Business Operations and Divestiture - The company has ceased selling service offerings in mainland China after the divestiture of the China Mainland Business, which has not materially impacted its ability to conduct business or accept foreign investments[20]. - The company has divested all former mainland China consolidated VIEs and does not maintain any contractual arrangements that could affect its operations[26]. - The company believes it is not required to obtain permissions from the China Securities Regulatory Commission (CSRC) for future offshore offerings or listings following the divestiture of its China Mainland Business[30]. - 51Talk Online Education Group divested all former mainland China consolidated VIEs in 2022, and as of December 31, 2024, it has no VIE in mainland China[33]. - The company divested its China Mainland Business in June 2022 due to regulatory changes, which may expose it to risks of non-compliance with data security laws in mainland China[77]. - The company has ceased branding and marketing services in mainland China and is focusing on international markets[55]. - The company has incorporated several new subsidiaries to expand its international business, including in Saudi Arabia and the United Arab Emirates[27]. - The company has not provided K-12 online tutoring services in mainland China since mid-2021 due to regulatory changes[50]. Financial Performance and Condition - The company incurred net losses from continuing operations of US$12.8 million, US$15.0 million, and US$7.3 million in 2022, 2023, and 2024, respectively, with an accumulated deficit of US$353.6 million as of December 31, 2024[57]. - The company has not declared or paid any cash dividends for the years ended December 31, 2022, 2023, and 2024, and intends to retain available funds for business operations and expansion[40]. - The company had a total shareholders' equity of negative US$15.0 million and current liabilities exceeded current assets by US$16.8 million as of December 31, 2024[57]. - Cash received by offshore subsidiaries from the parent company for the year ended December 31, 2023, was $4,167,000, while cash received from offshore subsidiaries was $773,000[36]. - Share-based compensation expenses amounted to US$0.9 million in 2024, with expectations for continued increases due to share incentive plans[128]. Regulatory Compliance and Risks - The PCAOB has determined it can inspect and investigate registered public accounting firms in mainland China and Hong Kong, which allows the company to avoid being identified as a Commission-Identified Issuer under the HFCAA[35]. - The company is subject to annual assessments regarding the need for filing procedures with the CSRC based on its revenue and management structure[30]. - The company faces uncertainties regarding compliance with the CSRC and other PRC government agencies for future offshore offerings and capital raising activities, which could lead to sanctions and adversely affect its business operations and financial condition[183]. - The company is not currently subject to CSRC filing requirements based on its operational structure and revenue sources[181]. - The company has not been required to undergo cybersecurity review by any PRC government authority as of the date of the annual report[77]. - The company may face sanctions from the CSRC if it fails to complete filing procedures for future offshore offerings, which could adversely affect its business and financial condition[33]. Market and Competitive Landscape - The company faces significant competition in the global English education market, which is fragmented and rapidly evolving[60]. - The education market in Malaysia is highly competitive, with many companies offering similar products, posing challenges for the company to differentiate its offerings and retain users[190]. - The company must maintain and enhance brand recognition to attract international students and grow its international business[54]. - The company’s growth may slow down or revenues may decline due to various factors, including increasing competition and changes in regulations[51]. Operational Risks - The company faces risks from unexpected network interruptions and system failures, which could significantly damage its ability to attract and retain students and tutors[80]. - The company may continue to incur net losses from operating activities and net current liabilities, which could adversely affect its business and financial condition[58]. - The company is vulnerable to natural disasters and other extraordinary events that could disrupt operations and adversely affect financial results[108]. - Political and economic risks in international markets may adversely affect the company's financial condition and results of operations[109]. - The company faces operational risks due to inconsistent regulations and potential currency devaluation in the Asian markets where it operates[140]. Management and Governance - The company relies heavily on the expertise of senior management, including CEO Jack Jiajia Huang and CFO Cindy Chun Tang, which is critical for business continuity[120]. - The company has identified two material weaknesses in internal controls over financial reporting, which could lead to misstatements and loss of investor confidence[132]. - The company has a dual class share structure, with Class A ordinary shares representing 29.5% of total outstanding shares and Class B ordinary shares holding 80.7% of total voting power[204]. Legal and Tax Considerations - The evolving legal system in mainland China presents uncertainties that may limit legal protections for the company and its investors[138]. - The Chinese government has significant discretion over the interpretation and implementation of laws, which may adversely affect the company's operations and legal protections[142]. - Uncertain tax liabilities in various countries could adversely impact the company's operating results and financial condition[158]. - The company may be classified as a passive foreign investment company (PFIC) for U.S. federal income tax purposes, which could lead to significant adverse tax consequences for U.S. holders of its ADSs[199][202]. International Operations and Expansion - The company commenced its international business in the second half of 2021, providing one-on-one English lessons to students outside of mainland China, and has experienced rapid growth in student acquisition[51]. - The company has transitioned to new business models and service offerings outside of mainland China since the second half of 2021, focusing on one-on-one English lessons taught by foreign tutors[52]. - The company faces operational risks in mainland China due to potential changes in economic, political, or social conditions, which could materially affect its results[146]. - The company may incur additional compliance costs related to U.S. sanctions regulations, which could affect its operations in the Middle East[193].
51Talk(COE) - 2024 Q4 - Annual Report