CooTek Cayman(CTKYY) - 2023 Q4 - Annual Report

Financial Performance - Total revenues for the year ended December 31, 2023, were $31,976,268, a decrease from $83,926,614 in 2022, representing a decline of approximately 62%[45] - Third-party revenues for 2023 amounted to $20,607,850, compared to $38,951,993 in 2022, indicating a decrease of about 47%[45] - Net loss for 2023 was $2,595,941, compared to a net income of $515,014 in 2022, reflecting a significant shift in financial performance[45] - The company reported a total cost of revenues and operating expenses of $34,512,100 for 2023, compared to $82,438,886 in 2022, a reduction of approximately 58%[45] - The company incurred a net loss of US$2.6 million and negative cash flows from operating activities of US$6.6 million in 2023, with an accumulated deficit of US$216.9 million[102] - The company’s net revenues decreased from US$272.1 million in 2021 to US$83.9 million in 2022, and further to US$32.0 million in 2023, indicating a significant decline in financial performance[92] - Mobile advertising revenue also saw a decline from US$267.3 million in 2021 to US$76.5 million in 2022, and further down to US$22.8 million in 2023[92] Assets and Liabilities - Total assets as of December 31, 2023, were $9,281,500, down from $9,281,500 in 2022, indicating stability in total asset value despite revenue decline[54] - The company had total liabilities of $9,671,155 as of December 31, 2023, compared to $9,281,500 in 2022, indicating an increase in liabilities[54] - The amount due from intercompany as of December 31, 2023, was $94,200,587, reflecting significant intercompany transactions[54] - As of December 31, 2023, the company's current liabilities exceeded current assets by US$1.2 million, compared to US$0.3 million as of December 31, 2022, highlighting liquidity issues[102] Revenue Sources - Revenues contributed by the VIEs accounted for 37%, 39%, and 18% of total revenues for the years ended December 31, 2021, 2022, and 2023, respectively[27] - Mobile advertising services accounted for 71.4% of total revenues in 2023, down from 91.2% in 2022 and 98.2% in 2021, indicating a significant decline in reliance on this revenue stream[81] - The top two advertising customers, which are advertising exchanges, contributed approximately 26.6% of total revenues in 2023, highlighting the company's dependence on a limited number of clients[85] Regulatory Environment - The PRC government has introduced regulations requiring mainland companies to file with the CSRC for overseas listings, effective March 31, 2023[33] - The PCAOB has not issued a new determination regarding its ability to inspect auditors in mainland China and Hong Kong, which affects the company's compliance with the HFCAA[34] - The company has not obtained all requisite licenses and permits from PRC government authorities that are material for its business operations[32] - The company is subject to evolving PRC laws regarding cyber security and data protection, which could materially and adversely affect its business and financial condition[111] - The PRC Data Security Law, effective from September 1, 2021, mandates a security review for data activities that may affect national security, impacting companies with over one million users' personal information before any public offering on foreign stock exchanges[219] Operational Challenges - The company has faced challenges in maintaining good relationships with third-party digital distribution platforms, which are crucial for user acquisition and retention[87] - The company has been subject to notices alleging copyright infringement and inappropriate content, which could lead to product suspensions and negatively impact user base and financial performance[88] - The company has incurred declining revenue and negative working capital in the past, raising concerns about its ability to sustain or improve profitability[72] - The company faces intense competition in the mobile application market, competing with established companies that may have more resources[132] User Engagement - The average daily active users (DAUs) for the company's portfolio products decreased to 1.9 million in December 2023, down from 6.3 million in December 2022, due to the suspension and termination of several non-performing mobile apps and games[77] - The user base of the company's portfolio products reached an average of 1.9 million daily active users (DAUs) as of December 31, 2023[96] Future Outlook - The company plans to focus on new product development and market expansion strategies to improve future performance[45] - Future revenue growth is dependent on the successful development and commercialization of new products and services, as well as effective user engagement strategies[103] - The company expects to incur higher development, operation, and potential acquisition costs as it transitions to focus on mobile games and online literature[108] Legal and Compliance Risks - The company is facing lawsuits for copyright infringement, with claims totaling RMB1,500,000 from two separate cases in 2022 and 2023[142] - The company is subject to potential intellectual property infringement lawsuits, which could disrupt operations and result in substantial damages or licensing fees[140] - The company may face reputational harm and liability due to the use of open source software in its products[148] Financial Management - The company intends to retain most, if not all, of its available funds and future earnings to operate and expand its business[42] - The company may require additional financing in the future to meet business requirements, which could significantly dilute current stockholders' equity interests or increase debt service obligations[109] - The company has limited business insurance coverage, which may result in substantial costs and resource diversion in case of business interruptions[188]