The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes included elsewhere in this annual report. This discussion contains forward-looking statements that involve risks and uncertainties about our business and operations. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Item 3. Key Information—D. Risk Factors” and elsewhere in this annual report. See “Forward-Looking Information.” A.Operating Results We are a leading education technology company in China with an “in-school + after-school” integrated model. Our smart in-school classroom solution, which has been upgraded to our teaching and learning SaaS offering since 2021, delivers data-driven teaching, learning and assessment products to teachers, students and parents across over 70,000 K-12 schools on a cumulative basis. Leveraging our unique insights into the academic performance of tens of millions of students at these schools, we offer other educational products and services to complement students’ in-school learning with a higher level of personalization. Historically, we generated the vast majority of our revenues from our online K-12 tutoring services. However, in order to comply with the latest PRC regulations, pursuant which prohibit providing tutoring services relating to academic subjects to K-12 students, we ceased offering the K-12 Academic AST Services in December 2021. Our net revenues increased by 10.7% from RMB171.0 million in 2023 to RMB189.2 million in 2024, and decreased by 44.0% to RMB106.0 million (US$15.2 million) in 2025. We incurred a net loss of RMB311.8 million, RMB192.9 million and RMB154.4 million (US$22.1 million) in 2023, 2024 and 2025, respectively. General Factors Affecting Our Results of Operations Our results of operations are affected by the general factors driving China’s education industry. We have benefited from China’s overall economic growth, significant urbanization rate, and higher per capita disposable income of households, and increased penetration of internet and mobile applications in China. Our results of operations are also subject to changes in the regulatory landscape affecting China’s education industry, particularly uncertainties relating to both in-school and after-school educational services. For example, on July 24, 2021, the General Office of State Council and the General Office of Central Committee of the Communist Party of China jointly promulgated the Alleviating Burden Opinion, which provides, among others, that (i) Academic AST Institutions are prohibited from raising funds by listing on stock markets or conducting any capitalization activities; (ii) foreign capital is prohibited from controlling or participating in any Academic AST Institutions through mergers and acquisitions, entrusted operation, joining franchise or variable interest entities; (iii) online tutoring for preschool-age children is prohibited, and offline academic subjects (including foreign language) tutoring services for preschool-age children is also strictly prohibited. The Alleviating Burden Opinion provides that any violation of the foregoing shall be rectified. The Alleviating Burden Opinion further states that the administration and supervision over academic subjects tutoring institutions for students on grade ten to twelve shall be implemented by reference to the provisions of the Alleviating Burden Opinion. See “Item 4. Information on the Company—B. Business Overview—Regulations—Regulation Related to After-School Tutoring and Online Private Education” for more details. As a result, we ceased offering our online K-12 tutoring services by the end of December 2021 and have taken other measures in response to the regulatory developments in China to maintain our continued operations. We may become subject to fines or other penalties or be required to terminate certain operations, and we may incur material impairment and severance charges resulting from termination of leases, dismissal of employees and other actions we take in light of the latest regulatory developments. Our business, financial condition, results of operations and prospect have been and will be materially and adversely affected by the actions we have taken to date and consider taking to be in compliance with the Alleviating Burden Opinion and its implementation measures. See also “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Industry—Significant uncertainties exist in relation to the interpretation and implementation of, or proposed changes to, the PRC laws, regulations and policies regarding the online private education industry. In particular, the Opinions on Further Alleviating the Burden of Homework and After-School Tutoring for Students in Compulsory Education and the implementation measures issued thereunder by the PRC government authorities has materially and adversely affected and will materially and adversely affect our business, financial condition, results of operations and prospects.” 112 In addition, the PRC government regulates various aspects of our business and operations, including the qualification, licensing or filing requirements for entities that provide education services and limitations on foreign investments in the education industry. See the risk factors presented under “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Industry” with the captions “We face uncertainties with respect to the development of regulatory requirements on operating licenses and permits for our online education services in mainland China. Failure to renew and maintain requested licenses or permits in a timely manner or obtain newly required ones due to adverse changes in regulations or policies could have a material adverse impact on our business, financial condition and results of operations,” and “The approval and/or other requirements of the CSRC or other Chinese governmental authorities may be required in connection with an offering under rules, regulations or policies of mainland China, and, if required, we cannot predict whether or how soon we will be able to obtain such approval or complete such other requirements.” Specific Factors Affecting Our Results of Operations Besides the general factors affecting the education industry in China, our results of operations are affected by the following specific factors relating to our business: Our ability to execute new business strategies We launched our teaching and learning SaaS offerings in September 2021, after the implementation of the Alleviating Burden Opinion in July 2021. In 2025, leveraging our brand recognition and user trust built through our smart in-class teaching and learning SaaS offerings, as well as our established relationships with students and parents, we introduced our new AI-powered personalized learning offering, “Yiqi Aixue”. We have started delivering products and services for Yiqi Aixue since January 2026, with certain advance payments collected from customers in 2025. Our results of operations are significantly affected by the success of these new business strategies. To successfully execute these new strategies, we need to develop and improve the corresponding products and services and address our customers’ needs in a timely manner. Our ability to market our teaching and learning SaaS offerings will not only depend on our ability to develop functions and systems that are closely aligned with China’s digital transformation of its public schools, but also on our ability to establish strong nationwide sales and services teams and regional distributor networks. The success of our other educational products and services will depend on our ability to efficiently combine our insights into the academic profiles of students of different background and our accumulated content library into a well-designed integral package that helps students effectively achieve their learning goals, as well as to attract students to pay for it in a cost-efficient way. Our ability to manage our operational efficiency Our operating margins depend on our ability to control our costs and realize additional operation leverage as we continue to operate. Our business changes may result in substantial demands on our management, operational, technological, financial and other resources. To manage and support our further development, we must improve our existing operational, administrative and technological systems and our financial and management controls, and recruit, train and retain additional content development staff as well as other administrative and sales and marketing personnel, particularly as we grow outside of our existing areas. We will continue to implement additional systems and measures in order to effectively manage and support our business. If we cannot achieve these improvements, our financial condition and results of operations may be materially adversely affected. Sales and marketing expenses have been a major component of our operating expenses. Salaries and welfare of our sales and marketing personnel, including those related to both our in-school and after-school operations, has also been one of the largest items of our sales and marketing expenses as our sales and marketing team expanded. To further lower or maintain our sales and marketing expenses as a percentage of our net revenues, we will continue to improve our efficiency and capitalize on our brand value and recognition of the high quality and effectiveness of our service and product offerings. We have also incurred substantial amounts of research and development expenses. Salaries and welfare expenses encompass those for technology and content development staff for our teaching and learning SaaS offerings and other educational products and services. We will continue to optimize our content and enhance our technologies to attract new educational authorities, schools and students and improve our operating efficiency. 113 Key Components of Results of Operations Net revenues In 2023, 2024 and 2025, due to the cessation of the Company’s online K-12 tutoring services by the end of 2021 in order to be compliant with the PRC regulations, we derived all of our net revenues from teaching and learning SaaS offerings and our other educational products and services. The following table sets forth a breakdown of our total net revenues by amounts and percentages for the periods presented: For the Year Ended December 31, 2023 2024 2025 RMB % RMB % RMB US$ % (in thousands, except for percentages) Net revenues Teaching and learning SaaS offerings 149,119 87.2 174,746 92.4 96,258 13,764 90.8 Other educational products and services 21,843 12.8 14,466 7.6 9,766 1,397 9.2 Total 170,962 100.0 189,212 100.0 106,024 15,161 100.0 In compliance with the latest PRC regulations, which prohibit the provision of tutoring services relating to academic subjects to K-12 students, we ceased offering the K-12 Academic AST Services by the end of December 2021. This has materially and adversely affected our financial condition and results of operations in 2023, 2024 and 2025. In 2023, 2024 and 2025, we derived all of our net revenues from teaching and learning SaaS offerings and our other educational products and services. Our teaching and learning SaaS offerings have experienced large-scale expansion and became the main source of our net revenues. The majority of our net revenue in 2023, 2024 and 2025 came from our teaching and learning SaaS offerings. In 2023, 2024 and 2025, our net revenues from other educational products and services primarily consisted of the subscription fees we charged for our membership-based premium educational content, with subscription periods ranging from 15 days to one year. Cost of revenues Our cost of revenues primarily consists of hardware and software cost, compensation costs, educational products and materials and others. We expect our cost of revenues to decrease in absolute amounts in the foreseeable future due to our continuous cost optimization. The following table sets forth the components of our cost of revenues by amounts and percentages of our net revenues for the periods presented: For the Year Ended December 31, 2023 2024 2025 RMB % RMB % RMB US$ % (in thousands, except for percentages) Compensation costs 42,310 24.7 31,172 16.5 26,747 3,826 25.2 Hardware and software costs 43,565 25.5 80,510 42.6 20,918 2,992 19.7 Educational products and materials 390 0.2 6,352 3.4 4,835 691 4.6 Other costs 3,994 2.4 1,970 0.9 2,897 413 2.7 Total 90,259 52.8 120,004 63.4 55,397 7,922 52.2 Hardware and software costs. Our hardware and software costs are costs of purchased hardware and software utilized for our teaching and learning SaaS offerings. 114 Compensation costs. Our compensation costs primarily include salaries, welfare and service fees for our staff and consultants who provide services for customers of our teaching and learning SaaS offerings and other educational products and services. Educational products and materials. Our educational products and materials primarily include costs of educational materials of our other educational products and services, and the logistics costs. Other costs. Our other costs primarily include rental costs for our office space, costs for the bandwidth, depreciation of the properties and equipment and other technical costs. Operating expenses Our operating expenses consist of sales and marketing expenses, research and development expenses, and general and administrative expenses. The following table sets forth the components of our operating expenses by amounts and percentages of our net revenues for the periods presented: For the Year Ended December 31, 2023 2024 2025 RMB % RMB % RMB US$ % (in thousands, except for percentages) Sales and marketing expenses 101,260 59.2 76,088 40.2 83,043 11,875 78.3 Research and development expenses 167,932 98.2 71,997 38.1 56,169 8,032 53.0 General and administrative expenses 154,261 90.2 134,935 71.3 74,965 10,720 70.7 Total 423,453 247.6 283,020 149.6 214,177 30,627 202.0 Sales and marketing expenses. Our sales and marketing expenses primarily consist of (i) salaries, benefits and commission for sales and marketing personnel of our in-school and after-school operations, and (ii) other expenses associated with our sales marketing activities, including rental, depreciation and amortization and other general expenses. We expect our sales and marketing expenses to rise as our business grows. The following table sets forth the components of our sales and marketing expenses by amounts and percentages of our net revenues for the periods presented: For the Year Ended December 31, 2023 2024 2025 RMB % RMB % RMB US$ % (in thousands, except for percentages) Sales and marketing expenses Salaries and welfare 58,857 34.4 48,383 25.6 67,554 9,660 63.7 Other expenses 42,403 24.8 27,705 14.6 15,489 2,215 14.6 Total 101,260 59.2 76,088 40.2 83,043 11,875 78.3 Research and development expenses. Our research and development expenses consist primarily of (i) salaries and welfare for technology and content development personnel of our in-school and after-school operations and (ii) other expenses associated with our research and development activities, including rental, development and depreciation expenses. Despite our continuous resource investment in technological and product innovation, we expect our research and development expenses to remain relatively stable in the foreseeable future, due to our ongoing focus on efficiency improvement. 115 The following table sets forth the components of our research and development expenses by amounts and percentages of our net revenues for the periods presented: For the Year Ended December 31, 2023 2024 2025 RMB % RMB % RMB US$ % (in thousands, except for percentages) Research and development expenses Salaries and welfare 129,869 76.0 62,871 33.2 50,867 7,274 48.0 Other expenses 38,063 22.2 9,126 4.9 5,302 758 5.0 Total 167,932 98.2 71,997 38.1 56,169 8,032 53.0 General and administrative expenses. Our general and administrative expenses consist primarily of (i) salaries and welfare for our general and administrative personnel and (ii) other general and administrative expenses, including rental and depreciation expenses. We expect our general and administrative expenses to remain relatively stable in the future. The following table sets forth the components of our general and administrative expenses by amounts and percentages of our net revenues for the periods presented: For the Year Ended December 31, 2023 2024 2025 RMB % RMB % RMB US$ % (in thousands, except for percentages) General and administrative expenses Salaries and welfare 99,301 58.1 90,670 47.9 55,948 8,000 52.8 Other expenses 54,960 32.1 44,265 23.4 19,017 2,720 17.9 Total 154,261 90.2 134,935 71.3 74,965 10,720 70.7 Taxation Cayman Islands We and one of our subsidiaries, 17 Technology Limited, are exempted companies incorporated in Cayman Islands. The Cayman Islands currently levies no taxes on corporations based upon profits, income, gains or appreciation. There are no other taxes likely to be material to us levied by the Government of the Cayman Islands, except for stamp duties, which may be applicable on instruments executed in, or after execution brought within, the jurisdiction of the Cayman Islands. The Cayman Islands is not a party to any double tax treaties that are applicable to any payments made to or by our company. There are no exchange control regulations or currency restrictions in the Cayman Islands. British Virgin Islands Our subsidiaries, 17 Education World Limited, 17 Educational Products Limited and 17 Inspire Limited, are incorporated in the British Virgin Islands and are not subject to income tax. Hong Kong Our subsidiaries, Sunny Education (HK) Limited, 17 Vision Limited, 17 Glory Limited, and 17 Legend Limited, are located in Hong Kong. According to the Hong Kong regulations, Hong Kong entities are subject to a two-tiered income tax rate for taxable income earned in Hong Kong with effect from April 1, 2018. The first HK$2 million of profits earned by HK entity will be taxed at 8.25%, while the remaining profits will continue to be taxed at the existing 16.5% tax rate. In addition, to avoid abuse of the two-tiered tax regime, each group of connected entities can nominate only one entity to benefit from the two-tiered tax rate. Considering HK entities were in accumulated loss position, they did not apply to the two-tier tax rates. No provision for Hong Kong profits tax was made as we had no estimated assessable profit that was subject to Hong Kong profits tax during 2023, 2024 and 2025. 116 Mainland China Generally, our PRC subsidiaries, VIEs and VIEs’ subsidiaries are subject to enterprise income tax on their taxable income in mainland China at a statutory rate of 25%. The enterprise income tax is calculated based on the entity’s global income as determined under PRC tax laws and accounting standards. Shanghai Hexu, Beijing Yiqi Education and Beijing Yiqi Development currently enjoy a preferential enterprise income tax rate of 15% as they are recognized as HNTEs by the mainland China governmental authorities. The qualification as an HNTE is subject to annual evaluation and a three-year review by the mainland China governmental authorities. Shanghai Hexu’s current HNTE status is set to expire after December 2028, Beijing Yiqi Education’s current HNTE status is set to expire after October 2027, and Beijing Yiqi Development’s current HNTE status is set to expire after October 2026. Our educational services are subject to VAT at the rate of 3% for small-scale-VAT-payer entities or at the rate of 6% or 13% for general-VAT-payer entities in accordance with PRC tax rules. Dividends paid by our wholly foreign-owned subsidiaries in mainland China to our intermediary holding company in Hong Kong will be subject to a withholding tax rate of 10%, unless the relevant Hong Kong entity satisfies all the requirements under the Arrangement between mainland China and the Hong Kong Special Administrative Region on the Avoidance of Double Taxation and Prevention of Fiscal Evasion with respect to Taxes on Income and Capital and receives approval from the relevant tax authority. If our Hong Kong subsidiary satisfies all the requirements under the tax arrangement and receives approval from the relevant tax authority, then the dividends paid to the Hong Kong subsidiary would be subject to withholding tax at the standard rate of 5%. Effective from November 1, 2015, the above-mentioned approval requirement has been abolished, but a Hong Kong entity is still required to file application package with the relevant tax authority, and settle the overdue taxes if the preferential 5% tax rate is denied based on the subsequent review of the application package by the relevant tax authority. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure—We may rely on dividends and other distributions on equity paid by our PRC subsidiaries to fund any cash and financing requirements we may have, and any limitation on the ability of our PRC subsidiaries to make payments to us could have a material and adverse effect on our ability to conduct our business.” If our holding company in the Cayman Islands or any of our subsidiaries outside of China were deemed to be a “resident enterprise” under the PRC Enterprise Income Tax Law, it would be subject to enterprise income tax on its worldwide income at a rate of 25%. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—If we are classified as a PRC resident enterprise for PRC income tax purposes, such classification could result in unfavorable tax consequences to us and our non-PRC shareholders or ADS holders.” Results of Operations The following table sets forth a summary of our consolidated results of operations for the periods presented, both in absolute amount and as a percentage of our net revenues for the periods presented. This information should be read together with our consolidated financial statements and related notes included 117 elsewhere in this annual report. The results of operations in any particular period are not necessarily indicative of our future trends. For the Year Ended December 31, 2023 2024 2025 RMB % RMB % RMB US$ % (in thousands, except for percentages) Net revenues Teaching and learning SaaS offerings 149,119 87.2 174,746 92.4 96,258 13,764 90.8 Other educational products and services 21,843 12.8 14,466 7.6 9,766 1,397 9.2 Total net revenues 170,962 100.0 189,212 100.0 106,024 15,161 100.0 Cost of revenues (90,259 ) (52.8 ) (120,004 ) (63.4 ) (55,397 ) (7,922 ) (52.2 ) Gross profit 80,703 47.2 69,208 36.6 50,627 7,239 47.8 Operating expenses(1) Sales and marketing expenses (101,260 ) (59.2 ) (76,088 ) (40.2 ) (83,043 ) (11,875 ) (78.3 ) Research and development expenses (167,932 ) (98.2 ) (71,997 ) (38.1 ) (56,169 ) (8,032 ) (53.0 ) General and administrative expenses (154,261 ) (90.2 ) (134,935 ) (71.3 ) (74,965 ) (10,720 ) (70.7 ) Total operating expenses (423,453 ) (247.6 ) (283,020 ) (149.6 ) (214,177 ) (30,627 ) (202.0 ) Loss from operations (342,750 ) (200.4 ) (213,812 ) (113.0 ) (163,550 ) (23,388 ) (154.2 ) Interest income 27,811 16.3 16,260 8.6 8,655 1,238 8.2 Foreign currency exchange (loss) gain (801 ) (0.5 ) 226 0.1 (182 ) (26 ) (0.2 ) Other income, net 3,958 2.3 4,399 2.3 661 95 0.6 Loss before provision for income tax (311,782 ) (182.3 ) (192,927 ) (102.0 ) (154,416 ) (22,081 ) (145.6 ) Net loss (311,782 ) (182.3 ) (192,927 ) (102.0 ) (154,416 ) (22,081 ) (145.6 ) Note: (1)Share-based compensation expenses were allocated as follows: For the Year Ended December 31, 2023 2024 2025 RMB % RMB % RMB US$ % (in thousands, except for percentages) Share-based compensation expenses Sales and marketing expenses 17,243 10.1 10,204 5.4 7,332 1,048 6.9 Research and development expenses 26,954 15.8 14,656 7.7 10,271 1,469 9.7 General and administrative expenses 39,498 23.1 37,057 19.6 13,225 1,891 12.5 Total 83,695 49.0 61,917 32.7 30,828 4,408 29.1 118 Year ended December 31, 2025 compared to year ended December 31, 2024 Net revenues Our net revenues decreased from RMB189.2 million in 2024 to RMB106.0 million (US$15.2 million) in 2025, representing a year-over-year decrease of 44%. This decrease was primarily due to the reduction in net revenues from district-level projects, as we prioritize our resources on school-based projects. •Teaching and learning SaaS offerings. Net revenues from our teaching and learning SaaS offerings decreased from RMB174.7 million in 2024 to RMB96.3 million (US$13.8 million) in 2025. •Other educational products and services. Net revenues from our other educational products and services decreased from RMB14.5 million in 2024 to RMB9.8 million (US$1.4 million) in 2025. Cost of revenues Our cost of revenues decreased from RMB120.0 million in 2024 to RMB55.4 million (US$7.9 million) in 2025. •Hardware and software costs. Our hardware and software costs decreased from RMB80.5 million in 2024 to RMB20.9 million (US$3.0 million) in 2025, which largely in line with the decrease in net revenues. •Compensation costs. Our compensation costs decreased from RMB31.2 million in 2024 to RMB26.7 million (US$3.8 million) in 2025, primarily due to staff optimization in line with business adjustment. •Educational products and materials. Our educational products and materials decreased from RMB6.4 million in 2024 to RMB4.8 million (US$0.7 million) in 2025, primarily due to the decrease in the consumable materials for the deliveries of our teaching and learning SaaS offerings during the year. •Other costs. Our other costs of revenues increased from RMB2.0 million in 2024 to RMB2.9 million (US$0.4 million) in 2025, primarily due to the increase in platform transaction fees. Gross profit As a result of the foregoing, our gross profit decreased from RMB69.2 million in 2024 to RMB50.6 million (US$7.2 million) in 2025. The decrease was primarily due to the reduction in net revenues. The gross margin increased from 36.6% in 2024 to 47.8% in 2025, which was driven by the school-based subscription business with higher margins, as well as enhanced operating leverage as our subscription model business grows. Operating expenses Our total operating expenses decreased from RMB283.0 million in 2024 to RMB214.2 million (US$30.6 million) in 2025, including RMB30.8 million (US$4.4 million) of share-based compensation expenses. Sales and marketing expenses. Our sales and marketing expenses increased from RMB76.1 million in 2024 to RMB83.0 million (US$11.9 million) in 2025, including RMB7.3 million (US$1.0 million) of share-based compensation expenses. •Salaries and welfare. Salaries and welfare for our sales and marketing personnel increased from RMB48.4 million in 2024 to RMB67.6 million (US$9.7 million) in 2025, primarily due to increases in our marketing and sales workforce and related expenses. •Other expenses. Other sales and marketing expenses decreased from RMB27.7 million in 2024 to RMB15.5 million (US$2.2 million) in 2025, primarily due to decreases in office expenses and professional service fees. 119 Research and development expenses. Our research and development expenses decreased from RMB72.0 million in 2024 to RMB56.2 million (US$8.0 million) in 2025, including RMB10.3 million (US$1.5 million) of share-based compensation expenses, primarily due to decreases in the share-based compensation and staff optimization in line with business transformation. •Salaries and welfare. Salaries and welfare for our research and development personnel decreased from RMB62.9 million in 2024 to RMB50.9 million (US$7.3 million) in 2025. The decrease was primarily due to decreases in the share-based compensation and staff optimization in line with business transformation. •Other expenses. Other research and development expenses decreased from RMB9.1 million in 2024 to RMB5.3 million (US$0.8 million) in 2025, primarily due to decreases in rental cost and other IT service fees. General and administrative expenses. Our general and administrative expenses decreased from RMB134.9 million in 2024 to RMB75.0 million (US$10.7 million) in 2025, including RMB13.2 million (US$1.9 million) of share-based compensation expenses. •Salaries and welfare. Salaries and welfare for our general and administrative personnel decreased from RMB90.7 million in 2024 to RMB55.9 million (US$8.0 million) in 2025, due to decreases in share-based compensation and staff optimization in line with business transformation. •Other expenses. Other general and administrative expenses decreased from RMB44.3 million in 2024 to RMB19.0 million (US$2.7 million) in 2025 due to decreases in professional service fees. Loss from operations Our loss from operations decreased from RMB213.8 million in 2024 to RMB163.6 million (US$23.4 million) in 2025. Loss from operations as a percentage of net revenues in 2025 was negative 154.3%, compared with negative 113.0% in 2024. Interest income Our interest income decreased from RMB16.3 million in 2024 to RMB8.7 million (US$1.2 million) in 2025, primarily due to the decline in interest rates on term deposits. Net loss As a result of the foregoing, our net loss decreased from RMB192.9 million in 2024 to RMB154.4 million (US$22.1 million) in 2025. Year ended December 31, 2024 compared to year ended December 31, 2023 Net revenues Our net revenues increased from RMB171.0 million in 2023 to RMB189.2 million in 2024, representing a year-over-year increase of 10.6%. This increase was primarily driven by the increased number of teaching and learning SaaS contracts and the recurring revenue generated from on-going projects. •Teaching and learning SaaS offerings. Net revenues from our teaching and learning SaaS offerings increased from RMB149.1 million in 2023 to RMB174.7 million in 2024. •Other educational products and services. Net revenues from our other educational products and services decreased from RMB21.8 million in 2023 to RMB14.5 million in 2024. Cost of revenues Our cost of revenues increased from RMB90.3 million in 2023 to RMB120.0 million in 2024. •Hardware and software costs. Our hardware and software costs increased from RMB43.6 million in 2023 to RMB80.5 million in 2024, primarily due to our certain Teaching and Learning SaaS offering projects required higher upfront hardware costs but might lead to additional revenue opportunities in later stages. 120 •Compensation costs. Our compensation costs decreased from RMB42.3 million in 2023 to RMB31.2 million in 2024, primarily due to staff optimization in line with business adjustment. •Educational products and materials. Our educational products and materials increased from RMB0.4 million in 2023 to RMB6.4 million in 2024, primarily due to the increase in the consumable materials utilized for the deliveries of our teaching and learning SaaS offerings during the year. •Other costs. Our other costs of revenues decreased from RMB4.0 million in 2023 to RMB2.0 million in 2024, primarily due to the decrease of rental costs for office space and other technical costs. Gross profit As a result of the foregoing, our gross profit decreased from RMB80.7 million in 2023 to RMB69.2 million in 2024. The decrease was primarily due to the increase of costs for our certain Teaching and Learning SaaS offering projects associated with our experimental teaching and learning SaaS projects to capture additional market opportunities, which required higher upfront hardware costs but might lead to additional revenue opportunities in later stages. Consequently, our gross margin decreased from 47.2% in 2023 to 36.6% in 2024. Operating expenses Our total operating expenses decreased from RMB423.5 million in 2023 to RMB283.0 million in 2024, including RMB61.9 million of share-based compensation expenses. Sales and marketing expenses. Our sales and marketing expenses decreased from RMB101.3 million in 2023 to RMB76.1 million in 2024, including RMB10.2 million of share-based compensation expenses. •Salaries and welfare. Salaries and welfare for our sales and marketing personnel decreased from RMB58.9 million in 2023 to RMB48.4 million in 2024, primarily due to staff optimization in line with business adjustment. •Other expenses. Other sales and marketing expenses decreased from RMB42.4 million in 2023 to RMB27.7 million in 2024, primarily due to staff optimization in line with business adjustment. Research and development expenses. Our research and development expenses decreased from RMB167.9 million in 2023 to RMB72.0 million in 2024, including RMB14.7 million of share-based compensation expenses, primarily due to staff optimization in line with business adjustment. •Salaries and welfare. Salaries and welfare for our research and development personnel decreased from RMB129.9 million in 2023 to RMB62.9 million in 2024. The decrease was primarily due to staff optimization in line with business adjustment and the reduction of share-based compensations as most of the options had been fully vested in prior years. •Other expenses. Other research and development expenses decreased from RMB38.1 million in 2023 to RMB9.1 million in 2024, primarily due to decreases in rental cost, bandwidth and other IT service fees. General and administrative expenses. Our general and administrative expenses decreased from RMB154.3 million in 2023 to RMB134.9 million in 2024, including RMB37.1 million of share-based compensation expenses. •Salaries and welfare. Salaries and welfare for our general and administrative personnel decreased from RMB99.3 million in 2023 to RMB90.7 million in 2024, due to staff optimization in line with business adjustment. •Other expenses. Other general and administrative expenses decreased from RMB55.0 million in 2023 to RMB44.3 million in 2024 due to decreases in professional service fees. 121 Loss from operations Our loss from operations decreased from RMB342.8 million in 2023 to RMB213.8 million in 2024. Loss from operations as a percentage of net revenues in 2024 was negative 113.0%, compared with negative 200.4% in 2023. Interest income Our interest income decreased from RMB27.8 million in 2023 to RMB16.3 million in 2024, primarily due to decreases in average balance of cash and cash equivalents and term deposits. Net loss As a result of the foregoing, our net loss decreased from RMB311.8 million in 2023 to RMB192.9 million in 2024. Recently Issued Accounting Pronouncements A list of recently issued accounting pronouncements that are relevant to us is included in Note 2 to our consolidated financial statements included elsewhere in this annual report. B.Liquidity and Capital Resources The following table sets forth a summary of our cash flows for the years presented: For the Year Ended December 31, 2023 2024 2025 RMB RMB RMB US$ (in thousands) Net cash (used in) generated from operating activities (212,075 ) (139,218 ) 37,326 5,337 Net cash (used in) generated from investing activities (161,141 ) 35,594 (41,604 ) (5,948 ) Net cash (used in) generated from financing activities (51,357 ) 21,333 25,460 3,641 Effect of exchange rate changes 13,376 9,555 (8,878 ) (1,270 ) Net (decrease) increase in cash, cash equivalents and restricted cash (411,197 ) (72,736 ) 12,304 1,760 Cash, cash equivalents and restricted cash at the beginning of the year 718,126 306,929 234,193 33,489 Cash, cash equivalents and restricted cash at the end of the year 306,929 234,193 246,497 35,249 To date, we have financed our operating and investing activities primarily through cash from historical equity and debt financing activities. As of December 31, 2023, 2024 and 2025, our cash, cash equivalents and restricted cash were RMB306.9 million, RMB234.2 million and RMB246.5 million (US$35.2 million), respectively. Our cash and cash equivalents primarily consist of cash in bank and deposits with original maturities of three months or less. As of December 31, 2023, 2024 and 2025, our prepaid expenses and other current assets were RMB94.8 million, RMB82.5 million and RMB101.1 million (US$14.5 million), respectively. Our prepaid expenses and other current assets primarily consist of prepaid value added taxes, prepaid other service fees, deposits, receivables from third-party payment platforms, interest receivables, prepaid rental expenses, receivables for disposal of property and equipment and others. We believe that our current cash, cash equivalents and restricted cash and expected cash provided by operating activities will be sufficient to meet our current and anticipated working capital requirements and capital expenditures for the next twelve months. We may, however, need additional cash resources in the future if we experience changes in business conditions or other developments. We may also need additional cash resources in the future if we identify and wish to pursue opportunities for investment, acquisition, capital expenditure or similar actions. As of December 31, 2025, 69.4% and 30.6% of our cash and cash equivalents were held in mainland China and Hong Kong, respectively, of which 53.7% were denominated in Renminbi and 46.3% were denominated in U.S. dollars. As of December 31, 2025, 83.3% of cash and cash equivalents were held by the VIEs and their subsidiaries. 122 Although we consolidate the results of the VIEs and their subsidiaries, we only have access to the assets or earnings of the VIEs and their subsidiaries through our contractual arrangements with the VIEs and their shareholders. See “Item 4. Information on the Company—C. Organizational Structure—Contractual Arrangements with the VIEs and Their Respective Shareholders.” For restrictions and limitations on liquidity and capital resources as a result of our corporate structure, see “—Organizational Structure.” All of our revenues have been, and we expect they are likely to continue to be, in the form of Renminbi. Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior SAFE approval as long as certain routine procedural requirements are fulfilled. Therefore, our mainland China subsidiaries are allowed to pay dividends in foreign currencies to us without prior SAFE approval by following certain routine procedural requirements. However, current mainland China regulations permit our mainland China subsidiaries to pay dividends to us only out of its accumulated profits, if any, determined in accordance with Chinese accounting standards and regulations. Our mainland China subsidiaries are required to set aside at least 10% of its after-tax profits after making up previous years’ accumulated losses each year, if any, to fund certain reserve funds until the total amount set aside reaches 50% of its registered capital. These reserves are not distributable as cash dividends. Historically, our mainland China subsidiaries have not paid dividends to us, and they will not be able to pay dividends until they generate accumulated profits. Furthermore, capital account transactions, which include foreign direct investment and loans, must be approved by and/or registered with SAFE, its local branches and certain local banks. As a Cayman Islands exempted company and offshore holding company, we are permitted under PRC laws and regulations to provide funding to our mainland China subsidiaries only through loans or capital contributions, subject to the approval, filings or registration of government authorities and limits on the amount of capital contributions and loans. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—Mainland China regulation of loans to and direct investment in mainland China entities by offshore holding companies and governmental regulation of currency conversion may delay or prevent us from making loans or additional capital contributions to our mainland China subsidiaries and the VIEs in China, which could materially and adversely affect our liquidity and our ability to fund and expand our business.” Operating Activities Net cash generated from operating activities in 2025 was RMB37.3 million (US$5.3 million). The difference between net cash generated from operating activities and net loss of RMB154.4 million (US$22.1 million) in the same period was due to adjustments for noncash items that primarily include share-based compensation of RMB30.8 million (US$4.4 million), depreciation of property and equipment of RMB10.0 million (US$1.4 million), noncash lease expenses of RMB5.8 million (US$0.8 million) and reversal of expected credit loss of RMB0.8 million (US$0.1 million), and changes in operating assets and liabilities that primarily include an increase of RMB125.5 million (US$17.9 million) in deferred revenue and customer advances, a decrease of RMB25.2 million (US$3.6 million) in accounts receivable, an increase of RMB18.9 million (US$2.7 million) in accrued expenses and other current liabilities, an increase of RMB18.3 million (US$2.6 million) in prepaid expenses and other current assets, partially offset by a decrease of RMB5.4 million (US$0.8 million) in operating lease liabilities. Net cash used in operating activities in 2024 was RMB139.2 million. The difference between net cash used in operating activities and net loss of RMB192.9 million in the same period was due to adjustments for noncash items that primarily include share-based compensation of RMB61.9 million, expected credit loss of RMB12.3 million, depreciation of property and equipment of RMB12.3 million and noncash lease expenses of RMB9.7 million, and changes in operating assets and liabilities that primarily include a decrease of RMB23.0 million in accrued expenses and other current liabilities, an increase of RMB20.6 million in accounts receivable, a decrease of RMB6.2 million in operating lease liabilities and a decrease of RMB4.5 million in deferred revenue and customer advances, partially offset by a decrease of RMB13.6 million in prepaid expenses and other current assets. Net cash used in operating activities in 2023 was RMB212.1 million. The difference between net cash used in operating activities and net loss of RMB311.8 million in the same period was due to adjustments for noncash items that primarily include share-based compensation of RMB83.7 million, depreciation of property and equipment of RMB16.2 million and noncash lease expenses of RMB16.8 million, and changes in operating assets and liabilities that primarily include an increase of RMB31.2 million in accounts receivable, a decrease of RMB23.7 million in accrued expenses and other current liabilities, partially offset by a decrease of RMB30.6 million in prepaid expenses and other current assets. 123 Investing Activities Net cash used in investing activities in 2025 was RMB41.6 million (US$5.9 million), primarily due to proceed from maturity of term deposit of RMB1,047.4 million (US$149.8 million), partially offset by purchase of term deposits of RMB1,082.8 million (US$154.8 million) and purchase of property and equipment and other assets of RMB6.9 million (US$1.0 million). Net cash generated from investing activities in 2024 was RMB35.6 million, primarily due to proceed from maturity of term deposit of RMB49.0 million, partially offset by purchase of property and equipment and other assets of RMB9.4 million and purchase of term deposits of RMB4.3 million. Net cash used in investing activities in 2023 was RMB161.1 million, primarily due to investment in term deposit of RMB169.8 million and purchase of property and equipment and other assets of RMB26.6 million, partially offset by proceeds from disposal of available-for-sale investments of RMB19.5 million and proceeds from disposal of property and equipment of RMB15.7 million. Financing Activities Net cash generated from financing activities in 2025 was RMB25.5 million (US$3.6 million), primarily attributable to proceed from the issuance of 18,252,336 Class A ordinary shares and 83,093,664 Class B ordinary shares to Mr. Andy Chang Liu, our founder, chairman and chief executive officer of RMB28.9 million (US$4.1 million), partially offset by repurchase of ordinary shares of RMB3.5 million (US$0.5 million). Net cash generated from financing activities in 2024 was RMB21.3 million, primarily attributable to proceed from the issuance of 58,453,168 Class B ordinary shares to Mr. Andy Chang Liu, our founder, chairman and chief executive officer of RMB22.4 million, partially offset by repurchase of ordinary shares of RMB1.1 million. Net cash used in financing activities in 2023 was RMB51.4 million, primarily attributable to repurchase of ordinary shares of RMB51.4 million. Material Cash Requirements Our material cash requirements as of December 31, 2025 mainly included capital expenditure and operating lease obligations. Our material cash requirements as of December 31, 2024 mainly included capital expenditure and operating lease obligations. Our capital expenditures are primarily related to leasehold improvements and purchase of electronic equipment. Our capital expenditures were RMB26.6 million, RMB9.4 million and RMB6.9 million (US$1.0 million)in 2023, 2024 and 2025, respectively. Our operating lease obligations relate to our leases of offices and operation space. The following table sets forth our operating lease obligations as of December 31, 2025. Total Within one year One to three years Three to five years More than five years (RMB in thousands) Operating lease commitments(1) 16,263 5,870 9,852 541 — Note: (1)Represents minimum payments under non-cancelable operating leases related to offices, excluding short-term leases. We intend to fund our existing and future material cash requirements with our existing cash balance and cash flow from operating activities. We will continue to make cash commitments, including capital expenditures, to meet the expected growth of our business. We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties. In addition, we have not entered into any derivative contracts that are indexed to our shares and classified as shareholder’s equity or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in product development services with us. 124 Other than as shown above, we did not have any significant capital and other commitments, long-term obligations or guarantees as of December 31, 2025. Holding Company Structure 17 Education & Technology Group Inc. is a holding company with no material operations of its own. We conduct our operations primarily through our mainland China subsidiaries, the VIEs and their subsidiaries in mainland China. As a result, our ability to pay dividends depends upon dividends paid by our mainland China subsidiaries. If our existing mainland China subsidiaries or any newly formed ones incur debt on their own behalf in the future, the instruments governing their debt may restrict their ability to pay dividends to us. In addition, our wholly foreign-owned subsidiaries in mainland China are permitted to pay dividends to us only out of its accumulated profits, if any, as determined in accordance with PRC accounting standards and regulations. Under PRC law, each of our subsidiaries and the VIEs in mainland China are required to set aside at least 10% of its after-tax profits each year, if any, to fund certain statutory reserve funds until such reserve funds reach 50% of their registered capital. In addition, our wholly foreign-owned subsidiaries and the VIEs may allocate a portion of its after-tax profits based on PRC accounting standards to a surplus fund at their discretion. The statutory reserve funds and the discretionary funds are not distributable as cash dividends. Remittance of dividends by a wholly foreign-owned company out of mainland China is subject to examination by the banks designated by SAFE. Our mainland China subsidiaries have not paid dividends and will not be able to pay dividends until they generate accumulated profits and meet the requirements for statutory reserve funds. C.Research and Development, Patents and Licenses, etc. See “Item 4. Information On the Company—B. Business Overview—Technology,” “—Data Privacy and Security” and “—Intellectual Property.” D.Trend Information Other than as disclosed elsewhere in this annual report, we are not aware of any material trends in our sales, costs and selling prices for the period since January 1, 2026. Additionally, other than as disclosed elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or events for the year ended December 31, 2025 that are reasonably likely to have a material effect on our revenues, income, profitability, liquidity or capital resources, or that would cause the disclosed financial information to be not necessarily indicative of future operating results or financial conditions. E.Critical Accounting Estimates We prepare financial statements in accordance with GAAP, which requires us to make judgments, estimates and assumptions that affect the reported amounts of our assets and liabilities and the disclosure of our contingent assets and liabilities at the end of each fiscal period and the reported amounts of revenues and expenses during each fiscal period. We continually evaluate these judgments and estimates based on our own historical experience, knowledge and assessment of current business and other conditions, our expectations regarding the future based on available information and assumptions that we believe to be reasonable, which together form our basis for making judgments about matters that are not readily apparent from other sources. Since the use of estimates is an integral component of the financial reporting process, our actual results could differ from those estimates. Some of our accounting policies require a higher degree of judgment than others in their application. The selection of critical accounting policies, the judgments and other uncertainties affecting application of those policies and the sensitivity of reported results to changes in conditions and assumptions are factors that should be considered when reviewing our financial statements. We believe the following accounting estimates involve the most significant judgments and estimates used in the preparation of our financial statements. Revenue Recognition The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 125 Our contracts with customers may include promises to transfer multiple goods and services. Determining whether different goods and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment. For the year ended December 31, 2025, we derived revenue primarily from our teaching and learning SaaS offering. For teaching and learning SaaS offerings contracts where we provide customers an access to our hosted applications and platforms on a subscription model, we identify SaaS subscription as one performance obligation and recognize revenue ratably over the subscription period. In certain contracts where customers also purchase proprietary hardware which is adapted to the subscribed SaaS, the hardware provides additional and elevated functionalities when paired with subscribed SaaS. The hardware could not be used and sold separately without our teaching and learning SaaS offerings. Therefore, we determine the hardware and subscribed SaaS represent one performance obligation, as they are highly interdependent and interrelated, and the related revenue is recognized ratably over the SaaS subscription period. We elected to apply the practical expedient to account for the lease component and the non-lease component as a combined non-lease component. The timing and pattern of control transfer of the hardware lease component and subscribed SaaS service component are the same. Accordingly, the related revenue is recognized ratably over the SaaS subscription period. For teaching and learning SaaS offerings contracts that contain purchasing of software license and SaaS subscription, we conclude that software license and subscribed SaaS are distinct since each of their functionalities has utility on their own. The customer can obtain utility from the software license without the SaaS, and the customer can also benefit from the SaaS with readily available resources. We may also provide technical support for purchased software license as post-delivery maintenance services, which is considered as a separate performance obligation. In contracts where customers purchase software license, maintenance service and subscribed SaaS, we allocate the transaction price to each of the performance obligations based on their relative standalone selling prices. We recognize revenue of software license over a period of time during which the control of software license is progressively transferred to customers as our service creates, customizes and enhances the software that the customer controls. The measure of progress is based on costs incurred as compared with total estimated budget costs. For the subscribed SaaS, the revenue is recognized ratably over the subscription period. Revenue of maintenance service is recognized over the service period and was immaterial for the periods presented. In certain SaaS subscription contracts, instead of purchasing, the customers lease and utilize the hardware for the SaaS subscription period. We assessed and determined that the leases of hardware are operating leases, and the non-lease component of subscribed SaaS service is the predominant component. For certain contracts, the customers may only purchase hardware and we recognize revenue of hardware when the control of the hardware is transferred to the customers.