PART I ITEM 3. KEY INFORMATION Qutoutiao Inc., a Cayman Islands holding company, operates in China via VIEs due to foreign ownership restrictions, facing risks from contract enforceability, regulatory scrutiny, and substantial doubt about its going concern status due to recurring losses and negative cash flows - The company operates through a VIE structure, controlling PRC entities via contractual arrangements due to foreign investment restrictions in telecommunication and internet services27 - Substantial doubt exists about the company's ability to continue as a going concern due to recurring net losses, negative operating cash flow, working capital deficit, and significant debt obligations, including a convertible loan from Alibaba7172 - The HFCAA poses a risk, potentially prohibiting the company's ADSs from trading in the US if the PCAOB cannot inspect its China-based auditor for two consecutive years31 Summary of Cash Transfers Between Subsidiaries and VIEs (RMB in thousands) | Description | 2022 | 2023 | 2024 | | :--- | :--- | :--- | :--- | | Cash paid by VIEs to subsidiaries (service agreements) | (376,184) | (571,434) | 207,656 | | Cash received by VIEs from subsidiaries (service agreements) | 236,903 | 637,646 | - | | Cash received by VIEs from subsidiaries (intra-Group financing) | 606,146 | 66,034 | - | | Cash repaid by VIEs to subsidiaries (intra-Group financing) | - | - | 365,627 | Risk Factors The company faces significant business, structural, and regulatory risks, including limited operating history, user acquisition challenges, going concern doubts, reliance on advertising, VIE enforceability issues, Chinese government intervention, and ADS trading volatility and delisting risks - The company incurred net losses of RMB 914.8 million, RMB 185.3 million, and RMB 167.5 million in 2022, 2023, and 2024, respectively, raising substantial doubt about its ability to continue as a going concern7279 - Reliance on VIE contractual arrangements poses risks of non-performance or non-compliance with PRC regulations, potentially leading to severe penalties and being less effective than direct ownership206214 - PRC government intervention and evolving regulations on overseas offerings and cybersecurity could hinder operations and securities offerings, potentially causing ADS value to decline or become worthless232240 - The company's ADSs were delisted from Nasdaq in April 2023, now trading on the OTC market with lower liquidity, and face a risk of a complete trading ban under the HFCAA if the PCAOB cannot inspect its auditor270276280 ITEM 4. INFORMATION ON THE COMPANY Qutoutiao operates a mobile content platform in China, targeting lower-tier city users with light entertainment via its flagship and literature apps, monetizing primarily through advertising services, all within a complex VIE structure following its Nasdaq delisting - The flagship Qutoutiao app launched in June 2016, followed by Midu Novels in May 2018, with the company's ADSs delisted from Nasdaq on March 14, 2023319324 - The business model delivers customized content to users, especially in lower-tier Chinese cities, primarily monetized through advertising and marketing services326328332 Key Operating Metrics (2023 vs 2024) | Metric | 2023 | 2024 | | :--- | :--- | :--- | | Combined Average MAUs (millions) | 8.5 | 5.6 | | Combined Average DAUs (millions) | 2.9 | 2.0 | | New Installed Users (millions) | 17.2 | 10.4 | | Average daily time spent per DAU (minutes) | 41.8 | 33.4 | - The company operates through a VIE structure, using contractual arrangements to control key PRC operating entities and comply with Chinese laws restricting foreign ownership in the internet sector518520 ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS The company's financial performance shows volatile revenues, continued net losses despite 2024 growth, declining operational metrics, and significant liquidity challenges from debt and redemption obligations, raising substantial doubt about its going concern status, prompting management to implement cost controls and explore financing Consolidated Results of Operations Summary (RMB in millions) | Metric | 2022 | 2023 | 2024 | | :--- | :--- | :--- | :--- | | Net Revenues | 1,083.0 | 745.6 | 1,021.9 | | Gross Profit | 520.4 | 329.6 | 461.5 | | Loss from Operations | (318.5) | (1.9) | 33.5 (Income) | | Net Loss | (914.8) | (185.3) | (167.5) | - Net revenues increased to RMB 1,021.9 million in 2024 from RMB 745.6 million in 2023, driven by increased advertising budgets and new channel customer expansion597 - Substantial doubt exists about the company's ability to continue as a going concern due to recurring losses, negative working capital, and uncertainties regarding the repayment of a RMB 2.2 billion convertible loan and redemption obligations for Fun Literature Limited627633 - Management is implementing liquidity improvement measures, including optimizing user loyalty programs, reducing operating expenses, and exploring external financing, asset sales, and convertible loan maturity extensions629631 ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES Led by Eric Siliang Tan and Bing Xu, the company paid approximately RMB 3.0 million in 2024 compensation, lacks independent directors after committee dissolution, employs 331 staff primarily in technology, and has highly concentrated share ownership with Eric Siliang Tan controlling 72.1% of voting power - Co-founder Eric Siliang Tan holds 34.0% of ordinary shares but controls 72.1% of aggregate voting power due to the dual-class share structure, granting significant influence169688 - In 2024, aggregate cash compensation for all directors and executive officers was approximately RMB 3.0 million (US$0.4 million)656 - The company has no independent directors, as the audit, compensation, and nominating committees were dissolved on May 12, 2023, with their functions now performed by the board283677 Employee Breakdown by Function (as of Dec 31, 2024) | Function | Number of Employees | % of Total | | :--- | :--- | :--- | | Content management | 67 | 20.2% | | Technology and product development | 152 | 45.9% | | Sales, customer service and marketing | 52 | 15.7% | | General administration | 60 | 18.2% | | Total | 331 | 100.0% | ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS The company engages in related party transactions, primarily with entities controlled by co-founder Eric Siliang Tan, involving advertising services and significant amounts due, with its VIE contractual arrangements also constituting related party transactions - The Group provided advertising services to companies controlled by co-founder Eric Siliang Tan, with RMB 44.5 million (US$6.1 million) due from these related parties as of December 31, 2024698 - The Group also procured advertisement placement and promotion services from media platforms controlled by Mr. Tan, with service fees totaling RMB 1.0 million in 2024699700 - The company's operational reliance on its VIEs is managed through contractual arrangements, which constitute significant related party transactions701 ITEM 8. FINANCIAL INFORMATION This section presents the company's consolidated financial statements, detailing significant legal proceedings including a shareholder class-action lawsuit and a RMB 82.8 million fine for fraudulent advertisements, while noting the company has never paid dividends and plans to retain earnings for business growth - The company is a defendant in a shareholder class-action lawsuit alleging materially false or misleading statements, which was dismissed but later vacated and remanded704705 - In 2022, a subsidiary and a Key VIE paid fines totaling RMB 82.8 million (US$12.0 million) related to fraudulent advertisements on the company's platform706 - The company has never paid dividends and plans no future payments, intending to retain funds for business growth, with PRC regulations also restricting subsidiary profit distribution710712 ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The company's primary market risk is foreign exchange, as RMB-denominated revenues and USD-traded ADSs expose it to RMB/USD fluctuations, which are not currently hedged with derivatives, while interest rate and inflation risks are not significant - The primary market risk is foreign exchange, as RMB-denominated revenues and USD-traded ADSs make investments sensitive to RMB-USD exchange rate fluctuations768770 - The company does not currently use derivative financial instruments to hedge its foreign exchange risk exposure770 - Interest rate risk is not material, as the company has not been significantly exposed to market rate changes, and Chinese inflation has not materially affected operations773775 PART II ITEM 15. CONTROLS AND PROCEDURES As of December 31, 2024, management concluded disclosure controls and procedures were ineffective due to a persistent material weakness in internal control over financial reporting, stemming from insufficient personnel with U.S. GAAP and SEC reporting knowledge, with remedial steps not yet fully implemented - Management concluded that as of December 31, 2024, the company's disclosure controls and procedures were ineffective789 - A material weakness in internal control over financial reporting was identified due to insufficient financial reporting and accounting personnel with adequate U.S. GAAP and SEC reporting knowledge792 - Remedial measures, including hiring qualified resources and enhancing training, have not been fully implemented, and the material weakness was not corrected as of December 31, 2024793 ITEM 16F. CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANT On January 3, 2023, Qutoutiao dismissed PwC and appointed Shandong Haoxin Certified Public Accountants Co., Ltd. as its new auditor, with no disagreements on accounting principles, though PwC's 2021 report expressed substantial doubt about the company's going concern ability - The company dismissed PricewaterhouseCoopers Zhong Tian LLP (PwC) on January 3, 2023, and appointed Shandong Haoxin Certified Public Accountants Co., Ltd. on January 17, 2023805 - PwC's 2021 audit report was not adverse or qualified, but included a paragraph expressing substantial doubt about the company's ability to continue as a going concern806 - There were no disagreements with PwC on accounting principles or practices, with the only reportable event being the previously disclosed material weakness in internal control over financial reporting808 ITEM 16K. CYBERSECURITY The company integrates cybersecurity into its risk management with policies, technical measures, and an incident response mechanism, overseen by the board and a dedicated committee chaired by Jianfei Dong, and has not experienced any material cybersecurity incidents to date - The company has implemented a comprehensive cybersecurity risk management program, including procedures for assessing, identifying, and managing threats through technical measures and internal policies815 - Cybersecurity governance is overseen by the board, with a management-level Cybersecurity and Information Security Committee, chaired by director Jianfei Dong, responsible for implementation and reporting818819 - As of the report date, the company has not experienced any cybersecurity incidents that have materially affected its business strategy, results of operations, or financial condition817 PART III ITEM 18. FINANCIAL STATEMENTS The consolidated financial statements, audited by Shandong Haoxin, present Qutoutiao Inc.'s financial position and performance through December 31, 2024, with the auditor expressing substantial doubt about its going concern ability due to recurring losses, negative working capital, and significant debt, reflecting a challenging financial situation including a RMB 167.5 million net loss and RMB 4.3 billion shareholders' deficit in 2024 - The independent auditor's report expresses substantial doubt about the Company's ability to continue as a going concern, citing recurring losses, negative working capital, and uncertainties regarding loan repayments and preferred shareholder redemption rights834 Consolidated Balance Sheet Summary (RMB in thousands) | Metric | Dec 31, 2023 | Dec 31, 2024 | | :--- | :--- | :--- | | Total Current Assets | 348,996 | 435,428 | | Total Assets | 413,411 | 478,712 | | Total Current Liabilities | 807,853 | 844,691 | | Total Liabilities | 2,767,669 | 3,023,372 | | Total Shareholders' Deficit | (3,937,388) | (4,315,010) | Consolidated Statement of Comprehensive Loss Summary (RMB in thousands) | Metric | 2022 | 2023 | 2024 | | :--- | :--- | :--- | :--- | | Net Revenues | 1,083,045 | 745,557 | 1,021,892 | | Gross Profit | 520,438 | 329,644 | 461,541 | | Net Loss | (914,767) | (185,313) | (167,530) | Consolidated Statement of Cash Flows Summary (RMB in thousands) | Metric | 2022 | 2023 | 2024 | | :--- | :--- | :--- | :--- | | Net cash from operating activities | (443,797) | (65,698) | 3,830 | | Net cash from investing activities | 267,555 | 26,483 | (149) | | Net cash from financing activities | (20,000) | — | — |
Qutoutiao(QTTOY) - 2024 Q4 - Annual Report