iHuman Inc. [IH] Filings

20-F 1 ih-20231231x20f.htm FORM 20-F

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 20-F

(Mark One)

☐REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2023

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

☐SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report

For the transition period from to

Commission file number: 001-39591

iHuman Inc.

(Exact name of Registrant as specified in its charter)

N/A

(Translation of Registrant’s name into English)

Cayman Islands

(Jurisdiction of incorporation or organization)

Floor 8, Building B,

No. 1 Wangjing East Road,

Chaoyang District, Beijing 100102

People’s Republic of China

(Address of principal executive offices)

Vivien Weiwei Wang, Chief Financial Officer

E-mail: ir@ihuman.com

Telephone: +86 10 5780-6606

Floor 8, Building B,

No. 1 Wangjing East Road,

Chaoyang District, Beijing 100102

People’s Republic of China

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
American Depositary Shares, each representing five Class A ordinary shares, par value US$0.0001 per share	IH	New York Stock Exchange
Class A ordinary shares, par value US$0.0001 per share*		New York Stock Exchange

*Not for trading, but only in connection with the listing on the New York Stock Exchange of our American depositary shares, each American depositary shares representing five Class A ordinary shares.

Securities registered or to be registered pursuant to Section 12(g) of the Act:

None

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(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None

(Title of Class)

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

As of December 31, 2023, there were 263,704,787 ordinary shares outstanding, being the sum of 119,704,787 Class A ordinary shares and 144,000,000 Class B ordinary shares.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.☐ Yes ☒ No

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.☐ Yes ☒ No

Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).☒Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “accelerated filer and large accelerated filer” and “emerging growth company” in Rule 12b-2 of the Exchange Act:


Large Accelerated Filer	☐	Accelerated Filer	☐
Non-Accelerated Filer	☒	Emerging Growth Company	☒

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.☐

†The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐ Yes ☒ No

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive oﬃcers during the relevant recovery period pursuant to §240.10D-1(b). ☐

Indicate by check mark which basis of accounting the registrant has been used to prepare the financial statements included in this filing:


U.S. GAAP ⌧		International Financial Reporting Standards as issued by the International Accounting Standards Board ☐		Other ☐

If “other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.☐ Item 17 ☐ Item 18

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).☐ Yes ☒ No

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.☐ Yes ☐ No

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TABLE OF CONTENTS


INTRODUCTION			1

FORWARD-LOOKING INFORMATION			3

PART I			4

	ITEM 1.	IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS	4
	ITEM 2.	OFFER STATISTICS AND EXPECTED TIMETABLE	4
	ITEM 3.	KEY INFORMATION	4
	ITEM 4.	INFORMATION ON THE COMPANY	60
	ITEM 4A.	UNRESOLVED STAFF COMMENTS	100
	ITEM 5.	OPERATING AND FINANCIAL REVIEW AND PROSPECTS	100
	ITEM 6.	DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES	112
	ITEM 7.	MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS	122
	ITEM 8.	FINANCIAL INFORMATION	123
	ITEM 9.	THE OFFER AND LISTING	124
	ITEM 10.	ADDITIONAL INFORMATION	124
	ITEM 11.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	139
	ITEM 12.	DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES	140

PART II			142

	ITEM 13.	DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES	142
	ITEM 14.	MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS	142
	ITEM 15.	CONTROLS AND PROCEDURES	143
	ITEM 16A.	AUDIT COMMITTEE FINANCIAL EXPERT	143
	ITEM 16B.	CODE OF ETHICS	144
	ITEM 16C.	PRINCIPAL ACCOUNTANT FEES AND SERVICES	144
	ITEM 16D.	EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES	144
	ITEM 16E.	PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS	144
	ITEM 16F.	CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT	145
	ITEM 16G.	CORPORATE GOVERNANCE	145
	ITEM 16H.	MINE SAFETY DISCLOSURE	146
	ITEM 16I.	DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS	146
	ITEM 16J.	INSIDER TRADING POLICIES	146
	ITEM 16K.	CYBERSECURITY	146
PART III			147
	ITEM 17.	FINANCIAL STATEMENTS	147
	ITEM 18.	FINANCIAL STATEMENTS	147
	ITEM 19.	EXHIBITS	148

SIGNATURES			150

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INTRODUCTION

Unless otherwise indicated or the context otherwise requires, references in this annual report to:

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“ADRs” are to the American depositary receipts that may evidence the ADSs;

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“ADSs” are to the American depositary shares, each of which represents five Class A ordinary shares;

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“AI” refers to artificial intelligence;

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“Class A ordinary shares” are to our Class A ordinary shares, par value US$0.0001 per share;

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“Class B ordinary shares” are to our Class B ordinary shares, par value US$0.0001 per share;

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“Hongen Education” are to Hongen Education & Technology Co., Ltd. and its predecessors and subsidiaries. Hongen Education is an affiliate of ours that shares a common director, Mr. Hanfeng Chi, with us. Furthermore, Mr. Michael Yufeng Chi, our founder and chairman of the board of directors, beneficially owns more than 50% of the voting power in both Hongen Education and us. As such, Mr. Michael Yufeng Chi is able to direct the management and policies of both Hongen Education and our company. Therefore, Hongen Education and us are under common control, which, pursuant to Rule 405 under the Securities Act, makes Hongen Education an affiliate of ours;

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“iHuman,” “we,” “us,” “our company” and “our” are to iHuman Inc., our Cayman Islands holding company, its subsidiaries, and, in the context of describing our operations and consolidated financial information, the variable interest entity and subsidiaries of the variable interest entity;

●

“monthly active user” or “MAUs” with respect to any of our apps, are to the number of unique mobile devices through which such app is accessed at least once in a given month. We treat each distinguishable device as a separate user for purposes of calculating MAUs, although it is possible that some people may use more than one mobile device and multiple people may share one mobile device to access our apps; “average MAUs” for a specific period, with respect to any of our apps, are to the monthly average of the sum of our MAUs for such app during that period; “total MAUs” is calculated by combining the MAUs of all of our apps in a given month, and duplicate access to different apps is not eliminated from the calculation; “average total MAUs” for a specified period, are to the monthly average of the sum of our total MAUs during that period;

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“NYSE” are to the New York Stock Exchange;

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“Offline products and others” are to our offline operations of intellectual development materials and devices;

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“Online subscriptions” are to our online operations of tech-powered, intellectual development apps;

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“our WFOEs” are to Hongen Perfect Future (Tianjin) Investment Co., Ltd. and Hongen Perfect (Beijing) Education Technology Development Co., Ltd.;

●

“paying users” for a specific period are to users who paid subscription fees for the premium content on any of our apps during that period; a user who makes payments across different apps using the same registered account is counted as one paying user; and a user who makes payments for the same app multiple times in the same period is counted as one paying user;

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“Perfect World Group” or “Perfect World” are to Perfect World Holding Group Co., Ltd., a holding company incorporated in mainland China and its controlled entities and affiliates, including Perfect World Co., Ltd., a company incorporated in mainland China and listed on the Shenzhen Stock Exchange (SZSE: 002624). Mr. Michael Yufeng Chi beneficially owns more than 50% of the voting power in both Perfect World Group and us and is a common director of both Perfect World Group and us. As such, Mr. Michael Yufeng Chi is able to direct the management and policies of both Perfect World Group and our company. Therefore, Perfect World Group and us are under common control, which, pursuant to Rule 405 under the Securities Act, makes Perfect World Group an affiliate of ours;

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“RMB” and “Renminbi” are to the legal currency of China;

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“shares” or “ordinary shares” are to our Class A and Class B ordinary shares, par value US$0.0001 per share;

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“U.S. GAAP” are to generally accepted accounting principles in the United States;

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“US$,” “U.S. dollars,” “$,” and “dollars” are to the legal currency of the United States; and

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“VIE” are to variable interest entity, and “the VIE” or “Tianjin Hongen” are to Tianjin Hongen Perfect Future Education Technology Co., Ltd.

Our reporting currency is RMB. Unless otherwise noted, all translations from Renminbi to U.S. dollars and from U.S. dollars to Renminbi in this annual report are made at a rate of RMB7.0999 to US$1.00, the exchange rate in effect as of December 29, 2023 as set forth in the H.10 statistical release of The Board of Governors of the Federal Reserve System. We make no representation that any Renminbi or U.S. dollar amounts could have been, or could be, converted into U.S. dollars or Renminbi, as the case may be, at any particular rate, or at all. On April 19, 2024, the exchange rate set forth in the H.10 statistical release of The Board of Governors of the Federal Reserve System was RMB7.2403 to US$1.00.

Due to rounding, numbers presented throughout this annual report may not add up precisely to the total provided and percentages may not precisely reflect the absolute figures.

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FORWARD-LOOKING INFORMATION

This annual report contains forward-looking statements that reflect our current expectations and views of future events. The forward-looking statements are contained principally in the sections entitled “Item 3. Key Information—D. Risk Factors,” “Item 4. Information on the Company—B. Business Overview,” and “Item 5. Operating and Financial Review and Prospects.” Known and unknown risks, uncertainties and other factors, including those listed under “Item 3. Key Information—D. Risk Factors,” may cause our actual results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements.

You can identify some of these forward-looking statements by words or phrases such as “may,” “will,” “expect,” “anticipate,” “aim,” “estimate,” “intend,” “plan,” “believe,” “is/are likely to,” “potential,” “continue” or other similar expressions. We have based these forward-looking statements largely on our current expectations and projections about future events that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements include statements relating to:

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our goals and strategies;

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our future product offerings, business development, financial condition and results of operations;

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our expectations regarding demand for and market acceptance of our products;

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our expectations regarding maintaining and strengthening our relationships with users, customers, business partners and other stakeholders;

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competition in our industry;

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our expansion of geographic reach;

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government policies and regulations relating to our industry; and

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general economic and business conditions globally and in mainland China.

These forward-looking statements involve various risks and uncertainties. Although we believe that our expectations expressed in these forward-looking statements are reasonable, our expectations may later be found to be incorrect. Our actual results could be materially different from our expectations. Important risks and factors that could cause our actual results to be materially different from our expectations are generally set forth in “Item 3. Key Information—D. Risk Factors,” “Item 4. Information on the Company—B. Business Overview,” “Item 5. Operating and Financial Review and Prospects,” and other sections in this annual report. Moreover, we operate in an evolving environment. New risk factors and uncertainties emerge from time to time and it is not possible for our management to predict all risk factors and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. You should read thoroughly this annual report and the documents that we refer to with the understanding that our actual future results may be materially different from and worse than what we expect. We qualify all of our forward-looking statements by these cautionary statements.

The forward-looking statements made in this annual report relate only to events or information as of the date on which the statements are made in this annual report. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events. You should read this annual report and the documents that we refer to in this annual report and have filed as exhibits to this annual report completely and with the understanding that our actual future results may be materially different from what we expect.

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PART I

ITEM 1.IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

ITEM 2.OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3.KEY INFORMATION

Our Holding Company Structure and Contractual Arrangements with the VIE and Its Shareholders

iHuman Inc. is not a Chinese operating company but a Cayman Islands holding company with no equity ownership in the VIE. We conduct our operations in mainland China primarily through (i) our subsidiaries in mainland China and (ii) the VIE with which we have maintained contractual arrangements, and VIE’s subsidiaries. Laws and regulations in mainland China establish conditions on foreign investment in value-added telecommunication services and certain other businesses. Accordingly, we operate these businesses in China through the VIE and VIE’s subsidiaries, and rely on contractual arrangements among our subsidiaries in mainland China, the VIE and its shareholders. The VIE is consolidated for accounting purposes, but is not an entity in which our Cayman Islands holding company, or our investors, own equity. Revenues contributed by the VIE accounted for substantially all of our total revenues for 2021, 2022 and 2023, respectively. As used in this annual report, “we,” “us,” “our company” and “our” refers to iHuman Inc., its subsidiaries, and, in the context of describing our operations and consolidated financial information, the VIE and VIE’s subsidiaries in mainland China, including, but not limited to, Tianjin Hongen. Investors in our ADSs are not purchasing equity interest in the VIE in mainland China but instead are purchasing equity interest in a holding company incorporated in the Cayman Islands. The VIE structure involves unique risks to investors, and holders of our ADSs may never directly hold equity interests in the Chinese operating company. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure.”

The following diagram illustrates our corporate structure, including our major subsidiaries, the VIE and its major subsidiaries, as of December 31, 2023:

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Note:

(1)

Shareholders of Tianjin Hongen and their respective shareholdings in the VIE and relationship with our company are (i) Mr. Hanfeng Chi (63.61)%, our director and brother of Mr. Michael Yufeng Chi, our controlling shareholder; (ii) Sanming Juyichang Enterprise Management Service Partnership (Limited Partnership) (17.67)%, a limited partnership incorporated in mainland China beneficially and wholly owned by our employees and consultant; (iii) Mr. Tian Liang (7.07)%, our shareholder; (iv) Sanming Jushengyi Enterprise Management Service Partnership (Limited Partnership) (6.65)%, a limited partnership incorporated in mainland China beneficially and wholly owned by our employees; and (v) Sanming Kangqian Information Technology Service Co., Ltd. (5)%, a company incorporated in mainland China beneficially and wholly owned by Mr. Hanfeng Chi, our director.

A series of contractual agreements, including powers of attorneys, exclusive call option agreement, exclusive management services and business cooperation agreement, equity interest pledge agreement and financial support letter have been entered into by and among our subsidiaries, the VIE and the nominee shareholders. The following is a summary of the contractual agreements:

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Power of attorneys: Pursuant to the powers of attorneys executed by the nominee shareholders, the nominee shareholders agreed to entrust to Hongen Investment an irrevocable proxy to exercise all of their rights as shareholders of Tianjin Hongen, the VIE, and to approve, on behalf of the nominee shareholders, all related legal documents pertinent to the exercise of their rights in their capacity as the shareholders of Tianjin Hongen. Hongen Investment is also entitled to transfer or assign its voting rights to any other person or entity at its own discretion and without giving prior notice to the nominee shareholders or obtaining their consent.

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Exclusive call option agreement: Pursuant to the exclusive call option agreement among Hongen Investment, Tianjin Hongen and its nominee shareholders, the nominee shareholders irrevocably granted Hongen Investment or its designee(s) an exclusive call option to purchase, when and to the extent permitted under laws and regulations of mainland China, all or part of the equity interests in Tianjin Hongen. The exercise price of the call option to purchase all or part of the equity interests in Tianjin Hongen or assets held by Tianjin Hongen will be the minimum amount of consideration permitted under the then applicable laws and regulations of mainland China.

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Exclusive management services and business cooperation agreement: Pursuant to the exclusive management services and business cooperation agreement between Hongen Investment, Tianjin Hongen and the nominee shareholders, Hongen Investment has the exclusive right to provide technical and consulting services to Tianjin Hongen and its subsidiaries, including, but not limited to, management consultancy services, permission of intellectual property rights, technical support and business support. Tianjin Hongen agrees to pay a service fee to Hongen Investment. Hongen Investment has the right to unilaterally adjust the service fee.

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Equity interest pledge agreement: Under the equity interest pledge agreement among Hongen Investment, Tianjin Hongen and its nominee shareholders, the nominee shareholders have pledged all of their equity interests in Tianjin Hongen to Hongen Investment to guarantee the performance of Tianjin Hongen and their obligations under the contractual agreements described above. During the term of the equity interest pledge agreement, Hongen Investment has the right to receive all of Tianjin Hongen’s dividends and profits distributed on the pledged equity. Tianjin Hongen and its nominee shareholders, undertake that, without the prior written consent of Hongen Investment, they will not transfer, create or allow any encumbrance on the pledged equity interests.

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Financial support letter: Pursuant to the financial support letter entered into between Tianjin Hongen and us, we are obligated and hereby undertake to provide unlimited financial support to Tianjin Hongen, to the extent permissible under the applicable laws and regulations in mainland China. We agree to forego the right to seek repayment in the event if Tianjin Hongen is unable to repay such funding.

For more details of these contractual arrangements, see “Item 4. Information on the Company—C. Organizational Structure—Contractual Arrangements with the VIE and Its Shareholders.”

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Our corporate structure is subject to risks associated with our contractual arrangements with the VIE. The contractual arrangements may not be as effective as direct ownership of the VIE and VIE’s subsidiaries and we may incur substantial costs to enforce the terms of the arrangements. As of the date of this annual report, our contracts with the VIE have not been tested in a court of law. Uncertainties in the legal system in mainland China, including uncertainties regarding the interpretation and enforcement of laws, regulations and policies of mainland China, may limit our ability, as a Cayman Islands holding company, to enforce these contractual arrangements. Meanwhile, there are very few precedents as to whether contractual arrangements would be judged to form the power to direct activities of the VIE that most significantly impact its economic performance, or how contractual arrangements in the context of a VIE should be interpreted or enforced by the courts in mainland China. Should legal actions become necessary, we cannot guarantee that the court will rule in favor of the enforceability of the contractual arrangements. In the event we are unable to enforce these contractual arrangements, or if we suffer significant delay or other obstacles in the process of enforcing these contractual arrangements, we may not be able to exert the power to direct the activities of the VIE that most significantly impact its economic performance, and our ability to conduct our business may be materially adversely affected. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure—The contractual arrangements with the VIE and its shareholders may not be as effective as direct ownership” and “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure—The shareholders of the VIE may have actual or potential conflicts of interest with us.”

There are substantial uncertainties regarding the interpretation and application of current and future laws, regulations and rules in mainland China regarding the status of the rights of our Cayman Islands holding company with respect to its contractual arrangements with the VIE and its shareholders. It is uncertain whether any new laws or regulations in mainland China relating to VIE structures will be adopted or if adopted, what they would provide. There is no assurance that the mainland China government will not promulgate or amend the laws and regulations in the future to disallow the VIE structure, which would likely result in a material adverse change in our operations, and our ADSs may decline significantly in value or become worthless. If we or the VIE is found to be in violation of any existing or future laws or regulations in mainland China, or fail to obtain or maintain any of the required permits or approvals, the relevant mainland China regulatory authorities would have broad discretion to take action in dealing with such violations or failures. If the mainland China government deems that our contractual arrangements with the VIE do not comply with regulations in mainland China on foreign investment in the relevant industries, or if these regulations or the interpretation of existing regulations change or are interpreted differently in the future, we could be subject to severe penalties or be forced to relinquish our interests in those operations. Our Cayman Islands holding company, our subsidiaries in mainland China, the VIE and VIE’s subsidiaries, and investors of our company may be subject to potential future actions by the mainland China government that could affect the enforceability of the contractual arrangements with the VIE and, consequently, significantly affect the financial performance of the VIE and our company as a whole. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure—If the mainland China government finds that the agreements that establish the structure for operating some of our operations do not comply with regulations in mainland China relating to the relevant industries, or if these regulations or the interpretation of existing regulations change in the future, we could be subject to severe penalties or be forced to relinquish our interests in those operations” and “—Our current corporate structure and business operations may be substantially affected by the Foreign Investment Law.”

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Cash Flows through Our Organization

iHuman Inc. is a holding company with no material operations of its own. We conduct our operations primarily through our subsidiaries, the VIE and VIE’s subsidiaries in mainland China. As a result, iHuman Inc.’s ability to pay dividends depends upon dividends paid by our subsidiaries in China. If our existing subsidiaries in mainland China 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, current regulations in mainland China permit our subsidiaries in mainland China to pay dividends to their respective shareholders only out of their retained earnings, if any, determined in accordance with accounting standards and regulations in mainland China. Furthermore, our subsidiaries, the VIE and VIE’s subsidiaries in mainland China are required to make appropriations to certain statutory reserve funds or may make appropriations to certain discretionary funds, which are not distributable as cash dividends except in the event of a solvent liquidation of the companies. There is no assurance that the mainland China government will not promulgate or amend the laws and regulations in the future depending on the facts and circumstances, which may affect the ability of iHuman Inc., its subsidiaries, and the VIE to transfer cash or other assets. To the extent cash or other assets in the business are in mainland China or a mainland China entity, the funds or other assets may not be available to fund operations or for other use outside of mainland China. As of the date of this annual report, there is no equivalent or similar restriction or limitation in Hong Kong on cash or other assets transfers in, or out of, our Hong Kong entities. However, if restrictions or limitations were to become applicable to cash or other assets transfers in and out of Hong Kong entities in the future, the funds or other assets in our Hong Kong entities may not be available to fund operations or for other use outside of Hong Kong. For more details, see “Item 3. Key Information—D. Risk Factors—Summary of Risk Factors—Risks Related to Our Corporate Structure,” “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure —We may rely on dividends paid by our subsidiaries in mainland China to fund cash and financing requirements. Any limitation on the ability of our subsidiaries in mainland China to pay dividends to us could have a material adverse effect on our ability to conduct our business and to pay dividends to holders of the ADSs and our ordinary shares,” and “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Holding Company Structure.”

We have established stringent controls and procedures for cash flows within our organization. Each transfer of cash between our Cayman Islands holding company and its subsidiaries, the VIE and VIE’s subsidiaries is subject to internal approval. The cash inflows of the Cayman Islands holding company were primarily generated from the proceeds we received from our public offerings of ordinary shares. In 2021, 2022 and 2023, iHuman Inc., through its intermediate holding company, made capital contributions of RMB63.8 million, RMB68.7 million and nil to Hongen Investment, respectively, which subsequently made transfers to Hongen Edutech, Hongen Investment’s subsidiary, when needed, in the corresponding year. In 2021, 2022 and 2023, iHuman Inc. provided to its subsidiaries in Hong Kong loans of nil, nil and RMB32.5 million (US$4.6 million), respectively, and received repayments of RMB127.5 million, nil and nil, respectively. For the years ended December 31, 2021, 2022 and 2023, no assets other than cash were transferred between the Cayman Islands holding company and its subsidiaries, the VIE and VIE’s subsidiaries; no subsidiaries nor the VIE paid dividends or made other distributions to the holding company; and no dividends or distributions were paid or made to U.S. investors. In February 2024, our board of directors approved a special cash dividend of US$0.02 per ordinary share, or US$0.10 per ADS, to holders of ordinary shares and holders of ADSs, respectively. The aggregate amount of the special dividend will be approximately US$5.3 million. We currently intend to retain most of our available funds and any future earnings to operate and expand our business. See “Item 8. Financial Information—A. Consolidated Statements and Other Financial Information—Dividend Policy.” For mainland China and United States federal income tax considerations in connection with an investment in our ADSs, see “Item 10. Additional Information—E. Taxation.”

The VIE is required to transfer cash to our WFOEs by paying service fees according to the contractual arrangements. The VIE paid Hongen Edutech service fees of RMB43.0 million, RMB89.5 million and RMB79.6 million (US$11.2 million) in 2021, 2022 and 2023, respectively. In 2021, 2022 and 2023, the VIE provided to Hongen Edutech loans of RMB55.0 million, RMB126.0 million and RMB13.5 million (US$1.9 million), respectively, and received repayments of nil, RMB90.0 million and RMB40.0 million (US$5.6 million), respectively. In 2021, 2022 and 2023, the VIE provided to Hongen Investment loans of nil, nil and RMB3.2 million (US$0.5 million), respectively, and received repayments of nil, nil and RMB2.1 million (US$0.3 million), respectively. Going forward, we intend to transfer the benefits of the VIE and VIE’s subsidiaries to our WFOEs under the contractual arrangements.

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Under laws and regulations in mainland China, our subsidiaries in mainland China and the VIE are subject to certain restrictions with respect to paying dividends or otherwise transferring any of their net assets to us. Remittance of dividends by a wholly foreign-owned enterprise out of China is also subject to examination by the banks designated by State Administration of Foreign Exchange, or SAFE. In addition, our subsidiaries in mainland China, the VIE and VIE’s subsidiaries generate their revenue primarily in Renminbi, which is not freely convertible into other currencies. As a result, any restriction on currency exchange may limit the ability of our subsidiaries in mainland China to pay dividends to us. For more details, see “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure—We may rely on dividends paid by our subsidiaries in mainland China to fund cash and financing requirements. Any limitation on the ability of our subsidiaries in mainland China to pay dividends to us could have a material adverse effect on our ability to conduct our business and to pay dividends to holders of the ADSs and our ordinary shares,” and “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—Regulation in mainland China of loans to and direct investment in entities in mainland China by offshore holding companies and governmental control of currency conversion may delay or prevent us from making loans to our subsidiaries in mainland China and the VIE in mainland China, which could materially and adversely affect our liquidity and our ability to fund and expand our business.”

For purposes of illustration, the following discussion reflects the hypothetical taxes that might be required to be paid within mainland China, assuming that: (i) we have taxable earnings, and (ii) we determine to pay a dividend from mainland China subsidiaries to overseas entities in the future:


	Tax calculation⁽¹⁾
Hypothetical pre-tax earnings⁽²⁾	100	%
Tax on earnings at statutory rate of 25%⁽³⁾	(25)	%
Net earnings available for distribution	75	%
Withholding tax at standard rate of 10%⁽⁴⁾	(7.5)	%
Net distribution to iHuman Inc./Shareholders	67.5	%

Notes:

(1)	For purposes of this example, the tax calculation has been simplified. The hypothetical book pre-tax earnings amount, not considering timing differences, is assumed to equal taxable income in mainland China.

(2)

Under the terms of contractual agreements, our subsidiaries in mainland China may charge the VIE for services provided to the VIE. These service fees shall be recognized as expenses of the VIE, with a corresponding amount as service income by our subsidiaries in mainland China and eliminate in consolidation. For income tax purposes, our subsidiaries in mainland China and the VIE file income tax returns on a separate company basis. The service fees paid are recognized as a tax deduction by the VIE and as income by our subsidiaries in mainland China and are tax neutral.

(3)

Certain of our subsidiaries and the VIE and VIE’s subsidiaries qualify for 12.5% or 15% preferential income tax rate in mainland China. However, such preferential rate is subject to qualification, is temporary in nature, and may not be available in a future period when distributions are paid. For purposes of this hypothetical example, the table above reflects a maximum tax scenario under which the full statutory rate would be effective.

(4)

The PRC Enterprise Income Tax Law and related regulations impose a withholding income tax of 10% on dividends distributed by a foreign invested enterprise to its immediate holding company outside of mainland China. A lower withholding income tax rate of 5% is applied if the foreign invested enterprise’s immediate holding company is registered in Hong Kong or other jurisdictions that have a tax treaty arrangement with the PRC, subject to a qualification review at the time of the distribution. For purposes of this hypothetical example, the table above assumes a maximum tax scenario under which the full withholding tax would be applied.

The table above has been prepared under the assumption that all profits of the VIE will be distributed as fees to our subsidiaries in mainland China under tax neutral contractual arrangements. If, in the future, the accumulated earnings of the VIE exceed the service fees paid to our subsidiaries in mainland China (or if the current and contemplated fee structure between the intercompany entities is determined to be non-substantive and disallowed by the PRC tax authorities), the VIE could make a non-deductible transfer to our subsidiaries in mainland China for the amounts of the stranded cash in the VIE. This would result in such transfer being non-deductible expenses for the VIE but still taxable income for the subsidiaries in mainland China. Such a transfer and the related tax burdens would reduce our after-tax income to approximately 50.6% of the pre-tax income. Our management believes that there is only a remote possibility that this scenario would happen.

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Permissions Required from the PRC Authorities for Our Operations

We conduct our business primarily through our subsidiaries and the VIE and VIE’s subsidiaries in mainland China. Our operations in mainland China are governed by laws and regulations in mainland China. As advised by our PRC counsel, Tian Yuan Law Firm, as of the date of this annual report, other than the Online Publishing Service Permit, the Online Transmission of Audio-Visual Programs License and the completion of our filing of educational apps regarding a few of our online apps, as disclosed and further detailed in “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Industry—We face uncertainties with respect to the development of relevant regulations. Failure to obtain or renew 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 “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Industry—The interpretation and implementation of the laws, regulations and policies in mainland China regarding the industry in which we operate are subject to changes, which may materially and adversely affect our business, financial condition and results of operations,” our subsidiaries in mainland China and the VIE and VIE’s subsidiaries have obtained all the requisite permissions and approvals from the mainland China government authorities for the business operations of our mainland China subsidiaries, the VIE and VIE’s subsidiaries, namely, four Value-added Telecommunications Business Operation Licenses for internet information services, or the ICP Licenses, five Production and Operation of Radio and TV Programs Permits, one Internet Culture Business Operating License, two Permits for Operating Publications, three Filing Certifications of Classified Protection of Information System Security and filings of educational apps pursuant to the Opinions on Guiding and Regulating the Orderly and Healthy Development of Educational Mobile Apps for all of our major products. As of the date of this annual report, (i) except for the completion of our filing of educational apps regarding a few of our online apps, we believe our subsidiaries in mainland China, the VIE and VIE’s subsidiaries are not required to obtain any permission or approval from the Ministry of Education of the PRC, and (ii) we have not received any notification from the Ministry of Education, indicating that our subsidiaries in mainland China, the VIE or VIE’s subsidiaries are required to obtain any permission or approval from the Ministry of Education. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Industry—The interpretation and implementation of the laws, regulations and policies in mainland China regarding the industry in which we operate are subject to changes, which may materially and adversely affect our business, financial condition and results of operations.” In addition, our subsidiaries in mainland China, the VIE and VIE’s subsidiaries have not been denied any permission or approval from any mainland China government authority with respect to the operation of our business. Furthermore, as advised by our PRC counsel, as of the date of this annual report, under current PRC laws, regulations and rules, we, our subsidiaries in mainland China, the VIE and VIE’s subsidiaries are not required to obtain permissions from the China Securities Regulatory Commission, or the CSRC, or go through cybersecurity review by the Cyberspace Administration of China, or the CAC, or obtain permission or approval from other mainland China government authorities with respect to the operation of our business, except for the permissions or approvals listed above. However, because the interpretation and implementation of relevant laws and regulations and the enforcement practice by relevant government authorities are subject to changes, we may be required to obtain additional licenses, permits, filings or approvals for the functions of our platform at the present stage or in the future. If we, our subsidiaries in mainland China, the VIE and VIE’s subsidiaries (i) do not receive or maintain any necessary permissions or approvals from mainland China authorities to operate business or offer securities, (ii) inadvertently conclude that such permissions or approvals are not required, or (iii) if applicable laws, regulations or interpretations change depending on the facts and circumstances and we are required to obtain such permissions or approvals in the future, we cannot assure you that we will be able to obtain the necessary permissions or approvals in a timely manner, or at all, and such approvals may be rescinded even if obtained. Any such circumstance could subject us to penalties, including fines, suspension of business and revocation of required licenses, significantly limit or completely hinder our ability to continue to offer securities to investors, and cause the value of such securities to significantly decline or become worthless. For more detailed information, see “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Industry—We face uncertainties with respect to the development of relevant regulations. Failure to obtain or renew 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,” “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Industry—The interpretation and implementation of the laws, regulations and policies in mainland China regarding the industry in which we operate are subject to changes, which may materially and adversely affect our business, financial condition and results of operations,” and “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—We may be adversely affected by the complexity, uncertainties and changes in regulation in mainland China of internet-related businesses and companies.”

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Furthermore, on February 17, 2023, the CSRC released the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Companies, or the Trial Measures, and five supporting guidelines, and issued the Notice on Administration for the Filing of Overseas Offering and Listing by Domestic Companies, pursuant to which (i) a major operating entity in mainland China designated by us may be required to file with the CSRC, in connection with any follow-on offering and certain other activities as required by the Trial Measures; and (ii) we may be required to report relevant information to the CSRC after the occurrence of certain events. On the same day, the CSRC also held a press conference for the release of the Trial Measures and the Notice on Administration for the Filing of Overseas Offering and Listing by Domestic Companies, which, among others, clarifies that, domestic companies that have already completed the overseas offering and listing prior to the effectiveness of the Trial Measures are not required to complete the filing procedure at the current stage, but shall complete the filing procedure upon the occurrence of certain matters, such as follow-on offering of securities, as required in the Trial Measures. Therefore, as advised by our PRC counsel, under the Trial Measures, we are not required to file to the CSRC of our previous offering and listing on the NYSE, but could be subject to the filing and reporting requirements to the CSRC with respect to future offerings and occurrence of certain events. If we fail to complete the filing procedures or conceals any material fact or falsifies any major content in our filing documents for any follow-on offering and certain other activities as required by the Trial Measures, we may be subject to administrative penalties, such as order to rectify, warnings, fines or other actions that may have a material and adverse effect on our business, financial condition, results of operations, reputation and prospects, as well as the trading price of our ADSs. On December 28, 2021, the CAC together with certain other mainland China governmental authorities, jointly released the Revised Cybersecurity Review Measures, effective from February 15, 2022, pursuant to which online platform operators that engage in data processing activities which have or may have an implication on national security shall undergo a cybersecurity review. As of the date of this annual report, we have not been involved in any formal investigations on cybersecurity review made by the CAC, nor have we received any notice or inquiry from relevant competent authorities requiring us to apply for cybersecurity review. For more detailed information, see “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—The filing with the CSRC may be required in connection with our future offshore offerings and the occurrence of certain activities under laws and regulations of mainland China, and we cannot predict whether we will be able to complete such filing.” and “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Industry—Our business generates and processes data in the ordinary course, and we are required to comply with PRC laws relating to privacy, data security and cybersecurity. The improper collection, use or disclosure of data could have a material and adverse impact on our business, financial condition and results of operations.”

Financial Information Related to the VIE

The following table presents the condensed consolidating schedule of results of operations, financial position and cash flows for iHuman Inc., its subsidiaries other than WFOEs, its WFOEs, the VIE and VIE’s subsidiaries for the periods ended and as of the dates presented.

Selected Condensed Consolidated Statements of Operations Information


	For the Year Ended December 31, 2023
		Subsidiaries		The VIE and
		(other than		VIE’s
	iHuman Inc.	WFOEs)	WFOEs	Subsidiaries	Eliminations	Consolidated

	(in thousands of RMB)

Third-party revenues	—	7,721	—	1,010,418	—	1,018,139
Intra-group revenues⁽¹⁾	—	4,651	49,840	—	(54,491)	—
Third-party cost of revenues and operating expenses	(16,011)	(25,230)	(113,560)	(703,451)	—	(858,252)
Intra-group cost of revenues and operating expenses⁽¹⁾	—	(3,411)	—	(50,587)	53,998	—
Share of income (loss) from subsidiaries, the VIE and VIE’s subsidiaries⁽²⁾	190,880	(63,088)	—	—	(127,792)	—
Other income, net	6,038	11,831	632	24,185	—	42,686
Income (loss) before income taxes	180,907	(67,526)	(63,088)	280,565	(128,285)	202,573
Income tax expenses	—	(100)	—	(21,566)	—	(21,666)
Net income (loss)	180,907	(67,626)	(63,088)	258,999	(128,285)	180,907

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	For the Year Ended December 31, 2022
		Subsidiaries		The VIE and
		(other than		VIE’s
	iHuman Inc.	WFOEs)	WFOEs	Subsidiaries	Eliminations	Consolidated

	(in thousands of RMB)

Third-party revenues	—	81	—	985,436	—	985,517
Intra-group revenues⁽¹⁾	—	243	80,980	—	(81,223)	—
Third-party cost of revenues and operating expenses	(18,993)	(8,136)	(142,120)	(704,686)	—	(873,935)
Intra-group cost of revenues and operating expenses⁽¹⁾	—	(171)	—	(80,980)	81,151	—
Share of income (loss) from subsidiaries, the VIE and VIE’s subsidiaries⁽²⁾	126,241	(58,731)	—	—	(67,510)	—
Other income, net	2,571	3,823	2,996	11,800	—	21,190
Income (loss) before income taxes	109,819	(62,891)	(58,144)	211,570	(67,582)	132,772
Income tax expenses	—	—	(587)	(22,366)	—	(22,953)
Net income (loss)	109,819	(62,891)	(58,731)	189,204	(67,582)	109,819


	For the Year Ended December 31, 2021
		Subsidiaries		The VIE and
		(other than		VIE’s
	iHuman Inc.	WFOEs)	WFOEs	Subsidiaries	Eliminations	Consolidated

	(in thousands of RMB)

Third-party revenues	—	—	—	944,722	—	944,722
Intra-group revenues⁽¹⁾	—	—	42,179	—	(42,179)	—
Third-party cost of revenues and operating expenses	(22,755)	(831)	(151,627)	(823,757)	—	(998,970)
Intra-group cost of revenues and operating expenses⁽¹⁾	—	—	—	(42,179)	42,179	—
Share of income (loss) from subsidiaries, the VIE and VIE’s subsidiaries⁽²⁾	(15,874)	(108,777)	—	—	124,651	—
Other income, net	1,578	1,559	823	13,092	—	17,052
Income (loss) before income taxes	(37,051)	(108,049)	(108,625)	91,878	124,651	(37,196)
Income tax benefits (expenses)	—	—	(152)	297	—	145
Net income (loss)	(37,051)	(108,049)	(108,777)	92,175	124,651	(37,051)

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Selected Condensed Consolidated Balance Sheets Information


	As of December 31, 2023
		Subsidiaries		The VIE and
		(other than		VIE’s
	iHuman Inc.	WFOEs)	WFOEs	Subsidiaries	Eliminations	Consolidated

	(in thousands of RMB)

Assets
Cash and cash equivalents	138,574	314,106	21,337	739,750	—	1,213,767
Amounts due from Group companies⁽³⁾	315,959	2,855	4,943	118,806	(442,563)	—
Amounts due from related parties	—	—	549	1,261	—	1,810
Investments in subsidiaries and contractual interests in the VIE and VIE’s subsidiaries⁽²⁾	506,526	—	—	—	(506,526)	—
Other assets	6,627	4,195	10,082	216,783	(2,769)	234,918
Total assets	967,686	321,156	36,911	1,076,600	(951,858)	1,450,495
Amounts due to Group companies⁽³⁾	5,973	315,961	115,686	4,943	(442,563)	—
Amounts due to related parties	—	—	382	4,046	—	4,428
Loss in excess of investments in subsidiaries⁽²⁾	—	100,549	—	—	(100,549)	—
Other liabilities	3,909	16,078	21,392	449,088	(2,204)	488,263
Total liabilities	9,882	432,588	137,460	458,077	(545,316)	492,691
Total shareholders’ equity (deficit)	957,804	(111,432)	(100,549)	618,523	(406,542)	957,804


	As of December 31, 2022
		Subsidiaries		The VIE and
		(other than		VIE’s
	iHuman Inc.	WFOEs)	WFOEs	Subsidiaries	Eliminations	Consolidated

	(in thousands of RMB)

Assets
Cash and cash equivalents	186,825	284,105	73,448	505,621	—	1,049,999
Amounts due from Group companies⁽³⁾	282,687	—	11,489	111,494	(405,670)	—
Amounts due from related parties	—	—	547	1,739	—	2,286
Investments in subsidiaries and contractual interests in the VIE and VIE’s subsidiaries⁽²⁾	306,751	—	—	—	(306,751)	—
Other assets	2,382	992	12,665	265,147	(72)	281,114
Total assets	778,645	285,097	98,149	884,001	(712,493)	1,333,399
Amounts due to Group companies⁽³⁾	2,092	282,686	109,403	11,489	(405,670)	—
Amounts due to related parties	—	—	2,124	4,820	—	6,944
Loss in excess of investments in subsidiaries⁽²⁾	—	41,144	—	—	(41,144)	—
Other liabilities	7,101	5,875	27,766	516,261	—	557,003
Total liabilities	9,193	329,705	139,293	532,570	(446,814)	563,947
Total shareholders’ equity (deficit)	769,452	(44,608)	(41,144)	351,431	(265,679)	769,452

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Selected Condensed Consolidated Cash Flows Information


	For the Year Ended December 31, 2023
		Subsidiaries		The VIE and
		(other than		VIE’s
	iHuman Inc.	WFOEs)	WFOEs	Subsidiaries	Eliminations	Consolidated

	(in thousands of RMB)

Net cash provided by (used in) operating activities	(15,968)	(437)	(26,642)	215,169	—	172,122
Net cash provided by (used in) investing activities	(25,483)	—	(19)	18,960	33	(6,509)
Net cash provided by (used in) financing activities	(9,448)	25,483	(25,450)	—	(33)	(9,448)


	For the Year Ended December 31, 2022
		Subsidiaries		The VIE and
		(other than		VIE’s
	iHuman Inc.	WFOEs)	WFOEs	Subsidiaries	Eliminations	Consolidated

	(in thousands of RMB)

Net cash provided by (used in) operating activities	(18,992)	894	(51,715)	258,279	—	188,466
Net cash used in investing activities	(1,655)	(69,007)	(100)	(68,433)	106,353	(32,842)
Net cash provided by (used in) financing activities	(6,956)	1,655	104,698	—	(106,353)	(6,956)


	For the Year Ended December 31, 2021
		Subsidiaries		The VIE and
		(other than		VIE’s
	iHuman Inc.	WFOEs)	WFOEs	Subsidiaries	Eliminations	Consolidated

	(in thousands of RMB)

Net cash provided by (used in) operating activities	(15,837)	755	(91,684)	144,980	—	38,214
Net cash provided by (used in) investing activities	127,514	(64,598)	(10,396)	(76,555)	(7,916)	(31,951)
Net cash provided by (used in) financing activities	313	(127,514)	119,598	97	7,916	410

Notes:

(1)	Represents the elimination of the intercompany service charge at the consolidation level.

(2)	Represents the elimination of the investments among iHuman Inc., Subsidiaries (other than WFOEs), WFOEs, and the VIE and VIE’s subsidiaries.

(3)	Represents the elimination of intercompany balances among iHuman Inc., Subsidiaries (other than WFOEs), WFOEs, and the VIE and VIE’s subsidiaries.

Other Risks Related to Our Operations in Mainland China

We face various risks and uncertainties related to doing business in China. Our business operations are primarily conducted in mainland China, and we are subject to complex and evolving laws and regulations in mainland China. For example, we face risks associated with regulatory approvals, anti-monopoly regulatory actions and oversight on cybersecurity and data privacy, which may impact our ability to conduct certain businesses, accept foreign investments or list on a United States exchange. These risks could result in a material adverse change in our operations and the value of our ADSs, significantly limit or completely hinder our ability to continue to offer securities to investors, or cause the value of such securities to significantly decline or become worthless. For a detailed description of risks related to doing business in China, please refer to risks disclosed under “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China.”

The mainland China government’s significant authority in regulating our operations and its oversight and control over offerings conducted overseas by, and foreign investment in, China-based issuers could significantly limit or completely hinder our ability to offer or continue to offer securities to investors. Implementation of industry-wide regulations in this nature may cause the value of such securities to significantly decline. For more details, see “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—Significant oversight and discretion by the mainland China government over our business operation could result in a material adverse change in our operations and the value of our ADSs.”

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Risks and uncertainties arising from the legal system in mainland China, including risks and uncertainties regarding the enforcement of laws and quickly evolving rules and regulations in mainland China, could result in a material adverse change in our operations and the value of our ADSs. For more details, see “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—Uncertainties with respect to the legal system in mainland China, including uncertainties regarding the interpretation and enforcement of laws, regulations and policies of mainland China, could adversely affect us. As the legal system of mainland China is evolving, laws, regulations and rules in mainland China may change quickly with little advance notice, which may subject us to non-compliance due to unexpected changes to the laws, regulations and rules applicable to us” and “—We may be adversely affected by the complexity, uncertainties and changes in regulation in mainland China of internet-related businesses and companies.”

The Holding Foreign Companies Accountable Act

Pursuant to the Holding Foreign Companies Accountable Act, as amended by the Consolidated Appropriations Act, 2023, or the HFCAA, if the Securities and Exchange Commission, or the SEC, determines that we have filed audit reports issued by a registered public accounting firm that has not been subject to inspections by the Public Company Accounting Oversight Board, or the PCAOB, for two consecutive years, the SEC will prohibit our shares or the ADSs from being traded on a national securities exchange or in the over-the-counter trading market in the United States. On December 16, 2021, the PCAOB issued a report to notify the SEC of its determination that the PCAOB was unable to inspect or investigate completely registered public accounting firms headquartered in mainland China and Hong Kong, including our auditor. In May 2022, the SEC conclusively listed us as a Commission-Identified Issuer under the HFCAA because we filed an annual report on Form 20-F for the fiscal year ended December 31, 2021 with the SEC on April 29, 2022 with an audit report issued by Ernst & Young Hua Ming LLP, a registered public accounting firm retained by us for the preparation of the audit report on our company’s financial statements included therein. Ernst & Young Hua Ming LLP is a registered public accounting firm headquartered in mainland China, a jurisdiction where the PCAOB determined that it had been unable to inspect or investigate completely registered public accounting firms headquartered there until December 2022. On December 15, 2022, the PCAOB issued a report that vacated its December 16, 2021 determination and removed mainland China and Hong Kong from the list of jurisdictions where it is unable to inspect or investigate completely registered public accounting firms. For this reason, we were not identified as a Commission-Identified Issuer under the HFCAA after we filed our annual report on Form 20-F for the fiscal year ended December 31, 2022 and do not expect to be so identified after we file this annual report on Form 20-F for the fiscal year ended December 31, 2023. On December 29, 2022, the Consolidated Appropriations Act, 2023 was signed into law, which amended the HFCAA (i) to reduce the number of consecutive non-inspection years required for triggering the prohibitions under the HFCAA from three years to two, and (ii) so that any foreign jurisdiction could be the reason why the PCAOB does not have complete access to inspect or investigate a company’s auditors. As it was originally enacted, the HFCAA applied only if the PCAOB’s inability to inspect or investigate because of a position taken by an authority in the foreign jurisdiction where the relevant public accounting firm is located. As a result of the Consolidated Appropriations Act, 2023, the HFCAA now also applies if the PCAOB’s inability to inspect or investigate the relevant accounting firm is due to a position taken by an authority in any foreign jurisdiction. The denying jurisdiction does not need to be where the accounting firm is located.

Each year, the PCAOB will determine whether it can inspect and investigate completely audit firms in mainland China and Hong Kong, among other jurisdictions. If PCAOB determines in the future that it no longer has full access to inspect and investigate completely accounting firms in mainland China and Hong Kong and we continue to use an accounting firm headquartered in one of these jurisdictions to issue an audit report on our financial statements filed with the SEC, we would be identified as a Commission-Identified Issuer following the filing of the annual report on Form 20-F for the relevant fiscal year. There can be no assurance that we would not be identified as a Commission-Identified Issuer for any future fiscal year, and if we were so identified for two consecutive years, we would become subject to the prohibition on trading under the HFCAA. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—The PCAOB had historically been unable to inspect our auditor in relation to their audit work performed for our financial statements and the inability of the PCAOB to conduct inspections of our auditor in the past has deprived our investors with the benefits of such inspections,” and “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China —Our ADSs may be prohibited from trading in the United States under the HFCAA in the future if the PCAOB is unable to inspect or investigate completely auditors located in China. The delisting of the ADSs, or the threat of their being delisted, may materially and adversely affect the value of your investment.”

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Selected Consolidated Financial Data

The following selected consolidated statements of operations for the years ended December 31, 2021, 2022 and 2023, selected consolidated balance sheets data as of December 31, 2022 and 2023, and selected consolidated cash flow data for the years ended December 31, 2021, 2022 and 2023 have been derived from our audited consolidated financial statements, which are included in this annual report beginning on page F-1. The selected consolidated statements of operations and selected consolidated cash flow data for the years ended December 31, 2019 and 2020 and the selected consolidated balance sheets data as of December 31, 2019, 2020 and 2021 have been derived from our audited consolidated financial statements not included in this annual report. Our consolidated financial statements are prepared and presented in accordance with U.S. GAAP. Our historical results are not necessarily indicative of results expected for future periods. You should read this Selected Consolidated Financial Data section together with our consolidated financial statements and the related notes in conjunction with “Item 5. Operating and Financial Review and Prospects” included elsewhere in this annual report.


	For the Year Ended December 31,
	2019	2020	2021	2022	2023
	RMB	RMB	RMB	RMB	RMB	US$

	(in thousands, except for share amounts and per share data)
Selected Consolidated Statement of Operations:
Revenues	218,656	531,915	944,722	985,517	1,018,139	143,402
Cost of revenues⁽¹⁾	(84,163)	(166,472)	(284,098)	(294,343)	(296,868)	(41,813)
Gross profit	134,493	365,443	660,624	691,174	721,271	101,589
Operating expenses
Research and development expenses⁽¹⁾	(170,155)	(199,510)	(415,334)	(313,481)	(257,546)	(36,275)
Sales and marketing expenses⁽¹⁾	(53,716)	(95,717)	(202,093)	(156,916)	(199,504)	(28,100)
General and administrative expenses⁽¹⁾	(189,433)	(114,667)	(97,445)	(109,195)	(104,334)	(14,695)
Total operating expenses	(413,304)	(409,894)	(714,872)	(579,592)	(561,384)	(79,070)
Operating income (loss)	(278,811)	(44,451)	(54,248)	111,582	159,887	22,519
Other income, net	4,578	7,441	17,052	21,190	42,686	6,012
Income (loss) before income taxes	(274,233)	(37,010)	(37,196)	132,772	202,573	28,531
Income tax benefits (expenses)	(1,364)	(466)	145	(22,953)	(21,666)	(3,052)
Net income (loss)	(275,597)	(37,476)	(37,051)	109,819	180,907	25,479
Accretion to redemption value of contingently redeemable ordinary shares	(821)	(10,792)	—	—	—	—
Net income (loss) attributable to ordinary shareholders	(276,418)	(48,268)	(37,051)	109,819	180,907	25,479
Income (loss) per share
Basic	(1.52)	(0.21)	(0.14)	0.41	0.69	0.10
Diluted	(1.52)	(0.21)	(0.14)	0.41	0.66	0.09
Income (loss) per ADS
Basic	(7.62)	(1.07)	(0.69)	2.06	3.43	0.48
Diluted	(7.62)	(1.07)	(0.69)	2.03	3.30	0.46
Weighted average shares used in income (loss) per share
Basic	181,427,603	226,339,320	266,631,802	266,535,220	264,052,936	264,052,936
Diluted	181,427,603	226,339,320	266,631,802	270,204,542	273,765,128	273,765,128

Note:

(1)	Share-based compensation expenses were recorded as follows:

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	For the Year Ended December 31,
	2019	2020	2021	2022	2023
	RMB	RMB	RMB	RMB	RMB	US$

	(in thousands)
Share-based compensation expenses:
Cost of revenues	—	1,897	940	348	299	42
Research and development expenses	76,301	19,499	5,431	6,377	4,055	571
Sales and marketing expenses	25,892	2,858	3,010	1,599	707	100
General and administrative expenses	168,348	55,637	5,794	4,720	4,374	616
Total	270,541	79,891	15,175	13,044	9,435	1,329

The following table presents our selected consolidated balance sheets data as of December 31, 2019, 2020, 2021, 2022 and 2023:

As of December 31,

2019

2020

2021

2022

2023

RMB

US$

(in thousands)

Selected Consolidated Balance Sheets Data:

Cash and cash equivalents

104,883

861,682

855,362

1,049,999

1,213,767

170,956

Accounts receivable, net

20,118

77,965

56,132

79,614

60,832

8,568

Total current assets

163,062

1,021,461

1,015,244

1,253,791

1,382,438

194,713

Total assets

168,315

1,046,945

1,100,881

1,333,399

1,450,495

204,297

Deferred revenue and customer advances

71,831

268,613

302,980

379,063

318,587

44,872

Total current liabilities

182,764

399,222

482,933

561,053

490,758

69,121

Total liabilities

182,764

404,292

492,510

563,947

492,691

69,393

Total mezzanine equity

120,821

—

Total shareholders’ equity (deficit)

(135,270)

642,653

608,371

769,452

957,804

134,904

The following table presents our selected consolidated cash flow data for the years ended December 31, 2019, 2020, 2021, 2022 and 2023:


	For the Year Ended December 31,
	2019	2020	2021	2022	2023
	RMB	RMB	RMB	RMB	RMB	US$

	(in thousands)
Selected Consolidated Cash Flow Data:
Net cash provided by operating activities	42,627	222,986	38,214	188,466	172,122	24,242
Net cash used in investing activities	(2,391)	(15,906)	(31,951)	(32,842)	(6,509)	(917)
Net cash provided by (used in) financing activities	58,523	571,959	410	(6,956)	(9,448)	(1,331)
Net increase (decrease) in cash and cash equivalents	98,759	756,799	(6,320)	194,637	163,768	23,067
Cash and cash equivalents at the beginning of the year	6,124	104,883	861,682	855,362	1,049,999	147,889
Cash and cash equivalents at the end of the year	104,883	861,682	855,362	1,049,999	1,213,767	170,956

A.	[Reserved]

B.	Capitalization and Indebtedness

Not Applicable.

C.	Reasons for the Offer and Use of Proceeds

Not Applicable.

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D.	Risk Factors

Summary of Risk Factors

An investment in our ADSs involves significant risks. Below is a summary of material risks we face, organized under relevant headings. These risks are discussed more fully in Item 3. Key Information—D. Risk Factors.

Risks Related to Our Business and Industry

●

If we are not able to continue to attract and retain users, convert non-paying users into paying users and maintain or increase the spending of paying users on our products, our business and prospects will be materially and adversely affected;

●

Our online operations have a limited operating history in an evolving market, which makes it difficult to predict our prospects and our business and financial performance;

●

If we are unable to manage our growth effectively, our business and prospects may be materially and adversely affected;

●

We face competition, which may divert users to our competitors, lead to pricing pressure and loss of market share; and

●

The interpretation and implementation of the laws, regulations and policies in mainland China regarding the industry in which we operate are subject to changes, which may materially and adversely affect our business, financial condition and results of operations;

Risks Related to Our Corporate Structure

●

We conduct our operations in mainland China primarily through (i) our subsidiaries in mainland China and (ii) the VIE, with which we have maintained contractual arrangements, and VIE’s subsidiaries. Our holding company, our subsidiaries in mainland China, the VIE and VIE’s subsidiaries, and investors of our company may be subject to potential future actions by the mainland China government depending on the facts and circumstances that could affect the enforceability of our contractual arrangements with the VIE and its shareholders and, consequently, significantly affect the financial performance of the VIE and our company as a whole. If the mainland China government finds that the agreements that establish the structure for operating our business do not comply with laws and regulations in mainland China, or if these regulations or their interpretations change in the future, we could be subject to severe penalties or be forced to relinquish our interests in those operations. The mainland China regulatory authorities could disallow the VIE structure, which would likely result in a material adverse change in our operations, and our ADSs may decline significantly in value or become worthless. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure—If the mainland China government finds that the agreements that establish the structure for operating some of our operations do not comply with regulations in mainland China relating to the relevant industries, or if these regulations or the interpretation of existing regulations change in the future, we could be subject to severe penalties or be forced to relinquish our interests in those operations.”;

●

Any failure by the VIE or its shareholders to perform their obligations under our contractual arrangements with them would have a material and adverse effect on our business. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure—Any failure by the VIE or its shareholders to perform their obligations under our contractual arrangements with them would have a material and adverse effect on our business.”;

●

The shareholders of the VIE may have actual or potential conflicts of interest with us. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure—The shareholders of the VIE may have actual or potential conflicts of interest with us.”; and

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●

We may rely on dividends paid by our subsidiaries in mainland China to fund cash and financing requirements. Any limitation on the ability of our subsidiaries in mainland China to pay dividends to us could have a material adverse effect on our ability to conduct our business and to pay dividends to holders of the ADSs and our ordinary shares. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure—We may rely on dividends paid by our subsidiaries in mainland China to fund cash and financing requirements. Any limitation on the ability of our subsidiaries in mainland China to pay dividends to us could have a material adverse effect on our ability to conduct our business and to pay dividends to holders of the ADSs and our ordinary shares.”

Risks Related to Doing Business in China

●

Changes in China’s economic, political or social conditions or government policies could have a material adverse effect on our business and operations. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—Changes in China’s economic, political or social conditions or government policies could have a material adverse effect on our business and operations.”;

●

Uncertainties with respect to the legal system in mainland China, including uncertainties regarding the interpretation and enforcement of mainland China laws, regulations and policies, could adversely affect us. As the legal system of mainland China is evolving, laws, regulations and rules in mainland China may change quickly with little advance notice, which may subject us to non-compliance due to unexpected changes to the laws, regulations and rules applicable to us. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—Uncertainties with respect to the legal system in mainland China, including uncertainties regarding the interpretation and enforcement of laws, regulations and policies of mainland China, could adversely affect us. As the legal system of mainland China is evolving, laws, regulations and rules in mainland China may change quickly with little advance notice, which may subject us to non-compliance due to unexpected changes to the laws, regulations and rules applicable to us.”;

●

We may be adversely affected by the complexity, uncertainties and changes in regulation in mainland China of internet-related businesses and companies. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—We may be adversely affected by the complexity, uncertainties and changes in regulation in mainland China of internet-related businesses and companies.”;

●

The mainland China government has indicated an intent and may promulgate certain regulations and rules to exert more oversight and control over offerings conducted overseas and/or foreign investment in China-based issuers. In the event that we fail to comply with any legal and regulatory requirements of mainland China in relation to overseas securities issuance or foreign investment, our ability to offer or continue to offer securities to investors could be significantly limited or completely hindered and the value of such securities could significantly decline or become worthless. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—Significant oversight and discretion by the mainland China government over our business operation could result in a material adverse change in our operations and the value of our ADSs.”;

●

The filing with the CSRC may be required in connection with our future offshore offerings and the occurrence of certain activities under laws and regulations of mainland China, and we cannot predict whether we will be able to complete such filing. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—The filing with the CSRC may be required in connection with our future offshore offerings and the occurrence of certain activities under laws and regulations of mainland China, and we cannot predict whether we will be able to complete such filing.”;

●

The PCAOB had historically been unable to inspect our auditor in relation to their audit work performed for our financial statements and the inability of the PCAOB to conduct inspections of our auditor in the past has deprived our investors with the benefits of such inspections. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—The PCAOB had historically been unable to inspect our auditor in relation to their audit work performed for our financial statements and the inability of the PCAOB to conduct inspections of our auditor in the past has deprived our investors with the benefits of such inspections.”; and

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●

Our ADSs may be prohibited from trading in the United States under the HFCAA in the future if the PCAOB is unable to inspect or investigate completely auditors located in China. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—Our ADSs may be prohibited from trading in the United States under the HFCAA in the future if the PCAOB is unable to inspect or investigate completely auditors located in China. The delisting of the ADSs, or the threat of their being delisted, may materially and adversely affect the value of your investment.”

Risks Related to our ADSs

●

The trading price of our ADSs has been and likely will continue to be volatile, which could result in substantial losses to investors; and

●

Our dual-class voting structure will limit your ability to influence corporate matters and could discourage others from pursuing any change of control transactions that holders of our Class A ordinary shares and ADSs may view as beneficial.

Risks Related to Our Business and Industry

We mainly generate revenues from subscription fees that users paid for the premium content of our tech-powered, intellectual development apps, as well as the sales of offline products to both individual users and organizations. Therefore, our ability to attract and retain users, convert our non-paying users into paying users and maintain or increase the spending of paying users on our products is critical to the continued success and growth of our business. Such ability primarily depends on the overall intellectual development experience we provide to our users, the quality and popularity of our content, as well as the effectiveness of our technology.

Although we have developed a large and steadily growing user base, to continue to do so, we must attract users by continuing to expand the scope and improve the quality of our product offerings, strengthen our content development capabilities and technology leadership, continue to build our brand and reputation as the leading provider of tech-powered, intellectual development products focusing on making the child-upbringing experience easier for parents, as well as effectively market and precisely target our products to prospective users. We may not, however, always be able to meet our users’ expectations, many of which are outside of our control. We may face user dissatisfaction due to perceptions of our failure to effectively engage our users, our users’ overall dissatisfaction with the quality of the content of our intellectual development products, technical disruptions or failure of our products, as well as potential concerns from parents on their children’s use of our products with entertainment features being too immersive and distracting.

If we are unable to continue to attract and retain users to subscribe for the premium content of our smart digital apps or purchase our other products, or to maintain or increase the spending of our existing users on our products, our revenues may decline, which may have a material adverse effect on our business, financial condition and results of operations.

Our online operations have a limited operating history in an evolving market, which makes it difficult to predict our prospects and our business and financial performance.

While the history of our business dates back to 1996 when Hongen Education introduced its first product, our online operations have a limited operating history as we launched our online operations only in 2016 and established our integrated suite of online and offline products in late 2019. Our limited history of operating under the current business model may not serve as an adequate basis for evaluating our prospects and operating results, including our revenues, cash flows and operating margins. The industry in which we operate is still rapidly evolving and is characterized by intense competition, which makes it more difficult to evaluate our performance and prospects. We have encountered, and may continue to encounter in the future, risks, challenges and uncertainties associated with operating a tech-powered, intellectual development business and expanding our global reach, such as continuing to develop high-quality content, expanding our user base and enhancing user engagement, navigating an uncertain and evolving regulatory environment and improving and expanding our product offerings. If we do not manage these risks successfully, our operating and financial results may differ materially from our expectations and our business and financial performance may suffer.

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If we are unable to manage our growth effectively, our business and prospects may be materially and adversely affected.

Our business has continued to grow in recent years. However, our historical growth may not be indicative of our future performance or financial results. We cannot assure you that we will be able to manage our growth at the same rate as we did in the past, or avoid any decline in the future. To achieve business sustainability, we need to attract more users, hire more qualified content development and other staff, scale up our product offerings and strengthen our technology infrastructure. Moreover, our current and planned staffing, systems, policies, procedures and controls may not be adequate to support our future operations. To effectively manage our operations and personnel, we will also be required to refine our operational, financial and management controls and reporting systems and procedures. If we fail to efficiently manage this expansion of our business, our costs and expenses may increase faster than we planned and we may not successfully attract a sufficient number of users and customers in a cost-effective manner, respond to competitive challenges, or otherwise execute our business strategies. These activities require significant capital expenditures and investment of valuable management and financial resources, and our growth will continue to place significant demands on our management. The increasingly large user base and the expanding content also expose us to challenges related to legal compliance, such as complying with evolving laws and regulations on privacy and intellectual property. There is no guarantee that we will be able to effectively manage any future growth in an efficient, cost-effective and timely manner, or at all. Our growth in the past is not necessarily indicative of results that we may achieve in the future. If we are unable to effectively manage the growth of our business and operations, or grow our business and operations at all, our reputation, results of operations and overall business and prospects could be negatively impacted.

We face competition, which may divert users to our competitors, lead to pricing pressure and loss of market share.

The industry in which we operate is evolving and competitive, and we expect competition in this sector to persist and intensify as more players may enter this promising market. We face competition in each part of our product offerings from other industry participants. For example, each of our tech-powered, smart digital apps has certain competitors that create and operate similar content. We also face pressure for our offline operations from other providers of intellectual development products. As we acquired the intellectual property assets related to Cosmicrew, a 3D comedic adventure animation series, and intend to develop more intellectual property offerings and derivatives, we also face competitive pressure from other companies in the children’s entertainment sector. Some of our current competitors or future competitors entering this market may have longer operating histories in certain businesses, greater brand recognition, or greater financial, technical or marketing resources than we do. We compete with our competitors across a range of factors, including, among others, high-quality content development staff, content originality and appeal, technology infrastructure and data analytics capabilities, scope and quality of our product offerings, user experience, content distribution channels and brand recognition. Our competitors may launch similar products with different pricing packages that may have greater appeal than our offerings. If we reduce our subscription fees or increase spending in response to competition in order to retain or attract users or pursue new market opportunities, our revenue may decrease, and our costs and expenses may increase as a result of such actions, which may adversely affect our operating margins. If we are unable to successfully compete for users, maintain or increase our level of subscription fees, attract and retain competent content development staff or other key personnel, maintain our competitiveness in terms of the quality of our product offerings in a cost-effective manner, our business and results of operations may be materially and adversely affected.

The industry in which we operate in mainland China has experienced intense scrutiny and has been subject to regulatory changes, which may adversely affect our business, financial condition and results of operations.

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In August 2019, the Ministry of Education of the PRC, jointly with certain other mainland China government authorities, issued Opinions on Guiding and Regulating the Orderly and Healthy Development of Educational Mobile Apps. According to these opinions, providers of certain online apps that meet the definition of educational apps are required to complete certain filings with relevant provincial regulatory authorities. See “Item 4. Information on the Company—B. Business Overview—Regulations—Regulation Related to Educational Apps.” 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 Opinions on Further Alleviating the Burden of Homework and After-School Tutoring for Students in Compulsory Education, or the Alleviating Burden Opinion. After the promulgation of the Alleviating Burden Opinion, relevant regulatory authorities have withdrawn their approvals to the filing of all related online apps. Following the communication with the competent government authority, we have resubmitted our filing application of educational apps for our major online apps in August 2023. As of the date of this annual report, we have completed the filings of educational apps for all of our major products, with a few other products in process or in preparation for filing. Any failure to complete the required filings of educational apps may result in our relevant online apps being blacklisted or removed from the app stores by the competent government authority, and we may be prohibited from submitting any such filings for six months following the determination.

The Alleviating Burden Opinion sets out a series of operating requirements on after-school tutoring, or AST, institutions, in particular AST institutions providing tutoring services on academic subjects for students in compulsory education, which we refer to as Academic AST Institutions. Local government authorities shall no longer approve any new Academic AST Institutions, all the existing Academic AST Institutions shall be registered as non-profit, and local government authorities shall no longer approve any new AST institutions providing tutoring services on academic subjects for pre-school-aged children and students in grade ten to twelve. Online Academic AST Institutions that have filed with the local education administration authorities will be subject to review and re-approval procedures by competent government authorities, and any failure to obtain such approval will result in the cancellation of its previous filing and ICP License. Academic AST Institutions are prohibited from raising funds by listing on stock markets or conducting any capitalization activities and listed companies are prohibited from investing in Academic AST Institutions through capital markets fund raising activities, or acquiring assets of Academic AST Institutions by paying cash or issuing securities. 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. AST institutions shall not provide tutoring services on academic subjects during national holidays, weekends and school breaks. No advertisements for AST shall be published or broadcasted in the network platforms and billboards displayed in the mainstream media, new media, public place and residential areas. Fees charged for academic subjects tutoring in compulsory education will need to follow the guidelines from the government to prevent any excessive charging or excessive profit-seeking activity. Government authorities will implement risk management and control for the pre-collection of fees by AST institutions with requirements such as setting up third-party custodians and risk reserves, and strengthen supervision over loans regarding tutoring services. 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.

As of the date of this annual report, we have completed the filings of educational apps for all of our major products as non-AST apps, and we have not received any notification from any regulatory authority in mainland China indicating that our products are classified as AST products. Accordingly, we believe our products are non-AST products. However, under the complex and evolving regulatory regime and due to the broad discretion the government authorities may have on interpretation, application and enforcement of the Alleviating Burden Opinion and related regulations, we cannot assure you that the government authorities may not take a contrary view, and it is thus unclear whether the products we provide will be classified as AST on academic subjects pursuant to the existing and future laws or regulations in mainland China or the opinion from the regulatory authorities. In the event that we are deemed to provide AST on academic subjects under any existing and future laws or regulations in mainland China or the opinion from the regulatory authorities, we may be subject to the provisions of the Alleviating Burden Opinion and other laws or regulations in mainland China in relation to AST, and we may be subject to fines or required to unwind the existing contractual agreements and/or dispose of relevant business operations, which could have a material and adverse effect on our current corporate structure, corporate governance, business, financial condition and results of operations. We are closely monitoring the evolving regulatory environment and are making efforts to seek guidance from and cooperate with the government authorities to comply with new laws and regulations regarding the industry in which we operate. Due to the complexity and substantial uncertainty of the regulatory environment, we cannot assure you that our operations would be in full compliance with applicable laws, regulations and policies, in a timely manner, or at all. We may become subject to fines or other penalties or be required to terminate certain operations forthwith, in which case our business, financial condition and results of operations could be materially and adversely affected.

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We are continually making efforts to comply with the requirements under these regulations and implementations to the extent that they apply to us. However, it is uncertain whether and how the mainland China government authorities would further promulgate new laws and regulations regarding the industry in which we operate on aspects such as regulatory requirements for intellectually stimulating content that target children, limitation on advertising and the collection and use of fees and time limits on the amount of time children could spend on digital products. Moreover, the government authorities have significant discretion in interpreting and implementing these laws and regulations and may conduct inspections on compliance with requirements thereunder. We cannot assure you that we will be able to comply with such requirements in a timely manner, or at all. If we fail to comply with these requirements and any other applicable regulatory requirements, we may be subject to fines, regulatory orders to suspend our operations or other regulatory and disciplinary sanctions, which may materially and adversely affect our business and results of operations.

We face uncertainties with respect to the development of relevant regulations. Failure to obtain or renew 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.

The industry in which we operate is highly regulated by the mainland China government. As an intellectual development technology company, we are required to obtain and maintain all necessary approvals, licenses or permits applicable to our business operations and make all necessary registration and filings for our products in mainland China, and we may be required to apply for and obtain additional licenses or permits for our operations as the interpretation and implementation of current laws and regulations in mainland China are still evolving, and new laws and regulations may also be promulgated.

We currently hold four ICP Licenses, five Production and Operation of Radio and TV Programs Permits, one Internet Culture Business Operating License and three Filing Certifications of Classified Protection of Information System Security for our online intellectual development business. We offer pre-recorded audio-video contents on certain of our online platforms to our users. According to relevant laws and regulations in mainland China, no entities or individuals may provide internet audio-visual program services without a License for Online Transmission of Audio-Visual Programs issued by the State Administration of Press, Publication, Radio, Film and Television, currently known as National Radio and Television Administration, or its local bureaus or completing the relevant registration procedures with National Radio and Television Administration or its local bureaus. Currently, only state-owned or state-controlled entities are eligible to apply for a License for Online Transmission of Audio-Visual Programs. As of the date of this annual report, operators of intellectual development apps are not explicitly required to obtain the License for Online Transmission of Audio-Visual Programs. Accordingly, we currently do not hold a License for Online Transmission of Audio-Visual Programs. However, it is possible that the mainland China government will change its view and find that our business activities mentioned above or any other content we offer fall within the definition of “internet audio-visual programs” and thus require us to obtain the License for Online Transmission of Audio-Visual Programs. We are, however, not eligible to apply for such license since we are not a state-owned or state-controlled entity. If this were to occur, we may be subject to penalties, fines, legal sanctions or an order to suspend the provision of our relevant products. In addition, we may be required to apply for and obtain additional licenses, permits or recordation, given the significant uncertainties of the interpretation and implementation of certain regulatory requirements applicable to our business. As of the date of this annual report, there are no implementation rules, explicit interpretation from government authorities or prevailing enforcement practice deeming the provision of our content to our users through our apps as “online publishing” which refers to digital works with publishing features such as having been edited, produced or processed and are available to the public through information networks and requires an Online Publishing Service Permit. If the content offered in our platform is considered as “online publications,” we may be required to obtain an Online Publishing Service Permit. See “Item 4. Information on the Company—B. Business Overview—Regulations—Regulation Related to Online Publishing.” There is no assurance that local mainland China authorities will not adopt different enforcement practice, or any mainland China government authorities will not issue more explicit interpretation and rules or promulgate new laws and regulations from time to time to further regulate the industry in which we operate, which may subject us to additional licensing requirements to continue to operate our online business. As of the date of this annual report, we have not received any notification from government authorities, indicating that we have failed or need to obtain the additional licenses, permits or recordation, including, among other things, License for Online Transmission of Audio-Visual Programs and Online Publishing Service Permit, and no fines or other penalties have been imposed on us for failure to do so.

In addition, if future laws and regulations in mainland China provide that our offline products provided to intellectual development organizations may be subject to review, vetting or any restrictions by government authorities, there can be no assurance that we will pass such review and vetting or comply with such restrictions. If we fail to pass such review and vetting, or are restricted from selling our offline products to intellectual development organizations, we may need to adjust our offline products in compliance with such laws and regulations and incur additional costs, which may adversely harm our business, financial condition and results of operation.

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There can be no assurance that, if so required, we will be able to obtain all the required approvals, licenses, permits and complete all necessary filings, recordation renewals, review and registrations on a timely basis for our products, given the significant amount of discretion the mainland China authorities may have in interpreting, implementing and enforcing the rules and regulations, as well as other factors beyond our control and anticipation. If we fail to obtain required permits in a timely manner or obtain or renew any permits and certificates, or fail to complete the necessary filings, recordation renewals, review or registrations on a timely basis, we may be subject to fines, confiscation of the gains derived from our non-compliant operations, suspension of our non-compliant operations or claims for compensation of any economic loss suffered by our users or other relevant parties.

Our business depends on the continued success of our brands, and if we fail to maintain and enhance the recognition of our brands, or the recognition of our brands is adversely affected by any negative publicity concerning us, our reputation and operating results may be harmed.

We believe that market awareness of our brands among users and customers have contributed significantly to our success. Maintaining and enhancing our brands are critical to our efforts to scale our business and attract and retain users and customers. Our brand’s recognition and awareness flourish through our high-quality and diverse product offerings and organic word-of-mouth referrals. Additionally, we engage in branding efforts such as app store promotion, performance marketing, livestream and e-commerce advertising. These efforts may not always achieve the desired results. If we fail to maintain a strong brand, our business, results of operations and prospects will be materially and adversely affected. In addition, customers may be confused by our various brands for different lines of business, as well as by other brands with similar names/trademarks, if we fail to make our respective brand recognizable and differentiated. If we are unable to maintain and further enhance our brand recognition, or if our brand image is negatively impacted by any negative publicity, we may not be able to maintain our competitive position and our business, financial condition and results of operations may be materially and adversely affected.

Negative publicity about us and our business, shareholders, affiliates, directors, officers, other employees, business partners, users, businesses with similar names to ours without our authorization, as well as the industry in which we operate, can harm our brand and reputation. Negative publicity concerning these parties could be related to a wide variety of matters, including, but are not limited to:

●

alleged misconduct or other improper activities committed by our directors, officers and other employees, in particular with respect to intellectual development or child-upbringing, including misrepresentation made by our employees to prospective users during sales and marketing activities;

●

false or malicious allegations or rumors about us or our directors, shareholders, affiliates, officers and other employees;

●

complaints by our users and customers about our products;

●

security breaches of confidential user or transaction data;

●

employment-related claims relating to alleged wrongful discharge, employment discrimination, wage and hour violations; and

●

governmental and regulatory investigations or penalties resulting from our failure to comply with applicable laws and regulations.

In recent years, social media platforms and similar medias have become prevalent in China. They allow information to be spread quickly and reach a wide audience. The availability of information on instant messaging applications and social media platforms is virtually immediate without affording us an opportunity for redress or correction. The opportunity for dissemination of information, including inaccurate information, is seemingly limitless and readily available. Information concerning our company, shareholders, affiliates, directors, officers and other employees may be posted on such platforms at any time. The risks associated with any such negative publicity or incorrect information cannot be completely eliminated or mitigated and may materially harm our reputation, business, financial condition and results of operations.

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Our launch of new product offerings may not be successful and may expose us to new challenges and more risks.

Although we have been successful in launching apps and other products with different focuses, there is no assurance that we will be able to continue our success in our promulgation of new product offerings in the future. We expect to expand the demographic coverage of our product offerings to increase user lifetime value. We also intend to venture into the market of children’s entertainment sector, beginning with the acquisition of intellectual property assets related to Cosmicrew. We expect to develop additional offerings and derivatives, including animations and toys in this sector. Our lack of experience with these new product offerings may adversely affect our prospects and our ability to compete with the existing market players in any of these product categories. Moreover, promulgation of new product offerings and expansion into new markets may disrupt our ongoing business, distract our management and employees and increase our expenses to cover unforeseen or hidden liabilities or costs. We may also face challenges in achieving the expected benefits of synergies and growth opportunities in connection with these new product offerings. We may also become subject to additional compliance requirements for these new product categories. Failure to expand successfully may also diminish investor confidence in our decision-making and execution capabilities, which could materially and adversely affect our business, results of operations, financial condition and prospects.

If we are not able to continue to engage, train and retain high-quality content development staff, we may not be able to offer appealing new content or maintain the quality of existing content of our products in a cost-effective way.

As we believe our high-quality original content is crucial to our product-centric business model and our prospects, our content development staff is critical to the popularity of our product offerings and to the experience of our users and customers. We seek to engage high-quality content development staff with strong backgrounds in parenthood industry and innovative capabilities. We need to provide competitive salaries and offer attractive career outlooks to attract and retain them. We must also provide ongoing training to our content development staff to ensure that they stay abreast of the evolving and diversified needs of both individual users and organizations focusing on intellectual development. Furthermore, as we continue to develop new products, we may need to engage additional high-quality content development staff with appropriate skill sets or backgrounds to develop the content effectively. We cannot guarantee that we will be able to effectively engage and train such staff quickly, or at all. Additionally, given the potentially more attractive opportunities for our skilled and experienced content development staff, over time, some of them may choose to leave us. Departure of quality content development staff may reduce the attractiveness of our product offerings and negatively impact our results of operations. Although we have not experienced major difficulties in engaging, training or retaining high-quality content development staff in the past, we may not always be able to do so to keep pace with our growth while maintaining consistent content development quality. A shortage of high-quality content development staff, a decrease in the quality of our existing staff’s performance, whether actual or perceived, or a significant increase in the cost to engage or retain high-quality content development staff would have a material adverse effect on our business, financial condition and results of operations.

We may not be able to develop and introduce new features to, or upgrade the current features in, our existing products to meet changing user preferences in a timely and cost-effective manner.

To attract users and keep our existing users engaged, we must introduce new product offerings and upgrade our existing products to meet users’ evolving preferences. It is difficult to predict the preferences of a particular user or a specific group of users. Changes and upgrades to our existing products may not be well received by our users, and newly introduced products may not achieve success as expected. Going forward, we may also introduce new products in areas beyond our current business with which we have little or no prior experience, such as animations and toys in the children’s entertainment sector. Such efforts may require us to contribute a substantial amount of additional human capital and financial resources. We cannot assure you that any of such new products will achieve market acceptance or generate sufficient revenues to adequately compensate the costs and expenses incurred in relation to our development and promotion efforts. If we fail to improve our existing products and introduce new ones in a timely or cost-effective manner, our ability to attract and retain users may be impaired, and our financial performance and prospects may be adversely affected.

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The success and future growth of our business may be affected by user and customer acceptance and market trend of integration of intellectual stimulation and technology.

Our business model features integrating innovative technology closely with intellectual stimulation to make the child-upbringing experience easier for parents and transform intellectual development into a fun journey for children. However, tech-powered intellectual development remains a relatively new concept in China, and there are limited proven methods to project user demand, preference or available industry standards on which we can rely. The general public, many of whom are our potential users, may not recognize and accept the concept of children engaging in intellectual development activities through an app rather than from a real person. They may also have concerns over the effectiveness of our interactive and self-directed apps, considering that our business model is relatively new and there are few players with proven track records in the market. As a result of the foregoing, the general public may not choose our products, and may stick with traditional in-person programs. If we fail to convince our users and potential users on the value and the effectiveness of our innovative approach as well as further promote our products, our growth will be limited and our business, financial performance and prospects may be materially and adversely affected.

We may not be able to maintain or increase our price level and we cannot guarantee that our monetization strategies will be successfully implemented.

Our results of operations are affected by the pricing of our products. We mainly generate revenues from the subscription fees that users paid for the premium content of our online apps. For most of our apps, users are provided with free-trial content but need to pay subscription fees to use our premium content. For the premium content, we offer both time-based subscription packages and content-based subscription packages. We determine the prices of our products primarily based on the demand for our products, our target users’ purchasing power, the level of fees charged by our competitors, our pricing strategy to gain market share and general economic conditions. We cannot guarantee that we will be able to maintain or increase our fee level in the future without adversely affecting the demand for our products.

We cooperate with various business partners, such as suppliers and distributors. If we are not able to maintain our relationships with existing business partners or develop relationships with new business partners, our operations may be materially and adversely affected.

We cooperate with various business partners in the ordinary course of our business. For example, we cooperate with local distribution partners to effectively promote our product offerings. We also outsource certain of our artwork and video productions, and we license from our business partners certain copyrighted materials for use in certain apps. We also cooperate with suppliers on materials and assembly to produce certain tangible products. We generally enter into cooperation agreements with our business partners, and these cooperation agreements typically do not restrict the business partners from cooperating with our competitors. Maintaining strong relationships with suppliers and distributors is critical to the results of operations and prospects of our business. There can be no assurance that the business partners we currently cooperate with will continue the cooperation with us on commercially acceptable terms, or at all, after the terms of the current agreements expire. Our ability to attract distributors to cooperate with us also hinges on the quality and popularity of our products. If we cannot ensure that our products are well-recognized among users and customers, we might not be able to attract new distributors or maintain our existing distribution channels. If we are unable to maintain our relationships with existing business partners or develop relationships with new business partners, our operations may be materially and adversely affected.

In addition, we leveraged the support from, and our relationship with, our affiliates for back office support when we first launched our online operation. For example, Perfect World Group historically provided us with certain human resource service, administrative and IT support, financial service, and legal service. As a result, our limited history of independent management may not serve as an adequate basis for evaluating our administrative efficiency. Since 2022, we have been handling most of these back office functions independently.

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Our business generates and processes data in the ordinary course, and we are required to comply with PRC laws relating to privacy, data security and cybersecurity. The improper collection, use or disclosure of data could have a material and adverse impact on our business, financial condition and results of operations.

As a business that provides online apps and generates revenue primarily from online subscriptions, we face risks inherent in handling and protecting data and are subject to various regulatory requirements relating to the security and privacy of data. The challenges we face relating to our handling and protection of data include, in particular:

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protecting the data in and hosted on our system, including against attacks on our system by outside parties or fraudulent behavior or improper use by our employees and business partners;

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addressing concerns related to privacy and sharing, safety, security and other factors; and

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complying with applicable laws, rules and regulations relating to the collection, use, storage, transfer, disclosure and security of personal information, including any requests from regulatory and government authorities relating to these data.

In general, we expect that data security, cybersecurity and data protection compliance will receive greater attention and focus from regulators, both in China and in other jurisdictions, as well as attract continued or greater public scrutiny and attention going forward, which could increase our compliance costs and subject us to heightened risks and challenges associated with data security, cybersecurity and protection. If we or our business partners are unable to manage these risks, we could receive negative publicity and/or become subject to penalties, including fines, suspension of business and revocation of required licenses, and our reputation and results of operations could be materially and adversely affected. For risks relating to our compliance with data privacy laws and regulations in jurisdictions other than China, see “—Our business is subject to data privacy laws and regulations in jurisdictions other than China. Any failure or perceived failure to comply with such laws and regulations could have a material and adverse impact on our business, financial condition and results of operations.”

The regulatory and enforcement regime in mainland China with regard to data security, cybersecurity and data protection is evolving and may be subject to different interpretations or significant changes. Moreover, different regulatory bodies in mainland China, including the Standing Committee of the National People’s Congress, the Ministry of Industry and Information Technology, the CAC, the Ministry of Public Security and the State Administration for Market Regulation, have enforced data security, cybersecurity, privacy and protections laws and regulations with varying standards and applications. See “Item 4. Information on the Company—B. Business Overview—Regulations—Regulation Related to Cybersecurity, Data Security and Personal Information Protection.” The following are examples of certain regulatory activities in mainland China in this area:

In December 2021, the CAC, together with other authorities, jointly promulgated the Revised Cybersecurity Review Measures, which became effective on February 15, 2022 and replaces its predecessor regulation. Pursuant to the Revised Cybersecurity Review Measures, critical information infrastructure operators that procure internet products and services or online platform operators that are engaged in data processing activities must be subject to the cybersecurity review if their activities affect or may affect national security. The Revised Cybersecurity Review Measures further stipulate that network platform operators that hold personal information of over one million users shall apply with the Cybersecurity Review Office for a cybersecurity review before any initial public offering at a foreign stock exchange. As of the date of this annual report, we have not been informed that we are a critical information infrastructure operator by any government authorities. Moreover, our PRC counsel has consulted the relevant government authority, which confirmed that, under the currently effective laws and regulations of mainland China, a company already listed in a foreign stock exchange before promulgation of the Revised Cybersecurity Review Measures is not required to apply with the Cybersecurity Review Office for a cybersecurity review. As of the date of this annual report, we have not been involved in any investigations on cybersecurity review made by the CAC, nor have we received any inquiries, notices, warnings, or sanctions from any competent mainland China regulatory authorities related to cybersecurity, data security and personal data protection. Based on the foregoing, it is the opinion of our PRC counsel that, as of the date of this annual report, we are not required to apply with the Cybersecurity Review Office for a cybersecurity review. However, the exact scope of “critical information infrastructure operators” under the current regulatory regime is subject to more detailed interpretations by competent government authorities, and the mainland China government authorities may have broad discretion in the interpretation and enforcement of the applicable laws. Therefore, it is uncertain whether we would be deemed to be a critical information infrastructure operator or be subject to cybersecurity review under the laws and regulations of mainland China in the future. If we are deemed to be a critical information infrastructure operator under the cybersecurity laws and regulations in mainland China, we may be subject to obligations in addition to what we have fulfilled under the cybersecurity laws and regulations in mainland China.

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It is the opinion of our PRC counsel that, as of the date of this annual report, we are in compliance with the permissions and approvals requirements under the existing PRC regulations and policies on cybersecurity, data security and personal data protection issued by the CAC.

In November 2021, the CAC released the Regulations on the Network Data Security (Draft for Comments), or the Draft Regulations. The Draft Regulations provide that data processors refer to individuals or organizations that, during their data processing activities such as data collection, storage, utilization, transmission, publication and deletion, have autonomy over the purpose and the manner of data processing. In accordance with the Draft Regulations, data processors shall apply for a cybersecurity review for certain activities, including, among other things, (i) the listing abroad of data processors that process the personal information of more than one million users and (ii) any data processing activity that affects or may affect national security. However, there have been no clarifications from the authorities as of the date of this annual report as to the standards for determining whether an activity is one that “affects or may affect national security.” In addition, the Draft Regulations requires that data processors that process “important data” or are listed overseas must conduct an annual data security assessment by itself or commission a data security service provider to do so, and submit the assessment report of the preceding year to the municipal cybersecurity department by the end of January each year. As of the date of this annual report, the Draft Regulations were released for public comment only, and their respective provisions and anticipated adoption or effective date may be subject to change with substantial uncertainty. On September 14, 2022, the CAC published the Decision of Amending PRC Cybersecurity Law (Draft for Comments), which, among other things, aggravated legal liabilities for violations of cybersecurity obligations and critical information infrastructure operators’ obligations. As of the date of this annual report, this draft amendment was released for public comment only, and its respective provisions and anticipated adoption or effective date may be subject to change with substantial uncertainty.

Many of the data-related legislations are relatively new and certain concepts thereunder remain subject to interpretation by the regulators. If any data that we possess belongs to data categories that are subject to heightened scrutiny, we may be required to adopt stricter measures for protection and management of such data. The Revised Cybersecurity Review Measures and the Draft Regulations remain unclear on whether the requirements will be applicable to companies that are already listed in the United States, such as us, if we were to pursue another listing outside of mainland China. We cannot predict the impact of the Revised Cybersecurity Review Measures and the Draft Regulations, if any, at this stage, and we will closely monitor and assess any development in the rule-making process. If the Revised Cybersecurity Review Measures and the enacted version of the Draft Regulations mandate clearance of cybersecurity review and other specific actions to be taken by issuers like us, we face uncertainties as to whether we can complete these additional procedures in a timely fashion or at all, which may delay or disallow our future listings (should we decide to pursue them), subject us to government enforcement actions and investigations, fines, penalties, suspension of our non-compliant operations or removal of our app from application stores, and materially and adversely affect our business and results of operations. As of the date of this annual report, we have not been involved in any formal investigations on cybersecurity review made by the CAC on such basis.

In general, compliance with the existing laws and regulations in mainland China, as well as additional laws and regulations that regulatory bodies in mainland China may enact in the future, related to cybersecurity, data security and personal information protection, may be costly and result in additional expenses to us, and any potential non-compliance may subject us to negative publicity, which could harm our reputation and business operations. There are also uncertainties with respect to how such laws and regulations will be implemented and interpreted in practice.

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Our business is subject to data privacy laws and regulations in jurisdictions other than China. Any failure or perceived failure to comply with such laws and regulations could have a material and adverse impact on our business, financial condition and results of operations.

We face risks inherent in handling and protecting data and are subject to various regulatory requirements relating to the security and privacy of data. See “—Our business generates and processes data in the ordinary course, and we are required to comply with PRC laws relating to privacy, data security and cybersecurity. The improper collection, use or disclosure of data could have a material and adverse impact on our business, financial condition and results of operations” for details. As our online apps are available globally on app stores, we are also subject to data privacy laws and regulations overseas, one of which is the Children’s Online Privacy Protection Act. We have been taking measures, including the implementation of a tailored data privacy policy for users in the United States, and will continue to take measures to make sure our collection, use and disclosure of personal information from children under 13 years of age in the United States are in compliance with the Children’s Online Privacy Protection Act and the necessary parental consents are obtained properly. On February 28, 2024, the Biden administration issued Executive Order 14117 on “Preventing Access to Americans’ Bulk Sensitive Personal Data and United States Government-Related Data by Countries of Concern.” The order, together with an Advance Notice of Proposed Rulemaking released by the U.S. Department of Justice, seeks to prohibit and restrict certain data transactions involving the transfer of U.S. sensitive personal data between U.S. persons and covered countries of concern or covered persons. Covered countries of concern are defined to include China, and covered persons are defined to include companies owned by, controlled by or subject to the jurisdiction or direction of a country of concern. We believe our business practice does not violate the order or the notice, as we currently store all overseas sensitive personal data on overseas cloud servers and prohibit transferring the sensitive data to China. However, we cannot assure you that the government authorities may not take a contrary view, given that the order and notice are newly issued and are subject to further supplements and revisions by the government authorities. In addition, although our user base in the European Union is relatively limited, we have implemented data privacy protection measures to make sure we comply with European data privacy laws and regulations, including the General Data Protection Regulation in the European Union. We strive to ensure that our apps are compliant with applicable data privacy and protection laws and regulations overseas. However, the laws and regulations may be interpreted, applied or modified in new manners that we may be unable to anticipate or adjust for appropriately. We may also incur substantial costs to ensure our compliance internationally. In addition, users or potential users may find our measures to comply with the applicable laws and regulations troublesome to follow, and thus we may lose our users or potential users.

Any failure, or perceived failure, by us or by our business partners, to comply with applicable privacy, data security and personal information protection laws, regulations, policies, contractual provisions, industry standards and other requirements, may result in the suspension or even removal of our apps, as well as civil or regulatory liability, including governmental or data protection authority enforcement actions and investigations, fines, penalties, enforcement orders requiring us to cease operating in a certain way, litigation or adverse publicity, and may require us to expend significant resources in responding to and defending allegations and claims.

If our security measures are breached or failed and result in unauthorized disclosure or unintended leakage of data, we could lose existing users, fail to attract new users and be exposed to protracted and costly litigation or administration sanctions.

We store and transmit proprietary and confidential information, including confidential children and parent information such as nicknames, mobile numbers and email addresses for user registration, pictures for creating user profile and voice information for testing. The data is primarily stored in our digital database. To ensure the confidentiality and integrity of our data, we maintain comprehensive and rigorous data security measures. For example, we anonymize and encrypt confidential personal information and take other technological measures to ensure the secure processing, transmission and usage of data. See “Item 4. Information on the Company—B. Business Overview—Data Privacy and Security.” Our board of directors has also established a cybersecurity committee to oversee our cybersecurity risk management, which is responsible, on behalf of the board, for setting up cybersecurity measures, overseeing the implementation of the measures and dealing with major cybersecurity issues if such issues arise. These measures, however, may not be as effective as we anticipate. If our security measures are breached, or fail to function as intended, and result in unauthorized disclosure or unintended leakage of data, external parties may receive or be able to access the personal information on our users, which could subject us to liabilities, interrupt our business and adversely impact our reputation. Furthermore, we currently are subject to certain legal obligations regarding the manner in which we treat such information. Increased regulation of data utilization practices, including self-regulation or findings under existing laws that limit our ability to collect, transfer and use data, could have an adverse effect on our business. If we were to process or disclose data of our users in a manner they objected, our business reputation could be adversely affected, our online apps could be removed from certain app stores, and we may face potential legal claims that could impact our operating results.

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Any of these issues could harm our reputation, adversely affect our ability to attract users and customers, retain existing users and customers or subject us to third-party lawsuits, regulatory fines or other action or liability. Further, any reputational damage resulting from breach of our security measures could create distrust of our company by prospective customers or investors. We may be required to expend significant additional resources to protect us against the threat of security measures breaches or to alleviate problems caused by such disruptions or breaches.

Any significant disruption to our technology infrastructure or our failure to maintain the satisfactory performance, security and integrity of our technology infrastructure would reduce customer satisfaction and harm our reputation.

The performance and reliability of our information technology system are critical to our operations and reputation. Our network infrastructure and our data related to our operations in mainland China is mainly deployed and maintained, respectively, in physical server rooms operated by third-party service providers in Beijing. For our overseas operation, the network infrastructure and data is deployed and stored, respectively, on overseas cloud servers. Our operations depend on the service providers’ ability to protect its and our system in its facilities against events such as damage or interruption from natural disasters, power or telecommunications failures, air quality issues, environmental conditions, computer viruses or attempts to harm our systems, criminal acts and similar events, which events are beyond our control. If our arrangement with such service providers is terminated or if there is a lapse of service or damage to their facilities, we could experience interruptions in our product offerings. Any interruptions in the accessibility of or deterioration in the quality of access to our system could reduce user satisfaction and result in a reduction in the number of active users, which would reduce the attractiveness of our apps and harm our reputation. As of the date of this annual report, we have not experienced any significant system outage caused by IT issues, but we cannot assure you that such issues will not happen in the future.

We may not be successful in developing or maintaining relationships with key participants and other distribution channels in the industries in which we operate, and may face risks related to collections of accounts receivable.

We make our apps available on both iOS and Android systems across a variety of mobile devices. We depend on the interoperability of our products with popular devices and mobile operating systems that we do not control. Any changes in devices or their systems that degrade the functionality of our products or give preferential treatment to competitive products could adversely affect the usage of our products. We may not be successful in developing relationships with key participants in the mobile industry or in developing products that operate effectively with their operating systems, networks, devices and standards. We also cooperate with key participants in the mobile industry to put our products on the front page of their respective apps stores and label our products as recommended, which helps us attract prospective users. If we cannot maintain such relationships at reasonable costs or at all, we may not get sufficient exposure on their respective platforms, which will impair our ability to acquire traffic.

In addition, we mainly rely on third-party distribution channels for the distribution of our apps to our users and the collection of subscription fees from our users. We also rely on third-party content distribution channels for the distribution of our aminations. As such, the promotion, distribution and operation of our apps and the promotion and distribution of our contents are subject to the distribution channels’ standard terms and policies, which are to the interpretation of, and frequent changes by, these distribution channels. If any major distribution channel interprets or changes its standard terms and conditions in a manner that is detrimental to us in the future, or terminate its existing relationship with us, our business, financial condition and results of operations may be materially and adversely affected. We mainly recognize accounts receivable, and occasionally receive prepayments, when we engage third-party distributors to distribute our apps or contents. Therefore, the financial soundness of these third-party distributors may affect our ability to collect accounts receivable. We may face difficulties in settling the accounts receivable or write off the relevant amounts should the operation and liquidity condition of third-party distributors deteriorate, either of which may adversely affect our business, financial condition and results of operations.

We rely on a single app, iHuman Chinese, for a major portion of our revenue and any changes in the market and popularity of iHuman Chinese could have a material adverse effect on our business, financial condition and results of operations.

iHuman Chinese, whose launch in 2016 and commercialization in April 2018 antedated most of our other apps, has been our most popular app which accounted for a majority of our revenues in 2021, 2022 and 2023, respectively. We expect the revenues from iHuman Chinese to remain a majority of our revenues in the near future. Although we commercialized various other tech-powered, intellectual development apps since we launched iHuman Chinese, the revenue and profitability associated with these offerings may not outperform those of iHuman Chinese, and our reliance on iHuman Chinese may continue in the near future. If there is any disruption in the popularity of iHuman Chinese, whether as a result of our failure to continue to provide highly effective and engaging content, the launch of other competing apps to the market or otherwise, our business, financial condition and results of operations could be materially and adversely affected.

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If we are not able to improve or maintain our sales and marketing efficiency, our business and results of operations may be materially and adversely affected.

Since the inception of our online operations, we have been conducting our sales and marketing activities efficiently. We incurred sales and marketing expenses of RMB202.1 million, RMB156.9 million and RMB199.5 million (US$28.1 million) in 2021, 2022 and 2023, respectively. In line with our product-centric business model, we have mainly relied on word-of-mouth referrals among our users and promotions and recommendations from leading online app stores to expand our user base while we also engaged in advertising campaigns as a supplement to foster the organic growth of our user base. We intend to strategically collaborate with online app stores to enhance app store promotion and user recommendation, and we also plan to strategically strengthen our brand recognition and marketing efforts to supplement organic user growth, such as social media, internet video, e-commerce advertising and livestreaming-based promotional campaigns. These sales and marketing activities may not be well received by our target user group and may not result in the levels of sales that we anticipate. We also may not be able to retain or recruit experienced marketing staff, or to efficiently train junior marketing staff. In addition, sales and marketing approaches and tools in the market in which we operate are evolving. This further requires us to enhance our marketing and branding approaches and experiment with new methods to keep pace with industry developments and user preferences. Failure to refine our existing sales and marketing approaches or to introduce new sales and marketing approaches in a cost-effective manner may reduce our market share, cause our revenues to decline and negatively impact our operating margins.

We may be involved in legal and other disputes from time to time arising out of our operations, including allegations relating to our infringement of intellectual property rights of third parties.

We have and may continue to be involved in legal and other disputes in the ordinary courses of our business, including allegations against us for potential infringement of third party’s copyrights or other intellectual property rights. In the ordinary course of our business, content of our products may expose us to allegations from third parties for infringement of intellectual property rights. We may not have obtained licenses for all the content we offer, and the scope, type and terms of the licenses we obtained for certain content may not be broad enough to cover all fashions we currently employ or may employ in the future. In addition, if any purported licensor of the content we license does not actually have sufficient authorization relating to the content or right to license a content to us, or if such purported licensor had lost its authorization to sub-license content that we license, and do not timely inform us of such loss of authorization, we may be subject to claims of intellectual property infringement from third parties. Moreover, certain contents of our products, including iHuman Books and iHuman Stories, contain storylines or passages from third-party literary works, which we believe are in the public domain or are otherwise no longer copyrighted, and there is no guarantee that our use of these contents does not infringe the intellectual property rights of any third parties.

Furthermore, the licensing agreements of certain content we license have restricted the content from being accessed from outside of mainland China. Our online apps are accessible globally, and while we use an IP-based location identification system to prevent such content from being accessed overseas, the system may be breached, in which case we may violate the terms of these licensing agreements and be subject to disputes arising from our users’ access to these content from outside of mainland China.

Historically, we have been involved in copyright infringement lawsuits or claims. We cannot assure you that we will not become subject to other copyright laws or legal proceedings initiated by third parties in any jurisdiction, such as the United States, as a result of the ability of users to access our content in the United States and other jurisdictions, the ownership of our ADSs by investors in the United States and other jurisdictions, the extraterritorial application of foreign law by foreign courts or otherwise. In addition, we are a publicly listed company, as a result of which we may be exposed to increased risk of litigation. If a claim of infringement brought against us in the United States or other jurisdictions is successful, we may be required to, upon enforcement, (i) pay substantial statutory or other damages and compensations, (ii) remove certain content from our platform or our online apps from certain app stores, or (iii) pay license fees for the content, which may not be available on commercially reasonable terms.

Any claims against us, with or without merit, could be time consuming and costly to defend or litigate, divert our management’s attention and resources or result in the loss of goodwill associated with our brand. If a lawsuit against us is successful, we may be required to pay substantial damages and/or license fees for the content in dispute, which could adversely affect the attractiveness of our products, limit our ability to attract and retain users, harm our reputation and negatively affect our results of operations and financial condition.

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Failure to protect our intellectual property rights may undermine our competitive position, and litigation to protect our intellectual property rights or defend against third-party allegations of infringement may be costly and ineffective.

We believe that our patents, copyrights, trademarks and other intellectual property are essential to our success, and we depend, to a large extent, on our ability to develop and maintain the intellectual property rights relating to our content and technology. We have devoted considerable time and resources to the development and improvement of our online apps, interactive content, smart devices, websites, and our system infrastructure.

We rely primarily on a combination of intellectual property laws and other contractual restrictions, including confidentiality agreements, non-compete agreements and intellectual property ownership assignment terms, for the protection of the intellectual property used in our business. Nevertheless, these measures provide only limited protection and the actions we take to protect our intellectual property rights may not be adequate. Our trade secrets may become known or be independently discovered by our competitors. Third parties may in the future pirate our content and may infringe upon or misappropriate our other intellectual property. In particular, our printed materials have historically been the target of piracy attacks and other intellectual property infringement, which has been an issue of significant concern for publications in China due to the low cost of piracy. Our sales of printed materials are conducted nationwide, which makes monitoring and enforcing our intellectual rights more difficult. The content of our online apps may also subject to piracy and other intellectual property infringement. Infringement upon or the misappropriation of, our proprietary content and technologies or other intellectual property could have a material adverse effect on our business, financial condition or results of operations. Although we have taken measures in monitoring and policing the unauthorized use of our intellectual property, policing the unauthorized use of intellectual property rights can be difficult and expensive.

In addition, litigation may be necessary to enforce our intellectual property rights, protect our trade secrets or determine the validity and scope of the proprietary rights of others. Such litigation may be costly and divert management’s attention away from our business. An adverse determination in any such litigation would impair our intellectual property rights and may harm our business, prospects and reputation. Enforcement of judgments in China is also uncertain, and therefore even if we are successful in litigation, it may not provide us with an effective remedy. In addition, we have no insurance coverage against litigation costs and would have to bear all costs arising from such litigation to the extent we are unable to recover them from other parties. The occurrence of any of the foregoing could materially and adversely affect our business, financial condition and results of operations.

Our business is subject to the risks of international operations.

Our online apps are accessible in overseas markets via app stores. We have successfully introduced several products tailored for overseas markets, such as Aha World. We intend to continue growing our business internationally through the introduction of more products for users overseas and promotional efforts of such product offerings on social media and online app stores overseas. Therefore, our international operations and expansion efforts have resulted and may continue to result in increased costs and subject us to a variety of risks, including increased competition, uncertain enforcement of our intellectual property rights, changes and evolutions in overseas market conditions and user preferences, and the complexity of compliance with foreign laws and regulations, including data protection laws.

In addition, compliance with applicable PRC and foreign laws and regulations, such as import and export requirements, anti-corruption laws, tax laws, foreign exchange controls and cash repatriation restrictions, data privacy requirements, labor laws, restrictions on foreign investment and anti-competition regulations, increases the costs and risk exposure of doing business in foreign jurisdictions. Although we have implemented tailored privacy policy for our users in the United States and European Union in accordance with the Children’s Online Privacy Protection Act and the General Data Protection Regulation, respectively, and required verifiable parental consent for our overseas users, a violation by us or our employees or partners of other applicable foreign laws could nevertheless occur. In some cases, compliance with the laws and regulations of one jurisdiction could violate the laws and regulations of another jurisdiction. Violations of these laws and regulations could materially and adversely affect our brand, international outreach and business.

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If we fail to adopt new technologies that are important to our business, our competitive position and ability to generate revenues may be materially and adversely affected.

The technologies used in internet and value-added telecommunications services in general, and in online intellectual development business in particular, may evolve and change over time. As a provider of tech-powered, intellectual development products, we must anticipate and adapt to such technological changes and adopt new technologies in a timely fashion. If we fail to do so, our competitive position and our business development could suffer, which in turn would have a material and adverse effect on our financial condition and results of operations. If we are unsuccessful in addressing any of the risks relating to failure to adopt new technologies, our business may be materially and adversely affected.

We may be subject to liability claims for any inappropriate content on our online apps, which could cause us to incur legal costs and damage our reputation.

We implement monitoring procedures to prohibit inappropriate content from being displayed on our online apps and other materials. However, we cannot assure you that there will be no inappropriate materials included in our content. Therefore, we may face civil or administrative liability if an individual or corporate, governmental or other entity believes that our content, in particular those related to intellectual development, violates any laws, regulations or governmental policies or infringes upon its legal rights. Even if such a claim were not successful, defending such a claim may cause us to incur substantial costs. Moreover, any accusation of inappropriate content in our interactive content offerings could lead to significant negative publicity, which could harm our reputation and results of operations.

We may not be able to obtain additional capital when desired, on favorable terms or at all.

We make investments in content development, technological systems and other projects to remain competitive. Due to the unpredictable nature of the capital markets and our industry, there can be no assurance that we will be able to raise additional capital on terms favorable to us, or at all, if and when required, especially if we experience disappointing results of operations. If adequate capital is not available to us as required, our ability to fund our operations, take advantage of unanticipated opportunities, develop or enhance our infrastructure or respond to competitive pressures could be significantly limited. If we do raise additional funds through the issuance of equity or convertible debt securities, the ownership interests of our shareholders could be significantly diluted. These newly issued securities may have rights, preferences or privileges senior to those of existing shareholders.

We incurred net losses in the past, and we may not be able to remain profitable or increase profitability in the future.

We incurred a net loss of RMB37.1 million in 2021, and net income of RMB109.8 million and RMB180.9 million (US$25.5 million) in 2022 and 2023, respectively. We cannot assure you that we will be able to maintain or increase profitability in the future. Our ability to maintain profitability depends primarily on our ability to increase our operating margin, either by growing our revenues at a rate faster than the increase of our operating expenses, such as our research and development expenses, or by reducing our operating expenses as a percentage of our net revenues. As we plan to continue to invest in expanding the scope and improving the quality of our product offerings as well as in marketing and branding efforts, there can be no assurance that we will achieve profitability and we may experience losses in the future.

Our success depends on the continuing efforts of our founder, senior management team and other key employees.

The continuing efforts of our founder, senior management team and other key employees are important to our continued success. In particular, we rely on the expertise and experience of Mr. Michael Yufeng Chi, our founder and chairman of the board of directors. We also rely on the experience and services from our senior management team. If they cannot work together effectively or efficiently, our business may be severely disrupted. If one or more of our senior management were unable or unwilling to continue in their present positions, we might not be able to replace them easily or at all, and our business, financial condition and results of operations may be materially and adversely affected. In addition, certain members of our senior management, including Mr. Michael Yufeng Chi, also hold positions in our affiliates, such as Perfect World Group. If any of such member of our senior management devote significantly more time or attention to our affiliates, our business and operation may be significantly and adversely affected. If any of our senior management joins a competitor or forms a competing business, we may lose users, key professionals and other staff members. Our senior management has entered into employment agreements with us which contain confidentiality clauses, as well as standalone confidentiality and non-compete agreements. However, if any dispute arises between our senior management and us, we may have to incur substantial costs and expenses in order to enforce such agreements in China or we may be unable to enforce them at all.

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We may encounter potential conflicts of interests in competition with our affiliates, and such conflicts of interests may not be resolved in our favor.

Mr. Michael Yufeng Chi, our founder, chairman of the board of directors and controlling shareholder, Mr. Hanfeng Chi, a member of our board of directors, and Ms. Vivien Weiwei Wang, a member of our board of directors and our chief financial officer, hold positions with certain of our affiliates, such as Mr. Michael Yufeng Chi serving as the chairman and Ms. Vivien Weiwei Wang as a director of Perfect World Group, and Mr. Hanfeng Chi serving as a director of Hongen Education. In addition, Mr. Michael Yufeng Chi beneficially owns more than 50% of the voting power in Hongen Education and Perfect World Group. Certain affiliates also engage in businesses related to ours. As a result, we may have competing interests with these affiliates, including the following:

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Employee recruiting and retention. We and our affiliates may engage in competition for qualified employees, in particular with respect to content developers.

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New business opportunities. New business opportunities in the market in which we operate may arise that we and our affiliates all find attractive and complementary to our respective existing business.

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Board decisions. Our chairman, Mr. Michael Yufeng Chi, is also the chairman of Perfect World Group, and our director Ms. Vivien Weiwei Wang is also a director of Perfect World Group. This relationship could create, or appear to create, conflicts of interests when Mr. Michael Yufeng Chi and Ms. Vivien Weiwei Wang are faced with decisions with potentially different implications for Perfect World Group and us.

As we do not have non-solicitation or non-competition arrangements with any of our affiliates, there is no guarantee that Mr. Michael Yufeng Chi, Mr. Hanfeng Chi, or Ms. Vivien Weiwei Wang will resolve any potential conflict of interests in our favor.

We are subject to third-party payment processing-related risks.

Payments for some of our products are conducted through major third-party online payment channels in China. We may also be susceptible to fraud, user data leakage and other illegal activities in connection with the various payment methods we offer. In addition, our business depends on the billing, payment and escrow systems of the third-party payment service providers to maintain accurate records of payments by customers and collect such payments. If the quality, utility, convenience or attractiveness of these payment processing and escrow services declines, or if we have to change the pattern of using these payment services for any reason, the attractiveness of our company could be materially and adversely affected. We are also subject to various rules, regulations and requirements, regulatory or otherwise, governing electronic funds transfers that could change or be reinterpreted to make it difficult or impossible for us to comply. If we fail to comply with these rules or requirements, we may be subject to fines and higher transaction fees and become unable to accept the current online payment solutions from our customers, and our business, financial condition and results of operations could be materially and adversely affected. Business involving online payment services is subject to a number of risks that could materially and adversely affect third-party online payment service providers’ ability to provide payment processing and escrow services to us, including:

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dissatisfaction with these online payment services or decreased use of their services;

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increasing competition, including from other established Chinese internet companies, payment service providers and companies engaged in other financial technology services;

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changes to rules or practices applicable to payment systems that link to third-party online payment service providers;

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breach of customers’ personal information and concerns over the use and security of information collected from buyers;

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service outages, system failures or failures to effectively scale the system to handle large and growing transaction volumes;

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increasing costs to third-party online payment service providers, including fees charged by banks to process transactions through online payment channels, which would also increase our costs of revenues; and

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failure to manage funds accurately or loss of funds, whether due to employee fraud, security breaches, technical errors or otherwise.

Our results of operations are subject to seasonal fluctuations.

Our results of operations are subject to seasonal fluctuations. Historically, across our businesses, we saw higher growth in the first and third quarters. However, it is difficult for us to judge the exact nature or extent of the seasonality of our businesses going forward. Given our limited operating history, the seasonal trends that we have experienced in the past may not be indicative of our future operating results. Our financial condition and results of operations for future periods may continue to fluctuate. As a result, the trading price of our ADSs may fluctuate from time to time due to seasonality.

We have granted share-based awards and expect to continue to grant share-based awards under our share incentive plan, which may result in increased share-based compensation expenses.

In 2020, we adopted a share incentive plan, which we refer to as the 2020 Plan, to provide additional incentives to our employees, directors and consultants, under which options previously granted by the VIE were carried over on a one-for-one basis with identical terms and conditions under the 2020 Plan. The maximum aggregate number of ordinary shares that may be issued pursuant to all awards under the 2020 Plan is initially 19,684,555, plus an annual increase on the first day of each fiscal year during the ten-year term of the plan commencing with the fiscal year beginning January 1, 2021, by an amount equal to 2.0% of the total number of issued and outstanding shares on the last day of the immediately preceding fiscal year. See “Item 6. Directors, Senior Management and Employees—B. Compensation of Directors and Executive Officers—Share Incentive Plan.” In 2021, 2022 and 2023, we recorded share-based compensation expenses of approximately RMB15.2 million, RMB13.0 million and RMB9.4 million (US$1.3 million), respectively. As of March 31, 2024, 14,918,287 options have been granted and are outstanding under the 2020 Plan, excluding awards that were exercised, forfeited or canceled after the relevant grant dates. We expect to continue to grant awards under our share incentive plan, which we believe is of significant importance to our ability to attract and retain key personnel and employees. As a result, our expenses associated with share-based compensation may increase, which may have an adverse effect on our financial condition and results of operations.

We rely on certain key operating metrics to evaluate the performance of our business, and real or perceived inaccuracies in such metrics may harm our reputation and negatively affect our business.

We rely on certain key operating metrics, such as total MAUs, to evaluate the performance of our business. Our operating metrics may differ from estimates published by third parties or from similarly titled metrics used by other companies due to differences in methodology and assumptions. We calculate these operating metrics using internal company data and certain external data. If we discover material inaccuracies in the operating metrics we use, or if they are perceived to be inaccurate, our reputation may be harmed and our evaluation methods and results may be impaired, which could negatively affect our business. If investors make investment decisions based on operating metrics we disclose that are inaccurate, we may also face potential lawsuits or disputes.

Our business and financial condition may be adversely affected by a downturn in the global or Chinese economy.

The success of our business depends on the spending of paying users on our products, among other things. We derive a majority of our revenues from China. As a result, our revenues and financial results are impacted to a significant extent by economic conditions in China and globally. The global macroeconomic environment is facing numerous challenges. The growth rate of the Chinese economy has been slowing since 2010 and the Chinese population began to decline in 2022. The Federal Reserve and other central banks outside of China have raised interest rates. The Russia-Ukraine conflict, the Hamas-Israel conflict and the attacks on shipping in the Red Sea have heightened geopolitical tensions across the world. The impact of the Russia-Ukraine conflict on Ukraine food exports has contributed to increases in food prices and thus to inflation more generally. There have also been concerns about the relationship between China and other countries which may potentially have economic effects. In particular, there is significant uncertainty about the future relationship between the United States and China with respect to a wide range of issues including trade policies, treaties, government regulations and tariffs. Economic conditions in China are sensitive to global economic conditions, as well as changes in domestic economic and political policies and the expected or perceived overall economic growth rate in China. Any severe or prolonged slowdown in the global or Chinese economy may materially and adversely affect our business, results of operations and financial condition.

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We have limited business insurance coverage, which could expose us to significant costs and business disruption.

We maintain various insurance policies for our products and employees to safeguard against risks and unexpected events. However, we do not maintain business interruption insurance or key-man insurance. We cannot assure you that our insurance coverage is sufficient to prevent us from any loss or that we will be able to successfully claim our losses under our current insurance policy on a timely basis, or at all. If we incur any loss that is not covered by our insurance policies, or the compensated amount is significantly less than our actual loss, our business, financial condition and results of operations could be materially and adversely affected.

If we fail to implement and maintain an effective system of internal controls, we may be unable to accurately report our results of operations, meet our reporting obligations or prevent fraud, and investor confidence and the market price of the ADSs may be materially and adversely affected.

We are a public company in the United States subject to the Sarbanes-Oxley Act of 2002. Section 404 of the Sarbanes-Oxley Act of 2002 requires that we include a report of management on our internal control over financial reporting in our annual report on Form 20-F. This annual report on Form 20-F does not include an attestation report of our independent registered public accounting firm on internal control over financial reporting because we qualified as an “emerging growth company” as defined under the Jumpstart our Business Startups Act of 2012 (as amended by the Fixing America’s Surface Transportation Act of 2015), also known as the JOBS Act, as of December 31, 2023. Once we cease to be an “emerging growth company” as such term is defined in the JOBS Act, our independent registered public accounting firm must attest to and report on the effectiveness of our internal control over financial reporting.

Our management conducted an evaluation of the effectiveness of our internal control over financial reporting and concluded that our internal control over financial reporting was effective as of December 31, 2023. See “Item 15. Controls and Procedures.” However, there is no assurance that we will not have any material weakness in the future. Failure to discover and address any control deficiencies could result in inaccuracies in our financial statements and impair our ability to comply with applicable financial reporting requirements and related regulatory filings on a timely basis. Moreover, ineffective internal control over financial reporting could significantly hinder our ability to prevent fraud. If we fail to develop or maintain an effective system of internal control over financial reporting, we could suffer material misstatements in our consolidated financial statements and fail to meet our reporting obligations, which would likely cause investors to lose confidence in our reported financial information. This could in turn limit our access to capital markets, harm our results of operations and lead to a decline in the trading price of the ADSs. Additionally, ineffective internal control over financial reporting could expose us to increased risk of fraud or misuse of corporate assets and subject us to potential delisting from the stock exchange on which we list, regulatory investigations and civil or criminal sanctions. We may also be required to restate our consolidated financial statements from prior periods.