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
OR
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2024.
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
OR
☐
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: 001-36427
Cheetah Mobile 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)
Building No. 11
Wandong Science and Technology Cultural Innovation Park
No.7 Sanjianfangnanli
Chaoyang District
Beijing 100024
People’s Republic of China
(Address of principal executive offices)
Thomas Jintao Ren
Chief Financial Officer
Cheetah Mobile Inc.
Building No. 11
Wandong Science and Technology Cultural Innovation Park
No.7 Sanjianfangnanli
Chaoyang District
Beijing 100024
People’s Republic of China
Tel: +86-10-6292-7779
Email: IR@cmcm.com
(Name, Telephone, Email 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 fifty Class A
ordinary shares
Class A ordinary shares, par value US$0.000025 per share*
CMCM
The New York Stock Exchange
* Not for trading, but only in connection with the listing on the New York Stock Exchange of American depositary shares, each representing fifty Class A ordinary
shares.
Securities registered or to be registered pursuant to Section 12(g) of the Act.
NONE
(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:
499,357,794 Class A ordinary shares and 1,016,429,335 Class B ordinary shares, par value US$0.000025 per share, as of December 31, 2024.
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 Rule405 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
“large accelerated filer,” “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.
☐
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 used to prepare the financial statements included in this filing:
US 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
i
TABLE OF CONTENTS
Page
INTRODUCTION
1
FORWARD-LOOKING STATEMENTS
2
PART I
3
Item 1.
Identity of Directors, Senior Management and Advisers
3
Item 2.
Offer Statistics and Expected Timetable
3
Item 3.
Key Information
3
Item 4.
Information on the Company
54
Item 4A.
Unresolved Staff Comments
89
Item 5.
Operating and Financial Review and Prospects
89
Item 6.
Directors, Senior Management and Employees
104
Item 7.
Major Shareholders and Related Party Transactions
111
Item 8.
Financial Information
115
Item 9.
The Offer and Listing
116
Item 10.
Additional Information
117
Item 11.
Quantitative and Qualitative Disclosures about Market Risk
123
Item 12.
Description of Securities Other than Equity Securities
123
PART II
125
Item 13.
Defaults, Dividend Arrearages and Delinquencies
125
Item 14.
Material Modifications to the Rights of Security Holders and Use of Proceeds
125
Item 15.
Controls and Procedures
125
Item 16.
[RESERVED]
126
Item 16A.
Audit Committee Financial Expert
126
Item 16B.
Code of Ethics
126
Item 16C.
Principal Accountant Fees and Services
126
Item 16D.
Exemptions from the Listing Standards for Audit Committees
126
Item 16E.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
126
Item 16F.
Change in Registrant’s Certifying Accountant
127
Item 16G.
Corporate Governance
127
Item 16H.
Mine Safety Disclosure
127
Item 16I.
Disclosure Regarding Foreign Jurisdictions That Prevent Inspections
127
Item 16J.
Insider Trading Policies
128
Item 16K.
Cybersecurity
128
PART III
129
Item 17.
Financial Statements
129
Item 18.
Financial Statements
129
Item 19.
Exhibits
129
SIGNATURES
136
1
INTRODUCTION
In this annual report, except where the context otherwise requires and for purposes of this annual report only:
•
“we,” “us,” “our company,” or “our” refers to Cheetah Mobile Inc., its subsidiaries and, in the context of describing our
operations and consolidated financial information, the consolidated variable interest entities and their subsidiaries in China,
including but not limited to Beijing Mobile, Beijing Network and Beijing Conew. References to the consolidated variable
interest entities may include their subsidiaries, depending on the context as appropriate;
•
“ADSs” refers to American depositary shares, each of which represents fifty of our Class A ordinary shares;
•
“China” or the “PRC” refers to the People’s Republic of China;
•
“Ordinary shares,” prior to the completion of our initial public offering in May 2014, refers to our ordinary shares, par
value US$0.000025 per share and, upon the completion of the offering, to our Class A and Class B ordinary shares, par
value US$0.000025 per share;
•
“RMB” or “Renminbi” refers to the legal currency of China;
•
“US$,” “U.S. dollars,” “$,” or “dollars” refers to the legal currency of the United States;
•
“¥,” “Japanese Yen” or “JPY” refers to the legal currency of Japan;
•
“Kingsoft Corporation Limited” or “Kingsoft Corporation” refers to Kingsoft Corporation Limited, a company listed on
the Hong Kong Stock Exchange (Stock Code: 3888);
•
“Hong Kong Listing Rules” refers to the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong
Limited;
•
“Overseas revenues” or “revenues from overseas markets” refers to revenues generated by our operating legal entities
incorporated outside mainland China or generated by our operating legal entities incorporated in mainland China but are
attributable to customers located outside mainland China. Such revenues are primarily attributable to customers located
outside mainland China, based on our customers’ registered addresses; and
•
“Variable interest entities” or “VIEs” refers to those entities incorporated in PRC consolidated in our financial statements
and over which our subsidiaries exercise effective control through a series of contractual arrangements.
Due to rounding, numbers presented throughout this annual report may not add up precisely to the totals provided and percentages
may not precisely reflect the absolute figures.
We present our financial results in RMB. This annual report contains translations of RMB amounts into U.S. dollars at specific
rates solely for the convenience of the reader. The conversion of RMB into U.S. dollars in this annual report is based on the exchange
rate set forth in the H.10 statistical release of the Board of Governors of the Federal Reserve System. Unless otherwise noted, all
translations from RMB to U.S. dollars and from U.S. dollars to Renminbi in this annual report were made at a rate of RMB7.2993 to
US$1.00, the exchange rate on December 31, 2024 set forth in the H.10 statistical release of The Board of Governors of the Federal
Reserve System. We make no representation that any RMB or U.S. dollar amount could have been, or could be, converted into U.S.
dollars or RMB, as the case may be, at any particular rate, or at all.
Effective September 2, 2022, we effected a change of the ratio of the ADS to our Class A ordinary shares from one ADS
representing ten Class A ordinary shares to one ADS representing fifty Class A ordinary shares. Currently, each ADS represents fifty
Class A ordinary shares. The change in the ratio of the ADS to our Class A ordinary shares had no impact on our underlying Class A
ordinary shares, and no Class A ordinary shares were issued or cancelled in connection with the change in the ratio of the ADS to our
Class A ordinary shares. Unless otherwise indicated, ADSs and per ADS amount in this annual report have been retroactively adjusted
to reflect the changes in ratio for all periods presented.
2
FORWARD-LOOKING STATEMENTS
This annual report on Form 20-F contains forward-looking statements that reflect our current expectations and views of future
events. These statements are made under the “safe harbor” provisions of the U.S. Private Securities Litigation Reform Act of 1995.
You can identify these forward-looking statements by words or phrases such as “may,” “could,” “should,” “would,” “will,” “expect,”
“anticipate,” “aim,” “estimate,” “intend,” “plan,” “believe,” “likely to,” “project,” “continue,” “potential,” or other similar
expressions. We have based these forward-looking statements largely on our current expectations and projections about future events
and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs.
These forward-looking statements include, but are not limited to, statements about:
•
our business strategies, plans and priorities, including growth strategies as well as investment and acquisition plans in China
and overseas;
•
our ability to retain and attract users, customers and business partners, and increase their spending or level of engagement
with us;
•
our ability to expand and improve our product and service offerings;
•
our ability to monetize the user traffic on our platform;
•
our future business development, results of operations and financial condition, including the seasonal trends of our results
of operations;
•
expectations regarding our user growth rate and user engagement;
•
expectations regarding demand for, and market acceptance of, our products and services;
•
expectations regarding our relationships with customers, suppliers, third-party service providers, strategic partners and other
stakeholders;
•
expected changes in our revenues and cost or expense items;
•
competition and changes in landscape in our industry;
•
relevant PRC and foreign government policies and regulations relating to our industry;
•
general economic and business condition globally and in China; and
•
assumptions underlying or related to any of the foregoing.
You should not place undue reliance on these forward-looking statements and you should read these statements in conjunction
with other sections of this annual report, in particular the risk factors disclosed in “Item 3. Key Information—D. Risk Factors.” These
statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or
achievements to be materially different from those expressed or implied by the forward-looking statements. Moreover, we operate in a
rapidly evolving environment. New risks emerge from time to time and it is impossible for our management to predict all risk factors,
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 from those contained in any forward-looking statement. 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. We do not undertake
any obligation to update or revise the forward-looking statements except as required under applicable law.
3
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 Consolidated Variable Interest Entities
Cheetah Mobile Inc. is not a Chinese operating company but a Cayman Islands holding company with no equity ownership in its
consolidated variable interest entities. We conduct our operations in China through (i) our PRC subsidiaries and (ii) the consolidated
variable interest entities and their subsidiaries, including but not limited to Beijing Mobile, Beijing Network and Beijing Conew.
PRC laws and regulations restrict and impose conditions on foreign investment in the internet industry, including the mobile
internet industry. Accordingly, we operate part of our business in China through the consolidated variable interest entities. We exercise
effective control over the consolidated variable interest entities through a series of contractual arrangements among (a) our company,
(b) certain of our PRC subsidiaries, including but not limited to, Beijing Kingsoft Internet Security Software Co., Ltd., or Beijing
Security, and Conew Network Technology (Beijing) Co., Ltd., or Conew Network, (c) the consolidated variable interest entities, and
(d) the shareholders of the consolidated variable interest entities. External revenues contributed by the consolidated variable interest
entities accounted for 31.8%, 42.9% and 35.0% of our total revenues for the years of 2022, 2023 and 2024, respectively. As used in this
annual report, “we,” “us,” “our company,” or “our” refers to Cheetah Mobile Inc., its subsidiaries and, in the context of describing our
operations and consolidated financial information, the consolidated variable interest entities and their subsidiaries in China, including
but not limited to Beijing Mobile, Beijing Network and Beijing Conew. References to the consolidated variable interest entities may
include their subsidiaries, depending on the context as appropriate.
The following diagram summarizes our corporate structure and identifies our significant subsidiaries and VIEs as of the date of
this annual report.
4
Notes:
(1) We consolidate Beijing Network through contractual arrangements among our company, Conew Network, Beijing Network,
Mr. Kun Wang, and Mr. Wei Liu. Mr. Kun Wang and Mr. Wei Liu each own 50% equity interests in Beijing Network. Mr.
Kun Wang is a former employee of our company, and Mr. Wei Liu is Director of certain subsidiaries of Kingsoft Corporation,
one of our principal shareholders.
(2) We consolidate Beijing Mobile through contractual arrangements among our company, Beijing Security, Beijing Mobile, Mr.
Sheng Fu, and Ms. Weiqin Qiu. Mr. Sheng Fu and Ms. Weiqin Qiu own 35% and 65% equity interests in Beijing Mobile,
respectively. Mr. Sheng Fu is our chief executive officer and chairman of the board of directors, and Ms. Weiqin Qiu is an
advisor of Kingsoft Corporation.
(3) We consolidate Beijing Conew through contractual arrangements among our company, Conew Network, Beijing Conew, Mr.
Sheng Fu, and Mr. Kun Wang. Mr. Sheng Fu and Mr. Kun Wang own 62.73% and 37.27% equity interests in Beijing Conew,
respectively. Mr. Sheng Fu is our chief executive officer and chairman of the board of directors, and Mr. Kun Wang is a
former employee of our company.
(4) Each of Forward Vision ("Forward Vision", formerly known as Cheetah Technology Corporation Limited), Cheetah Mobile
Calls Hong Kong Limited and Multicloud Limited has entered into deeds of nominee with the nominee shareholders of certain
of our Hong Kong operating entities which we do not control through equity ownership. These deeds of nominee provide us
with effective control over such Hong Kong entities, enable transfer of the economic benefits therein to us, and afford us the
ability to have the equity interest held by the nominee shareholders transferred to us at our discretion.
(5) Conew Network, through Gongqingcheng Orion Industrial Investment Center (Limited Partnership) ("The Fund"), indirectly
holds 1.85% equity interest of Beijing OrionStar. Conew Network is one of the limited partners of the Fund and currently
owns 49.5% interest in the Fund.
5
(6) Dream Ahead Pte. Ltd.("Dream Ahead", formerly known as Cheetah Mobile Singapore Pte. Ltd.)
Holders of our Class A ordinary shares or the ADSs hold equity interest in Cheetah Mobile Inc., our Cayman Islands holding
company, and do not have direct or indirect equity interests in the VIEs and their subsidiaries. A series of contractual agreements,
including business operation agreements, shareholder voting proxy agreements, equity pledge agreements, exclusive technology
development, support and consultancy agreements, loan agreements and exclusive option agreements, have been entered into by and
among our company, our subsidiaries, the consolidated variable interest entities and their respective shareholders. Terms contained in
each set of contractual arrangements with the consolidated variable interest entities and their respective shareholders are substantially
similar. As a result of the contractual arrangements, we have effective control over and are considered the primary beneficiary of these
companies, and we have consolidated the financial results of these companies in our consolidated financial statements. For more details
of these contractual arrangements, see “Item 4. Information on the Company—C. Organizational Structure.”
However, the contractual arrangements may not be as effective as direct ownership in providing us with control over the
consolidated variable interest entities, and we may incur substantial costs to enforce the terms of the arrangements. In addition, these
agreements have not been tested in China courts. See “Item 3. Key Information—D. Risk Factors—Risks Relating to Our Corporate
Structure—We rely on contractual arrangements with the VIEs and their shareholders for the operation of our business in China, which
may not be as effective as direct ownership.” and “Item 3. Key Information—D. Risk Factors—Risks Relating to Our Corporate
Structure—The shareholders of the VIEs may have potential conflicts of interest with us, which may materially and adversely affect our
business.”
There are also substantial uncertainties regarding the interpretation and application of current and future PRC laws, regulations
and rules regarding the status of the rights of our Cayman Islands holding company with respect to its contractual arrangements with
the consolidated variable interest entities and their shareholders. It is uncertain whether any new PRC laws or regulations relating to
variable interest entity structures will be adopted or if adopted, what they would provide. If we or any of the consolidated variable
interest entities are found to be in violation of any existing or future PRC laws or regulations, or fail to obtain or maintain any of the
required permits or approvals, the relevant PRC regulatory authorities would have broad discretion to take action in dealing with such
violations or failures. See “Item 3. Key Information—D. Risk Factors—Risks Relating to Our Corporate Structure—If the PRC
government finds that the structure we have adopted for our business operations does not comply with PRC governmental restrictions
on foreign investment in internet businesses, or if these laws or regulations or interpretations of existing laws or regulations change in
the future, we could be subject to severe penalties, including the shutting down of our platform and our business operations” and “—
Substantial uncertainties exist with respect to the interpretation and implementation of PRC Foreign Investment Law and how it may
impact the viability of our current corporate structure, corporate governance and business operations.”
Our corporate structure is subject to risks associated with our contractual arrangements with the consolidated variable interest
entities. If the PRC government deems that our contractual arrangements with the consolidated variable interest entities do not comply
with PRC regulatory restrictions 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 holding company, our PRC subsidiaries and consolidated variable interest entities, and investors of
our company face uncertainty about potential future actions by the PRC government that could affect the enforceability of the contractual
arrangements with the consolidated variable interest entities and, consequently, significantly affect the financial performance of the
consolidated variable interest entities and our company as a whole. For a detailed description of the risks associated with our corporate
structure, please refer to risks disclosed under “Item 3. Key Information—D. Risk Factors—Risks Relating to Our Corporate Structure.”
Risks and Uncertainties Related to Doing Business in China
We face various risks and uncertainties related to doing business in China. Our business operations are primarily conducted in
China, and we are subject to complex and evolving PRC laws and regulations. For example, we face risks associated with regulatory
approvals on offshore offerings, oversight on cybersecurity and data privacy, which may impact our ability to conduct certain businesses,
accept foreign investments, or list on a United States or other foreign 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. For a detailed description of Risks Relating to Doing Business in China,
please refer to risks disclosed under “Item 3.D. Key Information—Risk Factors—Risks Relating to Doing Business in China.”
PRC 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, including data security or anti-monopoly related
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 Relating to Doing Business in China—Failure to meet the PRC government’s complex regulatory
requirements on our business operation could have a material adverse effect on our operations and the value of our ADSs.”
6
Risks and uncertainties arising from the legal system in China, including risks and uncertainties regarding the enforcement of laws
and quickly evolving rules and regulations in 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 Relating to Doing Business in China—Uncertainties
in the interpretation and enforcement of Chinese laws and regulations could limit the legal protections available to you and us.” and
“We may be adversely affected by the complexity of, and uncertainties and changes in, PRC regulation on mobile and PC internet
businesses and companies.”
Our business requires us to collect, store and process certain personal data relating to our customers. In recent years, the PRC
regulators have tightened the regulations of the collection, storage, use, processing, transmission, provision, disclosure and deletion of
personal information and data. Privacy, data protection and cybersecurity concerns and domestic or foreign laws and regulation may
reduce the effectives of our business operating, and may result in significant costs and compliance challenges, and adversely affect our
business.
On February 17, 2023, the CSRC released the Trial Administrative Measures of Overseas Securities Offering and Listing by
Domestic Companies (the “Trial Measures") and five supporting guidelines, which came into effect on March 31, 2023. Pursuant to the
Trial Measures, Domestic Enterprises (as defined in the Trial Measures) that seek to offer and list securities overseas, directly or
indirectly, should fulfill the filing procedure and report relevant information to the CSRC. In addition, according to the Trial Measures,
any future issuance or offering after our listing may also be subject to filing or report procedures of the CSRC and we are also required
to report certain material matters to the CSRC after our listing. Any failure to perform such filing or rеporting procedures would subject
us to administrative penalties by the CSRC which could harm our reputation and may adversely affect our results of operations or
financial condition.
Furthermore, on February 24, 2023, the CSRC released the Provisions on Strengthening the Confidentiality and Archives
Administration Related to the Overseas Securities Offering and Listing by Domestic Enterprises (the “Confidentiality Provisions"),
which also came into effect on March 31, 2023. Pursuant to the Confidentiality Provisions, any future inspection or investigation
conducted by overseas securities regulators or the relevant competent authorities on our PRC domestic companies with respect to our
overseas issuance and offering shall be carried out in a manner that is in compliance with PRC laws and regulations.
For more details, see “Item 3. Key Information—D. Risk Factors—Risks Relating to Our Business and Industry—Actual or
alleged failure to comply with laws and regulations on cybersecurity and data protection could damage our reputation, discourage current
and potential users from using our products and services applications and subject us to damages, administrative penalties and criminal
liabilities, which could have material adverse effects on our business and results of operation.”
The Holding Foreign Companies Accountable Act
Trading in our securities on U.S. markets, including the OTC market, may be prohibited under the Holding Foreign Companies
Accountable Act, or the HFCAA, if the Public Company Accounting Oversight Board, or the PCAOB, determines that it is unable to
inspect or investigate completely our auditor for two consecutive years. On December 16, 2021, the PCAOB issued a report to notify
the SEC of its determination that the PCAOB is unable to inspect or investigate completely registered public accounting firms
headquartered in mainland China and Hong Kong, or the 2021 Determinations. As of the date of this annual report, our auditor is not
included in the 2021 Determinations.
7
On December 15, 2022, the PCAOB determined that it was able to secure complete access to inspect and investigate registered
public accounting firms headquartered in mainland China and Hong Kong in 2022 and vacated the 2021 Determinations accordingly.
As a result, we do not expect to be identified as a “Commission-Identified Issuer” under the HFCAA.
However, whether the PCAOB will continue to conduct inspections and investigations completely to its satisfaction of PCAOB-
registered public accounting firms headquartered in mainland China and Hong Kong is subject to uncertainty and depends on a number
of factors out of our, and our auditor’s, control, including positions taken by authorities of the PRC. The PCAOB is expected to continue
to demand complete access to inspections and investigations against accounting firms headquartered in mainland China and Hong Kong
in the future and states that it has already made plans to resume regular inspections in early 2023 and beyond. The PCAOB is required
under the HFCAA to make its determination on an annual basis with regards to its ability to inspect and investigate completely
accounting firms based in mainland China and Hong Kong. The possibility of being a “Commission-Identified Issuer” and risk of
delisting could continue to adversely affect the trading price of our securities. Should the PCAOB again encounter impediments to
inspections and investigations in mainland China or Hong Kong as a result of positions taken by any authority in either jurisdiction, the
PCAOB will make determinations under the HFCAA as and when appropriate then such lack of inspection could cause our securities
to be delisted from the stock exchange. For more details, see “Item 3. Key Information—D. Risk Factors—Risks Relating to Doing
Business in China—The ADSs may be prohibited from trading in the United States under the HFCAA if the PCAOB is unable to inspect
or fully investigate our auditor. The delisting of the ADSs, or the threat of their being delisted, may materially and adversely affect the
value of your investment.”
Permissions Required from the PRC Authorities for Our Operations
We conduct our business primarily through our subsidiaries and consolidated variable interest entities in China. Our operations in
China are governed by PRC laws and regulations. As of the date of this annual report, our PRC subsidiaries and consolidated variable
interest entities have obtained the requisite licenses and permits from the PRC government authorities that are material for the business
operations of our holding company and the consolidated variable interest entities in China, including, among others, Internet Content
Provider Licenses, or ICP Licenses, for the provision of internet information services, a license for value-added telecommunications
services with the specification of online data processing and transaction processing business, or EDI license, Business License of Value-
Added Telecommunications Services, or SP license, and Network Security Products security certification for our mobile and PC security
applications, the Network Culture Business License for network culture business, and got Algorithm Filing for in-country deep synthesis
services (service technology supporter). Given the uncertainties of interpretation and implementation of relevant laws and regulations
and the enforcement practice by relevant government authorities, we may be required to obtain additional licenses, permits, filings or
approvals for the functions and services of our platform in the future. Any lack of, or failure to keep, requisite licenses, permits, filings
or approvals to our business operations, may harm our business. For more detailed information, see “Item 3. Key Information—D. Risk
Factors—Risks Relating to Doing Business in China—We may be adversely affected by the complexity of, and uncertainties and
changes in, PRC regulation on mobile and PC internet businesses and companies.”
Furthermore, in connection with our issuance of securities to foreign investors, under current PRC laws, regulations and regulatory
rules, the domestic companies that have already been listed overseas on or before the effective date of the Overseas Listing Trial
Measures shall be deemed as the existing issuers (“Existing Issuers”). Existing Issuers are not required to complete the filling procedures
immediately, but they should file with the CSRC when subsequent corporate actions such as refinancing are involved. From our
perspective, we shall be deemed as an Existing Issuer based on the foregoing.
As of the date of this annual report, we are not involved in aforementioned refinancing, our PRC subsidiaries and the consolidated
variable interest entities, (i) are not required to obtain permissions from the China Securities Regulatory Commission, or the CSRC, (ii)
have not received any formal notice from any cybersecurity regulator that we should apply for a cybersecurity review, and (iii) have not
received or were denied such requisite permissions by any PRC authority.
The PRC government has recently exerted more oversight and control over offerings that are conducted overseas and/or foreign
investment in China-based issuers. For more detailed information, see “Item 3. Key Information—D. Risk Factors—Risks Relating to
Doing Business in China—The approval of and filing with the CSRC or other PRC government authorities may be required in connection
with our future offshore offerings under PRC law, and, if required, we cannot predict whether or for how long we will be able to obtain
such approval or complete such filing.”
Cash and Asset Flows through Our Organization
Cheetah Mobile Inc. is a holding company with no material operations of its own. We conduct our operations primarily through
our PRC subsidiaries, the VIEs and their subsidiaries in China. As a result, Cheetah Mobile Inc.’s ability to pay dividends depends upon
8
dividends paid by our PRC subsidiaries. If our existing PRC subsidiaries or any newly formed ones incur debt on their own behalf in
the future, the instruments governing their debt may restrict their ability to pay dividends to us. In addition, our wholly foreign-owned
subsidiaries in China are permitted to pay dividends to us only out of its retained earnings, if any, as determined in accordance with
PRC accounting standards and regulations. Under PRC law, each of our subsidiaries and the VIEs in China is 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. For more details, see “Item 5. Operating and Financial
Review and Prospects—Liquidity and Capital Resources—Holding Company Structure.” and “Item 3. Key Information—Risk
Factors—Risks Relating to Doing Business in China—We may rely on dividends paid by our subsidiaries, including PRC subsidiaries,
to fund any cash and financing requirements we may have. Any limitation on the ability of our subsidiaries 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.”
Under PRC laws and regulations, our PRC subsidiaries and consolidated variable interest entities 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. The amounts restricted include the paid-up capital and the statutory reserve funds of our PRC subsidiaries and the net assets of
the consolidated variable interest entities in which we have no legal ownership, totaling RMB201.7 million, RMB200.6 million and
RMB464.4 million (US$63.6 million) as of December 31, 2022, 2023 and 2024, respectively. For details, see “Item 3. Key
Information—Risk Factors—Risks Relating to Doing Business in China—PRC regulation of loans to, and direct investment in, PRC
entities by offshore holding companies and governmental control of currency conversion may restrict or prevent us from loans to our
PRC entities or to make additional capital contributions to our PRC subsidiaries, which may materially and adversely affect our liquidity
and our ability to fund and expand our business.”
For the years ended December 31, 2022, 2023 and 2024, certain of our PRC subsidiaries have declared dividends to our Hong
Kong subsidiaries for an aggregate amount of nil, RMB10.2 million and RMB19.8 million (US$2.7 million) ; the dividend payments
are subject to withholding tax. We have made tax provisions based on the corresponding tax rate. If our PRC subsidiaries further declare
and distribute profits earned after January 1, 2008 in the future, the dividend payments will be subject to withholding tax, which will
increase our tax liability and reduce the amount of cash available to our company. For the potential distributable profits to be distributed
to our qualified Hong Kong incorporated subsidiary, the deferred tax liabilities are accrued at a 5% withholding tax rate. Cheetah Mobile
Inc. transfers cash to its wholly-owned Hong Kong and Singapore subsidiaries, by making capital contributions or providing loans, and
the Hong Kong or Singapore subsidiaries transfer cash to the subsidiaries in China by making capital contributions, providing loans or
by making payment for inter-group transactions. Because Cheetah Mobile Inc. and its subsidiaries have contractual arrangements with
the VIEs instead of equity ownership, they are not able to make direct capital contribution to the VIEs and their subsidiaries. However,
they may transfer cash to the VIEs by loans or by making payment to the VIEs for inter-group transactions.
For the years ended December 31, 2022, 2023 and 2024, Cheetah Mobile Inc. through its intermediate holding companies provided
capital contribution and loans with principal amount of RMB92.3 million, RMB109.9 million and RMB260.3 million (US$35.7 million),
respectively, to its subsidiaries in China, and the subsidiaries repaid prior years loans amount to nil, RMB397.7 million and RMB74.6
million (US$10.2 million) for the years ended December 31, 2022, 2023 and 2024. For the years ended December 31, 2022, 2023 and
2024, our PRC subsidiaries provide technical support, marketing and operating services to our overseas subsidiaries, total amounts paid
for such services by our overseas subsidiaries to our PRC subsidiaries were RMB9.5 million, RMB35.0 million and RMB0.5 million
(US$0.1 million). For the years ended December 31, 2022, 2023 and 2024, our overseas subsidiaries provide promotion service to our
PRC subsidiaries, total amount paid for such services by our PRC subsidiaries to our overseas subsidiaries were nil, RMB13.9 million
and nil.
For the years ended December 31, 2022, 2023 and 2024, our consolidated VIEs received debt financing of RMB128.4 million,
RMB33.6 million and RMB78.7 million (US$10.8 million) from Cayman and subsidiaries, respectively, and the VIEs repaid the
principal amount of RMB139.9 million, RMB16.3 million and RMB44.0 million (US$6.0 million), respectively to the related
subsidiaries. In 2023 and 2024, our subsidiaries received debt financing of RMB87.0 million and RMB46.2 million (US$6.3 million)
from our certain consolidated VIEs, RMB47.0 million and nil was repaid, respectively.
The VIEs may transfer cash to the relevant subsidiaries by paying service fees related to technical support, backoffice support,
marketing and sales agency services. For the years ended December 31, 2022, 2023 and 2024, the total amount of service fees that VIEs
paid to the relevant subsidiaries related to such services was RMB154.7 million, RMB363.0 million and RMB124.9 million (US$17.1
million), respectively. The VIEs also provide cloud and promotion services to our subsidiaries, the total amount received from the
relevant subsidiaries related to such services was RMB57.6 million, RMB75.8 million and RMB78.9 million (US$10.8 million),
respectively for the years ended December 31, 2022, 2023 and 2024.
9
For the years ended December 31, 2022, 2023 and 2024, no material assets other than the above cash transactions were transferred
between our subsidiaries and the consolidated variable interest entities.
We currently intend to retain most, if not all, of our available funds and any future earnings to fund the development and growth
of our business and currently don’t have any present plan to pay any cash dividends on its ordinary shares in the foreseeable future. See
“Item 8. Financial Information—A. Consolidated Statements and Other Financial Information—Dividend Policy.” For the material
Cayman Islands, PRC and U.S. federal income tax consequences of an investment in our ADSs or ordinary shares, see “Item 10.
Additional Information—E. Taxation.”
Financial Information Related to The Consolidated Variable Interest Entities
The following table presents the condensed consolidating schedule of financial information of Cheetah Mobile Inc., its wholly
foreign-owned entities, or WFOEs, its other subsidiaries, and its consolidated variable interest entities and other entities as of the dates
presented.
Selected Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) Data
For the Year Ended December 31, 2024
Cheetah
Mobile
Inc.
WFOEs
Other
Subsidiaries
VIEs and
Their
Subsidiaries
Eliminations
Consolidated
Total
(RMB, in thousands)
Revenues
—
56,866
731,888
344,094
(325,971)
806,877
Service fee revenue from VIEs and their subsidiaries
—
12,897
183,501
—
(196,398)
—
Service fee expenses charged by WFOEs and their
subsidiaries
—
—
—
(196,398)
196,398
—
Share of loss from WFOEs and other subsidiaries
(559,817)
—
—
—
559,817
—
Share of income from VIEs and their subsidiaries
32,813
33,292
—
—
(66,105)
—
Net (loss) income
(617,557)
(100,797)
(398,095)
33,378
481,485
(601,586)
For the Year Ended December 31, 2023
Cheetah
Mobile
Inc.
WFOEs
Other
Subsidiaries
VIEs and
Their
Subsidiaries
Eliminations
Consolidated
Total
(RMB, in thousands)
Revenues
—
56,465
576,693
348,433
(312,088)
669,503
Service fee revenue from VIEs and their subsidiaries
—
23,172
180,306
—
(203,478)
—
Service fee expenses charged by WFOEs and their
subsidiaries
—
—
—
(203,478)
203,478
—
Share of (loss) income from WFOEs and other
subsidiaries
(228,413)
—
—
—
228,413
—
Share of income (loss) from VIEs and their
subsidiaries
(65,504)
(61,482)
—
—
126,986
—
Net (loss) income
(602,898)
(106,062)
(84,599)
(64,999)
264,689
(593,869)
For the Year Ended December 31, 2022
Cheetah
Mobile
Inc.
WFOEs
Other
Subsidiaries
VIEs and
Their
Subsidiaries
Eliminations
Consolidated
Total
(RMB, in thousands)
Revenues
—
80,522
834,233
344,288
(374,977)
884,066
Service fee revenue from VIEs and their subsidiaries
—
24,180
191,165
—
(215,345)
—
Service fee expenses charged by WFOEs and their
subsidiaries
—
—
—
(215,345)
215,345
—
Share of (loss) income from WFOEs and other
subsidiaries
(475,119)
—
—
—
475,119
—
Share of (loss) income from VIEs and their
subsidiaries
3,409
3,820
—
—
(7,229)
—
Net (loss) income
(513,475)
(99,032)
(387,372)
3,792
475,396
(520,691)
10
Selected Condensed Consolidated Balance Sheets Data
As of December 31, 2024
Cheetah
Mobile Inc.
WFOEs
Other
Subsidiaries
VIEs and
Their
Subsidiaries
Eliminations
Consolidated
Total
(RMB, in thousands)
Cash and cash equivalents
156,153
59,278
1,345,574
272,026
—
1,833,031
Short-term investments
—
—
335
—
—
335
Due from related parties, net
—
653
65,620
40,661
—
106,934
Others
2,442
20,323
1,670,682
145,933
—
1,839,380
Total current assets
158,595
80,254
3,082,211
458,620
—
3,779,680
Investments in subsidiaries
—
—
—
—
—
—
Contractual interests in VIEs and their subsidiaries
57,067
—
—
—
(57,067)
—
Others
75,831
21,898
1,230,600
396,292
—
1,724,621
Total non-current assets
132,898
21,898
1,230,600
396,292
(57,067)
1,724,621
Amount due from Cheetah Mobile Inc.
—
187
531,064
—
(531,251)
—
Amount due from WFOEs
2,066
—
851,173
112,953
(966,192)
—
Amount due from other subsidiaries
2,692,216
868,872
—
873,502 (4,434,590)
—
Amount due from VIEs and their subsidiaries
—
351,278
1,077,461
— (1,428,739)
—
Amount due from Group companies
2,694,282
1,220,337
2,459,698
986,455 (7,360,772)
—
Total assets
2,985,775
1,322,489
6,772,509
1,841,367 (7,417,839)
5,504,301
Due to related parties
—
178
60,503
8,925
—
69,606
Investment deficit in subsidiaries
325,009
—
—
—
(325,009)
—
Others
24,348
47,427
2,578,527
361,873
—
3,012,175
Total current liabilities
349,357
47,605
2,639,030
370,798
(325,009)
3,081,781
Total non-current liabilities
145,660
4,108
64,038
1,588
—
215,394
Amount due to Cheetah Mobile Inc.
—
1,916
2,633,448
— (2,635,364)
—
Amount due to WFOEs
337
—
847,963
311,345 (1,159,645)
—
Amount due to other subsidiaries
589,823
876,293
—
1,096,026 (2,562,142)
—
Amount due to VIEs and their subsidiaries
—
152,885
850,736
— (1,003,621)
—
Amount due to Group companies
590,160
1,031,094
4,332,147
1,407,371 (7,360,772)
—
Total liabilities
1,085,177
1,082,807
7,035,215
1,779,757 (7,685,781)
3,297,175
11
Selected Condensed Consolidated Balance Sheets Data (Continued)
As of December 31, 2023
Cheetah
Mobile Inc.
WFOEs
Other
Subsidiaries
VIEs and
Their
Subsidiaries
Eliminations
Consolidated
Total
(RMB, in thousands)
Cash and cash equivalents
202,028
29,008
1,612,444
176,711
—
2,020,191
Short-term investments
—
—
1,023
—
—
1,023
Due from related parties, net
—
4,175
60,797
6,533
—
71,505
Others
2,715
9,130
1,303,499
58,847
—
1,374,191
Total current assets
204,743
42,313
2,977,763
242,091
—
3,466,910
Investments in subsidiaries
251,747
—
—
—
(251,747)
—
Contractual interests in VIEs and their subsidiaries
2,232
—
—
—
(2,232)
—
Others
152,355
101,155
1,638,905
273,859
—
2,166,274
Total non-current assets
406,334
101,155
1,638,905
273,859
(253,979)
2,166,274
Amount due from Cheetah Mobile Inc.
—
187
523,349
—
(523,536)
—
Amount due from WFOEs
2,036
—
693,332
86,754
(782,122)
—
Amount due from other subsidiaries
2,602,611
826,259
—
801,296 (4,230,166)
—
Amount due from VIEs and their subsidiaries
—
342,086
774,265
— (1,116,351)
—
Amount due from Group companies
2,604,647
1,168,532
1,990,946
888,050 (6,652,175)
—
Total assets
3,215,724
1,312,000
6,607,614
1,404,000 (6,906,154)
5,633,184
Due to related parties
—
240
76,073
7,834
—
84,147
Others
27,052
47,816
2,329,229
239,901
—
2,643,998
Total current liabilities
27,052
48,056
2,405,302
247,735
—
2,728,145
Total non-current liabilities
151,272
6,803
83,571
2,837
—
244,483
Amount due to Cheetah Mobile Inc.
—
1,916
2,544,735
— (2,546,651)
—
Amount due to WFOEs
312
—
800,118
302,086 (1,102,516)
—
Amount due to other subsidiaries
581,217
719,740
—
845,132 (2,146,089)
—
Amount due to VIEs and their subsidiaries
—
126,753
730,166
—
(856,919)
—
Amount due to Group companies
581,529
848,409
4,075,019
1,147,218 (6,652,175)
—
Total liabilities
759,853
903,268
6,563,892
1,397,790 (6,652,175)
2,972,628
12
Selected Condensed Consolidated Cash Flows Data
For the Year Ended December 31, 2024
Cheetah
Mobile
Inc.
WFOEs
Other
Subsidiaries
VIEs and
Their
Subsidiaries
Eliminations
Consolidated
Total
(RMB, in thousands)
Net cash (used in)/provided by operating activities
(12,681)
(95,399)
(266,531)
136,288
—
(238,323)
Net cash used in investing activities
(35,746)
(4,397)
(163,914)
(75,602)
245,569
(34,090)
Net cash provided by financing activities
—
130,066
150,475
34,141
(245,569)
69,113
For the Year Ended December 31, 2023
Cheetah
Mobile
Inc.
WFOEs
Other
Subsidiaries
VIEs and
Their
Subsidiaries
Eliminations
Consolidated
Total
(RMB, in thousands)
Net cash (used in)/provided by operating activities
(12,315)
(11,949)
606,501
(31,775)
—
550,462
Net cash provided by/(used in) investing activities
82,830
7,946
(432,969)
8,765
284,367
(49,061)
Net cash (used in) / provided by financing activities
(2,503)
12,423
289,892
(22,223)
(284,367)
(6,778)
For the Year Ended December 31, 2022
Cheetah
Mobile
Inc.
WFOEs
Other
Subsidiaries
VIEs and
Their
Subsidiaries
Eliminations
Consolidated
Total
(RMB, in thousands)
Net cash (used in)/provided by operating activities
(26,054)
(27,339)
(525,259)
154,403
—
(424,249)
Net cash provided by/(used in) investing activities
137,160
3,080
(23,696)
(98,598)
171,106
189,052
Net cash provided by/(used in) financing activities
—
36,912
867
128,461
(171,106)
(4,866)
A.
Reserved
B.
Capitalization and Indebtedness
Not applicable.
C.
Reasons for the Offer and Use of Proceeds
Not applicable.
D.
Risk Factors
Summary of Risk Factors
An investment in our ADSs or ordinary shares involves significant risks. The following list summarizes some, but not all, of these
risks. All the operational risks associated with being based in and having operations in mainland China as discussed in relevant risk
factors under “Item 3. Key Information—D. Risk Factors—Risks Relating to Our Business and Industry” also apply to operations in
Hong Kong. With respect to the legal risks associated with being based in and having operations in mainland China as discussed in
relevant risk factors under “Item 3. Key Information—D. Risk Factors—Risks Relating to Our Corporate Structure” and “Item 3. Key
Information—D. Risk Factors—Risks Relating to Doing Business in China,” the laws, regulations and the discretion of mainland China
governmental authorities discussed in this annual report are expected to apply to mainland China entities and businesses, rather than
entities or businesses in Hong Kong which operate under a different set of laws from mainland China. These risks are discussed more
fully in this Item 3. Key Information—D. Risk Factors.
Risks Relating to Our Business and Industry
•
Our internet products users decreased in the past years, while we have observed marginal user growth in recent periods, this
recovery remains highly uncertain and subject to volatility and may continue to decrease in the future, which would materially
and adversely affect our business, financial condition and results of operations would be materially and adversely affected.
13
•
If our products and services, including our service robots, our AI-powered business applications, our advertising agency
services and multi-cloud management services, fail to offer a good experience and meet customer expectations, our business,
results of operations and reputation would be materially and adversely affected.
•
If our expansion into new businesses is not successful, our results of operations and growth prospects may be materially and
adversely affected.
•
Because a limited number of customers contribute to a significant portion of our revenues, our revenues and results of
operations could be materially and adversely affected if we were to lose a significant customer or a significant portion of its
business.
•
We are subject to risks and uncertainties faced by companies in a rapidly evolving industry.
•
If we fail to compete effectively, our business, financial condition and results of operations may be materially and adversely
affected.
•
We have certain operations in international markets. If we fail to meet the challenges presented by our overseas operations,
our business, financial conditions and results of operations may be adversely affected.
•
If users do not widely adopt versions of our applications developed for various mobile devices, our business could be
adversely affected.
•
If major mobile application distribution channels change their standard terms and conditions in a manner that is detrimental
to us, or terminate their existing relationship with us or our partners, our business, financial condition and results of operations
may be materially and adversely affected.
Risks Relating to Our Corporate Structure
•
If the PRC government finds that the structure we have adopted for our business operations does not comply with PRC
governmental restrictions on foreign investment in internet businesses, or if these laws or regulations or interpretations of
existing laws or regulations change in the future, we could be subject to severe penalties, including the shutting down of our
platform and our business operations.
•
We rely on contractual arrangements with the VIEs and their shareholders for the operation of our business in China, which
may not be as effective as direct ownership.
Risks Relating to Doing Business in China
•
Uncertainties in the interpretation and enforcement of Chinese laws and regulations could limit the legal protections available
to you and us.
•
Failure to meet the PRC government’s complex regulatory requirements on our business operation could have a material
adverse effect on our operations and the value of our ADSs.
•
The approval of and filing with the CSRC or other PRC government authorities may be required in connection with our future
offshore offerings under PRC law, and, if required, we cannot predict whether or for how long we will be able to obtain such
approval or complete such filing.
•
A severe or prolonged downturn in the global economy could materially and adversely affect our business and financial
condition.
•
We may be adversely affected by the complexity of, and uncertainties and changes in, PRC regulation of internet and artificial
intelligence businesses and companies.
•
Content posted or displayed on our mobile and PC platforms and applications such as duba.com, including advertisements,
may be found objectionable by PRC regulatory authorities and may subject us to penalties and other severe consequences.
•
You may experience difficulties in effecting service of legal process, enforcing foreign judgments or bringing actions in China
against us or our management named in this annual report based on foreign laws.
Risks Relating to the ADSs
•
The trading price of our ADSs has been volatile and may continue to be volatile regardless of our operating performance.
14
•
Our ADSs may be delisted from the New York Stock Exchange as a result of our failure of meeting the New York Stock
Exchange continued listing requirements.
Risks Relating to Our Business and Industry
Our internet products users decreased in the past years, while we have observed marginal user growth in recent periods, this recovery
remains highly uncertain and subject to volatility and may continue to decrease in the future, which would materially and adversely
affect our business, financial condition and results of operations would be materially and adversely affected.
The size of our user base and our users’ level of engagement are critical to our success. Our business and financial performance
have been and will continue to be significantly determined by our success in retaining and engaging active users. We have been
consistently anticipating user demand and developing innovative products and services to attract and retain users. However, the internet
industry, including the mobile internet industry, is characterized by constant and rapid technological changes. As a result, users may
switch from one set of products to others more quickly than in other sectors. Our success will become increasingly dependent on our
ability to increase levels of user engagement and monetization in our key markets. Our user engagement could be adversely affected if:
•
we fail to maintain the popularity of our existing products for users;
•
we are unsuccessful in launching new and popular applications in a cost-effective manner to further diversify our product
offerings and increase user engagement;
•
technical or other problems prevent us from delivering our products or services in a rapid and reliable manner or otherwise
affect user experience;
•
strategic investments or acquisitions that we make to diversify or improve our products or services offerings fail to generate
the favorable results or synergies that we anticipate;
•
there are user concerns related to privacy, safety, security or other factors;
•
our competitors may launch or develop products and services similar to ours, which may result in a loss of existing users
or reduced growth in new users;
•
products adopting new technologies displace our products;
•
there are adverse changes in our products or services that are mandated by, or that we elect to make to address, legislation,
regulatory authorities or litigation, including settlements or consent decrees;
•
there are regulatory enforcement actions or negative publicity for actual or perceived defects of our products and services;
•
we fail to provide adequate customer service to users;
•
we do not maintain our brand image, or our reputation is damaged; or
•
any other unexpected events or changes disrupt our operations in China or elsewhere.
We have experienced a decline in users and monthly active users of certain of our products and services in recent years, while we
have observed marginal user growth in recent periods, this recovery remains highly uncertain and subject to volatility. Multiple factors
may have contributed to the decline, including pressures such as increased competition, changes in consumer preferences and spending,
and persistent challenges in maintaining user engagement. If these unfavorable trends fail to show sustained improvement or worsen,
they could have a material adverse impact on our results of operations and financial condition. Lower user and active user metrics can
directly translate to decreased revenues and profits, while also indicate deeper challenges in continuing to attract new users or maintain
our relevance in the marketplace amid shifting consumer demands. However, there can be no guarantee that our efforts to reverse the
declines in users and active users will succeed and any prolonged attrition could materially harm our results of operations, financial
performance and growth prospects. Furthermore, if any major distribution channel changes their standard terms and conditions in a
manner that is detrimental to us, or terminate their existing relationship with us, our business, financial condition and results of operations
may be materially and adversely affected.
We received in the past and may continue to receive, complaints from users regarding our mobile applications primarily regarding
privacy settings and certain third-party website promotion activities on our mobile applications. While we did not incur any material
costs to address the complaints, we may need to incur substantial expenditures in the future. If we are unable to address user complaints
timely or at all, our reputation may be harmed, and our user base may continue to decline. Our efforts to avoid or address any of these
events could require us to incur substantial expenditures to modify or adapt our products, services or infrastructure. If we fail to retain
our user base, or if our users decrease their engagement with our products, our business, financial condition and results of operations
would be materially and adversely affected.
15
If our products and services, including our service robots, our AI-powered business applications, our advertising agency services
and multi-cloud management services, fail to offer a good experience and meet customer expectations, our business, results of
operations and reputation would be materially and adversely affected.
A key part of our business strategy depends on our ability to provide high-quality products and services, including our service
robots, AI-powered business applications, advertising agency services and multi-cloud management services. Any actual or perceived
reduction in the quality or performance of our offerings could damage our reputation and result in customer dissatisfaction. Our products
and services may contain undetected errors, defects or vulnerabilities, especially when first introduced or when new models or versions
are released. If our products do not perform in line with customer expectations, it could negatively impact our brand affinity and customer
loyalty. We may also experience quality control issues as we scale our operations, expand our product and service offerings, and integrate
new technologies. If we are unable to provide consistent and high-quality customer service, respond quickly to technical issues, or satisfy
customer demands in a timely manner, we may lose customers and damage our brand image and reputation. Failure to maintain high-
quality customer service and technical support could materially and adversely affect our results of operations and prospects.
Additionally, any negative publicity related to our products and services, regardless of its accuracy, could further damage our business,
brand image and reputation. Social media amplification of any actual or perceived issues with our offerings could rapidly and
significantly harm our business and financial performance. If we are unable to continue offering high-quality, innovative and
differentiated products and services that meet or exceed customer expectations, our competitive position, results of operations and
financial condition could be materially and adversely impacted.
If our expansion into new businesses is not successful, our results of operations and growth prospects may be materially and
adversely affected
As part of our strategic evolution, we are expanding our offerings to increasingly serve the needs of corporate customers with the
application of cutting-edge technologies. This expansion includes the introduction and development of, among others, service robots
and AI-powered business applications. This strategic pivot is aimed at diversifying our revenue streams and capturing new market
opportunities within the corporate sector.
While we believe this expansion aligns with long-term market trends and positions us to capitalize on the growing demand for
corporate digital transformation solutions, it involves inherent risks and uncertainties. The successful execution of this strategy is
contingent upon several factors, including but not limited to our ability to:
•
develop or acquire new technologies and services that are competitive and meet the needs of corporate customers;
•
scale our infrastructure and capabilities to support the delivery of these new services;
•
navigate the complex and evolving regulatory environment that governs corporate data management and privacy;
•
attract, retain, and effectively integrate new talent specialized in these emerging areas; and
•
establish and maintain strong relationships with corporate customers, including through effective sales and marketing
strategies.
The expansion into new businesses requires substantial investment in research and development, marketing, and personnel. These
investments are subject to the risk that they will not result in the successful development and commercialization of viable products and
services, or that they will not be recovered through profitable operations.
If we are unable to successfully execute our expansion strategy or if our new business initiatives do not gain the market acceptance
we anticipate, our results of operations and growth prospects could be materially and adversely affected. An unsuccessful expansion
could result in significant unrecovered investments and may divert resources and focus from our traditional business operations.
Furthermore, failure to achieve expected returns on our investments in new business segments could negatively impact our financial
condition and operating results.
Our expansion into service robots and AI-powered business applications represents a significant transformation in our business
model. While we believe these attempts will create new development opportunities for our future success, our ability to achieve the pre-
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determined strategic objectives is subject to inherent risks. If our expansion fails to deliver the operating results we anticipate, our
business, results of operations, and financial position could be materially and adversely affected.
Because a limited number of customers contribute to a significant portion of our revenues, our revenues and results of operations
could be materially and adversely affected if we were to lose a significant customer or a significant portion of its business.
Currently, a limited number of customers contribute a significant portion of our revenues. Our customers primarily comprise
mobile advertising networks and partners, e-commerce companies, mobile application developers and mobile game developers, as well
as individual customers, to which we refer traffic, sell advertisements, provide network security and technical services. In 2022, 2023
and 2024, our five largest customers in aggregate contributed approximately 46.3%, 29.2% and 30.3% of our revenues, respectively.
We expect that a limited number of our customers will continue to contribute a significant portion of our revenues in the near future. If
we lose any of these customers, or if revenues generated from a significant customer are substantially reduced due to, for example,
increased competition, a significant change in the customer’s business policy or operation, suspected breach or violation to the
underlying contract or policy, any deterioration in customer relationship, or significant delays in payments for our services, our business,
financial condition and results of operations may be materially and adversely affected.
We are subject to risks and uncertainties faced by companies in a rapidly evolving industry.
We operate in the rapidly evolving internet and artificial intelligence industry, which makes it difficult to predict our future results
of operations. Accordingly, our future prospects are subject to the risks and uncertainties experienced by companies in the evolving
industry. Some of these risks and uncertainties relate to our ability to, among others:
•
successfully implement our plan to further develop and monetize our internet platform;
•
offer new, innovative products and services and enhance our existing products and services with innovative and advanced
technology to attract and retain a larger user base;
•
retain existing customers, attract additional customers and restore collaborations with lost customers, and increase
spending per customer;
•
conduct effective and efficient sales and marketing to support our business expansion, particularly our development and
promotion of new product and service offerings;
•
maintain our relationships with important suppliers, such as bandwidth suppliers and material suppliers, on favorable
terms;
•
respond to evolving user preferences and industry changes;
•
respond to competitive market conditions;
•
upgrade our technology to support traffic, product and service offerings;
•
maintain effective control of our costs and expenses;
•
respond to changes in the regulatory environment and manage legal risks, including those associated with intellectual
property rights;
•
enhance our capabilities to operate and compete in a global market in the face of increasing geopolitical tensions and anti-
multilateralism; and
•
execute our strategic investments and acquisitions and post-acquisition integrations effectively.
If we fail to address any of the above risks and uncertainties, our business may be materially and adversely affected. Meanwhile,
in the dynamic landscape of today’s market, venturing into new business or strengthening our existing business lines, such as service
robots and AI-powered business applications, presents us with a complex array of risks and uncertainties that are integral to competing
in rapidly evolving industries. The necessity for continuous research and development to sustain a competitive edge, coupled with the
financial strain of capital investments, may significantly impact our profitability and operational capacity. Expanding into new
geographic markets brings additional challenges, including navigating complex regulatory environments, cultural nuances, and political
instability, which could hinder our expansion efforts. Ethical and societal considerations surround AI and service robots add layers of
operational challenges. These factors collectively pose substantial risks and uncertainties for our business operations, revenue growth,
and financial condition, as we continue to compete with other market players as regards our existing business while expanding our
business to cover additional evolving industries.
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Additionally, certain of our technologies, such as artificial intelligence technologies, are characterized by rapid technological
changes, new product introductions, enhancements, and evolving industry standards. The prospects of our products and business based
on such technologies would depend on our ability to develop new products and applications in new markets that develop as a result of
technological and scientific advances, while improving the performance and cost-effectiveness. New technologies, techniques or
products that might offer better combinations of price and performance than our products could emerge. It is important that we anticipate
changes in technology and market demand. If we do not successfully innovate and introduce new technology into our anticipated product
lines or effectively manage the transitions of our technology to new product offerings, our business, financial condition and results of
operations could be harmed.
If we fail to compete effectively, our business, financial condition and results of operations may be materially and adversely affected.
We face intense competition in our businesses. In the internet business, we compete with other mobile application and PC
software developers, including those developers that offer products purported to perform similar functions as Duba Anti-virus and Clean
Master, such as 360 Security Technology Inc., or 360, in China’s internet security and anti-virus market. In the AI and others business,
we compete with other companies offering similar product and service offerings as service robot, such as PUDU Robotics, KEENON
Robotics, or Yunji Technology, multi-cloud management business, overseas advertising business and AI-empowered applications
globally. In addition, we compete with all major internet companies for user attention and advertising spend.
As we expand or enhance our business presence across evolving technology landscapes, we face increased competition
associated with different technology domains. Since November 30, 2023, we have consolidated the financial results of Beijing OrionStar,
a company focusing on the research and development of AI, into our consolidated financial statements. Meanwhile, we have also been
stepping up efforts to strengthen our business related to large models and artificial intelligence generated content ("AIGC"). However,
many of these sectors on which we focus are undergoing rapid evolution and attracting intense competition. For example, in robotics,
hardware capabilities are progressing quickly, allowing more players to enter the market with advanced automation solutions. On the
AIGC front, generative AI techniques are developing at a tremendous pace thanks to recent breakthroughs in large language models.
These swift technological advancements have drawn major attention and investment from technology giants at home and abroad. As
consumer demand for smart robotics and AIGC solutions grows, additional well-funded competitors are likely to emerge. While we
have solid expertise and capabilities, the ongoing evolution of these sectors may bring significant competitive threats from new and
existing players aiming to capitalize on the next wave of innovation.
In addition, some of our competitors have longer operating histories and significantly greater financial, technological and
marketing resources than we do and, in turn, have an advantage in attracting and retaining users and customers. If we are not able to
effectively compete in any aspect of our business or if our reputation is harmed by negative publicity relating to us, our products and
services or our key management, it could make us less attractive to customers, and our business, financial condition and results of
operations may be materially and adversely affected.
We have certain operations in international markets. If we fail to meet the challenges presented by our overseas operations, our
business, financial conditions and results of operations may be adversely affected.
Our business has continued to experience some challenges in the international markets and continue exposing to a number of
risks, including:
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challenges in formulating effective marketing strategies targeting users and customers from various jurisdictions and
cultures, who have a diverse range of preferences and demands;
•
challenges in identifying appropriate local business partners and establishing and maintaining good working relationships
with them.
•
local competition;
•
challenges in meeting local user, advertiser and customer demands as well as their marketing practices and conventions;
•
differences in user, advertiser and customer reception and perception of our products and services internationally;
•
challenges in building direct sales operations in the overseas market;
•
fluctuations in currency exchange rates;
•
compliance with applicable foreign laws and regulations, including but not limited to internet content requirements, foreign
exchange controls, cash repatriation restrictions, intellectual property protection rules and data privacy requirements;
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•
exposure to different tax jurisdictions that may subject us to greater fluctuations in our effective tax rate and assessments
in multiple jurisdictions on various tax-related assertions, including transfer pricing adjustments and permanent
establishment; and
•
increased costs associated with doing business in foreign jurisdictions.
Our business, financial condition and results of operations may be materially and adversely affected by these and other risks
associated with our overseas operations.
If users do not widely adopt versions of our applications developed for various mobile devices, our business could be adversely
affected.
The number of people who access the internet through mobile devices keeps increasing. The varying display sizes, functionality,
and memory associated with mobile devices make the use of our applications on such devices more difficult and the versions of our
applications developed for these devices may not be compelling to users, manufacturers or distributors of devices. Each manufacturer
or distributor may establish unique technical standards for its devices, and our applications may not work or be compatible with these
devices. Some manufacturers may also elect not to include our applications on their devices. As new devices and new platforms are
continually being released, it is difficult to predict the problems we may encounter in developing versions of our applications for use on
these mobile devices and we may need to devote significant resources to the creation, support, and maintenance of our applications
tailored for such devices. If we are unable to attract and retain a substantial number of mobile device manufacturers, distributors, and
users to adopt and use our applications, or if we are slow to develop products and technologies that are more compatible with mobile
devices, our business could be adversely affected.
If major mobile application distribution channels change their standard terms and conditions in a manner that is detrimental to us,
or terminate their existing relationship with us or our partners, our business, financial condition and results of operations may be
materially and adversely affected.
We currently rely on third-party mobile application distribution channels such as iOS App Store and similar Android distribution
channels to distribute most of our mobile applications to users. We expect a substantial number of downloads of our mobile applications
will continue to be derived from these distribution channels. As such, the promotion, distribution and operation of our applications are
subject to such distribution channels’ standard terms and policies for application developers, which are subject to the interpretation of,
and frequent changes by, these distribution channels. If iOS App Store or any other major distribution channel changes their standard
terms and conditions in a manner that is detrimental to us, or terminate their existing relationship with us, our business, financial
condition and results of operations may be materially and adversely affected. For example, on February 20, 2020, our company’s Google
Play Store, Google AdMob and Google AdManager accounts were disabled by Google, which adversely affected our ability to attract
new users and generate revenue from Google. Decisions like this made by third-party mobile application distribution channels may
significantly limit the exposure of our products and harm our reputation, which could materially and adverse affect our results of
operations, financial performance and growth prospects.
If our internet business fails to optimize system performance or provide attractive personalized experiences, we may lose users, and
our business, financial condition and results of operations may be materially and adversely affected.
Our users rely on our utility products to optimize the performance of their PC and mobile devices, provide real time protection
against security threats, and gain personalized device experience. Our software and applications are highly technical and complex and,
when deployed, may contain defects or security vulnerabilities. Some errors in our products may only be discovered after a product has
been installed and used by our users.
Most of our software and applications for users rely on our cloud-based data analytics engines to optimize system performance
and protect against security threats. The data analytics engines include our most up-to-date security threats library and application
behavior library in the cloud, and our products only include a subset of these libraries on the users’ end devices. If our data analytics
engines do not function properly, or if the infrastructure supporting the data analytics engine malfunctions, our applications may not
achieve optimal results.
Our cloud-based data analytics engines employ a heuristic, or experience-based, approach to detect unknown security threats and
behavior of unknown PC software and mobile applications. However, new malware and malicious software and applications are
constantly appearing and evolving, and our detection technologies may not detect all forms of security threats or malicious software and
applications encountered by our users. In addition, our products may not work properly with the Windows, Android or iOS operating
systems if we cannot promptly upgrade our products following any changes or updates to these operating systems. We previously
experienced system disruption due to compatibility issues resulting from an update to the Windows operating system.
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Any of these defects, vulnerabilities or failures could result in damage to our reputation, decrease in our user base and loss of
customers, and our business, financial condition and results of operations may be materially and adversely affected.
If any system failure, interruption or downtime occurs, our business, financial condition and results of operations may be materially
and adversely affected.
Although we seek to reduce the possibility of disruptions and other outages, our applications may be disrupted by problems with
our own cloud-based technology and system, such as malfunctions in our software or other facilities or network overload. Our systems
may be vulnerable to damage or interruption caused by telecommunication failures, power loss, human error, computer attacks or
viruses, earthquakes, floods, fires, terrorist attacks, change of relevant laws, regulations or policies and similar events. Our IT systems
may not be fully redundant or backed up, and our disaster recovery planning may not be sufficient for all eventualities. Despite any
precautions we may take, the occurrence of natural disasters, policy changes or other unanticipated problems at our hosting facilities or
similar events affecting our ability to use necessary online resources could result in interruptions in the availability of our products and
services. In particular, we may be required to expand and adapt our technology and infrastructure to continue to reliably store, process
and analyze user content as well as to ensure smooth delivery of high quality content. Any interruption in the ability of our users to use
our applications could damage our reputation, reduce our future revenues, harm our future operations, subject us to regulatory scrutiny
and lead users to seek alternative products.
We mostly use third party cloud-based services, such as Tencent cloud, AWS etc. instead of self-owned servers. These third-party
services may experience downtime from time to time, and we have limited control over the quality and reliability of these services. Any
scheduled or unscheduled interruption in our ability to use such services could result in service disruption, which could result in an
immediate, and possibly substantial, loss of revenues. If any such incidents take place, our brands and user perception of the reliability
of our systems may be adversely affected.
As most of our core mobile utility products are created for Android devices, a decrease in the popularity of the Android ecosystem
may materially and adversely affect our business.
Most of our core mobile utility applications are created for Android devices. Any significant downturn in the overall popularity
of the Android ecosystem or the use of Android devices could materially and adversely affect the demand for and revenues generated
from these mobile utility applications. Although the Android ecosystem has grown rapidly in recent years, it is uncertain whether it will
continue to grow at a similar rate in the future. In addition, due to the constantly evolving nature of the mobile industry, another operating
system for mobile devices may eclipse Android and decrease its popularity. To the extent that our mobile utility applications continue
to mainly support Android devices, our utility products would be vulnerable to any decline in popularity of the Android operating
system.
We may further dispose our internet products that could have a material adverse impact on our revenues.
We have developed widely popular mobile applications in-house and have grown some acquired or jointly-operated third-party
applications into popular applications in the past. These applications attracted a large user base which in turn helps generate significant
revenues for us. On February 20, 2020, our company’s Google Play Store, Google AdMob and Google AdManager accounts were
disabled, which adversely affected our ability to attract new users and generate revenue from Google. In 2020, we disposed major
gaming-related business. As a result, the revenue contribution from gaming-related business decreased. If we further dispose our internet
products, our internet business may be materially and adversely affected.
We may be named as a defendant in putative shareholder class action lawsuit that could have a material adverse impact on our
business, financial condition, results of operation, cash flows and reputation.
We have historically to defended against putative shareholder class action lawsuits described in “Item 8. Financial Information—
A. Consolidated Statements and Other Financial Information—Legal Proceedings.” We may be named as a defendant in putative
shareholder class action lawsuit in the future. We will be unable to estimate the possible loss or possible range of loss, if any, associated
with the resolution of any such lawsuit. In the event that our defense of any such lawsuit is unsuccessful, there can be no assurance that
we will prevail in any appeal. Any adverse outcome of these cases, including any plaintiff’s appeal of a judgment in any such lawsuit,
could have a material adverse effect on our business, financial condition, results of operation, cash flows and reputation. In addition,
there can be no assurance that our insurance carriers will cover all or part of the defense costs, or any liabilities that may arise from any
such lawsuit. The litigation processes may utilize a significant portion of our cash resources and divert management’s attention from the
day-to-day operations of our company, all of which could harm our business. We also may be subject to claims for indemnification
related to any such lawsuit, and we cannot predict the impact that indemnification claims may have on our business or financial results.
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We may not be able to adequately protect or maintain our intellectual property, which could harm our business and competitive
position.
We regard our trademarks, service marks, patents, domain names, trade secrets, proprietary technologies know-how and similar
intellectual property as critical to our success, and we rely on trademark and patent law, trade secret protection and confidentiality and
invention assignment agreements with our employees and third parties to protect our proprietary rights. See “Item 4. Information on the
Company—B. Business Overview— Intellectual Property” for a description for our intellectual property. While we actively take
measures to protect our intellectual property, such measures may not be adequate to prevent the infringement or misappropriation of our
intellectual property. There can be no assurance that any of our pending patent, trademark or other intellectual property applications will
be issued or registered. Any intellectual property rights we have obtained or may obtain in the future may not be sufficient to provide
us with a competitive advantage, and could be challenged, invalidated, circumvented, infringed or misappropriated. Given the potential
cost, effort, risks and disadvantages of obtaining patent protection, we have not applied and do not plan to apply for patents or other
forms of intellectual property protection for certain of our key technologies. If some of these technologies are later proven to be important
to our business and are used by third parties without our authorization, especially for commercial purposes, our business and competitive
position may be harmed.
Monitoring for infringement or other unauthorized use of our intellectual property rights is difficult and costly, and we cannot be
certain that we can effectively prevent such infringement or unauthorized use of our intellectual property. From time to time, we may
need to resort to litigation or other proceedings to enforce our intellectual property rights, which could result in substantial cost and
diversion of resources. We cannot provide assurance that we will prevail in such litigation or proceedings, in addition, our trade secrets
may be leaked or otherwise become available to, or be independently discovered by, our competitors. Our efforts to enforce or protect
our intellectual property rights may be ineffective and could result in the invalidation or narrowing of the scope of our intellectual
property or expose us to counterclaims from third parties, any of which may adversely affect our business and operating results.
In addition, it is often difficult to create and enforce intellectual property rights in China and other countries outside of the United
States. Even where adequate, relevant laws exist in China and other countries outside of the United States, it may not be possible to
obtain swift and equitable enforcement of such laws, or to enforce court judgments or arbitration awards delivered in another jurisdiction.
Accordingly, we may not be able to effectively protect our intellectual property rights in such countries. Additional uncertainty may
result from changes to intellectual property laws enacted in the jurisdictions in which we operate, and from interpretations of intellectual
property laws by applicable courts and government bodies.
Our confidentiality and invention assignment agreements with our employees and third parties, such as consultants and
contractors, may not effectively prevent unauthorized use or disclosure of our confidential information, intellectual property or
technology and may not provide an adequate remedy in the event of such unauthorized use or disclosure. Trade secrets and know-how
are difficult to protect, and our trade secrets may be disclosed, become known or be independently discovered by others. Despite our
efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our website features, software and
functionality or obtain and use information that we consider confidential and proprietary. If we are not able to adequately protect our
trade secrets, know-how and other confidential information, intellectual property or technology, our business and operating results may
be adversely affected.
Further, we have been licensed with certain intellectual properties by certain affiliates. For example, we and Kingsoft Corporation
entered into a new Trademark Licensing Contract in 2018, under which we have been licensed with certain selected trademarks of
Kingsoft Corporation and its relevant subsidiaries, such as Duba Anti-virus. We cannot assure you that we will continue to receive the
same level of support on the same or more favorable terms and conditions, or renew the relevant licensing agreement at all, upon
expiration of the contract terms, neither can we guarantee that our collaboration with our affiliates will not be terminated by our business
partners or otherwise become limited, less effective or more expensive, which are subject to many factors beyond our control, such as
legal requirements and our affiliates’ business condition, plans and strategies. If we are unable to receive the same level of support from
our affiliates, or if we fail to maintain or renew our existing licenses from our affiliates, or if we cannot benefit from the brand recognition
capabilities of our affiliates as we do, our business and competitive position may be adversely affected.
We may be subject to intellectual property infringement lawsuits which could result in our payment of substantial damages or license
fees, disruption to our product and service offerings and reputational harm.
Third parties, including our competitors, may assert claims against us for alleged infringements of their technology patents,
copyrights, trademarks, trade secrets and internet content. Third parties may also claim that our employees have misappropriated or
divulged their former employers’ proprietary rights or confidential information. Our internal procedures and licensing practices may not
be effective in completely preventing the unauthorized use of copyrighted materials or the infringement of other rights of third parties
by us or our users. The validity, enforceability and scope of protection of intellectual property rights in internet-related industries,
particularly in China, is uncertain and still evolving. If a claim of infringement brought against us in China or another jurisdiction is
successful, we may be required to pay substantial penalties or other damages and fines, enter into license agreements which may not be
available on commercially reasonable terms or at all or be subject to injunction or court orders. We may be subject to injunction or court
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orders or required to redesign our products or technology, any of which could adversely affect our business, financial condition and
results of operations. Even if allegations or claims lack merit, defending against them could be both costly and time-consuming and
could significantly divert the efforts and resources of our management and other personnel. In addition, regardless of the outcome of the
lawsuit, we could suffer reputational harm.
For example, we changed our corporate name, company logo and trademark to reflect our new name Cheetah Mobile in the first
half of 2014. Cheetah is commonly used in corporate names in China, the United States and elsewhere. Although we believe in good
faith that our use of Cheetah Mobile does not infringe on any third-party intellectual property rights and we have filed trademark
applications in certain categories in China, third parties may bring trademark and other intellectual property infringement claims against
us, which could distract our management attention and result in us incurring significant cost to defend ourselves.
Further, we license and use technologies from third parties in our applications. These third-party technology licenses may not
continue to be available to us on acceptable terms or at all, and may expose us to liability. Any such liability, or our inability to use any
of these third-party technologies, could result in disruptions to our business that could materially and adversely affect our operating and
financial results.
Some of our applications contain open source software, which may pose increased risk to our proprietary software.
We use open source software in some of our applications. In addition, we regularly contribute source code to open source software
projects and release internal software projects under open source licenses, and anticipate doing so in the future. The terms of many open
source licenses to which we are subject have not been interpreted by U.S. or foreign courts, and there is a risk that such licenses could
be construed in a manner that imposes unanticipated conditions or restrictions on our ability to sell or distribute our applications.
Additionally, we may from time to time face threats or claims from third parties claiming ownership of, or demanding release of, the
alleged open source software or derivative works we developed using such software, which could include our proprietary source code,
or otherwise seeking to enforce the terms of the applicable open source license. These threats or claims could result in litigation and
could require us to make our source code freely available, purchase a costly license or cease offering the implicated applications unless
and until we can re-engineer them to avoid infringement. Such a re-engineering process could require significant additional research
and development resources, and we may not be able to complete it successfully. In addition to risks related to license requirements, our
use of certain open source software may lead to greater risks than use of third-party commercial software, as open source licensors
generally do not provide warranties or controls on the origin of the software. Additionally, because any software source code we
contribute to open source projects is publicly available, our ability to protect our intellectual property rights with respect to such software
source code may be limited or lost entirely, and we are unable to prevent our competitors or others from using such contributed software
source code. Any of these risks could be difficult to eliminate or manage and, if not addressed, could adversely affect our business,
financial condition and results of operations.
We have limited experience commercializing our service robots at a large scale and may not be able to do so efficiently or effectively.
Our company has limited experience in scaling the commercialization of our service robots, and there is a risk that we may not
achieve this expansion efficiently or effectively. A critical component of our strategic plan for our service robot line is to expand our
sales, marketing, training, customer support, and maintenance services. This expansion includes recruiting staff who possess the requisite
expertise. However, managing and sustaining this growth is both costly and complex. If we are unable to utilize our organization
effectively, it could hinder our ability to increase sales, as well as impede the introduction and acceptance of our service robots into new
markets.
Furthermore, decisions made in an effort to manage costs, particularly those related to staffing in sales, marketing, and customer
support, could inadvertently harm our revenue streams. Missteps in these areas might undermine the strength of our sales and marketing
initiatives, diminish our service and maintenance capabilities, or degrade the quality of customer service we provide. Each of these
potential outcomes could adversely affect our company's market penetration and growth prospects.
We are substantially reliant on our relationships with suppliers and service providers for the parts and components in our robots, as
well as for most of our manufacture of our service robots. If any of these suppliers or service partners choose to not do business with
us, then we would have significant difficulty in procuring and producing our service robots and our business prospects would be
significantly harmed.
Our service robots contain hundreds of components which are assembled by third-party manufacturing partners. Collaboration
with third parties for the manufacturing of service robots is subject to risks with respect to operations that are beyond our control. Global
supply chain problems directly impact our ability to obtain these components cost-effectively. We could experience delays to the extent
our current or future partners do not continue doing business with us, meet agreed upon timelines, experience capacity constraints or
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otherwise are unable to deliver components or manufacture service robots as expected. Failure to secure supplier agreements for
components that may face availability constraints due to supply chain disruptions can result in higher prices for those components,
which in turn increases the cost of manufacturing service robots and result in an adverse financial impact on our delivery economics.
As a company in the early stages of expanding our service robot offerings, there is uncertainty around future market demand and
production requirements. If adoption of our robots accelerates rapidly, we may need to ramp up manufacturing substantially to fulfill
increased orders. However, scaling production could pose challenges given our reliance on third-party suppliers and manufacturers. We
cannot guarantee that our existing network of suppliers and service providers will have the capacity to expand their operations and
output at the pace or to the extent needed to meet our evolving production needs. Supplier capacity limitations could result in delays in
fulfilling robot orders and launching new models, potentially inhibiting our growth. Additionally, rapidly increasing production could
strain quality control and supply chain logistics. If our partners are unable to keep pace with our production expansion or fail to maintain
quality standards during such growth, it could damage customer trust and satisfaction in our service robot offerings.
There is a risk of potential disputes with partners, and we could be affected by adverse publicity related to our partners whether
or not such publicity is related to their collaboration with us. Our ability to successfully build a premium brand could also be adversely
affected by perceptions about the quality of our partner manufacturers’ robots or other robots manufactured by the same partner. In
addition, although we intend to be involved in material decisions in the supply chain and manufacturing process, given that we also rely
on our partners to meet our quality standards, there can be no assurance that we will be able to maintain high quality standards.
We may in the future enter into strategic alliances, including joint ventures or minority equity investments, with various third
parties to further our business purpose. These alliances could subject us to a number of risks, including risks associated with sharing
proprietary information, non-performance by the third party, and increased expenses in establishing new strategic alliances, any of which
may materially and adversely affect our business.
We have limited experience in independent manufacturing. Any delays in the manufacturing and launching of our products, or
ramping up of our production capacity, could have a material adverse effect on our business.
In addition to traditional collaborative manufacturing model, we are seeking independent manufacturing and have built a
production facility in China. However, our self-own facility and the independent manufacturing model may introduce new risks due to
our limited experience in independent manufacturing. The complexities of independently managing all aspects of production, such as
overseeing the entire production line and supervising production personnel, could lead to unforeseen obstacles in maintaining production
efficiency and timeliness, which may result in delays in our product launch and delivery. Consequently, we may need to invest more
time and resources to ensure that products manufactured at our own facilities meet quality standards and regulatory requirements. We
have limited experience in managing our manufacturing workforce and may face challenges in providing training to our production
personnel. We cannot guarantee that we will be able to attract or retain qualified personnel or other highly skilled employees in a timely
and cost-efficient manner. Any failure to effectively manage or provide adequate training to our manufacturing workforce and
production personnel, as well as attract or retain qualified personnel, may result in production delays, reduced efficiency, and potential
quality issues.
Furthermore, we may need to expand or convert our existing manufacturing facility in the future to increase the production volume.
The expansion or conversion of our manufacturing facility could face delays or other difficulties, potentially affecting the timeline for
increasing production capacity. Moreover, as we ramp up production capacity and improve operational efficiency, additional capital
may be required to maintain our property, plant, and equipment, and such costs may exceed our current expectations. There is
considerable uncertainty regarding our ability to achieve these objectives. We cannot assure you that we will be able to complete the
expansion or conversion of our manufacturing bases or increase our production capacity on schedule and within budget.
Our operating results could be materially harmed if we are unable to accurately forecast customer demand for our products and
services or manage our inventory.
To ensure adequate inventory supply for our products, we procure products and components based on demand and production
forecasts. The ability to accurately forecast demand for our products and services could be affected by many factors, including changes
in customer demand for our products and services, and unanticipated changes in general market and economic conditions. In addition,
as we continue to introduce new products and services, we may also face challenges managing the production plan of our existing
products, which may in turn affect the inventory management for our existing products. If we fail to accurately forecast customer
demand, we may experience excess inventory levels or a shortage of products available for sale. Inventory levels in excess of customer
demand may result in inventory write-downs or write-offs and the sale of excess inventory at discounted prices, which may cause our
gross margin to suffer and could impair the strength of our brand. In 2022, 2023, and 2024, our impairment of inventory were nil,
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RMB2.6 million, and RMB1.2 million (US$0.2 million), respectively. On the other hand, in the case we experience shortage of products,
we may be unable to meet the demand for our products, and our business and operating results could be adversely affected.
Our business depends substantially on the continuing efforts of our management team, key employees and skilled personnel, and
our business operations may be severely disrupted if we lose their services.
Our future success depends substantially on the continued efforts of our management team and key employees, in particular, Mr.
Sheng Fu, our chief executive officer. The loss of Mr. Fu or any of our management team members could harm our business. In addition,
if our key employees were unable or unwilling to continue their services with us, we may not be able to replace them easily, in a timely
manner, or at all, which could result in significant disruptions to our business. The integration of any replacement personnel could be
time-consuming, expensive and cause additional disruption to our business. If any of our management team members or key employees
joins a competitor or forms a competing company, we may lose customers, know-how and staff.
Each of our executive officers and key employees has agreed to non-competition obligations. However, these agreements may not
be properly and effectively implemented in China, where our executives and key employees reside, in light of uncertainties relating to
China’s legal system. If any of our executive officers or key employees violates the terms of their non-competition or other employment
agreements with us, or their legal duties by diverting business opportunities from us, it will result in our loss of corporate opportunities.
Although we have adopted a code of business conduct and ethics to help restrict conflicts of interest involving directors and officers,
any violation of this code by our directors or officers may materially and adversely affect our business operations, prospects and
reputation.
Allegations or lawsuits against us or our management may harm our reputation and have a material and adverse impact on our
business, results of operations and cash flows.
We have been, and may become, subject to allegations or lawsuits brought by our competitors, customers, business partners, short
sellers, investment research firms or other individuals or entities, including claims of breach of contract or unfair competition. Any such
allegation or lawsuit, with or without merit, or any perceived unfair, unethical, fraudulent or inappropriate business practice by us or
perceived malfeasance by our management could harm our reputation and user base and distract our management from our daily
operations. Allegations or lawsuits against us or our management may also generate negative publicity that significantly harms our
reputation, which may materially and adversely affect our user base and our ability to attract customers. In addition to the related cost,
managing and defending litigation and related indemnity obligations can significantly divert management’s attention. We may also need
to pay damages or settle the litigation with a substantial amount of cash. All of these could have a material adverse impact on our
business, results of operation and cash flows.
Our chief executive officer, Mr. Sheng Fu, is named in a lawsuit filed by Qihoo in Hong Kong, and there is uncertainty as to the
outcome of this lawsuit and its impact on us.
In September 2011, Mr. Sheng Fu, our chief executive officer, was named as a defendant in a lawsuit filed by Qihoo 360
Technology Co., Ltd., or Qihoo, the previous U.S. listed entity of 360, in the High Court of the Hong Kong Special Administrative
Region. The complaint was subsequently amended in May 2012, July 2012 and January 2014. The amended complaint alleges that Mr.
Fu has breached his contractual obligations of confidentiality, non-competition, non-solicitation and non-disparagement under the
agreements Mr. Fu had entered into with a subsidiary of Qihoo prior to his resignation from the subsidiary in August 2008. The complaint
asserts that Mr. Fu was a product manager of Qihoo and was responsible for, and participated in, product design and research of certain
anti-virus products, including 360 Anti-virus and 360 Safe Guard, and had access to the related confidential information, trade secret,
technology and know-how.
In connection with the above claims, the complaint specifically alleges that Mr. Fu: (i) used confidential information of Qihoo to
develop, by himself or through Beijing Conew Technology Development Co. Ltd., or Beijing Conew, and Conew Network Technology
(Beijing) Co., Ltd., or Conew Network, an anti-virus product released around May 2010 that was allegedly substantially similar to
Qihoo’s 360 Anti-virus and 360 Safe Guard and infringed upon the confidential information, trade secrets and other rights of Qihoo; (ii)
engaged in or dealt with businesses and products that directly competed with the businesses and/or products of Qihoo within the 18-
month restricted period; (iii) employed employees of Qihoo within the 18-month restricted period, including Mr. Ming Xu, our former
president, who was the then director of technology of 360 Safe Guard, a division of Qihoo; and (iv) publicly made certain negative
statements about Qihoo.
Qihoo is seeking a court declaration that Qihoo’s repurchase of its shares previously granted to Mr. Fu under Qihoo’s share
incentive plan at a nominal value was valid, a court order that Mr. Fu cease to use any confidential information or know-how of Qihoo,
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damages for disparagement, and a court order that Mr. Fu account to Qihoo for any profits that he earned as a result of the alleged
breach.
Mr. Fu joined us in October 2010 when we acquired Conew.com Corporation for which Mr. Fu served as the chief executive
officer prior to the acquisition. Our product offerings do not include, and are not derived from, the anti-virus products referenced in the
complaint. Mr. Fu believes that Qihoo’s allegations are without merit and intends to contest them vigorously. However, it is inherently
difficult to predict the length, process and outcome of any court proceedings. Any litigation, regardless of the merits, can be time-
consuming and can divert Mr. Fu’s attention away from our business. Should Qihoo prevail in the lawsuit against Mr. Fu, Mr. Fu’s
reputation may be harmed and he may be ordered to cease using such confidential information. Moreover, although we have not been
named as a defendant in the lawsuit, we cannot guarantee that Qihoo or 360 will not initiate proceedings against us in the future, which
could adversely affect our reputation, business and results of operations.
We have made significant capital investment in a number of strategic investments, acquisitions and partnerships, which may not be
successful and may have a material and adverse effect on our business, reputation and results of operations.
We have made significant capital investment in strategic investments, acquisitions and partnerships to complement our organic
business expansion. We have also made a number of investments in securities and minority investments in companies with strategic
value for us. These investments and acquisitions require a significant amount of capital, which decreases the amount of cash available
for working capital or capital expenditures. In 2022, 2023 and 2024, we have paid for investments and acquisitions in an aggregate
amount of RMB69.6 million, RMB292.4 million and RMB37.0 million (US$5.1 million), respectively. If these investments and acquired
business do not perform as we have expected, become less valuable to our business due to a change in our overall business strategy, or
if the industry, regulatory or economic environments deteriorate, they could result in significant impairment of investments and goodwill.
In 2022, 2023 and 2024, our impairment of investments and goodwill were RMB262.5 million, RMB578.3 million and RMB272.3
million (US$37.3 million), respectively. In addition, potential acquisitions of businesses and assets may increase our capital and
expenses in integrating new businesses and personnel into our own, require significant management attention and result in a diversion
of resources away from our existing business, which in turn could have an adverse effect on our business operations. Further, potential
acquisitions could result in increased leverage, potentially dilutive issuances of equity securities and exposure to potential unknown
liabilities of the acquired business. The costs of identifying and consummating acquisitions may also be significant. In addition to
possible shareholders’ approval, we may also have to obtain approvals and licenses from relevant government authorities for the
acquisitions and comply with applicable laws and regulations, which could result in increased costs and delays.
In the future, if appropriate opportunities arise, we may acquire additional assets, products, technologies or businesses that are
complementary to our existing business. However, we may fail to select appropriate acquisition targets, negotiate acceptable
arrangements (including arrangements to finance acquisitions) or integrate the acquired businesses and their personnel into our own. In
addition, strategic partnerships could subject us to a number of risks, including risks associated with sharing proprietary information
and non-performance by third parties. We may not be able to monitor or control the actions of our strategic partners and, to the extent
any such strategic partner suffers negative publicity or harm to its reputation from events relating to its own business, we may also suffer
negative publicity or harm to our reputation by association.
If we are determined to be an investment company under the Investment Company Act of 1940, applicable restrictions could have a
material adverse effect on our business and the price of our ADRs and Class A ordinary shares.
We do not believe we are subject to regulation under the Investment Company Act of 1940, as amended (the “40 Act”). We are a
China-based IT company providing comprehensive products and services on PCs and mobile devices globally. We generate revenues
primarily by providing utility-related business, including advertising services and premium membership services worldwide. At the
same time, we actively engage in the independent research and development of its AI technologies, including LLM technologies. We
provides advertising services to advertisers worldwide, multi-cloud management platform to companies globally, as well as AI-powered
business applications and service robots to our customer. In connection therewith, our company and certain of our subsidiaries hold
interests in securities, including, among other things, minority interests in operating companies and investment funds. Following our
analysis under the 40 Act and relevant guidance, we believe each of our company and our subsidiaries either does not meet the definition
of “investment company” under the 40 Act because it holds less than 40% of its assets (exclusive of government securities and cash
items) in the form of securities or is exempt from registration under Rule 3a-1 or Rule 3a-3 under the 40 Act. We intend to continue to
conduct our operations so that we will not be deemed an investment company.
If, at any time, we become or are determined by the SEC to be an investment company, we would become subject to regulation
under the 40 Act. In these circumstances, after giving effect to any applicable grace periods, we may be required to register as an
investment company, which could result in significant registration and compliance costs, could require changes to our corporate
governance structure and financial reporting and could restrict our activities going forward. In addition, if we were to become subject
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to the 40 Act, any violation of the 40 Act could subject us to material adverse consequences, including potentially significant regulatory
penalties and the possibility that certain of our contracts would be deemed unenforceable.
If we fail to effectively resume our growth or implement our business strategies, our business and operating results could be harmed.
Our business experienced revenue decrease since 2019. Total revenue decreased from RMB884.1 million in 2022 to RMB669.5
million in 2023 and increased to RMB806.9 million (US$110.5 million) in 2024. Our business continues to face some challenges, and
we may not be able to maintain our growth momentum in the future. In addition, resuming our growth requires significant expenditures
and allocation of valuable management time and resources. To execute our business plan and strategy, we need to continuously improve
our operational and financial systems, procedures and controls, and expand, train, manage and maintain good relations with our
employee base. Further, we must expand and continue to engage or maintain our relationships with a growing number of users, customers
and business partners. Resumed growth could also strain our ability to maintain reliable service for our users, customers and business
partners. We operate in a dynamic and rapidly evolving market and investors should not rely on our past results as an indication of our
future operating performance. Any failure to effectively manage our growth or implement our business strategies may materially and
adversely affect our business and results of operations.
Our results of operations are subject to seasonal fluctuations due to a number of factors, any of which could adversely affect our
business and operating results.
We are subject to seasonality and other fluctuations in our business. Online advertising revenues from our internet business are
affected by seasonality in advertising spending in both China and the overseas markets. In 2024, online advertising revenues from our
Internet business accounted for 22.9% of our total revenues. We believe that such seasonality in advertising spending affects our
quarterly results, resulting in growth in our online advertising revenues from internet business between the third and the fourth quarters
but a decline from the fourth quarter to the next quarter. Thus, our operating results for one or more future quarters or years may fluctuate
substantially or fall below the expectations of securities analysts and investors. In such event, the trading price of the ADSs may fluctuate
significantly.
If we fail to build, maintain and enhance our brands, incur excessive expenses in this effort, our business, results of operations and
prospects may be materially and adversely affected.
We believe that building, maintaining and enhancing our brands are critical to the success of our business and our ability to
compete. Well-recognized brands are important to increasing our number of users and expanding our business.
Many factors, some of which are beyond our control, are important to maintaining and enhancing our brands and may negatively
impact our brands and reputation if not properly managed, such as:
•
our ability to provide a convenient and reliable user experience as user preferences evolve and we expand into new
applications;
•
our ability to increase brand awareness among existing and potential users and customers through various marketing and
promotional activities;
•
our ability to adopt new technologies or adapt our applications to meet user needs or the expectations of our customers;
•
our ability to maintain and enhance our brands in the face of potential challenges from third parties;
•
actions by third parties, through whom we collect revenues and perform other business functions, that may affect our
reputation; and
•
our ability to differentiate our brands and products from those of Kingsoft Corporation.
As we expand, we may conduct various marketing and brand promotion activities. We cannot assure you, however, that these
activities will be successful or that we will be able to achieve the outcomes we expect. In addition, any negative publicity in relation to
our applications, regardless of its veracity, could harm our brands and reputation.
Non-compliance on the part of third parties with whom we conduct business could disrupt our business and adversely affect our
results of operations.
Third parties with whom we conduct our business, including our advertisers and partners place their advertisements on our
products through mobile advertising networks, operational partners who provide assistive functionalities for our PC or mobile products,
content provider and hardware manufacturer, may be subject to regulatory penalties or punishments because of their regulatory
compliance failures, which may disrupt our business. Any legal liabilities of, or regulatory actions against, such third parties may affect
26
our business activities and reputation and, in turn, our results of operations. For example, under PRC advertising laws and regulations,
we are obligated to monitor the advertising contents shown on our products and establish the registration, review and file management
system of advertising business. We have strict terms in contracts with most of the advertising networks to ensure that the advertisements
shown on our products are in full compliance with applicable PRC laws and regulations. However, there are still uncertainties underlying
these contents from advertisers and partners. If we are found to be in violation of applicable PRC advertising laws and regulations, we
may be subject to penalties and our reputation may be harmed, which may have an adverse effect on our business, financial condition,
results of operations and prospects.
If we fail to obtain and maintain the requisite licenses and approvals or otherwise comply with the laws and regulations under the
complex regulatory environment applicable to our businesses in China as well as our outbound investment, or if we are required to
take actions that are time-consuming or costly, our business, financial condition and results of operations may be materially and
adversely affected.
The internet industry, including the mobile internet industry and artificial intelligence industry, is highly regulated in China. The
VIEs are required to obtain and maintain applicable licenses and approvals from different regulatory authorities in order to provide their
current services. Under the current PRC regulatory scheme, a number of regulatory agencies, including but not limited to the State
Administration of Press, Publication, Radio, Film and Television, or SARFT, which has been reformed and become National Radio and
Television Administration, or NRTA, the Ministry of Culture, or MOC, which were consolidated with the National Tourism
Administration and has been reformed and become the Ministry of Culture and Tourism, or MCT, Ministry of Industry and Information
Technology, or MIIT, the State Council Information Office, or SCIO, the Cyberspace Administration of China, or CAC, and the State
Administration for Market Regulation, or SAMR, jointly regulate all major aspects of the internet industry, including mobile and PC
internet businesses. Operators must obtain various government approvals and licenses for relevant internet or mobile business.
We have obtained Internet Content Provider Licenses, or ICP Licenses, for the provision of internet information services, a license
for value-added telecommunications services with the specification of online data processing and transaction processing business, or
EDI license, Business License of Value-Added Telecommunications Services, or SP license, Computer Information System Security
Products Sales License for our mobile and PC security applications, the Network Culture Business License for network culture business,
and Algorithm Filing for in-country deep synthesis services (service technology supporter). These licenses and filing are essential to the
operation of our business and are generally subject to regular government review or renewal. However, we cannot assure you that we
can successfully renew these licenses or filing in a timely manner or that these licenses and filing are sufficient to conduct all of our
present or future business.
Also, according to the current relevant regulations of AIGC, large language models shall be got Algorithm Filing and Large
Language Model Filing. As of the date of this annual report, our large language model, “OrionStar”, has already been got Algorithm
Filing both for in-country deep synthesis services (service technology supporter), and the large language model. However, the AI
industry in which we operate is highly regulated. Other than large language models, mobile applications based on large language models
shall also be required to get Algorithm Filing and pass security assessment, and requirements of different application markets varies.
Therefore, we cannot assure that we can successfully renew current licenses, filings or assessments required for our business in a timely
manner or that these licenses, filings or assessments are sufficient to conduct all of current or future business. If we fail to obtain, renew
or maintain any of the requisite licenses or approvals or make necessary and appropriate filings in any of the jurisdictions where we
have business operations, we may be subject to various penalties, including fines, discontinuation or restriction of our business
operations.
Considerable uncertainties also exist regarding the interpretation and implementation of existing and future laws and regulations
governing our current business activities and new industries or businesses we may expand into. We cannot assure you that we will not
be found in violation of any future laws and regulations or any of the laws and regulations currently in effect due to changes in the
relevant authorities’ implementation or interpretation of these laws and regulations. If we fail to complete, obtain or maintain any of the
required licenses or approvals or make the necessary filings, or otherwise fail to comply with the laws and regulations, we may be
subject to various penalties, such as confiscation of revenues that were generated through the unlicensed internet or mobile activities,
the imposition of fines and the discontinuation or restriction of our operations. Any such penalties may disrupt our business operations
and materially and adversely affect our business, financial condition and results of operations.
Pursuant to NDRC Order 11, any sensitive outbound investment project carried out by overseas enterprise controlled by a PRC
natural person shall be subject to a verification and approval procedure, and any non-sensitive outbound investment project, with the
total investment amount from any Chinese investor via overseas enterprise under its control exceeding US$300 million, shall be reported
to NDRC before the implementation of the project. On February 12, 2017, Kingsoft Corporation have entered into a voting proxy
agreement with Mr. Sheng Fu, which became effective on October 1, 2017. According to such agreement, Kingsoft Corporation have
delegated to Mr. Sheng Fu its approximately 37.4% voting power of our company. Mr. Sheng Fu has approximately 47.1% voting power
of our company so far. As we and our overseas subsidiaries may be considered as companies under control of Mr. Sheng Fu pursuant to
NDRC Order 11, verification and approval procedure or reporting may be required when we or our subsidiaries make investments
outside China. While we endeavor to comply with NDRC Order 11 and other regulations regarding outbound investment, we cannot
27
assure you that our existing or future subsidiaries will maintain all applicable outbound investment procedures in a timely manner, and
any non-compliance on their part may cause potential liabilities to us and disrupt our operations. See “Item 4. Information on the
Company—B. Business Overview—Regulations— Regulations on Outbound Investment” for further details.
Our business collects and processes a large amount of data, including business and personal data, and any improper collection,
hosting, use or disclosure of data could harm our reputation and have a material adverse effect on our business and prospects.
Our business generates and processes a large volume of business data and personal data.
In terms of business data, if the customers’ business data is leaked, especially core data, we may violate laws and regulations such
as the Civil Code, which may result in bearing liability for breach of contract or tort. Another significant challenge to our business data
is the secure storage of confidential information and its secure transmission over public networks. Therefore, we need to comply with
the provisions of the Data Security Law, the Measures for the Security Assessment of Cross-border Data Transfer, the Cybersecurity
Review Measures and other applicable regulations. Maintaining complete security for the storage and transmission of confidential
information on our platform is essential to maintaining our operating efficiency as well as complying with the applicable laws and
standards. Any failure or perceived failure to comply with all applicable data privacy and protection laws and regulations or to take
prompt rectification actions as required by the enforcement authorities, or any failure or perceived failure of our business partners to do
so, or any failure or perceived failure of our employees to comply with our internal control measures, especially the data- related
measures, may result in negative publicity and legal proceedings or regulatory actions against us, and could damage our reputation,
discourage current and potential users and customers from using our products or services and subject us to fines, damages and
rectification, which could have a material adverse effect on our business and results of operations.
In terms of personal data, we have enacted privacy policies concerning the collection, use and disclosure of personal data. We
face risks inherent to handling and protecting a large quantity of data and disclosure of personal data, especially we face a number of
challenges relating to data security and privacy.
In recent years, the PRC government has promulgated Laws and regulations relating to internet use to protect personal information
from any unauthorized disclosure. For example, on August 20, 2021, the Standing Committee of the National People’s Congress, or
SCNPC, promulgated the Law of Personal Information Protection of PRC, or the Personal Information Protection Law, which became
effective on November 1, 2021. Pursuant to Personal Information Protection Law, the processing of personal information includes the
transmission, provision, disclosure, deletion, etc. of personal information, and before processing personal information, personal
information processors should truthfully, accurately and completely inform individuals in a conspicuous manner and in clear and easy-
to-understand language. Where personal information is processed in violation of the provisions of the Personal Information Protection
Law, or the processing of personal information fails to fulfill the personal information protection, the department performing personal
information protection duties shall order corrections, give warnings , confiscate illegal gains and order to suspend or terminate the
provision of services by the applicants that illegally process personal information; if the personal information processor refuses to make
corrections, a fine of not more than RMB1 million shall be imposed; the directly responsible person in charge and other directly
responsible personnel shall be fined not less than RMB10,000 but not more than RMB100,000.
Our mobile applications, websites and products collect certain user personal information that is necessary to provide the
corresponding services. We have privacy policies in place that defines the scope and necessity of the personal information we collect,
which have been, and will continue to be updated from time to time to meet the latest regulatory requirements. Nonetheless, many
specific requirements for collecting, or processing personal information, including requirements of the Personal Information Protection
Law, remain to be clarified by the CAC, other regulatory authorities, and courts in practice. We may be required to make further
adjustments to our business practices to comply with the personal information protection laws and regulations. See “Item 4. Information
on the Company—B. Business Overview—Regulations.”
As the regulations regarding data privacy are quickly evolving in China and globally, we may become subject to evolving laws
and regulations applying to the solicitation, collection, processing or use of personal or consumer information that could affect how we
store, process and share data with our customers, suppliers and third-party merchants. Concerns about our practices with regard to the
collection, storage, use, processing, disclosure or transfer of personal information or other privacy-related matters, even if unfounded,
could damage our reputation, business and results of operations. Any failure or perceived failure by us to prevent information security
breaches or to comply with privacy policies or privacy-related legal obligations, or any compromise of security that results in the
unauthorized release or transfer of personally identifiable information or other customer data, could cause our customers to lose trust in
us and could expose us to legal claims. Any perception by the public that online transactions or the privacy of user information are
becoming increasingly unsafe or vulnerable to attacks could inhibit the growth of online retail and other online services generally, which
may reduce the number of orders we receive.
As such, we have adopted a series of measures to ensure that we comply with relevant laws and regulations in the collection, use,
disclosure, sharing, storage, and security of user information and other data. Although we have worked to make the utmost commercially
reasonable efforts to ensure that we collect personal information and data only with users’ prior consent and have adopted measures to
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protect the data security and minimize the risk of data loss, we cannot assure you that the measures we have taken are always sufficient
and effective. The improper collection, use or disclosure of data could result in a loss of our customers, loss of confidence or trust in us,
litigation, regulatory investigations, penalties or actions against us, significant damage to our reputation, and have a material adverse
effect on our business, financial condition, results of operations and prospects.
Actual or alleged failure to comply with laws and regulations on cybersecurity and data protection could damage our reputation,
discourage current and potential users from using our products and services applications and subject us to damages, administrative
penalties and criminal liabilities, which could have material adverse effects on our business and results of operations.
A significant challenge to our business is the secure storage of confidential information and its secure transmission over public
networks. Maintaining complete security for the storage and transmission of confidential information on our platform is essential to
maintaining our operating efficiency as well as complying with the applicable laws and standards.
Since 2021, the PRC government authorities have increasingly focused on the protection of personal information and are improving
the legislative system on information and data security continuously. For example, the SCNPC promulgated the Data Security Law on
June 10, 2021, the State Council promulgated the Regulations on Protection of Critical Information Infrastructure on July 30, 2021, the
CAC promulgated the Measures for the Security Assessment of Cross-border Data Transfer, or the Security Assessment Measures on
July 7, 2022, the CAC promulgated the Provisions on Facilitating and Regulating Cross-Border Data Flows on March 22, 2024, and the
State Council promulgated the Regulations on Network Data Security Management on September 24, 2024. For more details of the
relevant regulations, see “Item 4. Information on the Company—B. Business Overview—Regulations—Regulations on Information
Security.”
As of the date of this annual report, we have not been informed as a critical information infrastructure operator or a cross-border
data transfer by any government authorities, and there are still uncertainties in the interpretation and enforcement of the PRC laws. We
cannot assure you that relevant regulatory authorities will take the same view as ours. In the event if the regulatory authorities deem
certain of our activities as a cross-border data transfer, a critical information infrastructure operator, etc., we will be subject to the
relevant requirements.
On December 28, 2021, twelve regulatory authorities jointly released the Cybersecurity Review Measures, which became effective
on February 15, 2022. The Cybersecurity Review Measures provides that a critical information infrastructure operator purchasing
network products and services, and platform operators carrying out data processing activities which affect or may affect national security,
must apply for cybersecurity review. The Cybersecurity Review Measures also provides that a platform operator with more than one
million users’ personal information aiming to list abroad must apply for cybersecurity review. New York Stock Exchange fall within
the definition of “abroad” in the provision, however, we are already listed on the New York Stock Exchange, therefore, there can be no
assurance if we are required to follow the cybersecurity review or the security assessment procedures, and if so, whether we would be
able to complete the applicable cybersecurity review or the security assessment procedures in a timely manner.
On February 24, 2023, the CSRC released the Provisions on Strengthening the Confidentiality and Archives Administration
Related to the Overseas Securities Offering and Listing by Domestic Enterprises (the “Confidentiality Provisions"), which came into
effect on March 31, 2023. Pursuant to the Confidentiality Provisions, any future inspection or investigation conducted by overseas
securities regulators or the relevant competent authorities on our PRC domestic companies with respect to our overseas issuance and
offering shall be carried out in a manner that is in compliance with PRC laws and regulations.
On September 24, 2024, the State Council promulgated the Regulations on Network Data Security Management, which came into
effect on January 1, 2025, and apply to activities relating to the use of networks to carry out data processing activities within the territory
of the PRC. Pursuant to the Regulations on Network Data Security Management, data processors shall identify and report important
data according to relevant rules, and processors of important data shall adopt specific measures to secure important data, such as
designing the personnel and management body responsible for the network data security, conducting risk assessment under prescribed
circumstances as well as submitting annual risk assessment reports to competent authorities. Failure to protect important data, including
failure to identify and report important data, can lead to administrative penalties, including fines, suspension of business operations, and
revocation of business licenses.
We expect that these areas will receive greater focus and attention from the regulators, and 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 information security and data protection.
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Our business is subject to complex and evolving laws and regulations regarding privacy, data protection, and other matters outside
China. Failure to comply with these laws and regulations could result in claims, changes to our business practices, monetary
penalties, increased cost of operations, or declines in user growth or engagement, or otherwise harm our business.
In addition to PRC laws and regulations, we face additional regulatory risks and costs outside China. We are subject to a variety
of laws and regulations in foreign jurisdictions that involve matters central to our business, including privacy and data protection, rights
of publicity, content, intellectual property, advertising, marketing, distribution, data security, data retention and deletion, personal
information, national security, electronic contracts and other communications, virtual currencies, competition, protection of minors,
consumer protection, telecommunications, taxation, and economic or other trade prohibitions or sanctions. The introduction of new
products, services or expansion of our activities in certain jurisdictions may subject us to additional laws and regulations. In addition,
foreign data protection, privacy, and other laws and regulations can be more restrictive than those in China and in the United States.
For instance, we are subject to regulations under U.S. state law regarding the publication and dissemination of our privacy policy
with respect to user data. It is possible that we may become subject to additional U.S. state or federal legislation or rules and regulations
of governmental authorities outside China regarding the use of personal information or privacy-related matters. The General Data
Protection Regulation (GDPR) (EU) 2016/679 is a regulation in EU law on data protection and privacy for all individuals within the
European Union. It addresses the export of personal data outside the EU. The GDPR became enforceable on May 25, 2018. Failure to
comply with GDPR may result in punitive actions from EU authorities, reputation damage, user loss, and revenue loss. Complying with
any additional or new regulatory requirements could force us to incur substantial costs or require us to change our business practices.
Similar to PRC laws and regulations, these foreign laws and regulations are constantly evolving and can be subject to significant
change. As a result, the application, interpretation, and enforcement of these laws and regulations are often uncertain, particularly in the
new and rapidly evolving industry in which we operate, and may be interpreted and applied inconsistently from country to country and
inconsistently with our current policies and practices. For example, regulatory or legislative actions affecting the manner in which we
display content to our users could adversely affect user growth and engagement, and legislation implementing data protection
requirements or requiring local storage and processing of data or similar requirements could increase the cost and complexity of
delivering our services.
The existing and proposed laws and regulations, as well as any associated inquiries, investigations, or actions, can be costly to
comply with and can delay or impede the development of new products, result in negative publicity, increase our operating costs, require
significant management time and attention, and subject us to remedies that may harm our business, including fines or demands or orders
that we modify or cease existing business practices.
While we strive to protect our users’ privacy and comply with all applicable data protection laws and regulations, any failure or
perceived failure to do so may result in proceedings or actions against us by government entities or others, and could damage our
reputation, discourage current and potential users from using our products or services, and subject us to damages, administrative penalties
and criminal liabilities. From time to time, we may be subject to claims or allegations of infringement of users’ privacy or breach of
data protections laws. Negative publicity in relation to our products or services, regardless of its veracity, could seriously harm our
reputation, which in turn may discourage current and potential users from using our applications, which could have material adverse
effects on our business and results of operations. In addition, user and regulatory attitudes towards privacy are evolving, and future
regulatory or user concerns about the extent to which personal information is used by, accessible to or shared with customers or others
may adversely affect our ability to share certain data with customers.
Security breaches or hacking incidents could have a material adverse effect on our reputation, business prospects and results of
operations.
Any significant breach of the security of our computer systems could significantly harm our business, reputation and results of
operations and expose us to lawsuits brought by our users and customers and to sanctions by governmental authorities in the jurisdictions
in which we operate and may result in significant damage to our internet security brand. We cannot assure you that our IT systems will
be completely secure from future security breaches or hacking incidents. Anyone who is able to circumvent our security measures could
misappropriate proprietary information, including the personal information of our users, obtain users’ names and passwords and enable
hackers to access users’ other online and mobile accounts, if those users use identical user names and passwords. They could also
misappropriate other information, including financial information, uploaded by our users in a secure environment. These circumventions
may cause interruptions in our operations or damage our brand image and reputation. Our servers may be vulnerable to computer viruses,
physical or electronic break-ins and similar disruptions, which could cause system interruptions, website slowdown or unavailability,
delays in communication or transactions, or loss of data. We may be required to incur significant additional costs to protect against
security breaches or to alleviate problems caused by such breaches. Any significant security breach or attack on our system could result
in a material adverse impact on our reputation, business prospects and results of operations.
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The successful operation of our business depends upon the performance and reliability of the internet infrastructure in China and
the safety of our network and infrastructure.
Our business depends on the performance and reliability of the internet infrastructure in China. Almost all access to the internet
is maintained through state-owned telecommunication operators under the administrative control and regulatory supervision of the MIIT.
A more sophisticated internet infrastructure may not develop in China. We may not have access to alternative networks in the event of
disruptions, failures or other problems with China’s internet infrastructure. In addition, the internet infrastructure in China may not
support the demands associated with continued growth in internet usage. Although we believe we have sufficient controls in place to
prevent intentional disruptions, we expect our network and infrastructure may experience attacks specifically designed to impede the
performance of our products and services, misappropriate proprietary information or harm our reputation. Because the techniques used
by hackers to access or sabotage networks change frequently and may not be recognized until launched against a target, we may be
unable to anticipate them effectively. The theft, unauthorized use or publication of our trade secrets and other confidential business
information as a result of such an event could adversely affect our competitive position, brand reputation and user base, and our users
and customers may assert claims against us related to resulting losses arising from security breaches. Our business could be subject to
significant disruption and our results of operations may be affected.
We may not be able to regain our profitability in the future. In addition, we may not be able to obtain additional capital in a timely
manner or on acceptable terms, or at all.
We have incurred operating losses before and we may not be able to regain our profitability in the future as we continue to develop
our internet business and invest in artificial intelligence. Our future revenue growth and profitability will depend on a variety of factors,
many of which are beyond our control. These factors include our ability to successfully continue to timely anticipate and adequately
address the evolving needs of our users, customers and business partners, as well as our ability to attract new users, increase user
engagement, effectively design and implement monetization strategies, and compete effectively and successfully. Our ability to achieve
and sustain profitability is also affected by market and regulatory development related to, among others, mobile applications, online
marketing and artificial intelligence In addition, if we are unable to achieve profitability again, it may become more difficult for us to
raise sufficient capital to satisfy our anticipated capital expenditures and other cash needs, in which case our business, results of
operations and financial condition may be materially adversely affected.
We have granted, and may continue to grant, options, restricted shares and other types of share-based incentive awards, which may
result in increased share-based compensation expenses.
We adopted a share award scheme in May 2011, as amended in September 2013 and November 2016, a 2013 equity incentive
plan in January 2014, a 2014 restricted shares plan in April 2014, a 2023 share incentive plan in April 2023, or the 2023 Plan, and
several equity incentive plan of our subsidiaries, pursuant to which we are authorized to grant options, restricted shares and other awards
to our directors, officers, other employees and consultants, as each plan may provide. See “Item 6. Directors, Senior Management and
Employees—B. Compensation—Share Incentive Awards.” In 2022, 2023 and 2024, we recorded RMB7.9 million, RMB33.6 million
and RMB26.1 million (US$3.6 million), respectively, of share-based compensation expenses. The amount of these expenses is based on
the fair value of the share-based incentive awards we granted, and the recognition of unrecognized share-based compensation expenses
will depend on the forfeiture rate of our unvested share-based awards. Expenses associated with share-based compensation have affected
our net income and may reduce our net income in the future, and any additional securities issued pursuant to share-based incentive
awards will dilute the ownership interests of our shareholders, including holders of the ADSs. We believe the granting of share-based
incentive awards is of significant importance to our ability to attract and retain key personnel, employees and consultants, and we will
continue to grant share-based incentive awards in the future. As a result, our share-based compensation expenses may increase, which
may have an adverse effect on our results of operations.
We may be the subject of anti-competitive, harassing or other detrimental conduct that could harm our reputation and cause us to
lose users and customers and adversely affect the price of the ADSs.
We may be the target of anti-competitive, harassing or other detrimental conduct by third parties. Allegations, directly or indirectly
against us or any of our executive officers, may be posted on the internet, including on social media, blogs, micro-blogs, or websites by
anyone, whether or not well-founded, on an anonymous basis. In addition, third parties may file complaints, anonymous or otherwise,
to regulatory agencies. We may be subject to regulatory or internal investigation as a result of such third-party conduct and may be
required to expend significant time and incur substantial costs to address such third-party conduct, and there is no assurance that we will
be able to conclusively refute each of the allegations within a reasonable period of time, or at all. Additionally, our reputation could be
harmed as a result of the public dissemination of anonymous allegations or malicious statements about our business, which in turn may
cause us to lose users and customers and adversely affect our business and results of operations.
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If we fail to implement and maintain an effective system of internal control, 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 subject to reporting obligations under the U.S. securities laws. The SEC, as required by Section 404 of the Sarbanes-Oxley
Act of 2002, adopted rules requiring every public company to include a management report on our internal control over financial
reporting in its annual report, which contains management’s assessment of the effectiveness of its internal control over financial
reporting. In addition, the independent registered public accounting firm auditing the financial statements of a company that is not a
non-accelerated filer, emerging growth company or smaller reporting company under Rule 12b-2 of the Exchange Act must also attest
to the operating effectiveness of the company’s internal controls.
As a non-accelerated filer, we are not required to have our independent registered public accounting firm audit our internal controls
over financial reporting. As such, we cannot assure you that our independent registered public accounting firm will attest that internal
control over financial reporting is effective in future fiscal years. Without this attestation, investors may lose confidence in our reported
financial information, which could lead to a decline in the price of our ADSs, limit our ability to access the capital markets in the future,
and require us to incur additional costs to improve our internal control over financial reporting and disclosure control systems and
procedures. Further, if lenders and other debt financing sources lose confidence in the reliability of our financial statements, it could
have a material adverse effect on our ability to secure replacement or additional financing, or amendments to our existing secured credit
facilities, on terms acceptable to us or at all.
In connection with the preparation and external audit of our consolidated financial statements as of and for the year ended
December 31, 2024, we concluded that our internal control over financial reporting was effective as of December 31, 2024. See “Item
15. Controls and Procedures—Management’s Annual Report on Internal Control over Financial Reporting.”
We have limited business insurance coverage. Any interruption of our business may result in substantial costs to us and the diversion
of our resources, which could have an adverse effect on our financial condition and results of operations.
Insurance products available in China currently are not as extensive as those offered in more developed economies. Consistent
with customary industry practice in China, our business insurance is limited and we do not carry real property or business interruption
insurance to cover our operations. We have determined that the costs of insuring for related risks and the difficulties associated with
acquiring such insurance on commercially reasonable terms make it impractical for us to have such insurance. Any uninsured damage
to our systems or disruption of our business operations could require us to incur substantial costs and divert our resources, which could
have an adverse effect on our financial condition and results of operations.
Any catastrophe, including natural catastrophes, outbreaks of health pandemics or other extraordinary events, could disrupt our
business operations.
Our operations may be vulnerable to interruption and damage from natural or other catastrophes, including earthquakes, fire,
floods, hail, windstorms, severe winter weather (including snow, freezing water, ice storms and blizzards), environmental accidents,
power loss, communications failures, explosions, man-made events such as terrorist attacks and similar events, outbreaks of health
pandemics or other extraordinary events. We cannot predict the incidence, timing and severity of such events. If any catastrophe or
extraordinary event occurs in the future, our ability to operate our business could be seriously impaired. Such events could make it
difficult or impossible for us to deliver our services and products to our users and could decrease demand for our products. Because we
do not carry property insurance and significant time could be required to resume our operations, our financial position and results of
operations could be materially and adversely affected in the event of any major catastrophic event.
Risks Relating to Our Corporate Structure
If the PRC government finds that the structure we have adopted for our business operations does not comply with PRC governmental
restrictions on foreign investment in internet businesses, or if these laws or regulations or interpretations of existing laws or
regulations change in the future, we could be subject to severe penalties, including the shutting down of our platform and our
business operations.
Foreign ownership of internet-based, including mobile-based, businesses is subject to significant restrictions under current PRC
laws and regulations. The PRC government regulates internet access, distribution of internet information services and value-added
telecommunication services through strict business licensing requirements and other government regulations. These laws and regulations
also include limitations on foreign ownership of PRC companies that provide internet information services. According to the Special
Administrative Measures (Negative List) for Access of Foreign Investment (2024 Version) (the “Negative List (2024 Version)”), which
was issued by the NDRC and MOFCOM on September 6, 2024 and implemented on 1 November 2024, foreign investment in internet
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news information services, online publication services, online audio-visual program services, internet cultural business (except for
music) are prohibited, and foreign equity share in a value-added telecommunication business shall not exceed 50% (excluding e-
commerce, domestic multi-party communication, store-and-forward, and call center), and the basic telecommunication services shall be
controlled by the Chinese party. In addition, according to the Several Opinions on the Introduction of Foreign Investment in the Cultural
Industry promulgated by the MOC, the SARFT, the National Development and Reform Commission, or the NDRC, and the Ministry of
Commerce, or the MOFCOM, in July 2005, foreign investors are prohibited from investing in or operating, among other things, any
internet cultural operating entities. Companies providing mobile internet services such as ours are governed by these rules and
regulations on internet companies in China.
Cheetah Mobile Inc. is a Cayman Islands holding company with no equity ownership in the VIEs, and we conduct part of our
operations through the VIEs. The VIEs, together with their subsidiaries, contributed a portion of our consolidated revenues in the years
ended December 31, 2022, 2023 and 2024. We consolidate the VIEs through a series of contractual arrangements that those entities
and/or their shareholders signed with our company, our wholly-owned PRC subsidiaries, including but not limited to Beijing Kingsoft
Internet Security Software Co., Ltd., or Beijing Security, Conew Network Technology (Beijing) Co., Ltd., or Conew Network. Our
contractual arrangements with the VIEs and their shareholders enable us to consolidate the VIEs and give us the obligation to absorb
losses and the right to receive benefits of the VIEs, enabling us to consolidate their operating results. For a detailed description of these
contractual arrangements, see “Item 4. Information on the Company—C. Organizational Structure—Contractual Arrangements with the
VIEs.”
Holders of our Class A ordinary shares or the ADSs hold equity interest in a Cayman Islands holding company, but do not directly
or indirectly hold equity interest in the VIEs or their subsidiaries. If the PRC government deems that our contractual arrangements with
the consolidated variable interest entities do not comply with PRC regulatory restrictions 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. We may not be able to repay our indebtedness, and our
shares may decline in value or become worthless, if we are unable to assert our contractual control rights over the assets of the
consolidated variable interest entities, which contribute to 35.0% of our revenues in 2024. Our holding company in the Cayman Islands,
the consolidated variable interest entities, and investors of our company face uncertainty about potential future actions by the PRC
government that could affect the enforceability of the contractual arrangements with the consolidated variable interest entities and,
consequently, significantly affect the financial performance of the consolidated variable interest entities and our company as a group.
Based on the advice of our PRC legal counsel, Global Law Office, the contractual arrangements among our PRC subsidiaries, the
VIEs, their shareholders and us, as described in this annual report, are valid, legal and binding on each of the above-mentioned parties
thereto in accordance with the terms of respective contractual arrangements. However, we were further advised by Global Law Office
that there are substantial uncertainties regarding the interpretation and application of current or future PRC laws and regulations, and
that these laws or regulations or interpretations of these laws or regulations may change in the future. Furthermore, the relevant
government authorities have broad discretion in interpreting and implementing these laws and regulations. Accordingly, we cannot
assure you that PRC government authorities will not ultimately take a view contrary to that of our PRC legal counsel.
If our corporate structure, contractual arrangements and businesses of our company, or our PRC entities, including our PRC
subsidiaries and VIEs are found to be in violation of any existing or future PRC laws or regulations, the relevant governmental authorities
would have broad discretion in dealing with such violation, including:
•
levying fines or confiscating our income or the income of our PRC entities;
•
revoking or suspending the business licenses or operating licenses of our PRC entities;
•
shutting down our servers or blocking our platform, discontinuing or placing restrictions or onerous conditions on our
operations;
•
requiring us to discontinue or restrict our operations; and
•
taking other regulatory or enforcement actions that could be harmful to our business.
The imposition of any of these penalties would result in a material and adverse effect on our ability to conduct our business. In
addition, it is unclear what impact the PRC government actions would have on us and on our ability to consolidate the financial results
of our variable interest entities in our consolidated financial statements, if the PRC government authorities were to find our legal structure
and contractual arrangements to be in violation of PRC laws and regulations. If the imposition of any of these government actions causes
us to lose our right to direct the activities of our variable interest entities or our right to receive substantially all the economic benefits
and residual returns from our variable interest entities and we are not able to restructure our ownership structure and operations in a
satisfactory manner, we would no longer be able to consolidate the financial results of our variable interest entities in our consolidated
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financial statements. Either of these results, or any other significant penalties that might be imposed on us in this event, would have a
material adverse effect on our financial condition and results of operations.
Although we believe we, our PRC subsidiaries and the consolidated variable interest entities comply with current PRC laws and
regulations, we cannot assure you that the PRC government would agree that our contractual arrangements comply with PRC licensing,
registration or other regulatory requirements, with existing policies or with requirements or policies that may be adopted in the future.
The PRC government has broad discretion in determining rectifiable or punitive measures for non-compliance with or violations of PRC
laws and regulations. If the PRC government determines that we or the consolidated variable interest entities do not comply with
applicable law, it could revoke the consolidated variable interest entities’ business and operating licenses, require the consolidated
variable interest entities to discontinue or restrict the consolidated variable interest entities’ operations, restrict the consolidated variable
interest entities’ right to collect revenues, block the consolidated variable interest entities’ websites, require the consolidated variable
interest entities to restructure our operations, impose additional conditions or requirements with which the consolidated variable interest
entities may not be able to comply, impose restrictions on the consolidated variable interest entities’ business operations or on their
customers, or take other regulatory or enforcement actions against the consolidated variable interest entities that could be harmful to
their business. Any of these or similar occurrences could significantly disrupt our or the consolidated variable interest entities’ business
operations or restrict the consolidated variable interest entities from conducting a substantial portion of their business operations, which
could materially and adversely affect the consolidated variable interest entities’ business, financial condition and results of operations.
If any of these occurrences results in our inability to direct the activities of any of the consolidated variable interest entities that most
significantly impact its economic performance, and/or our failure to receive the economic benefits from any of the consolidated variable
interest entities, we may not be able to consolidate these entities in our consolidated financial statements in accordance with U.S. GAAP.
We rely on contractual arrangements with the VIEs and their shareholders for the operation of our business in China, which may
not be as effective as direct ownership.
Because of PRC restrictions on foreign ownership of internet businesses in China, we depend on contractual arrangements with
the VIEs, in which we have no ownership interest, to conduct our business in China. These contractual arrangements are intended to
provide us with effective control over these entities and allow us to obtain economic benefits from them. The shareholders of the VIEs
include, but not limited to, Mr. Sheng Fu, who is also our director, as well as Ms. Weiqin Qiu, Mr. Kun Wang and Mr. Wei Liu. For
additional details on these ownership interests, see “Item 4. Information on the Company—C. Organizational Structure—Contractual
Arrangements with the VIEs.” However, these contractual arrangements may not be as effective in providing control as direct ownership.
For example, the VIEs and their shareholders could breach their contractual arrangements with us by, among other things, failing to
operate our business in an acceptable manner or taking other actions that are detrimental to our interests. If we were the controlling
shareholder of these VIEs with direct ownership, we would be able to exercise our rights as shareholders to effect changes to their board
of directors, which in turn could implement changes at the management and operational level. However, under the current contractual
arrangements, as a legal matter, if the VIEs or their shareholders fail to perform their obligations under these contractual arrangements,
we may have to incur substantial costs to enforce such arrangements, and rely on legal remedies under PRC law, including contract
remedies, which may be time-consuming, unpredictable and expensive. If we are unable to enforce these contractual arrangements, or
if we suffer significant delay or other obstacles in the process of enforcing them, our business and operations could be severely disrupted,
which could materially and adversely affect our results of operations and damage our reputation. See “—Risks Relating to Doing
Business in China—Uncertainties in the interpretation and enforcement of Chinese laws and regulations could limit the legal protections
available to you and us.”
Substantial uncertainties exist with respect to the interpretation and implementation of PRC Foreign Investment Law and how it
may impact the viability of our current corporate structure, corporate governance and business operations.
On March 15, 2019, the Foreign Investment Law, or the FIL, was adopted and approved by Second Session of the 13th National
People’s Congress of China. On December 26, 2019, the Implementation Regulation for the Foreign Investment Law of the People’s
Republic of China, or the FIL Implementing Regulations, was issued by the State Council. Both the FIL and the FIL Implementing
Regulations came into force on January 1, 2020. The FIL and the FIL Implementing Regulations, upon taking effect, have replaced the
three existing laws on foreign investment (collectively “Three FDI law”), namely, the Law on Sino-Foreign Equity Joint Ventures, the
Law on Sino-Foreign Contractual Joint Ventures and the Law on Wholly Foreign Owned Enterprises, and become a fundamental law
of China in the foreign investment area, setting forth the basic legal framework in this regard.
According to the FIL, foreign investment may be conducted through the following four ways: (i) foreign investor, independently
or jointly with other investors, set up foreign-invested enterprises in China, (ii) foreign investors obtain shares, equities, property shares
or other similar rights and interests of Chinese domestic enterprises, (iii) foreign investor, independently or jointly with other investors,
invests in a new project (the “Project Investment”) and (iv) other forms stipulated under laws, administrative regulations and provisions
of the State Council. For more details, see “Item 4. Information on the Company—B. Business Overview—Regulations—Regulations
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of Foreign Investment”. It is worth noting that the FIL has removed the “variable interest equity” or VIE structure from the definition
of foreign investment and cancelled the standard of “actual control” to identify the foreign investment as was introduced in the draft of
the proposed Foreign Investment Law published by the MOFCOM in 2015, or the 2015 Draft.
Notwithstanding the above, the FIL stipulates that foreign investment include “other forms stipulated under laws and regulations”,
a catch-all clause which needs to be further clarified as to whether the VIE structure will be interpreted to fall within it. There are
possibilities that future laws, administrative regulations or provisions prescribed by the State Council may stipulate VIE structure as a
form of foreign investment, at which time it will be uncertain whether the VIE structure through which we conduct our operations will
be deemed to be in violation of the foreign investment access requirements and how the above-mentioned VIE structure will be handled.
Certain services we provide and businesses we operate through the VIEs are subject to the foreign investment restrictions or
prohibitions set forth in the Negative List (2024 Version). Where a foreign investor invests in a field or sector that is prohibited under
the Negative List, it will be ordered to stop the investment activities, dispose of the shares or assets or take other necessary measures
within a specified time limit, and restore to the status to be prior to the occurrence of the aforesaid investment, and the gains of such
foreign investor (if any) will be confiscated by competent authority.
If the VIE structure is deemed to be a form of foreign investment as interpreted by the FIL or future laws and regulations, we
may be required to dispose of our subsidiaries, or have to take other actions to adjust our corporate structure and operations, which could
have an adverse effect on our corporate structure, financial conditions and business operations.
The FIL also establishes several administration systems for foreign investment, amongst others, the information reporting system.
Foreign investors or FIEs are required to submit investment information to the competent authorities through the system of enterprises
registration and enterprise credibility disclosure. The FIL clearly stipulates that any company found to be non-compliant with these
information reporting obligations is subject to fines and other penalties. On December 30, 2019, the MOFCOM and SAMR issued the
Measures of Information Report of Foreign Investment, or the FI Information Report Measures, according to which foreign investors
establishing foreign investment enterprises in China shall submit an initial report through the Enterprise Registration System at the time
of completion of registration formalities for establishment of foreign investment enterprises.
Where there is a change in the information in the initial report which involves change registration (filing) of the enterprise, the
FIE shall submit the change report through the enterprise registration system at the time of completion of change registration (filing) for
the enterprise. In addition, FIEs are required to submit their annual reports for the previous year through the National Enterprise Credit
Information Publicity System from January 1 to June 30 each year. The MOFCOM and its local departments shall supervise and inspect
the compliance with the FI Information Report Measures, through random inspection and other methods.
The Foreign Investment Law and the FI Information Report Measures may also impact our corporate governance practice and
increase our compliance costs. For instance, the Foreign Investment Law imposes stringent ad hoc and periodic information reporting
requirements on foreign investors and the applicable FIEs. Aside from investment initial report and change report that are required at
each investment and alteration of investment specifics, an annual report is mandatory. Any company found to be non-compliant with
these information reporting obligations may potentially be subject to fines and/or administrative or criminal liabilities, and the persons
directly responsible may be subject to criminal liabilities.
Our contractual arrangements with the VIEs may result in adverse tax consequences to us.
As a result of our corporate structure and the contractual arrangements among our PRC subsidiaries, the VIEs, their shareholders
and us, we are effectively subject to PRC value-added tax and related surcharges on revenues generated by our subsidiaries from our
contractual arrangements with the VIEs. The PRC Enterprise Income Tax Law, or the EIT Law, requires every enterprise in China to
submit its annual enterprise income tax return together with a report on transactions with its affiliates or related parties to the relevant
tax authorities. These transactions may be subject to audit or challenge by the PRC tax authorities within ten years after the taxable year
during which the transactions are conducted. In addition, on March 18, 2015, the State Administration of Taxation, or the SAT, issued
the Bulletin Regarding the Enterprise Income Tax Matter in Relation to Enterprise’s Payment of Fees to Overseas Affiliated Parties, or
the Bulletin 16, to further regulate the transfer pricing issues in relation to the fees payment to affiliated parties. Among other things,
the Bulletin 16 makes it clear that the fees paid to overseas affiliated parties in the following situations cannot be deducted from the
taxable income when determining a PRC company’s enterprise income tax: (a) the fees paid to an overseas affiliated party which has
no substantial operating activities; (b) the fees paid to an overseas affiliated party for labor service that would bring direct or indirect
economic interests; (c) royalties paid for intangible properties to which the affiliated party that charges the fees only has legal title but
has made no contribution to the creation of the value of such properties; and (d) the fees paid under arrangements made for listing or
financing purposes. Furthermore, on March 17, 2017, the SAT promulgated the Announcement of the State Administration of Taxation
on Promulgating the Administrative Measures for Special Tax Investigation Adjustments and Mutual Agreement Procedures, or Bulletin
35
6, which become effective as of May 1, 2017. The Bulletin 6 specifies further the provisions in Bulletin 16, regulating the basic rules
about the income distribution of intangible properties, payments for labor service and no substantial operating activities and so on.
Meanwhile, it abolished the application of Bulletin 16 since May 1, 2017. We may be subject to adverse tax consequences if the PRC
tax authorities were to determine that the contracts between us and the VIEs were not on an arm’s length basis and therefore constituted
improper transfer pricing arrangements. If this occurs, the PRC tax authorities could request that the VIEs and any of their respective
subsidiaries adjust their taxable income upward for PRC tax purposes. Such a pricing adjustment could adversely affect us by reducing
expense deductions recorded by such VIEs and thereby increasing these entities’ tax liabilities, which could subject these entities to late
payment fees and other penalties for the underpayment of taxes. Our consolidated net income may be adversely affected if the VIEs’
tax liabilities increase or if they become subject to late payment fees or other penalties.
The shareholders of the VIEs may have potential conflicts of interest with us, which may materially and adversely affect our
business.
The shareholders of the VIEs include, but not limited to, Mr. Sheng Fu who is also our director, as well as Ms. Weiqin Qiu, Mr.
Kun Wang and Mr. Wei Liu. Conflicts of interest may arise between their roles as shareholders, directors or officers of our company
and as shareholders of the VIEs. We rely on these individuals to abide by the laws of the Cayman Islands, which provide that directors
and officers owe a fiduciary duty to our company to act in good faith and in the best interest of our company and not to use their positions
for personal gain. Although the shareholders of the VIEs have executed shareholder voting proxy agreements to irrevocably appoint our
company or a person designated by our company to vote on their behalf and exercise voting rights as shareholders of the VIEs, we
cannot assure you that when conflicts arise under those agreements or otherwise, the shareholders of the VIEs will act in the best interest
of our company or that conflicts will be resolved in our favor. If we cannot resolve any conflicts of interest or disputes between us and
these shareholders, we would have to rely on legal proceedings, which may be expensive, time-consuming and disruptive to our
operations. There is also substantial uncertainty as to the outcome of any such legal proceedings.
Kingsoft Corporation, one of our principal shareholders, and our founders have substantial influence over our company and their
interests may not be aligned with the interests of our other shareholders, which may discourage, delay or prevent a change in control
of our company and could deprive our shareholders of an opportunity to receive a premium for their securities.
As of March 31, 2025, Kingsoft Corporation, one of our principal shareholders, and Mr. Sheng Fu, directly or through their
holding vehicles, together beneficially own an aggregate of 52.5% of our total outstanding Class A and Class B ordinary shares, and
71.9% of the total voting power. This concentration of ownership may discourage, delay or prevent a change in control of our company,
which could deprive our shareholders of an opportunity to receive a premium for their shares as part of any contemplated sale of our
company and may reduce the price of our ADSs. Furthermore, in the event that the voting proxy agreement between Kingsoft
Corporation and Mr. Sheng Fu is terminated, we may become a consolidated subsidiary of Kingsoft Corporation, which is a Cayman
Islands company publicly listed on the Hong Kong Stock Exchange. As a result, we may be subject to rules and regulations promulgated
by the Hong Kong Stock Exchange, and Kingsoft Corporation will be able to exert greater influence over us, which may lead to potential
conflicts of interest between Kingsoft Corporation and us involving arrangement of our board composition, disposal of equity interest
in our company and allocation of business opportunities, among other matters.
We may lose the ability to use and enjoy vital assets held by the VIEs if they go bankrupt or become subject to a dissolution or
liquidation proceeding.
Some of the VIEs hold certain assets that are essential to the operations of our platform and important to the operation of our
business in China, such as the ICP Licenses, patent applications and software copyrights for the proprietary technology. If any of these
entities goes bankrupt and all or part of its assets become subject to liens or rights of third-party creditors, we may be unable to continue
some or all of our business activities, which could materially and adversely affect our business, financial condition and results of
operations. If any of such entities undergoes a voluntary or involuntary liquidation proceeding, the unrelated third-party creditors may
claim rights to some or all of these assets, thereby hindering our ability to operate our business, which could materially and adversely
affect our business, financial condition and results of operations.
36
Risks Relating to Doing Business in China
Uncertainties in the interpretation and enforcement of Chinese laws and regulations could limit the legal protections available to
you and us.
The PRC legal system is based on written statutes and prior court decisions have limited value as precedents. Since these laws
and regulations are relatively new and the PRC legal system continues to rapidly evolve, the interpretations of many laws, regulations
and rules are not always uniform and enforcement of these laws, regulations and rules involves uncertainties.
From time to time, we may have to resort to administrative and court proceedings to enforce our legal rights. However, certain
administrative and court proceedings in China may be protracted, resulting in substantial costs and diversion of resources and
management attention. Furthermore, the PRC legal system is based in part on government policies some of which are not published or
not on a timely basis. As a result, we may not be aware of any violation of these policies and rules until after such violation. Such
unpredictability, including uncertainty as to the scope and effect of our contractual, property (including intellectual property) and
procedural rights, could materially and adversely affect our business and impede our ability to continue our operations.
Failure to meet the PRC government’s complex regulatory requirements on our business operation could have a material adverse
effect on our operations and the value of our ADSs.
We conduct our business primarily through the consolidated variable interest entities and their subsidiaries in China. Our
operations in China are governed by PRC laws and regulations. The PRC government has significant oversight over the conduct of our
business according to the laws and regulations of mainland China. However, since the PRC legal system continues to rapidly evolve
and many laws and regulations are relatively new, the interpretation and enforcement of these laws, regulations and rules involve
uncertainties. The PRC government has recently published new policies that significantly affected certain industries and we cannot rule
out the possibility that it will in the future release regulations or policies that directly or indirectly affect our industry or require us to
seek additional permission to continue our operations, which could result in a material adverse change in our operation and/or the value
of our ADSs.
The approval of and filing with the CSRC or other PRC government authorities may be required in connection with our future
offshore offerings under PRC law, and, if required, we cannot predict whether or for how long we will be able to obtain such approval
or complete such filing.
On July 6, 2021, the relevant PRC government authorities issued Opinions on Lawfully and Severely Combating Illegal Securities
Activities. These opinions emphasized the need to strengthen the administration over illegal securities activities and the supervision on
overseas listings by China-based companies and proposed to take effective measures, such as promoting the construction of relevant
regulatory systems to deal with the risks and incidents faced by China-based overseas-listed companies. For more details of the relevant
regulations, see “Item 4. Information on the Company—B. Business Overview—Regulations—Regulations on Overseas Offering and
Listing.”
On December 28, 2021, twelve regulatory authorities jointly released the Cybersecurity Review Measures, which became effective
on February 15, 2022. The Cybersecurity Review Measures also provides that a platform operator with more than one million users’
personal information aiming to list abroad must apply for cybersecurity review. New York Stock Exchange fall within the definition of
“abroad” in the provision, however, we are already listed on the New York Stock Exchange, therefore, there can be no assurance if we
are required to follow the Cybersecurity review or the security assessment procedures, and if so, whether we would be able to complete
the applicable cybersecurity review or the security assessment procedures in a timely manner. For more details of the relevant
regulations, see “Item 4. Information on the Company—B. Business Overview—Regulations—Regulations on Overseas Offering and
Listing.”
On February 17, 2023, the CSRC issued the Trial Administrative Measures and five supporting guidelines, which became effective
on March 31, 2023. According to the Trial Administrative Measures, the overseas offering and listing by a domestic company, whether
directly or indirectly, shall be filed with the CSRC. And subsequent securities offerings of a public company in the same overseas market
where it has previously offered and listed securities shall be filed with the CSRC within 3 working days after the offering is completed.
Subsequent securities offerings and listings of a public company in other overseas markets than where it has offered and listed shall be
filed pursuant to provisions in the first paragraph of this Article of the Trial Administrative Measures.
On February 24, 2023, CSRC and the other relevant PRC government authorities issued the Provisions on Strengthening
Confidentiality and Archives Administration of Overseas Securities Offering and Listing by Domestic Companies (the “Confidentiality
and Archives Administration Provisions”), which became effective on March 31, 2023, according to which a domestic company,
including a joint-stock company incorporated domestically that conducts direct overseas offering and listing, and a domestic operating
37
entity of a company that conducts indirect overseas offering and listing, its securities in an overseas market shall strictly abide by
applicable PRC laws and regulations, enhance legal awareness of keeping state secrets and strengthening archives administration,
institute a sound confidentiality and archives administration system, and take necessary measures to fulfill confidentiality and archives
administration obligations.
In addition, we cannot assure you that any new rules or regulations promulgated in the future will not impose additional
requirements on us. If it is determined in the future that approval and filing from the CSRC or other regulatory authorities or other
procedures, including the Cybersecurity review under the Cybersecurity Review Measures and the National Security Review under the
Regulations on the Network Data Security Management, are required for our offshore offerings, it is uncertain whether we can or how
long it will take us to obtain such approval or complete such filing procedures and any such approval or filing could be rescinded or
rejected. Any failure to obtain or delay in obtaining such approval or completing such filing procedures for our offshore offerings, or a
rescission of any such approval or filing if obtained by us, would subject us to sanctions by the CSRC or other PRC regulatory authorities
for failure to seek CSRC approval or filing or other government authorization for our offshore offerings. These regulatory authorities
may impose fines and penalties on our operations in China, limit our ability to pay dividends outside of China, limit our operating
privileges in China, delay or restrict the repatriation of the proceeds from our offshore offerings into China or take other actions that
could materially and adversely affect our business, financial condition, results of operations, and prospects, as well as the trading price
of our listed securities. The CSRC or other PRC regulatory authorities also may take actions requiring us, or making it advisable for us,
to halt our offshore offerings before settlement and delivery of the shares offered. Consequently, if investors engage in market trading
or other activities in anticipation of and prior to settlement and delivery, they do so at the risk that settlement and delivery may not occur.
In addition, if the CSRC or other regulatory authorities later promulgate new rules or explanations requiring that we obtain their
approvals or accomplish the required filing or other regulatory procedures for our prior offshore offerings, we may be unable to obtain
a waiver of such approval requirements, if and when procedures are established to obtain such a waiver. Any uncertainties or negative
publicity regarding such approval requirement could materially and adversely affect our business, prospects, financial condition,
reputation, and the trading price of our listed securities.
A severe or prolonged downturn in the global economy could materially and adversely affect our business and financial condition.
The global macroeconomic environment was, and may continue to be facing numerous challenges. The growth rate of the Chinese
economy had already been slowing since 2010. There is considerable uncertainty over the long-term effects of the expansionary
monetary and fiscal policies which had been adopted by the central banks and financial authorities of some of the world’s leading
economies, including the United States and China. In the event of a re-occurrence or outbreak of any health pandemics, and if we cannot
effectively mitigate the risks posed by such health pandemics, our operations will be negatively impacted. The conflicts in Ukraine and
the imposition of broad economic sanctions on Russia could raise energy prices and disrupt global markets. Unrest, terrorist threats and
brutal wars in the Middle East and elsewhere may increase market volatility across the globe. There have also been concerns about the
relationship between China and other countries, including the surrounding Asian 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
trade policies, treaties, government regulations and tariffs. Any severe or prolonged slowdown in the global economy may materially
and adversely affect our business, results of operations and financial condition.
We may be adversely affected by the complexity of, and uncertainties and changes in, PRC regulation on internet and artificial
intelligence businesses and companies.
The PRC government extensively regulates the internet industry, including foreign ownership of, and the licensing and permit
requirements pertaining to, companies in the internet industry, including mobile internet companies. These internet-related laws and
regulations are evolving, and their interpretation and enforcement involve significant uncertainty. As a result, in certain circumstances
it may be difficult to determine what actions or omissions may be deemed to be in violations of applicable laws and regulations. Issues,
risks and uncertainties relating to PRC regulation of the internet business include, but are not limited to, the following:
On July 13, 2006, the MIIT issued the Circular of the Ministry of Information Industry on Strengthening the Administration of
Foreign Investment in Value-added Telecommunications Services. This circular requires foreign investors can only operate a
telecommunications business in China through establishing a telecommunications enterprise with a valid telecommunications business
operation license, and prohibits domestic telecommunication service providers from leasing, transferring or selling telecommunication
business operating licenses to any foreign investor in any form, or providing any resources, sites or facilities to any foreign investor for
their illegal operation of a telecommunication business in China. According to this circular, either the holder of a value-added
telecommunications business operation license or its shareholders must directly own the domain names and trademarks used by such
license holders in their provision of value-added telecommunications services. The circular also requires each license holder to have the
necessary facilities, including servers, for its approved business operations and to maintain such facilities in the regions covered by its
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license. However, due to the lack of any additional interpretation from the regulatory authorities, it remains unclear what impact such
circular will have on us or the other PRC internet companies with similar corporate and contractual structures.
There is uncertainty relating to the evolving licensing practices and the requirement for real-name registrations. For example, we
were previously required under the PRC law to request users to provide their real names and personal information only in regard to the
bulletin board system services that we provided in support of our applications and online game operations. However, pursuant to the
Administrative Measure on Usernames of Internet Users’ Accounts, which became effective in March 2015, we are required to request
users to provide their real names and personal information for user registration regardless of the kind of internet information services
that we provide. We cannot assure you that PRC regulators would not require us to implement compulsory real-name registration in the
future. Furthermore, we may fail to obtain or renew permits or licenses that are or may be deemed necessary for our operations. See “—
Risks Relating to Our Business and Industry—If we fail to obtain and maintain the requisite licenses and approvals or otherwise comply
with the laws and regulations under the complex regulatory environment applicable to our businesses in China, or if we are required to
take actions that are time-consuming or costly, our business, financial condition and results of operations may be materially and
adversely affected” and “Item 4. Information on the Company— B. Business Overview—Regulations.”
The evolving PRC regulatory system for the internet industry may lead to establishment of new regulatory agencies. For example,
in August 2014, the CAC took over the administrative role to supervise internet content management in China. Since then, new laws,
regulations or policies have been promulgated or announced that regulate internet activities, including internet publication and online
advertising businesses, and we may not be able to fully and timely comply with such new laws, regulations or policies. If these new
laws, regulations or policies are promulgated, additional licenses may be required for our operations. If our operations do not comply
with these new regulations after they become effective, or if we fail to obtain any licenses required under these new laws and regulations,
we could be subject to penalties.
On July 10, 2023, the CAC, consented by NDRC Ministry of Education, Ministry of Science and Technology, MIIT, Ministry of
Public Security, National Radio and Television Administration, promulgated the Provisional Administrative Measures for Generative
Artificial Intelligence Services (“Generative Artificial Intelligence Services Measures”), effective on August 15, 2023. The Generative
Artificial Intelligence Services Measures impose compliance requirements for providers of generative AI services to the general public
within the territory of PRC. The Generative Artificial Intelligence Services Measures provide, among other things, that the provider of
generative AI services of text, image, audio or video to the general public shall (i) assume the responsibilities as the producers of the
Al-generated content thereon, and (ii) any provider of generative artificial intelligence services with attribute of public opinions or
capable of social mobilization shall conduct security assessment in accordance with the relevant regulations, and complete the formalities
for algorithm filing, change or deregistration in accordance with Provisions on the Administration of Algorithm-generated
Recommendations for Internet Information Services. As of the date of this annual report, our large language model, “OrionStar”, has
already been got Algorithm Filing for in-country deep synthesis services (service technology supporter), and completed the large
language model filing. We also have some application products based on large language model passing the security assessment as
required by various application markets. With our PRC Legal Advisor's view as mentioned above, we are of the view that the Generative
Artificial Intelligence Services Measures will not have a material adverse impact on our current and future business operations and
financial performance. Nevertheless, there can be no assurance that the relevant authorities will not take a view that is contrary to or
otherwise different from that of our PRC Legal Advisor, and it is also possible that the PRC government authorities may require us to
apply for security assessment or complete the other filing, change or deregistration formalities of algorithms for other reasons.
The interpretation and application of existing PRC laws, regulations and policies and possible new laws, regulations or policies
relating to the internet industry have created substantial uncertainties regarding the legality of existing and future foreign investments
in, and the businesses and activities of, mobile and PC internet businesses in China, including our business. There are also risks that we
may be found to have violated existing or future laws and regulations given the uncertainty and complexity of China’s regulation of
internet business.
Content posted or displayed on our mobile and PC platforms and applications such as duba.com, including advertisements, may be
found objectionable by PRC regulatory authorities and may subject us to penalties and other severe consequences.
The PRC government has adopted regulations governing internet and wireless access and the distribution of information over the
internet and wireless telecommunication networks. Under these regulations, internet content providers and internet publishers are
prohibited from posting or displaying over the internet or wireless networks content that, among other things, violates PRC laws and
regulations, impairs the national dignity of China or the public interest, or is obscene, superstitious, fraudulent or defamatory.
Furthermore, internet content providers are also prohibited from displaying content that may be deemed by relevant government
authorities as “socially destabilizing” or leaking “state secrets” of the PRC. Meanwhile, the network information content service
platforms are required to fulfill their primary responsibilities for management of information contents, and are required not to
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disseminate any illegal information as mentioned in the Provisions on Governance of the Network Information Content Ecology released
by the CAC on December 15, 2019, with effect from March 1, 2020.
Also, according to the Administrative Provisions on Mobile Internet Applications Information Services released by the CAC
revised on June 14, 2022, APP providers and APP distribution platforms shall perform the primary responsibility for information content
management, actively cooperate with the State to implement the strategy of trusted identities in cyberspace, establish sound information
content security management systems, information content ecological governance systems, data security and personal information
protection systems, minor protection systems and other management systems to ensure cyber security and maintain a good network
ecology. Failure to comply with these requirements may result in the revocation of licenses to provide internet content or other licenses,
the closure of the concerned platforms and reputational harm. The operator may also be held liable for any censored information
displayed on or linked to their platform, and hence we may also be subject to potential liability for any unlawful actions by our users or
customers on our platform. For a detailed discussion, see “Item 4. Information on the Company—B. Business Overview—Regulations.”
Since our inception, we have worked to monitor the content on our platform and applications and to make the utmost effort to
comply with relevant laws and regulations. However, it may not be possible to determine in all cases the types of content that could
result in our liability as a distributor of such content and, if any of the content posted or displayed on our mobile and PC platforms and
applications is deemed by the PRC government to violate any content restrictions, we would not be able to continue to display such
content and could become subject to penalties, including confiscation of income, fines, suspension of business and revocation of required
licenses, which could materially and adversely affect our business, financial condition and results of operations. The costs of monitoring
the content on our platform and applications may also continue to increase as a result of more content being made available by an
increasing number of users and customers on our mobile and PC applications.
In addition, under PRC advertising laws and regulations, we are obligated to monitor the advertising content shown on our
platform and applications to ensure that such content is true, accurate and in full compliance with applicable laws and regulations. Where
a special government review is required for specific types of advertisements prior to internet posting, such as advertisements relating to
pharmaceuticals, medical instruments, agrochemicals and veterinary pharmaceuticals, we are obligated to confirm that such review has
been performed and approval has been obtained.
Violation of these laws and regulations may subject us to penalties, including fines, confiscation of our advertising income, orders
to cease dissemination of the advertisements and orders to publish an announcement correcting the misleading information. In
circumstances involving serious violations by us, PRC governmental authorities may force us to terminate our advertising operations or
revoke our licenses.
While we have made significant efforts to ensure that the advertisements shown on our mobile and PC platforms and applications
are in full compliance with applicable PRC laws and regulations, we cannot assure you that all the content contained in such
advertisements or offers is true and accurate as required by the advertising laws and regulations, especially given the uncertainty in the
interpretation of these PRC laws and regulations. If we are found to be in violation of applicable PRC advertising laws and regulations,
we may be subject to penalties and our reputation may be harmed, which may have a material and adverse effect on our business,
financial condition, results of operations and prospects.
You may experience difficulties in effecting service of legal process, enforcing foreign judgments or bringing actions in China
against us or our management named in this annual report based on foreign laws.
We are an exempted company incorporated under the laws of the Cayman Islands. However, we conduct most of our operations
in China and substantially all of our assets are located in China. In addition, all our senior executive officers reside within China and all
of them are PRC nationals. As a result, it may be difficult for you to effect service of process upon us or our management residing in
China. In addition, China does not have treaties providing for reciprocal recognition and enforcement of judgments of courts with the
Cayman Islands and many other countries and regions. Therefore, recognition and enforcement in China of judgments of a court in any
of these non-PRC jurisdictions in relation to any matter not subject to a binding arbitration provision may be difficult or impossible.
There is uncertainty as to whether the judgment of United States courts will be directly enforced in Hong Kong, as the United
States and Hong Kong do not have a treaty or other arrangements providing for reciprocal recognition and enforcement of judgments of
courts of the United States in civil and commercial matters. However, a foreign judgment may be enforced in Hong Kong at common
law by bringing an action in a Hong Kong court since the judgment may be regarded as creating a debt between the parties to it, provided
that the foreign judgment, among other things, is a final judgment conclusive upon the merits of the claim and is for a liquidated amount
in a civil matter and not in respect of taxes, fines, penalties, or similar charges. Such a judgment may not, in any event, be so enforced
in Hong Kong if (a) it was obtained by fraud; (b) the proceedings in which the judgment was obtained were opposed to natural justice;
(c) its enforcement or recognition would be contrary to the public policy of Hong Kong; (d) the court of the United States was not
jurisdictionally competent; or (e) the judgment was in conflict with a prior Hong Kong judgment.
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New tariffs and retaliatory measures may adversely affect the global economy, which could negatively impact our results of
operations.
The latest changes in trade policies, such as the introduction of new tariffs and other trade restrictions by the U.S. government,
could substantially affect both the domestic and global economies. In April 2025, the U.S. government and China had introduced
additional tariff regime, and may further implement, measures in response to new trade policies, treaties and tariffs. Governments might
impose tariffs on imported goods, thereby increasing costs for businesses and consumers. In addition, governments could retaliate with
their own tariffs and trade barriers, further disrupting global supply chains, raising costs, and generating economic uncertainty.
These trade policies could lead to slower economic growth, higher inflation, and greater market volatility, which in turn might
negatively affect government revenues and budgetary allocations. Should economic conditions worsen due to new tariffs or retaliatory
measures, government spending could be cut. Any such reduction in government expenditures could significantly and adversely impact
our financial condition, results of operations, and future prospects.
Moreover, tariffs imposed in the U.S. or other regions could potentially affect our manufacturing costs of robotic components and
overseas sales of robots, which may influence our pricing strategies and gross margins. Such price adjustments might also affect our
competitive positioning in certain markets, particularly compared to competitors with different supply chain structures and distribution
channels.
In addition, uncertainty surrounding international trade policy and regulations as well as disputes and protectionist measures could
also have an adverse effect on consumer confidence and spending. This, in turn, our overseas online advertising business as well as our
global to B services, which include advertising agency and multi-cloud management services that dedicated to enable Chinese customers
to expand their overseas businesses, would be adversely affected.
We cannot foresee the nature, timing, or scope of future trade policies, nor the extent of their economic impact. However, any
significant decrease in government spending resulting from economic downturns related to trade tensions could reduce demand for our
products and services, disrupt our supply chain, and negatively affect our overall business operations.
It may be difficult for overseas regulators to conduct investigation, collect evidence, or obtain materials or data within China.
Shareholder claims or regulatory investigation that are common in the United States generally are difficult to pursue as a matter
of law or practicality in China. For example, in China, there are significant legal and other obstacles to providing information needed
for regulatory investigations or litigation initiated outside China. Although the authorities in China may establish a regulatory
cooperation mechanism with the securities regulatory authorities of another country or region to implement cross-border supervision
and administration, such cooperation with the securities regulatory authorities in the Unities States may not be efficient in the absence
of mutual and practical cooperation mechanism.
According to Article 177 of the PRC Securities Law, or Article 177, which became effective in March 2020, no overseas securities
regulator is allowed to directly conduct investigation or evidence collection activities within the territory of the PRC. Without the consent
of the securities authorities and the relevant competent authorities of the State Council, no entity or individual may provide documents
or materials relating to securities business activities to overseas. Also, according to Article 36 of the Data Security Law, which became
effective in September 2021, the competent authority of the People’s Republic of China shall, in accordance with the relevant laws or
the international treaties and agreements concluded or acceded to by the People’s Republic of China, or on the principle of equality and
reciprocity, handle the requests for provision of data from foreign judicial or law enforcement organizations. Without the approval of
the competent authorities of the People’s Republic of China, no organization or individual shall provide the data stored within the
territory of the People’s Republic of China to foreign judicial or law enforcement organizations.
According to Article 4 of the Measures for the Security Assessment of Outbound Data Transfers, which became effective in
September 2022, for an outbound data transfer by a data processor that falls under specific circumstances, the data processor shall apply
to the national cyberspace administration authority for the security assessment via the local provincial-level cyberspace administration
authority. While detailed interpretation of or implementation rules have yet to be promulgated, the inability for an overseas securities
regulator to directly conduct investigation, evidence collection, or data acquisition activities within China may further increase
difficulties faced by you in protecting your interests. Also, on February 24, 2023, CSRC and other three PRC regulatory authorities
jointly issued the Confidentiality and Archives Administration Provisions, which will take effect on March 31, 2023, according to which,
overseas securities regulators and competent overseas authorities may request to inspect, investigate or collect evidence from a domestic
company concerning its overseas offering and listing or from the domestic securities companies and securities service providers that
undertake relevant businesses for such domestic companies, such inspection, investigation and evidence collection shall be conducted
under a cross-border regulatory cooperation mechanism, and the CSRC or other competent Chinese authorities will provide necessary
41
assistance pursuant to bilateral and multilateral cooperation mechanisms. The domestic company, securities companies and securities
service providers shall first obtain approval from the CSRC or other competent Chinese authorities before cooperating with the
inspection and investigation by the overseas securities regulator or competent overseas authority, or providing documents and materials
requested in such inspection and investigation. As the Confidentiality and Archives Administration Provisions are relatively new, there
are uncertainties with respect to their interpretation and implementation. See also “—Risks Relating to the ADSs—You may face
difficulties in protecting your interests, and your ability to protect your rights through U.S. courts may be limited, because we are
incorporated under Cayman Islands law” for risks associated with investing in us as a Cayman Islands company.
Under the PRC Enterprise Income Tax Law, we may be classified as a PRC “resident enterprise,” which could result in unfavorable
tax consequences to us and our shareholders and have a material adverse effect on our results of operations and the value of your
investment.
Under the PRC EIT Law and its implementation rules, enterprises established outside the PRC with “de facto management bodies”
within the PRC may be considered PRC tax resident enterprise for tax purpose and may be subject to the PRC enterprise income tax at
the rate of 25% on their global income. On April 22, 2009, the SAT issued the Notice Regarding the Determination of Chinese-
Controlled Overseas Incorporated Enterprises as PRC Tax Resident Enterprise on the Basis of De Facto Management Bodies, or SAT
Circular 82, which was most recently amended on December 29, 2017. SAT Circular 82 provides certain specific criteria for determining
whether the “de facto management body” of a PRC-controlled enterprise that is incorporated offshore is located in China.
According to SAT Circular 82, an offshore incorporated enterprise controlled by a PRC enterprise or a PRC enterprise group will
be considered as a PRC tax resident enterprise by virtue of having its “de facto management body” in China and will be subject to PRC
enterprise income tax on its worldwide income only if all of the following conditions are met: (a) the senior management and core
management departments in charge of its daily operations function have their presence mainly in the PRC; (b) its financial and human
resources decisions are subject to determination or approval by persons or bodies in the PRC; (c) its major assets, accounting books,
company seals, and minutes and files of its board and shareholders’ meetings are located or kept in the PRC; and (d) more than half of
the enterprise’s directors or senior management with voting rights habitually reside in the PRC. SAT Bulletin 45 specifies that, when
provided with a copy of Chinese tax resident determination certificate from a resident Chinese controlled offshore incorporated
enterprise, the payer should not withhold 10% income tax when paying the Chinese-sourced dividends, interest, royalties, etc. to the
Chinese controlled offshore incorporated enterprise.
Although SAT Circular 82 only apply to offshore incorporated enterprises controlled by PRC enterprises or PRC enterprise groups
and not those controlled by PRC individuals or foreigners, the determination criteria set forth therein may reflect the SAT’s general
position on how the term “de facto management body” could be applied in determining the tax resident status of offshore enterprises,
regardless of whether they are controlled by PRC enterprises, individuals or foreigners. For more details of the relevant regulations, see
“Item 10. Additional Information—E. Taxation—People’s Republic of China Taxation.”
If the PRC tax authorities determine that we or any of our non-PRC subsidiaries is a PRC resident enterprise for PRC enterprise
income tax purposes, then we or any such non-PRC subsidiary could be subject to PRC tax at a rate of 25% on its worldwide income,
which could materially reduce our net income. In addition, we will also be subject to PRC enterprise income tax reporting obligations.
In that case, although dividends paid by one PRC tax resident to another PRC tax resident should qualify as “tax-exempt income”
under the EIT Law, we cannot assure you that dividends by our PRC subsidiaries to our non-PRC holding companies will not be subject
to a 10% withholding tax, as the PRC foreign exchange control authorities and the PRC tax authorities have not yet issued guidance
with respect to the processing of outbound remittances to entities that are treated as resident enterprises for PRC enterprise income tax
purposes.
If the PRC tax authorities determine that our company is a PRC resident enterprise for PRC enterprise income tax purposes,
dividends paid by us to non-PRC holders may be subject to PRC withholding tax, and gains realized on the sale or other disposition of
ADSs or ordinary shares may be subject to PRC tax, at a rate of 10% in the case of non-PRC enterprises or 20% in the case of non-PRC
individuals (in each case, subject to the provisions of any applicable tax treaty), if such dividends or gains are deemed to be from PRC
sources. Any such tax may reduce the returns on your investment in the ADSs.
We face uncertainties with respect to indirect transfer of assets or equity interest in PRC resident enterprises by their non-PRC
holding companies.
We face uncertainties regarding the reporting on and consequences of private equity financing transactions, share exchange or
other transactions involving the transfer of shares in our company by investors that are non-PRC resident enterprises, or sale or purchase
of shares in other non-PRC resident companies or other taxable assets by us. On February 3, 2015, SAT issued a new guidance (Bulletin
[2015] No. 7), or SAT Bulletin 7, on the PRC tax treatment of an indirect transfer of assets by a non-resident enterprise. Further, on
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October 17, 2017, SAT issued the Matters Regarding Withholding Corporate Income Tax at Source from Non-resident Enterprises
(Bulletin [2017] No. 37), or SAT Bulletin 37. According to SAT Bulletin 7 and SAT Bulletin 37, when a non-resident enterprise engages
in an indirect transfer of Chinese Taxable Assets, or Indirect Transfer, through an arrangement that does not have a bona fide commercial
purpose in order to avoid paying enterprise income tax, the transaction should be re-characterized as a direct transfer of the Chinese
assets and becomes taxable in China under the EIT Law, and gains derived from such indirect transfer may be subject to the PRC
withholding tax at a rate of up to 10%, and the party who is obligated to make the transfer payments has the withholding obligation. See
“Item 4. Information on the Company—B. Business Overview—Regulations—Regulation on Tax” and “Item 10. Additional
Information—E. Taxation—People’s Republic of China Taxation” for further details. There is uncertainty as to the application of SAT
Bulletin 7 and 37. SAT Bulletin 7 and 37 may be determined by the tax authorities to be applicable to the transfer of shares of our
company by non-PRC resident investors, or the sale or purchase of shares in other non-PRC resident companies or other taxable assets
by us, if any of such transactions were determined by the tax authorities to lack any reasonable commercial purpose. As a result,
depending on whether we are the transferor or transferee in such transactions, we or the non-resident investors may become at risk of
being taxed under SAT Bulletin 7 and 37, and we may have to incur expenses to comply with SAT Bulletin 7 and 37, including the
withholding and reporting obligations thereunder, or to establish that we should not be taxed under the general anti-avoidance rule of
the EIT Law, which may have a material adverse effect on our financial condition and results of operations or such non-resident
investors’ investments in us.
If our preferential tax treatments are revoked, become unavailable or if the calculation of our tax liability is successfully challenged
by the PRC tax authorities, we may be required to pay tax, interest and penalties in excess of our tax provisions, and our results of
operations could be materially and adversely affected.
The Chinese government has provided various tax incentives to our subsidiaries and VIEs in China. These incentives include
reduced enterprise income tax rates. For example, under the EIT Law and its implementation rules, the statutory enterprise income tax
rate is 25%. However, an enterprise holding a valid certificate of new software enterprise or animation enterprise is entitled to an
exemption of enterprise income tax for the first two years and a 50% reduction of enterprise income tax for the subsequent three years,
commencing from the first profit-making year, while an enterprise qualified as key software enterprise can enjoy a preferential EIT rate
of 10%. In addition, enterprises that are granted the high and new technology enterprises status, as well as those that located in
Guangdong-Macao Deep Cooperation Zone which also qualify as encouraged industrial enterprises and meet the substantive operational
requirements, shall enjoy a favorable income tax rate of 15%. Certain of our PRC subsidiaries and VIEs were eligible for certain
preferential tax treatments. See “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Taxation.” Any
increase in the enterprise income tax rate applicable to our PRC entities in China, or any discontinuation or retroactive or future reduction
of any of the preferential tax treatments currently enjoyed by our PRC entities in China, could adversely affect our business, financial
condition and results of operations. In addition, in the ordinary course of our business, we are subject to complex income tax and other
tax regulations and significant judgment is required in the determination of a provision for income taxes. Although we believe our tax
provisions are reasonable, if the PRC tax authorities successfully challenge our position and we are required to pay tax, interest and
penalties in excess of our tax provisions, our financial condition and results of operations would be materially and adversely affected.
China’s M&A Rules and certain other PRC regulations establish complex procedures for some acquisitions of Chinese companies
by foreign investors, which could make it more difficult for us to pursue growth through acquisitions in China.
The Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rules, and other recently
adopted regulations and rules concerning mergers and acquisitions established additional procedures and requirements that could make
merger and acquisition activities by foreign investors more time-consuming and complex. For example, the M&A Rules require that the
MOFCOM be notified in advance of any change-of-control transaction in which a foreign investor takes control of a PRC domestic
enterprise, if (i) any important industry is concerned, (ii) such transaction involves factors that impact or may impact national economic
security, or (iii) such transaction will lead to a change in control of a domestic enterprise which holds a famous trademark or PRC time-
honored brand.
The M&A Rules requires that mergers and acquisitions of domestic enterprises by foreign investors shall be subject to the approval
of the MOFCOM or its delegates at provincial level. In the event that any domestic company, enterprise or natural person merges or
acquires a domestic company that has affiliated relationship with it through an overseas company legally established or controlled by
such domestic company, enterprise or natural person (the “Affiliated M&A”), the merger and acquisition applications shall be submitted
to the MOFCOM for approval. Any circumvention on the requirement including domestic re-investment of a foreign invested enterprise
is not allowed.
In addition, on February 3, 2011, the General Office of the State Council promulgated a Notice on Establishing the Security
Review System for Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the Circular 6, which officially
established a security review system for mergers and acquisitions of domestic enterprises by foreign investors. Further, on August 25,
2011, MOFCOM promulgated the Regulations on Implementation of Security Review System for the Merger and Acquisition of
Domestic Enterprises by Foreign Investors, or the MOFCOM Security Review Regulations, which became effective on September 1,
2011, to implement the Circular 6. Under Circular 6, a security review is required for mergers and acquisitions by foreign investors
43
having “national defense and security” concerns and mergers and acquisitions by which foreign investors may acquire the “de facto
control” of domestic enterprises with “national security” concerns. Under the MOFCOM Security Review Regulations, the MOFCOM
will focus on the substance and actual impact of the transaction when deciding whether a specific merger or acquisition is subject to
security review. If the MOFCOM decides that a specific merger or acquisition is subject to security review, it will submit it to the Inter-
Ministerial Panel, an authority established under the Circular 6 led by the NDRC and the MOFCOM under the leadership of the State
Council, to carry out security review. Prior the promulgation of the Foreign Investment Law or the FIL, only principal provisions are
scattered and mentioned in few articles of regulations. In this context, FIL officially established safety review system for foreign
investment at the level of law for the first time. Article 35 of the FIL stipulates that the State establishes a foreign investment security
review system to conduct security review on foreign investments which have or may have an impact on national security. The safety
review decision made in accordance with the law is final.
The regulations prohibit foreign investors from bypassing the security review by structuring transactions through trusts, indirect
investments, leases, loans, control through contractual arrangements or offshore transactions. There is no explicit provision or official
interpretation stating that the merging or acquisition of a company engaged in online marketing or mobile games business requires
security review, and there is no requirement that acquisitions completed prior to the promulgation of the Security Review Circular are
subject to MOFCOM review.
On December 19, 2020, the NDRC and the MOFCOM promulgated Measures for Security Review of Foreign Investment, or the
Security Review Measures, being effective from January 18, 2021. According to the Security Review Measures, the state shall establish
a working mechanism for the security review of foreign investment (the “Security Review Mechanism”) in charge of organization,
coordination, and guidance of foreign investment security review. A working mechanism office shall be established under the NDRC
and led by the NDRC and the MOFCOM to undertake routine work on the security review of foreign investment. According to the
Security Review Measures, in terms of foreign investments falling in the scope such as important cultural products and services,
important information technologies and Internet products and services, important financial services, key technologies and other
important fields that concern state security while obtaining the actual control over the enterprises invested in, a foreign investor or a
party concerned in the PRC shall take the initiative to make a declaration to the working mechanism office prior to making the
investment.
We have grown and may continue to grow our business by acquiring complementary businesses. Complying with the requirements
of the above-mentioned regulations and other relevant rules to complete such transactions could be time-consuming, and any required
approval processes, including obtaining approval from the MOFCOM or its local counterparts may delay or inhibit our ability to
complete such transactions. It is unclear whether our business would be deemed to be in an industry that raises “national defense and
security” or “national security” concerns. However, the MOFCOM or other government agencies may publish explanations in the future
determining that our business is in an industry subject to the security review, in which case our future acquisitions in the PRC, including
those by entering into contractual control arrangements with target entities, may be closely scrutinized or prohibited. Our ability to
expand our business or maintain or expand our market share through future acquisitions would as such be materially and adversely
affected.
PRC regulations relating to offshore investment activities by PRC residents may limit our PRC subsidiaries’ ability to increase their
registered capital or distribute profits to us or otherwise expose us to liability and penalties under PRC law.
The SAFE promulgated the Circular on Relevant Issues Relating to Domestic Resident’s Investment and Financing and Round-
trip Investment through Special Purpose Vehicles, or SAFE Circular 37, in July 2014. SAFE Circular 37 requires PRC residents that
directly establish or indirectly control offshore special purpose vehicles, or SPVs, for the purpose of seeking offshore investment and
financing and conducting round trip investment in China, to register with the SAFE or its local branch in connection with their ownership
in the SPVs, and to amend the SAFE registrations to reflect any subsequent changes thereof.
To our knowledge, all our significant individual PRC shareholders have completed foreign exchange registration. However, we
may not be fully informed of the identities of all our beneficial owners who are PRC citizens or residents, and we cannot compel our
beneficial owners to comply with SAFE registration requirements. As a result, we cannot assure you that all of our shareholders or
beneficial owners who are PRC citizens or residents have complied with and will in the future make or obtain any applicable registrations
or approvals required by, SAFE regulations. If our shareholders or beneficial owners who are PRC citizens or residents fail to complete
their SAFE registration, our PRC subsidiaries may be prohibited from distributing their profits and proceeds from any reduction in
capital, share transfer or liquidation to us, and we may be restricted in our ability to contribute additional capital to our PRC subsidiaries.
44
Moreover, failure to comply with the SAFE registration and amendment requirements described above could result in liability under
PRC laws for evasion of applicable foreign exchange restrictions.
Failure to comply with PRC regulations regarding the registration requirements for employee stock ownership plans or share option
plans may subject the PRC plan participants or us to fines and other legal or administrative sanctions.
On February 15, 2012, the SAFE promulgated the Notices on Issues Concerning the Foreign Exchange Administration for
Domestic Individuals Participating in Stock Incentive Plans of Overseas Publicly-Listed Companies, or the Stock Option Rules. Under
the Stock Option Rules and other relevant rules and regulations, PRC residents who participate in stock incentive plan in an overseas
publicly-listed company are required to register with the SAFE or its local branches and complete certain other procedures. Participants
of a stock incentive plan who are PRC residents must retain a qualified PRC agent, which could be a PRC subsidiary of such overseas
publicly listed company or another qualified institution selected by such PRC subsidiary, to conduct the SAFE registration and other
procedures with respect to the stock incentive plan on behalf of its participants. Such participants must also retain an overseas entrusted
institution to handle matters in connection with their exercise of stock options, the purchase and sale of corresponding stocks or interests
and fund transfers. In addition, the PRC agent is required to amend the SAFE registration with respect to the stock incentive plan if there
is any material change to the stock incentive plan, the PRC agent or the overseas entrusted institution or other material changes. We and
our PRC employees who have been granted stock options have been subject to these regulations upon the completion of the initial public
offering in May 2014. Failure of our PRC stock option holders to complete their SAFE registrations may subject these PRC residents to
fines and legal sanctions and may also limit our ability to contribute additional capital into our PRC subsidiaries, limit our PRC
subsidiaries’ ability to distribute dividends to us, or otherwise materially adversely affect our business. In addition, this Notice issued
by the SAFE only covers two categories of equity incentive plans, i.e., employee stock ownership plans and stock option plans. As a
result, we also face regulatory uncertainties that could restrict our ability to adopt additional equity incentive plans for our directors and
employees under PRC laws and regulations if we adopt other employee equity incentive plans in the future.
PRC regulation of loans to, and direct investment in, PRC entities by offshore holding companies and governmental control of
currency conversion may restrict or prevent us from loans to our PRC entities or to make additional capital contributions to our PRC
subsidiaries, which may materially and adversely affect our liquidity and our ability to fund and expand our business.
We are an offshore holding company conducting our operations in China through our PRC entities, including PRC subsidiaries
and VIEs. We may make loans to our PRC entities, or we may make additional capital contributions to our PRC subsidiaries, or we may
establish new PRC subsidiaries and make capital contributions to these new PRC subsidiaries, or we may acquire offshore entities with
business operations in China in an offshore transaction.
Most of these financing means are subject to PRC regulations and approvals. For example, loans by us to our wholly-owned PRC
subsidiaries to finance their activities cannot exceed statutory limits and must be registered with the local counterpart of the SAFE. Due
to the restrictions imposed on loans in foreign currencies extended to any PRC domestic companies, we are not likely to make such
loans to the VIEs, which are PRC domestic companies. Further, we are not likely to finance the activities of the VIEs by means of capital
contributions due to regulatory restrictions relating to foreign investment in PRC domestic enterprises engaged in mobile internet
services, online advertising, online games and related businesses.
On March 30, 2015, the SAFE promulgated the Circular on the Reform of the Administrative Method of the Settlement of Foreign
Currency Capital of Foreign-Invested Enterprises, or Circular 19, which became effective as of June 1, 2015. Among other things, under
Circular 19, foreign-invested enterprises may either continue to follow the payment-based foreign currency settlement system or elect
to follow the so-called “conversion-at-will” of foreign currency settlement system. On October 23, 2019, the SAFE promulgated the
Notice of Foreign Exchange of Further Facilitating Cross-border Trade and Investment, or SAFE Circular 28, and the Notice of the State
Administration of Foreign Exchange on Reducing Foreign Exchange Accounts, or SAFE Circular 29, clearly cancelling the restrictions
on domestic equity investment of capital funds by ordinary foreign-invested enterprises. On December 4, 2023, the SAFE promulgated
Circular of the State Administration of Foreign Exchange on Further Deepening Reforms to Facilitate Cross-Border Trade and
Investment, which took effect on December 4, 2023, providing that an enterprise meeting certain conditions may participate in the cross-
border financing facilitation business in accordance with the relevant provisions, and borrow foreign debts at its discretion within a
certain amount. For detailed information, please see “Item 4. Regulations—Regulations of Foreign Currency Exchange, Foreign Debt
and Dividend Distribution.”
In light of the various requirements imposed by PRC regulations on loans to and direct investment in PRC entities by offshore
holding companies as discussed above, we cannot assure you that we will be able to complete the necessary government registrations
or obtain the necessary government approvals on a timely basis, or at all, with respect to future loans by us to our PRC entities or with
respect to future capital contributions by us to our PRC subsidiaries. If we fail to complete such registrations or obtain such approvals,
our ability to capitalize or otherwise fund our PRC operations may be negatively affected, which could materially and adversely affect
our liquidity and our ability to fund and expand our business.
45
We may rely on dividends paid by our subsidiaries, including PRC subsidiaries, to fund any cash and financing requirements we
may have. Any limitation on the ability of our subsidiaries 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.
We are a holding company, and we rely on a significant amount of dividends from our subsidiaries, including our PRC subsidiaries,
for our cash requirements, including the funds necessary to pay dividends and other cash distributions to the holders of the ADSs and
our ordinary shares and service any debt we may incur. If our subsidiaries incur debt on their own behalf in the future, the instruments
governing the debt may restrict their ability to pay dividends or make other distributions to us.
With respect to our PRC subsidiaries, under PRC laws and regulations, wholly foreign-owned enterprises in the PRC, such as
Conew Network and Zhuhai Juntian Electronic Technology Co., Ltd., or Zhuhai Juntian, may pay dividends only out of its accumulated
profits as determined in accordance with PRC accounting standards and regulations. In addition, a wholly foreign-owned enterprise is
required to set aside at least 10% of its after-tax profits each year, after making up previous years’ accumulated losses, if any, to fund
certain statutory reserve funds, until the aggregate amount of such a fund reaches 50% of its registered capital. At the discretion of the
board of directors of the wholly foreign-owned enterprise, it may allocate a portion of its after-tax profits based on PRC accounting
standards to staff welfare and bonus funds. These reserve funds and staff welfare and bonus funds are not distributable as cash dividends.
On March 15, 2019, the National People’s Congress adopted the Foreign Investment Law of the People’s Republic of China, or FIL,
which became effective on January 1, 2020. The FIL sets out that the business forms, structures, and rules of activities of foreign-funded
enterprises shall be governed by the Company Law of the People’s Republic of China, the Partnership Law of the People’s Republic of
China, and other laws. Foreign-funded enterprises formed under the Law on Sino-Foreign Equity Joint Ventures, the Law on Sino-
Foreign Contractual Joint Ventures and the Law on Wholly Foreign Owned Enterprises before the implementation of FIL Law may
maintain their original business forms, among others, for five years after FIL Law comes into force.
According to the Company Law, if the aggregate balance of our statutory common reserve is not enough to make up for the losses
of the previous year, the current year’s profits shall first be used for making up the losses before the statutory common reserve is drawn
according to the provisions of the preceding paragraph. After we have drawn statutory common reserve, which is 10% of the after-tax
profit, from the after-tax profits, it may, upon a resolution made by the shareholders’ meeting, draw a discretionary common reserve
from the after-tax profits. After the losses have been made up and common reserves have been drawn, the remaining profits shall be
distributed to shareholders in proportion to the actual capital contribution actually paid by them, unless otherwise agreed upon by all the
shareholders. We may stop drawing the profits if the aggregate balance of the statutory common reserve has already accounted for over
50% of our registered capital. See “Item 4. Information on the Company—B. Business Overview—Regulations—Regulations of Foreign
Currency Exchange, Foreign Debt and Dividend Distribution” for further details.
Any limitation on the ability of our wholly-owned PRC subsidiaries to pay dividends or make other distributions to us could
materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay
dividends, or otherwise fund and conduct our business.
In addition, the EIT Law and its implementation rules provide that withholding tax rate of 10% will be applicable to dividends
payable by Chinese companies to non-PRC-resident enterprises unless otherwise exempted or reduced according to treaties or
arrangements between the PRC central government and governments of other countries or regions where the non-PRC-resident
enterprises are incorporated.
With respect to our Hong Kong entities, although currently there are not equivalent or similar restrictions or limitations in Hong
Kong on cash transfers in, or out of, our Hong Kong entities (including currency conversion), if certain restrictions or limitations in
mainland China were to become applicable to cash transfers in and out of Hong Kong entities (including currency conversion) in the
future, the funds in our Hong Kong entities, likewise, may not be available to meet our currency demand.
Fluctuations in exchange rates could have a material and adverse effect on our results of operations and the value of your investment.
The conversion of Renminbi into foreign currencies, including U.S. dollars, is based on rates set by the People’s Bank of China.
The Renminbi has fluctuated against the U.S. dollar, at times significantly and unpredictably. The value of Renminbi against the U.S.
dollar and other currencies is affected by changes in China’s political and economic conditions and by China’s foreign exchange policies,
among other things. We cannot assure you that Renminbi will not appreciate or depreciate significantly in value against the U.S. dollar
in the future. It is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate between
Renminbi and the U.S. dollar in the future.
Any significant appreciation or depreciation of Renminbi may materially and adversely affect our revenues, earnings and financial
position, and the value of, and any dividends payable on, our ADSs in U.S. dollars. For example, to the extent that we need to convert
U.S. dollars we receive from our initial public offerings or convertible senior notes offering into Renminbi for our operations,
46
appreciation of the Renminbi against the U.S. dollar would have an adverse effect on the Renminbi amount we would receive from the
conversion. Conversely, if we decide to convert our Renminbi into U.S. dollars for the purpose of making payments for dividends on
our ordinary shares or ADSs or for other business purposes, appreciation of the U.S. dollar against the Renminbi would have a negative
effect on the U.S. dollar amount available to us.
Very limited hedging options are available in China to reduce our exposure to exchange rate fluctuations. To date, we have entered
into some hedging transactions in an effort to reduce our exposure to foreign currency exchange risk. While we may continue to enter
into hedging transactions in the future, the availability and effectiveness of these hedges may be limited and we may not be able to
adequately hedge our exposure or at all. In addition, our currency exchange losses may be magnified by PRC exchange control
regulations that restrict our ability to convert RMB into foreign currency. As a result, fluctuations in exchange rates may have a material
adverse effect on your investment.
Governmental control of currency conversion may limit our ability to utilize our cash balance effectively and affect the value of your
investment.
The PRC government imposes control on the convertibility of the Renminbi into foreign currencies and, in certain cases, the
remittance of currency out of China. We receive part of our revenues in Renminbi. Under existing PRC foreign exchange regulations,
payments of current account items, including profit distributions, and trade and service-related foreign exchange transactions, can be
made in foreign currencies without prior SAFE approval by complying with certain procedural requirements. Therefore, our PRC
subsidiaries are able to pay dividends in foreign currencies to us without prior approval from the SAFE. However, approval from or
registration with appropriate government authorities is required where Renminbi is to be converted into foreign currency and remitted
out of China to pay capital expenses such as the repayment of loans denominated in foreign currencies. The PRC government may also
at its discretion restrict access to foreign currencies for current account transactions in the future. Although currently there are not
equivalent or similar restrictions or limitations in Hong Kong on cash transfers in, or out of, our Hong Kong entities (including currency
conversion), if certain restrictions or limitations in mainland China were to become applicable to cash transfers in and out of Hong Kong
entities (including currency conversion) in the future, the funds in our Hong Kong entities, likewise, may not be available to meet our
currency demand. If the foreign exchange control system prevents us from obtaining sufficient foreign currencies to satisfy our foreign
currency demands, we may not be able to pay dividends in foreign currencies to our shareholders, including holders of the ADSs.
Increases in labor costs in the PRC may adversely affect our business and our profitability.
China has experienced increases in labor costs in recent years. The average wage level for our employees has also increased in
recent years.
In addition, we have been subject to stricter regulatory requirements in terms of entering into labor contracts with our employees
and paying various statutory employee benefits, including pensions, housing allowance, medical insurance, work-related injury
insurance, unemployment insurance and maternity insurance to designated government agencies for the benefit of our employees.
Pursuant to the PRC Labor Contract Law, or the Labor Contract Law, which became effective in January 2008 and its implementation
rules effective as of September 2008, both of which were amended on July 1, 2013, employers are subject to stricter requirements in
terms of signing labor contracts, minimum wages, paying remuneration, determining the term of employees’ probation and unilaterally
terminating labor contracts. In the event that we decide to terminate some of our employees or otherwise change our employment or
labor practices, the Labor Contract Law and its implementation rules may limit our ability to effect those changes in a desirable or cost-
effective manner, which could adversely affect our business and results of operations. On October 28, 2010, the Standing Committee of
the National People’s Congress promulgated the PRC Social Insurance Law, or the Social Insurance Law, which became effective on
July 1, 2011, and was respectively amended on December 29, 2018. According to the Social Insurance Law, employees must participate
in pension insurance, work-related injury insurance, medical insurance, unemployment insurance and maternity insurance and the
employers must, together with their employees or separately, pay the social insurance premiums for such employees.
As the interpretation and implementation of labor-related laws and regulations are still evolving, we cannot assure you that our
employment practices do not and will not violate labor-related laws and regulations in China, which may subject us to labor disputes or
government investigations. If we are deemed to have violated relevant labor laws and regulations, we could be required to provide
additional compensation to our employees, and our business, financial condition and results of operations could be materially and
adversely affected.
47
If the custodians or authorized users of controlling non-tangible assets of our company, including our corporate chops and seals,
fail to fulfill their responsibilities, or misappropriate or misuse these assets, our business and operations could be materially and
adversely affected.
Under PRC law, legal documents for corporate transactions are executed using the chops or seals of the signing entity, or with the
signature of a legal representative whose designation is registered and filed with the relevant branch of the State Administration for
Industry and Commerce, or the SAIC which has been restructured and named to the State Administration for Market Regulation, or the
SAMR.
Although we usually utilize chops to enter into contracts, the designated legal representatives of each of our PRC entities have the
apparent authority to enter into contracts on behalf of such entities without chops and bind such entities. Some designated legal
representatives of our PRC entities are members of our senior management team who have signed employment undertaking letters with
us or our PRC entities under which they agree to abide by various duties they owe to us. In order to maintain the physical security of
our chops and the chops of our PRC entities, we generally store these items in secured locations accessible only by the authorized
personnel of each of our PRC entities. Although we monitor such authorized personnel, there is no assurance such procedures will
prevent all instances of abuse or negligence. Accordingly, if any of our authorized personnel misuse or misappropriate our corporate
chops or seals, we could encounter difficulties in maintaining control over the relevant entities and experience significant disruption to
our operations. If a designated legal representative obtains control of the chops in an effort to obtain control over any of our PRC entities,
we or our PRC entities would need to pass a new shareholder or board resolution to designate a new legal representative and we would
need to take legal action to seek the return of the chops, apply for new chops with the relevant authorities, or otherwise seek legal redress
for the violation of the representative’s fiduciary duties to us, which could involve significant time and resources and divert management
attention away from our regular business. In addition, the affected entity may not be able to recover corporate assets that are sold or
transferred out of our control in the event of such a misappropriation if a transferee relies on the apparent authority of the representative
and acts in good faith.
The ADSs may be prohibited from trading in the United States under the HFCAA if the PCAOB is unable to inspect or fully
investigate our auditor. The delisting of the ADSs, or the threat of their being delisted, may materially and adversely affect the value
of your investment.
Trading in our securities on U.S. markets, including the OTC market, may be prohibited under the HFCAA, if the PCAOB,
determines that it is unable to inspect or investigate completely our auditor for two consecutive years. On December 16, 2021, the
PCAOB issued a report to notify the SEC of its determination that the PCAOB is unable to inspect or investigate completely registered
public accounting firms headquartered in mainland China and Hong Kong, or the 2021 Determinations.
In July 2022, the SEC conclusively listed us as a Commission-Identified Issuer under the HFCA Act following the filing of our
annual report on Form 20-F for the fiscal year ended December 31, 2021. On December 15, 2022, the PCAOB removed mainland China
and Hong Kong from the list of jurisdictions where it is unable to inspect or investigate completely registered public accounting firms.
We were therefore not identified as a Commission-Identified Issuer under the HFCA Act after we filed our annual report on Form 20-F
for the fiscal year ended December 31, 2022. On December 15, 2022, the PCAOB determined that it was able to secure complete access
to inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong in 2022 and vacated the
2021 Determinations accordingly. As a result, we do not expect to be identified as a “Commission-Identified Issuer” under the HFCAA.
However, if the 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, the inability of the PCAOB to conduct such inspections or investigations could cause existing
and potential investors in our securities to lose confidence in our audit procedures and reported financial information and the quality of
our financial statements.
Our current auditor, Marcum Asia CPAs LLP, or Marcum Asia, the independent registered public accounting firm that issues the
audit report included elsewhere in this annual report, as an auditor of companies that are traded publicly in the United States and a firm
registered with the PCAOB, is subject to laws in the United States pursuant to which the PCAOB conducts regular inspections to assess
its compliance with the applicable professional standards. Marcum Asia is headquartered in New York, New York, and has been
inspected by the PCAOB on a regular basis.
Whether the PCAOB will continue to conduct inspections and investigations completely to its satisfaction of PCAOB-registered
public accounting firms headquartered in mainland China and Hong Kong is subject to uncertainty and depends on a number of factors
out of our, and our auditor’s, control, including positions taken by authorities of the PRC. The PCAOB is expected to continue to demand
complete access to inspections and investigations against accounting firms headquartered in mainland China and Hong Kong in the
future and states that it has already made plans to resume regular inspections in early 2023 and beyond. The PCAOB is required under
the HFCAA to make its determination on an annual basis with regards to its ability to inspect and investigate completely accounting
48
firms based in the mainland China and Hong Kong. The possibility of being a “Commission-Identified Issuer” and risk of delisting could
continue to adversely affect the trading price of our securities. Should the PCAOB again encounter impediments to inspections and
investigations in mainland China or Hong Kong as a result of positions taken by any authority in either jurisdiction, the PCAOB will
make determinations under the HFCAA as and when appropriate, then such lack of inspection could cause our securities to be delisted
from the stock exchange. We cannot assure you that, because our books and records are primarily located in mainland China, we will in
the future be able to become an issuer that is not a Commission-Identified Issuer, in which event our ordinary shares and ADSs may not
be tradable in any United States stock exchange or market and it may be necessary for us to list on a foreign exchange in order that our
ordinary shares can be traded. The prohibition of our ordinary shares and ADSs from trading in the United States would substantially
impair your ability to sell or purchase the ADSs when you wish to do so. Also, such a prohibition would significantly affect our ability
to raise capital on terms acceptable to us, or at all, which would have a material adverse impact on our business, financial condition, and
prospects.
Risks Relating to the ADSs
The trading price of our ADSs has been volatile and may continue to be volatile regardless of our operating performance.
The trading price of our ADSs has been and may continue to be subject to wide and sudden fluctuations due to factors including
the following:
•
variations in our revenues, earnings and cash flow;
•
announcements of new investments, acquisitions, strategic partnerships, or joint ventures by us or our competitors;
•
announcements of disposal of business or assets;
•
announcements of new services and expansions by us or our competitors;
•
announcement of termination of partnership by important customers/vendors;
•
changes in financial estimates by securities analysts;
•
fluctuations in our user or other operating metrics;
•
fluctuations in the stock price of Kingsoft Corporation, one of our principal shareholders, or news about Kingsoft
Corporation that has an impact on us;
•
failure on our part to realize monetization opportunities as expected;
•
changes in revenues generated from our top customers;
•
additions or departures of key personnel;
•
detrimental negative publicity about us, our management, our competitors or our industry;
•
short seller reports that make allegations against us or our affiliates, even if unfounded;
•
regulatory developments affecting us or our industry; and
•
potential litigation or regulatory investigations.
The Staff of the Division of Enforcement of the SEC conducted an investigation relating to our disclosures for fiscal year 2015
regarding our relationship with one of our advertising business partners. The SEC investigation also related to Rule 10b5-1 trading plans
entered into by certain of our current and former officers and directors and sales of our ADS under those plans in 2015 and 2016. On
September 21, 2022, our Chairman of the Board and Chief Executive Officer, Mr. Sheng Fu, reached a resolution with the SEC. To our
knowledge, pursuant to the terms of the settlement, Mr. Fu has consented to the entry of a cease and desist order with the SEC on a
“neither admit nor deny” basis that would require him to refrain from violating (i) Section 17(a)(2) and (3) of the Securities Act of 1933,
and (ii) Sections 10(b) and 13(a) of the Securities Exchange Act of 1934 and Rules 10b-5, 12b-20, and 13a-1 thereunder. The terms of
the settlement between Mr. Fu and the SEC also include payment of a civil money penalty in the amount of $556,580 and certain
compliance undertakings. We were not a party to the settlement. The SEC informed us that it had concluded its investigation with respect
to us and did not intend to recommend an enforcement action. See “Item 8. Financial Information—A. Consolidated Statements and
Other Financial Information—Legal Proceedings.”
In addition, the price of the ADSs may fluctuate due to broad market and industry factors, such as the performance and fluctuation
in the market prices or the underperformance or deteriorating financial results of other similarly situated companies in China that have
listed their securities in the United States in recent years. The securities of some of these companies have experienced significant
volatility since their initial public offerings, including, in some cases, substantial declines in trading price. The trading performance of
49
these Chinese companies’ securities after their offerings, including the securities of companies in the mobile and PC internet businesses,
may affect the attitudes of investors toward Chinese companies listed in the United States, which consequently may impact the trading
performance of the ADSs, regardless of our actual operating performance. In addition, any negative news or perceptions about
inadequate corporate governance practices or fraudulent accounting or other practices at other Chinese companies may also negatively
affect the attitudes of investors towards Chinese companies in general, including us, regardless of whether we have engaged in such
practices. In addition, securities markets may from time to time experience significant price and volume fluctuations that are not related
to our operating performance, such as the large decline in share prices in the United States, China and other jurisdictions between late
2008 and 2012, which may have a material adverse effect on the market price of the ADSs.
Our ADSs may be delisted from the New York Stock Exchange as a result of our failure of meeting the New York Stock Exchange
continued listing requirements.
We are required to meet certain quantitative tests as well as corporate governance and other qualitative standards to maintain the
listing of our ADSs on the NYSE. It is possible that we could fail to satisfy one or more of these requirements.
Pursuant to NYSE rule 802.01C, a company is considered to be below compliance standards if the average closing price of a
security as reported on the consolidated tape is less than $1.00 over a consecutive 30 trading-day period. We received a letter from the
NYSE dated April 15, 2022, notifying us that we were below the foregoing compliance standard. Pursuant to NYSE rule 802.01C, once
notified, a company must bring its share price and average share price back above $1.00 within six months following receipt of the
notification. If on the last trading day of any calendar month during the cure period the company has a closing share price of at least
$1.00 and an average closing share price of at least $1.00 over the 30 trading-day period ending on the last trading day of that month,
then the company can regain compliance at any time during the six-month cure period. In the event that at the expiration of the six-
month cure period, both a $1.00 closing share price on the last trading day of the cure period and a $1.00 average closing share price
over the 30 trading-day period ending on the last trading day of the cure period are not attained, the NYSE will commence suspension
and delisting procedures. We changed the ratio of our ADS to Class A ordinary share from one (1) ADS representing ten (10) Class A
ordinary shares to one (1) ADS representing fifty (50) Class A ordinary shares, effective September 2, 2022. We have regained
compliance with the NYSE standards because subsequent to receipt of the letter, our ADSs traded above US$1.00 over a consecutive
30 trading-day period. However, there can be no assurance that we will always be compliant with such standards going forward.
Furthermore, there can be no assurance that we will be able to maintain compliance with any other continued listing requirements
of the NYSE. In the event of deficiency or non-compliance, we could receive notices from the NYSE and suffer loss of investor
confidence and trading price decline. If we fail to regain compliance in time, we could face trading suspension or even delisting from
the NYSE, which could make it more difficult to obtain accurate quotations of and to buy or sell our securities, and the price of our
securities could suffer further significant decline. Delisting may also impair our ability to raise capital and harm our reputation.
If securities or industry analysts cease to publish research or reports about our business, or if they adversely change their
recommendations regarding the ADSs, the market price for the ADSs and trading volume could decline.
The trading market for the ADSs may be influenced by research or reports that industry or securities analysts publish about our
business. If one or more analysts who cover us downgrade the ADSs, the market price for the ADSs would likely decline. If one or more
of these analysts cease to cover us or fail to regularly publish reports on us, we could lose visibility in the financial markets, which, in
turn, could cause the market price or trading volume for the ADSs to decline.
The sale or perceived sale of substantial amounts of our ADSs or ordinary shares could adversely affect their market price.
Sales of substantial amounts of our ADSs in the public market, sales of our ordinary shares, or the perception that these sales
could occur, could adversely affect the market price of the ADSs and could materially impair our ability to raise capital through equity
offerings in the future. Ordinary shares held by our pre-IPO shareholders may be sold in the public market subject to the restrictions in
Rule 144 under the Securities Act. In addition, ordinary shares issued pursuant to our share incentive plans are eligible for sale in the
public market subject to restrictions of Rule 144 under the Securities Act or through registration under the Securities Act, as applicable.
In addition, we have granted certain shareholders Form F-3 registration rights and the piggyback registration rights. Registration of these
shares under the Securities Act may result in these shares becoming freely tradable without restriction under the Securities Act
immediately upon the effectiveness of the registration. Any market sales of securities held by our significant shareholders or any other
shareholder may have an adverse impact on the market price of the ADSs.
Our articles of association contain anti-takeover provisions that could have a material adverse effect on the rights of holders of our
ordinary shares and ADSs.
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Our currently effective fourth amended and restated articles of association contain provisions to limit the ability of others to
acquire control of our company or cause us to engage in change-of-control transactions. These provisions could have the effect of
depriving our shareholders of an opportunity to sell their shares at a premium over prevailing market prices by discouraging third parties
from seeking to obtain control of our company in a tender offer or similar transaction. For example, our board of directors has the
authority, without further action by our shareholders, to issue preferred shares in one or more series and to fix their designations, powers,
preferences, privileges, and relative participating, optional or special rights, and the qualifications, limitations or restrictions, including
dividend rights, conversion rights, voting rights, terms of redemption and liquidation preferences, any or all of which may be greater
than the rights associated with our ordinary shares, represented by ADSs or otherwise. Preferred shares could be issued quickly with
terms calculated to delay or prevent a change in control of our company or make removal of management more difficult. If our board of
directors decides to issue preferred shares, the price of the ADSs may fall and the voting and other rights of the holders of our ordinary
shares and the ADSs may be materially and adversely affected.
As a company incorporated in the Cayman Islands, we are permitted to adopt certain home country practices in relation to corporate
governance matters that differ significantly from the NYSE corporate governance rules; these practices may afford less protection
to shareholders than they would enjoy if we comply fully with the NYSE corporate governance rules. In addition, we are also a
foreign private issuer within the meaning of the rules under the Exchange Act, and as such we are exempt from certain provisions
applicable to U.S. domestic public companies.
The NYSE corporate governance rules permit a foreign private issuer like us to follow the corporate governance practices of its
home country. Certain corporate governance practices in the Cayman Islands, which is our home country, may differ significantly from
the NYSE corporate governance rules. Currently, we rely on home country practice exemption with respect to the requirements for an
audit committee composed of at least three members, annual shareholders’ meeting, shareholder approval of equity-compensation plans
and a majority of independent directors. We did not hold an annual shareholders’ meeting in 2024. As we rely on the home country
practice exemption as described above, our investors may have less protection afforded to shareholders of companies that fully comply
with NYSE corporate governance requirements. We may also opt to rely on additional home country practice exemptions in the future.
Furthermore, because we qualify as a foreign private issuer under the Securities Exchange Act of 1934, as amended, or the
Exchange Act, we are exempt from certain provisions of the Exchange Act that are applicable to U.S. public companies, including (i)
the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under
the Exchange Act, (ii) the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading
activities and liability for insiders who profit from trades made in a short period of time, and (iii) the rules under the Exchange Act
requiring the filing with the SEC of quarterly reports on Form 10-Q containing unaudited financial and other specified information, or
current reports on Form 8-K, upon the occurrence of specified significant events. As a result, you may not be provided with the same
benefits as a shareholder of a U.S. domestic company.
You may face difficulties in protecting your interests, and your ability to protect your rights through U.S. courts may be limited,
because we are incorporated under Cayman Islands law.
We are an exempted company with limited liability incorporated under the laws of the Cayman Islands. Our corporate affairs are
governed by our memorandum and articles of association, as amended from time to time, the Companies Act (As Revised) of the
Cayman Islands and the common law of the Cayman Islands. The rights of shareholders to take action against our directors, actions by
minority shareholders and the fiduciary duties of our directors to us under Cayman Islands law are to a large extent governed by the
common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial
precedent in the Cayman Islands as well as from the common law of England, the decisions of whose courts are of persuasive authority,
but are not binding, on a court in the Cayman Islands. The rights of our shareholders and the fiduciary duties of our directors under
Cayman Islands law are not as clearly established as they would be under statutes or judicial precedent in some jurisdictions in the
United States. In particular, the Cayman Islands has a less developed body of securities laws than the United States. Some U.S. states,
such as Delaware, have more fully developed and judicially interpreted bodies of corporate law than the Cayman Islands. In addition,
Cayman Islands companies may not have standing to initiate a shareholder derivative action in a federal court of the United States.
Shareholders of Cayman Islands exempted companies like us have no general rights under Cayman Islands law to inspect
corporate records or to obtain copies of register of members (other than the memorandum and articles of association, our register of
mortgages and charges and special resolutions passed by our shareholders) of these companies. Under Cayman Islands law, the names
of current directors can be obtained from a search conducted at the Registrar of Companies in the Cayman Islands. Our directors have
discretion under our existing articles of association to determine whether or not, and under what conditions, our corporate records may
be inspected by our shareholders, but are not obliged to make them available to our shareholders. This may make it more difficult for
you to obtain the information needed to establish any facts necessary for a shareholder motion or to solicit proxies from other
shareholders in connection with a proxy contest.
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Certain corporate governance practices in the Cayman Islands, which is our home country, differ significantly from requirements
for companies incorporated in other jurisdictions such as the United States. Currently, we do not plan to rely on home country practice
with respect to any corporate governance matter. However, if we choose to follow home country practice in the future, our shareholders
may be afforded less protection than they otherwise would under rules and regulations applicable to U.S. domestic issuers.
As a result of all of the above, public shareholders may have more difficulty in protecting their interests in the face of actions
taken by our management, members of our board of directors or our controlling shareholders than they would as public shareholders of
a company incorporated in the United States.
Judgments obtained against us by our shareholders may not be enforceable in our home jurisdiction.
We are an exempted company with limited liability incorporated in the Cayman Islands and a substantial majority of our assets
are located outside of the United States. A significant percentage of our current operations are conducted in China. In addition, a
significant majority of our current directors and officers are nationals and residents of countries other than the United States. As a result,
it may be difficult or impossible for you to bring an action against us or against these individuals in the United States in the event that
you believe that your rights have been infringed under the United States federal securities laws or otherwise. Even if you are successful
in bringing an action of this kind, the laws of the Cayman Islands and of China may render you unable to enforce a judgment against
our assets or the assets of our directors and officers.
There are uncertainties as to whether Cayman Islands courts would:
•
recognize or enforce judgments of courts of the United States against us or our directors or officers that are predicated
upon the civil liability provisions of the federal securities laws of the United States or the securities laws of any state in
the United States; and
•
entertain original actions brought in the Cayman Islands against us or our directors or officers that are predicated upon the
federal securities laws of the United States or the securities laws of any state in the United States.
Although there is no statutory enforcement in the Cayman Islands of judgments obtained in the federal or state courts of the United
States (and the Cayman Islands are not a party to any treaties for the reciprocal enforcement or recognition of such judgments), the
courts of the Cayman Islands will, at common law, recognize and enforce a foreign money judgement of a foreign court of competent
jurisdiction without any re-examination of the merits of the underlying dispute based on the principle that that the judgment of the
competent foreign court imposes upon the judgment debtor an obligation to pay a liquidated sum for which such judgment has been
given, provided such judgment (a) is given by a competent foreign court with jurisdiction to give the judgment, (b) imposes on the
judgment debtor a liability to pay a liquidated sum for which the judgment has been given, (c) is final, (d) is not in respect of taxes, a
fine or a penalty and (e) was not obtained in a manner and is not of a kind the enforcement of which is contrary to natural justice or the
public policy of the Cayman Islands. However, the Cayman Islands courts are unlikely to enforce a judgment obtained from the U.S.
courts under civil liability provisions of the U.S. federal securities law if such judgment is determined by the courts of the Cayman
Islands to give rise to obligations to make payments that are penal or punitive in nature. A Cayman Islands court may stay enforcement
proceedings if concurrent proceedings are being brought elsewhere.
However, the Cayman Islands courts are unlikely to enforce a judgment obtained from the U.S. courts under civil liability
provisions of the U.S. federal securities law if such judgment is determined by the courts of the Cayman Islands to give rise to obligations
to make payments that are penal or punitive in nature. A Cayman Islands court may stay enforcement proceedings if concurrent
proceedings are being brought elsewhere.
The voting rights of holders of ADSs are limited by the terms of the deposit agreement, and you may not be able to exercise your
right to direct how the Class A ordinary shares underlying your ADSs are voted.
Holders of ADSs do not have the same rights as our registered shareholders. As a holder of our ADSs, you will not have any direct
right to attend general meetings of our shareholders or to cast any votes at such meetings. You will only be able to exercise the voting
rights which are carried by the underlying Class A ordinary shares represented by your ADSs indirectly by giving voting instructions to
the depositary in accordance with the provisions of the deposit agreement. Under the deposit agreement, you may vote only by giving
voting instructions to the depositary. Upon receipt of your voting instructions, the depositary will vote the Class A ordinary shares
underlying your ADSs in accordance with these instructions. You will not be able to directly exercise your right to vote with respect to
the underlying ordinary shares unless you withdraw the shares and become the registered holder of such shares prior to the record date
for the general meeting. Under our fourth amended and restated memorandum and articles of association, the minimum notice period
required to be given by our company to our registered shareholders to convene a general meeting is fourteen calendar days. When a
general meeting is convened, you may not receive sufficient advance notice of the meeting to permit you to withdraw the Class A
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ordinary shares underlying your ADSs and become the registered holder of such shares to allow you to attend the general meeting and
to cast your vote directly with respect to any specific matter or resolution to be considered and voted upon at the general meeting.
Furthermore, under our fourth amended and restated memorandum and articles of association, for the purposes of determining those
shareholders who are entitled to attend and vote at any general meeting, our directors may close our register of members and/or fix in
advance a record date for such meeting, and such closure of our register of members or the setting of such a record date may prevent
you from withdrawing the Class A ordinary shares underlying your ADSs and becoming the registered holder of such shares prior to
the record date, so that you would not be able to attend the general meeting or to vote directly. If we ask for your instructions, the
depositary will notify you of the upcoming vote and will arrange to deliver our voting materials to you. We cannot assure you that you
will receive the voting materials in time to ensure that you can instruct the depositary to vote the Class A ordinary shares underlying
your ADSs. In addition, the depositary and its agents are not responsible for failing to carry out voting instructions or for their manner
of carrying out your voting instructions. This means that you may not be able to exercise your right to direct how the Class A ordinary
shares underlying your ADSs are voted, and you may have no legal remedy if the Class A ordinary shares underlying your ADSs are
not voted as you requested. In addition, in your capacity as an ADS holder, you will not be able to call a shareholders’ meeting.
The depositary for the ADSs will give us a discretionary proxy to vote the Class A ordinary shares underlying your ADSs if you do
not give voting instructions to the depositary to direct how the Class A ordinary shares underlying your ADSs are voted, except in
limited circumstances, which could adversely affect your interests.
Under the deposit agreement for the ADSs, if you do not give voting instructions to the depositary to direct how the Class A
ordinary shares underlying your ADSs are voted, the depositary will give us a discretionary proxy to vote the Class A ordinary shares
underlying your ADSs at shareholders’ meetings unless:
•
we have failed to timely provide the depositary with notice of meeting and related voting materials;
•
we have instructed the depositary that we do not wish a discretionary proxy to be given;
•
we have informed the depositary that there is substantial opposition as to a matter to be voted on at the meeting;
•
a matter to be voted on at the meeting would have a material adverse impact on shareholders; or
•
the voting at the meeting is to be made on a show of hands.
The effect of this discretionary proxy is that if you do not give voting instructions to the depositary to direct how the Class A
ordinary shares underlying your ADSs are voted, you cannot prevent the Class A ordinary shares underlying your ADSs from being
voted, except under the circumstances described above. This may make it more difficult for shareholders to influence the management
of our company. Holders of our Class A and Class B ordinary shares are not subject to this discretionary proxy.
Because we do not expect to pay dividends in the foreseeable future, you must rely on price appreciation of the ADSs for return on
your investment.
We currently intend to retain most, if not all, of our available funds and any future earnings to fund the development and growth
of our business. As a result, we do not expect to pay any cash dividends in the foreseeable future. Therefore, you should not rely on an
investment in the ADSs as a source for any future dividend income.
Our board of directors has discretion as to whether to distribute dividends, subject to applicable laws. In addition, our shareholders
may by ordinary resolution declare a dividend, but no dividend may exceed the amount recommended by our board of directors. Under
Cayman Islands law, a Cayman Islands company may pay a dividend out of either profit or share premium account, provided that in no
circumstances may a dividend be paid if this would result in our being unable to pay its debts as they fall due in the ordinary course of
business. Even if our board of directors decides to declare and pay dividends, the timing, amount and form of future dividends, if any,
will depend on, among other things, our future results of operations and cash flow, our capital requirements and surplus, the amount of
distributions, if any, received by us from our subsidiaries, our financial condition, contractual restrictions and other factors deemed
relevant by our board of directors.
Accordingly, the return on your investment in the ADSs will likely depend entirely upon any future price appreciation of the
ADSs. There is no guarantee that the ADSs will appreciate in value or even maintain the price at which you purchased the ADSs. You
may not realize a return on your investment in the ADSs and you may even lose your entire investment in the ADSs.
53
You may not receive dividends or other distributions on our Class A ordinary shares and you may not receive any value for them, if
it is illegal or impractical to make them available to you.
The depositary of the ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian receives on Class
A ordinary shares or other deposited securities underlying the ADSs, after deducting its fees and expenses. You will receive these
distributions in proportion to the number of Class A ordinary shares your ADSs represent. However, the depositary is not responsible if
it decides that it is unlawful or impractical to make a distribution available to any holders of ADSs. For example, it would be unlawful
to make a distribution to a holder of ADSs if it consists of securities that require registration under the Securities Act but that are not
properly registered or distributed under an applicable exemption from registration. The depositary may also determine that it is not
feasible to distribute certain property through the mail. Additionally, the value of certain distributions may be less than the cost of
mailing them. In these cases, the depositary may determine not to distribute such property. We have no obligation to register under U.S.
securities laws any ADSs, ordinary shares, rights or other securities received through such distributions. We also have no obligation to
take any other action to permit the distribution of ADSs, ordinary shares, rights or anything else to holders of ADSs. This means that
you may not receive distributions we make on our Class A ordinary shares or any value for them if it is illegal or impractical for us to
make them available to you. These restrictions may cause a material decline in the value of the ADSs.
You may not be able to participate in rights offerings and may experience dilution of your holdings.
We may, from time to time, distribute rights to our shareholders, including rights to acquire securities. Under the deposit
agreement, the depositary will not distribute rights to holders of ADSs unless the distribution and sale of rights and the securities to
which these rights relate are either exempt from registration under the Securities Act with respect to all holders of ADSs, or are registered
under the provisions of the Securities Act. The depositary may, but is not required to, attempt to sell these undistributed rights to third
parties, and may allow the rights to lapse. We may be unable to establish an exemption from registration under the Securities Act, and
we are under no obligation to file a registration statement with respect to these rights or underlying securities or to endeavor to have a
registration statement declared effective. Accordingly, holders of ADSs may be unable to participate in our rights offerings and may
experience dilution of their holdings as a result.
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 the ADSs may view as beneficial.
Our ordinary shares are divided into Class A ordinary shares and Class B ordinary shares. Holders of Class A ordinary shares are
entitled to one vote per share, while holders of Class B ordinary shares are entitled to ten votes per share. Each Class B ordinary share
is convertible into one Class A ordinary share at any time by the holder thereof, while Class A ordinary shares are not convertible into
Class B ordinary shares under any circumstances. Save for certain limited exceptions, upon any transfer of Class B ordinary shares by
a holder thereof to any person or entity which is not an affiliate of such holder, such Class B ordinary shares shall be automatically and
immediately converted into the equal number of Class A ordinary shares. All of the ordinary shares held by our shareholders prior to
the completion of the initial public offering were re-designated as Class B ordinary shares upon completion of the offering. Kingsoft
Corporation, one of our principal shareholders, and Mr. Sheng Fu, directly or through their holding vehicles, beneficially own an
aggregate of 52.5% of our total outstanding shares, representing 71.9% of our total voting power as of March 31, 2025, which give them
considerable influence over matters requiring shareholders’ approval, including election of directors and significant corporate
transactions, such as a merger or sale of our company or our assets. This concentrated control will limit your ability to influence corporate
matters and could discourage others from pursuing any potential merger, takeover or other change of control transactions that holders
of Class A ordinary shares and ADSs may view as beneficial.
You may be subject to limitations on transfer of your ADSs.
Your ADSs are transferable on the books of the depositary. However, the depositary may close its books at any time or from time
to time when it deems expedient in connection with the performance of its duties. The depositary may close its books from time to time
for a number of reasons, including in connection with corporate events such as a rights offering, during which time the depositary needs
to maintain an exact number of ADSs on its books for a specified period. The depositary may also close its books in emergencies, and
on weekends and public holidays. The depositary may refuse to deliver, transfer or register transfers of ADSs generally when our share
register or the books of the depositary are closed, or at any time if we or the depositary thinks that it is advisable to do so because of any
requirement of law or of any government or governmental body, or under any provision of the deposit agreement, or for any other reason
in accordance with the terms of the deposit agreement. As a result, you may be unable to transfer your ADSs when you wish to.
We have incurred increased costs as a result of being a public company, and the costs may continue to increase in the future.
As a public company, we have incurred significant legal, accounting and other expenses that we did not incur as a private company.
The Sarbanes-Oxley Act of 2002, as well as rules subsequently implemented by the Securities and Exchange Commission, or the SEC,
and the NYSE, impose various requirements on the corporate governance practices of public companies. These rules and regulations
increase our legal and financial compliance costs and some corporate activities more time-consuming and costly. For example, in
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comparison with a private company, we need an increased number of independent directors and have to adopt policies regarding internal
controls and disclosure controls and procedures. In addition, we incur additional costs associated with our public company reporting
requirements. We expect to continue to incur significant expenses and devote substantial management effort toward ensuring compliance
with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 and the other rules and regulations of the SEC and the NYSE.
We may from time to time be subject to various legal or administrative claims and proceedings arising in the ordinary course of
business.
We and certain of our current and former officers were named as defendants in PCAOB putative securities class actions filed on
June 25, 2020 and July 31, 2020 respectively in the U.S. District Court for the Central District of California. On August 24, 2020, the
Court consolidated the two cases under the caption In re: Cheetah Mobile, Inc. Securities Litigation (Case No. 2:20-cv-05696). On
March 15, 2021, the plaintiffs filed an amended complaint, in which they sought to represent a class of persons who allegedly suffered
damages as a result of their trading in our ADRs between April 26, 2017 and March 24, 2020. The action alleged that we made false or
misleading statements regarding our business and operations in violation of the Sections 10(b) and 20(a) of the U.S. Securities Exchange
Act of 1934, and Rule 10b-5 promulgated thereunder. On March 30, 2022, the Court granted the Company’s motion to dismiss, but gave
the plaintiffs leave to amend. On May 6, 2022, the parties reached a stipulation, pursuant to which the plaintiffs voluntarily dismissed
the claims asserted in the action, and agreed that they would not amend the complaint or appeal the Court’s order. The case is now
closed. Lawsuits such as this one could divert a significant amount of our management’s attention and other resources from our business
and operations, which could harm our results of operations and require us to incur significant expenses to defend the lawsuit. Any such
lawsuit, whether or not successful, could harm our reputation and restrict our ability to raise capital in the future. In addition, if a claim
against us is successful, we may be required to pay significant damages, which could have a material adverse effect on our financial
condition and results of operations. Furthermore, there can be no assurance that our insurance carriers will cover all or part of the defense
costs, or any liabilities that may arise from these matters. We also may be subject to claims for indemnification related to these matters,
and we cannot predict the impact that indemnification claims may have on our business, financial condition or results of operations.
If we are classified as a passive foreign investment company (PFIC) for the taxable year ended December 31, 2024, under U.S.
federal income tax laws, U.S. investors holding ADSs or Class A ordinary shares could be subject to significant adverse U.S. federal
income tax consequences.
We will be a “passive foreign investment company,” or “PFIC,” if, in the case of any particular taxable year, after applying
applicable look-through rules, either (a) 75% or more of our gross income for such year consists of certain types of “passive” income or
(b) 50% or more of the value of our assets (generally determined on the basis of a quarterly average) during such year is attributable to
assets that produce or are held for the production of passive income. Although the law in this regard is unclear, we treat the VIEs as
being owned by us for United States federal income tax purposes, not only because we consolidate the operation of such entities but
also because we are entitled to substantially all of their economic benefits, and, as a result, we consolidate their results of operations in
our consolidated financial statements.
If we are a PFIC in any taxable year, a U.S. holder (as defined in “Item 10. Additional Information— E. Taxation—United States
Federal Income Taxation”) will be subject to special and adverse tax rules with respect to any "excess distribution" received from the
Company or and any gain recognized on the sale or other disposition of the ADSs or Class A ordinary shares. Further, if we are a PFIC
for any year during which a U.S. holder holds the ADSs or our Class A ordinary shares, we generally will continue to be treated as a
PFIC for all succeeding years during which such U.S. holder holds the ADSs or our Class A ordinary shares. For more information see
“Item 10. Additional Information—E. Taxation—United States Federal Income Taxation—Passive Foreign Investment Company
Considerations.”
Item 4. Information on the Company
A.
History and Development of the Company
Our company is a holding company incorporated in the Cayman Islands in July 2009 as a wholly-owned subsidiary of Kingsoft
Corporation, a Cayman Islands company publicly listed on the Hong Kong Stock Exchange (Stock Code: 3888) since October 2007.
We changed our name from the previous Kingsoft Internet Software Holdings Limited to Cheetah Mobile Inc. in March 2014.
In August 2009, we established our wholly-owned Hong Kong subsidiary, Cheetah Technology Corporation Limited, which was
renamed to Forward Vision Corporation Limited, or Forward Vision, in 2024.
Following our incorporation in July 2009, we underwent a series of restructuring transactions in 2009 and 2010. After the
restructuring, Zhuhai Juntian, which was originally a wholly-owned subsidiary of Kingsoft Corporation in China, became a wholly-
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owned subsidiary of Forward Vision in December 2009. Zhuhai Juntian incorporated Beijing Security as its wholly-owned subsidiary
in China in November 2009. Through a series of VIE contractual arrangements established in January 2011, Beijing Cheetah Mobile
Technology Co., Ltd., or Beijing Mobile, an entity previously consolidated in Kingsoft Corporation’s group, became our VIE. We
established Cheetah Mobile America, Inc. in the United States in November 2012.
In October 2010, we acquired 100% equity interest in Conew.com Corporation, a company incorporated in the British Virgin
Islands in October 2008. As part of the acquisition, we acquired 100% equity interest in Conew Network and obtained effective control
over Beijing Conew through contractual arrangements among Conew Network, Beijing Conew and Beijing Conew’s shareholders.
Beijing Cheetah Network Technology Co., Ltd, or Beijing Network, was incorporated in China in July 2012 as our VIE and has
been consolidated in our financial statements since its incorporation. We consolidate the VIEs, such as Beijing Mobile and Beijing
Network, through contractual arrangements among them, their shareholders, our applicable PRC subsidiaries, Beijing Security and
Conew Network and us. For a detailed description of our contractual arrangements with the VIEs, see “—C. Organizational Structure—
Contractual Arrangements with the VIEs.”
In May 2014, we completed our initial public offering, in which we offered and sold 138,000,000 Class A ordinary shares
represented by ADSs.
The ADSs are listed on the NYSE under the symbol “CMCM.”
Since September 2016, we have incorporated Live.me Inc. (“Live.me”), a Cayman Islands company, and several subsidiaries
including Hong Kong LiveMe Corporation Limited, to operate our live streaming business. In December 2016, Live.me Inc. entered
into an agreement to issue certain number of shares to one of its management members. In April 2017, Live.me Inc. raised an aggregate
of US$60 million from a group of investors as well as our company. In November 2017, Live.me Inc. raised US$50 million from
Bytedance Ltd. as its Series B financing. Following the foregoing transactions, we held approximately 52.1% equity interest in Live.me
Inc., and have retained control over the Live.me business. On September 30, 2019, Live.me amended its share incentive plan to (i)
increase the number of shares to be issued under the current plan and (ii) issue shares under the plan into a trust for the benefit of current
and future recipients of Live.me share incentive awards. Subsequent to the deconsolidation, we held 49.6% equity interest of Live.me.
The remaining interests are accounted for equity investment using the fair value option in accordance with ASC825-10. On January 9,
2023, Live.me modified its share capital by dividing ordinary shares into Class A ordinary shares and Class B ordinary shares with
different voting rights, subsequent to the modification, we hold 49.6% of Live.me’s share capital, which stands for 49.6% equity interest
and 17.25% voting rights of Live.me. In February 2025, Live.me redeemed all of our shares in Live.me, and after the redemption, we
have no equity interest in Live.me.
In September 2017, Beijing Security completed capital injection into Beijing OrionStar. Founded by Mr. Sheng Fu, the chief
executive officer and director of our company. Beijing OrionStar is an AI solution and service robot provider headquartered in Beijing
with focusing on the research and development of artificial intelligence (“AI”). As a result, we, through Beijing Security, hold
approximately 29.6% of the equity interest in Beijing OrionStar and have a two-year warrant to subscribe to additional equity interests
amounted to US$62 million at the same valuation of our capital injection in September 2017. In July and September 2018, Beijing
Security acquired additional equity interest in Beijing OrionStar through exercising part of the foregoing warrant. In 2019, Beijing
Security fully exercised its warrant in Beijing OrionStar. Subsequent to the consummation of the transaction, we, through Beijing
Security, hold 38.73% equity interest in Beijing OrionStar. In 2021, Beijing Security provided a convertible loan with principal amount
of RMB100.0 million to Beijing OrionStar, according to which, upon the satisfaction of certain terms, Beijing Security shall have the
right to convert all or part of the principal and the accrued interest into Beijing OrionStar’s equity interest. In 2022, Beijing OrionStar
completed a new round of financing, and subsequent to the financing, our equity interest in Beijing OrionStar was diluted to 37.74%. In
November 2023, we acquired an aggregate of 35.17% equity interest of Beijing OrionStar from certain of the existing shareholders of
Beijing OrionStar, including Mr. Sheng Fu, with an aggregate cash consideration of RMB268.7 million (US$37.8 million) to the selling
shareholders of Beijing OrionStar, including RMB8.0 million(US$1.1 million) to Mr. Sheng Fu. Upon completion of the transaction,
our equity interest in Beijing OrionStar increased to 72.91% and we began to consolidate the financial results of Beijing OrionStar into
our consolidated financial statements since November 30, 2023. In January 2024, we signed a share purchase agreement to further invest
in Beijing OrionStar, which enable us to make a cash investment of US$16.7 million in Beijing OrionStar and exercise our right under
the convertible loan with principal amount of RMB100.0 million that we provided to Beijing OrionStar in 2021 to convert all of the
principal and the accrued interest into Beijing OrionStar's equity interest. Additionally, Gongqingcheng Orion Industrial Investment
Center (Limited Partnership) (the "Fund") made an investment of RMB150 million into Beijing OrionStar. Conew Network, is one of
the limited partners of the Fund and currently owns approximately 49.5% interest in the Fund. Upon the completion of the investment,
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our equity interest in Beijing OrionStar is 72.10%, without taking into account the stake it holds indirectly through the Fund; we hold,
both directly and indirectly, 73.95% equity interest in Beijing OrionStar, including the stake it holds indirectly through the Fund.
Since July 2018, we have incorporated Cheetah Mobile Seal Inc., a Cayman Islands company, and several subsidiaries including
Zhuhai Baoqu Technology Co., Ltd., to operate our PC business. In August 2018, Cheetah Mobile Seal Inc. entered into an agreement
to issue certain number of shares to several management members who run such PC business.
During 2020, we disposed certain internet business which resulted in a disposal gain of approximately RMB394.2 million.
Subsequent to the deconsolidation, we own 0% to 47.1% voting rights of those disposed business. Remaining interests are accounted
for equity investment using the equity method or measurement alternative.
In September 2018, our board of directors had approved a share repurchase program of up to US$100 million of our outstanding
ADSs for a period not to exceed 12 months. We funded repurchases made under this program from its available cash balance. In 2019,
we had repurchased approximately 4.5 million ADSs for approximately US$32 million under this program. We cancelled all the
repurchased Cheetah ADSs. In 2019, our board of directors approved a special cash dividend of US$0.50 per American Depositary
Share (“ADS”), or US$0.05 per ordinary share in August 2019. In May 2020, our board of directors approved a special cash dividend
of US$1.44 per ADS, or US$0.14 per ordinary share paid out in July 2020. The aggregate amount of cash dividends were approximately
US$272 million, which was funded by cash on our balance sheet. For all the ADSs mentioned in this paragraph, one (1) ADS represented
ten (10) Class A ordinary shares.
Our company changed the ratio of our ADS to Class A ordinary share from one (1) ADS representing ten (10) Class A ordinary
shares to one (1) ADS representing fifty (50) Class A ordinary shares, effective September 2, 2022.
Our principal executive offices are located at Building No. 11 Wandong Science and Technology Cultural Innovation Park No.7
Sanjianfangnanli, Chaoyang District, Beijing 100024, People’s Republic of China. Our telephone number at this address is +86-10-
6292-7779. Our registered office in the Cayman Islands is located at the offices of Maples Corporate Services Limited at PO Box 309,
Ugland House, Grand Cayman, KY1-1104, Cayman Islands.
The SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers
that file electronically with the SEC on www.sec.gov. You can also find information on our website http://ir.cmcm.com. The information
contained on our website is not a part of this annual report.
Voting Proxy Agreement between Kingsoft Corporation and Mr. Fu
On February 12, 2017, Kingsoft Corporation entered into a voting proxy agreement with Mr. Sheng Fu, our chief executive officer
and director, pursuant to which Kingsoft Corporation agreed to delegate voting rights pertaining to up to 399,445,025 Class B ordinary
shares of our company that it owns to Mr. Fu. Pursuant to which, Kingsoft Corporation has delegated approximately 37.4% voting power
of our company held by Kingsoft Corporation to Mr. Sheng Fu, effective October 1, 2017. The voting proxy agreement also provides
for additional rights and obligations of Kingsoft Corporation and Mr. Fu, including, among other things, (a) prohibitions on Mr. Fu from
participation or investment in any businesses competing with the principal businesses of our company and Kingsoft Corporation, (b)
Mr. Fu’s obligation to use best efforts to retain our core management team, (c) Kingsoft Corporation’s right to revoke the voting proxy
in the event that Mr. Fu breaches the aforementioned undertakings.
The voting proxy agreement may be terminated upon (i) revocation by Kingsoft Corporation based on a breach of certain
undertakings by Mr. Fu, among other things, undertakings (a) and (b) in the above paragraph, (ii) mutual agreement by both parties, or
(iii) disposal by Kingsoft Corporation of all of its equity interest in our company.
B.
Business Overview
We are a China-based IT company with a commitment to AI innovation. We provide comprehensive products and services on
PCs and mobile devices globally. We generate revenues primarily from utility-related business, including advertising services and
premium membership services worldwide. In addition, we also provide services to empower Chinese companies to develop business
outside China, such as multi-cloud management platform and overseas advertising agency service.
Subsequent to the acquisition of Beijing OrionStar in November 2023, we enlarged our business to provide service robots globally
to restaurants, exhibitions, logistic centers and so on. Through a full range of AI technologies, our service robots can be customized
and are able to provide comprehensive solutions to optimize efficiency, improve sales, ensure service standardization and enhance
customer satisfaction. At the same time, we actively engage in the independent research and development of our AI technologies,
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including large language model ("LLM") technologies to provide AI-powered business applications for enterprise customers, enabling
them to apply LLM technology, digitalize employees and improve operational efficiency.
Our Core Offerings for Users and Customers
Internet Products
Duba Anti-virus
Duba Anti-virus is a PC internet security application which incorporates anti-virus, anti-malware, anti-phishing, malicious website
blocking and secure online shopping in a single lightweight installation package and leverages the power of our cloud-based data
analytics engines to protect our users against known and unknown security threats and malicious applications.
Anti-virus and anti-malware. Duba Anti-virus can perform periodic or on-demand scan of program files and processes present on
our users’ devices and test them against our cloud-based whitelisted and blacklisted security threats library. Program files that match
the blacklist will be removed or quarantined automatically by Duba Anti-virus.
Program files that do not match any of the samples included in the cloud-based security threats library will be further analyzed
using our cloud-based data analytics engines which can effectively identify unknown threats by employing a heuristic, or experience-
based, approach to analyze the code and behavior of the unknown program files. By functioning as a sensor for our cloud-based data
analytics engines, Duba Anti-virus can leverage the discovery of an unknown security threat on a single user’s device to protect the
devices of our entire user community.
K+ defense. Duba Anti-virus includes a K+ defense system that integrates with our analytic engines and protects against a broad
range of security threats to users’ computers.
System protection. The K+ defense system protects against malicious alteration of system configurations, prevents remote
intrusion by hackers, blocks malicious websites, automatically scans downloaded files for malware and protects web browsers from
unauthorized alternation.
Online shopping protection. The K+ defense system blocks phishing and malicious shopping websites, prevents online shopping
webpages from being altered or login information being intercepted by Trojan horses installed on users’ computers and provides security
module plug-in to enhance browser security. Critical processes such as online payments can be conducted in a secure virtual environment
free of interference by malware.
Vulnerability fixing. Duba Anti-virus provides a one-click solution to scan and fix vulnerabilities in computer configurations that
could create an elevated risk level of system intrusions.
Membership Services. To deliver a superior user experience, since 2019 we began to introduce membership services in Duba Anti-
virus, through which users can get more advanced functions and premium services.
Yuanqi Wallpaper
Yuanqi Desktop is a desktop customization application designed for both PC and mobile users to enhance users’ visual experience
and improve workflow efficiency. Powered by an intuitive user interface and dynamic customization tools, it enables users to transform
and manage their digital workspace with ease.
Desktop Beautification. Yuanqi Desktop allows users to personalize their desktops through a wide selection of high-definition
static and animated wallpapers. The application supports interactive wallpaper effects such as particle animations, audio responsiveness,
and mouse-tracking features. Additional functions include desktop icon hiding, built-in screen saver activation for privacy protection,
sticky desktop notes, one-click icon sorting, transparent taskbar options, customizable desktop clocks, and user-defined mouse pointer
styles.
Wallpaper Management. Users can easily set, switch, and delete wallpapers with a single click. The application supports automatic
wallpaper rotation and gesture-based refresh options to keep the desktop experience dynamic. Yuanqi Desktop also allows users to
subscribe to specific wallpaper categories for curated updates and enables the creation of personalized wallpaper playlists. Local
wallpaper import is supported without requiring a user login.
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Wallpaper Creation. With Yuanqi Desktop, even novice users can create dynamic wallpapers through built-in editing tools.
Completed designs can be uploaded and shared with the user community, encouraging creativity and wider exposure of user-generated
content.
Value-added Products
To better serve our customers, along with our main PC and mobile products, we also developed several value-added products such
as image viewer, office optimization software and so on.
AI and Other Business
Delivery and Reception Robots
Delivery and reception robots are provided globally to restaurants, exhibitions, logistic centers and so on. Through a full range of
AI technologies, our service robots can be customized and are able to provide comprehensive solutions to interact with people, optimize
efficiency, improve sales, ensure service standardization and enhance customer satisfaction.
Global To B Services
We also provide services to leverage our overseas experience and resources to empower Chinese companies to develop business
outside China, including multi-cloud management platform and overseas advertising agency service.
AI-powered business applications
We actively engage in the independent research and development of our AI technologies, including LLM technologies to provide
AI-powered business applications for enterprise customers, enabling them to apply LLM technology, digitalize employees and improve
operational efficiency.
Products and Services for Our Customers
Duba.com personal start page
Our duba.com personal start page provides a convenient starting point for the online experience of our users. It aggregates a large
collection of popular online resources and provides users quick access to most of their online destinations such as online shopping,
video, online game, travel and local information. It also incorporates search functions provided by our customers. Our large user base
has turned our duba.com personal start page into a hub of third-party search traffic to e-commerce companies and search engine
providers.
Users can click on links on the duba.com start page to access our customers’ websites or search information using their selected
search engine. We charge fees to our customers mainly based on cost per impression. The unit price is subject to negotiation based on
the traffic we bring to the customers.
Premium Membership Services
Our premium membership services help subscribers to manage their equipment, protect their privacy as well as enable them to
enjoy our products ad-free and more superior experience. Currently, these services are available on both our PC and mobile internet
products.
Our Artificial Intelligence Technologies
We are actively engaged in the research and development of AI technologies including LLM technologies. Our AI technologies
includes our capabilities on automatic speech recognition, computer vision, and indoor navigation, as well as capabilities in the research
and development of service robot operating systems, application development, and the design and manufacturing of full-stack hardware
for service robots. We also provide AI services for enterprise customers, enabling enterprises to streamline processes like employee
training, knowledge management, and operational optimization..
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Our Global To B Services
Our global to B services mainly include two parts: multi-cloud management platform and overseas advertising agency service.
We provide multi-cloud management service to our customers through our platform which provides one-stop multi-cloud resource
management solutions, conduct comprehensive management of multi-cloud resources and environment, and provide various solutions
that can be implemented in the cloud, including platforms for backup and disaster recovery, machine learning, cost optimization and
monitoring alarm.
Our overseas advertising agency service assists companies to launch advertisement on large overseas advertising platforms, such
as Meta and Tik Tok.
Our Customers
For our internet business, our customers primarily comprise of customers who place advertisements on our application offerings
and individual customers who subscribe to premium services or purchase virtual items used in our applications. For our AI and others
business, our customers mainly comprise Chinese companies who are interested in developing business in overseas market, global
clients and distributors who use and sale our service robots globally and enterprise customers who are interested in applying LLM
technology to improve operational efficiency. In 2022, 2023 and 2024, our five largest customers in aggregate contributed approximately
46.3%, 29.2% and 30.3% of our revenues, respectively.
In December 2018, Meta (then known as Facebook) suspended the advertising collaborations with us. The suspension does not
impact our role as a Meta advertising reseller. The reason cited by Meta was that our company’s certain apps were not in compliance
with its policies. Since receiving Meta's notification of the suspension of collaboration, we had been actively communicating with and
working with Meta in an effort to resume the normal business relationship, including engaging in various forms of communication with
Meta personnel, providing written materials, and engaging a third party data auditing firm agreed by Meta to conduct an internal review
of our handling of Meta user data in response to Meta’s request. The review concluded that our handling of Meta user data is compliant
with the relevant data protection requirements in relevant Meta policies. Unfortunately, Meta has not resumed the collaboration with us.
In February 2020, our Google Play Store, Google AdMob and Google AdManager accounts were disabled by Google. According
to Google, the decision was made because some of our apps had not been compliant with Google policies, resulting in certain invalid
traffic. Since February 20, 2020, we have been in continuous communication with Google to appeal the decision, clarify any
misunderstanding, and adopt any requisite remedial measures to restore the disabled accounts. However, we were notified that Google
was unable to reinstate our accounts after reviewing our appeal and additional information we provided.
See “Item 3. Key Information— D. Risk Factors—Risks Relating to Our Business and Industry—Because a limited number of
customers contribute to a significant portion of our revenues, our revenues and results of operations could be materially and adversely
affected if we were to lose a significant customer or a significant portion of its business.”
Marketing
We remain focused on driving organic growth for our products and services by improving user experience. We use social networks,
online campaigns and offline events to promote our brand, products and services. We currently acquire users through continued online
promotion. We also grow our traffic organically through cross-promotion.
Competition
We face intense competition in all lines of our business. For our internet business, we generally compete with other mobile
application developers that offer products performing similar functions as our applications. In the internet space, we mainly compete
with 360 in China’s internet security and anti-virus market. For our AI and other businesses, we compete with other companies offering
similar service robots, such as PUDO Robotics, KEENON Robotics, or Yunji Technology, similar AI product-based services and
compete with other companies offering similar multi-cloud management or advertising agency service globally. In addition, we compete
with all major internet companies for user attention and advertising spend.
Intellectual Property
Our trademarks, patents, copyrights, domain names, proprietary technology, know-how and other intellectual property are vital to
the success of our business. We protect our intellectual property rights through patent, trademark, copyright and trade secret protection
laws in the PRC, Hong Kong, Japan, the United States and other jurisdictions. In addition, we enter into confidentiality and non-
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disclosure agreements with our employees and customers. The agreements we enter into with our employees also provide that all
software, inventions, developments, works of authorship and trade secrets created by them during the course of their employment are
our property.
Patents. As of March 31, 2025, we had 1,767 patents in mainland China and 169 patents outside mainland China relating to our
software and other proprietary technology. Of such total 1,936 patents, 1,768 patents were either independently or jointly held by Zhuhai
Juntian, Beijing Security, Conew Network, Beijing OrionStar and our other wholly-owned or controlled subsidiaries. 117 patents were
either independently or jointly held by Beijing Mobile, Beijing Network, and our other VIEs, and 51 patents were jointly owned by our
wholly-owned subsidiaries and VIEs. The 1,936 patents will expire between September 2025 and March 2042. In addition to the
aforementioned patents, as of March 31, 2025, we had a total of 115 patent applications in mainland China and 22 patents applications
outside mainland China. Among such patent applications, in relation to the proprietary technologies that are essential to the operations
of our platform and important to our business, our wholly-owned or controlled subsidiaries, had independently filed 168 patent
applications, and the VIEs, had independently or jointly filed 5 patent applications. Once approved, depending on the type of patents,
the patents that are in the process of application by the VIEs will normally expire 10 or 20 years after the date of application.
Copyrights. As of March 31, 2025, we had registered 791 copyrights, including 700 software copyrights and 91 artwork
copyrights. In relation to our core proprietary technologies, Beijing Mobile and Beijing Network, and our other VIEs, independently or
jointly owned 183 software copyrights, Zhuhai Juntian, Beijing Security, Conew Network, Beijing OrionStar and our other wholly-
owned or controlled subsidiaries independently or jointly owned 473 software copyrights, and 44 software copyrights were jointly
owned by our wholly-owned subsidiaries and VIEs. All the software copyrights owned by the VIEs have been published between
December 2012 and March 2025. Software copyrights are protected until the end of the 50th calendar year starting from the date of first
publication.
Trademarks. As of March 31, 2025, we had registered 3,354 trademarks in mainland China. In addition, we currently had filed
108 trademark applications in mainland China. We had 1,377 registered trademarks outside mainland China, and we had filed 99
trademark applications outside mainland China.
Domain names. As of March 31, 2025, we had registered 551 domain names, including www.cmcm.com, www.duba.com,
www.ijinshan.com, www.duba.net, liebao.cn and orionstar.com.
As the VIEs hold a significant amount of patents and copyrights essential to our business operations, if we lose control over any
of them or if any of them goes bankrupt, our business operations may be severely interrupted. See “Item 3. Key Information—D. Risk
Factors—Risks Relating to Our Corporate Structure—We may lose the ability to use and enjoy vital assets held by the VIEs if they go
bankrupt or become subject to a dissolution or liquidation proceeding.”
We have established policies and procedures to monitor certain key patents and trademarks for infringement or other unauthorized
use, and a team of dedicated employees from the intellectual property, legal and marketing groups conduct daily searches and monitor
our patents, as well as third-party patents and distribution platforms, for infringing technology and software. See “Item 3. Key
Information—D. Risk Factors—Risks Relating to our Business and Industry—We may not be able to adequately protect or maintain
our intellectual property, which could harm our business and competitive position” and “Item 3. Key Information—D. Risk Factors—
Risks Relating to our Business and Industry—We may be subject to intellectual property infringement lawsuits which could result in
our payment of substantial damages or license fees, disruption to our product and service offerings and reputational harm.”
Regulations
We are subject to a number of PRC and foreign laws and regulations that affect companies conducting business on the internet.
We are subject to a variety of laws and regulations in foreign jurisdictions that involve matters central to our business, including privacy
and data protection, rights of publicity, content, intellectual property, advertising, marketing, distribution, data security, data retention
and deletion, personal information, algorithm, national security, electronic contracts and other communications, virtual currencies,
competition, protection of minors, consumer protection, telecommunications, taxation, and economic or other trade prohibitions or
sanctions. These foreign laws and regulations are constantly evolving and can be subject to significant change. As a result, the
application, interpretation, and enforcement of these laws and regulations are often uncertain, particularly in the new and rapidly
evolving industry in which we operate, and may be interpreted and applied inconsistently from country to country and inconsistently
with our current policies and practices. For further details, see “Item 3. Key Information—D. Risk Factors—Risks Relating to Our
Business and Industry—Our business is subject to complex and evolving laws and regulations regarding privacy, data protection, and
other matters outside China. Failure to comply with these laws and regulations could result in claims, changes to our business practices,
monetary penalties, increased cost of operations, or declines in user growth or engagement, or otherwise harm our business.”
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As a significant portion of our business operations are conducted in China, we are materially affected by the laws and regulations
in China. This section summarizes the principal PRC laws and regulations relevant to our current businesses, including online marketing,
online game (including online mobile and PC games) operations and advertising agency, as well as foreign currency exchange and
dividend distributions.
Regulations on Value-Added Telecommunications Services
The Telecommunications Regulations, which became effective on September 25, 2000 and were respectively amended on July
29, 2014 and on February 6, 2016, and Administrative Measures on Telecommunications Business Permits (2017), which became
effective since September 1, 2017, are the core regulations on telecommunications services in China. The Telecommunications
Regulations set out basic guidelines on different types of telecommunications business activities, including the distinction between
“basic
telecommunications
services”
and
“value-added
telecommunications
services.”
Administrative
Measures
on
Telecommunications Business Permits (2017) set out the standards regarding the application, examination and approval, use and
administration of telecommunications business permits in China. According to the Classified Catalog of Telecommunications Business
(2015 Version), implemented on March 1, 2016, amended on June 6, 2019 and attached to the Telecommunications Regulations, internet
information services are deemed a type of value-added telecommunications services. The Telecommunications Regulations require the
operators of value-added telecommunications services to obtain value-added telecommunications business operation licenses from the
Ministry of Industry and Information Technology, or MIIT, or its provincial delegates prior to the commencement of such services.
Restrictions on Foreign Ownership in Value-Added Telecommunications Services
On December 11, 2001, the State Council promulgate the Regulations on the Administration of Foreign-Invested
Telecommunications Enterprises, or the FITE Regulations, which took effect on January 1, 2002 and were respectively amended on
September 10, 2008, on February 6, 2016 and on May 1, 2022, are the major rules on foreign investment in telecommunications
companies in China. The FITE Regulations stipulate that the foreign investor of a telecommunications enterprise is prohibited from
holding more than 50% of the equity interest in a foreign-invested enterprise that provides value-added telecommunications services,
including internet information services. And the FITE Regulations clarifies that foreign-invested telecom enterprises may operate the
business of basic telecommunications services and the business of value-added telecommunications services, subject to the specific
service classification under the Telecommunications Regulations. The geographical areas in which foreign-invested telecommunications
enterprises may operate business shall be determined by the industry and information technology authority under the State Council
under the relevant provisions.
On July 13, 2006, the MIIT issued the Circular on Strengthening the Administration of Foreign Investment in Value-added
Telecommunications Services, or the MIIT Circular 2006, which requires that (a) domestic license holders are prohibited from leasing,
transferring or selling telecommunications business operation licenses to foreign investors in any form, or providing any resources, sites
or facilities to foreign investors to facilitate the unlicensed operation of telecommunications business in China; (b) value-added
telecommunications service providers or their shareholders must directly own the domain names and registered trademarks they use in
their daily operations; (c) each value-added telecommunications service provider must have the necessary facilities for its approved
business operations and maintain such facilities in the geographic regions covered by its license; and (d) all value-added
telecommunications service providers should improve network and information security, enact relevant information safety
administration regulations and set up emergency plans to ensure network and information safety. If a license holder fails to comply with
the requirements in the notice and cure such non-compliance, the MIIT or its local counterparts have the discretion to take measures
against such license holders, including revoking their value-added telecommunications business operating licenses. Due to the lack of
any additional interpretation from the regulatory authorities, it remains unclear what impact MIIT Circular 2006 will have on us or the
other PRC internet companies with similar corporate and contractual structures.
On April 8, 2024, the MIIT promulgated the Announcement of the Ministry of Industry and Information Technology on Launching
the Pilot Program of Expanding the Opening-up in Value-added Telecommunications Services, the MIIT has decided to launch a pilot
program to expand the opening-up in value-added telecommunication services (the "Pilot Program"). The Pilot Program shall be initially
launched in the Comprehensive Demonstration Zone for Expanding Opening-up in the Services Sector in Beijing, the Lingang Special
Area of China (Shanghai) Free Trade Zone for Leading Socialist Modernization, the Hainan Free Trade Port, and the Pilot Demonstration
Area of Socialism with Chinese Characteristics in Shenzhen (collectively as "pilot areas"). In the approved pilot areas, the restrictions
on foreign shareholding percentages for the following value-added telecommunications services shall be lifted: Internet data centers
(IDC), content distribution networks (CDN), Internet access services (ISP), online data processing and transaction processing,
information release platforms and delivery services (excluding Internet news information, online publishing, online audio-visual
services, and Internet-based cultural businesses) within information services, and information protection and processing services . The
MIIT will organize the evaluation of the implementation of the Pilot Program.
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To comply with such foreign ownership restrictions, we operate our businesses in China through Beijing Mobile, Beijing Network,
Beijing Conew and other companies, the VIEs or their subsidiaries. The VIEs are directly or indirectly owned by PRC citizens. Each of
these entities is controlled by our company through a series of contractual arrangements. See “Item 4. Information on the Company—
C. Organizational Structure—Contractual Arrangements with the VIEs.” Based on our PRC legal counsel, Global Law Office’s
understanding of the current PRC laws, rules and regulations, our corporate structure complies with all applicable PRC laws, and does
not violate, breach, contravene or circumvent or otherwise conflict with any applicable PRC laws. However, we were further advised
by our PRC legal counsel that there are substantial uncertainties with respect to the interpretation and application of existing or future
PRC laws and regulations and thus there is no assurance that Chinese governmental authorities would take a view consistent with the
opinions of our PRC legal counsel.
Regulations on Internet Information Services
On September 25, 2000, the State Council issued the Administrative Measures on Internet Information Services, or the ICP
Measures, and amended on January 8, 2011, regulate the provision of internet information services. According to the ICP Measures,
“internet information services” refer to services that provide internet information to online users, and are categorized as either
commercial services or non-commercial services. Pursuant to the ICP Measures, internet information commercial service providers shall
obtain an ICP License, a sub-category of the value-added telecommunications business operation license, from the relevant local
authorities before engaging in the provision of any commercial internet information services in China. In addition, if the internet
information services involve provision of news, publication, education, medicine, health, pharmaceuticals, medical equipment and other
services that statutorily require approvals from other additional governmental authorities, such approvals must be obtained before
applying for the ICP License.
On November 27, 2017, MIIT promulgated Notice of the Ministry of Industry and Information Technology on Regulating the Use
of Domain Names for Internet Information Services, which became effective on January 1, 2018. The notice provides that the domain
name used by an Internet information service provider for providing Internet information services shall be a domain name registered
and owned thereby pursuant to laws and regulations. Where an entity provides Internet information services, the domain name registrant
shall be the entity (including a company shareholder), or the primary person in charge of, or a senior management person of, the entity.
When providing access services for Internet information service providers, an Internet access service provider shall examine and verify
the real identity information of domain name registrants via the Record-filing System, and shall not provide access services for those
who fail to provide real identity information or whose identity information provided is inaccurate or incomplete. The foregoing
provisions shall not apply to domain names that have already been record-filed in the Record-filing System prior to the effective date
hereof. Nevertheless, abovementioned regulations do not prescribe any legal liability of violating such regulations.
On December 31, 2021, CAC, MIIT, Ministry of Public Security and the SAMR promulgated Administrative Provisions on
Recommendation Algorithms in Internet-based Information Services, which became effective on March 1, 2022. The notice provides
that Recommendation algorithm-based service providers shall adhere to the mainstream value orientations, optimize recommendation
algorithm-based service mechanisms, actively disseminate positive energy, and promote the application of algorithms for goodness and
kindness. Recommendation algorithm-based service providers shall not use recommendation algorithm-based services to engage in
activities prohibited by laws and administrative regulations such as endangering national security and public interests, disrupting
economic and social order, and infringing upon the legitimate rights and interests of others, nor shall they use recommendation
algorithm-based services to disseminate information prohibited by laws and administrative regulations. They shall take measures to
prevent and resist the dissemination of bad information.
On September 9, 2022, the CAC, MITT and the SAMR promulgated the Administrative Provisions on Pop-up Web Push
Notification Services, which became effective on September 30, 2022, further prescribing that Pop-up web push notification service
providers shall perform responsibility as the primary responsible party for information content management, and establish sound
management systems for information content review, ecological governance, data security and personal information protection,
protection of minors, etc.
On December 6, 2024, the State Council promulgated the Administrative Measures on Internet Information Services (the “Internet
Measures”). The Internet Measures classified Internet information services into commercial Internet information services and non-
commercial Internet information services and a commercial operator of Internet content provision services must obtain a value–added
telecommunications services license for the provision of Internet information services from the appropriate telecommunications
authorities.
We currently, through Beijing Network and other companies, the VIEs or their subsidiaries, hold valid ICP Licenses, covering the
provision of internet information services, issued by the Beijing, Guangdong or Hainan branch of the MIIT. Besides, the ICP Measures
and other relevant measures also ban the internet activities that constitute publication of any content that propagates obscenity,
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pornography, gambling and violence, incite the commission of crimes or infringe upon the lawful rights and interests of third parties,
among others. If an internet information service provider detects information transmitted on their system that falls within the specifically
prohibited scope, such provider must terminate such transmission, delete such information immediately, keep records and report to the
governmental authorities in charge. Any provider’s violation of these prescriptions will lead to the revocation of its ICP License and, in
serious cases, the shutting down of its internet systems.
Regulations on Mobile Application Information Services
On June 14, 2022, the CAC promulgated the Administrative Provisions on Mobile Internet Applications Information Services
(Revised in 2022), or the APP Provisions, which became effective on August 1, 2022. The APP Provisions sets forth the relevant
requirements on the APP information service providers and the APP Store service providers.
Pursuant to the Mobile Application Provisions, APP providers and APP distribution platforms shall perform the primary
responsibility for information content management, actively cooperate with the State to implement the strategy of trusted identities in
cyberspace, establish sound information content security management systems, information content ecological governance systems, data
security and personal information protection systems, minor protection systems and other management systems to ensure cyber security
and maintain a good network ecology. The CAC and its local branches shall be responsible for the supervision and administration of
nationwide and local APP information respectively.
On July 21, 2023, the MIIT issued the Circular of the Ministry of Industry and Information Technology on the Record-filing of
Mobile Internet Applications. According to such circular, all Apps shall complete filings with the provincial communications
administration of the place where the operator is located. For all Apps that began to operate before July 21, 2023, the filing shall be
completed by March 2024, and for all Apps that began to operate after July 21, 2023, the filing shall be completed before the Apps'
operation. Upon receipt of the filing materials submitted by any App operator, the provincial communications administration shall
process the filing within 20 working days by issuing a filing number and disclosing the filing information to the public, provided that
the materials are complete and accurate; otherwise, the filing shall not be processed. If the APP information is changed or deregistered,
the APP operator shall report for such change or withdrawal with the original filing authority.
Regulations on Personal Computer Products and Services
On September 2, 1993, the Standing Committee of the National People’s Congress, or the SCNPC, adopted the Anti-unfair
Competition Law of the PRC, which took effect on December 1, 1993, and was amended on April 23, 2019. According to the Anti-
unfair Competition Law, unfair competition refers to that the operator disrupts the market competition order and damages the legitimate
rights and interests of other operators or consumers in violation of the provisions of the Anti-unfair Competition Law in the production
and operating activities. Operators shall abide by the principle of voluntariness, equality, impartiality, integrity and adhere to laws and
business ethics during market transactions. Operators in violation of the Anti-unfair Competition Law shall bear corresponding civil,
administrative or criminal liabilities depending on the specific circumstances.
On February 18, 1994, the State Council promulgated the Provisions for Security Protection of Computer Information Systems
and subsequently amended in 2011. On August 1, 2011, the State Council promulgated the Administrative Measures for the Security
Protection of Computer Information Networks Linked to the Internet (2011Revised) and became effective on August 1, 2011, The
Measures shall be applicable to the security protection administration of the international networking of computer information networks.
On April 12, 2023, the CAC, the MIIT, the MPS, the Ministry of Finance and the Certification and Accreditation Administration
of the PRC jointly promulgated the Announcement on Matters Relating to the Adjustment of the Security Management of Specialized
Cybersecurity Products, pursuant to which, specialized cybersecurity products included in the Catalog of Key Network Equipment and
Specific Network Security Products may only be sold or provided after passing the security certification security testing by a qualified
institution according to the mandatory requirements of the relevant national standards such as the Information Security Technology-
Security Technical Requirements for Specialized Cybersecurity Products.
On May 6, 2024, the SAMR promulgated the Interim Provisions on Anti-Unfair Competition in the Internet Sector. According to
such provisions, business operators shall not utilize technologies as the internet, big data, and algorithms to engage in acts as traffic
hijacking, interference, malicious incompatibility, by way of influencing user choices or by other means, thereby obstructing or
damaging the normal operation of the network products or services legally provided by other business operators.
On December 25, 2024, the SCNPC issued the Public Consultation on the Anti-Unfair Competition Law (Draft Revision), which
adds responsibilities for platform operators and large enterprises. Pursuant to Consultation on the Anti-Unfair Competition Law (Draft
Revision), Platform operators shall, in accordance with the law, specify fair competition rules within their platforms in service
agreements and transaction rules, and shall promptly take necessary measures to stop unfair competition practices by operators on their
platforms. Large enterprises and other business operators shall not abuse their dominant position in terms of capital, technology, trading
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channels, or industry influence to disrupt fair competition by imposing obviously unreasonable payment terms, payment methods,
payment deadlines, or default liabilities on small and medium-sized enterprises (SMEs); forcing SMEs to sign exclusive agreements; or
engaging in other practices that disrupt fair competition.
Regulations on Online Games and Cultural Products
On February 4, 2016, the SARFT and the MIIT jointly promulgated the Administrative Measures on Internet Publication, which
took effect on March 10, 2016 and superseded the Tentative Measures for Internet Publication Administration, which became effective
on August 1, 2002. The Administrative Measures on Internet Publication define “online publishing services” as providing online
publications to the public through information networks and requires any internet publishing services provider to obtain an online
publishing service license to engage in online publishing services.
On February 21, 2008, the GAPP issued the Rules for the Administration of Electronic Publication, or the Electronic Publication
Rules, which became effective on April 15, 2008 and amended on August 28, 2015. Under the Electronic Publication Rules and other
regulations issued by the GAPP, online games are classified as a kind of electronic publication, and publishing of online games is
required to be conducted by licensed electronic publishing entities that have been issued standard publication codes.
On July 11, 2008, the General Office of the State Council promulgated the Regulation on Main Functions, Internal Organization
and Staffing of the GAPP, or the Regulation on Three Provisions. On September 7, 2009, the Central Organization Establishment
Commission issued the corresponding interpretations, or the Interpretations on Three Provisions. The Regulation on Three Provisions
stipulates that the MOC is authorized to regulate the online game industry, while the State Administration of Press, Publication, Radio,
Film and Television, or SARFT, is authorized to approve the publication of online games before their launch on the internet. On June
3, 2010, the MOC promulgated the Provisional Administration Measures of Online Games, or the Online Game Measures, which came
into effect on August 1, 2010, were subsequently amended on December 15, 2017, and were repealed on July 10, 2019. According to
the Online Game Measures, any entity engaging in online game operations must obtain an Online Culture Operating License.
On May 14, 2019, the general office of MCT promulgated the Notice on Adjustment of the Approval Scope of Internet Cultural
Operation Licenses and Further Regulating the Approval Work, or the No. 81 Notice. According to the No. 81 Notice, the MCT no
longer assumes the online game industry management responsibility. Upon receiving the No. 81 Notice, the provincial cultural and
tourism administrative departments no longer approve and issue the Internet Culture Operation Licenses covering business scope of
“operating gaming products through the internet” or “operating gaming products through the internet, including the issuance of virtual
currency”.
According to the aforementioned regulations, the Internet Culture Operation Licenses we have obtained from the Beijing or
Hainan branch of the MOC (later the MCT) or MCT (formerly the MOC), through Beijing Network and other companies, the VIEs or
their subsidiaries, have expired which collectively cover the business scope of operating gaming products through the internet (including
the issuance of virtual currency), may not need to be renewed.
On June 4, 2009, the MOC and the MOFCOM jointly issued The Notice on Strengthening the Administration of Online Game
Virtual Currency, or the Virtual Currency Notice, which defines the meaning of the term “virtual currency” and places a set of restrictions
on the trading and issuance of virtual currency. The Virtual Currency Notice also states that online game operators are not allowed to
give out virtual items or virtual currency through lottery-base activities, such as lucky draws, betting or random computer sampling, in
exchange for cash or virtual money of the players.
On September 28, 2009, the GAPP, the National Copyright Administration, or the NCA, and the Office of the National Working
Group for Combating Pornography and Illegal Publications jointly issued a Notice on Implementing the Provisions of the State Council
on “Three Determinations” and the Relevant Explanations of the State Commission Office for Public Sector Reform and Further
Strengthening the Administration of the Pre-approval of Online Games and Examination and Approval of Imported Online Games, or
Circular 13. Circular 13 explicitly prohibits foreign investors from directly or indirectly engaging in online gaming business in China,
including through variable interest entity structures, or VIE Structures. Foreign investors are not allowed to indirectly control or
participate in PRC operating companies’ online games (including online mobile and PC games) operations, whether (a) by establishing
other joint ventures, entering into contractual arrangements or providing technical support for such operating companies; or (b) in a
disguised form such as by incorporating or directing user registration, user account management or game card consumption into online
gaming platforms that are ultimately controlled or owned by foreign companies. Violations of Circular 13 will result in severe penalties.
However, it is uncertain whether the above prohibitions imposed by SARFT are within its authorization as stipulated in the Regulation
on Three Provisions and its interpretations. See “Item 3. Key Information—D. Risk Factors—Risks Relating to Doing Business in
China—We may be adversely affected by the complexity of, and uncertainties and changes in, PRC regulation on mobile and PC internet
businesses and companies.”
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Anti-fatigue Compliance System and Real-name Registration System
In 2007, the General Administration of Press and Publication and several other governmental authorities issued a circular requiring
the implementation of an “anti-fatigue system” and a real-name registration system by all PRC online games operators in an effort to
curb addictive online game play behaviors of minors. Under the anti-fatigue compliance system, three hours or less of continuous play
by minors, is considered to be “healthy,” three to five hours is deemed “fatiguing,” and five hours or more to be “unhealthy.” Game
operators are required to reduce the value of in-game benefits to a game player by half if it discovers that the amount of a time a game
player spends online has reached the “fatiguing” level, and to zero in the case of the “unhealthy” level.
On July 1, 2011, the relevant eight government authorities issued the Notice on the Commencement of Anti-fatigue and Real-
name Registration of Online Games, or the Notice, which came into effect on October 1, 2011, to identify whether a game player is a
minor and thus subject to the anti-fatigue compliance system, a real-name registration system should be adopted to require online games
(including online mobile and PC games) players to register their real identity information before playing online games. Pursuant to the
Notice, online games (including online mobile and PC games) operators must submit the identity information of game players to the
National Citizen Identity Information Center, a subordinate public institution of the Ministry of Public Security, for verification.
On October 25, 2019, the General Administration of Press and Publication issued the Notice on Preventing Minor’s Addiction to
Online Games, which requires all online gamers to register accounts with their valid identity information and all game companies to
stop providing game services to users who fail to do so. Furthermore, minors are prohibited from playing games exceeding a certain
period of time per day or putting money into their accounts exceeding a certain amount.
On January 22, 2021, the CAC issued the Administrative Provisions on Official Account Information Services for Internet Users,
or the Provisions, which came into effect on February 22, 2021. The Provisions requests that official account information service
platforms shall take composite verification and other measures to authenticate the real identity information of Internet users who apply
for the registration of official accounts based on their mobile phone numbers, resident ID numbers, unified social credit codes or in other
ways, to improve authentication. Official Account Information Services for Internet Users shall not provide relevant services for users
who do not submit their real identity information or falsely register with the real identity information of other organizations or people.
On June 27, 2022, the CAC promulgated the Provisions on the Administration of Internet Users' Account Information, which
became effective on August 1, 2022. The Provisions on the Administration of Internet Users' Account Information clarifies that where
an Internet information service provider provides information release, instant messaging, and other services for Internet users, it shall
authenticate the real identity information of the users applying for registration of relevant account information through the mobile phone
number, ID number, or unified social credit code. If a user does not provide real identity information or fraudulently uses the identity
information of an organization and another person for false registration, the user shall not be provided with relevant services.
Regulations on Advertising Business
State Administration for Market Regulation, or the SAMR, which is the successor of SAIC, is the primary governmental authority
regulating advertising activities in China. Regulations that apply to advertising business primarily include:
•
Advertisement Law of the People’s Republic of China, promulgated by the Standing Committee of the National People’s
Congress on October 27, 1994 and effective since February 1, 1995, the latest version of which became effective on April
29, 2021;
•
Interim Measures for the Administration of Internet Advertisements, promulgated by the SAIC on July 4, 2016 and effective
on September 1, 2016; and
•
Advertisement Law and the Measures for the Administration of Internet Advertisements, promulgated by the SAMR on
February 25, 2023 and implemented on May 1, 2023.
According to the above regulations, companies that engage in advertising activities including those conducted through the internet
must each obtain, from the SAMR (formerly the SAIC) or its local branches, a business license which specifically includes operating
an advertising business in its business scope. An enterprise engaging in advertising business within the specifications in its business
scope does not need to apply for an advertising operation registration, provided that such enterprise is not a radio station, television
station, newspaper or periodical publisher. Enterprises conducting advertising activities without such a license may be subject to
penalties, including fines, confiscation of advertising income and orders to cease advertising operations pursuant to Advertisement Law.
The business license of an advertising company is valid for the duration of its existence, unless the license is suspended or revoked due
to a violation of any relevant laws or regulations. For the enterprise which is not a radio station, television station, newspaper or
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periodical publisher, the term of validity of the registration of advertisement publication shall be consistent with the term of validity of
the approval document for relevant media.
According to the Advertisement Law and the Measures for the Administration of Internet Advertisements promulgated by the
SAMR on February 25, 2023 and implemented on May 1, 2023, advertising operators and advertising distributors shall establish,
improve and implement the management systems regarding acceptance, registration, review and filing of the internet advertising
business in accordance with the following provisions: (i) verify and register the information of advertisers, such as their truthful identity,
addresses and valid contact details, set up advertisement files and check and update them on a regular basis, record and maintain relevant
electronic data of advertising activities. Relevant files shall be kept for not less than three years from the date of termination of the
advertisement release: (ii) verify relevant certificates, check the contents of advertisements, and shall not provide design, production,
agent or release services for advertisements with inconsistent content or incomplete certification documents; (iii) set up advertisement
reviewers familiar with advertising laws and regulations or establish advertisement review agencies. The identity information includes
names, unified social credit codes (identification card numbers), among other things. For the publication of advertisements for medical
treatment, pharmaceuticals, medical devices, agricultural pesticides, veterinary drugs, healthcare food, special formula foods for medical
purposes and other advertisements subject to the examination as required by laws, administrative rules and regulations, the advertisement
examination authority shall, prior to publication, examine the contents of such advertisements; in the absence of such examination, such
advertisements shall not be published.
PRC advertising laws and regulations set certain content requirements for advertisements in China, including, among other things,
prohibitions on false or misleading content, superlative wording, socially destabilizing content or content involving obscenities,
superstition, violence, discrimination or infringement of the public interest. Advertisers, advertising agencies and advertising distributors
are required to ensure that the content of the advertisements they prepare or distribute is true and in complete compliance with applicable
laws. In providing advertising services, advertising operators and advertising distributors must review the supporting documents
provided by advertisers for advertisements and verify that the content of the advertisements complies with applicable PRC laws and
regulations. Prior to distributing advertisements that are subject to government censorship and approval, advertising distributors are
obligated to verify that such censorship has been performed and approval has been obtained. The Interim Measures for the
Administration of Internet Advertisements set new requirements for internet advertising, which refers to commercial advertising that
directly or indirectly promotes goods or services through websites, webpages, internet applications or other internet media in text,
picture, audio, video or other forms. The Interim Measures require internet advertising publishers and advertising operators to, among
other things, (i) clearly identify all internet advertising as such and distinguish paid search results from natural search results; (ii) refrain
from interrupting normal internet use with advertisements, or inducing users to open an advertisement in a deceptive manner; and (iii)
establish an advertising business management system and review advertisement content as required by applicable laws. The following
activities are prohibited under the Interim Measures: (a) providing or using applications and hardware to block, filter, skip over, tamper
with, or cover up lawful advertisements provided by others; (b) using network access, network equipment and applications to disrupt
the normal transmission of lawful advertisements provided by others or adding or uploading advertisements without permission; and (c)
harming the interests of others by using fake statistics or traffic data. Violation of these regulations may result in penalties, including
fines, confiscation of advertising income, orders to cease dissemination of the advertisements and orders to publish an advertisement
correcting the misleading information. Where serious violations occur, the SAIC or its local branches may revoke such offenders’
licenses or permits for their advertising business operations.
Regulations on Broadcasting Audio/Video Programs through the Internet
National Radio and Television Administration, or NRTA, the successor of SARFT is the primary governmental authority
regulating activities involving broadcasting audio/video programs and services in China. Regulations that apply to broadcasting
audio/video programs primarily include:
•
Administrative Provisions for Internet Audio/Video Program Service, commonly known as Circular 56, jointly promulgated
by the SARFT and the MIIT on December 20, 2007, effective since January 31, 2008 and updated in August 2015 (SARFT
Order [2015] No. 3);
•
Notice on Issuing the “Catalogue of Classification of Internet Audio/Video Program Services (Provisional)”, or the
Classification Catalogue, promulgated by the SARFT on March 17, 2010, effective since then and updated in March 2017
(SARFT Announcement [2017] No. 1); and
•
Notice on Strengthening the Administration of Internet Audio/Video Content, or the Internet Audio/ Video Content Notice,
promulgated by SARFT on March 30, 2009 and effective since then.
Pursuant to the Classification Catalogue, category I internet audio/video program services relate to internet audio/video program
services operated through radio stations or television stations. Category II internet audio/ video program services relate to the
transmission of audio/video programs on current political news and the hosting, production, reporting and broadcasting of audio/video
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programs on literature and art, entertainment, science and technology, finance and economics, sports, education and other topics.
Category III internet audio/ video program services refer to the activities of editing or arranging the information pertaining to audio/video
programs broadcasted on the Internet on the same website and providing the public with the service of program searching or viewing or
refer to the service of providing users with a special channel for uploading programs or information so that users can pass their source
or others’ source of programs to the public via the information broadcasting system or viewing interface of the website for on-demand
broadcasting to the public. Category IV internet audio/video program services relate to the transmission of radio or television program
channels, internet audio/video program channels, or live streaming of online audio/video programs.
According to the above regulations, companies that engage in services relating to internet audio/video programs, which refer to
the production, editing and aggregation of audio/video programs, the supply of audio/ video programs to the public via the internet, and
the provision of services to third parties for upload and transmission of audio/video programs, are required to obtain an internet
audio/video program transmission license issued by the SARFT and to operate the relevant business within the scope as provided in
such license. Order 6 explicitly provided that foreign invested enterprises (including wholly foreign owned enterprises, joint ventures
and cooperative joint ventures) shall not engage in such business in China. Pursuant to Circular 56 and the Internet Audio/Video Content
Notice, internet audio/visual program service providers shall examine and ensure that the contents that they publish comply with
applicable laws. Violation of these regulations may result in penalties, including warnings, orders compelling modification of operations
or imposition of fines, or even criminal liabilities.
Regulations on Robot Product Selling
SAMR is the primary governmental authority regulating activities involving robot product selling in China. Regulations that apply
to robot product selling primarily include:
•
Product Quality Law of the PRC, which was promulgated by the Standing Committee of the National People’s Congress of
the People’s Republic of China on February 22, 1993 and subsequently amended on July 8, 2000, August 27, 2009 and
December 29, 2018,
•
E-Commerce Law of the People’s Republic of China, which was promulgated by the Standing Committee of the National
People’s Congress of the People’s Republic of China on August 31, 2018 and became effective on January 1, 2019,
•
Measures for the Administration of the Recall of Defective Consumer Goods, which was promulgated by the General
Administration of Quality Supervision, Inspection and Quarantine (having been restructured and named to the SAMR), on
October 21, 2015 and became effective on January 1, 2016,
•
Interim Provisions on the Administration of Recall of Consumer Goods, which was promulgated by the SAMR on
November 21, 2019 and became effective on January 1, 2020. Measures for the Administration of the Restricted Use of the
Hazardous Substances Contained in Electrical and Electronic Products, which was promulgated by the National
Development and Reform Commission, the Ministry of Science and Technology, the Ministry of Finance, the Ministry of
Environmental Protection, the Ministry of Commerce, the General Administration of Customs and the General
Administration of Quality Supervision, Inspection and Quarantine on January 6, 2016 and became effective on July 1, 2016,
•
Civil Code of the PRC, which was promulgated by the National People’s Congress on May 28, 2020 and became effective
on January 1, 2021. Interpretation of the Supreme People's Court on Several Issues Concerning the Application of the
General Provisions of the Book on Contracts of the Civil Code of the People's Republic of China, which was promulgated
by the Supreme People's Court on December 4, 2023 and became effective on December 5, 2023.
•
Measures for the Supervision and Administration of Online Transactions, which was promulgated by the State
Administration for Market Regulation on March 15, 2021 and became effective on May 1, 2021.
Pursuant to the above regulations, the sale of products that do not meet applicable health and safety standards and requirements is
prohibited. Products shall not pose unreasonable dangers to human or property. Where a defective product causes physical injury to a
person or damage to property, the aggrieved party may make a claim for compensation from the seller of the product. Sellers who selling
non-compliant products may be ordered to cease production and sale of such products, or subject to fines and/or revocation of business
license. Non-compliant products as well as earnings attributable to the sales of such products may also be confiscated. Where sellers are
informed that there might be defects in consumer goods, sellers shall immediately notify the manufacturers and report to the provincial
quality inspection departments at the places where they are located, and sellers shall immediately stop selling, leasing out and using
defective consumer goods, and assisting manufacturers in implementing a recall. Otherwise the seller will be liable for tort claims.
Selling robot products is subject to a variety of consumer protection laws, including the PRC Consumer Rights and Interests
Protection Law, as amended on October 25, 2013 and taking effect since March 15, 2014, which imposes obligations on business sellers.
Failure to comply with these consumer protection laws could subject us to administrative sanctions, such as the issuance of warning,
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confiscation of income, imposition of fines, order to cease business operations, revocation of business licenses, as well as potential civil
and criminal liabilities.
Regulations on the Export of Hardware Products
On December 10, 2001, the State Council promulgated Administrative Regulations of the People's Republic of China on the
Import and Export of Goods, which took effect on January 1,2002, lastly amended on March 10, 2024, and became effective May 1,
2024. According to the Administrative Regulations of the People's Republic of China on the Import and Export of Goods, enterprises
engaged in the import of goods to the customs territory of the People's Republic of China or export of goods from the customs territory
of the People's Republic of China, shall comply with the Regulation here before. For goods that are prohibited from importation or
exportation, they cannot be imported or exported; for goods that are subject to import or export restrictions, a license or quota
management system shall be implemented; for goods that are freely imported or exported, there is no restriction.
On December 30, 2022, the Standing Committee of the National People's Congress promulgated the Foreign Trade Law of the
People's Republic of China, which was effective on the same date. A foreign trade dealer shall, in compliance with the regulations laid
down in accordance with law by the department of foreign trade under the State Council or any other relevant department, submit to
relevant departments the documents and information related to its foreign trade activities. On May 10, 2021, the Ministry of Commerce
promulgated the Measures for filing and registration of foreign trade operators, which was effective on May 10, 2021. Foreign trade
operators engaged in the import and export of goods or technologies shall register with the Ministry of Commerce or the institutions
entrusted by the Ministry of Commerce. If a foreign trade operator fails to register in accordance with these measures, the Customs shall
not go through the formalities of import and export declaration and clearance.
On October 17, 2020, the Standing Committee of the National People’s Congress promulgated the Export Control Law of the
People's Republic of China, which took effect on December 1,2020. The State has implemented a uniform export control regime and
administrates export control by developing control lists, checklists or catalogs, administrating export licenses or other means. The State
export control authorities shall supervise and inspect, under the law, activities in respect of the export of controlled items. On September
30, 2024, the State Council issued the Regulations of the People's Republic of China on Export Control of Dual-Use Items, pursuant to
which, the State implements a licensing system for the export of dual-use items. Export operators shall apply to the State Council
Commerce Authority for a license to export dual-use items included on the dual-use export control list or those subject to temporary
control.
On April 29, 2021, the Standing Committee of the National People’s Congress promulgated Customs Law of the People's Republic
of China, which took effect on the same date. The State Council sets up the General Administration of Customs which shall exercise
unified administration of the Customs offices throughout the country. All inward and outward means of transport, goods and Articles
shall enter or leave the territory at a place where there is a Customs office. If, under special circumstances, they have to enter or leave
the territory at a place without a Customs office as a matter of contingency, permission shall be obtained from the State Council or an
organ authorized by the State Council, and customs formalities shall be duly completed in accordance with this Law. The consignor or
consignee of the goods exported or imported as well as a customs declaration enterprise shall register for declaration activities with the
Customs in accordance with the law. Customs brokers or customs declaration persons shall not make customs declaration illegally on
behalf of others.
Regulations on Artificial Intelligence
On December 31, 2021, the CAC, together with other regulatory authorities, published Administrative Provisions on Algorithm
Recommendation for Internet Information Services (the Administrative Provisions on Algorithm Recommendation), effective on March
1, 2022. Pursuant to the Administrative Provisions on Algorithm Recommendation, users should be given an option to easily turn off
algorithm recommendation services, and service providers shall, among others, establish and improve the management systems and
technical measures for algorithm driven recommendation mechanism and regularly review, evaluate and verify the principle, models,
data and application results of algorithms. We will closely monitor the regulatory development and adjust our business operation from
time to time to comply with the regulations over algorithm.
On November 25, 2022, the CAC, together with MIIT and Ministry of Public Security, promulgated Administrative Provisions
on Deep Synthesis in Internet-based Information Services, effective on January 10, 2023. For the purposes of the Provisions, Deep
synthesis technology refers to any technology that employs deep learning, virtual reality or any other generative or synthetic algorithm
to produce text, images, audio, video, virtual scenes or other network information. Providers of deep synthesis services shall fulfill their
role as the bearer of responsibilities for information security, and establish and improve their user registration, algorithm mechanism
and logic review, scientific and technological ethics review, information release review, data security, personal information protection,
anti-telecom and online fraud, emergency response and other management systems, along with safe and controllable technical safeguards
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in place. Cyberspace authorities as well as telecommunications authorities and public security authorities shall, as per their respective
responsibilities, conduct supervisory inspections of deep synthesis services.
The CAC, together with other regulatory authorities, published the Interim Measures for the Management of Generative Artificial
Intelligence Services on July 10, 2023, and effective on August 15,2023. Generative AI service providers (hereinafter referred to as
“providers”) shall carry out pre-training, optimization training, and other training data processing activities in accordance with the law,
and comply with the following provisions:(1) Use data and underlying models sourced from legitimate sources;(2) Where intellectual
property rights are involved, the intellectual property rights legally entitled to others must not be infringed;(3) Where personal
information is involved, the consent of the personal information subject shall be obtained, or any other circumstances provided for in
laws or administrative regulations shall apply;(4) Employ effective measures to improve the quality of training data and to enhance the
authenticity, accuracy, objectivity, and diversity of training data; and(5) Other relevant provisions of laws and administrative regulations
such as the Cybersecurity Law of the People's Republic of China, the Data Security Law of the People's Republic of China, and the
Personal Information Protection Law of the People's Republic of China, as well as relevant regulatory requirements of relevant
authorities. Providers shall assume responsibility as a producer of online information content in accordance with the law and fulfill
online information security obligations. Where personal information is involved, they shall assume responsibility as a personal
information processor in accordance with the law and fulfill personal information protection obligations. Providers shall execute service
agreements with users who register for their generative AI services to establish the respective rights and obligations of both parties.
The National Information Security Standardization Technical Committee issued the Practice Guide of Network Security
Standards-Identification Method of Generative Artificial Intelligence Service Content, which came into effect on August 25th, 2023.
The above regulations provide content identification methods around four types of generated content: text, picture, audio and video,
which can be used to guide the service providers of generative artificial intelligence to improve their safety management level. On
February 29, 2024, the National Information Security Standardization Technical Committee issued and came into effect the Basic
Requirements for the Security of Generative Artificial Intelligence Services, which further stipulated the security of corpus, model and
security measures.
On September 14, 2024, CAC published the Circular of the Cyberspace Administration of China on Seeking Public Comments
on the Measures for Labeling AI-Generated and Synthesized Content (Draft for Comment), these Measures apply to online information
service providers (hereinafter referred to as "service providers") that conduct the labeling of AI-generated and synthesized content, as
stipulated in the Administrative Provisions on Recommendation Algorithms in Internet-based Information Services, the Administrative
Provisions on Deep Synthesis in Internet-based Information Services, and the Interim Measures for the Management of Generative
Artificial Intelligence Services. Service providers shall clearly explain the methods, styles, and other standards for labeling generated
and synthesized content in the user service agreement, and prompt users to carefully read and understand the relevant labeling
management requirements.
Regulations on Intellectual Property Rights
Software Registration. The State Council and the NCA have promulgated various rules and regulations and rules relating to
protection of software in China, including the Regulations on Protection of Computer Software promulgated by State Council on January
30, 2013 and effective since March 1, 2013, and the Measures for Registration of Copyright of Computer Software promulgated by
NCA on February 20, 2002, amended on June 18, 2004 and effective on July 1, 2004. According to these rules and regulations, software
owners, licensees and transferees may register their rights in software with the China Copyright Protection Center or its local branches
and obtain software copyright registration certificates. Although such registration is not mandatory under PRC law, software owners,
licensees and transferees are encouraged to go through the registration process and registered software rights may be entitled to better
protections.
Patent. The National People’s Congress adopted the Patent Law of the People’s Republic of China in 1984 and amended it in
1992, 2000, 2008 and 2020 (came into effect on June 1, 2021), respectively. Implementing Rules of the Patent Law of the People's
Republic of China was promulgated on January 19, 1985 and was last amended on January 9, 2010 and effective on February 1, 2010
by the State Council. A patentable invention, utility model or design must meet three conditions: novelty, inventiveness and practical
applicability. Patents cannot be granted for scientific discoveries, rules and methods for intellectual activities, methods used to diagnose
or treat diseases, animal and plant breeds, nuclear transformation or substances obtained by means of nuclear transformation. The Patent
Office under the State Intellectual Property Office is responsible for receiving, examining and approving patent applications. A patent
is valid for a twenty-year term for an invention and a ten-year term for a utility model and fifteen-year for a or design, starting from the
application date. Except under certain specific circumstances provided by law, any third-party user must obtain consent or a proper
license from the patent owner to use the patent, or else the use will constitute an infringement of the rights of the patent holder.
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Copyright. The Copyright Law of the People’s Republic of China, promulgated in 1990 and amended in 2001 and, 2010 and 2020
(came into effect on June 1, 2021), or the Copyright Law, and its related implementing regulations, promulgated in 1991 and amended
in 2013 are the principal laws and regulations governing the copyright related matters. The amended Copyright Law covers internet
activities, products disseminated over the internet and software products (including the original copy and reproduced copy), among the
subjects entitled to copyright protections. Registration of copyright is voluntary, and is administrated by the China Copyright Protection
Center.
On December 20, 2001, the State Council promulgated the Regulations on Computer Software Protection, effective from January
1, 2002 and amended in March 2013, which are intended to protect the rights and interests of the computer software copyright holders
and encourage the development of software industry and information economy. In the PRC, software developed by PRC citizens, legal
persons or other organizations is automatically copyright protected immediately after its development, without an application or
approval. Software copyright may be registered with the designated agency and if registered, the certificate of registration issued by the
software registration agency will be the primary evidence of the ownership of the copyright and other registered matters. On February
20, 2002, the National Copyright Administration of the PRC introduced the Measures on Computer Software Copyright Registration,
which outline the operational procedures for registration of software copyright, as well as registration of software copyright license and
transfer contracts. The Copyright Protection Center of China, or the CPCC, is mandated as the software registration agency under the
regulations. The Measures on Computer Software Copyright Registration was subsequently amended on June 18, 2004, which allows
the CPCC to establish local branches for software registration.
To address the problem of copyright infringement related to content posted or transmitted on the internet, the NCA and the MIIT
jointly promulgated the Measures for Administrative Protection of Copyright Related to Internet on April 29, 2005. These measures,
which became effective on May 30, 2005, apply to acts of automatically providing services such as uploading, storing, linking or
searching works, audio or video products, or other contents through the internet based on the instructions of internet users who publish
contents on the internet, or the Internet Content Providers, without editing, amending or selecting any stored or transmitted content.
On May 18, 2006, the State Council issued the Regulations on Protection of the Right of Communication through Information
Network, which took effect on July 1, 2006 and was amended on January 30, 2013, further provided that an internet information service
provider may be held liable under various situations, including if it knows or should reasonably have known a copyright infringement
through the internet and the service provider fails to take measures to remove or block or disconnects links to the relevant content, or,
although not aware of the infringement, the internet information service provider fails to take such measures upon receipt of the copyright
holder’s notice of infringement.
Since 2005, the NCA, together with certain other PRC governmental authorities, have jointly launched annual campaigns
specifically aimed to crack down on internet copyright infringement and piracy in China; these campaigns normally last for three to four
months every year. According to the Notice of 2013 Campaign to Crack Down on Internet Infringement and Piracy promulgated by the
NCA, the Ministry of Public Security and the MIIT on July 19, 2013, the 2013 campaign mainly targeted key internet publications such
as literature, music, movies and TV series, games, cartoons, software in key areas, to strengthen the supervision of audio and video
websites and e-commerce platforms and strictly crack down all kinds of internet piracy. NCA, MIIT, the Ministry of Public Security
and CAC jointly launch “Jian Wang 2022” Special Program for Combating Online Infringement and Piracy, focusing on online video,
online music, online literature, online news, online live broadcast and other fields to carry out special rectification of copyright and
crack down on online infringement.
Domain Name. On June 18, 2019, the CNNIC issued the Notice of the Issuance and Implementation of the “the Implementing
Rules for Top-level Domain Name Registration” Series of Regulations, or the Notice, which became effective from the same date.
According to the Notice, the applicant shall sign a domain name registration agreement with the registrar and submit the materials in
written or electronic form on their application. The maximum period of validity of domain name registration shall not exceed ten years,
and the longest period from the renewal date to the expiration date after the renewal shall not exceed ten years. The MIIT promulgated
the Measures for the Administration of Internet Domain Names on August 24, 2017, which took into effect on November 1, 2017. The
Domain Name Measures shall apply to Internet domain name services and related operation, maintenance, supervision and management,
and other related activities that are carried out within the territory of the People’s Republic of China. According to the Domain Name
Measures, the registration of domain names in PRC is on a “first-apply- first registration” basis. A domain name applicant will become
the domain name holder upon the completion of the application procedure. In February 2006, the CNNIC issued the Measures on
Domain Name Dispute Resolution, which were subsequently amended in June 2012, in November and in September 2014 and in June
2019 and relevant implementing rules, pursuant to which the CNNIC can authorize a domain name dispute resolution institution to
decide disputes.
Trademark. The PRC Trademark Law, adopted in 1982 and amended in 1993, 2001, 2013 and 2019, with its implementation rules
adopted in 2002 and amended in 2014, protects registered trademarks. The Trademark Office of the SAIC handles trademark
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registrations and grants a protection term of ten years to registered trademarks. Trademark license agreements must be filed with the
Trademark Office for record. On December 13, 2021, for the purposes of enhancing trademark administration, strengthening the business
guidance for trademark law enforcement China National Intellectual Property Administration issued the Standards for Determining
General Trademark Violations, or the Circular 34, which became effective on January 1, 2022. The Circular 34 provides standards for
the investigation and punishment of general trademark violations by departments in charge of trademark law enforcement. On January
13, 2023, the National Intellectual Property Administration issued the PRC Trademark Law (Draft Revision for Comment), which aims
at further improving the trademark system and solving the outstanding problems in the field of trademarks.
Regulations on Internet Infringement
On May 26, 2020, the National People’s Congress promulgated the Civil Code of the People’s Republic of China, or the Civil
Code, which became effective on January 1, 2021. Under the Civil Code, an internet user or an internet service provider that infringes
upon the civil rights or interests of others through using the internet assumes tort liability. If an internet user infringes upon the civil
rights or interests of another through using the internet, the person being infringed upon has the right to notify and request the internet
service provider whose internet services are facilitating the infringement to take necessary measures including the deletion, blocking or
disconnection of an internet link. After receiving the notice, the network service provider shall promptly forward the notice to the
relevant network user and take necessary measures in light of the preliminary evidence of infringement and the type of service; if the
network service provider fails to take necessary action after being notified, it shall assume joint and several liability with the network
user with regard to the aggravated part of the damage. If the network user or network service provider is damaged due to wrong notice,
the right holder shall assume tort liability. Where it is otherwise prescribed in law, such provisions shall prevail. If, after being notified,
the internet service provider fails to take necessary measures in a timely manner to end the infringement, it will be jointly and severally
liable for any additional harm caused by its failure to act. According to the Civil Code, civil rights and interests include the personal
rights and rights of property, such as the right to life, right to health, right to name, right to reputation, right to honor, right of portraiture,
right of privacy, right of marital autonomy, right of guardianship, right to ownership, right to usufruct, right to security interests,
copyright, patent right, exclusive right to use trademarks, right to discovery, right to equity interests and right of heritage, among others.
On May 8, 2017, the Supreme People’s Court and the Supreme People’s Procuratorate released an Interpretation on Several Issues
Concerning the Application of Law in the Handling of Criminal Cases Involving Infringement of Citizens’ Personal Information, or the
Interpretation. The Interpretation clarified several concepts, including “citizen’s personal information,” “provision”, and “unlawful
acquisition”, in relation to the crime of “infringement of citizens’ personal information” stipulated in the Criminal Law. Pursuant to the
Interpretation, “citizen’s personal information” refers to all kinds of information recorded in electronic form or any other form, which
can be used, independently or in combination with other information, to identify a specific natural person’s personal identity or reflect
a specific natural person’s activities, including the natural person’s name, identity certificate number, communication and contact
information, address, account password, property status, and whereabouts, among others.
On December 29, 2020, the Supreme People’s Court amended the Provisions of the Supreme People’s Court on Several Issues
concerning the Application of Law in the Trial of Cases involving Civil Disputes over Infringements upon Personal Rights and Interests
through Information Networks, or the Provisions, which became effective on January 1, 2021. The Provisions aims at correctly trying
cases involving civil disputes over infringements upon personal rights and interests through information networks.
Regulations on Information Content and Censorship
Internet content in China is regulated and restricted from a state security standpoint. Internet companies in China are required to
complete security filing procedures and regularly update information security and censorship systems for their websites with local public
security bureau.
On February 4, 2015, the CAC promulgated the Provisions on the Administration of Usernames of Internet Users’ Accounts,
which took effect on March 1, 2015 and require internet operators like us to censor usernames, icons and profiles provided by internet
users and to refuse registration of non-compliant usernames or icons.
On December 15, 2019, the CAC released the Provisions on Governance of the Network Information Content Ecology, with effect
from March 1, 2020. According to the Provisions, network information content producers are encouraged to produce, reproduce and
publish positive information, such as “contents of revealing highlights of economic and social development and reporting the hard work
and affluent life of the people”. Meanwhile, network information content producers shall not produce, reproduce or publish any illegal
information, such as information that “undermines national security, divulges state secrets, subverts the state power or jeopardize the
national unity”, and shall take measures to prevent and resist the production, reproduction and publication of adverse information, such
as “overstated headlines that are significantly inconsistent with the contents”. Meanwhile, the network information content service
platforms are required to fulfill their primary responsibilities for management of information contents, strengthen the governance of the
network information content ecology on their respective platform, and create a positive, healthy and amicable network culture.
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Furthermore, the Provisions note that network information content service platforms shall not disseminate any illegal information as
aforementioned, and shall take precautions against and resist the dissemination of any adverse information specified in the Provisions,
such as information use of exaggerated titles, with serious inconsistency between content and title, hyped gossip, scandals, misdeeds,
etc.
On September 9, 2022, the CAC, MIIT and SAMR promulgated the Provisions on the Administration of Internet Pop-up
Information Push Services, which took effect on September 30, 2022, which requires that providers of Internet pop-up window
information push services shall abide by the Constitution, laws and administrative regulations, help promote the core socialist values,
maintain a correct political direction, correct public opinion orientation and correct value orientation, and help maintain a clean
cyberspace.
To comply with the above laws and regulations, we have implemented measures and regularly updated our information security
and content- filtering systems with newly issued content restrictions as required by the relevant laws and regulations.
Regulations on Privacy Protection
The PRC Constitution states that PRC law protects the freedom and privacy of communications of citizens and prohibits
infringement of these rights. In recent years, PRC government authorities have enacted legislation on internet use to protect personal
information from any unauthorized disclosure.
On July 16, 2013, MIIT promulgated the Provisions on Protection of Personal Information of Telecommunication and Internet
Users, which became effective in September 2013. According to which, telecommunication business operators and ICP operators are
responsible for the security of the personal information of users they collect or use in the course of their provision of services. Without
obtaining the consent from the users, telecommunication business operators and ICP operators may not collect or use the users’ personal
information. The personal information collected or used in the course of provision of services by the telecommunication business
operators or ICP operators must be kept in strict confidence, and may not be divulged, tampered with or damaged, and may not be sold
or illegally provided to others. The ICP operators are required to take certain measures to prevent any divulgence of, damage to,
tampering with or loss of users’ personal information.
On January 23, 2019, four relevant government authorities jointly issued the Announcement of Conducting Special Supervision
against the Illegal Collection and Use of Personal Information by Apps, pursuant to which, app operators should collect and use personal
information in compliance with the Cyber Security Law and should be responsible for the security of personal information obtained
from users and take effective measures to strengthen the personal information protection. Furthermore, app operators should not force
their users to make authorization by means of bundling, suspending installation or in other default forms and should not collect personal
information in violation of laws, regulations or breach of user agreements. Such regulatory requirements were emphasized by the Notice
on the Special Rectification of Apps Infringing upon User’s Personal Rights and Interests, which was issued by MIIT on October 31,
2019.
On November 28, 2019, the CAC, the MIIT, the Ministry of Public Security and the SAMR jointly issued the Methods of
Identifying Illegal Acts of Apps to Collect and Use Personal Information. This regulation further illustrates certain commonly-seen
illegal practices of apps operators in terms of personal information protection, including “failure to publicize rules for collecting and
using personal information”, “failure to expressly state the purpose, manner and scope of collecting and using personal information”,
“collection and use of personal information without consent of users of such App”, “collecting personal information irrelevant to the
services provided by such app in violation of the principle of necessity”, “provision of personal information to others without users’
consent”, “failure to provide the function of deleting or correcting personal information as required by laws” and “failure to publish
information such as methods for complaints and reporting”.
On May 28, 2020, the National People’s Congress issued the Civil Code of the People’s Republic of China (Civil Code), which
came into effect in on January 1, 2021, the Civil Code provides a natural person shall have the right of privacy and the personal
information of a natural person shall be protected in accordance with law. Information processors shall not divulge or tamper with the
personal information collected or stored by them and shall not illegally provide any natural person’s personal information to others
without the consent of such natural person.
On March 12, 2021, the CAC and three other authorities jointly issued the Rules on the Scope of Necessary Personal Information
for Common Types of Mobile Internet Applications. The Rules specifies the scope of necessary personal information to be collected
each for a variety of common mobile internet applications, such as maps and navigation apps, online ride-hailing apps, instant messaging
apps, online community apps. Operators of such apps shall not refuse to provide basic services to users on the ground of users’ refusal
to provide their personal non-essential information.
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On August 20, 2021, the Standing Committee of the National People’s Congress adopted the Personal Information Protection Law
which took effect on November 1, 2021. The Personal Information Protection Law requires, among others, that (i) the processing of
personal information should have a clear and reasonable purpose which should be directly related to the processing purpose, in a method
that has the least impact on personal rights and interests, and (ii) the collection of personal information should be limited to the minimum
scope necessary to achieve the processing purpose to avoid the excessive collection of personal information. Different types of personal
information and personal information processing will be subject to various rules on consent, transfer, and security. Entities handling
personal information shall bear responsibilities for their personal information handling activities, and adopt necessary measures to
safeguard the security of the personal information they handle. The entities failing to comply could be ordered to correct, or suspend or
terminate the provision of services, and face confiscation of illegal income, fines or other penalties.
On December 31, 2021, the CAC together with other regulatory authorities published Administrative Provisions on Algorithm
Recommendation for Internet Information Services, effective on March 1, 2022 which provides, among others, that algorithm
recommendation service providers shall (i) establish and improve the management systems and technical measures for algorithm
mechanism and principle review, scientific and technological ethics review, user registration, information release review, data security
and personal information protection, anti-telecommunications and Internet fraud, security assessment and monitoring, and security
incident emergency response, formulate and disclose the relevant rules for algorithm recommendation services, and be equipped with
professional staff and technical support appropriate to the scale of the algorithm recommendation service; (ii) regularly review, evaluate
and verify the principle, models, data and application results of algorithm mechanisms, (iii) strengthen information security management,
establish and improve a feature database for identifying illegal and bad information, and improve entry standards, rules and procedures;
(iv) strengthen the management of user models and user labels, and improve the rules on points of interest recorded into user models
and user label management, and shall not record illegal and harmful information keywords into the points of interest of users or use
them as user labels to push information.
Regulations on Information Security
The National People’s Congress has enacted legislation that prohibits use of the internet that breaches the public security,
disseminates socially destabilizing content or leaks state secrets. Breach of public security includes breach of national security and
infringement on legal rights and interests of the state, society or citizens. Socially destabilizing content includes any content that incites
defiance or violations of PRC laws or regulations or subversion of the PRC government or its political system, spreads socially disruptive
rumors or involves cult activities, superstition, obscenities, pornography, gambling or violence. State secrets are defined broadly to
include information concerning PRC national defense, state affairs and other matters as determined by the PRC authorities.
On November 23, 2005, the Ministry of Public Security promulgated The Provisions on Technological Measures for Internet
Security Protection, which became effective in March 2006, require all ICP operators to keep records of certain information about its
users (including user registration information, log-in and log-out time, IP address, content and time of posts by users) for at least 60
days and submit the above information as required by laws and regulations. On December 18, 2012, the PRC National People’s Congress
promulgated The Decision on Strengthening Network Information Protection, or the Network Information Protection Decision, which
states that ICP operators must request identity information from users when ICP operators provide information publication services to
the users. If ICP operators come across prohibited information, they must immediately cease the transmission of such information, delete
the information, keep relevant records, and report to relevant government authorities.
For the purpose to strengthen the safety management of Internet information services capable of creating public opinions or social
mobilization and the relevant new technologies and new applications, regulate Internet information service activities, and safeguard
national security, social order and public interests, on November 15, 2018, the CAC promulgated the Provisions on the Safety
Assessment for Internet Information Services Capable of Creating Public Opinions or Social Mobilization, which took effect on
November 30, 2018.
For the further purposes of regulating data processing activities, safeguarding data security, promoting data development and
utilization, protecting the lawful rights and interests of individuals and organizations, and maintaining national sovereignty, security,
and development interests, on June 10, 2021, the Standing Committee of the PRC National People’s Congress promulgated the Data
Security Law of the People’s Republic of China, or the Data Security Law, which took effect on September 1, 2021. The Data Security
Law requires data processing, which includes the collection, storage, use, processing, transmission, provision, publication of data, to be
conducted in a legitimate and proper manner. The Data Security Law provides for data security and privacy obligations on entities and
individuals carrying out data activities. The Data Security Law also introduces a data classification and hierarchical protection system
based on the importance of data in economic and social development, and the degree of harm it may cause to national security, public
interests, or legitimate rights and interests of individuals or organizations if such data are tampered with, destroyed, leaked, illegally
acquired or illegally used. The appropriate level of protection measures is required to be taken for each respective category of data. For
example, a processor of important data is required to designate the personnel and the management body responsible for data security,
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carry out risk assessments of its data processing activities and file the risk assessment reports with the competent authorities. State core
data, i.e. data having a bearing on national security, the lifelines of national economy, people’s key livelihood and major public interests,
shall be subject to stricter management system. Moreover, the Data Security Law provides a national security review procedure for those
data activities which affect or may affect national security and imposes export restrictions on certain data and information. In addition,
the Data Security Law also provides that any organization or individual within the territory of the PRC shall not provide any foreign
judicial body and law enforcement body with any data without the approval of the competent PRC governmental authorities. As the
Data Security Law has taken into effect on September 1, 2021, we may be required to make further adjustments to our business practices
to comply with this law, as well as any adjustments that may be required by the ultimate Personal Information Protection Law.
On July 30, 2021, the State Council issued the Regulations on Protection of Critical Information Infrastructure, or the Regulations.
Pursuant to the Regulations, critical information infrastructure shall mean the important network facilities or information systems of key
industries or fields such as public communication and information service, energy, transportation, water conservation, finance, public
services, e-government affairs and national defense science, and important network facilities or information systems which may
endanger national security, people’s livelihood and public interest once there occur damage, malfunctioning or data leakage to them.
The Regulations provide that no individual or organization may carry out any illegal activity of intruding into, interfering with, or
sabotaging any critical information infrastructures, or endanger the security of any critical information infrastructures. The Regulations
also require that critical information infrastructure operators shall establish a cybersecurity protection system and accountability system,
and that the main responsible person of a critical information infrastructure operator shall take full responsibility for the security
protection of the critical information infrastructures operated by it. In addition, relevant administration departments of each important
industry and sector shall be responsible for formulating the rule of critical information infrastructure determination applicable to their
respective industry or sector, and determine the critical information infrastructure operators in their industry or sector.
On July 7, 2022, the CAC issued the Measures for Security Assessment of Cross-border Data Transfer. According to these
measures, for certain outbound data transfer circumstances, the data processor shall apply to the national cyberspace administration
authority for the security assessment via the local provincial-level cyberspace administration authority. The security assessment
requirement also applies to any transfer of important data outside of China.
On March 22, 2024, the CAC promulgated the Provisions on Promoting and Regulating Cross-Border Data Flows (the “Cross-
Border Data Flows Measures”), effective on the date of promulgation. The Cross-Border Data Flows Measures provide several
exemptions from undergoing data security assessment, obtaining personal information protection certification or entering into standard
contract for outbound transfer of personal information for businesses. These exemptions include, among others, the scenario where a
data processor, other than a critical information infrastructure operator, has cumulatively transferred overseas personal information,
excluding sensitive personal information, of fewer than 100,000 individuals since January 1, 2024. A data processor, other than a critical
information infrastructure operator, shall enter into a standard contract with overseas recipients for the cross-border transfer of personal
information or obtain certification for personal information protection if since January 1, 2024, the data processor has cumulatively
transferred to overseas recipients (1) personal information of more than 100,000 but less than 1,000,000 individuals, excluding sensitive
personal information, or (2) sensitive personal information of less than 10,000 individuals. The Cross-Border Data Flows Measures also
explicitly state that data processors are not required to conduct data security assessment for cross-border transfer of important data if the
data has not been notified or published as important data by relevant departments or regions.
In addition, the State Secrecy Bureau has issued provisions authorizing the blocking of access to any website it deems to be leaking
state secrets or failing to comply with the relevant legislation regarding the protection of state secrets during online information
distribution. Specifically, internet companies in the PRC with bulletin boards, chat rooms or similar services must apply for specific
approval prior to operating such services.
On December 8, 2022, the MIIT published the Data Security Administration Measures in Industry and Information Technology
(Interim), or the Industry and Information Technology Measures, which became effect on January 1,2023. The Industry and Information
Technology Measures requires that industrial and telecom data processors shall manage the industrial and telecom data by three levels
according to relevant regulations and shall apply certain administrative rules corresponding to its level during collecting, storing, using,
processing, transferring, providing and publicizing such data.
On April 15, 2024, the Ministry of Finance and CAC promulgated Circular on Issuing the Interim Measures for Data Security
Management of Accounting Firms (the “Data Security Management of Accounting Firms Measures”), effective on October 1,2024. The
relevant provisions are made for data security in the work of domestic accounting firms that provide audit services to domestic
enterprises for overseas listings and other specific business scopes, including requiring accounting firms to assume the primary
responsibility for data security of their firms and fulfill the obligation of safeguarding data security; accounting firms shall set up and
activate the access log recording functions for the information system, database, network equipment and network security equipment
related to its audit services; accounting firms shall specify the operating procedures for data transmission. During the transmission of
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core data and important data, encryption technology shall be employed to protect the security of transmission; Audit working papers
shall be stored within the territory of China pursuant to laws, administrative regulations, and relevant provisions of the State; accounting
firms shall establish a data backup system accounting firms shall not incorporate clauses in the engagement letter or similar contracts
that involve its provision of domestic project information and data to overseas regulatory bodies.
On September 24, 2024, the Regulations on Network Data Security Management was promulgated by the State Council and came
into effect on January 1, 2025. The Cyber Data Security Regulations reiterate the general regulations for data processing activities and
rules of personal information protection, important data security protection, network data cross-border transfer management, and internet
platform service providers’ obligations. The Cyber Data Security Regulations do not include the content related to cybersecurity review
standards for listing abroad and in Hong Kong in the Administration Governing the Cyber Data Security (Draft for Comments),
published on November 14, 2021.
Regulations on Network Security
On November 7, 2016, the Standing Committee of the National People’s Congress of China promulgated the Network Security
Law of the People’s Republic of China, or the Network Security Law or the Cybersecurity Law, which became effective on June 1,
2017. The Network Security Law governs the construction, operation, maintenance and use of networks as well as the supervision and
administration of network security within China. As a network operator and a provider of network products and services, we are required
to take measures to assure the security of network operations. For example, we are required to (a) protect our networks from disturbance,
damage or unauthorized access, and to prevent our network data from being divulged, stolen or tampered with; (b) refrain from setting
up malicious programs and, in the event of identifying security defects, loopholes or other risks in our network products or services, to
promptly take remedial measures, notify users and report to competent authorities; (c) formulate emergency plans for network security
incidents and combat any system loopholes, computer virus, network attack, network intrusion and any other security risks in a timely
manner; and (d) refrain from engaging in activities that endanger network security. In addition, we are required to take measures to
ensure network security. For example, we are required to (a) keep user information strictly confidential and establish and improve user
information protection system; (b) collect and use user information only if it is legal, necessary and just to do so, and only with relevant
users’ consents; and (c) refrain from divulging, tampering with or damaging the user personal information that we have collected, or
providing such personal information to third parties without the relevant users’ consents. Failure to comply with the Network Security
Law may result in penalties, including warnings, order compelling modification of existing operations or imposition of fines, or even
criminal liabilities.
On August 9, 2017, the MIIT issued the Measures for Monitoring and Handling Threat to Network Security of the Public Internet,
or the Monitoring Measures which became effective from January 1, 2018. Under the Monitoring Measures, the threat to network
security of the public internet refers to any network resource, malicious program, hidden security danger or security accident that exists
or is spread on the public internet and is likely to do or has done harm to the public, including the Trojan virus, worm, bot process and
malicious mobile code. The Monitoring Measures requires the basic telecommunications enterprises, internet-based enterprises, domain
name registries and registrars, etc. to provide technical support and assistance to competent telecommunications authorities when they
are inquiring into owners of IP addresses, domain name registration information, etc. Failure to comply with such requirements may
result in penalties, including warnings and imposition of fines.
On December 28, 2018, the SAMR and National Information Security Standardization Technical Committee jointly promulgated
the Information Security Technology—Testing and Evaluation Process Guide for Classified Protection of Cybersecurity (GB/T 28449-
2018), being effective from July 1, 2019. GB/T 28449-2018 set out the testing and evaluation process for three types of risks, which are
risks affecting the normal operation of the system, risks of sensitive information disclosure and risks of trojans implants.
On December 28, 2021, twelve regulatory authorities jointly released the Cybersecurity Review Measures. The Cybersecurity
Review Measures provides that: (i) network platform operators that are engaged in data processing activities which have or may have
an implication on national security shall undergo a cybersecurity review; (ii) the CSRC is one of the regulatory authorities for purposes
of jointly establishing the state cybersecurity review mechanism; (iii) network platform operators that master personal information of
more than one million users and seek to list abroad shall file for a cybersecurity review with the Cybersecurity Review Office; and (iv)
the risks of core data, material data or large amounts of personal information being stolen, leaked, destroyed, damaged, illegally used or
transmitted to overseas parties, and the risks of critical information infrastructure, core data, material data or large amounts of personal
information being influenced, controlled or used maliciously shall be collectively taken into consideration during the Cybersecurity
review process. The Cybersecurity Review Measures are relatively new and remain unclear on how it will be interpreted and
implemented by the relevant PRC governmental authorities, it remains uncertain how PRC governmental authorities will regulate
overseas listing in general and whether we are required to obtain any specific regulatory approvals for our offshore offerings. However,
as of the date of this annual report, we have not received any formal notice from any cybersecurity regulator that we should apply for a
cybersecurity review.
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On October 25, 2022, the MIIT issued the Measures for the Administration of Recordation of Network Product Security
Vulnerability Collection Platforms, or the Provisions. The provision prescribed that the recordation of vulnerability collection platforms
shall be conducted through the NVDB of the MIIT by online recordation. The organizations or individuals that are to establish
vulnerability collection platforms shall faithfully enter the recordation and registration information on the network product security
vulnerability collection platforms through the NVDB of the MIIT. Such information shall mainly include: (i) names of vulnerability
collection platforms, homepage URL, and Internet content provider (ICP) licenses or recordation numbers, and relevant URLs, official
accounts on social networking software and other Internet channels for the release of vulnerability information; (ii) names and certificate
numbers of sponsoring entities or individuals, and names and contact information of the principal persons in charge and contact persons
of vulnerability collection platforms; (iii) scope and methods of vulnerability collection, rules for vulnerability verification and
assessment, rules for instructing relevant responsible parties to fix vulnerabilities, rules for publishing vulnerabilities, rules for verifying
registered users' identities, and rules for classified and hierarchical management, among others; (iv) relevant materials on the recordation
of hierarchical cybersecurity protection obtained through the Communication Cybersecurity Protection Management System of the
MIIT; (v) information on implementation of platform management, among others, in accordance with relevant national standards and
industrial standards; and (vi) other information required to be explained, which is required to be submitted by the competent authorities.
Regulations on Overseas Offering and Listing
On July 6, 2021, the relevant PRC government authorities issued Opinions on Lawfully and Severely Combating Illegal Securities
Activities. These opinions emphasized the need to strengthen the administration over illegal securities activities and the supervision on
overseas listings by China-based companies and proposed to take effective measures, such as promoting the construction of relevant
regulatory systems to deal with the risks and incidents faced by China-based overseas-listed companies.
On February 17, 2023, the CSRC issued the Trial Administrative Measures of Overseas Securities Offering and Listing by
Domestic Companies, or the Trial Administrative Measures, which became effective on March 31, 2023. According to the Trial
Administrative Measures, the overseas offering and listing by a domestic company, whether directly or indirectly, shall be filed with the
CSRC. And subsequent securities offerings of a public company in the same overseas market where it has previously offered and listed
securities shall be filed with the CSRC within 3 working days after the offering is completed. Subsequent securities offerings and listings
of a public company in other overseas markets than where it has offered and listed shall be filed pursuant to provisions in the first
paragraph of this Article of the Trial Administrative Measures.
On February 24, 2023, the CSRC issued the Provisions on Strengthening Confidentiality and Archives Administration of Overseas
Securities Offering and Listing by Domestic Companies, or the Confidentiality and Archives Administration Provisions, which became
effective on March 31, 2023. According to the Confidentiality and Archives Administration Provisions, a domestic company that plans
to, either directly or through its overseas listed entity, publicly disclose or provide to relevant individuals or entities including securities
companies, securities service providers and overseas regulators, any documents and materials that contain state secrets or working
secrets of government agencies, shall first obtain approval from competent authorities according to law, and file with the secrecy
administrative department at the same level. A domestic company that provides accounting archives or copies of accounting archives to
any entities including securities companies, securities service providers and overseas regulators and individuals shall fulfill due
procedures in compliance with applicable national regulations. Working papers produced in the Chinese mainland by securities
companies and securities service providers in the process of undertaking businesses related to overseas offering and listing by domestic
companies shall be retained in the Chinese mainland. Where such documents need to be transferred or transmitted to outside the Chinese
mainland, relevant approval procedures stipulated by national regulations shall be followed.
Regulations on Outbound Investment
The PRC government imposes supervisions on the outbound investments. The NDRC, MOFCOM and SAFE are the primary
governmental authority regulating activities involving the outbound investments in China. Regulations that apply to outbound
investments primarily include:
•
Administrative Measures for Outbound Investment by Enterprises, or the NDRC Order No. 11, promulgated by NDRC on
December 26, 2017, effective since March 1, 2018 (NDRC Order No. 11);
•
Catalogue of Investment Projects Subject to Government Verification and Approval (2016 Version), promulgated by the State
Council on December 12, 2016, effective since then;
•
Administrative Measures for Outbound Investment, issued by the MOFCOM on September 6, 2014, effective since October
6, 2014; and
•
Notice of the State Administration of Foreign Exchange on Further Simplifying and Improving the Policies of Foreign
Exchange Administration Applicable to Direct Investment, promulgated by the SAFE on February 13, 2015, effective on
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June 1, 2015. The Guidelines for Direct Investment Foreign Exchange Business Operations, as the annex, was partially
repealed according to Notice by the State Administration of Foreign Exchange of Repealing or Invalidating Five Regulatory
Documents on Foreign Exchange Administration and Clauses of Seven Regulatory Documents on Foreign Exchange
Administration.
According to abovementioned regulations, outbound investment projects involving sensitive countries and regions or sensitive
industries shall be subject to the verification and approval by the NDRC and MOFCOM respectively. Outbound investment projects
other than those involving sensitive countries and regions or sensitive industries shall be managed by record-filing by the NDRC and
MOFCOM respectively. Pursuant to NDRC Order 11, sensitive countries and regions shall include: countries with no diplomatic
relations with China, countries and regions affected by wars, civil strife, countries and regions in which investment made by enterprises
be limited under international treaties and agreements concluded or acceded to by China, etc., and sensitive industries shall include
research, development, manufacturing and repair of weaponry, cross-border development and utilization of water resources, news media
and other industries. After the completion of the NDRC and MOFCOM procedures, the domestic enterprises (including all types of legal
persons) can at their discretion, choose the banks in their respective places of incorporation to go through Foreign Exchange Registration
of Outbound Direct Investment, and may handle subsequent formalities for opening relevant accounts, fund exchange and other services
(including the inflow of profits and dividends) under outbound direct investment only after Foreign Exchange Registration of outbound
direct investment is completed.
On December 26, 2017, the NDRC promulgated the Administrative Measures for Outbound Investment by Enterprises, or the
NDRC Order 11, which became effective on March 1, 2018. According to NDRC Order 11, the outbound direct investment projects
carried out by the all types of legal persons shall still subject to the verification and approval or record-filing by the NDRC. Besides
that, NDRC Order 11 shall apply to outbound investment projects carried out by the overseas enterprises that control by the domestic
enterprises and PRC natural person. Under NDRC Order 11, control shall mean holding, directly or indirectly, more than half of the
voting rights of an enterprise, or being able to dominate the operations, finance, personnel, technology or other important matters of an
enterprise despite not holding more than half of the voting rights.
With respect to those domestic enterprises and natural persons newly covered by NDRC Order 11 who conduct outbound
investment projects through controlled overseas enterprises (instead of making direct capital or interests investment, or providing direct
financing or guarantee), (i) outbound investment projects involving sensitive countries and regions or sensitive industries will be subject
to a verification and approval procedure; (ii) for outbound investment projects other than those involving sensitive countries and regions
or sensitive industries, if the total investment from Chinese investor via overseas enterprise under its control exceeds US$300 million
(inclusive), investors shall only submit a report to NDRC before the implementation of the project; if the total investment amount from
Chinese investor via overseas enterprise under its control is less than US$300 million, then no pre-transaction verification, record-filing
or reporting is required. According to NDRC Order 11 and Catalogue on Sensitive Industries in Outbound Investment (2018 Edition),
sensitive countries and regions shall mainly include countries and regions which have not established diplomatic relations with China,
or where war or civil unrest has broken out, or in which investment by enterprises shall be restricted pursuant to the international treaties,
agreements, etc. concluded or acceded to by China; and sensitive industries shall include (i) research, production and maintenance of
weaponry and equipment; (ii) development and utilization of cross-border water resources; (iii) news media; (iv) real estate, (v) hotel,
(vi) film studio, (vii) entertainment, (viii) sports club and (ix) establishment of an equity investment fund or investment platform without
specific industrial projects abroad.
In addition to the pre-transaction regulation, NDRC Order 11 strengthens interim and ex post supervision. NDRC Order 11
provides mechanisms for major adverse situation reports, project completion reports, major matters inquiries and reports in order to
achieve control over outbound investments; and further improved the disciplinary measures to achieve the after-regulation of overseas
investment.
Violations of the regulations regarding outbound investment may result in the imposition of fines and other administrative
penalties. For serious violations, criminal liability may arise.
On January 18, 2018, MOFCOM, PBOC, State-owned Assets, Supervision and Administration Commission of the State Council,
China Banking Regulatory Commission, China Securities Regulatory Commission, China Insurance Regulatory Commission, State
Administration of Foreign Exchange (collectively “Seven Departments”) promulgated Interim Measures for the Record-filing
(Verification and Approval) and the Reporting of Outbound Investment Projects, or the Order No. 24. In particular, Seven Departments
specified the procedure of record-filing and verification and approval of outbound investment. According to Order No. 24, Competent
commerce departments and finance administrative departments shall be responsible for administration of the outbound investment
projects of domestic investors either by record-filing or verification and approval according to their respective duties. Competent
departments shall, according to their respective duties, formulate and improve corresponding measures for the record- filing (verification
and approval) of outbound investment projects under the model of “ten negative lists for encouraging development”.
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Order No. 24 requires that a competent department shall conduct relevant examination according to the materials submitted by a
domestic investor for record-filing (verification and approval), formally accept such materials if they meet relevant requirements, and
take measures pursuant to relevant provisions. The materials that shall be submitted by domestic investors for outbound investment
projects shall be prescribed by competent departments. After going through the procedures for record-filing (verification and approval)
of outbound investment projects, domestic investors shall handle foreign exchange registration in accordance with the requirements of
foreign exchange administrations.
Violations of the regulations regarding outbound investment may result in the imposition of fines and other administrative
penalties. For serious violations, criminal liability may arise.
Regulations of Foreign Investment
Foreign investment in the PRC by foreign investors and foreign-invested enterprises used to abide by the Guidance Catalog of
Industries for Foreign Investment, or the Foreign Investment Catalog jointly promulgated by the MOFCOM and NDRC on June 28,
1995 and was successively amended on December 31, 1997, April 1, 2002, November 30, 2004, October 31, 2007, December 24, 2011,
March 10, 2015 and June 28, 2017. The Foreign Investment Catalog was later replaced by the Special Administrative Measures for
Access of Foreign Investment, jointly promulgated by the MOFCOM and NDRC. On September 6, 2024, the MOFCOM and NDRC
jointly issued the Special Administrative Measures for Access of Foreign Investment and took effect on November 1, 2024 (the
“Negative List (2024 Version)”). According to the Negative List (2024 Version), foreign investment in internet news information
services, online publication services, online audio-visual program services are prohibited, and foreign equity share in a value-added
telecommunication business shall not exceed 50% (excluding e-commerce, domestic multi-party communication, store-and-forward,
and call center).
On March 15, 2019, the Foreign Investment Law of the PRC or the “FIL”, was approved and deliberated the Second Session of
the 13th National People’s Congress of China. On December 26, 2019, the Implementation Regulation for the Foreign Investment Law
of the People’s Republic of China, or the FIL Implementing Regulations, was issued by the State Council. On December 30, 2019, the
MOFCOM and SAMR issued the Measures of Information Report of Foreign Investment, or the FI Information Report Measures. The
FIL, the FIL Implementing Regulations and the FI Information Report Measures all came into force on January 1, 2020. The FIL and
the FIL Implementing Regulations have replaced three laws on foreign investment (collectively “Three FDI law”), namely, the Law on
Sino-Foreign Equity Joint Ventures, the Law on Sino-Foreign Contractual Joint Ventures and the Law on Wholly Foreign Owned
Enterprises, and become a fundamental law of China in the foreign investment area, setting forth the basic legal framework in this
regard.
The FIL clearly sets forth that foreign investment may be conducted through the following four ways: (i) foreign investor,
independently or jointly with other investors, set up foreign-invested enterprises in China (the “Greenfield Investment”), (ii) foreign
investors obtain shares, equities, property shares or other similar rights and interests of Chinese domestic enterprises (the “M&A”), (iii)
foreign investor, independently or jointly with other investors, invests in a new project (the “Project Investment”) and (iv) other approach
stipulated under laws, administrative regulations and provisions of the State Council. In this way, it is made clear that, in addition to the
Greenfield Investments, foreign investments via M&A, Project Investment and other permitted approach shall all fall within the
jurisdiction of FIL. Besides, the FIL clearly specifies that foreign investment includes direct foreign investment and indirect foreign
investment. However, there is no further explanation about what would constitute an “indirect foreign investment”.
According to the FI Information Report Measures, foreign investors establishing foreign investment enterprises in China shall
submit an initial report through the Enterprise Registration System at the time of completion of registration formalities for establishment
of foreign investment enterprises. Where there is a change in the information in the initial report which involves change registration
(filing) of the enterprise, the foreign investment enterprise shall submit the change report through the enterprise registration system at
the time of completion of change registration (filing) for the enterprise.
For the management of foreign investment, the FIL officially abolishes the “case-by-case approval” system established by Three
FDI law, and instead establishes the administration system for foreign investment, amongst others, (i) the negative list—the negative
list consists of a list of industry sectors where foreign investments are prohibited (the “Prohibited Sectors”) and a list of industry sectors
in which foreign investments are restricted (the “Restricted Sectors”); (ii)the information reporting system—foreign investors or foreign
investment entities (FIEs) are required to submit investment information to the competent authorities through the system of enterprises
registration and enterprise credibility disclosure; and (iii) the national security review, which will be conducted over foreign investments
that affects or may affect the state security. The FIL further stipulates the legal liabilities for foreign investment in the Prohibited or
Restricted Sectors and failing to report in accordance with the requirements. Failure to comply with the FIL may result in penalties,
including order the foreign investor to stop the investment activities, dispose of the shares or assets or take other necessary measures
within a specified time limit, or confiscation of illegal gains.
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The VIE structure we adopt is commonly used by foreign investors to invest in China in the Prohibited Sectors or Restricted
Sectors. The draft Foreign Investment Law, promulgated on January 19, 2015, attempted to cover the VIE structure as a form of foreign
investment. However, the FIL leaves it blank and it is vague whether the VIE structure will be interpreted and regulated to fall into the
scope of the FIL. See “Item 3. Key Information—D. Risk Factors—Risks Relating to Our Corporate Structure—Substantial uncertainties
exist with respect to the interpretation and implementation of PRC Foreign Investment Law and how it may impact the viability of our
current corporate structure, corporate governance and business operations.”
On December 19, 2020, the NDRC and the MOFCOM promulgated Measures for Security Review of Foreign Investment, or the
Security Review Measures, being effective from January 18, 2021. According to the Security Review Measures, the state shall establish
a working mechanism for the security review of foreign investment (the “Security Review Mechanism”) in charge of organization,
coordination, and guidance of foreign investment security review. A working mechanism office shall be established under the NDRC
and led by the NDRC and the MOFCOM to undertake routine work on the security review of foreign investment. According to the
Security Review Measures, in terms of foreign investments falling in the scope such as important cultural products and services,
important information technologies and Internet products and services, important financial services, key technologies and other
important fields that concern state security while obtaining the actual control over the enterprises invested in, a foreign investor or a
party concerned in the PRC shall take the initiative to make a declaration to the working mechanism office prior to making the
investment.
On February 24, 2023, the CSRC and the other relevant PRC government authorities issued the Provisions on Strengthening
Confidentiality and Archives Administration of Overseas Securities Offering and Listing by Domestic Companies (the “Confidentiality
and Archives Administration Provisions”), which became effective on March 31, 2023, according to which a domestic company,
including a joint-stock company incorporated domestically that conducts direct overseas offering and listing, and a domestic operating
entity of a company that conducts indirect overseas offering and listing, its securities in an overseas market shall strictly abide by
applicable PRC laws and regulations, enhance legal awareness of keeping state secrets and strengthening archives administration,
institute a sound confidentiality and archives administration system, and take necessary measures to fulfill confidentiality and archives
administration obligations. According to the Confidentiality and Archives Administration Provisions, during the course of an overseas
offering and listing, if a domestic enterprise needs to publicly disclose or provide to securities companies, accounting firms or other
securities service providers and overseas regulators, any materials that contain relevant state secrets, government work secrets or that
have a sensitive impact (i.e. any documents and materials that contain state secrets or working secrets of government agencies, or any
other documents and materials that will be detrimental to national security or public interest if leaked), the domestic enterprise shall
strictly fulfill relevant procedures stipulated by applicable national regulations.
Regulations of Foreign Currency Exchange, Foreign Debt and Dividend Distribution
Foreign Currency Exchange. The core regulations governing foreign currency exchange in China are the Foreign Exchange
Administration Regulations, as amended in August 2008, or the FEA Regulations. Under the FEA Regulations, payment of current
account items, such as profit distributions and trade and service-related foreign exchange transactions can be made in foreign currencies
without prior approval from the State Administration of Foreign Exchange, or the SAFE, by complying with certain procedural
requirements. However, approval from or registration with SAFE is required when making payment of capital account items, such as
direct investments, loans, repatriation of investments and investments in securities outside of China.
Furthermore, on March 30, 2015, the SAFE promulgated the Circular on the Reform of the Administrative Method of the
Settlement of Foreign Currency Capital of Foreign-Invested Enterprises, or Circular 19, which became effective as of June 1, 2015. This
Circular 19 is to implement the so-called “conversion-at-will” of foreign currency in capital account, which was established under a
circular issued by the SAFE on August 4, 2014, or Circular 36, and was implemented in 16 designated industrial parks as a reform pilot.
Among other things, under Circular 19, foreign-invested enterprises may either continue to follow the payment-based foreign currency
settlement system or select to follow the conversion-at-will of foreign currency settlement system. Where a foreign-invested enterprise
follows the conversion-at-will of foreign currency settlement system, it may convert any or 100% amount of the foreign currency in its
capital account into RMB at any time. The converted RMB will be kept in a designated account known as “Settled but Pending Payment
Account”, and if the foreign-invested enterprise needs to make further payment from such designated account, it still needs to provide
supporting documents and go through the review process with its bank. If under special circumstances the foreign-invested enterprise
cannot provide supporting documents in time, Circular 19 grants the banks the power to provide a grace period to the enterprise and
make the payment before receiving the supporting documents. The foreign-invested enterprise will then need to submit the supporting
documents within 20 working days after payment. In addition, foreign-invested enterprises are now allowed to use their converted RMB
to make equity investments in China under Circular 19. However, foreign-invested enterprises are still required to use the converted
RMB in the designated account within their approved business scope under the principle of authenticity and self-use. It remains unclear
whether a common foreign- invested enterprise, other than such special types of enterprises as holding companies, venture capital or
private equity firms, can use the converted RMB in the designated account to make equity investments if equity investment or the like
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is not within their approved business scope. The SAFE promulgated the Circular on the Reform and Standard of the Administrative
Policy of the Capital Account Foreign Exchange Settlement, or Circular 16, effective on June 9, 2016, which reiterates some of the rules
set forth in Circular 19, to relax the control over using the RMB funds converted from foreign exchange earnings under capital account
to offer loans by solely prohibiting offering loans to non-associated enterprises, while setting no prohibition on loans to associated
enterprises.
On October 23, 2019, the SAFE promulgated the Notice of Foreign Exchange of Further Facilitating Cross-border Trade and
Investment, or SAFE Circular 28, and the Notice of the State Administration of Foreign Exchange on Reducing Foreign Exchange
Accounts, or SAFE Circular 29, clearly cancelling the restrictions on domestic equity investment of capital funds by ordinary foreign-
invested enterprises. On December 4, 2023, the SAFE promulgated the Circular of the State Administration of Foreign Exchange on
Further Deepening Reforms to Facilitate Cross-Border Trade and Investment. SAFE Circular 28 stipulates that non-investment oriented
foreign-invested enterprises shall be allowed to use capital funds for domestic equity investment in accordance with the law under the
premise of not violating the existing special management measures for entry of foreign investment (negative list) and the authenticity
and compliance of their domestic invested projects. Where a non-investment oriented foreign-invested enterprise makes domestic equity
investment by way of transfer of the capital funds in original currency, the Investee Companies shall go through the registration of
domestic reinvestment and open the capital account for receipt of funds in accordance with relevant provisions without handling the
entry registration of cash contribution; where a non-investment oriented foreign-invested enterprise makes domestic equity investment
by way of foreign exchange settlement of capital funds, the Investee Companies shall go through the registration of receipt of domestic
reinvestment and open the “Capital Account –Account for Foreign Exchange Settlement Pending Payment” for receipt of corresponding
funds in accordance with relevant provisions.
On April 10, 2020, the SAFE issued the Circular of the SAFE on Optimizing Administration of Foreign Exchange to Support the
Development of Foreign-related Business, being effective from the same date. The Circular optimized the foreign exchange
administration from the following aspects: promoting the facilitation reform of capital account income payment nationwide; (ii)
cancelation of the registration of special refund business; (iii) Simplify the registration and management of certain capital project
businesses; (iv) relaxation of domestic foreign exchange loans with export background to purchase foreign exchange and repay; (v)
facilitating the use of electronic documents for foreign exchange business; (vi) Optimization the bank’s cross-border e-commerce foreign
exchange settlement; (vii) relaxation of business review and endorsement procedures; (viii) supporting banks to innovate financial
services.
On April 3 2024, the SAFE promulgated the Guidelines of Capital Account Foreign Exchange Business (2024 Version), which
came into effect on May 6, 2024, and stipulate guidelines for the capital account foreign exchange business.
Foreign Debt. A loan made by a foreign entity as direct or indirect shareholder in a FIE is considered to be foreign debt in China
and is regulated by various laws and regulations, including the Regulation of the People’s Republic of China on Foreign Exchange
Administration, the Interim Provisions on the Management of Foreign Debts, the Statistical Monitoring of Foreign Debts Tentative
Provisions, and the Administrative Measures for Registration of Foreign Debts, and the Administrative Measures for Review and
Registration of Medium- and Long-term Foreign Debts of Enterprises. Under these rules and regulations, a shareholder loan in the form
of foreign debt made to a PRC entity does not require the prior approval of SAFE. However, such foreign debt must be registered with
and recorded by SAFE or its local branches within 15 business days after entering into the foreign debt contract. Pursuant to these rules
and regulations, the maximum amount of the aggregate of (i) the outstanding balance of foreign debts with a term not longer than one
year, and (ii) the accumulated amount of foreign debts with a term longer than one year, of a foreign-invested enterprise shall not exceed
the difference between its registered total investment and its registered capital, or Total Investment and Registered Capital Balance. In
addition, on January 11, 2017, the PBOC promulgated the Notice of the People’s Bank of China on Full-coverage Macro-prudent
Management of Cross-border Financing, or PBOC Circular 9, which sets forth an upper limit for PRC entities, including FIEs and
domestic-invested enterprises, regarding their foreign debts. Pursuant to PBOC Circular 9, the limit of foreign debts for enterprises shall
be calculated based on the following formula: the limit of foreign debt (the “Net Assets Limit”) = net assets * cross-border financing
leverage ratio * macro-prudent regulation parameter. Net assets is calculated as the net assets value stated in the relevant entity’s latest
audited financial statement. The cross-border financing leverage ratio for enterprises is two (2). The macro-prudent regulation parameter
is one (1). The PBOC Circular 9 does not supersede the Interim Provisions on the Management of Foreign Debts, but rather serves as a
supplement to it. PBOC Circular 9 provided for a one-year transitional period, or the Transitional Period, from its promulgation date for
FIEs, during which period foreign-invested enterprise could choose to calculate their maximum amount of foreign debt based on either
(i) the Total Investment and Registered Capital Balance, or (ii) the Net Assets Limit. After the Transition Period, the maximum amount
applicable to foreign-invested enterprises is to be determined by PBOC and SAFE separately. However, although the Transitional Period
ended on January 10, 2018, as of the date of this annual report, neither PBOC nor SAFE has issued any new regulations regarding the
appropriate means of calculating the maximum amount of foreign debt for FIEs. Domestic-invested enterprises have only been subject
to the Net Assets Limit in calculating the maximum amount of foreign debt they may hold from the date of promulgation of PBOC
Circular 9.
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On March 15, 2019, the SAFE promulgated of Issuing the Provisions on the Centralized Operation and Management of Cross-
Border Capital of Multinational Companies, or Circular 7, which became effective since then, further facilitating trade and investment.
Under SAFE Circular 7, multinational companies, which meets several conditions prescribe in Article 5 of Circular 7, may, under the
principle of macro-prudential management, centralize the foreign debt quotas and/or overseas lending quotas of domestic member
enterprises, and carry out the business of borrowing foreign debt and/or overseas lending according to commercial practices within the
cap of centralized quotas. When a branch of the State Administration of Foreign Exchange at the place where the lead enterprise is
located issues a notice of recordation to the lead enterprise, it shall, according to the centralized quotas that have been granted
recordation, conduct one-off registration of foreign debt and/or overseas lending for the lead enterprise, so that the lead enterprise is not
required to go through procedures for the registration of foreign debt (or overseas lending) on a deal-by-deal basis by currency or by
creditor (or debtor).
In addition, SAFE Circular 28 reforms the administration of registration of external debts of enterprises, the administrative
requirement that non-bank debtors shall undergo external debt deregistration formalities at the local foreign exchange authority is
canceled. A non-bank debtor may directly undergo external debt deregistration formalities which meet relevant conditions at the bank
under the jurisdiction of the foreign exchange authority to which it is affiliated. The time limit for non-bank debtors to handle external
debt deregistration is canceled. The pilot program of deregistering each external debt by non-financial enterprises is carried out. Non-
financial enterprises in pilot regions may complete external debt registration at two times the amount of net assets at the foreign exchange
authority where it is located. Non-financial enterprises may borrow external debts within the registered amount on their own, and directly
undergo such formalities as inward and outward remittance of funds and foreign exchange purchase and sale at banks, and handle
international balance of payments in accordance with relevant provisions.
Dividend Distribution. The SCNPC promulgated the Company Law on December 29, 2023 which took effect on July 1, 2024.
All companies established in China are governed by the Company Law. On March 15, 2019, the National People’s Congress adopted
the Foreign Investment Law of the People’s Republic of China, or FIL, which became effective on January 1, 2020. The FIL sets out
that the business forms, structures, and rules of activities of foreign-funded enterprises shall be governed by the Company Law of the
People’s Republic of China, the Partnership Law of the People’s Republic of China, and other laws. Foreign-funded enterprises formed
under the Law on Sino-Foreign Equity Joint Ventures, the Law on Sino-Foreign Contractual Joint Ventures and the Law on Wholly
Foreign Owned Enterprises before the implementation of FIL Law may maintain their original business forms, among others, for five
years after FIL Law comes into force.
According to the Company Law, if the aggregate balance of the company’s statutory common reserve is not enough to make up
for the losses of the previous year, the current year’s profits shall first be used for making up the losses before the statutory common
reserve is drawn according to the provisions of the preceding paragraph. After we have drawn statutory common reserve, which is 10%
of the after-tax profit, from the after-tax profits, it may, upon a resolution made by the shareholders’ meeting, draw a discretionary
common reserve from the after-tax profits. After the losses have been made up and common reserves have been drawn, the remaining
profits shall be distributed to shareholders in proportion to the actual capital contribution actually paid by them, unless otherwise
stipulated in the company’s articles of association. We may stop drawing the profits if the aggregate balance of the statutory common
reserve has already accounted for over 50% of our registered capital.
Circular 37. In July 2014, the SAFE promulgated the Circular on Relevant Issues Relating to Domestic Resident’s Investment
and Financing and Round-trip Investment through Special Purpose Vehicles, or SAFE Circular 37, in July 2014, which repealed SAFE
Circular 75 effective from July 4, 2014. SAFE Circular 37 regulates foreign exchange matters in relation to the use of special purpose
vehicles, or SPVs, by PRC residents to seek offshore investment and financing and conduct round trip investment in China. Under SAFE
Circular 37, an SPV refers to an offshore entity established or controlled, directly or indirectly, by PRC residents for the purpose of
seeking offshore financing or making offshore investment, using legitimate domestic or offshore assets or interests, while “round trip
investment” refers to the direct investment in China by PRC residents through SPVs, namely, establishing foreign-invested enterprises
to obtain the ownership, control rights and management rights. SAFE Circular 37 requires that, before making contribution into an SPV,
PRC residents are required to complete foreign exchange registration with the SAFE or its local branch. SAFE Circular 37 further
provides that option or share-based incentive tool holders of a non-listed SPV can exercise the options or share incentive tools to become
a shareholder of such non-listed SPV, subject to registration with SAFE or its local branch. However, in practice, different local SAFE
branch may have different views and procedures on the interpretation and implementation of the SAFE regulations, and since Circular
37 was the first regulation to regulate the foreign exchange registration of a non-listed SPV’s option or share incentives granted to PRC
residents, there remains uncertainty with respect to its implementation.
PRC residents who have contributed legitimate domestic or offshore interests or assets to SPVs but have yet to obtain SAFE
registration before the implementation of the SAFE Circular 37 shall register their ownership interests or control in such SPVs with the
SAFE or its local branch. An amendment to the registration is required if there is a material change in the SPV registered, such as any
change of basic information (including change of such PRC residents, name and operation term), increases or decreases in investment
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amount, transfers or exchanges of shares, or mergers or divisions. If the PRC residents fail to complete the SAFE registration, our PRC
subsidiaries may be prohibited from distributing their profits and proceeds from any reduction in capital, share transfer or liquidation to
us, and we may be restricted in our ability to contribute additional capital to our PRC subsidiaries. Moreover, failure to comply with the
SAFE registration and amendment requirements described above could result in liability under PRC laws for evasion of applicable
foreign exchange restrictions.
To our knowledge, all our significant individual PRC shareholders have completed foreign exchange registration in connection
with our initial public offering.
Stock Option Rules. The Administration Measures on Individual Foreign Exchange Control were promulgated by the PBOC on
December 25, 2006, and their Implementation Rules, issued by the SAFE on January 5, 2007, became effective on February 1, 2007.
Under these regulations, all foreign exchange matters involved in employee stock ownership plans and stock option plans participated
in by onshore individuals, among others, require approval from the SAFE or its authorized branch. Furthermore, the Notices on Issues
concerning the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plans of Overseas Publicly-
Listed Companies, or the Stock Option Rules, were promulgated by the SAFE on February 15, 2012. Pursuant to the Stock Option
Rules, PRC residents who are granted shares or stock options by companies listed on overseas stock exchanges based on the stock
incentive plans are required to register with the SAFE or its local branches, and PRC residents participating in the stock incentive plans
of overseas listed companies shall retain a qualified PRC agent, which could be a PRC subsidiary of such overseas publicly-listed
company or another qualified institution selected by such PRC subsidiary, to conduct the SAFE registration and other procedures with
respect to the stock incentive plans on behalf of these participants. Such participants must also retain an overseas entrusted institution
to handle matters in connection with their exercise of stock options, purchase and sale of corresponding stocks or interests, and fund
transfer. In addition, the PRC agents are required to amend the SAFE registration with respect to the stock incentive plan if there is any
material change to the stock incentive plan, the PRC agents or the overseas entrusted institution or other material changes. The PRC
agents shall, on behalf of the PRC residents who have the right to exercise the employee share options, apply to the SAFE or its local
branches for an annual quota for the payment of foreign currencies in connection with the PRC residents’ exercise of the employee share
options. The foreign exchange proceeds received by the PRC residents from the sale of shares under the stock incentive plans granted
and dividends distributed by the overseas listed companies must be remitted into the bank accounts in the PRC opened by the PRC
agents before distribution to such PRC residents. In addition, the PRC agents shall file each quarter the form for record-filing of
information of the Domestic Individuals Participating in the Stock Incentive Plans of Overseas Listed Companies with the SAFE or its
local branches.
We and our PRC citizen employees who have been granted share options, restricted shares, other type of share incentive, or any
combination thereof, or PRC optionees, have become subject to the Stock Option Rules after we became a public company in the United
States. If we or our PRC optionees fail to comply with the Individual Foreign Exchange Rule and the Stock Option Rules, we and/or
our PRC optionees may be subject to fines and other legal sanctions. See “Item 3. Key Information—D. Risk Factors—Risks Relating
to Doing Business in China—PRC regulations relating to offshore investment activities by PRC residents may limit our PRC
subsidiaries’ ability to increase their registered capital or distribute profits to us or otherwise expose us to liability and penalties under
PRC law.”
In addition, the State Administration for Taxation has issued circulars concerning employee share incentives, under which our
employees working in the PRC who exercise share options or are granted restricted shares will be subject to PRC individual income tax.
Our PRC subsidiaries have obligations to file documents related to employee share incentives with relevant tax authorities and to
withhold individual income taxes of those employees who exercise their share options or purchase restricted shares. If our employees
fail to pay or if we fail to withhold their income taxes as required by relevant laws and regulations, we may face sanctions imposed by
the PRC tax authorities or other PRC government authorities.
Regulation on Tax
PRC Enterprise Income Tax
The PRC enterprise income tax is calculated based on the taxable income determined under the applicable Enterprise Income Tax
Law, or the EIT Law and its implementation rules, both of which became effective on January 1, 2008 and were most recently amended
on December 29, 2018 and December 16, 2024, respectively. Under the EIT Law and its implementing regulations, both resident
enterprises and non-resident enterprises are subject to tax in the PRC. Resident enterprises are defined as enterprises that are established
in China in accordance with PRC laws, or that are established in accordance with the laws of foreign countries but are actually or in
effect controlled from within the PRC. Non-resident enterprises are defined as enterprises that are organized under the laws of foreign
countries and whose actual management is conducted outside the PRC, but who have established institutions or premises in the PRC or
income generated from inside the PRC. Under the EIT Law and relevant implementing regulations, a uniform corporate income tax rate
of 25% is applied. However, if non-resident enterprises have not formed permanent establishments or premises in the PRC, or if their
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permanent establishment or premises in the PRC have no actual relationship to the relevant income derived in the PRC, enterprise
income tax is set at the rate of 10% with respect to their income sourced from inside the PRC.
The EIT Law and its implementation rules permit certain High and New Technologies Enterprises, or HNTEs, to enjoy a reduced
15% enterprise income tax rate if they meet certain criteria and are officially acknowledged. In accordance with the requirements of Cai
Shui [2022] No. 19 and State Administration of Taxation Hengqin Guangdong-Macao Deep Cooperation Zone Taxation Bureau
Announcement [2023] No. 1, enterprises located in Guangdong-Macao Deep Cooperation Zone which also qualify as encouraged
industrial enterprises and meet the substantive operational requirements, are subject to a tax rate of 15%.
According to the Notice on Strengthening Administration of Enterprise Income Tax for Share Transfers by Non-PRC Resident
Enterprises issued by the PRC State Administration of Taxation on December 10, 2009, with retroactive effect from January 1, 2008,
or SAT Circular 698, where a non-resident enterprise transfers the equity interests in a PRC resident enterprise indirectly through a
disposition of equity interests in an overseas holding company (other than a purchase and sale of shares issued by a PRC resident
enterprise in public securities market), PRC tax reporting and payment obligations may be triggered. On February 3, 2015, SAT issued
a new guidance (Bulletin [2015] No. 7), or SAT Bulletin 7, on the PRC tax treatment of an indirect transfer of assets by a non-resident
enterprise. SAT Bulletin 7 is the latest regulatory instrument on indirect transfers, extending to not only the indirect transfer of equity
interests in PRC resident enterprises but also to assets attributed to an establishment in China and immovable property in China or,
collectively, Chinese Taxable Assets. Further, on October 17, 2017, SAT issued the Matters Regarding Withholding Corporate Income
Tax at Source from Non-resident Enterprises (Bulletin [2017] No. 37), or SAT Bulletin 37, which replaced SAT Circular 698 and
specified the withhold obligation of the transferees. According to SAT Bulletin 7 and SAT Bulletin 37, when a non-resident enterprise
engages in an indirect transfer of Chinese Taxable Assets, or Indirect Transfer, through an arrangement that does not have a bona fide
commercial purpose in order to avoid paying enterprise income tax, the transaction should be re-characterized as a direct transfer of the
Chinese assets and becomes taxable in China under the EIT Law, and gains derived from such indirect transfer may be subject to the
PRC withholding tax at a rate of up to 10%, and the party who is obligated to make the transfer payments has the withholding obligation.
SAT Bulletin 7 and 37 have replaced SAT Circular 698 in its entirety. They provide more comprehensive guidelines on a number of
issues. Among other things, SAT Bulletin 7 substantially changes the reporting requirements in SAT Circular 698, provides more
detailed guidance on how to determine a bona fide commercial purpose, and also provides for a safe harbor for certain situations,
including purchase and sale of shares in an offshore listed enterprise on a public market by a non-resident enterprise, which may not be
subject to the PRC enterprise income tax. In addition, SAT Circular 698 has been abolished by Announcement of the State
Administration of Taxation on Issues Concerning the Withholding of Non-resident Enterprise Income Tax at Source issued by the PRC
State Administration of Taxation on October 17, 2017, with retroactive effect from December 1, 2017, or SAT Circular 37. See “Item
3. Key Information—D. Risk Factors—Risks Relating to Doing Business in China—We face uncertainties with respect to indirect
transfer of assets or equity interest in PRC resident enterprises by their non-PRC holding companies.” For more details of the relevant
tax regulations, see “Item 10. Additional Information—E. Taxation—People’s Republic of China Taxation.”
Moreover, the PRC Enterprise Income Tax Law requires every enterprise in China to submit its annual enterprise income tax
return together with a report on transactions with its affiliates or related parties to the relevant tax authorities. These transactions may
be subject to audit or challenge by the PRC tax authorities, while the basic rules are regulated by the Announcement of the State
Administration of Taxation on Promulgating the Administrative Measures for Special Tax Investigation Adjustments and Mutual
Agreement Procedures, or Bulletin 6, which became effective as of May 1, 2017. We may be subject to adverse tax consequences if the
PRC tax authorities were to determine that the contracts between us and the VIEs were not on an arm’s length basis and therefore
constituted improper transfer pricing arrangements. See “Item 3. Key Information—D. Risk Factors— Risks Relating to Our Corporate
Structure—Our contractual arrangements with the VIEs may result in adverse tax consequences to us.”
PRC Value-added Tax (VAT)
Pursuant to the Provisional Regulations on Value-Added Tax of the PRC and its implementation regulations, unless otherwise
specified by relevant laws and regulations, any entity or individual engaged in the sales of goods, provision of processing, repairs and
replacement services and importation of goods into China is generally required to pay a value-added tax, or VAT, for revenues generated
from sales of products, while qualified input VAT paid on taxable purchase can be offset against such output VAT. The VAT tax rates
generally applicable are simplified as 13%, 9%, 6% and 0%, and the VAT tax rate applicable to the small-scale taxpayers is 3%. In
addition, sales of self-developed software products or license fees from self-developed software are entitled to a VAT refund with respect
to the part whose actual VAT burden exceeds 3%.
On December 25, 2024, the Standing Committee of the National People's Congress promulgated Value-Added Tax Law of the
People's Republic of China (the“VAT Law”), which will come into effect on January 1, 2026. The VAT Law defines taxable transactions
more clearly and specifically and stipulates that entities and individuals (including individual businesses) engaged in the sale of goods,
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services, intangible assets, or real estate (hereinafter "taxable transactions") within the territory of the People's Republic of China, or in
the importation of goods, shall be considered VAT taxpayers and shall pay VAT in accordance with the VAT Law.
Cultural Development Fee
According to applicable PRC tax regulations or rules, advertising service providers are generally required to pay a cultural
development fee at the rate of 3% on the revenues (a) which are generated from providing advertising services and (b) which are also
subject to the value-added tax.
Dividend Withholding Tax
Under the old EIT Law that was effective prior to January 1, 2008, dividends paid to foreign investors by foreign-invested
enterprises were exempt from PRC withholding tax. Pursuant to the EIT Law and its implementation rules, dividends from income
generated after January 1, 2008 and distributed to us by our PRC subsidiaries are subject to withholding tax at a rate of 10%, unless non-
resident enterprise investor’s jurisdiction of incorporation has a tax treaty or arrangements with China that provides for a reduced
withholding tax rate or an exemption from withholding tax. See “Item 5. Operating and Financial Review and Prospects—A. Operating
Results—Taxation.”
As uncertainties remain regarding the interpretation and implementation of the EIT Law and its implementation rules, we cannot
assure you that, if we are deemed a PRC resident enterprise, any dividends to be distributed by us to our non-PRC shareholders and
ADS holders would not be subject to any PRC withholding tax. See “Item 3. Key Information—D. Risk Factors—Risks Relating to
Doing Business in China—Under the PRC Enterprise Income Tax Law, we may be classified as a PRC “resident enterprise,” which
could result in unfavorable tax consequences to us and our shareholders and have a material adverse effect on our results of operations
and the value of your investment.”
Regulations on Labor Laws and Social Insurance
The principal laws that govern employment include:
•
Labor Law of the People’s Republic of China, promulgated by the Standing Committee of the National People’s Congress
on July 5, 1994, effective since January 1, 1995 and amended on August 27, 2009 and December 29, 2018;
•
Labor Contract Law of the People’s Republic of China, promulgated by the Standing Committee of the National People’s
Congress on June 29, 2007 and effective since January 1, 2008 and amended on December 28, 2012;
•
Implementation Rules of the PRC Labor Contract Law, promulgated by the State Council on September 18, 2008 and
effective since September 18, 2008;
•
Work-related Injury Insurance Regulations, promulgated by the State Council on April 27, 2003 and effective since January
1, 2004 and amended on December 20, 2010;
•
Interim Regulations on the Collection and Payment of Social Insurance Fees, promulgated by the State Council on January
22, 1999, effective since January 22, 1999 and amended on March 24, 2019;
•
Social Insurance Law promulgated by the National People’s Congress on October 28, 2010, effective since July 1, 2011 and
amended on December 29, 2018; and
•
Regulations on Unemployment promulgated by the State Council on January 22, 1999, effective since January 22, 1999,
and
•
Regulations on the Administration of Housing Provident Fund promulgated by the State Council on April 3, 1999 and latest
revised on March 24, 2019.
According to the Labor Law and Labor Contract Law, employers must execute written labor contracts with full-time employees.
All employers must compensate their employees with wages equal to at least the local minimum wage standards. All employers are
required to establish a system for labor safety and workplace sanitation, strictly comply with state rules and standards and provide
employees with workplace safety training. Violations of the PRC Labor Contract Law and the PRC Labor Law may result in the
imposition of fines and other administrative penalties. For serious violations, criminal liability may arise.
In addition, pursuant to the Social Insurance Law and Regulations on the Administration of Housing Provident Fund, employers
in China are required to provide employees with welfare schemes covering pension insurance, unemployment insurance, maternity
insurance, work-related injury insurance, medical insurance and housing funds.
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M&A Regulations
On August 8, 2006, six PRC governmental agencies jointly promulgated the Regulations on Mergers and Acquisitions of Domestic
Enterprises by Foreign Investors, or the 2006 M&A Rules, which became effective on September 8, 2006 and was amended on June 22,
2009. “Mergers and acquisitions of domestic enterprises by foreign investors” refers to: (a) a foreign investor converts a non-foreign
invested enterprise (domestic company) to a foreign invested enterprise by purchasing the equity interest from the shareholder of such
domestic company or the increased capital of the domestic company, or the Equity Merger and Acquisition; or (b) a foreign investor
establishes a foreign invested enterprise to purchase the assets from a domestic enterprise by agreement and operates the assets
therefrom; or (c) a foreign investor purchases the assets from a domestic enterprise by agreement and uses these assets to establish a
foreign invested enterprise for the purpose of operation of such assets, or the Assets Merger and Acquisition.
The M&A Rules provides that mergers and acquisitions of domestic enterprises by foreign investors shall be subject to the
approval of the MOFCOM or its delegates at provincial level. In the event that any domestic company, enterprise or natural person
merges or acquires a domestic company that has affiliated relationship with it through an overseas company legally established or
controlled by such domestic company, enterprise or natural person (the “Affiliated M&A”), the merger and acquisition applications
shall be submitted to the MOFCOM for approval. Any circumvention on the requirement including domestic re-investment of a foreign
invested enterprise is not allowed.
After the implementation of the FI Information Report Measures on January 1, 2020, where a foreign investor acquires a domestic
non-foreign-invested enterprise by equity, it shall submit an initial report through the enterprise registration system when handling the
change registration for the acquired enterprise instead of obtaining the approval of the MOFCOM or its delegates at provincial level.
However, regarding the affiliated M&A, according to the Negative List (2024 Version), a M&A of affiliated domestic companies by
domestic companies, enterprises or natural persons via the companies legally established or controlled overseas, it shall still apply to
the foreign investment, overseas investment, foreign exchange administration and other relevant regulations.
The M&A Rules also require offshore special purpose vehicles formed to pursue overseas listing of equity interests in PRC
companies and controlled directly or indirectly by PRC companies or individuals to obtain the approval of the Chinese Securities
Regulatory Commission, or the CSRC, prior to the listing and trading of such special purpose vehicle’s securities on any stock exchange
overseas.
In addition, pursuant to the Circular of the General Office of State Council on Establishing the Security Review System for Merger
and Acquisition of Domestic Enterprises by Foreign Investors, which was issued by the General Office of the State Council on February
3, 2011 and took effect on March 3, 2011, and the Provisions of the Ministry of Commerce on the Implementation of the Safety Review
System for Merger and Acquisition of Domestic Enterprises by Foreign Investors, which was issued by MOFCOM and became effective
in September 2011, mergers and acquisitions by foreign investors that raise “national defense and security” concerns and mergers and
acquisitions through which foreign investors may acquire de facto control over domestic enterprises that raise “national security”
concerns are subject to strict review by MOFCOM, and the rules prohibit any activities attempting to bypass a security review, including
structuring the transaction through a proxy or contractual control arrangement.
The application of the M&A Rules remains unclear. Based on the understanding on the current PRC laws, rules and regulations
and the M&A Rules of our PRC legal counsel, Global Law Office, prior approval from the CSRC is not required under the M&A Rules
for the listing and trading of the ADSs on NYSE because the CSRC approval requirement applies to SPVs that acquired equity interests
of any PRC company that are held by PRC companies or individuals controlling such SPV and seek overseas listing, and our PRC
subsidiaries were incorporated as wholly foreign-owned enterprises by means of direct investment rather than by merger or acquisition
by our company of the equity interest or assets of any “domestic company” as defined under the M&A Rules, and no provision in the
M&A Rules classifies the contractual arrangements between our company, our PRC subsidiaries and any of the VIEs, either by each
agreement itself or taken as a whole, as a type of acquisition transaction falling under the M&A Rules. However, as there has been no
official interpretation or clarification of the M&A Rules, there is uncertainty as to how this regulation will be interpreted or implemented.
Considering the uncertainties that exist with respect to the issuance of new laws, regulations or interpretation and implementing
rules, the opinion of Global Law Office, summarized above, is subject to change. If the CSRC or another PRC regulatory agency
subsequently determines that prior CSRC approval was required, we may face regulatory actions or other sanctions from the CSRC or
other PRC regulatory agencies.
Regulations of securities
The Securities Law of the PRC, or the PRC Securities Law, took effect on July 1, 1999, and was revised as of August 28, 2004,
October 27, 2005, June 29,2013, August 31, 2014 and December 28, 2019, respectively. It was the first national securities law in the
PRC, and is divided into 14 chapters and 226 articles comprehensively regulating activities in the PRC securities market, including the
issue and trading of securities, takeovers by listed companies, securities exchanges, securities companies and the duties and
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responsibilities of the State Council’s securities regulatory authorities. Article 177 of the PRC Securities Law provides that no overseas
securities regulator is allowed to directly conduct investigation or evidence collection activities within the territory of the PRC, and
without the consent of the securities authorities and the relevant competent authorities of the State Council, no entity or individual may
provide documents or materials relating to securities business activities to overseas. Article 224 of the PRC Securities Law provides that
domestic enterprises which, directly or indirectly, issue securities or list and trade their securities outside the PRC shall comply with the
relevant regulations of the State Council. Currently, the issue and trading of foreign issued securities (including shares) are principally
governed by the regulations and rules promulgated by the State Council and CSRC.
The CSRC issued the Trial Measures and five supporting guidelines on February 17, 2023, which are effective from March 31,
2023. According to the Trial Measures for Overseas Listing, domestic companies seeking to issue and list securities in overseas markets
directly or indirectly should fulfil the filing procedures and report relevant information to the CSRC.
In addition, according to the Provisions on Strengthening the Confidentiality and Archives Administration Concerning the
Overseas Securities Offering and Listing by Domestic companies jointly promulgated by the CSRC, the Ministry of Finance, the
National Administration of State Secrets Protection and the National Archives Administration on February 24, 2023 and came into effect
on March 31, 2023, where a domestic company provides or publicly discloses any files or materials involving state secrets or work
secrets of state agencies to the relevant securities companies, securities service agencies, overseas regulatory agencies and other entities
and individuals, or provides or publicly discloses any files or materials involving state secrets or work secrets of state agencies through
their overseas listing entities, it shall first obtain approval from competent authorities according to law, and file with the secrecy
administrative department at the same level. Where a domestic company provides securities companies, securities service agencies,
overseas regulatory authorities and other entities and individuals with accounting files or copies of accounting files, it shall perform
corresponding procedures in accordance with relevant regulations of the State. The working papers formed in the Chinese mainland by
securities companies and securities service agencies that provide corresponding services for the overseas issuance and listing of domestic
companies shall be retained in the Chinese mainland. Where such documents need to be transferred or transmitted to outside the Chinese
mainland, the approval procedure shall be carried out in accordance with the relevant regulations of the State.
C.
Organizational Structure
Foreign ownership of internet-based and mobile-based businesses is subject to significant restrictions under current PRC laws and
regulations. The PRC government regulates internet access, distribution of internet information services and value-added
telecommunication services through strict business licensing requirements and other government regulations. These laws and regulations
also include limitations on foreign ownership of PRC companies that engage in telecommunications-related business. Specifically,
unless in relevant pilot areas where there are further opening-up policies and measures for telecommunications-related businesses,
foreign investors are generally not allowed to own more than a 50% equity interest in any PRC company engaging in value-added
telecommunications businesses, except for e-commerce, domestic conferencing, store-and-forward, and call center services.
As a Cayman Islands company, in order for us to be able to carry on our business in China, we conduct part of our operations in
China through the VIEs including but not limited to Beijing Mobile and Beijing Network. Each of Beijing Mobile (which is owned as
to 35% by Mr. Sheng Fu and 65% by Ms. Weiqin Qiu) and Beijing Network (which is owned as to 50% by Mr. Kun Wang and 50% by
Mr. Wei Liu) holds the requisite ICP Licenses. We have been and are expected to continue to be dependent on the VIEs to operate our
business in China. We believe that under these contractual arrangements, we have sufficient control over the VIEs and their respective
shareholders to renew, revise or enter into new contractual arrangements prior to the expiration of the current arrangements on terms
that would enable us to continue to operate our business in China validly and legally.
Our contractual arrangements with each of the VIEs and their shareholders enable us to:
•
exercise effective control over the VIEs;
•
receive substantially all of the economic benefits of the VIEs in consideration for the services provided by Beijing Security
and Conew Network, our wholly-owned subsidiaries in China; and
•
have an exclusive option to purchase all of the equity interests in the VIEs, when and to the extent permitted under PRC
law, regulations or legal proceedings.
For a diagram summarizing our corporate structure and identifying the significant subsidiaries and the VIEs as of the date of this
annual report, please refer to “Item 3. Key Information—Our Holding Company Structure and Contractual Arrangements with the
Consolidated Variable Interest Entities.” Pursuant to Catalogue of Industries for Encouraging Foreign Investment (2022 Version) and
Negative List (2024 Version), Beijing Security is currently engaged in the business of technology promotion, technology development,
technology service and technology consultancy, sale of computers, software, auxiliary devices and AI hardware, computer animation
design, investment consultancy and advertisement design, production, agency and publication, all of which are permitted foreign
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investment industries under Catalogue of Industries for Encouraging Foreign Investment (2022 Version) and Negative List (2024
Version).
Conew Network is currently engaged in the business of research and development of digital technology, telecommunication
technology and relevant products, self-technology transfer, technology service, technology consultancy and computer technology
training, sale of self-developed products, graphic design, business consultancy and investment consultancy, all of which are permitted
foreign investment industries under Catalogue of Industries for Encouraging Foreign Investment (2022 Version) and Negative List (2024
Version).
Contractual Arrangements with the VIEs
The following is a summary of the currently effective contracts among our company, our subsidiary Beijing Security, our VIE
Beijing Mobile, and the shareholders of Beijing Mobile. We have entered into substantially similar contractual arrangements with our
other VIEs, including but not limited to Beijing Network.
Agreements that provide us with effective control over Beijing Mobile
Business operation agreement. Pursuant to the business operation agreement by and among Beijing Security, Beijing Mobile and
its shareholders, Beijing Mobile and its shareholders agreed to accept and follow Beijing Security’s suggestions on their daily operations
and financial management. The shareholders of Beijing Mobile must appoint candidates designated by Beijing Security to its board of
directors and appoint candidates designated by Beijing Security as senior executives of Beijing Mobile. In addition, the shareholders of
Beijing Mobile confirm, agree and jointly guarantee that Beijing Mobile shall not engage in any transaction that may materially affect
its assets, business, employment, obligations, rights or operations without the prior written consent of Beijing Security. The shareholders
of Beijing Mobile also agree to unconditionally pay or transfer to Beijing Security any bonus, dividends, or any other profits or interests
(in whatever form) that they are entitled to as shareholders of Beijing Mobile, and waives any consideration connected therewith. The
agreement has a term of ten years, unless terminated at an earlier date by Beijing Security. Neither Beijing Mobile nor its shareholders
may terminate this agreement.
Shareholder voting proxy agreement. Under the shareholder voting proxy agreement by and among our company, Beijing Mobile
and its shareholders, each of Beijing Mobile’s shareholders irrevocably nominates, appoints and constitutes any person designated by
our company as its attorney-in-fact to exercise on such shareholder’s behalf any and all rights that such shareholder has in respect of its
equity interests in Beijing Mobile (including but not limited to the voting rights and the right to nominate executive directors of Beijing
Mobile). This proxy agreement shall remain valid during the existence of Beijing Mobile. Without the prior written consent of our
company, existing shareholders of Beijing Mobile shall not amend or terminate this proxy agreement or revoke the or revoke the voting
proxy to our company.
Equity pledge agreement. Under the equity pledge agreement between Beijing Security, Beijing Mobile and its shareholders, the
shareholders of Beijing Mobile have pledged all of their respective equity interests in Beijing Mobile to Beijing Security to guarantee
(i) the performance of all the contractual obligations of Beijing Mobile and its shareholders under this agreement, the exclusive
technology development, support and consultancy agreement, exclusive equity option agreement and other agreements concluded from
time to time by and among our company, Beijing Security, Beijing Mobile and its shareholders, and (ii) the repayment of all liabilities
that may be incurred under all of the aforementioned agreements. In the event of default, Beijing Security has the first priority to be
compensated through the sale or auction of the equity interests pledged. The shareholders of Beijing Mobile or their successors or
representatives and Beijing Mobile shall ensure that Beijing Mobile will not distribute dividends to shareholders, make property
distributions, reduce capital, initiate liquidation procedures or make distributions in any other form without prior written consent of
Beijing Security. This pledge will remain effective until all the guaranteed obligations have been performed or all the guaranteed
liabilities have been repaid. We have completed the registration of equity pledge relating to each of the significant VIEs with the relevant
government authorities in China.
Agreement that transfers economic benefits to us
Exclusive technology development, support and consultancy agreement. Under the exclusive technology development, support
and consultancy agreement between Beijing Security and Beijing Mobile, Beijing Security has the exclusive right to provide Beijing
Mobile with services related to Beijing Mobile’s business, including but not limited to technology development, support and consulting
services. Beijing Security has the sole right to determine the service fees and settlement cycle, and the service fees shall in no event be
less than 30% of the pre-tax revenue of Beijing Mobile in relation to the relevant service. Beijing Security will exclusively own any
intellectual property arising from the performance of this agreement. This agreement will be effective unless terminated according to
the terms of the agreement or otherwise terminated by mutual agreement of the signing parties.
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Agreements that provide us with the option to purchase the equity interest in Beijing Mobile
Loan agreements. Under the loan agreements by and among Beijing Security and the shareholders of Beijing Mobile, Beijing
Security shall have made interest-free loans in an aggregate amount of RMB6.5 million to the two individual shareholders of Beijing
Mobile, for the sole purpose of contributing to the registered capital of Beijing Mobile. The loans have no definite maturity date. Beijing
Security may request repayment at any time, and either shareholder of Beijing Mobile may offer to repay part or all of the loan at any
time. The shareholders of Beijing Mobile shall, subject to the PRC laws, repay the loans by transferring the equity interest they hold in
Beijing Mobile to Beijing Security or a third party that it designates.
Exclusive option agreement. Under the exclusive option agreement by and among our company, Beijing Mobile and its
shareholders, our company was granted an irrevocable exclusive option to acquire, or designate a third party to acquire, all or part of
the equity interest owned by the shareholders in Beijing Mobile or to acquire, all or part of the assets owned by the Beijing Mobile at
any time at an exercise price that is equal to the minimum price permitted under the PRC laws or is equal to the entire principal and
interest (including all principal and interest under the existing loan agreement) owed by the existing shareholder to the Beijing Security
due to the fulfillment of the registered capital paid obligations in the Beijing Mobile. In addition, this agreement stipulates that our
company can provide financial support to Beijing Mobile to the extent permissible under the applicable PRC laws and regulations,
regardless of whether Beijing Mobile has incurred an operational loss. The form of financial support includes but is not limited to
entrusted loans and borrowings. Our company will not request repayment of any outstanding loans or borrowings from Beijing Mobile
if Beijing Mobile do not have sufficient funds or are unable to repay such loans or borrowings. Unless terminated according to the
agreement itself, the agreement has a term of ten years, which will automatically extend on a decadely basis.
In addition to the above contracts, the spouses of certain shareholders of the VIEs have executed spousal consent letters. Pursuant
to the spousal consent letters, the spouses acknowledged that certain equity interests in the respective VIEs held by and registered in the
name of his or her spouse will be disposed of pursuant to relevant arrangements under the shareholder voting proxy agreement, the
exclusive option agreement and the equity pledge agreement and other agreements under contractual arrangements. These spouses
undertake not to take any action to interfere with the disposition of such equity interests.
As a result of these contractual arrangements, we are considered the primary beneficiary of the VIEs as we have the power to
direct activities of these entities and can receive substantially all economic interests in these entities even though we do not necessarily
receive all of the VIEs’ revenues. Accordingly, we treat them as the VIEs under U.S. GAAP and have consolidated the results of
operation of the VIEs and the then subsidiaries of the VIEs in our consolidated financial statements in accordance with U.S. GAAP.
External revenues contributed by the VIEs and the then subsidiaries of the VIEs together accounted for 31.8%, 42.9% and 35.0% of our
revenues for the years ended December 31, 2022, 2023 and 2024, respectively.
In the opinion of our PRC legal counsel, Global Law Office:
•
the corporate structure of our PRC subsidiaries and VIEs does not result in any violation of all existing PRC laws and
regulations;
•
each of the VIE agreements among us or our first-tier subsidiaries, either Beijing Security or Conew Network, Cheetah
Mobile Inc., each of the VIEs and its respective shareholders (as the case may be) governed by PRC law is valid and binding,
and does not result in any violation of PRC laws or regulations currently in effect; and
•
each of our PRC subsidiaries and VIEs has the necessary corporate power and authority to conduct its business as described
in its business scope under its business license. The business licenses of each of our PRC subsidiaries and VIEs are in full
force and effect. Each of our PRC subsidiaries and VIEs is capable of suing and being sued and may be the subject of any
legal proceedings in PRC courts. To the best of our PRC legal counsel’s knowledge after due inquiries, none of our PRC
subsidiaries and VIEs or their respective assets is entitled to any immunity, on the grounds of sovereignty, from any action,
suit or other legal proceedings, or from enforcement, execution or attachment.
We have been advised by our PRC legal counsel, Global Law Office, however, that there are substantial uncertainties regarding
the interpretation and application of current and future PRC laws, regulations and rules. Accordingly, the PRC regulatory authorities
may take a view that is contrary to the above opinion of our PRC legal counsel. We have been further advised by our PRC legal counsel
that if the PRC government finds that the agreements that establish the structure for operating our business do not comply with PRC
government restrictions on foreign investment in the aforesaid business we engage in, we could be subject to severe penalties including
being prohibited from continuing operations. See “Item 3. Key Information—D. Risk Factors—Risks Relating to Our Corporate
Structure” for “—If the PRC government finds that the structure we have adopted for our business operations does not comply with
PRC governmental restrictions on foreign investment in internet businesses, or if these laws or regulations or interpretations of existing
laws or regulations change in the future, we could be subject to severe penalties, including the shutting down of our platform and our
89
business operations” and “—Substantial uncertainties exist with respect to the interpretation and implementation of PRC Foreign
Investment Law and how it may impact the viability of our current corporate structure, corporate governance and business operations.”
D.
Property, Plants and Equipment
As of December 31, 2024, our principal executive offices were located on leased premises comprising approximately 8,819 square
meters in Beijing, China. This facility accommodates our management headquarters, principal development, engineering, legal, finance
and administrative activities. We also have offices overseas, mainly in Japan.
As of December 31, 2024, we also leased some facilities in multiple cities across China. These facilities were mainly used as
production factories and warehouses, with a total combined floor area of approximately 5,305 square meters.
Our products and services are mainly deployed on various cloud service providers such as Tencent and Amazon. We believe these
arrangements are more cost-effective than acquiring our own servers. We believe that our existing facilities are sufficient for our current
need and we expect to obtain additional facilities, principally through leasing, to accommodate our future expansion plans.
Item 4A. Unresolved Staff Comments
None.
Item 5. Operating and Financial Review and Prospects
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our
consolidated financial statements and the related notes included elsewhere in this annual report. This discussion and analysis may contain
forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially
from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Item 3. Key
Information—D. Risk Factors” or in other parts of this annual report. For discussion of 2022 items and year-over-year comparisons
between 2023 and 2022 that are not included in this annual report on Form 20-F, please refer to “Item 5. Operating and Financial Review
and Prospects” found in our Form 20-F for the year ended December 31, 2023 that was filed with the Securities and Exchange
Commission on April 18, 2024.
A.
Operating Results
Overview
We are a China-based IT company with a commitment to AI innovation. We generate revenues primarily by providing utility-
related business, including advertising services and premium membership services worldwide. We also provide multi-cloud management
and overseas advertising agency service. Multi-cloud management service is to provide our customers one-stop multi-cloud resource
management solutions, conduct comprehensive management of multi-cloud resources and environment, and provide various solutions
that can be implemented in the cloud, including platforms for backup and disaster recovery, machine learning, cost optimization and
monitoring alarm. Overseas advertising agency service is to assist companies to launch advertisement on large overseas advertising
platforms, such as Meta.
Subsequent to the acquisition of Beijing OrionStar in November 2023, we enlarged our business to provide service robots globally
to restaurants, exhibitions, logistic centers and so on. Through a full range of AI technologies, our service robots can be customized
and are able to provide comprehensive solutions to optimize efficiency, improve sales, ensure service standardization and enhance
customer satisfaction. At the same time, we actively engage in the independent research and development of our AI technologies,
including large language model ("LLM") technologies to provides AI-powered business solutions for enterprise customers, enabling
enterprises to apply LLM technology, digitalize employees and improve operational efficiency.
We reported our revenues and operating profits in two segments: internet business and AI and others. In 2023, we acquired
controlling stake of Beijing OrionStar, and reported the results of Beijing OrionStar in the AI and others segment.
Revenues from our internet business mainly include two parts, online advertising and internet value-added services. We generate
advertising revenues by providing mobile advertising services to our customers worldwide, as well as selling advertisements and
referring user traffic on our mobile and PC platforms. We generate value-added services revenues principally from the sale of
membership packages and subscriptions.
Revenues from our AI and other business mainly from multi-cloud management platform, overseas advertising agency service
and sale and rental of service robots and some other AI related business.
90
On the corporate level, our revenues increased from RMB669.5 million to RMB806.9 million (US$110.5 million) in 2024. Our
net loss attributable to Cheetah Mobile shareholders was RMB617.6 million (US$84.6 million) in 2024, compared to a net loss
attributable to Cheetah Mobile shareholders of RMB602.9 million in 2023.
Selected Statement of Operations Items
Revenues
We generate revenues from internet business and AI and others. The following table sets forth the principal components of our
revenues by amount and as a percentage of our revenues for the periods presented.
Years Ended December 31,
2023
2024
RMB
% of
revenues
RMB
US$
% of
revenues
Internet business
450,134
67.2
517,188
70,854
64.1
AI and others
219,369
32.8
289,689
39,687
35.9
Revenues
669,503
100.0
806,877
110,541
100.0
Internet business
Revenues from internet business accounted for 67.2% and 64.1% of our revenues in 2023 and 2024, respectively. Our portfolio
of internet products has attracted a massive user base, which enabled us to provide online marketing services to customers worldwide
as well as refer user traffic and sell advertisements on our mobile and PC platforms. We also provide value-added services for our
internet product, which mainly includes VIP membership and software subscription. Our VIP membership and software subscription
services are mainly sold in short term period, typically, no more than 12 months.
We believe that the most significant company-specific factors affecting the operation of our internet business include:
•
User base and user engagement in key markets. Our revenues from internet business are ultimately affected by the scale of
our user base, and the strategies we pursue to achieve user growth may affect our costs and expenses and results of operations.
A large and engaged user base is crucial for the sustainability of our product and related services, our advertising revenue is
driven by the size of our user base and our VIP membership revenue depend on our ability to convert more users to paying
users. We have experienced user-base decrease since 2019 and although we continuously develop more innovative products
and enhance our products' user experiences, our user base may continue to decrease in the future. We plan to continue to
enhance users’ experience of our products and introduce more products to increase users’ engagement with our products.
•
Products and Services Innovation. Our products are mainly utility software which face intensive competition. We must
develop innovative products and services, continuously enrich the functionality of our products that meet the disparate needs
of users, platform and channel partners and roll them out on a timely basis while controlling our product development
expenses. We plan to continue to make investment in our products improvement and development.
•
Fee arrangements with our significant customers. A small number of advertising customers have contributed a significant
portion of revenues for our online advertising services. In advertising markets, advertising platforms provide bids to APP
operators for displaying advertisements on their apps, and the bid prices may fluctuate significantly depending on who are
the bidders, the type of the advertising inventories, seasonality, and supply and demand balance. The fee arrangements with
these significant customers and the mix of these arrangements can have a significant impact on our revenues, and some of
these impact may be beyond our control.
AI and Others
Revenue from AI and others accounted for 32.8% and 35.9% of our revenues in 2023 and 2024, respectively. AI and others
revenues mainly include revenues from our AI related business, such as business of multi-cloud management service, overseas
advertising agency service, sale and rental of our service robots, as well as providing technical, AI application services to third parties
and related parties.
91
We believe that the most significant company-specific factors affecting the operation of our AI and others business include:
•
Our ability to increase sales volume and maintain relationships with customers. Our capacity to sustain good business
relationships with existing customers and attract new customers are crucial to our financial performance. In our service
robotics business, we collaborate with global distributors to distribute products in target markets. For our cloud services and
advertising agency business, we operate as an authorized agency for global partners, such as Meta and Amazon. Our ability
to ultimately achieve profitability is dependent on the progression of robot distributors’ market demand, changes of our
partners’ policies, including rebate structures and policy compliance and our ability to meet required volumes and required
cost targets.
•
Our ability to expand in domestic and international markets. We value the development of our AI and others business in both
domestic and international markets, and especially, we view international expansion as an important element of our strategy
to increase revenues and achieve continuing profitability of this business segment. Our global expansion may expose us to
additional challenges such as exchange rate risk, international taxes and tariffs, legal obligations and additional operational
costs, etc.
•
Our ability to control production and material costs of our service robots. Our ability to control manufacturing cost, attain
operating efficiency, while scaling up our business, is critical to achieving profitability. Maintaining reasonable operating
expenses of robot manufacturing in China is key to our success, and we shall continually strive to find the most efficient and
cost-effective means of achieving our goals.
•
Investment in technology and talents. We believe our success in AI and others business rooted in our robust technological
capabilities. We have historically dedicated significant resources towards research and development. Specifically, we have
invested heavily in artificial intelligent development, and talent recruitment, especially engineers and scientists with expertise
and experience in machine learning, software algorithms, and robotics operation.
Cost of Revenues
Cost of revenues primarily consist of traffic acquisition costs, bandwidth and cloud service costs, personnel costs, channel and
sharing costs, depreciation of equipment, and cost of robots and other products sold.
Traffic acquisition costs represent the amounts paid or payable to third-party advertising publishers who distribute our customers’
paid links through their advertisement products.
Bandwidth and cloud costs consist of fees that we pay to telecommunication carriers, bandwidth fees that are directly related to
our business operations and technical support, and fees that we pay to cloud service providers such as Amazon, Tencent cloud etc., for
the deployment of our apps and cloud service purchased related to our multi-cloud management service. Bandwidth and cloud costs are
affected by the amounts of our user traffic worldwide, data analytics and our scale of customers of our multi-cloud management service.
Personnel costs include salaries and benefits including share-based compensation, for our employees involved in the operation
and other business and maintenance of our business.
Channel and sharing costs consist fees paid to distribution platforms and payment channels and revenue sharing with application
publishers.
Cost of robots and other products sold include direct materials, external processing fee, depreciation and amortization of assets
associated with the production.
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Operating Income and Expenses
Our operating income and expenses consist of (i) research and development expenses, (ii) selling and marketing expenses, (iii)
general and administrative expenses, and (iv) other operating income and expenses. The following table sets forth the components of
our operating income and expenses for the periods indicated.
Years Ended December 31,
2023
2024
(in thousands, except percentages)
RMB
% of
revenues
RMB
US$
% of
revenues
Operating income and expenses
Research and development
(178,207)
(26.6)
(243,391)
(33,344)
(30.2)
Selling and marketing
(242,511)
(36.2)
(342,421)
(46,911)
(42.4)
General and administrative
(229,549)
(34.3)
(244,385)
(33,481)
(30.3)
Impairment of goodwill
—
—
(152,890)
(20,946)
(18.9)
Other operating income, net
2,867
0.4
637
87
0.1
Total operating income and expenses
(647,400)
(96.7)
(982,450)
(134,595)
(121.7)
Research and Development Expenses. Research and development (R&D) expenses consist primarily of employee costs and rental
expenses related to personnel engaged in R&D activities, design and development expenses with new technology, materials and
supplies, depreciation and amortization expenses and other R&D related expenses. These expenditures are generally expensed as
incurred.
Selling and Marketing Expenses. Selling and marketing expenses consist primarily of general marketing and promotion expenses
and salaries and benefits, including share-based compensation expenses, related to personnel involved in our selling and marketing
efforts.
General and Administrative Expenses. General and administrative expenses consist primarily of salaries and benefits, including
share-based compensation expenses, related to our general and administrative personnel, professional and legal service fees, rental
expenses, provision for credit losses and other administrative expenses.
Taxation
Taxation in Different Jurisdictions
The following summarizes the taxation in jurisdictions in which our company, significant subsidiaries and VIEs are incorporated.
Cayman Islands and BVI. Under the current laws of the Cayman Islands and the BVI, we are not subject to tax on income or
capital gain. Additionally, upon payments of dividends by us to our shareholders, no Cayman Islands and BVI withholding tax will be
imposed.
Hong Kong. Our subsidiaries incorporated in Hong Kong were subject to Hong Kong profits tax rate of 16.5% for the years ended
December 31, 2023 and 2024. The first HK$2 million of profits earned by one of our subsidiaries incorporated in Hong Kong is taxed
at half the current tax rate (i.e. 8.25%) while the remaining profits will continue to be taxed at the existing 16.5% tax rate, and foreign-
derived income is exempted from income tax.
In December 2022, a refined Foreign-sourced Income Exemption (“FSIE”) regime was published in Hong Kong and took effect
from January 1, 2023. Under the new FSIE regime, certain foreign sourced income would be deemed as being sourced from Hong Kong
and chargeable to Hong Kong Profits Tax, if the recipient entity fails to meet the prescribed exception requirements. Certain dividends,
interests, disposal gains and intellectual property income, if any, received by our Hong Kong subsidiaries will be subject to the new tax
regime. We will monitor the regulatory developments and continue to evaluate the impact, if any. In addition, payments of dividends
from our Hong Kong subsidiary to us are not subject to any withholding tax in Hong Kong.
Singapore. Our subsidiaries incorporated in Singapore were subject to Singapore corporate income tax rate of 17% for the year
ended December 31, 2023 and 2024.
Japan. Under Japan EIT law, companies incorporated in Japan with paid-in capital in excess of Japanese Yen (“JPY”) 100 million
was subject to national corporate income tax rate 23.2% and companies with paid-in capital of no more than JPY100 million was subject
93
to national corporate income tax rate of 15% on the first JPY8 million of income earned and at 23.2% on any income earned in excess
of JPY8 million. For the years ended December 31, 2023 and 2024, our subsidiaries incorporated in Japan are all with paid-in capital of
no more than JPY100 million, and were subject to national corporate income tax rate of 15% on the first JPY8 million of income earned
and at 23.2% on any income earned in excess of JPY8 million. Local income taxes, which include local inhabitant tax and enterprise
tax, are also imposed on corporate income.
PRC.
Enterprise income tax. Our PRC subsidiaries and VIEs are subject to the statutory rate of 25% in accordance with the EIT Law,
with exceptions for certain preferential tax treatments. Under relevant PRC government policies, enterprises qualified as “new software
enterprise” are entitled to a two-year exemption and three-year 50% reduction on enterprise income tax commencing from the first
profit-making year. Enterprises qualified as “high and new technology enterprise” are entitled to a preferential rate of 15%. According
to the Administrative Measures for Recognition of High and New Technology Enterprises, where the relevant department finds in the
course of daily management that a recognized “high and new technology enterprise” does not meet the conditions for recognition, it
shall apply to the recognition department for verification. If the verification confirms that the enterprise does not meet the conditions
for recognition, the recognition department shall disqualify the “high and new technology enterprise” and advise the tax authority to
recover the payment of reduced or exempted taxes under tax preferences it has enjoyed from the year when it fails to meet the recognition
requirements. Enterprises of qualified industries that met the operational substantive requirements located in Hengqin-Guangdong-
Macao In-depth Cooperation Zone are subject to a tax rate of 15%. For the year ended December 31, 2023 and 2024, our PRC
subsidiaries and VIEs qualified as “high and new technology enterprise” and located in Hengqin-Guangdong-Macao In-depth
Cooperation Zone were subject to tax holiday or a preferential tax rate of 15%, and our remaining PRC subsidiaries, VIEs and the
subsidiaries of the VIEs were subject to enterprise income tax at a rate of 25%.
Withholding tax. Under the EIT Law and its implementation rules, dividends, interests, rents or royalties payable by a foreign-
invested enterprise, such as our PRC subsidiaries, to any of its non-resident enterprise investors, and proceeds from any such non-
resident enterprise investor’s disposition of assets (after deducting the net value of such assets) shall be subject to 10% EIT, namely
withholding tax, unless non-resident enterprise investor’s jurisdiction of incorporation has a tax treaty or agreement with China that
provides for a reduced withholding tax rate or an exemption from withholding tax. The Cayman Islands, where our company is
incorporated, and the British Virgin Islands, where our subsidiary Conew.com Corporation was incorporated, do not have such tax
treaties with China. None of our U.S. subsidiaries is an immediate holding company of our PRC subsidiaries. Under the Arrangement
Between the PRC and the Hong Kong Special Administrative Region on the Avoidance of Double Taxation and Prevention of Fiscal
Evasion with Respect to Taxes on Income and Capital, the 10% dividend withholding tax rate may be reduced to 5%, if a Hong Kong
resident enterprise that receives a dividend is considered a non-PRC tax resident enterprise and holds at least 25% of the equity interests
in the PRC enterprise distributing the dividends, subject to approval of the relevant PRC tax authority. Based on the Circular of the SAT
on Relevant Issues concerning the Implementation of Dividend Clauses in Tax Treaties issued on February 20, 2009, if the relevant
PRC tax authorities determine, in their discretion, that a company benefits from such reduced income tax rate due to a structure or
arrangement that is primarily tax-driven, such PRC tax authorities may adjust the preferential tax treatment. According to the Circular
on Several Issues regarding the “Beneficial Owner” in Tax Treaties, which was issued on February 3, 2018 by the SAT, effective as of
April 1, 2018, when determining the applicant’s status of the “beneficial owner” regarding tax treatments in connection with dividends,
interests or royalties in the tax treaties, several factors, including without limitation, whether the applicant is obligated to pay more than
50% of its income in twelve months to residents in third country or region, whether the business operated by the applicant constitutes
the actual business activities, and whether the counterparty country or region to the tax treaties does not levy any tax or grant tax
exemption on relevant incomes or levy tax at an extremely low rate, will be taken into account, and it will be analyzed according to the
actual circumstances of the specific cases. This circular further provides that applicants who intend to prove his or her status of the
“beneficial owner” shall submit the relevant documents to the relevant tax bureau according to the Announcement on Issuing the
Measures for the Administration of Non-Resident Taxpayers’ Enjoyment of the Treatment under Tax Agreements, or Circular 60.
Circular 60 was repealed simultaneously upon the implementation of Announcement of the State Taxation Administration on Issuing
the Measures for the Administration of Non-resident Taxpayers’ Enjoyment of Treaty Benefits, or Circular 35, which was promulgated
on October 14, 2019 and became effective on January 1, 2020. According to Circular 35, if a non-resident taxpayer determines through
self-assessment that he or she is eligible for treaty benefits, he or she may, when filing tax returns, or when a withholding agent files
withholding returns, enjoy tax treaty benefits, and collect and retain relevant materials for review in accordance with the provisions and
accept the follow-up administration of tax authorities. However, if the Hong Kong resident enterprise is not considered to be the
beneficial owner of such dividends under applicable PRC tax regulations, such dividends may remain subject to withholding tax at a
rate of 10%. Accordingly, our Hong Kong subsidiaries may not be able to enjoy the 5% withholding tax rate for the dividends they
receive from our PRC subsidiaries if they do not satisfy the relevant conditions under tax rules and regulations and obtain the approvals
as required.
94
PRC Value-added tax. As of the date of this annual report, our PRC subsidiaries and VIEs are subject to VAT at a rate of 3%, 6%,
9% or 13% VAT rate on the services we provide and related surcharges.
Effect of Different Tax Rates in Different Jurisdictions
The following table sets forth our income (loss) before income tax and the effect of differing tax rates in different jurisdictions on
our income tax expenses in each applicable jurisdiction, for the years ended December 31, 2023 and 2024.
Year Ended December 31,
2023
2024
RMB
RMB
US$
(in thousands)
Cayman Islands
and BVI
Income (Loss) before income tax
(307,996)
(179,588)
(24,603)
Income tax expenses (benefits) computed at the PRC statutory tax rate of 25%
(76,999)
(44,897)
(6,151)
Income tax expenses computed at Cayman Islands statutory tax rate of 0%
—
—
—
Effect of differing tax rates in different jurisdictions
76,999
44,897
6,151
Hong Kong
Income (Loss) before income tax
(71,816)
1,490
204
Income tax expenses (benefits) computed at the PRC statutory tax rate of 25%
(17,954)
373
51
Income tax expenses (benefits) computed at the Hong Kong statutory tax rate of 16.5%
(11,850)
246
34
Effect of differing tax rates in different jurisdictions
6,104
(127)
(17)
Singapore
Loss before income tax
(14,298)
(14,874)
(2,038)
Income tax benefits computed at the PRC statutory tax rate of 25%
(3,575)
(3,718)
(509)
Income tax benefits computed at the Singapore statutory tax rate of 17%
(2,431)
(2,529)
(346)
Effect of differing tax rates in different jurisdictions
1,144
1,189
163
PRC
Loss before income tax
(251,578)
(382,509)
(52,404)
Income tax benefits computed at the PRC statutory tax rate of 25%
(62,895)
(95,627)
(13,101)
Income tax benefits computed at the PRC statutory tax rate of 25%
(62,895)
(95,627)
(13,101)
Effect of differing tax rates in different jurisdictions
—
—
—
Others
Loss before income tax
8,038
21,153
2,899
Income tax benefits computed at the PRC statutory tax rate of 25%
2,010
5,287
725
Income tax benefits computed at the statutory tax rates of such other jurisdictions
1,849
5,049
692
Effect of differing tax rates in different jurisdictions
(161)
(238)
(33)
Total
Loss before income tax
(637,650)
(554,328)
(75,942)
Income tax benefits computed at the PRC statutory tax rate of 25%
(159,413)
(138,582)
(18,985)
Income tax benefits computed at the statutory tax rate of different jurisdictions
(75,327)
(92,861)
(12,721)
Effect of differing tax rates in different jurisdictions
84,086
45,721
6,264
The following table sets forth the effect of tax holiday and preferential tax treatments on our income tax expenses in each
applicable jurisdiction, for the years ended December 31, 2023 and 2024.
Year Ended December 31,
2023
2024
RMB
RMB
US$
(in thousands)
PRC(1)
3,457
(436)
(60)
Others
—
—
—
Total
3,457
(436)
(60)
(1)
Certain of our PRC entities are entitled to tax holiday as new software development enterprise or high new technology enterprise.
For details, see “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Taxation—Taxation in Different
Jurisdictions—PRC—Enterprise income tax.”
95
Results of Operations
The following table sets forth a summary of our consolidated results of operations for the years indicated. The year-to-year
comparisons of results of operations should not be relied upon as indicative of our future performance.
Year Ended December 31,
2023
2024
RMB
RMB
US$
(in thousands)
Selected Consolidated Statements of Comprehensive loss:
Revenues
669,503
806,877
110,541
Internet business
450,134
517,188
70,854
AI and others
219,369
289,689
39,687
Cost of revenues(1)
(231,940)
(261,682)
(35,850)
Gross profit
437,563
545,195
74,691
Operating income and expenses
Research and development(1)
(178,207)
(243,391)
(33,344)
Selling and marketing(1)
(242,511)
(342,421)
(46,911)
General and administrative(1)
(229,549)
(244,385)
(33,481)
Impairment of goodwill
—
(152,890)
(20,946)
Other operating income, net
2,867
637
87
Total operating expenses, net
(647,400)
(982,450)
(134,595)
Operating loss
(209,837)
(437,255)
(59,904)
Other income (expenses)
Interest income, net
60,978
44,422
6,086
Foreign exchange losses, net
(11,421)
(21,726)
(2,976)
Other income
96,765
52,059
7,132
Other expense
(574,135)
(191,828)
(26,280)
Loss before income taxes
(637,650)
(554,328)
(75,942)
Income tax benefits
43,781
(47,258)
(6,474)
Net loss
(593,869)
(601,586)
(82,416)
Less: net income attributable to noncontrolling interests
9,029
15,971
2,188
Net loss attributable to Cheetah Mobile Inc.
(602,898)
(617,557)
(84,604)
(1) Share-based compensation expenses were allocated in cost of revenues and operating expenses as follows:
Year Ended December 31,
2023
2024
RMB
RMB
US$
(in thousands)
Cost of revenues
370
81
11
Research and development
580
1,924
264
Selling and marketing
509
(662)
(91)
General and administrative
32,095
24,758
3,392
Total
33,554
26,101
3,576
Year Ended December 31, 2024 Compared to Year Ended December 31, 2023
Revenues. Our revenues increased by 20.5% from RMB669.5 million in 2023 to RMB806.9 million (US$110.5 million) in 2024.
Internet business. Revenues from internet business increased by 14.9% from RMB450.1 million in 2023 to RMB517.2 million
(US$70.9 million) in 2024. The year-over-over increase was contributed by increase from our online advertising business. In 2024,
approximately 35.7% of our revenues from internet business were generated from advertising while the rest of its revenues were
generated from other sources, such as providing premium membership services and software subscription services.
96
AI and others. Revenues from AI and others increased by 32.1% to RMB289.7 million (US$39.7 million) in 2024 from RMB219.4
million in 2023. This increase was primarily due to the increase of sale of service robots as the acquisition of controlling stake in Beijing
OrionStar, as well as business growth from our multi-cloud Management services.
Cost of revenues. Our cost of revenues increased by 12.8% from RMB231.9 million in 2023 to RMB261.7 million (US$35.9
million) in 2024. This increase was in line with increase of our revenue.
Gross profit. As a result of the foregoing, our gross profit increased by 24.6% from RMB437.6 million in 2023 to RMB545.2
million (US$74.7 million) in 2024.
Gross margin. Our gross margin increased to 67.6% for the year ended December 31, 2024 from 65.4% for the year ended
December 31, 2023.
Operating expenses. Our operating expenses increased by 51.8% from RMB647.4 million in 2023 to RMB982.5 million
(US$134.6 million) in 2024 mainly due to impairment of goodwill, our increased marketing and promotion expenses on user acquisition
for our internet business, as well as the increase of employee costs and amortization expenses of the intangible assets as the acquisition
of controlling stake in Beijing OrionStar.
Research and development expenses. Our research and development expenses increased by 36.6% year over year to RMB243.4
million (US$33.3 million) in 2024. The increase was primarily due to the increased employee costs and intangible assets amortization
expenses as the acquisition of controlling stake in Beijing OrionStar.
Selling and marketing expenses. Our selling and marketing expenses increased by 41.2% year over year to RMB342.4 million
(US$46.9 million) in 2024. This increase was primarily due to increased marketing and promotion expenses related to user acquisition
for our internet business, as well as the increased employee costs as the acquisition of controlling stake in Beijing OrionStar.
General and administrative expenses. Our general and administrative expenses increased by 6.5% year over year to RMB244.4
million (US$33.5 million) in 2024, which mainly resulted from the increased employee costs as the acquisition of controlling stake in
Beijing OrionStar.
Impairment of goodwill. Our goodwill impairment was RMB152.9 million (US$20.9 million) in 2024.
Operating loss. As a result of the foregoing, we had an operating loss of RMB437.3 million (US$59.9 million) in 2024, as
compared to an operating loss of RMB209.8 million in 2023.
Operating loss margin. We had an operating loss margin of 54.2% in 2024, as compared to an operating loss margin of 31.3% in
2023.
Other income. Other income was RMB52.1 million (US$7.1 million) in 2024, primarily due to upward fair value change in certain
long-term investment.
Other expense. Other expense was RMB191.8 million (US$26.3 million) in 2024, which was primarily due to fair value change
and impairment of certain long-term investments.
Income tax expense. Our income tax expenses was RMB47.3 million (US$6.5 million) in 2024, as compared to income tax
benefits of RMB43.8 million in 2023.
Net loss attributable to Cheetah Mobile shareholders. Primarily as a result of the foregoing, our net loss attributable to Cheetah
Mobile shareholders was RMB617.6 million (US$84.6 million) in 2024, as compared to a net loss attributable to Cheetah Mobile
shareholders of RMB602.9 million in 2023.
Recent Accounting Pronouncements
A list of recent accounting pronouncements that are relevant to us is included in Note 2 to our consolidated financial statements,
which are included in this annual report.
97
B.
Liquidity and Capital Resources
Cash Flows and Working Capital
We finance our operations and strategic investments primarily using our cash and cash equivalents, including our operating cash
inflows and short-term investments. Cash and cash equivalents consist of cash on hand and bank deposits, which are unrestricted to
withdrawal and use, and highly liquid investments with original stated maturity of three months or less. Short-term investments consist
of highly liquid investments with original maturities of greater than three months but less than 12 months and investments that are
expected to be realized in cash during the next 12 months. As of December 31, 2024, we had RMB1,833.0 million (US$251.1 million)
in cash and cash equivalents.
We believe that our cash and the anticipated cash flow from operations will be sufficient to meet our anticipated cash needs for
the next 12 months. However, we may require additional cash resources due to changing business conditions or other future
developments, including any investments or acquisitions we may decide to selectively pursue. If our existing cash resources are
insufficient to meet our requirements, we may seek to sell equity or debt securities or borrow from banks.
Under PRC regulations, prior approval from and prior registration with the SAFE is required for Renminbi conversion for capital
account items, such as direct investments, loans, repatriation of investments and investments in securities outside of China. Subject to
certain rules and procedures, the Renminbi is freely convertible for current account items, including the distribution of dividends, and
trade and service-related foreign exchange transactions. The PRC government may also at its discretion restrict access to foreign
currencies for current account transactions in the future. If the foreign exchange control system prevents us from obtaining sufficient
foreign currencies to satisfy our foreign currency demands, we may not be able to pay dividends to our shareholders.
The table below sets forth a breakdown of our cash by currency and location as of December 31, 2023 and 2024:
As of December 31,
2023
2024
(in thousands of RMB)
Cash located outside of the PRC
—held by Company and Subsidiaries in US dollars
1,371,328
1,139,320
—held by Company and Subsidiaries in RMB
13,104
858
—held by Company and Subsidiaries in others
62,539
71,632
—held by VIEs in US dollars
16,744
43,416
—held by VIEs in RMB
—
107
—held by VIEs in others
1,438
1,098
Cash located in the PRC
—held by Company and Subsidiaries in RMB
271,966
242,673
—held by Company and Subsidiaries in US dollars
125,109
105,091
—held by Company and Subsidiaries in others
2,637
1,440
—held by VIEs in RMB
155,318
227,388
—held by VIEs in US dollars
8
8
Total cash and cash equivalents
2,020,191
1,833,031
The table below sets forth a breakdown of our short-term investments by location as of December 31, 2023 and 2024:
As of December 31,
2023
2024
(RMB in thousands)
Short-term investments located outside of the PRC
—Time deposits located outside the PRC
1,023
318
Short-term investments located in the PRC
—Wealth management products located in the PRC
—
17
Total short-term investments
1,023
335
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The following table sets forth a summary of our cash flows for the years indicated:
Year Ended December 31,
2023
2024
RMB
RMB
US$
(in thousands)
Net cash provided by/(used in) operating activities
550,462
(238,323)
(32,649)
Net cash used in investing activities
(49,061)
(34,090)
(4,670)
Net cash (used in)/provided by financing activities
(6,778)
69,113
9,469
Effect of exchange rate changes on cash, cash equivalents and
restricted cash
9,073
16,140
2,209
Cash, cash equivalents and restricted cash at the beginning of year
1,516,495
2,020,191
276,765
Net increase (decrease) in cash, cash equivalents and restricted cash
503,696
(187,160)
(25,641)
Cash, cash equivalents and restricted cash at the end of year
2,020,191
1,833,031
251,124
Operating Activities
Net cash used in operating activities for the year ended December 31, 2024 was RMB238.3 million (US$32.6 million). This
amount was primarily attributable to net loss of RMB601.6 million (US$82.4 million), (i) adjusted to add back impairment of goodwill
of RMB152.9 million (US$20.9 million); (ii) adjusted to add back impairment of assets of RMB120.6 million (US$16.5 million); (iii)
adjusted for changes in operating assets and liabilities that positively affected operating cash flow, primarily an increase in accrued
expenses and other current liabilities RMB287.7 million (US$39.4 million), (iv) partially offset by changes in operating assets and
liabilities that negatively affected operating cash flow, primarily due to an increase in prepayments and other current assets RMB388.8
million (US$53.3 million).
Net cash provided by operating activities for the year ended December 31, 2023 was RMB550.5 million. This amount was
primarily attributable to net loss of RMB593.9 million, (i) adjusted to add back impairment of assets of RMB534.8 million; (ii) adjusted
for changes in operating assets and liabilities that positively affected operating cash flow, primarily an increase in accrued expenses and
other current liabilities RMB791.7 million, (iii) partially offset by changes in operating assets and liabilities that negatively affected
operating cash flow, primarily due to an increase in accounts receivable RMB122.5 million.
Investing Activities
Net cash used in investing activities was RMB34.1 million (US$4.7 million) for the year ended December 31, 2024, primarily
attributable to net cash paid for purchase of short-term investments of RMB1,084.7 million (US$148.6 million) and purchase for long-
term investments of RMB37.0 million(US$5.1 million), partially offset by proceeds from maturity of short-term investments of
RMB1,085.4 million(US$148.7 million).
Net cash used in investing activities was RMB49.1 million for the year ended December 31, 2023, primarily attributable to net
cash paid for business acquisition of RMB238.1 million, purchase of short-term investments of RMB1,176.0 million and purchase for
long-term investments of RMB23.7 million, partially offset by proceeds from maturity of short-term investments of RMB1,332.5
million.
Financing Activities
Net cash provided by financing activities was RMB69.1 million (US$9.5 million) for the year ended December 31, 2024, primarily
attributable to net cash received by Beijing OrionStar during its equity financing in January 2024.
Net cash used in financing activities was RMB6.8 million for the year ended December 31, 2023.
Material cash requirements
Our material cash requirements as of December 31, 2024 and any subsequent interim period primarily include our capital
expenditures, operating lease obligations, and purchase obligations.
We incurred capital expenditures of RMB9.7million and RMB22.8 million (US$3.1 million) in 2023 and 2024, respectively. Our
capital expenditures were primarily attributable to purchase of computers and servers related to research and development activities and
expenditures in enhancing our manufacturing capacity for our service robots products. As our service robots and AI business expands,
we may incur more capital expenditures for our these businesses in the future.
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Our operating lease obligations consist of the commitments under the lease agreements for our office premises, which include all
future cash outflows under ASC Topic 842, Leases under Note 11 to our audited consolidated financial statements.
Purchase obligations primarily consist of minimum commitment for purchase of cloud services.
We intend to fund our existing and future material cash requirements with our existing cash balance and other financing
alternatives. We will continue to make cash commitments, including capital expenditures, to support the growth of our business.
Except our commitment to redeem the shares of certain third-party shareholders of Beijing OrionStar as stated in Note 20 to our
audited consolidated financial statements included in this annual report, we have not entered into any other financial guarantees or other
commitments to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are
indexed to our shares and classified as shareholder’s equity or that are not reflected in our consolidated financial statements. Furthermore,
we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or
market risk support to such entity for such assets. We do not have any obligation, including a contingent obligation, arising out of a
variable interest in any unconsolidated entity that we hold and material to us, where such entity provides financing, liquidity, market
risk or credit risk support to us or engages in leasing, hedging or research and development services with us.
The following table sets forth our contractual obligations by specified categories as of December 31, 2024.
Payment due by period
Total
Less than
1 Year
1-3 Years
3-5 Years
More Than
5 Years
(In thousands of RMB)
Operating lease obligations
26,994
14,697
10,679
1,618
—
Purchase obligations
138,067
72,028
66,039
—
—
Total
165,061
86,725
76,718
1,618
—
Other than as discussed above, we did not have any significant capital and other commitments, long-term obligations or guarantees
as of December 31, 2024.
Holding Company Structure
Cheetah Mobile Inc. is a holding company. We conduct most of our operations through our subsidiaries and the VIEs incorporated
in and outside China. As a result, although other means are available for us to obtain financing at the holding company level, Cheetah
Mobile Inc.’s ability to pay dividends to the shareholders and to service any debt it may incur depends on dividends paid by our
subsidiaries and service fees paid by the VIEs under the exclusive technology development, support and consultancy agreements. If any
of our subsidiaries incurs debt on its own behalf in the future, the instruments governing such debt may restrict its ability to pay dividends
to us.
Each of our PRC entities is required to make appropriations to certain statutory reserve funds, which are not distributable as cash
dividends except in the event of a solvent liquidation of the companies. Specifically, each of our PRC entities is required to allocate at
least 10% of its after-tax profits each year, if any, to fund certain statutory reserve funds until such reserve funds reach 50% of its
registered capital. In addition, each of our PRC entities may allocate a portion of its after-tax profits based on PRC accounting standards
to staff welfare and bonus funds, enterprise expansion fund and discretionary surplus fund, as the case may be, at the discretion of its
board of directors. With the implementation of FIL, rules of activities of foreign- funded enterprises, including but not limited to the
dividend distribution, will be governed by the Company Law of the People’s Republic of China. According to the Company Law, if the
aggregate balance of our statutory common reserve is not enough to make up for the losses of the previous year, the current year’s profits
shall first be used for making up the losses before the statutory common reserve is drawn according to the provisions of the preceding
paragraph. After we have drawn statutory common reserve, which is 10% of the after-tax profit, from the after-tax profits, it may, upon
a resolution made by the shareholders’ meeting, draw a discretionary common reserve from the after-tax profits. After the losses have
been made up and common reserves have been drawn, the remaining profits shall be distributed to shareholders in proportion to the
actual capital contribution actually paid by them, unless otherwise agreed upon by all the shareholders. We may stop drawing the profits
if the aggregate balance of the statutory common reserve has already accounted for over 50% of our registered capital. See “Item 4.
Information on the Company—B. Business Overview—Regulations—Regulations of Foreign Currency Exchange, Foreign Debt and
Dividend Distribution” for further details.
Loans by us to our PRC subsidiaries to finance their activities cannot exceed statutory limits, See “Item 4. Information on the
Company—B. Business Overview—Regulations—Regulations of Foreign Currency Exchange, Foreign Debt and Dividend
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Distribution” for further details. In addition, if we decide to finance our PRC subsidiaries by means of capital contributions, these capital
contributions must be approved by the PRC government. Therefore, any failure or delay in receiving such registrations or approvals
may limit our ability to fund our PRC subsidiaries using funds we have, hence materially and adversely affecting our liquidity and our
ability to fund and expand our business.
C.
Research and Development, Patents, and Licenses, etc.
See “Item 4. Information on the Company—B. Business Overview—Intellectual Property.”
D.
Trend Information
Other than as disclosed elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or
events for the year ended December 31, 2024 that are reasonably likely to have a material and adverse effect on our net revenues,
income, profitability, liquidity or capital resources, or that would cause the disclosed financial information to be not necessarily
indicative of future results of operations or financial conditions.
E.
Critical Accounting Estimates
Critical Accounting Policies and Estimates
Our significant accounting policies are set forth in Note 2 to our audited consolidated financial statements included in this annual
report. We prepare our consolidated financial statements in conformity with U.S. GAAP, which requires us to make judgments, estimates
and assumptions. We continually evaluate these estimates and assumptions based on the most recently available information, our own
historical experience and various other assumptions that we believe to be reasonable under the circumstances. Since the use of estimates
is an integral component of the financial reporting process, actual results could differ from our expectations as a result of changes in our
estimates. We have identified the following accounting policies as the most critical that involve the most significant judgments and
estimates used in the preparation of our consolidated financial statements.
During which, estimates used for “Allowance for credit losses”, “Fair value measurements of Non-Marketable long-term
investments”, “Fair Value Determination Related to the Accounting for Business Combinations” and “Impairment Assessment on
Goodwill, Long-lived Assets and Intangible assets”, “valuation allowance for deferred tax assets”, require management to make difficult,
subjective and complex judgments that often as a result of the need to make estimate on matters that are inherently uncertain and which
is likely that materially different amounts would be reported under different conditions or assumptions.
Consolidation of VIEs
PRC law currently restricts foreign ownership of internet-based and mobile-based businesses and regulates internet access,
distribution of internet information services and value-added telecommunication services through strict business licensing requirements
and other government regulations. We are a Cayman Islands company and to comply with these foreign ownership restrictions, we
operate our website and conduct substantially the majority of our distribution and operation of internet value-added services and internet
security services businesses in the PRC through the VIEs.
Beijing Mobile and Beijing Network and other companies, the VIEs or its subsidiaries, hold the requisite ICP Licenses required
to operate our internet-based, including mobile-based businesses in China. We have been and are expected to continue to be dependent
on the VIEs to operate our business in China. Our company, as well as Beijing Security and Conew Network, our wholly-owned
subsidiaries, as the case may be, has entered into a series of contractual arrangements with the VIEs and their respective shareholders.
Despite the lack of technical majority ownership, there exists a parent-subsidiary relationship between us and the VIEs through the
irrevocable shareholder voting proxy agreements, whereby the shareholders of the VIEs effectively assign all of the voting rights
underlying their equity interests in the VIEs to our company. Furthermore, pursuant to the exclusive option agreements, which include
a substantive kick-out right, our company has the power to control the shareholders of the VIEs, and therefore, the power to govern the
activities that most significantly impact the economic performance of the VIEs. In addition, through the contractual arrangements, the
company demonstrate their ability and intention to continue to exercise the ability to absorb substantially all of the expected losses and
the majority of the profits of the VIEs, and therefore, have the rights to the economic benefits of the VIEs. As a result of these contractual
arrangements, we consolidate the VIEs as required by ASC 810-10, Consolidation: Overall.
Revenue recognition
We generate our revenues primarily through internet business, AI and others. Revenue represents the amount of consideration we
are entitled to upon the transfer of promised goods or services in the ordinary course of our activities and is recorded net of value-added
tax (“VAT”). Consistent with the criteria of ASC 606 “Revenue from Contracts with Customers”, we recognize revenue when
performance obligations are satisfied by transferring control of a promised good or service to a customer. For performance obligations
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that are satisfied at a point in time, we also consider the following indicators to assess whether control of a promised good or service is
transferred to the customer: (i) right to payment, (ii) legal title, (iii) physical possession, (iv) significant risks and rewards of ownership
and (v) acceptance of the good or service. For performance obligations satisfied over time, we recognize revenue over time by measuring
the progress toward complete satisfaction of a performance obligation.
For revenue arrangements that include multiple performance obligations, we evaluate all the performance obligations in the
arrangement to determine whether each performance obligation is distinct in the context of contract. Consideration is allocated to each
performance obligation based on its standalone selling price. If a promised good or service does not meet the criteria to be considered
distinct in the context of contract, it is combined with other promised goods or services until a distinct bundle of goods or services exists.
We evaluate if we are a principal or an agent in a transaction to determine whether revenue should be recorded on a gross or net
basis. We are acting as the principal if we obtain control over the goods and services before they are transferred to customers. Generally,
when we are primarily obligated in a transaction, are subject to inventory risk, have latitude in establishing prices, or have several but
not all of these indicators, we act as the principal and revenue is recorded on a gross basis. Generally, when we are not primarily obligated
in a transaction, do not bear the inventory risk and do not have the ability to establish the price, we act as the agent and revenue is
recorded on a net basis.
We provide sales incentives to customers which entitle them to receive reductions in the price. We account for these incentives
granted to customers as variable consideration and record it as reduction of revenue. The amount of variable consideration is measured
based on the most likely amount of incentives to be provided to customers. We believe that there will not be significant changes to our
estimate of variable consideration.
The following table presents our revenues disaggregated by revenue source:
Year Ended December 31,
2023
2024
RMB
RMB
US$
(in thousands)
Revenues:
Internet business
Online advertising
109,339
184,655
25,298
Internet value-added services
340,795
332,533
45,556
AI and Others
Advertising agency services
89,275
78,036
10,691
Multi-cloud Management Services
87,747
87,242
11,952
Sale and rental of robots and other AI hardware products
22,034
111,577
15,286
Technical, AI application services and others
20,313
12,834
1,758
Total consolidated revenues
669,503
806,877
110,541
Internet business
Online advertising
Online advertising revenue is primarily derived from displaying advertisements for our customers on its online platforms including
duba.com and other websites, browsers, PC and mobile applications. We mainly enter into cost for performance and cost per impression
advertising agreements with customers. For contracts that are charged on the cost for performance basis, we charge an agreed-upon fee
to its customers determined based on the effectiveness of advertising links, which is typically measured by clicks, transactions,
installations, user registrations, and other actions. Revenue is recognized at a point in time when there is an effective click, transaction,
installations, user registrations, and other actions. For advertising contracts that charged on cost per impression basis, we recognize the
revenue at a point in time when the impressions are delivered based on the mutual agreement formed with customers.
Internet value-added services
We provide a range of online and on-premise such as anti-virus, security protection, desktop beautification, immediate
communication and others for both individual and enterprise customers. Our value-added services revenue comes from the sale of
membership packages and subscriptions, which grant customers ad-free use and exclusive access to premium features including file and
data recovery, malicious pop-up interception, PDF conversion, automatic dynamic wallpaper rotation etc.
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While providing online software services, the customers do not take possession of the software. The software license, when-and-
if-available updates and related services are accounted for as a single performance obligation as the license, updates and services are
inputs to a combined items in the contract. Upfront payment of membership fees and software subscription fees are recognized as
deferred revenue in “Accrued expenses and other liabilities” and revenue is recognized ratably over the term or the expected service
period of the respective service contracts as the services are provided.
While providing on-premise software, the license provides the customer with a right to use the software as it exists when made
available to the customer. We sell specific version of the software to the customer, and provide post-contract services such as post-
delivery telephone support and post-contract customer support for the customer. The on-premise software licence and the post-contract
services are accounted for a single performance obligation as post-contract services are mainly provided to answer questions about the
use and the installation of the software which would not constitute a promise to a customer. Revenue is recognized upfront at the point
in time when the software is made available to the customer. Software upgrades, such as version iteration, are additionally charged.
AI and others
Advertising agency services
We provide advertising agency services by arranging advertisers to purchase various advertisement products from certain online
networks. We act as an agent in such services and revenue is recognized on a net basis by netting rebates provided to the advertisers
with the online network performance-based commissions. The revenue is estimated by us based on the real-time advertising performance
results provided by the online networks and the commission rates pre-determined in contracts signed with relevant online networks and
is recognized at a point in time when the advertisement products are delivered by the online networks. There was no significant difference
between our estimates and the subsequent periodic invoices provided by the online network for all the periods presented. Receivables
from advertising agency services were included in other receivables from advertisers in “Prepayments and other current assets” and
payable to online networks were included in payable to online advertising platforms as agency in “Accrued expenses and other current
liabilities” on the consolidated balance sheets.
Multi-Cloud Management services
We provide multi-cloud management services through cloud management platform. The nature of our performance obligation is
a single performance obligation to stand ready to provide integrated technical cloud-based solution or sell cloud resources to customers.
Revenue is recognized over time when related solutions or resources are provided to customers. We evaluate whether it is appropriate
to record the revenue on gross or net basis based on whether we act as a principal or as an agent. This determination is reviewed for
each specified service provided to the customer and may involve significant judgment. In certain cases, we conclude that we control the
solutions and resources before they are transferred to end customers, as we integrate the cloud resources with its technical expertise to
provide ongoing customized cloud-based solutions, is primarily responsible for the fulfillment, and have inventory risk before the
specified solutions and resources have been transferred to the customers and revenue is recognized on a gross basis. In other cases, we
act as a reseller of cloud resources and during which we act as an agent to arrange for the resources to be provided by third parties and
revenue is recognized on a net basis.
Sale and rental of robots and other AI hardware products
We generate revenue from sales and rental of robots and sale of other AI hardware products. We recognize revenue generally at
a point in time when the robots and other AI hardware products are delivered to customers. We provide standard warranty on all robots
sold, which is not a separate performance obligation as it is intended to provide greater quality assurance to customers. Accordingly,
standard warranty is accounted for in accordance with ASC 460, Guarantees, and the estimated costs are recorded as a liability when
the Group transfers the control of robots to a customer. The consideration for sale of robots are normally paid in advance, which means
the payments received are prior to the transfer of goods or services by us, we record a contract liability (deferred revenue) for the amount
relating to those unperformed obligations. As set out in Note 2 “Lease, as of a Lessor”, robot rental revenue is recognized under
ASC 842.
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Technical, AI application services and others
We provide other services including technical support, extended time warranty, maintenance services, AI data and AI solution
services etc to customers. Such revenue are recognized ratably over the term of the arrangement or at a point of time upon service
delivered.
Allowance for credit losses
We maintain an allowance for credit losses in accordance with ASC 326 and records the allowance for credit losses as an offset
to assets such as accounts receivable, prepayments and other current assets and due from related parties, etc. and the estimated credit
losses charged to the allowance is classified as “General and administrative” and “Other expenses” in the consolidated statements of
comprehensive loss. We assess collectability by reviewing assets on a collective basis where similar characteristics exist, primarily
based on similar business line, service or product offerings and on an individual basis when we identify specific customers with known
disputes or collectability issues. In determining the amount of the allowance for credit losses, we consider historical collectability based
on past due status, the age of the balances, credit quality of our customers based on ongoing credit evaluations, current economic
conditions, reasonable and supportable forecasts of future economic conditions, and other factors that may affect our ability to collect
from customers. Because expected credit losses can vary substantially over time, estimating expected credit losses requires a number of
assumptions about matters that are uncertain.
Fair value measurements of Non-Marketable long-term investments
We measure certain long-term investments at fair value on a recurring or non-recurring basis. For long-term investment accounted
for using fair value option and long-term debt securities, we estimate their fair value on each reporting date. For equity securities
accounted for under measurement alternative, we estimated the fair value when there’s an observable price changes for identical or
similar investments of the same issuer or when qualitative assessment indicates that the investment is impaired. We continually review
our investments in equity method investees to determine whether a decline in fair value below the carrying value is “other-than-
temporary.” We estimate the investments’ fair value in accordance with the principles of ASC 820 and recognize the fair value change
or impairment loss in the consolidated statements of comprehensive (loss) income accordingly. These judgments include valuation
methods and key valuation assumptions and estimates. Changes in these estimates and assumptions could materially affect the fair value
of such investments. See Note 23 of the Notes to the Consolidated Financial Statements for information regarding method and key
assumptions used for fair value measurements of such investments.
Fair Value Determination Related to the Accounting for Business Combinations
We complete business combinations that require us to perform purchase price allocations. In order to recognize the acquisition
date amounts of assets acquired and liabilities assumed, mainly consisting of intangible assets and goodwill, as well as the fair value of
previously held equity interests, mezzanine equity and non-controlling interests, we primarily use valuation techniques such as
discounted cash flow analysis under the income approach. Major assumptions used in determining the fair value related to the accounting
for business combinations include future revenue growth rates, EBIT margin and discounted rate. The valuation of our acquired business
was performed by independent valuation specialist. Although we believe that the assumptions applied in the determination are reasonable
based on information available at the date of acquisition, actual results may differ from the forecasted amounts and the difference could
be material.
Impairment Assessment on Goodwill, Long-lived Assets and Intangible assets
We test annually, or whenever events or circumstances indicate that the carrying value of assets exceeds the recoverable amounts,
whether goodwill and intangible assets with indefinite lives have suffered any impairment in accordance with the accounting policy
stated in Note 2 to our audited consolidated financial statements included in this annual report. For the impairment assessment on
Goodwill, we may first assess qualitative factors to determine whether it is necessary to perform the quantitative goodwill impairment
test. In the qualitative assessment, we consider factors such as macroeconomic conditions, industry and market considerations, overall
financial performance of the reporting unit, and other specific information related to the operations, business plans and strategies of the
reporting unit. Based on the qualitative assessment, if it is more likely than not that the fair value of a reporting unit is less than the
carrying amount, the quantitative impairment test is performed. We may also bypass the qualitative assessment and proceed directly to
perform the quantitative impairment test. We perform the quantitative impairment test by comparing the fair value of each reporting
unit to its carrying amount, including goodwill. If the fair value of the reporting unit exceeds its carrying amount, goodwill is not
considered to be impaired. If the carrying amount of a reporting unit exceeds its fair value, the amount by which the carrying amount
exceeds the reporting unit’s fair value is recognized as impairment. Application of a goodwill impairment test requires significant
management judgment, including the identification of reporting units, allocation of assets, liabilities and goodwill to reporting units, and
determination of the fair value of each reporting unit. For long-lived and intangible assets with finite lives, we perform an impairment
assessment whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. These
104
assessments primarily use future undiscounted net cash flows expected to result from the use of the assets and their eventual disposition.
The expected growth in revenues and operating margin, timing of future capital expenditures, an estimate of weighted average cost of
capital and terminal growth rate are based on actual and prior year performance and market development expectations. The periods of
the financial forecasts generally range from three to five years or a longer period if necessary. Judgment is required to determine key
assumptions adopted in the cashflow projections and changes to key assumptions can significantly affect these cash flow projections
and the results of the impairment tests.
Recognition of Income Taxes and Deferred Tax Assets/Liabilities
We account for income taxes using the liability method. Under this method, deferred tax assets and liabilities are determined based
on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect in
the period in which the differences are expected to reverse. We record a valuation allowance against deferred tax assets netted off by
deferred tax liability if, based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred tax
assets will not be realized. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the
enactment date.
Item 6. Directors, Senior Management and Employees
A.
Directors and Senior Management
The following table sets forth information regarding our executive officers and directors as of the date of this annual report.
Directors and Executive Officers
Age
Position/Title
Sheng Fu
47
Chief Executive Officer and Chairman of the Board of Directors
Thomas Jintao Ren
46
Chief Financial Officer and Director
Edward Mingyan Sun
42
Director
Bo Peng
46
Director
Wu Shengwu
51
Independent Director
Dr. Yi Ma
52
Independent Director
Dr. Yun Zhang
48
Independent Director
Sheng Fu has been our Chairman of the Board since March 2018, and our chief executive officer and director of the Board since
November 2010. Since September 2009, Mr. Fu has been the chief executive officer and chairman of Conew Network. Prior to that, Mr.
Fu was the vice president of Matrix Partners China from November 2008. Between November 2005 and August 2008, Mr. Fu worked
at Qihoo 360 serving various management roles at its 360 department, a division then in charge of developing 360 products. From March
2003 to October 2005, Mr. Fu was the product manager of 3721 Internet Real Name and 3721 Internet Assistant. Mr. Fu received a
bachelor’s degree in economics from Shandong Institute of Business and Technology in China in 1999.
Thomas Jintao Ren has been our chief financial officer since January 2020 and has been our director since November 2022. Prior
to Cheetah Mobile, Mr. Ren served as the chief financial officer of Renren Inc. (NYSE: RENN) since September 2015. Mr. Ren also
served as the chief financial officer of Kaixin Auto Holdings (NASDAQ: KXIN) from September 2015 to August 2019. Kaixin Auto
Holdings was a subsidiary of Renren Inc. Prior to rejoining Renren Inc., Mr. Ren was the chief financial officer at Chukong
Technologies. From 2005 to 2014, Mr. Ren served as Renren Inc.’s senior finance director. Prior to that, Mr. Ren had worked at KPMG
for five years. Mr. Ren holds a bachelor’s degree in economics from Renmin University of China. He is a certified public accountant in
China and the United States, and a chartered professional accountant in Canada.
Edward Mingyan Sun joined Cheetah Mobile in 2010 and has been in charge of various mobile products, including CM Launcher,
Clean Master, Security Master, Cheetah Browser for both PC and mobile, and Duba Antivirus. Prior to Cheetah Mobile, Edward worked
at Qihoo 360 and Trent Micro, serving in various management roles. Edward received his college degree and continued his post-graduate
studies at the University of Science and Technology of China.
Bo Peng has been our director since July 2024. Ms. Bo Peng is currently an assistant president and the legal director of Kingsoft
Corporation Limited (HKEx: 03888). Ms. Peng joined the legal department of Kingsoft Corporation Limited in 2004 and since then has
been fully responsible for its legal affairs. In September 2013, she became the assistant president of Kingsoft Corporation Limited. At
present, Ms. Peng is mainly responsible for legal compliance, intellectual property, supply chain, administrative management of Kingsoft
Corporation Limited and she has extensive experience in these areas. At the same time, Ms. Peng serves as a supervisor of Kingsoft
Office (SSE STAR Market: 688111) and the secretary-general of Beijing Kingsoft Foundation. Ms. Peng graduated from the University
of Science and Technology Beijing in 2001 with a bachelor’s degree in law.
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Wu Shengwu has served as the Chairman of Rongxin Semiconductor Technology Co., Ltd. since 2024. Prior to joining Rongxin
Semiconductor, he held the position of Global Executive Vice President at Tsinghua Unigroup and Chairman of the Board at Xiamen
Xueda Education Technology Group Co., Ltd. (SZSE: 000526). Mr. Wu served as the Deputy Director of the Electronic Information
Department at the Ministry of Industry and Information Technology of the People’s Republic of China, as well as the Mayor of Haishu
District in Ningbo and Director of the Ningbo Information Industry Bureau. With over 20 years of experience in the Information and
Communication Technology (ICT) industry, Mr. Wu possesses extensive industry management experience. Mr. Wu received his
bachelor’s degree in engineering and master’s degree in laws from Tsinghua University, and a Ph.D. degree in administration from
Huazhong University of Science and Technology.
Dr. Yi Ma is a Chair Professor in Artificial Intelligence, the inaugural director of the School of Computing and Data Science and
the Institute of Data Science of the University of Hong Kong since 2023. His research interests include computer vision, high-
dimensional data analysis, and integrated intelligent systems. Yi received his two bachelor’s degrees in Automation and Applied
Mathematics from Tsinghua University in 1995, two master’s degrees in EECS and Mathematics in 1997, and a PhD degree in EECS
from UC Berkeley in 2000. He served on the faculty of UIUC ECE from 2000 to 2011, the principal researcher and manager of the
Visual Computing group of Microsoft Research Asia from 2009 to 2014, and the Executive Dean of the School of Information Science
and Technology of ShanghaiTech University from 2014 to 2017. He was on the faculty of UC Berkeley EECS Department from 2018-
2023, where he continues to be a visiting professor. He has published over 65 journal papers, 150 conference papers, and three textbooks
on 3D vision, generalized PCA, and high-dimensional data analysis. He received the NSF Career award in 2004 and the ONR Young
Investigator award in 2005. He also received the David Marr prize in computer vision from ICCV 1999 and best paper awards from
ECCV 2004 and ACCV 2009. He has served as the Program Chair for ICCV 2013 and the General Chair for ICCV 2015. He is a Fellow
of IEEE, ACM, and SIAM.
Dr. Yun Zhang currently serves as an Associate Professor of Accountancy with Tenure at the Department of Accountancy of
George Washington University. From 2009 to 2015, he was an Assistant Professor of Accountancy at the Department of Accountancy
of George Washington University. From 2003 to 2009, he was an Assistant Professor of Accounting at the Duke University’s Fuqua
School of Business. His main research interest includes managerial accounting, corporate governance and information disclosure. He
received his bachelor’s degree from Renmin University of China in 1998, two master’s degrees from Yale University in 2002 and a
Ph.D. degree from Yale University in 2004. He began serving as our independent director since September 2020.
B.
Compensation
Compensation of Directors and Officers
For the fiscal year ended December 31, 2024, we paid an aggregate of approximately RMB18.2 million (US$2.5 million) in cash
to our executive officers and directors (excluding independent directors), and an aggregate of approximately RMB1.5 million (US$0.2
million) in cash to our independent directors. Our PRC entities are required by law to make contributions equal to certain percentages
of each employee’s salary for his or her retirement benefit, medical insurance benefits, housing funds, unemployment and other statutory
benefits. For the fiscal year ended December 31, 2024, we contributed an aggregate of approximately RMB0.7 million (US$0.1 million)
for pension, retirement benefits or other similar benefits for our executive officers and directors.
Share Incentive Awards
Share Incentive Plans
We adopted a share award scheme in May 2011, as amended in September 2013 and November 2016, or the 2011 Plan, a 2013
equity incentive plan in January 2014, or the 2013 Plan, a 2014 restricted shares plan in April 2014, or the 2014 Plan, and a 2023 share
incentive plan in April 2023, or the 2023 Plan. The purpose of our share incentive plans is to recruit and retain key employees, directors
or consultants of outstanding ability and to motivate them to deliver the best performance for the benefit of our company.
1.
The 2011 Plan
Under the 2011 Plan, the maximum number of shares in respect of which awards that may be granted is 100,000,000 ordinary
shares of our company as at the date of such grant, excluding any shares awarded that have lapsed or have been forfeited. In May 2011,
we issued 100,000,000 ordinary shares that were put on trust for the benefit of participating employees in the 2011 Plan and the 2011
plan has terminated upon its expiration in May 2021, and the remaining 1,326,064 forfeited and unvested restricted shares that have not
been granted are cancelled.
The following paragraphs summarize the key terms of the as amended 2011 Plan.
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Types of Awards. The 2011 Plan provides for the award of our ordinary shares subject to certain terms and conditions that our
board of directors may determine in its absolute discretion.
Plan Administration. Our board or a committee of our board duly authorized for the purpose of the 2011 Plan shall administer
the 2011 Plan. The plan administrator will determine in its absolute discretion the employees to receive the awards, the number of
awards to be granted to each selected grantee, and the terms and conditions of each award grant. We have set up a trust pursuant to a
trust deed to facilitate the administration of the 2011 Plan.
Award Notice. Share awards granted under the 2011 Plan are evidenced by an award notice that sets forth the terms and conditions
for each grant, which relate to vesting, forfeiture or lapse of unvested awarded shares, and repurchase of vested awarded shares.
Eligibility. We may grant awards to any employee of our company, including without limitation an employee who is also a director
of our company or subsidiaries.
Lapse of the Awards. An award will lapse if (i) the grantee of an award ceases to be an employee of our company or subsidiaries,
(ii) the company which employs the selected employee ceases to be a subsidiary of our company, or (iii) there is an ordinary for
involuntary wind-up of our company or a resolution is passed for the voluntary wind-up of our company, save for the purposes of an
amalgamation, reconstruction or scheme of arrangement.
Vesting Schedule. The plan administrator determines the vesting schedule, which is set forth in the award notice.
Transfer Restrictions. Each award granted under the 2011 Plan are personal to respective grantees and may not be sold,
transferred, assigned, charged, mortgaged, or encumbered with any interests in favor of any other third party.
2.
The 2013 Plan
Under the 2013 Plan, the maximum number of our ordinary shares that may be issued is 64,497,718 ordinary shares, and the 2013
plan has terminated upon its expiration in January 2024. As of March 31, 2025, the remaining 805,060 forfeited and unvested restricted
shares that have not been granted are cancelled.
The following is a summary of the key terms of the 2013 Plan.
Types of Awards. The 2013 Plan provides for the grant of share options and share appreciation rights, in addition to the grant or
sale of other share-based awards, such as our ordinary shares, restricted shares and awards that are valued in whole or in part by reference
to or based on the fair market value of our ordinary shares.
Plan Administration. Our board, our compensation committee, or a subcommittee thereof duly authorized for the purpose of the
Plan will be the plan administrator of our 2013 Plan. The plan administrator has the sole discretion to determine the participants to
receive the awards, the number and types of awards to be granted to each participant, and the terms and conditions of each award grant.
Award Agreement. Awards under the 2013 Plan are evidenced by an award agreement that sets forth the terms and conditions for
each grant.
Exercise Price. The exercise price, grant price, or purchase price of any award shall be determined by the plan administrator at
its sole discretion.
Eligibility. We may grant awards to the employees, director or consultant of our company, Kingsoft Corporation or its affiliates.
Term of Awards. The term of options and share appreciation rights awarded under the 2013 Plan shall be determined by the plan
administrator, subject to a maximum term of ten years after the date of grant. The term of other share-based awards shall be determined
by the plan administrator.
Lapse of Option Awards. An option award will lapse if (i) the option has expired, (ii) the participant’s relationship or employment
with our company and/or affiliates has been terminated with or without cause pursuant to any applicable laws or under the participant’s
service contract with our company and/or affiliates, (ii) winding-up of our company has been commenced, or (iii) otherwise provided
for in the award agreement.
Vesting Schedule. The plan administrator determines the vesting schedule, which is set forth in the award agreement.
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Transfer Restrictions. An award may not be transferred or assigned by the participant in any manner other than by will or by the
laws of descent and distribution, unless otherwise determined by the plan administrator.
Termination. The 2013 Plan has terminated automatically in January 2024.
3.
The 2014 Plan
We adopted the 2014 Plan in April 2014. The maximum aggregate number of shares which may be issued pursuant to all awards
under the 2014 Plan is 122,545,665 Class A ordinary shares. As of March 31, 2025, 91,438,986 restricted shares (excluding those that
have been forfeited) had been granted under the 2014 Plan.
The following is a summary of the key terms of the 2014 Plan.
Types of Awards. The 2014 Plan permits the awards of restricted shares and restricted share units.
Plan Administration. Our board, our compensation committee, or a subcommittee thereof duly authorized for the purpose of the
Plan will be the plan administrator of our 2014 Plan. The plan administrator has the sole discretion to determine the participants to
receive the awards, the number and types of awards to be granted to each participant, and the terms and conditions of each award grant.
Award Agreement. Awards granted under the 2014 Plan are evidenced by an award agreement that sets forth terms, conditions
and limitations for each award, which may include the term of the award, the provisions applicable in the event of the grantee’s
employment or service terminates, and our authority to unilaterally or bilaterally amend, modify, suspend, cancel or rescind the award.
Eligibility. We may grant awards to the employees, directors and consultants of our company.
Acceleration of Awards upon Change in Control. If a change in control of our company occurs, the plan administrator may, in
its sole discretion, provide for (i) all awards outstanding to terminate at a specific time in the future and give each participant the right
to exercise the vested portion of such awards during a specific period of time, or (ii) the purchase of any award for an amount of cash
equal to the amount that could have been attained upon the exercise of such award, or (iii) the replacement of such award with other
rights or property selected by the plan administrator in its sole discretion, or (iv) payment of award in cash based on the value of ordinary
shares on the date of the change-in-control transaction plus reasonable interest.
Vesting Schedule. In general, the plan administrator determines the vesting schedule, which is specified in the relevant award
agreement.
Transfer Restrictions. Awards may not be transferred in any manner by the recipient other than by will or the laws of descent and
distribution, except as otherwise provided by the plan administrator.
Termination of the 2014 Plan. The 2014 Plan has a validity term of 10 years and was due to terminate in 2024. Upon approval
of our board of directors, the validity term has been extended to April, 2029.
All restricted shares granted prior to the completion of our initial public offering under our share incentive plans entitle the holders
to our Class B ordinary shares, while all restricted shares granted thereafter entitle the holders to Class A ordinary shares.
4.
The 2023 Plan
We adopted the 2023 Plan in April 2023. The maximum aggregate number of shares which may be issued pursuant to all awards
under the 2023 Plan is 145,000,000 ordinary shares. As of March 31, 2025, 101,559,650 restricted shares (excluding those that have
been forfeited) had been granted under the 2023 Plan.
The following is a summary of the key terms of the 2023 Plan.
Types of Awards. The 2023 Plan permits the awards of options, restricted shares and restricted share units.
Plan Administration. Our board or a committee of our board duly authorized for the purpose of the 2023 Plan will be the plan
administrator of our 2023 Plan. The plan administrator has the sole discretion to determine the participants to receive the awards, the
number and types of awards to be granted to each participant, and the terms and conditions of each award grant.
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Award Agreement. Awards granted under the 2023 Plan are evidenced by an award agreement, which shall contain such terms
and conditions with respect to an award as the plan administrator shall determine consistent with the Plan.
Eligibility. We may grant awards to the employees, consultants non-employee directors of our company as permitted under the
applicable laws.
Vesting Schedule. In general, the plan administrator determines the vesting schedule, which is specified in the relevant award
agreement.
Transfer Restrictions. Awards may not be transferred or assigned by the participant in any manner other than by will or by the
laws of descent and distribution, except as otherwise provided by the plan administrator.
Termination of the 2023 Plan. Unless terminated earlier, the 2023 Plan will expire on, and no award may be granted pursuant to
the 2023 Plan after, April 11, 2033. The plan administrator has the authority to amend, suspend or terminate the 2023 Plan, subject to
shareholder approval or home country practice.
The following table summarizes, as of March 31, 2025, the restricted shares that we granted to our current directors and executive
officers and to other individuals as a group under our 2011 Plan, 2013 Plan, 2014 Plan and 2023 plan, and which remained outstanding.
Number of
Restricted
Shares
Outstanding
Purchase Price
(US$/Share)
Date of Grant
Sheng Fu
42,831,800
N/A
June 22, 2023
Edward Mingyan Sun
*
N/A
June 22, 2023
Thomas Jintao Ren
*
N/A
June 22, 2023
Wu Shengwu
*
N/A
September 22, 2023
Yi Ma
*
N/A
June 22, 2023
Yun Zhang
*
N/A
June 22, 2023
All directors and executive officers as a group
57,693,400
N/A
Various dates between June 22, 2023
and September 22, 2023
* Less than 1% of our total outstanding Class A and Class B ordinary shares.
Employment Agreements
We have entered into employment agreements with our senior executive officers. We may terminate a senior executive officer’s
employment for cause at any time without remuneration for certain acts of the officer, such as being convicted of or pleads guilty to a
felony or to an act of fraud, misappropriation or embezzlement, any negligence or dishonest acts to the detriment of our company, or
any misconduct or failure to perform his/her duties after afforded a reasonable opportunity to cure such failure. We may also terminate
a senior executive officer’s employment without cause at any time by giving one month’s prior written notice, and we shall provide
severance payments to the officer as expressly required by the applicable law of the jurisdiction where the officer is based. A senior
executive officer may terminate his or her employment at any time by giving one month’s prior written notice.
In connection with the employment agreement, each senior executive officer has agreed to hold all proprietary or confidential
information of our company and our affiliates or the respective clients, customers or partners, including, without limitation, all software
and computer formulae, designs, specifications, drawings, data, manuals and instructions and all customer and supplier lists, sales and
financial information, business plans and forecasts, all technical solutions and the trade secrets of our company, in strict confidence
perpetually. Each officer also agrees that we shall own all the intellectual property developed by such officer during his or her
employment.
C.
Board Practices
Board of Directors
Our board of directors currently consists of six directors. A director is not required to hold any shares in our company to qualify
to serve as a director. A Director who is in any way, whether directly or indirectly, interested in a contract or transaction or proposed
contract or transaction with our company is required to declare the nature of his interest at a meeting of our directors. Subject to the
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rules of NYSE and disqualification by the chairman of the relevant board meeting, a director may vote in respect of any contract or
transaction or proposed contract or transaction notwithstanding that he may be interested therein and if he does so his vote shall be
counted and he may be counted in the quorum at any meeting of our directors at which any such contract or transaction or proposed
contract or transaction is considered. Our directors may exercise all the powers of our company to raise or borrow money, and to
mortgage or charge our undertaking, property and assets (present and future) and uncalled capital, and to issue debentures, debenture
stock, bonds and other securities, whether outright or as collateral security for any debt, liability or obligation of our company or of any
third party. None of our directors has a service contract with us that provides for benefits upon termination of service as a director.
Committees of the Board of Directors
We have established an audit committee, a compensation committee and a nominating and corporate governance committee under
the board of directors. We have adopted a charter for each of the three committees. Each committee’s members and functions are
described below.
Audit Committee
Our audit committee consists of and is chaired by Yun Zhang. Our board of directors has determined that Yun Zhang meets the
“independence” requirements of NYSE and the independence standards under Rule 10A-3 under the Exchange Act. We have determined
that Yun Zhang qualifies as an “audit committee financial expert.” The audit committee oversees our accounting and financial reporting
processes and the audits of the financial statements of our company. The audit committee is responsible for, among other things:
•
selecting the independent registered public accounting firm and pre-approving all auditing and non-auditing services
permitted to be performed by the independent registered public accounting firm;
•
reviewing with the independent registered public accounting firm any audit problems or difficulties and management’s
response;
•
reviewing and approving all proposed related party transactions, as defined in Item 404 of Regulation S-K under the Securities
Act;
•
discussing the annual audited financial statements with management and the independent registered public accounting firm;
•
reviewing major issues as to the adequacy of our internal controls and any special audit steps adopted in light of any material
control deficiencies;
•
annually reviewing and reassessing the adequacy of our audit committee charter;
•
meeting separately and periodically with management and the independent registered public accounting firm; and
•
reporting regularly to the board.
Compensation Committee
Our compensation committee consists of and is chaired by Wu Shengwu. Our board of directors has determined that Wu Shengwu
satisfies the “independence” standards under applicable NYSE corporate governance rules. The compensation committee assists the
board in reviewing and approving the compensation structure, including all forms of compensation, relating to our directors and
executive officers. Our chief executive officer may not be present at any committee meeting during which his compensation is
deliberated upon. The compensation committee is responsible for, among other things:
•
reviewing and approving, or recommending to the board for its approval, the compensation for our chief executive officer
and other executive officers;
•
reviewing and recommending to the board for determination with respect to the compensation of our non-employee directors;
•
reviewing periodically and approving any incentive compensation or equity plans, programs or similar arrangements; and
•
selecting compensation consultant, legal counsel or other adviser only after taking into consideration all factors relevant to
that person’s independence from management.
Nominating and Corporate Governance Committee
Our nominating and corporate governance committee consists of Wu Shengwu, and Dr. Yi Ma and is chaired by Dr. Yi Ma. Our
board of directors has determined that Wu Shengwu and Dr. Yi Ma both satisfy the “independence” standards under applicable NYSE
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corporate governance rules. The committee assists the board in selecting individuals qualified to become our directors and in determining
the composition of the board and its committees. The committee is responsible for, among other things:
•
recommending nominees to the board for election or re-election to the board, or for appointment to fill any vacancy on the
board;
•
reviewing annually with the board the current composition of the board with regard to characteristics such as independence,
skills, experience, expertise, diversity, and availability of service to us;
•
selecting and recommending to the board the directors to serve as members of each standing committee of the board; and
•
developing and reviewing periodically the corporate governance principles adopted by the board to ensure appropriateness
and compliance with the requirements of the NYSE, and to recommend any desirable changes to the board.
Duties of Directors
Under Cayman Islands law, our directors owe fiduciary duties to our company, including a duty of loyalty, a duty to act honestly
and a duty to act in what they consider in good faith to be in our best interests. Our directors must also exercise the powers that are
vested in them for the purpose for a proper purpose, and not for any collateral purpose. Our directors also owe to our company a duty to
act with skill and care. It was previously considered that a director need not exhibit in the performance of his duties a greater degree of
skill than may reasonably be expected from a person of his knowledge and experience. However, English and Commonwealth courts
have moved towards an objective standard with regard to the required skill and care and these authorities are likely to be followed in
the Cayman Islands. In fulfilling their duty of care to us, our directors must ensure compliance with our memorandum and articles of
association, as amended and restated from time to time. Our company has the right to seek damages if a duty owed by our directors is
breached.
Terms of Directors and Executive Officers
Our officers are elected by and serve at the discretion of the board. Our directors are not subject to a term of office and hold office
until such time as they resign or are removed from office by ordinary resolution of our shareholders. A director will be removed from
office automatically if, among other things, the director (1) becomes bankrupt or makes any arrangement or composition with his
creditors; (2) dies or is found to be or becomes of unsound mind; or (3) without special leave of absence from the board of directors, is
absent from meetings of the board for three consecutive meetings and the board resolves that his office be vacated.
D.
Employees
We had 713, 845 and 934 employees as of December 31, 2022, 2023 and 2024, respectively. The following table sets forth the
number of our employees, categorized by function, as of December 31, 2024:
Function
Number of
Employees
Operations
112
Research and development
377
Sales and marketing
256
General and administrative
189
Total
934
E.
Share Ownership
For information regarding the share ownership of our directors and officers, see “Item 7. Major Shareholders and Related Party
Transactions—A. Major Shareholders.” For information as to share awards granted to our directors, executive officers and other
employees, see “Item 6. Directors, Senior Management and Employees—B. Compensation—Share Incentive Awards—Share Incentive
Plans.”
F.
Disclosure of A Registrant’s Action to Recover Erroneously Awarded Compensation
Not applicable.
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Item 7. Major Shareholders and Related Party Transactions
A. Major Shareholders
The following table sets forth information with respect to the beneficial ownership of our shares as of March 31, 2025 by:
•
each of our current directors and executive officers; and
•
each person known to us to own beneficially more than 5% of our shares.
Percentage of beneficial ownership is based on 1,534,534,235 total issued and outstanding ordinary shares as of March 31, 2025,
representing the sum of 518,104,900 Class A ordinary shares and 1,016,429,335 Class B ordinary shares of our company.
Beneficial ownership is determined in accordance with the rules and regulations of the SEC. These rules generally provide that a
person is the beneficial owner of securities if such person has or shares the power to vote or direct the voting of securities, or to dispose
or direct the disposition of securities or has the right to acquire such powers within 60 days. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person, we have included shares that the person has the right to
acquire within 60 days, including through the exercise of any option, warrant or other right or the conversion of any other security, in
both the numerator and the denominator. These shares, however, are not included in the computation of the percentage ownership of
any other person.
Shares Beneficially Owned
Ordinary
Shares
Beneficially
Owned
Voting
Power
Class A Ordinary
Shares
Class B Ordinary
Shares
%(1)
%(2)
Directors and Executive Officers**:
Sheng Fu(3)
31,012,650
100,722,938
8.6
47.1
Bo Peng
—
—
—
—
Thomas Jintao Ren
*
*
*
*
Wu Shengwu(5)
*
—
*
*
Dr. Yi Ma(6)
*
—
*
*
Dr. Yun Zhang(7)
*
—
*
*
Edward Mingyan Sun
*
*
*
*
All directors and executive officers as a group
37,040,470
115,012,738
9.9
48.5
Principal Shareholders:
Kingsoft Corporation Limited(8)
11,800,547
662,806,049
44.0
24.8
Tencent Holdings Limited(9)
15,031,120
220,481,928
15.3
20.8
Sheng Global Limited(10)
29,996,440
97,563,128
8.3
9.4
Notes
* Less than 1% of our total outstanding Class A and Class B ordinary shares.
** Unless otherwise indicated in the notes below, the business address for our directors and executive officers is Building No.
11Wandong Science and Technology Cultural Innovation Park No.7 Sanjianfangnanli, Chaoyang District, Beijing 100024, People’s
Republic of China.
(1)
Percentage ownership is calculated by dividing the number of Class A and Class B ordinary shares beneficially owned by a given
person or group by the sum of (i) 1,534,534,235 ordinary shares and (ii) the number of Class A and Class B ordinary shares that
such person or group has the right to acquire upon exercise of option, warrant or other right within 60 days after March 31, 2025.
(2)
Percentage of total voting power represents voting power based on both Class A and Class B ordinary shares held by a given
person or group with respect to the sum of all outstanding shares of our Class A and Class B ordinary shares. The holders of our
Class B ordinary shares are entitled to ten votes per share, and holders of our Class A ordinary shares are entitled to one vote per
share.
(3)
Represents (i) 25,996,440 Class A ordinary shares represented by restricted ADSs and 90,263,128 Class B ordinary shares held
by Sheng Global Limited, a British Virgin Islands company wholly owned by Mr. Fu, (ii) 4,000,000 Class A ordinary shares
(represented by restricted ADSs) and 7,300,000 Class B ordinary shares beneficially owned by Sheng Global Limited through
FaX Vision Corporation, a British Virgin Islands company controlled by Sheng Global Limited, (iii) 585,800 Class B ordinary
shares that have vested to Mr. Fu under our 2011 Plan, and (iv) 1,016,210 Class A ordinary shares and 2,574,010 Class B ordinary
shares that have vested to Mr. Fu under our 2013 Plan. Kingsoft Corporation have delegated approximately 37.4% voting power
of our company held by Kingsoft Corporation to Mr. Sheng Fu, effective October 1, 2017. For further details, see “Item 4.
Information on the Company—A. History and Development of the Company”.
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(4)
The business address of Ms. Peng is c/o Kingsoft Corporation Limited, Building D, Xiaomi Campus, No.33 Xierqi Middle Road,
Haidian District, Beijing, People’s Republic of China.
(5)
The business address of Wu Shengwu is No. 599, Changjiang East Road, Huaiyin District, Huai'an City, Jiangsu Province
(6)
The business address of Dr. Ma is ECS Department, 333A Cory Hall#1770 University of California, Berkeley, CA 94720-1770,
USA.
(7)
The business address of Dr. Zhang is 6402 Middleburg Ln, Bethesda, MD 20817, USA.
(8)
Represents (i) 5,040,877 Class A ordinary shares, (ii) 6,759,670 Class A ordinary shares represented by ADSs, and (iii)
662,806,049 Class B ordinary shares held by Kingsoft Corporation. Kingsoft Corporation is a Cayman Islands company listed on
the Hong Kong Stock Exchange (Stock Code: 3888). Kingsoft Corporation have delegated approximately 37.4% voting power of
our company held by Kingsoft Corporation to Mr. Sheng Fu, effective October 1, 2017. For further details, see “Item 4.
Information on the Company—A. History and Development of the Company.” Kingsoft Corporation’s business address is
Building D, Xiaomi Campus, No.33 Xierqi Middle Road, Haidian District, Beijing, People’s Republic of China.
(9)
Represents (i) 745,410 Class A ordinary shares and 14,285,710 Class A ordinary shares represented by ADSs held by THL E
Limited, a British Virgin Islands company wholly owned by Tencent Holdings Limited, and (ii) 220,481,928 Class B ordinary
shares held by TCH Copper Limited, a British Virgin Islands company wholly owned by Tencent Holdings Limited, as reported
on the Schedule 13D jointly filed by TCH Copper Limited, Tencent Holdings Limited and THL E Limited on May 19, 2014.
Tencent Holdings Limited is a Cayman Islands company listed on the Hong Kong Stock Exchange (Stock Code: 700). The
business address of Tencent Holdings Limited is 29/F, Three Pacific Place, No. 1 Queen’s Road East, Wan Chai, Hong Kong.
(10) Represents (i) 25,996,440 Class A ordinary shares represented by restricted ADSs and 90,263,128 Class B ordinary shares held
by Sheng Global Limited, and (ii) 4,000,000 Class A ordinary shares and 7,300,000 Class B ordinary shares held by FaX Vision
Corporation, a British Virgin Islands company controlled by Sheng Global Limited. The registered address of Sheng Global
Limited is Palm Grove House, P.O. Box 438, Road Town, Tortola, British Virgin Islands.
As of March 31, 2025, to our knowledge, on the same basis of calculation as above, 487,819,310 Class A ordinary shares
represented by ADSs, or approximately 31.79% of our total outstanding ordinary shares were held by one record shareholder in the
United States, namely The Bank of New York Mellon, the depositary of our ADS program. The number of beneficial owners of our
ADSs in the United States is likely to be much larger than the number of record holders of our ordinary shares in the United States.
Our ordinary shares are divided into Class A ordinary shares and Class B ordinary shares. Holders of Class A ordinary shares are
entitled to one vote per share, while holders of Class B ordinary shares are entitled to ten votes per share. Apart from the delegation of
voting rights pertaining up to 399,445,025 Class B ordinary shares of our company by Kingsoft Corporation to Mr. Fu, we are not aware
of any arrangement in effect that will, at a subsequent date, result in a change of control of our company. None of our major shareholders
have different voting rights apart from any Class B ordinary shares that they may hold in our company.
B. Related Party Transactions
Contractual Arrangements with VIEs
Due to certain restrictions under PRC law on foreign ownership and investment in value-added telecommunications services in
China, we conduct our operations in China principally through contractual arrangements with the VIEs in China and their respective
shareholders. For a description of these contractual arrangements, see “Item 4. Information on the Company—C. Organizational
Structure—Contractual Arrangements with the VIEs.”
Transactions and Agreements with Kingsoft Corporation
Kingsoft Corporation is one of our principal shareholders, with beneficial ownership and voting power of 44.0% and 24.8%,
respectively, of our outstanding Class A and Class B ordinary shares on an as-converted basis as of March 31, 2025.
Our company has certain common directors and officers with Kingsoft Corporation. As of the date of this annual report, Ms. Bo
Peng, one of our directors, is also the assistant president and the legal director of Kingsoft Corporation.
Kingsoft Corporation is a company with shares listed on the Hong Kong Stock Exchange, and is accordingly subject to the
requirements of the Hong Kong Listing Rules. Before October 1, 2017, under the Hong Kong Listing Rules, we were a “connected
person” of Kingsoft Corporation.
Accordingly, transactions between us, our subsidiaries and the VIEs, on the one hand, and Kingsoft Corporation or any of its
subsidiaries (excluding us and our subsidiaries and VIEs), on the other hand, were “connected transactions.” Under the Hong Kong
Listing Rules, all connected transactions must be carried out on normal commercial terms, and if the value of a connected transaction
exceeds the applicable thresholds, it was subject to the approval of the independent shareholders of Kingsoft Corporation.
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Services received from Kingsoft Group
Historically, we have entered into various transactions including promotion services, licensing services, cloud services etc. From
time to time with Kingsoft Corporation, its subsidiaries and their respective associates, or collectively the Kingsoft Group. We entered
into a cooperation framework agreement with Kingsoft Corporation on December 27, 2013 for an initial term until December 31, 2016.
Upon expiration of the initial term, the agreement was automatically renewed for three years pursuant to its terms. This agreement
governs the following transactions between our company and Kingsoft Corporation:
•
Promotion services. We and Kingsoft Corporation mutually provided promotion services through their own products and
websites for the sale of the other party’s products, including but not limited to pre-installation, bundle promotion, joint
operation and publishing online advertisement;
•
Licensing services. Kingsoft Corporation granted licenses to use, among others, certain technologies, trademarks and
software products. Such licenses automatically terminated upon October 1, 2017. We and Kingsoft Corporation entered
into a new Trademark Licensing Contract in 2018, under which we are licensed with certain selected trademarks of
Kingsoft Corporation and its relevant subsidiaries;
•
Miscellaneous services. Kingsoft Corporation provided miscellaneous services to our company, including but not limited
to leasing services, administration assistance services and technology support services.
We and entities of Kingsoft Group may enter into individual contracts from time to time when necessary according to the principles
and scope provided for under the framework agreement. Pursuant to the framework agreement, the transactions between us and Kingsoft
Group will be priced based on: (i) the prevailing fair market pricing rules adopted in the same industry; (ii) a price calculated based on
costs plus reasonable profit margin; or (iii) a price with reference to the price or reasonable profit margin of an independent third party.
On February 16, 2017, Kingsoft Japan entered into an exclusive licensing agreement with a subsidiary of Kingsoft Corporation,
pursuant to which Kingsoft Group granted Kingsoft Japan the exclusive right to sell, or authorize any third parties to sell, conduct
marketing or promotion, and provide services to the end-users of the Japanese version of the office software developed by Kingsoft
Group, within the territory of Japan.
We also purchase cloud services from Kingsoft Group. On July 1, 2022, we entered into a cloud service agreement with a
subsidiary of Kingsoft Corporation, pursuant to which, Kingsoft Group provide us with cloud and relevant technical support services
for an initial term until August 1, 2023. Since then, the agreement has been renewed annually and currently remains in effect with an
expiration date of August 1, 2025.
For the years ended December 31, 2022, 2023 and 2024, we recognized aggregate fees of RMB15.2 million, RMB14.2 million
and RMB12.2 million (US$1.7 million), respectively, to Kingsoft Corporation, its subsidiaries and their respective associates for the
services they provided to us.
Transactions with Tencent Group
We entered into a strategic cooperation agreement dated December 27, 2013 with Shenzhen Tencent Computer Systems Company
Limited, or Tencent Shenzhen, to promote various types of products of Tencent Holdings Limited, its subsidiaries and their respective
associates, or collectively the Tencent Group, through various forms of promotion services on our mobile and PC applications and
platforms. Tencent Shenzhen is a subsidiary of Tencent Holdings Limited, one of our major beneficial shareholders. The price of services
provided between us and Tencent Shenzhen will be based on (i) the prevailing fair market price, (ii) the actual cost incurred plus a
reasonable profit margin, or (iii) a price with reference to the price or reasonable profit margin of an independent third party conducting
the similar transactions. The term of the cooperation agreement was from January 1, 2014 to December 31, 2015. On December 30,
2015, we entered into a new strategic cooperation agreement with Tencent Shenzhen, pursuant to which we and the Tencent Group will
continue to provide promotion services to each other. We and Tencent Group may enter into individual agreements from time to time
accordingly, and except of promotion services, we also purchase cloud services from Tencent Group. For the years ended December 31,
2022, 2023 and 2024, we recognized total revenues of RMB12.5 million, RMB9.6 million and RMB6.7 million (US$0.9 million),
respectively, from the Tencent Group, and recognized aggregate fees of RMB20.5 million, RMB13.3 million and RMB19.4 million
(US$2.7 million), respectively, to the Tencent Group.
Transactions with Beijing OrionStar
In 2017, we completed capital injection into Beijing OrionStar, an artificial intelligence company incorporated in China and
founded by Mr. Sheng Fu, and subsequently made further investment in Beijing OrionStar. In 2022, Beijing OrionStar completed a new
round of financing, and subsequent to the financing, our equity interest in Beijing OrionStar was diluted to 37.74%. In November 2023,
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we acquired an aggregate of 35.17% equity interest of Beijing OrionStar from certain of the existing shareholders of Beijing OrionStar
with an aggregate cash consideration of RMB268.7 million (US$37.8 million). Upon completion of the transaction, our equity interest
in Beijing OrionStar increased to 72.91% and consolidated the financial results of Beijing OrionStar since November 30, 2023.
Consequently, transactions with Beijing OrionStar should no longer be considered as related party transactions from that date onwards.
From 2018, we entered into distribution and several AI robots purchase agreements with Beijing OrionStar. For the years ended
December 31, 2022 and for the period ended November 30, 2023, we purchased products from OrionStar of RMB1.1 million and
RMB1.0 million, respectively.
From December 2018, we entered into several commissioned development and service agreements, with Beijing OrionStar,
pursuant to which Beijing OrionStar agrees to provide technical and promotion service to us. For the years ended December 31, 2022
and for the period ended November 30, 2023, we recognized total cost of RMB0.3 million and RMB2.3 million, respectively.
From 2018, we entered into several service agreements with Beijing OrionStar, pursuant to which we provide technical and multi-
cloud management services to Beijing OrionStar. For the years ended December 31, 2022 and for the period ended November 30, 2023,
we recognized total revenue of RMB2.6 million and RMB2.4 million, respectively.
In 2021, we provided a convertible loan of RMB100.0 million at an annual simple interest rate of 8% with 2 years maturity to
Beijing OrionStar. The conversion features were considered as embedded derivatives that do not meet the criteria to be bifurcated and
were accounted for together with the loan receivable. We extended the maturity date by one year in 2023 and exercised our right under
the convertible loan to convert all of the principal and the accrued interest into Beijing OrionStar's equity interest in Jan 2024.
Transactions with Live.me
On September 30, 2019, Live.me amended its share incentive plan to (i) increase the number of shares to be issued under the
current plan and (ii) issue shares under the plan into a trust for the benefit of current and future recipients of Live.me share incentive
awards. Subsequent to the amendment, we own 49.6% equity interest of Live.me and deconsolidated Live.me as we are no longer a
majority shareholder of Live.me. In February 2025, Live.me ceased to be a related party of ours when Live.me redeemed all of our
shares in Live.me, and we no longer holder any equity interest in Live.me.
On January 9, 2023, Live.me modified its share capital by dividing ordinary shares into Class A ordinary shares and Class B
ordinary shares with different voting rights, subsequent to the modification, we hold 49.6% of Live.me’s share capital, which stands for
49.6% equity interest and 17.25% voting rights of Live.me.
From 2019, we entered into several service agreements with Live.me, pursuant to which we provide technical, multi-cloud
management and other services to Live.me. For the years ended December 31, 2022, 2023 and 2024, we recognized total revenue of
RMB33.3 million, RMB35.0 million and RMB27.5 million (US$3.8 million), respectively.
Transactions with Pixiu. Inc
From 2017, we entered into several service agreements with Pixiu. Inc, pursuant to which we provide technical, multi-cloud
management and other services to Pixiu. Inc. For the years ended December 31, 2022, 2023 and 2024, we recognized total revenue of
RMB0.4 million, RMB1.0 million and RMB1.2 million (US$0.2 million), respectively.
Registration Rights Agreement
Pursuant to the registration rights agreement dated April 25, 2014 with Kingsoft Corporation, Xiaomi Ventures Limited and Baidu
Holdings Limited, we agreed to grant each of the parties Form F-3 registration rights and the piggyback registration rights. In addition,
we agreed to pay expenses relating to their exercise of Form F-3 registration rights and piggyback registration rights, except for
underwriting discounts and commissions relating to the sale of securities, unless, subject to a few exceptions, a registration request is
subsequently withdrawn at the request of a majority-in-interest of the holders requesting such registration.
Employment Agreements
See “Item 6. Directors, Senior Management and Employees—B. Compensation—Employment Agreements.”
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Share Incentive Plans
“Item 6. Directors, Senior Management and Employees—B. Compensation—Share Incentive Awards—Share Incentive Plans.”
Other Transactions with Certain Directors and Affiliates
See “Item 6. Directors, Senior Management and Employees—B. Compensation—Compensation of Directors and Officers.”
C. Interests of Experts and Counsel
Not applicable.
Item 8. Financial Information
A. Consolidated Statements and Other Financial Information
We have appended consolidated financial statements filed as part of this annual report.
Legal Proceedings
We are subject to legal proceedings and claims in our ordinary course of business from time to time.
We and certain of our current and former officers were named as defendants in two putative securities class actions filed on June
25, 2020 and July 31, 2020, respectively, in the U.S. District Court for the Central District of California. On August 24, 2020, the Court
consolidated the two cases under the caption In re: Cheetah Mobile, Inc. Securities Litigation (Case No. 2:20-cv-05696). On March 15,
2021, the plaintiffs filed an amended complaint, in which they sought to represent a class of persons who allegedly suffered damages as
a result of their trading in our ADRs between April 26, 2017 and March 24, 2020. The action alleged that we made false or misleading
statements regarding our business and operations in violation of Sections 10(b) and 20(a) of the U.S. Securities Exchange Act of 1934,
and Rule 10b-5 promulgated thereunder. On March 30, 2022, the Court granted the Company’s motion to dismiss, but gave the plaintiffs
leave to amend. On May 6, 2022, the parties reached a stipulation, pursuant to which the plaintiffs voluntarily dismissed the claims
asserted in the action, and agreed that they would not amend the complaint or appeal the Court’s order. The case is now closed. For risks
and uncertainties relating to any lawsuits against us, please see “Item 3. Key Information—D. Risk Factors—Risks Relating to the ADSs
—We have incurred increased costs as a result of being a public company, and the costs may continue to increase in the future.” For
further information on certain legal proceedings and arbitration that we are currently involved in, see “Note 18. Commitment and
Contingencies—Litigation and investigation” to our consolidated financial statements for the years ended December 31, 2022, 2023 and
2024 included in this annual report.
The Staff of the Division of Enforcement of the SEC conducted an investigation relating to our disclosures for fiscal year 2015
regarding our relationship with one of our advertising business partners. The SEC investigation also related to Rule 10b5-1 trading plans
entered into by certain of our current and former officers and directors and sales of our ADS under those plans in 2015 and 2016. On
September 21, 2022, our Chairman of the Board and Chief Executive Officer, Mr. Sheng Fu, reached a resolution with the SEC. To our
knowledge, pursuant to the terms of the settlement, Mr. Fu has consented to the entry of a cease and desist order with the SEC on a
“neither admit nor deny” basis that would require him to refrain from violating (i) Section 17(a)(2) and (3) of the Securities Act of 1933,
and (ii) Sections 10(b) and 13(a) of the Securities Exchange Act of 1934 and Rules 10b-5, 12b-20, and 13a-1 thereunder. The terms of
the settlement between Mr. Fu and the SEC also include payment of a civil money penalty in the amount of $556,580 and certain
compliance undertakings. We were not a party to the settlement. The SEC informed us that it had concluded its investigation with respect
to us and did not intend to recommend an enforcement action.
In September 2011, Mr. Sheng Fu, our chief executive officer, was named as a defendant in a lawsuit filed by Qihoo in the High
Court of the Hong Kong Special Administrative Region. The complaint was subsequently amended in May 2012, July 2012 and January
2014. The amended complaint alleges that Mr. Fu has breached his contractual obligations of confidentiality, non-competition, non-
solicitation and non-disparagement under the agreements Mr. Fu had entered into with a subsidiary of Qihoo prior to his resignation
from the subsidiary in August 2008. The complaint asserts that Mr. Fu was a product manager of Qihoo and was responsible for, and
participated in, product design and research of certain antivirus products, including 360 Anti-virus and 360 Safe Guard and had access
to the related confidential information, trade secret, technology and know-how.
In connection with the above claims, the complaint specifically alleges that Mr. Fu: (i) used confidential information of Qihoo to
develop, by himself or through Beijing Conew and Conew Network, an anti-virus product released around May 2010 that was
substantially similar to Qihoo’s 360 Anti-virus and 360 Safe Guard and infringed upon the confidential information, trade secrets and
other rights of Qihoo; (ii) engaged in or dealt with businesses and products that directly competed with the businesses and/or products
of Qihoo within the 18-month restricted period; (iii) employed employees of Qihoo within the 18-month restricted period, including Mr.
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Ming Xu, our former president, who was the then director of technology of 360 Safe Guard, a division of Qihoo; and (iv) made certain
negative statements publicly about Qihoo.
Qihoo is seeking a court declaration that Qihoo’s repurchase of its shares previously granted to Mr. Fu under Qihoo’s share
incentive plan at a nominal value was valid, a court order that Mr. Fu cease to use any confidential information or know-how of Qihoo,
damages for disparagement, and a court order that Mr. Fu account to Qihoo for any profits that he earned as a result of the alleged
breach.
Mr. Fu joined us in October 2010 when we acquired Conew.com Corporation, for which Mr. Fu served as the chief executive
officer prior to the acquisition. Our product offerings do not include, and are not derived from, the anti-virus products referenced in the
complaint.
Dividend Policy
We declared and paid cash dividends to our shareholders of approximately US$72 million and US$200 million in 2019 and 2020,
respectively, which was funded by cash on our balance sheet. We currently have no plan to declare or pay any dividends in the near
future on our shares or ADSs. We currently intend to retain most, if not all, of our available funds and any future earnings to operate
and expand our business.
We are a holding company incorporated in the Cayman Islands. We rely on a significant amount of dividends from our subsidiaries
for our cash requirements, including any payment of dividends to our shareholders. With respect to our PRC subsidiaries, PRC
regulations may restrict their abilities to pay dividends to us. See “Item 3. Key Information—D. Risk Factors—Risks Relating to Doing
Business in China—We may rely on dividends paid by our subsidiaries, including PRC subsidiaries, to fund any cash and financing
requirements we may have. Any limitation on the ability of our subsidiaries 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 4. Information
on the Company—B. Business Overview—Regulations—Regulations of Foreign Currency Exchange, Foreign Debt and Dividend
Distribution.”
Our board of directors has discretion as to whether to distribute dividends, subject to applicable laws. In addition, our shareholders
may by ordinary resolution declare a dividend, but no dividend may exceed the amount recommended by our directors. Under Cayman
Islands law, a Cayman Islands company may pay a dividend on its shares out of either profit or the company’s share premium account,
provided that in no circumstances may a dividend be paid if this would result in our company being unable to pay its debts due in the
ordinary course of business. Even if our board of directors decides to pay dividends, the form, frequency and amount will depend upon
our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other
factors that the board of directors may deem relevant. If we pay any dividends, we will pay our ADS holders to the same extent as
holders of our ordinary shares, subject to the terms of the deposit agreement, including the fees and expenses payable thereunder. See
“Item 12. Description of Securities Other than Equity Securities—D. American Depositary Shares.” Cash dividends on our ordinary
shares, if any, will be paid in U.S. dollars.
B. Significant Changes
Except as disclosed elsewhere in this annual report, we have not experienced any significant changes since the date of our audited
consolidated financial statements included in this annual report.
Item 9. The Offer and Listing
A. Offering and Listing Details
Our ADSs, each currently representing fifty of our Class A ordinary shares, have been listed on the NYSE since May 8, 2014.
Our ADSs trade under the symbol “CMCM.”
Effective September 2, 2022, we effected a change of the ratio of the ADS to our Class A ordinary shares from one ADS
representing ten Class A ordinary shares to one ADS representing fifty Class A ordinary shares. Currently, each ADS represents fifty
Class A ordinary shares. The change in the ratio of the ADS to our Class A ordinary shares had no impact on our underlying Class A
ordinary shares, and no Class A ordinary shares were issued or cancelled in connection with the change in the ratio of the ADS to our
Class A ordinary shares.
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B. Plan of Distribution
Not applicable.
C. Markets
Our ADSs have been listed on the NYSE since May 8, 2014 under the symbol “CMCM.”
D. Selling Shareholders
Not applicable.
E. Dilution
Not applicable.
F. Expenses of the Issue
Not applicable.
Item 10. Additional Information
A. Share Capital
Not applicable.
B. Memorandum and Articles of Association
We incorporate by reference into this annual report the description of our fourth amended and restated memorandum and articles
of association contained in our F-1 registration statement (File No. 333-194996), as amended, initially filed with the SEC on April 2,
2014. The fourth amended and restated memorandum and articles of association were adopted by our shareholders by a special resolution
passed on April 2, 2014, and became effective immediately prior to the completion of our initial public offering of the ADSs representing
our Class A ordinary shares.
C. Material Contracts
We have not entered into any material contracts other than in the ordinary course of business and other than those described in
“Item 4. Information on the Company,” “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions”
or elsewhere in this annual report.
D. Exchange Controls
See “Item 4. Information on the Company—B. Business Overview—Regulations—Regulations of Foreign Currency Exchange,
Foreign Debt and Dividend Distribution.”
E. Taxation
Cayman Islands and BVI Taxation
The Cayman Islands and the BVI currently levy no taxes on individuals or corporations who are not based in the Cayman Islands
or the BVI respectively based upon profits, income, gains or appreciation and there is no taxation in the nature of inheritance tax or
estate duty. There are no other taxes likely to be material to us levied by the government of the Cayman Islands except for stamp duties
which may be applicable on instruments executed in, or after execution brought within the jurisdiction of, the Cayman Islands. There
are no exchange control regulations or currency restrictions in the Cayman Islands and the BVI applicable to our company or its
members.
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People’s Republic of China Taxation
Under the PRC EIT Law and its implementation rules, enterprises established outside the PRC with “de facto management bodies”
within the PRC may be considered PRC tax resident enterprise for tax purpose and may be subject to the PRC enterprise income tax at
the rate of 25% on their global income. On April 22, 2009, the SAT issued the Notice Regarding the Determination of Chinese-
Controlled Overseas Incorporated Enterprises as PRC Tax Resident Enterprise on the Basis of De Facto Management Bodies, or SAT
Circular 82, which was most recently amended on December 29, 2017. SAT Circular 82 provides certain specific criteria for determining
whether the “de facto management body” of a PRC-controlled enterprise that is incorporated offshore is located in China.
According to SAT Circular 82, an offshore incorporated enterprise controlled by a PRC enterprise or a PRC enterprise group will
be considered as a PRC tax resident enterprise by virtue of having its “de facto management body” in China and will be subject to PRC
enterprise income tax on its worldwide income only if all of the following conditions are met: (a) the senior management and core
management departments in charge of its daily operations function have their presence mainly in the PRC; (b) its financial and human
resources decisions are subject to determination or approval by persons or bodies in the PRC; (c) its major assets, accounting books,
company seals, and minutes and files of its board and shareholders’ meetings are located or kept in the PRC; and (d) more than half of
the enterprise’s directors or senior management with voting rights habitually reside in the PRC. SAT Bulletin 45 specifies that, when
provided with a copy of Chinese tax resident determination certificate from a resident Chinese controlled offshore incorporated
enterprise, the payer should not withhold 10% income tax when paying the Chinese-sourced dividends, interest, royalties, etc. to the
Chinese controlled offshore incorporated enterprise.
We do not believe Cheetah Mobile Inc. meets all of the criteria described above. We believe that none of Cheetah Mobile Inc. and
its subsidiaries outside of China is a PRC tax resident enterprise, because none of them is controlled by a PRC enterprise or PRC
enterprise group, and because their records (including the resolutions of its board of directors and the resolutions of shareholders) are
maintained outside the PRC. However, as the tax resident status of an enterprise is subject to determination by the PRC tax authorities
and uncertainties remain with respect to the interpretation of the term “de facto management body” when applied to our offshore entities,
we may be considered as a resident enterprise and may therefore be subject to PRC enterprise income tax at 25% on our global income.
In addition, if the PRC tax authorities determine that our company is a PRC resident enterprise for PRC enterprise income tax purposes,
dividends paid by us to non-PRC holders may be subject to PRC withholding tax, and gains realized on the sale or other disposition of
ADSs or ordinary shares may be subject to PRC tax, at a rate of 10% in the case of non-PRC enterprises or 20% in the case of non-PRC
individuals (in each case, subject to the provisions of any applicable tax treaty), if such dividends or gains are deemed to be from PRC
sources. Any such tax may reduce the returns on your investment in the ADSs.
If we are considered a “non-resident enterprise” by the PRC tax authorities, the dividends paid to us by our PRC subsidiaries will
be subject to a 10% withholding tax. The EIT Law also imposes a withholding income tax of 10% on dividends distributed by an foreign
invested enterprise to its immediate holding company outside of China, if such immediate holding company is considered as a non-
resident enterprise without any establishment or place within China or if the received dividends have no connection with the
establishment or place of such immediate holding company within China, unless such immediate holding company’s jurisdiction of
incorporation has a tax treaty with China that provides for a different withholding arrangement. The Cayman Islands, where our company
is incorporated, and the British Virgin Islands, where our subsidiary Conew.com Corporation was incorporated, do not have such tax
treaties with China. None of our U.S. subsidiaries is an immediate holding company of our PRC subsidiaries. Under the Arrangement
Between the PRC and the Hong Kong Special Administrative Region on the Avoidance of Double Taxation and Prevention of Fiscal
Evasion with Respect to Taxes on Income and Capital, the dividend withholding tax rate may be reduced to 5%, if a Hong Kong resident
enterprise that receives a dividend is considered a non-PRC tax resident enterprise and holds at least 25% of the equity interests in the
PRC enterprise distributing the dividends, subject to approval of the PRC local tax authority. However, if the Hong Kong resident
enterprise is not considered to be the beneficial owner of such dividends under applicable PRC tax regulations, such dividends may
remain subject to withholding tax at a rate of 10%.
Accordingly, our Hong Kong subsidiaries may be able to enjoy the 5% withholding tax rate for the dividends they receive from
our PRC subsidiaries if they satisfy the relevant conditions under tax rules and regulations, and obtain the approvals as required.
According to the Notice on Strengthening Administration of Enterprise Income Tax for Share Transfers by Non-PRC Resident
Enterprises issued by the PRC State Administration of Taxation on December 10, 2009, with retroactive effect from January 1, 2008,
or SAT Circular 698, where a non-resident enterprise transfers the equity interests in a PRC resident enterprise indirectly through a
disposition of equity interests in an overseas holding company (other than a purchase and sale of shares issued by a PRC resident
enterprise in public securities market), PRC tax reporting and payment obligations may be triggered. On February 6, 2015, SAT issued
a new guidance (Bulletin [2015] No. 7), or SAT Bulletin 7, on the PRC tax treatment of an indirect transfer of assets by a non-resident
enterprise. SAT Bulletin 7 is the latest regulatory instrument on indirect transfers, extending to not only the indirect transfer of equity
interests in PRC resident enterprises but also to assets attributed to an establishment in China and immovable property in China or,
collectively, Chinese Taxable Assets. Further, on October 17, 2017, SAT issued the Matters Regarding Withholding Corporate Income
Tax at Source for Non-Tax Resident Enterprises (Bulletin [2017] No. 37), or SAT Bulletin 37, abolish SAT Circular 698 and specify
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the withhold liability of the transferees. According to SAT Bulletin 7 and SAT Bulletin 37, when a non-resident enterprise engages in
an indirect transfer of Chinese Taxable Assets, or Indirect Transfer, through an arrangement that does not have a bona fide commercial
purpose in order to avoid paying enterprise income tax, the transaction should be re-characterized as a direct transfer of the Chinese
assets and becomes taxable in China under the EIT Law, and gains derived from such indirect transfer may be subject to the PRC
withholding tax at a rate of up to 10%, and the party who is obligated to make the transfer payments has the withholding obligation.
SAT Bulletin 7 and 37 have replaced SAT Circular 698 in its entirety. They provide more comprehensive guidelines on a number of
issues. Among other things, SAT Bulletin 7 substantially changes the reporting requirements in SAT Circular 698, provides more
detailed guidance on how to determine a bona fide commercial purpose, and also provides for a safe harbor for certain situations,
including purchase and sale of shares in an offshore listed enterprise on a public market by a non-resident enterprise, which may not be
subject to the PRC enterprise income tax. In addition, SAT Circular 698 now has been abolished by Announcement of the State
Administration of Taxation on Issues Concerning the Withholding of Non-resident Enterprise Income Tax at Source issued by the PRC
State Administration of Taxation on October 17, 2017, with retroactive effect from December 1, 2017, or SAT Circular 37.
United States Federal Income Taxation
The following discussion is a summary of the material United States federal income tax considerations relating to the ownership,
and disposition of the ADSs or Class A ordinary shares by a U.S. holder (as defined below) that holds the ADSs or Class A ordinary
shares as “capital assets” (generally, property held for investment) under the United States Internal Revenue Code of 1986, as amended
(the “Code”). This discussion is based upon existing United States federal income tax law, which is subject to differing interpretations
or change, possibly with retroactive effect. This discussion does not address all aspects of United States federal income taxation that
may be important to particular holders in light of their individual circumstances, including holders subject to special tax rules (for
example, banks or other financial institutions, insurance companies, broker-dealers, pension plans, cooperatives, traders in securities
that have elected the mark-to-market method of accounting for their securities, partnerships and their partners, regulated investment
companies, real estate investment trusts, and tax-exempt organizations (including private foundations)), holders who are not U.S.
holders, holders who own (directly, indirectly, or constructively) 10% or more of our stock (by vote or value), holders who acquired
their ADSs or Class A ordinary shares pursuant to any employee share option or otherwise as compensation, holders that hold their
ADSs or Class A ordinary shares as part of a straddle, hedge, conversion, constructive sale, or other integrated transaction for United
States federal income tax purposes, or holders that have a functional currency other than the United States dollar, all of whom may be
subject to tax rules that differ significantly from those summarized below. In addition, except to the extent described below, this
discussion does not discuss any alternative minimum tax, state, or local tax, non-United States tax considerations, any non-income tax
(such as the United States federal gift and estate tax) considerations, or the Medicare tax considerations. Each U.S. holder is urged to
consult its tax advisors regarding the United States federal, state, local, and non-United States income and other tax considerations with
respect to its ownership and disposition of the ADSs or Class A ordinary shares.
General
For purposes of this discussion, a “U.S. holder” is a beneficial owner of ADSs or Class A ordinary shares that is, for United States
federal income tax purposes, (i) an individual who is a citizen or resident of the United States, (ii) a corporation (or other entity treated
as a corporation for United States federal income tax purposes) created in, or organized under the laws of, the United States or any state
thereof or the District of Columbia, (iii) an estate the income of which is includible in gross income for United States federal income
tax purposes regardless of its source, or (iv) a trust (A) the administration of which is subject to the primary supervision of a United
States court and which has one or more United States persons who have the authority to control all substantial decisions of the trust or
(B) that has otherwise elected to be treated as a United States person under the Code.
If a partnership (or other entity treated as a partnership for United States federal income tax purposes) is a beneficial owner of the
ADSs or Class A ordinary shares, the tax treatment of a partner in the partnership will generally depend upon the status of the partner
and the activities of the partnership. Partnerships holding the ADSs or Class A ordinary shares and partners in such partnerships are
urged to consult their tax advisors as to the particular United States federal income tax consequences with respect to the ownership and
disposition of the ADSs or Class A ordinary shares.
For United States federal income tax purposes, it is generally expected that a U.S. holder of ADSs will be treated as the beneficial
owner of the underlying shares represented by the ADSs. Accordingly, deposits or withdrawals of Class A ordinary shares for ADSs
generally are not expected to be subject to United States federal income tax. The remainder of this discussion assumes that a U.S. holder
of ADSs will be treated in this manner.
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Dividends
Subject to the PFIC rules discussed below, any cash distributions (including the amount of any tax withheld) paid on the ADSs or
Class A ordinary shares out of our current or accumulated earnings and profits, as determined under United States federal income tax
principles, will generally be includible in the gross income of a U.S. holder as dividend income on the day actually or constructively
received by the U.S. holder, in the case of Class A ordinary shares, or by the depositary, in the case of ADSs. Because we do not intend
to determine our earnings and profits on the basis of United States federal income tax principles, any distribution paid will generally be
reported as a “dividend” for United States federal income tax purposes. A non-corporate recipient of dividend income may be subject
to tax on dividend income from a “qualified foreign corporation” at a reduced United States federal income tax rate rather than the
marginal tax rates generally applicable to ordinary income provided that certain holding period requirements are met.
A non-United States corporation (other than a corporation that is a PFIC for the taxable year in which the dividend is paid or the
preceding taxable year) will generally be considered to be a qualified foreign corporation(a) if it is eligible for the benefits of a
comprehensive tax treaty with the United States which the Secretary of Treasury of the United States determines is satisfactory for
purposes of this provision and which includes an exchange of information program, or (b) with respect to any dividend it pays on stock
(or ADSs in respect of such stock) which is readily tradable on an established securities market in the United States. U.S. holders are
urged to consult their tax advisors regarding the availability of the reduced tax rate on dividends with respect to the ADSs or Class A
ordinary shares in their particular circumstances.
Dividends received on the ADSs or Class A ordinary shares will not be eligible for the dividends received deduction allowed to
corporations if we are a PFIC for the taxable year or the preceding taxable year in which the dividend was paid.
Dividends paid on the ADSs or Class A ordinary shares will generally be treated as income from foreign sources for United States
foreign tax credit purposes and will generally constitute passive category income. In the event that we are deemed to be a PRC “resident
enterprise” under the PRC Enterprise Income Tax Law, a U.S. holder may be subject to PRC withholding taxes on dividends paid on
the ADSs or Class A ordinary shares. See “—People’s Republic of China Taxation.” A U.S. holder may be eligible, subject to a number
of complex limitations, to claim a foreign tax credit in respect of any foreign withholding taxes imposed on dividends received on the
ADSs or Class A ordinary shares. Pursuant to the Treasury Regulations, however, if a U.S. Holder is not eligible for the benefits of the
income tax treaty between the United States and the PRC (the “Treaty”) or does not elect to apply the Treaty, then such holder may not
be able to claim a foreign tax credit arising from any PRC tax imposed on the disposition of the ADSs or ordinary shares. A U.S. holder
who does not elect to claim a foreign tax credit for foreign tax withheld may instead claim a deduction, for United States federal income
tax purposes, in respect of such withholding taxes, but only for a year in which such U.S. holder elects to do so for all creditable foreign
income taxes. The rules governing the foreign tax credit are complex. U.S. holders are advised to consult their tax advisors regarding
the availability of the foreign tax credit or deduction under their particular circumstances, their eligibility for benefits under the Treaty
and the potential impact of the Treasury Regulations.
Sale or Other Disposition of ADSs or Ordinary Shares
A U.S. holder will generally recognize capital gain or loss upon the sale or other disposition of the ADSs or Class A ordinary
shares in an amount equal to the difference between the amount realized upon the disposition and the U.S. holder’s adjusted tax basis in
such ADSs or Class A ordinary shares. Any capital gain or loss will be long-term if the ADSs or Class A ordinary shares have been held
for more than one year and will generally be United States source gain or loss for United States foreign tax credit purposes. Long-term
capital gain of non-corporate U.S. holders is generally eligible for a reduced rate of taxation. The deductibility of a capital loss may be
subject to limitations. In the event that we are treated as a PRC “resident enterprise” under the PRC Enterprise Income Tax Law and
gain from the disposition of the ADSs or Class A ordinary shares is subject to tax in the PRC, a U.S. holder that is eligible for the
benefits of the Treaty may elect to treat the gain as PRC source income. Pursuant to the Treasury Regulations, however, if a U.S. Holder
is not eligible for the benefits of the Treaty or does not elect to apply the Treaty, then such holder may not be able to claim a foreign tax
credit arising from any PRC tax imposed on the disposition of the ADSs or ordinary shares. U.S. holders are advised to consult their tax
advisors regarding the tax consequences if a foreign tax is imposed on a disposition of the ADSs or Class A ordinary shares, including
the availability of the foreign tax credit or deduction under their particular circumstances, their eligibility for benefits under the Treaty
and the potential impact of the Treasury Regulations.
As mentioned above, if we are classified as a PFIC for the taxable year or preceding tax years, U.S. holders could be subject to
adverse U.S. federal income tax consequences. U.S. holders are urged to consult their tax advisors regarding the tax considerations of
the sale or other disposition of the ADSs or Class A ordinary shares in their particular circumstances.
Passive Foreign Investment Company Rules
Certain adverse U.S. federal income tax consequences could apply to a U.S. holder if we or any of our subsidiaries are treated as
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a PFIC for any taxable year during which the U.S. holder holds the ADSs or Class A ordinary shares.
A non-United States corporation, such as our company, will be a PFIC for United States federal income tax purposes, if, in the
case of any particular taxable year, after applying applicable look-through rules, either (i) 75% or more of its gross income for such year
consists of certain types of “passive” income or (ii) 50% or more of the value of its assets (generally determined on the basis of a
quarterly average) during such year produce or are held for the production of passive income. For this purpose, cash is categorized as a
passive asset and the company’s unbooked intangibles associated with active business activities may generally be classified as active
assets. Passive income generally includes, among other things, dividends, interest, rents, royalties, and gains from the disposition of
passive assets. We generally will be treated as owning a proportionate share of the assets held and earning a proportionate share of the
income received, by any other corporation in which we own, directly or indirectly, 25% or more (by value) of the stock.
Although the law in this regard is unclear, we treat the VIEs as being owned by us for United States federal income tax purposes,
not only because we exercise effective control over the operation of such entities but also because we are entitled to substantially all of
their economic benefits, and, as a result, we consolidate their results of operations in our consolidated financial statements.
If we are a PFIC for any taxable year during which a U.S. holder holds the ADSs or Class A ordinary shares, we generally would
continue to be treated as a PFIC for all succeeding years during which such U.S. holder holds the ADSs or Class A ordinary shares even
if we cease to meet the threshold requirements for PFIC status, unless a U.S. holder makes a taxable “deemed sale” election that may
allow the U.S. holder to eliminate the continuing PFIC status under certain circumstances. Additionally, unless the U.S. holder makes a
mark-to-market election or a qualified electing fund (QEF) election (as described below), the U.S. holder will generally be subject to
special tax rules that have a penalizing effect, regardless of whether we remain a PFIC, for subsequent taxable years, on (i) any excess
distribution that we make to the U.S. holder (which generally means any distribution paid during a taxable year to a U.S. holder that is
greater than 125% of the average annual distributions paid in the three preceding taxable years or, if shorter, the U.S. holder’s holding
period for the ADSs or Class A ordinary shares), and (ii) any gain realized on the sale or other disposition, including, under certain
circumstances, a pledge, of the ADSs or Class A ordinary shares. Under the PFIC rules:
•
such excess distribution and/or gain will be allocated ratably over the U.S. holder’s holding period for the ADSs or Class
A ordinary shares;
•
such amount allocated to the current taxable year and any taxable years in the U.S. holder’s holding period prior to the
first taxable year in which we are a PFIC, or pre-PFIC year, will be taxable as ordinary income;
•
such amount allocated to each prior taxable year, other than a pre-PFIC year, will be subject to tax at the highest tax rate
in effect applicable to the U.S. holder for that year; and an interest charge generally applicable to underpayments of tax
will be imposed on the tax attributable to each prior taxable year, other than a pre-PFIC year.
If we are a PFIC for any taxable year during which a U.S. holder holds the ADSs or Class A ordinary shares and any of our non-
United States subsidiaries is also a PFIC, such U.S. holder would be treated as owning a proportionate amount (by value) of the shares
of the lower-tier PFIC for purposes of the application of these rules. U.S. holders are advised to consult their tax advisors regarding the
application of the PFIC rules to any of our subsidiaries.
As an alternative to the foregoing rules, a U.S. holder of “marketable stock” in a PFIC may make a mark-to-market election with
respect to the ADSs (but not with respect to our Class A ordinary shares, which are not listed on the NYSE), provided that the ADSs
are regularly traded on the NYSE. If a mark-to-market election is made, the U.S. holder will generally (i) include as ordinary income
for each taxable year that we are a PFIC the excess, if any, of the fair market value of ADSs held at the end of the taxable year over the
adjusted tax basis of such ADSs and (ii) deduct as an ordinary loss the excess, if any, of the adjusted tax basis of the ADSs over the fair
market value of such ADSs held at the end of the taxable year, but only to the extent of the net amount previously included in income
as a result of the mark-to-market election. The U.S. holder’s adjusted tax basis in the ADSs would be adjusted to reflect any income or
loss resulting from the mark-to-market election. If a U.S. holder makes an effective mark-to-market election, in each taxable year that
we are a PFIC any gain recognized upon the sale or other disposition of the ADSs will be treated as ordinary income and loss will be
treated as ordinary loss, but only to the extent of the net amount previously included in income as a result of the mark-to-market election.
If a U.S. holder makes a mark-to-market election in respect of a PFIC and such corporation ceases to be a PFIC, the U.S. holder
will not be required to take into account the mark-to-market gain or loss described above during any period that such corporation is not
a PFIC.
Because a mark-to-market election cannot technically be made for any lower-tier PFICs that a PFIC may own, a U.S. holder who
makes a mark-to-market election with respect to the ADSs may continue to be subject to the general PFIC rules with respect to such
U.S. holder’s indirect interest in any of our non-United States subsidiaries if any of them is a PFIC.
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We do not intend to provide information necessary for U.S. holders to make QEF elections, which, if available, would result in
tax treatment different from (and generally less adverse than) the general tax treatment for PFICs described above.
As discussed above under “Dividends,” dividends that we pay on the ADSs or Class A ordinary shares will not be eligible for the
reduced tax rate that applies to qualified dividend income if we are a PFIC for the taxable year in which the dividend is paid or the
preceding taxable year. In addition, if a U.S. holder owns the ADSs or Class A ordinary shares during any taxable year that we are a
PFIC, such holder would generally be required to file an annual IRS Form 8621. Each U.S. holder is advised to consult its tax advisors
regarding the potential tax consequences to such holder if we are or become a PFIC, including the possibility of making a mark-to-
market election.
Backup Withholding and Information Reporting
Dividends paid on, and proceeds from the sale or other disposition of, the ADSs or Class A ordinary shares to a U.S. holder
generally may be subject to the information reporting requirements of the Code and may be subject to backup withholding unless the
U.S. holder provides an accurate taxpayer identification number and makes any other required certification or otherwise establishes an
exemption. Backup withholding is not an additional tax. The amount of any backup withholding from a payment to a U.S. holder will
generally be allowed as a refund or credit against the U.S. holder’s U.S. federal income tax liability, provided the required information
is furnished to the IRS in a timely manner.
Information with Respect to Foreign Financial Assets
U.S. holders who are individuals (and certain entities closely held by individuals) generally will be required to report the name,
address and such information relating to an interest in the ADSs or ordinary shares as is necessary to identify the class or issue of which
the ADSs or ordinary shares are a part. These requirements are subject to exceptions, including an exception for ADSs or Class A
ordinary shares held in accounts maintained by certain financial institutions and an exception applicable if the aggregate value of all
“specified foreign financial assets” (as defined in the Code) does not exceed US$50,000.
U.S. holders should consult their tax advisors regarding the application of these information reporting rules.
F. Dividends and Paying Agents
Not applicable.
G. Statement by Experts
Not applicable.
H. Documents on Display
We previously filed with the SEC our registration statement on Form F-1, as amended and prospectus under the Securities Act of
1933, with respect to our Class A ordinary shares. We are subject to the periodic reporting and other informational requirements of the
Exchange Act. Under the Exchange Act, we are required to file reports and other information with the SEC. Specifically, we are required
to file annually a Form 20-F within four months after the end of each fiscal year, which is December 31. Copies of reports and other
information, when so filed, may be inspected without charge and may be obtained at prescribed rates at the public reference facilities
maintained by the SEC at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. The public may obtain information regarding the
Washington, D.C. Public Reference Room by calling the Commission at 1-800-SEC-0330. The SEC also maintains a website at
www.sec.gov that contains reports, proxy and information statements, and other information regarding registrants that make electronic
filings with the SEC using its EDGAR system. As a foreign private issuer, we are exempt from the rules under the Exchange Act
prescribing the furnishing and content of quarterly reports and proxy statements, and officers, directors and principal shareholders are
exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act.
We will furnish The Bank of New York Mellon, the depositary of our ADSs, with our annual reports, which will include a review
of operations and annual audited consolidated financial statements prepared in conformity with U.S. GAAP, and all notices of
shareholders’ meetings and other reports and communications that are made generally available to our shareholders. The depositary will
make such notices, reports and communications available to holders of ADSs and, upon our request, will mail to all record holders of
ADSs the information contained in any notice of a shareholders’ meeting received by the depositary from us.
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In accordance with NYSE Rule 203.01, we will post this annual report on Form 20-F on our website at http://ir.cmcm.com. In
addition, we will provide hardcopies of our annual report free of charge to shareholders and ADS holders upon request.
I. Subsidiary Information
Not applicable.
J. Annual Report to Security Holders
Not applicable.
Item 11. Quantitative and Qualitative Disclosures about Market Risk
Quantitative and Qualitative Disclosure about Market Risk
Foreign Exchange Risk
Our revenues and expenses are primarily denominated in RMB or U.S. dollar. We do not believe that we currently have any
significant direct foreign exchange risk and have not used any derivative financial instruments to hedge exposure to such risk. Although
our exposure to foreign exchange risks should be limited in general, the value of your investment in our ADSs will be affected by the
exchange rate between U.S. dollar and Renminbi because the value of our business is effectively denominated in RMB, while our ADSs
will be traded in U.S. dollars.
The conversion of Renminbi into foreign currencies, including U.S. dollars, is based on rates set by the People’s Bank of China.
The Renminbi has fluctuated against the U.S. dollar, at times significantly and unpredictably. It is difficult to predict how market forces
or PRC or U.S. government policy may impact the exchange rate between Renminbi and the U.S. dollar in the future.
To the extent that we need to convert U.S. dollars into Renminbi for our operations, appreciation of the Renminbi against the U.S.
dollar would have an adverse effect on the RMB amount we receive from the conversion. Conversely, if we decide to convert Renminbi
into U.S. dollars for the purpose of making payments for dividends on our ordinary shares or ADSs or for other business purposes,
appreciation of the U.S. dollar against the Renminbi would have a negative effect on the U.S. dollar amounts available to us.
Interest Rate Risk
Our exposure to interest rate risk primarily relates to interest income generated by excess cash, which is mainly held in interest-
bearing bank deposits, loans and interest expense generated from certain bank loans. We generated interest income of RMB35.7 million,
RMB62.0 million and RMB44.4 million (US$6.1 million), and interest expense of nil, RMB1.1 million and nil, for the years ended
December 31, 2022, 2023 and 2024, respectively. Interest-earning instruments carry a degree of interest rate risk. We have not been
exposed to, nor do we anticipate being exposed to, material risks due to changes in market interest rates. However, our future interest
income may fall short of expectations due to changes in market interest rates.
Market Price Risk
We are exposed to market price risk primarily with respect to investment securities held by us which are reported at fair value. A
substantial portion of our investment in equity investees are held for long-term appreciation or for strategic purposes. And are accounted
for under equity method or measurement alternative and not subject to market price risk. We are also exposed to commodity price risk
in our AI business as increase of component price may in turn increase our cost in robots sales and operations.
Item 12. Description of Securities Other than Equity Securities
A. Debt Securities
Not applicable.
B. Warrants and Rights
Not applicable.
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C. Other Securities
Not applicable.
D. American Depositary Shares
Fees and Charges Our ADS holders May Have to Pay
The Bank of New York Mellon, the depositary of our ADS program, collects its fees for delivery and surrender of ADSs directly
from investors depositing shares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting for them. The
depositary collects fees for making distributions to investors by deducting those fees from the amounts distributed or by selling a portion
of distributable property to pay the fees. The depositary may collect its annual fee for depositary services by deduction from cash
distributions or by directly billing investors or by charging the book-entry system accounts of participants acting for them. The depositary
may collect any of its fees by deduction from any cash distribution payable to ADS holders that are obligated to pay those fees. The
depositary may generally refuse to provide fee-attracting services until its fees for those services are paid. The depositary’s corporate
trust office at which the ADSs will be administered is located at 240 Greenwich Street, New York, NY 10286, United States. The
depositary’s principal executive office is located at 240 Greenwich Street, New York, NY 10286, United States.
Persons depositing or withdrawing shares must pay:
For:
$5.00 (or less) per 100 ADSs (or portion of 100 ADSs)
•
Issuance of ADSs, including issuances resulting from a
distribution of shares or rights or other property
•
Cancellation of ADSs for the purpose of withdrawal,
including if the deposit agreement terminates
$.05 (or less) per ADS
•
Any cash distribution to ADS holders
A fee equivalent to the fee that would be payable if securities distributed
to you had been shares and the shares had been deposited for issuance of
ADSs
•
Distribution of securities distributed to holders of
deposited securities which are distributed by the
depositary to ADS holders
$.05 (or less) per ADSs per calendar year
•
Depositary services
Registration or transfer fees
•
Transfer and registration of shares on our share register
or a foreign register to or from the name of the
depositary or its nominee or the custodian or its
nominee when you deposit or withdraw shares
Expenses of the depositary
•
Cable, telex and facsimile transmissions (when
expressly provided in the deposit agreement)
•
converting foreign currency to U.S. dollars
Taxes and other governmental charges the depositary or the custodian
has to pay on any ADSs or shares underlying ADSs, such as stock
transfer taxes, stamp duty or withholding taxes
•
As necessary
Any charges incurred by the depositary or its agents for servicing the
deposited securities
•
As necessary
Fees and Other Payments Made by the Depositary to Us
The depositary has agreed to reimburse us annually for our expenses incurred in connection with the administration and
maintenance of our ADS facility including, but not limited to, investor relations expenses, exchange listing fees, other program related
expenses related to our ADS facility and the travel expense of our key personnel in connection with such programs. The depositary has
also agreed to provide additional payments to us based on the applicable performance indicators relating to our ADS facility. There are
limits on the amount of expenses for which the depositary will reimburse us, but the amount of reimbursement available to us is not
necessarily tied to the amount of fees the depositary collects from investors.
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PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies
None.
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
None.
Item 15. Controls and Procedures
Disclosure Controls and Procedures
Our management, with the participation of our chief executive officer and chief financial officer, has performed an evaluation of
the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the
period covered by this report, as required by Rule 13a-15(b) under the Exchange Act.
Disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports that are filed or
submitted under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the rules and
forms of the Securities and Exchange Commission and to ensure the information required to be disclosed is accumulated and
communicated to our management, including our chief executive officer and chief financial officer, to allow timely decisions regarding
required disclosures.
Based upon that evaluation, our management has concluded that, as of December 31, 2024, our disclosure controls and procedures
were effective.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined
under Rule 13(a)-15(f) and 15(d)-15(f) of the Exchange Act. Our internal control over financial reporting is designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and
procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles and that our receipts and expenditures are being made only in
accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the consolidated financial
statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Our management, including our
chief executive officer and chief financial officer, conducted an evaluation of the effectiveness of our internal control over financial
reporting based on the framework in Internal Control-Integrated Framework (2013 Framework) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (“COSO Criteria”). As defined in the standards established by the U.S. Public Company
Accounting Oversight Board, or PCAOB, a “material weakness” is a deficiency, or combination of deficiencies, in internal control over
financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements
will not be prevented or detected on a timely basis.
Based upon this evaluation, our management has concluded that, our internal control over financial reporting was effective as of
December 31, 2024.
Attestation Report of the Registered Public Accounting Firm
Because our Company is a non-accelerated filer, this annual report does not include an attestation report of our registered public
accounting firm regarding internal control over financial reporting.
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Changes in Internal Control over Financial Reporting
There were no changes in our internal controls over financial reporting that occurred during the period covered by this annual
report on Form 20-F that have materially affected, or are reasonably likely to materially affect, our internal control over financial
reporting.
Item 16. [RESERVED]
Item 16A. Audit Committee Financial Expert
Our board of directors has determined that Dr. Yun Zhang, an independent director (under the standards set forth in the NYSE
rules and Rule 10A-3 under the Exchange Act) and member of our audit committee, is an audit committee financial expert.
Item 16B. Code of Ethics
Our board of directors has adopted a code of ethics that applies to our directors, officers and employees, including certain
provisions that specifically apply to our senior officers, including our chief executive officer, chief financial officer, other chief senior
officers, senior financial officers, controllers, senior vice presidents, vice presidents and any other persons who perform similar functions
for us. We have filed our code of business conduct and ethics as Exhibit 99.1 to our registration statement on Form F-1 (File Number
333-194996), as amended, filed with the SEC on April 22, 2014. The code is also available on our official website under the corporate
governance section at our investor relations website http://ir.cmcm.com.
We hereby undertake to provide to any person without charge, a copy of our code of business conduct and ethics within ten
working days after we receive such person’s written request.
Item 16C. Principal Accountant Fees and Services
The following table sets forth the aggregate fees by categories specified below in connection with certain professional services
rendered by Ernst & Young Hua Ming LLP, our predecessor independent auditor, and Marcum Asia CPAs LLP, our current principal
external auditors, for the periods indicated.
2023
2024
(in thousands)
Audit fees(1)
US$1,232
US$1,081
Tax fees(2)
US$99
-
Notes:
(1)
Audit fees means the aggregate fees incurred in each of the fiscal periods listed for professional services rendered by Ernst &
Young Hua Ming LLP and Marcum Asia CPAs LLP for the audit of our annual consolidated financial statements and assistance
with and review of documents filed with the SEC.
(2)
Tax fees for the year ended December 31, 2023 means the aggregate fees incurred in each of the fiscal periods listed for
professional services rendered by our former auditor, Ernst & Young Hua Ming LLP and their respective affiliates, for tax
compliance, tax advice and tax planning.
The policy of our audit committee is to pre-approve all audit and non-audit services provided by Marcum Asia CPAs LLP and
their respective affiliates.
Item 16D. Exemptions from the Listing Standards for Audit Committees
Not applicable.
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
On September 13, 2018, our board of directors approved a share repurchase program of up to US$100 million of our outstanding
ADSs for a period not exceeding 12 months. The repurchases may be made from time to time on the open market at prevailing market
prices, in privately negotiated transactions, in block trades and/or through other legally permissible means. We publicly announced the
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share repurchase program on September 13, 2018. The share purchase program expired on September 12, 2019 and we had repurchased
approximately 4.5 million ADSs for approximately US$32.3 million under this program prior to its expiration.
Item 16F. Change in Registrant’s Certifying Accountant
Not applicable.
Item 16G. Corporate Governance
Prior to October 1, 2017, because Kingsoft Corporation owned more than 50% of the total voting power in our company, we were
a “controlled company” under Section 303A of the Corporate Governance Rules of the NYSE. A controlled company need not comply
with the applicable NYSE corporate governance rules requiring its board of directors to have a majority of independent directors and
independent compensation and nominating and corporate governance committees. We availed ourselves of these controlled company
exemptions. As a result, we rely on certain exemptions that are available to controlled companies from the NYSE corporate governance
requirements, including the requirements that:
•
a majority of our board of directors consist of independent directors;
•
our compensation committee be composed entirely of independent directors; and
•
our nominating and corporate governance committee be composed entirely of independent directors.
We have ceased to be a controlled company within the meaning of Section 303A of the Corporate Governance Rules of the NYSE
since October 1, 2017. We have completed changes in our board and committee composition and have satisfied the full independence
requirements of the NYSE corporate governance rules since March 13, 2018, including:
•
our compensation committee is fully independent; and
•
our nominating and corporate governance committee is fully independent.
The Corporate Governance Rules of the NYSE permit a foreign private issuer like us to follow the corporate governance practices
of its home country. Certain corporate governance practices in the Cayman Islands, which is our home country, may differ significantly
from the NYSE corporate governance listing standards. Currently, we rely on home country practice exemption with respect to the
requirements for:
•
an audit committee composed of at least three members;
•
a majority of the board consisting of independent directors;
•
shareholders’ approval of all equity-compensation plans and material revisions thereto; and
•
annual shareholders’ meeting.
We did not hold an annual shareholders’ meeting in 2024. We may also opt to rely on additional home country practice exemptions
in the future. As a result, our shareholders may be afforded less protection than they otherwise would under the New York Stock
Exchange corporate governance listing standards applicable to U.S. domestic issuers. See “Item 3. Key Information—D. Risk Factors—
Risks Relating to the ADSs—As a company incorporated in the Cayman Islands, we are permitted to adopt certain home country
practices in relation to corporate governance matters that differ significantly from the NYSE corporate governance rules; these practices
may afford less protection to shareholders than they would enjoy if we comply fully with the NYSE corporate governance rules. In
addition, we are also a foreign private issuer within the meaning of the rules under the Exchange Act, and as such we are exempt from
certain provisions applicable to U.S. domestic public companies.”
Item 16H. Mine Safety Disclosure
Not applicable.
Item 16I. Disclosure Regarding Foreign Jurisdictions That Prevent Inspections
Not applicable.
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Item 16J. Insider Trading Policies
We have adopted insider trading policies and procedures governing the purchase, sale and other dispositions of our securities by
directors, senior management and employees to promote compliance with applicable insider trading laws, rules and regulations. These
insider trading policies and procedures are filed as Exhibit 11.2 to this annual report on Form 20-F.
Item 16K. Cybersecurity
Risk Management and Strategy
Faced with an increasingly complex internet environment and frequent hacker attacks, we recognize that cybersecurity threats
may pose serious challenges to our operations. Over the years, we have developed and regularly refined a robust suite of cybersecurity
management systems to bolster our defenses, including standards for vulnerability management, incident handling, secure coding,
employee conduct, and data control. These systems are complemented by monthly information security reports that track external attacks
and disseminate alerts within our company. Concurrently, we undertake thorough cybersecurity risk assessments that encompass our
technological framework, data assets, and operational procedures. Through comprehensive evaluations, we identify and rank potential
risks, enabling us to allocate resources and adapt our strategies to mitigate the most pressing threats. This approach is integral for
maintaining an effective cyber protection ecosystem.
We have also deployed a comprehensive cybersecurity defense program, which is built on a multi-layered architecture that extends
across network boundaries, endpoints, applications, and data, fortified by real-time monitoring through a security information and event
management system. Measures such as advanced firewalls, intrusion detection, antivirus defenses, application security protocols, and
robust encryption safeguard our digital infrastructure. Additionally, we foster a culture of security awareness through continuous
education and a dedicated portal for cybersecurity updates. The expertise of independent third-party professionals also plays a pivotal
role in our cybersecurity strategy, offering valuable guidance to identify improvement opportunities across our processes and controls.
As of the date of this annual report, we have not experienced any material cybersecurity incidents or identified any material
cybersecurity threats that have affected or are reasonably likely to materially affect us, our business strategy, results of operations or
financial condition.
Governance
Our board of directors oversees our overall management of assorted risks, including those arising out of cybersecurity threats or
incidents. Under the supervision and guidance of our board of directors, we have established and maintained necessary processes for
assessing, identifying, monitoring, and mitigating cybersecurity risks. Our board of directors also works to ensure that we have
appropriated adequate resources for implementing these processes to protect our company against cybersecurity threats and incidents.
Edward Mingyan Sun, one of our Directors and also our senior vice president, plays a leading role in policy formulation, risk assessment,
and defense construction in relation to risks of cybersecurity threats. Not only did Mr. Sun serve management roles at reputable
technology companies such as Qihoo 360 and Trent Micro, but he also has extensive experience in the development and application of
cybersecurity products.
We have also employed specialized personnel responsible for our company’s everyday cybersecurity maintenance. Our security
department works closely with the management to foster a culture of security awareness and ensure the rigorous enforcement of
cybersecurity policies. The department is engaged in deploying robust security controls to safeguard our digital infrastructure and
committed to performing comprehensive routine checks to preemptively identify and mitigate potential cybersecurity threats. A critical
aspect of its role involves providing expert guidance and oversight to various teams within the company, ensuring that all employees
adhere strictly to established protocols related to cybersecurity and privacy. Once risks of cybersecurity threats or incidents that may
materially affect our operations are identified, the security department shall inform our board of directors on a timely basis and prepare
disclosure materials thereon as needed for the approval by our board of directors.
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PART III
Item 17. Financial Statements
We have elected to provide financial statements pursuant to Item 18.
Item 18. Financial Statements
The consolidated financial statements of Cheetah Mobile Inc., its subsidiaries, VIEs and the then subsidiaries of VIEs are
included at the end of this annual report.
Item 19. Exhibits
Exhibit
Number
Description of Document
1.1
Fourth amended and restated memorandum and articles of association of the Registrant (incorporated by reference to
Exhibit 3.2 to our Registration Statement on Form F-1 (file no. 333-194996) filed with the Securities and Exchange
Commission on April 22, 2014)
2.1
Registrant’s specimen American depositary receipt (incorporated by reference to Exhibit 4.3 to our Registration
Statement on Form F-1 (file no. 333-194996) filed with the Securities and Exchange Commission on April 25, 2014)
2.2
Registrant’s specimen certificate for Class A ordinary shares (incorporated by reference to Exhibit 4.2 to our
Registration Statement on Form F-1 (file no. 333-194996) filed with the Securities and Exchange Commission on
April 22, 2014)
2.3
Deposit agreement dated May 7, 2014 among the Registrant, the depositary and owners and holders of the American
depositary shares (incorporated by reference to Exhibit 4.3 to our Registration Statement on Form S-8 (file no. 333-
199577) filed with the Securities and Exchange Commission on October 24, 2014)
2.4
Description of Securities (incorporated by reference to Exhibit 2.4 to our Annual Report on Form 20-F (file no. 001-
36427) filed with the Securities and Exchange Commission on April 18, 2023)
4.1
2011 share award scheme and amendments thereto (incorporated by reference to Exhibit 4.1 to our Annual Report on
Form 20-F (file no. 001-36427) filed with the Securities and Exchange Commission on April 26, 2017)
4.2
2013 equity incentive plan (incorporated by reference to Exhibit 10.2 to our Registration Statement on Form F-1 (file
no. 333- 194996) filed with the Securities and Exchange Commission on April 2, 2014)
4.3
2014 restricted shares plan (incorporated by reference to Exhibit 10.48 to our Registration Statement on Form F-1
(file no. 333- 194996) filed with the Securities and Exchange Commission on April 25, 2014)
4.4
2023 share incentive plan (incorporated by reference to Exhibit 4.4 to our Annual Report on Form 20-F (file no. 001-
36427) filed with the Securities and Exchange Commission on April 18, 2023)
4.5
Form of indemnification agreement between the Registrant and its director and executive officers (incorporated by
reference to Exhibit 10.3 to our Registration Statement on Form F-1 (file no. 333-194996) filed with the Securities
and Exchange Commission on April 2, 2014)
4.6
Form of employment agreement between the Registrant and its executive officers (incorporated by reference to
Exhibit 10.4 to our Registration Statement on Form F-1 (file no. 333-194996) filed with the Securities and Exchange
Commission on April 2, 2014)
4.7
Business operation agreement, by and among Conew Network, Beijing Network, Ming Xu and Wei Liu, dated July
18, 2012 (incorporated by reference to Exhibit 10.6 to our Registration Statement on Form F-1 (file no. 333-194996)
filed with the Securities and Exchange Commission on April 2, 2014)
4.8
Loan agreement, by and among Conew Network, Ming Xu and Wei Liu, dated June 20, 2012 (incorporated by
reference to Exhibit 10.7 to our Registration Statement on Form F-1 (file no. 333-194996) filed with the Securities
and Exchange Commission on April 2, 2014)
130
Exhibit
Number
Description of Document
4.9
Exclusive technology development, support and consultancy agreement, between Conew Network and Beijing
Network, dated July 18, 2012 (incorporated by reference to Exhibit 10.8 to our Registration Statement on Form F-1
(file no. 333-194996) filed with the Securities and Exchange Commission on April 2, 2014)
4.10
Exclusive equity option agreement, by and among Conew Network, Beijing Network, Ming Xu and Wei Liu, dated July
18, 2012 (incorporated by reference to Exhibit 10.9 to our Registration Statement on Form F-1 (file no. 333-194996)
filed with the Securities and Exchange Commission on April 2, 2014)
4.11
Shareholder voting proxy agreement, by and among Conew Network, Beijing Network, Ming Xu and Wei Liu, dated
July 18, 2012 (incorporated by reference to Exhibit 10.10 to our Registration Statement on Form F-1 (file no. 333-
194996) filed with the Securities and Exchange Commission on April 2, 2014)
4.12
Equity pledge agreement, by and among Conew Network, Beijing Network, Ming Xu and Wei Liu, dated July 18,
2012 (incorporated by reference to Exhibit 10.11 to our Registration Statement on Form F-1 (file no. 333-194996) filed
with the Securities and Exchange Commission on April 2, 2014)
4.13
Financial support undertaking letter signed by Conew Network with respect to Beijing Network, dated January 17,
2014 (incorporated by reference to Exhibit 10.12 to our Registration Statement on Form F-1 (file no. 333-194996) filed
with the Securities and Exchange Commission on April 2, 2014)
4.14
Spousal consent, signed by Xinchan Li, Wei Liu’s spouse, dated July 18, 2012 (incorporated by reference to Exhibit
10.13 to our Registration Statement on Form F-1 (file no. 333-194996) filed with the Securities and Exchange
Commission on April 2, 2014)
4.15
Business operation agreement, by and among Beijing Security, Beike Internet (currently Beijing Mobile), Sheng Fu and
Weiqin Qiu, dated January 1, 2011 (incorporated by reference to Exhibit 10.22 to our Registration Statement on Form
F-1 (file no. 333-194996) filed with the Securities and Exchange Commission on April 2, 2014)
4.16
Loan agreements, by and among Beijing Security, Sheng Fu and Weiqin Qiu, dated January 1, 2011 and September 21,
2012 (incorporated by reference to Exhibit 10.23 to our Registration Statement on Form F-1 (file no. 333-194996) filed
with the Securities and Exchange Commission on April 2, 2014)
4.17
Exclusive technology development, support and consultancy agreement, between Beijing Security and Beike Internet
(currently Beijing Mobile), dated January 1, 2011 (incorporated by reference to Exhibit 10.24 to our Registration
Statement on Form F-1 (file no. 333-194996) filed with the Securities and Exchange Commission on April 2, 2014)
4.18
Exclusive equity option agreement, by and among Beijing Security, Beike Internet (currently Beijing Mobile), Sheng
Fu and Weiqin Qiu, dated January 1, 2011 (incorporated by reference to Exhibit 10.25 to our Registration Statement on
Form F-1 (file no. 333-194996) filed with the Securities and Exchange Commission on April 2, 2014)
4.19
Shareholder voting proxy agreement, by and among Beijing Security, Beike Internet (currently Beijing Mobile), Sheng
Fu and Weiqin Qiu, dated January 1, 2011 (incorporated by reference to Exhibit 10.26 to our Registration Statement on
Form F-1 (file no. 333-194996) filed with the Securities and Exchange Commission on April 2, 2014)
4.20
Equity pledge agreement, by and among Beijing Security, Beike Internet (currently Beijing Mobile), Sheng Fu and
Weiqin Qiu, dated January 1, 2011 and amendment thereto, dated October 11, 2012 (incorporated by reference to
Exhibit 10.27 to our Registration Statement on Form F-1 (file no. 333-194996) filed with the Securities and Exchange
Commission on April 2, 2014)
4.21
Financial support undertaking letter signed by Beijing Security with respect to Beike Internet (currently Beijing
Mobile), dated January 17, 2014 (incorporated by reference to Exhibit 10.28 to our Registration Statement on Form F-1
(file no. 333-194996) filed with the Securities and Exchange Commission on April 2, 2014)
4.22
Spousal consent, signed by Jin Wang, Weiqin Qiu’s spouse, dated January 1, 2012 (incorporated by reference to
Exhibit 10.29 to our Registration Statement on Form F-1 (file no. 333-194996) filed with the Securities and Exchange
Commission on April 2, 2014)
131
Exhibit
Number
Description of Document
4.23
Cooperation framework agreement between the Registrant and Kingsoft Corporation Limited, dated December 27,
2013 and supplemental agreement thereto, dated April 1, 2014 (incorporated by reference to Exhibit 10.38 to our
Registration Statement on Form F-1 (file no. 333-194996) filed with the Securities and Exchange Commission on April
22, 2014)
4.24
Non-competition deed between the Registrant and Kingsoft Corporation Limited, dated May 14, 2014 (incorporated by
reference to Exhibit 4.46 to our Annual Report on Form 20-F (file no. 001-36427) filed with the Securities and
Exchange Commission on April 21, 2015)
4.25
Intellectual property transfer and license framework agreement the Registrant and Kingsoft Corporation, dated April 1,
2014 (incorporated by reference to Exhibit 10.46 to our Registration Statement on Form F-1 (file no. 333-194996) filed
with the Securities and Exchange Commission on April 22, 2014)
4.26
Share and asset purchase agreement among the Registrant, Hongkong Zoom Interactive Network Marketing
Technology Limited and other parties thereto, dated June 6, 2014 (incorporated by reference to Exhibit 4.52 to our
Annual Report on Form 20-F (file no. 001-36427) filed with the Securities and Exchange Commission on April 21,
2015)
4.27
Stock purchase agreement among Hongkong Cheetah Mobile Technology Limited, MobPartner SAS and other parties
thereto, dated March 15, 2015 (incorporated by reference to Exhibit 4.53 to our Annual Report on Form 20-F (file no.
001-36427) filed with the Securities and Exchange Commission on April 21, 2015)
4.28
Parent guarantee between the Registrant and the Sellers’ Representatives named therein, dated March 15, 2015
(incorporated by reference to Exhibit 4.54 to our Annual Report on Form 20-F (file no. 001-36427) filed with the
Securities and Exchange Commission on April 21, 2015)
4.29
Share transfer agreement among Beijing Security, Weiqin Qiu and Ming Xu, dated October 19, 2015, with respect to
Guangzhou Network (incorporated by reference to Exhibit 4.37 to our Annual Report on Form 20-F (file no. 001-
36427) filed with the Securities and Exchange Commission on April 22, 2016)
4.30
VIE termination agreement among Beijing Security, Guangzhou Network, Weiqin Qiu and Ming Xu, dated October
19, 2015 (incorporated by reference to Exhibit 4.38 to our Annual Report on Form 20-F (file no. 001-36427) filed with
the Securities and Exchange Commission on April 22, 2016)
4.31
Share transfer agreement between Beijing Security and each of Ming Xu and Wei Liu, dated October 13, 2015, with
respect to Beijing Antutu (incorporated by reference to Exhibit 4.39 to our Annual Report on Form 20-F (file no. 001-
36427) filed with the Securities and Exchange Commission on April 22, 2016)
4.32
VIE termination agreement among Beijing Security, Beijing Antutu, Ming Xu and Wei Liu, dated October 13, 2015
(incorporated by reference to Exhibit 4.40 to our Annual Report on Form 20-F (file no. 001-36427) filed with the
Securities and Exchange Commission on April 22, 2016)
4.33
Supplemental agreements to strategic cooperation agreement between the Registrant and Shenzhen Tencent Computer
Systems Company Limited, dated June 30, 2015 and November 5, 2015 (incorporated by reference to Exhibit 4.41 to
our Annual Report on Form 20-F (file no. 001-36427) filed with the Securities and Exchange Commission on April 22,
2016)
4.34
Strategic cooperation agreement between the Registrant and Shenzhen Tencent Computer Systems Company Limited,
dated December 30, 2015 (incorporated by reference to Exhibit 4.42 to our Annual Report on Form 20-F (file no. 001-
36427) filed with the Securities and Exchange Commission on April 22, 2016)
4.35
Supplemental agreement to strategic cooperation agreement dated December 30, 2015 between the Registrant and
Shenzhen Tencent Computer Systems Company Limited, dated November 19, 2016 (incorporated by reference to
Exhibit 4.34 to our Annual Report on Form 20-F (file no. 001-36427 filed with the Securities and Exchange
Commission on April 26, 2017))
132
Exhibit
Number
Description of Document
4.36
Supplemental agreement to share and asset purchase agreement among the Registrant, Hongkong Zoom Interactive Network
Marketing Technology Limited and other parties thereto, dated March 16, 2015 (incorporated by reference to Exhibit 4.43 to
our Annual Report on Form 20-F (file no. 001-36427) filed with the Securities and Exchange Commission on April 22, 2016)
4.37
Amendment to stock purchase agreement among Hongkong Cheetah Mobile Technology Limited, MobPartner SAS and other
parties thereto, dated December 15, 2015 (incorporated by reference to Exhibit 4.44 to our Annual Report on Form 20-F (file
no. 001-36427) filed with the Securities and Exchange Commission on April 22, 2016)
4.38
Share transfer agreement between Kun Wang and Ming Xu, dated July 3, 2018, with respect to Beijing Network
(incorporated by reference to Exhibit 4.37 to our Annual Report on Form 20-F (file no. 001-36427) filed with the Securities
and Exchange Commission on April 26, 2019)
4.39
Agreement on cancellation of contracts among Beijing Network, Conew Network, Wei Liu, Kun Wang and Ming Xu, dated
July 3, 2018 (incorporated by reference to Exhibit 4.38 to our Annual Report on Form 20-F (file no. 001-36427) filed with
the Securities and Exchange Commission on April 26, 2019)
4.40
Exclusive service agreement between Beijing Network and Conew Network, dated July 3, 2018 (incorporated by reference to
Exhibit 4.39 to our Annual Report on Form 20-F (file no. 001-36427) filed with the Securities and Exchange Commission on
April 26, 2019)
4.41
Exclusive equity option agreement, by and among Beijing Network, Conew Network, Wei Liu and Kun Wang, dated July 3,
2018 (incorporated by reference to Exhibit 4.40 to our Annual Report on Form 20-F (file no. 001-36427) filed with the
Securities and Exchange Commission on April 26, 2019)
4.42
Proxy agreement and power of attorney, by and among Conew Network, Beijing Network, Wei Liu and Kun Wang, dated
July 3, 2018 (incorporated by reference to Exhibit 4.41 to our Annual Report on Form 20-F (file no. 001-36427) filed with the
Securities and Exchange Commission on April 26, 2019)
4.43
Equity pledge agreement, by and among Conew Network, Beijing Network, Wei Liu and Kun Wang, dated July 3, 2018
(incorporated by reference to Exhibit 4.42 to our Annual Report on Form 20-F (file no. 001-36427) filed with the Securities
and Exchange Commission on April 26, 2019)
4.44
Spousal consent, signed by Jiayu Li, Kun Wang’s spouse, dated July 3, 2018, with respect to Beijing Network (incorporated
by reference to Exhibit 4.43 to our Annual Report on Form 20-F (file no. 001-36427) filed with the Securities and Exchange
Commission on April 26, 2019)
4.45
Spousal consent, signed by Xinchan Li, Wei Liu’s spouse, dated July 3, 2018, with respect to Beijing Network (incorporated
by reference to Exhibit 4.44 to our Annual Report on Form 20-F (file no. 001-36427) filed with the Securities and Exchange
Commission on April 26, 2019)
4.46
Share transfer agreement between Kun Wang and Ming Xu, dated July 5, 2018, with respect to Beijing Conew (incorporated
by reference to Exhibit 4.45 to our Annual Report on Form 20-F (file no. 001-36427) filed with the Securities and Exchange
Commission on April 26, 2019)
4.47
Agreement on cancellation of contracts among Beijing Conew, Conew Network, Sheng Fu and Ming Xu, dated July 5, 2018
(incorporated by reference to Exhibit 4.46 to our Annual Report on Form 20-F (file no. 001-36427) filed with the Securities
and Exchange Commission on April 26, 2019)
4.48
Exclusive service agreement between Beijing Conew and Conew Network, dated July 5, 2018 (incorporated by reference to
Exhibit 4.47 to our Annual Report on Form 20-F (file no. 001-36427) filed with the Securities and Exchange Commission on
April 26, 2019)
4.49
Exclusive equity option agreement, by and among Beijing Conew, Conew Network, Sheng Fu and Kun Wang, dated July 5,
2018 (incorporated by reference to Exhibit 4.48 to our Annual Report on Form 20-F (file no. 001-36427) filed with the
Securities and Exchange Commission on April 26, 2019)
4.50
Proxy agreement and power of attorney, by and among Conew Network, Beijing Conew, Sheng Fu and Kun Wang, dated July
5, 2018 (incorporated by reference to Exhibit 4.49 to our Annual Report on Form 20-F (file no. 001-36427) filed with the
Securities and Exchange Commission on April 26, 2019)
4.51
Equity pledge agreement, by and among Conew Network, Beijing Conew, Sheng Fu and Kun Wang, dated July 5, 2018
(incorporated by reference to Exhibit 4.50 to our Annual Report on Form 20-F (file no. 001-36427) filed with the Securities
and Exchange Commission on April 26, 2019)
133
Exhibit
Number
Description of Document
4.52
Spousal consent, signed by Jiayu Li, Kun Wang’s spouse, dated July 5, 2018, with respect to Beijing Conew
(incorporated by reference to Exhibit 4.51 to our Annual Report on Form 20-F (file no. 001-36427) filed with the
Securities and Exchange Commission on April 26, 2019)
4.53
Framework agreement, by and among Conew Network, Beijing Network, our company, Wei Liu and Kun Wang, dated
December 20, 2019 (incorporated by reference to Exhibit 4.52 to our Annual Report on Form 20-F (file no. 001-36427)
filed with the Securities and Exchange Commission on May 15, 2020)
4.54
Equity pledge agreement, by and among Conew Network, Beijing Network, Wei Liu and Kun Wang, dated December
20, 2019 (incorporated by reference to Exhibit 4.53 to our Annual Report on Form 20-F (file no. 001-36427) filed with
the Securities and Exchange Commission on May 15, 2020)
4.55
Exclusive equity option agreement, by and among our company, Wei Liu, Kun Wang and Beijing Network, dated
December 20, 2019 (incorporated by reference to Exhibit 4.54 to our Annual Report on Form 20-F (file no. 001-36427)
filed with the Securities and Exchange Commission on May 15, 2020)
4.56
Proxy agreement and power of attorney, by and among our company, Beijing Network, Wei Liu and Kun Wang, dated
December 20, 2019 (incorporated by reference to Exhibit 4.55 to our Annual Report on Form 20-F (file no. 001-36427)
filed with the Securities and Exchange Commission on May 15, 2020)
4.57
Spousal consent, signed by Xinchan Li, Wei Liu’s spouse, dated December 20, 2019, with respect to Beijing Network
(incorporated by reference to Exhibit 4.56 to our Annual Report on Form 20-F (file no. 001-36427) filed with the
Securities and Exchange Commission on May 15, 2020)
4.58
Spousal consent, signed by Jiayu Li, Kun Wang’s spouse, dated December 20, 2019, with respect to Beijing Network
(incorporated by reference to Exhibit 4.57 to our Annual Report on Form 20-F (file no. 001-36427) filed with the
Securities and Exchange Commission on May 15, 2020)
4.59
Framework agreement, by and among Conew Network, Beijing Conew, our company, Sheng Fu and Kun Wang, dated
December 20, 2019 (incorporated by reference to Exhibit 4.58 to our Annual Report on Form 20-F (file no. 001-36427)
filed with the Securities and Exchange Commission on May 15, 2020)
4.60
Exclusive equity option agreement, by and among our company, Sheng Fu, Kun Wang and Beijing Conew, dated
December 20, 2019 (incorporated by reference to Exhibit 4.59 to our Annual Report on Form 20-F (file no. 001-36427)
filed with the Securities and Exchange Commission on May 15, 2020)
4.61
Equity pledge agreement, by and among Conew Network, Beijing Conew, Sheng Fu and Kun Wang, dated December
20, 2019 (incorporated by reference to Exhibit 4.60 to our Annual Report on Form 20-F (file no. 001-36427) filed with
the Securities and Exchange Commission on May 15, 2020)
4.62
Proxy agreement and power of attorney, by and among our company, Beijing Conew, Sheng Fu and Kun Wang, dated
December 20, 2019 (incorporated by reference to Exhibit 4.61 to our Annual Report on Form 20-F (file no. 001-36427)
filed with the Securities and Exchange Commission on May 15, 2020)
4.63
Spousal consent, signed by Jiayu Li, Kun Wang’s spouse, dated December 20, 2019, with respect to Beijing Conew
(incorporated by reference to Exhibit 4.62 to our Annual Report on Form 20-F (file no. 001-36427) filed with the
Securities and Exchange Commission on May 15, 2020)
4.64
Framework agreement, by and among Beijing Security, Beijing Mobile, our company, Sheng Fu and Weiqin Qiu, dated
December 20, 2019 (incorporated by reference to Exhibit 4.63 to our Annual Report on Form 20-F (file no. 001-36427)
filed with the Securities and Exchange Commission on May 15, 2020)
4.65
Exclusive equity option agreement, by and among our company, Sheng Fu, Weiqin Qiu and Beijing Mobile, dated
December 20, 2019 (incorporated by reference to Exhibit 4.64 to our Annual Report on Form 20-F (file no. 001-36427)
filed with the Securities and Exchange Commission on May 15, 2020)
134
Exhibit
Number
Description of Document
4.66
Equity pledge agreement, by and among Beijing Security, Beijing Mobile, Sheng Fu and Weiqin Qiu, dated December
20, 2019 (incorporated by reference to Exhibit 4.65 to our Annual Report on Form 20-F (file no. 001-36427) filed with
the Securities and Exchange Commission on May 15, 2020)
4.67
Proxy agreement and power of attorney, by and among our company, Beijing Mobile, Sheng Fu and Weiqin Qiu, dated
December 20, 2019 (incorporated by reference to Exhibit 4.66 to our Annual Report on Form 20-F (file no. 001-36427)
filed with the Securities and Exchange Commission on May 15, 2020)
4.68
Asset purchase agreement, by and among our company, AppLovin Corporation and other parties thereto, dated
September 21, 2020 (incorporated by reference to Exhibit 4.67 to our Annual Report on Form 20-F (file no. 001-
36427) filed with the Securities and Exchange Commission on May 14, 2021)
4.69 †
Equity Transfer Agreement between Beijing Kingsoft Internet Security Software Co., Ltd. and Sheng Fu, dated October
31, 2023, with respect to Beijing OrionStar Technology Co., Ltd. (incorporated by reference to Exhibit 4.69 to our
Annual Report on Form 20-F (file no. 001-36427) filed with the Securities and Exchange Commission on April 18,
2024)
4.70 †
Equity Transfer Agreement between Beijing Kingsoft Internet Security Software Co., Ltd., Beijing Kangyuan Tongxin
Management Consulting Center (Limited Partnership) and Beijing Kangzheng Tongxin Management Consulting Center
(Limited Partnership) dated November 30, 2023, with respect to Beijing OrionStar Technology Co., Ltd (incorporated by
reference to Exhibit 4.70 to our Annual Report on Form 20-F (file no. 001-36427) filed with the Securities and Exchange
Commission on April 18, 2024)
4.71 †
Equity Transfer Agreement between Beijing Kingsoft Internet Security Software Co., Ltd. and Norma (Shanghai)
Investment Consulting Company, dated November 30, 2023, with respect to Beijing OrionStar Technology Co., Ltd.
(incorporated by reference to Exhibit 4.71 to our Annual Report on Form 20-F (file no. 001-36427) filed with the
Securities and Exchange Commission on April 18, 2024)
4.72 †
Equity Transfer Agreement between Beijing Kingsoft Internet Security Software Co., Ltd. and Tianjin Purple Cow
Startups Assets Management Partnership (Limited Partnership), dated November 30, 2023, with respect to Beijing
OrionStar Technology Co., Ltd. (incorporated by reference to Exhibit 4.72 to our Annual Report on Form 20-F (file no.
001-36427) filed with the Securities and Exchange Commission on April 18, 2024)
4.73 †
Equity Transfer Agreement between Cheetah Technology Corporation Limited and West Origin Orion LP, dated
November 30, 2023, with respect to Beijing OrionStar Technology Co., Ltd. (incorporated by reference to Exhibit
4.73 to our Annual Report on Form 20-F (file no. 001-36427) filed with the Securities and Exchange Commission on
April 18, 2024)
4.74 †
Equity Transfer Agreement between Cheetah Technology Corporation Limited and Future Capital Discovery Fund II,
L.P., dated November 30, 2023, with respect to Beijing OrionStar Technology Co., Ltd. (incorporated by reference to
Exhibit 4.74 to our Annual Report on Form 20-F (file no. 001-36427) filed with the Securities and Exchange
Commission on April 18, 2024)
4.75 †
Share Purchase Agreement in respect of Beijing OrionStar Technology Co., Ltd., dated January 9, 2024, among
Gongqingcheng Orion Industrial Investment Center (Limited Partnership), Cheetah Technology Corporation Limited,
and Beijing Kingsoft Internet Security Software Co., Ltd. (incorporated by reference to Exhibit 4.75 to our Annual
Report on Form 20-F (file no. 001-36427) filed with the Securities and Exchange Commission on April 18, 2024)
8.1*
List of significant subsidiaries and VIEs
11.1
Code of business conduct and ethics (incorporated by reference to Exhibit 99.1 to our Registration Statement on Form
F-1 (file no. 333-194996) filed with the Securities and Exchange Commission on April 22, 2014)
11.2* †
Statement of Policies Governing Material, Non-Public Information and the Prevention of Insider Trading
12.1*
Certification by principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
12.2*
Certification by principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
135
Exhibit
Number
Description of Document
13.1**
Certification by principal executive officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
13.2**
Certification by principal financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
15.1*
Consent of Global Law Office
15.2*
Consent of Marcum Asia CPAs LLP
97.1
Clawback Policy (incorporated by reference to Exhibit 97.1 to our Annual Report on Form 20-F (file no. 001-36427)
filed with the Securities and Exchange Commission on April 18, 2024)
101.INS*
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its
XBRL tags are embedded within the Inline XBRL document.
101.SCH*
Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents
104
Cover Page Interactive Data File (embedded within the Inline XBRL document)
* Filed herewith.
** Furnished herewith.
† Portions of this document have been omitted because they are both not material and are the type that we treat as private or
confidential.
136
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing its annual report on Form 20-F and that it has duly
caused and authorized the undersigned to sign this annual report on its behalf.
Cheetah Mobile Inc.
By: /s/ Sheng Fu
Name: Sheng Fu
Title: Chief Executive Officer and Director
Date: April 15, 2025
F-1
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of independent registered public accounting firm (PCAOB ID: 5395)
F-2
Consolidated balance sheets as of December 31, 2023 and 2024
F-4
Consolidated statements of comprehensive loss for the years ended December 31, 2022, 2023 and 2024
F-6
Consolidated statements of cash flows for the years ended December 31, 2022, 2023 and 2024
F-8
Consolidated statements of changes in shareholders’ equity for the years ended December 31, 2022, 2023 and 2024
F-10
Notes to the consolidated financial statements
F-13
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of Cheetah Mobile Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Cheetah Mobile Inc. (the “Company”) as of December 31, 2023 and
2024, the related consolidated statements of comprehensive loss, cash flows and changes in shareholders’ equity for each of the
three years in the period ended December 31, 2024, and the related notes (collectively referred to as the “financial statements”). In our
opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023
and 2024, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024, in
conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the
Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting
Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the
U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The
Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of
our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing
an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error
or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding
the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and
significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that
our audits provides a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were
communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to
the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical
audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the
critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they
relate.
Impairment of Goodwill
Description of the Matter
As described in Note 2 and Note 10 to the consolidated financial statements, as a result of the annual impairment test, the Company
recognized a goodwill impairment charge of RMB 153 million relating to the AI and Others reporting unit during the year ended
December 31, 2024. The fair value of the reporting unit was determined based on the discounted cash flow analysis using estimates
and assumptions including forecasted revenue, EBIT margin and discount rate.
Auditing the Company’s impairment assessment was complex and required substantial auditor judgment due to the significant judgment
involved in management’s assessment when determining the fair value of the reporting unit including the need for us to involve valuation
professionals to assist with the performance of certain procedures. Subjectivity and effort are required in performing procedures and
evaluating audit evidence relating to the forecasted revenue, EBIT margin and discount rate.
How We Addressed the Matter in Our Audit
We obtained an understanding of the design and implementation of the controls related to the Company’s goodwill impairment
assessment, including controls over the development of significant assumptions related to the valuation of the reporting unit.
F-3
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion
on the consolidated financial statements. These procedures included testing management’s process for determining the fair value of the
reporting unit, which included (i) evaluating the appropriateness of the valuation method; (ii) testing the completeness, mathematical
accuracy and relevance of the key underlying data used in the valuation; and (iii) evaluating the reasonableness of the significant
assumptions related to the forecasted revenue, EBIT margin and discount rate used in the valuation by considering (i) the past
performance of the reporting unit; (ii) the weighted average cost of capital of comparable businesses; and (iii) the consistency with
external market, economic and industry data. Professionals with specialized skill and knowledge were used to assist in evaluating the
appropriateness of the valuation method, and the reasonableness of the future growth rate for terminal value and discount rate used in
the valuation.
/s/ Marcum Asia CPAs LLP
Marcum Asia CPAs LLP
We have served as the Company’s auditor since 2022
Beijing China
April 15, 2025
F-4
CHEETAH MOBILE INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2023 AND 2024
(Amounts in thousands of Renminbi (“RMB”) and U.S. Dollars (“US$”), except for number of shares and per share (or ADS)
data)
As of December 31,
Notes
2023
2024
RMB
RMB
US$
ASSETS
Current assets
Cash and cash equivalents
2,020,191
1,833,031
251,124
Short-term investments
4
1,023
335
46
Accounts receivable (net of allowance for credit losses of
RMB132,881 and RMB142,834 (US$19,568) as of
December 31, 2023 and 2024, respectively)
6
401,064
473,619
64,886
Prepayments and other current assets, net
7
973,127
1,365,761
187,108
Due from related parties, net
16
71,505
106,934
14,650
Total current assets
3,466,910
3,779,680
517,814
Non-current assets
Property and equipment, net
8
53,884
51,564
7,064
Operating lease right-of-use assets
11
30,451
26,323
3,606
Intangible assets, net
9
218,559
190,665
26,121
Goodwill
10
576,989
424,099
58,101
Long-term investments
5
937,460
817,330
111,974
Deferred tax assets
15
188,503
128,581
17,616
Other non-current assets
160,428
86,059
11,790
Total non-current assets
2,166,274
1,724,621
236,272
Total assets
5,633,184
5,504,301
754,086
LIABILITIES, MEZZANINE EQUITY AND
SHAREHOLDERS' EQUITY
Current liabilities (including current liabilities of the VIEs
and VIEs’ subsidiaries without recourse to the Company
amounting to RMB247,735 and RMB370,798 (US$50,800)
as of December 31, 2023 and 2024, respectively) (Note 1)
Bank Loans
5,000
—
—
Accounts payable
170,185
219,566
30,080
Accrued expenses and other current liabilities
12
2,437,210
2,756,805
377,681
Due to related parties
16
84,147
69,606
9,536
Income tax payable
31,603
35,804
4,905
Total current liabilities
2,728,145
3,081,781
422,202
F-5
CHEETAH MOBILE INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
AS OF DECEMBER 31, 2023 AND 2024
(Amounts in thousands of Renminbi (“RMB”) and U.S. Dollars (“US$”), except for number of shares and per share (or ADS)
data)
As of December 31,
Notes
2023
2024
RMB
RMB
US$
Non-current liabilities (including non-current liabilities of the VIEs
and VIEs’ subsidiaries without recourse to the Company amounting
to RMB2,837 and RMB1,588 (US$218) as of December 31, 2023
and 2024, respectively) (Note 1)
Deferred tax liabilities
15
54,540
43,046
5,897
Other non-current liabilities
12
189,943
172,348
23,612
Total non-current liabilities
244,483
215,394
29,509
Total liabilities
2,972,628
3,297,175
451,711
Commitments and contingencies
18
Mezzanine equity:
Redeemable noncontrolling interests
20
105,978
189,725
25,992
Shareholders’ equity
Class A ordinary shares (par value of US$0.000025 per share;
7,600,000,000 shares authorized; 493,104,900 and 518,104,900
shares issued as of December 31, 2023 and 2024, respectively;
487,212,501 and 499,357,794 shares outstanding as of December
31, 2023 and 2024, respectively)
19
81
83
11
Class B ordinary shares (par value of US$0.000025 per share;
1,400,000,000 shares authorized; 1,006,956,885 and 1,016,429,335
shares issued as of December 31, 2023 and 2024, respectively;
1,006,956,885 and 1,016,429,335 shares outstanding as of
December 31, 2023 and 2024, respectively)
19
163
165
23
Additional paid-in capital
2,711,875
2,722,504
372,982
Accumulated losses
19
(613,102)
(1,232,577)
(168,863)
Accumulated other comprehensive income
19
356,854
410,423
56,228
Total Cheetah Mobile Inc. shareholders’ equity
2,455,871
1,900,598
260,381
Noncontrolling interests
98,707
116,803
16,002
Total shareholders’ equity
2,554,578
2,017,401
276,383
Total liabilities, mezzanine equity and shareholder's equity
5,633,184
5,504,301
754,086
The accompanying notes are an integral part of these consolidated financial statements.
F-6
CHEETAH MOBILE INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
FOR THE YEARS ENDED DECEMBER 31, 2022, 2023 AND 2024
(Amounts in thousands of Renminbi (“RMB”) and U.S. Dollars (“US$”), except for number of shares and per share (or ADS)
data)
For the year ended December 31,
Notes
2022
2023
2024
RMB
RMB
RMB
US$
Revenues (a)
Internet business
697,387
450,134
517,188
70,854
AI and others
186,679
219,369
289,689
39,687
Total Revenues
884,066
669,503
806,877
110,541
Cost of revenues (a)
(252,561)
(231,940)
(261,682)
(35,850)
Gross profit
631,505
437,563
545,195
74,691
Operating income and expenses (a)
Research and development
(180,957)
(178,207)
(243,391)
(33,344)
Selling and marketing
(476,853)
(242,511)
(342,421)
(46,911)
General and administrative
(214,337)
(229,549)
(244,385)
(33,481)
Impairment of goodwill
—
—
(152,890)
(20,946)
Other operating income, net
15,051
2,867
637
87
Total operating expenses
(857,096)
(647,400)
(982,450)
(134,595)
Operating loss
(225,591)
(209,837)
(437,255)
(59,904)
Other income (expenses)
Interest income, net
35,710
60,978
44,422
6,086
Foreign exchange losses
(95,434)
(11,421)
(21,726)
(2,976)
Other income
3/4/5
101,265
96,765
52,059
7,132
Other expense
3/4/5
(361,730)
(574,135)
(191,828)
(26,280)
Loss before taxes
(545,780)
(637,650)
(554,328)
(75,942)
Income tax benefits/(expenses)
15
25,089
43,781
(47,258)
(6,474)
Net loss
(520,691)
(593,869)
(601,586)
(82,416)
Less: net (loss)/ income attributable to noncontrolling
interests
(7,216)
9,029
15,971
2,188
Net loss attributable to Cheetah Mobile Inc.
(513,475)
(602,898)
(617,557)
(84,604)
Losses per share
21
Basic
(0.3617)
(0.4095)
(0.4161)
(0.0570)
Diluted
(0.3619)
(0.4100)
(0.4162)
(0.0570)
Losses per ADS (1 ADS represent 50 Class A
ordinary share) (b)
21
Basic
(18.0854)
(20.4740)
(20.8042)
(2.8500)
Diluted
(18.0954)
(20.4977)
(20.8097)
(2.8500)
Weighted average number of shares used in
computation of ordinary shares:
Basic
1,443,682,305
1,472,615,281
1,503,054,847
1,503,054,847
Diluted
1,443,682,305
1,472,615,281
1,503,054,847
1,503,054,847
F-7
CHEETAH MOBILE INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
FOR THE YEARS ENDED DECEMBER 31, 2022, 2023 AND 2024
(Amounts in thousands of Renminbi (“RMB”) and U.S. Dollars (“US$”), except for number of shares and per share (or ADS)
data)
For the year ended December 31,
Notes
2022
2023
2024
RMB
RMB
RMB
US$
Other comprehensive (loss) income, net of
tax of nil
19
Foreign currency translation adjustments
271,640
45,769
49,045
6,719
Unrealized (losses)/gain on available-for-
sale securities, net
(8,269)
(43,494)
2,642
362
Other comprehensive income
263,371
2,275
51,687
7,081
Total comprehensive loss
(257,320)
(591,594)
(549,899)
(75,335)
Less: total comprehensive (loss)/ income
attributable to noncontrolling interests
(9,531)
8,398
14,089
1,930
Total comprehensive loss attributable to
Cheetah Mobile Inc.
(247,789)
(599,992)
(563,988)
(77,265)
Note:
(a) The amount of transactions with related parties recorded in revenues, cost of revenues and operating expenses are as
follows:
For the year ended December 31,
2022
2023
2024
RMB
RMB
RMB
US$
Revenues
53,706
52,663
56,438
7,732
Cost of revenues
(41,102)
(29,367)
(33,147)
(4,541)
Research and development
(4,143)
(8,632)
(8,545)
(1,171)
Selling and marketing
(89)
(1,419)
(921)
(126)
General and administrative
(3,441)
(7,292)
(4,685)
(642)
Details of the related party transactions are set out in Note 16(b) to the consolidated financial statements.
(b) Retrospectively adjusted to reflect the change in the ratio of the ADS to the Company’s Class A ordinary shares (Note 21).
The accompanying notes are an integral part of these consolidated financial statements.
F-8
CHEETAH MOBILE INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2022, 2023 AND 2024
(Amounts in thousands of Renminbi (“RMB”) and U.S. Dollars (“US$”), except for number of shares and per share (or ADS)
data)
For the year ended December 31,
2022
2023
2024
RMB
RMB
RMB
US$
Cash flows from operating activities
Net loss
(520,691)
(593,869)
(601,586)
(82,416)
Adjustments to reconcile net loss to net cash from
operating activities
Depreciation of property and equipment
49,208
27,842
22,040
3,019
Amortization of intangible assets
3,817
7,420
29,413
4,030
Non-cash operating lease expense
6,393
319
—
—
Provision for credit losses
29,556
12,363
10,995
1,506
Impairment of assets
261,835
534,826
120,642
16,528
Impairment of Goodwill
—
—
152,890
20,946
Foreign currency exchange losses
95,434
11,421
21,726
2,976
(Gains) Losses on disposal of property and
equipment and intangible assets
(7,257)
(31,751)
664
91
(Gains) Losses on disposal/deemed disposal of
businesses and subsidiaries/VIEs
(254)
—
18,913
2,591
Gains on disposal of investments
(32,536)
(21,676)
(2,623)
(359)
Changes in fair value of financial assets
25,658
(116)
11,943
1,636
Share of losses from equity method investments
12,143
2,564
16,567
2,270
Deferred income tax (benefits) expenses
(12,881)
(44,631)
48,185
6,601
Share-based compensation expenses
7,863
33,554
26,101
3,576
Changes in operating assets and liabilities
Accounts receivable
(103,567)
(122,478)
(77,518)
(10,620)
Prepayments and other current assets
(447,179)
9,360
(388,767)
(53,261)
Due from related parties
17,736
(24,520)
(35,904)
(4,919)
Other non-current assets
9,225
(54,900)
78,020
10,689
Accounts payable
(10,391)
9,701
47,735
6,540
Accrued expenses and other current liabilities
236,332
791,702
287,684
39,413
Operating lease liabilities
(4,335)
1,178
(4,771)
(654)
Due to related parties
(15,054)
6,684
(14,835)
(2,032)
Income tax payable
(11,776)
(3,532)
3,857
528
Other non-current liabilities
(13,528)
(999)
(9,694)
(1,328)
Net cash (used in) provided by operating
activities
(424,249)
550,462
(238,323)
(32,649)
Cash flows from investing activities
Purchases of property, plant and equipment and
intangible assets
(6,783)
(9,680)
(22,827)
(3,127)
Purchase of long-term investments
(69,581)
(23,707)
(37,000)
(5,069)
Purchase of short-term investments
(1,005,110)
(1,176,030)
(1,084,661)
(148,598)
Proceeds from maturity of short-term investments
1,111,461
1,332,544
1,085,369
148,695
Proceeds from disposal of property and equipment
and intangible assets
7,516
31,751
3,553
487
F-9
CHEETAH MOBILE INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2022, 2023 AND 2024
(Amounts in thousands of Renminbi (“RMB”) and U.S. Dollars (“US$”), except for number of shares and per share (or ADS)
data)
For the year ended December 31,
2022
2023
2024
RMB
RMB
RMB
US$
Proceeds from disposals and distributions of long-term
investments
153,549
36,556
21,476
2,942
Loans to related parties
—
—
(7,000)
(959)
Loans to third parties
(5,000)
(3,000)
(5,000)
(685)
Repayment of loans from related parties
—
—
7,000
959
Repayment of loans from third parties
3,000
653
5,000
685
Purchase of subsidiaries, net of cash acquired
—
(238,148)
—
—
Net cash provided by (used in) investing activities
189,052
(49,061)
(34,090)
(4,670)
Cash flows from financing activities
Purchase of share awards and shares from noncontrolling
shareholders
(4,866)
(5,869)
(1,054)
(144)
Payment of dividends to noncontrolling shareholders and
owners of share awards
—
(909)
(583)
(80)
Repayment for bank loans
—
—
(5,000)
(685)
Proceeds from non-controlling
shareholder capital injection
—
—
75,750
10,378
Net cash (used in) provided by financing activities
(4,866)
(6,778)
69,113
9,469
Effect of exchange rate changes on cash and cash
equivalents and restricted cash
171,851
9,073
16,140
2,209
Net (decrease) increase in cash and cash equivalents and
restricted cash
(68,212)
503,696
(187,160)
(25,641)
Cash and cash equivalents and restricted cash at
beginning of year
1,584,707
1,516,495
2,020,191
276,765
Cash and cash equivalents and restricted cash at end of
year
1,516,495
2,020,191
1,833,031
251,124
Supplemental disclosures
Cash payments for income taxes
(12,365)
(1,752)
(2,688)
(368)
Cash payments for interest expenses
—
—
(57)
(8)
Cash payments for operating leases
(15,446)
(14,925)
(17,223)
(2,360)
Right-of-use assets obtained in exchange for operating lease
liabilities-Non-cash
9,768
10,032
10,243
1,403
Non-cash investing and financing activities:
Acquisition of property and equipment and intangible assets
included in accrued expenses and other current liabilities
5,896
664
—
—
Disposal of investment, businesses and subsidiaries included
in prepayments and other current assets
9,348
—
—
—
The accompanying notes are an integral part of these consolidated financial statements.
F-10
CHEETAH MOBILE INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2022, 2023 AND 2024
(Amounts in thousands of Renminbi (“RMB”) and U.S. Dollars (“US$”), except for number of shares and per share (or ADS) data)
Number
of Class A
Ordinary
Shares
Class A
Ordinary
Shares
Number
of Class
B Ordinary
Shares
Class B
Ordinary
Shares
Additional
paid-in
capital
Accumulated
other
comprehensive
income (loss)
Retained
earnings
Total
Cheetah
Mobile Inc.
shareholder’s
equity
Noncontrolling
interests
Total
equity
RMB
RMB
RMB
RMB
RMB
RMB
RMB
RMB
Balance at December 31, 2021
487,234,522
79
945,496,827
156
2,685,544
88,262
505,085
3,279,126
81,017
3,360,143
Net loss
—
—
—
—
—
—
(513,475)
(513,475)
(7,216)
(520,691)
Share-based compensation
—
—
—
—
7,863
—
—
7,863
—
7,863
Exercise and vesting of share-based awards, including
subsidiaries’ awards
(7,776,518)
1
24,518,858
—
(4,836)
—
—
(4,835)
4,835
—
Other comprehensive income (loss)
—
—
—
—
—
265,686
—
265,686
(2,315)
263,371
Disposal of a subsidiary
—
—
—
—
—
—
(139)
(139)
—
(139)
Dividends declared on share awards of consolidated subsidiaries
—
—
—
—
—
—
(895)
(895)
—
(895)
Change in equity interest of subsidiaries
—
—
—
—
—
—
—
—
(4,866)
(4,866)
Balance at December 31, 2022
479,458,004
80
970,015,685
156
2,688,571
353,948
(9,424)
3,033,331
71,455
3,104,786
F-11
CHEETAH MOBILE INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2022, 2023 AND 2024
(Amounts in thousands of Renminbi (“RMB”) and U.S. Dollars (“US$”), except for number of shares and per share (or ADS) data)
Number
of Class A
Ordinary
Shares
Class A
Ordinary
Shares
Number
of Class
B Ordinary
Shares
Class B
Ordinary
Shares
Additional
paid-in
capital
Accumulated
other
comprehensive
income (loss)
Accumulated
losses
Total
Cheetah
Mobile Inc.
shareholder’s
equity
Noncontrolling
interests
Total
equity
Contingently
redeemable
noncontrolling
interests
RMB
RMB
RMB
RMB
RMB
RMB
RMB
RMB
RMB
Net loss
—
—
—
—
—
—
(602,898)
(602,898)
9,029
(593,869)
—
Share-based compensation
—
—
—
—
27,685
—
—
27,685
—
27,685
—
Exercise and vesting of share-based
awards, including subsidiaries’ awards
7,754,497
1
36,941,200
7
(4,129)
—
—
(4,121)
4,121
—
—
Other comprehensive income (loss)
—
—
—
—
—
2,906
—
2,906
(631)
2,275
—
Accretion of redeemable noncontrolling
interests
—
—
—
—
(252)
—
—
(252)
—
(252)
252
Dividends declared on share awards of
consolidated subsidiaries
—
—
—
—
—
—
(780)
(780)
(129)
(909)
—
Noncontrolling interest in connection
with business acquisitions
—
—
—
—
—
—
—
—
14,862
14,862
105,726
Balance at December 31, 2023
487,212,501
81
1,006,956,885
163
2,711,875
356,854
(613,102)
2,455,871
98,707
2,554,578
105,978
F-12
CHEETAH MOBILE INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2022, 2023 AND 2024
(Amounts in thousands of Renminbi (“RMB”) and U.S. Dollars (“US$”), except for number of shares and per share (or ADS) data)
Number
of Class A
Ordinary
Shares
Class A
Ordinary
Shares
Number
of Class
B Ordinary
Shares
Class B
Ordinary
Shares
Additional
paid-in
capital
Accumulated
other
comprehensive
income (loss)
Accumulated
losses
Total
Cheetah
Mobile Inc.
shareholder’s
equity
Noncontrolling
interests
Total
equity
Contingently
redeemable
noncontrolling
interests
RMB
RMB
RMB
RMB
RMB
RMB
RMB
RMB
RMB
Net loss
—
—
—
—
—
—
(617,557)
(617,557)
15,971
(601,586)
—
Share-based compensation
—
—
—
—
24,783
—
—
24,783
—
24,783
—
Exercise and vesting of share-based awards,
including subsidiaries’ awards
12,145,293
2
9,472,450
2
(6,157)
—
—
(6,153)
6,153
—
—
Other comprehensive income (loss)
—
—
—
—
—
53,569
—
53,569
(1,882)
51,687
—
Accretion of redeemable noncontrolling
interests
—
—
—
—
(7,997)
—
—
(7,997)
—
(7,997)
7,997
Dividends declared on share awards of
consolidated subsidiaries
—
—
—
—
—
—
(1,918)
(1,918)
(2,146)
(4,064)
—
Contribution from redeemable noncontrolling
interests
—
—
—
—
—
—
—
—
—
—
75,750
Balance at December 31, 2024
499,357,794
83
1,016,429,335
165
2,722,504
410,423
(1,232,577)
1,900,598
116,803
2,017,401
189,725
Balance at December 31, 2024 in US$
499,357,794
11
1,016,429,335
23
372,982
56,228
(168,863)
260,381
16,002
276,383
25,992
CHEETAH MOBILE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2022, 2023 AND 2024
(Amounts in thousands of Renminbi (“RMB”) and U.S. Dollars (“US$”), except for number of shares and per share (or ADS)
data)
F-13
1.
ORGANIZATION AND PRINCIPAL ACTIVITIES
Cheetah Mobile Inc. (formerly known as Kingsoft Internet Security Software Holdings Limited) (the “Company”) is a company
incorporated in the Cayman Islands under the laws of Cayman Islands on July 30, 2009. The Company and its consolidated subsidiaries
and variable interest entities (“VIEs”) (collectively referred to the “Group”) are principally engaged in the provision of internet services
and artificial intelligence (“AI”) and other services. The Company conducts its primary business operations through its subsidiaries,
VIEs and subsidiaries of VIEs.
CHEETAH MOBILE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2022, 2023 AND 2024
(Amounts in thousands of Renminbi (“RMB”) and U.S. Dollars (“US$”), except for number of shares and per share (or ADS)
data)
F-14
Details of the Company’s principal subsidiaries and VIEs as of December 31, 2024 are as follows:
Company
Date of
incorporation/
registration
Place of
incorporation/
registration
Percentage
of
ownership (i)
Principal activities
Principal subsidiaries of the Company:
Forward Vision Corporation Limited
("Forward Vision", formerly known as
Cheetah Technology Corporation Limited)
August 26, 2009
Hong Kong
100%
Investment holding, provision of
internet products and related services
Beijing Kingsoft Internet Security
Software Co., Ltd. (“Beijing Security”)
November 30,
2009
The PRC
100%
Provision of internet products and
related services, sale of AI products
Conew Network Technology (Beijing)
Co., Ltd. (“Conew Network”)
March 19, 2009
The PRC
100%
Provision of internet products and
related services
Hongkong Zoom Interactive Network
Marketing Technology Limited (“HK
Zoom”)
July 4, 2014
Hong Kong
100%
Provision of AI and other services
Cheetah Information Technology
Company Limited (“Cheetah
Information”)
March 9, 2015
Hong Kong
100%
Investment holding
Dream Ahead Pte. Ltd.("Dream Ahead",
formerly known as Cheetah Mobile
Singapore Pte. Ltd.)
May 27, 2015
Singapore
100%
Provision of internet products and
related services
Multicloud Limited
July 20, 2017
Hong Kong
100%
Provision of internet products and
related services
Beijing Kingsoft Cheetah Technology
Co., Ltd.
April 30, 2015
The PRC
100%
Provision of internet products and
related services
Jingdezhen Jibao Information Service Co.,
Ltd.
August 10, 2017
The PRC
100%
Provision of internet products and
related services, sale of AI products
Japan Kingsoft Inc. (“Kingsoft Japan”)
March 9, 2005
Japan
41.2%
Provision of internet products and
related services, sale and rental of
service robots
Zhuhai Baoqu Technology Co., Ltd.
July 18, 2018
The PRC
75.0%
Provision of internet products and
related services
Zhuhai Baobaohong Technology Co., Ltd.
February
20,2019
The PRC
75.0%
Provision of internet products and
related services
Zhuhai Baohaowan Technology Co., Ltd.
July 17, 2018
The PRC
75.0%
Provision of internet products and
related services
Beijing Orion Star Technology Co., Ltd.
September 19,
2016
The PRC
74.0%
Provision of AI solution, sale and rental
of service robots
Hongkong Cheetah Mobile Technology
Limited (Hong Kong)
March 9, 2015
Hong Kong
100.0%
Investment holding
Conew.com Corporation (BVI)
October 6,2008
British Virgin
Islands
100.0%
Investment holding
Cheepop Inc.(Cayman)
May 26, 2017
Cayman
100.0%
Investment holding
Cheetah Mobile Seal Inc. (Cayman)
July 24, 2018
Cayman
75.0%
Investment holding
Cheetah Mobile Calls Hong Kong Limited
July 24, 2018
Hong Kong
75.0%
Investment holding, provision of
internet products and related services
Zhuhai Juntian Electronic Technology
Co., Ltd.
September 28,
2000
The PRC
100.0%
Investment holding, provision of
internet products and related services
VIEs:
Beijing Conew Technology Development
Co., Ltd. (“Beijing Conew”)
December 22,
2005
The PRC
Nil
Dormant
Beijing Cheetah Mobile Technology Co.,
Ltd. (“Beijing Mobile”)
April 15, 2009
The PRC
Nil
Provision of internet products and
related services
Beijing Cheetah Network Technology
Co., Ltd. (“Beijing Network”)
July 18, 2012
The PRC
Nil
Provision of internet products and
related services
(i)
Percentage of ownership is calculated on fully diluted basis.
CHEETAH MOBILE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2022, 2023 AND 2024
(Amounts in thousands of Renminbi (“RMB”) and U.S. Dollars (“US$”), except for number of shares and per share (or ADS)
data)
F-15
VIE arrangements
Foreign ownership of internet-based and mobile-based businesses is subject to significant restrictions under current PRC laws and
regulations. The PRC government regulates internet access, distribution of internet information services and value-added
telecommunication services through strict business licensing requirements and other government regulations. These laws and regulations
also include limitations on foreign ownership of PRC companies that engage in telecommunications-related business. Specifically,
unless in relevant pilot areas where there are further opening-up policies and measures for telecommunications-related businesses,
foreign investors are generally not allowed to own more than a 50% equity interest in any PRC company engaging in value-added
telecommunications businesses, except for e-commerce, domestic conferencing, store-and-forward, and call center services.
As a Cayman Islands company, in order for the Group to be able to carry out its business in China, the Group conducts part of its
operations in China through the VIEs including but not limited to Beijing Mobile, Beijing Network, and Beijing Conew. Each of Beijing
Mobile (which is owned as to 35% by Mr. Sheng Fu and 65% by Ms. Weiqin Qiu), Beijing Network (which is owned as to 50% by Mr.
Kun Wang and 50% by Mr. Wei Liu), and Beijing Conew (which is owned as to 62.73% by Mr. Sheng Fu and 37.27% by Mr. Kun
Wang) holds the requisite ICP Licenses. The Group has been and is expected to continue to be dependent on the VIEs to operate
its business in China if the then PRC law does not allow it to directly operate such business in China. The Group believes that under
these contractual arrangements, it has sufficient control over the VIEs and their respective shareholders to renew, revise or enter into
new contractual arrangements prior to the expiration of the current arrangements on terms that would enable the Group to continue to
operate our business in China validly and legally.
The Group’s contractual arrangements with each of the VIEs and their shareholders enable the Group to:
•
exercise effective control over the VIEs;
•
receive substantially all of the economic benefits of the VIEs in consideration for the services provided by Beijing Security
and Conew Network, the Company’s wholly-owned subsidiaries in China; and
•
have an exclusive option to purchase all of the equity interests in the VIEs, when and to the extent permitted under PRC
law, regulations or legal proceedings.
The following is a summary of the Contractual Agreements amongst the Company, Beijing Security, Beijing Mobile (as the VIE),
and Beijing Mobile’s Nominee Shareholders. Contractual agreements entered with other VIEs, including but not limited to Beijing
Network and Beijing Conew, are substantially similar:
Exclusive technology development, support, and consulting agreements
Pursuant to the exclusive technology development, support and consulting agreement entered into between Beijing Security and
the VIE, the VIE engaged the Beijing Security as its exclusive provider of management consulting services, technical development and
support services in return for service fees of not less than 30% of the VIE’s pre-tax revenue. Beijing Security has the sole right to adjust
the services fees upon written request and shall exclusively own any intellectual property arising from the performance of this agreement.
The agreements will remain effective unless terminated upon mutual agreement by both parties. During the term of the agreement, the
VIE may not enter into any agreement with third parties for the provision of any technical or management consulting services without
the consent of Beijing Security.
Loan agreements
Pursuant to the loan agreements among Beijing Security, the Nominee Shareholders and the VIE, Beijing Security granted loans
to the Nominee Shareholders for their sole purpose of contributing to the registered capital of the VIE or in certain cases directly to the
VIE under the VIE arrangements. As of December 31, 2024, the aggregate amount of these loans was RMB16,800 (US$2,302). At the
option of Beijing Security, repayment may be requested at any time, which may be in the form of transferring the VIE’s equity interest
to Beijing Security or its designees. The nominee shareholders may offer to repay part or the entire loans at any time, to the extent
permitted by PRC laws, in the form of transferring the VIE’s equity interest to Beijing Security or its designees.
CHEETAH MOBILE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2022, 2023 AND 2024
(Amounts in thousands of Renminbi (“RMB”) and U.S. Dollars (“US$”), except for number of shares and per share (or ADS)
data)
F-16
Exclusive equity option agreements
Under the exclusive equity option agreement by and among the Company, the VIE, and its nominee shareholders, the company
was granted an irrevocable exclusive option to acquire, or designate a third party to acquire, all or part of the equity interest owned by
the nominee shareholders in the VIE or to acquire, all or part of the assets owned by the VIE at any time at an exercise price that is equal
to the minimum price permitted under the PRC laws or is equal to the entire principal and interest (including all principal and interest
under the existing loan agreement) owed by the nominee shareholders to Beijing Security due to the fulfillment of the registered capital
paid obligations in the VIE. In addition, this agreement stipulates that the Company can provide financial support to the VIE to the
extent permissible under the applicable PRC laws and regulations, regardless of whether the VIE has incurred an operational loss. The
form of financial support includes but is not limited to entrusted loans and borrowings. The Company will not request repayment of any
outstanding loans or borrowings from the VIE if the VIE does not have sufficient funds or is unable to repay such loans or borrowings.
Unless terminated according to the agreement itself, the agreement has a term of ten years, which will automatically extend on a ten-
year's basis.
Equity pledge agreements
Pursuant to the equity pledge agreement entered into among the nominee shareholders, the VIE and Beijing Security, the nominee
shareholders pledged all of their equity interest in the VIE to Beijing Security as collateral for all of their payments due to Beijing
Security and to secure their obligations under the above agreements. Without the prior written consent of Beijing Security, the nominee
shareholders may not assign or transfer to any third party or create or cause any equity interest in whatsoever form to be created on, all
or any part of the equity interest they hold in the VIE. Beijing Security is entitled to transfer or assign in full, or in part, the equity
interest pledged. In the event of default, Beijing Security as the pledgee, has first priority to be compensated through the sale or auction
of the pledged equity interest. The nominee shareholders agree to waive their dividend rights in relation to all of the pledged equity
interest until such pledge has been lawfully discharged. The equity pledge agreement will remain effective until all the obligations under
these agreements have been satisfied in full or all of the guaranteed liabilities have been repaid.
Shareholder voting proxy agreements
Pursuant to the shareholder voting proxy agreement signed among the Nominee Shareholders, the VIE and the Company, each of
the nominee shareholders irrevocably nominates, appoints and constitutes any person designated by the Company as its attorney-in-fact
to exercise on such shareholder’s behalf any and all rights that such shareholder has in respect of its equity interest in the VIE (including
but not limited to the voting rights and the right to nominate executive directors of the VIE). The shareholder voting proxy agreement
is effective for an initial ten years and will be automatically renewed on an annual basis thereafter if the Company does not provide
notice of termination to the Nominee Shareholders thirty days prior to expiration.
Business operation agreements
Pursuant to the business operations agreement entered into among the nominee shareholders, the VIE and Beijing Security, the
nominee shareholders must appoint candidates designated by Beijing Security as the members of the board of the VIE and Beijing
Security has the right to appoint senior executives of the VIE. In addition, the VIE agrees not to engage in any transaction that may
materially affect its assets, obligations, rights or operation without the prior written consent of Beijing Security. The nominee
shareholders also agree to unconditionally pay or transfer to Beijing Security any bonus, dividends or any other profits or interest (in
whatever form) that they are entitled to as shareholders of the VIE, and waive any consideration connected therewith. The agreement
has a term of ten years, unless otherwise terminated by Beijing Security. Neither the VIE nor the nominee shareholders may terminate
this agreement.
Spousal consent letters
The spouse of certain nominee shareholder of the VIE has executed spousal consent letter. Pursuant to such letter, the spouses of
certain shareholder of the VIE acknowledged that certain equity interest in the VIE held by and registered in the name of her spouse will
be disposed pursuant to relevant arrangements under the shareholder voting proxy agreement, the exclusive equity option agreement,
the equity pledge agreement and the loan agreement. This spouse undertakes not to take any action to interfere with the disposition of
such equity interest, including, without limitation, claiming that such equity interest constitutes communal marital property.
CHEETAH MOBILE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2022, 2023 AND 2024
(Amounts in thousands of Renminbi (“RMB”) and U.S. Dollars (“US$”), except for number of shares and per share (or ADS)
data)
F-17
Despite the lack of technical majority ownership, there exists a parent-subsidiary relationship between the Company and the VIEs
through the irrevocable shareholder voting proxy agreements, whereby the nominee shareholders effectively assigned all of the voting
rights underlying their equity interest in the VIEs to the Company. Furthermore, pursuant to the exclusive equity option agreements,
which include a substantive kick-out right, the Company has the power to control the nominee shareholders, and therefore the power to
govern the activities that most significantly impact the economic performance of the VIEs. In addition, through the contractual
agreements, the Company demonstrates its ability and intention to continue to exercise the ability to absorb substantially all of the
expected losses and the majority of the profits of the VIEs, and therefore has the rights to the economic benefits of the VIEs.
Normally, the shareholders of the VIEs have the right to elect and terminate the executive directors of the VIEs, approve the
annual budget, financial statements and significant investing and financing activities of the VIEs. However, pursuant to the shareholder
voting proxy agreements, the shareholders of the VIEs have assigned all of their voting rights underlying the equity interest in the VIEs
to any person(s) nominated, appointed or designated by the Company. Senior management of the Company, all employees of the
Company's subsidiaries, are generally responsible for the review and approval of sales contracts, credit approval policies, pricing
policies, significant marketing promotions, product development, research and development, bandwidth and traffic expenditures, as well
as the appointments and terminations of personnel. Therefore, the Company has the power to direct the activities of the VIEs that most
significantly impact their economic performance.
Thus, the Company is considered as the primary beneficiary of the VIEs. As a result of the above, the Company, through its
subsidiaries, consolidate the VIEs in accordance with SEC Regulation S-X 3A-02 and Accounting Standards Codification (“ASC”) 810,
Consolidation (“ASC 810”).
The Company, in consultation with its PRC legal counsel, believes that (i) the ownership structure of the Group, including its
subsidiaries in the PRC and VIEs does not result in any violation of all existing PRC laws and regulations; (ii) each of the contractual
agreements amongst the Company, its subsidiaries, the VIEs and the nominee shareholders of the VIEs governed by PRC laws, are
legal, valid and binding, enforceable against such parties, and will not result in any violation of PRC laws or regulations currently in
effect; and (iii) each of the Company’s PRC subsidiaries, VIEs and subsidiary of VIEs have the necessary corporate power and authority
to conduct its business as described in its business scope under its business license, which is in full force and effect, and does not violate
the articles of association.
However, uncertainties in the PRC legal system could cause the relevant regulatory authorities to find the current contractual
agreements and businesses to be in violation of any existing or future PRC laws or regulations. If the Company, the Company’s PRC
subsidiaries or any of its current or future VIEs are found in violation of any existing or future laws or regulations, or fail to obtain or
maintain any of the required permits or approvals, the relevant PRC regulatory authorities would have broad discretion in dealing with
such violations, including levying fines, confiscating the income of the Company’s PRC subsidiaries, and the VIEs, revoking the
business licenses or operating licenses of the Company’s PRC subsidiaries, and VIEs, shutting down the Group’s servers or blocking
the Group’s websites, discontinuing or placing restrictions or onerous conditions on the Group’s operations, requiring the Group to
undergo a costly and disruptive restructuring, restricting the Group’s rights to use the proceeds from this offering to finance the Group’s
business and operations in PRC, or enforcement actions that could be harmful to the Group’s business. Any of these actions could cause
significant disruption to the Group’s business operations and severely damage the Group’s reputation, which would in turn materially
and adversely affect the Group’s business and results of operations. In addition, if the imposition of any of these penalties causes the
Company to lose the rights to direct the activities of VIEs or the right to receive their economic benefits, the Company would no longer
be able to consolidate the VIEs.
In addition, if the VIEs or the nominee shareholders fail to perform their obligations under the contractual agreements, the Group
may have to incur substantial costs and expend resources to enforce the Company’s rights under the contracts. The Group may have to
rely on legal remedies under PRC laws, including seeking specific performance or injunctive relief and claiming damages, which may
not be effective. All of these contractual agreements are governed by PRC laws and provide for the resolution of disputes through
arbitration in the PRC. Accordingly, these contracts would be interpreted in accordance with PRC laws and any disputes would be
resolved in accordance with PRC legal procedures. Uncertainties regarding the interpretation and application of current and future PRC
laws, regulations and rules in the PRC legal system could limit the Group’s ability to enforce these contractual arrangements. Under
PRC laws, rulings by arbitrators are final, parties cannot appeal the arbitration results in courts, and prevailing parties may only enforce
the arbitration awards in PRC courts through arbitration award recognition proceedings, which would incur additional expenses and
CHEETAH MOBILE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2022, 2023 AND 2024
(Amounts in thousands of Renminbi (“RMB”) and U.S. Dollars (“US$”), except for number of shares and per share (or ADS)
data)
F-18
delay. In the event the Group is unable to enforce these contractual agreements, the Company may not be able to exert effective control
over its VIEs, and the Group’s ability to conduct its business may be negatively affected.
The assets and liabilities of the VIEs and their subsidiaries are presented after the elimination of intercompany balances among
VIEs and their subsidiaries within the Group:
As of December 31,
2023
2024
RMB
RMB
US$
Cash and cash equivalents
176,711
272,026
37,267
Accounts receivable, net
28,918
86,526
11,854
Prepayments and other current assets, net
29,929
59,407
8,139
Due from related parties, net (i)
894,583
1,027,116
140,714
Total current assets
1,130,141
1,445,075
197,974
Property and equipment, net
12,590
6,669
914
Operating lease right-of-use assets
2,164
1,460
200
Intangible assets, net
1,550
940
129
Long-term investments
207,614
336,535
46,105
Other non-current assets
44,723
45,687
6,259
Deferred tax assets
5,218
5,001
685
Total non-current assets
273,859
396,292
54,292
Total assets
1,404,000
1,841,367
252,266
Accounts payable
33,603
74,634
10,225
Accrued expenses and other current
liabilities
205,266
286,071
39,192
Due to related parties (i)
1,155,052
1,416,296
194,032
Income tax payable
1,032
1,168
160
Total current liabilities
1,394,953
1,778,169
243,609
Other non-current liabilities
2,837
1,588
218
Total non-current liabilities
2,837
1,588
218
Total liabilities
1,397,790
1,779,757
243,827
(i)
The balances due from and due to related parties of the VIEs and subsidiaries of VIEs mainly represented amounts due from and
due to subsidiaries of the Group. As of December 31, 2023, and 2024, amounts due from subsidiaries of the Group were
RMB888,050 and RMB986,455 (US$135,144), respectively, while amounts due to subsidiaries of the Group were RMB1,147,218
and RMB1,407,371 (US$192,809), respectively, which were eliminated upon consolidation by the Company.
The carrying amounts of the assets, liabilities and the results of operations of the VIEs and their subsidiaries are presented in
aggregate due to the similarity of the purpose and design of the VIEs and their subsidiaries, the nature of the assets in these VIEs and
their subsidiaries and the type of the involvement of the Company in these VIEs and their subsidiaries.
CHEETAH MOBILE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2022, 2023 AND 2024
(Amounts in thousands of Renminbi (“RMB”) and U.S. Dollars (“US$”), except for number of shares and per share (or ADS)
data)
F-19
The financial performance and cash flows of the VIEs and their subsidiaries are presented after the elimination of intercompany
transactions among VIEs and their subsidiaries within the Group:
For the year ended December 31,
2022
2023
2024
RMB
RMB
RMB
US$
Revenues
344,288
348,433
344,094
47,141
Cost of revenues
224,726
199,185
264,565
36,245
Net income/(loss)
3,792
(64,999)
33,378
4,573
Net cash provided by (used in) operating
activities
154,403
(31,775)
136,288
18,671
Net cash (used in) provided by investing
activities
(98,598)
8,765
(75,602)
(10,357)
Net cash provided by (used in) financing
activities
128,461
(22,223)
34,141
4,677
Effect of exchange rate changes on cash,
cash equivalents and restricted cash
868
212
488
67
The revenue producing assets that are held by the VIEs and subsidiaries of VIEs primarily comprise of leasehold improvements,
servers, licensed software, network equipment, acquired trade name and acquired domain name. Substantially all of such assets are
recognized in the Group’s consolidated financial statements, except for certain Internet Content Provider Licenses, internally developed
software, trademarks and patent applications which were not recorded in the Group’s consolidated balance sheets as they do not meet
all the capitalization criteria. The VIEs and subsidiaries of VIEs also hire assembled work force on sales, research and development and
operations whose costs are expensed as incurred.
As of December 31, 2024, there was no pledge or collateralization of the VIEs’ and their subsidiaries’ assets that can only be used
to settle the obligations of the VIEs and their subsidiaries, other than aforementioned pledges in the equity pledge agreements and
restricted cash. The creditors of the VIEs and subsidiaries of VIEs have no recourse to the general credit of the Company.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The consolidated financial statements of the Company have been prepared in accordance with United States generally accepted
accounting principles (“U.S. GAAP”).
Principles of consolidation
The consolidated financial statements include the financial statements of the Company, its subsidiaries, VIEs and subsidiaries of
VIEs. All significant intercompany transactions and balances between the Company, its subsidiaries, VIEs and subsidiaries of VIEs are
eliminated upon consolidation. Results of subsidiaries, businesses acquired from other parties, VIEs and subsidiaries of VIEs are
consolidated from the date on which control is transferred to the Company.
On May 26, 2011, the board of directors of the Company approved and adopted a share award scheme (the “2011 Share Award
Scheme”) in which selected employees of the Group are entitled to participate. The Group has set up a trust (the “Share Award Scheme
Trust”) for the purpose of administering the 2011 Share Award Scheme and holding shares awarded to the employees before they vest
and are transferred to the employees as instructed by employees. As the Group has the power to govern the financial and operating
policies of the Share Award Scheme Trust and derives benefits from the contributions of the employees who have been awarded the
shares of the Company through their continued employment with the Group, the Share Award Scheme Trust are included in the
consolidated financial statements and any ungranted and unvested shares held by the Share Award Scheme Trust not transferred to
grantees are not considered legally issued and outstanding ordinary shares of the Company.
CHEETAH MOBILE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2022, 2023 AND 2024
(Amounts in thousands of Renminbi (“RMB”) and U.S. Dollars (“US$”), except for number of shares and per share (or ADS)
data)
F-20
Use of estimates
The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date
of the consolidated financial statements and the reported amounts of revenues and expenses during the year. Management evaluates
estimates, including but not limited to those related to the allowance for credit losses, useful lives of long-lived assets and intangible
assets, impairment of long-lived assets and intangible assets, impairment of goodwill, valuation allowance for deferred tax assets,
impairment and fair values of investments, and purchase price allocation relating to business combination, among others.
Foreign currency translation and transactions
The functional currency of the Company is the US$. The Company’s subsidiaries, VIEs and subsidiaries of VIEs determined their
functional currency based on the criteria of ASC 830, Foreign Currency Matters. The Group uses RMB as its reporting currency. The
Group uses the monthly average exchange rate for the year and the exchange rate at the balance sheet date to translate the operating
results and financial position, respectively. Translation differences are recorded in accumulated other comprehensive income, a
component of shareholders’ equity.
Transactions denominated in foreign currencies are remeasured into the functional currency at the exchange rates prevailing on
the transaction dates. Foreign currency denominated financial assets and liabilities are remeasured at the exchange rates prevailing at
the balance sheet date. Exchange gains and losses are included as a component of “Foreign exchange gains/(losses), net” in the
consolidated statements of comprehensive loss.
Convenience translation
Amounts in US$ are presented for the convenience of the reader and are translated at the noon buying rate of RMB7.2993 to
US$1.00 on December 31, 2024 in the City of New York for cable transfers of RMB as certified for customs purposes by the Federal
Reserve Bank of New York. No representation is made that the RMB amounts could have been, or could be, converted into US$ at such
rate.
Business combinations and noncontrolling interests
Business combinations are recorded using the purchase method of accounting, and the cost of an acquisition is measured as the
aggregate of the fair values at the date of exchange of the assets given, liabilities incurred, and equity instruments issued as well as the
contingent considerations and all contractual contingencies as of the acquisition date. The costs directly attributable to the acquisition
are expensed as incurred. Identifiable assets, liabilities and contingent liabilities acquired or assumed are measured separately at their
fair value as of the acquisition date, irrespective of the extent of any non-controlling interests. The excess of the (i) the total of
consideration paid, fair value of the non-controlling interests and acquisition date fair value of any previously held equity interest in the
subsidiary acquired over (ii) the fair value of the identifiable net assets of the subsidiary acquired is recorded as goodwill. If the
consideration of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognized directly
in the consolidated statements of comprehensive loss.
In a business combination achieved in stages, the Group re-measures the previously held equity interest in the acquiree
immediately before obtaining control at its acquisition date fair value and the re-measurement gain or loss, if any, is recognized in the
consolidated income statements.
For the Company’s majority-owned subsidiaries and VIEs, a noncontrolling interest is recognized to reflect the portion of their
equity which is not attributable, directly or indirectly, to the Company. When the noncontrolling interest is contingently redeemable
upon the occurrence of a conditional event, which is not solely within the control of the Group, the noncontrolling interest is classified
as mezzanine equity. The Group accretes changes in the redemption value over the period from the date that it becomes probable that
the mezzanine equity will become redeemable to the earliest redemption date using the effective interest method. Consolidated net
income (loss) on the consolidated statements of comprehensive loss includes the net income (loss) attributable to noncontrolling interests
and mezzanine equity holders (when applicable). The cumulative results of operations attributable to noncontrolling interests are
recorded as noncontrolling interests and mezzanine equity holders (when applicable) in the Group’s consolidated balance sheets.
CHEETAH MOBILE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2022, 2023 AND 2024
(Amounts in thousands of Renminbi (“RMB”) and U.S. Dollars (“US$”), except for number of shares and per share (or ADS)
data)
F-21
Cash and cash equivalents
Cash and cash equivalents consists of cash on hand, current and time deposits placed with financial institutions, which have
original stated maturity of three months or less and unrestricted as to withdrawal and use.
Allowance for credit losses
The Group maintains an allowance for credit losses in accordance with ASC 326 and records the allowance for credit losses as an
offset to assets such as accounts receivable, prepayments and other current assets and due from related parties, etc. and the estimated
credit losses charged to the allowance is classified as “General and administrative” and “Other expenses” in the consolidated statements
of comprehensive loss. The Group assesses collectability by reviewing assets on a collective basis where similar characteristics exist,
primarily based on similar business line, service or product offerings and on an individual basis when the Group identifies specific
customers with known disputes or collectability issues. In determining the amount of the allowance for credit losses, the Group considers
historical collectability based on past due status, the age of the balances, credit quality of the Group’s customers based on ongoing credit
evaluations, current economic conditions, reasonable and supportable forecasts of future economic conditions, and other factors that
may affect the Group’s ability to collect from customers.
Account receivables, net
Accounts receivable is recognized and carried at the original invoiced amount less an allowance for credit losses. Bad debts are
written off as incurred. The Group generally does not require collateral from its customers.
Inventories
Inventories, primarily consisting of raw materials, work in progress and products available for sale, are stated at the lower of cost
or net realizable value, and are recorded in “Prepayments and other current assets”. Cost of inventories is determined using the weighted
average cost method. Adjustments are recorded to write down the cost of inventories to the estimated net realizable value due to slow-
moving and damaged inventories, which is dependent upon factors such as historical and forecasted consumer demand, and promotional
environment. Write downs of inventories are recorded in cost of revenues in the consolidated statements of comprehensive loss.
Short-term investments
Investments with original maturities of greater than three months, but less than 12 months, are classified as short-term investments.
Investments that are expected to be realized in cash during the next 12 months are also included in short-term investments.
Long-term investments
Long-term investments primarily consist of equity method investments, equity investments without readily determinable fair
values and debt investments.
Equity Method Investments
The Group accounts for its investments in common stock or in-substance common stock in entities in which it can exercise
significant influence but does not own a majority equity interest or control using the equity method in accordance with ASC 323-10,
Investments-Equity Method and Joint Ventures: Overall unless the Group elects to account for the investment using the fair value option
in accordance with ASC 825-10, Financial Instruments: Fair Value Option (“ASC 825”). The Group applies the equity method of
accounting that is consistent with ASC 323-10 in limited partnership in which the Group holds a three percent or greater interest. Where
the equity method is used, the Group initially records its investment at cost and subsequently adjusts the carrying amount of the
investment to recognize the Group’s proportionate share of each equity investee’s net income or loss into earnings after the date of
investment. The Group evaluates the equity method investments for impairment under ASC 323-10. An impairment loss on the equity
method investments is recognized in earnings when the decline in value is determined to be other-than-temporary.
CHEETAH MOBILE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2022, 2023 AND 2024
(Amounts in thousands of Renminbi (“RMB”) and U.S. Dollars (“US$”), except for number of shares and per share (or ADS)
data)
F-22
The Group elected to account for an equity method investment under the fair value option at initial recognition, as the Group
determined that fair value better represents the value of the underlying assets. Such election is irrevocable and can be applied to financial
assets on an individual basis at initial recognition. Any changes in fair value are recognized in earnings in the consolidated statements
of comprehensive loss.
Equity Investments without Readily Determinable Fair Values
For equity securities without readily determinable fair value and do not qualify for the existing practical expedient in ASC 820,
Fair Value Measurements and Disclosures (“ASC 820”) to estimate fair value using the net asset value per share (or its equivalent) of
the investment, the Group elected to use the measurement alternative to measure those investments at cost, less any impairment, plus or
minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer, if
any. The Group makes a qualitative assessment of whether the investment is impaired at each reporting date. If a qualitative assessment
indicates that the investment is impaired, the Group has to estimate the investment’s fair value in accordance with the principles of ASC
820. If the fair value is less than the investment’s carrying value, the Group recognizes an impairment loss in earnings equal to the
difference between the carrying value and fair value.
Debt Investments
The Group's debt investments include preferred stock redeemable merely at the option of the Group as a holder, which are
accounted for as available-for-sale securities at fair value or under fair value option and convertible bonds measured at amortized cost.
Unrealized gains and losses of available-for-sale debt securities are recorded in other comprehensive (loss) income.
The Group elected to account certain debt investments under fair value option, which permits the irrevocable election on an
instrument-by-instrument basis at initial recognition or upon an event that gives rise to a new basis of accounting for that instrument.
The investment accounted for under the fair value option model are carried at fair value with unrealized gains and losses recorded in the
consolidated statements of comprehensive loss.
Interest income from convertible bonds is recognized using the effective interest method which is reviewed and adjusted
periodically based on changes in estimated cash flows.
Fair value measurements of financial instruments
Accounting guidance establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and
minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the fair value
hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Accounting guidance establishes three
levels of inputs that may be used to measure fair value.
Financial instruments primarily consist of cash and cash equivalents, restricted cash, short-term investments, accounts
receivable, due from and due to related parties, other receivables, long-term investments, accounts payable and other current liabilities.
The carrying amounts of these financial instruments, except for long-term investments approximate their fair values because of their
generally short-term maturities.
The Group, with the assistance of independent third-party valuation firms, determined the estimated fair value of its equity
investments using the measurement alternative based on observable price changes, investment with fair value option elected and long-
term available for sale debt securities and determined the fair value of long-term investments, including equity investments using the
measurement alternative and equity method investments upon impairment occurrence.
Property and equipment
Property and equipment are stated at cost, less accumulated depreciation and impairment loss, if any. Property and equipment
are depreciated primarily using the straight-line method over the estimated useful lives of the assets.
The estimated useful lives are as follows:
CHEETAH MOBILE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2022, 2023 AND 2024
(Amounts in thousands of Renminbi (“RMB”) and U.S. Dollars (“US$”), except for number of shares and per share (or ADS)
data)
F-23
Estimated useful life
Electronic equipment
2-3 years
AI related equipment
3 years
Office equipment and fixtures
5 years
Motor vehicles
4-5 years
Leasehold improvements
Lesser of term of the lease or the
estimated useful lives of the assets
Depreciation for mold and tooling is computed using the units-of-production method whereby capitalized costs are amortized
over the total estimated productive units of the related assets.
Repair and maintenance costs are charged to expense as incurred, whereas the cost of renewals and betterment that extends the
useful lives of plant and equipment are capitalized as additions to the related assets. Retirements, sales and disposals of assets are
recorded by removing the cost and accumulated depreciation from the assets and accumulated depreciation accounts with any resulting
gain or loss reflected in the consolidated statements of comprehensive loss.
All direct and indirect costs that are related to the construction of fixed assets and incurred before the assets are ready for their
intended use are capitalized as construction in progress. Construction in progress is transferred to specific fixed assets items and
depreciation of these assets commences when they are ready for their intended use.
Intangible assets
Intangible assets are carried at cost less accumulated amortization and any recorded impairment. Intangible assets acquired in
a business combination were recognized initially at fair value at the date of acquisition. Intangible assets with finite useful lives are
amortized using a straight-line method of amortization that reflects the estimated pattern in which the economic benefits of the intangible
asset are to be consumed. The estimated useful life for the intangible assets is as follows:
Estimated
useful life
Customer relationship
2-6 years
Trademarks
3-10 years
Technology
1-11 years
Online game licenses
1-5 years
User base
1 year
Domain names
1-10 years
Platform
5-6 years
If an intangible asset is determined to have an indefinite life, it should not be amortized until its useful life is determined to be no
longer indefinite. As of December 31, 2023 and 2024, net carrying value of the Group's intangible assets with indefinite life is nil and
nil, respectively.
Impairment of long-lived assets
Long-lived assets are evaluated for impairment whenever events or changes in circumstances (such as a significant adverse change
to market conditions that will impact the future use of the assets) indicate that the carrying value of an asset or an asset group may not
be fully recoverable or that the useful life is shorter than the Group had originally estimated. When these events occur, the Group
evaluates the impairment for the long-lived assets by comparing the carrying value of the asset or the asset group to an estimate of future
undiscounted cash flows expected to be generated from the use of the asset or the asset group and its eventual disposition. If the sum of
the expected future undiscounted cash flows is less than the carrying value of the asset or the asset group, the Group recognizes an
impairment loss based on the excess of the carrying value of the asset or the asset group over its fair value.
CHEETAH MOBILE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2022, 2023 AND 2024
(Amounts in thousands of Renminbi (“RMB”) and U.S. Dollars (“US$”), except for number of shares and per share (or ADS)
data)
F-24
Goodwill
Goodwill represents the excess of the purchase price over the amounts assigned to the fair value of the identifiable assets acquired
and the liabilities assumed of acquired businesses (Note 3). Goodwill is not amortized but is tested for impairment on an annual basis,
or more frequently if events or changes in circumstances indicate that it might be impaired. In accordance with ASC 350, the Group may
first assess qualitative factors to determine whether it is necessary to perform the quantitative goodwill impairment test. In the qualitative
assessment, the Group considers factors such as macroeconomic conditions, industry and market considerations, overall financial
performance of the reporting unit, and other specific information related to the operations, business plans and strategies of the reporting
unit. Based on the qualitative assessment, if it is more likely than not that the fair value of a reporting unit is less than the carrying
amount, the quantitative impairment test is performed. The Group may also bypass the qualitative assessment and proceed directly to
perform the quantitative impairment test.
When the Group performs the quantitative impairment test, the Group compares the fair value of each reporting unit to its carrying
amount, including goodwill. If the fair value of the reporting unit exceeds its carrying amount, goodwill is not considered to be impaired.
If the carrying amount of a reporting unit exceeds its fair value, the amount by which the carrying amount exceeds the reporting unit’s
fair value is recognized as impairment. Application of a goodwill impairment test requires significant management judgment, including
the identification of reporting units, allocation of assets, liabilities and goodwill to reporting units, and determination of the fair value
of each reporting unit.
Revenue recognition
The Group generates its revenues primarily through internet business, AI and others. Revenue represents the amount of
consideration the Group is entitled to upon the transfer of promised goods or services in the ordinary course of the Group’s activities
and is recorded net of value-added tax (“VAT”). Consistent with the criteria of ASC 606 “Revenue from Contracts with Customers”,
the Group recognizes revenue when performance obligations are satisfied by transferring control of a promised good or service to a
customer. For performance obligations that are satisfied at a point in time, the Group also considers the following indicators to assess
whether control of a promised good or service is transferred to the customer: (i) right to payment, (ii) legal title, (iii) physical possession,
(iv) significant risks and rewards of ownership and (v) acceptance of the good or service. For performance obligations satisfied over
time, the Group recognizes revenue over time by measuring the progress toward complete satisfaction of a performance obligation.
For revenue arrangements that include multiple performance obligations, the Group would evaluate all the performance
obligations in the arrangement to determine whether each performance obligation is distinct in the context of contract. Consideration is
allocated to each performance obligation based on its standalone selling price. If a promised good or service does not meet the criteria
to be considered distinct in the context of contract, it is combined with other promised goods or services until a distinct bundle of goods
or services exists.
The Group evaluates if it is a principal or an agent in a transaction to determine whether revenue should be recorded on a gross or
net basis. The Group is acting as the principal if it obtains control over the goods and services before they are transferred to customers.
Generally, when the Group is primarily obligated in a transaction, is subject to inventory risk, has latitude in establishing prices, or has
several but not all of these indicators, the Group acts as the principal and revenue is recorded on a gross basis. Generally, when the
Group is not primarily obligated in a transaction, does not bear the inventory risk and does not have the ability to establish the price, the
Group acts as the agent and revenue is recorded on a net basis.
The Group provides sales incentives to customers which entitle them to receive reductions in the price. The Group accounts for
these incentives granted to customers as variable consideration and records it as reduction of revenue. The amount of variable
consideration is measured based on the most likely amount of incentives to be provided to customers. The Group believes that there will
not be significant changes to its estimate of variable consideration.
CHEETAH MOBILE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2022, 2023 AND 2024
(Amounts in thousands of Renminbi (“RMB”) and U.S. Dollars (“US$”), except for number of shares and per share (or ADS)
data)
F-25
The following table presents the Group’s revenues disaggregated by revenue source:
For the year ended December 31,
2022
2023
2024
RMB
RMB
RMB
US$
Revenues:
Internet business
Online advertising
355,289
109,339
184,655
25,298
Internet value-added services
342,098
340,795
332,533
45,556
AI and others
Advertising agency services
83,111
89,275
78,036
10,691
Multi-cloud Management Services
77,956
87,747
87,242
11,952
Sale and rental of robots and other AI
hardware products
5,289
22,034
111,577
15,286
Technical, AI application services and
others
20,323
20,313
12,834
1,758
Total consolidated revenues
884,066
669,503
806,877
110,541
(1) Internet business
Online advertising
Online advertising revenue is primarily derived from displaying advertisements for the Group’s customers on its online platforms
including duba.com and other websites, browsers, PC and mobile applications. The Group mainly enters into cost for performance and
cost per impression advertising agreements with customers. For contracts that are charged on the cost for performance basis, the Group
charges an agreed-upon fee to its customers determined based on the effectiveness of advertising links, which is typically measured by
clicks, transactions, installations, user registrations, and other actions. Revenue is recognized at a point in time when there is an effective
click, transaction, installations, user registrations, and other actions. For advertising contracts that charged on cost per impression basis,
the Group recognizes the revenue at a point in time when the impressions are delivered based on the mutual agreement formed with
customers.
Internet value-added services
The Group provides a range of online and on-premise such as anti-virus, security protection, desktop beautification, immediate
communication and others for both individual and enterprise customers. Value-added services revenue are earned from the sale of
membership packages and subscriptions, which grant customers ad-free use and exclusive access to premium features including file and
data recovery, malicious pop-up interception, PDF conversion, automatic dynamic wallpaper rotation etc.
While providing online software services, the customers do not take possession of the software. The software license, when-and-
if-available updates and related services are accounted for as a single performance obligation as the license, updates and services are
inputs to a combined items in the contract. Upfront payment of membership fees and software subscription fees are recognized as
deferred revenue in “Accrued expenses and other liabilities” and revenue is recognized ratably over the term or the expected service
period of the respective service contracts as the services are provided.
While providing on-premise software, the license provides the customer with a right to use the software as it exists when made
available to the customer. The Group sells specific version of the software to the customer, and provides post-contract services such as
post-delivery telephone support and post-contract customer support for the customer. The on-premise software licence and the post-
contract services are accounted for a single performance obligation as post-contract services are mainly provided to answer questions
about the use and the installation of the software which would not constitute a promise to a customer. Revenue is recognized upfront at
the point in time when the software is made available to the customer. Software upgrades, such as version iteration, are additionally
charged.
CHEETAH MOBILE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2022, 2023 AND 2024
(Amounts in thousands of Renminbi (“RMB”) and U.S. Dollars (“US$”), except for number of shares and per share (or ADS)
data)
F-26
(2) AI and others
Advertising agency services
The Group provides advertising agency services by arranging advertisers to purchase various advertisement products from certain
online networks. The Group acts as an agent in such services and revenue is recognized on a net basis by netting rebates provided to the
advertisers with the online network performance-based commissions. The revenue is estimated by the Group based on the real-time
advertising performance results provided by the online networks and the commission rates pre-determined in contracts signed with
relevant online networks and is recognized at a point in time when the advertisement products are delivered by the online networks.
There was no significant difference between the Group’s estimates and the subsequent periodic invoices provided by the online network
for all the periods presented. Receivables from advertising agency services were included in other receivables from advertisers in
“Prepayments and other current assets” and payable to online networks were included in payable to online advertising platforms as
agency in “Accrued expenses and other current liabilities” on the consolidated balance sheets.
Multi-Cloud Management services
The Group provides multi-cloud management services through cloud management platform. The nature of the Group’s
performance obligation is a single performance obligation to stand ready to provide integrated technical cloud-based solution or sell
cloud resources to customers. Revenue is recognized over time when related solutions or resources are provided to customers. The
Group evaluates whether it is appropriate to record the revenue on gross or net basis based on whether it acts as a principal or as an
agent. This determination is reviewed for each specified service provided to the customer and may involve significant judgment. In
certain cases, the Group concludes that it controls the solutions and resources before they are transferred to end customers, as the Group
integrates the cloud resources with its technical expertise to provide ongoing customized cloud-based solutions, is primarily responsible
for the fulfillment, and has inventory risk before the specified solutions and resources have been transferred to the customers and revenue
is recognized on a gross basis. In other cases, the Group acts as a reseller of cloud resources and during which the Group acts as an agent
to arrange for the resources to be provided by third parties and revenue is recognized on a net basis.
Sale and rental of robots and other AI hardware products
The Group generates revenue from sales and rental of robots and sale of other AI hardware products. The Group recognizes
revenue generally at a point in time when the robots and other AI hardware products are delivered to customers. The Group provides
standard warranty on all robots sold, which is not a separate performance obligation as it is intended to provide greater quality assurance
to customers. Accordingly, standard warranty is accounted for in accordance with ASC 460, Guarantees, and the estimated costs are
recorded as a liability when the Group transfers the control of robots to a customer. The consideration for sale of robots are normally
paid in advance, which means the payments received are prior to the transfer of goods or services by the Group, the Group records a
contract liability (deferred revenue) for the amount relating to those unperformed obligations. As set out in Note 2 “Lease, as of a
Lessor”, robot rental revenue is recognized under ASC 842.
Technical, AI application services and others
The group provides other services including technical support, extended time warranty, maintenance service, AI data and AI
solution services etc to customers. Such revenue are recognized ratably over the term of the arrangement or at a point of time upon
service delivered.
Deferred revenue
The contract liabilities consist of deferred revenue, which represent the cash received for services in advance of revenue
recognition and is recognized as revenue when all of the Group’s revenue recognition criteria are met. Balances of deferred revenue,
which included in “Accrued expenses and other liabilities”, were RMB247,855 and RMB306,204 (US$41,950) as of December 31,
2023 and December 31, 2024, respectively. The increase in deferred revenue as compared to the year ended December 31, 2023 is a
result of the increase in fees received from membership services. Revenue recognized that was included in deferred revenue balance at
the beginning of year were RMB123,809, RMB106,333 and RMB101,566 (US$13,914) for the years ended December 31, 2022, 2023
and 2024, respectively.
CHEETAH MOBILE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2022, 2023 AND 2024
(Amounts in thousands of Renminbi (“RMB”) and U.S. Dollars (“US$”), except for number of shares and per share (or ADS)
data)
F-27
Cost of revenues
Cost of revenues primarily consists of traffic acquisition cost, bandwidth and cloud service costs, channel and sharing costs,
salaries and benefits, share-based compensation expenses, depreciation of equipment, amortization of intangible assets and cost of robots
and other products sold, including direct materials, external processing fee, depreciation and amortization of assets associated with the
production and reserves for estimated warranty expenses.
Selling and marketing expenses
Selling and marketing expenses consist primarily of advertising and promotional expenses, staff costs, share-based compensation
expenses and other related incidental expenses that are incurred directly to attract or retain users and customers for the Group’s websites,
applications, software, online platforms and products. Advertising and promotional expenses are expensed when incurred. For the years
ended December 31, 2022, 2023 and 2024, advertising and promotional expenses were RMB361,363, RMB127,790 and RMB188,790
(US$25,864), respectively.
Research and development expenses
Research and development (“R&D”) consist primarily of employee costs and rental expenses related to personnel engaged in
R&D activities, design and development expenses with new technology, materials and supplies, depreciation and amortization expenses
and other R&D related expenses. The Group expenses these costs as incurred, unless such costs qualify for capitalization as software
development costs, including (i) preliminary project is completed, (ii) management has committed to funding the project and it is
probable that the project will be completed and the software will be used to perform the function intended, and (iii) they result in
significant additional functionality in the Group’s products. Capitalized software development costs were not material for all periods
presented.
Government subsidies
Government subsidies primarily consist of financial subsidies received from provincial and local governments, for operating a
business in their jurisdictions or conducting research and development projects pursuant to specific policies promoted by the local
governments. There are no defined rules and regulations to govern the criteria necessary for companies to receive such benefits, and the
amount of financial subsidy is determined at the discretion of the relevant government authorities. For the government subsidies with
non-operating feature and with no further conditions to be met, the amounts are recorded in “Other income” when received; for the
government subsidies with operating feature and with no further conditions or specific use requirements to be met, the amounts are
recorded in “Other operating income” when received; and for the government subsidies related to research and development projects,
the amounts are recorded in others in “Accrued expenses and other liabilities” when received and will be offset against “Research and
development” expenses over the project period when no further conditions are to be met.
CHEETAH MOBILE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2022, 2023 AND 2024
(Amounts in thousands of Renminbi (“RMB”) and U.S. Dollars (“US$”), except for number of shares and per share (or ADS)
data)
F-28
Leases
As a lessee
The Group recognizes in the balance sheet a liability to make lease payments (the lease liability) and a right-of-use asset
representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, the Group applies
practical expedient of the short-term lease exemption. Lease expenses for such lease is recorded on a straight-line basis over the lease
term. For operating leases, the Group elected the practical expedient not to separate lease and non-lease components for the underlying
assets and recognizes right-of-use assets and lease liabilities based on the present value of the lease payments over the lease term at the
lease commencement date. For finance leases, assets are included in property and equipment on the consolidated balance sheets. As
most of the Group’s leases do not provide an implicit rate, the Group estimates its incremental borrowing rate based on the information
available at the commencement date in determining the present value of lease payments. The incremental borrowing rate is estimated to
approximate the interest rate on a collateralized basis with similar terms and payments, and in economic environments where the leased
asset is located. The Group’s leases often include options to extend and lease terms include such extended terms when the Group is
reasonably certain to exercise those options. Lease terms also include periods covered by options to terminate the leases when the Group
is reasonably certain not to exercise those options.
As a lessor
The Group provides robot leasing services to customers under operating lease. The Group recognizes the lease payments as robot
leasing income in profit or loss over the lease term on a straight-line basis.
The robot leasing income was immaterial for the years ended December 31, 2022, 2023 and 2024, respectively.
Comprehensive income
Comprehensive income is defined to include all changes in shareholders’ equity except those resulting from investments by owners
and distributions to owners. Among other disclosures, ASC 220-10, Comprehensive Income: Overall requires that all items that are
required to be recognized under current accounting standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial statements.
Income taxes
The Group accounts for income taxes using the liability method. Under this method, deferred tax assets and liabilities are
determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will
be in effect in the period in which the differences are expected to reverse. The Group records a valuation allowance against deferred tax
assets netted off by deferred tax liability if, based on the weight of available evidence, it is more-likely-than-not that some portion, or
all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is recognized in income in the
period that includes the enactment date.
The Group applies ASC 740, Accounting for Income Taxes, to account for uncertainty in income taxes. ASC 740 prescribes a
recognition threshold a tax position is required to meet before being recognized in the financial statements. The Group has recorded
unrecognized tax benefits in the other non-current liabilities in the accompanying consolidated balance sheets. The Group has elected
to classify interest and penalties related to unrecognized tax benefits, if and when required, as part of “Income tax expenses”, in the
consolidated statements of comprehensive loss.
The Group’s estimated liability for unrecognized tax benefits and the related interest and penalties are periodically assessed for
adequacy and may be affected by changing interpretations of laws, rulings by tax authorities, changes and/or developments with respect
to tax audits, and expiration of the statute of limitations. The actual benefits ultimately realized may differ from the Group’s estimates.
As each audit is concluded, adjustments, if any, are recorded in the Group’s consolidated financial statements. Additionally, in future
periods, changes in facts and circumstances, and new information may require the Group to adjust the recognition and measurement
estimates with regard to individual tax positions. Changes in recognition and measurement estimates are recognized in the period in
which they occur.
CHEETAH MOBILE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2022, 2023 AND 2024
(Amounts in thousands of Renminbi (“RMB”) and U.S. Dollars (“US$”), except for number of shares and per share (or ADS)
data)
F-29
Share-based compensation
The Group accounts for share-based compensation in accordance with ASC 718, Compensation-Stock Compensation: Overall.
In accordance with ASC 718, the Group determines whether an award should be classified and accounted for as a liability award
or equity award. All grants of share-based awards to employees and non-employees classified as equity awards are recognized in the
financial statements based on their grant date fair values.
The Group has elected to recognize share-based compensation using the accelerated method, for all share-based awards granted
with graded vesting based on service conditions and for awards with performance conditions if it is probable that the performance
condition will be achieved. The Group account for forfeitures as they occur, if required vesting conditions are not met and the share-
based awards are forfeited, previously recognized compensation expenses relating to those awards are reversed. The Group, with the
assistance of an independent third-party valuation firm determined the fair value of the share-based awards granted to employees and
non-employees, if applicable. The binomial tree option pricing model was applied in determining the estimated fair value of the awards.
A change in any of the terms or conditions of share options is accounted for as a modification of share-based awards. The Group
calculates the incremental compensation cost of a modification as the excess of the fair value of the modified option over the fair value
of the original option immediately before its terms are modified, measured based on the share price and other pertinent factors at the
modification date. For vested share-based awards, the Group recognizes incremental compensation cost in the period the modification
occurred. For unvested share-based award, the Group recognizes, over the remaining requisite service period, the sum of the incremental
compensation cost and the remaining unrecognized compensation cost for the original award on the modification date.
Earnings (loss) per share
Earnings (Loss) per share are calculated in accordance with ASC 260-10, Earnings per Share: Overall. Basic earnings per share
are computed by dividing net income (loss) attributable to holders of ordinary shares by the weighted average number of ordinary shares
outstanding during the year using the two-class method. Under the two-class method, net income (loss), accretion of the redeemable
noncontrolling interests and dilution effect arising from share-based awards issued by subsidiaries are allocated to ordinary shares based
on their participating rights in the undistributed earnings as if all the earnings for the reporting period had been distributed.
Diluted earnings (loss) per share is calculated by dividing net income (loss) attributable to ordinary shareholders by the weighted
average number of ordinary and dilutive ordinary equivalent shares outstanding during the period. Ordinary equivalent shares consist of
the vesting of restricted shares and the exercising of option using the treasury stock method. The computation of the dilutive earnings
(loss) per share of Class A ordinary share assumes the conversion of Class B ordinary shares. Ordinary share equivalents are excluded
from the computation of diluted loss per share if their effects are anti-dilutive.
Contingencies
The Group records accruals for certain of its outstanding legal proceedings or claims when it is probable that a liability will be
incurred, and the amount of loss can be reasonably estimated. The Group evaluates the developments in legal proceedings or claims that
could affect the amount of any accrual, as well as any developments that would make a loss contingency both probable and reasonably
estimable. The Group discloses the amount of the accrual if it is material.
Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker
(the “CODM”), which is the chief executive officer. The Group has two reportable segments: internet business and AI and others. The
Group consolidated Beijing OrionStar since November 30, 2023 and reported the results of Beijing OrionStar in the AI and
others segment based on the information reviewed by CODM.
CHEETAH MOBILE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2022, 2023 AND 2024
(Amounts in thousands of Renminbi (“RMB”) and U.S. Dollars (“US$”), except for number of shares and per share (or ADS)
data)
F-30
Concentration of risks
Concentration of credit risk
Financial instruments that are potentially subject to credit risk consist of cash and cash equivalents, restricted cash, short-term
investments, available-for-sale debt securities, accounts receivable and other receivables. The carrying amounts of these financial
instruments represent the maximum amount of loss due to credit risk. As of December 31, 2024, the Group has RMB1,833,366
(US$251,170) in cash and cash equivalents and short-term investments, and 31.5% and 68.5% of which are held by financial institutions
in the PRC and international financial institutions outside of the PRC, respectively. Deposits held with financial institutions were not
protected by statutory or commercial insurance. In the event of bankruptcy of one of these financial institutions, the Group may be
unlikely to claim its deposits back in full.
Management believes that these financial institutions are of high credit quality and continually monitors the credit worthiness of
these financial institutions.
Under PRC law, it is generally required that a commercial bank in the PRC that holds third-party cash deposits protect the
depositors’ rights over principal and interests in their deposited money; PRC banks are subject to a series of risk control regulatory
standards; and PRC bank regulatory authorities are empowered to take over the operation and management of any PRC bank that faces
a material credit crisis.
Accounts receivable and other receivables are both typically unsecured and are derived from revenue earned from customers or
cash receivables due from advertisers. The risk is mitigated by credit evaluations the Group performs on its ongoing credit evaluations
of its customers’ financial conditions and ongoing monitoring process of outstanding balances. The Group maintains reserves for
estimated credit losses and these losses have generally been within expectations.
Business, customer, political, social and economic risks
The Group participates in a dynamic high technology industry and believes that changes in any of the following areas could have
a material adverse effect on the Group’s future financial position, results of operations or cash flows: changes in the overall demand for
services and products; competitive pressures due to new entrants; advances and new trends in new technologies and industry standards;
changes in bandwidth suppliers; changes in certain strategic relationships or customer relationships; regulatory considerations; copyright
regulations; and risks associated with the Group’s ability to attract and retain employees necessary to support its growth and risks related
to outbreaks of epidemics, such as COVID-19. On February 21, 2020, the Group’s Google Play Store, Google AdMob, and Google
AdManager accounts had been disabled, which adversely affected its ability to attract new users and generate revenue from Google.
For the year ended December 31, 2022, approximately 24% of the Group's total revenue was derived from a third-party advertising
agent within the internet business segment. For the year ended December 31, 2023 and 2024, approximately 13% and 10% of the Group’s
total revenue was attributable to a third-party advertising platform in the AI and others segment.
The Group’s operations could be adversely affected by significant political, economic and social uncertainties. Internet related
businesses are subject to significant restrictions under current PRC laws and regulations. Specifically, foreign investors are not allowed
to own more than 50% equity interests in any Internet Content Provider (“ICP”) business.
Currency convertibility risk
A significant portion of the Group’s operating activities as well as the assets and liabilities are denominated in RMB which is not
freely convertible into foreign currencies. The Group’s financing activities are denominated in US$. On January 1, 1994, the PRC
government abolished the dual rate system and introduced a single rate of exchange as quoted daily by the People’s Bank of PRC (the
“PBOC”). However, the unification of the exchange rates does not imply that the RMB may be readily convertible into US$ or other
foreign currencies. All foreign exchange transactions continue to take place either through the PBOC or other banks authorized to buy
and sell foreign currencies at the exchange rates quoted by the PBOC. Approval of foreign currency payments by the PBOC or other
institutions requires submitting a payment application form together with suppliers’ invoices, shipping documents and signed contracts.
CHEETAH MOBILE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2022, 2023 AND 2024
(Amounts in thousands of Renminbi (“RMB”) and U.S. Dollars (“US$”), except for number of shares and per share (or ADS)
data)
F-31
Additionally, the value of the RMB is subject to changes in central government policies and international economic and political
developments affecting supply and demand in the PRC foreign exchange trading system market.
Foreign currency exchange rate risk
While the Group’s reporting currency is RMB, a portion of the Group’s revenues and costs are generated and denominated in
US$. As a result, the Group is exposed to foreign exchange risk as its revenues and results of operations may be affected by fluctuations
in the exchange rate between U.S. dollar and RMB. If the US$ depreciates against the RMB, the value of the Group’s US$ revenues
expressed in the RMB financial statements will decline. On June 19, 2010, the People’s Bank of China announced the end of the RMB’s
de facto peg to US$, a policy which was instituted in late 2008 in the face of the global financial crisis, to further reform the RMB
exchange rate regime and to enhance the RMB exchange rate flexibility. The depreciation of the RMB against US$ was approximately
8.23%, 2.94% and 2.81% for the years ended December 31, 2022, 2023 and 2024. It is difficult to predict how market forces or PRC or
U.S. government policy may impact the exchange rate between the RMB and the US$ in the future.
Newly adopted accounting standard updates
In January 2024, the Group adopted ASU 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity
Securities Subject to Contractual Sale Restrictions, which clarifies that a contractual restriction on the sale of an equity security is not
considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The amendments
also clarify that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction. This guidance also
requires certain disclosures for equity securities subject to contractual sale restrictions. The Group adopted the new guidance
prospectively and the adoption of the new guidance did not have material impact on the financial position, results of operations and cash
flows.
In January 2024, the Group adopted ASU No. 2023-07, Segment Reporting (Topic 280)- Improvements to Reportable Segment
Disclosures, which requires an enhanced disclosure of significant segment expenses that are regularly provided to the CODM and
included within each reported measure of segment profit or loss, on an annual and interim basis. The guidance is effective for the Group
for the year ended December 31, 2024 and interim reporting periods during the year ending December 31, 2025. The Group adopted the
new guidance retrospectively to all prior periods presented, details are set out in Note13.
Recently issued accounting pronouncements
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740)- Improvements to Income Tax Disclosures.
ASU No. 2023-09 requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as additional
information on income taxes paid. The guidance is effective for annual periods beginning after December 15, 2024 on a prospective
basis. Early adoption is permitted. The Group does not expect the adopting of the new guidance will have material impact on its
consolidated financial statements.
In November 2024, the FASB issued ASU No.2024-03, Income Statement—Reporting Comprehensive Income—Expense
Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, which requires public business entities
to disclose additional information about specific expense categories in the notes to financial statements at interim and annual reporting
periods. The guidance is effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods within
annual reporting periods beginning after December 15, 2027 either prospectively or retrospectively. Early adoption is permitted. The
Group does not expect to adopt the update early and is evaluating the impact on its consolidated financial statements.
Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not
expected to have a material impact on the consolidated financial statements upon adoption. The Group does not discuss recent
pronouncements that are not anticipated to have an impact on or are unrelated to its consolidated financial condition, results of
operations, cash flows or disclosures.
CHEETAH MOBILE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2022, 2023 AND 2024
(Amounts in thousands of Renminbi (“RMB”) and U.S. Dollars (“US$”), except for number of shares and per share (or ADS)
data)
F-32
3.
BUSINESS COMBINATIONS
Business combination in 2023
Acquisition of Beijing OrionStar
On November 30, 2023, as part of the Group's efforts to venture into AI-powered business chain and facilitate its transition from
the mobile era to artificial general intelligence ("AGI") era, the Group acquired an additional 35.17% equity interest of Beijing
OrionStar, an AI solution and service robot provider headquartered in Beijing focusing on the research and development of AI, for
a total cash consideration of RMB268,724. Taking into account its existing shareholding of 37.74%, the Group held a total of 72.91% of
Beijing OrionStar’s equity interest and consolidated the financial results of Beijing OrionStar since November 30, 2023.
The Group recognized a remeasurement gain of RMB6,036 associated with the previously held equity interests of Beijing
OrionStar in “other income”. Further, the acquisition effectively settled preexisting receivables and payables between the Group and the
acquired entities. The following is a reconciliation of purchase price consideration for the acquirers:
Amount
RMB
Cash consideration
268,724
Fair value of previously held equity interests
316,672
Settlement of convertible loan provided to Beijing Orionstar
118,091
Settlement of amounts due from Beijing Orionstar Group
69,648
Total
773,135
The Group, with the assistance of an independent third-party valuation firm, measure the fair value of the acquired identifiable
assets and liabilities assumed. The following table summarizes the fair values of the assets acquired and liabilities assumed from Beijing
OrionStar as of the acquisition date:
Amount
RMB
Net assets acquired (i)
136,534
Amortizable intangible assets (ii)
Robot technology
140,000
Large language model (LLM) technology
57,000
Trademark
15,000
Goodwill (iii)
576,989
Deferred tax liabilities
(31,800)
Non-controlling interests and mezzanine equity(iv)
(120,588)
Total
773,135
(i) Net assets acquired primarily consists of cash and cash equivalent, inventories, equity method investment and deferred tax
assets of RMB221,898 and accounts payable, deferred revenue, due to related parties of RMB121,366 as of the date of acquisition.
(ii) Acquired amortizable intangible assets had an amortization period of 8.0 years. The fair value estimate of technology was
estimated using the multi-period excess earnings method. Key assumptions and estimates used in deriving the projected cash flows are
forecasted revenue, EBIT margin, and discount rate. The fair value estimate of trademark was estimated using the relief-from-royalty
method. Key assumptions and estimates used are forecasted revenue and discount rate.
CHEETAH MOBILE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2022, 2023 AND 2024
(Amounts in thousands of Renminbi (“RMB”) and U.S. Dollars (“US$”), except for number of shares and per share (or ADS)
data)
F-33
(iii) Goodwill arising from the acquisition of Beijing OrionStar was attributable to the benefit of expected synergies, the assembled
workforce, revenue growth and future market development as of the date of acquisition and assigned to AI and others segment. Goodwill
arising from the acquisition is not expected to be deductible for tax purposes.
(iv) According to the articles of association of Beijing OrionStar, equity interests held by two shareholders are
preferred shares and was contingently redeemable upon the occurrence of a conditional event, which is not solely within the control of
the Group and was classified as mezzanine equity. Detailed description of mezzanine equity is disclosed in Note 20. Fair value of the
non-controlling interests and mezzanine equity, as well as the previous held equity interests mentioned above was determined with the
assistance of an independent valuation firm using discount cash flow method. Key assumptions and estimates used are forecasted
revenue, EBIT margin, discount rate and volatility.
Since the acquisition, Beijing OrionStar contributed RMB14,810 revenues and RMB4,738 losses to the Group for the year ended
2023. Had the acquisition date of Beijing OrionStar been January 1, 2022, the revenue and net loss of the Group would have been
RMB1,063,970 and RMB652,497 in 2022, respectively, and the revenue and net loss of the Group would have been RMB768,152 and
RMB728,995 in 2023, respectively. The unaudited pro-forma results have been prepared for comparative purposes only and do not
purport to be indicative of the results of operations which actually would have resulted had the acquisition occurred as of January 1,
2022, nor is it indicative of future operating results. The unaudited pro-forma amounts have been calculated after adjusting the results
of Beijing OrionStar to reflect the additional amortization that would have been charged assuming the fair value adjustments to intangible
assets had been applied from January 1, 2022.
4.
SHORT-TERM INVESTMENTS
As of December 31, 2023 and 2024, short-term investments included time deposits, and wealth management products in
commercial banks of RMB1,023 and RMB335 (US$46), respectively.
For the years ended December 31, 2022, 2023 and 2024, the Group recognized interest income from its short-term investments of
RMB23,088, RMB6,668 and RMB4,462 (US$611), respectively.
For the years ended December 31, 2022, 2023 and 2024 the Group recognized a credit loss on short-term investments of RMB714,
reversed RMB548 and RMB5 (US$1) in “other expense” in the consolidated comprehensive loss, respectively.
5.
LONG-TERM INVESTMENTS
As of December 31,
2023
2024
RMB
RMB
US$
Equity investments accounted for using Equity Method
242,997
210,119
28,786
Equity investments accounted for using the measurement
alternative
539,433
503,336
68,957
Investment accounted for under fair value option
43,333
8,626
1,182
Available-for-sale debt securities under fair value
111,697
95,249
13,049
Total
937,460
817,330
111,974
Equity investments accounted for using Equity Method
The Group recorded its share of loss of RMB12,143, RMB2,564 and RMB16,567 (US$2,270) from equity investments
accounted for using equity method for the years ended December 31, 2022, 2023 and 2024, respectively. For the years ended December
CHEETAH MOBILE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2022, 2023 AND 2024
(Amounts in thousands of Renminbi (“RMB”) and U.S. Dollars (“US$”), except for number of shares and per share (or ADS)
data)
F-34
31, 2022, 2023 and 2024, nil and RMB5,339 and RMB12,322 (US$1,688) impairment losses were recorded for the equity investments
accounted for using equity method.
None of equity method investments, including the equity method investment that the Group elects to account for using the fair
value option, was considered individually material for the years ended December 31, 2022, 2023 and 2024. The summarized financial
information of the Group’s equity method investees, presented in aggregate as required by Regulation S-X Rule 4-08(g), is as follows:
As of December 31,
2023
2024
RMB
RMB
US$
Balance sheet data:
Current assets
514,186
195,615
26,799
Non-current assets
1,298,749
1,155,477
158,300
Current liabilities
89,210
48,443
6,637
Non-current liabilities
5,843
8,632
1,183
For the year ended December 31,
2022
2023
2024
RMB
RMB
RMB
US$
Operating data:
Revenues
755,532
156,948
75,805
10,385
Gross profit
285,140
19,206
(12,085)
(1,656)
Operating loss
(10,022)
(64,535)
(150,914)
(20,675)
Net loss
(8,133)
(60,929)
(148,523)
(20,348)
Equity investments accounted for using the measurement alternative
As of December 31, 2023 and 2024, the Group recorded RMB697,633 and RMB691,382 (US$94,719) accumulated impairment,
and RMB193,668 and RMB274,191 (US$37,564) accumulated upward adjustment, respectively.
Total unrealized and realized gains and losses of equity securities accounted for using the measurement alternative for the years
ended December 31, 2022, 2023 and 2024 were as follows:
For the year ended December 31,
2022
2023
2024
RMB
RMB
RMB
US$
Gross unrealized gains (upward
adjustments)
33,346
501
23,279
3,189
Gross unrealized losses (impairment)
(287,005)
(168,759)
(94,930)
(13,005)
Net unrealized losses on equity securities
held
(253,659)
(168,258)
(71,651)
(9,816)
Net realized gains on equity securities sold
32,536
6,117
2,627
360
Total net losses recognized in other
income, net
(221,123)
(162,141)
(69,024)
(9,456)
In 2024, the Group acquired equity interests in two equity investees for a total consideration of RMB35,000 (US$4,795).
In 2023, the Group: i) acquired equity interests in one equity investee for a total consideration of RMB6,000. ii) acquired control
stake of Beijing OrionStar and derecognized the previous held equity interest in Beijing OrionStar.
In 2022, the Group: i) acquired equity interests in three equity investees for a total consideration of RMB59,581. ii) disposed
certain equity interest in equity investees and recognized a disposal gain of RMB32,536 in “Other income”.
CHEETAH MOBILE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2022, 2023 AND 2024
(Amounts in thousands of Renminbi (“RMB”) and U.S. Dollars (“US$”), except for number of shares and per share (or ADS)
data)
F-35
The Group received dividends from investees of nil, RMB5,598 and RMB1,795 (US$246) which were recorded in “Other income”
in the consolidated comprehensive loss for the years ended December 31, 2022, 2023 and 2024, respectively.
Investment accounted for using fair value option
The Group owned 49.6% equity interest of Live.me on a fully dilutive basis and the Group elected to account for the equity
investment in Live.me under the fair value option model. In January 2023, Live.me modified its share capital by dividing ordinary shares
into Class A ordinary shares and Class B ordinary shares with different voting rights, The Group’s voting rights of Live.me thus were
diluted to be 17.25% and the Group lost significant influence in Live.Me. In December 2023, the preferred shares held by the Group
was reclassified as debt securities since the Group has a put option to request Live.me to redeem the Group’s related equity interests at
the Group's option. The Group continues to measure Live.me’s equity interest under fair value option model. The fair value of the equity
interest held by the Group was RMB43,333 and RMB8,626 (USD$1,182) as of December 31, 2023 and 2024, respectively. The Group
recorded unrealized losses of RMB25,601, RMB334,921 and RMB35,354 (USD$4,843) for equity investment accounted for using fair
value option in “other expense” in the consolidated comprehensive loss for the years ended December 31, 2022, 2023 and 2024,
respectively.
Available-for-sale debt securities
Available-for-sale debt securities in long-term investments primarily represent investments in preferred shares that are redeemable
at the Group’s option, which are measured at fair value.
In 2023 and 2024, preferred shares held by the Group of certain investments previously accounted for using the measurement
alternative were reclassified and accounted for as available-for-sale debt securities since the preferred shares are redeemable at the
Group’s option. The Group remeasured the fair value of such investments upon the reclassification with a remeasurement loss of
RMB25,808 and RMB12,173 (US$1,668) recorded in “Other expense” in the consolidated comprehensive loss, respectively.
As of December 31, 2023, and 2024, long-term available-for-sale debt securities were RMB111,697 and RMB95,249
(US$13,049), respectively.
For the years ended December 31, 2022 and 2023, the Group recognized unrealized fair value loss on long-term available-for-sale
debt securities of RMB8,270 and RMB43,494 respectively. For the year ended December 31, 2024, the Group recorded unrealized fair
value gain on long-term available-for debt securities of RMB2,642 (US$362) in other comprehensive loss.
6. ACCOUNTS RECEIVABLE, NET
As of December 31,
2023
2024
RMB
RMB
US$
Accounts receivable
533,945
616,453
84,454
Allowance for credit losses
(132,881)
(142,834)
(19,568)
Accounts receivable, net
401,064
473,619
64,886
The movements in the allowance for credit losses were as follows:
Year ended December 31,
2023
2024
RMB
RMB
USD
Balance as of January 1
102,161
132,881
18,205
Addition
29,401
8,915
1,221
Amounts written off
—
—
—
Foreign Exchange effect
1,319
1,038
142
Balance as of December 31
132,881
142,834
19,568
CHEETAH MOBILE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2022, 2023 AND 2024
(Amounts in thousands of Renminbi (“RMB”) and U.S. Dollars (“US$”), except for number of shares and per share (or ADS)
data)
F-36
7.
PREPAYMENTS AND OTHER CURRENT ASSETS, NET
As of December 31,
2023
2024
RMB
RMB
US$
Other receivables from advertisers
878,754
1,208,698
165,591
Advances to suppliers
139,772
147,480
20,205
Prepaid expenses
26,144
24,463
3,351
Inventories (i)
40,573
59,245
8,117
Receivable from third-party payment platform
29,573
47,298
6,480
Convertible loans
10,465
10,465
1,434
Others
68,975
92,109
12,617
Impairment allowance for prepayments and
inventories
(108,003)
(109,230)
(14,964)
Allowance for credit losses
(113,126)
(114,767)
(15,723)
Total
973,127
1,365,761
187,108
(i)
Inventories consist of materials, work in progress and finished goods, as of December 31, 2023 and 2024, inventories net of
impairment reserve were RMB28,042 and RMB46,728 (US$6,402). For the years ended December 31, 2022, 2023 and 2024, the
group recorded impairment reserve of nil, RMB2,627 and RMB1,224 (US$168) , respectively.
The movements in the allowance for credit losses were as follows:
Year ended December 31,
2023
2024
RMB
RMB
USD
Balance as of January 1
99,943
113,126
15,498
Addition
12,243
677
93
Amounts written off
—
(300)
(41)
Foreign Exchange effect
940
1,264
173
Balance as of December 31
113,126
114,767
15,723
Provision for credit losses and impairment of assets for the years ended December 31, 2022, 2023 and 2024 were RMB19,266,
RMB12,243 and RMB677 (US$93), respectively.
8.
PROPERTY AND EQUIPMENT, NET
As of December 31,
2023
2024
RMB
RMB
US$
Electronic equipment
64,254
56,296
7,713
AI related equipment
159,898
75,173
10,299
Leasehold improvements
19,186
27,382
3,751
Office equipment and fixtures
20,881
13,053
1,788
Mold and tooling
5,516
11,192
1,533
Motor vehicles
2,690
1,744
239
Construction in progress
119
—
—
Less: Accumulated depreciation
(211,437)
(126,088)
(17,274)
Less: Accumulated impairment
(7,223)
(7,188)
(985)
Property and equipment, net
53,884
51,564
7,064
CHEETAH MOBILE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2022, 2023 AND 2024
(Amounts in thousands of Renminbi (“RMB”) and U.S. Dollars (“US$”), except for number of shares and per share (or ADS)
data)
F-37
Depreciation expense of property and equipment for the years ended December 31, 2022, 2023 and 2024 were RMB49,208,
RMB27,842 and RMB22,040 (US$3,019), respectively. The impairment recognized on property and equipment were nil for the years
ended December 31, 2022, 2023 and 2024, respectively.
9.
INTANGIBLE ASSETS, NET
Intangible assets and the related accumulated amortization were summarized as follows:
As of December 31, 2024
Gross
Carrying
value
Accumulated
amortization
Accumulated
impairment
Net carrying value
RMB
RMB
RMB
RMB
US$
Online game licenses
146,403
(97,095)
(49,308)
—
—
Technology
369,214
(174,142)
(18,477)
176,595
24,193
Customer relationship
43,263
(43,263)
—
—
—
User base
49,511
(49,511)
—
—
—
Trademarks
17,967
(3,243)
(945)
13,779
1,888
Domain names
5,315
(5,024)
—
291
40
Non-compete agreements
1,610
(1,610)
—
—
—
Total
633,283
(373,888)
(68,730)
190,665
26,121
As of December 31, 2023
Gross
Carrying
value
Accumulated
amortization
Accumulated
impairment
Net carrying value
RMB
RMB
RMB
RMB
Online game licenses
144,751
(95,886)
(48,839)
26
Technology
363,466
(142,720)
(18,367)
202,379
Platform
77,919
(42,860)
(35,059)
—
Customer relationship
49,954
(47,077)
(2,877)
—
User base
48,788
(48,788)
—
—
Trademarks
33,546
(15,499)
(2,244)
15,803
Domain names
5,224
(4,873)
—
351
Non-compete agreements
1,610
(1,610)
—
—
Total
725,258
(399,313)
(107,386)
218,559
The Group recorded impairment loss in “Other operating income, net”. The impairment recognized on intangible assets were nil,
RMB412 and nil for the years ended December 31, 2022, 2023 and 2024, respectively.
CHEETAH MOBILE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2022, 2023 AND 2024
(Amounts in thousands of Renminbi (“RMB”) and U.S. Dollars (“US$”), except for number of shares and per share (or ADS)
data)
F-38
Amortization expense of intangible assets for the years ended December 31, 2022, 2023 and 2024 were RMB3,817, RMB7,420
and RMB29,413 (US$4,030), respectively. Estimated amortization expense relating to the existing intangible assets with finite lives for
each of next five years and thereafter is as follows:
For the year
ending December 31,
RMB
US$
2025
29,254
4,008
2026
28,403
3,891
2027
28,110
3,851
2028
27,919
3,825
2029
27,609
3,782
Thereafter
49,370
6,764
Total
190,665
26,121
10. GOODWILL
The changes in the carrying amount of goodwill were as follows:
For the year
ended December 31,
Balance as of January 1, 2023
—
Goodwill acquired in business combinations (Note 3)
576,989
Balance as of December 31, 2023
576,989
Impairment loss
(152,890)
Balance as of December 31, 2024
424,099
Balance as of December 31, 2024, in US$
58,101
* The Group allocated the goodwill recognized in its 2023 business combinations to the AI and other reporting unit, and
subsequently performed annual goodwill impairment testing at the reporting unit level in accordance with ASC 350-20.
Considering the adverse change in the operating and financial performance of AI and others, the Group determined that a
quantitative assessment was required as of December 31, 2024. The Group compared the fair value of AI and others reporting unit to
it's carrying amount, including the allocated goodwill. The fair value was estimated using the income approach with certain key
assumptions including forecasted revenue, EBIT margin and discount rate which are subject to high degree of judgment and complexity.
As a result, the fair value of AI and others reporting unit was estimated to be below the carrying value and the Group recorded a
RMB152,890 (US$20,946) goodwill impairment for the years ended December 31, 2024. A sensitivity analysis shows that significant
increases (decreases) in the forecasted revenue, increases (decreases) in the EBIT margin and decreases (increases) in discount rate will
result in a significantly higher (lower) fair value measurement of the reporting unit.
11. LEASE
The Group’s operating leases mainly related to offices, warehouses and manufacturing facilities. For leases with terms greater
than 12 months, the Group records the related assets and lease liabilities at the present value of lease payments over the term. Certain
leases include rental-free periods and renewal options, which are factored into the Group’s determination of lease payments when
appropriate. As of December 31, 2023 and 2024, the Group had no finance leases.
As of December 31, 2023 and 2024, the weighted average remaining lease term was 2.5 years and 2.3 years, respectively, and the
weighted average discount rate was 4.9% and 4.8% for the Group’s operating leases respectively.
Operating lease cost for the years ended December 31, 2022, 2023 and 2024, was RMB16,777, RMB15,244 and RMB15,322
(US$2,099) respectively, which excluded cost of short-term contracts. Short-term lease cost for the years ended December 31, 2022,
CHEETAH MOBILE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2022, 2023 AND 2024
(Amounts in thousands of Renminbi (“RMB”) and U.S. Dollars (“US$”), except for number of shares and per share (or ADS)
data)
F-39
2023 and 2024 was RMB5,062, RMB5,379 and RMB6,384 (US$875), respectively. For the years ended December 31, 2022, 2023 and
2024, no lease cost was capitalized.
Future lease payments under operating leases as of December 31, 2024 were as follows:
For the year
ended December 31,
RMB
US$
2025
14,697
2,013
2026
8,897
1,219
2027
1,782
244
2028
1,484
203
2029
134
18
Total future lease payments
26,994
3,697
Less: imputed interest
1,384
188
Total lease liability balance
25,610
3,509
12.
ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other current liabilities
As of December 31,
2023
2024
RMB
RMB
US$
Payable to online advertising platforms as agency
1,452,286
1,601,794
219,445
Accrued operating expenses
391,338
425,577
58,304
Salary and welfare payable
51,465
74,367
10,188
Advance received in advertising agency services
136,684
157,870
21,628
Accrued advertising, marketing and promotional
expenses
50,082
64,541
8,842
Deferred revenue
235,520
302,531
41,447
Operating lease liabilities current portion
13,295
12,682
1,737
Other taxes payable
35,380
35,254
4,830
Others
71,160
82,189
11,260
Total
2,437,210
2,756,805
377,681
Other non-current liabilities
As of December 31,
2023
2024
RMB
RMB
US$
Uncertain tax position
159,908
155,746
21,337
Operating lease liabilities non-current portion
17,699
12,928
1,771
Others
12,336
3,674
504
Total
189,943
172,348
23,612
CHEETAH MOBILE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2022, 2023 AND 2024
(Amounts in thousands of Renminbi (“RMB”) and U.S. Dollars (“US$”), except for number of shares and per share (or ADS)
data)
F-40
13.
SEGMENT INFORMATION
Operating segments are defined as components of an entity for which separate financial information is available and is evaluated
regularly by the Chief operating decision maker (“CODM”) in deciding how to allocate resources and in assessing performance. The
Group's CODM is the Company's Chief Executive Officer.
There are two segments of the Group, consisting of Internet business and AI and others. Segment information is presented after
elimination of inter-segment transactions and revenues, cost of revenues and operating expenses are directly attributable, or are allocated,
to each segment. The accounting policies of the segments are the same as those described in note 2. The CODM measures the
performance of each segment based on metrics of revenues and adjusted operating income (loss) and uses these results to evaluate the
performance of, and to allocate resources to each of the segments. The Group currently does not allocate assets and share-based
compensation for employees to its segments as the CODM does not use such information to allocate resources or evaluate the
performance of the operating segments.
The following tables present summary information by segment:
For the years ended December 31, 2024
Internet Business
AI and others
Consolidated
RMB
RMB
RMB
US$
Revenues
517,188
289,689
806,877
110,541
Operating costs and expenses
Cost of revenues(i)
79,812
181,789
261,601
35,839
Selling and marketing(i)
200,945
142,138
343,083
47,002
Research and development(i)
115,476
125,991
241,467
33,081
Other segment items(i)
58,122
313,758
371,880
50,947
Adjusted operating income/(losses)
62,833
(473,987)
(411,154)
(56,328)
Unallocated amounts-share based compensations
(26,101)
(3,576)
Operating loss
(437,255)
(59,904)
Reconciliation of operating loss
Interest income, net
44,422
6,086
Foreign exchange gains (losses), net
(21,726)
(2,976)
Other income
52,059
7,132
Other expense
(191,828)
(26,280)
Loss before income taxes
(554,328)
(75,942)
(i)
Share-based compensations were not allocated to segments. Total depreciation and amortization expenses of Internet Business
and AI and others was RMB2,512(US$344) and RMB48,941 (US$6,705), respectively, for the year ended December 31, 2024.
Other segment items include general and administrative expenses, impairment of goodwill, and other operating expenses allocated
to the respective segments. Impairment of goodwill of AI and others was RMB152,890 (US$20,946) for the year ended December
31, 2024.
CHEETAH MOBILE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2022, 2023 AND 2024
(Amounts in thousands of Renminbi (“RMB”) and U.S. Dollars (“US$”), except for number of shares and per share (or ADS)
data)
F-41
For the years ended December 31, 2023
Internet Business
AI and others
Consolidated
RMB
RMB
RMB
Revenues
450,134
219,369
669,503
Operating costs and expenses
Cost of revenues(i)
81,224
150,346
231,570
Selling and marketing(i)
146,404
95,598
242,002
Research and development(i)
113,646
63,981
177,627
Other segment items(i)
82,601
111,986
194,587
Adjusted operating income/(losses)
26,259
(202,542)
(176,283)
Unallocated amounts-share based compensations
(33,554)
Operating loss
(209,837)
Reconciliation of operating loss
Interest income, net
60,978
Foreign exchange gains (losses), net
(11,421)
Other income
96,765
Other expense
(574,135)
Loss before income taxes
(637,650)
(i)
Share-based compensations were not allocated to segments. Total depreciation and amortization expenses of Internet Business
and AI and others was RMB3,925 and RMB31,337, respectively, for the year ended December 31, 2023. Other segment items
include general and administrative expenses and other operating expenses allocated to the respective segments.
For the years ended December 31, 2022
Internet Business
AI and others
Consolidated
RMB
RMB
RMB
Revenues
697,387
186,679
884,066
Operating costs and expenses
Cost of revenues(i)
76,875
175,000
251,875
Selling and marketing(i)
381,948
93,006
474,954
Research and development(i)
129,148
50,229
179,377
Other segment items(i)
109,785
85,803
195,588
Adjusted operating income/(losses)
(369)
(217,359)
(217,728)
Unallocated amounts-share based compensations
(7,863)
Operating loss
(225,591)
Reconciliation of operating loss
Interest income, net
35,710
Foreign exchange gains (losses), net
(95,434)
Other income
101,265
Other expense
(361,730)
Loss before income taxes
(545,780)
(i)
Share-based compensations were not allocated to segments. Total depreciation and amortization expenses of Internet Business
and AI and others was RMB3,839 and RMB49,186, respectively, for the year ended December 31, 2022. Other segment items
include general and administrative expenses and other operating expenses allocated to the respective segments.
CHEETAH MOBILE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2022, 2023 AND 2024
(Amounts in thousands of Renminbi (“RMB”) and U.S. Dollars (“US$”), except for number of shares and per share (or ADS)
data)
F-42
14.
GEOGRAPHICAL INFORMATION
The following tables set forth revenues and property and equipment, net by geographic area:
For the year ended December 31,
2022
2023
2024
RMB
RMB
RMB
US$
Revenues:
PRC
391,652
343,119
346,808
47,512
Overseas (i)
492,414
326,384
460,069
63,029
Hong Kong
262,095
52,272
49,819
6,825
Japan
96,413
113,143
126,500
17,330
Rest of the world (ii)
133,906
160,969
283,750
38,874
As of December 31,
2023
2024
RMB
RMB
US$
Property and equipment, net:
PRC
44,676
46,239
6,334
Non-PRC
9,208
5,325
730
(i)
Overseas revenue refers to revenues generated by the Group’s operating legal entities incorporated outside mainland China or
generated by our operating legal entities incorporated in mainland China but are attributable to customers located outside mainland
China . Such revenues are primarily attributable to customers located outside China based on customers’ registered addresses.
(ii)
No individual country or area, other than disclosed above, exceeded 10% of total revenues for the years ended December 31,
2022, 2023 and 2024, respectively.
15.
TAXATION
Composition of income tax
The following table presents the composition of income tax expenses for the years ended December 31, 2022, 2023 and
2024:
Year ended December 31,
2022
2023
2024
RMB
RMB
RMB
US$
Current income tax (benefits) expenses
(12,208)
850
(927)
(127)
Deferred income tax (benefits) expenses
(12,881)
(44,631)
48,185
6,601
Income tax (benefits) expenses
(25,089)
(43,781)
47,258
6,474
a) Income taxes
Cayman Islands and BVI
Under the current laws of the Cayman Islands and BVI, the Company is not subject to tax on income or capital gain. Additionally,
upon payments of dividends by the Company to its shareholders, no Cayman Islands and BVI withholding tax will be imposed.
CHEETAH MOBILE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2022, 2023 AND 2024
(Amounts in thousands of Renminbi (“RMB”) and U.S. Dollars (“US$”), except for number of shares and per share (or ADS)
data)
F-43
Hong Kong, China
The Company’s subsidiaries in Hong Kong are subject to Hong Kong Profits Tax rate at 16.5% on the estimated assessable profit.
For the year ended December 31, 2022, 2023 and 2024, the first HK$2 million of profits earned by one of the Company’s subsidiaries
incorporated in Hong Kong is taxed at half the current tax rate (i.e. 8.25%) while the remaining profits will continue to be taxed at the
existing 16.5% tax rate. There are no withholding taxes in Hong Kong on remittance of dividends.
Singapore
Subsidiaries in Singapore are subject to Singapore corporate income tax rate of 17%.
Japan
Kingsoft Japan is incorporated in Japan with paid-in capital in excess of Japanese Yen (“JPY”) 100 million and was subject to a
national corporate income tax rate of 23.2% as of the years ended 31, 2022. In 2023, Kingsoft Japan reduced its paid-in capital to 90
million Japanese Yen, and is taxed at a tax rate of 15% on first JPY8 million and at 23.2% on the portion over JPY8 million as of the
year ended 31, 2023 and 2024. Local income taxes, which are local inhabitant tax and enterprise tax, are also imposed on corporate
income.
PRC
The Company’s subsidiaries in the PRC and the VIEs are subject to the statutory rate of 25%, unless otherwise specified, in
accordance with the Enterprise Income Tax law (the “EIT Law”), which was effective since January 1, 2008.
As qualified High New Technology Enterprise (“HNTE”), Beijing Kingsoft Cheetah Technology Co., Ltd. is entitled to the
preferential income tax rate of 15% from 2022 to 2024. Beijing OrionStar Technology Co., Ltd. is entitled to the preferential income
tax rate of 15% from 2022 to 2026. Zhuhai Baoqu Technology Co., Ltd. is entitled to the preferential income tax rate of 15% from 2023
to 2025.
In accordance with the requirements of Cai Shui [2022] No. 19 and State Administration of Taxation Hengqin-Guangdong-Macao
In-Depth Cooperation Zone Taxation Bureau Announcement [2023] No. 1, enterprises of qualified industries that met the operational
substantive requirements located in Hengqin-Guangdong-Macao In-Depth Cooperation Zone, are subject to a tax rate of 15%. Zhuhai
Baohaowan Technology Co., Ltd. is entitled to the preferential income tax rate of 15% as it is qualified with the mentioned requirements.
Pursuant to Ministry of Finance and State Administration of Taxation Announcement [2019] No.68, new Software development
enterprise are each entitled to a tax holiday of two-year full EIT exemption followed by three-year 50% EIT reduction (“2+3 tax
holiday”) starting from their respective first profit-making year prior to December 31, 2018. Zhuhai Baoqu Technology Co., Ltd. being
qualifying as a new software development enterprise is entitled to a tax holiday of 50% EIT exemption in 2022.
Without the tax holidays and preferential tax, the Group’s income tax expenses would have decreased by RMB2,232, RMB3,457
and increased by RMB436 (US$60) for the years ended December 31, 2022, 2023 and 2024, respectively. The impacts of the tax holidays
and preferential tax rates were a decrease in the loss per share of RMB0.0015, RMB0.0023 and increase of RMB0.0003, for the year
ended December 31, 2022, 2023 and 2024, respectively.
Under the EIT Law, dividends paid by PRC enterprises out of profits earned post-2007 to non-PRC tax resident investors are
subject to PRC dividend withholding tax of 10%. A lower withholding tax rate may be applied based on applicable tax treaties with
certain jurisdictions.
CHEETAH MOBILE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2022, 2023 AND 2024
(Amounts in thousands of Renminbi (“RMB”) and U.S. Dollars (“US$”), except for number of shares and per share (or ADS)
data)
F-44
Loss before income taxes consists of:
Year ended December 31,
2022
2023
2024
RMB
RMB
RMB
US$
PRC
(261,306)
(251,578)
(382,509)
(52,404)
Non-PRC
(284,474)
(386,072)
(171,819)
(23,538)
Total
(545,780)
(637,650)
(554,328)
(75,942)
A reconciliation of the differences between the statutory tax rate and the effective tax rate for enterprise income tax is as follows:
Year ended December 31,
2022
2023
2024
RMB
RMB
RMB
US$
Loss before income tax
(545,780)
(637,650)
(554,328)
(75,942)
Income tax benefits computed at the PRC
statutory tax rate of 25%
(136,445)
(159,413)
(138,582)
(18,985)
Effect of different tax rates in different
jurisdictions
49,280
84,086
45,721
6,264
Effect of tax holiday and preferential tax rates
4,908
2,981
29,949
4,103
Research and development super-deduction
(9,361)
(8,749)
(10,073)
(1,380)
Non-taxable income(i)
(2,809)
(5,488)
(4,956)
(679)
Non-deductible expenses(ii)
1,783
21,538
9,330
1,278
Effect of change in tax rate
(106,824)
3,080
2,788
382
Outside basis difference on investment
(3,800)
(33,413)
(7,869)
(1,078)
Changes in uncertain tax position
(11,903)
(4,183)
(6,331)
(867)
Effect of goodwill impairment
—
—
22,934
3,142
Withholding tax and others
(4,345)
22,683
17,084
2,339
Changes in valuation allowance
194,427
33,097
87,263
11,955
Income tax (benefits) expenses
(25,089)
(43,781)
47,258
6,474
(i)
Non-taxable income mainly consists of gains on disposal of subsidiaries and long-term investments or upward fair value
adjustment of long-term investments that are not subject to tax under the tax laws of different jurisdictions.
(ii)
Non-deductible expenses mainly consist of share-based compensation expenses, entertainments, disposal losses or impairment of
long-term investments and other expenses that are not allowed to be deducted under the tax laws of different jurisdictions.
As of December 31, 2024, the Group had taxable losses of approximately RMB4,234,652 (US$580,145) primarily deriving from
entities in the PRC, Hong Kong and Singapore, which can be carried forward per tax regulation to offset future net profit for income tax
purposes. The PRC taxable loss RMB4,016,435 (US$550,249) will expire from 2025 to 2034 and Hong Kong, Singapore and others
taxable loss RMB218,217 (US$29,897) can be carried forward without an expiration date.
b) Deferred tax assets and liabilities
As of December 31,
2024
RMB
US$
Classification in the consolidated balance sheets:
Deferred tax assets
128,581
17,616
Deferred tax liabilities
43,046
5,897
CHEETAH MOBILE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2022, 2023 AND 2024
(Amounts in thousands of Renminbi (“RMB”) and U.S. Dollars (“US$”), except for number of shares and per share (or ADS)
data)
F-45
The tax effects of significant temporary differences that give rise to the deferred tax balances as of December 31, 2023 and 2024
are as follows:
As of December 31,
2023
2024
RMB
RMB
US$
Deferred tax assets:
Tax losses carry forward
708,815
733,771
100,526
Equity investment loss
185,553
177,280
24,287
Allowance for credit losses
35,983
38,071
5,216
Intangible assets and accrued expenses
7,906
8,105
1,110
Share-based compensation
235
235
32
Others
42,474
50,846
6,966
Total deferred tax assets
980,966
1,008,308
138,137
Less: valuation allowance
(786,853)
(874,116)
(119,753)
Net deferred tax assets
194,113
134,192
18,384
Deferred tax liabilities:
Outside basis difference on investment
23,403
15,883
2,176
Equity method investment and unrealized gains
1,112
536
73
Right-of-use asset and others
4,498
5,075
695
Intangible assets acquired from business
acquisition
31,137
27,163
3,721
Total deferred tax liabilities
60,150
48,657
6,665
Realization of the net deferred tax assets is dependent on factors including future reversals of existing taxable temporary
differences and adequate future taxable income, exclusive of reversing deductible temporary differences and tax loss or credit carry
forwards. The Group evaluates the potential realization of deferred tax assets on an entity-by-entity basis. As of December 31, 2023 and
2024, valuation allowances were provided against deferred tax assets in entities where it was determined it was more-likely-than-not
that the benefits of the deferred tax assets will not be realized.
The following table sets forth the movement of the valuation allowances for deferred tax assets for the years presented:
2023
2024
RMB
RMB
US$
Balance at January 1
(617,264)
(786,853)
(107,798)
Additions(1)
(215,340)
(127,852)
(17,516)
Decreases
45,751
40,589
5,561
Balance at December 31
(786,853)
(874,116)
(119,753)
(1) In 2023, RMB136,492 (US$19,224) of which was from the business combination as set out in Note3.
c) Withholding income tax on dividends
Undistributed earnings of certain of the Company’s PRC subsidiaries amounted to approximately RMB821,259 and
RMB830,060 (US$113,718) on December 31, 2023 and 2024, respectively. Those earnings are considered to be indefinitely reinvested;
accordingly, no provision for PRC withholding tax has been provided thereon. Upon repatriation of those earnings in the form of
dividends, the Group would be subject to PRC withholding tax at 10%. The PRC withholding tax rate could be reduced to 5% should
the treaty benefit between Hong Kong and the PRC be applicable. As such, the amount of unrecognized deferred income tax liabilities
is approximately ranging from RMB41,063 to RMB82,126 and RMB41,503 (US$5,686) to RMB83,006 (US$11,372) as of December
31, 2023 and 2024, respectively.
CHEETAH MOBILE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2022, 2023 AND 2024
(Amounts in thousands of Renminbi (“RMB”) and U.S. Dollars (“US$”), except for number of shares and per share (or ADS)
data)
F-46
d) Unrecognized tax benefits
As of December 31, 2023 and 2024, the Group had unrecognized tax benefits of RMB168,416 and RMB163,120 (US$22,347),
of which RMB14,516 and RMB10,959 (US$1,501), respectively, were deducted against the deferred tax assets on tax losses carry
forward, and the remaining amounts of RMB153,900 and RMB152,161 (US$20,846), respectively were presented in the other non-
current liabilities in the consolidated balance sheets. The Group’s unrecognized tax benefits for the years ended December 31, 2023 and
2024 were primarily related to the tax-deduction of share-based compensation expenses and disposal of long-term investments. It is
possible that the amount of unrecognized benefits will change in the next 12 months; however, an estimate of the range of the possible
change cannot be made at this moment. As of December 31, 2023, and 2024, there were RMB153,900 and RMB152,161 (US$20,846)
of unrecognized tax benefits that if recognized would impact the annual effective tax rate. A reconciliation of the beginning and ending
amount of unrecognized tax benefit is as follows:
2023
2024
RMB
RMB
US$
Balance at January 1
172,557
168,416
23,073
Additions based on tax positions related to
current year
3,086
467
64
Reversal based on tax positions related to prior
years
(9,651)
(7,932)
(1,087)
Foreign exchange translation adjustments
2,424
2,169
297
Balance at December 31
168,416
163,120
22,347
The Group recognizes accrued interest related to unrecognized tax benefits in income tax expenses. As of December 31,2023 and
2024, the Group had accrued interest of RMB6,009 and RMB3,585 (US$491) respectively. For the years ended December 31, 2022,
2023 and 2024, the Group reversed RMB3,760, RMB847, and RMB2,424 (US$332) in interest, respectively. The Group did not record
any penalties related to unrecognized tax benefits.
As of December 31, 2024, the tax years ended December 31, 2019 through 2024 for the Group’s subsidiaries in the PRC and the
VIEs are generally subject to examination by the PRC tax authorities. The tax years ended December 31, 2020 through 2024 for the
Group’s subsidiary in the Singapore is generally subject to examination by the Singapore tax authorities. The tax years ended December
31, 2018 through 2024 for the Group’s subsidiaries in Hong Kong are generally subject to examination by the Hong Kong tax authorities.
CHEETAH MOBILE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2022, 2023 AND 2024
(Amounts in thousands of Renminbi (“RMB”) and U.S. Dollars (“US$”), except for number of shares and per share (or ADS)
data)
F-47
16.
RELATED PARTY TRANSACTIONS
a) Principal related parties
Name of related parties
Relationship with the Group
Tencent and its subsidiaries (“Tencent Group”)
Kingsoft and its subsidiaries and their respective associates
(“Kingsoft Group”)
OrionStar and its subsidiaries (“OrionStar Group”)(1)
Pixiu Inc. and its subsidiaries (“Pixiu Group”)
Live.me and its subsidiaries (“Live.me Group”)
Entities controlled by a shareholder of the Group
Entities controlled by a shareholder of the Group
Entities controlled by a director of the Group
Entities influenced significantly by the Group
Entities that the Group owns 49.6% shares of ownership
(1) OrionStar Group became the subsidiary of the Company since November 30, 2023 as disclosed in Note 3. As a result, OrionStar Group was not
considered as the Group’s related party since then.
b) Material related party transactions
In addition to the transactions detailed elsewhere in these financial statements, the Group had the following material related
party transactions for the years ended December 31, 2022, 2023 and 2024:
For the year ended December 31,
2022
2023
2024
RMB
RMB
RMB
US$
Services received from:
(i)
Kingsoft Group
15,236
14,248
12,243
1,677
Tencent Group
20,534
13,293
19,444
2,664
OrionStar Group
347
2,324
—
—
Services provided to:
(ii)
Tencent Group
12,479
9,565
6,668
914
OrionStar Group
2,610
2,402
—
—
Pixiu Group
433
972
1,220
167
Live.me Group
33,305
35,006
27,531
3,772
Purchase of products and
equipment:
OrionStar Group
(iii)
1,130
991
—
—
Sales of products and equipment:
—
—
—
—
Others
—
—
17,726
2,428
Loans and investments provided
to:
Pixiu Group
(iv)
14,181
—
—
—
(i)
The Group entered into agreements with Kingsoft Group pursuant to which Kingsoft Group provided services including cloud
services, leasing, license and other miscellaneous services to the Group; The Group entered into agreements with Tencent Group
pursuant to which Tencent Group provided promotion, distribution and cloud services to the Group; The Group entered into
agreements with OrionStar Group pursuant to which OrionStar Group provided technical support services to the Group.
(ii)
The Group entered into agreement with Tencent Group to provide online marketing services to Tencent Group; The Group entered
into agreement with Live.me, Pixiu Group and OrionStar Group to provide technical support, multi-cloud management and other
services.
(iii)
The Group entered into distribution and several robotics purchase agreements with OrionStar Group, pursuant to which the Group
purchased robotics products from OrionStar Group.
CHEETAH MOBILE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2022, 2023 AND 2024
(Amounts in thousands of Renminbi (“RMB”) and U.S. Dollars (“US$”), except for number of shares and per share (or ADS)
data)
F-48
(iv)
The Group entered into loan agreements with Pixiu Group including a 3-year capital allocation loan which the original expiration
date was January 2022 and renewed annually after 2022. The expiration date for the remaining principal balance is extended to
December 2025.
c. Balances of related party transactions
The balances between the Group and its related parties as of December 31, 2023 and 2024 are listed below:
(1) Amount due from related parties, net
As of December 31,
2023
2024
RMB
RMB
US$
Live.me Group
20,654
11,877
1,627
Tencent Group
5,476
40,481
5,546
Pixiu Group
21,097
21,839
2,992
Kingsoft Group
4,188
6,455
884
Other related parties
20,090
26,282
3,601
Total
71,505
106,934
14,650
The movements in the allowance for credit losses were as follows:
Year ended December 31,
2023
2024
RMB
RMB
US$
Balance as of January 1
67,089
35,582
4,875
(Reverse)/Addition
(30,534)
1,128
155
Amounts written off
(1,026)
—
—
Foreign Exchange effect
53
137
19
Total
35,582
36,847
5,049
(2) Amount due to related parties
As of December 31,
2023
2024
RMB
RMB
US$
Tencent Group
9,776
12,570
1,722
Kingsoft Group
3,597
2,662
365
Other related parties(i)
70,774
54,374
7,449
Total
84,147
69,606
9,536
(i)
As of December 31, 2024, the amount of due to other related parties primarily included a convertible loan with principal
amount of RMB49,192(US$6,739) due by Beijing OrionStar to Mr. Sheng Fu, chief executive officer and director of the
Group.
17.
SHARE-BASED COMPENSATION
2023 Share Incentive Plan
CHEETAH MOBILE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2022, 2023 AND 2024
(Amounts in thousands of Renminbi (“RMB”) and U.S. Dollars (“US$”), except for number of shares and per share (or ADS)
data)
F-49
On April 11, 2023, the board of directors of the Company approved to adopt a share incentive plan (the “2023 Incentive Plan”).
The 2023 Incentive plan provides for the grant of restricted shares and share options to members of the Board, employees or consultants
of the Group. The maximum aggregate number of Shares which may be issued or transferred under the 2023 incentive Plan shall be
equal to 145,000,000 Shares. Unless terminated earlier, the 2023 incentive Plan will expire on the tenth anniversary of the Effective
Date. Vesting conditions will be specified under each award agreement. Except for service conditions, there were no other vesting
conditions for all the awards under 2023 Incentive Scheme.
The following table summarizes the restricted shares activity pursuant to the 2023 Incentive Plan for the years ended December
31, 2023 and 2024:
Number of Shares
Weighted average grant date
fair value (US$)
Outstanding at January 1, 2023
-
-
Granted
103,270,550
0.05
Vested
(36,941,200)
0.05
Forfeited
-
-
Unvested at December 31, 2023
66,329,350
0.04
Granted
-
-
Vested
(9,472,450)
0.05
Forfeited
(1,710,900)
0.05
Unvested at December 31, 2024
55,146,000
0.05
The fair value of the restricted shares was determined based on the price of the Company’s publicly traded ADSs.
As of December 31, 2024, the total estimated unrecognized share-based compensation expenses related to restricted shares
awarded amounted to RMB6,287 (US$861), and is expected to be recognized over a weighted-average period of 1.6 years.
The total fair value of vested restricted shares on their respective vesting dates during the years ended December 31, 2023 and
2024 were RMB13,587 and RMB4,773(US$654).
CHEETAH MOBILE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2022, 2023 AND 2024
(Amounts in thousands of Renminbi (“RMB”) and U.S. Dollars (“US$”), except for number of shares and per share (or ADS)
data)
F-50
2014 Restricted Shares Plan
On April 22 and April 24, 2014, the board of directors and the shareholders of the Company approved to adopt a restricted shares
plan (the “2014 Restricted Shares Plan”), respectively. Under the 2014 Restricted Shares Plan, the Company is authorized to issue up to
122,545,665 Class A ordinary shares (excluding shares which have lapsed or have been forfeited) pursuant to the grant of restricted
shares and restricted share units thereunder. Unless terminated earlier, the 2014 Restricted Shares Plan has a validity term of 10 years
and was due to terminate in 2024. Upon approval of our board of directors, the validity term has been extended to April, 2029. The share
awards granted under 2014 Restricted Shares Plan had vesting terms of no longer than 5 years from the date of grant. Except for service
conditions, there were no other vesting conditions for all the awards under 2014 Restricted Shares Plan.
The following table summarizes the restricted shares activity pursuant to the 2014 Restricted Shares Plan for the years ended
December 31, 2022, 2023 and 2024, respectively:
Number of shares
Weighted average
grant date
fair value (US$)
after modification
Unvested at January 1, 2022
6,562,640
0.22
Granted
—
—
Vested
(2,160,940)
0.36
Forfeited
(373,150)
0.26
Unvested at December 31, 2022
4,028,550
0.14
Granted
31,580,058
0.04
Vested
(6,629,200)
0.06
Forfeited
(2,993,700)
0.05
Unvested at December 31, 2023
25,985,708
0.05
Granted
30,808,300
0.09
Vested
(10,016,440)
0.06
Forfeited
(14,183,788)
0.05
Unvested at December 31, 2024
32,593,780
0.08
The fair value of the restricted shares was determined based on the price of the Company’s publicly traded ADSs.
As of December 31, 2024, the total estimated unrecognized share-based compensation expense related to restricted shares awarded
amounted to RMB12,659 (US$1,734), and is expected to be recognized over a weighted-average period of 2.1 years.
The total fair value of vested restricted shares on their respective vesting dates during the years ended December 31, 2022, 2023
and 2024 were RMB933, RMB2,185 and RMB6,954 (US$953), respectively.
2013 Incentive Scheme
On January 2, 2014, the Company adopted an equity incentive scheme (the “2013 Incentive Scheme”). The 2013 Incentive Scheme
provides for the grant of ordinary shares, restricted shares, share options and share appreciation rights to the employees, directors or
non-employee consultants of the Company. The maximum number of the Company’s ordinary shares which may be issued under the
2013 Incentive Scheme is 64,497,718 (excluding shares which have lapsed or have been forfeited). The 2013 Incentive Scheme is valid
and effective for a term of ten years commencing from its adoption and terminated upon its expiration in January 2024. Except for
service conditions, there were no other vesting conditions for all the awards under 2013 Incentive Scheme. As of December 31, 2024,
all the share awards granted under 2013 Incentive Scheme had vesting terms of no longer than 5 years from the date of grant.
CHEETAH MOBILE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2022, 2023 AND 2024
(Amounts in thousands of Renminbi (“RMB”) and U.S. Dollars (“US$”), except for number of shares and per share (or ADS)
data)
F-51
The following table summarizes the restricted shares activity pursuant to the 2013 Incentive Scheme for the years ended December
31, 2022, 2023 and 2024, respectively:
Number of
shares
Weighted average
grant date
fair value (US$)
after modification
Outstanding at January 1, 2022
7,596,470
0.23
Granted
469,490
0.08
Vested
(2,350,790)
0.27
Forfeited
(628,180)
0.50
Unvested at December 31, 2022
5,086,990
0.17
Granted
641,412
0.05
Vested
(1,038,123)
0.27
Forfeited
(975,867)
0.13
Unvested at December 31, 2023
3,714,412
0.12
Granted
—
—
Vested
(2,128,853)
0.12
Forfeited
(209,499)
0.17
Unvested at December 31, 2024
1,376,060
0.12
The fair value of the restricted shares was determined based on the price of the Company’s publicly traded ADSs.
As of December 31, 2024, the total estimated unrecognized share-based compensation expense related to restricted shares awarded
amounted to RMB270 (US$37), and is expected to be recognized over a weighted-average period of 1.0 years.
The total fair value of vested restricted shares on their respective vesting dates for the years ended December 31, 2022, 2023 and
2024 were RMB1,409, RMB471 and RMB801 (US$110).
2011 Share Award Scheme
On May 26, 2011, the board of directors of the Company approved and adopted the 2011 Share Award Scheme, as amended in
September 2013 and November 2016, to recognize the contributions of certain employees and to give incentives thereto in order to
retain them for the continued operation and development of the Group. Under the 2011 Share Award Scheme, the board of directors
may grant restricted shares to its employees and directors to receive an aggregate of no more than 100,000,000 ordinary shares of the
Company (excluding shares which have lapsed or have been forfeited) as at the date of such grant. Unless early terminated by the board
of directors of the Company, the 2011 Share Award Scheme is valid and effective for a term of ten years commencing from its adoption
and terminated upon its expiration in May 2021. Under the 2011 Share Award Scheme, grantees have no dividend or voting rights until
the restricted shares are vested.
CHEETAH MOBILE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2022, 2023 AND 2024
(Amounts in thousands of Renminbi (“RMB”) and U.S. Dollars (“US$”), except for number of shares and per share (or ADS)
data)
F-52
The following table summarizes the restricted shares activity pursuant to the 2011 Share Award Scheme for the years ended
December 31, 2022, 2023 and 2024, respectively:
Number of shares
Weighted average
grant date
fair value (US$)
Unvested at January 1, 2022
208,950
0.39
Granted
—
—
Vested
(121,775)
0.49
Forfeited
—
—
Unvested at December 31, 2022
87,175
0.26
Granted
—
—
Vested
(87,175)
0.26
Forfeited
—
—
Unvested at December 31, 2023
—
—
Granted
—
—
Vested
—
—
Forfeited
—
—
Unvested at December 31, 2024
—
—
The fair value of the restricted shares was determined based on the price of the Company’s publicly traded ADSs.
As of December 31, 2024, all of the restricted shares awarded have been vested. The total fair value of vested restricted shares on
their respective vesting dates for the years ended December 31, 2022, 2023 and 2024 were RMB39, RMB23 and RMB nil, respectively.
Share-based Awards of subsidiaries
Subsidiaries of the Group also have equity incentive plans granting share-based awards.
The grant date fair value of each share-based award is estimated on the date of grant using the binomial tree option pricing model
with the following assumptions used for years presented:
Year ended
December 31, 2022
Year ended
December 31, 2023
Year ended
December 31, 2024
Fair value of ordinary share (US$)
—
0.81
—
Risk-free interest rates
—
3.80%
—
Expected volatility range
—
55.10%
—
Expected dividend yield
—
—
—
Fair value per option granted (US$)
—
0.81
—
The following table summarizes the share-based compensation expenses of subsidiaries’ share-based awards recognized by the
Group:
For the year ended December 31,
2022
2023
2024
RMB
RMB
RMB
US$
Cost of revenues
469
251
65
9
Research and development
(675)
(703)
1,115
153
Selling and marketing
209
104
(1,232)
(169)
General and administrative
2,225
8,372
10,075
1,381
Total
2,228
8,024
10,023
1,374
CHEETAH MOBILE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2022, 2023 AND 2024
(Amounts in thousands of Renminbi (“RMB”) and U.S. Dollars (“US$”), except for number of shares and per share (or ADS)
data)
F-53
As of December 31, 2024, there was RMB9,914 (US$1,358) unrecognized share-based compensation expenses related to incentive
plans, which is expected to be recognized over a vesting period of 1.7 years.
Total share-based compensation expenses recorded by the Group are as follows:
For the year ended December 31,
2022
2023
2024
RMB
RMB
RMB
US$
Cost of revenues
686
370
81
11
Research and development
1,580
580
1,924
264
Selling and marketing
1,899
509
(662)
(91)
General and administrative
3,698
32,095
24,758
3,392
Total
7,863
33,554
26,101
3,576
18.
COMMITMENT AND CONTINGENCIES
Commitment for cloud services
Future minimum payments under non-cancelable agreements for cloud services consist of the following as of December 31, 2024.
Total
Less than
1 Year
1-3 Years
More than 3
Years
Purchase obligations
138,067
72,028
66,039
-
Capital commitment
As of December 31, 2024, commitments for the purchase of fixed assets are immaterial.
Litigation and investigation
The Staff of the Division of Enforcement of the SEC conducted an investigation relating to the Group’s disclosures for fiscal year
2015 regarding its relationship with one of its advertising business partners. The SEC investigation also relates to Rule 10b5-1 trading
plans entered into by certain current and former officers and directors of the Group and sales of the Group’s ADS under those plans in
2015 and 2016. On September 21, 2022, the Group’s Chairman of the Board and Chief Executive Officer, Mr. Sheng Fu, reached a
resolution with the SEC, the Group were not a party to the settlement. The SEC investigation is now closed, the Group has been informed
that SEC had concluded its investigation with respect to the Group and did not intend to recommend an enforcement action.
Except for the investigation mentioned above, the Group is involved in several proceedings as of December 31, 2024. The Group
records a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. The
Group reviews the need for any such liability on a regular basis. As of December 31, 2023 and 2024, the Group had not identified any
litigation and investigation as material, and no material liabilities were recorded in this regard.
19.
SHAREHOLDERS’ EQUITY
Ordinary shares
Immediately following the IPO, the Memorandum and Articles of Association were amended and restated such that the authorized
share capital of the Company was reclassified and redesignated into 10,000,000,000 shares comprising of (i) 7,600,000,000 Class A
ordinary shares; (ii) 1,400,000,000 Class B ordinary shares; and (iii) 1,000,000,000 reserved shares at par value of US$0.000025 per
share. The rights of the holders of Class A and Class B ordinary shares are identical, except with respect to voting and conversion rights.
Each share of Class A ordinary shares is entitled to one vote per share and is not convertible into Class B ordinary shares under any
circumstances. Each share of Class B ordinary shares is entitled to ten votes per share and is convertible into one Class A ordinary share
at any time by the holder thereof. Upon any transfer of Class B ordinary shares by the holder thereof to any person or entity that is not
CHEETAH MOBILE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2022, 2023 AND 2024
(Amounts in thousands of Renminbi (“RMB”) and U.S. Dollars (“US$”), except for number of shares and per share (or ADS)
data)
F-54
an affiliate of such holder, such Class B ordinary shares would be automatically converted into an equal number of Class A ordinary
shares. There were nil Class B ordinary shares transferred to Class A ordinary shares in the years ended December 31, 2023 and 2024.
As of December 31, 2023, there were 487,212,501 and 1,006,956,885 Class A and Class B ordinary shares outstanding,
respectively. As of December 31, 2024, there were 499,357,794 and 1,016,429,335 Class A and Class B ordinary shares outstanding,
respectively. The vested restricted shares but have not physically been issued are considered outstanding as each period end and included
in the calculation of basic losses per share.
Accumulated losses
In accordance with the PRC Regulations on Enterprises with Foreign Investment and their articles of association, a foreign
invested enterprise established in the PRC is required to provide certain statutory reserves, namely general reserve fund, the enterprise
expansion fund and staff welfare and bonus fund which are appropriated from net profit as reported in the enterprise’s PRC statutory
accounts. A foreign invested enterprise is required to allocate at least 10% of its annual after-tax profit to the general reserve until such
reserve has reached 50% of its respective registered capital based on the enterprise’s PRC statutory accounts. Appropriations to the
enterprise expansion fund and staff welfare and bonus fund are at the discretion of the board of directors for all foreign invested
enterprises. The aforementioned reserves can only be used for specific purposes and are not distributable as cash dividends.
Additionally, in accordance with the Company Law of the PRC, a domestic enterprise is required to provide statutory common
reserve of at least 10% of its annual after-tax profit until such reserve has reached 50% of its respective registered capital based on the
enterprise’s PRC statutory accounts. A domestic enterprise is also required to provide a statutory public welfare fund and a discretionary
surplus reserve, at the discretion of the board of directors, from the profits determined in accordance with the enterprise’s PRC statutory
accounts. The aforementioned reserves can only be used for specific purposes and are not distributable as cash dividends.
As of December 31,
2023
2024
RMB
RMB
US$
PRC statutory reserve funds
67,800
75,068
10,284
Unreserved retained losses
(680,902)
(1,307,645)
(179,147)
Total accumulated losses
(613,102)
(1,232,577)
(168,863)
Under PRC laws and regulations, there are restrictions on the Company’s subsidiaries in the PRC and VIEs with respect to
transferring certain of their net assets to the Company either in the form of dividends, loans, or advances. Such restriction amounted to
RMB3,176,859 (US$435,228) as of December 31, 2024.
Furthermore, cash transfers from the Company’s subsidiaries in the PRC to its subsidiaries outside of China are subject to PRC
government control of currency conversion. Shortages in the availability of foreign currency may restrict the ability of the subsidiaries
in the PRC and VIEs to remit sufficient foreign currency to pay dividends or other payments to the Company, or otherwise satisfy their
foreign currency denominated obligations.
CHEETAH MOBILE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2022, 2023 AND 2024
(Amounts in thousands of Renminbi (“RMB”) and U.S. Dollars (“US$”), except for number of shares and per share (or ADS)
data)
F-55
Accumulated other comprehensive income
The components of accumulated other comprehensive income were as follows:
Foreign
currency
translation
adjustment
Unrealized gains
on available-
for sale Securities
Total
RMB
RMB
RMB
Balance at December 31, 2021
88,350
(88)
88,262
Other comprehensive income before reclassification
263,371
—
263,371
Amount reclassified from accumulated other comprehensive
income
—
—
—
Net current-period other comprehensive income
263,371
—
263,371
Other comprehensive income attribute to noncontrolling
interests
2,315
—
2,315
Balance at December 31, 2022
354,036
(88)
353,948
Other comprehensive income/(loss) before reclassification
45,769
(43,494)
2,275
Amount reclassified from accumulated other comprehensive
income
—
—
—
Net current-period other comprehensive income
45,769
(43,494)
2,275
Other comprehensive income attribute to noncontrolling
interests
631
—
631
Balance at December 31, 2023
400,436
(43,582)
356,854
Other comprehensive income before reclassification
72,462
2,642
75,104
Amount reclassified from accumulated other comprehensive
income
(23,417)
—
(23,417)
Net current-period other comprehensive income
49,045
2,642
51,687
Other comprehensive income attribute to noncontrolling
interests
1,882
—
1,882
Balance at December 31, 2024
451,363
(40,940)
410,423
Balance at December 31, 2024, in US$
61,837
(5,609)
56,228
The amounts reclassified out of accumulated other comprehensive income represent realized foreign currency translation
adjustments associated with the deregistration of certain subsidiaries of the Group. These amounts were recorded in "Other expense" in
the consolidated statements of comprehensive losses.
There was nil tax expense or benefit recognized related to the changes of each component of accumulated other comprehensive
income for the years ended December 31, 2022, 2023 and 2024.
CHEETAH MOBILE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2022, 2023 AND 2024
(Amounts in thousands of Renminbi (“RMB”) and U.S. Dollars (“US$”), except for number of shares and per share (or ADS)
data)
F-56
20. REDEEMABLE NON-CONTROLLING INTERESTS
On November 30, 2023, the Group acquired additional 35.17% equity interest of Beijing OrionStar from certain of the existing
shareholders of Beijing OrionStar, including Mr. Sheng Fu, chief executive officer and director of the Company, for an aggregate cash
consideration of RMB268,724. The Group held, taking into account its existing shareholding, 72.91% of Beijing OrionStar’s equity
interest and consolidated the financial results of Beijing OrionStar since November 30, 2023.
In January, 2024, the Group further invested US$16.7 million in cash and converted all of the principal and the accrued interest
under the convertible loan with principal amount of RMB100 million that the Group provided to Beijing OrionStar in 2021 into Beijing
OrionStar's equity interest. Additionally, Gongqingcheng Orion Industrial Investment Center (Limited Partnership) (the "Fund") made
an investment of RMB150 million, into Beijing OrionStar. One of the Group’s wholly-owned subsidiaries, Conew Network, is one
of the limited partners of the Fund and currently owns 49.5% interest in the Fund. After the completion of the investment, the Group
held, both directly and indirectly, 73.95% equity interest in Beijing OrionStar, including the stake it holds indirectly through the Fund.
The indirect interest held by the Group through the Fund is considered to be controlled by the Group and the other limited partner and
the fund manager of the fund holds preferred shares and are recognized as mezzanine equity of the Group.
According to Beijing OrionStar’s article of association and related investment agreements, certain non-controlling
shareholders have the right to cause the Group to purchase all (but not less than all) of the shares at put option price. The exercise of the
put option is subject to certain conditions as set out in the article of association and related investment agreements of Beijing OrionStar,
which is not solely within the control of the Beijing OrionStar. Such shares held by the non-controlling shareholders are recognized as
mezzanine equity of the Group. In addition, in the event of any liquidation, dissolution or winding up of Beijing OrionStar, either
voluntarily or involuntarily, certain non-controlling shareholders have the right to receive the certain liquidation preference price before
the holders of ordinary shares, and ratably participate in distribution of the remaining assets after fully been paid of the liquidation
preference price. In January 2025, a certain non-controlling shareholder’s shares became redeemable with a trigger-date redemption
price of RMB79.4 million upon meeting specific triggering events outlined in the agreements. These shares continue to be classified as
mezzanine equity of the Group under ASC 480-10-S99-3A.
The Group accretes changes in the redemption value over the period from the date that it becomes probable that the mezzanine
equity will become redeemable to the earliest redemption date using the effective interest method. The redeemable non-controlling
interests for the years ended December 31, 2022, 2023 and 2024 are summarized below:
For the year
ended December 31,
Balance as of January 1, 2023
—
Issuance
105,726
Accretion
252
Balance as of December 31, 2023
105,978
Issuance
75,750
Accretion
7,997
Balance as of December 31, 2024
189,725
Balance as of December 31, 2024, in US$
25,992
CHEETAH MOBILE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2022, 2023 AND 2024
(Amounts in thousands of Renminbi (“RMB”) and U.S. Dollars (“US$”), except for number of shares and per share (or ADS)
data)
F-57
21.
LOSS PER SHARE
Basic and diluted loss per share for each of the years presented are calculated as follows, the effect of share options and restricted
share units were excluded from the computation of diluted net loss per share for the years ended December 31, 2022, 2023 and 2024, as
its effect would be anti-dilutive:
Year ended December 31,
2022
2023
2024
Ordinary
shares
Ordinary
shares
Class A
Ordinary
shares
Class A
Ordinary
shares
Class B
Ordinary
shares
Class B
Ordinary
shares
RMB
RMB
RMB
US$
RMB
US$
Losses per share—basic
Numerator:
Net loss attributable to Cheetah Mobile Inc.
(513,475)
(602,898)
(202,345)
(27,721)
(415,212)
(56,883)
Effect arising from dividends declared on share awards of
consolidated subsidiaries
(8,715)
(107)
51
7
105
14
Accretion of redeemable noncontrolling interests
—
—
(2,620)
(359)
(5,377)
(737)
Net loss attributable to Cheetah Mobile Inc. after accretion of
redeemable noncontrolling interests and dilution effect arising from
share-based awards issued by subsidiaries
(522,190)
(603,005)
(204,914)
(28,073)
(420,484)
(57,606)
Denominator:
Weighted average number of ordinary shares outstanding
1,443,682,305
1,472,615,281
492,482,878
492,482,878
1,010,571,969
1,010,571,969
Losses per share—basic
(0.3617)
(0.4095)
(0.4161)
(0.0570)
(0.4161)
(0.0570)
Losses per share—diluted
Numerator:
Net loss attributable to Cheetah Mobile Inc. after accretion of
redeemable noncontrolling interests and dilution effect arising from
share-based awards issued by subsidiaries
(522,190)
(603,005)
(204,914)
(28,073)
(420,484)
(57,606)
Dilution effect arising from share-based awards issued by subsidiaries
(291)
(699)
(54)
(7)
(110)
(15)
Reallocation of net loss as a result of conversion of Class B into Class
A ordinary shares
—
—
(420,594)
(57,621)
—
—
Net loss attributable to ordinary shareholders
(522,481)
(603,704)
(625,562)
(85,701)
(420,594)
(57,621)
Denominator:
Weighted average ordinary shares outstanding
1,443,682,305
1,472,615,281
492,482,878
492,482,878
1,010,571,969
1,010,571,969
Conversion of Class B into Class A ordinary shares
—
—
1,010,571,969
1,010,571,969
—
—
Denominator used for losses per share
1,443,682,305
1,472,615,281
1,503,054,847
1,503,054,847
1,010,571,969
1,010,571,969
Losses per share—diluted
(0.3619)
(0.4100)
(0.4162)
(0.0570)
(0.4162)
(0.0570)
Losses per ADS:
Denominator used for losses per ADS—basic
28,873,646
29,452,306
30,061,097
30,061,097
Denominator used for losses per ADS—diluted
28,873,646
29,452,306
30,061,097
30,061,097
Losses per ADS—basic
(18.0854)
(20.4740)
(20.8042)
(2.8500)
Losses per ADS—diluted
(18.0954)
(20.4977)
(20.8097)
(2.8500)
Effective September 2, 2022, the Company effected a change of the ratio of the ADS to its Class A ordinary shares from one ADS
representing ten Class A ordinary shares to one ADS representing fifty Class A ordinary shares. The change in the ratio of the ADS to
the Company’s Class A ordinary shares had no impact on its underlying Class A ordinary shares, and no Class A ordinary shares were
issued or cancelled in connection with the change in the ratio of the ADS to its Class A ordinary shares. The number of ADSs as the
denominator used for losses per ADS and losses per ADS amount have been retroactively adjusted to reflect the changes in ratio for all
periods presented.
22.
EMPLOYEE BENEFIT
Full time employees of the Group participate in government mandated defined contribution plan, pursuant to which certain welfare
benefits are provided to employees. The Group has no legal obligation for the benefits beyond the contributions made. The total amounts
for such employee benefits, which were expensed as incurred, were approximately RMB54,510, RMB54,275 and RMB71,841
(US$9,842) for the years ended December 31, 2022, 2023 and 2024, respectively.
CHEETAH MOBILE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2022, 2023 AND 2024
(Amounts in thousands of Renminbi (“RMB”) and U.S. Dollars (“US$”), except for number of shares and per share (or ADS)
data)
F-58
23.
FAIR VALUE MEASUREMENT
ASC 820-10, Fair Value Measurements and Disclosures: Overall (“ASC 820-10”), establishes a three-tier fair value hierarchy,
which prioritizes the inputs used in measuring fair value as follows:
Level 1 - Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets
Level 2 - Include other inputs that are directly or indirectly observable in the marketplace
Level 3 - Unobservable inputs which are supported by little or no market activity
ASC 820-10 describes three main approaches to measuring the fair value of assets and liabilities: (1) market approach; (2) income
approach and (3) cost approach. The market approach uses prices and other relevant information generated from market transactions
involving identical or comparable assets or liabilities. The income approach uses valuation techniques to convert future amounts to a
single present value amount. The measurement is based on the value indicated by current market expectations about those future
amounts. The cost approach is based on the amount that would currently be required to replace an asset.
Assets and liabilities measured or disclosed at fair value on a recurring basis
In accordance with ASC 820-10, the Group measures investment accounted for using fair value option and available-for-sale debt
securities at fair value on a recurring basis. Short-term available-for-sale debt securities are classified within Level 2 as the fair value is
measured by using indirectly inputs observable in the marketplace. The investment accounted for using long-term available-for-sale
debt securities are classified within Level 3 in the fair value hierarchy.
Assets and liabilities measured on a recurring basis or disclosed at fair value are summarized below:
Total Fair
Value
Total Fair
Value
Quoted prices in
active markets
for identical
assets (Level 1)
Significant
other
observable
inputs (Level 2)
Significant
unobservable
inputs (Level 3)
Total (losses)
gains from fair
value changes
RMB
US$
RMB
RMB
RMB
RMB
Fair value measurement—
Recurring:
As of December 31, 2024
Short-term investment
Wealth management products
17
2
17
848
Long-term Investment
Available-for-sale debt securities
95,249
13,049
95,249
2,642
Investments accounted for using
fair value option
8,626
1,182
8,626
(35,354)
As of December 31, 2023
Long-term Investment
Available-for-sale debt securities
111,697
15,732
111,697
(43,494)
Investments accounted for using
fair value option
43,333
6,103
43,333
(334,921)
CHEETAH MOBILE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2022, 2023 AND 2024
(Amounts in thousands of Renminbi (“RMB”) and U.S. Dollars (“US$”), except for number of shares and per share (or ADS)
data)
F-59
Reconciliations of assets categorized within Level 3 under the fair value hierarchy are as follow:
Amounts
RMB
Balance as of January 1, 2022
408,574
Addition
—
Fair value change
(33,871)
Foreign exchange translation adjustments
37,830
Balance as of December 31, 2022
412,533
Addition
111,697
Fair value change
(378,415)
Foreign exchange translation adjustments
9,215
Balance as of December 31, 2023
155,030
Addition
43,954
Reduction
(71,670)
Fair value change
(32,712)
Foreign exchange translation adjustments
647
Balance as of December 31, 2024
95,249
Balance as of December 31, 2024 in US$
13,049
(i)
There were no transfers of fair value measurements into or out of Level 3 for the years ended December 31, 2022, 2023 and for
the year ended December 2024, fair value measurement of the Group's equity interest of Live.me were transferred out of Level 3
to level 2 since that all the shares that the Group held were redeemed by Live.me in February 2025 and the redemption price was
treated as an observable market price.
Significant unobservable inputs used in the recurring fair value measurement for long-term available-for-sale debt securities and
investments accounted for using fair value option (level 3) are presented below:
Fair value
Valuation technique
Unobservable
inputs
Range
Available-for-sale debt securities
95,249 Market approach
•
Volatility
51.5%~60.7%
Significant increases (decreases) in the assumption of volatility in isolation would have resulted in a significantly lower (higher)
fair value measurement.
Assets and liabilities measured or disclosed at fair value on a non-recurring basis
The Group measures certain financial assets as equity investments accounted for using equity method at fair value on a
nonrecurring basis only if an impairment loss were to be recognized. The Group measures equity securities accounted for using
measurement alternative on a non-recurring basis only if there are observable price changes in orderly transactions for identical or
similar investments of the same issuer, or an impairment loss were to be recognized. The Group also measures the remaining interests
upon deconsolidation of certain businesses at fair value on a non-recurring basis. The Group’s non-financial assets, such as intangible
assets and property and equipment, would be measured at fair value only if they were determined to be impaired. The Group performed
impairment assessment of its goodwill annually as of the balance sheet date or more frequently when events or circumstances indicate
an impairment may exist at the reporting unit level, the valuation methodology used to estimate the fair value of goodwill is discussed
in Note10 - Goodwill for further information.
CHEETAH MOBILE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2022, 2023 AND 2024
(Amounts in thousands of Renminbi (“RMB”) and U.S. Dollars (“US$”), except for number of shares and per share (or ADS)
data)
F-60
The following table summarizes the Group’s assets held as of December 31, 2023 and 2024 for which a non-recurring fair value
measurement was recorded during the years ended December 31, 2023 and 2024:
Total
Balance
Total Balance
Quoted prices in
active markets
for identical
assets (Level 1)
Significant
other observable
inputs (Level 2)
Significant
unobservable
inputs (Level 3)
Total (losses)
gains
RMB
US$
RMB
RMB
RMB
RMB
Fair value measurement—
Non-Recurring:
As of December 31, 2024
Equity investments accounted
for using the measurement
alternative
158,890
21,768
158,890
(64,441)
Goodwill
424,099
58,101
424,099
(152,890)
As of December 31, 2023
Equity investments accounted
for using the measurement
alternative
158,771
22,362
158,771
(121,392)
For equity securities accounted for under the measurement alternative, when there are observable price changes in orderly
transactions for identical or similar investments of the same issuer, the investments are re-measured to fair value (Note 5). The non-
recurring fair value measurements to the carrying amount of an investment usually requires management to estimate a price adjustment
for the different rights and obligations between a similar instrument of the same issuer with an observable price change in an orderly
transaction and the investment held by the Group. These non-recurring fair value measurements were measured as of the observable
transaction dates. The valuation methodologies involved require management to use the observable transaction price at the transaction
date and other unobservable inputs (level 3) such as volatility of comparable companies and probability of exit events as it relates to
liquidation and redemption preferences.
When there is impairment of equity securities accounted for under the measurement alternative, the non-recurring fair value
measurements are measured by using market approach by the Group at the date of impairment, which requires management to use
unobservable inputs (level 3). As of December 31, 2024, the carrying value of these impaired investment measured at level 3 inputs
were written down from RMB185,787 to fair value of RMB100,273 (US$13,737). In 2024, certain preferred shares held by the Group
of an investment previously accounted for using the measurement alternative was reclassified and accounted for as available-for-sale
debt securities since the preferred shares are redeemable at the Group’s option. The Group remeasured the fair value of the investment
upon the reclassification with a remeasurement loss of RMB12,173 (US$1,668). The significant unobservable inputs used in the fair
value measurement and the corresponding impacts to the fair values are presented below:
Fair value
Valuation technique
Unobservable
inputs
Range
Equity investments accounted for
using measurement alternative
158,890 Back-Solve method
•
Volatility
65.9%
Market Approach
•
Volatility
50.7%~51.5%
24. SUBSEQUENT EVENTS
The Group has evaluated subsequent events through the date of issuance of the consolidated financial statements and has not
identified any subsequent events that would have material financial impact on the Group’s consolidated financial statements.
CHEETAH MOBILE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2022, 2023 AND 2024
(Amounts in thousands of Renminbi (“RMB”) and U.S. Dollars (“US$”), except for number of shares and per share (or ADS)
data)
F-61
25. CONDENSED FINANCIAL INFORMATION OF THE COMPANY
Balance Sheets
As of December 31,
2023
2024
RMB
RMB
US$
ASSETS
Current assets
Cash and cash equivalents
202,028
156,153
21,393
Prepayments and other current assets, net
2,715
2,442
335
Due from subsidiaries and related parties, net
2,604,647
2,694,282
369,115
Total current assets
2,809,390
2,852,877
390,843
Non-current assets
Long-term investments
152,355
75,831
10,389
Contractual interests in VIEs and their subsidiaries
2,232
57,067
7,818
Investment in subsidiaries
251,747
—
—
Total non-current assets
406,334
132,898
18,207
Total assets
3,215,724
2,985,775
409,050
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accrued expenses and other current liabilities
12,730
10,822
1,482
Investment deficit in subsidiaries
—
325,009
44,526
Due to subsidiaries and related parties
581,529
590,160
80,852
Income tax payable
14,322
13,526
1,853
Total current liabilities
608,581
939,517
128,713
Deferred tax liabilities
8,277
531
73
Other non-current liabilities
142,995
145,129
19,883
Total non-current liabilities
151,272
145,660
19,956
Total liabilities
759,853
1,085,177
148,669
Shareholders’ equity
Class A ordinary shares (par value of US$0.000025 per share;
7,600,000,000 shares authorized; 493,104,900 and 518,104,900 shares
issued as of December 31, 2023 and 2024, respectively; 487,212,501
and 499,357,794 shares outstanding as of December 31, 2023 and
2024, respectively)
81
83
11
Class B ordinary shares (par value of US$0.000025 per share;
1,400,000,000 shares authorized; 1,006,956,885 and 1,016,429,335
shares issued as of December 31, 2023 and 2024, respectively;
1,006,956,885 and 1,016,429,335 shares outstanding as of December
31, 2023 and 2024, respectively)
163
165
23
Additional paid-in capital
2,711,875
2,722,504
372,982
Accumulated losses
(613,102)
(1,232,577)
(168,863)
Accumulated other comprehensive income
356,854
410,423
56,228
Total shareholders’ equity
2,455,871
1,900,598
260,381
Total liabilities and shareholders’ equity
3,215,724
2,985,775
409,050
CHEETAH MOBILE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2022, 2023 AND 2024
(Amounts in thousands of Renminbi (“RMB”) and U.S. Dollars (“US$”), except for number of shares and per share (or ADS)
data)
F-62
Statements of Comprehensive loss
For the year ended December 31,
2022
2023
2024
RMB
RMB
RMB
US$
Revenues
—
—
—
—
Cost of revenues
—
—
—
—
Gross profit
—
—
—
—
Operating expenses
Research and development
—
—
—
—
General and administrative
(23,615)
(14,013)
(21,131)
(2,895)
Impairment of goodwill
—
—
—
—
Total operating expenses
(23,615)
(14,013)
(21,131)
(2,895)
Equity in loss of subsidiaries
(471,710)
(293,917)
(541,389)
(74,169)
Interest income, net
3,211
5,420
6,798
931
Foreign exchange gains/(losses), net
280
658
(553)
(76)
Other expense , net
(25,441)
(329,592)
(69,164)
(9,475)
Loss before income taxes
(517,275)
(631,444)
(625,439)
(85,684)
Income tax expenses
3,800
28,546
7,882
1,080
Net Loss
(513,475)
(602,898)
(617,557)
(84,604)
Other comprehensive (loss) income, net of tax
of nil
Unrealized (losses)/gains on available-for-sale
securities, net
(8,269)
(43,494)
2,642
362
Foreign currency translation adjustments
273,955
46,400
50,927
6,977
Other comprehensive income
265,686
2,906
53,569
7,339
Total comprehensive loss
(247,789)
(599,992)
(563,988)
(77,265)
Statements of Cash Flows
For the year ended December 31,
2022
2023
2024
RMB
RMB
RMB
US$
Net cash used in operating activities
(26,054)
(12,315)
(12,681)
(1,737)
Net cash provided by (used in) investing activities
137,160
82,830
(35,746)
(4,897)
Net cash used in financing activities
—
(2,503)
—
—
Effect of exchange rate changes on cash and cash
equivalents and restricted cash
(761)
3,270
2,552
350
Net increase (decrease) in cash and cash
equivalents and restricted cash
110,345
71,282
(45,875)
(6,284)
Cash and cash equivalents and restricted cash
at beginning of the year
20,401
130,746
202,028
27,677
Cash and cash equivalents and restricted cash
at end of the year
130,746
202,028
156,153
21,393
(a) Basis of presentation
For the Company only condensed financial information, the Company records its investment in its subsidiaries, VIEs and
subsidiaries of VIEs under the equity method of accounting. Such investment is presented on the condensed balance sheets as
“Investment in subsidiaries” and share of their income as “Equity in loss of subsidiaries” on the condensed statements of comprehensive
CHEETAH MOBILE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2022, 2023 AND 2024
(Amounts in thousands of Renminbi (“RMB”) and U.S. Dollars (“US$”), except for number of shares and per share (or ADS)
data)
F-63
loss. The subsidiaries, VIEs and subsidiaries of VIEs did not pay any dividends to the Company for the year ended 31, 2023 and 2024.
The Company received dividends of RMB435,055 and nil from its subsidiaries for the year ended 31, 2023 and 2024, respectively.
The Company only condensed financial information should be read in conjunction with the Group’s consolidated financial
statements.
(b) Commitments and contingencies
The Company does not have any significant commitments or long-term obligations as of any of the periods presented.
The Staff of the Division of Enforcement of the SEC conducted an investigation relating to the Company’s disclosures for fiscal
year 2015 regarding its relationship with one of its advertising business partners. The SEC investigation also relates to Rule 10b5-1
trading plans entered into by certain current and former officers and directors of the Company and sales of the Company’s ADS under
those plans in 2015 and 2016. On September 21, 2022, the Company’s Chairman of the Board and Chief Executive Officer, Mr. Sheng
Fu, reached a resolution with the SEC, the Company were not a party to the settlement. The SEC investigation is now closed, the
Company has been informed that SEC had concluded its investigation with respect to the Company and did not intend to recommend
an enforcement action.
Besides of the investigation mentioned above, there are no pending legal proceedings and litigations that would have a material
adverse impact on the Company's financial positions, results of operations or cash flows as of December 31, 2024.
Exhibit 8.1
LIST OF SIGNIFICANT SUBSIDIARIES AND VIES
Subsidiaries
Place of Incorporation
Forward Vision Corporation Limited ("Forward Vision", formerly known
as Cheetah Technology Corporation Limited)
Hong Kong
Beijing Kingsoft Internet Security Software Co., Ltd.
People’s Republic of China
Conew Network Technology (Beijing) Co., Ltd
People’s Republic of China
Hongkong Zoom Interactive Network Marketing Technology Limited
Hong Kong
Cheetah Information Technology Company Limited
Hong Kong
Dream Ahead Pte. Ltd.("Dream Ahead", formerly known as Cheetah
Mobile Singapore Pte. Ltd.)
Singapore
Multicloud Limited
Hong Kong
Beijing Kingsoft Cheetah Technology Co., Ltd.
People’s Republic of China
Jingdezhen Jibao Information Service Co., Ltd.
People’s Republic of China
Japan Kingsoft Inc.
Japan
Zhuhai Baoqu Technology Co., Ltd.
People’s Republic of China
Zhuhai Baobaohong Technology Co., Ltd
People’s Republic of China
Zhuhai Baohaowan Technology Co., Ltd.
People’s Republic of China
Beijing Orion Star Technology Co., Ltd.
People’s Republic of China
Hongkong Cheetah Mobile Technology Limited
Hong Kong
Conew.com Corporation
British Virgin Islands
Cheepop Inc.
Cayman
Cheetah Mobile Seal Inc.
Cayman
Cheetah Mobile Calls Hong Kong Limited
Hong Kong
Zhuhai Juntian Electronic Technology Co., Ltd.
People’s Republic of China
Variable Interest Entities
Beijing Conew Technology Development Co., Ltd.
People’s Republic of China
Beijing Cheetah Mobile Technology Co., Ltd.
People’s Republic of China
Beijing Cheetah Network Technology Co., Ltd.
People’s Republic of China
Exhibit 11.2
1
THE SYMBOL “[***]” DENOTES PLACES WHERE CERTAIN IDENTIFIED
INFORMATION HAS BEEN EXCLUDED FROM THE EXHIBIT BECAUSE IT IS
BOTH (i) NOT MATERIAL, AND (ii) IS THE TYPE THAT THE REGISTRANT
TREATS AS PRIVATE OR CONFIDENTIAL.
CHEETAH MOBILE INC.
STATEMENT OF POLICIES
GOVERNING MATERIAL, NON-PUBLIC INFORMATION AND
THE PREVENTION OF INSIDER TRADING
(AS ADOPTED BY THE BOARD OF DIRECTORS ON JUNE 7, 2024)
This Statement of Policies Governing Material, Non-Public Information and the
Prevention of Insider Trading (this “Statement”) applies to all directors, officers, employees
and consultants of Cheetah Mobile Inc. and its subsidiaries and consolidated and affiliated
entities (collectively, the “Company”).
This Statement consists of seven sections: Section I provides an overview;
Section II sets forth the Company’s policies prohibiting insider trading; Section III explains
insider trading; Section IV lists out prohibited transactions; Section V introduces Rule 10b5-1
trading plans; Section VI sets out the Company’s policies on reporting violations and seeking
advice; and Section VII clarifies the applicability to post-termination transactions.
I.
SUMMARY
Preventing insider trading is necessary to comply with United States securities
law and to preserve the reputation and integrity of the Company as well as that of all persons
affiliated with it. “Insider trading” occurs when any person purchases or sells any securities
while in possession of inside information relating to the securities. As explained in Section III
below, “inside information” is information which is considered to be both “material” and “non-
public.”
The Company considers strict compliance with the policies set forth in this
Statement (collectively, the “Policy”) to be a matter of utmost importance. Violation of the
Policy could cause extreme embarrassment and possible legal liability to you and the Company.
Knowing or willful violations of the letter or spirit of the Policy will be grounds for immediate
dismissal from the Company. Violation of the Policy might expose the violator to severe
criminal penalties as well as civil liability to any person injured by the violation. The monetary
damages flowing from a violation could be multiple times the profit realized by the violator,
not to mention the attorney’s fees of the persons injured.
Exhibit 11.2
2
This Statement applies to all directors, officers, employees and consultants of
the Company and extends to all of such persons’ activities within and outside their duties at
the Company. Every director, officer and employee and consultant of the Company must review
this Statement, and when requested by the Company, must execute and return the Certification of
Compliance attached hereto to Thomas Ren (the “Compliance Officer”), within seven (7) days
after receiving the request.
Questions regarding this Statement should be directed to the Compliance Officer
by email at [***].
(Remainder of the page intentionally left blank)
Exhibit 11.2
3
II.
POLICIES PROHIBITING INSIDER TRADING
For purposes of this Statement, the terms “purchase” and “sell” of securities
exclude the acceptance of options or other share-based awards granted by the Company and the
exercise of options or vesting of other share-based awards, if applicable, that does not involve
the sale of securities. Among other things, the cashless exercise of options does involve the sale
of securities and therefore is subject to the policies set forth below. The Policy does not apply to
the exercise of a tax withholding right pursuant to which you elect to have the Company
withhold ordinary shares or ADSs (as defined below) subject to an option or other award to
satisfy tax withholding requirements.
A.
No Trading - No director, officer, employee or consultant of the Company
shall purchase or sell any type of security or enter into a binding security trading plan in
compliance with Rule 10b5-1 under the U.S. Securities Exchange Act of 1934, as amended
(a “Trading Plan”) while in possession of material, non-public information relating to the
Company, its American Depositary Shares (“ADSs”) representing its ordinary shares or
other securities (the “Material Information”).
In the event that the Material Information possessed by you relates to the ADSs or
other securities of the Company, the above policy will require waiting for at least forty-eight (48)
hours after public disclosure of the Material Information by the Company, which forty-eight (48)
hours shall include in all events at least one full Trading Day on New York Stock Exchange
following such public disclosure. The term “Trading Day” is defined as a day on which New
York Stock Exchange is open for trading. Except for public holidays in the U.S., New York
Stock Exchange’s regular trading hours are from 9:30 a.m. to 4:00 p.m., New York City time,
Monday through Friday.
In addition, no director, officer, employee or consultant of the Company may
purchase or sell any securities of the Company or enter into a Trading Plan, without the
prior clearance by the Compliance Officer, during any period designated as a “limited
trading period” by the Company, regardless of whether such director, officer, employee or
consultant possesses any Material Information. For the avoidance of any doubt, a “limited
trading period” is a period designated by the Company during which all directors, officers,
employees, and consultants of the Company are generally prohibited from trading in the
Company’s securities. This restriction, usually implemented during sensitive events, aims
to prevent insider trading by those with potential access to material non-public
information.
Furthermore, all transactions in the securities of the Company (including
without limitation, acquisitions and dispositions of the ADSs, the sale of ordinary shares
issued upon exercise of stock options or vesting of other share-based awards, and the
execution of a Trading Plan, but excluding the acceptance of options granted by the
Company and the exercise of options or vesting of other share-based awards that does
not involve the sale of securities) by directors, officers and key employees designated by
the Company from time to time must be pre-approved by the Compliance Officer.
Exhibit 11.2
4
Employees will be notified by the Company if they are in the group required to obtain such
pre-approval.
Please see Section III below for an explanation of Material Information.
B.
Trading Window – Assuming none of the “no trading” restrictions set
forth in Section II-A above applies, no director, officer, employee or consultant shall
purchase or sell any securities of the Company or enter into a Trading Plan other
than during a Trading Window.
A “Trading Window” is the period in any fiscal quarter of the Company
commencing at the close of business on the second Trading Day following the date of the
Company’s public disclosure of its financial results for the prior year or quarter, as
applicable, and ending on December 31, March 31, June 30, or September 30, as the case
may be.
In other words,
(1)
beginning on January 1 of each year, no director, officer, employee
or consultant shall purchase or sell any securities of the Company or enter into a Trading
Plan until the close of business on the second Trading Day following the date of the
Company’s public disclosure of its financial results for the fiscal year ended on December
31 of the prior year, and
(2)
beginning on April 1, July 1, and October 1 of each year, respectively,
no director, officer, employee or consultant shall purchase or sell any securities of the
Company or enter into a Trading Plan until the close of business on the second Trading
Day following the date of the Company’s public disclosure of its financial results for the
fiscal quarter ended on March 31, June 30, and September 30 of that year, respectively.
If the Company’s public disclosure of its financial results for the prior period
occurs on a Trading Day more than four hours before New York Stock Exchange closes, then
such date of disclosure shall be considered the first Trading Day following such public
disclosure.
Please note that trading in any securities of the Company during an open
Trading Window is not a “safe harbor,” and all directors, officers, employees and
consultants should strictly comply with all the policies set forth in this Statement. The
Company’s directors or officers shall seek the Legal Department’s approval at least ten
business days prior to trading the Company’s securities even during an open trading
window.
When in doubt, do not trade! Check with the Compliance Officer first.
Notwithstanding the foregoing, sale of securities of the Company pursuant to an
existing Trading Plan which was entered into in accordance with the Policy and in compliance
with applicable law is not subject to the restrictions on trading in Sections II-A and II-B above.
Exhibit 11.2
5
C.
Other Blackout Periods
During the following blackout periods, the Company’s securities (except by
means of pre-arranged Trading Plans established in compliance with the Policy) may not be
traded:
Interim Earnings Guidance Blackout. The Company may on occasion issue
interim earnings guidance or other potentially material information by means of a press release,
a filing to the U.S. Securities and Exchange Commission (the “SEC”), or other means designed
to achieve widespread dissemination of the information. You should anticipate that trading of
the Company’s securities will be blacked out while the Company is in the process of assembling
the information to be released and until the information has been released and fully absorbed by
the market. Any such trading blackout will be communicated to directors, officers, and
employees subject to the blackout.
Event-Specific Blackout. From time to time, an event may occur that is material
to the Company (e.g., significant acquisitions) and is known by only a few directors, officers
and/or employees. The existence of an event-specific blackout will not be announced. If,
however, a person whose trades are subject to pre-clearance requests permission to trade in the
Company’s securities during an event-specific blackout, the Legal Department will inform the
requesting person of the existence of a blackout period, without disclosing the reason for the
blackout. Any person made aware of the existence of an event-specific blackout should not
disclose the existence of the blackout to any other person.
NOTE: Even if a blackout period is not in effect, at no time may you trade in
Company securities if you are in possession of material nonpublic information about the
Company. The failure of the Legal Department to notify you of an event-specific blackout will
not relieve you of the obligation not to trade while in possession of material nonpublic
information.
D.
Legal Compliance of Trading Plans - In addition to and notwithstanding
the policies contained elsewhere in this Statement that apply to Trading Plans, all insiders
of the Company must abide by all applicable U.S. securities laws and regulations when
adopting, amending, and terminating a Trading Plan.
E.
No Tipping - No director, officer, employee or consultant shall directly or
indirectly disclose any Material Information to anyone who trades in securities (so-called
“tipping”) while in possession of such Material Information.
F.
Confidentiality - No director, officer, employee or consultant of the Company
shall communicate any Material Information to anyone outside the Company under any
circumstances unless approved by the Compliance Officer in advance, or to anyone within the
Company other than on a need-to-know basis.
G.
No Comment - No director, officer, employee or consultant of the Company
shall discuss any internal matters or developments of the Company with anyone outside of the
Company, except as required in the performance of regular corporate duties. Unless you are
expressly authorized to the contrary, if you receive any inquiries about the Company or its
Exhibit 11.2
6
securities by the financial press, investment analysts or others, or any requests for comments or
interviews, you should decline comment and direct the inquiry or request to the Company’s
Chief Financial Officer, who is responsible for coordinating and overseeing the release of the
information of the Company to the investing public, analysts and others in compliance with
applicable laws and regulations.
H.
Corrective Action - If you become aware that any potential Material Information
has been or may have been inadvertently disclosed, any director, officer, employee or
consultant should notify the Compliance Officer immediately so that the Company can
determine whether or not corrective action, such as general disclosure to the public, is
warranted.
III.
EXPLANATION OF INSIDER TRADING
As noted above, “insider trading” refers to the purchase or sale of a security
while in possession of “material” “non-public” information relating to the security. “Securities”
include not only stocks, bonds, notes and debentures, but also options, warrants and similar
instruments. “Purchase” and “sale” are defined broadly under the U.S. federal securities law.
“Purchase” includes not only the actual purchase of a security, but any contract to purchase or
otherwise acquire a security. “Sale” includes not only the actual sale of a security, but any
contract to sell or otherwise dispose of a security. These definitions extend to a broad range of
transactions including conventional cash-for-stock transactions, the grant and exercise of stock
options and acquisitions and exercises of warrants or puts, calls or other options related to a
security. It is generally understood that “insider trading” includes the following:
•
Trading by insiders while in possession of material, non-public information;
•
Trading by persons other than insiders while in possession of material, non-
public information where the information either was given in breach of an
insider’s fiduciary duty to keep it confidential or was misappropriated; or
•
Communicating or tipping material, non-public information to others, including
recommending the purchase or sale of a security while in possession of such
information.
As noted above, for purposes of this Statement, the terms “purchase” and “sell” of
securities exclude the acceptance of options granted by the issuer thereof and the exercise of
options that does not involve the sale of securities. However, the subsequent sales of the
underlying securities are subject to such policies. Among other things, the cashless exercise of
options does involve the sale of securities and therefore is subject to the policies set forth in this
Statement.
What Information Is Material?
The materiality of information depends upon the circumstances. Information is
considered “material” if there is a substantial likelihood that a reasonable investor would
Exhibit 11.2
7
consider it important in making a decision to buy, sell or hold a security or where the fact is
likely to have a significant effect on the market price of the security. Material information can
be positive or negative and can relate to virtually any aspect of a company’s business or to any
type of security, debt or equity.
Examples of material information include (but are not limited to) information
concerning:
•
dividends;
•
corporate earnings, earnings forecasts or changes to previously released earnings
announcements or guidance;
•
other unpublished financial results;
•
write-downs and additions to reserves for bad debts;
•
changes in financial condition or asset value;
•
negotiations for the mergers or acquisitions or dispositions of significant
subsidiaries or assets;
•
significant new contracts or the loss of a significant contract;
•
significant new products or services;
•
significant marketing plans or changes in such plans;
•
capital investment plans or changes in such plans;
•
pending or threatened material litigation, administrative action or
governmental investigations or inquiries about the Company or any of its
subsidiaries or affiliated entities, officers or directors;
•
significant borrowings or financings;
•
defaults on borrowings;
•
new equity or debt offerings;
•
significant personnel changes, changes in control of the Company or
extraordinary management developments;
•
the gain or loss of a significant customer or supplier;
•
changes in accounting methods and write-offs;
•
changes in auditors or auditor notification that the Company may no longer rely
on an audit report;
•
events regarding the Company’s securities (e.g., defaults on senior securities, calls
of securities for redemption, repurchase plans, stock splits, changes in dividends,
changes to the rights of securityholders or an offering of additional securities;
•
a cybersecurity incident or risk that may adversely impact the Company’s
business, reputation or share value; and
Exhibit 11.2
8
•
any substantial change in industry circumstances or competitive conditions which
could significantly affect the Company’s earnings or prospects for expansion.
A good general rule of thumb: when in doubt, do not trade.
When Is Information Non-Public?
Information is “non-public” if it is not available to the general public and
sufficient time has not passed for the securities markets to digest the information. In order for
information to be considered public, it must be widely disseminated in a manner making it
generally available to investors through (i) public filings with the SEC or securities regulatory
authorities; or (ii) issuance of press releases via major newswire such as Dow Jones, Reuters
Economic Services, The Wall Street Journal, Bloomberg, Associated Press, PR Newswire or
United Press International. The circulation of rumors, even if accurate and reported in the media,
does not constitute effective public dissemination.
You may not attempt to “beat the market” by trading simultaneously with, or
shortly after, the official release of material information. Even after a public announcement, a
reasonable period of time must lapse in order for the market to react to the information.
Generally, one should allow approximately forty-eight (48) hours, including at least one trading
day, following publication by the Company as a reasonable waiting period before such
information is deemed to be public.
Who Is an Insider?
“Insiders” include directors, officers, employees and consultants of a company
and anyone else who has material inside information about a company. Insiders have
independent fiduciary duties to their company and its stockholders not to trade on material, non-
public information relating to the company’s securities. All directors, officers, employees and
consultants of the Company should consider themselves insiders with respect to material, non-
public information about business, activities and securities of the Company. Directors, officers,
employees and consultants may not trade the Company’s securities while in possession of
material, non-public information relating to the Company nor tip (or communicate except on a
need-to-know basis) such information to others.
It should be noted that trading by members of a director’s, officer’s, employee’s
or consultant’s household (e.g., spouses, minor children, or adult family members who share
the same household) can be the responsibility of such director, officer, employee or consultant
under certain circumstances and could give rise to legal and Company-imposed sanctions. This
Policy also applies to any other person or entity whose securities trading decisions are
influenced or controlled by the officer, director or employee.
Trading by Persons Other than Insiders
Insiders may be liable for communicating or tipping material, non-public
information to a third party (“tippee”), and insider trading violations are not limited to trading or
tipping by insiders. Persons other than insiders also can be liable for insider trading, including
Exhibit 11.2
9
tippees who trade on material, non-public information tipped to them or individuals who trade on
material, non-public information which has been misappropriated.
Tippees inherit an insider’s duties and are liable for trading on material, non-
public information illegally tipped to them by an insider. Similarly, just as insiders are liable for
the insider trading of their tippees, so are tippees who pass the information along to others who
trade. In other words, a tippee’s liability for insider trading is no different from that of an insider.
Tippees can obtain material, non-public information by receiving overt tips from others or
through, among other things, conversations at social, business, or other gatherings.
Penalties for Engaging in Insider Trading
Penalties for trading on or tipping material non-public information can extend
significantly beyond any profits made or losses avoided, both for individuals engaging in the
unlawful conduct and their employers. The SEC and the United States Department of Justice
have made the civil and criminal prosecution of insider trading violations a top priority.
Enforcement remedies available to the government or private plaintiffs under the U.S. federal
securities laws include:
•
administrative sanctions;
•
sanctions by self-regulatory organizations in the securities industry;
•
civil injunctions;
•
damage awards to private plaintiffs;
•
disgorgement of profits gained by the violator;
•
civil fines for the violator of up to three times the amount of profit gained
or loss avoided by the violator;
•
civil fines for the employer or other controlling person of a violator (i.e.,
where the violator is an employee or other controlled person) of up to the greater of
US$1,000,000 or three times the amount of profit gained or loss avoided by the violator;
•
criminal fines for individual violators of up to US$5,000,000
(US$25,000,000 for an entity); and
•
jail sentences of up to 20 years.
In addition, insider trading could result in serious sanctions by the Company,
including immediate dismissal. Insider trading violations are not limited to violations of the U.S.
federal securities laws. Other U.S. federal and state civil or criminal laws, such as the laws
prohibiting mail and wire fraud and the Racketeer Influenced and Corrupt Organizations Act,
also may be violated upon the occurrence of insider trading.
Material Non-public Information Regarding Other Companies
Exhibit 11.2
10
This Statement and the guidelines described herein also apply to material non-
public information relating to other companies, including the Company’s customers, vendors and
suppliers (“Business Partners”), particularly when that information is obtained in the course of
employment with, or other services performed by, or on behalf of, the Company. Civil and
criminal penalties, and discipline, including termination of employment for cause, may result
from trading on material non-public information regarding the Company’s Business Partners.
Each individual should treat material non-public information about the Company’s Business
Partners with the same care required with respect to information related directly to the Company.
IV.
PROHIBITED TRANSACTIONS
Due to the heightened legal risk associated with the following transactions, the
individuals subject to this Policy may not engage in the following:
A.
Publicly-Traded Options. You may not trade in options, warrants, puts and calls
or similar instruments on Company securities. Given the relatively short term of
publicly-traded options, transactions in options may create the appearance that a
director, officer or other employee is trading based on material non-public
information and focus a director’s, officer’s or other employee’s attention on
short-term performance at the expense of the Company’s long-term objectives.
B.
Short Sales. You may not engage in short sales of Company securities. A short
sale has occurred if the seller (i) does not own the securities sold or (ii) does own
the securities sold, but does not deliver them within 20 days or place them in the
mail within 5 days of the sale. Short sales may reduce a seller’s incentive to seek
to improve the Company’s performance and often have the potential to signal to
the market that the seller lacks confidence in the Company’s prospects.
C.
Margin Accounts and Pledges. Because a margin sale or foreclosure sale may
occur at a time when the pledgor is aware of material non-public information or
otherwise is not permitted to trade in Company securities, you may not hold
Company securities in a margin account or otherwise pledge Company securities
as collateral for a loan.
D.
Hedging Transactions. You may not engage (directly or indirectly) in hedging
transactions, or otherwise engage in transactions that hedge or offset, or are
designed to hedge or offset, any decrease in the market value of Company
securities. Hedging transactions include (but are not limited to) collars, equity
swaps, exchange funds and prepaid variable forward sale contracts. Hedging
transactions may allow a director, officer or other employee to continue to own
Company securities, but without the full risks and rewards of ownership. This
may lead to the director, officer or other employee no longer having the same
objectives as the Company’s other shareholders.
E.
Standing and Limit Orders. You may not place standing or limit orders on
Company securities, unless executed as part of an approved Trading Plan
Exhibit 11.2
11
discussed in section V of this Statement. Standing and limit orders create
heightened risks for insider trading violations because there is no control over the
timing of purchases or sales that result from standing instructions to a broker, and
as a result, the broker could execute a transaction when you possess material non-
public information.
V.
RULE 10B5-1 TRADING PLANS
Notwithstanding the prohibition against insider trading, SEC Rule 10b5-1 provides
an affirmative defense against insider trading liability under Rule 10b-5. A person subject to this
Statement can rely on this defense and trade in the securities of the Company, regardless of their
awareness of inside information, if the transaction occurs pursuant to a pre-arranged written
Trading Plan that was entered into in good faith when the person was not in possession of
material nonpublic information and that complies with the requirements of Rule 10b5-1.
Anyone subject to this Statement who wishes to enter into a Trading Plan must
submit the Trading Plan to the Legal Department for its approval at least ten business days prior
to the planned entry into the Trading Plan. Trading Plans may not be adopted by a person when
he or she is in possession of material non-public information about the Company.
Once a Trading Plan is adopted, you must not exercise any subsequent influence
over the amount of securities to be traded, the price at which they are to be traded or the date of
the trade. You may amend or replace a Trading Plan only during periods when trading is
permitted in accordance with this Policy, and you must submit any proposed amendment or
replacement of a Trading Plan to the Legal Department for approval prior to adoption. You must
provide notice to the Legal Department prior to terminating a Trading Plan. You should
understand that frequent modifications or terminations of a Trading Plan may call into question
your good faith in entering into the Trading Plan (and therefore may jeopardize the availability
of the affirmative defense against insider trading allegations). Please see the Company’s Rule
10b5-1 Plan Guidelines for additional requirements with respect to a Trading Plan, including a
required waiting period prior to the first trade under such plan.
VI.
REPORTING VIOLATIONS/SEEKING ADVICE
You should refer suspected violations of this Statement to the Compliance Officer
at [***]. In addition, if you:
•
receive material non-public information that you are not authorized to receive or
that you do not need to know to perform your employment responsibilities; or
•
receive confidential information and are unsure if it is within the definition of
material non-public information or whether its release might be contrary to a
fiduciary or other duty or obligation,
Exhibit 11.2
12
you should not share it with anyone. To seek advice about what to do under those circumstances,
you should contact the Compliance Officer. Consulting your colleagues may have the effect of
exacerbating the problem, as containment of the information, until the legal implications of
possessing it are determined, is critical.
VII.
POST-TERMINATION TRANSACTIONS
This Statement continues to apply to transactions in the securities of the Company
even after a person’s service with the Company is terminated. If a person is in possession of
material non-public information when his or her service terminates, that individual may not trade
in the securities of the Company until that information has become public or is no longer
material. Questions or concerns on whether any continuing non-public information remains
material should be directed to the Compliance Officer.
Effective Date: June 7, 2024
Approved by: The Board of Directors of the Company on June 7, 2024
Exhibit 11.2
13
CERTIFICATION OF COMPLIANCE
TO:
Compliance Officer
RE:
STATEMENT OF POLICIES OF CHEETAH MOBILE INC. GOVERNING
MATERIAL NON-PUBLIC INFORMATION AND THE PREVENTION OF
INSIDER TRADING
I have received and reviewed and understand the policies set forth in the above-
referenced Statement of Policies (such policies, as amended from time to time, the “Policy”) and
hereby undertake, as a condition to my present and continued employment at or association with
Cheetah Mobile Inc. or any of its subsidiaries or affiliated entities, to comply fully with the Policy.
I hereby certify that I have adhered to the Policy during the time period that I have
been employed by or associated with Cheetah Mobile Inc. or any of its subsidiaries or affiliated
entities.
I hereby undertake to adhere to the Policy in the future.
Signature: __________________________
Name: _____________________________
Passport/ID Card Number: _____________________________
Title: _______________________________________
Date: _____________________________
Exhibit 12.1
Certification by the Principal Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Sheng Fu, certify that:
1.
I have reviewed this annual report on Form 20-F of Cheetah Mobile Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of operations and cash flows of
the company as of, and for, the periods presented in this report;
4. The company’s other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company
and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to the company,
including its consolidated subsidiaries, is made known to us by others within those entities, particularly during
the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
(c) Evaluated the effectiveness of the company’s disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the company’s internal control over financial reporting
that occurred during the period covered by the annual report that has materially affected, or is reasonably likely
to materially affect, the company’s internal control over financial reporting; and
5. The company’s other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the
company’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely affect the company’s ability to record,
process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have
a significant role in the company’s internal control over financial reporting.
Date: April 15 , 2025
By: /s/ Sheng Fu
Name: Sheng Fu
Title: Chief Executive Officer
Exhibit 12.2
Certification by the Principal Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Thomas Jintao Ren, certify that:
1.
I have reviewed this annual report on Form 20-F of Cheetah Mobile Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of operations and cash flows of
the company as of, and for, the periods presented in this report;
4. The company’s other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company
and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to the company,
including its consolidated subsidiaries, is made known to us by others within those entities, particularly during
the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
(c) Evaluated the effectiveness of the company’s disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the company’s internal control over financial reporting
that occurred during the period covered by the annual report that has materially affected, or is reasonably likely
to materially affect, the company’s internal control over financial reporting; and
5. The company’s other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the
company’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely affect the company’s ability to record,
process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have
a significant role in the company’s internal control over financial reporting.
Date: April 15, 2025
By: /s/ Thomas Jintao Ren
Name: Thomas Jintao Ren
Title: Chief Financial Officer
Exhibit 13.1
Certification by the Principal Executive Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Annual Report of Cheetah Mobile Inc. (the “Company”) on Form 20-F for
the year ended December 31, 2024 as filed with the Securities and Exchange Commission on the date
hereof (the “Report”), I, Sheng Fu, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my
knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the Company.
Date: April 15, 2025
By: /s/ Sheng Fu
Name: Sheng Fu
Title: Chief Executive Officer
Exhibit 13.2
Certification by the Principal Financial Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Annual Report of Cheetah Mobile Inc. (the “Company”) on Form 20-F for
the year ended December 31, 2024 as filed with the Securities and Exchange Commission on the date
hereof (the “Report”), I, Thomas Jintao Ren, Chief Financial Officer of the Company, certify, pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my
knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the Company.
Date: April 15, 2025
By: /s/ Thomas Jintao Ren
Name: Thomas Jintao Ren
Title: Chief Financial Officer
Exhibit 15.1
Exhibit 15.2
BEIJING OFFICE • Units 06-09 • 46th Floor • China World Tower B • No. 1 Jian Guo Men Wai Avenue • Chaoyang District • Beijing • 100004
Phone 8610.8518.7992 • Fax 8610.8518.7993 • www.marcumasia.com
Independent Registered Public Accounting Firm’s Consent
We consent to the incorporation by reference in the Registration Statements on Form S-8 (FILE No. 333-199577
and 333-272435) of our report dated April 15, 2025 relating to the financial statements of Cheetah Mobile Inc. as
of December 31, 2023 and 2024 and for the years ended December 31, 2022, 2023 and 2024 appearing in this
Annual Report on Form 20-F for the year ended December 31, 2024.
/s/ Marcum Asia CPAs LLP
Marcum Asia CPAs LLP
Beijing, China
April 15, 2025