’s\ndemand information to the industry customers. The marketing information service fee is charged based on the quantity of consumers’\ndemand information delivered. Revenue is recognized at a point in time upon the delivery of such consumers’ demand information.\n\n \n\nFor the proxy advertising\nservices, with the development of network economy, online advertising has become a trend. The Group’s clients pays for ads posting\nto promote their brand images. The Group connect demands for our clients with popular online platform, such as Tiktok, Kuaishou, Toutiao\nand etc., to showcase our clients’ brands, services or products. It’s the most efficient way for the clients to attract\nmore attention. In practice, an account is set up on the platform for the client and the client notifies us to recharging the account\nwhen the account is activated. The client will get access to the account, determine when, where or how long to post the ads on its own\nand operate posting in the account. When the client posts an ad, the platform charges the account. The Group is considered to be a principal\nin accordance with ASC 606 and revenue is recognized over the period of the contract.\n\n** **\n\n**Revenue recognition (Discontinued operation)**\n\n \n\n**Offline\nmarketing services revenue**\n\n \n\nAuto\nshows revenue\n\n \n\nThe\nGroup’s online website and offline infrastructure allow them to organize auto shows, which aim at facilitating transactions between\nconsumers and industry customers that includes auto dealers, automakers and automotive service providers. The Group charges a fixed admission\nfee per auto show event from its industry customers for arranging, decorating and providing booth space at auto shows. The Group has\nidentified one performance obligation for the transaction - providing a decorated venue for auto dealers, automakers and automotive\nservice providers, as the individual service promised in auto show contracts are not distinct individually. As the Group has control\nof the auto show services and discretion in establishing the price of auto show admission fee to auto dealers, automakers and other automotive\nservice providers, it is considered to be a principal in accordance with ASC 606. The auto shows revenue is recognized on a straight-line\nbasis over the period of the contract, which is usually from two days to four days, when the services are provided.\n\n \n\nThe\nauto show business has been fully transformed into an agency model in July 2024. The Group’s agency service is developed from the\noriginal auto show service. The difference is that the Group arrange, decorate and provide booth space by ourselves in the original auto\nshow service and collect the admission fee, but now the Group entrust the service to the agent, and at the same time to provide promotion\nservices to the agent, and charge the service fee. The Group is considered to be an agent in accordance with ASC 606 and revenue is recognized\nover the period of the contract.\n\n \n\nSpecial\npromotion events revenue\n\n \n\nThe\nGroup provides integrated services to support auto dealers’ own special promotion events during a specific period. The services\ninclude event planning and execution, marketing, training and onsite coaching, etc. The Group charges a fixed service fee per special\npromotion event. The Group has identified one performance obligation as the individual service promised in service contracts are not\ndistinct individually. As the Group has control of the service and discretion in establishing the price of the fee to auto dealers, it\nis considered to be a principal in accordance with ASC 606. The special promotion events revenue is recognized on a straight-line basis\nover the promotion period of the contract, which is usually one week, when the services are provided.\n\n** **\n\n**Referral\nservice for commercial bank revenue**\n\n \n\nIn\nOctober 2019, the Group commenced its auto loan referral services in collaboration with a commercial bank. The referral services provided\nto the bank include (i) referral services and (ii) periodic guarantee for the following time periods: (a) from the date of loan issuance\nby the commercial bank to the consumer to the date when the consumer’s vehicle mortgage registration is completed (the mortgage\nregistration procedures should be completed within 120 days after the loan issuance) and (b) no overdue of more than 30 days for any\nof the first 3 monthly repayment. The referral service and periodic guarantee are two separate performance obligations that meet the\ncriteria to be considered distinct, of which, referral services revenue is recognized at a point in time upon the delivery of the services\nand a guarantee liability is recorded at fair value at inception of the loans. Revenue from the periodic guarantee is recognized by a\nsystematic and rational amortization method over the term of guarantee period. The Company has ceased the cooperation since April 2022.\n\n \n\n67\n\n \n\n \n\nOne\ncomponent of the transaction price is based on the loan performance of the following 12 months since the auto loans were released and\nthe transaction price will be entitled to be received upon the loan performance meet specific criteria. The Group identified that one\ncomponent as a variable consideration and the Group recognized the revenue when it is probable that a significant reversal in the amount\nof cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved.\n\n \n\n**Online\nmarketing services revenue**\n\n \n\nThe\nGroup’s online marketing services revenue primarily include (i) live streaming promotion events services, (ii) customer referral\nservices, (iii) marketing information services and (iv) demand-side platform services.\n\n \n\nThe\nGroup commenced its live streaming promotion events services from the first quarter of 2020, holding promotional events on the live streaming\nplatform of Zhejiang Tmall Technology Co., Ltd. (“Tmall”), which aims at facilitating transactions between consumers and\nindustry customers that includes auto dealers, automakers and automotive service providers. The Group identified only one performance\nobligation that is to provide the industry customers with arranging, decorating and providing the platform for live show. The Group charges\na fixed admission fee per live streaming promotion event from its industry customers. As the Group has control of the services and discretion\nin establishing the price of live streaming promotion admission fee to auto dealers, automakers and other automotive service providers,\nit is considered to be a principal in accordance with ASC 606. The live streaming promotion events services revenue is recognized on\na straight-line basis over the promotion period of the contract, which is usually one week, when the services are provided.\n\n** **\n\n**Social\nCRM cloud services revenue**\n\n \n\nOn\nJanuary 13, 2020, the Company completed the acquisition of Longye, a Software-as-a-Service (“SaaS”) company who mainly provides\nsubscription and support services to industry customers, including auto dealers, automakers and automotive service providers, with access\nto cloud services, software licenses and related support and updates during the term of the arrangement. Cloud services allow industry\ncustomers to use the Group’s multi-tenant software without taking possession of the software. The Group identified the only one\nperformance obligation that is to provide integrated cloud services to industry customers. The Group initially records the subscription\nand support services fee as deferred revenue upon receipt and then recognizes the revenue on a straight-line basis over the service period,\nwhich is usually from one year to five years. The subscription and support services revenue are recognized on a straight-line basis over\nthe period of the contract when the services are provided.\n\n** **\n\n**Referral\nservice for distribution platform revenue**\n\n \n\nThe\nGroup also commenced its customer referral services from the first quarter of 2020 by referring its industry customers to Beijing Baidu\nNetcom Science Technology Co., Ltd. (“Baidu”) to use the membership services of a Baidu’s auto content distribution\nplatform. The Group identified only one performance obligation that is to provide referral service to Baidu. The Group charges Baidu\na fixed rate commission fee based on the membership fee amount for the services rendered. The Group is considered to be an agent in accordance\nwith ASC 606 and revenue is recognized at point-in-time when the industry customers successfully register as a membership of Baidu’s\nauto content distribution platform.\n\n \n\n68\n\n \n\n \n\nInventory\n\n \n\nInventories,\nwhich are primarily comprised of finished goods for sale, are stated at the lower of cost or net realizable value, using the first-in\nfirst-out method. We evaluate the need for reserves associated with obsolete, slow-moving and non-salable inventory by reviewing net\nrealizable values on a periodic basis. Only defects products can be return to our suppliers.\n\n \n\nWarrant\nliability\n\n \n\nWe\nissued warrants to purchase ordinary shares. We evaluate the warrants under ASC 815-40, Derivatives and Hedging—Contracts in Entity’s\nOwn Equity. Warrants recorded as liabilities are recorded at their fair value and remeasured on each reporting date with change in estimated\nfair value of warrant liability in the consolidated statement of operations and comprehensive loss.\n\n \n\nThe\nfair value of the warrant liabilities was valued using Black Scholes Option Pricing model with (1) risk-free rate, (2) expect warrants\nlife, (3) exercise price of warrant, (4) stock price, (5) standard derivation in the value of stock, and (6) expected dividend yield.\n\n \n\nAs of December 31, 2024 and\n2025, we had RMB68.6 million and RMB24.4million (US$3.5million) of warrant liability. We recognized a gain of RMB20.7 million, a loss\nof RMB57.1 million and a gain of RMB28.0 million (US$4.0 million) in fair value of warrant liability in 2023, 2024 and 2025, respectively.\n\n \n\nIncome\nTaxes\n\n \n\nCayman\nIslands\n\n \n\nUnder\nthe current laws of the Cayman Islands, the Company is not subject to tax on income or capital gain. Additionally, upon payments of dividends\nby the Company in the Cayman Islands to their shareholders, no Cayman Islands withholding tax will be imposed.\n\n \n\nNew\nYork\n\n \n\nCommencing\nfrom the year of assessment 2024, the New York’s statutory income tax rate is 8%.\n\n \n\nHong\nKong\n\n \n\nCommencing\nfrom the year of assessment 2018/2019, the first HK$2.0 million of profits earned by the Group’s subsidiaries incorporated in Hong\nKong will be taxed at half the current tax rate (i.e., 8.25%) while the remaining profits will continue to be taxed at the existing 16.5%\ntax rate. Payments of dividends by the subsidiary to the Company are not subject to withholding tax in Hong Kong. The Ordinance only\nallows one entity within a group of “connected entities” to be eligible for the two-tier tax rate benefit. Under the Ordinance,\nit is an entity’s election to nominate an entity that will be subject to the two-tier profits tax rate on its Profits Tax Return.\nThe election is irrevocable. TuanChe Information elected the two-tier profits tax rate for its tax years of 2023 and 2024. TuanChe Information\napplies the two-tier profits tax rate for its provision for current income and deferred taxes. Other HK subsidiaries of the Company elected\n16.5% tax rate.\n\n \n\nChina\n\n \n\nEffective\nfrom January 1, 2008, the PRC’s statutory income tax rate is 25%.\n\n \n\nSingapore\n\n \n\nThe\ncorporate income tax rate is 17%, applicable to both local and foreign companies.\n\n \n\nColorado\n\n \n\nThe\ncorporate income tax rate is 4.4%, and the state sales tax rate is 2.9%.\n\n \n\n69\n\n \n\n \n\n**New\nAccounting Pronouncements**\n\n \n\nIn\nJuly 2025, the FASB issued ASU No. 2025-05, Financial Instruments—Credit Losses (“Topic 326”). This ASU provides a\npractical expedient that assumes that current conditions as of the balance sheet date do not change for the remaining life of the asset\nin developing reasonable and supportable forecasts as part of estimating expected credit losses. For public business entities, ASU 2025-05\nwill be effective for annual reporting periods beginning after December 15, 2025, and interim reporting periods within those annual reporting\nperiods. The guidance will be applied on a prospective basis. Early adoption is permitted in both interim and annual reporting periods\nin which financial statements have not yet been issued or made available for issuance. The Company is currently evaluating the impact\nof adopting the standard.\n\n \n\nOther\naccounting standards that have been issued by FASB that do not require adoption until a future date are not expected to have a material\nimpact on the consolidated financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated\nto have an impact on or are unrelated to its consolidated financial condition, results of operations, cash flows or disclosures.\n\n \n\nBesides\nthe above, the Company’s management does not believe that any recently issued, but not yet effective, accounting standards, if\ncurrently adopted would have a material effect on the consolidated financial statements.\n\n \n\n**Quantitative\nand Qualitative Disclosures about Market Risk**\n\n \n\nCredit\nrisk\n\n \n\nCash\ndeposits with banks are held in financial institutions in China, which deposits are not federally insured. Accordingly, the Company has\na concentration of credit risk related to the uninsured part of bank deposits. The Company has not experienced any losses in such accounts\nand believes it is not exposed to significant credit risk.\n\n \n\nConcentration\n\n \n\nThe\nCompany has a concentration risk related to suppliers and customers. The inability of the company to maintain existing relationships\nwith suppliers or to establish new relationships with customers in the future may have a negative impact on the company’s ability\nto obtain goods sold to customers in a price advantageous and timely manner. If the Company is unable to obtain ample supply of goods\nfrom existing suppliers or alternative sources of supply, the Company may be unable to satisfy the orders from its customers, which may\nhave a material adverse impact on revenue.\n\n \n\nIn 2025, we disposed our loss-making legacy business and expanded new\nbusiness operations through a newly established subsidiary. As a result of the divestiture and related retrospective adjustments, we generated\nRMB5.9 million in revenue from continuing operations for the fiscal year ended December 31, 2025.\n\n \n\nFor\nthe fiscal year ended December 31, 2025, substantially all of our revenue, representing 100% of total revenue, was generated from five\ncustomers. The revenue contributions from these customers were as follows: 33.5%, 33.2%, 17.1%, 13.7% and 2.5%, respectively.\n\n \n\nOur\nrevenue is highly concentrated among a limited number of customers. The loss of, or a significant reduction in, orders from any of these\ncustomers, particularly those representing more than 10% of our total revenue (four customers in aggregate accounting for approximately\n97.5% of our total revenue), would materially and adversely affect our business, financial condition and results of operations.\n\n \n\n**C.\nResearch and Development, Patents and Licenses, etc.**\n\n \n\nSee\n“Item 4. Information on the Company—B. Business Overview—Technology” and “Item 4. Information on the Company—B.\nBusiness Overview—Intellectual Property.”\n\n** **\n\n**D.\nTrend Information**\n\n \n\nFollowing the disposition\nof our legacy operations in the 2025 Dispositions, our continuing operations comprise an automotive electronics resale business launched\nin the third quarter of 2025 and a planned multi-channel network (MCN) platform that had not generated revenue as of the date of this\nreport. We expect several trends and uncertainties to materially affect our results. Our current revenue base is limited, and we incurred\na loss from operations of RMB34.5 million in 2025 against gross profit of RMB0.17 million, with income from continuing operations of RMB42.5\nmillion driven primarily by non-operating items including a RMB49.0 million gain on disposal of subsidiaries and a RMB28.0 million change\nin fair value of warrant liabilities; as a result, period-to-period comparisons will be affected by the timing and magnitude of non-operating\nitems. Our revenue is highly concentrated among a small number of customers, with five customers accounting for 100% of 2025 revenue and\nfour customers representing approximately 97.5%, and any change in orders, pricing, or credit terms from these customers could materially\naffect our revenue, margins, and cash flows. We made significant prepayments of RMB165.3 million in 2025 to support our planned MCN business,\nwhich remained outstanding as of May 8, 2026. Our ability to fund operations depends on improving operating cash flows and obtaining\nadditional financing. We used RMB171.5 million in operating cash in 2025 and ended the year with RMB1.0 million of cash and cash equivalents,\nand our consolidated financial statements include a going concern disclosure reflecting substantial doubt about our ability to continue\nas a going concern. Broad macroeconomic conditions in the automotive sector, including supply availability and pricing dynamics, and our\nexecution of the planned MCN platform, are likely to influence our future revenue trajectory, margin profile, and liquidity.\n\n \n\n70\n\n \n\n \n\n**E.\nCritical Accounting Estimates**\n\n \n\nWe\nprepare financial statements in accordance with U.S. GAAP, which requires us to make judgments, estimates and assumptions that affect\nthe reported amounts of our assets and liabilities and the disclosure of our contingent assets and liabilities at the end of each fiscal\nperiod and the reported amounts of revenues and expenses during each fiscal period. We continually evaluate these judgments and estimates\nbased on our own historical experience, knowledge and assessment of current business and other conditions, our expectations regarding\nthe future based on available information and assumptions that we believe to be reasonable, which together form our basis for making\njudgments about matters that are not readily apparent from other sources. Since the use of estimates is an integral component of the\nfinancial reporting process, our actual results could differ from those estimates. Some of our accounting policies require a higher degree\nof judgment than others in their application.\n\n \n\nThe\nselection of critical accounting policies, the judgments and other uncertainties affecting application of those policies and the sensitivity\nof reported results to changes in conditions and assumptions are factors that should be considered when reviewing our financial statements.\nOur critical accounting policies and practices include the following: (i) revenue recognition; (ii) allowance for credit loss; (iii)\ngoodwill; (iv) impairment of long-lived assets; and (v) warrant liability. See Note 3—Significant Accounting Policies to our consolidated\nfinancial statements for the disclosure of these accounting policies. We believe the following accounting estimates involve the most\nsignificant judgments used in the preparation of our financial statements.\n\n** **\n\n**Revenue Recognition(Continuing operations)**\n\n \n\nWe\nrecognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which\nthe entity expects to receive in exchange for those goods or services using the five steps defined under ASC Topic 606.\n\n \n\nWe\ndetermine revenue recognition through the following steps:\n\n \n\n \n●\nidentification\nof the contract, or contracts, with a customer;\n\n \n\n \n●\nidentification\nof the performance obligations in the contract;\n\n \n\n \n●\ndetermination\nof the transaction price;\n\n \n\n \n●\nallocation\nof the transaction price to the performance obligations in the contract; and\n\n \n\n \n●\nrecognition\nof revenue when, or as, we satisfy a performance obligation.\n\n \n\nRevenue\nis recognized upon transfer of control of promised goods or services to a customer.\n\n \n\nRevenue\nis recorded net of Value Added Tax (“VAT”), and related surcharges collected from customers, which are subsequently remitted\nto government authorities.\n\n** **\n\nRevenue from the resale of\nautomotive electronic components\n\n \n\nThe Group generates revenue\nfrom the resale of automotive electronic components. The Group identified a single performance obligation, which is to deliver the specified\nautomotive electronic components to customers. The sale price of the electronic component equipment and its accessories are clearly stated\nin the agreement signed with customers. The Group acts as a principal in these transactions in accordance with ASC 606 and recognizes\nrevenue at a point in time when control of the automotive electronic components is transferred to customers.\n\n \n\nOther revenue\n\n \n\nFor the marketing information\nservices, the Group generates consumers’ demand information through its online channels and provides to the industry customers upon\nconsumers’ consent. The Group identified only one performance obligation that is to provide consumer’s demand information\nto the industry customers. The marketing information service fee is charged based on the quantity of consumers’ demand information\ndelivered. Revenue is recognized at a point in time upon the delivery of such consumers’ demand information.\n\n \n\nFor the proxy advertising\nservices, with the development of network economy, online advertising has become a trend. The Group’s clients pays for ads posting\nto promote their brand images. The Group connect demands for our clients with popular online platform, such as Tiktok, Kuaishou, Toutiao\nand etc, to showcase our clients’ brands, services or products. It’s the most efficient way for the clients to attract more\nattention. In practice, an account is set up on the platform for the client and the client notifies us to recharging the account when\nthe account is activated. The client will get access to the account, determine when, where or how long to post the ads on its own and\noperate posting in the account. When the client posts an ad, the platform charges the account. The Group is considered to be an agent\nin accordance with ASC 606 and revenue is recognized over the period of the contract.\n\n* *\n\n71\n\n \n\n* *\n\n**Revenue\nrecognition (Discontinued operations)**\n\n* *\n\n*Auto\nshow revenue*\n\n \n\nHistorically,\nour and the VIEs’ online website and offline infrastructure allowed us and the VIEs to organize auto shows, which aimed at facilitating\ntransactions between consumers and industry customers that includes auto dealers, automakers and automotive service providers. We and\nthe VIEs charged a fixed admission fee per auto show event to industry customers for arranging, decorating and providing booth space\nat auto shows. We have identified one performance obligation for the transaction, providing a decorated venue for auto dealers, automakers\nand automotive service providers, as the individual service promised in auto show contracts are not distinct individually. As we have\ncontrol of the auto show services and discretion in establishing the price of auto show admission fee to auto dealers, automakers and\nother automotive service providers, we are considered to be a principal in accordance with ASC 606. The auto shows revenue is recognized\non a straight-line basis over the period of the contract, which is usually from two days to four days, when the services are provided.\n\n \n\nThe\nauto show business fully transformed into an agency model in July 2024. The Group’s agency service is developed from the original\nauto show service. The difference is that the Group arrange, decorate and provide booth space by ourselves in the original auto show\nservice and collect the admission fee, but now the Group entrust the service to the agent, and at the same time to provide promotion\nservices to the agent, and charge the service fee. The Group is considered to be an agent in accordance with ASC 606 and revenue is recognized\nover the period of the contract. The auto show business was disposed of as part of the 2025 Dispositions, and constitutes discontinued\noperations.\n\n* *\n\n*Special\npromotion event service revenue*\n\n \n\nHistorically, we and the\nVIEs provided integrated services to support industry customers’ special promotion events during a specific period, which include\nevent planning and execution, marketing training and onsite coaching. We and the VIEs charged a fixed service fee per special promotion\nevent. We have identified one performance obligation, as the individual service promised in service contracts are not distinct individually.\nAs we had control of the special promotion event services and discretion in establishing the price of services fees to industry customers,\nwe are considered to be a principal in accordance with ASC 606. Revenue generated from the special promotion event services is recognized\non a straight-line basis over the period of the contract, which is usually one week, when the services are provided. The special integrated\nservices business was disposed of as part of the 2025 Dispositions, and constitutes discontinued operations.\n\n \n\n**Online\nmarketing services revenue**\n\n \n\nHistorically, our Subsidiaries\nand the VIEs’ online marketing services revenue primarily included (i) live streaming promotion events services, (ii) customer referral\nservices, (iii) marketing information services and (iv) demand-side platform services.\n\n \n\nWe\nand the VIEs commenced live streaming promotion events services from the first quarter of 2020, holding promotion events on the live\nstreaming platform of Tmall, which aims at facilitating transactions between consumers and industry customers that includes auto dealers,\nautomakers and automotive service providers. We identified only one performance obligation to provide the industry customers with services\nto arrange, decorate and provide platforms for live shows. We charge a fixed admission fee per live streaming promotion event from industry\ncustomers. As we had control of the services and discretion in establishing the price of live streaming promotion admission fee to auto\ndealers, automakers and other automotive service providers, it is considered to be a principal in accordance with ASC 606. The live streaming\npromotion events revenue is recognized on a straight-line basis over the period of the contract, which is usually one week, when the\nservices are provided. The online marketing services business was disposed of as part of the 2025 Dispositions, and constitutes discontinued\noperations.\n\n** **\n\n**Other\nrevenue**\n\n \n\nHistorically,\nfor the marketing information services, we generated consumers’ demand information through online channels and provide to the industry\ncustomers upon consumers’ consent. We identified only one performance obligation to provide information regarding consumer demand\nfor industry customers. The marketing information service fee is charged based on the quantity of consumers’ demand information\ndelivered. Revenue is recognized at a point in time upon the delivery of such consumers’ demand information.\n\n \n\nOur\nclients paid for ads posting to promote their brand images. We connected demands for our clients with popular online platform, such as\nTiktok, Kuaishou, Toutiao and etc, to showcase our clients’ brands, services or products. We are considered to be an agent in accordance\nwith ASC 606 and revenue is recognized over the period of the contract. The promotion business was disposed of as part of the 2025 Dispositions,\nand constitutes discontinued operations.\n\n** **\n\n72\n\n \n\n \n\n**Allowance\nfor credit loss**\n\n \n\nThe\ncarrying value of accounts receivable is reduced by an allowance that reflects our best estimate of the amounts that will not be collected.\nAn allowance for credit loss is recorded in the period when a loss is probable based on an assessment of specific evidence indicating\ncollection is unlikely, historical bad debt rates, accounts aging, financial conditions of the customer and industry trends. To estimate\nexpected credit losses, we have identified the relevant risk characteristics of the receivables which include size and nature. Receivables\nwith similar risk characteristics have been grouped into pools. For each pool, we consider the past collection experience, current economic\nconditions and future economic conditions (external data and macroeconomic factors). This is assessed at each quarter based on the specific\nfacts and circumstances. There have been no significant changes in the assumptions since adoption. Accounts receivable balances are written\noff against the allowance when they are determined to be uncollectible. Notes receivable represents notes receivable issued by reputable\nfinancial institutions that entitle us to receive the full face amount from the financial institutions at maturity.\n\n \n\nAssumptions Used. Our allowance for credit losses is based on its assumptions\nregarding the probability of default. The expected probability of payment and time to default, which include assumptions about macroeconomic\nfactors and recent performance.\n\n \n\n**Impairment\nof long-lived assets**\n\n \n\nLong-lived\nassets or asset group, including intangible assets with finite lives, are evaluated for impairment whenever events or changes in circumstances\n(such as a significant adverse change to market conditions that will impact the future use of the assets) indicate that the carrying\nvalue of an asset may not be fully recoverable or that the useful life is shorter than we had originally estimated.\n\n \n\nWe\nprimarily consider the following factors when evaluating impairment:\n\n \n\nsignificant\nunderperformance relative to projected operating results;\n\n \n\nsignificant\nchanges in the overall business strategy;\n\n \n\nsignificant\nadverse changes in legal or business environment; and\n\n \n\nsignificant\ncompetition, unfavorable industry trends, or economic outlook.\n\n \n\nWhen these events occur, we evaluate the impairment for the long-lived\nassets by comparing the carrying value of the assets to an estimate of future undiscounted cash flows expected to be generated from the\nuse of the assets and their eventual disposition. If the sum of the expected future undiscounted cash flows is less than the carrying\nvalue of the assets, we recognize an impairment loss based on the excess of the carrying value of the assets over the fair value of the\nassets.\n\n \n\nFuture cash flow assumptions. We performed qualitative analysis regarding\nthe existence of impairment indicators pursuant to ASC 360-10-35-21 and concluded that there are indicators that the asset group might\nbe impaired mainly due to recurring net losses and operating cash out-flows for the years ended December 31, 2025. Thus, we performed\nthe quantitative asset group impairment testing by calculating the undiscounted cash flow to test for recoverability. If the sum of the\nexpected future undiscounted cash flows is less than the carrying value of the assets, we recognize an impairment loss based on the excess\nof the carrying value of the assets over the fair value of the assets.\n\n** **\n\n**Warrant\nliability**\n\n \n\nWe\nissued warrants to purchase ordinary shares. We evaluate the warrants under ASC 815-40, Derivatives and Hedging—Contracts in Entity’s\nOwn Equity. Warrants recorded as liabilities are recorded at their fair value and remeasured on each reporting date with change in estimated\nfair value of warrant liability in the consolidated statement of operations and comprehensive loss.\n\n \n\nThe\nfair value of the warrant liabilities was valued using Black Scholes Option Pricing model with (1) risk-free rate, (2) expect warrants\nlife, (3) exercise price of warrant, (4) stock price, (5) standard derivation in the value of stock, and (6) expected dividend yield.\n\n \n\nAs of December 31, 2024 and\n2025, we had RMB68.6 million, and RMB24.4 million (US$3.5 million) of warrant liability. We recognized a gain of RMB20.7 million, a loss\nof RMB57.1 million and a gain of RMB28.0 (US$4.0 million) in fair value of warrant liability in 2023, 2024 and 2025, respectively.\n\n** **\n\n73"}