XHG

Business Context and Reporting Period

XChange TEC.INC (formerly FLJ Group Limited) is a Cayman Islands holding company that transitioned from a long-term apartment rental business to an insurance agency and technology business following the acquisition of Alpha Mind Technology Limited in December 2023. The company operates primarily in the People's Republic of China (PRC) through wholly-owned subsidiaries and Variable Interest Entities (VIEs). This Form 20-F covers the fiscal year ended September 30, 2025.

Key Financial Metrics (FY 2025)

Note: USD conversions based on the rate of RMB 7.1190 to US$1.00 as of September 30, 2025.

Material Changes vs. Prior Period

• Revenue Growth: Revenue increased from RMB 288.4 million in FY 2024 to RMB 365.3 million in FY 2025, driven by the insurance agency business.
• Widening Losses: Net loss from continuing operations expanded significantly from RMB 613.2 million in FY 2024 to RMB 748.4 million in FY 2025. This was primarily due to a goodwill impairment loss of RMB 686.0 million (compared to RMB 575.0 million in FY 2024) and increased operating expenses.
• Debt Reduction: The company reduced its Notes Payable balance from RMB 1.07 billion in FY 2024 to RMB 668.0 million in FY 2025 by issuing Class A ordinary shares to settle approximately US$52 million of principal and accrued interest.
• Asset Base: Total assets decreased from RMB 782.8 million in FY 2024 to RMB 69.4 million in FY 2025, largely due to the significant write-down of goodwill.

Outlook, Risks, and Contingencies

Going Concern Warning

The independent auditor has issued an explanatory paragraph regarding the company's ability to continue as a going concern. The company has incurred recurring losses, negative operating cash flows, and a working capital deficiency. Management plans to address liquidity through equity financing (utilizing a shelf registration) and operational cash flows, but there is no assurance these plans will be successful.

Material Risks

• Debt Maturity: The remaining Notes Payable (approx. US$93.8 million) mature on December 31, 2025, with an automatic extension clause if unpaid. Failure to repay or refinance could result in the loss of control over Alpha Mind.
• Internal Controls: The company identified a material weakness in internal control over financial reporting due to a lack of sufficient personnel with U.S. GAAP expertise and inadequate accounting manuals.
• Regulatory Environment: As a Cayman holding company with operations in China via VIEs, the company faces risks related to PRC regulatory changes, enforcement of contractual arrangements, and potential restrictions on foreign investment.
• Customer Concentration: One customer accounted for 18.4% of total revenue in FY 2025.

Legal Contingencies

In August 2025, a subsidiary (Huaming Insurance) was sued by China United Life Insurance Co., Ltd. for alleged contract breaches and fabricated transactions. The plaintiff seeks approximately RMB 4.3 million. The case is pending, and management does not expect a material adverse effect, though the outcome is uncertain.

Investor Verification Checklist

• Debt Refinancing Status: Verify if the company has secured financing or refinancing for the US$93.8 million Notes Payable maturing December 31, 2025.
• Equity Financing Progress: Confirm the status of capital raises under the effective Form F-3 registration statement to fund operations and debt obligations.
• Goodwill Impairment: Review the assumptions used in the discounted cash flow model that led to the RMB 686 million impairment charge to assess future valuation risks.
• Internal Control Remediation: Monitor progress on hiring U.S. GAAP-compliant accounting staff and implementing new financial reporting manuals to address the material weakness.
• Legal Proceedings: Track the outcome of the lawsuit filed by China United Life Insurance Co., Ltd. against the Huaming Insurance subsidiary.