LICN

Business Context and Reporting Period

Lichen International Ltd (LICN) is a Cayman Islands holding company conducting operations primarily in the People's Republic of China (PRC) through its subsidiaries. The company provides financial and taxation solution services, education support services, software and maintenance services, and Pre-IPO advisory services. This Form 20-F covers the fiscal year ended December 31, 2025.

The company is classified as an "emerging growth company" and a "foreign private issuer." As of December 31, 2025, the company had 16,216,825 Class A Ordinary Shares and 110,000 Class B Ordinary Shares issued and outstanding.

Key Financial Metrics

Revenue Breakdown (2025): Financial and taxation solution services accounted for $19.96 million (81.41% of total revenue). Education support services declined significantly to $0.81 million. Software and maintenance services generated $2.94 million, and new Pre-IPO advisory services contributed $0.81 million.

Material Changes vs. Prior Period

• Revenue Decline: Total revenue decreased by 40.89% to $24.52 million in 2025 compared to $41.48 million in 2024. This was driven by a $14.33 million drop in financial and taxation services due to increased price competition and a reduction in customer count (from 587 to 461), and a $2.09 million drop in education support services as the company strategically terminated these operations in August 2025.
• Net Loss Expansion: The company reported a net loss of $21.79 million in 2025, a 256% increase from the $6.12 million loss in 2024. This was primarily due to the revenue decline, a $3.66 million goodwill impairment charge related to the Bondly HK acquisition, and a $3.87 million loss on the disposal of a subsidiary (Lichen Education).
• Capital Structure Changes: The company executed a 1-for-200 reverse share split in March 2025 to regain compliance with Nasdaq listing requirements. Additionally, the company raised approximately $22.0 million in gross proceeds through equity offerings in 2025 (including a $18.6 million private placement in September).
• Asset Disposal: The company sold 100% of its equity in Lichen Education for approximately $1.10 million, resulting in a loss on disposal of $3.87 million.

Guidance, Outlook, and Risks

Management Commentary and Outlook:

• The company intends to retain earnings for research and development, new product development, and expanding production capacity. No cash dividends are expected in the foreseeable future.
• Strategic focus has shifted away from education support services toward financial and taxation solutions and AI integration. The company plans to integrate the "DeepSeek" optimization framework into its AI model, with a trial phase expected in June 2026.
• Management has identified material weaknesses in internal controls over financial reporting, specifically regarding a lack of in-house accounting personnel with sufficient U.S. GAAP knowledge and a lack of comprehensive accounting policies.

Key Risks and Contingencies:

• Going Concern: The company incurred a significant net loss and negative operating cash flow in 2025. However, management asserts that with $26.9 million in cash and positive working capital, it can continue operations for the next 12 months.
• Regulatory Risks (PRC): Operations are subject to PRC laws regarding foreign investment, data security (Cybersecurity Review Measures), and overseas listing filings (CSRC). Failure to comply could result in fines or operational disruption.
• HFCAA and Delisting: While the company's auditor (Enrome LLP) is currently subject to PCAOB inspections, there is a risk that future inability to inspect could lead to delisting under the Holding Foreign Companies Accountable Act (HFCAA).
• Internal Controls: The company has acknowledged ineffective internal controls over financial reporting and is implementing remediation measures, including hiring consultants and training staff.

Important Facts for Investor Verification

• Revenue Sustainability: Verify the company's ability to reverse the 41% revenue decline in its core financial and taxation services segment amidst intense price competition in China.
• Internal Control Remediation: Monitor the progress of remediation efforts for the identified material weaknesses in internal controls over financial reporting, which currently render the controls ineffective.
• AI Investment Returns: Assess the timeline and ROI of the significant capital expenditures (approx. $23 million invested to date) in AI software development, with completion expected in 2026.
• Regulatory Compliance: Confirm ongoing compliance with PRC regulations regarding overseas listings (CSRC filings) and data security, as well as Nasdaq listing standards following the reverse split.
• Going Concern Status: Review future cash flow projections to ensure the company can sustain operations without further dilutive equity raises, given the substantial operating losses.