Share Structure and Ownership - The company has a dual class share structure with 123,715,022,675 ordinary shares outstanding, including 111,851,094,785 Class A shares and 11,863,927,890 Class B shares, where Class B shares have ten votes per share compared to one vote for Class A shares[33]. - Golden Stream Ltd. owns all Class B shares, representing 9.59% of total outstanding share capital and 51.47% of the voting power, significantly influencing corporate decisions[34]. Operational Structure and Regulatory Compliance - The company operates primarily through its PRC subsidiaries and Current VIEs, consolidating their financial results under U.S. GAAP due to contractual arrangements[36]. - The Current VIEs have obtained all necessary business licenses and insurance agency operating licenses from PRC authorities, with no applications denied[41]. - The company is not required to undergo cybersecurity review as it does not control personal information of over one million users and is already listed on the Nasdaq Capital Market[42]. - The Overseas Listing Regulations require the company to fulfill filing procedures within three working days for any overseas securities offerings, which could impact its ability to offer securities[43]. - The company has not received any denials for requisite permissions from PRC authorities in connection with its operations or acquisitions[44]. - The VIE structure poses unique risks, including potential changes in PRC laws that could affect the enforceability of contractual arrangements[38]. - The company faces uncertainties regarding the enforcement of its contractual arrangements with Current VIEs, which may affect operational control and financial performance[39]. Financial Performance and Cash Management - Total operating revenues for the year ended September 30, 2025, amounted to RMB 365,267,000, with a gross profit of RMB 8,001,000[58]. - The company reported a net loss from continuing operations of RMB 748,414,000 for the year ended September 30, 2025[58]. - Cash and cash equivalents at the end of the year were RMB 15,879,000, an increase from RMB 13,085,000 at the beginning of the year[58]. - The total current liabilities reached RMB 949,168,000, with significant components including accounts payable of RMB 29,480,000 and accrued expenses of RMB 51,144,000[58]. - The accumulated deficit stood at RMB 4,605,215,000, indicating ongoing financial challenges[58]. - Operating expenses for the year totaled RMB 728,344,000, reflecting the company's investment in growth despite losses[58]. - The company experienced a net cash outflow from operating activities of RMB 11,698,000 for the year[58]. - The company has not received any notifications from authorities regarding compliance with cybersecurity regulations, indicating no material impact on operations as of the report date[123]. Dividend and Cash Transfer Policies - The company relies on dividends from its subsidiaries for cash requirements, which may be restricted by applicable laws and regulations[35]. - As of the date of the annual report, no dividends or distributions have been made between the holding company, XChange TEC.INC, its subsidiaries, and the consolidated VIEs, including to U.S. investors[51]. - Current PRC regulations permit Alpha Mind WFOE to pay dividends only out of its accumulated profits, which must be determined in accordance with Chinese accounting standards[51]. - The PRC government may impose restrictions on the ability to transfer cash and assets outside of the PRC, affecting operational funding[52]. - The withholding tax rate on dividends payable by Chinese companies to non-PRC-resident enterprises is generally 10%, but may be reduced to 5% under certain conditions for Hong Kong resident enterprises[51]. - The cash transfer among XChange TEC.INC, its subsidiaries, and the consolidated VIEs is typically conducted through payments for intercompany services or borrowings[52]. - There are no restrictions on foreign exchange for the Hong Kong subsidiary, allowing for cash transfers to U.S. investors[50]. Market and Competitive Risks - The company faces intense competition in the insurance agency market, with competitors having greater financial and marketing resources[94]. - The company is subject to customer concentration risk, with significant revenue derived from a limited number of clients and geographical regions[97]. - The company may not be able to maintain or improve profitability due to ongoing operational expansion and associated costs[81]. - The company launched its SaaS platform in 2023 to expand its insurance agency business from offline to online, with expectations of future revenue generation[104]. - The company has not yet generated revenue from the SaaS platform, and its success depends on market acceptance and regulatory requirements in China's insurance industry[104]. - The COVID-19 pandemic adversely affected the vehicle sales volume in the PRC automobile industry, impacting the company's automobile insurance business[109]. Cybersecurity and Data Privacy Risks - The company faces risks related to cybersecurity and data privacy, with increasing regulatory scrutiny in China that could impact its financial condition[120]. - The company may experience significant disruptions in services due to IT system failures, which could adversely affect its operations and profitability[112]. - The company is at risk of disintermediation as end customers may increasingly purchase insurance directly from insurance companies, impacting its business model[103]. - The company must continuously invest in IT and SaaS systems to keep up with technological developments, which may not always lead to increased profitability[113]. - The company faces potential reputational harm and regulatory sanctions due to misconduct by its in-house sales force and external referral sources[115]. Regulatory and Compliance Risks - The company has identified material weaknesses in internal control over financial reporting, specifically a lack of personnel knowledgeable in U.S. GAAP and SEC reporting requirements[130]. - As of September 30, 2025, the company concluded that its internal control over financial reporting was not effective, which could lead to errors in financial statements and loss of investor confidence[130]. - The company is subject to extensive regulation by the CBIRC, which has the authority to impose sanctions that could adversely affect business operations and profitability[134]. - Changes in regulations regarding insurance products and commission rates could materially impact the revenue and profitability of the company's insurance agency business[135]. - The company may face risks related to intellectual property infringement claims, which could divert resources and adversely affect business operations[125]. - The company must maintain various licenses and permits to conduct business, and failure to do so could materially impact operations[136]. - The company faces uncertainties regarding its VIE structure, which could be subject to regulatory changes that may affect its operations and financial performance[138]. - The company operates in China through contractual arrangements with Current VIEs, which are classified as foreign-invested enterprises under PRC laws[139]. - The PRC legal counsel believes that the contractual arrangements are valid and enforceable, but substantial uncertainties remain regarding PRC laws[140][141]. Economic and Political Risks - The company faces risks from changes in China's economic, political, or social conditions, which could adversely impact business and financial results[159][161]. - The PRC government exercises significant control over economic growth, which could adversely affect the company's business operations and financial condition[167]. - The PRC legal system presents uncertainties that could limit the reliability of legal protections available to the company and its subsidiaries[169]. Taxation and Currency Risks - The company may be treated as a PRC resident enterprise for tax purposes, potentially subjecting it to a 25% enterprise income tax on global income[183]. - Dividends payable to foreign investors may be subject to a 10% PRC withholding tax, affecting the value of investments in Class A Ordinary Shares[186]. - Indirect transfers of equity interests in PRC resident enterprises by non-PRC holding companies may be subject to PRC enterprise income tax at a rate of 10%[190]. - The PRC subsidiaries primarily rely on dividend payments in Renminbi to fund cash and financing requirements, which may be limited by governmental currency conversion controls[194]. - Significant revenue from PRC subsidiaries is denominated in Renminbi, and any restrictions on currency exchange may limit their ability to utilize cash for business activities outside of China[197]. - Fluctuations in the value of the Renminbi against the U.S. dollar may materially adversely affect investments, with potential appreciation or depreciation impacting conversion amounts[198][199]. - Limited hedging options are available in China to mitigate exposure to exchange rate fluctuations, and the company has not entered into material hedging transactions as of the report date[200]. Labor and Employment Risks - The enforcement of the PRC Labor Contract Law may adversely affect business operations, with specific provisions regarding employment contracts and severance payments[201][202]. - The company has accrued but not made full contributions to social insurance plans and housing provident funds, which may result in penalties or liabilities[204][205]. Market Performance and Compliance - The market price for the company's ADSs is volatile, influenced by factors such as regulatory developments, market conditions, and performance of other companies in the industry[218][219]. - The company received a notice from NASDAQ on November 8, 2024, indicating non-compliance with the minimum bid price requirement of US$1 per share, but regained compliance by November 26, 2024[221]. - On November 13, 2024, the company was notified of non-compliance with the minimum Market Value of Listed Securities (MVLS) of $35 million, which was regained by June 11, 2025[222][223]. - The company cannot assure compliance with all NASDAQ Listing Rules at all times, which could lead to delisting risks[224]. - Substantial future sales of ADSs in the public market could cause a decline in the market price of the ADSs[229]. - The company intends to retain most available funds and future earnings to fund business development and growth[227].
FLJ (FLJ) - 2025 Q4 - Annual Report