CooTek (Cayman) Inc.
Annual Report 2020

Plain-text annual report

Table of ContentsUNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549FORM 20-F(Mark One)◻ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934OR⌧ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2020OR◻ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934OR◻ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934Date of event requiring this shell company report. . . . . . . . . . . . . . . . .For the transition period from to Commission file number: 001-38665CooTek (Cayman) 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)9-11F, No.16, Lane 399, Xinlong Road, Minhang District Shanghai, 201101People’s Republic of China(Address of Principal Executive Offices)Robert Yi Cui, Chief Financial Officer9-11F, No.16, Lane 399, Xinlong Road, Minhang DistrictShanghai, 201101 People’s Republic of China Phone: +86 021 6485 6352 Email: ir@cootek.cn(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 registeredAmerican depositary shares, each representing 50 Class A ordinarysharesCTKNew York Stock ExchangeClass A ordinary shares, par value US$0.00001 per share*New York Stock Exchange**Not for trading, but only in connection with the listing on the New York Stock Exchange of American depositary 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:As of December 31, 2020, there were 3,047,359,656 ordinary shares issued and outstanding, par value US$0.00001 per share, being the sum of 2,801,135,191 Class Aordinary shares and 246,224,465 Class B ordinary shares.Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ◻ Yes ⌧ NoIf 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Table of ContentsIndicate 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 thepreceding 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 90days.⌧ Yes ◻ NoIndicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ⌧ Yes ◻ No Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See the definitionsof “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 prepare its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use theextended 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 StandardsCodification 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 overfinancial 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.☐Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:U.S. GAAP ⌧International Financial Reporting Standards as issued by the International Accounting Standards Board ◻Other ◻If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. Item 17 ◻ Item 18If 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 1934subsequent to the distribution of securities under a plan confirmed by a court.◻ Yes ⌧ NoTable of ContentsiTABLE OF CONTENTS PageINTRODUCTION1FORWARD-LOOKING STATEMENTS2PART I3ITEM 1.IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS3ITEM 2.OFFER STATISTICS AND EXPECTED TIMETABLE3ITEM 3.KEY INFORMATION3ITEM 4.INFORMATION ON THE COMPANY58ITEM 4A.UNRESOLVED STAFF COMMENTS85ITEM 5.OPERATING AND FINANCIAL REVIEW AND PROSPECTS85ITEM 6.DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES107ITEM 7.MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS119ITEM 8.FINANCIAL INFORMATION120ITEM 9.THE OFFER AND LISTING121ITEM 10.ADDITIONAL INFORMATION122ITEM 11.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK133ITEM 12.DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES134PART II137ITEM 13.DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES137ITEM 14.MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OFPROCEEDS137ITEM 15.CONTROLS AND PROCEDURES138ITEM 16A.AUDIT COMMITTEE FINANCIAL EXPERT139ITEM 16B.CODE OF ETHICS139ITEM 16C.PRINCIPAL ACCOUNTANT FEES AND SERVICES140ITEM 16D.EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES140ITEM 16E.PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS140ITEM 16F.CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT141ITEM 16G.CORPORATE GOVERNANCE141ITEM 16H.MINE SAFETY DISCLOSURE142PART III143ITEM 17.FINANCIAL STATEMENTS143ITEM 18.FINANCIAL STATEMENTS143ITEM 19.EXHIBITS143SIGNATURES146Table of Contents1INTRODUCTIONUnless otherwise indicated or the context otherwise requires, references in this annual report on Form 20-F to:●“CooTek,” “we,” “us,” “our company” and “our” are to CooTek (Cayman) Inc., its subsidiaries and its consolidatedaffiliated entities;●“China” or the “PRC” are to the People’s Republic of China, excluding, for the purposes of this annual report only,Hong Kong, Macau and Taiwan;●“Class A ordinary shares” are to our Class A ordinary shares of par value US$0.00001 per share;●“Class B ordinary shares” are to our Class B ordinary shares of par value US$0.00001 per share;●“shares” or “ordinary shares” are to our Class A and Class B ordinary shares, par value US$0.00001 per share;●“ADSs” are to our American depositary shares, each of which represents 50 Class A ordinary shares;●“ADRs” are to the American depositary receipts that evidence our ADSs;●“DAUs” are to the number of active users of our products during a given day. For each individual product, we treateach mobile device on which at least one of the following actions is taken during a given day as one active user forthat day: (i) activating or launching such product, (ii) logging in with the user account for such product, or (iii) anyother actions that result in a successful network access to our services through such product. The DAUs of multipleproducts during a given day is the sum of active users of each such product for that day;●“MAUs” are to the number of active users of our products during a given month. For each individual product, we treateach mobile device on which at least one of the following actions is taken during a given month as one active user forthat month: (i) activating or launching such product, (ii) logging in with the user account for such product, or (iii) anyother actions that result in a successful network access to our services through such product. The MAUs of multipleproducts during a given month is the sum of active users of each such product for that month;●“our portfolio products” and “content-rich mobile applications” are to the content-rich mobile applications that wedevelop and provide to our users and business partners, which excludes TouchPal Smart Input and TouchPalPhonebook, and among these portfolio products, we refer to the mobile applications that provide our users withvertical contents at specific scenarios, such as fitness and healthcare, as “scenario-based mobile apps”;●“RMB” and “Renminbi” are to the legal currency of China; and●“US$,” “U.S. dollars,” “$,” and “dollars” are to the legal currency of the United States.Table of Contents2FORWARD-LOOKING STATEMENTSThis annual report on Form 20-F contains forward-looking statements that reflect our current expectations and views offuture events. Known and unknown risks, uncertainties and other factors, including those listed under “Item 3. Key Information—D.Risk Factors,” may cause our actual results, performance or achievements to be materially different from those expressed or impliedby the forward-looking statements.You can identify some of these forward-looking statements by words or phrases such as “may,” “will,” “expect,”“anticipate,” “aim,” “estimate,” “intend,” “plan,” “believe,” “is/are likely to,” “potential,” “continue” or other similar expressions.We have based these forward-looking statements largely on our current expectations and projections about future events that webelieve may affect our financial condition, results of operations, business strategy and financial needs. These forward-lookingstatements include statements relating to:●our mission and strategies;●our future business development, financial conditions and results of operations;●the expected growth of the mobile internet industry and mobile advertising industry;●the expected growth of mobile advertising;●our expectations regarding demand for and market acceptance of our products and services;●competition in our industry; and●relevant government policies and regulations relating to our industry.You should read this annual report and the documents that we refer to in this annual report and have filed as exhibits to thisannual report completely and with the understanding that our actual future results may be materially different from what we expect.Other sections of this annual report discuss factors which could adversely impact our business and financial performance. Moreover,we operate in an evolving environment. New risk factors emerge from time to time and it is not possible for our management topredict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combinationof factors, may cause actual results to differ materially from those contained in any forward-looking statements. We qualify all ofour forward-looking statements by these cautionary statements.You should not rely upon forward-looking statements as predictions of future events. The forward-looking statements madein this annual report relate only to events or information as of the date on which the statements are made in this annual report.Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as aresult of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence ofunanticipated events.Table of Contents3PART IITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERSNot applicable.ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLENot applicable.ITEM 3. KEY INFORMATIONA.Selected Financial DataOur Selected Consolidated Financial DataThe following selected consolidated statements of operations data for the years ended December 31, 2018, 2019 and 2020, selected consolidated balance sheet data as of December 31, 2019 and 2020, and selected consolidated cash flow data for the years ended December 31, 2018, 2019 and 2020 have been derived from our audited consolidated financial statements included elsewhere in this annual report. The selected consolidated statements of operation data and cash flow data for the year ended December 31, 2016 and 2017, and the consolidated balance sheet data as of December 31, 2016, 2017 and 2018, are derived from our audited consolidated financial statements not included in this annual report. Our consolidated financial statements are prepared and presented in accordance with accounting principles generally accepted in the United States of America, or U.S. GAAP.Table of Contents4You should read the selected consolidated financial information in conjunction with our consolidated financial statementsand related notes and “Item 5. Operating and Financial Review and Prospects” included elsewhere in this annual report. Ourhistorical results are not necessarily indicative of our results expected for future periods.For the Year Ended December 31, 2016 2017 2018 2019 2020(in US$, except for shares and per share data)Selected Consolidated Statements ofOperations Data: Net revenues 11,030,079 37,334,966 134,109,632 177,883,105 441,505,231Cost of revenues(1) (20,158,565) (20,101,386) (14,932,713) (15,300,854) (24,128,462)Gross (loss) profit (9,128,486) 17,233,580 119,176,919 162,582,251 417,376,769Operating expenses: Sales and marketing expenses(1) (9,396,663) (20,161,353) (80,729,626) (157,027,956) (418,261,754)Research and development expenses(1) (8,691,539) (12,868,356) (19,324,657) (26,935,497) (29,669,615)General and administrative expenses(1) (3,920,057) (8,366,698) (10,728,807) (16,256,192) (15,017,499)Other operating income (loss), net 605,890 190,338 1,609,159 872,269 (2,274,507)Total operating expenses (21,402,369) (41,206,069) (109,173,931) (199,347,376) (465,223,375)(Loss) income from operations (30,530,855) (23,972,489) 10,002,988 (36,765,125) (47,846,606)Impairment loss of investment — — — (500,032) —Interest income, net 12,887 481,932 214,730 763,497 395,629Foreign exchange (losses) gains, net (188,631) (169,556) (70,033) (342,687) 91,335(Loss) income before income taxes (30,706,599) (23,660,113) 10,147,685 (36,844,347) (47,359,642)Income tax expense — (800) (220) (1,714) (7,087)Net (loss) income (30,706,599) (23,660,913) 10,147,465 (36,846,061) (47,366,729)Net (loss) income per ordinary share: Basic (0.03) (0.03) 0.003 (0.01) (0.02)Diluted (0.03) (0.03) 0.003 (0.01) (0.02)Weighted average shares used incalculating net (loss) income perordinary share: Basic 912,551,946 898,781,587 1,464,257,884 3,155,082,983 3,080,332,924Diluted 912,551,946 898,781,587 1,591,094,630 3,155,082,983 3,080,332,924(1)Share-based compensation was allocated in cost of revenues and operating expenses as follows:For the Year Ended December 31, 2016 2017 2018 2019 2020(in US$)Cost of revenues 24,514 31,510 53,850 91,597 276,085Sales and marketing expenses 35,298 70,707 127,095 196,224 212,381Research and development expenses 445,084 544,786 1,788,724 2,806,587 3,034,240General and administrative expenses 222,317 1,777,941 389,802 568,077 1,814,335Total 727,213 2,424,944 2,359,471 3,662,485 5,337,041Table of Contents5As of December 31, 2016 2017 2018 2019 2020(in US$)Selected Consolidated Balance SheetData: Cash and cash equivalents 41,056,314 26,720,158 84,859,915 59,905,827 24,669,133Total current assets 47,870,981 43,738,752 113,176,169 95,639,967 68,183,878Total assets 49,353,697 46,261,022 118,443,174 101,836,660 96,902,380Total liabilities 13,454,721 14,814,770 34,120,379 62,928,297 110,704,935Convertible redeemable preferred shares 136,455,592 156,367,810 — — —Total shareholders’ (deficit) equity (100,556,616) (124,921,558) 84,322,795 38,908,363 (13,802,555)For the Year Ended December 31, 2016 2017 2018 2019 2020(in US$)Selected Consolidated Cash Flow Data: Net cash (used in) provided by operatingactivities (28,435,452) (28,049,152) 23,106,005 (15,664,279) (851,758)Net cash used in investing activities (831,393) (1,758,412) (3,655,042) (5,330,927) (2,644,295)Net cash provided by (used in) financingactivities 51,306,960 14,401,620 40,169,171 (3,796,484) (8,500,234)Net increase (decrease) in cash, cashequivalents, and restricted cash 22,040,115 (15,405,944) 59,620,134 (24,791,690) (11,996,287)Cash, cash equivalents, and restricted cash atbeginning of year 19,845,488 41,344,623 27,026,240 84,859,915 59,966,031Effect of exchange rate changes on cash, cashequivalents and restricted cash (540,980) 1,087,561 (1,786,459) (102,194) 1,652,970Cash, cash equivalents, and restricted cash atend of year 41,344,623 27,026,240 84,859,915 59,966,031 49,622,714B.Capitalization and IndebtednessNot applicable.C.Reasons for the Offer and Use of ProceedsNot applicable.D.Risk FactorsRisks Related to Our BusinessIf we fail to maintain or expand our user base, our business, financial condition and operating results may be materially andadversely affected.The size of our active user base with our products are critical to our success. Our portfolio products had an average of 27.8million DAUs in December 2020, which grew from 24.7 million DAUs in December 2019. Our financial performance has been andwill continue to be significantly affected by our ability to grow and engage our active user base. As the size of our user baseincreases and our business enters a more mature stage of development over time, the growth rate of our user base may decline orbecome flat as a result of market saturation. In addition, we may fail to maintain or increase our user base or our users’ engagementif, among other things:●we fail to innovate or develop new products and services that provide relevant content and satisfactory experience to,or are favorably received by, our users;Table of Contents6●we fail to respond to or adopt evolving technologies for product development on a timely and cost-effective basis;●we fail to successfully market and monetize our existing and new mobile applications throughout their life cycles;●we fail to develop products that are compatible with existing or new mobile devices, mobile operating systems or theirrespective upgrades;●we fail to maintain or improve our technology infrastructure and security measures designed to protect our users’personal privacy and data security;●we lose users to competing products and services or due to concerns related to personal privacy and data security orother reasons;●we fail to successfully implement our strategies related to the continued expansion of our global user base; or●we are required by existing or new laws, regulations or government policies to implement changes to our products orservices that are adverse to our business.If we are unable to maintain or increase our user base, our advertising services may become less attractive to ouradvertising customers, which may have a material and adverse impact on our business, financial condition and operating results.We generate substantially all of our revenues from advertising. Our failure to attract or retain advertising customers, or areduction in their spending with us, could seriously harm our business, operating results and growth prospects.We generated 98.4% and 99.3% of our revenues from mobile advertising services in 2019 and 2020, respectively. Advertisers purchase advertising services either directly from us or through third-party advertising exchanges and advertising agencies. Our advertising customers, including advertisers and advertising exchanges and agencies, typically do not have long-term contractual arrangements with us. They may be dissatisfied with our advertising services or perceive our advertising services as ineffective. In addition, new advertising formats emerge from time to time and customer preferences can change. We may not be able to adapt our products and services to future advertising formats or changing customer preferences on a timely and cost-effective basis.We compete for advertising customers not only with other providers of digital advertising spaces, but also with other typesof platforms and advertising service providers such as newspapers, magazines, billboards, television and radio stations. Some of ourcompetitors have access to considerably greater financial and other resources for expanding their product offerings and presentconsiderable challenges to gaining and maintaining additional market share.If we fail to deliver advertising services in an effective manner, or if our advertising customers believe that placingadvertisements through our products and services does not generate a competitive return when compared to placing advertisementsthrough our competitors’ products, they may not continue to do business with us or they may only be willing to advertise with us atreduced prices. If our existing advertising customers reduce or discontinue their advertising spending with us, or if we fail to attractnew advertising customers, our business, financial condition and results of operations could be materially and adversely affected.Table of Contents7We depend on certain third-party advertising exchanges and agencies for a large portion of our mobile advertising revenues.We generate a large portion of our mobile advertising revenues from a limited number of third-party advertising exchangesand advertising agencies in 2020. Our top two advertising customers, which are advertising exchanges, accounted for approximately39.5% of our total revenues in 2020. Our dependence on a limited number of advertising exchange customers increases theirbargaining power and the need for us to maintain good relationships with them. The major advertising customers we work withtypically offer standard terms and conditions that govern their contractual relationships with us. We entered into distributioncooperation agreements with Chuan Shan Jia, a leading advertising exchange platform in China who is also our top advertisingcustomer, in 2019 for the cooperation in placing advertisements on our mobile apps for the year of 2020 and 2021, which will expireon December 31, 2021. If any of these advertising customers we work with ceases to do business with us for any reason or alters itsstandard terms and conditions to our disadvantage, or if we fail to collect any significant amount of account receivables from theseadvertising customers timely, or at all, our business, financial conditions and operating results may be materially and adverselyaffected.We rely on our business collaborations with third parties, including major digital distribution platforms and mobile devicemanufacturers, to maintain and expand our user base. Our failure to maintain good relationships with these business partnersmay materially and adversely affect our business and operating results.We collaborate with various business partners to promote our products and enlarge our user base. We use third-party digitaldistribution platforms such as Apple App Store, Tencent YingYongBao App Store, Taptap and Google Play to distribute our mobileapplications to users. We also advertise on third-party platforms, such as Douyin and Kuaishou, to acquire users. The promotion anddistribution of our mobile applications are subject to such digital distribution platforms’ standard terms and policies for applicationdevelopers, which are subject to the interpretation of, and frequent changes by, these platforms. In addition, our applications may besuspended by or removed from such platforms as a result of allegations or claims by third parties regardless of their merits. Forinstance, in July 2019, some of our global apps were disabled by Google from Google Play Store and Google Admob, and ouraccess to Google Play Store and Google Admob was disabled too. See “—We have been and may continue to be subject to noticesor complaints alleging, among other things, our infringement of copyrights and delivery of illegal or inappropriate content throughour products, which could lead to suspension or removal of such products from digital distribution platforms, a decrease of our userbase, and a significantly adverse impact on our financial results and our reputation.” We collaborate with mobile devicemanufacturers for the pre-installation of TouchPal Smart Input on new mobile devices as one way to distribute our product and toacquire users. Due to intense competition, these mobile device manufacturers may raise prices to a point where it becomes costprohibitive for us to rely on them for user acquisition. There can be no guarantee that they will continue to pre-install TouchPalSmart Input or will agree to pre-install any of our other mobile applications on their devices.If we are unable to maintain good relationships with our business partners or the business of our business partners declines,the reach of our products and services may be adversely affected and our ability to maintain and expand our user base may decrease.Most of the agreements with our business partners, including mobile device manufacturers and digital distribution platforms, do notprohibit them from working with our competitors or from offering competing services. If our partner distribution platforms changetheir standard terms and conditions in a manner that is detrimental to our business, or if our business partners decide not to continueworking with us or choose to devote more resources to supporting our competitors or their own competing products, we may not beable to find a substitute on commercially favorable terms, or at all, and our competitive advantages may be diminished.Table of Contents8We have been and may continue to be subject to notices or complaints alleging, among other things, our infringement ofcopyrights and delivery of illegal or inappropriate content through our products, which could lead to suspension or removal ofsuch products from digital distribution platforms, a decrease of our user base, and a significantly adverse impact on ourfinancial results and our reputation.We use third-party digital distribution platforms such as Apple App Store, Tencent YingYongBao App Store and GooglePlay to distribute our mobile applications to users. In the ordinary course of our business, we and digital distribution platforms havereceived, and may from time to time in the future receive, notices or complaints from third parties alleging that certain of ourproducts infringe copyrights, deliver illegal, fraudulent, pornographic, violent, bullying or other inappropriate content, or otherwisefail to comply with applicable policies, rules and regulations. Upon receipt of such notices or complaints, those digital distributionplatforms may suspend or remove such products from such platforms. The processes for appealing such suspensions and removalswith those platforms could be time-consuming, and we cannot guarantee that our appeals will always prevail or that any suchsuspended or removed application will be made available again. Such suspensions and removals of our products could lead to adecrease of our user base and, if they occur frequently and/or in a large scale, could significantly adversely affect our reputation,business operation and financial performance.For instance, in July 2019, some of our global apps were disabled by Google from the Google Play Store and GoogleAdmob. These disabled apps were discontinued but users can still use the relevant apps already downloaded. The suspensions andremovals of our global apps could lead to the difficulty in growing or sustaining our user base and could significantly adverselyaffect our reputation, business operation and financial performance in a certain period. Primarily as a result of the suspension, theDAUs of our portfolio products decreased from 27.6 million in June 2019 to 23.9 million in September 2019, and our net revenuesdecreased from US$37.6 million in the second quarter of 2019 to US$31.3 million in the third quarter of 2019. In addition, ouraccess and developer account to Google Play Store and Google Admob was disabled in the same period. Consequently, we cannotuse Google push notification to reach and activate our users, and the DAU/MAU ratio of our portfolio products decreased from42.4% in June 2019 to 35.4% in September 2019, and further to 33.1% in December 2019. Although we have implemented severalmeasures to mitigate the impact, for example, by distributing our products on other digital distribution platforms, such as TencentYingYongBao App Store, and broadening our user acquisition channels, such as collaborating with third-party platforms in China,we cannot guarantee that these measures will be effective. In addition, these digital distribution platforms and third-party platformsmay also receive, from time to time, notices or complaints from third parties alleging that certain of our products infringecopyrights, deliver illegal, fraudulent, pornographic, violent, bullying or other inappropriate content, or otherwise fail to complywith applicable policies, rules and regulations, consequently those digital distribution platforms may suspend or remove suchproducts from their platforms and those third-party platforms may terminate their collaboration with us.We have international operations and plan to continue expanding our operations globally. We may face challenges and riskspresented by our growing global operations, which may have a material and adverse impact on our business and operatingresults.We are headquartered in China and provide our products and services to a global user base. We intend to continue theinternational expansion of our business operations and grow our user base globally. In December 2020, the user base of our portfolioproducts reached an average of 27.8 million DAUs and our users of TouchPal Smart Input reached an average of 125.3 millionDAUs , spanning more than 240 countries and regions. The headquarters of our major advertising customers are located in Chinaand the U.S. and therefore substantially all of our advertising revenues in 2019 and 2020 were derived from China and the U.S.We believe the sustainable growth of our business depends on our ability to increase the penetration of our products in bothdeveloped and emerging markets. Our continued international operations and global expansion may expose us to a number ofchallenges and risks, including:●challenges in developing successful products and implementing effective marketing strategies that respectively targetmobile internet users and advertising customers from various countries and with a diverse range of preferences anddemands;Table of Contents9●difficulties in managing and overseeing global operations and in affording increased costs associated with doingbusiness in multiple international locations;●local competition;●difficulties in integrating and managing potential foreign acquisitions or investments;●compliance with applicable laws and regulations in various countries worldwide, including, but not limited to, internetcontent requirements, data security and data privacy requirements, intellectual property protection rules, exchangecontrols, and cash repatriation restrictions;●fluctuations in currency exchange rates;●political, social or economic instability in markets or regions in which we operate; and●compliance with statutory equity requirements and management of tax consequences.Our business, financial condition and results of operations may be materially and adversely affected by these challengesand risks associated with our global operations.Our product development and monetization strategies are highly dependent on our technology capabilities and infrastructure. Ifthe amount of user data generated on our products declines, or if we fail to enhance or upgrade our technologies at a competitivepace, the effectiveness of our business model may be harmed and our operating results may be materially and severely affected.We depend on our technological capabilities and infrastructure to analyze our users’ preferences and needs and to generatevaluable user insights. Active users of our products generate a large amount of data across our applications and in a variety of usecases on a daily basis. The data generated by our users lays the foundation for us to build our user profiles. By analyzing such userdata with our big data analytics and other relevant technologies, we aim to understand our users’ interests and needs for content inorder to develop products that deliver relevant content catering to their interests and needs. Therefore, the effectiveness of ourproduct development and monetization strategies is dependent on our ability to obtain and process data and to refine the algorithmsused in processing such data. If we fail to maintain and expand the user base of our products to continually generate large amountsof user data, or if we fail to keep up with the rapid development and upgrade of big data analytics and other relevant technologies ona timely and cost-effective basis, we may not be able to effectively grow and monetize our products, and our business and operatingresults may be materially and adversely affected.We may not be able to sustain our historical growth and maintain the effectiveness of our monetization.We have grown significantly over a relatively short period. Over the past three years, we have experienced rapid growth ofthe number of DAU and MAU of our portfolio products. At the same time, our net revenues grew rapidly from US$134.1 million in2018 to US$177.9 million in 2019, and further to US$441.5 million in 2020. Our advertising revenue increased from US$131.3million in 2018 to US$175.0 million in 2019, and further increased to US$438.4 million in 2020. We may not be able to sustain arate of growth in future periods similar to what we experienced in the past.Table of Contents10In addition, growing our revenue in the future depends on successfully building our portfolio products besides TouchPal Smart Input. We monetize our user base primarily through mobile advertising. Advertising revenue derived from our portfolio products have accounted for approximately 63%, 85% and 99% in 2018, 2019 and 2020, respectively. Most of the advertising revenues were generated from our portfolio products in 2020 attributable to the rapid growth of our portfolio products, in particular our online literature and casual games products. We launched our in-house developed advertising platform, CooTek Ads, to provide high-quality and tailored advertising services in 2019, and the revenue derived from CooTek Ads is estimated to have accounted for approximately 8% and 45% of our total revenue in 2019 and 2020, respectively. If we are unable to build new products which are attractive to users, our ability to effectively monetize our advertising services and grow our revenues may be materially impacted.If we fail to correctly anticipate user preferences and develop and commercialize new products and services, we may fail toattract or retain existing users, the lifecycles of our mobile applications may end prematurely and our operating results may bematerially and adversely affected.Our success depends on our ability to maintain, grow and monetize our user base, which in turn depends on our ability tocontinually develop and commercialize new mobile applications, introduce new features or functions to our existing mobileapplications and provide users with high-quality content and an enjoyable user experience. This is particularly important since themobile internet industry is characterized by fast and frequent changes, including rapid technological evolution, shifting userdemands, frequent introductions of new products and services, and constantly evolving industry standards, operating systems andpractices. We launched our first mobile application, TouchPal Smart Input, in 2008, and have launched over 45 portfolio products asof December 31, 2020. In December 2020, the user base of our portfolio products reached an average of 27.8 million DAUs, and weintend to expand the scale of our core product, Fengdu Novel and continue developing new products and services to attract moreusers who match our targeted profiles in the future. Our ability to roll out new or enhanced products and services depends on anumber of factors, including timely and successful research and development efforts by us as well as correctly analyzing andpredicting users’ interests and demands for content using our big data analytical capabilities. If we fail to correctly analyze andpredict users’ interests and demands for content, fail to cater to the anticipated needs and preferences of users, or fail to provide asuperior user experience, our existing and new mobile applications may suffer from reduced user traffic or be unsuccessful in themarket and our user base may decrease which in turn may impact our ability to earn advertising revenue. There can be no assurancethat our new products and services will generate revenues or profits and we may not be able to recoup the investments andexpenditures involved in such development. Our interim results may also experience significant fluctuations as we continue to investin the development of new products and services.In addition, as a result of rapidly evolving user preferences, our existing mobile applications may reach the end of theirlifecycles prematurely. There can be no assurance that we will be able to correctly predict the lifecycles of our new mobileapplications, our estimates regarding the lifecycles of our existing mobile applications may turn out to be incorrect, and ourbusiness, financial condition and results of operations may be materially and adversely affected.We had net loss, negative cash flows from operating activities and negative working capital in the past, and we may not achieveor sustain revenue growth and profitability.We have grown rapidly over the past several years. Our net revenues have increased rapidly from US$134.1 million in2018 to US$177.9 million in 2019, and further to US$441.5 million in 2020. However, you should not rely on our revenues andgross profit from any previous period as an indication of our future revenues. Our revenues might decline, or the growth rate of ourrevenues may slow down for a number of reasons, including declined demand for our products and services, increasing competition,emergence of alternative business models, changes in regulations and government policies, changes in general economic conditions,COVID-19 as well as other risks described in this annual report.Table of Contents11We had a net loss of US$36.8 million and negative cash flows from operations of US$15.7 million in 2019. We recorded anet loss of US$47.4 million and negative cash flows from operations of US$0.9 million in 2020.We had positive working capital,being the result of current assets minus current liabilities, of US$33.3 million as of December, 2019 and negative working capital ofUS$42.1 million as of December 31, 2020. Our ability to continue as a going concern is dependent on our ability to successfullyexecute our business plans including the implementation of a balanced growth strategy and an effective financial management whichcan contribute to the optimization of the operating cost and expense structure. To implement the plan, we will continue to improvethe stickiness of our existing users by offering higher quality and diversified contents and user incentive program and optimize thenew user acquisition strategy to efficiently control and reduce the these user related costs. We will further strengthen ourmonetization capability by diversifying our revenue structure and improving the return on investment of our key products.We have concluded, after giving consideration to our plans as noted above, that we have alleviated the substantial doubt asto our ability to continue as a going concern and believe we have sufficient cash and other financial resources and liquidity to fundour operations for one year from the date of the filing of the consolidated financial statements, and that there is not substantial doubtabout our ability to continue operations as a going concern for that one-year period.We cannot assure you that we will be able to generate net profit or positive cash flows from operating activities in thefuture. Our future revenue growth and profitability will depend on a variety of factors, many of which are beyond our control. Thesefactors include market acceptance of our products, effectiveness of our monetization strategy, our ability to control cost andexpenses and to manage our growth effectively, market competition, macroeconomic and regulatory environment. We also expect tocontinue to make investments in research and development, which will place significant demands on our management and ouroperational and financial resources. Continuous expansion may increase the complexity of our business, and we may encountervarious difficulties. We may fail to develop and improve our operational, financial and managerial controls, enhance our financialreporting systems and procedures, recruit, train and retain skilled professional personnel, or maintain customer satisfaction toeffectively support and manage our growth. If we invest substantial time and resources to expand our operations but fail to managethe growth of our business and capitalize on our growth opportunities effectively, we may not be able to achieve profitability, andour business, financial condition, results of operations, liquidity and prospects would be materially and adversely affected.We are out of compliance with certain financial covenants in our credit facility agreements. If we fail to receive any requiredwaiver, we may be in default, which could impose operating and financial restrictions on us.We entered into two credit facility agreements with a commercial bank, both of which were further renewed in June 2020,under which we can borrow up to a total of US$15.0 million collateralized by our accounts receivable by June 2021. In 2020, wehad in the aggregate drawn down US$32.8 million and repaid US$31.3 million under these two credit facilities. The totaloutstanding balance of our short-term bank borrowings as of December 31, 2020 was US$11.0 million. These credit facilityagreements contain financial covenants which require us to maintain minimum quarterly net income. We failed to meet suchfinancial covenants as of December 31, 2020 and are negotiating a waiver of such financial covenants with the counterparty, which,if granted, will waive the financial covenants for such period.We cannot assure you that we would be able to obtain such waivers in a timely manner, on acceptable terms or at all. If wewere not able to obtain such waiver under any one or more of these credit facilities, we would be in default of such agreements, andthe relevant counterparty could elect to declare the loans, together with accrued and unpaid interest and other fees, if any,immediately due and payable and proceed against any collateral securing such loans. If the loans under certain of our credit facilityagreements that we entered into were to be accelerated, even though we believe that our assets would be sufficient to repay our loansin full, our business and liquidity could nevertheless be subject to adverse effects. In addition, such waiver, even if granted, may leadto increased costs, increased interest rates, additional restrictive covenants and other available counterparty protections that wouldbe applicable to us under these credit facilities, including the granting of additional security our interests in collateral, which couldadversely affect our business, financial condition, results of operations and our ability to acquire additional capital resources.Table of Contents12Our ability to comply with financial or other restrictive covenants under our credit facility agreements may be affected byfactors beyond our control, including prevailing economic, financial and industry conditions, and our ability to issue additionalequity. We may continue to fall out of compliance with such or other covenants in the future, which could materially and adverselyaffect our business, financial condition and results of operations.We may require additional financing in the future to meet our business requirements. Such capital raising may be costly, difficultor not possible to obtain and, if obtained, could significantly dilute current stockholders’ equity interests or increase our debtservice obligations.We may continue to experience a material decrease in our cash and cash equivalents balance. We may require additionalcash resources to fund our working capital and expenditure needs, such as content investment, sales and marketing expenses,product development expenses and investment or acquisition transactions. Although we may attempt to raise funds by issuing debtor equity instruments, additional financing may not be available to us on terms acceptable us or at all or such resources may not bereceived in a timely manner. If we are unable to raise additional capital when required or on acceptable terms, we may be required toscale back or to discontinue certain operations, scale back or discontinue the development of new business lines, reduce headcount,sell assets, file for bankruptcy, reorganize, merge with another entity or cease operations.Our advertising services may display advertisements when our products are in use, or insert promoted marketing messages intousers’ feeds, which may negatively affect user experience and may lead to a decline in user engagement and, in turn, a reductionin revenues generated from our advertising services.We primarily generate revenues by distributing advertisements to targeted audience through our products. Advertisementsare displayed in various formats when users launch or exit our products, in our theme stores or in-app stores, and in customizednews feeds, among others. See “Item 4. Information on the Company—B. Business Overview—Monetization.” It is important for usto balance the frequency, prominence, size and content of advertisements that we display against ensuring a favorable userexperience of our products. If our users find the advertisements displayed irrelevant, disturbing or negatively affecting their userexperience of our products, they may become less engaged or stop using our products altogether. Furthermore, if advertisementscontain controversial, false or misleading content, or the marketing messages we display or the products or services we advertiseresult in negative emotions or associations in our users, the user experience of our products could be diminished, our financialresults could suffer and our reputation could be damaged. If we are unable to deliver advertisements in a way that is acceptable orfavorable to our users, our users may not maintain the current level of engagement, and our advertising customers may perceive ouradvertising services as ineffective in generating a competitive return for them. As a result, our revenues may decline and ourbusiness, financial conditions and operating results may be materially and adversely affected.Data privacy concerns relating to our products and current practices may, particularly in light of increased regulatory scrutinyof and user expectations regarding the processing, collection, use, storage, dissemination, transfer and disposal of user data,require changes to our business practices and may result in declines in user growth or engagement, increased costs of operationsand threats of lawsuits, enforcement actions and related liabilities, including financial penalties.Recently, companies’ practices regarding collection, use, retention, transfer, disclosure and security of user data have been,and continue to be, the subject of enhanced regulations and increased public scrutiny. The regulatory frameworks regarding privacyissues in many jurisdictions are constantly evolving and can be subject to significant changes from time to time, and therefore wemay not be able to comprehensively assess the scope and extent of our compliance responsibility at a global level. Moreover, certainof our users, particularly those in the United States and Europe, may have strong expectations for the level of privacy afforded totheir personal data and the content of their communications. Further, the developing requirements around clear and prominentprivacy notices (including in the context of obtaining informed and specific consent to the collection and processing of personaldata, if applicable) can potentially deter users from consenting to certain uses of their personal information. In general, negativepublicity of us or our industry regarding actual or perceived violations of our users’ privacy-related rights may also impair users’trust in our privacy practices and make them reluctant to give their consent to share their data with us.Table of Contents13Many jurisdictions, including China and the U.S., continue to consider the need for greater regulation or reform to theexisting regulatory framework. In the U.S., all 50 states have now passed laws to regulate the actions that a business must take in theevent of a data breach, such as prompt disclosure and notification to affected users and regulatory authorities. In addition to the databreach notification laws, some states have also enacted statutes and rules requiring businesses to reasonably protect certain types ofpersonal information they hold or to otherwise comply with certain specified data security requirements for personal information.Additionally, the U.S. federal and state governments will likely continue to consider the need for greater regulation aimed atrestricting certain uses of personal data for targeted advertising. California enacted the California Consumer Privacy Act, or CCPA,which creates new individual privacy rights for consumers (as that word is broadly defined in the law) and places increased privacyand security obligations on entities handling personal data of consumers or households. The CCPA, which went into effect onJanuary 1, 2020, requires covered companies to provide new disclosures to California consumers, and provides such consumers newways to opt-out of certain sales of personal information. The CCPA provides for civil penalties for violations, as well as a privateright of action for data breaches that is expected to increase data breach litigation. The CCPA may increase our compliance costs andpotential liability. Some observers have noted that the CCPA could mark the beginning of a trend toward more stringent privacylegislation in the U.S., which could increase our potential liability and adversely affect our business.In the European Union, or EU, the General Data Protection Regulation, or GDPR, which came into effect on May 25, 2018,increased our burden of regulatory compliance and requires us to change certain of our privacy and data security practices in orderto achieve compliance. The GDPR applies to any company established in the EU as well as any company outside the EU thatprocesses personal data in connection with the offering of goods or services to individuals in the EU or the monitoring of theirbehavior. The GDPR implements more stringent operational requirements for processors and controllers of personal data, including,for example, requiring expanded disclosures about how personal information is to be used, limitations on retention of information,mandatory data breach notification requirements, and higher standards for data controllers to demonstrate that they have obtainedeither valid consent or have another legal basis in place to justify their data processing activities. The GDPR further provides thatEU member states may make their own additional laws and regulations in relation to certain data processing activities, which couldfurther limit our ability to use and share personal data and could require localized changes to our operating model. Under the GDPR,fines of up to 20 million euros or up to 4% of the total worldwide annual turnover of the preceding financial year, whichever ishigher, may be assessed for noncompliance, which significantly increases our potential financial exposure for non-compliance.However, with limited precedence on the interpretation and application of GDPR and limited guidance from EU regulators, theapplication of GDPR to the provision of internet services remains unsettled. The Company has adopted policies and procedures incompliance with the GDPR, however, such policies and procedures may need to be updated when additional information concerningthe best practices is made available through guidance from regulators or published enforcement decisions. Finally, in China, thePRC Cybersecurity Law, which became effective in June 2017, leaves substantial uncertainty as to the circumstances and standardunder which the law would apply and violations would be found. See “Item 4. Information on the Company—B. Business Overview—Regulation—Regulations Relating to Personal Privacy and Data Protection.”Outside of the U.S. and the EU, many jurisdictions have adopted or are adopting new data privacy and data protection lawsthat may impose further onerous compliance requirements, such as data localization, which prohibits companies from storing datarelating to resident individuals in data centers outside the jurisdiction. The proliferation of such laws within jurisdictions andcountries in which we operate may result in conflicting and contradictory requirements.Table of Contents14In order for us to maintain or become compliant with applicable laws as they come into effect, it may require substantialexpenditures on resources to continually evaluate our policies and processes and adapt to new requirements that are or becomeapplicable to us. Complying with any additional or new regulatory requirements on a jurisdiction-by-jurisdiction basis would imposesignificant burdens and costs on our operations or may require us to alter our business practices. While we strive to protect ourusers’ privacy and data security and to comply with material data protection laws and regulations applicable to us, it is possible thatour practices are, and will continue to be, inconsistent with certain regulatory requirements. Our international business expansioncould be adversely affected if these laws and regulations are interpreted or implemented in a manner that is inconsistent with ourcurrent business practices or that requires changes to these practices. In particular, the large amount of user data generated on andcollected from our products has been, and will continue to be, critical for our business model, including to enable us to understandour users’ interests and demands for content, improve their user experience with our products and services and deliver targetedadvertising. Therefore, if these laws and regulations materially limit our ability to collect and use our users’ data, our ability tocontinue our current operations without modification, develop new services or features of the products and expand our user base willbe impaired. Any failure or perceived failure by us to comply with applicable data privacy laws and regulations, including inrelation to the collection of necessary end-user consents and providing end-users with sufficient information with respect to our useof their personal data may result in fines and penalties imposed by regulators, governmental enforcement actions (includingenforcement orders requiring us to cease collecting or processing data in a certain way), litigation and/or adverse publicity.Proceedings against us, regulatory, civil or otherwise, could force us to spend money and devote resources in the defense orsettlement of, and remediation related to, such proceedings. Furthermore, any of the foregoing consequences could damage ourreputation and discourage current and potential users from using our mobile applications. In addition, as users’ expectations andregulatory attitudes with respect to personal privacy and data security continue to evolve, future regulations on the extent to whichpersonal information and user-generated data can be used by us or shared with third parties may adversely affect our ability toleverage and derive economic value from the data that our users generate and share with us, which may limit our ability to carry outtargeted advertising and thereby result in a decline in the mobile advertising revenues upon which our revenues are dependent.If we fail to obtain or maintain the requisite licenses and approvals, or otherwise fail to comply with the rules and regulationsapplicable to our business operations in and outside China, or if we are required to apply for new licenses and approvals whichare time-consuming or costly to obtain, our business and operating results may be materially and adversely affected.We are incorporated in the Cayman Islands and our corporate affairs are governed by our memorandum and articles ofassociation, the Companies Act (As Revised) of the Cayman Islands and the common law of the Cayman Islands. We primarilyconduct our business through our subsidiaries and consolidated affiliated entities incorporated in mainland China, Hong Kong andthe U.S. However, because our products and services are used worldwide, one or more other jurisdictions may claim that we arerequired to comply with their laws based on the location of our offices and staff, commercial operations, equipment or our users.The internet industry, including the mobile internet industry, is highly regulated in China. Our VIEs are required to obtainand maintain applicable licenses and approvals from different regulatory authorities in order to provide their current services to ourusers. In addition to PRC laws and regulations, we face additional regulatory risks and costs outside of China as a portion of ouractive users and revenues are from markets outside of China. We are subject to a variety of laws and regulations in China andforeign jurisdictions that involve matters central to our business, including, but not limited to, privacy and data protection, rights ofpublicity, content, intellectual property, advertising, marketing, distribution, data security, data retention and deletion, nationalsecurity, electronic contracts and other communications, competition, consumer protection, telecommunications, taxation, andeconomic or other trade prohibitions or sanctions. The introduction of new products, services or expansion of our business in certainjurisdictions may subject us to additional laws and regulations. Furthermore, PRC and foreign laws and regulations are constantlyevolving and can be subject to significant change from time to time. As a result, the application, interpretation, and enforcement ofthese laws and regulations are often uncertain, particularly in the new and rapidly evolving mobile internet industry in which weoperate, and may be interpreted and applied inconsistently from country to country and inconsistently with our current policies andpractices. There can be no assurance that we will not be found in violation of any future laws and regulations or violation of any ofthe laws and regulations currently in effect due to changes in the relevant authorities’ implementation or interpretation of such lawsand regulations.Table of Contents15Under the current PRC regulatory scheme, a number of regulatory agencies, including, but not limited to, the StateAdministration of Radio and Television (previously known as the State Administration of Press, Publication, Radio, Film andTelevision, or the SAPPRFT), or the SART, the Propaganda Department of the Central Committee of the Communist Party of China,the National Administration of Press and Publication, or the NAPP, the Ministry of Culture and Tourism (previously known as theMinistry of Culture, or the MOC), or the MCT, the Ministry of Industry and Information Technology, or the MIIT, the State CouncilInformation Office, or the SCIO, and the Cyberspace Administration of China, or the CAC, jointly regulate all major aspects of theinternet industry, including mobile internet businesses. Operators in this industry must obtain various government approvals andlicenses for relevant internet or mobile business.If we fail to obtain or maintain any of the required licenses or approvals, make any necessary filings, or otherwise fail tocomply with the applicable laws and regulations, we may be subject to various penalties, such as confiscation of revenues that weregenerated through the unlicensed internet or mobile activities, the imposition of fines and the discontinuation or restriction of ouroperations. Any such penalties may disrupt our business operations and materially and adversely affect our business, financialcondition and operating results.The operation of our TouchPal Phonebook in China may require additional licenses and failure to obtain such licensescould subject us to severe penalties. Our TouchPal Phonebook provides VoIP services which enable our users to make calls to otherusers of this application or other mobile phone devices. We have obtained the value-added telecommunications service businessoperation license, or VAT License, with a service scope of information services, domestic multiparty communication services anddomestic call center business. According to the PRC Telecommunications Regulations and other relevant laws and regulations, wemay be required to obtain a basic telecommunications business service business operating license for our services to facilitate callsbetween users of the application and other mobile phone devices through internet and telecommunication network. Although weterminated the operation of our VoIP service in August 2019, according to the Administrative penalty Law of the People's Republicof China, an administrative penalty could be imposed within two years from the date the illegal act is terminated. Our TouchPalPhonebook also delivers personalized content to users, including news and videos. According to the Administrative Provisions forthe Internet Audio-Video Program Service jointly issued by the SAPPRFT and the MIIT in 2007 and amended in August 2015, wemay be required to obtain the internet audio-video program transmission license for displaying videos in TouchPal Phonebook.According to the Administrative Regulations for Internet News Information Services promulgated by the CAC in 2017, we may berequired to obtain the internet news information service license for dissemination of political and other news. For detaileddescriptions, see “Item 4. Information on the Company—B. Business Overview—Regulation—Regulations Relating to InternetAudio-Visual Program Services,” “—Regulations Relating to Online News Services,” and “—Regulations Relating to OnlineCultural Products.”Table of Contents16The operations of our online literature mobile apps and casual game mobile apps may require us to apply for additionallicense and permits or to update our existing licenses and permits. Under regulations issued by the SAPPRFT, the publication ofeach online game requires approval from the SAPPRFT. As of the date of this annual report, we have not obtained approvals fromthe SAPPRFT or its successor for those domestic online games operated by us. After the re-organization of SAPPRFT, we will applywith the NAPP for the approvals for publishing our games in the future. The NAPP at the national level had suspended the approvalof game registration and issuance of publication codes for online games starting from March 2018. Although the NAPP laterresumed game registration and issued game publication codes for the first batch of games with an effective date of December 19,2018, the issuance of publication is still difficult to be obtained. Any delay in game registration with NAPP or obtaining gamepublication codes could negatively affect the operation results of our games. Pursuant to the Notice to Adjust the Scope of OnlineCulture Operation Permit Approval and to Further Regulate the Approval Work released in May 2019, the MCT no longer assumesthe responsibility to regulate online game industry, and the provincial counterparts of MCT would no longer grant Online CultureOperation Permit covering the business scope of using the information network to operate online games. However, the licensesgranted by the MCT before this notice will remain valid until the expiration dates of these licenses. On July 23, 2019, the MCTannounced the abolishment of the Interim Measures on Administration of Online Games, which regulated the issuance of OnlineCulture Operation Permits relating to online games. For more information, see “Item 4. Information on the Company—B. BusinessOverview—Regulation—Regulations Related to Online Games.” As of the date of this annual report, the governmental authoritieshave not issued laws or regulations to replace the Interim Measures on Administration of Online Games, or to clarify the newregulatory body of online games. If we are unable to comply with the new renewal procedures relating to our Online CultureOperating License, our ability to introduce, launch and operate new games may be adversely affected, and our financial conditionand operating results could be adversely affected. In addition, we cannot assure you that we can obtain the NAPP’s approvals orcomplete the filings with the MCT for all games operated by us in a timely manner or at all, which could adversely and materiallyimpact our ability to introduce new games, the timetable to launch new games and our business growth.Moreover, the provisions of online games and online literature are deemed to be internet publication activities. Accordingto the Administrative Measures for Internet Publication Services jointly issued by the SAPPRFT and the MIIT in 2016, we may berequired to obtain an internet publication service license for the provisions of online games and online literature. According to theNotice on Administration of Mobile Game Publishing Services issued by the SAPPRFT in 2016, we may be required to obtainpublishing and authorization codes for the online games. As of the date of this annual report, we have not obtained the approval forour internet publication service license and publication codes for those domestic online games operated by us. In the event of failureto obtain these licenses and approvals, an operator may face heavy penalties, such as being ordered by the regulatory authority toshut down services and delete all relevant internet publications. The regulatory authority may also confiscate all of such operator’sillegal income as well as major equipment and specialized tools used in illegal publishing activities. If the illegal income exceedsRMB10,000, such operator may face a fine of five to ten times of such illegal income; and if the illegal income is less thanRMB10,000, such operator may face a fine of less than RMB50,000. Such operator may also bear civil liability if its operation hasinfringed on other persons’ legal rights and interests. For more information, see “Item 4. Information on the Company—B. BusinessOverview—Regulation—Regulations Relating to Internet Publication Services.”Furthermore, in August 2018, the National Office of Anti-Pornography and Illegal Publication, the MIIT, the Ministry ofPublic Security, the MCT, the SART and the CAC jointly issued the Notice on Strengthen the Management of Live StreamingService, which required a real-name registration system for users to be put in place by live streaming service providers. OnOctober 25, 2019, the NAPP issued the Notice on Preventing Minor’s Addiction to Online Games, which requires all online gamersto register accounts with their valid identity information and all game companies to stop providing game services to users who fail todo so. For more information, see “Item 4. Information on the Company—B. Business Overview—Regulation—Regulations Relatedto Anti-fatigue System, Real-name Registration System and Parental Guardianship Project.” We plan to implement several measuresto comply with the current real-name registration system. However, the PRC government may further tighten the real-nameregistration requirements or require us to implement a more thorough compulsory real-name registration system for all users on ourplatform in the future, in which case we will need to upgrade our system or purchase relevant services from third-party serviceproviders and incur additional costs in relation thereto. If we were required to implement a more rigid real-name registration systemfor users on our platform, potential users may be deterred from registering with our platform, which may in turn negatively affectthe growth of our user base and business prospects.Table of Contents17Our international VoIP product may be subject to laws, regulations and policies related to internet communications ofmultiple jurisdictions. These laws, regulations and policies may not specifically address the issues related to internet and its relatedtechnologies, and their interpretation and application remain largely uncertain. The laws, regulations and policies in certain countriesmay restrict the use of VoIP products, block access to such products or impose extensive regulatory requirements on operations ofsuch products. We cannot be certain that we are in compliance with regulatory or legal requirements in the numerous countries inwhich such product is available for download and use. Regulators may disagree with our interpretations of existing laws orregulations or the applicability of such laws or regulations to our business, or they may alter their view of the products and serviceswe provide, due to a change in laws or regulations or a change in the interpretation of existing laws or regulations or otherwise. Ourfailure to comply with existing or future regulatory requirements could materially and adversely affect our business, financialcondition and operating results. We terminated the operation of our international VoIP product since March 2019.If we fail to prevent security breaches, cyber-attacks or other unauthorized access to our systems or our users’ data, we may beexposed to significant consequences, including legal and financial exposure and loss of users, and our reputation, business andoperating results may be materially and adversely affected.We collect, store, transmit and process a large volume of personal and other sensitive data generated by our users throughtheir interactions with our products. Although we have taken various security measures and adopted robust internal policies toprotect our users’ personal privacy and data security, we may nevertheless be exposed to risks of security breaches or unauthorizedaccess to or cyber-attacks on our systems or the data we store. Given the size of our user base, and the types and volume of personaldata on our systems, we believe that we may be a particularly attractive target for security breaches and cyber-attacks. Our efforts toprotect our data may be unsuccessful due to software “bugs,” system errors or other technical deficiencies, mistakes or malfeasanceof our employees or contractors, vulnerabilities of our vendors and service providers, or other cybersecurity-related vulnerabilities.Any failure to prevent or mitigate security breaches, cyber-attacks or other unauthorized access to our systems or disclosure of ourusers’ data, including personal information, could result in loss or misuse of such data, interruptions to the services we provide,diminished user experience, loss of user confidence and trust in our products, impairment of our network and technologicalinfrastructure, and harm to our reputation and business, significant legal and financial exposure and potential lawsuits brought byprivate individuals or regulators. We have invested and will continue to devote resources to maintain strong security protections thatshield our systems and our users’ data against bugs, theft, misuse or security vulnerabilities or breaches. Although we havedeveloped systems and processes that are designed to prevent and detect security breaches and protect our users’ data, we cannotguarantee that such measures will be sufficient defenses against the evolving techniques used to obtain unauthorized access, disableor degrade services or sabotage systems. In addition, as our data centers and servers are dispersed around the world, we may incursignificant costs in protecting them against, or remediating, security breaches and cyber-attacks.Our products and internal systems rely on software that is highly technical, and if it contains undetected errors or vulnerabilities,our business could be adversely affected.Our products and internal systems rely on numerous proprietary and licensed software that is highly technical and complex.In addition, our products and internal systems depend on the ability of certain software to encrypt, store, retrieve, process, andmanage large amounts of data. The software on which we rely now or in the future may contain undetected errors, bugs, orvulnerabilities that may not be discovered until after the relevant source code is released and examined. Errors, vulnerabilities, orother design defects within the software on which we rely may result in a negative experience for users of our products, delayproduct introductions or enhancements, compromise our ability to protect the data of our users and/or our intellectual property orlead to reductions in our ability to provide some or all of our services. In addition, any errors, bugs, vulnerabilities, or defectsdiscovered in the software on which we rely, and any associated degradations or interruptions of service, could result in damage toour reputation, loss of users, loss of revenue, or liability for damages, any of which could materially and adversely affect ourbusiness and operating results.Table of Contents18The industry in which our business operates is highly competitive. If we fail to compete effectively, our business will suffer.We face intense competition in every aspect of our business, including competition for users, usage time, advertisingcustomers, technology, and highly skilled employees. Our portfolio products compete with applications of the same or a similarkind. Our Fengdu Novel competes with other leading free online literature applications in the Chinese market including FanqieNovel and Qimao Novel. Our casual game products such as Farm Hero, Idle Land King Tycoon, Hi Hamster, Puzzle No.1 and IdiomHero compete primarily with other online casual games developed by companies such as WebEye and Laiwan. Our TouchPal SmartInput competes primarily with default mobile device input methods, including Gboard, Samsung mobile keyboard and Apple’sdefault mobile device input method, as well as other alternative input method products for mobile devices that offer similar languageprediction capabilities and other smart features, such as Microsoft/SwiftKey. In addition, we compete with all major internetcompanies for user attention and advertising spend.We compete with other developers of mobile applications for users, usage time and advertising customers on the basis ofquality, features, availability and ease of use of products and services, and the number and quality of advertising distributionchannels. We also compete with other developers for talented employees with technological expertise that is crucial for the sustaineddevelopment of successful products and services. Our competitors may operate with more efficient business models and coststructures. They may prove more adaptable to new technological and other market developments than we are. Many of ourcompetitors are larger and more established companies and may have significantly more financial, technological, marketing andother resources than we do and may be able to devote greater resources to the development, promotion, sales and support of theirproducts and services. They may allow our competitors to respond to new or emerging technologies and changes in marketrequirements better than we can. Our competitors may also develop products, features, or services that are similar to ours or thatachieve greater market acceptance. These products, features, and services may undertake more far-reaching and successful productdevelopment efforts or marketing campaigns. As a result, our competitors may acquire and engage users at the expense of our usergrowth or engagement, which may seriously harm our business. If we cannot effectively compete, our user engagement maydecrease, which could make us less attractive to users, advertisers and seriously harm our business and have a material and adverseimpact on our business, operating results and growth potential.Our mobile applications are mainly designed for Android operating systems. A decrease in the popularity of Android operatingsystems may materially and adversely affect our business and operating results.Our business is dependent on the compatibility of our products with popular mobile operating systems that we do notcontrol, including Android and iOS operating systems. Most of our mobile applications are designed to operate on the Androidoperating system. Any significant decline in the overall popularity of the Android ecosystem or Android devices could materiallyand adversely affect the demand for, and revenues generated from, our mobile applications. There can be no assurance that theAndroid ecosystem will grow in the future and at what growth rate. Another operating system for mobile devices may replaceAndroid and decrease its popularity, especially considering the constantly evolving nature of the mobile internet industry. To theextent that our mobile applications continue to mainly support Android devices, our mobile business could be vulnerable to anydecline in popularity of the Android operating system or Android devices. In addition, any changes, bugs, or technical issues inAndroid operating system may degrade our products’ functionality and limit our ability to deliver, target, or measure theeffectiveness of ads, or to charge fees related to our delivery of ads, which may have an adverse impact on our business andoperating results.Table of Contents19User growth and engagement depend upon effective interoperation of our products with mobile devices, operating systems andstandards that we do not control.Our products and services are available across a variety of mobile devices and mobile operating systems. In order to deliverhigh quality products and services to a broad spectrum of mobile internet users, it is important for our products and services to workwell with a range of mobile devices, operating systems, networks and standards that we do not control, including Android and iOSoperating systems. Any changes in such devices or operating systems that degrade the functionality of our products and serviceswould affect our users’ experience with our products. If we fail to develop relationships with the key participants in the mobileinternet industry and mobile advertising industry, or if we fail to maintain the effective interoperation of our products and serviceswith these mobile devices, operating systems, networks and standards, our user growth and user engagement could be harmed, andour business and operating results could be adversely affected.We may be held liable for information or content displayed on, distributed by, retrieved from or linked to the mobile applicationsintegrated into our products, which may adversely impact our brand image and materially and adversely affect our business andoperating results.We may display third-party content, such as videos, pictures, books, articles and other works, on our mobile applicationswithout the explicit consent from such third party, and we may further explore market opportunities in the content-related business.Our users may misuse our products to disseminate content that contains inappropriate, fraudulent or illegal information or thatinfringes the intellectual property rights of third parties. We have implemented control measures and procedures to detect and blockinappropriate, fraudulent or illegal content uploaded to or disseminated through our products, particularly those that violate our useragreements or applicable laws and regulations. However, such procedures may not be sufficient to block all such content due to thelarge volume of third-party content. Despite the procedures and measures we have taken, if the content displayed on our products arefound to be fraudulent, illegal or inappropriate, we may suffer a loss of users and damage to our reputation. In response to anyallegations of fraudulent, illegal or inappropriate activities conducted through our mobile applications or any negative mediacoverage about us, government authorities may intervene and hold us liable for non-compliance with laws and regulationsconcerning the dissemination of information on the internet and subject us to administrative penalties or other sanctions, such asrequiring us to restrict or discontinue certain features and services provided by our mobile applications or to temporarily orpermanently disable such mobile applications. If any of such events occurs, our reputation and business may suffer and ouroperating results may be materially and adversely affected.We may not be able to prevent unauthorized use of our intellectual property, which could harm our business and competitiveposition.We regard our patents, copyrights, trademarks, trade secrets, and other intellectual property as critical to our business.Unauthorized use of our intellectual property by third parties may adversely affect our business and reputation. We rely on acombination of intellectual property laws and contractual arrangements to protect our proprietary rights. It is often difficult toregister, maintain, and enforce intellectual property rights in countries with less developed regulatory regimes or inconsistent andunreliable enforcement mechanisms. Sometimes laws and regulations are subject to interpretation and enforcement and may not beapplied consistently due to the lack of clear guidance on statutory interpretation. In addition, our contractual agreements may bebreached by our counterparties, and there may not be adequate remedies available to us for any such breach. Accordingly, we maynot be able to effectively protect our intellectual property rights or to enforce our contractual rights in China and other jurisdictionsin which we operate. Detecting and preventing any unauthorized use of our intellectual property is difficult and costly and the stepswe have taken may be inadequate to prevent infringement or misappropriation of our intellectual property. In the event that we resortto litigation to enforce or protect our intellectual property rights, such litigation could result in substantial costs and a diversion ofour managerial and financial resources. We can provide no assurance that we will prevail in such litigation. For a detaileddescription of such a litigation, see “Item 8. Financial Information—A. Consolidated Statements and Other Financial Information—Legal Proceedings.” In addition, our trade secrets may be leaked or otherwise become available to, or be independently discoveredby, our competitors.Table of Contents20We may be subject to intellectual property infringement lawsuits which could be expensive to defend and may result in ourpayment of substantial damages or licensing fees, disruption to our product and service offerings, and reputational harm.The success of our business relies on the quality of our products, which in turn depends on the underlying software andrelated technology, such as big data analytics. The protection of such software and related technologies primarily relies onintellectual property rights including patents and trade secrets. Meanwhile, for the purpose of our business expansion, we may fromtime to time display third-party content, such as videos, pictures, books, articles and other works, on our mobile applications withoutacquiring the explicit consent from such third party. Third parties, including our competitors, may assert claims against us foralleged infringements of their patents, copyrights, trademarks, trade secrets and internet content.For instance, in June 2019, a third-party company in China brought a lawsuit against Shanghai Chubao in ShanghaiIntellectual Property Court for patent infringement. The plaintiff alleged that TouchPal Phonebook infringed its patent of IPtelephone system and communication method, and claimed for stopping the usage of this involved patent and acts of using, offeringto sell and selling the involved product according to the involved patent, disabling the involved product from app stores, and acompensation of RMB3,000,000. The lawsuit was voluntarily withdrawn by the plaintiff. In addition, in May 2019, a third-partycompany in China brought a lawsuit against Shanghai Chubao and Shanghai Chule in Shanghai Intellectual Property Court fordesign patent infringement. The plaintiff alleged that TouchPal Smart Input infringed its design patent of an input method, andclaimed for stopping the infringement and compensation of RMB1,000,000. This case is still pending before the court. While webelieve that the claims against us in these litigations are without merit and intend to defend the action vigorously, we cannot assureyou that these lawsuits will be ultimately resolved in our favor. For more information, see “Item 8. Financial Information—A.Consolidated Statements and Other Financial Information—Legal Proceedings.”The lengthy application procedures of software-related patents may lead to uncertainty on our intellectual property rights toour self-developed software because it increases the likelihood that there are pending patent applications whose priority dates pre-date the development of our own software that is identical or substantially similar to the software subject of the pending patentapplication. We have been subject to patent disputes, and expect that we may increasingly be subject to patent infringement claimsas our products and monetization model expand in market share, scope and complexity. Claims have been threatened and broughtagainst us for alleged copyright or trademark infringements based on the nature and content of information that is generated by us orby third parties, including our users, and posted in our products. In addition, we may in the future be subject to domestic orinternational actions alleging that certain content we have generated or third-party content that we have made available within ourproducts and services violates the applicable laws in China or other jurisdictions.Intellectual property claims against us, whether meritorious or not, are time consuming and costly to resolve, could divertmanagement attention away from our daily business, could require changes of the way we do business or develop our products,could require us to enter into costly royalty or licensing agreements or to make substantial payments to settle claims or satisfyjudgments, and could require us to cease conducting certain operations or offering certain products in certain areas or generally. Wedo not conduct comprehensive patent searches to determine whether the technologies used in our products infringe upon patentsheld by others. In addition, product development is inherently uncertain in a rapidly evolving technological environment in whichthere may be numerous patent applications pending, many of which are confidential when filed, with regard to similar technologies.While we believe that our products do not infringe in any material respect upon any intellectual property rights of third parties, wecannot be certain that this is the case.Table of Contents21In addition, in any potential dispute involving our patents or other intellectual property, our advertising customers andbusiness partners could also become the target of litigation. We have certain contractual obligations to indemnify our advertisingcustomers and the mobile device manufacturers that pre-install our products on their devices for liability that they may incur basedon third-party claims of intellectual property infringement for the use of our products or technology. Many of our collaborationcontracts with mobile device manufacturers provide for a cap on our indemnity obligations. In addition, in the event of any suchclaims, our advertising customers or business partners may decide not to use our products in the future, which could harm ourfinancial condition and operating results. For example, one mobile device manufacturer that pre-installs input methods on its mobiledevices, including our TouchPal Smart Input under a license agreement with us, was sued by a multinational company in the UnitedStates in 2015. The plaintiff alleged that, among others, certain feature of the input methods installed on the mobile devicesproduced and sold by the defendant infringed on the plaintiff’s input-related patent. In late 2016, a third-party requested that thePatent Trial and Appeal Board of the United States Patent and Trademark Office, or PTAB, to initiate inter parties review (IPR)proceedings against the input-related patent claim of the plaintiff and to invalidate such patent. The IPR request has been granted bythe PTAB in 2016 and another third-party joined the IPR proceedings as a petitioner in 2017. On September 26, 2018, the PTABissued the final written decision affirming the patentability of all challenged claims of this patent. The third party then appealed onJanuary 6, 2020, and the Court of Appeals for the Federal Circuit made an opinion, concluding that the plaintiff’s claims of therelated patents are not patentable and the PTAB’s decision is reversed. The plaintiff and the defendant have executed a final, bindingsettlement agreement thereafter. As of the date of this annual report, we have not received the request to indemnify this mobiledevice manufacturer in relation to this proceeding.Finally, we may also face infringement claims from the employees, consultants, agents and outside organizations we haveengaged to develop our technology. While we have sought to protect ourselves against such claims through contractual means, therecan be no assurance that such contractual provisions are adequate, and any of these parties might claim full or partial ownership ofthe intellectual property in the technology that they were engaged to develop for us.Pending or future litigation could have a material and adverse impact on our financial condition and operating results.We have been, and may continue to be, subject to lawsuits brought by our competitors, individuals or other entities against us. For example, in June 2020, a mobile device manufacturer sued us for unfair competition, alleging that one of our mobile applications had interfered with the normal use of their devices by ways of pop-up advertisements, and claimed for stopping the act and compensation of RMB4,900,000. The first-instance judgment was made in March 2021, which ordered the suspension of pop-up advertisements and awarded RMB3,000,000 to the plaintiff. However, we are now appealing with legal counsel, and the first-instance judgement is not a final judgment. We may also in the future be involved in legal proceedings between us and the mobile device manufactures who had contractual arrangements with us with respect to the pre-installation of our products on their mobile devices. In addition, we have been involved in lawsuits brought by our competitors alleging the infringement of intellectual property from time to time. See “—We may be subject to intellectual property infringement lawsuits which could be expensive to defend and may result in our payment of substantial damages or licensing fees, disruption to our product and service offerings, and reputational harm.”Table of Contents22Where we can make a reasonable estimate of the liability relating to pending litigation against us and can determine that an adverse liability resulting from such litigation is probable, we record a related contingent liability. As additional information becomes available, we assess the potential liability and revise estimated liability as appropriate. However, due to the inherent uncertainties of litigation, the amount of our estimated liability may be inaccurate, in which case our financial condition and results of operation may be adversely affected. In addition, the outcomes of actions we institute may not be successful or favorable to us. Lawsuits against us may also generate negative publicity that significantly harms our reputation, which in turn may adversely affect our user base and adverting customer base. In addition to the related cost, managing and defending litigation and related indemnity obligations can significantly divert our management’s attention from operating our daily business. We may also need to pay damages or settle lawsuits with substantial amounts of cash, which may adversely affect our cash flow and financial conditions. While we do not believe that any currently pending proceedings are likely to have a material adverse effect on our business, financial condition, results of operations and cash flows, if there were adverse determinations in legal proceedings against us, we could be required to pay substantial monetary damages or to materially alter our business practices, which could have an adverse effect on our financial condition and results of operations and cash flows.Some of our mobile applications contain open source software, which may pose risks to our proprietary software.We use open source software in our products and services and expect to continue to use open source software 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 arisk that such licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our ability to sell ordistribute our mobile applications. Additionally, we may from time to time face threats or claims from third-parties claimingownership 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 costlylicense or cease offering the implicated mobile applications unless and until we can re-engineer them to avoid infringement. Such are-engineering process could require significant additional research and development resources, and we may not be able to completeit successfully. In addition to risks related to license requirements, our use of certain open source software may lead to greater risksthan use of third-party commercial software, as open source licensors generally do not provide warranties or controls on the originof the software. Additionally, because any software source code we contribute to open source projects is publicly available, ourability to protect our intellectual property rights with respect to such software source code may be limited or lost entirely, and we areunable to prevent our competitors or others from using such contributed software source code. Any of these risks could be difficultto eliminate or manage and, if not addressed, could adversely affect our business, financial condition and operating results.Any financial or economic crisis, or perceived threat of such a crisis may materially and adversely affect our business, financialcondition and results of operations.The global financial markets experienced significant disruptions in 2008 and the United States, European and othereconomies went into recession. The recovery from the lows of 2008 and 2009 was uneven and the global financial markets arefacing new challenges, including the escalation of the European sovereign debt crisis since 2011, the hostilities in the Ukraine, theend of quantitative easing by the U.S. Federal Reserve, the economic slowdown in the Eurozone in 2014 and the volatility infinancial markets across the world due to the recent outbreak of coronavirus, later renamed COVID-19. It is unclear whether thesechallenges will be contained and what effects they each may have. There is considerable uncertainty over the long-term effects ofthe expansionary monetary and fiscal policies that have been adopted by the central banks and financial authorities of some of theworld’s leading economies, including China’s. Recently there have been signs that the rate of China’s and global economic growth isdeclining. Any prolonged slowdown in global economic development might lead to tighter credit markets, increased marketvolatility, sudden drops in business and market confidence and dramatic changes in business and consumer behaviors.Table of Contents23A severe or prolonged downturn in the Chinese or global economy could materially and adversely affect our business andfinancial condition.The global macroeconomic environment is facing numerous challenges. The growth rate of the Chinese economy hasgradually slowed in recent years, and the trend may continue especially in light of the challenges the global economy is facing dueto the COVID-19 global pandemic. There is considerable uncertainty over the long-term effects of the expansionary monetary andfiscal policies adopted by the central banks and financial authorities of some of the world’s leading economies, including theUnited States and China. Unrest, terrorist threats and the potential for war in the Middle East and elsewhere may increase marketvolatility across the globe. There have also been concerns about the relationship between China and other countries, including thesurrounding Asian countries, which may potentially have economic effects. In particular, there is significant uncertainty about thefuture relationship between the United States and China with respect to trade policies, treaties, government regulations and tariffs.Economic conditions in China are sensitive to global economic conditions, as well as changes in domestic economic and politicalpolicies and the expected or perceived overall economic growth rate in China. Any severe or prolonged slowdown in the global orChinese economy may materially and adversely affect our business, results of operations and financial condition.Changes in international trade policies and international barriers to trade, or the escalation of trade tensions, may have anadverse effect on our business.International trade disputes could result in tariffs and other protectionist measures that could adversely affect our business.Tariffs could increase our operating costs as well as the cost of the goods and products which could affect our customer'sdiscretionary spending level. In addition, any escalation in existing trade tensions or the advent of a trade war, or news and rumorsof the escalation of a potential trade war, could affect consumer confidence and have a material adverse effect on our business,results of operations and, ultimately, the trading price of our ADSs.Political tensions between the United States and China have escalated due to, among other things, the COVID-19 outbreak,the PRC National People's Congress' passage of Hong Kong national security legislation, sanctions imposed by the U.S. Departmentof Treasury on certain officials of the Hong Kong Special Administrative Region and the central government of the PRC, and theexecutive orders issued by U.S. President in August 2020 that prohibit certain transactions with ByteDance Ltd., Tencent HoldingsLtd. and the respective subsidiaries of such companies. In addition, on December 31, 2020, the New York Stock Exchangecommenced proceedings to delist securities of three major telecommunications service providers in China in light of an executiveorder prohibiting any transaction in publicly traded securities of certain China-based companies by any U.S. person. There remainsuncertainty as to whether the New York Stock Exchange or relevant regulatory authorities will finally determine the executive orderor additional regulatory rules or orders to be applicable and proceed with the delisting proceedings against these companies or anyother China-based issuers listed in the United States. Rising political tensions could reduce levels of trades, investments,technological exchanges and other economic activities between the two major economies, which would have a material adverseeffect on global economic conditions and the stability of global financial markets. Any of these factors could have a material adverseeffect on our business, prospects, financial condition and results of operations. Furthermore, there have been media reports ondeliberations within the U.S. government regarding potentially limiting or restricting China-based companies from accessing U.S.capital markets. If any such deliberations were to materialize, the resulting legislation may have a material and adverse impact onthe stock performance of China-based issuers listed in the United States. It is currently unclear whether the proposed or additionallegislations would be enacted that would have the effect of potentially limiting or restricting China-based companies from accessingU.S. capital markets.Table of Contents24If relations between China and the United States deteriorate, our business, results of operations and financial condition could beadversely affected.At various times during recent years, the United States and China have had significant disagreements over monetary,economic, political and social issues, including currently in relation to the COVID-19 pandemic, and future relations between thesetwo countries may deteriorate. Changes in political conditions and changes in the state of China-U.S. relations are difficult to predictand could adversely affect our business, results of operations and financial condition. In addition, because of our extensiveoperations in the Chinese market, any deterioration in political or trade relations might cause a public perception in the United Statesor elsewhere that might cause our products to become less attractive. We cannot predict what effect any changes in China-U.S.relations may have on our ability to access capital or effectively do business in China or the United States. Moreover, any politicalor trade controversies between the United States and China, whether or not directly related to our business, could cause investors tobe unwilling to hold or buy our ADSs and consequently cause the trading price of our ADSs to decline.Our business depends on a number of key employees, including our executive officers and other employees with key technicalskills and knowledge. If we fail to hire, retain, or motivate our key employees, our business and operating results may bematerially and adversely affected.We depend on the continued contributions of our executive officers and other key employees, including those with keytechnological expertise, many of whom are difficult to replace. Any loss of the services of any of our senior management or otherkey employees could harm our business. Competition for qualified employees in and outside China is intense. Some of thecompanies with which we compete for experienced employees may have greater resources than we do and may be able to offer moreattractive terms of employment. Our future success is dependent on our ability to attract a significant number of qualified employeesand retain our existing key employees. If our key employees cease to work for us, our business may be materially and adverselyaffected and we may incur additional expenses to recruit, train and retain qualified personnel to replace them.Although we have entered into confidentiality and non-compete agreements with our key employees, our key employeesmay join our competitors or form a competing business. If any dispute arises between our current or former officers and us, we mayhave to incur substantial costs and expenses in order to enforce such agreements in China or we may be unable to enforce them atall. We commit significant time and other resources to training our employees, which increases their value to competitors if theysubsequently leave us for our competitors.Our failure to effectively manage our growth or implement our business strategies may harm our business and operating results.We have experienced rapid growth in the number of active users, and we plan to continue to expand our product offeringsin the global market. Managing our growth requires allocation of valuable management time and resources, and significantexpenditures. As part of our strategy, we intend to continue making investments to expand our user base, strengthen our research anddevelopment efforts, and enhance our ability to deliver highly targeted content. To execute our business plan and growth strategy,we need to continuously improve our operational and financial systems, procedures and controls, and hire, train, manage andmaintain good relations with our employees. Continued growth could also strain our ability to maintain reliable service levels forour users, advertising customers and business partners. We have limited operational experience in managing the business at thecurrent scale and we cannot assure you we will be able to maintain the current level of growth rate in the future.Table of Contents25From time to time we may conduct strategic investments and acquisitions, which may require significant management attention,disrupt our business and adversely affect our financial conditions.We may take advantage of opportunities to invest in or acquire additional businesses, services, assets or technologies.However, we may fail to select appropriate investment or acquisition targets, or we may not be able to negotiate optimalarrangements, including arrangements to finance any acquisitions. Acquisitions and the subsequent integration of new assets andbusinesses into our own could require significant management attention and could result in a diversion of resources away from ourexisting business. Investments and acquisitions could result in the use of substantial amounts of cash, increased leverage, potentiallydilutive issuances of equity securities, goodwill impairment charges, amortization expenses for other intangible assets and exposureto potential liabilities of the acquired business. In addition, the invested or acquired assets or businesses may not generate thefinancial results we expect. Moreover, the costs of identifying and consummating these transactions may be significant. In additionto obtaining the necessary corporate governance approvals, we may also need to obtain approvals and licenses from relevantgovernment authorities for the acquisitions and investments to comply with applicable laws and regulations, which could result inincreased costs and delays.We rely on our assumptions and estimates to calculate certain key operating metrics. Any real or perceived inaccuracies in ourcalculations may harm our reputation and negatively affect our business.The numbers of daily and monthly active users of our products are calculated using our internal data that has not beenindependently verified. While these numbers are based on what we believe to be reasonable calculations for the applicable periodsof measurement, there are inherent challenges in accurately measuring usage and user engagement across our large user base. Forexample, we treat each mobile device or each application on a mobile device as a separate user for purposes of calculating our DAUand MAU, and we may not be able to distinguish individual users who use multiple applications from us or have multiple mobiledevices. Accordingly, the calculations of our active users may not accurately reflect the actual number of people using our products.We regularly review and may adjust our processes for calculating our internal metrics to improve their accuracy. Ourmeasures of user growth and user engagement may differ from estimates published by third parties or from similarly titled metricsused by our competitors due to differences in methodology. If our advertising customers, business partners or investors do notperceive our user metrics to be accurate representations of our user base or user engagement, or if we discover material inaccuraciesin our user metrics, our reputation may be harmed and our advertising customers and business partners may be less willing toallocate their spending or resources to our products, which could negatively affect our business and operating results.Our operating results are subject to seasonal fluctuations due to a number of factors, any of which could adversely affect ourbusiness and operating results.We are subject to seasonality and other fluctuations in our business. Revenues from our mobile advertising services, which constituted substantially all of our revenues in 2020, are affected by seasonality in advertising spending in both international and China markets. We believe that such seasonality in advertising spending affects our quarterly results, partially resulting in the significant growth in our mobile advertising revenues between the first and the third quarters but a decline from the third quarter to the fourth quarter. Thus, our operating results for one or more future quarters or years may fluctuate or fall below the expectations of securities analysts and investors. In such event, the trading price of the ADSs may fluctuate.The successful operation of our business depends upon the performance and reliability of the internet infrastructure in Chinaand in other countries as well as the safety of our network and infrastructure.Our growth and expansion will depend in part on the reliability of state-owned telecommunications services providers inChina and similar providers in other countries in maintaining and expanding internet and telecommunications infrastructure,standards, protocols, and complementary products and services.Table of Contents26Almost all access to the internet in China is offered through China Mobile, China Unicom and China Telecom, which areunder the administrative control and regulatory supervision of the MIIT. We rely on the internet infrastructure of China Mobile,China Unicom, and China Telecom to provide bandwidth and transmit data. Although the Chinese government has announced plansto develop China’s national information infrastructure, this infrastructure may not be developed in time or at all, and the existinginternet infrastructure in China may not be able to support the continued growth of internet usage. In addition, it is unlikely that wewill have access to alternative networks and services on a timely basis, if at all, in the event of any infrastructure disruption orfailure.Users of our mobile applications may employ existing or new technologies to block advertisements placed by us, which may limitour ability to generate revenues from our advertising services.Existing or new technologies that can disable the display of our advertisements may impair the growth of our mobileadvertising business. Most of our revenues are derived from fees paid to us by advertising exchange customers based on theeffective price per impression, which is impacted by the number of our users’ valid clicks, conversions, impressions delivered orother measurable results. If technologies capable of blocking advertisements on our products are adopted by a significant number ofour users, we may not be able to continue delivering such advertisements to our users and our revenues may decrease. In addition,advertisers may choose not to advertise on or through our products in light of the perceived use by our users of advertisement-blocking measures, which may adversely affect our business and growth prospects.If we fail to detect click-through fraud, we could lose the confidence of our advertisers and our revenues may decline as a result.Our business is exposed to the risk of click-through fraud on our mobile applications. Click-through fraud occurs when aperson clicks an advertisement displayed by us for a reason other than to view the underlying content of such advertisement. If wefail to detect significant fraudulent click-throughs or otherwise are unable to prevent significant fraudulent activity, the affectedadvertisers may experience a reduced return on their investment in our mobile advertising services and may lose confidence in theintegrity of our systems. As a result, we may have to issue refunds to our advertisers and we may be unable to retain existingadvertising customers and attract new advertising customers for our advertising services, and our mobile advertising revenues maydecline. In addition, affected advertisers may commence legal action against us for claims related to click-through fraud. Any suchclaims or similar claims, regardless of their merit, could be time-consuming and costly for us to defend against and could alsoadversely affect our brand and operating results.Our business emphasizes rapid innovation and prioritizes the growth in user base and cultivation of content ecosystem ofcontent-rich portfolio products. That strategy may produce results that do not align with investors’ expectation and our stockprice may be negatively affected as a result.Our growth depends on our ability to actively develop and launch new and innovative products and services. We intend toquickly adapt our products to changes in market trends and user needs, but we have no control over whether these adaptions will bewell received by our users, advertising customers or business partners, and may result in unintended outcomes or consequences. Weprioritize the growth in user base and cultivation of content ecosystem of content-rich portfolio products. For example, we monitorhow our delivery of advertisements on our products affects our users’ experience with the products and we may decide to decreasethe number of advertisements placed on our products to ensure our users’ satisfaction with our products. This could result in a lossof advertising customers and negatively impact our mobile advertising revenue. Our decisions may not be consistent with the short-term expectations of investors and may not produce the long-term benefits that we expect, in which case the maintenance andgrowth of our user base, our relationships with advertising customers, and our business and operating results could be adversely andmaterially harmed.Table of Contents27We have granted, and may continue to grant, options, restricted shares units and other types of share-based incentive awards,which may result in increased share-based compensation expenses.We adopted a stock incentive plan in 2012 and a share incentive plan in 2018, as amended from time to time, for thepurpose of granting share-based compensation awards to our directors, officers, employees and advisors to incentivize theirperformance and align their interests with ours. Expenses associated with share-based compensation have affected our net incomeand may reduce our net income in the future, and any additional securities issued pursuant to share-based incentive awards willdilute the ownership interests of our shareholders, including holders of the ADSs. On November 6, 2018, our Board of Directorsapproved an option modification to reduce the exercise price of certain options granted under our 2012 Plan to employees. Otherterms of the share options granted remain unchanged. The modification resulted in incremental compensation costs of US$ 0.3million, which is amortized over the remaining vesting period of the modified options, ranging from 2018 to 2021. We believe thegranting of share-based incentive awards is of significant importance to our ability to attract and retain key employees, and we planto grant share-based incentive awards in the future. As a result, our share-based compensation expenses may increase, which mayhave an adverse effect on our results of operations.If we fail to build, maintain and enhance our brands, or if we incur a disproportionate amount of expenses pursuing this effort,our business, operating results and prospects may be materially and adversely affected.We believe that maintaining and enhancing our brand is critical to expanding our user base and number of advertisingcustomers. We also believe that maintaining and enhancing our brand will depend largely on our ability to continue to provideuseful, reliable, trustworthy, and innovative products, which we may not be able to do successfully in the future. We will alsocontinue to experience media, legislative, or regulatory scrutiny of our decisions regarding user privacy, content, advertising, andother issues, which may adversely affect our reputation and brands. We also may fail to respond expeditiously to the sharing anduploading of objectionable content on our products and services or objectionable practices by advertising customers, or may fail tootherwise address user concerns, which could erode confidence in our brands. In addition, maintaining and enhancing our brandsmay require us to make substantial investments and these investments may not be successful. We promote our brand and productsthrough online advertising networks and platforms, which primarily include Douyin, Kuaishou and Facebook Ads. These brandingand marketing efforts may not result in increased user traffic in a cost-effective way. If we fail to successfully promote and maintainour brands or if we incur excessive expenses in this effort, our business and financial results may be adversely affected. In addition,any negative publicity in relation to our mobile applications, regardless of its veracity, could harm our brands and reputation and, inturn, our business and financial results.If we fail to implement and maintain an effective system of internal control, we may be unable to accurately report our operatingresults, meet our reporting obligations or prevent fraud.In preparing our consolidated financial statements for the fiscal years ended December 31, 2019, we and our independent registered public accounting firm identified one material weakness and one significant deficiency in our internal control over financial reporting as well as other control deficiencies as of December 31, 2019, in accordance with the standards established by the PCAOB of the United States. As defined in the standards established by the U.S. Public Company Accounting Oversight Board, a “material weakness” is a deficiency, or a 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, and a “significant deficiency” is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of financial reporting.Table of Contents28The material weakness that has been identified relates to our lack of accounting policies and procedures relating tofinancial reporting in accordance with U.S. GAAP and SEC financial reporting requirements. The significant deficiency that hasbeen identified relates to our insufficient formal risk assessment process and monitoring activities. Following the identification ofthe material weakness and significant deficiency, we have taken measures and plan to continue to take measures to remediate thesecontrol deficiencies. See “Item 15. Controls and Procedures—Internal Control Over Financial Reporting.” As of December 31,2020, based on our management’s assessment on the performance of the remediation measures, we determined that the materialweakness and significant deficiency remain as they had not been fully remediated. The significant deficiency, if not remediatedtimely, may lead to material misstatements in our consolidated financial statements. Neither we nor our independent registeredpublic accounting firm undertook a comprehensive assessment of our internal control for purposes of identifying and reportingmaterial weaknesses and other deficiencies in our internal control over financial reporting. Had we performed a formal assessmentof our internal control over financial reporting or had our independent registered public accounting firm performed an audit of ourinternal control over financial reporting, additional deficiencies may have been identified.We are a public company in the United States subject to the Sarbanes-Oxley Act of 2002. The Securities and ExchangeCommission, or the SEC, adopted rules pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 requiring every public companyto include a management report on such company’s internal control over financial reporting in its annual report, which containsmanagement’s assessment of the effectiveness of our internal control over financial reporting. In addition, once we cease to be an“emerging growth company” as such term is defined under the JOBS Act, our independent registered public accounting firm mustattest to and report on the effectiveness of our internal control over financial reporting. Our management may conclude that ourinternal control over financial reporting is not effective. Moreover, even if our management concludes that our internal control overfinancial reporting is effective, our independent registered public accounting firm, after conducting its own independent testing, mayissue a report that is qualified if it is not satisfied with our internal controls or the level at which our controls are documented,designed, operated or reviewed, or if it interprets the relevant requirements differently from us. In addition, as we have become apublic company, our reporting obligations may place a significant strain on our management, operational and financial resources andsystems for the foreseeable future. We may be unable to timely complete our evaluation testing and any required remediation.During the course of documenting and testing our internal control procedures, in order to satisfy the requirements ofSection 404 of the Sarbanes-Oxley Act of 2002, we may identify other weaknesses and deficiencies in our internal control overfinancial reporting. In addition, if we fail to maintain the adequacy of our internal control over financial reporting, as these standardsare modified, supplemented or amended from time to time, we may not be able to conclude on an ongoing basis that we haveeffective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002. Generally, ifwe fail to achieve and maintain an effective internal control environment, we could suffer material misstatements in our financialstatements and fail to meet our reporting obligations, which would likely cause investors to lose confidence in our reported financialinformation. This could in turn limit our access to capital markets, harm our results of operations, and lead to a decline in the tradingprice of our ADSs. Additionally, ineffective internal control over financial reporting could expose us to increased risk of fraud ormisuse of corporate assets and subject us to potential delisting from the stock exchange on which we list, regulatory investigationsand civil or criminal sanctions.Table of Contents29Non-compliance on the part of third parties with whom we conduct business could disrupt our business and adversely affect ourfinancial conditions and operating results.We may be implicated by the non-compliant or improper activities of our users, advertising customers and businesspartners. For example, we may be involved in litigation related to user-generated content uploaded to our mobile applications. Seealso “—We may be held liable for information or content displayed on, distributed by, retrieved from or linked to the mobileapplications integrated into our products, which may adversely impact our brand image and materially and adversely affect ourbusiness and operating results.” Similarly, we may also be subject to disputes related to advertisements displayed on our mobileapplications. Although we have adopted a comprehensive internal control and screening procedure over the content ofadvertisements, a third party may find advertisements displaying on our mobile applications improper or illegal, and may takeactions against us over such advertisements. We incurred costs of US$1.7 million to compensate victims of the alleged illegaladvertisements for our failure to supervise advertising contents displayed on our platform in compliance with relevant PRC laws andregulations. Besides, we may be subject to disputes related to certain alleged illegal act of our customers, the advertising service feespaid by the customers to us in the course of normal advertising business may be deemed to involve illegal funds and be confiscated.As of December 31, 2020, our bank accounts with a total balance of US$21.7 million were frozen by a local authority in connectionwith an ongoing investigation related to an alleged illegal act of certain customers.In addition, we may be impacted by lawsuits against our business partners, such as mobile devices manufacturers that havecontractual arrangements with us. Although we have no control over the design, system, network or standard of the manufacturingof smartphones by these business partners, any lawsuits against them claiming infringement of intellectual property and anycessation of handset production resulting from such lawsuits may interrupt our collaborative operations and result in the reduction ofour delivery of products and services to potential users.We are a “controlled company” within the meaning of the NYSE Listed Company Manual and, as a result, we may rely onexemptions from certain corporate governance requirements that provide protection to shareholders of other companies.We are a “controlled company” as defined under the NYSE Listed Company Manual because Mr. Karl Kan Zhang ownsmore than 50% of our total voting power. For so long as we remain a controlled company under that definition, we are permitted toelect to rely, and may rely, on certain exemptions from corporate governance rules, including an exemption from the rule that amajority of our board of directors must be independent directors or that we have to establish a nominating committee and acompensation committee composed entirely of independent directors. As a result, you will not have the same protection afforded toshareholders of companies that are subject to these corporate governance requirements.We lease premises and may not be able to fully control the rental costs, quality, maintenance and our leasehold interest in thesepremises, nor can we guarantee that we will be able to successfully renew or find suitable premises to replace our existingpremises upon expiration of the existing leases.We lease all premises used in our operations from third parties and we require the landlords’ cooperation to effectivelymanage the condition of such premises, buildings and facilities. In the event that the condition of the office premises, buildings andfacilities deteriorates, or if any or all of our landlords fail to properly maintain and renovate such premises, buildings or facilities ina timely manner or at all, the operation of our offices could be materially and adversely affected. In addition, with respect to ourleased premises, at the end of each lease term, we may need to negotiate an extension of the lease when the lease expires. If we areunable to successfully extend or renew our leases upon expiration of the current term on commercially reasonable terms or at all, wemay be forced to relocate our offices, or the rental costs may increase significantly.Table of Contents30Moreover, certain lessors have not provided us with valid ownership certificates or authorizations of sublease for our leasedproperties. Under relevant PRC laws and regulations, if the lessors are unable to obtain certificate of title because such real estateswere built illegally or failed to pass the inspection, such lease contracts may be recognized as void. In addition, if our lessors are notthe owners of the properties and they have not obtained consents from the owners or their lessors or permits from the relevantgovernment authorities, our leases could be invalidated. If this occurs, we may have to renegotiate the leases with owners or partieswho have the right to lease the properties, and the terms of the new leases may be less favorable to us.As of the date of this annual report, we are not aware of any material claims or actions being contemplated or initiated bygovernment authorities, property owners or any other third parties with respect to our leasehold interests in or use of such properties.However, we cannot assure you that our use of such leased properties will not be challenged. In the event that our use of propertiesis successfully challenged, we may be subject to fines and forced to relocate the affected operations. In addition, we may becomeinvolved in disputes with the property owners or third parties who otherwise have rights to or interests in our leased properties. Wecan provide no assurance that we will be able to find suitable replacement sites on terms acceptable to us on a timely basis, or at all,or that we will not be subject to liabilities resulting from third parties’ challenges on our use of such properties. As a result, ourbusiness operations may be interrupted, and our financial condition and results of operations may be adversely affected.We have limited business insurance coverage. Any interruption of our business may result in substantial costs to us and thediversion of our resources, which could have an adverse effect on our financial condition and operating results.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 business liability ordisruption insurance to cover our operations. We have determined that the costs of insuring for related risks and the difficultiesassociated with acquiring such insurance on commercially reasonable terms make it impractical for us to obtain or maintain suchinsurance. Any uninsured damage to our systems or disruption of our business operations could require us to incur substantial costsand divert our resources, which could have an adverse effect on our financial condition and results of operations.We face risks related to natural disasters, health epidemics and other outbreaks, which could significantly disrupt our businessoperations.Our business could be adversely affected by the effects of epidemics. In recent years, there have been breakouts ofepidemics in and outside China. Our business operations could be disrupted if any of our employees is suspected of having COVID-19, H1N1 flu, avian flu or another epidemic, since it could require our employees to be quarantined and/or our offices to bedisinfected. In addition, our results of operations could be adversely affected to the extent that the outbreak harms the Chinese orglobal economy or our business environment in particular. We are also vulnerable to natural disasters and other calamities, whichmay give rise to server interruptions, breakdowns, system failures, technology platform failures or internet failures, and mayadversely affect our ability to provide advertising services through our products.Changes in the method for determining the London Interbank Offered Rate (“LIBOR”) or China Loan Prime Rate ("LPR") andthe potential replacement of LIBOR or LPR may affect our cost of capital and net investment income.We entered into a credit facility agreement with a commercial bank in July 2018, as renewed in October 2019 and furtherrenewed in June 2020, under which agreement we can borrow up to US$15.0 million collateralized by our accounts receivable byJune 2021. The interest rate for this credit facility is London Interbank Offered Rate (“LIBOR”) or China Loan Prime Rate (“LPR”),plus an applicable margin. We have used the credit facility of US$11.0M as of December 2020.Table of Contents31The LIBOR benchmark has been subject to national, international, and other regulatory guidance and proposals for reform.In July 2017, the U.K. Financial Conduct Authority announced that it intends to stop persuading or compelling banks to submit ratesfor calculation of LIBOR after 2021. These reforms may cause LIBOR to perform differently than in the past and LIBOR mayultimately cease to exist after 2021 or be unsuitable to use as a benchmark. The consequences of any potential cessation,modification or other reform of LIBOR cannot be predicted at this time. Any new benchmark rate will likely not replicate LIBORexactly, which could impact new credit facilities and derivative transaction entered into after 2021. We may need to negotiate withthe commercial bank to determine an alternative reference rate for our credit facility agreement, which may perform differently thanLIBOR. Any changes to benchmark rates could have an impact on our cost of funds and our access to the capital markets, whichcould impact our results of operations and cash flows. Uncertainty as to the nature of such potential changes may also adverselyaffect the trading market for our securities.The LPR refers to the one-year loan market quoted interest rate issued by the National Bank Interbank Funding Center onthe 20th of each month starting from August 20, 2019, and the one-year loan market quoted interest rate issued by the National BankInterbank Funding Center on September 21, 2020 was 3.85%.Risks Related to Our Corporate StructureIf the PRC government finds that the agreements that establish the structure for operating our businesses in China do notcomply with PRC regulations on foreign investment in internet and other related businesses, or if these regulations or theirinterpretation change in the future, we could be subject to severe penalties or be forced to relinquish our interests in thoseoperations.Current PRC laws and regulations impose certain restrictions or prohibitions on foreign ownership of companies thatengage in internet and other related businesses, including the provision of internet information services. Specifically, foreignownership of an internet information services provider may not exceed 50%. We are a company incorporated in the Cayman Islandsand Shanghai Chule (CooTek) Information Technology Co., Ltd., which we refer to as Shanghai Chule or the WFOE, is our whollyowned PRC subsidiary and therefore is considered as a foreign-invested enterprise. To comply with PRC laws and regulations, weconduct our business in China through our consolidated affiliated entities, including Shanghai Chubao (CooTek) InformationTechnology Co., Ltd., or Shanghai Chubao, and three other PRC domestic entities, based on a series of contractual arrangements byand among Shanghai Chule, our consolidated affiliated entities and their respective shareholders. As a result of these contractualarrangements, we exert control over our consolidated affiliated entities and consolidate or combine their operating results in ourfinancial statements under U.S. GAAP. Our consolidated affiliated entities hold the licenses, approvals and certain key assets thatare essential for our business operations.In the opinion of our PRC counsel, JunHe LLP, based on its understanding of the relevant PRC laws and regulations, thecontractual arrangements among our PRC subsidiary, our consolidated affiliated entities and their respective shareholders are validand binding under the existing PRC laws and regulations. There are, however, substantial uncertainties regarding the interpretationand application of current or future PRC laws and regulations. Thus, we cannot assure you that the PRC government will notultimately take a view contrary to the opinion of our PRC counsel. If we are found in violation of any PRC laws or regulations or ifthe contractual arrangements among Shanghai Chule, our consolidated affiliated entities and their respective shareholders aredetermined as illegal or invalid by the PRC court, arbitral tribunal or regulatory authorities, the relevant governmental authoritieswould have broad discretion in dealing with such violation, including, without limitation:●revoke our business and operating licenses;●levy fines on us;●confiscate any of our income that they deem to be obtained through illegal operations;●require us to discontinue or restrict operations;Table of Contents32●restrict our right to collect revenues;●block our mobile applications;●require us to restructure the operations in such a way as to compel us to establish a new enterprise, re-apply for thenecessary licenses or relocate our businesses, staff and assets;●impose additional conditions or requirements with which we may not be able to comply; or●take other regulatory or enforcement actions against our group that could be harmful to our business.The imposition of any of these penalties may result in a material and adverse effect on our ability to conduct the business.In addition, if the imposition of any of these penalties causes us to lose the rights to direct the activities of our consolidated affiliatedentities or the right to receive their economic benefits, we would no longer be able to consolidate our consolidated affiliated entities.We do not believe that any penalties imposed or actions taken by the PRC government would result in the liquidation of ourcompany, Shanghai Chule, or our consolidated affiliated entities.We rely on contractual arrangements with our consolidated affiliated entities and their respective shareholders for ouroperations in China, which may not be as effective in providing operational control as direct ownership.Due to the PRC restrictions or prohibitions on foreign ownership of internet and other related businesses in China, weoperate our business in China through our consolidated affiliated entities, in which we have no ownership interest. We rely on aseries of contractual arrangements with our consolidated affiliated entities and their respective shareholders, including the powers ofattorney, to control and operate their business.Our ability to control the consolidated affiliated entities depends on the powers of attorney, pursuant to which ShanghaiChule can vote on all matters requiring shareholder approval in our consolidated affiliated entities.We believe these powers of attorney are legally enforceable but may not be as effective as direct equity ownership. Thesecontractual arrangements are intended to provide us with effective control over our consolidated affiliated entities and allow us toobtain economic benefits from them. See “Item 4. Information on the Company—C. Organizational Structure” for further details.Table of Contents33Although we have been advised by our PRC counsel, JunHe LLP, that the contractual arrangements among our PRCsubsidiary, our consolidated affiliated entities and their respective shareholders are valid and binding under existing PRC laws andregulations, these contractual arrangements may not be as effective in providing control over our consolidated affiliated entities asdirect ownership. If our consolidated affiliated entities or their shareholders fail to perform their respective obligations under thecontractual arrangements, we may incur substantial costs and expend substantial resources to enforce our rights. All of thesecontractual arrangements are governed by and interpreted in accordance with PRC laws, and disputes arising from these contractualarrangements will be resolved through arbitration in China. Such disputes do not include claims arising under the United Statesfederal securities laws and therefore these arbitration provisions do not prevent you from pursuing claims arising under the UnitedStates federal securities laws. However, the legal system in China, particularly as it relates to arbitration proceedings, is not asdeveloped as in other jurisdictions, such as the United States. See “—Risks Related to Doing Business in China—Uncertainties inthe interpretation and enforcement of PRC laws and regulations could limit the legal protections available to you and us.” There arevery few precedents and little official guidance as to how contractual arrangements in the context of a variable interest entity shouldbe interpreted or enforced under PRC law. There remain significant uncertainties regarding the ultimate outcome of arbitrationshould legal action become necessary. These uncertainties could limit our ability to enforce these contractual arrangements. Inaddition, arbitration awards are final and can only be enforced in PRC courts through arbitration award recognition proceedings,which could cause additional expenses and delays. In the event we are unable to enforce these contractual arrangements or weexperience significant delays or other obstacles in the process of enforcing these contractual arrangements, we may not be able toexert effective control over our affiliated entities and may lose control over the assets owned by our consolidated affiliated entities.As a result, we may be unable to consolidate our consolidated affiliated entities in our consolidated financial statements, our abilityto conduct our business may be negatively affected, and our business operations could be severely disrupted, which could materiallyand adversely affect our results of operations and financial condition.We may lose the ability to use and maintain the benefit of assets held by our consolidated affiliated entities that are important tothe operation of our business if our consolidated affiliated entities declare bankruptcy or become subject to a dissolution orliquidation proceeding.Our consolidated affiliated entities hold certain assets that are important to our business operations, including the VATLicense concerning information services, domestic multiparty communication services and domestic call center services and theOnline Culture Operating Permit. Under our contractual arrangements, the shareholders of our consolidated affiliated entities maynot voluntarily liquidate our consolidated affiliated entities or approve them to sell, transfer, mortgage or dispose of their assets orlegal or beneficial interests exceeding certain threshold in the business in any manner without our prior consent. However, in theevent that the shareholders breach this obligation and voluntarily liquidate our consolidated affiliated entities, or our consolidatedaffiliated entities declare bankruptcy, or all or part of their assets become subject to liens or rights of third-party creditors, we may beunable to continue some or all of our business operations, which could materially and adversely affect our business, financialcondition and results of operations. Furthermore, if our consolidated affiliated entities undergo a voluntary or involuntary liquidationproceeding, their shareholders or unrelated third-party creditors may claim rights to some or all of their assets, thereby hindering ourability to operate our business, which could materially and adversely affect our business, financial condition and results ofoperations.Table of Contents34Contractual arrangements we have entered into with our consolidated affiliated entities and their respective shareholders may besubject to scrutiny by the PRC tax authorities. A finding that we owe additional taxes could significantly reduce our consolidatednet income and the value of your investment.Pursuant to applicable PRC laws and regulations, arrangements and transactions among related parties may be subject toaudit or challenge by the PRC tax authorities. We may be subject to adverse tax consequences if the PRC tax authorities determinethat the contractual arrangements among our PRC subsidiary, our consolidated affiliated entities and their shareholders are not on anarm’s length basis and therefore constitute favorable transfer pricing. As a result, the PRC tax authorities could require that ourconsolidated affiliated entities adjust its taxable income upward for PRC tax purposes. Such an adjustment could adversely affect usby increasing our consolidated affiliated entities’ tax expenses without reducing the tax expenses of our PRC subsidiary, subjectingour consolidated affiliated entities to late payment fees and other penalties for under-payment of taxes, and resulting in our PRCsubsidiary’s loss of its preferential tax treatment. Our consolidated results of operations may be adversely affected if ourconsolidated affiliated entities’ tax liabilities increase or if it is subject to late payment fees or other penalties.If the chops of our PRC subsidiary, our consolidated affiliated entities, are not kept safely, are stolen or are used by unauthorizedpersons or for unauthorized purposes, the corporate governance of these entities could be severely and adversely compromised.In China, a company chop or seal serves as the legal representation of the company towards third-parties even whenunaccompanied by a signature. Each legally registered company in China is required to maintain a company chop, which must beregistered with the local Public Security Bureau. In addition to this mandatory company chop, companies may have several otherchops which can be used for specific purposes. The chops of our PRC subsidiary, our consolidated affiliated entities are generallyheld securely by personnel designated or approved by us in accordance with our internal control procedures. To the extent thosechops are not kept safe, are stolen or are used by unauthorized persons or for unauthorized purposes, the corporate governance ofthese entities could be severely and adversely compromised and those corporate entities may be bound to abide by the terms of anydocuments so chopped, even if they were chopped by an individual who lacked the requisite power and authority to do so.The shareholders of our consolidated affiliated entities may have potential conflicts of interest with us, which may materially andadversely affect our business.The shareholders of our major consolidated affiliated entities include Karl Kan Zhang, Susan Qiaoling Li, Michael Jialiang Wang, Jim Jian Wang and Haiyan Zhu. Karl Kan Zhang, Susan Qiaoling Li, Michael Jialiang Wang are our co-founders, directors and executive officers. Jim Jian Wang is one of our directors. Haiyan Zhu is one of our early investors. Conflicts of interest may arise between the roles of these persons as shareholders, directors or officers of our company and as shareholders of our consolidated affiliated entities. We rely on these individuals to abide by the laws of the Cayman Islands, which provide that our 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. The shareholders of our consolidated affiliated entities have executed powers of attorney to appoint Shanghai Chule, our PRC subsidiary, or a person designated by Shanghai Chule to vote on their behalf and exercise voting rights as shareholders of our consolidated affiliated entities. We cannot assure you that when conflicts arise, shareholders of our consolidated affiliated entities 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.Table of Contents35We may rely on dividends paid by our PRC subsidiary to fund cash and financing requirements. Any limitation on the ability ofour PRC subsidiary to pay dividends to us could have a material adverse effect on our ability to conduct our business and to paydividends to holders of the ADSs and our ordinary shares.We are a holding company, and we may rely on dividends to be paid by our PRC subsidiary for our cash and financingrequirements, including the funds necessary to pay dividends and other cash distributions to the holders of the ADSs and ourordinary shares and service any debt we may incur. If our PRC subsidiary incur debt on their own behalf in the future, theinstruments governing the debt may restrict their ability to pay dividends or make other distributions to us.Under PRC laws and regulations, our wholly owned subsidiary in the PRC, Shanghai Chule, may pay dividends only out ofits 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’ accumulatedlosses, if any, to fund certain statutory reserve funds, until the aggregate amount of such a fund reaches 50% of its registered capital.The PRC company could distribute the remaining after-tax profits after making up losses and funding reserve funds in accordancewith the provisions of the PRC Company Law. Any limitation on the ability of our wholly owned PRC subsidiary to pay dividendsor make other distributions to us could materially and adversely limit our ability to grow, make investments or acquisitions thatcould be beneficial to our business, pay dividends, or otherwise fund and conduct our business.Substantial uncertainties exist with respect to the interpretation and implementation of the newly enacted PRC ForeignInvestment Law and how it may impact the viability of our current corporate structure and business operations.The National People’s Congress approved the Foreign Investment Law (the “FIL”) on March 15, 2019, and the StateCouncil approved the Regulation on Implementing the Foreign Investment Law (the “Implementation Regulations”) onDecember 12, 2019, effective from January 1, 2020, which replaced the trio of existing laws regulating foreign investment in China,namely, the Sino-foreign Equity Joint Venture Enterprise Law, the Sino-foreign Cooperative Joint Venture Enterprise Law and theWholly Foreign-invested Enterprise Law, together with their implementation rules and ancillary regulations. The Supreme People’sCourt of China issued a judicial interpretation on the Foreign Investment Law on December 26, 2019, effective from January 1,2020, to ensure fair and efficient implementation of the Foreign Investment Law. According to this judicial interpretation, courts inChina shall not, among other things, support contracted parties to claim foreign investment contracts in sectors not on the SpecialAdministrative Measures for Access to Foreign Investment (Negative List) (2019), or the 2019 Negative List, as void because thecontracts have not been approved or registered by administrative authorities. The Foreign Investment Law grants national treatmentto foreign invested enterprises, except for those operating in “restricted” or “prohibited” industries in the “negative list,” where if aforeign invested enterprise proposes to conduct business in an industry subject to foreign investment “restrictions” in the “negativelist,” the foreign invested enterprise must go through a MOFCOM pre-approval process. The internet content service, internet audio-visual program services and online culture activities that we conduct through our consolidated affiliated entities, which are our VIEs,are subject to foreign investment restrictions set forth in the 2019 Negative List. The Foreign Investment Law and ImplementationRegulations embody an expected PRC regulatory trend to rationalize its foreign investment regulatory regime in line with prevailinginternational practice and the legislative efforts to unify the corporate legal requirements for both foreign and domestic investments.Table of Contents36However, since these rules are relatively new, uncertainties still exist in relation to their interpretation. For instance, underthe Foreign Investment Law, “foreign investment” refers to the investment activities directly or indirectly conducted by foreignindividuals, enterprises or other entities in China. Though it does not explicitly classify contractual arrangements as a form offoreign investment, there is no assurance that foreign investment via contractual arrangement would not be interpreted as a type ofindirect foreign investment activities under the definition in the future. In addition, the definition contains a catch-all provisionwhich includes investments made by foreign investors through means stipulated in laws or administrative regulations or othermethods prescribed by the State Council. Therefore, it still leaves leeway for future laws, administrative regulations or provisionspromulgated by the State Council to provide for contractual arrangements as a form of foreign investment. In any of these cases, itwill be uncertain whether our contractual arrangements will be deemed to be in violation of the market access requirements forforeign investment under the PRC laws and regulations. Furthermore, if future laws, administrative regulations or provisionsprescribed by the State Council mandate further actions to be taken by companies with respect to existing contractual arrangements,we may face substantial uncertainties as to whether we can complete such actions in a timely manner, or at all. Failure to take timelyand appropriate measures to cope with any of these or similar regulatory compliance challenges could materially and adverselyaffect our current corporate structure, corporate governance and business operations.Risks Related to Doing Business in ChinaAdverse changes in China's economic, political or social conditions or government policies could have a material and adverseeffect on overall economic growth in China, which could materially and adversely affect our business.Our principal offices are based in China. Accordingly, our operating results, financial condition and prospects areinfluenced by economic, political and legal developments in China. Economic reforms begun in the late 1970s have resulted insignificant economic growth. However, any economic reform policies or measures in China may from time to time be modified orrevised. China's economy differs from the economies of most developed countries in many respects, including with respect to theamount of government involvement, level of development, growth rate, control of foreign exchange and allocation of resources.While the PRC economy has experienced significant growth in the past 30 years, growth has been uneven across different regionsand among different economic sectors. In addition, the rate of growth has been slowing since 2012, and the impact of COVID-19 onthe Chinese and global economies in 2020 and 2021 is likely to be severe. In particular, the National Bureau of Statistics of Chinareported a 2.3% growth in GDP for the full year of 2020, compared with the full year of 2019.The PRC government exercises significant control over China's economic growth through strategically allocatingresources, controlling the payment of foreign currency-denominated obligations, setting monetary policy and providing preferentialtreatment to particular industries or companies. Although the Chinese economy has grown significantly in the past decade, thatgrowth may not continue, as evidenced by the slowing of the growth of the Chinese economy in recent years. Any adverse changesin economic conditions in China, in the policies of the Chinese government or in the laws and regulations in China could have amaterial adverse effect on the overall economic growth of China. Such developments could adversely affect our business andoperating results, lead to reduction in demand for our services and adversely affect our competitive position.Uncertainties in the interpretation and enforcement of PRC laws and regulations could limit the legal protections available toyou and us.The PRC legal system is based on written statutes and court decisions have limited precedential value. The PRC legalsystem evolves rapidly, and the interpretations of many laws, regulations and rules may contain inconsistencies and enforcement ofthese laws, regulations and rules involves uncertainties.Table of Contents37From time to time, we may have to resort to administrative and court proceedings to enforce our legal rights. However,since PRC judicial and administrative authorities have significant discretion in interpreting and implementing statutory andcontractual terms, it may be more difficult to predict the outcome of a judicial or administrative proceeding than in more developedlegal systems. Furthermore, the PRC legal system is based, in part, on government policies and internal rules, some of which are notpublished in a timely manner, or at all, but which may have retroactive effect. As a result, we may not always be aware of anypotential violation of these policies and rules. Such unpredictability towards our contractual, property (including intellectualproperty) and procedural rights could adversely affect our business and impede our ability to continue our operations.Content posted or displayed on our platform may be found objectionable by PRC regulatory authorities and may subject us topenalties and other severe consequences.The PRC government has adopted regulations governing internet and wireless access and the distribution of informationover the internet and wireless telecommunication networks. Under these regulations, internet content providers and internetpublishers are prohibited from posting or displaying over the internet or wireless networks content that, among other things, violatesPRC laws and regulations, impairs the national dignity of China or the public interest, or is obscene, superstitious, fraudulent ordefamatory. Furthermore, internet content providers are also prohibited from displaying content that may be deemed by relevantgovernment authorities as “socially destabilizing” or leaking “state secrets” of the PRC. Failure to comply with these requirementsmay result in the revocation of licenses to provide internet content or other licenses, the closure of the concerned platforms andreputational harm. The operator may also be held liable for any censored information displayed on or linked to their platform. For adetailed discussion, see “Item 4. Information on the Company—B. Business Overview—Regulation—Regulations Relating toCyber Security.”We operate a number of portfolio products in China, including Fengdu Novel. We have implemented procedures to monitorthe content displayed on our products in order to comply with relevant laws and regulations. However, it may not be possible todetermine in all cases the types of content that could result in our liability as a distributor of such content and, if any of the contentposted or displayed on our products is deemed by the PRC government to violate any content restrictions, we would not be able tocontinue to display such content and could become subject to penalties, including confiscation of income, fines, suspension ofbusiness and revocation of required licenses, which could materially and adversely affect our business, financial condition andresults of operations.We may also be subject to potential liability for any unlawful actions by our users on our products. It may be difficult todetermine the type of content or actions that may result in liability to us and, if we are found to be liable, we may be prevented fromoperating our business in China. Moreover, the costs of compliance with these regulations may continue to increase as a result ofmore content being made available by an increasing number of users of our platform, which may adversely affect our results ofoperations. Although we have adopted internal procedures to monitor content and to remove offending content once we becomeaware of any potential or alleged violation, we may not be able to identify all the content that may violate relevant laws andregulations or third-party intellectual property rights. Even if we manage to identify and remove offensive content, we may still beheld liable. As of the date of this annual report, we have not received government sanctions in connection with content posted on ourplatform. However, we cannot assure you that our business and operations will be immune from government actions or sanctions inthe future. To the extent that PRC regulatory authorities find any content displayed on our platform objectionable, they may requireus to limit or eliminate the dissemination of such content on our platform in the form of take-down orders or otherwise. In addition,these laws and regulations are subject to interpretation by the relevant authorities, and it may not be possible to determine in allcases the types of content that could result in our liability as a platform operator.Table of Contents38Advertisements shown on our platform may subject us to penalties and other administrative actions.Under PRC advertising laws and regulations, we are obligated to monitor the advertising content shown on our platform toensure that such content is true and accurate and in full compliance with applicable laws and regulations. Advertisements shall nothinder public order, violate social morality or contain illegal contents, including, but not limited to, obscenity, pornography,gambling, superstition, terror and violence contents. Otherwise, the administration of market regulation may (i) order to stoppublishing of the advertisement and; (ii) confiscate the advertising fees; (iii) impose a penalty ranging from RMB200,000 toRMB1,000,000; or (iv) in serious cases, cancel the business license and cancel the registration certificate for publishingadvertisements. In addition, where a special government review is required for specific types of advertisements prior to internetposting, such as advertisements relating to pharmaceuticals, medical instruments, agrochemicals and veterinary pharmaceuticals, weare obligated to confirm that such review has been performed and approval has been obtained. Violation of these laws andregulations may subject us to penalties, including fines, confiscation of our advertising income, orders to cease dissemination of theadvertisements and orders to publish an announcement correcting the misleading information. In circumstances involving seriousviolations 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 platform are in full compliance withapplicable PRC laws and regulations, we cannot assure you that all the content contained in such advertisements or offers is true andaccurate as required by the advertising laws and regulations or otherwise in full compliance with applicable PRC laws andregulations, especially given the uncertainty in the interpretation of these PRC laws and regulations. If we are found to be inviolation of applicable PRC advertising laws and regulations, we may be subject to penalties and our reputation may be harmed,which may negatively affect our business, financial condition, and results of operations and prospects. Although the advertisementsdisplayed on our platform may not directly contain sensitive or illegal contents, including, but not limited to, gambling and pyramidselling, the advertisers may use inducing words to indirectly attract advertisement viewers to participate in gambling, pyramidselling, or other illegal activities. If we receive a complaint that any superficially compliant advertisement is linked to one or morewebpages that feature non-compliant advertising content, we will remove the related advertisement. Although our agreements withthe advertising agencies provide that the advertisements provided by the advertisers shall comply with the requirements of relevantlaws and regulations, we cannot control or supervise advertising contents and the linked webpages all the time. Therefore, we cannotguarantee you that all of the advertisements displayed on our platform will comply with relevant laws and regulations.In April 2015, the Standing Committee of the National People’s Congress promulgated the PRC Advertising Law, effectiveon September 1, 2015, and amended on October 26, 2018. According to the Advertising Law, advertisements shall not have anyfalse or misleading content, or defraud or mislead consumers. Furthermore, an advertisement will be deemed as a “falseadvertisement” if any of the following situations exist: (i) the advertised product or service does not exist; (ii) there is anyinconsistency that has a material impact on the decision to purchase in what is included in the advertisement with the actualcircumstances with respect to the product’s performance, function, place of production, usage, quality, specification, ingredient,price, producer, term of validity, sales condition and honors received, among others, or the service’s content, provider, form, quality,price, sales condition, and honors received, among others, or any commitments, among others, made on the product or service;(iii) using fabricated, forged or unverifiable scientific research results, statistical data, investigation results, excerpts, quotations orother information as supporting material; (iv) effect or results of using the good or receiving the service are fabricated; or (v) othercircumstances where consumers are defrauded or misled by any false or misleading content.Table of Contents39The laws and regulations of advertising are relatively new and evolving and there is substantial uncertainty as to theinterpretation of “false advertisement” by the State Administration for Market Regulation (formerly known as the StateAdministration for Industry and Commerce), or the SAMR. We have published certain relatively aggressive advertisements on someof our portfolio products to acquire and retain users. For example, we publish advertisements for our lucky draw events on FengduNovel, and some users have filed complaints with the SAMR because, among other reasons, the possibilities of winning these luckydraws are overstated in the advertisements. If any of the advertisements, such as those for the lucky draw events, that we publish isdeemed to be a “false advertisement” by the SAMR or its local branch, we could be subject to various penalties, such asdiscontinuation of publishing the relevant advertisement, imposition of fines and obligations to eliminate any adverse effectsincurred by such false advertisement, revocation of our business license and other approvals, rejection of our other advertisementexamination application, or even criminal liabilities under circumstances of serious violations. For detailed descriptions, see “Item 4.Information on the Company—B. Business Overview—Regulation—Regulations Relating to Online Advertising Services.” Anyresulting penalties may disrupt our business and materially adversely affect our results of operations and financial conditions.Under the PRC Enterprise Income Tax Law, we may be classified as a PRC “resident enterprise,” which could result inunfavorable tax consequences to us and our shareholders and have a material adverse effect on our results of operations and thevalue of your investment.Under the PRC Enterprise Income Tax Law, or the EIT Law, which became effective in January 2008 and most recentlyamended in December 2018, an enterprise established outside the PRC with “de facto management bodies” within the PRC isconsidered a “resident enterprise” for PRC enterprise income tax purposes and is generally subject to a uniform 25% enterpriseincome tax rate on its worldwide income. In 2009, the State Administration of Taxation, or the SAT, issued the Notice Regarding theDetermination of Chinese-Controlled Overseas Incorporated Enterprises as PRC Tax Resident Enterprise on the Basis of De FactoManagement Bodies, or SAT Circular 82, which provides certain specific criteria for determining whether the “de facto managementbody” of a PRC-controlled enterprise that is incorporated offshore is located in China. Further to SAT Circular 82, in 2011, the SATissued the Administrative Measures for Enterprise Income Tax of Chinese-Controlled Offshore Incorporated Resident Enterprises(Trial), or SAT Bulletin 45, amended in 2018, to provide more guidance on the implementation of SAT Circular 82. SAT Bulletin 45clarified certain issues in the areas of resident status determination, post-determination administration and competent tax authorities’procedures.According to SAT Circular 82, an offshore incorporated enterprise controlled by a PRC enterprise or a PRC enterprisegroup will be considered as a PRC tax resident enterprise by virtue of having its “de facto management body” in China and will besubject to PRC enterprise income tax on its worldwide income only if all of the following conditions are met: (a) the seniormanagement 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) itsmajor assets, accounting books, company seals, and minutes and files of its board and shareholders’ meetings are located or kept inthe 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 Chinesecontrolled offshore incorporated enterprise, the payer should not withhold 10% income tax when paying the Chinese-sourceddividends, interest, royalties, etc. to the Chinese controlled offshore incorporated enterprise.Although SAT Circular 82 and SAT Bulletin 45 only apply to offshore incorporated enterprises controlled by PRCenterprises or PRC enterprise groups and not those controlled by PRC individuals or foreigners, the determination criteria set forththerein may reflect the SAT’s general position on how the term “de facto management body” could be applied in determining the taxresident status of offshore enterprises, regardless of whether they are controlled by PRC enterprises, individuals or foreigners.Table of Contents40In addition, the SAT issued the Announcement of the State Administration of Taxation on Issues concerning theDetermination of Resident Enterprises Based on the Standards of Actual Management Institutions in January 2014 to provide moreguidance on the implementation of SAT Circular 82. This bulletin further provides that, among other things, an entity that isclassified as a “resident enterprise” in accordance with the circular shall file the application for classifying its status of residentialenterprise with the local tax authorities where its main domestic investors are registered. From the year in which the entity isdetermined to be a “resident enterprise,” any dividend, profit and other equity investment gain shall be taxed in accordance with theenterprise income tax law and its implementing rules.Although our offshore holding entity is not controlled by PRC enterprises or a PRC enterprise group, our revenues areprimarily generated from business operations conducted in PRC, and we cannot rule out the possibility that the PRC tax authoritiesdetermine that we or any of our non-PRC subsidiaries is a PRC resident enterprise for PRC enterprise income tax purposes, whichcould subject our company or any of our non-PRC subsidiaries to PRC tax at a rate of 25% on its world-wide income, which couldmaterially reduce our net income. In addition, we may also be subject to PRC enterprise income tax reporting obligations.If the PRC tax authorities determine that our company is a PRC resident enterprise for PRC enterprise income tax purposes,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 ofnon-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 gains are deemed to be from PRC sources. Any such tax may reduce the returns on your investment in the ADSs.There are significant uncertainties under the EIT Law relating to the withholding tax liabilities of our PRC subsidiary, anddividends payable by our PRC subsidiary to our offshore subsidiaries may not qualify to enjoy certain treaty benefits.Under the EIT Law and its implementation rules, the profits of a foreign-invested enterprise generated through operations,which are distributed to its immediate holding company outside China, will be subject to a withholding tax rate of 10.0%. Pursuantto a special arrangement between Hong Kong and China, such rate may be reduced to 5.0% if a Hong Kong resident enterprise ownsmore than 25.0% of the equity interest in the PRC company. Our current PRC subsidiary is wholly owned by our Hong Kongsubsidiary, CooTek Hong Kong Limited, or CooTek HK. Accordingly, CooTek HK may qualify for a 5.0% tax rate in respect ofdistributions from its PRC subsidiary. Under the Notice of the State Administration of Taxation on Issues regarding theAdministration of the Dividend Provision in Tax Treaties promulgated on February 20, 2009, the taxpayer needs to satisfy certainconditions to enjoy the benefits under a tax treaty. These conditions include: (1) the taxpayer must be the beneficial owner of therelevant dividends, and (2) the corporate shareholder to receive dividends from the PRC subsidiary must have continuously met thedirect ownership thresholds during the 12 consecutive months preceding the receipt of the dividends. Further, the SAT promulgatedthe Notice on How to Understand and Recognize the “Beneficial Owner” in Tax Treaties in 2009, most recently amended onFebruary 3, 2018, and effective from April 1, 2018, which sets forth several non-rebuttable presumptions to be a “beneficial owner,”and certain detailed factors in determining the “beneficial owner” status.Entitlement to a lower tax rate on dividends according to tax treaties or arrangements between the PRC central government and governments of other countries or regions is subject to Administrative Measures on Entitlement of Non-residents to Treatment under Tax Treaties, or SAT Circular 60, replaced by SAT Circular 35 in 2019, which provides that non-resident enterprises are not required to obtain pre-approval from the relevant tax authority in order to enjoy the reduced withholding tax. Instead, non-resident enterprises and their withholding agents may, by self-assessment and on confirmation that the prescribed criteria to enjoy the tax treaty benefits are met, directly apply the reduced withholding tax rate, and file necessary forms and supporting documents when performing tax filings, which will be subject to post-tax filing examinations by the relevant tax authorities. As a result, we cannot assure you that we will be entitled to any preferential withholding tax rate under tax treaties for dividends received from our PRC subsidiary.Table of Contents41We face uncertainty with respect to indirect transfer of equity interests in PRC resident enterprises by their non-PRC holdingcompanies.We face uncertainties regarding the reporting on and consequences of previous private equity financing transactionsinvolving the transfer and exchange of shares in our company by non-resident investors.In February 2015, the SAT issued the Bulletin on Issues of Enterprise Income Tax on Indirect Transfers of Assets by Non-PRC Resident Enterprises, or SAT Bulletin 7, as amended in 2017, which replaced certain clauses of the Notice of the StateAdministration of Taxation on Strengthening the Administration of Enterprise Income Tax on Non-resident Enterprises’ EquityTransfer Income issued by the SAT in December 2009. Pursuant to this bulletin, an “indirect transfer” of assets, including equityinterests in a PRC resident enterprise, by non-PRC resident enterprises may be re-characterized and treated as a direct transfer ofPRC taxable assets, if such arrangement does not have a reasonable commercial purpose and was established for the purpose ofavoiding payment of PRC enterprise income tax. As a result, gains derived from such indirect transfer may be subject to PRCenterprise income tax. According to SAT Bulletin 7, “PRC taxable assets” include assets attributed to an establishment in China,immovable properties located in China, and equity investments in PRC resident enterprises, in respect of which gains from theirtransfer by a direct holder, being a non-PRC resident enterprise, would be subject to PRC enterprise income taxes. Whendetermining whether there is a “reasonable commercial purpose” of the transaction arrangement, features to be taken intoconsideration include: whether the main value of the equity interest of the relevant offshore enterprise derives from PRC taxableassets; whether the assets of the relevant offshore enterprise mainly consist of direct or indirect investment in China or if its incomemainly derives from China; whether the offshore enterprise and its subsidiaries directly or indirectly holding PRC taxable assetshave real commercial nature which is evidenced by their actual function and risk exposure; the duration of existence of the businessmodel and organizational structure; the replicability of the transaction by direct transfer of PRC taxable assets; and the tax situationof such indirect transfer and applicable tax treaties or similar arrangements. In respect of an indirect offshore transfer of assets of aPRC establishment, the resulting gain is to be included with the enterprise income tax filing of the PRC establishment or place ofbusiness being transferred, and would consequently be subject to PRC enterprise income tax at a rate of 25%. Where the underlyingtransfer relates to the immovable properties located in China or to equity investments in a PRC resident enterprise, which is notrelated to a PRC establishment or place of business of a non-resident enterprise, a PRC enterprise income tax of 10% would apply,subject to available preferential tax treatment under applicable tax treaties or similar arrangements, and the party who is obligated tomake the transfer payments has the withholding obligation. Where the payor fails to withhold any or sufficient tax, the transferor isrequired to declare and pay such tax to the tax authority by itself within the statutory time limit. Late payment of applicable tax willsubject the transferor to default interest. SAT Bulletin 7 does not apply to transactions of sale of shares by investors through a publicstock exchange where such shares were acquired from a transaction through a public stock exchange.There is uncertainty as to the application of SAT Bulletin 7. We face uncertainties as to the reporting and other implicationsof certain past and future transactions where PRC taxable assets are involved, such as offshore restructuring, sale of the shares in ouroffshore subsidiaries or investments. Our company may be subject to filing obligations or taxed if our company is transferor in suchtransactions, and may be subject to withholding obligations if our company is transferee in such transactions under SAT Bulletin 7.In 2014, we repurchased certain number of ordinary shares in CooTek (Cayman) Inc. from an existing shareholder for theconsideration of US$9.3 million. The existing shareholder undertook to make the necessary tax filings in relation to this repurchaseby herself and to indemnify us against any losses arising from the failure to make such tax filings. However, we cannot assure youthat, if the existing shareholder fails to make necessary tax filings, the tax authority would not require us to make such tax filingsand even subject us to fines. As of the date of this annual report, we have neither received any notice of warning nor been subject toany penalties or other disciplinary action from the relevant government authorities regarding such tax filing. For transfer of shares inour company by investors that are non-PRC resident enterprises, our PRC subsidiary may be requested to assist in the filing underSAT Bulletin 7. As a result, we may be required to expend valuable resources to comply with SAT Bulletin 7 or to request therelevant transferors from whom we purchase taxable assets to comply with these circulars, or to establish that our company shouldnot be taxed under these circulars.Table of Contents42China’s M&A Rules and certain other PRC regulations establish complex procedures for some acquisitions of Chinesecompanies 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 otherrecently adopted regulations and rules concerning mergers and acquisitions established additional procedures and requirements thatcould make merger and acquisition activities by foreign investors more time consuming and complex. For example, the M&ARules require that MOFCOM be notified in advance of any change-of-control transaction in which a foreign investor takes controlof a PRC domestic enterprise, if (i) any important industry is concerned, (ii) such transaction involves factors that impact or mayimpact national economic security, or (iii) such transaction will lead to a change in control of a domestic enterprise which holds afamous trademark or PRC time-honored brand. Moreover, the Anti-Monopoly Law promulgated by the Standing Committee of theNational People’s Congress in August 2007 and effective in August 2008 requires that transactions which are deemed concentrationsand involve parties with specified turnover thresholds (i.e., during the previous fiscal year, (i) the total global turnover of alloperators participating in the transaction exceeds RMB10 billion and at least two of these operators each had a turnover of morethan RMB400 million within China, or (ii) the total turnover within China of all the operators participating in the concentrationexceeded RMB2 billion, and at least two of these operators each had a turnover of more than RMB400 million within China) mustbe cleared by MOFCOM before they can be completed. In addition, in February 2011, the General Office of the State Councilpromulgated a Notice on Establishing the Security Review System for Mergers and Acquisitions of Domestic Enterprises by ForeignInvestors, or the Circular 6, which officially established a security review system for mergers and acquisitions of domesticenterprises by foreign investors. Further, in August 2011, MOFCOM promulgated the Regulations on Implementation of SecurityReview System for the Merger and Acquisition of Domestic Enterprises by Foreign Investors, or the MOFCOM Security ReviewRegulations, to implement the Circular 6. Under Circular 6, a security review is required for mergers and acquisitions by foreigninvestors 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,MOFCOM will focus on the substance and actual impact of the transaction when deciding whether a specific merger or acquisitionis subject to security review. If MOFCOM decides that a specific merger or acquisition is subject to security review, it will submit itto the Inter-Ministerial Panel, an authority established under the Circular 6 led by the National Development and ReformCommission, or NDRC, and MOFCOM under the leadership of the State Council, to carry out security review. The regulationsprohibit 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 interpretationstating that the merging or acquisition of a company engaged in the internet information services, online games, online audio-visualprogram services and related businesses requires security review, and there is no requirement that acquisitions completed prior to thepromulgation of the Security Review Circular are subject to MOFCOM review.In the future, we may grow our business by acquiring complementary businesses. Complying with the requirements of theabove-mentioned regulations and other relevant rules to complete such transactions could be time consuming, and any requiredapproval processes, including obtaining approval from the MOFCOM or its local counterparts may delay or inhibit our ability tocomplete such transactions. It is unclear whether our business would be deemed to be in an industry that raises “national defense andsecurity” or “national security” concerns. However, MOFCOM or other government agencies may publish explanations in the futuredetermining that our business is in an industry subject to the security review, in which case our future acquisitions in the PRC,including those by way of entering into contractual control arrangements with target entities, may be closely scrutinized orprohibited.Table of Contents43PRC regulations relating to offshore investment activities by PRC residents may limit our PRC subsidiary’s ability to increasetheir registered capital or distribute profits to us or otherwise expose us to liability and penalties under PRC law.In July 2014, the SAFE promulgated the Circular on Relevant Issues Relating to Domestic Resident’s Investment andFinancing and Roundtrip Investment through Special Purpose Vehicles, or SAFE Circular 37, which replaced the Relevant IssuesConcerning Foreign Exchange Control on Domestic Residents’ Corporate Financing and Roundtrip Investment through OffshoreSpecial Purpose Vehicles, or Circular 75. Circular 37 requires PRC residents or entities to register with SAFE or its local branch inconnection with their establishment or control of an offshore entity established for the purpose of overseas investment or financing.In addition, such PRC residents or entities must update their SAFE registrations when the offshore special purpose vehicleundergoes material events relating to any change of basic information (including change of such PRC citizens or residents, name andoperation term), increases or decreases in investment amount, transfers or exchanges of shares, or mergers or divisions. According tothe Notice on Further Simplifying and Improving Policies for the Foreign Exchange Administration of Direct Investment releasedon February 13, 2015, by the SAFE, as amended in 2019, local banks will examine and handle foreign exchange registration foroverseas direct investment, including the initial foreign exchange registration and amendment registration, under SAFE Circular 37from June 1, 2015.If our shareholders who are PRC residents or entities do not complete their registration with the local SAFE branches, ourPRC subsidiary may be prohibited from distributing their profits and proceeds from any reduction in capital, share transfer orliquidation to us, and we may be restricted in our ability to contribute additional capital to our PRC subsidiary. Moreover, failure tocomply with the SAFE registration described above could result in liability under PRC laws for evasion of applicable foreignexchange restrictions.Karl Kan Zhang, Susan Qiaoling Li, Michael Jialing Wang, Jim Jian Wang and Haiyan Zhu, who directly or indirectly holdshares in CooTek (Cayman) Inc. and who are PRC residents, have completed the SAFE registration in connection with ourfinancings and have committed to update their registration filings with SAFE under SAFE Circular 75 or Circular 37 when anychanges should be registered under SAFE Circular 75 or Circular 37. However, we may not at all times be fully aware or informedof the identities of all our shareholders or beneficial owners that are required to make such registrations, and we cannot compel ourbeneficial owners to comply with SAFE registration requirements. As a result, we cannot assure you that all of our shareholders orbeneficial owners who are PRC residents or entities have complied with, and will in the future make or obtain any applicableregistrations or approvals required by, SAFE regulations. Failure by such shareholders or beneficial owners to comply with SAFEregulations, or failure by us to amend the foreign exchange registrations of our PRC subsidiary, could subject us to fines or legalsanctions, restrict our overseas or cross-border investment activities, limit our subsidiary’s ability to make distributions or paydividends or affect our ownership structure, which could adversely affect our business and prospects.Table of Contents44Failure to comply with PRC regulations regarding the registration requirements for employee stock ownership plans or shareoption plans may subject the PRC plan participants or us to fines and other legal or administrative sanctions.Pursuant to SAFE Circular 37, PRC residents who participate in share incentive plans in overseas non-publicly listedcompanies due to their position as director, senior management or employees of the PRC subsidiaries of the overseas companiesmay submit applications to SAFE or its local branches for the foreign exchange registration with respect to offshore special purposecompanies. Our directors, executive officers and other employees who are PRC residents and who have been granted options mayfollow SAFE Circular 37 to apply for the foreign exchange registration before our company becomes an overseas listed company. InFebruary 2012, SAFE promulgated the Notices on Issues Concerning the Foreign Exchange Administration for DomesticIndividuals Participating in Stock Incentive Plans of Overseas Publicly Listed Companies, or the Stock Option Rules. Under theStock Option Rules and other relevant rules and regulations, PRC residents who participate in stock incentive plan in an overseaspublicly listed company are required to register with SAFE or its local branches and complete certain other procedures. Participantsof a stock incentive plan who are PRC residents must retain a qualified PRC agent, which could be a PRC subsidiary of suchoverseas publicly listed company or another qualified institution selected by such PRC subsidiary, to conduct the SAFE registrationand other procedures with respect to the stock incentive plan on behalf of its participants. Such participants must also retain anoverseas entrusted institution to handle matters in connection with their exercise of stock options, the purchase and sale ofcorresponding stocks or interests and fund transfers. In addition, the PRC agent is required to amend the SAFE registration withrespect to the stock incentive plan if there is any material change to the stock incentive plan, the PRC agent or the overseas entrustedinstitution or other material changes. We and our PRC employees who have been granted stock options are subject to theseregulations. We have completed such SAFE registrations for our PRC stock option holder employees in March 2019. However, wecannot assure you that we will be able to complete the relevant registration for new employees who participate in such stockincentive plan in the future in a timely manner or at all. Failure of our PRC stock option holders to complete their SAFEregistrations may subject these PRC residents to fines and legal sanctions and may also limit our ability to contribute additionalcapital into our PRC subsidiary, limit our PRC subsidiary’s ability to distribute dividends to us, or otherwise materially adverselyaffect our business.PRC regulation of loans to, and direct investment in, PRC entities by offshore holding companies and governmental control ofcurrency conversion may restrict or prevent us from using the proceeds of our initial public offering to make loans to our PRCsubsidiary and consolidated affiliated entities, or to make additional capital contributions to our PRC subsidiary.We are an offshore holding company conducting our operations in China through our PRC subsidiary and consolidatedaffiliated entities. We may make loans to our PRC subsidiary and consolidated affiliated entities, or we may make additional capitalcontributions to our PRC subsidiary, or we may establish new PRC subsidiary and make capital contributions to these new PRCsubsidiaries, or we may acquire offshore entities with business operations in China in an offshore transaction.Most of these ways are subject to PRC regulations and approvals. For example, loans by us to our wholly owned PRCsubsidiary to finance its activities cannot exceed statutory limits and must be registered with the local counterpart of SAFE. If wedecide to finance our wholly owned PRC subsidiary by means of capital contributions, these capital contributions are subject to therequirement of making necessary filings with the MOFCOM and registration with other governmental authorities in China. Due tothe restrictions imposed on loans in foreign currencies extended to any PRC domestic companies, we are not likely to make suchloans to our consolidated affiliated entities, which are PRC domestic company. Further, we are not likely to finance the activities ofour consolidated affiliated entities by means of capital contributions due to regulatory restrictions relating to foreign investment inPRC domestic enterprises engaged in internet information services, online games, online audio-visual program services and relatedbusinesses.Table of Contents45The SAFE promulgated the Notice of the State Administration of Foreign Exchange on Reforming the Administration ofForeign Exchange Settlement of Capital of Foreign-invested Enterprises, or SAFE Circular 19, effective in June 2015. According toSAFE Circular 19, the flow and use of the RMB capital converted from foreign currency-denominated registered capital of aforeign-invested company is regulated such that RMB capital may not be used for the issuance of RMB entrusted loans, therepayment of inter-enterprise loans or the repayment of banks loans that have been transferred to a third party. Although SAFECircular 19 allows RMB capital converted from foreign currency-denominated registered capital of a foreign-invested enterprise tobe used for equity investments within the PRC, it also reiterates the principle that RMB converted from the foreign currency-denominated capital of a foreign-invested company may not be directly or indirectly used for purposes beyond its business scope.SAFE promulgated the Notice of the State Administration of Foreign Exchange on Reforming and Standardizing the ForeignExchange Settlement Management Policy of Capital Account, or SAFE Circular 16, effective in June 2016, which reiterates some ofthe rules set forth in SAFE Circular 19, but changes the prohibition against using RMB capital converted from foreign currency-denominated registered capital of a foreign-invested company to issue RMB entrusted loans to a prohibition against using suchcapital to issue loans to non-associated enterprises. SAFE Circular 19 and SAFE Circular 16 may significantly limit our ability totransfer any foreign currency we hold, including the net proceeds from our initial public offering, to our PRC subsidiary, which mayadversely affect our liquidity and our ability to fund and expand our business in the PRC. On October 23, 2019, SAFE issued Noticeof the State Administration of Foreign Exchange on Further Promoting the Facilitation of Cross-border Trade and Investment, or theCircular 28. Circular 28 allows non-investment foreign-invested enterprises to use their capital funds to make equity investments inChina; provided that such investments do not violate the Negative List and the target investment projects are genuine and incompliance with PRC laws. Since Circular 28 was issued only recently, its interpretation and implementation in practice are stillsubject to substantial uncertainties.In light of the various requirements imposed by PRC regulations on loans to and direct investment in PRC entities byoffshore holding companies, we cannot assure you that we will be able to complete the necessary government registrations or obtainthe necessary government approvals on a timely basis, if at all, with respect to future loans by us to our PRC subsidiary or withrespect to future capital contributions by us to our PRC subsidiary. If we fail to complete such registrations or obtain such approvals,our ability to use the proceeds we received from our initial public offering and to capitalize or otherwise fund our PRC operationsmay be negatively affected, which could materially and adversely affect our liquidity and our ability to fund and expand ourbusiness.Fluctuation in the value of the RMB may have a material adverse effect on 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 ofChina. The Renminbi has fluctuated against the U.S. dollar, at times significantly and unpredictably. The value of Renminbi againstthe U.S. dollar and other currencies is affected by changes in China’s political and economic conditions and by China’s foreignexchange policies, among other things. We cannot assure you that Renminbi will not appreciate or depreciate significantly in valueagainst the U.S. dollar in the future. It is difficult to predict how market forces or PRC or U.S. government policy may impact theexchange rate between Renminbi and the U.S. dollar in the future.A certain percentage of our costs, expenses and revenues are denominated in RMB. Any significant depreciation of theRMB may materially adversely affect the value of, and any dividends payable on, our ADSs in U.S. Dollars. To the extent that weneed to convert U.S. Dollars we received from our initial public offering into RMB for our operations, appreciation of the RMBagainst the U.S. Dollar would have an adverse effect on the RMB amount we would receive from the conversion. Conversely, if wedecide to convert our RMB into U.S. Dollars for the purpose of paying dividends on our ordinary shares or ADSs or for otherbusiness purposes, appreciation of the U.S. Dollar against the RMB would have an adverse effect on the U.S. Dollar amountavailable to us.Table of Contents46Very limited hedging options are available in China to reduce our exposure to exchange rate fluctuations. To date, we havenot entered into any hedging transactions in an effort to reduce our exposure to foreign currency exchange risk. While we maydecide to enter into hedging transactions in the future, the availability and effectiveness of these hedges may be limited and we maynot be able to adequately hedge our exposure or at all. In addition, our currency exchange losses may be magnified by PRCexchange control regulations that restrict our ability to convert Renminbi into foreign currency. As a result, fluctuations in exchangerates may have a material adverse effect on your investment.Our ADSs may be delisted under the Holding Foreign Companies Accountable Act if the PCAOB is unable to inspect auditorswho are located in China. The delisting of our ADSs, or the threat of their being delisted, may materially and adversely affect thevalue of your investment. Additionally, the inability of the PCAOB to conduct inspections deprives our investors with the benefitsof such inspections.The Holding Foreign Companies Accountable Act, or the HFCA Act, was enacted on December 18, 2020. The HFCA Actstates if the SEC determines that we have filed audit reports issued by a registered public accounting firm that has not been subjectto inspection by the PCAOB for three consecutive years beginning in 2021, the SEC shall prohibit our shares or ADSs from beingtraded on a national securities exchange or in the over the counter trading market in the U.S.Our auditor, the independent registered public accounting firm that issues the audit report included elsewhere in this annualreport, as an auditor of companies that are traded publicly in the United States and a firm registered with the PCAOB, is subject tolaws in the United States pursuant to which the PCAOB conducts regular inspections to assess its compliance with the applicableprofessional standards. Since our auditor is located in China, a jurisdiction where the PCAOB has been unable to conductinspections without the approval of the Chinese authorities, our auditor is currently not inspected by the PCAOB.On March 24, 2021, the SEC adopted interim final rules relating to the implementation of certain disclosure and documentation requirements of the HFCA Act. We will be required to comply with these rules if the SEC identifies us as having a “non-inspection” year under a process to be subsequently established by the SEC. The SEC is assessing how to implement other requirements of the HFCA Act, including the listing and trading prohibition requirements described above.The SEC may propose additional rules or guidance that could impact us if our auditor is not subject to PCAOB inspection.For example, on August 6, 2020, the President’s Working Group on Financial Markets, or the PWG, issued the Report on ProtectingUnited States Investors from Significant Risks from Chinese Companies to the then President of the United States. This reportrecommended the SEC implement five recommendations to address companies from jurisdictions that do not provide the PCAOBwith sufficient access to fulfil its statutory mandate. Some of the concepts of these recommendations were implemented with theenactment of the HFCA Act. However, some of the recommendations were more stringent than the HFCA Act. For example, if acompany was not subject to PCAOB inspection, the report recommended that the transition period before a company would bedelisted would end on January 1, 2022.The SEC has announced that the SEC staff is preparing a consolidated proposal for the rules regarding the implementationof the HFCA Act and to address the recommendations in the PWG report. It is unclear when the SEC will complete its rulemakingand when such rules will become effective and what, if any, of the PWG recommendations will be adopted. The implications of thispossible regulation in addition the requirements of the HFCA Act are uncertain. Such uncertainty could cause the market price ofour ADSs to be materially and adversely affected, and our securities could be delisted or prohibited from being traded “over-the-counter” earlier than would be required by the HFCA Act. If our securities are unable to be listed on another securities exchange bythen, such a delisting would substantially impair your ability to sell or purchase our ADSs when you wish to do so, and the risk anduncertainty associated with a potential delisting would have a negative impact on the price of our ADSs.Table of Contents47The PCAOB’s inability to conduct inspections in China prevents it from fully evaluating the audits and quality controlprocedures of our independent registered public accounting firm. As a result, we and investors in our ordinary shares are deprived ofthe benefits of such PCAOB inspections. The inability of the PCAOB to conduct inspections of auditors in China makes it moredifficult to evaluate the effectiveness of our independent registered public accounting firm’s audit procedures or quality controlprocedures as compared to auditors outside of China that are subject to the PCAOB inspections, which could cause investors andpotential investors in our stock to lose confidence in our audit procedures and reported financial information and the quality of ourfinancial statements.In May 2013, the PCAOB announced that it had entered into a Memorandum of Understanding on EnforcementCooperation with the CSRC and the PRC Ministry of Finance, which establishes a cooperative framework between the parties forthe production and exchange of audit documents relevant to investigations undertaken by the PCAOB in the PRC or by the CSRC orthe PRC Ministry of Finance in the United States. The PCAOB continues to be in discussions with the CSRC and the PRC Ministryof Finance to permit joint inspections in the PRC of audit firms that are registered with the PCAOB and audit Chinese companiesthat trade on U.S. exchanges.It may be difficult for overseas regulators to conduct investigation or collect evidence within China.Shareholder claims or regulatory investigation that are common in the United States generally are difficult to pursue as amatter of law or practicality in China. For example, in China, there are significant legal and other obstacles to providing informationneeded for regulatory investigations or litigations initiated outside China. Although the authorities in China may establish aregulatory cooperation mechanism with the securities regulatory authorities of another country or region to implement cross-bordersupervision and administration, such cooperation with the securities regulatory authorities in the Unities States may not be efficientin the absence of mutual and practical cooperation mechanism. Furthermore, according to Article 177 of the PRC Securities Law,which became effective in March 2020, no overseas securities regulator is allowed to directly conduct investigation or evidencecollection activities within the PRC territory. While detailed interpretation of or implementation rules under Article 177 have yet tobe promulgated, the inability for an overseas securities regulator to directly conduct investigation or evidence collection activitieswithin China may further increase the difficulties you face in protecting your interests. See also "—Risks Related to Our 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."The custodians or authorized users of our controlling non-tangible assets, including chops and seals, may fail to fulfill theirresponsibilities, or misappropriate or misuse these assets.Under the PRC law, legal documents for corporate transactions, including agreements and contracts are executed using thechop or seal of the signing entity or with the signature of a legal representative whose designation is registered and filed withrelevant PRC market regulation administrative authorities.In order to secure the use of our chops and seals, we have established internal control procedures and rules for using thesechops and seals. In any event that the chops and seals are intended to be used, the responsible personnel will submit a formalapplication, which will be verified and approved by authorized employees in accordance with our internal control procedures andrules. In addition, in order to maintain the physical security of our chops, we generally have them stored in secured locationsaccessible only to authorized employees. Although we monitor such authorized employees, the procedures may not be sufficient toprevent all instances of abuse or negligence. There is a risk that our employees could abuse their authority, for example, by enteringinto a contract not approved by us or seeking to gain control of one of our subsidiaries or our affiliated entities or their subsidiaries.If any employee obtains, misuses or misappropriates our chops and seals or other controlling non-tangible assets for whateverreason, we could experience disruption to our normal business operations. We may have to take corporate or legal action, whichcould involve significant time and resources to resolve and divert management from our operations, and we may not be able torecover our loss due to such misuse or misappropriation if the third party relies on the apparent authority of such employees and actsin good faith.Table of Contents48If additional remedial measures are imposed on major PRC-based accounting firms, including our independent registered publicaccounting firm, our financial statements could be determined not to be in compliance with the SEC requirements.Beginning in 2011, the Chinese affiliates of the “big four” accounting firms (including our independent registered publicaccounting firm) were affected by a conflict between the U.S. and Chinese law. Specifically, for certain U.S. listed companiesoperating and audited in the PRC, the SEC and the PCAOB sought to obtain access to the audit work papers and related documentsof the Chinese affiliates of the “big four” accounting firms. The accounting firms were, however, advised and directed that, underChinese law, they could not respond directly to the requests of the SEC and the PCAOB and that such requests, and similar requestsby foreign regulators for access to such papers in the PRC, had to be channeled through the China Securities RegulatoryCommission, or the CSRC.In late 2012, this impasse led the SEC to commence administrative proceedings under Rule 102(e) of its Rules of Practiceand also under the Sarbanes-Oxley Act of 2002 against the “big four” accounting firms (including our independent registered publicaccounting firm). A first instance trial of these proceedings in July 2013 in the SEC’s internal administrative court resulted in anadverse judgment against the firms. The administrative law judge proposed penalties on the firms, including a temporary suspensionof their right to practice before the SEC. Implementation of the latter penalty was postponed pending review by the SECCommissioners. On February 6, 2015, before a review by the SEC Commissioners had taken place, the firms reached a settlementwith the SEC. Under the settlement, the SEC accepts that future requests by the SEC for the production of documents will normallybe made to the CSRC. The firms will receive matching Section 106 requests, and are required to abide by a detailed set ofprocedures with respect to such requests, which in substance require them to facilitate production via the CSRC. If the firms fail tofollow these procedures and meet certain other specified criteria, the SEC retains the authority to impose a variety of additionalremedial measures, including, as appropriate, an automatic six-month bar on a firm’s ability to perform certain audit work,commencement of new proceedings against a firm or, in extreme cases, the resumption of the current administrative proceedingagainst all four firms. If additional remedial measures are imposed on the Chinese affiliates of the "big four" accounting firms,including our independent registered public accounting firm, in administrative proceedings brought by the SEC alleging the firms'failure to meet specific criteria set by the SEC with respect to requests for the production of documents, we could be unable totimely file future financial statements in compliance with the requirements of the Exchange Act.In the event that the SEC restarts administrative proceedings, depending upon the final outcome, listed companies in theU.S. with major PRC operations may find it difficult or impossible to retain auditors in respect of their operations in the PRC, whichcould result in their financial statements being determined to not be in compliance with the requirements of the Exchange Act,including possible delisting. Moreover, any negative news about any such future proceedings against the firms may cause investoruncertainty regarding PRC-based, U.S.-listed companies and the market price of their shares may be adversely affected.If our independent registered public accounting firm was denied, even temporarily, the ability to practice before the SECand we were unable to timely find another registered public accounting firm to audit and issue an opinion on our financialstatements, our financial statements could be determined not to be in compliance with the requirements of the Exchange Act. Such adetermination could ultimately lead to the delisting of our ADSs from the New York Stock Exchange or deregistration from theSEC, or both, which would substantially reduce or effectively terminate the trading of our ADSs in the United States.Table of Contents49Risks Related to Our ADSsThe trading price of our ADSs is likely to be volatile, which could result in substantial losses to investors.During the fiscal year ended December 31, 2020, the trading price of our ADSs has ranged from US$2.61 to US$7.45 per ADS. On March 31, 2021, the closing price of the ADSs on the New York Stock Exchange was US$2.77 per ADS. The trading price of our ADSs is likely to be volatile and could fluctuate widely due to factors beyond our control. This may happen because of broad market and industry factors, including the performance and fluctuation of the market prices of other mobile internet companies based in China that have listed their securities in the United States. In addition to market and industry factors, the price and trading volume for our ADSs may be highly volatile for factors specific to our own operations, including the following:●variations in our revenues, earnings, cash flow and data related to our operating metrics;●announcements of new investments, acquisitions, strategic partnerships or joint ventures by us or our competitors;●announcements of new product and service offerings, solutions and expansions by us or our competitors;●changes in financial estimates by securities analysts;●financial projections that may be provided by us and changes to these projections;●detrimental adverse publicity about us, our products and services or our industry;●additions or departures of key personnel;●release of lock-up or other transfer restrictions on our outstanding equity securities or sales of additional equitysecurities; and●potential litigation or regulatory investigations.Any of these factors may result in large and sudden changes in the volume and price at which our ADSs will trade.In the past, shareholders of public companies have often brought securities class action suits against those companiesfollowing periods of instability in the market price of their securities. If we were involved in a class action suit, it could divert asignificant amount of our management’s attention and other resources from our business and operations and require us to incursignificant expenses to defend the suit, which could harm our operating results. Any such class action suit, whether or notsuccessful, could harm our reputation and restrict our ability to raise capital in the future. In addition, if a claim is successfully madeagainst us, we may be required to pay significant damages, which could have a material adverse effect on our financial conditionand results of operations.Techniques employed by short sellers may drive down the market price of our ADSs.Short selling is the practice of selling securities that the seller does not own but rather has borrowed from a third party withthe intention of buying identical securities back at a later date to return to the lender. The short seller hopes to profit from a declinein the value of the securities between the sale of the borrowed securities and the purchase of the replacement shares, as the shortseller expects to pay less in that purchase than it received in the sale. As it is in the short seller's interest for the price of the securityto decline, many short sellers publish, or arrange for the publication of, negative opinions regarding the relevant issuer and itsbusiness prospects in order to create negative market momentum and generate profits for themselves after selling a security short.These short attacks have, in the past, led to selling of shares in the market.Table of Contents50Public companies listed in the United States that have a substantial majority of their operations in China have been thesubject of short selling. Much of the scrutiny and negative publicity has centered on allegations of a lack of effective internal controlover financial reporting resulting in financial and accounting irregularities and mistakes, inadequate corporate governance policiesor a lack of adherence thereto and, in many cases, allegations of fraud. As a result, many of these companies are now conductinginternal and external investigations into the allegations and, in the interim, are subject to shareholder lawsuits and/or SECenforcement actions.We may be the subject of unfavorable allegations made by short sellers in the future. Any such allegations may be followedby periods of instability in the market price of our common shares and ADSs and negative publicity. If and when we become thesubject of any unfavorable allegations, whether such allegations are proven to be true or untrue, we could have to expend asignificant amount of resources to investigate such allegations and/or defend ourselves. While we would strongly defend against anysuch short seller attacks, we may be constrained in the manner in which we can proceed against the relevant short seller byprinciples of freedom of speech, applicable federal or state law or issues of commercial confidentiality. Such a situation could becostly and time-consuming and could distract our management from growing our business. Even if such allegations are ultimatelyproven to be groundless, allegations against us could severely impact our business operations and shareholders' equity, and the valueof any investment in our ADSs could be greatly reduced or rendered worthless.Our dual-class share structure with different voting rights will limit your ability to influence corporate matters and coulddiscourage others from pursuing any change of control transactions that holders of our Class A ordinary shares and ADSs mayview as beneficial.We have created a dual-class share structure such that our ordinary shares shall consist of Class A ordinary shares andClass B ordinary shares. In respect of matters requiring the votes of shareholders, holders of Class A ordinary shares are entitled toone vote per share, while holders of Class B ordinary shares are entitled to twenty-five (25) votes per share on all matters subject tovote at general meetings of our company based on our dual-class share structure. Each Class B ordinary share is convertible into oneClass A ordinary share at any time at the option of the holder thereof, while Class A ordinary shares are not convertible into Class Bordinary shares under any circumstances. Upon any sale, transfer, assignment or disposition of any Class B ordinary shares by aholder thereof to any person or entity other than holders of Class B ordinary shares or their affiliates, or upon a change of ultimatebeneficial ownership of any Class B ordinary shares to any person who is not an affiliate of the holder thereof, such Class Bordinary shares shall be automatically and immediately converted into the equivalent number of Class A ordinary shares.As of March 31, 2021, our chairman of the board of directors and chief technology officer, Karl Kan Zhang, beneficiallyowns all of our issued Class B ordinary shares. These Class B ordinary shares constitutes approximately 7.7% of our total issued andoutstanding share capital and 67.4% of the aggregate voting power of our total issued and outstanding share capital as of March 31,2021, due to the disparate voting powers associated with our dual-class share structure. See “Item 6. Directors, Senior Managementand Employees—E. Share Ownership.” As a result of the dual-class share structure and the concentration of ownership, holders ofClass B ordinary shares have considerable influence over matters such as decisions regarding mergers, consolidations and the sale ofall or substantially all of our assets, election of directors and other significant corporate actions. Such holders may take actions thatare not in the best interest of us or our other shareholders. This concentration of ownership may discourage, delay or prevent achange in control of our company, which could have the effect of depriving our other shareholders of the opportunity to receive apremium for their shares as part of a sale of our company and may reduce the price of our ADSs. This concentrated control will limityour ability to influence corporate matters and could discourage others from pursuing any potential merger, takeover or other changeof control transactions that holders of Class A ordinary shares and ADSs may view as beneficial.Table of Contents51The dual-class structure of our ordinary shares may adversely affect the trading market for our ADSs.S&P Dow Jones and FTSE Russell have recently announced changes to their eligibility criteria for inclusion of shares ofpublic companies on certain indices, including the S&P 500, to exclude companies with multiple classes of shares and companieswhose public shareholders hold no more than 5% of total voting power from being added to such indices. In addition, severalshareholder advisory firms have announced their opposition to the use of multiple class structures. As a result, the dual-classstructure of our ordinary shares may prevent the inclusion of our ADSs representing Class A ordinary shares in such indices andmay cause shareholder advisory firms to publish negative commentary about our corporate governance practices or otherwise seekto cause us to change our capital structure. Any such exclusion from indices could result in a less active trading market for ourADSs. Any actions or publications by shareholder advisory firms critical of our corporate governance practices or capital structurecould also adversely affect the value of our ADSs.If securities or industry analysts do not publish research about our business, or if they adversely change their recommendationsregarding our ADSs, the market price for our ADSs and trading volume could decline.The trading market for our ADSs will be influenced by research or reports that industry or securities analysts publish aboutour business. If one or more analysts who cover us downgrade our ADSs, the market price for our ADSs would likely decline. If oneor 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 our ADSs to decline.Substantial future sale or the perception of a potential sale of substantial amounts of our ADSs could adversely affect our ADRs’market price.Sales of substantial amounts of our ADSs in the public market, or the perception that these sales could occur, couldadversely affect the market price of our ADSs and could materially impair our ability to raise capital through equity offerings in thefuture. We cannot predict what effect, if any, market sales of securities held by our significant shareholders or any other shareholderor the availability of these securities for future sale will have on the market price of our ADSs.Because we do not expect to pay dividends in the foreseeable future, you must rely on price appreciation of our ADSs for returnon your investment.We currently intend to retain most, if not all, of our available funds and any future earnings to fund the development andgrowth of our business. As a result, we do not expect to pay any cash dividends in the foreseeable future. Therefore, you should notrely on an investment in our ADSs as a source for a future dividend income.Pursuant to our seventh amended and restated memorandum and articles of association, our board of directors has completediscretion as to whether to distribute dividends, subject to certain requirements of Cayman Islands law. In addition, our shareholdersmay 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 either out of profits or share premium account; providedthat in no circumstances may a dividend be paid if this would result in the company being unable to pay its debts as they fall due inthe ordinary course of business. Even if our board of directors decides to declare and pay dividends, the timing, amount and form offuture dividends, if any, will depend on, among other things, our future results of operations and cash flow, our capital requirementsand surplus, the amount of distributions, if any, received by us from our subsidiaries, our financial condition, contractual restrictionsand other factors deemed relevant by our board of directors. Accordingly, the return on your investment in our ADSs will likelydepend entirely upon any future price appreciation of our ADSs. There is no guarantee that our ADSs will appreciate in value oreven maintain the price at which you purchased the ADSs. You may not realize a return on your investment in our ADSs and youmay even lose your entire investment in our ADSs.Table of Contents52You may be subject to PRC income tax on dividends from us or on any gain realized on the transfer of our ADSs.Under the EIT Law and its implementation rules, subject to any applicable tax treaty or similar arrangement between thePRC and your jurisdiction of residence that provides for a different income tax arrangement, PRC withholding tax at the rate of 10%is normally applicable to dividends from PRC sources payable to investors that are non-PRC resident enterprises, which do not havean establishment or place of business in the PRC, or which have such establishment or place of business if the relevant income is noteffectively connected with the establishment or place of business. Any gain realized on the transfer of ADSs or ordinary shares bysuch non-PRC resident enterprise investors is also subject to 10% PRC income tax if such gain is regarded as income derived fromsources within the PRC, unless a tax treaty or similar arrangement provides otherwise. Under the PRC Individual Income Tax Lawand its implementation rules, dividends from sources within the PRC paid to foreign individual investors who are not PRC residentsare generally subject to a PRC withholding tax at a rate of 20% and gains from PRC sources realized by such investors on thetransfer of ADSs or ordinary shares are generally subject to 20% PRC income tax, in each case, subject to any reduction orexemption set forth in applicable tax treaties and similar arrangements and PRC laws. Although substantially all of our dailyoperations are in China, it is unclear whether dividends we pay with respect to our ADSs, or the gain realized from the transfer ofour ADSs, would be treated as income derived from sources within the PRC and as a result be subject to PRC income tax if we wereconsidered a PRC resident enterprise, as described above. If PRC income tax were imposed on gains realized through the transfer ofour ADSs or on dividends paid to our non-PRC resident investors, the value of your investment in our ADSs may be materially andadversely affected. Furthermore, our ADS holders whose jurisdictions of residence have tax treaties or similar arrangements withChina may not qualify for benefits under such tax treaties or arrangements.There can be no assurance that we will not be a passive foreign investment company, or PFIC, for U.S. federal income taxpurposes for any taxable year, which could result in adverse U.S. federal income tax consequences to U.S. holders of our ADSsor ordinary shares.A non-U.S. corporation will be considered a passive foreign investment company, or “PFIC,” for any taxable year if either(i) at least 75% of its gross income for such year consists of certain types of “passive” income; or (ii) at least 50% of the value of its assets (generally determined on the basis of a quarterly average) during such year is attributable to assets that produce passive income or are held for the production of passive income (the “asset test”). Although the law in this regard is not entirely clear, we treat our VIEs as being owned by us for United States federal income tax purposes because we control their management decisions and are entitled to substantially all of the economic benefits associated with them. As a result, we consolidate their results of operations in our consolidated U.S. GAAP financial statements. If it were determined, however, that we are not the owner of our VIEs for United States federal income tax purposes, we would likely be treated as a PFIC for the current taxable year and any subsequent taxable year.Assuming that we are the owner of our VIEs for United States federal income tax purposes, we do not believe that we werea PFIC for our taxable year ended December 31, 2020 and we do not presently expect to be a PFIC for the current taxable year orthe foreseeable future. However, no assurance can be given in this regard because the determination of whether we are or willbecome a PFIC is a fact-intensive inquiry made on an annual basis that depends, in part, upon the composition of our income andassets and the value of our assets.Fluctuations in the market price of our ADSs may cause us to become a PFIC for the current or future taxable yearsbecause the value of our assets for the purpose of the asset test, including the value of our goodwill and unbooked intangibles, maybe determined by reference to the market price of our ADSs from time to time (which may be volatile). The composition of ourincome and assets may also be affected by how, and how quickly, we use our liquid assets. If our market capitalization subsequentlydeclines, we may be or become a PFIC for the current taxable year or future taxable years. Under circumstances where our revenuefrom activities that produce passive income significantly increases relative to our revenue from activities that produce non-passiveincome, or where we determine not to deploy significant amounts of cash for active purposes, our risk of becoming a PFIC maysubstantially increase.Table of Contents53If we were to be or become a PFIC for any taxable year during which a U.S. Holder (as defined in “Item 10. AdditionalInformation—Taxation—United States Federal Income Tax Considerations”) holds our ADSs or ordinary shares, certain adverseU.S. federal income tax consequences could apply to such U.S. Holder. See “Item 10. Additional Information—Taxation—UnitedStates Federal Income Tax Considerations—Passive Foreign Investment Company Rules.”Our memorandum and articles of association contain anti-takeover provisions that could have a material adverse effect on therights of holders of our Class A ordinary shares and ADSs.Our seventh memorandum and articles of association contain provisions to limit the ability of others to acquire control ofour company or cause us to engage in change-of-control transactions. These provisions could have the effect of depriving ourshareholders of an opportunity to sell their shares at a premium over prevailing market prices by discouraging third parties fromseeking to obtain control of our company in a tender offer or similar transaction. Our dual-class voting structure givesdisproportionate voting power to holders of the Class B ordinary shares. In addition, our board of directors has the authority, withoutfurther 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 dividendrights, conversion rights, voting rights, terms of redemption and liquidation preferences, any or all of which may be greater than therights associated with our Class A ordinary shares, in the form of ADS or otherwise. Preferred shares could be issued quickly withterms calculated to delay or prevent a change in control of our company or make removal of management more difficult. If ourboard of directors decides to issue preferred shares, the price of our ADSs may fall and the voting and other rights of the holders ofour Class A ordinary shares and ADSs may be materially and adversely affected.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 limited by shares incorporated under the laws of the Cayman Islands. Our corporate affairsare governed by our memorandum and articles of association, the Companies Act (As Revised) of the Cayman Islands and thecommon law of the Cayman Islands. The rights of shareholders to take action against the directors, actions by minority shareholders,and the fiduciary duties owed to us by our directors under Cayman Islands law are to a large extent governed by the common law ofthe Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in theCayman Islands as well as from the common law of England, the decisions of whose courts are of persuasive authority, but are notbinding, on a court in the Cayman Islands. The rights of our shareholders and the fiduciary duties owed to us by our directors underCayman Islands law are not as clearly established as they would be under statutes or judicial precedent in some jurisdictions in theUnited 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. Inaddition, Cayman Islands companies may not have standing to initiate a shareholder derivative action in a federal court of the UnitedStates.Shareholders of Cayman Islands exempted companies like us have no general rights under Cayman Islands law to inspectcorporate records (save for our memorandum, articles of association and our register of mortgages and charges) or to obtain copiesof lists of shareholders of these companies. Our directors have discretion under our memorandum and articles of association todetermine whether or not, and under what conditions, our corporate records may be inspected by our shareholders, but are notobliged to make them available to our shareholders. This may make it more difficult for our shareholders to obtain the informationneeded to establish any facts necessary for them to motion or to solicit proxies from other shareholders in connection with a proxycontest.As a result of all of the above, our public shareholders may have more difficulty in protecting their interests in the face ofactions taken by management, members of the board of directors or controlling shareholders than they would as public shareholdersof a company incorporated in the United States.Table of Contents54ADSs holders may not be entitled to a jury trial with respect to claims arising under the deposit agreement, which could result inless favorable outcomes to the plaintiff (s) in any such action.The deposit agreement governing the ADSs representing our ordinary shares provides that, subject to the depositary’s rightto require a claim to be submitted to arbitration, the federal or state courts in the City of New York have exclusive jurisdiction tohear and determine claims arising under the deposit agreement and in that regard, to the fullest extent permitted by law, ADS holderswaive the right to a jury trial of any claim they may have against us or the depositary arising out of or relating to our shares, theADSs or the deposit agreement, including any claim under the U.S. federal securities laws.If we or the depositary opposed a jury trial demand based on the waiver, the court would determine whether the waiver wasenforceable based on the facts and circumstances of that case in accordance with the applicable U.S. state and federal law. To ourknowledge, the enforceability of a contractual pre-dispute jury trial waiver in connection with claims arising under the U.S. federalsecurities laws has not been finally adjudicated by the United States Supreme Court. However, we believe that a contractual pre-dispute jury trial waiver provision is generally enforceable, including under the laws of the State of New York, which govern thedeposit agreement. In determining whether to enforce a contractual pre-dispute jury trial waiver provision, courts will generallyconsider whether a party knowingly, intelligently and voluntarily waived the right to a jury trial. We believe that this is the case withrespect to the deposit agreement and the ADSs. It is advisable that you consult legal counsel regarding the jury waiver provisionbefore entering into the deposit agreement.If you or any other holders or beneficial owners of ADSs bring a claim against us or the depositary in connection withmatters arising under the deposit agreement or the ADSs, including claims under U.S. federal securities laws, you or such otherholder or beneficial owner may not be entitled to a jury trial with respect to such claims, which may have the effect of limiting anddiscouraging lawsuits against us and/or the depositary. If a lawsuit is brought against us and/or the depositary under the depositagreement, it may be heard only by a judge or justice of the applicable trial court, which would be conducted according to differentcivil procedures and may result in different outcomes than a trial by jury would have had, including results that could be lessfavorable to the plaintiff(s) in any such action.Nevertheless, if this jury trial waiver provision is not enforced, to the extent a court action proceeds, it would proceed underthe terms of the deposit agreement with a jury trial. No condition, stipulation or provision of the deposit agreement or ADSs servesas a waiver by any holder or beneficial owner of ADSs or by us or the depositary of compliance with any substantive provision ofthe U.S. federal securities laws and the rules and regulations promulgated thereunder.Your rights to pursue claims against the depositary as a holder of ADSs are limited by the terms of the deposit agreement.Under the deposit agreement, any action or proceeding against or involving the depositary, arising out of or based upon thedeposit agreement or the transactions contemplated thereby or by virtue of owning the ADSs may only be instituted in a state orfederal court in New York, New York, and you, as a holder of our ADSs, will have irrevocably waived any objection which you mayhave to the laying of venue of any such proceeding, and irrevocably submitted to the exclusive jurisdiction of such courts in anysuch action or proceeding.The depositary may, in its sole discretion, require that any dispute or difference arising from the relationship created by thedeposit agreement be referred to and finally settled by an arbitration conducted under the terms described in the deposit agreement,although the arbitration provisions do not preclude you from pursuing claims under the Securities Act or the Exchange Act in stateor federal courts.Table of Contents55Certain judgments obtained against us by our shareholders may not be enforceable.We are a Cayman Islands exempted company and substantially all of our assets are located outside of the United States.Substantially all of our daily operations are conducted in China. In addition, substantially all of our current directors and officers arenationals and residents of countries other than the United States, and substantially all of the assets of these persons are locatedoutside the United States. As a result, it may be difficult or impossible for you to bring an action against us or against theseindividuals in the United States in the event that you believe that your rights have been infringed under the U.S. federal securitieslaws or otherwise. Even if you are successful in bringing an action of this kind, the laws of the Cayman Islands and of China mayrender you unable to enforce a judgment against our assets or the assets of our directors and officers.We are an emerging growth company within the meaning of the Securities Act and may take advantage of certain reducedreporting requirements.As a company with less than US$1.07 billion in revenues for our last fiscal year, we qualify as an “emerging growthcompany" pursuant to the JOBS Act. Therefore, we may take advantage of certain exemptions from requirements applicable to otherpublic companies that are not emerging growth companies including, most significantly, not being required to comply with theauditor attestation requirements of Section 404 for so long as we remain an emerging growth company until the fifth anniversaryfrom the date of our initial listing. As a result, if we elect not to comply with such auditor attestation requirements, our investorsmay not have access to certain information they may deem important. In addition, pursuant to the JOBS Act, we have elected to takeadvantage of the extended transition period for complying with new or revised accounting standards until those standards wouldotherwise apply to private companies. As a result, our operating results and financial statements may not be comparable to theoperating results and financial statements of other companies who have adopted the new or revised accounting standards. If wecease to be an emerging growth company, we will no longer be able to take advantage of these exemptions or the extended transitionperiod for complying with new or revised accounting standards.We cannot predict if investors will find our ADSs less attractive or our company less comparable to certain other publiccompanies because we will rely on these exemptions and election. If some investors find our ADSs less attractive as a result, theremay be a less active trading market for our ADSs and our ADS price may be more volatile.We will incur increased costs as a result of being a public company, particularly after we cease to qualify as an “emerginggrowth company.”We are a public company and expect to incur significant legal, accounting and other expenses that we did not incur as aprivate company. The Sarbanes-Oxley Act of 2002, as well as rules subsequently implemented by the SEC and the New York StockExchange, impose various requirements on the corporate governance practices of public companies. As a company with less thanUS$1.07 billion in revenues for our last fiscal year, we qualify as an “emerging growth company” pursuant to the JOBS Act. Anemerging growth company may take advantage of specified reduced reporting and other requirements that are otherwise applicablegenerally to public companies. These provisions include exemption from the auditor attestation requirement under Section 404 ofthe Sarbanes-Oxley Act of 2002, or Section 404, in the assessment of the emerging growth company’s internal control over financialreporting. The JOBS Act also permits an emerging growth company to delay adopting new or revised accounting standards untilsuch time as those standards apply to private companies. We have elected to take advantage of such extended transition period forcomplying with new or revised accounting standards as required when they are adopted for public companies.Table of Contents56We expect these rules and regulations to increase our legal and financial compliance costs and to make some corporateactivities more time-consuming and costly. After we are no longer an “emerging growth company,” we expect to incur significantexpenses and devote substantial management effort toward ensuring compliance with the requirements of Section 404 of theSarbanes-Oxley Act of 2002 and the other rules and regulations of the SEC. For example, as a result of becoming a public company,we will need to increase the number of independent directors and adopt policies regarding internal controls and disclosure controlsand procedures. We also expect that operating as a public company may make it more difficult and more expensive for us to obtaindirector and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantiallyhigher costs to obtain the same or similar coverage. In addition, we may incur additional costs associated with our public companyreporting requirements. It may also be more difficult for us to find qualified persons to serve on our board of directors or asexecutive officers. We are currently evaluating and monitoring developments with respect to these rules and regulations, and wecannot predict or estimate with any degree of certainty the amount of additional costs we may incur or the timing of such costs.As an exempted company incorporated in the Cayman Islands, we are permitted to adopt certain home country practices inrelation to corporate governance matters that differ significantly from the NYSE corporate governance listing standards; thesepractices may afford less protection to shareholders than they would enjoy if we complied fully with the NYSE corporategovernance listing standards.As a Cayman Islands exempted company listed on the New York Stock Exchange, we are subject to the NYSE corporategovernance listing standards. However, NYSE rules permit a foreign private issuer like us to follow the corporate governancepractices of its home country. Certain corporate governance practices in the Cayman Islands, which is our home country, may differsignificantly from the NYSE corporate governance listing standards. We have chosen, and may from time to time choose, to followhome country exemptions with respect to certain corporate matters. For example, beginning on September 2, 2019, we have beenfollowing home country practice in lieu of the requirements of NYSE Listed Company Manual Section 303A.01 to have a majorityof independent directors and Section 303A.07 to have an audit committee with at least three members. As a result, our shareholdersmay be afforded less protection than they would otherwise enjoy under the NYSE governance listing standards applicable to U.S.domestic issuers.We are a foreign private issuer within the meaning of the rules under the Exchange Act, and as such we are exempt from certainprovisions applicable to United States domestic public companies.Because we are a foreign private issuer under the Exchange Act, we are exempt from certain provisions of the securitiesrules and regulations in the United States that are applicable to U.S. domestic issuers, including:●the rules under the Exchange Act requiring the filing of quarterly reports on Form 10-Q or current reports on Form 8-K with the SEC;●the sections of the Exchange Act regulating the solicitation of proxies, consents, or authorizations in respect of asecurity registered under the Exchange Act;●the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activitiesand liability for insiders who profit from trades made in a short period of time; and●the selective disclosure rules by issuers of material nonpublic information under Regulation FD.We are required to file an annual report within four months of the end of each fiscal year. In addition, we voluntarilypublish our results on a quarterly basis through press releases, distributed pursuant to the rules and regulations of the New YorkStock Exchange. Press releases relating to financial results and material events are furnished to the SEC on Form 6-K. However, theinformation we are required to file with or furnish to the SEC are less extensive and less timely compared to that required to be filedwith the SEC by U.S. domestic issuers. As a result, you may not be afforded the same protections or information, which would bemade available to you, were you investing in a U.S. domestic issuer.Table of Contents57The voting rights of holders of ADSs are limited by the terms of the deposit agreement, and you may not be able to exercise yourright to vote your Class A ordinary shares.Holders of ADSs do not have the same rights as our registered shareholders. As a holder of our ADSs, you do not have anydirect right to attend general meetings of our shareholders or to cast any votes at such meetings. You will only be able to exercise thevoting rights which are carried by the underlying Class A ordinary shares represented by your ADSs indirectly by giving votinginstructions to the depositary in accordance with the provisions of the deposit agreement. Under the deposit agreement, you mayvote by giving voting instructions to the depositary. Upon receipt of your voting instructions, the depositary will try, as far as ispracticable, to vote the underlying Class A ordinary shares represented by your ADSs in accordance with your instructions. If weask for your instructions, then upon receipt of your voting instructions, the depositary will try to vote the underlying Class Aordinary shares in accordance with these instructions. If we do not instruct the depositary to ask for your instructions, the depositarymay still vote in accordance with instructions you give, but it is not required to do so. You are not able to directly exercise your rightto vote with respect to the underlying Class A ordinary shares represented by your ADSs unless you withdraw such shares, andbecome the registered holder of such shares prior to the record date for the general meeting. When a general meeting is convened,you may not receive sufficient advance notice of the meeting to withdraw the underlying Class A ordinary shares represented byyour ADSs and become the registered holder of such shares to allow you to attend the general meeting and to vote directly withrespect to any specific matter or resolution to be considered and voted upon at the general meeting. In addition, under our seventhamended and restated articles of association, for the purposes of determining those shareholders who are entitled to attend and voteat any general meeting, our directors may close our register of members and/or fix in advance a record date for such meeting, andsuch closure of our register of members or the setting of such a record date may prevent you from withdrawing the underlyingClass A ordinary shares represented by your ADSs and becoming the registered holder of such shares prior to the record date, so thatyou would not be able to attend the general meeting or to vote directly. If we ask for your instructions, the depositary will notify youof the upcoming vote and will arrange to deliver our voting materials to you. We cannot assure you that you will receive the votingmaterials in time to ensure that you can instruct the depositary to vote the underlying Class A ordinary shares represented by yourADSs. In addition, the depositary and its agents are not responsible for failing to carry out voting instructions or for their manner ofcarrying out your voting instructions. This means that you may not be able to exercise your right to direct how the underlyingClass A ordinary shares represented by your ADSs are voted and you may have no legal remedy if the underlying Class A ordinaryshares represented by your ADSs are not voted as you requested.You may experience dilution of your holdings due to inability to participate in rights offerings.We may, from time to time, distribute rights to our shareholders, including rights to acquire securities. Under the depositagreement, the depositary will not distribute rights to holders of ADSs unless the distribution and sale of rights and the securities towhich these rights relate are either exempt from registration under the Securities Act with respect to all holders of ADSs, or areregistered under the provisions of the Securities Act. The depositary may, but is not required to, attempt to sell these undistributedrights to third parties, and may allow the rights to lapse. We may be unable to establish an exemption from registration under theSecurities Act, and we are under no obligation to file a registration statement with respect to these rights or underlying securities orto endeavor to have a registration statement declared effective. Accordingly, holders of ADSs may be unable to participate in ourrights offerings and may experience dilution of their holdings as a result.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 orfrom time to time when it deems expedient in connection with the performance of its duties. The depositary may close its booksfrom time to time for a number of reasons, including in connection with corporate events such as a rights offering, during whichtime the depositary needs to maintain an exact number of ADS holders on its books for a specified period. The depositary may alsoclose its books in emergencies, and on weekends and public holidays. The depositary may refuse to deliver, transfer or registertransfers of our ADSs generally when our share register or the books of the depositary are closed, or at any time if we or thedepositary thinks it is advisable to do so because of any requirement of law or of any government or governmental body, or underany provision of the deposit agreement, or for any other reason.Table of Contents58ITEM 4. INFORMATION ON THE COMPANYA.History and Development of the CompanyWe commenced our mobile internet business and launched our first mobile application, TouchPal Smart Input, in 2008. Weinitially conducted our business through Shanghai Hanxiang (CooTek) Information Technology Co., Ltd., or Shanghai Hanxiang, aPRC domestic company.In March 2012, we incorporated CooTek (Cayman) Inc., or CooTek Cayman, as our offshore holding company in order tofacilitate foreign investment in our company. We established CooTek Hong Kong Limited, or CooTek HK, as our intermediateholding company, which in turn established a wholly owned PRC subsidiary, Shanghai Chule (CooTek) Information TechnologyCo., Ltd., or Shanghai Chule or WFOE, in June 2012. Subsequently, we, through our WFOE, entered into a series of contractualarrangements with Shanghai Hanxiang and its shareholders whereby we were established as the primary beneficiary of ShanghaiHanxiang. We have recognized the net assets of Shanghai Hanxiang at historical cost with no change in basis in the consolidatedfinancial statements upon the completion of this reorganization.In March 2012, we formed a PRC domestic company, Shanghai Chubao (CooTek) Information Technology Co., Ltd., orShanghai Chubao, to operate part of our Chinese business.In September 2014, we incorporated TouchPal HK Co., Limited to operate our overseas business.In July 2015, we incorporated TouchPal. Inc., a U.S. company, to operate a research and development center in SiliconValley and acquire talents from the U.S.In 2017, we formed two PRC domestic companies, Molihong (Shenzhen) Internet Technology Co., Ltd., or Molihong, andYingsun Information Technology (Ningbo) Co., Ltd., or Yingsun, to operate certain of our portfolio products.In 2019, we formed Shanghai Qiaohan Technology Co., Ltd., or Qiaohan, to operate certain of our portfolio products.In October 2020, we formed Shanghai Qinglin Network Technology Co., Ltd., or Qinglin, to operate the online games.On December 15, 2020, we filed a Form F-3 with the SEC to offer and sell Class A ordinary shares, including Class Aordinary shares represented by ADSs, preferred shares, debt securities and/or warrants of an aggregate offering price of up toUS$100,000,000.On January 19, 2021, we offered US$10,000,000 aggregate principal amount of convertible note with an annual interestrate of 5% directly to YA II PN, Ltd, a Cayman Islands exempt limited partnership, due January 19, 2022 (the “January 2021 Note”).As of the date of this annual report, the January 2021 Note has been converted to 3,933,317 ADSs with the average conversion priceof US$2.54 per ADS.On January 25, 2021, we entered into a Standby Equity Distribution Agreement, with YA II PN, Ltd., for the offer and saleof up to US$20,000,000 of the ADSs, and we will be able to sell up to US$20,000,000 of our ADSs at our request any time duringthe following 36 months.On March 19, 2021, we entered into a securities purchase agreement and a convertible note with YA II PN, Ltd., pursuantto which YA II PN, Ltd. will purchase a convertible promissory note in the principal amount of US$20,000,000 with an annualinterest rate of 5%, which may be convertible into our Class A ordinary shares in exchange for our ADSs, due March 19, 2022 (the“March 2021 Note”). Beginning on June 1, 2021 and continuing on the first day of each calendar month thereafter through January2022, the Principal amount plus an 8% redemption premium and plus accrued and unpaid interest will be subject to monthlyredemption in the event that the daily VWAP on each of the five consecutive trading days immediately prior to the redemption datedoes not exceed a price equal to 108% of the fixed conversion price.Table of Contents59Due to restrictions imposed by PRC laws and regulations on foreign ownership of companies that engaged in mobileinternet and mobile advertising businesses, our WFOE also entered into a series of contractual arrangements with Shanghai Chubao,Molihong, Qiaohan and Qinglin, and their respective shareholders. We collectively refer to these domestic entities and ShanghaiHanxiang as our VIEs in this annual report. The business of Shanghai Hanxiang was migrated into other entities in our group, andShanghai Hanxiang has gradually ceased its business operations since 2012. As of the date of this annual report, Shanghai Hanxiangdoes not have any substantive business operations. For more details and risks related to our variable interest entity structure, pleasesee “Item 3. Risk Factors—D. Risks Related to Our Corporate Structure.” As a result of our direct ownership in our WFOE and thevariable interest entity contractual arrangements, we are regarded as the primary beneficiary of our VIEs. We treat them as ourconsolidated affiliated entities under U.S. GAAP, and have consolidated the financial results of these entities in our consolidatedfinancial statements in accordance with U.S. GAAP.Our principal executive offices are located at 9-11F, No.16, Lane 399, Xinlong Road, Minhang District, Shanghai, 201101,People’s Republic of China. Our telephone number at this address is +86 21 6485-6352. Our registered office in the Cayman Islandsis located at the offices of Maples Corporate Services Limited at PO Box 309, Ugland House, Grand Cayman, KY1-1104, CaymanIslands. Our agent for service of process in the United States is Puglisi & Associates, located at 850 Library Avenue, Suite 204Newark, Delaware 19711.SEC maintains an Internet site that contains reports, proxy and information statements, and other information regardingissuers that file electronically with the SEC on www.sec.gov. You can also find information on our website https://ir.cootek.com/.B.Business OverviewWe are a fast-growing mobile internet company with a global vision. Our mission is to empower everyone to enjoy relevant content seamlessly. We have developed and brought to market content-rich mobile applications, focusing on three categories: online literature, scenario-based content apps and casual games. Sophisticated big data analytics and data-driven user insights are the backbone of our business, enabling us to release appealing products that capture mobile internet users’ ever-evolving content needs and attract targeted users. Our portfolio products of mobile applications serve a global user base comprised of an average of 27.8 million DAUs in December 2020, compared to an average of 24.7 million DAUs in December 2019.Building upon user insights initially accumulated through TouchPal Smart Input, an intelligent input method for mobiledevices, we have formulated a systematic approach to growing a global product portfolio, through which we deliver relevantcontent, develop content-rich mobile application and increase our user base. We employ proprietary big data analytical technologiesboth to process data we gathered through our mobile applications and a large amount of content that we source and organize fromthe internet. These technologies enable us to obtain in-depth user insights and identify market opportunities.We have launched over 45 content-rich portfolio products as of December 31, 2020. Our content-rich mobile applications focus on three categories: online literature, casual games and scenario-based content apps. Those mobile applications reached 74.6 million MAUs and 24.7 million DAUs on average in December 2019 and 85.8 million MAUs and 27.8 million DAUs on average in December 2020. We have been rapidly expanding the scale of the product portfolio by leveraging the competitive user base and spending time achieved by our core product in the online literature business: Fengdu Novel. The DAUs of Fengdu Novel reached nearly 10 million in December 2020 with approximately 130 minutes of user average daily reading time. With the rapid growth of our online literature products, we have further developed other synergized business segments like casual games.In addition, we have started to build a customized content production model for our online literature business thatestablishes the data feedback and matrices between our signed authors and readers, so that the content ecosystem is adaptive to ourusers’ ever-evolving content preferences.Table of Contents60As our user base and business operations continue to grow in the recent years using our systematic approach, we havedemonstrated our monetization capability in mobile advertising. We leverage our in-depth user insights to deliver targeted, preciseand engaging advertisements that are relevant to users across our various mobile applications. Reinvesting part of our revenuesgenerated by mobile advertising, we can further improve our user-centric and data-driven technology, which enables us to releasemore appealing products to capture mobile internet users’ ever-evolving content needs and help us rapidly acquire new users withour ever-improving user profile analysis. For information on our financial performance, see “Item 5.A. Operating Results.”In the first quarter of 2019, we launched CooTek Ads, an in-house developed advertising platform supported by ourproprietary big data capabilities serving advertising customers directly or through advertising agencies. This system allowsadvertisers to create and manage advertisement campaigns and budget, and to place advertisements in our portfolio applicationsdirectly.Our ProductsContent-rich Mobile ApplicationsFollowing our user-centric and data-driven approach, we have developed and brought to market the following globalmobile applications focusing on three categories: online literature, casual games and scenario-based mobile apps.Online literatureFirst launched in 2019, Fengdu Novel is a mobile application that provides users with free online novels. Unlike the other paid user-only model in the online literature industry that charges users a fee for most content offered, users of Fengdu Novel can enjoy literature works under a free-to-read model. Users have free access to a large literature library. We classify the genre, length, popularity, serial or completed literature works by adding keywords to the content, and users can search for content based on these key words. Fengdu Novel is currently available on both Android and iOS operating systems.We also launched Fengdu Literature Platform to develop our original content ecosystem at the end of 2019. SinceDecember 2019, Fengdu Literature Platform has accumulated around 3,000 signed authors and 3,600 original contract books.Compared to licensed books, the books produced by our signed authors obtained more than 50% of total reading time of Fengdu'sreaders and total revenue.Fengdu Literature Platform is deemed as diverse in category, covering 13 major categories of male and female preferredcontent including genres of romance, fantasy, science fiction, history and others. More than 70% of content focus on genderspecialized stories in urban context and ancient romance.In addition, we are actively diversifying our IP business based on the original books from Fengdu Literature Platform. Wedeveloped Fengdu Audiobook, a new feature incorporated in Fengdu Novel app to meet the evolving needs of readers. More than2,000 audible books are available on the platform.We also created short video series based on Fengdu Literature Platform content and IP resources. The first short videodrama series named the Proud Wanwan Su, produced from content on Fengdu Literature Platform, is based on a piece of literaturewith a substantial and exciting storyline. The video series is divided into 20 episodes with a running time of 2 or 3 minutes for each.The short drama has been redistributed on major short video sites such as Douyin, Kuaishou, Bilibili and Xigua Video, amongothers, and can be watched by searching FengDu Theater.Casual gamesWe launched our first self-developed mobile game in the third quarter of 2019, and thereafter introduced a series of self-developed casual games, including simulation games such as Farm Hero and Idle Land King Tycoon, puzzle games such as HiHamster, and educational games such as Puzzle No. 1 and Idiom Hero.Table of Contents61Scenario-based content appsFitnessWe developed a series of fitness applications, such as Walk Walk.Walk Walk. Responding to the call for "Sport for All", Walk Walk, as a leader in the brisk walking industry, encourages users to take steps and engage in light-intensity exercise at any time and any place. Furthermore, Walk Walk is notable for its Big Data innovative function, which provides professional sports data analysis to its users.HealthcareWe developed a series of healthcare applications, including Drink Water Reminder and Happy Jogging.Drink Water Reminder. First launched in 2017, Drink Water Reminder is a mobile application that helps users drink anappropriate amount of water on a daily basis by enabling users to track drinking habits and offering both detailed graphical statisticsand friendly reminders for users to stay hydrated.Happy Jogging. First launched in 2019, Happy Jogging is a free pedometer mobile application that helps to monitor users’physical activities and help to build the habit of doing exercise and stay healthy.Phone call interface decorationWe developed Hailaidian, a mobile application that provides interesting pictures, videos and music to decorate the callinterface and help users have fun when receiving phone calls.TouchPal Smart InputTouchPal Smart Input is an innovative input method for mobile devices. TouchPal Smart Input had an average of 125.3million DAUs in more than 240 countries and regions in December 2020.TouchPal Smart Input supports multilingual next-word prediction as well as mistyping correction and auto spellingcorrection on mobile devices. These features help users enter a string of text on a mobile device swiftly and accurately.We employ our big data analytics technologies to process and analyze our massive number of users’ interactions withTouchPal Smart Input in different languages to improve our language model, enrich our language databases, and strengthen oursupport for each language. In addition, the proprietary deep learning engine behind TouchPal Smart Input is fueled and enriched byusers’ interaction with the application. It enables the application to achieve semantic understanding, adapt to each user, and providean increasingly improved and customized user experience over time.TouchPal Smart Input boasts an advanced multilingual language model that supports more than 110 different languages.TouchPal Smart Input can be installed across major mobile operating systems, including Android and iOS operating systems.Product DistributionWe distribute our products and acquire users primarily through user downloads from digital distribution platforms and pre-installations on mobile devices.Table of Contents62DownloadsWe acquire new users through downloads of our products from digital distribution platforms such as Apple App Store,Tencent YingYongBao App Store and Google Play. Some of these users acquired through downloads are drawn to our applicationsthrough word-of-mouth or general interest in one of our global products, thus growing our user base organically. A majority of ourusers are drawn to our products through our paid marketing campaigns on third-party platforms, such as Facebook, Douyin andKuaishou. In the second half of 2019, we increased the portion of users acquired from third-party platforms in China in order tobroaden the range of user acquisition channels and to reduce our reliance on overseas distribution platforms.Pre-installationsWe have established ourselves as a trusted provider of smart input for mobile devices, smart TVs and other devices andhave entered into collaboration agreements with some manufacturers to pre-install TouchPal Smart Input on select devices.MarketingWe market our brand, products and services globally to mobile internet users primarily through online social media sitesincluding Douyin, Kuaishou, Facebook, Instagram and Twitter, and through search engines such as Google. We also market ourbrand, products and services to our global business partners through trade show exhibitions.MonetizationWe generate substantially all of our revenues through mobile advertising. Our value proposition to advertisers is driven byour large, engaged and sticky user base, insightful understanding of user interests and demands, and precision targeting of content tothe preferred audience in a variety of usage scenarios. We provide performance-based advertising solutions that are compelling toour advertisers.The number of our available advertising spaces is a function of the size of our user base and the number of our productofferings. We possess the technical capability to efficiently managing our advertising spaces. Our advertising spaces within ourproducts can accommodate a variety of ad formats. At the same time, our priority is to achieve a balance between user experienceand utilization of advertising spaces.Launched in 2019, CooTek Ads is our in-house advertising network platform that provides our clients with high-quality andtailored advertising services. This system allows advertisers to create and manage advertisement campaigns and budget, and to placeadvertisements in our portfolio applications directly.Our advertisers are from a broad range of industries, including healthcare, e-commerce, online games, merchant services and business services. Most of our advertisers are represented by third-party advertising exchanges and agencies. Our top two advertising customers, which are advertising exchanges, in aggregate accounted for approximately 39.5% of our total revenues in 2020. We have entered into standard forms of agreements with our major advertising customers. We entered into distribution cooperation agreements with Chuan Shan Jia, a leading advertising exchange platform in China who is also our top advertising customer, in 2019 for the cooperation in placing advertisements on our mobile apps for the year of 2020 and 2021, which will expire on December 31, 2021. Our business depends on our relationships with these large advertising exchanges and agencies. For more details, see “Item 3. Key Information—D. Risk Factors—We depend on certain third-party advertising exchanges and agencies for a large portion of our mobile advertising revenues.”Technology and Research and DevelopmentTechnology is the key to our success. Our research and development efforts focus on big data analytical capabilities.Table of Contents63AI-based analytics tool for content productionWe have developed an AI and data-driven system to enable the authors on our online literature platform to produce moresuitable content for our users and continuously adapt to changing demand based on data feedback. The platform that we are buildingis not just a place for authors to publish books, but also a platform to really enable them to improve their authorship based on aproper data matrix, so that even an average author may also produce valuable content.Natural language processing, semantic understanding in multiple languagesAs of the date of this annual report, our natural language processing and semantic understanding technology supports morethan 110 languages. We employ machine learning, corpus linguistics and other technologies to process and understand user-generated data, internet content and user interactions with our products, and predict user intentions, identify relevant content fromthe internet and build our rich library of user insights.Web content analysis and information extractionWe have built a proprietary distributed system which regularly and timely crawls and indexes an enormous amount ofcontent in multiple languages from the internet. With our advanced multilingual natural language processing technology andsemantic understanding technologies, we can process over one billion webpages every month and systematically organize contentfrom these webpages.Data integration, mining and analyticsWe have deployed a scalable, distributed data system to manage and mine our massive and diverse data. We havedeveloped an advanced data warehouse and real-time data analysis platform to support our build-up of user insights. We have alsodeveloped a business intelligence system which facilitates our product planning, data analytics, user growth and acquisition,monetization, and other crucial business activities.Big data powered advertising systemWe have developed a distributed, real-time advertising system to optimize our advertising performance. Relying on our bigdata analytics and in-depth user insights, this advertising system enables our advertising customers to reach our large and diverseactive user base and to achieve precision targeting of the preferred audience and to distribute ads to targeted audience.Technology infrastructureWe have built a reliable and smart network infrastructure with sufficient redundant topologies to ensure high availabilityand a low risk of downtime. We have also built a scalable hybrid cloud infrastructure to minimize cost and sustain performance inperiods of high network traffic.We dedicate ourselves to building our technology infrastructure to support our business in a cost-effective manner. As ofDecember 31, 2020, we had 6 data centers (IDC), 1,854 physical servers, 686 virtual servers and 8 public cloud sites in 4 countries.Research and development teamWe are committed to technological innovation since our inception. Approximately 60% of our employees are softwareengineers and product designers tasked with research and development to achieve innovation and advancement.Table of Contents64Intellectual PropertyWe rely on a combination of patent, copyright, trademark and trade secret laws, as well as non-competition andconfidentiality agreements and contractual clauses, to establish and protect our intellectual property rights.As of December 31, 2020, we held 59 patents in China and 37 patents in countries and regions outside of China, covering inventions and designs; we have 19 patent applications currently pending in China and 12 patent applications currently pending in countries and regions outside of China; we have submitted 33 international patent applications through the procedures under the Patent Cooperation Treaty, or PCT; and we intend to apply for more patents to protect our core technologies and intellectual properties. As of December 31, 2020, we have registered 240 trademarks with the Trademark Office of the State Administration for Industry and Commerce in China, including our company’s name “CooTek,” CooTek logos, trademarks relating to our products such as TouchPal Smart Input and TouchPal Phonebook; and we are in the process of applying for the registration of 29 other trademarks in China; we have registered 29 trademarks, and are in the process of applying for registration of 4 other trademarks, in countries and regions outside of China. As of December 31, 2020, we are the registered owner of 149 software copyrights in China, each of which we have registered with the State Copyright Bureau of China. As of December 31, 2020, we own the rights to more than 200 domain names that we use in connection with the operation of our business, including our CooTek and TouchPal websites cootek.com, chubao.cn and touchpal.com.In addition to the foregoing protections, we generally control access to and use of our proprietary and other confidentialinformation through the use of internal and external controls. For example, for external controls, we enter into confidentialityagreements or agree to confidentiality clauses with our advertising customers and mobile device manufacturers and, for internalcontrols, we adopt and maintain relevant policies governing the operation and maintenance of our IT systems and the managementof user-generated data.User Privacy and Data SecurityWe place paramount importance on, and dedicate significant amount of resources to, the protection of the personal privacyof each of our users and the security of their data.Transparency. Our end user license agreement and privacy policy describe our data use practices and how privacy workson our mobile applications. We provide our users with adequate and timely notices as to what data are being collected, and weundertake to manage and use the data collected in accordance with applicable laws and make reasonable efforts to preventunauthorized use, loss or leak of such user data. Our users may opt out of personal data collection or choose to have personal dataerased from our servers.Protection. We have adopted comprehensive policies, procedures and guidelines to regulate our employees’ actions in relation to user data in order to protect user privacy and data security. We also have adopted a strict access control mechanism to ensure implementation of least privilege and need-to-know principles and to protect user privacy while meeting business requirements. For instance, we strictly limit the number and clearance level of personnel who may access user data or those servers that store user data. In addition, we employ a variety of technical solutions to prevent and detect risks and vulnerabilities in user privacy and data security, such as encryption, firewall, vulnerability scanning and log audit. For instance, we have built an internal compliance team which has privacy professionals who participate in new product and feature development and are dedicated to the ongoing review and monitoring of data security practices and security professionals who monitor internal and external security threats and risks. We store and transmit all user data in encrypted format on separate servers depending on each individual user’s location. We do not share any input data from our users or any user insight data with third parties or allow third parties to access user data stored on our servers, and we also utilize firewalls to protect against potential cyber-attacks or unauthorized access. We periodically audit our systems and procedures to detect information security risks and privacy risks.Table of Contents65Compliance. Various laws and regulations, such as the GDPR in the European Union, California Consumer Privacy Act inthe United States and the Cyber Security Law of the PRC, govern the collection, use, retention, sharing, and security of the personaldata we receive from and about our users. Privacy groups and government bodies have increasingly scrutinized the ways in whichcompanies link personal identities and data associated with particular users with data collected through the internet, and we expectsuch scrutiny to continue to increase. We devote substantial amount of resources to the compliance with, and the prevention of anyviolation of, the laws and regulations relating to user privacy and data security. For additional information on our efforts to complywith applicable laws and regulations relating to user privacy and data security, see “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business—If we fail to prevent security breaches, cyber-attacks or other unauthorized access to our systems orour users’ data, we may be exposed to significant consequences, including legal and financial exposure, reputational harm and lossof users, and our reputation, business and operating results may be materially and adversely affected.” and “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business—Data privacy concerns relating to our products and current practices may,particularly in light of increased regulatory scrutiny of and user expectations regarding the processing, collection, use, storage,dissemination, transfer and disposal of user data, could require changes to our business practices and may result in declines in usergrowth or engagement, increased costs of operations and threats of lawsuits, enforcement actions and related liabilities, includingfinancial penalties.”CompetitionWe face intense competition for users, usage time and advertising customers. Our portfolio products compete withapplications of the same or a similar kind. In addition, we compete with all major internet companies for user attention andadvertising spending. Fengdu Novel competes with other leading free online literature applications in the Chinese market includingFanqie Novel and Qimao Novel. Our casual game products such as Farm Hero, Idle Land King Tycoon, Hi Hamster, Puzzle No.1and Idiom Hero compete primarily with other online casual games developed by companies such as WebEye and Laiwan. TouchPalSmart Input competes primarily with default mobile device input methods, including Apple input for iOS devices, Gboard andSamsung mobile keyboard. Our TouchPal Smart Input also competes with other alternative input method products for mobiledevices that offer similar language prediction capabilities and other smart features, such as Microsoft/SwiftKey.InsuranceWe do not maintain insurance policies covering damages to our network infrastructures or information technology systems.We also do not maintain business interruption insurance or general third-party liability insurance, nor do we maintain productliability insurance or key-man insurance. We consider our insurance coverage to be in line with that of other companies in the sameindustry of similar size in China.Legal ProceedingsWe may from time to time be subject to various legal or administrative claims and proceedings arising in the ordinarycourse of business. For more information, see “Item 8. Financial Information—A. Consolidated Statements and Other FinancialInformation—Legal Proceedings.”RegulationWe are an international company that is registered under the laws of Cayman Islands. Our principal offices are located inChina while we have built a large user base in more than 240 countries and regions around the world. As a result of thisorganizational structure and the scope of our operations, we are subject to a variety of laws in different countries, including thoserelated to personal privacy, data protection, content restrictions, telecommunications, intellectual property, consumer protection,advertising and marketing, labor, foreign exchange, competition and taxation. These laws and regulations are constantly evolvingand may be interpreted, implemented or amended in a manner that could harm our business. It also is likely that if our businessgrows and evolves and our products and services are used more globally, we will become subject to laws and regulations inadditional jurisdictions. This section sets forth the summary of material laws and regulations relevant to our business operations.Table of Contents66Regulations Relating to Personal Privacy and Data ProtectionIn the area of personal privacy and data protection, we are subject to the laws in various jurisdictions where our productsare available for use, and such laws and regulations can impose stringent requirements. Such requirements also vary fromjurisdiction to jurisdiction. Many jurisdictions, including China and the U.S., continue to consider the need for greater regulation orreform to the existing regulatory framework.In the U.S., there is no single comprehensive national law governing the collection and use of user data or personalinformation. Instead, the U.S. has both federal and state laws in parallel and regulations that sometimes overlap and even contradictone another. In addition, there are many guidelines developed by government authorities and industry groups that, although lackingthe force of law, are considered “best practices” and are relied upon for setting standards. All states in the U.S. have now passedlaws to regulate the actions that a business must take in the event of a data breach, such as prompt disclosure and notification toaffected users and regulatory authorities. In addition, some states have enacted statutes and rules requiring businesses to reasonablyprotect certain types of personal information they hold or to otherwise comply with certain specified data security requirements forpersonal information. At the federal level, the Federal Trade Commission Act, or the FTC Act, is a federal consumer protection lawthat prohibits unfair or deceptive practices and has been applied to offline and online privacy and data security policies. The FederalTrade Commission, or the FTC, empowered by the FTC Act, oversees consumer privacy compliance of most companies doingbusiness in the U.S. and provides various guidelines regarding privacy and security practices for different industries. The FTC hasbrought many enforcement actions against companies for failing to comply with their own privacy policies and for the unauthorizeddisclosure of personal data. The U.S. federal and state legislatures will likely continue to consider the need for greater regulationaimed at restricting certain targeted advertising practices.In the EU, the GDPR, which came into effect on May 25, 2018, increased our burden of regulatory compliance and requiresus to change certain of our privacy and data security practices in order to achieve compliance. The GDPR applies to any companyestablished in the EU as well as any company outside the EU that processes personal data in connection with the offering of goodsor services to individuals in the EU or the monitoring of their behavior. The GDPR implements more stringent operationalrequirements for processors and controllers of personal data, including, for example, requiring expanded disclosures about howpersonal information is to be used, limitations on retention of information, mandatory data breach notification requirements, andhigher standards for data controllers to demonstrate that they have obtained either valid consent or have another legal basis in placeto justify their data processing activities. The GDPR further provides that EU member states may make their own additional lawsand regulations in relation to certain data processing activities, which could further limit our ability to use and share personal dataand could require localized changes to our operating model. Under the GDPR, fines of up to 20 million euros or up to 4% of thetotal worldwide annual turnover of the preceding financial year, whichever is higher, may be assessed for non-compliance, whichsignificantly increases our potential financial exposure for non-compliance. However, in the absence of precedence and guidancefrom EU regulators, the application of GDPR to the provision of internet services remains unsettled. Moreover, the implementationof the GDPR may require substantial amendments to our procedures and policies, and these changes could impact our business byincreasing its operational and compliance costs. The Company has adopted policies and procedures in compliance with the GDPR,however, such policies and procedures may need to be updated when additional information concerning the best practices is madeavailable through guidance from regulators or published enforcement decisions.In recent years, PRC government authorities have issued various regulations on the use of the internet that are designed toprotect personal information from unauthorized disclosure. For example, the Measures for the Administration of InternetInformation Services issued by the State Council in 2000 and revised in 2011, or the ICP Measures, prohibit an internet informationservices provider from insulting or slandering a third party or infringing upon the lawful rights and interests of a third party. Inaddition, PRC regulations authorize PRC telecommunication authorities to demand rectification of unauthorized disclosure by theentities that provide information to internet users, or ICP operators.Table of Contents67Chinese law does not prohibit ICP operators from collecting and analyzing personal information from their users. The PRCgovernment, however, has the power and authority to order ICP operators to submit personal information of an internet user if suchuser posts any prohibited content or engages in illegal activities on the internet. In addition, the Several Provisions on Regulating theMarket Order of Internet Information Services, or the Several Provisions, issued by the Ministry of Industry and InformationTechnology, or MIIT, stipulate that ICP operators must not, without the users’ consent, collect information on users that can be used,alone or in combination with other information, to identify the user, or User Personal Information, and may not provide any UserPersonal Information to third parties without users’ prior consent. ICP operators may only collect User Personal Informationnecessary to provide their services and must expressly inform the users of the method, content and purpose of the collecting andprocessing such User Personal Information. In addition, an ICP operator may use User Personal Information only within its scope ofservices. ICP operators are also required to ensure the security of User Personal Information, and take immediate remedial measuresif User Personal Information is suspected to have been disclosed. If the consequences of any such disclosure are expected to beserious, the ICP operator must immediately report to the telecommunications regulatory authorities and cooperate with theauthorities in their investigations. We require our users to accept a user agreement and privacy policies whereby they agree toprovide certain personal information to us. If we violate foregoing regulations, the MIIT or its local bureaus may impose penaltiesand we may be liable for damage caused to our users.In December 2012, the Standing Committee of the National People’s Congress, or the SCNPC, enacted the Decision toEnhance the Protection of Network Information, to enhance the protection of User Personal Information in electronic form, whichprovides that ICP operators must expressly inform their users of the purpose, manner and scope of the ICP operators’ collection anduse of User Personal Information, publish the ICP operators’ standards for their collection and use of User Personal Information, andcollect and use User Personal Information only with the consent of the users and only within the scope of such consent. TheInformation Protection Decision also mandates that ICP operators and their employees must keep strictly confidential User PersonalInformation that they collect, and that ICP operators must take such technical and other measures as are necessary to safeguard theinformation against disclosure.The Order for the Protection of Telecommunication and Internet User Personal Information, or the Order for PersonalInformation, issued by MIIT in July 2013 sets forth requirements that are stricter and with wider scope. An ICP operator is onlyallowed to collect or use personal information if such collection is necessary for its services. Further, the ICP operator must discloseto its users the purpose, method and scope of any such collection or use, and must obtain consent from the users whose informationis being collected or used. ICP operators are also required to establish and publish their protocols relating to personal informationcollection or use, keep any collected information strictly confidential, and take technological and other measures to maintain thesecurity of such information. ICP operators are required to cease any collection or use of the user personal information, and de-register the relevant user account, when a given user stops using the relevant internet service. ICP operators are further prohibitedfrom divulging, distorting or destroying any such personal information, or selling or providing such information unlawfully to otherparties. In addition, if an ICP operator appoints an agent to undertake any marketing or technical services that involve the collectionor use of personal information, the ICP operator is still required to supervise and manage the protection of the information. TheOrder for Personal Information states, in broad terms, that violators may face warnings, fines, and disclosure to the public and, in themost severe cases, criminal liability.Pursuant to the Ninth Amendment to the Criminal Law, promulgated by the SCNPC in August 2015, any internet serviceprovider that fails to fulfill its obligations regarding internet information security administration under applicable laws and refuses torectify upon governmental orders, shall be subject to criminal penalty. Interpretations of the Supreme People’s Court and theSupreme People’s Procuratorate on Several Issues Concerning the Application of Law in Criminal Cases Involving Infringement ofPersonal Information, issued in May 2017, clarified certain standards of the conviction and sentence of the criminals in relation topersonal information infringement.In addition, the Civil Code of the People’s Republic of China, promulgated in May 2020, provides that laws protect personal information of natural persons. Any organization or individual who needs to obtain personal information shall obtain it legally and ensure the security of such personal information, and shall not illegally collect, use, process, transmit, trade, provide, or publish such personal information.Table of Contents68In January 2015, the State Administration for Industry and Commerce, or SAIC, promulgated the Measures on Punishmentfor Infringement of Consumer Rights, most recently amended in December 2020, pursuant to which business operators collectingand using personal information of consumers must comply with the principles of legitimacy, propriety and necessity, specify thepurpose, method and scope of collection and use of the information, and obtain the consent of the consumers whose personalinformation is to be collected.Regulations Relating to Foreign InvestmentNegative List and Encouraged Industry Guidelines Related to Foreign Investment. Investment activities in China byforeign investors are principally governed by the Special Administrative Measures (Negative List) for Access to Foreign Investment(2020 Revision), or 2020 Negative List, which was promulgated by the Ministry of Commerce of the PRC, or MOFCOM, and theNational Development and Reform Commission, or NDRC, as amended from time to time, and the Catalogue of EncouragedIndustries for Foreign Investment (2020 Revision), or Encouraged Industry Catalogue, issued by MOFCOM and NDRC.If foreign investment falls into industries specified in the 2020 Negative List, special administrative measures shall apply,such as the percentage of foreign invested equity interests and background and quality of senior management. According to the 2020Negative List, the proportion of foreign investments in entities engaged in value- added telecommunications business shall notexceed 50%, except for e-commerce, domestic multi-party communication, store-and-forward service, and call centers service. Theonline transmission of audio-visual programs business, online publishing services and online cultural business (except for music)remain as prohibited industries for foreign investment.Foreign Investment in Telecommunication Business. Regulations for Administration of Foreign-InvestedTelecommunications Enterprises, or the FITE Regulations, promulgated by the PRC State Council, or State Council, in 2001 andmost recently amended in February 2016 set forth detailed requirements with respect to, among others, capitalization, investorqualifications and application procedures in connection with the establishment of a foreign-invested telecommunications enterprise.The 2019 Negative List prohibits a foreign investor from holding more than 50% of the total equity interest in value-addedtelecommunications service business, except for e-commerce, domestic multi-party communication, store-and-forward service, andcall centers service in China. The MIIT issued an Announcement on Issues concerning the Provision of Telecommunication Servicesin Mainland China by Service Providers from Hong Kong and Macau, allowing investors from Hong Kong and Macau to hold morethan 50% of the equity in FITEs engaging in certain specified categories of value-added telecommunications services.In 2006, the Ministry of Information Industry, or the MII, the predecessor of the MIIT, issued the Circular on Strengtheningthe Administration of Foreign Investment in and Operation of Value-added Telecommunications Business, pursuant to which, a PRCcompany that holds a license for providing internet information services, or an ICP license, is prohibited from leasing, transferringor selling the license to foreign investors in any form, and from providing any assistance, including providing resources, sites orfacilities, to foreign investors to conduct value-added telecommunications businesses illegally in China. Furthermore, the trademarksand domain names that are used in the provision of internet content services must be owned by the ICP operator or its shareholders.In addition, an ICP operator shall have appropriate facilities for its approved business operations and to maintain such facilities inthe regions covered by its license.In view of these restrictions on foreign direct investment in the basic telecommunications sector and value-addedtelecommunications sector, we established domestic VIEs to engage in basic telecommunications and value-addedtelecommunications services.Table of Contents69Foreign Investment in Online Games. In September 2009, the General Administration of Press and Publication, or theGAPP (the predecessor of the SART), together with the National Copyright Administration and the National Office of CombatingPornography and Illegal Publications, jointly issued a Notice on Further Strengthening on the Administration of Pre-examinationand Approval of Online Games and the Examination and Approval of Imported Online Games, or the GAPP Online Game Notice.The GAPP Online Game Notice states that foreign investors are not permitted to invest in online game operating businesses inChina via wholly foreign-owned entities, Chinese-foreign equity joint ventures or cooperative joint ventures or to exercise controlover or participate in the operation of domestic online game businesses through indirect means, such as other joint venturecompanies or contractual or technical arrangements. In view of these restrictions on foreign direct investment in the online gamessector, we established domestic VIEs to engage in the provision of online games mobile apps.Due to a lack of interpretative materials from the relevant PRC governmental authorities, there are uncertainties regardingwhether PRC governmental authorities would consider our corporate structure and contractual arrangements to constitute foreignownership of a telecommunications business or an online games business. In order to comply with PRC regulatory requirements, weoperate a portion of our business through our VIEs, with which we have contractual relationships but in which we do not have anactual ownership interest. If our current ownership structure is found to be in violation of current or future PRC laws, rules orregulations regarding the legality of foreign investment in the PRC internet sector, we could be subject to severe penalties.Regulations Relating to Telecommunications ServicesIn 2000, the State Council promulgated the Telecommunications Regulations, or the Telecom Regulations, most recentlyamended in February 2016, which set out the general framework for regulating telecommunication services by PRC companies. TheTelecom Regulations differ “basic telecommunications services” from “value-added telecommunications services.” The Catalogueof Telecommunications Business, most recently updated in June 2019, categorizes VoIP services as basic telecommunicationsservices, on the other hand, categorizes information services, internet data centers and internet access as value-addedtelecommunications services.In 2000, the State Council issued the Measures for the Administration of Internet Information Services, or the ICPMeasures, most recently amended in January 2011. The ICP Measures define “internet information services” as the services ofproviding internet information to online users, which is further divided into “commercial internet information services” and “non-commercial internet information services.” A commercial internet information services operator must obtain a value-addedtelecommunications services license, or ICP license for internet information services, from the MIIT or its local branch at theprovincial or municipal level in accordance with the Telecom Regulations before providing any commercial internet informationservices in China. Our business includes providing VoIP services and other value-added telecommunications services such asinternet information service.The ICP Measures further stipulate that entities providing online information services regarding news, publishing,education, medicine, health, pharmaceuticals and medical equipment must procure the consent of the national authorities responsiblefor such areas prior to applying for an operating license from the MIIT or its local branch at the provincial or municipal level.Moreover, ICP operators must display their operating license numbers in conspicuous locations on their home pages. ICP operatorsare required to police their internet platforms and remove certain prohibited content. Many of these requirements mirror internetcontent restrictions that have been announced previously by PRC ministries, such as the MIIT, and the Ministry of Culture andTourism of the PRC, formerly the Ministry of Culture, or the MCT.The Measures on the Administration of Telecommunications Business Operating Permit, promulgated by MIIT in 2009 andmost recently amended in July 2017, sets forth detailed activities that an enterprise are permitted to conduct under their licenses. Acommercial telecommunication service operator must first obtain an ICP license from the MIIT, or its provincial level authorities ifproviding mere inter-provincial services. A licensed telecommunication services operator must conduct its business, whether basicor value-added, in accordance with the specifications in its Telecommunications Services Operating License.Table of Contents70The CAC, issued the Provisions on the Administration of Mobile Internet Applications Information Services, or the APPProvisions, in June 2016. Under the APP Provisions, mobile application providers are prohibited from engaging in any activity thatmay endanger national security, disturb the social order, or infringe the legal rights of third parties, and may not produce, copy, issueor disseminate through mobile applications any content prohibited by laws and regulations. The APP Provisions also require ICPoperators, such as us, to procure relevant approval to provide services through such applications.We currently hold seven Value-added Telecommunications Services Operating Licenses. As of the date of this annualreport, we have not obtained the Basic Telecommunications Services Operating License for our business.Regulations Relating to Internet Publication ServicesThe State Administration of Radio and Television, or SART, formerly known as the SAPPRFT, as integrated from the StateAdministration of Radio, Film and Television, and the GAPP, in March 2018 as a result of institutional reform, is the governmentagency responsible for regulating publication activities in China. In June 2002, the MIIT and the GAPP jointly promulgated theInterim Administrative Measures on Internet Publication, which require internet publishers to obtain a license from the GAPP toconduct internet publication activities.In February 2016, the SAPPRFT and the MITT jointly issued the Administrative Measures for Internet PublicationServices, which took effect in March 2016 and replaced the Interim Administrative Measures on Internet Publication. TheAdministrative Measures for Internet Publication Services further strengthened and expanded the supervision and management onthe internet publication services. Pursuant to the Administrative Measures for Internet Publication Services, entities engaging in theinternet publication service are required to obtain an internet publication service license from SART. Internet Publication Servicesrefer to the activities of providing internet publications to the public through information networks, and the internet publicationsrefer to the digitalized works with the publishing features such as editing, producing and processing, including e-books and onlinegames. In the event of failure to obtain relevant licenses and approvals, an operator may face heavy penalties, such as being orderedby the regulatory authority to shut down services and delete all relevant internet publications. The regulatory authority may alsoconfiscate all of such operator’s illegal income as well as major equipment and specialized tools used in illegal publishing activities.If the illegal income exceeds RMB10,000, such operator may face a fine of five to ten times of such illegal income; and if the illegalincome is less than RMB10,000, such operator may face a fine of less than RMB50,000. Such operator may also bear civil liabilityif its operation has infringed on other persons’ legal rights and interests.In May 2016, the SAPPRFT issued a Notice on Administration of Mobile Game Publishing Services, or the Mobile GameNotice, effective in July 2016, which provides that the content of mobile games is subject to its review, and that mobile gamepublishers and operators must apply for publishing and authorization codes for the games. Under the Mobile Game Notice,significant upgrades and expansion packs for mobile games that have previously been approved for publishing could be regarded asnew works, and the operators will be required to obtain approval for such upgrades and expansion packs before they are released. Inthe event of any failure to meet these license and approval requirements, an operator may face heavy penalties, such as beingordered to stop operation, or having its business license revoked. As of the date of this annual report, we have not obtained theapproval for our internet publication service license and publication codes for those domestic online games operated by us. We areapplying for publication codes for certain future online games.Regulations Relating to Online News ServicesIn May 2017, the CAC promulgated the Administrative Regulations for Internet News Information Services, or the NewsRegulations, pursuant to which internet news information services include the services of collecting, editing, and releasing internetnews information, reposting such news information, and providing a platform to spread such news information. Subsequently, theCAC promulgated the Detailed Implementing Rules of Administration of Internet News Information Services Approval. Both ofthese rules require the general Websites of non-news organizations to apply to the State Council Information Office, or SCIO, forapproval after obtaining the consent of the SCIO at the provincial level before they commence to provide news disseminationservices. As of the date of this annual report on Form 20-F, we have not obtained the approval for our online news services.Table of Contents71Regulations Relating to Internet Audio-Visual Program ServicesThe State Administration of Radio and Television, or SART, and MIIT jointly issued the Administrative Provisions for theInternet Audio-Video Program Service, or the Audio-visual Program Provisions, in 2007 and amended in August 2015. The Audio-visual Program Provisions define “internet audio-visual programs services” as the production, edition and integration of audio-videoprograms, the supply of audio-video programs to the public via the internet, and providing uploading and audio-video programstransmission services to a third party. Entities engaging in internet audio-visual programs services must obtain internet audio-visualprogram transmission licenses, which will only be issued to state-owned or state-controlled entities unless the license applicantshave obtained internet audio-visual program transmission licenses prior to the promulgation of the Audio-visual Program Provisionsin accordance with the then-in-effect laws and regulations. According to the Categories of the Internet Audio-Video ProgramServices promulgated by SART in March 2017, “aggregation of internet audio-visual programs,” meaning “editing and arrangingthe internet audio-visual programs on the same website and providing searching and watching services to public users,” falls into thedefinition of the aforementioned “internet audio-visual programs services.” As of the date of this annual report, we have notobtained the internet audio-visual program transmission license for our business.Regulations Relating to Online Cultural ProductsIn 2011 and as amended in 2017, the MCT issued the Provisional Regulations for the Administration of Online Culture, orthe Online Culture Regulations, which applies to entities engaging in activities related to “online cultural products,” including thecultural products that are produced specially for internet use, such as online music and entertainment, online games, online plays,online performances, online art works and Web animations, and those cultural products that, through technical means, produce orreproduce music, entertainment, games, plays and other art works for internet dissemination. Further, commercial entities arerequired to apply to the relevant local branch of the MCT for an Online Culture Operating Permit if they engage in any of thefollowing types of activities:●the production, duplication, importation, release or broadcasting of online cultural products;●the dissemination of online cultural products on the internet or transmission thereof via internet or mobile phonenetworks to users’ terminals such as computers, fixed-line or mobile phones, television sets, gaming consoles andinternet surfing service sites such as internet cafés for the purpose of browsing, using or downloading such products;or●the exhibition or holding of contests related to online cultural products.The MCT issued a Notice on Strengthening the Administration of Online Performance, or the Online Performance Notice,in July 2016, and the Measures of Administration of Online Performance Operating Activities, or Online Performance Measures,effective in January 2017. The Online Performance Notice and the Online Performance Measures both stipulate that onlineperformance service providers must obtain Online Culture Operating Permits and that online performances must not contain anycontent that is horrific, cruel, violent, vulgar or humiliating in nature, mocking persons with disabilities, including photographs orvideo clips that infringing on third parties’ privacy or other rights, featuring animal abuse, or presenting characters or other featuresof online games that have not been registered and approved for publication by applicable PRC governmental authorities. A violatorof these regulations may face an order of correction from competent authorities, or be subject to confiscation of illegal proceeds or afine. If the violation is severe, competent authorities may order the violator to cease its operation for rectification, revoke theviolator’s Online Culture Operating Permit, or impose applicable criminal liability.We currently hold seven Online Culture Operating Permits.Table of Contents72Regulations Related to Online GamesRegulatory Authorities and Restriction on Foreign InvestmentIn 2008, the General Office of the State Council issued a circular, pursuant to which, the GAPP is responsible for theexamination and approval of online games prior to the online publication, while the MOC is responsible for regulating the onlinegame market. In 2009, the GAPP, the National Copyright Administration and the National Office of Combating Pornography andIllegal Publications jointly published the Notice Regarding the Consistent Implementation of the “Stipulations on ‘Three Provisions’of the State Council and the Relevant Interpretations of the State Commission Office for Public Sector Reform and the FurtherStrengthening of the Administration of Pre-examination and Approval of Internet Games and the Examination and Approval ofImported Internet Games,” which expressly requires that all online games need to be screened by the GAPP through the pre-approvals before they can be operated online, and any updated online game versions or any change to the online games shall besubject to further pre-approvals before they can be operated online.Pursuant to the Notice to Adjust the Scope of Online Culture Operation Permit Approval and to Further Regulate theApproval Work released by MCT in May 2019, the MCT no longer assumes the responsibility to regulate online game industry, andthe provincial counterparts of MCT would no longer grant Online Culture Operation Permits covering the business scope of usingthe information network to operate online games. The licenses granted by the MCT before this notice will remain valid until theexpiration dates of these licenses, but those whose business scopes include only the operation of online games cannot be renewedafter the expiration dates. On July 23, 2019, the MCT announced the abolishment of the Interim Measures on Administration ofOnline Games, which regulated the issuance of Online Culture Operation Permits relating to online games.Both the internet publication services (including the online game publishing) and online culture operation (including theonline game operation) fall within the prohibited categories in the Negative List. The Notice Regarding the ConsistentImplementation of the “Regulation on Three Provisions” of the State Council and the Relevant Interpretations of the StateCommission Office for Public Sector Reform and the Further Strengthening of the Administration of Pre-examination and Approvalof Online Games and the Examination and Approval of Imported Online Games, or the GAPP Notice, promulgated by the GAPP,together with the National Copyright Administration and the Office of the National Working Group for Crackdown on Pornographicand Illegal Publications in 2009, provides that, among other things, foreign investors are not permitted to invest or engage in onlinegame operations in China through their wholly owned subsidiaries, equity joint ventures or cooperative joint ventures, and foreigninvestors are not permitted to gain control over or participate in domestic online game operations indirectly through joint ventures,contractual agreements or technical support. Serious violation of the GAPP Notice will result in suspension or revocation of relevantlicenses and registrations.Online Game Examination and PublishingPursuant to the Administrative Measures for Internet Publication Services jointly promulgated by the SAPPRFT and theMIIT in February 2016, online publications such as games provided to the public through information networks must be approvedby the SAPPRFT and the service operator must obtain an internet publication service license. An online publishing service providershall first file an application with the competent provincial-level counterpart of the SAPPRFT in the place where it is located and theapplication, if approved, shall be submitted to the SAPPRFT for approval. For the publishing of online games authorized by foreigncopyright owners, the online publishing service provider shall obtain legal authorization for the copyright and complete the approvalformalities.In May 2016, the SAPPRFT issued the Mobile Game Notice, which provides that the content of mobile games is subject toits review, and that mobile game publishers and operators must apply for publishing and authorization codes for the games. Underthe Mobile Game Notice, significant upgrades and expansion packs for mobile games that have previously been approved forpublishing could be regarded as new works, and the operators will be required to obtain approval for such upgrades and expansionpacks before they are released. In the event of any failure to meet these license and approval requirements, an operator may faceheavy penalties, such as being ordered to stop operation, or having its business license revoked.Table of Contents73The Central Committee of the Communist Party of China issued the Plan for Deepening the Institutional Reform of theParty and State and the National People’s Congress adopted the Institutional Reform Plan of the State Council in March 2018(collectively, the “Institutional Reform Plans”). According to the Institutional Reform Plans, the SAPPRFT was reformed and nowknown as the SART and the NAPP. Concurrently with the implementation of this reformation, the assessment and pre-approval ondomestic and foreign developed online games had been suspended during April to December 2018 and had resumed sinceDecember 2018. After this re-organization, companies need to apply with the NAPP for the approvals publishing the online games.As of the date of this annual report, we have not obtained the approval for our internet publication service license and publicationcodes for those domestic online games operated by us. We are applying for publication codes for certain future online games.Online Game OperationIn June 2010, the MOC promulgated the Interim Measures on Administration of Online Games, or the Online Game Interim Measures, amended on December 15, 2017, which governed the research, development and operation of online games and the issuance and trading services of virtual currency. All operators of online games, issuers of virtual currency and providers of virtual currency trading services are required to obtain Online Culture Operation Permits. An Online Culture Operation Permit is valid for three years.In May 2019, MCT released the Notice on Adjusting the Scope of Examination and Approval regarding the to FurtherRegulate the Approval Work, pursuant to which the provincial counterparts of MCT would no longer grant Online CultureOperation Permit covering the business scope of using the information network to operate online games.On July 23, 2019, the MCT announced the abolishment of the Online Game Interim Measures. After the abolishment, thegame operators are no longer required to apply to MCT for examination of imported online games or go through filing proceduresfor domestic online games.Regulations Related to Anti-fatigue System, Real-name Registration System and Parental Guardianship ProjectIn 2007, the GAPP and several other government agencies issued a circular requiring the implementation of an anti-fatiguesystem and a real-name registration system by all PRC online game operators to curb addictive online game playing by minors.Under the anti-fatigue system, three hours or less of continuous playing by minors, defined as game players under 18 years of age, isconsidered to be “healthy,” three to five hours to be “fatiguing,” and five hours or more to be “unhealthy.” Game operators arerequired to reduce the value of in-game benefits to a minor player by half if the minor has reached the “fatiguing” level, and to zeroonce reaching the “unhealthy” level.To identify whether a game player is a minor and thus subject to the anti-fatigue system, a real-name registration systemmust be adopted to require online game players to register their real identity information before playing online games. The onlinegame operators are also required to submit the identity information of game players to the public security authority for verification.In 2011, the GAPP, together with several other government agencies, jointly issued the Notice on Initializing the Verification ofReal-name Registration for the Anti-Fatigue System on Online Games, or the Real-name Registration Notice, to strengthen theimplementation of the anti-fatigue and real-name registration system. The main purpose of the Real-name Registration Notice is tocurb addictive online game playing by minors and protect their physical and mental health. This notice indicates that the NationalCitizen Identity Information Center of the Ministry of Public Security will verify identity information of game players submitted byonline game operators. The Real-name Registration Notice also imposes stringent penalties on online game operators that do notimplement the required anti-fatigue and real-name registration systems properly and effectively, including terminating their onlinegame operations.Table of Contents74In 2011, the MOC, together with several other government agencies, jointly issued a Circular on Printing and DistributingImplementation Scheme regarding Parental Guardianship Project for Minors Playing Online Games to strengthen the administrationof online games and protect the legitimate rights and interests of minors. This circular indicates that online game operators musthave person in charge, set up specific service webpages and publicize specific hotlines to provide parents with necessary assistanceto prevent or restrict minors’ improper game playing behavior. Online game operators must also submit a report regarding itsperformance under the Parental Guardianship Project to the provincial level counterpart of the MOC each quarter.In August 2016, the CAC issued the Regulations for the Administration of Mobile Internet Applications InformationServices, pursuant to which the mobile applications information service providers shall satisfy relevant qualifications required bylaws and regulations, strictly carry out the information security management responsibilities and fulfill their obligations in variousaspects relating to the real-name system, protection of users’ information and the examination and management of informationcontent. The app store service providers shall file with the local cyberspace administration authorities within 30 days after its appstore services being launched, and such app store service providers are responsible for overseeing app information service providersoperated in their stores.In August 2018, the National Health Commission, the MOE, together with several other government agencies, jointlyissued the Implementation on Comprehensive Prevention and Control of Juveniles’ Myopia, which sets forth the plans to control thenumber of new online games and to restrict the amount of time when juveniles play games and use electronic devices.On October 25, 2019, the NAPP issued the Notice on Preventing Minor’s Addiction to Online Games, which requires allonline gamers to register accounts with their valid identity information and all game companies to stop providing game services tousers who fail to do so. Furthermore, minors are prohibited from playing games exceeding a certain period of time per day orcharging their accounts exceeding a certain amount.Regulations Relating to Online Advertising ServicesThe PRC Congress enacted the Advertising Law effective in October 2018, which increases the potential legal liability ofproviders of advertising services, and includes provisions intended to strengthen identification of false advertising and the power ofregulatory authorities. In July 2016, the SAIC issued the Interim Measures of the Administration of Online Advertising, or the SAICInterim Measures. The Advertising Law and the SAIC Interim Measures both provide that advertisements posted or publishedthrough the internet shall not affect users’ normal usage of network, and advertisements published in the form of pop-up windowson the internet must display an outstanding “close” sign with a button to close the pop-up windows. The SAIC Interim Measuresprovide that all online advertisements must be marked as “Advertisement” so that viewers can easily identify them as such. TheAdvertising Law and SAIC Interim Measures will require us to conduct more stringent examination and monitoring of ouradvertisers and the content of their advertisements.Advertisements shall not hinder public order, violate social morality or contain illegal contents, including, but not limitedto, obscenity, pornography, gambling, superstition, terror and violence contents. Otherwise, the administration of market regulationmay (i) order to stop publishing of the advertisement and; (ii) confiscate the advertising fees; (iii) impose a penalty ranging fromRMB200,000 to RMB1,000,000; or (iv) in serious cases, cancel the business license and cancel the registration certificate forpublishing advertisements.Table of Contents75According to the Advertising Law, advertisements shall not have any false or misleading content, or defraud or misleadconsumers. Furthermore, an advertisement will be deemed as a “false advertisement” if any of the following situations exist: (i) theadvertised product or service does not exist; (ii) there is any inconsistency that has a material impact on the decision to purchase inwhat is included in the advertisement with the actual circumstances with respect to the product’s performance, function, place ofproduction, usage, quality, specification, ingredient, price, producer, term of validity, sales condition and honors received, amongothers, or the service’s content, provider, form, quality, price, sales condition, and honors received, among others, or anycommitments, among others, made on the product or service; (iii) using fabricated, forged or unverifiable scientific research results,statistical data, investigation results, excerpts, quotations or other information as supporting material; (iv) effect or results of usingthe good or receiving the service are fabricated; or (v) other circumstances where consumers are defrauded or misled by any false ormisleading content.Where there is a false advertisement, the administration of market regulation may (i) request the discontinuation ofpublishing the target advertisement and the elimination of any adverse effects caused by such false advertisement; (ii) impose finescalculated based on advertisement expenses, if the advertising expense is incalculable or evidently low, the fines should beRMB200,000 to RMB1,000,000, and if the advertiser has published false advertisements more than three times in the past two yearsor in other serious cases, the fines should be five to ten times of the advertising expense and where the advertising expense isincalculable or evidently low, the fines should be between RMB1,000,000 to RMB2,000,000; and (iii) cancel the advertiser’sbusiness license. The advertisement examination authority may revoke advertisements approvals and reject advertisementexamination requests from such advertisers for one year.The relevant advertisers, advertisement operators and advertisement publishers may also face criminal liabilities.According to the Criminal Law, where an advertiser, advertisement operator or advertisement publisher uses false advertising for itsproducts or services and when the circumstances are serious, the offender may face imprisonment of not more than two years,criminal detention and fines. According to the Provisions of the Supreme People’s Procuratorate and the Ministry of Public Securityon Criteria for Docketing and Prosecution of Criminal Cases under the Jurisdiction of Public Security Authorities (II), where anadvertiser, advertisement operator or advertisement publisher uses false advertising for its products or services, the offender may beprosecuted if, among other serious violation circumstances, (i) the amount of illegal gains exceeds RMB100,000, (ii) causing directeconomic loss of over RMB50,000 to a single consumer, or accumulatively direct loss of over RMB200,000 to several consumers,or (iii) the offender has received administrative punishment more than two times within two years for conducting false advertising.Regulations on Unfair CompetitionOn April 23, 2019, the Standing Committee of the National People’s Congress promulgated the amended Anti-UnfairCompetition Law of the People’s Republic of China, or the Anti-Unfair Competition Law, which became effective on April 23,2019.Pursuant to the Anti-Unfair Competition Law, a business operator shall not conduct any false or misleading commercialpublicity in respect of the performance, functions, quality, sales, user reviews, and honors received of its commodities, in order todefraud or mislead consumers. A business operator publishing any false advertisements in violation of this provision shall bepunished in accordance with the PRC Advertising Law.The Anti-Unfair Competition Law also stipulated that a business operator engaging in production or distribution activitiesonline shall abide by the provisions of the Anti-Unfair Competition Law. No business operator may, by technical means to affectusers’ options, among others, commit the acts of interfering with or sabotaging the normal operation of online products or serviceslegally provided by another business operator.In addition, according to the Anti-Unfair Competition Law, a business operator is prohibited from any of the followingunfair activities: (i) committing act of confusion to mislead a person into believing that a commodity is one of another person or hasa particular connection with another person; (ii) seeking transaction opportunities or competitive edges by bribing relevant entitiesor individuals with property or by any other means; (iii) infringing on trade secrets; (iv) premium campaign violating the provisionof the Anti-Unfair Competition Law; and (v) fabricating or disseminating false or misleading information to damage the goodwill orproduct reputation of a competitor.Table of Contents76Regulations Relating to Cyber SecurityThe PRC Congress promulgated the PRC Cyber-security Law, or Cyber-security Law, effective in June 2017. Under theCyber-security Law, “network operators” are broadly defined as network owners, network administrator, and network serviceproviders are subject to various security protection-related obligations. As a network service provider, our obligations include:●complying with security protection obligations in accordance with tiered requirements with respect to maintenance ofthe security of internet systems, which include designing internal security management rules and developing manuals,appointing personnel in charge of internet security, adopting measures to prevent computer viruses and activities thatthreaten internet security, adopting measures to monitor and record status of network operations, holding Internetsecurity training events, retaining user logs for at least six months, and adopting measures such as data classification,key data backup, and encryption for the purpose of securing networks from interference, vandalism, or unauthorizedvisits, and preventing network data from leakage, theft, or tampering; and●verifying users’ identities before signing agreements or providing services such as network access, domain nameregistration, landline telephone or mobile phone access, information publishing, or real-time communication services;and formulating internet security emergency response plans, timely handling security risks, initiating emergencyresponse plans, taking appropriate remedial measures, and reporting to governmental authorities;Under the PRC Cyber-security Law, network service providers must inform users about and report to the relevantgovernmental authorities any known security defects or bugs, and must provide constant security maintenance services for theirproducts and services. Network products and service providers may not contain or provide any malware. Network service providerswho do not comply with the PRC Cyber-security Law may be subject to fines, suspension of their businesses, shutdown of theirwebsites, and revocation of their business licenses.The CAC issued the Cyber-security Review Measures, effective in June 2020. Under the Cyber-security Review Measures,critical information infrastructure operators purchasing network products and services that affect or may affect national security willbe subject to cyber-security review:The Cybersecurity Review Office under the CAC is responsible for developing cybersecurity review related rules andprocedures and organizing cybersecurity reviews.There are still substantial uncertainties with respect to the interpretation andimplementation of the Cyber-security Review Measures.Regulations Relating to Intellectual Property ProtectionChina has adopted comprehensive legislation governing intellectual property rights, including copyrights, patents andtrademarks.CopyrightUnder the PRC Copyright Law promulgated by the National People’s Congress in 1990 and most recently amended in2020, copyright protection extends to internet activities, products disseminated over the internet and software products. In addition,there is a voluntary registration system administered by the China Copyright Protection Center, and requires registration of anypledge of a copyright. Its implementing regulation, Computer Software Copyright Registration Procedures, was promulgated in2011 and most recently amended in January 2013, specifies detailed procedures and requirements regarding the registration ofsoftware copyrights.Table of Contents77To address the problem of copyright infringement related to content posted or transmitted over the internet, the PRCNational Copyrights Administration, or the NCA and the MIIT jointly promulgated the Measures for Administrative Protection ofCopyright Related to Internet in 2005. Upon receipt of an infringement notice from a legitimate copyright holder, an ICP operatormust take remedial actions immediately by removing or disabling access to the infringing content. If an ICP operator knowinglytransmits infringing content or fails to take remedial actions after receipt of a notice of infringement harming public interest, the ICPoperator could be subject to administrative penalties, including an order to cease infringing activities, confiscation by the authoritiesof all income derived from the infringement activities, or payment of fines.The Provisions of the Supreme People’s Court on Certain Issues Related to the Application of Law in the Trial of CivilCases Involving Disputes on Infringement of the Information Network Dissemination Rights provides that disseminating works,performances or audio-video products by internet users or internet service providers via the internet without the consents of thecopyright owners shall be deemed to have infringed the right of dissemination of the copyright owner. Under the Regulations on theProtection of the Right to Network Dissemination of Information, promulgated by the State Council in 2006 and amended in 2013,an owner of the network dissemination rights with respect to written works or audio or video recordings who believes thatinformation storage, search or link services provided by an internet service provider infringe his or her rights may require that theinternet service provider delete, or disconnect the links to, such works or recordings. As of December 31, 2020, we have registered149 software copyrights in China.Patent LawUnder the Patent Law promulgated by PRC Congress in 1984 and most recently amended in 2008, and its implementationregulations issued in 2010, the State Intellectual Property Office is responsible for administering patents in the PRC. The Chinesepatent system adopts a “first to file” principle, which means that where more than one person files a patent application for the sameinvention, a patent will be granted to the person who filed the application first. To be patentable, invention or utility models mustmeet all three conditions: novelty, inventiveness and practical applicability. A patent is valid for 20 years in the case of an inventionand 10 years in the case of utility models and designs. A third-party user must obtain consent or proper license from the patentowner to use the patent. Otherwise, third-party use constitutes an infringement of patent rights. As of December 31, 2020, we had 59patents in China.Trademark LawUnder the Trademark Law promulgated by PRC Congress in 1982 and most recently amended in 2019, and itsimplementation regulations issued in 2002 and amended in April 2014, the Trademark Office of the Administration for Industry andCommerce is responsible for the registration and administration of trademarks. The Administration for Industry and Commerceunder the State Council has established a Trademark Review and Adjudication Board for resolving trademark disputes. As withpatents, China has adopted a “first-to-file” principle for trademark registration. If two or more applicants apply for registration ofidentical or similar trademarks for the same or similar commodities, the application that was filed first will receive preliminaryapproval and will be publicly announced. For applications filed on the same day, the trademark that was first used will receivepreliminary approval and will be publicly announced. Registered trademarks are valid for ten years from the date the registration isapproved. A registrant may apply to renew a registration within twelve months before the expiration date of the registration. If theregistrant fails to apply in a timely manner, a grace period of six additional months may be granted. If the registrant fails to applybefore the grace period expires, the registered trademark shall be deregistered. Renewed registrations are valid for ten years. As ofDecember 31, 2020, we had 240 trademarks in China.Domain NameDomain names are protected in the PRC under the Administrative Measures on the Internet Domain Names promulgated bythe MIIT, which became effective on November 1, 2017. The MIIT is the primary regulatory authority responsible for theadministration of the PRC internet domain names. The registration of domain names in China has adopted a “first-to-file” principle.A domain name applicant will become the domain name holder upon the completion of its application procedure.Table of Contents78As of December 31, 2020, we had registered more than 200 domain names, including “cootek.com,” “chubao.cn” and“touchpal.com.”Internet InfringementUnder the Tort Law promulgated by PRC Congress in 2009, an internet user or an internet service provider that infringesupon the civil rights or interests of others through using the internet assumes tort liability. If an internet user infringes upon the civilrights or interests of another through internet, the victim has the right to notify and request the facilitating internet service providerto take necessary measures including deletion, blocking or disconnection of any relevant internet link. If, the internet serviceprovider fails to take necessary measures upon notification in a timely manner to stop the infringement, such internet serviceprovider shall be jointly and severally liable for any additional harm caused by its failure to act. According to the Tort Law, civilrights and interests include the personal rights and rights of property, such as the right to life, right to health, right to name, right toreputation, 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 toequity interests and right of heritage, among others.Regulations Relating to User ProtectionThe Measures on the Complaint Settlement of the Telecommunication Services Users, issued by MIIT in May 2016,requires telecommunication services providers to respond to their users within fifteen days upon the receipt of any complaintdelivered by such users, the failure of which will give the complaining users the right to file a complaint against the serviceproviders with the provincial branch offices of the MIIT.Regulations Relating to M&AIn 2006, six PRC regulatory agencies, including the MOFCOM, the State Assets Supervision and AdministrationCommission, the State Administration of Taxation, or the SAT, the SAIC, the China Securities Regulatory Commission, or theCSRC, and the State Administration of Foreign Exchange, or the SAFE, jointly issued the Regulations on Mergers and Acquisitionsof Domestic Enterprises by Foreign Investors, or the M&A Rule, amended in 2009. The M&A Rule requires an offshore specialpurpose vehicle, formed for purposes of the overseas listing of equity interests in PRC companies through acquisitions of PRCdomestic companies and controlled directly or indirectly by PRC companies or individuals, to obtain the approval of the CSRC priorto any listing or trading of such special purpose vehicle’s securities on any overseas stock exchange. In 2006, the CSRC publishedon its official Website procedures for obtaining its approval of overseas listings by special purpose vehicles, which requires thefiling of a number of documents with the CSRC. The application of this PRC regulation remains unclear, with no consensuscurrently existing among leading PRC law firms regarding the scope of the applicability of the CSRC approval requirements.The M&A Rules also establish procedures and requirements that could make some acquisitions of Chinese companies byforeign investors more time-consuming and complex, including requirements in some instances that the MOFCOM be notified inadvance of any change-of-control transaction in which a foreign investor takes control of a Chinese domestic enterprise.Table of Contents79In February 2011, the General Office of the State Council promulgated a Notice on Establishing the Security ReviewSystem for Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the Circular 6, which established a securityreview system for mergers and acquisitions of domestic enterprises by foreign investors. Under Circular 6, a security review isrequired for mergers and acquisitions by foreign investors having “national defense and security” concerns and mergers andacquisitions by which foreign investors may acquire “de facto control” of domestic enterprises with “national security” concerns. InAugust 2011, the MOFCOM promulgated the Rules on Implementation of Security Review System, or the MOFCOM SecurityReview Rules, to replace the Interim Provisions of the Ministry of Commerce on Matters Relating to the Implementation of theSecurity Review System for Mergers and Acquisitions of Domestic Enterprises by Foreign Investors promulgated by the MOFCOMin March 2011. The MOFCOM Security Review Rules, which came into effect on September 1, 2011, provide that the MOFCOMwill look into the substance and actual impact of a transaction and prohibit foreign investors from bypassing the security reviewrequirement by structuring transactions through proxies, trusts, indirect investments, leases, loans, control through contractualarrangements or offshore transactions.Regulations Relating to Foreign Currency Exchange and Dividend DistributionThe principal regulations governing foreign currency exchange in China are the Foreign Exchange AdministrationRegulations, or the Foreign Exchange Regulations, which were promulgated by the State Council in 1996 and most recentlyamended in 2008. Under the Foreign Exchange Regulations, the RMB is freely convertible for current account items, including thedistribution of dividends, interest payments, trade and service-related foreign exchange transactions, but not for capital accountitems, such as direct investments, loans, repatriation of investments and investments in securities outside of the PRC, unless theprior approval of the SAFE is obtained and prior registration with the SAFE is made. Dividends paid by a PRC subsidiary to itsoverseas shareholder are deemed income of the shareholder and are taxable in the PRC. Pursuant to the Administration Rules of theSettlement, Sale and Payment of Foreign Exchange promulgated by the PBOC in 1996, foreign-invested enterprises in the PRC maypurchase or remit foreign currency, subject to a cap approved by the SAFE, for settlement of current account transactions withoutthe approval of the SAFE. Foreign currency transactions under the capital account are still subject to limitations and requireapprovals from, or registration with, the SAFE and other relevant PRC governmental authorities.In July 2014, the SAFE promulgated the Circular on Issues Concerning Foreign Exchange Administration over theOverseas Investment and Financing and Roundtrip Investment by Domestic Residents Via Special Purpose Vehicles, or SAFECircular 37, which replaced Relevant Issues Concerning Foreign Exchange Control on Domestic Residents’ Corporate Financingand Roundtrip Investment through Offshore Special Purpose Vehicles, or SAFE Circular 75. SAFE Circular 37 requires PRCresidents, including PRC institutions and individuals, to register with the local SAFE office in connection with their directestablishment or indirect control of an offshore entity, referred to in SAFE Circular 37 as a “special purpose vehicle” for the purposeof holding domestic or offshore assets or interests. PRC residents must also file amendments to their registrations in the event of anysignificant changes with respect to the special purpose vehicle, such as increase or decrease of capital contributed by PRCindividuals, share transfer or exchange, merger, division or other material event. Under these regulations, PRC residents’ failure tocomply with such regulations may result in restrictions being imposed on the foreign exchange activities of the relevant PRC entity,including the payment of dividends and other distributions to its offshore parent, as well as restrictions on capital inflows from theoffshore entity to the PRC entity, including restrictions on the ability to contribute additional capital to the PRC entity. Further,failure to comply with the various SAFE registration requirements could result in liability under PRC laws for evasion of foreignexchange regulations.Under SAFE Circular 37, if a non-listed special purpose vehicle uses its own equity to grant equity incentives to anydirectors, supervisors, senior management or any other employees directly employed by a domestic enterprise which is directly orindirectly controlled by such special purpose vehicle, or with which such an employee has established an employment relationship,related PRC residents and individuals may, prior to exercising their rights, apply to the SAFE for foreign exchange registrationformalities for such special purpose vehicle. However, in practice, different local SAFE offices may have different views andprocedures on the interpretation and implementation of the SAFE regulations, and since SAFE Circular 37 was the first regulation toregulate the foreign exchange registration of a non-listed special purpose vehicle’s equity incentives granted to PRC residents, thereremains uncertainty with respect to its implementation.Table of Contents80In February 2015, SAFE promulgated the Notice on Further Simplifying and Improving the Administration of the ForeignExchange Concerning Direct Investment, or SAFE Notice 13, as amended in December 2019. SAFE Notice 13 amended SAFECircular 37 by requiring PRC residents or entities to register the incorporation or control of an offshore entity for purposes ofoffshore investment or offshore financing with qualified banks rather than SAFE or its local branches.Under the Administration Measures on Individual Foreign Exchange Control issued by PBOC in 2006, and relatedImplementation Rules issued by the SAFE in 2007 as amended in 2016, all foreign exchange transactions involving an employeeshare incentive plan, share option plan, or similar plan participated in by onshore individuals shall obtain approval from the SAFE orits local office.The principal regulations governing distribution of dividends of foreign holding companies include the Foreign InvestmentLaw promulgated in 2019, Implementation Regulations for the Foreign Investment Law promulgated in 2019, and the CompanyLaw as recently amended in 2018. Under these regulations, wholly foreign-owned enterprises in China may pay dividends only outof their accumulated profits, if any, as determined in accordance with PRC accounting standards and regulations. In addition, awholly foreign-owned enterprise in China is required to set aside at least 10% of its after-tax profit based on PRC accountingstandards each year to its general reserves until its cumulative total reserve funds reaches 50% of its registered capital. At thediscretion of the board of directors of the wholly foreign-owned enterprise, it may allocate a portion of its after-tax profits based onPRC accounting standards to staff welfare and bonus funds. These reserve funds and staff welfare and bonus funds, however, maynot be distributed as cash dividends.Furthermore, under the Enterprise Income Tax Law, which became effective in January, 2008 and latest amended inDecember 2018, the maximum tax rate for the withholding tax imposed on dividend payments from PRC foreign investedcompanies to their overseas investors that are not regarded as “resident” for tax purposes is 20%. The rate was reduced to 10% underthe Implementing Regulations for the PRC Enterprise Income Tax Law issued by the State Council. However, a lower withholdingtax rate of 5% might be applied if there is a tax treaty between China and the jurisdiction of the foreign holding companies, such asis the case with Hong Kong, and certain requirements specified by PRC tax authorities are satisfied.Regulations Relating to Employee Share Option PlansPursuant to the Notice of Issues Related to the Foreign Exchange Administration for Domestic Individuals Participating inStock Incentive Plan of Overseas Listed Company, or SAFE Circular 7, issued by the SAFE in February 2012, employees, directors,supervisors, and other senior management participating in any share incentive plan of an overseas publicly listed company who arePRC citizens or non-PRC citizens residing in China for a continuous period of not less than one year, subject to a few exceptions,are required to register with SAFE through a domestic qualified agent, which may be a PRC subsidiary of such overseas listedcompany, and complete certain other procedures.In addition, the SAT has issued certain circulars concerning employee share options and restricted shares. Under thesecirculars, employees working in the PRC who exercise share options or are granted restricted shares will be subject to PRCindividual income tax. The PRC subsidiaries of an overseas listed company are obligated to file documents related to employeeshare options and restricted shares with relevant tax authorities and to withhold individual income taxes of employees who exercisetheir share option or purchase restricted shares. If the employees fail to pay or the PRC subsidiaries fail to withhold income tax inaccordance with relevant laws and regulations, the PRC subsidiaries may face sanctions imposed by the tax authorities or other PRCgovernmental authorities.Regulations Relating to Employment and Social InsuranceThe PRC Labor Contract Law promulgated by PRC Congress in 2007 and amended in December 2012, and itsimplementation rules issued by the State Council in 2008, require employers to provide written contracts to their employees, restrictthe use of temporary workers and aim to give employees long-term job security. Violations of the PRC Labor Law and the PRCLabor Contract Law may result in fines and other administrative sanctions, and serious violations may result in criminal liabilities.Table of Contents81Pursuant to the PRC Labor Contract Law, employment contracts lawfully concluded prior to the implementation of thePRC Labor Contract Law and continuing as of the date of its implementation shall continue to be performed. Where an employmentrelationship was established prior to the implementation of the PRC Labor Contract Law but no written employment contract wasconcluded, a contract must be concluded within one month after its implementation.The PRC governmental authorities have passed a variety of laws and regulations regarding social insurance and housingfunds from time to time, including, among others, the PRC Social Insurance Law, the Regulation of Insurance for Labor Injury, theRegulations of Insurance for Unemployment, and Interim Measures for Enterprise Employees’ Maternity Insurance. Pursuant tothese laws and regulations, PRC companies must make contributions at specified levels for their employees to the relevant localsocial insurance and housing fund authorities. Failure to comply with such laws and regulations may result in various fines and legalsanctions and supplemental contributions to the local social insurance and housing fund regulatory authorities.Table of Contents82C.Organizational StructureThe following diagram illustrates our corporate structure, including our significant subsidiaries and other entities that arematerial to our business, as of the date of this annual report:(1)Karl Kan Zhang, Susan Qiaoling Li, Michael Jialiang Wang, Jim Jian Wang and Haiyan Zhu are the beneficial owners of CooTek (Cayman) Inc., and each holds 25.0%, 21.94%, 21.94%, 13.12% and 18.0% of the equity interests in Shanghai Chubao, respectively. Karl Kan Zhang, Susan Qiaoling Li and Michael Jialiang Wang are directors and employees of CooTek (Cayman) Inc. Jim Jian Wang is the director of CooTek (Cayman) Inc., and Haiyan Zhu is one of the early investors of CooTek (Cayman) Inc.(2)One of our employees holds 100% of the equity interests in Molihong.Table of Contents83(3)Each of Michael Jialiang Wang and Jim Jian Wang holds 50% of the equity interests in Qiaohan.(4)Two of our employees each hold 50% of the equity interests in Qinglin.The following is a summary of our contractual arrangements with respect to Shanghai Chubao and other principal VIEs.Agreements that provide us effective control over Shanghai ChubaoLoan Agreement. On August 6, 2012, the WFOE and each shareholder of Shanghai Chubao entered into loan agreement.Pursuant to such agreements, the WFOE will provide loan to the shareholders of Shanghai Chubao solely for the purpose of capitalcontribution. The shareholders of Shanghai Chubao should pledge their equity interests in Shanghai Chubao and enter into an equitypledge agreement to secure such loan and other obligations. The shareholders can only repay the loans by the sale of all their equityinterest in Shanghai Chubao to WFOE or its designated person. Each loan agreement will remain effective for 10 years, and will beautomatically renewed by three years upon the option of the WFOE.Equity Pledge Agreement. On August 6, 2012, the WFOE and Shanghai Chubao and each of its shareholders entered intoan equity pledge agreement, which was subsequently amended and restated on October 30, 2012. Pursuant to the amended andrestated equity pledge agreement, each shareholder of Shanghai Chubao shall pledges 100% equity interests in Shanghai Chubao tothe WFOE to guarantee their and Shanghai Chubao’s performance of their obligations under the contractual arrangements includingthe exclusive business cooperation agreement, exclusive purchase option agreement and the power of attorney. In the event of abreach by Shanghai Chubao or its shareholders of their contractual obligations under these agreements, the WFOE, as pledgee, willhave the right to dispose of the pledged equity interests in Shanghai Chubao. The shareholders of Shanghai Chubao also undertakesthat, during the term of the equity pledge agreements, they will not dispose of the pledged equity interests or create or allow anyencumbrance on the pledged equity interests. During the term of the equity pledge agreements, our WFOE has the right to receiveall of the dividends and profits distributed on the pledged equity interests. We have completed the registration of the equity pledgeswith the relevant office of the administration for industry and commerce in accordance with the PRC Property Rights Law.Power of Attorney. On October 30, 2012, each shareholder of Shanghai Chubao granted irrevocable and exclusive powerof attorney to the WFOE as his/her attorney-in-fact to exercise all shareholder rights, including, but not limited to, attendshareholders meeting of Shanghai Chubao, voting on their behalf on all matters of Shanghai Chubao, disposing of all or part of theshareholder’s equity interest in Shanghai Chubao, and electing, appointing or removing legal representative, directors, supervisorsand executive officers of Shanghai Chubao. Each power of attorney will remain in force for so long as the shareholder remains ashareholder of Shanghai Chubao. Each shareholder has waived all the rights which have been authorized to our WFOE under eachpower of attorney.Spouse Consent Letters. Pursuant to the spouse consent letters dated October 30, 2012, each spouse of the shareholders ofShanghai Chubao, if any, confirmed that his/her spouse can perform the obligations under the contractual arrangements and has solediscretion to amend and terminate the contractual arrangements. Each spouse agreed that the equity interest in Shanghai Chubaoheld by and registered in the name of his/her spouse will be disposed of pursuant to the amended and restated equity pledgeagreement, the amended and restated exclusive option agreement and the power of attorney. In addition, in the event that eachspouse obtains any equity interest in Shanghai Chubao held by his/her spouse for any reason, he/she agreed to be bound by thecontractual arrangements.Table of Contents84Agreement that allows us to receive economic benefits from Shanghai ChubaoExclusive Business Cooperation Agreement. On August 6, 2012, our WFOE and Shanghai Chubao entered into anexclusive business cooperation agreement. Under such agreement, our WFOE has the exclusive right to provide Shanghai Chubaowith operational support and technology and consulting services. The WFOE owns the exclusive intellectual property rights createdas a result of the performance of this agreement. Shanghai Chubao agrees to pay our WFOE a monthly service fee, at an amountequal to 100% of Shanghai Chubao’s monthly net income or an amount otherwise agreed by the WFOE. This agreement will remaineffective unless terminated unilaterally by the WFOE or otherwise as required by applicable PRC laws and regulations.Agreement that provides us with the option to purchase the equity interest in Shanghai ChubaoExclusive Purchase Option Agreement. On August 6, 2012, the WFOE and each shareholder of Shanghai Chubao enteredinto an exclusive purchase option agreement, which was subsequently amended and restated on October 30, 2012. Pursuant to theamended and restated exclusive purchase option agreement, each shareholder of Shanghai Chubao irrevocably grants our WFOE anexclusive option to purchase, or have its designated person to purchase, at its discretion, to the extent permitted under PRC law, allor part of the shareholder’s equity interests in Shanghai Chubao. In addition, the purchase price should be the amount of registeredcapital, which may be subject to fair value adjustments if required by the PRC laws. Without the prior written consent of the WFOE,the shareholders of Shanghai Chubao may not amend its articles of association, increase or decrease the registered capital, dispose ofits assets or business, create any encumbrance on its assets or business, incur any debts or guarantee liabilities, enter into anymaterial contracts, merger with or acquire any other persons or make any investments, provide any loans for any third parties ordistribute dividends to the shareholders. Each shareholder of Shanghai Chubao agrees that, without the prior written consent of theWFOE, he/she will not dispose of his/her equity interests in Shanghai Chubao or create or allow any encumbrance on the equityinterests. Each exclusive purchase option agreement will remain effective unless the agreement is required to be terminated byapplicable PRC laws and regulations.The WFOE, the other three VIEs and their respective shareholders have entered into contractual arrangements whichcontain agreements and terms substantially similar to our contractual arrangements with Shanghai Chubao and its shareholdersdescribed above, except that the WFOE did not extended any loans to the shareholders of Shanghai Hanxiang and the option topurchase the equity interest of Shanghai Hanxiang can be exercised at a nominal price pursuant to its exclusive purchase optionagreement. The registration of the equity pledges over the equity interests of the other VIEs have been completed with the relevantoffice of the administration for industry and commerce in accordance with the PRC Property Rights Law.In the opinion of JunHe LLP, our PRC legal counsel:●the ownership structure of the WFOE and our VIEs is not in violation of PRC laws or regulations currently in effect;and●the contractual arrangements among the WFOE, our VIEs and their respective shareholders governed by PRC law arevalid and binding, and do not result in any violation of PRC laws or regulations currently in effect.Table of Contents85However, we have been further advised by our PRC legal counsel that there are substantial uncertainties regarding theinterpretation and application of current and future PRC laws, regulations and rules, and there can be no assurance that the PRCregulatory authorities will ultimately take a view that is consistent with the opinion stated above. Accordingly, the PRC regulatoryauthorities may in the future take a view that is contrary to or otherwise different from the above opinion of our PRC legal counsel.If the PRC government finds that the agreements that establish the structure for operating our mobile internet business do notcomply with PRC government restrictions on foreign investment in our businesses, we could be subject to severe penalties includingbeing prohibited from continuing operations. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our CorporateStructure—If the PRC government finds that the agreements that establish the structure for operating our businesses in China do notcomply with PRC regulations on foreign investment in internet and other related businesses, or if these regulations or theirinterpretation change in the future, we could be subject to severe penalties or be forced to relinquish our interests in thoseoperations,” and “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—Uncertainties in theinterpretation and enforcement of PRC laws and regulations could limit the legal protections available to you and us.”D.Property and EquipmentOur headquarters are located in Shanghai, China, where we currently lease and occupy approximately 5,000 square metersof office space. We also lease offices in Beijing, Guangzhou, Shenzhen and other cities, with an aggregate area of approximately1,048 square meters of office space. We also have research and development personnel at our office in Silicon Valley, the UnitedStates, with an area of approximately 460 square meters.Below is a summary of the term of each of our current leases and we plan to renew most of them when they expire:Leased properties Term Area (square meters)Shanghai 2 and 3 years 5,243Beijing 1 year 315Guangzhou 1.5 years 448Shenzhen 4 months 285Silicon Valley 2 years and 1 month 459Taiwan 5 months 8 WorkstationsTotal 6,750ITEM 4A. UNRESOLVED STAFF COMMENTSNone.ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTSYou should read the following discussion and analysis of our financial condition and results of operations in conjunctionwith our consolidated financial statements and the related notes included elsewhere in this annual report on Form 20-F. Thisdiscussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. Our actualresults may differ materially from those anticipated in these forward-looking statements as a result of various factors, includingthose set forth under “Item 3. Key Information—D. Risk Factors” or in other parts of this annual report on Form 20-F.A.Operating ResultsOverviewWe operate a global portfolio of mobile applications with a large and diverse user base. Our mobile applications include aportfolio of content-rich mobile applications, TouchPal Smart Input and TouchPal Phone book. We leverage our ability to derivesophisticated user insights to deliver targeted advertisements that are relevant to users across our various mobile applications.Table of Contents86We generate revenues primarily from mobile advertising. In July 2019, some of our global apps were disabled by Google from the Google Play Store and Google Admob, and we were able to bounce back during the second half of 2019, through our diversified content-rich mobile applications and additional distribution channels. In 2020, we continue to develop our content-rich product portfolio, and to build a global pan-entertainment content ecosystem which focus on online literature, scenario-based content apps and casual games. Our net revenues grew rapidly by 32.6% from US$134.1 million in 2018 to US$177.9 million in 2019, and further by 148% to US$441.5 million in 2020. We recorded gross profit of US$119.2 million, US$162.6 million and US$417.4 million in 2018, 2019 and 2020, reflecting an improvement of gross profit margin from 88.9% in 2018 to 91.4% in 2019 and further to 94.5% in 2020. Of our total advertising revenue, our portfolio products contributed approximately 63% in 2018, 85% in 2019 and 99% in 2020, and our TouchPal Smart Input contributed approximately 22% in 2018, 6% in 2019 and 0.2% in 2020. In addition, TouchPal Phonebook contributed approximately 15%, 9% and 0.5% of our total advertising revenue in 2018, 2019 and 2020, respectively. We recorded net income of US$10.1 million in 2018, net loss of US$36.8 million in 2019, and net loss of US$47.4 million in 2020.Key Factors Affecting Our Results of OperationsDue to the global COVID-19 pandemic, our results of operations and financial conditions was affected. The COVID-19 pandemic led to a potential global economic downturn, which caused our advertising and marketing customers to reduce their advertising budgets in general. As a result of any of the above developments, our business, financial condition and results of operations for the full fiscal year of 2020 were affected by the COVID-19 pandemic. We will continue to monitor and evaluate the impacts of COVID-19 to our business, financial condition and results of operations for the remainder of fiscal year 2021.As of December 31, 2020, we had US$49.6 million in cash, cash equivalents, and restricted cash. Our cash and cash equivalents primarily consist of cash on hand, demand deposits and short-term floating rate financial instruments which can be freely withdrawn or used and have original maturities of three months or less when purchased. Our restricted cash consists of amount of US$3.1 million held in our bank account as guarantee deposit for loan facility provided by the bank and US$21.7 million held in our bank accounts which were frozen by a local authority in connection with an ongoing investigation related to an alleged illegal act of certain customers. We believe this level of liquidity is sufficient to navigate an extended period of uncertainty. While our business is influenced by general factors affecting our industry, our results of operations are more directlyaffected by company specific factors, including the following major factors:Our ability to increase our user baseOur business depends on our ability to grow our global user base. As our revenues are primarily derived from our advertising services, the number of users and the frequency with which they use our products and services directly affect the number of advertisements we are able to show and the value of those advertisements. Since our inception, we have experienced rapid growth of the user base of our portfolio products. In December 2020, the user base of our portfolio products reached an average of 27.8 million DAUs, an increase of 13% from 24.7 million in December 2019.Table of Contents87The following table sets forth the average DAUs, MAUs, and DAU/MAU ratios of our global products for each of themonths indicated:For the Month Ended Mar 31,Jun 30,Sep 30,Dec 31,Mar 31,Jun 30,Sep 30,Dec 31, 2019 2019 2019 2019 2020 2020 2020 2020 (in millions, except for the percentages) TouchPal Smart Input DAUs 145.9 143.7 140.8 137.6 136.5 133.3 130.0 125.3MAUs 192.3 190.4 185.1 182.8 178.8 174.3 169.4 162.8DAU/MAU ratio(1) 75.9% 75.5% 76.1% 75.3% 76.3% 76.5% 76.7% 77.0%Portfolio products DAUs 23.1 27.6 23.9 24.7 25.2 23.9 27.7 27.8MAUs 59.8 65.1 67.5 74.6 89.2 83.5 94.8 85.8DAU/MAU ratio(1) 38.6% 42.4% 35.4% 33.1% 28.3% 28.6% 29.2% 32.4%(1)DAU/MAU ratio refers to, for any period, the ratio calculated by dividing (i) the average DAUs of certain product(s) in the given month, by(ii) the MAU of such product (s) in the given month. The average DAUs and MAUs used in calculating the DAU/MAU ratio are rounded tothe nearest hundred thousand.The MAUs of our portfolio products continuously increased from 74.6 million in December 2019 to 85.8 million in December 2020. Despite Google’s decision in July 2019 to disable some of our global apps from the Google Play Store and Google Admob, we managed to find alternative digital distribution platforms and user acquisition channels to keep growing our user base. For example, we used Tencent YingYongBao App Store to distribute our mobile applications and we increased the portion of user acquisition through advertising on third-party platforms in China, such as Douyin and Kuaishou. As we regain the user growth momentum, our DAUs and MAUs of our portfolio products both increased from December 2019 to December 2020. The DAUs of our portfolio products decreased from 25.2 million in March 2020 to 23.9 million in June, and bounced back to 27.7 million in September 2020 and increased to 27.8 million in December 2020. We regained our user growth momentum due to a range of factors, including our improved relevance of the content we deliver with our technology, continuous innovation of and improvements in user experience with our products and services and effective user acquisition through online distribution platforms and third-party platforms, all of which are guided and driven by our in-depth user insights. Although we expect our user base to grow, our actual results may be materially different from our expectations due to certain factors inherent in our business and industry. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business—If we fail to maintain or expand our user base, our business, financial condition and operating results may be materially and adversely affected.” and “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business—We have significant international operations and plan to continue expanding our operations globally. We may face challenges and business risks presented by our global operations, which may have a material and adverse impact on our business and operating results.”As a long-term strategy, we plan to continuously offer innovative and diversified products and services to meet the interestsand demands of our targeted mobile internet users and to further improve our users’ experience with our products to achieve asustained high level of user satisfaction, which we believe is the most cost-effective way to attract, engage and retain our users.Effectiveness of monetization.We monetize our user base primarily through mobile advertising. Our advertising revenue increased by 33.3% from US$131.3 million in 2018 to US$175.0 million in 2019, and further by 150.4% to US$438.4 million in 2020. It is estimated that, of the total advertising revenue, our portfolio products contributed approximately 63% in 2018, 85% in 2019 and 99% in 2020. In addition, online literature, scenario-based content apps and casual games contributed approximately 38%, 24% and 37% of our total advertising revenue in 2020, respectively. Table of Contents88The effectiveness of our monetization and our results of operations are affected by a number of factors, including thenumber of our available advertising spaces, our ability to attract and retain advertising customers, and our ability to deliver targetedadvertisements to our users.Our available advertising spacesOur available advertising spaces represent the number, size and prominence of advertisements we can display, which in turn affect our revenues and results of operations. As we have continued to launch new content-rich products, and grow our user base, the number of our available advertising spaces increased rapidly in recent years. We plan to continue to invest in the development of innovative products catering to users’ interests in and demands for relevant content in order to create more advertising spaces.Our ability to attract and retain advertising customersWe source our advertisers primarily through our network of advertising exchanges and agencies, and to a lesser extent, direct contractual arrangements with individual advertisers. Our revenues and results of operations depend largely on our ability to engage, directly or indirectly, more advertisers with our advertising services. We generate advertising revenue primarily from performance-based advertisements and we also offer brand advertising arrangements. In July 2019, some of our global apps were disabled by Google from the Google Play Store and Google Admob, and our access to Google Play Store and Google Admob was disabled too. Our business and financial results was adversely affected as a result in the second and third quarter of 2019. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business—We have been and may continue to be subject to notices or complaints alleging, among other things, our infringement of copyrights and delivery of illegal or inappropriate content through our products, which could lead to suspension or removal of such products from digital distribution platforms, a decrease of our user base, and a significantly adverse impact on our financial results and our reputation.” We launched our in-house developed advertising platform, CooTek Ads, afterwards to reduce our dependency on third-party advertising exchanges and to provide high-quality and tailored advertising services. The revenue derived from CooTek Ads have accounted for approximately 45% of our total revenue in 2020. In 2020, our top two advertising customers, which are advertising exchanges, contributed 39.5% of our total revenues. Our business may be materially and adversely affected if our cooperation with these two advertising customers is impaired or terminated. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business—We depend on certain third-party advertising exchanges and agencies for a large portion of our mobile advertising revenues.” We plan to further strengthen our network of advertising exchanges and agencies to serve a larger number of advertisers. We also plan to further expand and diversify our advertiser base and to maximize the value of our services to the advertisers by improving our targeting capability, increasing our user base, developing CooTek Ads while maintaining quality business relationship with third-party advertising exchanges.Our ability to deliver targeted advertisementsLeveraging our in-depth user insights, we help advertisers reach their desired audiences and our advertising exchange customers charge them advertising fees based primarily on valid clicks, conversions or other measurable actions of the audience. Our ability to deliver advertisements that are relevant to our users across our various mobile applications is critical to maintaining high click-through rates or conversion rates, which in turn directly impacts the value of our advertising services. We strive to deepen our understanding of our users’ content interests and demands in order to improve our targeted delivery of advertising services, which will ultimately increase the effectiveness of the monetization of our use base and advertising spaces.Table of Contents89Effective investment in technology and talentTo maintain our advanced technological capabilities and in order to be able to keep up with any future technological developments, we have continued to make significant investments in enhancing our technology infrastructure and in acquiring and retaining talent with technological expertise. Our investment in technology and talent has effectively met our needs for technology upgrades and increases in product development capacity along with the rapid growth of our business. As of December 31, 2020, we had 759 full-time employees, of which 452 were software engineers and product designers. Our research and development expenses increased by 39.4% from US$19.3 million in 2018 to US$26.9 million in 2019, and further increased by 10.2% from US$26.9 million in 2019 to US$29.7 million in 2020. In the foreseeable future, we expect to continuously increase our investment in our research and development team and our big data analytics and precise targeted advertising capabilities.Ability to manage costs and expensesOur results of operations depend on our ability to manage our costs and expenses. We spend primarily on content costs, server and bandwidth costs, telecommunication service charges and expenses related to voice over internet protocol, or VoIP, services, and staff costs. We expect the absolute amount of our content costs, bandwidth and server costs and our staff costs to steadily increase as we continue to grow our business. In order to expand our user base, we also incur sales and marketing expenses to acquire new users through online marketing and promotion activities. We expect to continue spending on user acquisition channels to further enlarge our user base in the foreseeable future. We expect to stabilize and improve our economic efficiency of user acquisition cost for our existing products as a result of the economies of scale and our accumulated knowledge and experience related to user growth. The user acquisition costs for our new products may currently be higher than our existing products, and we plan to keep improving our economic efficiency of user acquisition cost for our new products as well. In addition, we expect our costs and operating expenses to decrease as a percentage of our total net revenues, as our business further increases in scale and our operating efficiency improves.Key Components of Results of OperationsNet Revenues. The following table sets forth the components of our net revenues, both in absolute amount and as apercentage of our total net revenues, for the periods presented:For the Year Ended December 31, 2018 2019 2020 US$ % US$ % US$ % Net Revenues: Advertising revenue 131,287,334 97.9 175,040,033 98.4 438,384,470 99.3Other revenue 2,822,298 2.1 2,843,072 1.6 3,120,761 0.7Total net revenues 134,109,632 100.0 177,883,105 100.0 441,505,231 100.0Advertising RevenueWe generate advertising revenue primarily from delivering advertisements through our products. Based on our in-depthuser insights, we target users who are likely to have interests and demands for the advertised products and services. We generallyenter into arrangements with advertising exchanges and agencies that purchase advertising services and spaces from us on behalf ofthe end advertisers, and we also enter into advertising arrangements with individual advertisers directly. Our advertising revenue isprimarily generated from performance-based advertisements, and we also offer brand advertising arrangements. For performance-based advertisements, we are paid by our advertising exchange customers based on the effective price per impression, which isimpacted by the number of valid clicks, conversions or other measurable actions of our users in relation to the advertisements.Table of Contents90Revenue from our advertising services accounted for 97.9%, 98.4% and 99.3% of our total net revenues in 2018, 2019 and 2020, respectively. We estimate that, of our total advertising revenue, our portfolio products contributed approximately 63% in 2018, 85% in 2019 and 99% in 2020. In addition, online literature, scenario-based content apps and casual games contributed approximately 38%, 24% and 37% of our total advertising revenue in 2020, respectively. From time to time, we provide sales rebates to certain advertising agencies to incentivize their referral of more brand advertising arrangements to us. Our advertising revenue is presented net of sales rebates to these advertising agencies.We expect our advertising revenue to increase in the foreseeable future as we continue to expand our global user base,improve the effectiveness of our targeted advertising services, and attract more advertising customers.Other RevenueWe generate other revenue from (i) VIP user subscription; and (ii) licensing of our TouchPal Smart Input to certain mobile device manufacturers for pre-installation. Revenue from both services in aggregate increased by US$0.7 million from 2018 to 2019. We ceased to generate revenue from the sales of virtual items in a live social video community on TouchPal Phonebook in 2019. As a result, our other revenue stayed stable at US$2.8 million in 2019. Revenue from both services in aggregate increased by US$0.3 million from US$2.8 million 2019 to US$3.1 million in 2020.Cost of revenuesThe following table sets forth our cost of revenues and gross profit, both in absolute amount and as a percentage of our totalnet revenues, for the periods presented.For the Year Ended December 31,201820192020 US$ % US$ % US$ % Cost of revenues 14,932,713 11.1 15,300,854 8.6 24,128,462 5.5Gross profit 119,176,919 88.9 162,582,251 91.4 417,376,769 94.5Our cost of revenues consists primarily of content costs, bandwidth costs, VoIP related expenses and staff costs. Content costs are the fees we pay to our signed authors and third-party content providers for the publishing and licensing of relevant online literature works. Bandwidth costs are the fees we pay to telecommunications carriers and other service providers for telecommunications and other content delivery-related services. VoIP related expenses are the fees we pay to telecommunications carriers and other service providers for the VoIP services we offer through our VoIP products such as TouchPal Phonebook. Staff costs consist of salaries and benefits for our employees involved in the operation and maintenance of our network and mobile applications. Our other costs of revenues include hardware, server and internet equipment depreciation expenses and internet data center service fees. In the foreseeable future, we expect our total cost of revenues to increase in absolute amount as we continue to expand our user base and business operations globally and we expect our cost of revenue as a percentage of net revenue to slightly decrease and then to remain stable.Table of Contents91Operating ExpensesThe following table sets forth the components of our operating expenses, both in absolute amount and as a percentage ofour total net revenues, for the periods presented.For the Year Ended December 31, 2018 2019 2020 US$ % US$ % US$ %Operating expenses: Sales and marketing expenses 80,729,626 60.2 157,027,956 88.3 418,261,754 94.7Research and development expenses 19,324,657 14.4 26,935,497 15.1 29,669,615 6.7General and administrative expenses 10,728,807 8.0 16,256,192 9.1 15,017,499 3.4Other operating (income) loss, net (1,609,159) (1.2) (872,269) (0.5) 2,274,507 0.5Total operating expenses 109,173,931 81.4 199,347,376 112.1 465,223,375 105.4Sales and Marketing ExpensesOur sales and marketing expenses consist primarily of user acquisition costs, general brand promotion costs, and salariesand benefits, including share-based compensation, for our sales and marketing personnel. Our user acquisition costs representexpenses for acquiring new users of our products, including expenses on targeted campaigns to acquire users. We expect our salesand marketing expenses to stabilize and optimize in the foreseeable future as we continue to acquire new users and enlarge our userbase but also to improve the efficiency of our user retention and management.Research and Development ExpensesResearch and development expenses consist primarily of salaries and benefits, including share-based compensation, for ourtechnology and product development personnel, and depreciation and other expenses associated with the use of facilities forresearch and development purposes. We expect our research and development expenses to increase in the foreseeable future as weexpand our team of technology and product development professionals and continue to invest in our technology infrastructure toenhance our big data analytics.General and Administrative ExpensesOur general and administrative expenses consist primarily of salaries and benefits, including share-based compensation, forour employees involved in general corporate operations, facility rental, as well as professional service fees related to variouscorporate activities. We expect our general and administrative expenses to increase in absolute amount in the foreseeable future aswe continue to grow our business and incur increased costs in accounting, compliance, reporting and other costs associated withoperating as a public company.Other Operating (Income) Loss, netOther operating income primarily consisted of government subsidies and other operating loss primarily consisted ofcontingent losses for an ongoing investigation of certain alleged illegal acts of our customers, intellectual property infringementlawsuit and compensation payments to victims of alleged misconducts of certain third-party advertisers perpetrated on our platform.Table of Contents92Results of OperationsThe following table sets forth a summary of our consolidated results of operations for the periods presented, both inabsolute amount and as a percentage of our total net revenues for the periods presented. This information should be read togetherwith our consolidated financial statements and related notes included elsewhere in this annual report. The results of operations inany period are not necessarily indicative of our future trends.For the Year Ended December 31, 2018 2019 2020 US$ % US$ % US$ %Net revenues: Advertising revenue 131,287,334 97.9 175,040,033 98.4 438,384,470 99.3Other revenue 2,822,298 2.1 2,843,072 1.6 3,120,761 0.7Total net revenues 134,109,632 100.0 177,883,105 100.0 441,505,231 100.0Cost of revenues(1) (14,932,713) (11.1) (15,300,854) (8.6) (24,128,462) (5.5)Gross profit 119,176,919 88.9 162,582,251 91.4 417,376,769 94.5Operating expenses: Sales and marketing expenses(1) (80,729,626) (60.2) (157,027,956) (88.3) (418,261,754) (94.7)Research and development expenses(1) (19,324,657) (14.4) (26,935,497) (15.1) (29,669,615) (6.7)General and administrative expenses(1) (10,728,807) (8.0) (16,256,192) (9.1) (15,017,499) (3.4)Other operating income (loss), net 1,609,159 1.2 872,269 0.5 (2,274,507) (0.5)Total operating expenses (109,173,931) (81.4) (199,347,376) (112.1) (465,223,375) (105.4)Income (loss) from operations 10,002,988 7.5 (36,765,125) (20.7) (47,846,606) (10.8)Interest income, net 214,730 0.2 763,497 0.4 395,629 0.1Impairment loss of investment — — (500,032) (0.3)— —Foreign exchange (losses) gains, net (70,033) (0.1) (342,687) (0.2) 91,335 —Income (loss) before income taxes 10,147,685 7.6 (36,844,347) (20.7) (47,359,642) (10.7)Income tax expense (220) (0.0) (1,714) (0.0) (7,087) (0.0)Net income (loss) 10,147,465 7.6 (36,846,061) (20.7) (47,366,729) (10.7)(1)Share-based compensation was allocated in cost of revenues and operating expenses as follows:For the Year Ended December 31, 2018 2019 2020 US$ US$ US$Cost of revenues 53,850 91,597 276,085Sales and marketing expenses 127,095 196,224 212,381Research and development expenses 1,788,724 2,806,587 3,034,240General and administrative expenses 389,802 568,077 1,814,335Total 2,359,471 3,662,485 5,337,041Year Ended December 31, 2020 Compared to Year Ended December 31, 2019Net RevenuesOur net revenues increased by 148% from US$177.9 million in 2019 to US$441.5 million in 2020, primarily due to asubstantial increase in our advertising revenue.Table of Contents93Advertising revenue. Our advertising revenue increased by 150% from US$175.0 million in 2019 to US$438.4 million in 2020. The increase of advertising revenue was driven primarily by the increase of content-rich portfolio products and in the number of impressions we sold on our advertising spaces in 2019 to 2020. Our portfolio products contributed approximately 99% of the revenue in 2020, a significant increase from 85% in 2019. The increase in the number of impressions we sold on our advertising spaces was primarily driven by the increase in the average DAUs of our portfolio products from 24.7 million in December 2019 to 27.8 million in December 2020, as we have made continuous effort in launching new content-rich mobile applications and expanding our user base in 2020.Other Revenue. We generate other revenue from (i) VIP user subscription; and (ii) licensing of our TouchPal Smart Input to certain mobile device manufacturers for pre-installation. Revenue from both services in aggregate increased by US$0.3 million from 2019 to 2020.Cost of revenuesOur cost of revenues increased by 58% from US$15.3 million in 2019 to US$24.1 million in 2020. This increase was primarily due to the increase in our content costs, IT infrastructure, bandwidth and server costs and maintenance costs of US$10.3 million, partially offset by a decrease of US$1.7 million in our VoIP related expenses. The steady increase in our IT infrastructure, bandwidth and server costs and maintenance costs is attributable to our continuous effort to grow our business. Gross profitAs a result of the foregoing, we recorded gross profit of US$417.4 million in 2020, as compared to gross profit of US$162.6 million in 2019. Our gross margin increased from 91.4% in 2019 to 94.5% in 2020, primarily due to the rapid growth of our revenues and also due to our improved operational efficiency driven by the improvements in our ability to deliver targeted advertisements.Operating expensesOur total operating expenses increased by 133% from US$199.3 million in 2019 to US$465.2 million in 2020, primarilydue to the increase of sales and marketing expenses, research and development expenses and along with the expansion of our globaluser base and business operations, partially offset by a slightly decrease of general and administrative expenses.Sales and marketing expenses. Our sales and marketing expenses increased by 166% from US$157.0 million in 2019 to US$418.3 million in 2020. The increase was primarily due to the increase in our user acquisition costs in connection with our continuous efforts to grow the user base of our content-rich portfolio products.Research and development expenses. Our research and development expenses increased by 10% from US$26.9 million in 2019 to US$29.7 million in 2020. The increase was primarily due to an increase in salaries and benefits (including share-based compensation) for our technology and product development personnel of US$2.0 million mainly as a result of an increase in the number of our technology and product development personnel from 350 as of December 31, 2019, to 452 as of December 31, 2020. The increase in research and development expenses reflected our increased efforts in improving our big data analytics and expanding our product offerings.General and administrative expenses. Our general and administrative expenses decreased by 8% from US$16.3 million in 2019 to US$15.0 million in 2020. The decrease was primarily due to accrued bad debt provision of US$0.4 million in 2020, a decrease of US$3.7 million from US$4.1 million in 2019, and was partially offset by an increase in professional expenses and an increase in costs associated with G&A staff and share-based compensation expenses.Table of Contents94Other operating income (loss), net. We recorded other operating loss of US$2.3 million in 2020, compared to other operating income of US$0.9 million in 2019. Other operating income (loss), net primarily in 2020 consisted of government subsidies, contingent losses for an ongoing investigation of certain alleged illegal acts of our customers, intellectual property infringement lawsuit and compensation payments to victims of alleged misconducts of certain third-party advertisers perpetrated on our platform while there are no contingent losses for investigation and compensation payments in 2019.Income (loss) from operationsAs a result of the foregoing, we recorded loss from operations of US$47.8 million in 2020, compared to income fromoperations of US$36.8 million in 2019.Interest income, netWe had interest income of US$0.8 million and US$0.4 million in 2019 and 2020, respectively. Interest income represents interest earned on our cash, cash equivalents, restricted cash and short-term investments, net of the interest expenses primarily related to our bank borrowings.Foreign exchange (losses) gains, netWe incurred foreign exchange losses of US$0.3 million and foreign exchange gain of US$0.1 million in 2019 and 2020,respectively, primarily due to the costs incurred on foreign exchange conversion, partially offset by appreciation of RMB against USdollar in 2020 as we have positive net assets in RMB.Income tax expenseWe recorded income tax expenses of US$1,714 in 2019 and US$7,087 in 2020.Net (loss) incomeAs a result of the foregoing, we recorded a net loss of US$47.4 million in 2020, compared to a net income of US$36.8million in 2019.Year Ended December 31, 2019 Compared to Year Ended December 31, 2018Net RevenuesOur net revenues increased by 32.6% from US$134.1 million in 2018 to US$177.9 million in 2019, primarily due to asubstantial increase in our advertising revenue.Advertising revenue. Our advertising revenue increased by 33.3% from US$131.3 million in 2018 to US$175.0 million in 2019. The increase of advertising revenue was driven primarily by the increase of content-rich portfolio products and in the number of impressions we sold on our advertising spaces in 2018 to 2019. Our portfolio products contributed approximately 85% of the revenue in 2019, a significant increase from 65% in 2018. The increase in the number of impressions we sold on our advertising spaces was primarily driven by the increase in the average DAUs of our portfolio products from 16.9 million in December 2018 to 24.7 million in December 2019, as we have made continuous effort in launching new content-rich mobile applications and expanding our user base in 2019. Other Revenue. We generate other revenue from (i) services related to providing communication solutions to enterprises, which primarily targets users in China; and (ii) licensing of our TouchPal Smart Input to certain mobile device manufacturers for pre-installation. Revenue from both services in aggregate increased by US$0.7 million from 2018 to 2019. We ceased to generate revenue from the sales of virtual items in a live social video community on TouchPal Phonebook in 2019. As a result, our other revenue stayed stable at US$2.8 million in 2019.Table of Contents95Cost of revenuesOur cost of revenues increased by 2.5% from US$14.9 million in 2018 to US$15.3 million in 2019. This increase wasprimarily due to the increase in our IT infrastructure, bandwidth and server costs and maintenance costs of US$4.4 million, partiallyoffset by a decrease of US$4.0 million in our VoIP related expenses. The steady increase in our IT infrastructure, bandwidth andserver costs and maintenance costs is attributable to our continuous effort to grow our business.Gross profitAs a result of the foregoing, we recorded gross profit of US$162.6 million in 2019, as compared to gross profit ofUS$119.2 million in 2018. Our gross margin increased from 88.9% in 2018 to 91.4% in 2019, primarily due to the rapid growth ofour revenues and also due to our improved operational efficiency driven by the improvements in our ability to deliver targetedadvertisements.Operating expensesOur total operating expenses increased by 82.6% from US$109.2 million in 2018 to US$199.3 million in 2019, primarilydue to the increase of sales and marketing expenses, research and development expenses and general and administrative expensesalong with the expansion of our global user base and business operations.Sales and marketing expenses. Our sales and marketing expenses increased by 94.5% from US$80.7 million in 2018 to US$157.0 million in 2019. The increase was primarily due to the increase in our user acquisition costs in connection with our continuous efforts to grow the user base.Research and development expenses. Our research and development expenses increased by 39.4% from US$19.3 millionin 2018 to US$26.9 million in 2019. The increase was primarily due to an increase in salaries and benefits (including share-basedcompensation) for our technology and product development personnel of US$7.2 million mainly as a result of an increase in thenumber of our technology and product development personnel from 307 as of December 31, 2018 to 350 as of December 31, 2019.The increase in research and development expenses reflected our increased efforts in improving our big data analytics andexpanding our product offerings.General and administrative expenses. Our general and administrative expenses increased by 51.5% from US$10.7 million in 2018 to US$16.3 million in 2019. The increase was primarily due to an increase of bad debt provision of US$4.1 million because we were unable to collect a portion of the accounts receivable from Google and certain third party oversea clients caused by the removal of our access to Google Play Store and Google Admob.Other operating income, net. We recorded other operating income of US$0.9 million in 2019, compared to other operatingincome of US$1.6 million in 2018, in both cases primarily from government subsidies.Income (loss) from operationsAs a result of the foregoing, we recorded loss from operations of US$36.8 million in 2019, compared to income fromoperations of US$10.0 million in 2018.Interest income, netWe had interest income of US$0.2 million and US$0.8 million in 2018 and 2019, respectively. Interest income representsinterest earned on our cash, cash equivalents and restricted cash, net of the interest expenses primarily related to our bankborrowings.Table of Contents96Foreign exchange losses, netWe incurred foreign exchange losses of US$0.1 million and US$0.3 million in 2018 and 2019, respectively, primarily dueto the costs incurred on foreign exchange conversion.Income tax expenseWe recorded income tax expenses of US$220 in 2018 and US$1,714 in 2019.Net income (loss)As a result of the foregoing, we recorded a net loss of US$36.8 million in 2019, compared to a net income of US$10.1million in 2018.TaxationCayman IslandsWe are an exempted company incorporated in the Cayman Islands. The Cayman Islands currently levies no taxes onindividuals or corporations based upon profits, income, gains or appreciation and there is no taxation in the nature of estate duty orinheritance tax. There are no other taxes likely to be material to us levied by the government of the Cayman Islands except for stampduties which may be applicable on instruments executed in, or after execution brought within the jurisdiction of the Cayman Islands.The Cayman Islands is not party to any double tax treaties that are applicable to any payments made to or by our company. There areno exchange control regulations or currency restrictions in the Cayman Islands. In addition, the Cayman Islands does not imposewithholding tax on dividend payments.United StatesCompanies registered in the United States are subject to U.S. federal corporate income tax at a rate of 21% and stateincome tax in California.Hong KongCompanies registered in Hong Kong are subject to Hong Kong profits tax on the taxable income as reported in theirrespective statutory financial statements adjusted in accordance with relevant Hong Kong tax laws. The applicable tax rate is 8.25%or 16.5% in Hong Kong commencing on or after April 1, 2018. The profits tax rate is 8.25% for the first HK$2 million of profits,and the profits above that amount will be subject to the tax rate of 16.5%. Under the Hong Kong tax law, our subsidiaries areexempted from income tax on its foreign-derived income and there are no withholding taxes in Hong Kong on remittance ofdividends.Table of Contents97PRCEnterprise Income TaxGenerally, our PRC subsidiary, variable interest entities and their subsidiaries, which are considered PRC resident enterprises under PRC tax law, are subject to enterprise income tax on their worldwide taxable income as determined under PRC tax laws and accounting standards at a rate of 25%. A “high and new technology enterprise,” or an HNTE, is entitled to a favorable statutory tax rate of 15% and this qualification is reassessed by relevant government authorities every three years. Our PRC subsidiary, Shanghai Chule obtained High and New Technology Enterprise status from 2017 to 2019 and renewed the status from 2020 to 2022. It enjoyed a preferential tax rate of 15% in 2019 and 2020 to the extent it has taxable income under the PRC Enterprise Income Tax Law. If our holding company in the Cayman Islands or any of our subsidiaries outside the PRC is considered as a PRC resident enterprise for tax purposes, then our global income will be subject to PRC enterprise income tax at the rate of 25%. See “Item 3. Key Information—D. Risk Factors— Risks Related 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.”Value-Added TaxWe are subject to VAT at a rate of 6% on the services we provide to advertising customers in the PRC, less any deductibleVAT we have already paid or borne. We are also subject to surcharges on VAT payments in accordance with PRC law.Withholding Tax on DividendsDividends paid by our wholly foreign-owned subsidiary in China to our intermediary holding company in Hong Kong willbe subject to a withholding tax rate of 10%, unless the relevant Hong Kong entity satisfies all the requirements under theArrangement between the PRC and the Hong Kong Special Administrative Region on the Avoidance of Double Taxation andPrevention of Fiscal Evasion with respect to Taxes on Income and Capital and receives approval from the relevant tax authority. Ifour Hong Kong subsidiary satisfies the requirements under the tax arrangement and receives approval from the relevant taxauthority, then the dividends paid to the Hong Kong subsidiary would be subject to withholding tax at a reduced tax rate of 5%. See“Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—There are significant uncertainties underthe EIT Law relating to the withholding tax liabilities of our PRC subsidiary, and dividends payable by our PRC subsidiary to ouroffshore subsidiaries may not qualify to enjoy certain treaty benefits.”Critical Accounting Policies, Judgments and EstimatesWe 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 availableinformation, our own historical experiences 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 ourexpectations as a result of changes in our estimates. Some of our accounting policies require a higher degree of judgment than othersin their application and require us to make significant accounting estimates.The following descriptions of critical accounting policies, judgments and estimates should be read in conjunction with ourconsolidated financial statements and other disclosures included in this annual report. When reviewing our consolidated financialstatements, you should consider (i) our selection of critical accounting policies, (ii) the judgments and other uncertainties affectingthe application of such policies and (iii) the sensitivity of reported results to changes in conditions and assumptions.Table of Contents98Principles of ConsolidationOur consolidated financial statements include the financial information of our holding company, our subsidiaries and ourVIEs. All intercompany balances and transactions between us, our subsidiaries and our VIEs are eliminated upon consolidation.PRC laws and regulations currently restrict foreign-invested companies to engage in mobile internet and mobile advertisingbusinesses. Our offshore holding companies are deemed as foreign entities under PRC laws and accordingly our wholly owned PRCsubsidiary is not eligible to engage in provisions of internet content or other online services. To comply with PRC law andregulations, we conduct all of our mobile internet and mobile advertising businesses in China through our VIEs. Through a series ofcontractual agreements with VIEs and their respective shareholders, we have effective control over the VIEs. We consolidate oursubsidiaries and VIEs of which we are the primary beneficiary.Revenue RecognitionMobile AdvertisingWe generate substantially all of our revenue through mobile advertising. As of January 1, 2019, we adopted ASU 2014-09Revenue from Contracts with Customers - Topic 606 and all subsequent ASUs that modified ASC 606. We have elected to apply theASU and all related ASUs under the modified retrospective method to all contracts that were not completed as of January 1, 2019.Results for reporting periods beginning after January 1, 2019, are presented under Topic 606, while prior period amounts are notadjusted and continue to be reported under the accounting standards in effect for the prior period. We did not note any effects ofapplying the new revenue standard as an adjustment to the opening balance of retained earnings at the beginning of 2019.We provide advertising services to customers for promotion of their brands through our mobile applications including a portfolio of content-rich mobile application. We have two general pricing models for our advertising products: cost over a time period and cost for performance basis including per impression basis. For advertising contracts over a time period, we generally recognize revenue ratably over time, because the customer simultaneously receives and consumes the benefits as we perform throughout a fixed contract term. 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 originating from our mobile applications. Revenue is recognized at a point in time when there is an effective click, transaction, installations, user registrations, and other actions originating from our mobile applications. For contracts that are charged on the cost per impression basis, we recognize the revenue at a point in time when the impressions are delivered. Revenue for performance-based advertising services is recognized at a point in time when all the revenue recognition criteria are met.For certain of our advertising service arrangements, customers are required to pay a deposit before using our services.Deposits received are recorded as deferred revenue on the consolidated balance sheets. Service fees due to us are deducted from thedeposited amounts when performance criteria have been satisfied.OthersWe also generate other revenues through cloud call business, licensing of its portfolio products and VIP user subscriptionfee, which are recognized when service is rendered.Sales incentivesWe provide sales incentives to customers in the form of sales rebates which entitle them to receive reductions in the price.We account for these incentives granted to customers as variable consideration and records it as reduction of revenue. The amount ofvariable consideration is measured based on the most likely amount of incentives to be.Table of Contents99Share-based CompensationOur share-based payment transactions with our employees are measured based on the grant date fair value of the equityinstrument we issued and recognized as compensation expense over the requisite service period based on the straight-line method,with a corresponding impact reflected in additional paid-in capital.On November 6, 2018, the Board of Directors approved an option modification to reduce the exercise price of certainoptions granted to employees. All other terms of the share options granted remain unchanged. The modification resulted inincremental compensation costs of US$ 0.3 million, which is amortized over the remaining vesting period of the modified options,ranging from 2018 to 2021.Our share-based compensation expenses are measured at the fair value of the awards as calculated under the binomialoption-pricing model. Changes in the assumptions used in the binomial model could significantly affect the fair value of stockoptions and hence the amount of compensation expenses we recognize in our consolidated financial statements.Accounts Receivable, netAccounts receivable, net represents those receivables derived from the ordinary course of business and are recorded net ofallowance for doubtful accounts. We maintain an allowance for doubtful accounts that reflect our best estimate of probable lossesinherent in the accounts receivable. In determining collectability of the accounts receivable, we consider many factors, such ascreditworthiness of the customers, aging of the receivables, payment history of the customers, financial conditions of the customersand market trend, and other specific facts and circumstances. In circumstance where we are aware of a specific advertisingcustomer’s inability to settle our receivables, we record a specific provision to reduce the amount that we believe we will collect.Income TaxCurrent income taxes are provided on the basis of net income for financial reporting purposes, adjusted for income andexpense items which are not assessable or deductible for income tax purposes, in accordance with the regulations of the relevant taxjurisdictions. We follow the asset and liability method of accounting for income taxes.In accordance with the provisions of ASC 740, we recognize in the financial statements the benefit of a tax position if thetax position is “more likely than not” to prevail based on the facts and technical merits of the position. Tax positions that meet the“more likely than not” recognition threshold are measured at the largest amount of tax benefit that has a greater than fifty percentlikelihood of being realized upon settlement. We estimate liability for unrecognized tax benefits which are periodically assessed andmay be affected by changing interpretations of laws, rulings by tax authorities, changes and/or developments with respect to taxaudits, and expiration of the statute of limitations. The ultimate outcome for a particular tax position may not be determined withcertainty prior to the conclusion of a tax audit and, in some cases, appeal or litigation process.Under this method, deferred tax assets and liabilities are determined based on the temporary differences between thefinancial statements carrying amounts and tax bases of assets and liabilities by applying enacted statutory tax rates that will be ineffect in the period in which the temporary differences are expected to reverse. We consider positive and negative evidence whendetermining whether some portion or all of the deferred tax assets will not be realized. This assessment considers, among othermatters, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability, the duration of statutorycarry-forward periods, historical results of operations, and tax planning strategies. We record a valuation allowance to offsetdeferred tax assets if based on the weight of available evidence, it is more likely than not that some portion, or all, of the deferredtax assets will not be realized. The effect on deferred taxes of a change in tax rate is recognized in our consolidated financialstatements in the period of change. The ultimate realization of deferred tax assets is dependent upon the generation of future taxableincome during the periods in which those temporary differences become deductible.Table of Contents100ContingenciesWe record and disclose legal contingencies in accordance with ASC Topic 450 Contingencies. We establish reserves forthese contingencies at the best estimate, or if no one estimated amount within the range of possible losses is more probable than anyother, we record an estimated reserve at the low end of the estimated range. Contingencies affecting us primarily relate to legal andregulatory matters, which are inherently difficult to evaluate and are subject to significant changes. A provision is recorded when itis both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. We monitor the stage ofprogress of its litigation matters to determine if any adjustments are required.Recent Accounting PronouncementsA list of recently issued accounting pronouncements that are relevant to us is included in “Summary of SignificantAccounting Policies—(y) Recent accounting pronouncements” of our audited consolidated financial statements included elsewherein this annual report.B.Liquidity and Capital ResourcesCash Flows and Working CapitalThe following table sets forth a summary of our cash flows for the periods presented:For the Year EndedDecember 31 2018 2019 2020 US$ US$ US$Summary Consolidated Cash Flow Data: Net cash provided by (used in) operating activities 23,106,005 (15,664,279) (851,758)Net cash used in investing activities (3,655,042) (5,330,927) (2,644,295)Net cash provided by (used in) financing activities 40,169,171 (3,796,484) (8,500,234)Net increase (decrease) in cash, cash equivalents, and restricted cash 59,620,134 (24,791,690) (11,996,287)Cash, cash equivalents, and restricted cash at beginning of year 27,026,240 84,859,915 59,966,031Effect of exchange rate changes on cash, cash equivalents, and restricted cash (1,786,459) (102,194) 1,652,970Cash, cash equivalents, and restricted cash at end of year 84,859,915 59,966,031 49,622,714Historically, we have financed our operations primarily through funding from private issuances of preferred shares, loans from commercial banks and our equity and debt offerings. Table of Contents101On January 19, 2021, we issued the January 2021 Note to YA II PN, Ltd, a Cayman Islands exempt limited partnership.The January 2021 Note has a conversion price of the lower of (1) US$4.20 per ADS, or (2) 88% of the lowest daily VWAP, beingthe dollar volume-weighted average price for ADSs on the New York Stock Exchange, during the ten consecutive trading daysimmediately preceding the conversion date or other date of determination, but not lower than the floor price as prescribed in theJanuary 2021 Note (the “Conversion Price of January 2021 Note”). The Conversion Price of January 2021 Note is subject toadjustment in the case of a subdivision, combination or re-classification. The principal and the interest payable under the January2021 Note will mature on January 19, 2022, unless earlier converted or redeemed by us. At any time before January 19, 2022, YA IIPN, Ltd may convert the January 2021 Note at their option into our Class A ordinary shares represented by ADSs at the ConversionPrice of January 2021 Note. Pursuant to the January 2021 Note, YA II PN, Ltd shall not sell such number of ADSs in any calendarmonth that would result in gross proceeds received by it in excess of the greater of (1) 30% of the dollar trading volume during suchcalendar month or (2) US$1,700,000, which shall not apply with respect to any sales of the ADSs at prices greater than or equal toUS$4.20 per ADS. YA II PN, Ltd has also agreed under the securities purchase agreement that it shall not directly or indirectly,engage in any short sales involving our securities during the period commencing on the date thereof and ending when no convertiblenote remains outstanding. As of the date of this annual report, the January 2021 Note has been converted to 3,933,317 ADSs withthe average conversion price of US$2.54 per ADS.On January 25, 2021, we entered into a Standby Equity Distribution Agreement (the "SEDA") with YA II PN, Ltd. for the offer and sale of up to US$20,000,000 of the ADSs. We will be able to sell up to US$20,000,000 of our ADSs at our request any time during the 36 months following the date of the SEDA. The ADSs would be purchased pursuant to the SEDA at 90% of the Market Price, being the lowest daily VWAP (as defined below) of the ADSs during the five consecutive trading days commencing on the trading day following the date we submit an advance notice to Investor. The purchase would be subject to certain limitations, including that Investor could not purchase any ADSs that would result in it and its affiliates owning more than 4.99% of our then outstanding share capital. The YA II PN, Ltd. has agreed that, during the term of the SEDA, neither YA II PN, Ltd. nor its affiliates will engage in any short sales or hedging transactions with respect to our Class A ordinary shares or ADSs. "VWAP" means, for any trading day, the daily volume weighted average price of the ADSs for such date on the New York Stock Exchange as reported by Bloomberg L.P. during regular trading hours.Table of Contents102On March 19, 2021, we issued the March 2021 Note to YA II PN, Ltd. The March 2021 Note has a fixed conversion priceof US$5.00 per ADS (the “Fixed Conversion Price”). The Fixed Conversion Price is not subject to adjustment except in the case of asubdivision, combination or re-classification. The principal and the interest payable under the March 2021 Note will mature onMarch 19, 2022, unless earlier converted or redeemed by us. At any time before March 19, 2022, YA II PN, Ltd. may convert theMarch 2021 Note at their option into our Class A ordinary shares represented by ADSs at the Fixed Conversion Price. Beginning onJune 1, 2021 and continuing on the first day of each calendar month thereafter through January 2022, the principal amount of theMarch 2021 Note plus an 8% redemption premium and plus accrued and unpaid interest will be subject to monthly redemption(“Monthly Redemption”). Under Monthly Redemption, we shall redeem an applicable redemption amount in accordance with theredemption schedule provided in the March 2021 Note, which is subject to pro rata adjustment to reflect the conversion orredemption otherwise effected pursuant to the March 2021 Note contemporaneous with or prior to the scheduled redemption date, incash, ADSs through conversion of the March 2021 Note (at any time after the applicable redemption date), or a combination of bothat our option. With respect to each Monthly Redemption all or partially in ADSs, the conversion price shall be the lower of (1) theFixed Conversion Price, or (2) 100% of the lowest daily VWAP (the dollar volume-weighted average price for ADSs on the NewYork Stock Exchange) during the ten consecutive trading days immediately preceding the date of conversion. In the event that thedaily VWAP on each of the five consecutive trading days immediately prior to the scheduled redemption date exceeds a price equalto 108% of the Fixed Conversion Price, then no cash redemption shall be due on such scheduled redemption date. We also have theright, but not the obligation, to redeem (“Optional Redemption”) a portion or all amounts outstanding under the March 2021 Noteprior to March 19, 2022 at a cash redemption price equal to the outstanding principal balance to be redeemed, plus a 15%redemption premium and plus accrued and unpaid interest, if any; provided that the trading price of the ADSs is less than FixedConversion Price, and we provide the holder of the March 2021 Note at least ten business days’ prior written notice of its desire toexercise an Optional Redemption. The holder shall have ten business days to elect to convert all or any part of the March 2021 Noteafter receiving a redemption notice, in which case the redemption amount shall be reduced by the amount so converted. Pursuant tothe March 2021 Note, YA II PN, Ltd. shall not sell such number of ADSs in any calendar month that would result in gross proceedsreceived by it in excess of the greater of (1) 30% of the dollar trading volume during such calendar month or (2) US$3,290,000,which shall not apply with respect to any sales of the ADSs at prices greater than or equal to US$5.00 per ADS. YA II PN, Ltd. hasalso agreed under the securities purchase agreement that it shall not directly or indirectly, engage in any short sales involving oursecurities during the period commencing on the date thereof and ending when no convertible note remains outstanding.As of December 31, 2018, 2019 and 2020, we had US$84.9 million, US$60.0 million and US$49.6 million in cash, cash equivalents, and restricted cash, respectively. Our cash and cash equivalents primarily consist of cash on hand, demand deposits and restricted cash. Our restricted cash consists of guarantee deposit for loan facility provided by the bank and long-term restricted cash held in our bank accounts which were frozen by a local authority in connection with an ongoing investigation related an alleged illegal act of certain customers.We had a net income of US$10.1 million and positive cash flows from operations of US$23.1 million in 2018. We incurred a net loss of US$36.8 million and negative cash flows from operations of US$15.7 million in 2019. We incurred a net loss of US$47.4 million and negative cash flows from operations of US$0.9 million in 2020. We accumulated a deficit of US$201 million as of December 31, 2020. We had positive working capital, which equals the result of current assets minus current liabilities, of US$79.9 million, US$33.3 million and negative working capital of US$42.1 million as of December 31, 2018, 2019 and 2020, respectively. Our ability to continue as a going concern is dependent on our ability to successfully execute our business plans includingthe implementation of a balanced growth strategy and an effective financial management which can contribute to the optimization ofthe operating cost and expense structure. To implement the plan, we will continue to improve the stickiness of our existing users byoffering higher quality and diversified contents and user incentive program and optimize the new user acquisition strategy toefficiently control and reduce these user related costs. We will further strengthen our monetization capability by diversifying ourrevenue structure and improving the Return on Investment of our key products. Also we will continue to obtain funds from varioustypes of outside sources including equity and debt financing.Table of Contents103We have concluded, after giving consideration to our plans as noted above, that we have alleviated the substantial doubt asto our ability to continue as a going concern and believe we have sufficient cash and other financial resources and liquidity to fundour operations for one year from the date of the filing of the consolidated financial statements, and that there is not substantial doubtabout our ability to continue operations as a going concern for that one-year period.Our accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates therealization of assets and the satisfaction of liabilities in the normal course of business. The realization of assets and the satisfactionof liabilities in the normal course of business are dependent on our ability to reduce cash used in operating activities, obtain capitalfinancing from equity or debt investors and adjust the pace of our operation expansion and control of the related expense to fund ourgeneral operations and capital expansion needs. We may, however, need additional capital in the future. If we determine that ourcash requirements exceed the amount of cash and cash equivalents we have on hand at the time, we may seek to issue equity or debtsecurities or obtain credit facilities. The issuance and sale of additional equity would result in further dilution to our shareholders.The incurrence of indebtedness would result in increased fixed obligations and could result in operating covenants that wouldrestrict our operations. We cannot assure you that financing will be available in amounts or on terms acceptable to us, if at all.The total outstanding balance of our short-term bank borrowings as of December 31, 2020, amounted to US$11 million. We have entered into the following short-term loan transactions:●We entered into a credit facility agreement with a commercial bank in July 2016, as renewed in June 2020, underwhich agreement we can borrow up to US$11.0 million collateralized by our accounts receivable by June 2021. Theinterest rate for this credit facility is the LPR plus an applicable margin. In 2020, we have aggregately drawn down thecredit facility of US$28.8 million and repaid US$24.1 million, and the weighted average interest rate for borrowingsdrawn under such credit facility was 5.15%.●We entered into a credit facility agreement with a commercial bank in July 2018, as renewed in June 2020, underwhich agreement we can borrow up to US$4.0 million collateralized by our accounts receivable by June 2021. Theinterest rate for this credit facility is LIBOR plus an applicable margin. In 2020, we have aggregately drawn down the credit facility of US$4 million and repaid US$7.2 million, and the weighted average interest rate for borrowings drawn under such credit facility was 4.39%. Both these two loans contain minimum quarterly net income as financial covenants which we failed to fulfill as ofDecember 31, 2020 and could be required by the bank to repay the loan immediately. Cash amount of US$3.1 million has beendeposited in the bank as guarantee in December 2020 and we are negotiating for the waiver of the financial covenants with the bank.Our anticipated cash flows for 2021 and planned actions to generate cash flows are based on our current expectations,beliefs and estimates and are not guarantees of our future operating results, liquidity and ability to continue operations.As of December 31, 2020, 86.6% of our cash, cash equivalents and restricted cash were held in China, and 58.3% were held by our VIEs and denominated in Renminbi. Most of the remaining cash and cash equivalents we held as of December 31, 2020, were held in Hong Kong and United States, and mainly denominated in Hong Kong dollars and U.S. dollars. Although we consolidate the results of our VIEs, we only have access to the assets or earnings of our VIEs through our contractual arrangements with our VIEs and their shareholders. See “Item 4. Information on the Company—C. Organizational Structure.” For restrictions and limitations on liquidity and capital resources as a result of our corporate structure, see “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Holding Company Structure.”Table of Contents104To utilize the proceeds we received from our initial public offering, we may make additional capital contributions to our PRC subsidiary, establish new PRC subsidiaries and make capital contributions to these new PRC subsidiaries, or make loans to the PRC subsidiaries. However, most of these uses are subject to PRC regulations. Foreign direct investment and loans must be approved by and/or registered with SAFE and its local branches. The total amount of loans we can make to our PRC subsidiary cannot exceed statutory limits and must be registered with the local counterpart of SAFE. The statutory limit for the total amount of foreign debts of a foreign-invested company is the difference between the amount of total investment as approved by the Ministry of Commerce or its local counterpart and the amount of registered capital of such foreign-invested company. See “Item 3. Key Information—D. Risk Factors—Risks Related 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 using the proceeds of our initial public offering to make loans to our PRC subsidiary and consolidated affiliated entities, or to make additional capital contributions to our PRC subsidiary.”A portion of our future revenues are likely to continue to be in the form of Renminbi. Under existing PRC foreign exchange regulations, Renminbi may be converted into foreign exchange for current account items, including profit distributions, interest payments and trade-and service-related foreign exchange transactions without prior SAFE approval by following certain routine procedural requirements. However, current PRC regulations permit our PRC subsidiary to pay dividends to us only out of its accumulated profits, if any, determined in accordance with Chinese accounting standards and regulations. Our PRC subsidiary is required to set aside at least 10% of its after-tax profits after making up previous years’ accumulated losses each year, if any, to fund certain reserve funds until the total amount set aside reaches 50% of its registered capital. These reserves are not distributable as cash dividends. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure—We may rely on dividends paid by our PRC subsidiary to fund cash and financing requirements. Any limitation on the ability of our PRC subsidiary 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.”Operating ActivitiesNet cash used in operating activities in 2020 was US$0.9 million, as compared to net loss of US$47.4 million in the same period. The difference was primarily due to (i) an increase of US$33.7 million in accounts payable driven primarily by the increase of our user acquisition costs, (ii) an increase of US$1.3 million in deferred revenue and (iii) an increase of US$3.6 million in accrued expenses and other current liabilities, partially offset by an increase of US$4.1 million in prepaid expenses and other current assets. The principal non-cash items affecting the difference between our net income and our net cash used in operating activities in 2020 primarily consisted of (i) US$5.3 million in share-based compensation expenses, and (ii) US$3.8 million in depreciation expenses.Table of Contents105Net cash used in operating activities in 2019 was US$15.7 million, as compared to net loss of US$36.8 million in the sameperiod. The difference was primarily due to (i) an increase of US$13.0 million in accounts payable driven primarily by the increaseof our user acquisition costs, (ii) an increase of US$3.4 million in deferred revenue, and (iii) an increase of US$3.2 million inaccrued expenses and other current liabilities, partially offset by an increase of US$7.9 million in accounts receivables and increaseof US$2.9 million in prepaid expenses and other current assets. The principal non-cash items affecting the difference between ournet income and our net cash used in operating activities in 2019 primarily consisted of (i) US$4.1 million in provision for allowanceof doubtful accounts, (ii) US$3.7 million in share-based compensation expenses, and (iii) US$3.0 million in depreciation expenses.The increase in our accounts receivable was primarily due to the significant increase in our advertising revenue in 2019.Contractually our advertising customers are typically required to make payments in the month following the month in which theadvertisements were delivered. In practice, we typically allow a payment term of 30 to 90 days.Net cash provided by operating activities in 2018 was US$23.1 million, as compared to net income of US$10.1 million inthe same period. The difference was primarily due to (i) an increase of US$19.4 million in accounts payable driven primarily by theincrease of our user acquisition costs, and (ii) an increase of US$1.3 million in accrued salary and benefits, partially offset by anincrease of US$12.6 million in accounts receivables. The principal non-cash items affecting the difference between our net incomeand our net cash used in operating activities in 2018 primarily consisted of (i) US$2.4 million in share-based compensationexpenses, and (ii) US$1.2 million in depreciation expenses. The increase in our accounts receivable was primarily due to thesignificant increase in our advertising revenue in 2018. Contractually our advertising customers are typically required to makepayments in the month following the month in which the advertisements were delivered. In practice, we typically allow a paymentterm of 30 to 90 days.Investing ActivitiesNet cash used in investing activities in 2020 was US$2.6 million, primarily due to (i) purchase of property, plant andequipment of US$2.9 million and (ii) purchase of short-term investment of US$13 million, offset by the mature and sale of short-term investment of US$13.5 million.Net cash used in investing activities in 2019 was US$5.3 million, primarily due to (i) purchase of property, plant andequipment of US$4.8 million and (ii) purchase of short-term investment of US$0.6 million.Net cash used in investing activities in 2018 was US$3.7 million, primarily due to (i) purchase of property, plant andequipment of US$3.5 million and (ii) acquisition of minority equity interest in an investee company of US$0.5 million, partiallyoffset by the repayment of loans from related parties of US$0.3 million.Financing ActivitiesNet cash used in financing activities in 2020 was US$8.5 million, primarily due to (i) payment of share repurchase ofUS$9.5 million, (ii) repayment of bank borrowing of US$31 million, and (iii) payment of issuance costs for the issuance of ordinaryshares upon exercise of options of US$0.8 million, partially offset by (i) proceeds from bank borrowings of US$32.5 million, and(ii) proceeds from issuance of ordinary shares upon exercise of options of US$0.3 million.Net cash used in financing activities in 2019 was US$3.8 million, primarily due to (i) payment of share repurchase ofUS$12.3 million, (ii) repayment of bank borrowing of US$5.1 million, and (iii) payment of issuance costs for the initial publicoffering of US$0.8 million, partially offset by (i) proceeds from bank borrowings of US$14.1 million, and (ii) proceeds fromissuance of ordinary shares upon exercise of options of US$0.3 million.Net cash provided by financing activities in 2018 was US$40.2 million, primarily due to US$45.9 million of proceeds frominitial public offering net of cash paid for deferred issuance costs, of which US$0.8 million was issuance costs payable by us as ofDecember 31, 2018, partially offset by (i) our repayment of bank borrowings of US$3.2 million, and (ii) our repurchase of US$2.5million of our ADSs.Table of Contents106Capital ExpendituresWe made capital expenditures of US$3.5 million, US$4.8 million and US$2.9 million in 2018, 2019 and 2020, respectively. In these periods, our capital expenditures were mainly used for purchases of property and equipment, including servers and other IT equipment. We plan to continue to make capital expenditures to meet the needs that result from the expected growth of our business.Holding Company StructureCooTek (Cayman) Inc. is a holding company with no material operations of its own. We conduct our operations primarilythrough our PRC subsidiary, our Hong Kong subsidiaries and our VIEs in China. As a result, CooTek (Cayman) Inc.’s ability to paydividends depend on dividends paid by our PRC and Hong Kong subsidiaries. If our existing subsidiaries or any newly formed onesincur debt on their own behalf in the future, the instruments governing their debt may restrict their ability to pay dividends to us. Inaddition, our wholly foreign-owned subsidiary in China is 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 subsidiary and our VIEsin China is required to set aside at least 10% of its after-tax profits each year, if any, to fund certain statutory reserve funds until suchreserve funds reach 50% of its registered capital. In addition, our wholly foreign-owned subsidiary in China may allocate a portionof its after-tax profits based on PRC accounting standards to enterprise expansion funds and staff bonus and welfare funds at itsdiscretion, and our VIEs may allocate a portion of their after-tax profits based on PRC accounting standards to a discretionarysurplus fund at their discretion. The statutory reserve funds and the discretionary funds are not distributable as cash dividends.Remittance of dividends by a wholly foreign-owned company out of China is subject to examination by the banks designated bySAFE. Our PRC subsidiary has not paid dividends and will not be able to pay dividends until it generates accumulated profits andmeets the requirements for statutory reserve funds.C.Research and Development, Patents and Licenses, Etc.See “Item 4. Information On the Company—B. Business Overview—Intellectual Property.”D.Trend InformationOther than as disclosed elsewhere in this annual report, we are not aware of any trends, uncertainties, demands,commitments or events since January 1, 2020, to December 31, 2020, that are reasonably likely to have a material adverse effect onour net revenues, income, profitability, liquidity or capital resources, or that caused the disclosed financial information to be notnecessarily indicative of future operating results or financial conditions.E.Off-Balance Sheet ArrangementsWe have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any thirdparties. We have not entered into any derivative contracts that are indexed to our shares and classified as shareholder’s equity or thatare not reflected in our consolidated financial statements, except for the SEDA as mentioned in B. Liquidity and Capital Resources.Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit,liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that providesfinancing, liquidity, market risk or credit support to us or engages in leasing, hedging or product development services with us.Table of Contents107F.Tabular Disclosure of Contractual ObligationsThe following table sets forth our contractual obligations as of December 31, 2020:Payment Due by Period (in US$)less than 1more than Total year 1-3 years 3-5 years 5 yearsLease obligations 2,659,899 1,650,102 1,009,797 — —Total 2,659,899 1,650,102 1,009,797 — —Other than those shown above, we did not have any significant capital and other commitments, long-term obligations orguarantees as of December 31, 2020.G.Safe HarborSee “Forward-Looking Statements” on page 1 of this annual report.ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEESA.Directors and Senior ManagementThe following table sets forth information regarding our directors and executive officers as of the date of this annual report.Directors and Executive Officers Age Position/TitleKarl Kan Zhang 40Chairman of the Board of Directors and Chief Technology OfficerSusan Qiaoling Li 42Director and PresidentMichael Jia Liang Wang 41Director and Chief Executive OfficerJim Jian Wang 41DirectorDuane Ziping Kuang 57DirectorGlen Qian Sun 47DirectorHaibing Wu 48Independent DirectorJue Yao 47Independent DirectorRobert Yi Cui 38Chief Financial OfficerJiang Zhu 37Chief Growth OfficerMr. Karl Kan Zhang co-founded our company in 2008 and has served as Chairman of the Board of Directors since March2012 and Chief Technology Officer since April 2020. Mr. Zhang also served as the Chief Architect from August 2008 to April 2020.Prior to founding our company, Mr. Zhang served as a research and development manager at Microsoft Advanced TechnologyCenter from 2004 to 2008. Prior to that, Mr. Zhang served as a software engineer at Intel China Software Lab from 2002 to 2004.Mr. Zhang received his bachelor’s degree in mechanical and electronic engineering from Shanghai University in 2002.Ms. Susan Qiaoling Li co-founded our company in 2008, and has served as our President since April 17, 2018, and ourdirector since October 2012. Ms. Li first served as our Chief Marketing Officer in 2008, and was then appointed as our Head ofGlobal Business Division in September 2015. Prior to founding our company, Ms. Li served as a program manager in MicrosoftChina Co., Ltd.’s Shanghai Branch from 2005 to 2008, where she gained extensive experience in developing software and managingkey accounts. Prior to that, Ms. Li served as a software quality engineer at Intel (China) Co., Ltd from 2003 to 2005. Ms. Li receivedher bachelor’s degree in automation from Tsinghua University in 2000 and her master’s degree in computer engineering from NorthCarolina State University in 2003.Table of Contents108Mr. Michael Jia Liang Wang co-founded our company in 2008 and has served as our Chief Executive Officer sinceAugust 2008 and our director since March 2012. Prior to founding our company, Mr. Wang served as a product manager atMicrosoft R&D Group in China from 2005 to 2008. Mr. Wang received his bachelor’s and master’s degrees in electronicengineering from Shanghai Jiao Tong University in 2002 and 2005, respectively.Mr. Jim Jian Wang co-founded our company in 2008 and has served as our director since July 2014. Mr. Wang has servedas our Chief Technology Officer from August 2008 to April 2020. Prior to founding our company, Mr. Wang served as adevelopment team leader at NTT Data in Tokyo, Japan from 2007 to 2008, where he developed a web crawler program. Prior tothat, Mr. Wang served as a project manager in Shanghai JT-Omron Software Co., Ltd from 2002 to 2007. Mr. Wang received hisbachelor’s degree in mechatronic engineering and automation from Shanghai University in 2002.Mr. Duane Ziping Kuang has served as our director since August 2012. Mr. Kuang founded Qiming Venture Partners in2006, a private equity firm affiliated to one of our major shareholders, and has been serving as its managing partner since then.Mr. Kuang also serves on the boards of companies invested by Qiming Venture Partners, such as Mutto Optronics Corporation(TWSE: 4950). Mr. Kuang has over 20 years of operational and investment experience with technology companies. Prior tofounding Qiming Venture Partners, Mr. Kuang was a director of Intel Capital China from 1999 to 2015. Prior to that, Mr. Kuangserved as a general manager in Cisco Systems since 1994. Mr. Kuang received his master’s degree in computer science fromStanford University and his MBA from the University of California Berkeley.Mr. Glen Qian Sun has served as our director since July 2014. Mr. Sun is a partner of Sequoia Capital China, a privateequity firm affiliated to one of our major shareholders. Mr. Sun has also served on the board of 500.com Limited (NYSE: WBAI) asan independent director since 2013. Prior to joining Sequoia Capital China in 2006, Mr. Sun served as an associate at GeneralAtlantic LLC, a private equity firm, from 2003 to 2005, focusing on technology and internet related investment in China. Mr. Sunalso worked as a management consultant at Monitor Group from 1997 to 1999. Mr. Sun received his bachelor’s degree in appliedmathematics from Harvard College in 1997, and his MBA from Harvard Business School and J.D. from Harvard Law School in2003.Mr. Haibing Wu has served as an independent director since the IPO. Mr. Wu has also served on the board of AcornInternational, Inc. (NYSE: ATV) as an independent director since September 2016. Mr. Wu has over 20 years of experience infinance. He has been a partner of Vision Knight Capital, a leading private equity firm since April 2018. Prior to that, Mr. Wu servedas the chief financial officer at Plateno Hotels Group (formerly known as 7 Days Group Holdings Limited) from October 2007 toMarch 2018. Mr. Wu also worked at PricewaterhouseCoopers in the United States from May 2000 to February 2006 and laterworked as a senior manager in the assurance department of PricewaterhouseCoopers Zhong Tian CPAs Limited Company fromFebruary 2006 to October 2007. Mr. Wu received his bachelor’s degree in engineering economics from Shanghai Jiao TongUniversity in 1994, and master’s degree in business administration from Michigan State University in 2000.Ms. Jue Yao has served as our independent director since September 2018. Ms. Yao has also served on the board of ChinaRenaissance Holdings Limited (HKEx: 1911) as an independent non-executive director and chairman of the audit committee sinceSeptember 2018. Ms. Yao has extensive experience in accounting and corporate finance. Ms. Yao served as the chief financialofficer of Qihoo 360 Technology Co., Ltd., or Qihoo 360, a company formerly listed on the New York Stock Exchange (NYSE:QIHU) and currently listed on the Shanghai Stock Exchange (SSE: 601360), from 2014 to April 2018. Since 2006, Ms. Yao has heldvarious positions at Qihoo 360, including its financial director and vice president of finance from 2008 to 2012 and its co-chieffinancial officer from 2012 to 2014. From 1999 to 2006, Ms. Yao held various positions, including financial director, at Sohu.comInc. From 1996 to 1999, Ms. Yao was a senior auditor at KPMG. Ms. Yao received her bachelor’s degree in international accountingfrom the University of International Business and Economics in 1996. Ms. Yao is a member of the Chinese Institute of CertifiedPublic Accountants.Table of Contents109Mr. Robert Yi Cui has served the role of Chief Financial Officer since August 24, 2020. Prior to joining CooTek, Mr. Cuiworked in the Hong Kong office of Investment Banking Asia Pacific of BNP Paribas from 2014 to 2020 with his last position heldas a director. Before that, Mr. Cui worked in the Hong Kong office of the Investment Banking Division of Bank of ChinaInternational, in the Hong Kong office of the Investment Banking Division of Daiwa Capital Markets and in the Paris office ofHSBC Global Investment Banking from 2007 to 2014. Mr. Cui received his bachelor’s degree of arts in French studies fromShanghai International Studies University in 2004 and master’s degree of science in management (Diplôme Grande École) fromHEC Paris in 2007. Mr. Cui speaks fluent English, French and Mandarin.Mr. Jiang Zhu has served as our Chief Growth Officer since March 2020. Mr. Zhu first joined our company in March 2010as a Software Development Engineer and served as our Vice President of China Business from January 2018 to March 2020. Beforejoining our company, Mr. Zhu worked as a software engineer at Sybase R&D Center (Shanghai) from 2009 to 2010. Mr. Zhureceived his bachelor’s degree in computer application technology from Shanghai Jiao Tong University in 2006, and his master’sdegree in computer science from Shanghai Jiao Tong University in 2009.Employment Agreements and Indemnification AgreementsWe have entered into employment agreements with each of our executive officers. Under these agreements, each of ourexecutive officers is employed for a specified time period. We may terminate employment for cause, at any time, without advancenotice or remuneration, for certain acts of the executive officer, such as conviction or plea of guilty to a felony or any crimeinvolving moral turpitude, negligent or dishonest acts to our detriment, or misconduct or a failure to perform agreed duties. We mayalso terminate an executive officer’s employment without cause upon three-month advance written notice. In such case oftermination by us, we will provide severance payments to the executive officer as expressly required by applicable law of thejurisdiction where the executive officer is based. The executive officer may resign at any time with a three-month advance writtennotice.Each executive officer has agreed to hold, both during and after the termination or expiry of his or her employmentagreement, in strict confidence and not to use, except as required in the performance of his or her duties in connection with theemployment or pursuant to applicable law, any of our confidential information or trade secrets, any confidential information or tradesecrets of our clients or prospective clients, or the confidential or proprietary information of any third-party received by us and forwhich we have confidential obligations. The executive officers have also agreed to disclose in confidence to us all inventions,designs and trade secrets which they conceive, develop or reduce to practice during the executive officer’s employment with us andto assign all right, title and interest in them to us, and assist us in obtaining and enforcing patents, copyrights and other legal rightsfor these inventions, designs and trade secrets.In addition, each executive officer has agreed to be bound by non-competition and non-solicitation restrictions during theterm of his or her employment and typically for one year following the last date of employment. Specifically, each executive officerhas agreed not to (i) approach our suppliers, clients, customers or contacts or other persons or entities introduced to the executiveofficer in his or her capacity as a representative of us for the purpose of doing business with such persons or entities that will harmour business relationships with these persons or entities; (ii) assume employment with or provide services to any of our competitors,or engage, whether as principal, partner, licensor or otherwise, any of our competitors, without our express consent; or (iii) seekdirectly or indirectly, to solicit the services of any of our employees who is employed by us on or after the date of the executiveofficer’s termination, or in the year preceding such termination, without our express consent.We have also entered into indemnification agreements with each of our directors and executive officers. Under theseagreements, we agree to indemnify our directors and executive officers against certain liabilities and expenses incurred by suchpersons in connection with claims made by reason of their being a director or officer of our company.Table of Contents110B.CompensationFor the fiscal year ended December 31, 2020, we paid an aggregate of approximately RMB10.7 million (US$1.6 million) incash to our executive officers, and we paid US$0.2 million in cash to our non-executive directors. We have not set aside or accruedany amount to provide pension, retirement or other similar benefits to our executive officers and directors. Our PRC subsidiary andVIEs are required by law to make contributions equal to certain percentages of each employee’s salary for his or her pensioninsurance, medical insurance, unemployment insurance and other statutory benefits and a housing provident fund.Share Incentive Plans2012 Stock Incentive PlanIn November 2012, we adopted the 2012 Stock Incentive Plan, as amended from time to time, or the 2012 Plan, to attractand retain the best available personnel, provide additional incentives to employees, directors and advisors and promote the successof our business. The maximum aggregate number of our ordinary shares which may be issued pursuant to all awards under the 2012Plan is 226,153,637 ordinary shares. As of March 31, 2021, awards to purchase 220,868,244 ordinary shares have been granted andoutstanding, excluding awards that were forfeited or cancelled after the relevant grant dates.On November 6, 2018, our Board of Directors approved to reduce the exercise price of certain options granted under our2012 Plan to employees.The following paragraphs describe the principal terms of the 2012 Plan.Types of Awards. The 2012 Plan permits the awards of options, restricted shares, restricted share units, or RSUs, or anyother form of awards granted to a participant pursuant to the 2012 Plan.Plan Administration. Our board of directors or a committee of one or more members of the board of directors willadminister the 2012 Plan. The plan administrator will determine the participants to receive awards, the type and number of awards tobe granted to each participant, and the terms and conditions of each award grant.Award Agreement. Awards granted under the 2012 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 theparticipant’s employment or service terminates, and our authority to unilaterally or bilaterally amend, modify, suspend, cancel orrescind the award.Eligibility. We may grant awards to our senior managers, advisors or employees.Vesting Schedule. In general, the plan administrator determines the vesting schedule, which is specified in the relevantaward agreement.Exercise of Awards. The plan administrator determines the exercise price for each award, which is stated in the awardagreement. The vested portion of awards will expire if not exercised prior to the time as the plan administrator determines at thetime of its grant. However, the maximum exercisable term is ten years from the date of a grant.Transfer Restrictions. Awards may not be transferred in any manner by the participant other than by will or the laws ofdescent and distribution, except as otherwise authorized by the plan administrator during the lifetime of the participant.Termination and amendment of the 2012 Plan. Unless terminated earlier, the 2012 Plan has a term of ten years. Our boardof directors has the authority to amend or terminate the 2012 Plan. However, no such action may adversely affect in any materialway any awards previously granted unless agreed by the participant.Table of Contents1112018 Share Incentive PlanIn August 2018, our shareholders and board of directors adopted the 2018 Share Incentive Plan, or the 2018 Plan, to attractand retain the best available personnel, provide additional incentives to employees, directors and consultants and promote thesuccess of our business. The maximum aggregate number of shares which may be issued under the 2018 Plan shall initially be63,916,634 Class A ordinary shares, plus an annual increase on the first day of each of the first five (5) complete fiscal years afterthe completion of our initial public offering in 2018 and during the term of this plan commencing with the fiscal year beginningJanuary 1, 2019, by an amount equal to 2.0% of the total number of shares issued and outstanding on the last day of the immediatelypreceding fiscal year (excluding issued shares reserved for future option exercise and restricted share unit vesting). As of March 31,2021, awards to purchase 138,978,367 ordinary shares have been granted and outstanding, excluding awards that were forfeited orcancelled after the relevant grant dates.The following paragraphs summarize the terms of the 2018 Plan.Types of Awards. The 2018 Plan permits the awards of options, restricted shares, restricted share units, or other types ofawards granted to a participant pursuant to the terms of the 2018 Plan.Plan Administration. The board of directors or a committee of one or more members of the board of directors willadminister the 2018 Plan. The plan administrator will determine the participants to receive awards, the type and number of awards tobe granted to each participant, and the terms and conditions of each award grant.Award Agreement. Awards granted under the 2018 Plan are evidenced by an award agreement that sets forth the terms andconditions for each grant, which may include the term of the award, the provisions applicable in the event the grantee’s employmentor service terminates, and our authority to unilaterally or bilaterally amend, modify, suspend, cancel or rescind the award.Eligibility. We may grant awards to our employees, directors and consultants of our company. However, we may grantoptions that are intended to qualify as incentive share options only to our employees and employees of our parent companies andsubsidiaries.Vesting Schedule. In general, the plan administrator determines the vesting schedule, which is set forth in the relevantaward agreement.Exercise of Options. The plan administrator determines the exercise price for each option, which is stated in the awardagreement. The plan administrator shall determine the time or times at which an option may be exercised in whole or in part, but themaximum term of any option is ten years.Transfer Restrictions. Awards may not be transferred in any manner by the recipient other than in accordance with theexceptions provided in the 2018 Plan, such as transfers by will or the laws of descent and distribution.Termination and Amendment of the 2018 Plan. Unless terminated earlier, the 2018 Plan has a term of ten years. Our boardof directors has the authority to amend or terminate the plan. However, no such action may adversely affect in any material way anyawards previously granted unless agreed by the recipient.Table of Contents112The following table summarizes, as of March 31, 2021, the awards granted under our Plan to several of our directors andexecutive officers and to other individuals as a group, excluding awards that were forfeited or cancelled after the relevant grantdates.Ordinary SharesUnderlyingOutstandingExerciseOptions orPriceDate ofName RSUs (US$/Share) Date of Grant ExpirationKarl Kan Zhang * 0.0002January 6, 2020January 5, 2030 Susan Qiaoling Li * 0.0002January 6, 2020January 5, 2030 Haibing Wu *(1) —November 6, 2018November 5, 2028*(1) —September 30, 2019September 29, 2029 *(1) —September 04, 2020September 03, 2030 Jue Yao *(1) —November 6, 2018November 5, 2028*(1) —September 30, 2019September 29, 2029 *(1) —September 04, 2020September 03, 2030 Robert Yi Cui * 0.0002September 04, 2020September 03, 2030Jiang Zhu * 0.0105January 1, 2013December 31, 2022 * 0.0315July 31, 2014July 30, 2024 * 0.1000January 1, 2016December 31, 2025 *(1) —March 15, 2018March 14, 2028 *(1) —January 2, 2019January 1, 2029 * 0.0002January 6, 2020January 5, 2030 Other individuals as a group 298,902,245(2) from 0.0002 to 0.1800 * The options and restricted shares units in aggregate held by each of these officers represent less than 1% of our total outstandingshares.(1)Restricted share units.(2)Including options and restricted shares units. With respect to the options the exercise price is with the range from 0.0002 to0.1800.C.Board PracticesOur board of directors consists of eight directors. A director is not required to hold any shares in our company by way ofqualification. A director who is in any way, whether directly or indirectly, interested in a contract or proposed contract with ourcompany is required to declare the nature of his interest at a meeting of our directors. A director may vote in respect of any contract,proposed contract, or arrangement notwithstanding that he may be interested therein, and if he does so his vote shall be counted andhe may be counted in the quorum at any meeting of our directors at which any such contract or proposed contract or arrangement isconsidered. The directors may exercise all the powers of the company to borrow money, mortgage its undertaking, property anduncalled capital, and issue debentures or other securities whenever money is borrowed or as security for any obligation of thecompany or of any third party.Table of Contents113Committees of the Board of DirectorsWe have established three committees under the board of directors: an audit committee, a compensation committee and anominating and corporate governance committee. We have adopted a charter for each of the three committees. Each committee’smembers and functions are described below.Audit Committee. Our audit committee consists of Mr. Haibing Wu and Ms. Jue Yao. Mr. Haibing Wu is the chairman ofour audit committee. We have determined that each of Mr. Haibing Wu and Ms. Jue Yao satisfies the “independence” requirementsof Section 303A of the Corporate Governance Rules of the New York Stock Exchange and meet the independence standards underRule 10A-3 under the Securities Exchange Act of 1934, as amended. We have determined that each of Mr. Haibing Wu and Ms. JueYao qualifies as an “audit committee financial expert.” The audit committee oversees our accounting and financial reportingprocesses and the audits of the financial statements of our company. The audit committee is responsible for, among other things:●appointing the independent auditors and pre-approving all auditing and non-auditing services permitted to beperformed by the independent auditors;●reviewing with the independent auditors any audit problems or difficulties and management’s response;●discussing the annual audited financial statements with management and the independent auditors;●reviewing the adequacy and effectiveness of our accounting and internal control policies and procedures and any stepstaken to monitor and control major financial risk exposures;●reviewing and approving all proposed related party transactions;●meeting separately and periodically with management and the independent auditors; and●monitoring compliance with our code of business conduct and ethics, including reviewing the adequacy andeffectiveness of our procedures to ensure proper compliance.Compensation Committee. Our compensation committee consists of Ms. Jue Yao, Mr. Haibing Wu and Mr. Karl KanZhang. Ms. Jue Yao is the chairwoman of our compensation committee. We have determined that each of Ms. Jue Yao andMr. Haibing Wu satisfies the “independence” requirements of Section 303A of the Corporate Governance Rules of the New YorkStock Exchange. The compensation committee assists the board in reviewing and approving the compensation structure, includingall forms of compensation, relating to our directors and executive officers. Our chief executive officer may not be present at anycommittee meeting during which his compensation is deliberated. The compensation committee is responsible for, among otherthings:●reviewing and approving, or recommending to the board for its approval, the compensation for our chief executiveofficer and other executive officers;●reviewing and recommending to the board for determination with respect to the compensation of our non-employeedirectors;●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 factorsrelevant to that person’s independence from management.Table of Contents114Nominating and Corporate Governance Committee. Our nominating and corporate governance committee consists ofMr. Karl Kan Zhang, Mr. Haibing Wu and Ms. Jue Yao. Mr. Karl Kan Zhang is the chairman of our nominating and corporategovernance committee. We have determined that each of Mr. Haibing Wu and Ms. Jue Yao satisfies the “independence”requirements of Section 303A of the Corporate Governance Rules of the New York Stock Exchange. The nominating and corporategovernance committee assists the board of directors in selecting individuals qualified to become our directors and in determining thecomposition of the board and its committees. The nominating and corporate governance committee is responsible for, among otherthings:●selecting and recommending to the board nominees for election by the shareholders or appointment by the board;●reviewing annually with the board the current composition of the board with regards to characteristics such asindependence, knowledge, skills, experience and diversity;●making recommendations on the frequency and structure of board meetings and monitoring the functioning of thecommittees of the board; and●advising the board periodically with regards to significant developments in the law and practice of corporategovernance as well as our compliance with applicable laws and regulations, and making recommendations to theboard on all matters of corporate governance and on any remedial action to be taken.Duties of DirectorsUnder Cayman Islands law, our directors owe fiduciary duties to us, including a duty of loyalty, a duty to act honestly, ingood faith and with a view to our best interests. Our directors must also exercise their powers only for a proper purpose. Ourdirectors also have a duty to exercise the skills they actually possess and such care and diligence that a reasonably prudent personwould exercise in comparable circumstances. It was previously considered that a director need not exhibit in the performance of hisduties a greater degree of skill than what 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 theseauthorities are likely to be followed in the Cayman Islands. In fulfilling their duty of care to us, our directors must ensurecompliance with our memorandum and articles of association and the class rights vested thereunder in the holders of the shares. TheCompany has the right to seek damages if a duty owed by our directors is breached. In certain limited exceptional circumstances, ashareholder may have rights to damages if a duty owed by the directors is breached.Our board of directors has all the powers necessary for managing, and for directing and supervising, our business affairs.The functions and powers of our board of directors include, among others:●convening shareholders’ annual general meetings and reporting its work to shareholders at such meetings;●declaring dividends and distributions;●appointing officers and determining the term of office of the officers;●exercising the borrowing powers of our company and mortgaging the property of our company; and●approving the transfer of shares in our company, including the registration of such shares in our share register.Table of Contents115Terms of Directors and OfficersOur officers are appointed by and serve at the discretion of the board of directors. Our directors are not subject to a term ofoffice and hold office until such time as they are removed from office by ordinary resolution of the shareholders or by the board. Adirector will be removed from office automatically if, among other things, the director (i) becomes bankrupt or makes anyarrangement or composition with his creditors; (ii) dies, or is found by our company to be or becomes of unsound mind; (iii) resignshis office by notice in writing to the company, (iv) without special leave of absence from our board, is absent from three consecutiveboard meetings and our board of directors resolve that his office be vacated; (v) is prohibited by law from being a director; or (vi) isremoved from office pursuant to any other provision of our post-listing amended and restated memorandum and articles ofassociation.D.EmployeesWe had 498, 553 and 759 employees as of December 31, 2018, 2019 and 2020, respectively. The following table sets forththe breakdown of our employees by function as of December 31, 2020:Function: Number of EmployeesResearch and development 452Sales and marketing 88Operations 129General and administrative 90Total 759As required by laws and regulations in China, we contribute to various statutory employee benefit plans that are organizedby municipal and provincial governments, including pension, medical insurance, unemployment insurance, work-related injuryinsurance and maternity insurance plans as well as the housing provident fund. We are required under Chinese law to makecontributions to employee benefit plans at specified percentages of the salaries, bonuses and certain allowances of our employees,up to a maximum amount specified by the local government from time to time.We enter into labor contracts and standard confidentiality and intellectual property agreements with our key employees.The labor contracts with our key personnel typically include a standard non-compete covenant that prohibits the employee fromcompeting with us, directly or indirectly, during his or her employment and for one year after the termination of his or heremployment.E.Share OwnershipThe following table sets forth information with respect to the beneficial ownership of our ordinary shares as of March 31,2021, by:●each of our directors and executive officers; and●each person known to us to own beneficially 5% of our total outstanding shares.The calculations in the table below are based on 2,983,859,641 Class A ordinary shares (excluding treasury stocks andshares issued and reserved for future issuance upon the exercising or vesting of awards granted under our share incentive plans) and246,224,465 Class B ordinary shares outstanding as of March 31, 2021.Table of Contents116Beneficial ownership is determined in accordance with the rules and regulations of the SEC. In computing the number ofshares beneficially owned by a person and the percentage ownership of that person, we have included shares that the person has theright to acquire within 60 days after March 31, 2021, including through the exercise of any option, warrant or other right or theconversion of any other security. These shares, however, are not included in the computation of the percentage ownership of anyother person. Ordinary Shares Beneficially Owned% of Class A Class B Total % of Aggregate Ordinary Ordinary Ordinary Beneficial Voting Shares Shares Shares Ownership Power***Directors and Executive Officers** Karl Kan Zhang(1) 2,500,000 246,224,465 248,724,465 7.7 67.4Susan Qiaoling Li(2) 216,874,465 — 216,874,465 6.7 2.4Michael Jialiang Wang(3) 178,119,165 — 178,119,165 5.5 1.9Jim Jian Wang(4) 115,368,349 — 115,368,349 3.6 1.3Duane Ziping Kuang * — * * *Glen Qian Sun — — — — —Haibing Wu * — * * *Jue Yao * — * * *Robert Yi Cui — — — — —Jiang Zhu * — * * *All Directors and Executive Officers as a Group 535,418,512 246,224,465 781,642,977 24.1 73.1 Principal Shareholders: Sequoia Capital China GF Holdco III-A, Ltd.(5) 534,404,772 — 555,204,772 17.2 5.8Qiming Funds(6) 540,786,459 — 540,786,459 16.7 5.9SIG China Investments Master Fund III, LLLP(7) 413,875,937 — 423,583,387 13.1 4.5Kan's Global CoolStuff Investment Inc.(1)(8) — 246,224,465 246,224,465 7.6 67.4LQL Global Innovation Investment Inc.(2)(9) 215,624,465 — 215,624,465 6.7 2.4Jialiang's Global Creativity Investment Inc.(3)(10) 171,874,465 — 178,119,165 5.5 1.9Jian's Global CoolStuff Investment Inc.(4)(11) 115,368,349 — 115,368,349 3.6 1.3* Less than 1% of our total outstanding shares.** Except as otherwise indicated below, the business address of our directors and executive officers is 9-11F, No.16, Lane 399,Xinlong Road, Minhang District, Shanghai, 201101, China. The business address of Duane Ziping Kuang is Room 5542, FourSeasons Place, 8 Finance Street, Central, Hong Kong. The business address of Glen Qian Sun is Room 3006, Plaza 66 Tower 2,No.1366 Nanjing West Road, Shanghai, China.*** For each person and group included in this column, percentage of voting power is calculated by dividing the voting powerbeneficially owned by such person or group by the voting power of all of our Class A and Class B ordinary shares as a singleclass. Each holder of Class A ordinary shares is entitled to one vote per share and each holder of our Class B ordinary shares isentitled to twenty-five votes per share on all matters submitted to them for a vote. Our Class A ordinary shares and Class Bordinary shares vote together as a single class on all matters submitted to a vote of our shareholders, except as may otherwise berequired by law. Our Class B ordinary shares are convertible at any time by the holder thereof into Class A ordinary shares on aone-for-one basis.Table of Contents117(1)Represents (i) 246,224,465 Class B ordinary shares held by Kan’s Global CoolStuff Investment Inc., a British Virgin Islandscompany, and (ii) 2,500,000 Class A ordinary shares issuable upon the exercise of options exercisable within 60 days after thedate of this annual report held by Karl Kan Zhang. Kan’s Global CoolStuff Investment Inc. is wholly owned by Kan’s UniverseInvestment Limited, a British Virgin Islands company, which is ultimately owned by Karl’s Global CoolStuff Investment Trust,a trust established under the laws of Guernsey and managed by Cantrust (Far East) Limited as the trustee. Karl Kan Zhang isthe settlor of this trust, and Mr. Zhang and his family members are the trust’s beneficiaries. Under the terms of this trust,Mr. Zhang has the power to direct the trustee with respect to the retention or disposal of, and the exercise of any voting andother rights attached to, the shares of the Issuer held by Kan’s Global CoolStuff Investment Inc. Mr. Zhang is the sole directorof Kan’s Global CoolStuff Investment Inc. The registered office of Kan’s Global CoolStuff Investment Inc. is at DrakeChambers P.O. Box 3321, Road Town, Tortola, British Virgin Islands.(2)Represents (i) 215,624,465 Class A ordinary shares held by LQL Global Innovation Investment Inc., a British Virgin Islandscompany, and (ii) 1,250,000 Class A ordinary shares issuable upon the exercise of options exercisable within 60 days after thedate of this annual report held by Susan Qiaoling Li. LQL Global Innovation Investment Inc. is wholly owned by LQLInternational Limited, a British Virgin Islands company, which is ultimately owned by LQL International Trust, a trustestablished under the laws of Guernsey and managed by Cantrust (Far East) Limited as the trustee. Susan Qiaoling Li is thesettlor of this trust, and Ms. Li and her family members are the trust’s beneficiaries. Under the terms of this trust, Ms. Li has thepower to direct the trustee with respect to the retention or disposal of, and the exercise of any voting and other rights attachedto, the shares of the Issuer held by LQL Global Innovation Investment Inc. Ms. Li is the sole director of LQL Global InnovationInvestment Inc. The registered office of LQL Global Innovation Investment Inc. is at Drake Chambers P.O. Box 3321, RoadTown, Tortola, British Virgin Islands.(3)Represents (i) 171,874,465 Class A ordinary shares and (ii) 6,244,700 Class A ordinary shares in the form of ADSs held byJialiang’s Global Creativity Investment Inc., a British Virgin Islands company. Jialiang’s Global Creativity Investment Inc. iswholly owned by MWRT Global Limited, a British Virgin Islands company, which is ultimately owned by Ivy Trust, a trustestablished under the laws of Guernsey and managed by Cantrust (Far East) Limited as the trustee. Michael Jialiang Wang isthe settlor of this trust, and Mr. Wang and his family members are the trust’s beneficiaries. Under the terms of this trust,Mr. Wang has the power to direct the trustee with respect to the retention or disposal of, and the exercise of any voting andother rights attached to, the shares of the Issuer held by Jialiang’s Global Creativity Investment Inc. Mr. Wang is the soledirector of Jialiang’s Global Creativity Investment Inc. The registered office of Jialiang’s Global Creativity Investment Inc. is atDrake Chambers P.O. Box 3321, Road Town, Tortola, British Virgin Islands.(4)Represents 115,368,349 Class A ordinary shares directly held by Jian’s Global CoolStuff Investment Inc., a British VirginIsland company. Jian’s Global CoolStuff Investment Inc. is ultimately owned by Thoughtwise Trust, a trust established with thelaws of Guernsey and managed by Cantrust (Far East) Limited as the trustee. Jim Jian Wang is the settlor of this trust, andMr. Wang and his family members are the trust’s beneficiaries. Under the terms of this trust, Mr. Wang has the power to directthe trustee with respect to the retention or disposal of, and the exercise of any voting and other rights attached to the shares heldby Jian’s Global CoolStuff Investment Inc in our company. Mr. Wang is the sole director of Jian’s Global CoolStuff InvestmentInc. The registered office of Jian’s Global CoolStuff Investment Inc. is at Drake Chambers P.O. Box 3321, Road Town, Tortola,British Virgin Islands.(5)Represents (i) 534,404,772 Class A ordinary shares and (ii) 20,800,000 Class A ordinary shares in the form of ADSs held bySequoia Capital China GF Holdco III-A, Ltd., an exempted company with limited liability incorporated in the Cayman Islands.Information regarding beneficial ownership is reported as of December 31, 2018, based on the information contained in theSchedule 13G filed by Sequoia Capital China GF Holdco III-A, Ltd. with SEC on February 14, 2019. The sole shareholder ofSequoia Capital China GF Holdco III-A, Ltd. is Sequoia Capital China Growth Fund III, L.P. The general partner of SequoiaCapital China Growth Fund III, L.P. is SC China Growth III Management, L.P., whose general partner is SC China HoldingLimited. SC China Holding Limited is wholly owned by SNP China Enterprises Limited, which in turn is wholly owned byMr. Neil Nanpeng Shen. The registered office of Sequoia Capital China GF Holdco III-A, Ltd. is at Cricket Square, HutchinsDrive P.O. Box 2681, Grand Cayman, KY1-1111, Cayman Islands.Table of Contents118(6)Represents (i) 490,679,348 Class A ordinary shares held by Qiming Venture Partners II, L.P., a Cayman Islands exemptedlimited partnership; (ii) 42,966,564 Class A ordinary shares held by Qiming Venture Partners II-C, L.P, a Cayman Islandsexempted limited partnership; and (iii) 7,140,547 Class A ordinary shares by Qiming Managing Directors Fund II, L.P., aCayman Islands exempted limited partnership. Information regarding beneficial ownership is reported as of December 31,2020, based on the information contained in the Schedule 13G/A filed by Qiming Corporate GP II, Ltd. with SEC onFebruary 10, 2021. Qiming Venture Partners II, L.P., Qiming Venture Partners II-C, L.P., and Qiming Managing Directors FundII, L.P. are collectively referred to as Qiming Funds. The general partner of both Qiming Venture Partners II, L.P. and QimingVenture Partners II-C, L.P. is Qiming GP II, L.P., a Cayman Islands exempted limited partnership. The general partner of bothQiming Managing Directors Fund II, L.P. and Qiming GP II, L.P. is Qiming Corporate GP II, Ltd., a Cayman Islands exemptedlimited company. Duane Ziping Kuang, Gary Edward Rieschel and Robert Brian Headley each owns approximately 33.33% ofQiming Corporate GP II, Ltd. The registered office of Qiming Funds is at P.O. Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands.(7)Represents 423,583,387 Class A ordinary shares including 9,707,450 Class A ordinary shares represented by ownership of194,149 ADRs held by SIG China Investments Master Fund III, LLLP, a Delaware limited liability limited partnership. SIGAsia Investment, LLLP, a Delaware limited liability limited partnership, is the investment manager for SIG China InvestmentsMaster Fund III, LLLP pursuant to an investment management agreement, and as such, has discretionary authority to vote anddispose of the Class A ordinary shares. Heights Capital Management, Inc., a Delaware Corporation, is the investment managerfor SIG Asia Investment, LLLP pursuant to an investment management agreement, and as such, has the discretionary to disposeand vote the Class A ordinary shares. Mr. Authur Dantchik, in his capacity as president of SIG Asia Investment, LLLP, and vicepresident of Heights Capital Management, Inc. may also be deemed to have investment discretion over the shares held by SIGChina Investments Master Fund III, LLLP. Mr. Dantchik disclaims any such investment discretion or beneficiary ownershipwith respect to these shares. The registered office of SIG China Investments Master Fund III, LLLP is at One CommenceCenter, 1201 N. Orange Street, Suite 715, Wilmington, DE, USA.(8)Represents 246,224,465 Class B ordinary shares held by Kan’s Global CoolStuff Investment Inc., a British Virgin Islandscompany. Kan’s Global CoolStuff Investment Inc. is wholly owned by Kan’s Universe Investment Limited, a British VirginIslands company, which is ultimately owned by Karl’s Global CoolStuff Investment Trust, a trust established under the laws ofGuernsey and managed by Cantrust (Far East) Limited as the trustee. Karl Kan Zhang is the settlor of this trust, and Mr. Zhangand his family members are the trust’s beneficiaries. Under the terms of this trust, Mr. Zhang has the power to direct the trusteewith respect to the retention or disposal of, and the exercise of any voting and other rights attached to, the shares of the Issuerheld by Kan’s Global CoolStuff Investment Inc. Mr. Zhang is the sole director of Kan’s Global CoolStuff Investment Inc. Theregistered office of Kan’s Global CoolStuff Investment Inc. is at Drake Chambers P.O. Box 3321, Road Town, Tortola, BritishVirgin Islands.(9)Represents 215,624,465 Class A ordinary shares held by LQL Global Innovation Investment Inc., a British Virgin Islandscompany. LQL Global Innovation Investment Inc. is wholly owned by LQL International Limited, a British Virgin Islandscompany, which is ultimately owned by LQL International Trust, a trust established under the laws of Guernsey and managedby Cantrust (Far East) Limited as the trustee. Susan Qiaoling Li is the settlor of this trust, and Ms. Li and her family membersare the trust’s beneficiaries. Under the terms of this trust, Ms. Li has the power to direct the trustee with respect to the retentionor disposal of, and the exercise of any voting and other rights attached to, the shares of the Issuer held by LQL GlobalInnovation Investment Inc. Ms. Li is the sole director of LQL Global Innovation Investment Inc. The registered office of LQLGlobal Innovation Investment Inc. is at Drake Chambers P.O. Box 3321, Road Town, Tortola, British Virgin Islands.Table of Contents119(10)Represents (i) 171,874,465 Class A ordinary shares and (ii) 6,244,700 Class A ordinary shares in the form of ADSs held byJialiang’s Global Creativity Investment Inc., a British Virgin Islands company. Jialiang’s Global Creativity Investment Inc. iswholly owned by MWRT Global Limited, a British Virgin Islands company, which is ultimately owned by Ivy Trust, a trustestablished under the laws of Guernsey and managed by Cantrust (Far East) Limited as the trustee. Michael Jialiang Wang isthe settlor of this trust, and Mr. Wang and his family members are the trust’s beneficiaries. Under the terms of this trust,Mr. Wang has the power to direct the trustee with respect to the retention or disposal of, and the exercise of any voting andother rights attached to, the shares of the Issuer held by Jialiang’s Global Creativity Investment Inc. Mr. Wang is the soledirector of Jialiang’s Global Creativity Investment Inc. The registered office of Jialiang’s Global Creativity Investment Inc. is atDrake Chambers P.O. Box 3321, Road Town, Tortola, British Virgin Islands.(11)Represents 115,368,349 Class A ordinary shares directly held by Jian’s Global CoolStuff Investment Inc., a British VirginIsland company. Jian’s Global CoolStuff Investment Inc. is ultimately owned by Thoughtwise Trust, a trust established with thelaws of Guernsey and managed by Cantrust (Far East) Limited as the trustee. Jim Jian Wang is the settlor of this trust, andMr. Wang and his family members are the trust’s beneficiaries. Under the terms of this trust, Mr. Wang has the power to directthe trustee with respect to the retention or disposal of, and the exercise of any voting and other rights attached to the shares heldby Jian’s Global CoolStuff Investment Inc in our company. Mr. Wang is the sole director of Jian’s Global CoolStuff InvestmentInc. The registered office of Jian’s Global CoolStuff Investment Inc. is at Drake Chambers P.O. Box 3321, Road Town, Tortola,British Virgin Islands.To our knowledge, as of March 31, 2021, a total of 1, 483,008,847 of our ordinary shares (including treasury stocks andshares issued and reserved for future issuance upon the exercising or vesting of awards granted under our share incentive plans)were held by three record holders in the United States. One of these holders is Deutsche Bank Trust Company Americas, thedepositary of our ADS program, which held 1,069,132,900 Class A ordinary shares (including treasury stocks and shares issued andreserved for future issuance upon the exercising or vesting of awards granted under our share incentive plans). The number ofbeneficial owners of our ADSs in the United States is likely to be much larger than the number of record holders of our ordinaryshares in the United States.ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONSA.Major ShareholdersPlease refer to “Item 6. Directors, Senior Management and Employees—E. Share Ownership.”B.Related Party TransactionsContractual Arrangements with our Variable Interest Entities and their ShareholdersSee “Item 4. Information on the Company—C. Organizational Structure.”Shareholders AgreementWe entered into our shareholders agreement on January 10, 2017, with our shareholders, which consist of holders ofordinary shares and preferred shares.The shareholders agreement provides for certain preferential rights, including right of first refusal, co-sale rights,preemptive rights and provisions governing the board of directors and other corporate governance matters. Those preferential rightsgoverning the board of directors has been automatically terminated upon the completion of our initial public offering.Employment Agreements and Indemnification AgreementsSee “Item 6. Directors, Senior Management and Employees—A. Directors and Senior Management—EmploymentAgreements and Indemnification Agreements.”Table of Contents120Share Incentive PlansSee “Item 6. Directors, Senior Management and Employees—A. Directors and Senior Management—2012 Stock IncentivePlan.” and “Item 6. Directors, Senior Management and Employees—A. Directors and Senior Management—2018 Share IncentivePlan.”C.Interests of Experts and CounselNot applicable.ITEM 8. FINANCIAL INFORMATIONA.Consolidated Statements and Other Financial InformationWe have appended consolidated financial statements filed as part of this annual report.Legal ProceedingsWe are from time to time subject to various legal or administrative claims and proceedings arising in the ordinary course ofbusiness. Litigation or any other legal or administrative proceeding, regardless of the outcome, is likely to result in substantial costand diversion of our management’s time and attention.In April 2019, a third-party company in China brought a lawsuit against Shanghai Chubao, claiming damages for copyrightinfringement. We have reached a reconciliation and plan to enter into a settlement agreement. We recorded a one-time litigationreserve of RMB178,724 in the third quarter of 2019. The third-party company withdrew its claim in May 2020.In June 2019, a third-party company in China brought a lawsuit against Shanghai Chubao in Shanghai Intellectual PropertyCourt for patent infringement. The plaintiff alleged that TouchPal Phonebook infringed its patent of IP telephone system andcommunication method, and claimed for stopping the usage of this involved patent and acts of using, offering to sell and selling theinvolved product according to the involved patent, disabling the involved product from app stores, and a compensation ofRMB3,000,000. The third-party company withdrew its claim in June 2020.In May 2019, a third-party company in China brought a lawsuit against Shanghai Chubao and Shanghai Chule in ShanghaiIntellectual Property Court for design patent infringement. The plaintiff alleged that TouchPal Smart Input infringed its design patentof an input method, and claimed for stopping the infringement and compensation of RMB1,000,000. We recorded a one-timelitigation reserve of RMB500,000 in the third quarter of 2019. As of the date of this annual report, no conclusive judicial decisionhas been made with respect to the lawsuit.In September 2019, a third-party company in China brought an arbitration against Shanghai Chule in ShanghaiInternational Economic and Trade Arbitration Commission for breach of contract. The claimant alleged that Shanghai Chule failedto pay the advertising service fee under the advertising agreement, and claimed for a payment of RMB219,283. We have reached areconciliation that Shanghai Chule should pay RMB90,000 to the third-party company.In June 2020, a mobile device manufacturer and a third-party company sued us for unfair competition, alleging that one ofour mobile applications has interfered with the normal use of their devices by ways of pop-up advertisements, and claimed forstopping the act and compensation of RMB4,900,000. The first-instance judgment was made in March 2021, which ordered thesuspension of pop-up advertisements and awarded RMB3,000,000 to the plaintiff. However, we are now appealing with legalcounsel, and the first-instance judgement is not a final judgment.In September 2020, Shanghai Chubao brought a lawsuit to a third-party company claiming it for delaying payment ofadvertisement fee of RMB334,435. We have reached a reconciliation that the third-party company should pay us RMB165,000 andShanghai Chubao have received the payment.Table of Contents121In September 2020, Shanghai Dengyong Information Technology Co., Ltd. brought a lawsuit to a third-party companyclaiming it falsifying the official website of our products and infringing trademark rights. We claimed for RMB1,000,000 and as ofthe date of this annual report, no conclusive judicial decision has been made with respect to the lawsuit.For risks and uncertainties relating to the pending cases against us, please see “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business—We may be subject to intellectual property infringement lawsuits which could be expensive todefend and may result in our payment of substantial damages or licensing fees, disruption to our product and service offerings, andreputational harm.”Other than the above, we are currently not a party to any material legal or administrative proceedings.Dividend PolicyOur board of directors has complete discretion on whether to distribute dividends, subject to certain requirements ofCayman Islands law. In addition, our shareholders may by ordinary resolution declare a dividend, but no dividend may exceed theamount recommended by our board of directors. Under Cayman Islands law, a Cayman Islands company may pay a dividend eitherout of profits or share premium account; provided that in no circumstances may a dividend be paid if this would result in thecompany being unable to pay its debts as they fall due in the ordinary course of business. Even if our board of directors decides topay dividends, the form, frequency and amount will depend upon our future operations and earnings, capital requirements andsurplus, general financial condition, contractual restrictions and other factors that the board of directors may deem relevant.We do not have any present plan to pay any cash dividends on our ordinary shares in the foreseeable future. We currentlyintend 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 may rely on dividends from our subsidiaries in Chinafor our cash requirements, including any payment of dividends to our shareholders. PRC regulations may restrict the ability of ourPRC subsidiaries to pay dividends to us. See “Item 4. Information on the Company—B. Business Overview—Regulation—Regulations Relating to Foreign Currency Exchange and Dividend Distribution.”If we pay any dividends on our ordinary shares, we will pay those dividends which are payable in respect of the Class Aordinary shares underlying our ADSs to the depositary, as the registered holder of such Class A ordinary shares, and the depositarythen will pay such amounts to our ADS holders in proportion to Class A ordinary shares underlying the ADSs held by such ADSholders, subject to the terms of the deposit agreement, including the fees and expenses payable thereunder. Cash dividends on ourClass A ordinary shares, if any, will be paid in U.S. dollars.B.Significant ChangesWe have not experienced any significant changes since the date of our audited consolidated financial statements included inthis annual report.ITEM 9. THE OFFER AND LISTINGA.Offering and Listing DetailsOur ADSs, each representing 50 of our Class A ordinary share of ours, have been listed on the New York Stock Exchangesince September 28, 2018. Our ADSs trade under the symbol “CTK.”B.Plan of DistributionNot applicable.Table of Contents122C.MarketsOur ADSs, each representing 50 Class A ordinary share of ours, have been listed on the New York Stock Exchange sinceSeptember 28, 2018, under the symbol “CTK.”D.Selling ShareholdersNot applicable.E.DilutionNot applicable.F.Expenses of the IssueNot applicable.ITEM 10. ADDITIONAL INFORMATIONA.Share CapitalNot applicable.B.Memorandum and Articles of AssociationThe following are summaries of material provisions of our seventh amended and restated memorandum and articles ofassociation, as well as the Companies Act (As Revised), or the “Companies Act,” insofar as they relate to the material terms of ourordinary shares.Objects of Our Company. Under our seventh amended and restated memorandum and articles of association, the objects ofour company are unrestricted and we have the full power and authority to carry out any object not prohibited by the laws of theCayman Islands.Ordinary Shares. Our ordinary shares are divided into Class A ordinary shares and Class B ordinary shares. Holders of ourClass A ordinary shares and Class B ordinary shares will have the same rights except for voting and conversion rights. Our ordinaryshares are issued in registered form. Our shareholders who are non-residents of the Cayman Islands may freely hold and vote theirshares.Conversion. Each Class B ordinary share is convertible into one Class A ordinary share at any time at the option of theholder thereof. Class A ordinary shares are not convertible into Class B ordinary shares under any circumstances. Upon any sale,transfer, assignment or disposition of any Class B ordinary shares by a holder thereof to any person other than holders of Class Bordinary shares or their affiliates or upon a change of ultimate beneficial ownership of any Class B ordinary shares to any personwho is not an affiliate of the holder thereof, such Class B ordinary shares shall be automatically and immediately converted into thesame number of Class A ordinary shares.Dividends. The holders of our ordinary shares are entitled to such dividends as may be declared by our board of directors.Our amended and restated articles of association provide our directors may, before recommending or declaring any dividend, setaside out of the funds legally available for distribution such sums as they think proper as a reserve or reserves which shall, in theabsolute discretion of our directors, be applicable for meeting contingencies or for equalizing dividends or for any other purpose towhich those funds may be properly applied. Under the laws of the Cayman Islands, our company may pay a dividend out of eitherprofit or share premium account; provided that in no circumstances may a dividend be paid if this would result in our companybeing unable to pay its debts as they fall due in the ordinary course of business.Table of Contents123Voting Rights. In respect of all matters subject to a shareholders’ vote, each holder of Class A ordinary shares is entitled toone vote per share and each holder of Class B ordinary shares is entitled to twenty-five votes per share on all matters subject to voteat our general meetings. Our Class A ordinary shares and Class B ordinary shares vote together as a single class on all matterssubmitted to a vote of our shareholders, except as may otherwise be required by law. Voting at any shareholders’ meeting is by showof hands unless a poll is demanded. A poll may be demanded by the chairman of such meeting or any shareholder present in personor by proxy.A quorum required for a meeting of shareholders consists of one or more shareholders present or representing by proxy andholding shares which represent, in aggregate, not less than one-third of all votes attaching to the issued and outstanding votingshares entitled to vote at general meetings. Shareholders may be present in person or by proxy or, if the shareholder is a corporationor other non-natural person, by its duly authorized representative. Shareholders’ meetings may be convened by our board ofdirectors on its own initiative or upon a request to the directors by shareholders holding, at the date of deposit of the requisition,shares which represent, in aggregate, no less than one-third of all votes attaching to all our issued and outstanding shares, in whichcase the directors are obliged to call such meeting and to put the resolutions so requisitioned to a vote at such meeting; however, ouramended and restated memorandum and articles of association do not provide our shareholders with any right to put any proposalsbefore annual general meetings or extraordinary general meetings not called by such shareholders. Advance notice of at least ten(10) calendar days is required for the convening of our annual general shareholders’ meeting and any other general shareholders’meeting.An ordinary resolution to be passed at a meeting by the shareholders requires the affirmative vote of a simple majority ofthe votes attaching to the ordinary shares cast by those shareholders entitled to vote who are present in person or by proxy at ageneral meeting, while a special resolution requires the affirmative vote of no less than two-thirds of the votes attaching to theordinary shares cast by those shareholders entitled to vote who are present in person or by proxy at a general meeting. Both ordinaryresolutions and special resolutions may also be passed by a unanimous written resolution signed by all the shareholders of ourcompany, as permitted by the Companies Act and our amended and restated memorandum and articles of association. A specialresolution will be required for important matters such as a change of our name or making changes to our amended and restatedmemorandum and articles of association. Holders of the ordinary shares may, among other things, consolidate or subdivide theirshares by ordinary resolution.General Meetings of Shareholders. As a Cayman Islands exempted company, we are not obliged by the Companies Act tocall shareholders’ annual general meetings. Our memorandum and articles of association provide that we may (but are not obligedto) in each year hold a general meeting as our annual general meeting in which case we shall specify the meeting as such in thenotices calling it, and the annual general meeting shall be held at such time and place as may be determined by our directors.Shareholders’ general meetings may be convened by a majority of our board of directors. Advance notice of at least tencalendar days is required for the convening of our annual general shareholders’ meeting (if any) and any other general meeting ofour shareholders. A quorum required for any general meeting of shareholders consists of one or more shareholders present in personor by proxy, representing not less than one-third of all votes attaching to all of our shares in issue and entitled to vote.The Companies Act provides shareholders with only limited rights to requisition a general meeting, and does not provideshareholders with any right to put any proposal before a general meeting. However, these rights may be provided in a company’sarticles of association. Our memorandum and articles of association provide that upon the requisition of shareholders representing inaggregate not less than one-third of all votes attaching to all outstanding shares of our company that as at the date of the depositcarry the right to vote at general meetings, our board will convene an extraordinary general meeting and put the resolutions sorequisitioned to a vote at such meeting. However, our memorandum and articles of association do not provide our shareholders withany right to put any proposals before annual general meetings or extraordinary general meetings not called by such shareholders.Election, Removal and Remuneration of Directors. Unless otherwise determined by our company in general meeting, ourmemorandum and articles of association provide that our board will consist of not less than three directors. There are no provisionsrelating to retirement of directors upon reaching any age limit.Table of Contents124The directors have the power to appoint any person as a director either to fill a vacancy on the board or as an addition to theexisting board. Our shareholders may also appoint any person to be a director by way of ordinary resolution. A director shall not berequired to hold any Shares in the company by way of qualification.Subject to restrictions contained in our amended and restated memorandum and articles of association, a director may beremoved with or without cause by ordinary resolution.In addition, the office of any director shall be vacated if the director (i) becomes bankrupt or makes any arrangement orcomposition with his creditors, (ii) dies or is found to be or becomes of unsound mind, (iii) resigns his office by notice in writing toour company, (iv) without special leave of absence from our board is absent from three consecutive board meetings and our boardresolves that his office be vacated, or (v) is removed from office pursuant to our amended and restated memorandum and articles ofassociation.The remuneration of the directors may be determined by the directors or by ordinary resolution of shareholders.Transfer of Ordinary Shares. Subject to the restrictions set out below, any of our shareholders may transfer all or any of hisor her ordinary shares by an instrument of transfer in the usual or common form or any other form approved by our board ofdirectors.Our board of directors may, in its absolute discretion, decline to register any transfer of any ordinary share which is notfully paid up or on which we have a lien. Our board of directors may also decline to register any transfer of any ordinary shareunless:●the instrument of transfer is lodged with us, accompanied by the certificate for the ordinary shares to which it relatesand such other evidence as our board of directors may reasonably require to show the right of the transferor to makethe transfer;●the instrument of transfer is in respect of only one class of ordinary shares;●the instrument of transfer is properly stamped, if required;●in the case of a transfer to joint holders, the number of joint holders to whom the ordinary share is to be transferreddoes not exceed four; and●a fee of such maximum sum as the New York Stock Exchange may determine to be payable or such lesser sum as ourdirectors may from time to time require is paid to us in respect thereof.If our directors refuse to register a transfer they shall, within three calendar months after the date on which the instrumentof transfer was lodged, send to each of the transferor and the transferee notice of such refusal.The registration of transfers may, after compliance with any notice required of the New York Stock Exchange, besuspended and the register closed at such times and for such periods as our board of directors may from time to time determine;provided, however, that the registration of transfers shall not be suspended nor the register closed for more than 30 calendar days inany calendar year as our board may determine from time to time.Liquidation. On the winding up of our company, if the assets available for distribution amongst our shareholders shall bemore than sufficient to repay the whole of the share capital at the commencement of the winding up, the surplus shall be distributedamongst our shareholders in proportion to the par value of the shares held by them at the commencement of the winding up, subjectto a deduction from those shares in respect of which there are monies due, of all monies payable to our company for unpaid calls orotherwise. If our assets available for distribution are insufficient to repay all of the paid-up capital, the assets will be distributed sothat the losses are borne by our shareholders in proportion to the par value of the shares held by them.Table of Contents125Calls on Shares and Forfeiture of Shares. Our board of directors may from time to time make calls upon shareholders forany amounts unpaid on their shares in a notice served to such shareholders at least 14 calendar days prior to the specified time ofpayment. The shares that have been called upon and remain unpaid are subject to forfeiture.Redemption, Repurchase and Surrender of Shares. We may issue shares on terms that such shares are subject toredemption, at our option or at the option of the holders of these shares, on such terms and in such manner as may be determined byour board of directors. Our company may also repurchase any of our shares on such terms and in such manner as have beenapproved by our board of directors or by an ordinary resolution of our shareholders. Under the Companies Act, the redemption orrepurchase of any share may be paid out of our company’s profits or out of the proceeds of a new issue of shares made for thepurpose of such redemption or repurchase, or out of capital (including share premium account and capital redemption reserve) if ourcompany can, immediately following such payment, pay its debts as they fall due in the ordinary course of business. In addition,under the Companies Act no such share may be redeemed or repurchased (a) unless it is fully paid up, (b) if such redemption orrepurchase would result in there being no shares outstanding or (c) if the company has commenced liquidation. In addition, ourcompany may accept the surrender of any fully paid share for no consideration.Variations of Rights of Shares. If at any time, our share capital is divided into different classes of shares, the rights attached to any such class (unless otherwise provided by the terms of issue of the shares of that class), may be materially adversely varied with the consent in writing of the holders of two-thirds of the issued shares of that class or with the sanction of a resolution passed at a separate meeting of the holders of the shares of that class by the holders of two-thirds of the issued shares of that class. The rights conferred upon the holders of the shares of any class issued shall not, unless otherwise expressly provided by the terms of issue of the shares of that class, be deemed to be materially and adversely varied by the creation or issue of further shares ranking pari passu with such existing class of shares or subsequent to them or the redemption or purchase of any shares of any class by our company. The rights of the holders of shares shall not be deemed to be materially adversely varied by the creation or issue of shares with preferred or other rights, including, without limitation, the creation of shares with enhanced or weighted voting rights.Issuance of Additional Shares. Our amended and restated memorandum of association authorizes our board of directors toissue additional ordinary shares from time to time as our board of directors shall determine, to the extent of available authorized butunissued shares.Our amended and restated memorandum of association also authorizes our board of directors to establish from time to timeone or more series of preference shares and to determine, with respect to any series of preference shares, the terms and rights of thatseries, including but not limited to:●the designation of the series;●the number of shares of the series and the subscription price thereof if different from the par value thereof;●the dividend rights, dividend rates, conversion rights, voting rights; and●the rights and terms of redemption and liquidation preferences.Our board of directors may issue preference shares without action by our shareholders to the extent authorized butunissued. Issuance of these shares may dilute the voting power of holders of ordinary shares.Inspection of Books and Records. Holders of our ordinary shares will have no general right under Cayman Islands law toinspect or obtain copies of our list of shareholders or our corporate records. However, we will provide our shareholders with annualaudited financial statements.Table of Contents126Anti-Takeover Provisions. Some provisions of our memorandum and articles of association may discourage, delay orprevent a change of control of our company or management that shareholders may consider favorable, including provisions that:●authorize our board of directors to issue preference shares in one or more series and to designate the price, rights,preferences, privileges and restrictions of such preference shares without any further vote or action by ourshareholders; and●limit the ability of shareholders to requisition and convene general meetings of shareholders.However, under Cayman Islands law, our directors may only exercise the rights and powers granted to them under ourmemorandum and articles of association for a proper purpose and for what they believe in good faith to be in the best interests of ourcompany.Exempted Company. We are incorporated as an exempted company with limited liability under the Companies Act. TheCompanies Act distinguishes between ordinary resident companies and exempted companies. Any company that is incorporated inthe Cayman Islands but conducts business mainly outside of the Cayman Islands may apply to be incorporated as an exemptedcompany. The requirements for an exempted company are essentially the same as for an ordinary company except that an exemptedcompany:●does not have to file an annual return of its shareholders with the Registrar of Companies;●is not required to open its register of members for inspection;●does not have to hold an annual general meeting;●may issue negotiable or bearer shares or shares with no par value;●may obtain an undertaking against the imposition of any future taxation (such undertakings are usually given for 20years in the first instance);●may register by way of continuation in another jurisdiction and be deregistered in the Cayman Islands;●may register as a limited duration company; and●may register as a segregated portfolio company.“Limited liability” means that the liability of each shareholder is limited to the amount unpaid by the shareholder on theshares of the company (except in exceptional circumstances, such as involving fraud, the establishment of an agency relationship oran illegal or improper purpose or other circumstances in which a court may be prepared to pierce or lift the corporate veil).C.Material ContractsWe have not entered into any material contracts other than in the ordinary course of business and other than those describedin “Item 4. Information on the Company,” “Item 7. Major Shareholders and Related Party Transactions—B. Related PartyTransactions,” in this “Item 10. Additional Information—C. Material Contracts” or elsewhere in this annual report on Form 20-F.D.Exchange ControlsSee “Item 4. Information on the Company—B. Business Overview—Regulation—Regulations Relating to ForeignCurrency Exchange and Dividend Distribution.”Table of Contents127E.TaxationThe following summary of the material Cayman Islands, PRC and U.S. federal income tax consequences of an investmentin our ADSs or ordinary shares is based upon laws and relevant interpretations thereof in effect as of the date of this annual report,all of which are subject to change. This summary does not deal with all possible tax consequences relating to an investment in ourADSs or ordinary shares, such as the tax consequences under U.S. state and local tax laws or under the tax laws of jurisdictionsother than the Cayman Islands, the People’s Republic of China and the United States.Cayman Islands TaxationAccording to Maples and Calder (Hong Kong) LLP, our Cayman Islands counsel, the Cayman Islands currently levies notaxes on individuals or corporations based upon profits, income, gains or appreciation and there is no taxation in the nature ofinheritance tax or estate duty. There are no other taxes likely to be material to us levied by the government of the Cayman Islandsexcept for stamp duties which may be applicable on instruments executed in, or after execution brought within the jurisdiction of theCayman Islands. The Cayman Islands is not party to any double tax treaties that are applicable to any payments made to or by ourcompany. There are no exchange control regulations or currency restrictions in the Cayman Islands.Payments of dividends and capital in respect of the shares will not be subject to taxation in the Cayman Islands and nowithholding tax will be required on the payment of dividends or capital to any holder of our ADSs or ordinary shares, nor will gainsderived from the disposal of our ADSs or ordinary shares be subject to Cayman Islands income or corporation tax.People’s Republic of China TaxationUnder the PRC Enterprise Income Tax Law and its implementation rules, an enterprise established outside of the PRC with“de facto management body” within the PRC is considered a resident enterprise. The implementation rules define the term “de factomanagement body” as the body that exercises full and substantial control and overall management over the business, productions,personnel, accounts and properties of an enterprise. In April 2009, the State Administration of Taxation issued a circular, known asCircular 82, which provides certain specific criteria for determining whether the “de facto management body” of a PRC-controlledenterprise that is incorporated offshore is located in China. Although this circular only applies to offshore enterprises controlled byPRC enterprises or PRC enterprise groups, not those controlled by PRC individuals or foreigners, the criteria set forth in the circularmay reflect the State Administration of Taxation’s general position on how the “de facto management body” text should be appliedin determining the tax resident status of all offshore enterprises. According to Circular 82, an offshore incorporated enterprisecontrolled by a PRC enterprise or a PRC enterprise group will be regarded as a PRC tax resident by virtue of having its “de factomanagement body” in China only if all of the following conditions are met: (i) the primary location of the day-to-day operationalmanagement is in the PRC; (ii) decisions relating to the enterprise’s financial and human resource matters are made or are subject toapproval by organizations or personnel in the PRC; (iii) the enterprise’s primary assets, accounting books and records, companyseals, and board and shareholder resolutions, are located or maintained in the PRC; and (iv) at least 50% of voting board members orsenior executives habitually reside in the PRC.We believe that CooTek (Cayman) Inc. is not a PRC resident enterprise for PRC tax purposes. CooTek (Cayman) Inc. is notcontrolled by a PRC enterprise or PRC enterprise group and we do not believe that CooTek (Cayman) Inc. meets all of theconditions above. CooTek (Cayman) Inc. is a company incorporated outside the PRC. As a holding company, its key assets are itsownership interests in its subsidiaries, and its key assets are located, and its records (including the resolutions of its board ofdirectors and the resolutions of its shareholders) are maintained, outside the PRC. In addition, we are not aware of any offshoreholding companies with a similar corporate structure as ours ever having been deemed a PRC “resident enterprise” by the PRC taxauthorities. However, the tax resident status of an enterprise is subject to determination by the PRC tax authorities and uncertaintiesremain with respect to the interpretation of the term “de facto management body.”Table of Contents128If the PRC tax authorities determine that CooTek (Cayman) Inc. is a PRC resident enterprise for enterprise income taxpurposes, we may be required to withhold a 10% withholding tax from dividends we pay to our shareholders that are non-residententerprises, including the holders of our ADSs. In addition, non-resident enterprise shareholders (including our ADS holders) maybe subject to a 10% PRC tax on gains realized on the sale or other disposition of ADSs or ordinary shares, if such income is treatedas sourced from within the PRC. It is unclear whether our non-PRC individual shareholders (including our ADS holders) would besubject to any PRC tax on dividends or gains obtained by such non-PRC individual shareholders in the event we are determined tobe a PRC resident enterprise. If any PRC tax were to apply to such dividends or gains, it would generally apply at a rate of 20%unless a reduced rate is available under an applicable tax treaty. However, it is also unclear whether non-PRC shareholders ofCooTek (Cayman) Inc. would be able to claim the benefits of any tax treaties between their country of tax residence and the PRC inthe event that CooTek (Cayman) Inc. is treated as a PRC resident enterprise.United States Federal Income Tax ConsiderationsThe following discussion is a summary of United States federal income tax considerations generally applicable to theownership and disposition of our ADSs or ordinary shares by a U.S. Holder (as defined below) that holds our ADSs as “capitalassets” (generally, property held for investment) under the United States Internal Revenue Code of 1986, as amended, or the Code.This discussion is based upon existing United States federal tax law, which is subject to differing interpretations or change, possiblywith retroactive effect. There can be no assurance that the Internal Revenue Service (the “IRS”) or a court will not take a contraryposition. This discussion does not discuss all aspects of United States federal income taxation that may be important to particularinvestors in light of their individual investment circumstances, including investors subject to special tax rules (including forexample, financial institutions, insurance companies, regulated investment companies, real estate investment trusts, broker-dealers,traders in securities that elect mark-to-market treatment, tax-exempt organizations (including private foundations), holders who arenot U.S. Holders, holders who own (directly, indirectly or constructively) 10% or more of our stock (by vote or value), holders whoacquire their ADSs or ordinary shares pursuant to any employee share option or otherwise as compensation, investors that will holdtheir ADSs or ordinary shares as part of a straddle, hedge, conversion, constructive sale or other integrated transaction for UnitedStates federal income tax purposes, investors required to accelerate the recognition of any item of gross income with respect to ourADSs or ordinary shares as a result of such income being recognized on an applicable financial statement, or investors that have afunctional currency other than the United States dollar, all of whom may be subject to tax rules that differ significantly from thosediscussed below). This discussion, moreover, does not address the U.S. federal estate and gift tax or alternative minimum taxconsequences of the acquisition or ownership of our ADSs or ordinary shares or the Medicare tax. Each U.S. Holder is urged toconsult its tax advisor regarding the application of United States federal taxation to its particular circumstances, and the state, local,non-United States and other tax considerations of the ownership and disposition of our ADSs or ordinary shares.GeneralFor purposes of this discussion, a “U.S. Holder” is a beneficial owner of our ADSs or ordinary shares that is, for UnitedStates federal income tax purposes, (i) an individual who is a citizen or resident of the United States, (ii) a corporation (or otherentity treated as a corporation for United States federal income tax purposes) created in, or organized under the law of, the UnitedStates or any state thereof or the District of Columbia, (iii) an estate the income of which is includible in gross income for UnitedStates federal income tax purposes regardless of its source, or (iv) a trust (A) the administration of which is subject to the primarysupervision of a United States court and which has one or more United States persons who have the authority to control allsubstantial decisions of the trust or (B) that has otherwise validly 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 ownerof our ADSs or ordinary shares, the tax treatment of a partner in the partnership will generally depend upon the status of the partnerand the activities of the partnership. Partnerships holding our ADSs or ordinary shares and their partners are urged to consult theirtax advisors regarding an investment in our ADSs or ordinary shares.Table of Contents129For United States federal income tax purposes, a U.S. Holder of ADSs will generally be treated as the beneficial owner ofthe underlying shares represented by the ADSs. Accordingly, deposits or withdrawals of ordinary shares for ADSs will generally notbe subject to United States federal income tax. The remainder of this discussion assumes that a U.S. Holder of our ADSs will betreated in this manner.Passive Foreign Investment Company ConsiderationsA non-United States corporation, such as our company, will be classified as a PFIC for United States federal income taxpurposes, if, in the case of any particular taxable year, either (i) 75% or more of its gross income for such year consists of certaintypes 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 is attributable to assets that produce or are held for the production of passive income. For this purpose, cash andassets readily convertible into cash are categorized as a passive asset and the company’s goodwill and other unbooked intangiblesare taken into account. Passive income generally includes, among other things, dividends, interest, rents, royalties, and gains fromthe disposition of passive assets. We will be treated as owning a proportionate share of the assets and earning a proportionate shareof the income of 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 not entirely clear, we treat our VIEs as being owned by us for United States federalincome tax purposes, because we control their management decisions and we are entitled to substantially all of the economicbenefits associated with these entities, and, as a result, we consolidate their results of operations in our consolidated U.S. GAAPfinancial statements. If it were determined, however, that we do not own the stock of our VIEs for United States federal income taxpurposes, we may be treated as a PFIC for the current taxable year and any subsequent taxable year.Assuming that we are the owner of our VIEs for United States federal income tax purposes, we do not believe we were aPFIC for the taxable year ended December 31, 2020 and we do not presently expect to be a PFIC for the current taxable year or inthe foreseeable future. However, no assurance can be given in this regard because the determination of whether we will be orbecome a PFIC is a fact-intensive inquiry made on an annual basis and will depend, in part, upon the composition of our income andassets and the value of our assets. Fluctuations in the market price of our ADSs may cause us to be or become a PFIC for the currentor future taxable years because the value of our assets for the purpose of the asset test, including the value of our goodwill andunbooked intangibles, may be determined by reference to the market value of our ADSs from time to time (which may be volatile).If our market capitalization subsequently declines, we may be or become a PFIC for the current taxable year or future taxable years.Furthermore, the composition of our income and our assets may also be affected by how, and how quickly, we use our liquid assets.Under circumstances where our revenue from activities that produce passive income significantly increases relative to our revenuefrom activities that produce non-passive income, or where we determine not to deploy significant amounts of cash for activepurposes, our risk of becoming a PFIC may substantially increase.If we are classified as a PFIC for any year during which a U.S. Holder holds our ADSs or ordinary shares, we generallywill continue to be treated as a PFIC for all succeeding years during which such U.S. Holder holds our ADSs or ordinary shares.The discussion below under “Dividends” and “Sale or Other Disposition of ADSs or Ordinary Shares” is written on thebasis that we are not and will not be or become classified as a PFIC for United States federal income tax purposes. The United Statesfederal income tax rules that apply if we are treated as a PFIC are generally discussed below under “Passive Foreign InvestmentCompany Rules.”Table of Contents130DividendsSubject to the discussion below under “Passive Foreign Investment Company Rules,” any cash distributions (including theamount of any PRC tax withheld) paid on our ADSs or ordinary shares out of our current or accumulated earnings and profits, asdetermined under United States federal income tax principles, will generally be includible in the gross income of a U.S. Holder asdividend income on the day actually or constructively received by the U.S. Holder, in the case of ordinary shares, or by thedepositary, in the case of ADSs. Because we do not intend to determine our earnings and profits on the basis of United States federalincome tax principles, any distribution we pay will generally be treated as a “dividend” for United States federal income taxpurposes. A non-corporate U.S. Holder will be subject to tax on dividend income from a “qualified foreign corporation” at a lowerapplicable capital gains rate rather than the marginal tax rates generally applicable to ordinary income provided that certain holdingperiod requirements are met. A non-United States corporation (other than a corporation that is classified as a PFIC for the taxableyear in which the dividend is paid or the preceding taxable year) will generally be considered to be a qualified foreign corporation(i) if it is eligible for the benefits of a comprehensive tax treaty with the United States which the Secretary of Treasury of the UnitedStates determines is satisfactory for purposes of this provision and which includes an exchange of information program, or (ii) withrespect to any dividend it pays on stock (or ADSs in respect of such stock) which is readily tradable on an established securitiesmarket in the United States. Our ADSs are listed on the New York Stock Exchange, and thus are readily tradable on an establishedsecurities market in the United States. Since we do not expect that our ordinary shares will be listed on an established securitiesmarket, it is unclear whether dividends that we pay on our ordinary shares that are not represented by ADSs will meet the conditionsrequired for the reduced tax rate. There can be no assurance that our ADSs will continue to be considered readily tradable on anestablished securities market in later years.In the event that we are deemed to be a PRC resident enterprise under the PRC Enterprise Income Tax Law, a U.S. Holdermay be subject to PRC withholding taxes on dividends paid on our ADSs or ordinary shares. We may, however, be eligible for thebenefits of the United States-PRC income tax treaty (which the Secretary of Treasury of the United States has determined issatisfactory for the purpose of being a “qualified foreign corporation”). If we are eligible for such benefits, dividends we pay on ourordinary shares, regardless of whether such shares are represented by the ADSs, would be eligible for the reduced rates of taxationdescribed in the preceding paragraph. Dividends received on our ADSs or ordinary shares will not be eligible for the dividendsreceived deduction allowed to corporations.Dividends will generally be treated as income from foreign sources for United States foreign tax credit purposes and willgenerally constitute passive category income. Depending on the U.S. Holder’s individual facts and circumstances, a U.S. Holdermay be eligible, subject to a number of complex limitations, to claim a foreign tax credit not in excess of any applicable treaty ratein respect of any foreign withholding taxes imposed on dividends received on our ADSs or ordinary shares. A U.S. Holder who doesnot elect to claim a foreign tax credit for foreign tax withheld may instead, subject to applicable limitations, claim a deduction, forUnited States federal income tax purposes, in respect of such withholding, but only for a year in which such holder elects to do sofor all creditable foreign income taxes. The rules governing the foreign tax credit are complex and their outcome depends in largepart on the U.S. Holder’s individual facts and circumstances. Accordingly, U.S. Holders are urged to consult their tax advisorsregarding the availability of the foreign tax credit under their particular circumstances.Table of Contents131Sale or Other Disposition of ADSs or Ordinary SharesSubject to the discussion below under “Passive Foreign Investment Company Rules,” a U.S. Holder will generallyrecognize gain or loss upon the sale or other disposition of ADSs or ordinary shares in an amount equal to the difference betweenthe amount realized upon the disposition and the holder’s adjusted tax basis in such ADSs or ordinary shares. Any gain or loss willbe capital gain or loss if the ADSs or ordinary shares have been held for more than one year and will generally be United Statessource gain or loss for United States foreign tax credit purposes. Long-term capital gains of non-corporate taxpayers are currentlyeligible for reduced rates of taxation. In the event that gain from the disposition of the ADSs or ordinary shares is subject to tax inthe PRC, such gain may be treated as PRC source gain under the United States-PRC income tax treaty. The deductibility of a capitalloss may be subject to limitations. U.S. Holders are urged to consult their tax advisors regarding the tax consequences if a foreigntax is imposed on a disposition of our ADSs or ordinary shares, including the availability of the foreign tax credit under theirparticular circumstances.Passive Foreign Investment Company RulesIf we are classified as a PFIC for any taxable year during which a U.S. Holder holds our ADSs or ordinary shares, andunless the U.S. Holder makes a mark-to-market election (as described below), the U.S. Holder will generally be subject to specialtax rules that have a penalizing effect, regardless of whether we remain a PFIC, on (i) any excess distribution that we make to theU.S. Holder (which generally means any distribution paid during a taxable year to a U.S. Holder that is greater than 125 percent ofthe average annual distributions paid in the three preceding taxable years or, if shorter, the U.S. Holder’s holding period for theADSs or ordinary shares), and (ii) any gain realized on the sale or other disposition, including a pledge, of ADSs or ordinary shares.Under the PFIC rules:●the excess distribution or gain will be allocated ratably over the U.S. Holder’s holding period for the ADSs or ordinaryshares;●the amount allocated to the current taxable year and any taxable years in the U.S. Holder’s holding period prior to thefirst taxable year in which we are classified as a PFIC (each, a “pre-PFIC year”), will be taxable as ordinary income;●the amount allocated to each prior taxable year, other than a pre-PFIC year, will be subject to tax at the highest tax ratein effect for individuals or corporations, as appropriate, for that year; and●increased by an additional tax equal to the interest on the resulting tax deemed deferred with respect to each suchtaxable year.If we are a PFIC for any taxable year during which a U.S. Holder holds our ADSs or ordinary shares and any of oursubsidiaries or VIEs is also a PFIC, such U.S. Holder would be treated as owning a proportionate amount (by value) of the shares ofthe lower-tier PFIC for purposes of the application of these rules. U.S. Holders are urged to consult their tax advisors regarding theapplication of the PFIC rules to any of our subsidiaries or VIEs.Table of Contents132As an alternative to the foregoing rules, a U.S. Holder of “marketable stock” in a PFIC may make a mark-to-marketelection with respect to such stock; provided that such stock is regularly traded. Our ADSs are listed on the New York StockExchange, which is an established securities market in the United States. Consequently, if ADSs continue to be listed on the NewYork Stock Exchange and are being regularly traded, we expect that the mark-to-market election would be available to a U.S. Holderthat holds our ADS were we to be or become a PFIC. Our ADSs are expected to qualify as being regularly traded, but no assurancesmay be given in this regard. If a U.S. Holder makes this election with respect to our ADSs, the holder will generally (i) include asordinary 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 thetaxable year over the adjusted tax basis of such ADSs and (ii) deduct as an ordinary loss the excess, if any, of the adjusted tax basisof the ADSs over the fair market value of such ADSs held at the end of the taxable year, but such deduction will only be allowed tothe extent of the amount previously included in income as a result of the mark-to-market election. The U.S. Holder’s adjusted taxbasis in the ADSs would be adjusted to reflect any income or loss resulting from the mark-to-market election. If a U.S. Holdermakes a mark-to-market election in respect of a corporation classified as a PFIC and such corporation ceases to be classified as aPFIC, the holder will not be required to take into account the gain or loss described above during any period that such corporation isnot classified as a PFIC. If a U.S. Holder makes a mark-to-market election, any gain such U.S. Holder recognizes upon the sale orother disposition of our ADSs in a year when we are a PFIC will be treated as ordinary income and any loss will be treated asordinary loss, but such loss will only be treated as ordinary loss to the extent of the net amount previously included in income as aresult of the mark-to-market election.The mark-to-market election is available only for “marketable stock,” which is stock that is traded in other than de minimisquantities on at least 15 days during each calendar quarter (“regularly traded”) on a qualified exchange or other market, as defined inapplicable United States Treasury regulations. Our ADSs, but not our class A ordinary shares, are tradable on the New York StockExchange, which is a qualified exchange. We anticipate that the ADSs should qualify as being regularly traded, but no assurancesmay be given in this regard.Because a mark-to-market election cannot technically be made for any lower-tier PFICs that we may own, a U.S. Holdermay continue to be subject to the PFIC rules with respect to such U.S. Holder’s indirect interest in any investments held by us thatare treated as an equity interest in a PFIC for United States federal income tax purposes.We do not intend to provide information necessary for U.S. Holders to make qualified electing fund elections which, ifavailable, would result in tax treatment different from the general tax treatment for PFICs described above.If a U.S. Holder owns our ADSs or ordinary shares during any taxable year that we are a PFIC, the holder must generallyfile an annual IRS Form 8621 or such other form as is required by the United States Treasury Department. Each U.S. Holder isadvised to consult its tax advisor regarding the United States federal income tax considerations of owning and disposing of ourADSs or ordinary shares if we are or become a PFIC, including the availability and possibility of making a mark-to-market election.F.Dividends and Paying AgentsNot applicable.G.Statement by ExpertsNot applicable.Table of Contents133H.Documents on DisplayWe are subject to the periodic reporting and other informational requirements of the Exchange Act. Under the ExchangeAct, we are required to file reports and other information with the SEC. Specifically, we are required to file annually a Form 20-F nolater than four months after the close of each fiscal year. Copies of reports and other information, when so filed, may be inspectedwithout 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 Roomby calling the SEC at 1-800-SEC-0330. The SEC also maintains a web site at www.sec.gov that contains reports, proxy andinformation statements, and other information regarding registrants that make electronic filings with the SEC using its EDGARsystem. As a foreign private issuer, we are exempt from the rules under the Exchange Act prescribing the furnishing and content ofquarterly 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 Deutsche Bank Trust Company Americas., the depositary of our ADSs, with our annual reports, which willinclude a review of operations and annual audited consolidated financial statements prepared in conformity with U.S. GAAP, and allnotices of shareholders’ meetings and other reports and communications that are made generally available to our shareholders. Thedepositary will make such notices, reports and communications available to holders of ADSs and, upon our request, will mail to allrecord holders of ADSs the information contained in any notice of a shareholders’ meeting received by the depositary from us.I.Subsidiary InformationNot applicable.ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKInflationTo date, inflation in China has not materially impacted our results of operations. According to the National Bureau of Statistics of China, the year-over-year percent changes in the consumer price index for December 2018, 2019 and 2020 were increases of 2.1%, 2.9% and 2.5%, respectively. Although we have not been materially affected by inflation in the past, we can provide no assurance that we will not be affected by higher rates of inflation in China in the future.Market RisksForeign Exchange RiskA majority of our expenses and a certain percentage of our revenues are denominated in RMB. We have not used anyderivative financial instruments to hedge exposure to such risk.The conversion of Renminbi into foreign currencies, including U.S. dollars, is based on rates set by the People’s Bank ofChina. The Renminbi has fluctuated against the U.S. dollar, at times significantly and unpredictably. It is difficult to predict howmarket 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 Renminbi against theU.S. dollar would have an adverse effect on Renminbi amount we receive from the conversion. Conversely, if we decide to convertRenminbi into U.S. dollars for the purpose of making payments for dividends on our ordinary shares or ADSs or for other businesspurposes, appreciation of the U.S. dollar against Renminbi would have a negative effect on the U.S. dollar amounts available to us.Table of Contents134As of December 31, 2020, we had RMB-denominated cash and cash equivalents of RMB280.3 million, HKD-denominated cash and cash equivalents of HKD5.3 million, and U.S. dollar-denominated cash and cash equivalents of US$6 million. Assuming we had converted the U.S. dollar-denominated cash and cash equivalents of US$6 million into RMB at the exchange rate of $1.00 for RMB6.525 as of December 31, 2020, a 5% appreciation or depreciation of RMB against the U.S. dollar as of December 31, 2020, would result in a decrease or an increase of RMB2 million in our cash and cash equivalents, respectively. Assuming we had converted the HKD-denominated cash, cash equivalents and restricted cash of HKD5.3 million into RMB at the exchange rate of HKD1.00 for RMB0.8416 as of December 31, 2020, a 5% appreciation or depreciation of RMB against HKD as of December 31, 2020, would result in a decrease or an increase of RMB0.2 million in our cash and cash equivalents, respectively.In recent years, the exchange rate between RMB and U.S. dollar has experienced volatility. It is difficult to predict howmarket forces and government policies may impact the exchange rate between RMB and the U.S. dollar in the future. To date, wehave not entered into any hedging transactions in an effort to reduce our exposure to foreign currency exchange risk, but we may, inthe future, enter into derivatives or other financial instruments in an attempt to hedge our foreign currency exchange risk. Theeffectiveness of these hedges may be limited and we may not be able to successfully reduce our exposure.Interest Rate RiskOur exposure to interest rate risk primarily relates to the interest expenses incurred on bank borrowings and incomegenerated by excess cash, which is mostly held in interest-bearing bank deposits. Interest-earning instruments carry a degree ofinterest rate risk. We have not been exposed to material risks due to changes in interest rates, and we have not used any derivativefinancial instruments to manage our interest risk exposure. However, our future interest income may fall short of expectations due tochanges in market interest rates.ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIESA.Debt SecuritiesNot applicable.B.Warrants and RightsNot applicable.C.Other SecuritiesNot applicable.D.American Depositary SharesFees and Expenses Our ADS Holders May Have to PayDeutsche Bank Trust Company Americas. is our depositary. The principal executive office of the depositary is located at 60Wall Street, New York, NY 10005, USA.Table of Contents135An ADS holder will be required to pay the following service fees to the depositary bank and certain taxes andgovernmental charges (in addition to any applicable fees, expenses, taxes and other governmental charges payable on the depositedsecurities represented by any of your ADSs):Service Fees· To any person to which ADSs are issued or to any person towhich a distribution is made in respect of ADS distributionspursuant to stock dividends or other free distributions ofstock, bonus distributions, stock splits or other distributions(except where converted to cash)Up to US$0.05 per ADS issued· Cancellation of ADSs, including the case of termination ofthe deposit agreementUp to US$0.05 per ADS cancelled· Distribution of cash dividendsUp to US$0.05 per ADS held· Distribution of cash entitlements (other than cash dividends)and/or cash proceeds from the sale of rights, securities andother entitlementsUp to US$0.05 per ADS held· Distribution of ADSs pursuant to exercise of rights.Up to US$0.05 per ADS held· Distribution of securities other than ADSs or rights topurchase additional ADSsUp to US$0.05 per ADS held· Depositary servicesUp to US$0.05 per ADS held on the applicable recorddate(s) established by the depositary bankAn ADS holder will also be responsible to pay certain fees and expenses incurred by the depositary bank and certain taxesand governmental charges (in addition to any applicable fees, expenses, taxes and other governmental charges payable on thedeposited securities represented by any of your ADSs) such as:●Fees for the transfer and registration of Class A ordinary shares charged by the registrar and transfer agent for theClass A ordinary shares in Cayman Islands (i.e., upon deposit and withdrawal of Class A ordinary shares).●Expenses incurred for converting foreign currency into U.S. dollars.●Expenses for cable, telex and fax transmissions and for delivery of securities.●Taxes and duties upon the transfer of securities, including any applicable stamp duties, any stock transfer charges orwithholding taxes (i.e., when Class A ordinary shares are deposited or withdrawn from deposit).●Fees and expenses incurred in connection with the delivery or servicing of Class A ordinary shares on deposit.●Fees and expenses incurred in connection with complying with exchange control regulations and other regulatoryrequirements applicable to Class A ordinary shares, deposited securities, ADSs and ADRs.●Any applicable fees and penalties thereon.The depositary fees payable upon the issuance and cancellation of ADSs are typically paid to the depositary bank by thebrokers (on behalf of their clients) receiving the newly issued ADSs from the depositary bank and by the brokers (on behalf of theirclients) delivering the ADSs to the depositary bank for cancellation. The brokers in turn charge these fees to their clients. Depositaryfees payable in connection with distributions of cash or securities to ADS holders and the depositary services fee are charged by thedepositary bank to the holders of record of ADSs as of the applicable ADS record date.Table of Contents136The depositary fees payable for cash distributions are generally deducted from the cash being distributed or by selling aportion of distributable property to pay the fees. In the case of distributions other than cash (i.e., share dividends, rights), thedepositary bank charges the applicable fee to the ADS record date holders concurrent with the distribution. In the case of ADSsregistered in the name of the investor (whether certificated or uncertificated in direct registration), the depositary bank sendsinvoices to the applicable record date ADS holders. In the case of ADSs held in brokerage and custodian accounts (via DTC), thedepositary bank generally collects its fees through the systems provided by DTC (whose nominee is the registered holder of theADSs held in DTC) from the brokers and custodians holding ADSs in their DTC accounts. The brokers and custodians who holdtheir clients’ ADSs in DTC accounts in turn charge their clients’ accounts the amount of the fees paid to the depositary banks.In the event of refusal to pay the depositary fees, the depositary bank may, under the terms of the deposit agreement, refusethe requested service until payment is received or may set off the amount of the depositary fees from any distribution to be made tothe ADS holder.Fees and Other Payments Made by the Depositary to UsThe depositary may make payments to us or reimburse us for certain costs and expenses, by making available a portion of the ADS fees collected in respect of the ADR program or otherwise, upon such terms and conditions as we and the depositary bank agree from time to time. For the year ended December 31, 2020, we did not receive reimbursement from the depositary.Table of Contents137PART IIITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIESNone.ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDSMaterial Modifications to the Rights of Security HoldersSee “Item 10. Additional Information—B. Memorandum and Articles of Association” for a description of the rights ofsecurities holders, which remain unchanged.Use of ProceedsThe following “Use of Proceeds” information relates to the registration statement on Form F-1, as amended (File Number333- 226867) (the “F-1 Registration Statement”) in relation to our initial public offering, which became effective on September 27,2018. In October 2018, we completed our initial public offering in which we issued and sold an aggregate of 4,350,000 ADSs,representing 217,500,000 Class A ordinary shares. Credit Suisse Securities (USA) LLC, Merrill Lynch, Pierce, Fenner & SmithIncorporated and Citigroup Global Markets Inc. were the representatives of the underwriters for our initial public offering.For the period from the effective date of the F-1 Registration Statement to December 31, 2020, the total expenses incurredfor our company’s account in connection with our IPO was approximately US$7.1 million, which included US$3.7 million inunderwriting discounts and commissions for the IPO and approximately US$3.4 million in other costs and expenses for our IPO. Wereceived net proceeds of approximately US$45.1 million from our initial public offering. None of the transaction expenses includedpayments to directors or officers of our company or their associates, persons owning more than 10% or more of our equity securitiesor our affiliates. None of the net proceeds from the initial public offering were paid, directly or indirectly, to any of our directors orofficers or their associates, persons owning 10% or more of our equity securities or our affiliates.For the period from the effective date of the F-1 Registration Statement to December 31, 2020, we used the net proceedsreceived from our initial public offering as follows:●Approximately US$5.8 million for research and development, to continue to invest in our technological capabilities,particularly big data analytics, and to develop new products and services;●Approximately US$nil million for sales and marketing efforts, including promotional activities for our products toacquire users; and●Approximately US$7.6 million for general corporate purposes, which may include working capital needs and sharerepurchase.We have used the proceeds from our initial public offering as disclosed in the F-1 Registration Statement.Table of Contents138ITEM 15. CONTROLS AND PROCEDURESDisclosure Controls and ProceduresUnder the supervision and with the participation of our management, including our chairman of the board of directors,chief executive officer and our chief financial officer, we carried out an evaluation of the effectiveness of our disclosure controls andprocedures, which is defined in Rules 13a-15(e) of the Exchange Act, as of December 31, 2020. Based upon that evaluation, ourmanagement, with the participation of our chairman of the board of directors, chief executive officer and chief financial officer, hasconcluded that, as of the end of the period covered by this annual report, our disclosure controls and procedures were effective inensuring that the information required to be disclosed by us in this annual report is recorded, processed, summarized and reported tothem for assessment, and required disclosure is made within the time period specified in the rules and forms of the SEC.Management’s Annual Report on Internal Control over Financial ReportingOur management is responsible for establishing and maintaining adequate internal control over financial reporting (asdefined in Rule 13a-15(f) under the exchange Act), under the supervision and with the participation of our chairman of the board ofdirectors, chief executive officer and chief financial officer, our management conducted an assessment of the effectiveness ofinternal control over financial reporting as of December 31, 2020, based on the criteria established in Internal Control — IntegratedFramework (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on thisassessment, our management determined that our internal control over financial reporting was ineffective due to the presence of amaterial weakness.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 becauseof changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.A “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting suchthat there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not beprevented or detected on a timely basis. In preparing our consolidated financial statements for the fiscal years ended December 31,2019, we identified one material and one significant deficiency. The material weakness identified related to the lack of accountingpolicies and procedures relating to financial reporting in accordance with U.S. GAAP and SEC financial reporting requirements.The significant control deficiency related to lack of formal risk assessment process and monitoring activities in connection with thepreparation of our consolidated financial statements.To remediate our identified material weakness and improve our internal control over financial reporting, we haveimplemented a number of measures to address the material weakness and significant deficiency. These measures including thefollows:●We have developed a comprehensive accounting policies and procedures manual in accordance with U.S. GAAPavailable to guide the day-to-day accounting operation and reporting work of our accounting personnel;●We have hired additional competent and qualified accounting and reporting personnel with relevant knowledge andworking experiences of U.S. GAAP;Table of Contents139As of December 31, 2020, based on the measures implemented as described above, while we need to continue to improveour internal controls process, our management concluded the material weakness and the significant deficiency remain as it has notbeen fully remediated. We are in the process of implementing remediation measures to remediate the material weakness andsignificant deficiency. However, we cannot assure you that we will remediate our deficiencies in a timely manner.This Annual Report does not include an attestation report of the Company’s independent registered public accounting firmregarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’sindependent registered public accounting firm pursuant to the temporary rules of the SEC that permit the Company to provide onlymanagement’s report in this Annual Report.Our independent registered public accounting firm were not required to perform an evaluation of our internal control overfinancial reporting as of December 31, 2020. Had our independent registered public accounting firm performed an audit of ourinternal control over financial reporting, additional control deficiencies may have been identified. See “Item 3. Key Information—D.Risk Factors—Risks Related to Our Business—If we fail to implement and maintain an effective system of internal control, we maybe unable to accurately report our operating results, meet our reporting obligations or prevent fraud.”As a company with less than US$1.07 billion in revenue for our last fiscal year, we qualify as an “emerging growthcompany” pursuant to the JOBS Act. An emerging growth company may take advantage of specified reduced reporting and otherrequirements that are otherwise applicable generally to public companies. These provisions include exemption from the auditorattestation requirement under Section 404 of the Sarbanes-Oxley Act of 2002, in the assessment of the emerging growth company’sinternal control over financial reporting for five years.Changes in Internal Control Over Financial ReportingOther than as described above, there have been no changes in the Company’s internal control over financial reportingduring the period ended December 31, 2020 that have materially affected the Company’s internal controls over financial reporting.ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERTOur board of directors has determined that each of Mr. Haibing Wu and Ms. Jue Yao, members of our audit committee andindependent directors (under the standards set forth in Section 303A of the Corporate Governance Rules of the New York StockExchange and Rule 10A-3 under the Securities Exchange Act of 1934), is an audit committee financial expert.ITEM 16B. CODE OF ETHICSOur board of directors adopted a code of business conduct and ethics that applies to our directors, officers and employees inAugust 2018. We have posted a copy of our code of business conduct and ethics on our website at https://ir.cootek.com/.Table of Contents140ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICESThe following table sets forth the aggregate fees by categories specified below in connection with certain professionalservices rendered by Deloitte Touche Tohmatsu Certified Public Accountants LLP, our principal external auditors, for the periodsindicated. For theYear Ended December 31, 2019 2020(in US$ thousands)Audit fees (1) 730 830Audit-related fees (2) — 200Tax fees (3) 19 37Notes:(1)“Audit fees” means the aggregate fees billed for professional services rendered by our independent registered public accountingfirm for the audit of our annual financial statements.(2)“Audit-related fees” includes the aggregate fees billed for the professional services rendered by our principal auditors forassurance and related services that are reasonably related to the performance of the audit or review of our consolidated financialstatements and are not reported under “Audit Fees.” Audit-related fees in 2020 was to support the submission of RegistrantStatement of Form F-3.(3)“Tax fees” means the aggregate fees billed for professional services rendered by our independent registered public accountingfirm for tax compliance, tax advice and tax planning.The policy of our audit committee is to pre-approve all audit and other service provided by Deloitte Touche TohmatsuCertified Public Accountants LLP, our independent registered public accounting firm, including audit services, audit-relatedservices, tax services and other services as described above, other than those for de minimis services which are approved by theAudit Committee prior to the completion of the audit.ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEESNot applicable.ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERSOn November 24, 2018, our board of directors authorized a share repurchase program under which we may purchase up toUS$15 million worth of our ordinary shares or American depositary shares representing ordinary shares over the 12 months startingfrom November 30, 2018, which plan was early terminated on November 20, 2019. We purchased shares from time to time underthis repurchase program on the open market at prevailing market prices.On November 20, 2019, the Company announced a share repurchase program (the "2019 Program") whereby the Companyis authorized to repurchase its class A ordinary shares in the form of American depository shares ("ADSs") with an aggregate valueof up to US$6 million during the 6-month period starting from November 20, 2019. The 2019 Program was early terminated on May18, 2020. The Company had used an aggregate of US$5.9 million to repurchase 1.0 million ADSs under the 2019 Program andrecorded as treasury stock as of June 30, 2020.Table of Contents141On May 18, 2020, the Company announced a new share repurchase program (the "2020 Program") on the same day. In thenew share repurchase program, the Company is authorized to repurchase its class A ordinary shares in the form of ADSs with anaggregate value of up to US$20 million during the 12-month period starting from May 18, 2020. The Company expects to fund therepurchases under this program with its existing cash balance. As of December 31, 2020, the Company had used an aggregate ofUS$4.7 million to repurchase 0.9 million ADSs under the 2020 Program and recorded as treasury stock. MaximumTotal NumberDollar Value of ADSsof ADSs that Purchased asMay Yet Be Average PricePart of PubliclyPurchasedTotal Number ofPaid PerAnnouncedUnder PlansADSsADS(1)Plans oror Programs Purchased(1) (US$) Programs (US$)Month #1 (January 1, 2020 — January 31, 2020) 184,275 5.40 184,275(2) 3,941,333Month #2 (February 1, 2020 — February 28, 2020) 196,221 5.84 196,221(2) 2,795,096Month #3 (March 1, 2020 — March 31, 2020) 291,708 6.43 291,708(2) 918,965Month #4 (April 1, 2020 — April 30, 2020) 105,251 6.89 105,251(2) 193,877Month #5 (May 1, 2020 — May 31, 2020) 9,421 6.93 9,421(2) 128,607 38,764 6.91 38,764(3) 19,732,150Month #6 (June 1, 2020 — June 30, 2020) 116,346 6.84 116,346(3) 18,935,901Month #7 (July 1, 2020 — July 31, 2020) 178,144 6.93 178,144(3) 17,702,222Month #8 (August 1, 2020 — August 31, 2020) 108,855 6.30 108,855(3) 17,016,049Month #9 (September 1, 2020 — September 30, 2020) 66,429 5.10 66,429(3) 16,677,333Month #10 (October 1, 2020 — October 31, 2020) 35,924 4.72 35,924(3) 16,507,660Month #11(November 1, 2020 — November 31, 2020) 42,204 4.94 42,204(3) 16,299,138Month #12 (December 1, 2020 — December 31, 2020) 303,555 3.20 303,555(3) 15,327,666Total 1,677,097 5.65 1,677,097 15,327,666(1)Each ADS represents 50 Class A ordinary shares.(2)On November 17, 2019, our board of directors authorized a share purchase plan under which we are authorized to repurchaseour class A ordinary shares in the form of ADSs with an aggregate value of up to US$6 million during the 6-month periodstarting from November 20, 2019.(3)On May 18, 2020, our board of directors authorized a share purchase plan under which we are authorized to repurchase ourclass A ordinary shares in the form of ADSs with an aggregate value of up to US$20 million during the 12-month periodstarting from May 18, 2020.ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANTNot applicable.ITEM 16G. CORPORATE GOVERNANCESection 303A.01 of the NYSE Listed Company Manual requires a listed company to have a majority of independentdirectors.Section 303A.07(a) of the NYSE Listed Company Manual requires the audit committee to have a minimum of threemembers.Table of Contents142We are a Cayman Islands exempted company, and there are no requirements under applicable Cayman Islands law thatcorrespond to these sections of the NYSE Listed Company Manual. Pursuant to the exception granted to foreign private issuersunder Section 303A.00 of the NYSE Listed Company Manual, we have followed our home country practice and are exempted fromthe requirements of Sections 303A.01, and 303A.07(a) of the NYSE Listed Company Manual.Our shareholders may be afforded less protection than they otherwise would under the New York Stock Exchangecorporate governance listing standards applicable to U.S. domestic issuers.Other than the requirements discussed above, there are no significant differences between our corporate governancepractices and those followed by domestic listed companies as required under the NYSE Listed Company Manual.ITEM 16H. MINE SAFETY DISCLOSURENot applicable.Table of Contents143PART IIIITEM 17. FINANCIAL STATEMENTSWe have elected to provide financial statements pursuant to Item 18.ITEM 18. FINANCIAL STATEMENTSThe consolidated financial statements of CooTek (Cayman) Inc. are included at the end of this annual report.ITEM 19. EXHIBITSExhibit Number Description of Document1.1Seventh Amended and Restated Memorandum and Articles of Incorporation of the Registrant (incorporated by reference toExhibit 3.2 from our registration statement on Form F-1, as amended, initially filed on August 16, 2018 (File No. 333- 226867))2.1Specimen American Depositary Receipt of the Registrant (included in Exhibit 2.3) (incorporated by reference to Exhibit 4.1 fromour registration statement on Form F-1 (File No. 333-226867), as amended, initially filed with the Commission on August 16, 2018)2.2Specimen Certificate for Class A Ordinary Shares of the Registrant (incorporated by reference to Exhibit 4.2 from our registrationstatement on Form F-1 (File No. 333-226867), as amended, initially filed with the Commission on August 16, 2018)2.3Form of Deposit Agreement among the Registrant, the depositary and holders and beneficial holders of the American DepositaryShares (incorporated by reference to Exhibit 4.3 from our registration statement on Form F-1 (File No. 333-226867), as amended,initially filed with the Commission on August 16, 2018)2.4Fifth Amended and Restated Shareholders Agreement between the Registrant and other parties therein dated January 10, 2017(incorporated by reference to Exhibit 4.4 from our registration statement on Form F-1 (File No. 333-226867), as amended, initiallyfiled with the Commission on August 16, 2018)2.5*Description of Securities.4.12012 Stock Incentive Plan(incorporated by reference to Exhibit 10.1 from our registration statement on Form F-1 (File No. 333-226867), as amended, initially filed with the Commission on August 16, 2018)4.22018 Share Incentive Plan(incorporated by reference to Exhibit 10.2 from our registration statement on Form F-1 (File No. 333-226867), as amended, initially filed with the Commission on August 16, 2018)4.3Form of Indemnification Agreement between the Registrant and its directors and executive officers (incorporated by reference toExhibit 10.3 from our registration statement on Form F-1 (File No. 333-226867), as amended, initially filed with the Commissionon August 16, 2018)4.4Form of Employment Agreement between the Registrant and executive officers of the Registrant (incorporated by reference toExhibit 10.4 from our registration statement on Form F-1 (File No. 333-226867), as amended, initially filed with the Commissionon August 16, 2018)4.5Executed form of exclusive business cooperation agreement between Shanghai Chule (CooTek) Information Technology Co., Ltd.and a VIE of the Registrant, as currently in effect, and a schedule of all executed exclusive business cooperation agreementsadopting the same form in respect of each of the VIEs of the Registrant (incorporated by reference to Exhibit 4.5 from our annualreport on Form 20-F (File No. 001-38665) filed with the Commission on April 20, 2020).4.6Executed form of exclusive purchase option agreements among Shanghai Chule (CooTek) Information Technology Co., Ltd. andeach shareholder of the VIEs of the Registrant, as currently in effect, and a schedule of all executed exclusive purchase optionagreements adopting the same form in respect of each of the VIEs of the Registrant (incorporated by reference to Exhibit 4.6 fromour annual report on Form 20-F (File No. 001-38665) filed with the Commission on April 20, 2020).4.7Executed form of equity pledge agreements among Shanghai Chule (CooTek) Information Technology Co., Ltd. and eachshareholder of the VIEs of the Registrant, as currently in effect, and a schedule of all equity pledge agreement adopting the sameform in respect of each of the VIEs of the Registrant (incorporated by reference to Exhibit 4.7 from our annual report on Form 20-F(File No. 001-38665) filed with the Commission on April 20, 2020).4.8Executed form of powers of attorney granted by each shareholder of the VIEs of the Registrant, as currently in effect, and aschedule of all powers of attorney adopting the same form in respect of each of VIEs of the Registrant (incorporated by reference toExhibit 4.8 from our annual report on Form 20-F (File No. 001-38665) filed with the Commission on April 20, 2020).Table of Contents144Exhibit Number Description of Document4.9Executed form of loan agreement between Shanghai Chule (CooTek) Information Technology Co., Ltd. and each shareholder of theVIEs of the Registrant, as currently in effect, and a schedule of all executed loan agreements adopting the same form in respect ofeach of the VIEs of the Registrant (incorporated by reference to Exhibit 4.9 from our annual report on Form 20-F (File No. 001-38665) filed with the Commission on April 20, 2020).4.10The form spouse consent letter signed by each spouse of the shareholders of the VIEs of the Registrant, as currently in effect(incorporated by reference to Exhibit 4.10 from our annual report on Form 20-F (File No. 001-38665) filed with the Commission onApril 20, 2020).4.11Series D-1 Preferred Share Purchase Agreement between the Registrant and other parties dated January 10, 2017 (incorporated byreference to Exhibit 10.11 from our registration statement on Form F-1 (File No. 333-226867), as amended, initially filed with theCommission on August 16, 2018)4.12The form of audience network terms between Facebook, Inc. and Facebook Ireland Limited and us (incorporated by reference toExhibit 10.12 from our registration statement on Form F-1 (File No. 333-226867), as amended, initially filed with the Commissionon August 16, 2018)4.13The form of Google DoubleClick Platform Services Terms and Conditions between Google Inc. and us (incorporated by referenceto Exhibit 10.13 from our registration statement on Form F-1 (File No. 333-226867), as amended, initially filed with theCommission on August 16, 2018)4.14The form of DFP Small Business Online Standard Terms & Conditions between Google Inc. and us (incorporated by reference toExhibit 10.14 from our registration statement on Form F-1 (File No. 333-226867), as amended, initially filed with the Commissionon August 16, 2018)4.15The form of Google AdSense Online Terms of Service between Google Inc. and us (incorporated by reference to Exhibit 10.15from our registration statement on Form F-1 (File No. 333-226867), as amended, initially filed with the Commission on August 16,2018)4.16The form of MoPub Terms of Service between Twitter, Inc. and the Registrant (incorporated by reference to Exhibit 4.16 from ourannual report on Form 20-F (File No. 001-38665), filed with the Commission on April 15, 2019)4.17*The form of Chuan Shan Jia Distribution Cooperation Agreement signed by certain VIEs of the Registrant and a schedule of allexecuted Chuan Shan Jia Distribution Cooperation Agreements adopting the same form in respect of each of these VIEs of theRegistrant4.18Securities Purchase Agreement between the Registrant and YA II PN, LTD. dated January 19, 2021 (incorporated by reference toExhibit 10.1 from our Form 6-K (File No. 001-38665), filed on January 19, 2021)4.19Convertible Note issued by the Registrant to YA II PN, LTD. dated January 19, 2021 (incorporated by reference to Exhibit 10.2from our Form 6-K (File No. 001-38665), filed on January 19, 2021)4.20Securities Purchase Agreement between the Registrant and YA II PN, LTD. dated March 19, 2021 (incorporated by reference toExhibit 10.1 from our Form 6-K (File No. 001-38665), filed on March 19, 2021)4.21Convertible Note issued by the Registrant to YA II PN, LTD. dated March 19, 2021 (incorporated by reference to Exhibit 10.2 fromour Form 6-K (File No. 001-38665), filed on March 19, 2021)8.1*List of Principal Subsidiaries and Variable Interest Entities of the Registrant11.1Code of Business Conduct and Ethics of Registrant (incorporated by reference to Exhibit 99.1 from our registration statement onForm F-1 (File No. 333-226867), as amended, initially filed with the Commission on August 16, 2018)12.1*Chief Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 200212.2*Chief Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 200213.1**Chief Executive Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 200213.2**Chief Financial Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 200215.1*Consent of Deloitte Touche Tohmatsu Certified Public Accountants LLP, an independent registered public accounting firm15.2*Consent of JunHe LLP15.3*Consent of Maples and Calder (Hong Kong) LLP101.INS*XBRL Instance Document101.SCH*XBRL Taxonomy Extension Schema Document101.CAL*XBRL Taxonomy Extension Calculation Linkbase Document101.DEF*XBRL Taxonomy Extension Definition Linkbase Document101.LAB*XBRL Taxonomy Extension Label Linkbase Document101.PRE*XBRL Taxonomy Extension Presentation Linkbase Document104*Cover Page Interactive Data File (embedded within the Inline XBRL document)* Filed with this Annual Report on Form 20-F.Table of Contents145** Furnished with Annual Report on Form 20-F.Table of Contents146SIGNATURESThe registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused andauthorized the undersigned to sign this annual report on its behalf. CooTek (Cayman) Inc. By:/s/ Karl Kan ZhangName: Karl Kan Zhang Title:Chairman of the Board of Directors and Chief TechnologyOfficer Date: April 26, 2021 Table of ContentsF-1INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting FirmF-2Consolidated Balance Sheets as of December 31, 2019 and 2020F-3Consolidated Statements of Operations for the years ended December 31, 2018, 2019 and 2020F-4Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2018, 2019 and 2020F-5Consolidated Statements of Changes in Shareholders’ Equity (Deficit) for the years ended December 31, 2018, 2019and 2020F-6Consolidated Statements of Cash Flows for the years ended December 31, 2018, 2019 and 2020F-7Notes to the Consolidated Financial StatementsF-8Schedule I—Additional Financial Information of Parent CompanyF-39Table of ContentsF-2REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of Directors and shareholders of CooTek (Cayman) Inc.Opinion on the Financial StatementsWe have audited the accompanying consolidated balance sheets of CooTek (Cayman) Inc., its subsidiaries and itsconsolidated variable interest entities (the "Company") as of December 31, 2019 and 2020, the related consolidated statements ofoperations, comprehensive income (loss), changes in shareholders' equity (deficit), and cash flows for each of the three years in theperiod ended December 31, 2020 and the related notes and the schedule listed in the Schedule I (collectively referred to as the"financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of theCompany as of December 31, 2019 and 2020, and the results of its operations and its cash flows for each of the three years in theperiod ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.Basis for OpinionThese financial statements are the responsibility of the Company's management. Our responsibility is to express an opinionon the Company's financial statements based on our audits. We are a public accounting firm registered with the Public CompanyAccounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company inaccordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and ExchangeCommission and the PCAOB.We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan andperform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whetherdue to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control overfinancial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting butnot 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 audit included performing procedures to assess the risks of material misstatement of the financial statements, whetherdue 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 audit also included evaluating the accountingprinciples used and significant estimates made by management, as well as evaluating the overall presentation of the financialstatements. We believe that our audits provide a reasonable basis for our opinion./s/ Deloitte Touche Tohmatsu Certified Public Accountants LLP Shanghai, China April 26, 2021 We have served as the Company’s auditor since 2018.Table of ContentsF-3COOTEK (CAYMAN) INC.CONSOLIDATED BALANCE SHEETSAs of December 31, Notes 2019 2020US$US$ASSETS Current assets: Cash and cash equivalents 59,905,827 24,669,133Restricted cash 2(f)60,204 3,264,145Short-term investments571,50850,028Accounts receivable, net of allowance for doubtful accounts of US$1,774,192 and US$1,161,955 as ofDecember 31, 2019 and 2020, respectively 327,254,634 28,127,346Prepaid expenses and other current assets 47,847,794 12,073,226Total current assets 95,639,967 68,183,878Long-term restricted cash2(f)—21,689,436Property and equipment, net 55,669,849 5,393,742Intangible assets, net6267,736396,495Long-term investments7—306,518Other non-current assets 259,108 932,311TOTAL ASSETS 101,836,660 96,902,380LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) Current liabilities (including amounts of the consolidated VIEs without recourse to the Company. SeeNote 2(b)): Accounts payable 37,877,800 76,125,973Short-term bank borrowings 89,012,645 10,958,022Accrued salary and benefits 5,598,425 9,143,476Accrued expenses and other current liabilities 95,955,956 10,686,518Deferred revenue 3,887,908 3,331,511Total current liabilities 62,332,734 110,245,500Other non-current liabilities595,563459,435TOTAL LIABILITIES 62,928,297 110,704,935Commitments and contingencies16 Shareholders’ equity (deficit): Class A ordinary shares (US$0.00001 par value; 13,750,000,000 shares authorized as of December 31, 2019and 2020; 2,880,056,332 and 2,845,646,241 shares issued as of December 31, 2019 and 2020, respectively;2,870,119,332 and 2,801,135,191 shares outstanding as of December 31, 2019 and 2020, respectively)1228,80028,456Class B ordinary shares (US$0.00001 par value; 250,000,000 shares authorized; 246,224,465 shares issuedand outstanding as of December 31, 2019 and 2020)122,4622,462Treasury shares (9,937,000 and 44,511,050 shares as of December 31, 2019 and 2020, respectively)13(1,063,547)(4,672,334)Additional paid-in capital 194,971,827 193,918,852Accumulated deficit (153,598,346) (200,965,075)Accumulated other comprehensive loss (1,432,833) (2,114,916)Total shareholders' equity (deficit) 38,908,363 (13,802,555)TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) 101,836,660 96,902,380The accompanying notes are an integral part of these consolidated financial statements.Table of ContentsF-4COOTEK (CAYMAN) INC.CONSOLIDATED STATEMENTS OF OPERATIONSFor the years endedDecember 31, Notes 2018 2019 2020 US$ US$US$Net revenues2(n)134,109,632177,883,105441,505,231Cost of revenue (including share-based compensation ofUS$53,850, US$91,597 and US$276,085 in 2018, 2019 and 2020, respectively) (14,932,713) (15,300,854)(24,128,462)Gross profit 119,176,919 162,582,251417,376,769Operating expenses: General and administrative expenses (including share-basedcompensation of US$389,802, US$568,077 and US$1,814,335in 2018, 2019 and 2020, respectively) (10,728,807) (16,256,192)(15,017,499)Research and development expenses (including share-basedcompensation of US$1,788,724, US$2,806,587 andUS$3,034,240 in 2018, 2019 and 2020, respectively) (19,324,657) (26,935,497)(29,669,615)Sales and marketing expenses (including share-basedcompensation of US$127,095, US$196,224 and US$212,381 in2018, 2019 and 2020, respectively) (80,729,626) (157,027,956)(418,261,754)Other operating income (loss), net 101,609,159 872,269(2,274,507)Total operating expenses (109,173,931) (199,347,376)(465,223,375)Income (loss) from operations 10,002,988 (36,765,125)(47,846,606)Interest income, net 214,730 763,497395,629Impairment loss of investment—(500,032)—Foreign exchange (losses) gains, net (70,033) (342,687)91,335Income (loss) before income taxes 10,147,685 (36,844,347)(47,359,642)Income tax expenses 11(220) (1,714)(7,087)Net Income (loss) attributable to ordinary shareholders 10,147,465 (36,846,061)(47,366,729)Net Income (loss) per ordinary share: 15 Basic 0.003 (0.01)(0.02)Diluted 0.003 (0.01)(0.02)Net Income (loss) per ADS (each of ADS represents 50 Class Aordinary shares):Basic0.17(0.58)(0.77)Diluted0.15(0.58)(0.77)Weighted average shares used in calculating net income (loss)per ordinary share: Basic 1,464,257,884 3,155,082,9833,080,332,924Diluted1,591,094,6303,155,082,9833,080,332,924The accompanying notes are an integral part of these consolidated financial statements.Table of ContentsF-5COOTEK (CAYMAN) INC.CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)For the years endedDecember 31, 2018 2019 2020 US$ US$US$Net Income (Loss)10,147,465(36,846,061)(47,366,729)Other comprehensive loss Foreign currency translation adjustments, net of tax of nil (2,251,548) (273,933)(682,083)Comprehensive Income (Loss) 7,895,917 (37,119,994)(48,048,812)The accompanying notes are an integral part of these consolidated financial statements.Table of ContentsF-6COOTEK (CAYMAN) INC.CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIT)AccumulatedAdditionalotherTotalClass AClass B paid-inAccumulated comprehensive shareholders'Ordinary sharesOrdinary sharesOrdinary shares Treasury Sharescapitaldeficitincome (loss) equity (deficit) Shares US$ Shares US$ Shares US$ Shares US$ US$ US$ US$ US$Balance at January 1, 2018 898,393,690 8,984—————— 876,560 (126,899,750) 1,092,648 (124,921,558)Net Income — ——————— — 10,147,465 — 10,147,465Conversion of Class A/B ordinary shares upon the completion ofinitial public offering(“IPO”)(898,393,690) (8,984)652,169,2256,522246,224,4652,462——————Repurchase of ordinary shares — —————15,550,500(2,499,167) — — — (2,499,167)Issuance of ordinary shares for IPO, net of issuance costs — —217,500,0002,175———— 45,118,147 — — 45,120,322Conversion of preferred shares into Class A ordinary shares upon IPO——2,079,938,01120,799————156,347,011——156,367,810Share-based compensation————————2,359,471——2,359,471Issuance of ordinary shares upon vesting of restricted shares——150,0002————(2)———Foreign currency translation adjustments——————————(2,251,548)(2,251,548)Balance at December 31, 2018——2,949,757,23629,498246,224,4652,46215,550,500(2,499,167)204,701,187(116,752,285)(1,158,900)84,322,795Net Loss—————————(36,846,061)—(36,846,061)Issuance of ordinary shares upon vesting of restricted shares——5,038,14650————(50)———Repurchase of ordinary shares——————80,311,250(12,283,426)———(12,283,426)Exercise of share options——11,185,700111————326,392——326,503Share-based compensation — ——————— 3,662,485 — — 3,662,485Cancellation of treasury shares——(85,924,750)(859)——(85,924,750)13,719,046(13,718,187)———Foreign currency translation adjustments — ——————— — — (273,933) (273,933)Balance at December 31, 2019 — —2,880,056,33228,800246,224,4652,4629,937,000(1,063,547) 194,971,827 (153,598,346) (1,432,833) 38,908,363Net Loss—————————(47,366,729)—(47,366,729)Issuance of ordinary shares upon vesting of restricted shares(Note 14)——4,278,10043————(43)———Repurchase of ordinary shares (Note 13)——————83,854,891(9,480,179)———(9,480,179)Cash settlement on vested share options and restricted shares(Note 14)————————(823,226)——(823,226)Exercise of share options(Note 14)——10,592,650105————304,153——304,258Share-based compensation — ——————— 5,337,041 — — 5,337,041Cancellation of treasury shares (Note 13)——(49,280,841)(492)——(49,280,841)5,871,392(5,870,900)———Foreign currency translation adjustments — ——————— — — (682,083) (682,083)Balance at December 31, 2020 — —2,845,646,24128,456246,224,4652,46244,511,050(4,672,334) 193,918,852 (200,965,075) (2,114,916) (13,802,555)The accompanying notes are an integral part of these consolidated financial statements.Table of ContentsF-7COOTEK (CAYMAN) INC.CONSOLIDATED STATEMENTS OF CASH FLOWSFor the years ended December 31, 2018 2019 2020 US$ US$US$Cash flows from operating activities: Net income (loss) 10,147,465(36,846,061)(47,366,729)Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 1,153,606 3,005,0083,769,273Provision (reversal) for allowance of doubtful accounts 11,422 4,104,458359,252Impairment loss of investment—500,032—Share-based compensation 2,359,471 3,662,4855,337,041Loss (gain) on disposal of property and equipment 801 (1,227)(18,702)Changes in assets and liabilities: Accounts receivable (12,578,516) (7,868,673)524,312Prepaid expenses and other current assets 222,083 (2,939,454)(4,085,968)Other non-current assets (32,353) 280,438(652,747)Accounts payable 19,354,959 12,964,41433,692,043Accrued salary and benefits 1,302,591 1,089,9692,802,408Accrued expenses and other current liabilities 430,326 3,234,7793,622,072Deferred revenue (158,401) 3,431,8161,320,706Other non-current liabilities892,551(282,263)(154,719)Net cash provided by (used in) operating activities 23,106,005 (15,664,279)(851,758)Cash flows from investing activities: Purchases of property and equipment and intangible assets (3,533,121) (4,760,874)(2,919,854)Proceeds from disposal of property and equipment—1,29959,321Purchases of short-term investments—(571,352)(13,000,000)Proceeds from maturity/sale of short-term investments——13,522,756Repayment of advances to related parties 378,111 ——Purchases of long-term investments(500,032)—(306,518)Net cash used in investing activities (3,655,042) (5,330,927)(2,644,295)Cash flows from financing activities: Proceeds from bank borrowings — 14,083,15332,517,816Repayment of bank borrowings (3,261,936) (5,112,762)(31,018,904)Proceeds from issuance of ordinary shares upon exercise of options—326,503304,259Proceeds from initial public offering48,546,000——Cash paid to settle vested share options and restricted shares——(823,226)Cash paid for issuance costs(2,615,726)(809,952)—Payment of share repurchase(2,499,167)(12,283,426)(9,480,179)Net cash provided by (used in) financing activities 40,169,171 (3,796,484)(8,500,234)Net increase (decrease) in cash, cash equivalents, and restricted cash 59,620,134 (24,791,690)(11,996,287)Cash, cash equivalents, and restricted cash at beginning of year 27,026,240 84,859,91559,966,031Effect of exchange rate changes on cash, cash equivalents and restricted cash (1,786,459) (102,194)1,652,970Cash, cash equivalents, and restricted cash at end of year 84,859,915 59,966,03149,622,714Supplemental disclosure of cash flow information: Income taxes paid 220 1,7147,087Interest paid 92,041 134,991588,533Supplemental disclosure of noncash investing and financing activities:Issuance costs not yet paid809,952——Purchases of property and equipment included in payables—310,865231,823Reconciliation in amounts on consolidated balance sheets: Cash and cash equivalents 84,859,915 59,905,82724,669,133Restricted cash — 60,20424,953,581Total cash, cash equivalents, and restricted cash 84,859,915 59,966,03149,622,714The accompanying notes are an integral part of these consolidated financial statements.Table of ContentsF-8COOTEK (CAYMAN) INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS1.Organization and Principal ActivitiesCooTek (Cayman) Inc. (the "Company") was incorporated in the Cayman Islands on March 5, 2012. The Company, itssubsidiaries, its consolidated variable interest entities ("VIEs") and VIEs' subsidiaries (collectively referred to as the "Group") are afast-growing mobile internet company with a global vision, offering mobile applications.History of the Group and reorganizationThe Group's history began in August 2008 with the commencement of operations of Shanghai Han Xiang (CooTek)Information Technology Co., Ltd ("Han Xiang"), a limited liability company incorporated in the People's Republic of China("PRC") by certain individuals. In October 2010, three outside investors acquired an aggregate of 24.24% equity interest of HanXiang. In 2012, Han Xiang and its shareholders undertook a reorganization which was conducted to establish a Cayman holdingcompany for the existing business to obtain investment from outside investors and in preparation of an overseas initial publicoffering. The Group has recognized the net assets of Han Xiang on a historical cost with no change in basis in the consolidatedfinancial statements upon the completion of the reorganization. The shareholders' rights and obligations remained the same after thereorganization.On October 2, 2018 the Group completed its initial public offering ("IPO") in the United States and issued 4,350,000American depositary shares representing 217,500,000 of the Group's ordinary shares. Net proceeds from the IPO after deductingunderwriting discount and offering costs were US$45.1 million.2.Summary of Significant Accounting Policies(a) Basis of PresentationThe consolidated financial statements of the Group have been prepared in accordance with accounting principles generallyaccepted in the United States of America ("US GAAP").The Group has incurred net losses of US$36.8 million and US$47.4 million for the years ended December 31, 2019 and2020, respectively. The accumulated deficit amounted to US$201.0 million as of December 31, 2020. Net cash used in operatingactivities were US$15.7 million and US$0.9 million for the years ended December 31, 2019 and 2020, respectively. As of December31, 2020, the Group's current liabilities exceed its current assets by US$42.1 million.The Group's liquidity is dependent on its ability to enhance its operating cash flow, obtain capital financing from investorsand borrowings from commercial banks to fund its general operations including its marketing activities. The Group's ability tocontinue as a going concern is dependent on the following factors:●The successful implementation of a balanced growth strategy and an effective financial management which cancontribute to the optimization of the operating cost and expense structure. To implement the plans, the Group willcontinue to improve the stickiness of its existing users by offering higher quality and diversified contents and userincentive program and optimize the new user acquisition strategy to efficiently control and reduce these user relatedcosts. The Group will further strengthen the monetization capability by diversifying its revenue structure andimproving the return on investment of its key products.●Obtaining funds from outside sources of financing to generate positive financing cash flows. As of the date of thisreport, the Group has issued convertible notes with total net proceed of US$27.1 million and a standby equitydistribution agreement with an outside investor to sell up to US$20.0 million of the Company's ADS at the Company'srequest.Table of ContentsCOOTEK (CAYMAN) INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)F-92.Summary of Significant Accounting Policies (Continued)(a) Basis of Presentation (Continued)●While there can be no assurance that the Group will be able to refinance its short-term bank borrowings as theybecome due, historically, the Group has renewed its short term credit facility upon the maturity of the loans andbelieves the Group will continue to be able to do so.If the Group does not have, or is not able to obtain, sufficient funds, the Group may have to adjust its operating plans toreduce operating expenses devoted to maintain existing users and acquire new users, which would impact the scale of the business.Management has concluded, after giving consideration to its plans as noted above, that the Group has sufficient cash andliquidity to fund its operations for one year from the date of the issuance of the consolidated financial statements. Accordingly, theconsolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets andliquidation of liabilities during the normal courses of operations.(b) Principles of ConsolidationThe consolidated financial statements include the financial information of the Company, its wholly owned subsidiaries, itsconsolidated VIEs and VIEs' subsidiaries. All intercompany balances and transactions have been eliminated upon consolidation.Applicable PRC laws and regulations currently limit foreign ownership of companies that provide internet contentdistribution services and any other restrictions. The Company is deemed a foreign legal person under PRC laws and accordinglysubsidiaries owned by the Company are not eligible to engage in provisions of internet content or online services. The Grouptherefore conducts its online business through the following major consolidated VIEs:●Shanghai Chu Bao (CooTek) Information Technology Co., Ltd. ("Chu Bao")●Shanghai Qiaohan Technology Co., Ltd. ("Qiaohan")●Molihong (Shenzhen) Internet Technology Co., Ltd. ("Molihong")●Shanghai Dengyong Information Technology Co., Ltd. ("Dengyong")●Yingsun Information Technology (Ningbo) Co., Ltd. ("Yingsun")*●Shanghai Qinglin Network Technology Co., Ltd. ("Qinglin")* The Group restructured its VIEs and Yingsun was directly controlled by one of subsidiaries of the Group since November2020.To provide the Group effective control over the VIEs and receive substantially all of the economic benefits of the VIEs, theCompany's wholly owned subsidiary, Shanghai ChuLe (CooTek) Information Technology Co., Ltd. ("Chu Le" or "WFOE") enteredinto a series of contractual arrangements, described below, with The VIEs and their respective shareholders.Table of ContentsCOOTEK (CAYMAN) INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)F-102.Summary of Significant Accounting Policies (Continued)(b) Principles of Consolidation (Continued)Agreements that provide the Company effective control over the VIEs include:Voting Rights Proxy Agreements & Irrevocable Power of AttorneyPursuant to which each of the shareholders of VIEs has executed voting rights proxy agreements, appointing the WFOE, orany person designated by the WFOE, as their attorney-in-fact to (i) call and attend shareholders' meetings of VIEs and executerelevant shareholders’ resolutions; (ii) exercise on their behalf all his rights as a shareholder of VIEs, including those rights underPRC laws and regulations and the articles of association of VIEs, such as voting, appointing, replacing or removing directors,(iii) submit all documents as required by governmental authorities on behalf of VIEs, and (iv) assign the shareholding rights ofVIEs, including receiving dividends, disposing of equity interest and enjoying the rights and interests during and after liquidation.Exclusive Purchase Option AgreementsPursuant to which each the VIE shareholders unconditionally and irrevocably granted the WFOE or its designee exclusiveoptions to purchase, to the extent permitted under PRC laws and regulations, all or part of the equity interests in the VIEs. TheWFOE has the sole discretion to decide when to exercise the options, and whether to exercise the options in part or in full. Withoutthe WFOE's written consent, the VIE shareholders may not sell, transfer, pledge or otherwise dispose of or create any encumbranceon any of VIEs' assets or equity interests.Equity Pledge AgreementsThe VIE shareholders agreed to pledge their equity interests in VIEs to the WFOE to secure the performance of the VIEs'obligations under the series of contractual agreements and any such agreements to be entered into in the future. Without priorwritten consent of the WFOE, the VIEs' shareholders shall not transfer or dispose of the pledged equity interests or create or allowany encumbrance on the pledged equity interests. If any economic interests were received by means of their equity interests in theVIEs, such interests belong to the WFOE.Agreements that transfer economic benefits of VIEs to the Group include:Exclusive Business Cooperation AgreementsUnder the exclusive services agreement, the Company and the WFOE have the exclusive right to provide comprehensivetechnical and business support services to the VIEs. In exchange, the VIEs pay monthly service fees to the WFOE in the amountequivalent to all of their net income as confirmed by the WFOE. The WFOE has the right to adjust the service fee rates at its solediscretion. The agreement can be early terminated by the WFOE by giving a 30-day prior notice, but not by the VIEs or VIEshareholders.Loan AgreementsThe WFOE entered into loan agreements with each shareholder of the VIEs. Pursuant to the terms of these loanagreements, the WFOE granted an interest-free loan to each shareholder of the VIEs for the explicit purpose of making a capitalcontribution to the VIEs. The term of the loans are 10 years and shall be renewed automatically every 3 years for an additional3 years unless the WFOE terminates the agreement (which option is at the WFOE's sole discretion) at which point the loans arepayable on demand. The shareholders of the VIEs may not prepay all or any portion of the loans without the WFOE's consent.Table of ContentsCOOTEK (CAYMAN) INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)F-112.Summary of Significant Accounting Policies (Continued)(b) Principles of Consolidation (Continued)Voting Rights Proxy Agreements & Irrevocable Powers of Attorney and Exclusive Purchase Option Agreements providethe Company effective control over the VIEs and its subsidiaries, while the Exclusive Business Cooperation Agreements and EquityPledge Agreements secure the obligations of the shareholders of the VIEs under the relevant agreements. Because the Company,through the WFOE, has (i) the power to direct the activities of the VIEs that most significantly affect the entity's economicperformance and (ii) the right to receive substantially all of the benefits from the VIEs, the Company is deemed the primarybeneficiary of the VIEs. Accordingly, the Company has consolidated the VIEs' financial results of operations, assets and liabilities inthe Group's consolidated financial statements. The aforementioned agreements are effective agreements between a parent andconsolidated subsidiaries, neither of which is accounted for in the consolidated financial statements or are ultimately eliminatedupon consolidation (i.e. service fees under the Exclusive Business Cooperation Agreement).The Group believes that the contractual arrangements with the VIEs are in compliance with PRC law and are legallyenforceable. However, uncertainties in the PRC legal system could limit the Company's ability to enforce the contractualarrangements. If the legal structure and contractual arrangements were found to be in violation of PRC laws and regulations, thePRC government could:●Revoke the business and operating licenses of the Company's PRC subsidiaries and VIEs;●Discontinue or restrict the operations of any related-party transactions between the Company's PRC subsidiaries and VIEs;●Limit the Group's business expansion in China by way of entering into contractual arrangements;●Impose fines or other requirements with which the Company's PRC subsidiaries and VIEs may not be able to comply;●Require the Company or the Company's PRC subsidiaries or VIEs to restructure the relevant ownership structure or operations;or●Restrict or prohibit the Company's use of the proceeds of the additional public offering to finance the Group's business andoperations in China.Table of ContentsCOOTEK (CAYMAN) INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)F-122. Summary of Significant Accounting Policies (Continued)(b) Principles of Consolidation (Continued)The following consolidated financial statement balances and amounts of the Group's VIEs were included in theaccompanying consolidated financial statements after the elimination of intercompany balances and transactions among theCompany, its subsidiaries and its VIEs.As of December 31, 2019 2020US$US$ASSETS Cash and cash equivalents 13,714,304 7,105,349Restricted cash 203 138,964Short-term investments21,502—Accounts receivable, net 21,582,641 16,115,202Prepaid expense and other assets 3,643,649 7,912,712Long-term restricted cash—21,689,436Long-term investments—306,518Property and equipment, net 496 36,422Intangible assets, net47,122—Other non-current assets—224,235Total Assets 39,009,917 53,528,838LIABILITIES Accounts payable 35,002,827 43,099,067Short-term bank borrowings 408,264 267,917Accrued salary and benefits 275,091 694,225Accrued expenses and other current liabilities 1,385,303 4,228,532Deferred revenue 3,658,808 620,688Total Liabilities 40,730,293 48,910,429For the years endedDecember 31, 2018 2019 2020 US$ US$US$Net revenues9,542,00491,701,068355,516,582(Loss) income from operations (105,639) (26,589,386)1,310,310Net (loss) income (84,565) (27,062,076)1,805,819Net cash provided by (used in) operating activities 672,355 (8,917,209)9,873,808Net cash used in investing activities (59,498) (21,502)(344,681)Net cash (used in) provided by financing activities (810,537) 405,304(163,132)The VIEs' assets are comprised of recognized and unrecognized revenue-producing assets. The recognized revenueproducing assets mainly include purchased servers and software, which are presented in the account of "Property and equipment,net" and "Intangible assets, net". The unrecognized revenue-producing assets mainly consist of the Internet Content Provider license("ICP" license), trademarks, copyrights and registered patents, which are not recognized in the consolidated balance sheets.Table of ContentsCOOTEK (CAYMAN) INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)F-132.Summary of Significant Accounting Policies (Continued)(b) Principles of Consolidation (Continued)Revenues of VIEs included in the consolidated financial statements mainly include revenue of advertising services. TheVIEs contributed 7%, 52% and 81% of the Group's consolidated net revenues for years ended December 31, 2018, 2019 and 2020,respectively. As of December 31, 2019 and 2020, the VIEs accounted for an aggregate of 38% and 55% respectively, of theconsolidated total assets, and 65% and 44% respectively, of the consolidated total liabilities.There are no terms in any arrangements, considering both explicit arrangements and implicit variable interests that requirethe Company or its subsidiaries to provide financial support to the VIEs. However, if the VIEs were ever to need financial support,the Group may, at its option and subject to statutory limits and restrictions, provide financial support to its VIE through loans to theshareholders of the VIEs.The Group believes that there are no assets held in the VIEs that can be used only to settle obligations of the VIEs, exceptfor registered capital and the PRC statutory reserves. As the VIEs are incorporated as limited liability companies under the PRCCompany Law, creditors of the VIEs do not have recourse to the general credit of the Company for any of the liabilities of the VIEs.Relevant PRC laws and regulations restrict the VIEs from transferring a portion of their net assets, equivalent to the balance of itsstatutory reserve and its share capital, to the Company in the form of loans and advances or cash dividends. Please refer to Note 19for disclosure of restricted net assets.(c) Use of EstimatesThe preparation of financial statements in conformity with US GAAP requires management to make estimates andassumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts ofrevenues and expenses during the reporting period. Actual results may differ from these estimates. The Group bases its estimates onhistorical experience and various other factors believed to be reasonable under the circumstances, the results of which form the basisfor making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Significantaccounting estimates reflected in the Group's financial statements including but not limited to allowance for doubtful accounts,valuation allowances of deferred tax assets, valuation of share-based compensation and contingent liabilities. Actual results maydiffer materially from those estimates.(d) Fair ValueFair value reflects the price that would be received from selling an asset or paid to transfer a liability in an orderlytransaction between market participants at the measurement date. When determining the fair value measurements for assets andliabilities required or permitted to be recorded at fair value, the Group considers the principal or most advantageous market in whichit would transact and considers assumptions that market participants would use when pricing the assets or liabilities.Table of ContentsCOOTEK (CAYMAN) INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)F-142.Summary of Significant Accounting Policies (Continued)(d) Fair Value (Continued)The Group applies a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize theuse of unobservable inputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy isbased upon the lowest level of input that is significant to the fair value measurement. This guidance specifies a hierarchy ofvaluation techniques, which is based on whether the inputs into the valuation technique are observable or unobservable. Thehierarchy is as follows:●Level 1—Valuation techniques in which all significant inputs are unadjusted quoted prices from active markets for assets orliabilities that are identical to the assets or liabilities being measured.●Level 2—Valuation techniques in which significant inputs include quoted prices from active markets for assets or liabilities thatare similar to the assets or liabilities being measured and/or quoted prices for assets or liabilities that are identical or similar tothe assets or liabilities being measured from markets that are not active. Also, model-derived valuations in which all significantinputs and significant value drivers are observable in active markets are Level 2 valuation techniques.●Level 3—Valuation techniques in which one or more significant inputs or significant value drivers are unobservable.Unobservable inputs are valuation technique inputs that reflect the Group’s own assumptions about the assumptions that marketparticipants would use in pricing an asset or liability.The fair value guidance describes three main approaches to measure the fair value of assets and liabilities: (1) marketapproach; (2) income approach and (3) cost approach. The market approach uses prices and other relevant information generatedfrom market transactions involving identical or comparable assets or liabilities. The income approach uses valuation techniques toconvert future amounts to a single present value amount. The measurement is based on the value indicated by current marketexpectations about those future amounts. The cost approach is based on the amount that would currently be required to replace anasset.When available, the Group uses quoted market prices to determine the fair value of an asset or liability. If quoted marketprices are not available, the Group will measure fair value using valuation techniques that use, when possible, current market-basedor independently sourced market parameters, such as interest rates and currency rates.Beginning January 1, 2019, the Group’s equity investments without readily determinable fair values, which do not qualifyfor Net Asset Value (“NAV”) practical expedient and over which the Group does not have the ability to exercise significantinfluence through the investments in common stock or in substance common stock, are accounted for under the measurementalternative upon the adoption of Accounting Standards Update ("ASU") 2016-01 Recognition and Measurement of Financial Assetsand Liabilities (the "Measurement Alternative"). Under the Measurement Alternative, the carrying value is measured at cost, lessany impairment, plus and minus changes resulting from observable price changes in orderly transactions for identical or similarinvestments. After management’s assessment of each of the long-term investments, management concluded that investments do nothave readily determinable fair values, and elects the measurement alternative.Financial instruments not reported at fair value include cash and cash equivalents, restricted cash, short-term investments,accounts receivable, accounts payable, short-term bank borrowings and other current liabilities. The carrying amounts of thesefinancial instruments as of December 31, 2019 and 2020 were considered representative of their fair values due to their short-termnature. The carrying value of long-term restricted bank deposits approximate fair value as the interest rates are comparable to theprevailing interest rate in the market.Table of ContentsCOOTEK (CAYMAN) INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)F-152.Summary of Significant Accounting Policies (Continued)(e) Foreign Currency TranslationThe functional currency of the Company is the United States Dollar ("US$"). The functional currency of the subsidiariesand the VIEs in the PRC is Renminbi ("RMB"). The functional currency of all the other subsidiaries is US$.Foreign currency transactions have been translated into the functional currency at the exchange rates prevailing on the dateof transactions. Foreign currency denominated monetary assets and liabilities are re-measured into the functional currency atexchange rates prevailing on the balance sheet date. Exchange gains and losses are recorded in the statements of operations.The Group has chosen the US$ as its reporting currency. Assets and liabilities have been translated using exchange ratesprevailing on the balance sheet date. Equity accounts are translated at historical exchange rates. Income statement items have beentranslated using the average exchange rate for the year. Translation adjustments have been reported as cumulative translationadjustments and are shown as a component of other comprehensive income/loss in the consolidated statements of comprehensiveincome (loss) and consolidated statements of changes in shareholders' equity (deficit).(f) Cash, Cash Equivalents and Restricted cashCash and cash equivalents consist of cash on hand, demand deposits and floating rate financial instruments which areunrestricted as to withdrawal or use, and which have original maturities of three months or less when purchased.As of December 31, 2020, restricted cash in current assets were US$3.3 million, mainly consisting of amount of US$3.1million as guarantee deposit for loan facility provided by the bank. Long term restricted cash of US$21.7 million held in Group'sbank accounts were amounts frozen by local authorities in connection with ongoing investigations related to alleged illegal acts ofcertain customers. The Group is cooperating with the relevant authorities on such investigations and expects the funds to be releasedupon the completion of such investigations, the timing of which is out of the Group's control.(g) Short-term InvestmentsShort-term investments primarily consist of the time deposits with maturities between three months and one year. TheGroup classifies the short-term investments as "held-to-maturity" securities and stated at amortized cost within Level 2.For investments classified as held-to-maturity securities, the Group evaluates whether a decline in fair value below theamortized cost basis is other-than-temporary in accordance with the Company's policy and ASC 320. The other-than-temporaryimpairment loss is recognized in earnings equal to the entire excess of the investment's amortized cost basis over its fair value at thebalance sheet date of the reporting period for which the assessment is made. No impairment losses in relation to its short-terminvestments were recorded for the years ended December 31, 2018, 2019 and 2020.Table of ContentsCOOTEK (CAYMAN) INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)F-162.Summary of Significant Accounting Policies (Continued)(h) Accounts Receivable, netAccounts receivable, net represents those receivables derived from the ordinary course of business and are recorded net ofallowance for doubtful accounts. The Group maintains an allowance for doubtful accounts that reflect its best estimate of probablelosses inherent in the accounts receivables. In determining collectability of the accounts receivables, the Group considers manyfactors, such as: creditworthiness of customers, aging of the receivables, payment history of customers, financial condition of thecustomers and market trends, and specific facts and circumstances.The allowance for doubtful accounts is reduced by subsequent collections of the specific allowances or by any write-off ofcustomer accounts that are deemed uncollectible.(i) Long-term InvestmentsLong-term investments consist of equity investments in other privately-held companies. Effective from January 1, 2019,upon adoption of ASC 321, Investment-Equity Securities the Group elected to measure the investments without readily determinablefair value at its cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactionsfor the identical or a similar investment of the same issuer.The Group is required to perform an impairment assessment of its investments whenever events or changes in businesscircumstances indicate that the carrying value of the investment may not be fully recoverable. An impairment loss is recognized inthe consolidated statements of operations equal to the excess of the investment's cost over its fair value when the impairment isdeemed other-than-temporary. The Group recognized nil, US$500,032 and nil of impairment loss to write down the long-terminvestments for the years ended December 31, 2018, 2019 and 2020, respectively.(j) Property and Equipment, netProperty and equipment is recorded at cost less accumulated depreciation and impairment. Depreciation expense of long-lived assets is recorded as either cost of revenue or operating expenses, as appropriate. Depreciation is computed using the straight-line method over the following estimated useful lives by major asset category:Electronic equipment 3 yearsOffice equipment and furniture 3 - 5 yearsMotor vehicles 3 yearsLeasehold improvement Shorter of the lease term or expected useful lifeRepair and maintenance costs are charged directly to expense as incurred, whereas the cost of renewals and improvementthat extend the useful lives of property and equipment are capitalized as additions to the related assets.(k) Intangible AssetsIntangible assets mainly consist of externally purchased software and other intangible assets which are amortized over anestimated useful life of 3-10 years on a straight-line basis.Table of ContentsCOOTEK (CAYMAN) INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)F-172.Summary of Significant Accounting Policies (Continued)(l) Impairment of Long-lived AssetsLong-lived assets, including property and equipment and intangible assets, are evaluated for impairment whenever eventsor changes in circumstances indicate that the carrying value of an asset may not be recoverable. Factors considered important thatcould result in an impairment review include, but are not limited to, significant under-performance relative to historical or plannedoperating results, significant changes in the manner of use or expected life of the assets or significant changes in business strategies.An impairment analysis is performed at the lowest level of identifiable cash flows for an asset or asset group based on valuationtechniques such as discounted cash flow analysis. An impairment charge is recognized when the estimated undiscounted cash flowsexpected to result from the use of the asset plus net proceeds expected from the disposition of the asset, if any, are less than thecarrying value of the asset net of other liabilities. The estimation of future cash flows requires significant management judgment andactual results may differ from estimated amounts. No impairment was recognized for the years ended December 31, 2018, 2019 and2020.(m) Treasury SharesTreasury shares represents ordinary shares repurchased by the Company that are no longer outstanding and are held by theGroup. Treasury shares are accounted for under the cost method. Under this method, repurchased ordinary shares were recorded astreasury shares at historical purchase price. At retirement, the ordinary shares account is charged only for the aggregate par value ofthe shares. The excess of the acquisition cost of treasury shares over the aggregate par value is allocated between additional paid-incapital (up to the amount credited to the additional paid-in capital upon original issuance of the shares) and retained earnings.(n) Revenue RecognitionMobile AdvertisingThe Group generates substantially all of its revenue through mobile advertising. As of January 1, 2019, the Group adoptedASU 2014-09 Revenue from Contracts with Customers - Topic 606 and all subsequent ASUs that modified ASC 606. The Grouphas elected to apply the ASU and all related ASUs under the modified retrospective method to all contracts that were not completedas of January 1, 2019. Results for reporting periods beginning after January 1, 2019 are presented under Topic 606, while priorperiod amounts are not adjusted and continue to be reported under the accounting standards in effect for the prior period. The Groupdid not note any effects of applying the new revenue standard as an adjustment to the opening balance of retained earnings at thebeginning of 2019.The Group provides advertising services to customers for promotion of their brands and products through its mobileapplications, including a portfolio of content-rich mobile applications. The Group has two general pricing models for its advertisingproducts: cost over a time period and cost for performance basis including per impression basis. For advertising contracts over atime period, the Group generally recognizes revenue ratably over time, because the customer simultaneously receives and consumesthe benefits as the Group performs throughout a fixed contract term. For contracts that are charged on the cost for performancebasis, the Group charges an agreed-upon fee to its customers determined based on the effectiveness of advertising links, which istypically measured by clicks, transactions, installations, user registrations, and other actions originating from the Group's mobileapplications. Revenue is recognized at a point in time when there is an effective click, transaction, installations, user registrations,and other actions originating from the Group's mobile applications. For contracts that are charged on the cost per impression basis,the Group recognizes the revenue at a point in time when the impressions are delivered. Revenue for performance-based advertisingservices is recognized at a point in time when all the revenue recognition criteria are met.Table of ContentsCOOTEK (CAYMAN) INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)F-182.Summary of Significant Accounting Policies (Continued)(n) Revenue Recognition (Continued)For certain of the Group's advertising service arrangements, customers are required to pay a deposit before using Group'sservices. Deposits received are recorded as deferred revenue on the consolidated balance sheets. Service fees due to the Group arededucted from the deposited amounts when performance criteria have been satisfied.OthersThe Group also generates other revenues through cloud call business, licensing of its portfolio products and VIP usersubscription fee. The revenue is recognized when service is rendered.Sales IncentivesThe Group provides sales incentives to certain customers in the form of sales rebates which entitle them to receivereductions in the price. The Group accounts for these incentives granted to customers as variable consideration and records it asreduction of revenue. The amount of variable consideration is measured based on the most likely amount of incentives to be. Forthe years ended December 31, 2018, 2019 and 2020, the rebates recorded by the Group were US$405,385, US$6,473,774 andUS$54,320,688, respectively.Disaggregation of RevenueIn the following table, revenue is disaggregated by revenue streams and geographic location of customers' headquarters.For the year ended December 31,201820192020 US$ US$ US$Revenue:Advertising revenue 131,287,334 175,040,033 438,384,470Other revenue 2,822,298 2,843,072 3,120,761Total 134,109,632 177,883,105 441,505,231For the year ended December 31,201820192020 US$ US$ US$PRC 25,502,479 121,105,976 413,141,394USA 108,309,547 53,469,745 22,192,632Others 297,606 3,307,384 6,171,205Total 134,109,632 177,883,105 441,505,231Contract BalancesTiming of revenue recognition may differ from the timing of invoicing to customers. Accounts receivable represents theamount to be collected from customers for which service has been delivered.Table of ContentsCOOTEK (CAYMAN) INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)F-192.Summary of Significant Accounting Policies (Continued)(n) Revenue Recognition (Continued)Contract liabilities include payments received in advance of performance under the contract or for differences between theamount billed to a customer and the revenue recognized for the completed performance obligation which is presented as deferredrevenue on the consolidated balance sheets. Due to the generally short-term duration of the Group’s contracts, majority of theperformance obligations are satisfied in one year. The movements of the Group’s accounts receivable and deferred revenue are asfollows: Accounts Receivable Deferred RevenueUS$US$Opening Balance as of January 1, 2019 23,373,969 344,361Increase, net 3,880,665 3,543,547Ending Balance as of December 31, 2019 27,254,634 3,887,908Increase (decrease), net 872,712 (556,397)Ending Balance as of December 31, 2020 28,127,346 3,331,511Revenue amounted US$344,361 and US$3,862,177 were recognized in the years ended December 31, 2019 and 2020,respectively, which were included in the balance of deferred revenue at the beginning of each year.Transaction Price Allocated to the Remaining Performance ObligationsRevenue expected to be recognized in any future year related to remaining performance obligations, excluding revenuepertaining to contracts that have an original expected duration of one year or less, contracts where revenue is recognized as invoicedand contracts with variable consideration related to undelivered performance obligations, is not material.Practical Expedients and ExemptionsThe Group elects not to disclose the value of unsatisfied performance obligations for (i) contracts with an original expectedlength of one year or less (ii) contracts for which the Group recognizes revenues at the amount to which it has the right to invoice forservices performed and (iii) contracts with variable consideration related to wholly unsatisfied performance obligations.(o) Cost of RevenueCost of revenues consists of direct costs primarily relating to generating advertising revenue, which includes bandwidthcosts and cloud service costs, content costs paid to signed authors and third-party content distributors, Voice-over Internet Protocol(“VoIP”) related expenses which are charged by telecommunication providers for the Group’s VoIP products, such as TouchPalPhonebook, depreciation expenses and service fees for internet data center, and salary and benefits expenses of operation andmaintenance department.Table of ContentsCOOTEK (CAYMAN) INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)F-202.Summary of Significant Accounting Policies (Continued)(p) Research and Development ExpensesResearch and development expenses primarily consist of (1) salary and benefits expenses incurred in the research anddevelopment of new products and new functionality, and (2) general expenses and depreciation expenses associated with theresearch and development activities.Expenditures incurred during the research phase are expensed as incurred and no research and development expenses werecapitalized as of December 31, 2018, 2019 and 2020.(q) Sales and Marketing ExpensesSales and marketing expenses primarily consist of advertising and promotion expenses, expenses incurred for the userincentive programs, salaries and benefits of sales and marketing personnel and fees paid to mobile device manufacturers to pre-install the Group's smart input products. Advertising and promotion expenses which mainly include user acquisition costs thatrepresent payment to the third parties for online user acquisition of the Group's products via social media and demand-side platformsamounted to US$68,471,237, US$147,798,957 and US$408,131,372 for the years ended December 31, 2018, 2019 and 2020,respectively.(r) Operating LeasesLeases where substantially all the rewards and risk of assets remain with the leasing company are accounted for asoperating leases. Payments made under operating leases are charged to the consolidated statements of operations on a straight-linebasis over the lease term.(s) Income TaxesCurrent income taxes are provided on the basis of net income for financial reporting purposes, adjusted for income andexpense items which are not assessable or deductible for income tax purposes, in accordance with the regulations of the relevant taxjurisdictions. The Group follows the asset and liability method of accounting for income taxes.In accordance with the provisions of ASC 740, Income Taxes, the Group recognizes in the financial statements the benefitof a tax position if the tax position is “more likely than not” to prevail based on the facts and technical merits of the position. Taxpositions that meet the “more likely than not” recognition threshold are measured at the largest amount of tax benefit that has agreater than fifty percent likelihood of being realized upon settlement. The Group estimates liability for unrecognized tax benefitswhich are periodically assessed and may be affected by changing interpretations of laws, rulings by tax authorities, changes and/ordevelopments with respect to tax audits, and expiration of the statute of limitations. The ultimate outcome for a particular taxposition may not be determined with certainty prior to the conclusion of a tax audit and, in some cases, appeal or litigation process.Table of ContentsCOOTEK (CAYMAN) INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)F-212.Summary of Significant Accounting Policies (Continued)(s) Income Taxes (Continued)Under this method, deferred tax assets and liabilities are determined based on the temporary differences between thefinancial statements carrying amounts and tax bases of assets and liabilities by applying enacted statutory tax rates that will be ineffect in the period in which the temporary differences are expected to reverse. The Group considers positive and negative evidencewhen determining whether some portion or all of the deferred tax assets will not be realized. This assessment considers, amongother matters, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability, the duration ofstatutory carry-forward periods, historical results of operations, and tax planning strategies. The ultimate realization of deferred taxassets is dependent upon the generation of future taxable income during the periods in which those temporary differences becomedeductible.The actual benefits that are ultimately realized may differ from estimates. As each audit is concluded, adjustments, if any,are recorded in the financial statements in the period in which the audit is concluded. Additionally, in future periods, changes infacts, circumstances and new information may require us to adjust the recognition and measurement estimates with regard toindividual tax positions. Changes in recognition and measurement estimates are recognized in the period in which the changes occur.As of December 31, 2018, 2019 and 2020, the Group did not have any significant unrecognized uncertain tax positions.(t) Employee Contribution PlanPursuant to the relevant labor rules and regulations in the PRC, the Group participates in defined contribution retirementschemes (the “Schemes”) organized by the relevant local government authorities for its eligible employees whereby the Group isrequired to make contributions to the Schemes at certain percentages of the deemed salary rate announced annually by the localgovernment authorities. Contributions to the defined contribution plan are expensed as incurred.The Group has no other material obligation for payment of pension benefits except for the annual contributions describedabove.(u) Share-based CompensationFair value recognition provisions according to ASC718, Compensation—Stock Compensation: Overall, is applied to share-based compensation, which requires the Group to recognize expense for the fair value of its share-based compensation awards.Compensation expense adjusted for forfeiture effect on a straight-line basis over the requisite service period, with a correspondingimpact reflected in additional paid-in capital.Employees’ share-based awards are measured at the grant date fair value of the awards and recognized as expensesa) immediately at grant date if no vesting conditions are required, or b) using grade vesting method, net of actual forfeitures, overthe requisite service, which is the vesting period.The Group determines fair value of share options as of the grant date using binomial option pricing model and the fairvalue of restricted share units as of the grant date based on the fair market value of the underlying ordinary shares.Table of ContentsCOOTEK (CAYMAN) INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)F-222.Summary of Significant Accounting Policies (Continued)(u) Share-based Compensation (Continued)The expected term represents the period that share-based awards are expected to be outstanding, giving consideration to thecontractual terms of the share-based awards, vesting schedules and expectations of future employee exercise behavior. Volatility isestimated based on annualized standard deviation of daily stock price return of comparable companies for the period beforevaluation date and with similar span as the expected expiration term. The Group accounts for forfeitures of the share-based awardswhen they occur. Previously recognized compensation cost for the awards is reversed in the period that the award is forfeited.Amortization of share-based compensation is presented in the same line item in the consolidated statements of operations as the cashcompensation of those employees receiving the award.(v) Comprehensive Income (Loss)Comprehensive Income (Loss) includes all changes in equity except those resulting from investments by owners anddistributions to owners. For the years presented, the Group’s total comprehensive income (loss) includes net income (loss) andforeign currency translation adjustments.(w) Income (Loss) per ShareBasic income (loss) per share are computed by dividing net income (loss) attributable to ordinary shareholders by theweighted average number of ordinary shares outstanding during the period.The Group's convertible redeemable preferred shares are participating securities as the preferred shares participate inundistributed income on an as-if-converted basis. Accordingly, the Group uses the two-class method of computing income (loss) pershare, whereby undistributed net income is allocated on a pro rata basis to each participating share to the extent that each class mayshare net income for the period. Undistributed net loss is not allocated to preferred shares because they are not contractuallyobligated to participate in the loss of the Group.Diluted income (loss) per ordinary share reflects the potential dilution that could occur if securities were exercised orconverted into ordinary shares. The Group had convertible redeemable preferred shares, share options and non-vested restrictedshare units, which could potentially dilute basic income per share in the future. To calculate the number of shares for diluted income(loss) per share, the effect of the convertible redeemable preferred shares is computed using the as-if-converted method; the effect ofthe stock options and non-vested restricted share units is computed using the treasury stock method.(x) Concentration and risksConcentration of CustomersFinancial instruments that potentially expose the Group to concentration of credit risk consist primarily of cash and cashequivalents, short-term investments, accounts receivable and prepayments. The Group places its cash and cash equivalents andshort-term investments with financial institutions with high-credit ratings and quality.The Group conducts credit evaluations ofcustomers, and generally does not require collateral or other security from its customers. The Group establishes an allowance fordoubtful accounts primarily based upon the age of the receivables and factors surrounding the credit risk of specific customers.Table of ContentsCOOTEK (CAYMAN) INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)F-232.Summary of Significant Accounting Policies (Continued)(x) Concentration and risks (Continued)The following customers accounted for 10% or more of revenue:For the years ended December 31, 201820192020 US$ % US$ % US$ %Company A73,116,84054.52% 21,335,69811.99%**Company B 14,609,27010.89% *** *Company C**51,013,29628.68%**Company D**21,988,97512.36%**Company E**28,417,37915.98%**Company F****115,829,77026.24%Company G****58,667,03113.29%* Less than 10%.The following customers accounted for 10% or more of accounts receivable:As of December 31, 20192020 US$ % US$ % Company C 17,944,84061.82%* *Company D4,142,63814.27%**Company E3,840,00513.23%**Company F**7,498,56325.60%Company G **11,559,398 39.47%*Less than 10%.Concentration of VendorsThe Group uses certain vendors to acquire users and those cost are recorded as sales and marketing expenses. Vendorsaccounted for 10% or more are listed as below:For the years ended December 31, 201820192020 US$ % US$ % US$ % Company H 31,623,328 39.17% * * * *Company I 11,201,208 13.87% * * * *Company J * * * * 52,426,534 12.53%* Less than 10%.Table of ContentsCOOTEK (CAYMAN) INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)F-242.Summary of Significant Accounting Policies (Continued)(x) Concentration and risks (Continued)The following vendors accounted for 10% or more of accounts payable:As of December 31, 20192020 US$ % US$ % Company K * * 16,072,255 21.11%Company J * * 9,461,038 12.43%Company L * * 7,604,056 10.00%* Less than 10%.Business and Economic RisksThe Group participates in the dynamic and competitive high technology industry and believes that changes in any of thefollowing areas could have a material adverse effect on the Group's future financial position, results of operations and cash flows:changes in the overall demand for services and products; competitive pressures due to existing and new entrants; advances and newtrends in new technologies and industry standards; changes in certain strategic relationships or customer relationships; regulatoryconsiderations; copyright regulations; brand maintenance and enhancement; and risks associated with the Group's ability to attractand retain employees necessary to support its growth.The Group's operations could be adversely affected by significant political, economic and social uncertainties in the PRC.Foreign Currency RiskThe RMB is not a freely convertible currency. The State Administration for Foreign Exchange in the PRC, under theauthority of the Peoples Bank of China, controls the conversion of RMB into other currencies. The value of the RMB is subject tochanges in central government policies, international economic and political developments affecting supply and demand in theChina Foreign Exchange Trading System market. The Group's cash and cash equivalents and restricted cash denominated in RMBamounted to RMB 139,905,845 (amounted to US$20,054,735) and RMB 280,266,558 (amounted to US$42,953,388) as ofDecember 31, 2019 and 2020, respectively.(y) Recent Accounting PronouncementsNew accounting pronouncements recently adoptedIn August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes tothe Disclosure Requirements for Fair Value Measurement, which changes certain disclosure requirements, including those related toLevel 3 fair value measurements. The provisions of ASU 2018-13 relating to changes in unrealized gains and losses, the range andweighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative descriptionof measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initialfiscal year of adoption. The remaining provisions should be applied retrospectively to all periods presented upon their effective date.The Group has adopted this ASU on January 1, 2020, which did not have a material impact on its consolidated financial statementsand related disclosures.Table of ContentsCOOTEK (CAYMAN) INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)F-252.Summary of Significant Accounting Policies (Continued)(y) Recent Accounting Pronouncements (Continued)In October 2018, the FASB issued ASU 2018-17, Consolidation (Topic 810): Targeted Improvements to Related PartyGuidance for Variable Interest Entities. Under the new guidance, to determine whether decision-making fees represent a variableinterest, an entity considers indirect interests held through related parties under common control on a proportionate basis, rather thanin their entirety. ASU 2018-17 is effective for annual periods beginning after December 15, 2019, including interim periods withinthose fiscal years, and early adoption is permitted in any interim period. ASU 2018-17 is required to be applied retrospectively fromthe date the guidance is first applied. The Group has early adopted this ASU on January 1, 2020 and did not have a material impacton its consolidated financial statements and related disclosures.New accounting pronouncements not yet adoptedIn February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which requires lessees to recognize leases onbalance sheet and disclose key information about lease arrangements. The new standard establishes a right-of-use ("ROU") modelthat requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with terms of longer than12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expenserecognition in the income statement. In July 2018, the FASB issued an update that provided an additional transition option thatallows companies to continue applying the guidance under the lease standard in effect at that time in the comparative periodspresented in the consolidated financial statements. Companies that elect this option would record a cumulative-effect adjustment tothe opening balance of retained earnings on the date of adoption. In November 19, 2019, the FASB issued ASU 2019-10 to amendthe effective date for ASU 2016-02 to be January 1, 2021 for non-issuers. The Group as an EGC has elected to adopt the new leasestandard as of the effective date applicable to nonissuers and will implement the new lease standard on January 1, 2021 using themodified retrospective method. The modified retrospective approach would not require any transition accounting for leases thatexpired before the earliest comparative period presented. In addition, the Group will elect the transition practical referred to as the“package of three”, that must be taken together and allows entities to (1) not reassess whether existing contracts contain leases, (2)carryforward the existing lease classification, and (3) not reassess initial direct costs associated with existing leases. The Group is inthe process of evaluating the impact on its consolidated financial statements, as well as the impact of adoption on policies, practices,systems and financial statement disclosures. On January 1, 2021, the Group plans to recognize right-of-use lease assets of US$2.6million and related lease liabilities of US$2.5 million for operating leases. The Group does not believe the standard will materiallyaffect its consolidated statements of comprehensive loss or consolidated statements of cash flows.In June 2016, the FASB issued ASU 2016-13, Credit Losses, Measurement of Credit Losses on Financial Instruments. ThisASU provides more useful information about expected credit losses to financial statement users and changes how entities willmeasure credit losses on financial instruments and timing of when such losses should be recognized. In November 2019, the FASBissued ASU 2019-10 which delayed the effective date of ASU 2016-13 for smaller reporting companies (as defined by the U.S.Securities and Exchange Commission) and other non-SEC reporting entities to fiscal years beginning after December 15, 2022,including interim periods within those fiscal periods. Early adoption is permitted. The Group has elected to take advantage of theextended transition provision by using private company adoption dates as an emerging growth company. The Group is currentlyassessing the impact the guidance will have on its consolidated financial statements.Table of ContentsCOOTEK (CAYMAN) INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)F-263.Accounts Receivable, netAccounts receivable, net, consisted of the following:As of December 31, 2018 2019 2020US$US$US$Accounts receivable24,660,08929,028,82629,289,301Allowance for doubtful accounts: Balance at beginning of the year (1,295,149)(1,286,120) (1,774,192)Additions charged to bad debt expense (11,422)(4,104,458) (359,252)Write-off15,3793,616,076964,474Foreign exchange effect5,0723107,015Balance at end of the year (1,286,120)(1,774,192) (1,161,955)Accounts receivable, net 23,373,96927,254,634 28,127,3464.Prepaid Expenses and Other Current AssetsPrepaid expenses and other current assets consisted of the followings:As of December 31, 2019 2020US$US$Value added tax recoverable3,750,4915,498,400Other receivables 1,575,467 3,875,800Advance to suppliers 1,545,793 882,793Others 976,043 1,816,233Prepaid expenses and other current assets 7,847,794 12,073,2265.Property and Equipment, netProperty and equipment, net, consisted of the followings:As of December 31, 2019 2020US$US$Electronic equipment9,622,18412,729,696Office equipment and furniture 334,452 363,163Motor vehicles 82,470 82,470Leasehold improvements 1,410,105 1,714,381Construction in progress 76,200 5,811Total 11,525,411 14,895,521Less: Accumulated depreciation (5,855,562) (9,501,779)Property and equipment, net 5,669,849 5,393,742For the years ended December 31, 2018, 2019 and 2020, depreciation expenses were US$1,153,606, US$2,958,276 andUS$3,639,269, respectively.Table of ContentsCOOTEK (CAYMAN) INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)F-276.Intangible Assets, netIntangible assets, net consist of the following:As of December 31, 2019 2020US$US$Purchased software 314,468 566,123Others—8,964Less: Accumulated amortization (46,732) (178,592)Intangible Assets, net 267,736 396,495Amortization expense of intangible assets for the years ended December 31, 2018, 2019 and 2020 amounted to nil,US$46,732 and US$130,004, respectively. Estimated amortization expenses of the existing intangible assets for each of the fiveyears ending December 31, 2025 and thereafter is US$152,963, US$144,039, US$73,569, US$16,960, and nil, respectively.7.Long-term InvestmentsIn May 2018, the Group acquired 7.42% equity interests in a privately-held company for cash consideration of US$0.5million, which the Group plans to hold for long term investment purpose. The Group measures its equity securities without a readilydeterminable fair value at its cost minus impairment, if any, plus or minus changes resulting from observable price changes inorderly transactions for the identical or a similar investment of the same issuer. The Group recognized a full impairment of US$0.5million on this investment in 2019.In April 2020, the Group partnered with an unrelated third party investor to form a privately-held investing company inlimited partnership, of which the Group holds 4% equity interest. The business is to invest enterprises in high-tech industries. TheGroup measures its equity securities without a readily determinable fair value at its cost minus impairment, if any, plus or minuschanges resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer.No impairment was recognized for the year ended December 31,2020.8.Short-term Bank BorrowingsThe Group's bank borrowings consisted of the following:As of December 31, 2019 2020 US$ US$Short-term borrowings9,012,64510,958,022Table of ContentsCOOTEK (CAYMAN) INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)F-288. Short-term Bank Borrowings (Continued)In July 2016, the Group entered into a credit facility agreement with a commercial bank under which the Group can draw-down up to US$6.0 million by October, 2018. In October 2019, the Group renewed the bank credit facility under which the Groupcan borrow up to US$6.0 million collateralized by its accounts receivable by October, 2020. In 2019, the Group has aggregatelydrawn down the credit facility of US$7.7 million and repaid US$1.9 million. The weighted average interest rate for borrowingsdrawn under such credit facility was 5.53% for the year ended December 31, 2019. In June 2020, the Group renewed the bank creditfacility under which the Group can borrow up to US$11.0 million collateralized by its accounts receivable by June 2021. Theinterest rate for this credit facility is the Loan Prime Rate ("LPR ") plus 1.30%. Cash amount of US$3.1 million has been depositedin the bank as guarantee in December 2020 as well. In 2020, the Group has aggregately drawn down the credit facility of US$28.8million and repaid US$24.1 million, and the weighted average interest rate for borrowings drawn under such credit facility was5.15%. This loan contain minimum quarterly net income as financial covenants which the Group failed to fulfill as of December 31,2020 and could be required by the bank to repay the loan immediately. The Group is in the process of applying for a waiver of thefinancial covenants with the bank.In July 2018, the Group entered into a credit facility agreement with a commercial bank under which the Group can draw-down up to US$4.0 million by July 2019. In October 2019, the Group renewed the bank credit facility under which the Group canborrow up to US$4.0 million collateralized by its accounts receivable by October 2020. The interest rate for this credit facility isLibor plus 4.7%, determined on the draw-down date. In 2019, the Group has aggregately drawn down the credit facility of US$6.4million and repaid US$3.2 million. The weighted average interest rate for borrowings drawn under such credit facility was 6.12%for the year ended December 31, 2019. In June 2020, the Group renewed the bank credit facility under which the Group can borrowup to US$4.0 million collateralized by its accounts receivable by June 2021. The interest rate for this credit facility is Libor plus3.5%, determined on the draw-down date. In 2020, the Group has aggregately drawn down the credit facility of US$4.0 million andrepaid US$7.2 million, and the weighted average interest rate for borrowings drawn under such credit facility was 4.39%. As ofDecember 31, 2020, the Group has fully repaid the loan under this agreement.As of December 31 2020, the total available credit amount under these two facility agreements was US$4.0 million.9.Accrued Expenses and Other Current LiabilitiesAccrued expenses and other current liabilities consisted of the following:As of December 31, 2019 2020US$US$Other tax payables3,239,4304,386,517Accrued expenses 2,011,136 2,772,237Accrued loss contingencies relating litigation and asserted claims95,8572,872,150Others 609,533 655,614Total 5,955,956 10,686,51810.Other Operating Income (Loss), netTable of ContentsCOOTEK (CAYMAN) INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)F-29For the year ended December 31,201820192020 US$ US$ US$Government subsidies 1,571,688 917,223 2,026,269Contingent losses — (95,857) (2,776,293)Compensation payments — — (1,587,473)Others 37,471 50,903 62,990Total 1,609,159 872,269 (2,274,507)Other operating income, net for the years ended December 31, 2018 and 2019, primarily consisted of government subsidiesand contingent losses for intellectual property infringement lawsuit. Other operating loss, net for the year ended December 31, 2020,primarily consisted of government subsidies, contingent losses for an ongoing investigations of certain alleged illegal acts of theGroup's customers, intellectual property infringement lawsuit and compensation payments to victims of alleged misconducts ofcertain third-party advertisers perpetrated on the Group's platform.11.Income Taxes ExpensesFor the years ended December 31, 2018, 2019 and 2020, income tax expenses were US$220, US$1,714 and US$7,087,respectively.Cayman IslandsCooTek (Cayman) Inc. is incorporated in the Cayman Islands. Under the current laws of the Cayman Islands, CooTek(Cayman) Inc. is not subject to income or capital gains taxes. In addition, dividend payments are not subject to withholdings tax inthe Cayman Islands.USAThe Group's subsidiaries incorporated in U.S. are subject to U.S. federal corporate income tax at a rate of 21%, and alsosubject to state income tax in California.Hong KongUnder the current Hong Kong Inland Revenue Ordinance, the Group’s subsidiaries domiciled in Hong Kong has introduceda two-tiered profits tax rate regime which is applicable to any year of assessment commencing on or after April 1, 2018. The profitstax rate for the first HK$2 million of profits of corporations will be lowered to 8.25%, while profits above that amount will continueto be subject to the tax rate of 16.5%. Additionally, payments of dividends by the subsidiary incorporated in Hong Kong to theGroup are not subject to any Hong Kong withholding tax.Table of ContentsCOOTEK (CAYMAN) INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)F-3011.Income Taxes Expenses (Continued)PRCUnder the Law of the People’s Republic of China on Enterprise Income Tax (“EIT Law”), the Group’s subsidiaries andVIEs incorporated in the PRC are subject to statutory rate of 25% with the exception of Chu Le. Chu Le is a foreign-investedenterprise established in June, 2012 located in Shanghai, China. Chu Le obtained the High and New Technology Enterprise(“HNTE”) certificate in 2020, valid for a period of 3 years from 2020 to 2022. For the year ended December 31, 2020, Chu Le waseligible for a preferential tax rate of 15%.Income (Loss) before income taxes consists of:As of December 31, 2018 2019 2020 US$ US$ US$PRC15,175,153(16,601,650)(21,862,391)HK (2,396,163) (14,046,405) (9,697,599)US (337,157) (2,744,517) (9,297,488)Cayman (2,294,148) (3,451,775) (6,502,164) 10,147,685 (36,844,347) (47,359,642)Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets andliabilities for financial reporting purposes and the amounts used for income tax purposes. The Group has no deferred tax liabilities.The Group’s deferred tax assets were as follows:As of December 31, 2018 2019 2020US$US$US$Deferred tax assets: Net operating loss carry-forward 17,044,260 18,196,88022,456,244Accrued expenses 2,496,850 3,833,9701,082,761Advertising fees 5,876,863 10,854,55423,293,389Deferred subsidies and revenue 71,705 70,193507,414Provision for doubtful accounts 214,327 515,870204,936Depreciation difference of property and equipment—109,385530,685Impairment loss—82,50582,505Total deferred tax assets 25,704,005 33,663,35748,157,934Valuation allowance on deferred tax assets (25,704,005) (33,663,357)(48,157,934)Net deferred tax assets — ——As of December 31, 2020, the PRC Companies had tax loss carry forwards amounted to US$62,938,653, of whichUS$1,176,978, US$16,169,071, US$811,936, US$17,286,019, US$10,389,308 and US$17,105,341 will expire in 2021, 2022, 2023,2024, 2025 and thereafter, respectively. As of December 31, 2020, the Companies incorporated in Hong Kong and USA had tax losscarry forwards of US$26,129,309 and US$17,389,097, which can be offset taxable loss in the future without any time restriction.The Group operates its business through its subsidiaries and VIEs. The Group does not file consolidated tax returns,therefore, losses from individual subsidiaries or the VIEs may not be used to offset other subsidiaries’ or VIEs’ earnings within theGroup.Table of ContentsCOOTEK (CAYMAN) INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)F-3111.Income Taxes Expenses (Continued)The Group considers positive and negative evidence to determine whether some portion or all of the deferred tax assets willbe more likely than not realized. This assessment considers, among other matters, the nature, frequency and severity of recent lossesand forecasts of future profitability. These assumptions require significant judgment and the forecasts of future taxable income areconsistent with the plans and estimates the Group is using to manage the underlying businesses. Valuation allowances areestablished for deferred tax assets based on a more likely than not threshold. The Group’s ability to realize deferred tax assetsdepends on its ability to generate sufficient taxable income within the carry forward periods provided for in the tax law. The Grouphas provided a full valuation allowance for the deferred tax assets as of December 31, 2018, 2019 and 2020, as management is notable to conclude that the future realization of those net operating loss carry forwards and other deferred tax assets are more likelythan not.The changes in valuation allowance are as follows:For the years ended December 31, 2018 2019 2020US$US$US$Balance at the beginning of the year26,748,48225,704,00533,663,357Movement (567,897) 8,051,21514,496,600Tax loss carry forwards expired (423,517) (91,863)(2,023)Exchange difference effect (53,063) ——Balance at the end of the year 25,704,005 33,663,35748,157,934Uncertainties exist with respect to how the current income tax law in the PRC applies to the Group’s overall operations, andmore specifically, with regard to tax residency status. The EIT Law includes a provision specifying that legal entities organizedoutside of the PRC will be considered residents for Chinese Income tax purposes if the place of effective management or control iswithin the PRC. The implementation rules to the EIT Law provide that non-resident legal entities will be considered PRC residentsif substantial and overall management and control over the manufacturing and business operations, personnel, accounting andproperties, occurs within the PRC. Despite the present uncertainties resulting from the limited PRC tax guidance on the issue, theGroup does not believe that the legal entities organized outside of the PRC within the Group should be treated as residents for EITlaw purposes. If the PRC tax authorities subsequently determine that the Group and its subsidiaries registered outside the PRCshould be deemed resident enterprises, the Group and its subsidiaries registered outside the PRC will be subject to the PRC incometaxes, at a statutory income tax rate of 25%. The Group is not subject to any other uncertain tax position.According to PRC Tax Administration and Collection Law, the statute of limitations is three years if the underpayment oftaxes is due to computational errors made by the taxpayer or withholding agent. The statute of limitations will be extended tofive years under special circumstances, which are not clearly defined (but an underpayment of tax liability exceedingRMB0.1 million, equivalent to US$15,326, is specifically listed as a special circumstance). In the case of a related party transaction,the statute of limitations is ten years. There is no statute of limitations in the case of tax evasion. From inception to the calendar yearof 2020, the Group is subject to examination of the PRC tax authorities.In accordance with the EIT Law, dividends, which arise from profits of foreign invested enterprises (“FIEs”) earned afterJanuary 1, 2008, are subject to a 10% withholding income tax. In addition, under the tax treaty between the PRC and Hong Kong, ifthe foreign investor is incorporated in Hong Kong and qualifies as the beneficial owner, the applicable withholding tax rate isreduced to 5%, if the investor holds at least 25% in the FIE, or 10%, if the investor holds less than 25% in the FIE. A deferred taxliability should be recognized for the undistributed profits of PRC subsidiaries unless the Group has sufficient evidence todemonstrate that the undistributed dividends will be reinvested and the remittance of the dividends will be postponed indefinitely.Table of ContentsCOOTEK (CAYMAN) INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)F-3211.Income Taxes Expenses (Continued)Aggregate accumulated deficit of the Group's subsidiaries and VIEs located in the PRC was approximately US$79,285,723,US$93,453,672 and US$115,319,815 as of December 31, 2018, 2019 and 2020, respectively. Aggregate accumulated deficit of theGroup's subsidiaries located in Hong Kong was approximately US$11,801,220, US$27,463,453 and US$37,179,946 as ofDecember 31, 2018, 2019 and 2020, respectively. Accordingly, no deferred tax liability has been accrued for the PRC dividendwithholding taxes that would be payable upon the distribution of those amounts to the Group as of December 31, 2018, 2019 and2020.Reconciliations of the differences between PRC statutory income tax rate and the Group’s effective income tax rate forthe years ended December 31, 2018, 2019 and 2020 are as follows:For the years ended December 31, 2018 2019 2020 Statutory income tax rate25% 25%25%Valuation allowance (11)% (26)%(25)%Additional tax deduction (25)% 6%4%Effect of different tax rate of subsidiary operation in other jurisdiction 8% (5)%(4)%Expired tax loss4%——Others(1)%——Effective tax rate ———12.Ordinary SharesPrior to the consummation of the IPO, pursuant to the revised Articles of Association, the Group’s existing preferred sharesand ordinary shares was reclassified and re-designated into Class A ordinary shares and Class B ordinary shares, with each Class Aordinary share being entitled to one vote and each Class B ordinary share being entitled to twenty-five votes on all matters that aresubject to shareholder vote. Both Class A ordinary shares and Class B ordinary shares are entitled to the same dividend right. Theholders of the Group’s ordinary shares are entitled to such dividends as may be declared by the board of directors subject to theCompanies Law. The authorized 15,000,000,000 share of the Group was comprised of 13,750,000,000 Class A ordinary shares,250,000,000 Class B ordinary shares and 1,000,000,000 shares designated as the board of directors may determine.Upon IPO in October 2018, the Group issued 217,500,000 Class A ordinary shares with the price of US$0.24 per share,totaling to US$45.1 million after net-off the underwriting and discounts and commissions. All of the preferred shares wereconverted to 2,079,938,011 shares of Class A ordinary shares immediately upon the completion of the Group's IPO.13.Treasury SharesTreasury shares represent shares repurchased by the Group that are no longer outstanding and are held by the Group. Forthe year ended December 31, 2019 and 2020, under the repurchase plan, the Group had repurchased an aggregate of 80,311,250 and83,854,891 Class A ordinary shares on the open market for a total cash consideration of US$12,283,426 and US$ 9,480,179,respectively, which were accounted for as the cost of the treasury shares.As of December 31, 2020, 135,205,591 treasury shares have been cancelled.Table of ContentsCOOTEK (CAYMAN) INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)F-3314.Share-based CompensationIn August 2012, the Group's board of directors adopted the share incentive plan (“2012 Option Plan”). Under the 2012Option Plan, the Group's shareholders have authorized the issuance of up to 75,268,817 ordinary shares underlying all options(including incentive share options, or ISOs), restricted shares and restricted share units granted to a participant under the plan, or theawards. The 2012 Option Plan was amended in October 2012 to increase the maximum aggregate number of ordinary shares to155,631,013 Shares. The 2012 Option Plan was amended in July 2014 to increase the maximum aggregate number of ordinaryshares to 266,153,637 Shares.In August 2018, the Group's board of directors adopted the 2018 Share Incentive Plan (“2018 Plan”). The maximumaggregate number of shares which may be issued under the 2018 Plan shall initially be 2.0% of the total number of shares issued andoutstanding immediately following the completion of IPO, plus an annual increase on the first day of each of the first five (5)complete fiscal years after the completion of IPO and during the term of this plan commencing with the fiscal year beginningJanuary 1, 2019, by an amount equal to 2.0% of the total number of shares issued and outstanding on the last day of the immediatelypreceding fiscal year (excluding issued shares reserved for future option exercise and restricted share unit vesting).Share OptionsThe options have a contractual term of ten years. The vesting date starts on the grant date or the commencement date of aparticipant’s employment agreement. The options vest 20% or 25% on each of the four or five anniversary dates of the vesting dateand upon continued employment. In the event of termination of a participant’s employment, the unvested options shall be terminatedimmediately. The participant’s right to exercise the vested options shall be terminated 2 or 3 months after the termination of theemployment.The Group uses the binomial option pricing model and the following assumptions to estimate the fair value of the optionsat the date of grantedYear ended December 31 2019 2020Average risk-free rate of interest1.67%0.67%Expected volatility 42.50%-43.22%43.15%-43.38%Dividend yield 0%0%Contractual term 10 years 10 yearsFair value of the underlying shares on the date of option grants 0.09-0.10 0.05-0.13On November 6, 2018, the Board of Directors approved an option modification to reduce the exercise price of certainoptions granted to employees. All other terms of the share options granted remain unchanged. The modification resulted inincremental compensation cost of US$285,661, of which US$12,914, US$87,904 and US$52,216 was recorded during the yearsended December 31, 2018, 2019 and 2020, respectively. The remaining US$42,444 will be amortized over the remaining vestingperiod of the modified options in 2021. Due to the termination of employment, the Group will not recognize the rest of unvestedamount of the modified options.Table of ContentsCOOTEK (CAYMAN) INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)F-3414.Share-based Compensation (Continued)The risk-free rate of interest is based on the US Treasury yield curve as of valuation date. Volatility is estimated based onannualized standard deviation of daily stock price return of comparable companies for the period before valuation date and withsimilar span as the expected expiration term. The Group has never declared or paid any cash dividends on its capital stock, and theGroup does not anticipate any dividend payments in the foreseeable future.A summary of the aggregate option activity and information regarding options outstanding as of December 31, 2020 is asfollows:Weighted Weightedaverage averageremainingAggregate WeightedNumber ofexercisecontractualintrinsic average grant options price term value date fair valueUS$US$US$Outstanding on January 1, 2020 160,800,982 0.05 4.91 8,667,6060.03Granted155,721,850—0.10Forfeited(9,511,675)0.030.09Exercised (including 5,804,400 vested options cashsettled)(16,397,050)0.030.02Outstanding on December 31, 2020290,614,1070.026.6211,551,1530.06Options exercisable on December 31, 2020134,713,8940.053.703,053,3000.03Vested or expected to vest as of December 31, 2020290,614,1070.026.6211,551,1530.06The weighted average grant date fair values of options granted during the years ended December 31, 2019 and 2020 wereUS$0.09 and US$0.10, respectively.For the year ended December 31, 2019, 11,185,700 of options were exercised with an aggregate intrinsic value ofUS$786,170. For the year ended December 31, 2020, 16,397,050 of options were exercised with an aggregate intrinsic value ofUS$460,369.For the years ended December 31, 2018, 2019 and 2020, excluding the incremental compensation cost resulted from themodification discussed above, the Group recognized share-based compensation expense of US$779,582, US$533,482 andUS$3,254,051, respectively. As of December 31, 2020, there was US$11,900,156 in total unrecognized compensation cost related tonon-vested stock options, which is expected to be recognized over a weighted-average period of 3.21 years.In June 2020, the Group cash settled 5,804,400 vested share options and 2,736,200 RSUs at fair value amounted toUS$823,226 from certain employees. Given the transaction is an one-time transaction, negotiated after the award is vested, and notpursuant to a pre-existing right of the Group, the Group accounted for it as a repurchase of equity with amount of cash paid recordedas additional paid in capital.Restricted Share UnitsIn 2019 and 2020, the Group granted to certain employees 57,892,563 and 1,578,500 Restricted Share Units ("RSUs"). TheRSUs have a contractual term of ten years and vest 25% on each anniversary over four years from the grant date. The vesting ofthese RSUs is conditioned on continued employment. Compensation expense based on fair value is amortized over the requisiteservice period of award using the straight line vesting attribution method.Table of ContentsCOOTEK (CAYMAN) INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)F-3514. Share-based Compensation (Continued)A summary of the RSUs activity for the year ended December 31, 2020 is as follows:Weighted average grant date Number of restricted shares fair value US$Unvested restricted shares outstanding at January 1, 2020 50,725,912 0.20Granted 1,578,500 0.10Vested (including 2,736,200 vested RSUs cash settled) (5,906,334) 0.26Forfeited (8,657,274) 0.24Unvested restricted shares outstanding at December 31, 202037,740,8040.20Expected to vest at December 31, 2020 37,740,804 0.20The share-based compensation expense related to RSUs of US$1,566,975, US$3,041,099 and US$2,030,774 wererecognized by the Group for the years ended December 31, 2018, 2019 and 2020, respectively.As of December 31, 2020, there was US$3,850,487 unrecognized compensation costs, net of actual forfeitures, related tounvested restricted shares, which is expected to be recognized over a weighted-average period of 1.89 years.15.Net Income (Loss) per Ordinary ShareNet income (loss) per ordinary share was computed by dividing net income (loss) attributable to ordinary shareholders bythe weighted average number of ordinary shares outstanding for the years ended December 31, 2018, 2019 and 2020:For the years endedDecember 31, 2018 2019 2020US$US$US$Numerator: Net income (loss) —basic and diluted 10,147,465 (36,846,061) (47,366,729)Net income (loss) attributable to ordinary shareholders 10,147,465 (36,846,061) (47,366,729)Shares (Denominator): Weighted average number of ordinary shares outstanding Basic1,464,257,884 3,155,082,983 3,080,332,924Diluted1,591,094,6303,155,082,9833,080,332,924Net income (loss) per share—basic and diluted 0.003 (0.01) (0.02)The Group has determined that its convertible redeemable preferred shares are participating securities as the preferredshares participate in undistributed earnings on an as-if-converted basis. The holders of the preferred shares are entitled to receivedividends on a pro rata basis, as if their shares had been converted into ordinary shares. Accordingly, the Group uses the two-classmethod of computing net income per share for ordinary and preferred shares according to their participation rights in undistributedearnings. However, undistributed net loss is only allocated to ordinary shareholders because holders of preferred shares are notcontractually obligated to share losses. All outstanding preferred shares have been converted to ordinary shares upon the Company'sinitial public offering.Table of ContentsCOOTEK (CAYMAN) INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)F-3615.Net Income (Loss) per Ordinary Share (Continued)Diluted income (loss) per share are computed using the more dilutive of (a) the two-class method or (b) the if-convertedmethod.Diluted income (loss) per share for the year ended December 31, 2018 is computed using the two-class method as it is moredilutive than the if-converted method.As of December 31, 2018, 2019 and 2020, diluted net income (loss) per share does not include the following instruments astheir inclusion would be antidilutive:For the years ended December 31, 2018 2019 2020Share options —160,800,982 290,614,107Restricted shares units14,495,00050,725,91237,740,804Total14,495,000211,526,894328,354,91116.Commitments and contingenciesLease ObligationsThe Group leases certain office premises under operating leases. The term of each lease agreement varies and may containrenewal options. Rental payments under operating leases are charged to operating expenses on a straight-line basis over the period ofthe lease based on contract terms. Rental expenses under operating leases for the year ended December 31, 2018, 2019 and 2020were US$1,011,379, US$1,712,513 and US$1,474,587, respectively.Future lease payments under operating leases as of December 31, 2020 were as follows:Year ended December 31 US$2021 1,650,1022022 947,794202362,003Total 2,659,899The Group did not have other significant capital commitments or significant guarantees as of December 31, 2019 and 2020,respectively.ContingenciesManagement records and discloses legal contingencies in accordance with ASC Topic 450 Contingencies. The Groupestablishes reserves for these contingencies at the best estimate, or if no one number within the range of possible losses is moreprobable than any other, the Group records a liability at the low end of the range of losses. Contingencies affecting the Groupprimarily relate to legal and regulatory matters, which are inherently difficult to evaluate and are subject to significant changes. Aprovision is recorded when it is both probable that a liability has been incurred and the amount of the loss can be reasonablyestimated. The Group monitors the stage of progress of its litigation matters to determine if any adjustments are required.Table of ContentsCOOTEK (CAYMAN) INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)F-3716.Commitments and contingencies (Continued)For the year ended December 31, 2020, the Group recorded loss liabilities primarily relate to an unsettled lawsuit and anongoing investigation. In December 2020, certain Group's subsidiaries were involved in a regulatory investigation that theadvertising service fees paid to the Group in the course of normal advertising business were deemed illegal and subject to beconfiscated. The Group recorded an accrued loss of US$2.0 million based on the review of the case record in the local authority byexternal legal counsel. The Group accrued for the loss contingency amounted US$0.4 million based on the result of first instancejudgment in March 2021 as the Group determines that an unfavorable outcome is probable and the liability is reasonably estimable.17.Segment InformationThe Group has only one reportable segment since the Group does not distinguish revenues, costs and expenses betweensegments in its internal reporting, and reports costs and expenses by nature as a whole.The Group’s chief operating decision maker, who has been identified as the Chief Executive Officer, reviews theconsolidated results when making decisions about allocating resources and assessing performance of the Group as a whole. TheGroup does not distinguish among markets or segments for the purpose of internal reports.Information about the Group’s non-current assets is presented based on the geographical location of the assets as follows: As of December 31, 2019 2020US$US$PRC2,655,95326,560,143USA 3,540,740 2,158,359Total 6,196,693 28,718,50218.Mainland China Contribution PlanFull time employees of the Group in the PRC participate in a government-mandated defined contribution plan, pursuant towhich certain pension benefits, medical care, unemployment insurance, employee housing fund and other welfare benefits areprovided to employees. The PRC labor regulations require the Group to accrue for these benefits based on certain percentages of theemployees’ salaries. The total contributions for such employee benefits were US$4,504,045, US$5,627,573 and US$3,626,897 forthe years ended December 31, 2018, 2019 and 2020, respectively.19.Restricted Net AssetsAs a result of the PRC laws and regulations and the requirement that distributions by PRC entities can only be paid out ofdistributable profits computed in accordance with PRC GAAP, the PRC entities are restricted from transferring a portion of their netassets to the Group. Amounts restricted include paid-in capital, additional paid-in capital and the statutory reserves of the Group'sPRC subsidiaries, affiliates and VIEs. As of December 31, 2020, the total of restricted net assets were US$90,072,957.Table of ContentsCOOTEK (CAYMAN) INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)F-3820.Subsequent EventThe Group entered into a series of agreements with an outside investor for the following capital transactions:●On January 19, 2021, the Company issued a convertible note for a principle amount of US$10.0 million with anannual interest rate of 5% and a maturity date of January 19, 2022. The note can be converted into the Company'sADSs at the option of the holder based on a conversion prices determined to be the lower of (1) US$4.20 perADS, or (2) 88% of the lowest daily volume weighted average trading price ("VWAP") of the Company's ADSsduring the ten consecutive trading days immediately preceding the conversion date or other date of determination.The Group received a net proceed of US$8.9 million from this issuance and as of the issuance date of the auditedconsolidated financial statements, the note has been converted to 3,933,317 ADSs with the average conversionprice of US$2.54 per ADS.●On January 22, 2021, the Company entered into a standby equity distribution agreement (the "SEDA") thisinvestor pursuant to which the Company has an option to sell up to US$20.0 million of its ADSs solely at theCompany's request any time during the 36 months following the date of the SEDA at a purchase price determinedto be at 90% of the market price, which is defined as the lowest daily VWAP of the Company's ADSs during thefive consecutive trading days commencing on the trading day following the date the Company submits anadvance notice to this investor.●On March 19, 2021, the Company issued a convertible note for a principle amount of US$20 million with anannual interest of 5% per year and maturity date of March 19, 2022 and a fixed conversion price of US$5.0 perADS. Beginning on June 1, 2021 and continuing on the first day of each calendar month thereafter throughJanuary 2022, a portion of the principal amount plus an 8% redemption premium and plus accrued and unpaidinterest will be subject to redemption in cash, ADSs through conversion of the note or a combination of both atthe Company’s option in the event that the daily VWAP on each of the five consecutive trading days immediatelyprior to the redemption date does not exceed a price equal to 108% of the fixed conversion price. The Groupreceived a net proceed of US$18.2 million from this issuance.From January to April 26, 2021, the Group granted options to its management team to purchase 3,120,150 Class A ordinaryshares of the Company with exercise price of US$0.0002 with 4 year vesting schedule under the 2012 Share Incentive Plan and2018 Share Incentive Plan.Pursuant to the repurchase shares program announced on May 18, 2020, 24,237,100 shares (equivalent to 484,742 ADSs)of the Company's Class A ordinary shares were purchased from January 1, 2021 through April 26, 2021 for a total cashconsideration of US$1.3 million from the public market.Table of ContentsF-39SCHEDULE I—ADDITIONAL FINANCIAL INFORMATION OF PARENT COMPANYCOOTEK (CAYMAN) INC.CONDENSED BALANCE SHEETSAs of December 31, 2019 2020US$US$ASSETS Current assets: Cash and cash equivalents 1,003,567 128,005Prepaid expenses and other current assets 52,454 30,596Total current assets 1,056,021 158,601Advances to subsidiaries and VIEs 38,589,545 1,568,094TOTAL ASSETS 39,645,566 1,726,695LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) Current liabilities: Deferred ADR reimbursement136,129136,129Other current liabilities 5,511 140Total current liabilities 141,640 136,269Advances from subsidiaries and VIEs—14,909,907Other non-current liabilities595,563483,074TOTAL LIABILITIES 737,203 15,529,250SHAREHOLDERS' EQUITY (DEFICIT): Ordinary shares 31,262 30,918Treasury shares(1,063,547)(4,672,334)Additional paid-in capital 194,971,827 193,918,852Accumulated deficit (153,598,346) (200,965,075)Accumulated other comprehensive loss (1,432,833) (2,114,916)Total shareholders’ equity (deficit) 38,908,363 (13,802,555)TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) 39,645,566 1,726,695Table of ContentsF-40SCHEDULE I—ADDITIONAL FINANCIAL INFORMATION OF PARENT COMPANYCOOTEK (CAYMAN) INC.CONDENSED STATEMENTS OF OPERATIONSFor the years ended December 31, 2018 2019 2020US$US$US$Net revenues146,09051,152—Cost of revenue (87,416) (101,689) (276,085)Gross profit (loss) 58,674 (50,537) (276,085)Operating expenses: General and administrative expenses (450,005) (558,078) (2,607,390)Research and development expenses (1,788,724) (2,806,588) (3,034,240)Sales and marketing expenses (127,095) (196,224) (212,381)Other operating income, net9,374119,146112,478Total operating expenses (2,356,450) (3,441,744) (5,741,533)Loss from operations (2,297,776) (3,492,281) (6,017,618)Interest expenses, net—(2,494)—Foreign exchange gains 9,604 — 3Loss before income taxes and equity in earnings of subsidiaries (2,288,172) (3,494,775) (6,017,615)Net loss before equity in earnings of subsidiaries (2,288,172) (3,494,775) (6,017,615)Equity in income (loss) of subsidiaries, VIEs and VIEs' subsidiaries 12,435,637 (33,351,286) (41,349,114)Net income (loss) attributed to CooTek (Cayman) Inc. 10,147,465 (36,846,061) (47,366,729)Table of ContentsF-41SCHEDULE I—ADDITIONAL FINANCIAL INFORMATION OF PARENT COMPANYCOOTEK (CAYMAN) INCCONDENSED STATEMENTS OF CASH FLOWSFor the years ended December 31, 2018 2019 2020US$US$ US$Operating activities: Net income (loss) 10,147,465 (36,846,061)(47,366,729)Equity in (income) loss of subsidiaries, VIEs and VIEs' subsidiaries (12,435,637) 33,351,28641,349,114Adjustment to reconcile net loss to net cash provided by (used in) operatingactivities: Share-based compensation 2,359,471 3,662,4855,337,041Changes in assets and liabilities: Accounts receivable (1,251) 7,222—Accrued expenses and other current liabilities 163,305 (21,670)(5,371)Other receivables, deposits and other assets(3,432)(18,427)21,858Other non-current liabilities604,630(9,066)(112,489)Net cash provided by (used in) operating activities 834,551 125,769(776,576)Investing activities: Investment in subsidiaries 19,890,000 ——Advances to subsidiaries and VIEs (54,418,121) (5,400,000)(16,000,000)Repayment of advances to subsidiary—8,000,00025,900,160Net cash (used in) provided by investing activities (34,528,121) 2,600,0009,900,160Financing activities: Proceeds from IPO 48,546,000 ——Cash paid for deferred issuance costs(2,615,726)(809,952)—Cash paid to settle vested options and RSUs——(823,226)Proceeds from issuance of ordinary shares upon exercise of options—326,503304,259Payment of share repurchase (2,499,167) (12,283,426)(9,480,179)Net cash provided by (used in) financing activities 43,431,107 (12,766,875)(9,999,146)Net increase (decrease) in cash, cash equivalents and restricted cash 9,737,537 (10,041,106)(875,562)Cash, cash equivalents and restricted cash at beginning of year 1,307,136 11,044,6731,003,567Cash, cash equivalents and restricted cash at end of year 11,044,673 1,003,567128,005Table of ContentsF-42SCHEDULE I—COOTEK (CAYMAN) INC CONDENSED FINANCIAL STATEMENTSNotes to Schedule I1.Schedule I has been provided pursuant to the requirements of Rule 12-04(a) and 5-04(c) of Regulation S-X, which requirecondensed financial information as to the financial position, changes in financial position and results of operations of a parentcompany as of the same dates and for the same periods for which audited consolidated financial statements have been presentedwhen the restricted net assets of consolidated subsidiaries exceed 25 percent of consolidated net assets as of the end of the mostrecently completed fiscal year.2.The condensed financial information has been prepared using the same accounting policies as set out in the consolidatedfinancial statements except that the equity method has been used to account for investments in its subsidiaries and VIEs andVIEs’ subsidiaries. For the parent company, the Company records its investments in subsidiaries VIEs and VIEs subsidiariesunder the equity method of accounting as prescribed in ASC 323, Investments—Equity Method and Joint Ventures.3.Certain information and footnote disclosures normally included in financial statements prepared in accordance with US GAAPhave been condensed or omitted. The footnote disclosures provide certain supplemental information relating to the operationsof the Company and, as such, these statements should be read in conjunction with the notes to the accompanying consolidatedfinancial statements.4.As of December 31, 2019 and 2020, there were no material contingencies, significant provisions of long-term obligations,mandatory dividend or redemption requirements of redeemable stocks or guarantees of the Company. Exhibit 2.5Description of rights of each class of securitiesregistered under Section 12 of the Securities Exchange Act of 1934 (the “Exchange Act”)Our Class A ordinary shares, par value $0.00001 per share, of CooTek (Cayman) Inc. (“we,” “our,” “our company,” or “us”) are registeredunder Section 12(b) of the Exchange Act, and our American depositary shares (“ADSs”), each representing 50 Class A ordinary shares, are listedand traded on the New York Stock Exchange under the symbol “CTK”. The US$10,000,000 aggregate principal amount of convertible note with anannual interest rate of 5% issued by our company due January 19, 2022 (the “January 2021 Note”) are registered under the U.S. Securities Act of1933. The US$20,000,000 convertible note with an annual interest rate of 5% issued by our company due March 19, 2022 (the “March 2021 Note”)are registered under the U.S. Securities Act of 1933.This exhibit contains a description of the rights of (i) the holders of shares and (ii) ADS holders. Shares underlying the ADSs are held byDeutsche Bank Trust Company Americas, as depositary, and holders of ADSs will not be treated as holders of the shares.Description of Class A Ordinary SharesThe following is a summary of material provisions of our currently effective seventh amended and restated memorandum and articles ofassociation (the “Memorandum and Articles of Association”), as well as the Companies Law (2020 Revision) of the Cayman Islands (the“Companies Law”) insofar as they relate to the material terms of our ordinary shares. Notwithstanding this, because it is a summary, it may notcontain all the information that you may otherwise deem important. For more complete information, you should read our Memorandum andArticles of Association, which has been filed with the SEC as an exhibit to our Registration Statement on Form F-1 (File No. 333-226867).Type and Class of Securities (Item 9.A.5 of Form 20-F)Our ordinary shares are divided into Class A ordinary shares and Class B ordinary shares, each par value $0.00001 per share. Therespective number of Class A ordinary shares and Class B ordinary shares issued and outstanding as of the last day of our respective fiscal year isprovided on the cover of the annual report on Form 20-F (the “Form 20-F”) of our company. Certificates representing the ordinary shares are issuedin registered form. Our ordinary shares may be held in either certificated or uncertificated form.Preemptive Rights (Item 9.A.3 of Form 20-F)Our shareholders do not have preemptive rights.Limitations or Qualifications (Item 9.A.6 of Form 20-F)We keep and intend to maintain a dual-class voting structure. Holders of Class A ordinary shares are entitled to one vote per share, whileholders of Class B ordinary shares are entitled to twenty-five (25) votes per share on all matters subject to vote at general meetings of our company.Due to the disparate voting powers attached to these two classes of ordinary shares, the holders of our Class B ordinary shares will havedecisive influence over matters requiring shareholders’ approval, including election of directors and significant corporate transactions, such as amerger or sale of our company. This concentrated control will limit the ability to influence corporate matters and could discourage others frompursuing any potential merger, takeover or other change of control transactions that holders of Class A ordinary shares and ADSs may view asbeneficial.Other Rights (Item 9.A.7 of Form 20-F)Not applicable.2Rights of the Class A Ordinary Shares (Item 10.B.3 of Form 20-F)Ordinary Shares. Our ordinary shares are divided into Class A ordinary shares and Class B ordinary shares. Holders of our Class Aordinary shares and Class B ordinary shares will have the same rights except for voting and conversion rights. Our ordinary shares are issued inregistered form. Our shareholders who are non-residents of the Cayman Islands may freely hold and vote their shares.Conversion. Each Class B ordinary share is convertible into one Class A ordinary share at any time at the option of the holder thereof.Class A ordinary shares are not convertible into Class B ordinary shares under any circumstances. Upon any sale, transfer, assignment ordisposition of any Class B ordinary shares by a holder thereof to any person other than holders of Class B ordinary shares or their affiliates or upona change of ultimate beneficial ownership of any Class B ordinary shares to any person who is not an affiliate of the holder thereof, such Class Bordinary shares shall be automatically and immediately converted into the same number of Class A ordinary shares.Dividends. The holders of our ordinary shares are entitled to such dividends as may be declared by our board of directors. Our amendedand restated articles of association provide our directors may, before recommending or declaring any dividend, set aside out of the funds legallyavailable for distribution such sums as they think proper as a reserve or reserves which shall, in the absolute discretion of our directors, beapplicable for meeting contingencies or for equalizing dividends or for any other purpose to which those funds may be properly applied. Under thelaws of the Cayman Islands, our company may pay a dividend out of either profit or share premium account, provided that in no circumstances maya dividend be paid if this would result in our company being unable to pay its debts as they fall due in the ordinary course of business.Voting Rights. In respect of all matters subject to a shareholders’ vote, each holder of Class A ordinary shares is entitled to one vote pershare and each holder of Class B ordinary shares is entitled to twenty-five votes per share on all matters subject to vote at our general meetings.Our Class A ordinary shares and Class B ordinary shares vote together as a single class on all matters submitted to a vote of our shareholders,except as may otherwise be required by law. Voting at any shareholders’ meeting is by show of hands unless a poll is demanded. A poll may bedemanded by the chairman of such meeting or any shareholder present in person or by proxy.A quorum required for a meeting of shareholders consists of one or more shareholders present or representing by proxy and holding shareswhich represent, in aggregate, not less than one-third of all votes attaching to the issued and outstanding voting shares entitled to vote at generalmeetings. Shareholders may be present in person or by proxy or, if the shareholder is a corporation or other non-natural person, by its dulyauthorized representative. Shareholders’ meetings may be convened by our board of directors on its own initiative or upon a request to the directorsby shareholders holding, at the date of deposit of the requisition, shares which represent, in aggregate, no less than one-third of all votes attachingto all our issued and outstanding shares, in which case the directors are obliged to call such meeting and to put the resolutions so requisitioned to avote at such meeting; however, our Memorandum and Articles of Association do not provide our shareholders with any right to put any proposalsbefore annual general meetings or extraordinary general meetings not called by such shareholders. Advance notice of at least ten (10) calendar daysis required for the convening of our annual general shareholders’ meeting and any other general shareholders’ meeting.An ordinary resolution to be passed at a meeting by the shareholders requires the affirmative vote of a simple majority of the votesattaching to the ordinary shares cast by those shareholders entitled to vote who are present in person or by proxy at a general meeting, while aspecial resolution requires the affirmative vote of no less than two-thirds of the votes attaching to the ordinary shares cast by those shareholdersentitled to vote who are present in person or by proxy at a general meeting. Both ordinary resolutions and special resolutions may also be passed bya unanimous written resolution signed by all the shareholders of our company, as permitted by the Companies Law and our Memorandum andArticles of Association. A special resolution will be required for important matters such as a change of our name or making changes to ourMemorandum and Articles of Association. Holders of the ordinary shares may, among other things, consolidate or subdivide their shares byordinary resolution.3Transfer of Ordinary Shares. Subject to the restrictions set out below, any of our shareholders may transfer all or any of his or her ordinaryshares by an instrument of transfer in the usual or common form or any other form approved by our board of directors.Our board of directors may, in its absolute discretion, decline to register any transfer of any ordinary share which is not fully paid up or onwhich we have a lien. Our board of directors may also decline to register any transfer of any ordinary share unless:·the instrument of transfer is lodged with us, accompanied by the certificate for the ordinary shares to which it relates and such otherevidence as our board of directors may reasonably require to show the right of the transferor to make the transfer;·the instrument of transfer is in respect of only one class of ordinary shares;·the instrument of transfer is properly stamped, if required;·in the case of a transfer to joint holders, the number of joint holders to whom the ordinary share is to be transferred does not exceedfour; and· a fee of such maximum sum as the New York Stock Exchange may determine to be payable or such lesser sum as our directors mayfrom time to time require is paid to us in respect thereof.If our directors refuse to register a transfer they shall, within three calendar months after the date on which the instrument of transfer waslodged, send to each of the transferor and the transferee notice of such refusal.The registration of transfers may, after compliance with any notice required of the New York Stock Exchange, be suspended and theregister closed at such times and for such periods as our board of directors may from time to time determine, provided, however, that theregistration of transfers shall not be suspended nor the register closed for more than 30 calendar days in any calendar year as our board maydetermine from time to time.Liquidation. On the winding up of our company, if the assets available for distribution amongst our shareholders shall be more thansufficient to repay the whole of the share capital at the commencement of the winding up, the surplus shall be distributed amongst our shareholdersin proportion to the par value of the shares held by them at the commencement of the winding up, subject to a deduction from those shares inrespect of which there are monies due, of all monies payable to our company for unpaid calls or otherwise. If our assets available for distributionare insufficient to repay all of the paid-up capital, the assets will be distributed so that the losses are borne by our shareholders in proportion to thepar value of the shares held by them.Calls on Shares and Forfeiture of Shares. Our board of directors may from time to time make calls upon shareholders for any amountsunpaid on their shares in a notice served to such shareholders at least 14 calendar days prior to the specified time of payment. The shares that havebeen called upon and remain unpaid are subject to forfeiture.Redemption, Repurchase and Surrender of Shares. We may issue shares on terms that such shares are subject to redemption, at our optionor at the option of the holders of these shares, on such terms and in such manner as may be determined by our board of directors. Our companymay also repurchase any of our shares on such terms and in such manner as have been approved by our board of directors or by an ordinaryresolution of our shareholders. Under the Companies Law, the redemption or repurchase of any share may be paid out of our company’s profits orout of the proceeds of a new issue of shares made for the purpose of such redemption or repurchase, or out of capital (including share premiumaccount and capital redemption reserve) if our company can, immediately following such payment, pay its debts as they fall due in the ordinarycourse of business. In addition, under the Companies Law no such share may be redeemed or repurchased (a) unless it is fully paid up, (b) if suchredemption or repurchase would result in there being no shares outstanding or (c) if the company has commenced liquidation. In addition, ourcompany may accept the surrender of any fully paid share for no consideration.4Requirements to Change the Rights of Holders of Class A Ordinary Shares (Item 10.B.4 of Form 20-F)Variations of Rights of Shares. If at any time, our share capital is divided into different classes of shares, the rights attached to any suchclass (unless otherwise provided by the terms of issue of the shares of that class), may be materially adversely varied with the consent in writing ofthe holders of two-thirds of the issued shares of that class or with the sanction of a resolution passed at a separate meeting of the holders of theshares of that class by the holders of two-thirds of the issued shares of that class. The rights conferred upon the holders of the shares of any classissued shall not, unless otherwise expressly provided by the terms of issue of the shares of that class, be deemed to be varied by the creation orissue of further shares ranking pari passu with such existing class of shares or subsequent to them or the redemption or purchase of any shares ofany class by our company. The rights of the holders of shares shall not be deemed to be materially adversely varied by the creation or issue ofshares with preferred or other rights including, without limitation, the creation of shares with enhanced or weighted voting rights.Limitations on the Rights to Own Shares (Item 10.B.6 of Form 20-F)There are no limitations imposed by our Memorandum and Articles of Association on the rights of non-resident or foreign shareholders tohold or exercise voting rights on our Class A Ordinary shares.Provisions Affecting Any Change of Control (Item 10.B.7 of Form 20-F)Anti-Takeover Provisions. Some provisions of our Memorandum and Articles of Association may discourage, delay or prevent a change ofcontrol of our company or management that shareholders may consider favorable, including provisions that:·authorize our board of directors to issue preference shares in one or more series and to designate the price, rights, preferences,privileges and restrictions of such preference shares without any further vote or action by our shareholders; and·limit the ability of shareholders to requisition and convene general meetings of shareholders.However, under Cayman Islands law, our directors may only exercise the rights and powers granted to them under our Memorandum andArticles of Association for a proper purpose and for what they believe in good faith to be in the best interests of our company.Ownership Threshold (Item 10.B.8 of Form 20-F)There are no provisions in the Companies Law applicable to the Company and our Memorandum and Articles of Association that requireour company to disclose shareholder ownership above any particular ownership threshold.Differences Between the Law of Different Jurisdictions (Item 10.B.9 of Form 20-F)The Companies Law is modeled after that of England but does not follow recent English statutory enactments and differs from lawsapplicable to U.S. corporations and their shareholders. Set forth below is a summary of the significant differences between the provisions of theCompanies Law applicable to us and the laws applicable to companies incorporated in the United States and their shareholders.Mergers and Similar Arrangements. The Companies Law permits mergers and consolidations between Cayman Islands companies andbetween Cayman Islands companies and non-Cayman Islands companies. For these purposes, (a) “merger” means the merging of two or moreconstituent companies and the vesting of their undertaking, property and liabilities in one of such companies as the surviving company, and (b) a“consolidation” means the combination of two or more constituent companies into a consolidated company and the vesting of the undertaking,property and liabilities of such companies to the consolidated company. In order to effect such a merger or consolidation, the directors of eachconstituent company must approve a written plan of merger or consolidation, which must then be authorized by (a) a special resolution of theshareholders of each constituent company, and (b) such other authorization, if any, as may be specified in such constituent company’s articles ofassociation. The plan must be filed with the Registrar of Companies of the Cayman Islands together with a declaration as to the solvency of theconsolidated or surviving company, a list of the assets and liabilities of each constituent company and an undertaking that a copy of the certificateof merger or consolidation will be given to the members and creditors of each constituent company and that notification of the merger orconsolidation will be published in the Cayman Islands Gazette. Court approval is not required for a merger or consolidation which is effected incompliance with these statutory procedures.5A merger between a Cayman parent company and its Cayman subsidiary or subsidiaries does not require authorization by a resolution ofshareholders of that Cayman subsidiary if a copy of the plan of merger is given to every member of that Cayman subsidiary to be merged unlessthat member agrees otherwise. For this purpose, a company is a “parent” of a subsidiary if it holds issued shares that together represent at leastninety percent (90%) of the votes at a general meeting of the subsidiary.The consent of each holder of a fixed or floating security interest over a constituent company is required unless this requirement is waivedby a court in the Cayman Islands.Save in certain limited circumstances, a shareholder of a Cayman constituent company who dissents from the merger or consolidation isentitled to payment of the fair value of his shares (which, if not agreed between the parties, will be determined by the Cayman Islands court) upondissenting to the merger or consolidation, provide the dissenting shareholder complies strictly with the procedures set out in the Companies Law.The exercise of dissenter rights will preclude the exercise by the dissenting shareholder of any other rights to which he or she might otherwise beentitled by virtue of holding shares, save for the right to seek relief on the grounds that the merger or consolidation is void or unlawful.Separate from the statutory provisions relating to mergers and consolidations, the Companies Law also contains statutory provisions thatfacilitate the reconstruction and amalgamation of companies by way of schemes of arrangement, provided that the arrangement is approved by amajority in number of each class of shareholders and creditors with whom the arrangement is to be made, and who must in addition represent three-fourths in value of each such class of shareholders or creditors, as the case may be, that are present and voting either in person or by proxy at ameeting, or meetings, convened for that purpose. The convening of the meetings and subsequently the arrangement must be sanctioned by theGrand Court of the Cayman Islands. While a dissenting shareholder has the right to express to the court the view that the transaction ought not to beapproved, the court can be expected to approve the arrangement if it determines that:·the statutory provisions as to the required majority vote have been met;·the shareholders have been fairly represented at the meeting in question and the statutory majority are acting bona fide withoutcoercion of the minority to promote interests adverse to those of the class;·the arrangement is such that may be reasonably approved by an intelligent and honest man of that class acting in respect of hisinterest; and·the arrangement is not one that would more properly be sanctioned under some other provision of the Companies Law.The Companies Law also contains a statutory power of compulsory acquisition which may facilitate the “squeeze out” of dissentientminority shareholder upon a tender offer. When a tender offer is made and accepted by holders of 90% of the shares affected within four months,the offeror may, within a two-month period commencing on the expiration of such four-month period, require the holders of the remaining shares totransfer such shares to the offeror on the terms of the offer. An objection can be made to the Grand Court of the Cayman Islands but this is unlikelyto succeed in the case of an offer which has been so approved unless there is evidence of fraud, bad faith or collusion.If an arrangement and reconstruction is thus approved, or if a tender offer is made and accepted, a dissenting shareholder would have norights comparable to appraisal rights, save that objectors to a takeover offer may apply to the Grand Court of the Cayman Islands for various ordersthat the Grand Court of the Cayman Islands has a broad discretion to make, which would otherwise ordinarily be available to dissentingshareholders of Delaware corporations, providing rights to receive payment in cash for the judicially determined value of the shares.6Shareholders’ Suits. In principle, we will normally be the proper plaintiff and as a general rule a derivative action may not be brought by aminority shareholder. However, based on English authorities, which would in all likelihood be of persuasive authority in the Cayman Islands, thereare exceptions to the foregoing principle, including when:·a company acts or proposes to act illegally or ultra vires;·the act complained of, although not ultra vires, could only be effected duly if authorized by more than a simple majority vote that hasnot been obtained; and·those who control the company are perpetrating a “fraud on the minority.”Indemnification of Directors and Executive Officers and Limitation of Liability. Cayman Islands law does not limit the extent to which acompany’s memorandum and articles of association may provide for indemnification of officers and directors, except to the extent any suchprovision may be held by the Cayman Islands courts to be contrary to public policy, such as to provide indemnification against civil fraud or theconsequences of committing a crime. Our Memorandum and Articles of Association permit indemnification of officers and directors for losses,damages, costs and expenses incurred in their capacities as such unless such losses or damages arise from dishonesty, wilful default or fraud ofsuch directors or officers. This standard of conduct is generally the same as permitted under the Delaware General Corporation Law for a Delawarecorporation.In addition, we have entered into indemnification agreements with our directors and executive officers that provide such persons withadditional indemnification beyond that provided in our currently effective seventh Memorandum and Articles of Association.Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers or persons controllingus under the foregoing provisions, we have been informed that in the opinion of the SEC, such indemnification is against public policy as expressedin the Securities Act and is therefore unenforceable.Directors’ Fiduciary Duties. Under Delaware corporate law, a director of a Delaware corporation has a fiduciary duty to the corporationand its shareholders. This duty has two components: the duty of care and the duty of loyalty. The duty of care requires that a director act in goodfaith, with the care that an ordinarily prudent person would exercise under similar circumstances. Under this duty, a director must inform himselfof, and disclose to shareholders, all material information reasonably available regarding a significant transaction. The duty of loyalty requires that adirector act in a manner he reasonably believes to be in the best interests of the corporation. He must not use his corporate position for personalgain or advantage. This duty prohibits self-dealing by a director and mandates that the best interest of the corporation and its shareholders takeprecedence over any interest possessed by a director, officer or controlling shareholder and not shared by the shareholders generally. In general,actions of a director are presumed to have been made on an informed basis, in good faith and in the honest belief that the action taken was in thebest interests of the corporation. However, this presumption may be rebutted by evidence of a breach of one of the fiduciary duties. Should suchevidence be presented concerning a transaction by a director, the director must prove the procedural fairness of the transaction, and that thetransaction was of fair value to the corporation.As a matter of Cayman Islands law, a director of a Cayman Islands company is in the position of a fiduciary with respect to the companyand therefore it is considered that he owes the following duties to the company—a duty to act bona fide in the best interests of the company, a dutynot to make a profit based on his position as director (unless the company permits him to do so) and a duty not to put himself in a position wherethe interests of the company conflict with his personal interest or his duty to a third party. A director of a Cayman Islands company owes to thecompany 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 greaterdegree of skill than may reasonably be expected from a person of his knowledge and experience. However, English and Commonwealth courtshave moved towards an objective standard with regard to the required skill and care and these authorities are likely to be followed in the CaymanIslands.Shareholder Action by Written Consent. Under the Delaware General Corporation Law, a corporation may eliminate the right ofshareholders to act by written consent by amendment to its certificate of incorporation. Cayman Islands law and our currently effective seventhamended and restated articles of association provide that shareholders may approve corporate matters by way of a unanimous written resolutionsigned by or on behalf of each shareholder who would have been entitled to vote on such matter at a general meeting without a meeting being held.7Shareholder Proposals. Under the Delaware General Corporation Law, a shareholder has the right to put any proposal before the annualmeeting of shareholders, provided it complies with the notice provisions in the governing documents. A special meeting may be called by the boardof directors or any other person authorized to do so in the governing documents, but shareholders may be precluded from calling special meetings.The Companies Law provide shareholders with only limited rights to requisition a general meeting, and does not provide shareholderswith any right to put any proposal before a general meeting. However, these rights may be provided in a company’s articles of association. Ourcurrently effective seventh amended and restated articles of association allow our shareholders holding in aggregate not less than one-third of allvotes attaching to the issued and outstanding shares of our company entitled to vote at general meetings to requisition an extraordinary generalmeeting of our shareholders, in which case our board is obliged to convene an extraordinary general meeting and to put the resolutions sorequisitioned to a vote at such meeting. Other than this right to requisition a shareholders’ meeting, our currently effective seventh amended andrestated articles of association do not provide our shareholders with any other right to put proposals before annual general meetings orextraordinary general meetings. As a Cayman Islands exempted company, we are not obliged by law to call shareholders’ annual general meetings.Transactions with Interested Shareholders. The Delaware General Corporation Law contains a business combination statute applicable toDelaware corporations whereby, unless the corporation has specifically elected not to be governed by such statute by amendment to its certificateof incorporation, it is prohibited from engaging in certain business combinations with an “interested shareholder” for three years following the datethat such person becomes an interested shareholder. An interested shareholder generally is a person or a group who or which owns or owned 15%or more of the target’s outstanding voting share within the past three years. This has the effect of limiting the ability of a potential acquirer to makea two-tiered bid for the target in which all shareholders would not be treated equally. The statute does not apply if, among other things, prior to thedate on which such shareholder becomes an interested shareholder, the board of directors approves either the business combination or thetransaction which resulted in the person becoming an interested shareholder. This encourages any potential acquirer of a Delaware corporation tonegotiate the terms of any acquisition transaction with the target’s board of directors.Cayman Islands law has no comparable statute. As a result, we cannot avail ourselves of the types of protections afforded by the Delawarebusiness combination statute. However, although Cayman Islands law does not regulate transactions between a company and its significantshareholders, it does provide that such transactions must be entered into bona fide in the best interests of the company and not with the effect ofconstituting a fraud on the minority shareholders.Dissolution; Winding up. Under the Delaware General Corporation Law, unless the board of directors approves the proposal to dissolve,dissolution must be approved by shareholders holding 100% of the total voting power of the corporation. Only if the dissolution is initiated by theboard of directors may it be approved by a simple majority of the corporation’s outstanding shares. Delaware law allows a Delaware corporation toinclude in its certificate of incorporation a supermajority voting requirement in connection with dissolutions initiated by the board.Under Cayman Islands law, a company may be wound up by either an order of the courts of the Cayman Islands or by a special resolutionof its members or, if the company is unable to pay its debts as they fall due, by an ordinary resolution of its members. The court has authority toorder winding up in a number of specified circumstances including where it is, in the opinion of the court, just and equitable to do so. Under theCompanies Law and our currently effective seventh amended and restated articles of association, our company may be dissolved, liquidated orwound up by a special resolution of our shareholders.Variation of Rights of Shares. Under the Delaware General Corporation Law, a corporation may vary the rights of a class of shares withthe approval of a majority of the outstanding shares of such class, unless the certificate of incorporation provides otherwise. Under ourmemorandum and articles of association, if our share capital is divided into more than one class of shares, we may materially adversely vary therights attached to any class with the written consent of the holders of two-thirds of the issued shares of that class or with the sanction of a resolutionpassed at a separate general meeting of the holders of the shares of that class by the holders of two-thirds of the issued shares of that class.Amendment of Governing Documents. Under the Delaware General Corporation Law, a corporation’s governing documents may beamended with the approval of a majority of the outstanding shares entitled to vote, unless the certificate of incorporation provides otherwise. Aspermitted by Cayman Islands law and our Memorandum and Articles of Association, our Memorandum and Articles of Association may only beamended with a special resolution of our shareholders.Rights of Non-resident or Foreign Shareholders. There are no limitations imposed by our Memorandum and Articles of Association on therights of non-resident or foreign shareholders to hold or exercise voting rights on our shares. In addition, there are no provisions in ourMemorandum and Articles of Association which require our company to disclose shareholder ownership above any particular ownership threshold.8Exempted Company. We are incorporated as an exempted company with limited liability under the Companies Law. The Companies Lawdistinguishes between ordinary resident companies and exempted companies. Any company that is incorporated in the Cayman Islands butconducts business mainly outside of the Cayman Islands may apply to be incorporated as an exempted company. The requirements for an exemptedcompany are essentially the same as for an ordinary company except that an exempted company:·does not have to file an annual return of its shareholders with the Registrar of Companies;·is not required to open its register of members for inspection;·does not have to hold an annual general meeting;·may issue negotiable or bearer shares or shares with no par value;·may obtain an undertaking against the imposition of any future taxation (such undertakings are usually given for 20 years in the firstinstance);·may register by way of continuation in another jurisdiction and be deregistered in the Cayman Islands;·may register as a limited duration company; and·may register as a segregated portfolio company.“Limited liability” means that the liability of each shareholder is limited to the amount unpaid by the shareholder on the shares of thecompany (except in exceptional circumstances, such as involving fraud, the establishment of an agency relationship or an illegal or improperpurpose or other circumstances in which a court may be prepared to pierce or lift the corporate veil).Changes in Capital (Item 10.B.10 of Form 20-F)Our shareholders may from time to time by ordinary resolution:·increase our share capital by new shares of such amount as it thinks expedient;·consolidate and divide all or any of our share capital into shares of a larger amount than our existing shares;·sub-divide our shares, or any of them into shares of a smaller than that fixed by the Memorandum, provided that in the subdivisionthe proportion between the amount paid and the amount, if any, unpaid on each reduced share shall be the same as it was in case ofthe share from which the reduced share is derived; or·cancel any shares which, at the date of the passing of the resolution, have not been taken or agreed to be taken by any person anddiminish the amount of our share capital by the amount of the shares so canceled.Our shareholders may by special resolution, subject to confirmation by the Grand Court of the Cayman Islands on an application by ourcompany for an order confirming such reduction, reduce our share capital or any capital redemption reserve in any manner permitted by law.Debt Securities (Item 12.A of Form 20-F)Not applicable.Warrants and Rights (Item 12.B of Form 20-F)Not applicable.Other Securities (Item 12.C of Form 20-F)Not applicable.9American Depositary Shares (Items 12.D.1 and 12.D.2 of Form 20-F)The name of the depositary is Deutsche Bank Trust Company Americas. The depositary’s office is located at 60 Wall Street, New York,NY 10005, USA.Each ADS represents ownership of 50 Class A ordinary shares, deposited with Deutsche Bank AG, Hong Kong Branch, as custodian forthe depositary. Each ADS will also represent ownership of any other securities, cash or other property which may be held by the depositary.We will not treat ADS holders as our shareholders and accordingly, you, as an ADS holder, will not have shareholder rights. CaymanIslands law governs shareholder rights. The depositary will be the holder of the Class A ordinary shares underlying your ADSs. As a holder ofADSs, you will have ADS holder rights. A deposit agreement among us, the depositary and you, as an ADS holder, and the beneficial owners ofADSs sets out ADS holder rights as well as the rights and obligations of the depositary. The laws of the State of New York govern the depositagreement and the ADSs. See “—Jurisdiction and Arbitration.”The following is a summary of the material provisions of the deposit agreement. For more complete information, you should read theentire deposit agreement and the form of American Depositary Receipt. This summary does not purport to be complete and is subject to andqualified in its entirety by our Form F-6 filed on September 19, 2018 (Commission file No. 333-227412), which is incorporated herein byreference, including the exhibits thereto. For directions on how to obtain copies of those documents, see “Item 10.H. Additional Information—Documents on Display” of the Form 20-F.Dividends and Other DistributionsHow will you receive dividends and other distributions on the shares?The depositary has agreed to pay to you the cash dividends or other distributions it or the custodian receives on Class A ordinary shares orother deposited securities, after deducting its fees and expenses. You will receive these distributions in proportion to the number of Class Aordinary shares your ADSs represent as of the record date (which will be as close as practicable to the record date for our Class A ordinary shares)set by the depositary with respect to the ADSs.·Cash. The depositary will convert or cause to be converted any cash dividend or other cash distribution we pay on the Class Aordinary shares or any net proceeds from the sale of any Class A ordinary shares, rights, securities or other entitlements under theterms of the deposit agreement into U.S. dollars if it can do so on a practicable basis, and can transfer the U.S. dollars to the UnitedStates and will distribute promptly the amount thus received. If the depositary shall determine in its judgment that such conversionsor transfers are not practical or lawful or if any government approval or license is needed and cannot be obtained at a reasonable costwithin a reasonable period or otherwise sought, the deposit agreement allows the depositary to distribute the foreign currency only tothose ADS holders to whom it is possible to do so. It will hold or cause the custodian to hold the foreign currency it cannot convertfor the account of the ADS holders who have not been paid and such funds will be held for the respective accounts of the ADSholders. It will not invest the foreign currency and it will not be liable for any interest for the respective accounts of the ADS holders.Before making a distribution, any taxes or other governmental charges, together with fees and expenses of the depositary, that must bepaid, will be deducted. See “Taxation.” It will distribute only whole U.S. dollars and cents and will round down fractional cents to thenearest whole cent. If the exchange rates fluctuate during a time when the depositary cannot convert the foreign currency, you maylose some or all of the value of the distribution.·Shares. For any Class A ordinary shares we distribute as a dividend or free distribution, either (1) the depositary will distributeadditional ADSs representing such Class A ordinary shares or (2) existing ADSs as of the applicable record date will represent rightsand interests in the additional Class A ordinary shares distributed, to the extent reasonably practicable and permissible under law, ineither case, net of applicable fees, charges and expenses incurred by the depositary and taxes and/or other governmental charges. Thedepositary will only distribute whole ADSs. It will try to sell Class A ordinary shares which would require it to deliver a fractionalADS and distribute the net proceeds in the same way as it does with cash. The depositary may sell a portion of the distributed Class Aordinary shares sufficient to pay its fees and expenses, and any taxes and governmental charges, in connection with that distribution.10·Elective Distributions in Cash or Shares. If we offer holders of our Class A ordinary shares the option to receive dividends in eithercash or shares, the depositary, after consultation with us and having received timely notice as described in the deposit agreement ofsuch elective distribution by us, has discretion to determine to what extent such elective distribution will be made available to you asa holder of the ADSs. We must timely first instruct the depositary to make such elective distribution available to you and furnish itwith satisfactory evidence that it is legal to do so. The depositary could decide it is not legal or reasonably practicable to make suchelective distribution available to you. In such case, the depositary shall, on the basis of the same determination as is made in respectof the Class A ordinary shares for which no election is made, distribute either cash in the same way as it does in a cash distribution, oradditional ADSs representing Class A ordinary shares in the same way as it does in a share distribution. The depositary is notobligated to make available to you a method to receive the elective dividend in shares rather than in ADSs. There can be no assurancethat you will be given the opportunity to receive elective distributions on the same terms and conditions as the holders of Class Aordinary shares.·Rights to Purchase Additional Shares. If we offer holders of our Class A ordinary shares any rights to subscribe for additional shares,the depositary shall having received timely notice as described in the deposit agreement of such distribution by us, consult with us,and we must determine whether it is lawful and reasonably practicable to make these rights available to you. We must first instruct thedepositary to make such rights available to you and furnish the depositary with satisfactory evidence that it is legal to do so. If thedepositary decides it is not legal or reasonably practicable to make the rights available but that it is lawful and reasonably practicableto sell the rights, the depositary will endeavor to sell the rights and in a riskless principal capacity or otherwise, at such place andupon such terms (including public or private sale) as it may deem proper distribute the net proceeds in the same way as it does withcash. The depositary will allow rights that are not distributed or sold to lapse. In that case, you will receive no value for them.·If the depositary makes rights available to you, it will establish procedures to distribute such rights and enable you to exercise therights upon your payment of applicable fees, charges and expenses incurred by the depositary and taxes and/or othergovernmental charges. The Depositary shall not be obliged to make available to you a method to exercise such rights to subscribefor Class A ordinary shares (rather than ADSs).·U.S. securities laws may restrict transfers and cancellation of the ADSs represented by shares purchased upon exercise of rights.For example, you may not be able to trade these ADSs freely in the United States. In this case, the depositary may deliverrestricted depositary shares that have the same terms as the ADSs described in this section except for changes needed to put thenecessary restrictions in place.·There can be no assurance that you will be given the opportunity to exercise rights on the same terms and conditions as theholders of Class A ordinary shares or be able to exercise such rights.·Other Distributions. Subject to receipt of timely notice, as described in the deposit agreement, from us with the request to make anysuch distribution available to you, and provided the depositary has determined such distribution is lawful and reasonably practicableand feasible and in accordance with the terms of the deposit agreement, the depositary will distribute to you anything else wedistribute on deposited securities by any means it may deem practicable, upon your payment of applicable fees, charges and expensesincurred by the depositary and taxes and/or other governmental charges. If any of the conditions above are not met, the depositarywill endeavor to sell, or cause to be sold, what we distributed and distribute the net proceeds in the same way as it does with cash; or,if it is unable to sell such property, the depositary may dispose of such property in any way it deems reasonably practicable under thecircumstances for nominal or no consideration, such that you may have no rights to or arising from such property.The depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any ADS holders. Wehave no obligation to register ADSs, shares, rights or other securities under the Securities Act. We also have no obligation to take any other actionto permit the distribution of ADSs, shares, rights or anything else to ADS holders. This means that you may not receive the distributions we makeon our shares or any value for them if we and/or the depositary determines that it is illegal or not practicable for us or the depositary to make themavailable to you.11Deposit, Withdrawal and CancellationHow are ADSs issued?The depositary will deliver ADSs if you or your broker deposit Class A ordinary shares or evidence of rights to receive Class A ordinaryshares with the custodian. Upon payment of its fees and expenses and of any taxes or charges, such as stamp taxes or stock transfer taxes or fees,the depositary will register the appropriate number of ADSs in the names you request and will deliver the ADSs to or upon the order of the personor persons entitled thereto.How do ADS holders cancel an American Depositary Share?You may turn in your ADSs at the depositary’s corporate trust office or by providing appropriate instructions to your broker. Uponpayment of its fees and expenses and of any taxes or charges, such as stamp taxes or stock transfer taxes or fees, the depositary will deliver theClass A ordinary shares and any other deposited securities underlying the ADSs to you or a person you designate at the office of the custodian. Or,at your request, risk and expense, the depositary will deliver the deposited securities at its corporate trust office, to the extent permitted by law.How do ADS holders interchange between Certificated ADSs and Uncertificated ADSs?You may surrender your ADR to the depositary for the purpose of exchanging your ADR for uncertificated ADSs. The depositary willcancel that ADR and will send you a statement confirming that you are the owner of uncertificated ADSs. Alternatively, upon receipt by thedepositary of a proper instruction from a holder of uncertificated ADSs requesting the exchange of uncertificated ADSs for certificated ADSs, thedepositary will execute and deliver to you an ADR evidencing those ADSs.Voting RightsHow do you vote?You may instruct the depositary to vote the Class A ordinary shares or other deposited securities underlying your ADSs at any meeting atwhich you are entitled to vote pursuant to any applicable law, the provisions of our Memorandum and Articles of Association, and the provisions ofor governing the deposited securities. Otherwise, you could exercise your right to vote directly if you withdraw the Class A ordinary shares.However, you may not know about the meeting sufficiently enough in advance to withdraw the Class A ordinary shares.If we ask for your instructions and upon timely notice from us by regular, ordinary mail delivery, or by electronic transmission, asdescribed in the deposit agreement, the depositary will notify you of the upcoming meeting at which you are entitled to vote pursuant to anyapplicable law, the provisions of our Memorandum and Articles of Association, and the provisions of or governing the deposited securities, andarrange to deliver our voting materials to you. The materials will include or reproduce (a) such notice of meeting or solicitation of consents orproxies; (b) a statement that the ADS holders at the close of business on the ADS record date will be entitled, subject to any applicable law, theprovisions of our Memorandum and Articles of Association, and the provisions of or governing the deposited securities, to instruct the depositaryas to the exercise of the voting rights, if any, pertaining to the Class A ordinary shares or other deposited securities represented by such holder’sADSs; and (c) a brief statement as to the manner in which such instructions may be given or deemed given in accordance with the third to lastsentence of this paragraph if no instruction is received, to the depositary to give a discretionary proxy to a person designated by us. Votinginstructions may be given only in respect of a number of ADSs representing an integral number of Class A ordinary shares or other depositedsecurities. For instructions to be valid, the depositary must receive them in writing on or before the date specified. The depositary will try, as far aspractical, subject to applicable law and the provisions of our Memorandum and Articles of Association, to vote or to have its agents vote the ClassA ordinary shares or other deposited securities (in person or by proxy) as you instruct. The depositary will only vote or attempt to vote as youinstruct. If we timely requested the depositary to solicit your instructions but no instructions are received by the depositary from an owner withrespect to any of the deposited securities represented by the ADSs of that owner on or before the date established by the depositary for suchpurpose, the depositary shall deem that owner to have instructed the depositary to give a discretionary proxy to a person designated by us withrespect to such deposited securities, and the depositary shall give a discretionary proxy to a person designated by us to vote such depositedsecurities. However, no such instruction shall be deemed given and no such discretionary proxy shall be given with respect to any matter if weinform the depositary we do not wish such proxy given, substantial opposition exists or the matter materially and adversely affects the rights ofholders of the Class A ordinary shares.12We cannot assure you that you will receive the voting materials in time to ensure that you can instruct the depositary to vote the Class Aordinary shares underlying your ADSs. In addition, there can be no assurance that ADS holders and beneficial owners generally, or any holder orbeneficial owner in particular, will be given the opportunity to vote or cause the custodian to vote on the same terms and conditions as the holdersof our Class A ordinary shares.The depositary and its agents are not responsible for failing to carry out voting instructions or for the manner of carrying out votinginstructions. This means that you may not be able to exercise your right to vote and you may have no recourse if the Class A ordinary sharesunderlying your ADSs are not voted as you requested.In order to give you a reasonable opportunity to instruct the depositary as to the exercise of voting rights relating to deposited securities, ifwe request the depositary to act, we will give the depositary notice of any such meeting and details concerning the matters to be voted at least 30business days in advance of the meeting date.Compliance with RegulationsInformation RequestsEach ADS holder and beneficial owner shall (a) provide such information as we or the depositary may request pursuant to law, including,without limitation, relevant Cayman Islands law, any applicable law of the United States of America, our Memorandum and Articles ofAssociation, any resolutions of our Board of Directors adopted pursuant to such Memorandum and Articles of Association, the requirements of anymarkets or exchanges upon which the Class A ordinary shares, ADSs or ADRs are listed or traded, or to any requirements of any electronic book-entry system by which the ADSs or ADRs may be transferred, regarding the capacity in which they own or owned ADRs, the identity of any otherpersons then or previously interested in such ADRs and the nature of such interest, and any other applicable matters, and (b) be bound by andsubject to applicable provisions of the laws of Cayman Islands, our Memorandum and Articles of Association, and the requirements of any marketsor exchanges upon which the ADSs, ADRs or Class A ordinary shares are listed or traded, or pursuant to any requirements of any electronic book-entry system by which the ADSs, ADRs or Class A ordinary shares may be transferred, to the same extent as if such ADS holder or beneficialowner held Class A ordinary shares directly, in each case irrespective of whether or not they are ADS holders or beneficial owners at the time suchrequest is made.Disclosure of InterestsEach ADS holder and beneficial owner shall comply with our requests pursuant to Cayman Islands law, the rules and requirements of theNew York Stock Exchange and any other stock exchange on which the Class A ordinary shares are, or will be, registered, traded or listed or ourMemorandum and Articles of Association, which requests are made to provide information, inter alia, as to the capacity in which such ADS holderor beneficial owner owns ADS and regarding the identity of any other person interested in such ADS and the nature of such interest and variousother matters, whether or not they are ADS holders or beneficial owners at the time of such requests.Payment of TaxesYou will be responsible for any taxes or other governmental charges payable, or which become payable, on your ADSs or on the depositedsecurities represented by any of your ADSs. The depositary may refuse to register or transfer your ADSs or allow you to withdraw the depositedsecurities represented by your ADSs until such taxes or other charges are paid. It may apply payments owed to you or sell deposited securitiesrepresented by your ADSs to pay any taxes owed and you will remain liable for any deficiency. If the depositary sells deposited securities, it will, ifappropriate, reduce the number of ADSs to reflect the sale and pay to you any net proceeds, or send to you any property, remaining after it has paidthe taxes. You agree to indemnify us, the depositary, the custodian and each of our and their respective agents, directors, employees and affiliatesfor, and hold each of them harmless from, any claims with respect to taxes (including applicable interest and penalties thereon) arising from anyrefund of taxes, reduced rate of withholding at source or other tax benefit obtained for you. Your obligations under this paragraph shall survive anytransfer of ADRs, any surrender of ADRs and withdrawal of deposited securities or the termination of the deposit agreement.13Reclassifications, Recapitalizations and MergersIf we: Then:Change the nominal or par value of our Class A ordinary sharesThe cash, shares or other securities received by the depositary willbecome deposited securities.Reclassify, split up or consolidate any of the deposited securitiesEach ADS will automatically represent its equal share of the newdeposited securitiesDistribute securities on the Class A ordinary shares that are notdistributed to you, or Recapitalize, reorganize, merge, liquidate, sell allor substantially all of our assets, or take any similar actionThe depositary may distribute some or all of the cash, shares or othersecurities it received. It may also deliver new ADSs or ask you tosurrender your outstanding ADRs in exchange for new ADRsidentifying the new deposited securities.Amendment and TerminationHow may the deposit agreement be amended?We may agree with the depositary to amend the deposit agreement and the form of ADR without your consent for any reason. If anamendment adds or increases fees or charges, except for taxes and other governmental charges or expenses of the depositary for registration fees,facsimile costs, delivery charges or similar items, including expenses incurred in connection with foreign exchange control regulations and othercharges specifically payable by ADS holders under the deposit agreement, or materially prejudices a substantial existing right of ADS holders, itwill not become effective for outstanding ADSs until 30 days after the depositary notifies ADS holders of the amendment. At the time anamendment becomes effective, you are considered, by continuing to hold your ADSs, to agree to the amendment and to be bound by the ADRs andthe deposit agreement as amended. If any new laws are adopted which would require the deposit agreement to be amended in order to complytherewith, we and the depositary may amend the deposit agreement in accordance with such laws and such amendment may become effectivebefore notice thereof is given to ADS holders.How may the deposit agreement be terminated?The depositary will terminate the deposit agreement if we ask it to do so, in which case the depositary will give notice to you at least 90days prior to termination. The depositary may also terminate the deposit agreement if the depositary has told us that it would like to resign, or if wehave removed the depositary, and in either case we have not appointed a new depositary within 90 days. In either such case, the depositary mustnotify you at least 30 days before termination.After termination, the depositary and its agents will do the following under the deposit agreement but nothing else: collect distributions onthe deposited securities, sell rights and other property and deliver Class A ordinary shares and other deposited securities upon cancellation of ADSsafter payment of any fees, charges, taxes or other governmental charges. Six months or more after the date of termination, the depositary may sellany remaining deposited securities by public or private sale. After that, the depositary will hold the money it received on the sale, as well as anyother cash it is holding under the deposit agreement, for the pro rata benefit of the ADS holders that have not surrendered their ADSs. It will notinvest the money and has no liability for interest. After such sale, the depositary’s only obligations will be to account for the money and other cash.After termination, we shall be discharged from all obligations under the deposit agreement except for our obligations to the depositary thereunder.Books of DepositaryThe depositary will maintain ADS holder records at its depositary office. You may inspect such records at such office during regularbusiness hours but solely for the purpose of communicating with other holders in the interest of business matters relating to the company, the ADRsand the deposit agreement.The depositary will maintain facilities in the Borough of Manhattan, The City of New York to record and process the issuance,cancellation, combination, split-up and transfer of ADRs.These facilities may be closed at any time or from time to time when such action is deemed necessary or advisable by the depositary inconnection with the performance of its duties under the deposit agreement or at our reasonable written request.14Limitations on Obligations and LiabilityLimits on our Obligations and the Obligations of the Depositary and the Custodian; Limits on Liability to Holders of ADSsThe deposit agreement expressly limits our obligations and the obligations of the depositary and the custodian. It also limits our liabilityand the liability of the depositary. The depositary and the custodian:·are only obligated to take the actions specifically set forth in the deposit agreement without gross negligence or willful misconduct;·are not liable if any of us or our respective controlling persons or agents are prevented or forbidden from, or subjected to any civil orcriminal penalty or restraint on account of, or delayed in, doing or performing any act or thing required by the terms of the depositagreement and any ADR, by reason of any provision of any present or future law or regulation of the United States or any statethereof, Cayman Islands or any other country, or of any other governmental authority or regulatory authority or stock exchange, or onaccount of the possible criminal or civil penalties or restraint, or by reason of any provision, present or future, of our Memorandumand Articles of Association or any provision of or governing any deposited securities, or by reason of any act of God or war or othercircumstances beyond its control (including, without limitation, nationalization, expropriation, currency restrictions, work stoppage,strikes, civil unrest, revolutions, rebellions, explosions and computer failure);·are not liable by reason of any exercise of, or failure to exercise, any discretion provided for in the deposit agreement or in ourMemorandum and Articles of Association or provisions of or governing deposited securities;·are not liable for any action or inaction of the depositary, the custodian or us or their or our respective controlling persons or agents inreliance upon the advice of or information from legal counsel, any person presenting Class A ordinary shares for deposit or any otherperson believed by it in good faith to be competent to give such advice or information;·are not liable for the inability of any holder of ADSs to benefit from any distribution on deposited securities that is not made availableto holders of ADSs under the terms of the deposit agreement;·are not liable for any special, consequential, indirect or punitive damages for any breach of the terms of the deposit agreement, orotherwise;·may rely upon any documents we believe in good faith to be genuine and to have been signed or presented by the proper party;·disclaim any liability for any action or inaction or inaction of any of us or our respective controlling persons or agents in relianceupon the advice of or information from legal counsel, accountants, any person presenting Class A ordinary shares for deposit, holdersand beneficial owners (or authorized representatives) of ADSs, or any person believed in good faith to be competent to give suchadvice or information; and·disclaim any liability for inability of any holder to benefit from any distribution, offering, right or other benefit made available toholders of deposited securities but not made available to holders of ADS.15The depositary and any of its agents also disclaim any liability (i) for any failure to carry out any instructions to vote, the manner in whichany vote is cast or the effect of any vote or failure to determine that any distribution or action may be lawful or reasonably practicable or forallowing any rights to lapse in accordance with the provisions of the deposit agreement, (ii) the failure or timeliness of any notice from us, thecontent of any information submitted to it by us for distribution to you or for any inaccuracy of any translation thereof, (iii) any investment riskassociated with the acquisition of an interest in the deposited securities, the validity or worth of the deposited securities, the credit-worthiness ofany third party, (iv) for any tax consequences that may result from ownership of ADSs, Class A ordinary shares or deposited securities, or (v) forany acts or omissions made by a successor depositary whether in connection with a previous act or omission of the depositary or in connection withany matter arising wholly after the removal or resignation of the depositary, provided that in connection with the issue out of which such potentialliability arises the depositary performed its obligations without gross negligence or willful misconduct while it acted as depositary.In the deposit agreement, we and the depositary agree to indemnify each other under certain circumstances.Jurisdiction and ArbitrationThe laws of the State of New York govern the deposit agreement and the ADSs and we have agreed with the depositary that the federal orstate courts in the City of New York shall have exclusive jurisdiction to hear and determine any dispute arising from or in connection with thedeposit agreement and that the depositary will have the right to refer any claim or dispute arising from the relationship created by the depositagreement to arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association.Jury Trial WaiverThe deposit agreement provides that, to the extent permitted by law, ADS holders waive the right to a jury trial of any claim they mayhave against us or the depositary arising out of or relating to our shares, the ADSs or the deposit agreement, including any claim under the U.S.federal securities laws. If we or the depositary opposed a jury trial demand based on the waiver, the court would determine whether the waiver wasenforceable in the facts and circumstances of that case in accordance with applicable case law.Requirements for Depositary ActionsBefore the depositary will issue, deliver or register a transfer of an ADS, split-up, subdivide or combine ADSs, make a distribution on anADS, or permit withdrawal of Class A ordinary shares, the depositary may require:·payment of stock transfer or other taxes or other governmental charges and transfer or registration fees charged by third parties for thetransfer of any Class A ordinary shares or other deposited securities and payment of the applicable fees, expenses and charges of thedepositary;·satisfactory proof of the identity and genuineness of any signature or any other matters contemplated in the deposit agreement; and·compliance with (A) any laws or governmental regulations relating to the execution and delivery of ADRs or ADSs or to thewithdrawal or delivery of deposited securities and (B) such reasonable regulations and procedures as the depositary may establish,from time to time, consistent with the deposit agreement and applicable laws, including presentation of transfer documents.The depositary may refuse to issue and deliver ADSs or register transfers of ADSs generally when the register of the depositary or ourtransfer books are closed or at any time if the depositary or we determine that it is necessary or advisable to do so.16Your Right to Receive the Shares Underlying Your ADSsYou have the right to cancel your ADSs and withdraw the underlying Class A ordinary shares at any time except:·when temporary delays arise because: (1) the depositary has closed its transfer books or we have closed our transfer books; (2) thetransfer of Class A ordinary shares is blocked to permit voting at a shareholders’ meeting; or (3) we are paying a dividend on ourClass A ordinary shares;·when you owe money to pay fees, taxes and similar charges;·when it is necessary to prohibit withdrawals in order to comply with any laws or governmental regulations that apply to ADSs or tothe withdrawal of Class A ordinary shares or other deposited securities, or·other circumstances specifically contemplated by Section I.A.(l) of the General Instructions to Form F-6 (as such General Instructionsmay be amended from time to time); or·for any other reason if the depositary or we determine, in good faith, that it is necessary or advisable to prohibit withdrawals.The depositary shall not knowingly accept for deposit under the deposit agreement any Class A ordinary shares or other depositedsecurities required to be registered under the provisions of the Securities Act, unless a registration statement is in effect as to such Class A ordinaryshares.This right of withdrawal may not be limited by any other provision of the deposit agreement.Direct Registration SystemIn the deposit agreement, all parties to the deposit agreement acknowledge that the DRS and Profile Modification System, or Profile, willapply to uncertificated ADSs upon acceptance thereof to DRS by DTC. DRS is the system administered by DTC pursuant to which the depositarymay register the ownership of uncertificated ADSs, which ownership shall be evidenced by periodic statements issued by the depositary to theADS holders entitled thereto. Profile is a required feature of DRS which allows a DTC participant, claiming to act on behalf of an ADS holder, todirect the depositary to register a transfer of those ADSs to DTC or its nominee and to deliver those ADSs to the DTC account of that DTCparticipant without receipt by the depositary of prior authorization from the ADS holder to register such transfer.Description of Notes (Item 12.A of Form 20-F)The following description is only a summary of the material terms of the January 2021 Note and March 2021 Note and does not purport tobe complete.We issued the January 2021 Note pursuant to a securities purchase agreement and a convertible note dated as of January 19, 2021. Weissued the March 2021 Note pursuant to a securities purchase agreement and a convertible note dated as of March 19, 2021. The followingdescription of certain material terms of the January 2021 Note and March 2021 Note is subject to, and is qualified in its entirety by reference to, therelevant convertible note, including definitions of specified terms used in the relevant convertible note, and to the Trust Indenture Act of 1939, asamended. We urge you to read the convertible notes because they, and not this description, defines your rights as a beneficial holder of these notes.The convertible note for the January 2021 Note has been filed with the SEC as an exhibit to Form 6-K (File No. 001-38665), filed on January 19,2021. The convertible note for the March 2021 Note has been filed with the SEC as an exhibit to Form 6-K (File No. 001-38665), filed on March19, 2021.17On January 19, 2021, we issued the January 2021 Note to YA II PN, Ltd, a Cayman Islands exempt limited partnership. The January 2021Note has a conversion price of the lower of (1) US$4.20 per ADS, or (2) 88% of the lowest daily VWAP, being the dollar volume-weighted averageprice for ADSs on the New York Stock Exchange, during the ten consecutive trading days immediately preceding the conversion date or other dateof determination, but not lower than the floor price as prescribed in the January 2021 Note (the “Conversion Price of January 2021 Note”). TheConversion Price of January 2021 Note is subject to adjustment in the case of a subdivision, combination or re-classification. The principal and theinterest payable under the January 2021 Note will mature on January 19, 2022, unless earlier converted or redeemed by us. At any time beforeJanuary 19, 2022, YA II PN, Ltd may convert the January 2021 Note at their option into our Class A ordinary shares represented by ADSs at theConversion Price of January 2021 Note. Pursuant to the January 2021 Note, YA II PN, Ltd shall not sell such number of ADSs in any calendarmonth that would result in gross proceeds received by it in excess of the greater of (1) 30% of the dollar trading volume during such calendarmonth or (2) US$1,700,000, which shall not apply with respect to any sales of the ADSs at prices greater than or equal to US$4.20 per ADS. YA IIPN, Ltd has also agreed under the securities purchase agreement that it shall not directly or indirectly, engage in any short sales involving oursecurities during the period commencing on the date thereof and ending when no convertible note remains outstanding. As of the date of thisannual report, the January 2021 Note has been converted to our ADSs.On March 19, 2021, we issued the March 2021 Note to YA II PN, Ltd. The March 2021 Note has a fixed conversion price of US$5.00 perADS (the “Fixed Conversion Price”). The Fixed Conversion Price is not subject to adjustment except in the case of a subdivision, combination orre-classification. The principal and the interest payable under the March 2021 Note will mature on March 19, 2022, unless earlier converted orredeemed by us. At any time before March 19, 2022, YA II PN, Ltd. may convert the March 2021 Note at their option into our Class A ordinaryshares represented by ADSs at the Fixed Conversion Price. Beginning on June 1, 2021 and continuing on the first day of each calendar monththereafter through January 2022, the principal amount of the March 2021 Note plus an 8% redemption premium and plus accrued and unpaidinterest will be subject to monthly redemption (“Monthly Redemption”). Under Monthly Redemption, we shall redeem an applicable redemptionamount in accordance with the redemption schedule provided in the March 2021 Note, which is subject to pro rata adjustment to reflect theconversion or redemption otherwise effected pursuant to the March 2021 Note contemporaneous with or prior to the scheduled redemption date, incash, ADSs through conversion of the March 2021 Note (at any time after the applicable redemption date), or a combination of both at our option.With respect to each Monthly Redemption all or partially in ADSs, the conversion price shall be the lower of (1) the Fixed Conversion Price, or (2)100% of the lowest daily VWAP (the dollar volume-weighted average price for ADSs on the New York Stock Exchange) during the tenconsecutive trading days immediately preceding the date of conversion. In the event that the daily VWAP on each of the five consecutive tradingdays immediately prior to the scheduled redemption date exceeds a price equal to 108% of the Fixed Conversion Price, then no cash redemptionshall be due on such scheduled redemption date. We also have the right, but not the obligation, to redeem (“Optional Redemption”) a portion or allamounts outstanding under the March 2021 Note prior to March 19, 2022 at a cash redemption price equal to the outstanding principal balance tobe redeemed, plus a 15% redemption premium and plus accrued and unpaid interest, if any; provided that the trading price of the ADSs is less thanFixed Conversion Price, and we provide the holder of the March 2021 Note at least ten business days’ prior written notice of its desire to exercisean Optional Redemption. The holder shall have ten business days to elect to convert all or any part of the March 2021 Note after receiving aredemption notice, in which case the redemption amount shall be reduced by the amount so converted. Pursuant to the March 2021 Note, YA II PN,Ltd. shall not sell such number of ADSs in any calendar month that would result in gross proceeds received by it in excess of the greater of (1) 30%of the dollar trading volume during such calendar month or (2) US$3,290,000, which shall not apply with respect to any sales of the ADSs at pricesgreater than or equal to US$5.00 per ADS. YA II PN, Ltd. has also agreed under the securities purchase agreement that it shall not directly orindirectly, engage in any short sales involving our securities during the period commencing on the date thereof and ending when no convertiblenote remains outstanding. 1/15Exhibit 4.17Chuan Shan Jia Distribution Cooperation AgreementContract No.:Party A: Hubei **** Technology Co., Ltd.Address:Party B: [Name of Party B]Address:Legal representative:In accordance with the Contract Law of the People’s Republic of China, the Advertising Law of the People’s Republic ofChina, the Copyright Law of the People’s Republic of China and other relevant laws, regulations and rules, Party A andParty B, with regard to the engagement of Party B by Party A to provide distribution services, hereby agree as followsthrough amicable negotiation:I. DefinitionsFor the purpose of this Agreement, the following terms have the following meanings:1. Chuan Shan Jia Platform means the Website operated by Party A and/or its affiliates at , with the function oftraffic access and inventory management.2. Media means Party B for the purpose of this Agreement, or any other legal operators of a Website/Application, whoagrees to participate in the Chuan Shan Jia Cooperation, has the corresponding qualifications and ability required to carryout the Chuan Shan Jia Cooperation and performs the obligations of Party B hereunder.3. Advertiser means any customer who signs a data promotion agreement with Party A, participates in the auction on theadvertising management interface, and obtains the right to place its advertisement on the inventory on the Application ofParty B after winning the bid.4. Chuan Shan Jia Cooperation means the cooperation between Party A and Party B in placing2/15advertisements at the inventory on the Application of Party B. Party A is responsible for the acquisition of Advertisers,organization of Advertiser bidding activities, review of advertising materials, placement, settlement and otherwise; Party Bshall offer inventorys on its Application to Advertisers for advertising. Upon the completion of the publish ofadvertisements, the advertising sales revenue shall be distributed between Party A and Party B according to the agreedproportion.5. Website/Application of Party B means the website/mobile Application titled [Name of Website/Application of Party B] andotherwise legally owned and/or operated by the Media,.6. Advertising Revenue means all revenues generated from the publish of advertisements by Advertisers on theApplication of Party B.7. Advertising Revenue Share means the revenue Media is entitled to under the Chuan Shan Jia Cooperation calculatedand paid via the method specified in this Agreement.II. Cooperation Model1. Inventory: The inventory agreed hereunder includes splash/news feed/banner/ interstitial/video, etc.2. Cooperation period: [Cooperation Period].3. The advertisements provided by Party A for Party B shall comply with laws and regulations.4. Party B is entitled to review the advertising materials provided by Party A on the Application of Party B. In case of anyof the following circumstances, Party B is entitled to refuse the publish of advertisements, provided that Party B shallnotify Party A within 1 working day following the receipt of the materials and explain the reason of refusal; otherwise,Party B is deemed to agree to the advertising materials provided by Party A and shall not refuse to display suchadvertisement materials:1) Advertisements for advocating pornography, violence, racial discrimination, gender discrimination, religious beliefdiscrimination, nationality discrimination, disability3/15discrimination, sexual orientation discrimination or age discrimination and other serious violations of public order andgood custom;2) Contents for advocating any illegal, harmful, threatening, defamatory, harassing behaviors or other offensive behaviors;3) Other contents that violate the laws of the People’s Republic of China.III. Rights and Obligations of Party A1. Party A /and its affiliates shall provide technical services and support for Advertiser bidding activities on the advertisingmanagement interface operated by it, and shall be entitled to determine the Advertisers for the publish of advertisements,and shall notify the Advertisers of the bidding results.2. Party A /and its affiliates is responsible for the improvement, upgrade and technical maintenance of the advertisingmanagement interface to ensure the stability and continuity of the advertising management interface.3. Party A shall utilize its team for the acquisition, management and retention of Advertisers.4. Party A is entitled to set or adjust its advertising standards including advertising price and delivery method, on aquarterly basis according to market conditions.5. Party A shall review the advertising materials submitted by Advertisers, in accordance with this Agreement and relevantlaws and regulations, provided that the review responsibilities of Party A are limited to the aspects as follows:1) For the advertisements, Party A shall perform the formality examination of the legality of advertising contents inaccordance with the Advertising Law of the People’s Republic of China and other relevant laws;2) For the links, Party A shall only perform the technical examination of whether the link address is compatible withmobile terminal devices including mobile phones and tablet4/15computers and can be opened quickly and successfully. Party A is not responsible for reviewing the contents of thewebpage to which the address is linked.6. Party A shall review the advertising materials submitted by Advertisers. If any third-party claim or punishment bygovernmental authorities is caused to Party B due to the advertising materials submitted by Advertisers, Party A shallassist Party B in making a claim against the Advertisers for compensation.7. Party A shall organize Advertiser bidding activities and release data according to the inventory of next periodreportedby Party B, whereas Party A does not undertake that the invenroty filling rate will be 100% for each period. If no publishis made during a period due to the failsure of invertory bidding of the or the cancellation of data promotion agreements ofAdvertiser after winning the bid Party A shall not bear any responsiblity, but shall notify Party B immediately, so trahtParty B will be able to make other arrangements of the inventory.8. Party A is responsible for collecting the back-end data of the Chuan Shan Jia Platform for the publish of advertisementsin relation to the Chuan Shan Jia Cooperation, and is entitled to determine to provide the back-end data of the Chuan ShanJia Platform to Party B from time to time. Party B agrees to use the back-end data of the Platform only for the purpose ofthis Agreement and shall not disclose the data to any third party.9. Party A shall regularly settle the fees incurred in the current period with Party B according to the agreed settlementperiod and sharing ratio.10. The advertising data recorded by the Party B for an entire calendar month will be compared with the settlement datarecorded in the system of Party A. If the advertising datadiscrepancy is less than 10% (inclusive) and the click/ uniquevisitor (UV) data discrepancy is less than 30% (inclusive), the statistical data of Party A shall prevail. If the dicrepancyexceeds the range aforementioned, Party B is entitled to submit a written objection to Party A within 5 working daysfollowing the end of the settlement period, and Party A shall provide relevant information to assist in the investigationwithin 10 working days following the receipt of the objection, and the parties shall negotiate to confirm the statistical data.If no mutual agreement isreached through the joint investigation within 60 days following the receipt by Party A of theobjection, the dispute shall be solved in accordance with dispute resolution method as agreed in this5/15Agreement. If Party B fails to submit a written objection within 5 working days following the end of the settlement period,the data of Party A shall prevail.11. Treatment of fradulent data: Party B shall warrant the authenticity of the data recorded and shall not fabricate data orrecord fraudulent data by improper means. If fraudulent data recorded by Party B is identified by Party A at any time,Party A is entitled to immediately cancel the Chuan Shan Jia membership of Party B, cease the settlement of or reduce allAdvertising Revenue Shares (including those that shall be settled but have not been settled), and reserves the right tofurther investigate Party B’s legal repsonsibility, and Party A shall notify Party B through the mailbox or internal messageon the Chuan Shan Jia Platform. If Party A has paid Party B the fees involving fraudulent data, in addition to requiringParty B to return the corresponding fees, Party A may also hold Party B liable for the breach of Agreement as stipulatedhereunder. For the fraudulent data of which Party A has evidences, Party B shall pay Party A the liquidated damageswhich is equal to twice the costs incurred.The data can be deemed as fraudulent data as long as evidence of recorded by Party B is found during or after thecompletion of the calculation of valid data by Party A. Even if Party B disputes the evidence, Party A is entitled towithhold the payment of the fees involving fraudulent data suspend the payment of the promotion fees incurred, until thedispute is resolved according to the dispute resolution procedure as agreed in Article 12 hereof.IV. Rights and Obligations of Party B1. Party B undertakes and warrants all of the following:1)Party B shall offer inventory on the Website/Application legally owned and/or operated by it, for the advertising byAdvertisers, Party B has the legal ownership or operation right of Party B’s Website/Application, and Party B shall havethe supporting documents of the aforementioned rights.2)Party B has completed all precedures needed for the legal registration and operation of Party B’sWebsite/Application, and has gained the legal qualification and supporting documents to operate the Website/Application.2. Party B authorizes Party A to release data on the inventory on the Application of Party B by6/15either or a combination of the following two methods:1) Publication of advertisements: Advertisements are published for Party A on the Application of Party B in the form ofpictures, texts, videos and otherwise;2) Promotion through links: A network link address is provided by an Advertiser and published on the Application of PartyB. Users of the Application of Party B may be directed to a corresponding webpage by clicking the link.3. Party B is responsible for the improvement, upgrade and technical maintenance of its Application on mobile terminaldevices including mobile phones and tablet computers to ensure the stability and continuity of the Application.4. Party B shall ensure that the display time, pixel size and other technical indexes of an advertising space on theApplication of Party B are capable of fully displaying the advertisements meeting the specifications and standards agreedin this Agreement.5. Party B warrants that its Website/Application supports the data monitoring by Party A.6. Party B is entitled to review advertisements in accordance with Article II, Section 4 of this Agreement.7. Upon confirming the settlement data for each settlement period, Party B shall provide Party A with a VAT invoice in anequivalent amount in a timely manner. Within 15 working days following the receipt of the invoice, Party A shall pay theAdvertising Revenue Share calculated based on the method specified in this Agreement to the designated account of PartyB.8. Party B and its Media shall not commit unfair competition through malicious programs, spyware or other forms oftraffic hijacking. If traffic hijacking behaviors of Party B and/or its Media cause damages to the legal rights and interestsof Party A and/or Party A’s users/customers, Party A is entitled to require Party B and its Media to assume all legalliabilities.V. Settlement of Distribution Fees7/151. Party B may choose the form of API and/or SDK access by which Party A distributes the revenue to Party B. Dataincluding impressions, clicks, click through rate, CPM and estimated revenue shall be subject to the statistics in the systemof Party A and the statistical rules of Party A, and Party B shall not raise any objection in this regard.2. Settlement method: The settlement period by Party A for Party B is one calendar month (in other words, one settlementperiod is the period commencing at 00:00 on the first day of each solar calendar month and ending at 24:00 on the last dayof the same month). Party B shall be provided with the settlement data for the previous settlement period, prior to the[10th] working day of each calendar month, provided that if the accumulated distributable revenue which is unsettled for asettlement period is less than RMB1,000, Party A may suspend the settlement, until the unsettled accumulateddistributable revenue reaches RMB1,000, or if the unsettled distributable revenue is less than RMB1,000 at the end of eachnatural year, Party A will settle all the revenue over the natural year. If the cooperation is terminated, all the revenue shallbe settled upon the Parties signing a termination agreement.3. The Advertising Revenue Share payable by Party A hereunder shall be paid to the following bank account of Party Bvia wire transfer:Account name:Bank Name:Account No.:4. Invoicing information on the VAT invoice of Party A:Company name:Taxpayer ID No.:Address:Tel:Bank name:Bank account No.:Invoicing item: Advertising fee or advertisement publication fee/ Information service fee5. The parties shall respectively pay the taxes levied by the government on each party in accordance with relevant laws dueto executing this Agreement. Unless otherwise agreed by the8/15parties, all payments hereunder will be made in RMB.VI. Liability for Breach of Agreement1. Party A shall pay the distribution fee at the time and in the amount as agreed in this Agreement. Except for any delaycaused by Party B, if Party A fails to pay the revenue share at the time agreed in this Agreement, Party A shall pay Party Ba late payment fee for each day of delay at a rate of 0.03% of the amount payable for the current period. If the delayexceeds 30 natural days, Party B is entitled to unilaterally terminate this Agreement and require Party A to pay the relevantrevenue share and late payment fee.2. In case of any of the following breach of Agreement by Party A, Party B shall be entitled to unilaterally terminate thisAgreement, provided that Party B shall notify Party A in a timely manner:Where Party A in breach of the confidentiality clause hereof, transfers, duplicates, disseminates, assigns, licenses, ordiscloses, permits or provides the trade secrets, software, data and other information contents of Party B for the use byother parties in any way, or uses for any commercial or business activities;3. In case of any of the following breaches by Party B, Party A is immediately entitled to choose to unilaterally terminatethis Agreement and Party B’s access to its account:1) Where Party B, in breach of the confidentiality clause hereof, transfers, duplicates, disseminates, assigns, licenses, ordiscloses, permits or provides the trade secrets, software, data and other information contents of Party A for the use byother parties in any means, or uses for any commercial or business activities, other than for the purpose of this Agreement.2) Where Party B significantly deletes and changes data contents of Party A without authorization, resulting in a seriousand adverse impact on the social evaluation of the products or services to be promoted by Party A;3) Where Party B breaches the undertakings and warranties in Article 4, Paragraph 1 of this Agreement.9/154) Party B warrants that it shall not post on Party B’s Website any content that vilotes the laws and regulations of thePeople’s Republic of China, including but not limited to content that endangers national security, is obscene andpornographic, false, defamatory, threatening, harassing, or infringes on the intellectual property rights, commercial secretsor other legitimate rights and interests of other party, or is contrary to social order and morality or similar to the above. IfParty B is punished by the regulatory authorities, or is under investigation but no result has been issued by the regulatoryauthorities, and hence Party A received reasonable complaints against Party B’s Website and the contents published on theWebsite (including, but not limited to, allegations from third parites of infringement by Party A in the form of letters,media reports, etc.; litigation against Party A; reports to the relevant regulatory authorities which subject Party A toexamination or questioning, etc.)5) Where Party B declares bankruptcy or goes into liquidation.6) Other serious breach of Agreement by Party B rendering the performance of this Agreement by Party A meaningless.4. During the term of this Agreement, if either party wishes to terminate this Agreement early, it must notify the otherparty in writing 30 days in advance, subject to the written consent of the other party. Without mutual consent by bothparties, any change or termination of this Agreement clamed unilaterally by one party shall have no legal effect. If theother party suffers any loss as a result, the defaulting party shall be liable for compensation.5. Cancellation by either party of the distribution specified herein without authorization upon executing this Agreementshall be deemed a breach of Agreement. The breaching party shall pay the liquidated damages for the breach, equivalent tothe larger of 20% of the fee incurred in the settlement period, or RMB30,000.VII. Confidentiality1. If any information of one party is known or understood by the other party due to the conclusion and performance of thisAgreement, it is still the proprietary information of the disclosing party. Without the prior written consent of the disclosingparty, either party shall keep10/15any proprietary information confidential and shall not disclose it to any person or entity, unless required for the normalperformance of the obligations hereunder or otherwise required by national laws and regulations.2. The parties are responsible for the confidentiality of the specific contents of this Agreement. Either party shall not,without the prior written consent of the other party, disclose to any third party, the cooperation between the parties and thespecific contents of this Agreement.3. The expiration, termination, cancellation or voidance of this Agreement shall not affect the validity of thisconfidentiality provision and its binding force on the parties.VII. Force Majeure and Changes of Circumstances1. If Party A or Party B delays or fails to perform its obligations in whole or in part due to force majeure or changes ofcircumstances, either party is not liable for breach of Agreement, provided that either party shall take measures in a timelymanner to reduce losses caused by force majeure or changes in circumstances. Force majeure includes, but is not limitedto, government regulations, national policy adjustment, terrorist attack, hacker attack, natural disaster, war, power outage,technical adjustment of telecommunication department and virus invasion. The parties shall not be liable to each other forliability of breach of the Agreement if the performance of the Agreement is partially or fully prevented or delayed due tothe force majeure events mentioned hereabove.2. The followings are changes in circumstances agreed in this Agreement:1) Server interruption. If any of the following circumstances occurs, Party B may suspend the information release anddistribution services on the platform without notice to Party A.Force majeure caused by non-human factors including emergency maintenance and overhaul of service equipment.The termination of the circuit service of the platform due to the failure of basic telecommunication services.11/15Party B shall notify Party A of any of the aforesaid circumstances within 12 hours following the occurrence.Servers of Party B temporarily fail to run due to illegal attacks on the servers and cannot be brought back to operationdespite the best efforts of Part B for urgent repair.2) There are other material changes in objective circumstances other than caused by force majeure that are unforeseeableto the parties at the time of the conclusion of this Agreement after the conclusion of this Agreement.3. If an event of force majeure or a change of circumstances continues for 20 days or exceeds 30 days in the aggregateduring the term of this Agreement, either party shall have the right to terminate this Agreement unilaterally by writtennotice.IX. Supplement, Amendment and Termination of the Agreement1. For matters not covered by this Agreement, a written supplementary agreement may be otherwise made by and betweenParty A and Party B upon negotiation. The written supplementary agreement signed and sealed by the parties has the samelegal effect as this Agreement.2. Unless otherwise agreed in this Agreement, without the written consent of the parties, any amendment to or terminationof this Agreement unilaterally claimed by either party is invalid, and the party shall compensate for any financial lossincurred by the other party as a result of such amendment or termination.X. Anti-commercial BriberyIn order to protect the legal rights and interests of the parties to the cooperation and ensure that the business dealingsbetween the parties comply with the principles of good faith and arm’s length transaction, and with a view to establishing along-term amicable business partnership between the parties and promoting the good development of the relationshipbetween the parties, the parties, through amicable negotiation, agree as follows:12/151. For the purpose of this article, Commercial Bribery means any material and spiritual, direct or indirect, ImproperAdvantages given to employees of Party A by Party B or its employees so that Party B obtains cooperation and benefits ofcooperation with Party A.2. Improper Advantages: Party B or its employees shall not provide or give any direct or indirect advantage beyond thescope of the cooperative business (as a gift or at a consideration other than the fair value) in the name of Party B or anindividual for or to any employee of Party A and its connected person, including but not limited to: specified or hiddencommissions, cash, gift cards, physical objects, negotiable securities, tour, shares, dividends, cash gifts, gifts,entertainment tickets, special discounts or samples, and travel, catering and entertainment financed by Party B, andbenefits derived from cooperative businesses or other material and non-material benefits.3. Conflict of Interest: Including but not limited to the following: (1) Party B shall not provide any form of loans toemployees of Party A and their connected persons; (2) If shareholders, supervisors, managers, senior managementmembers, cooperative project leaders and project members of Party B are employees of Party A or their connectedpersons, Party B shall truthfully and completely notify Party A in writing prior to the cooperation; (3) During thecooperation, Party B shall not allow employees of Party A and their spouses to hold the equity interest in Party B directlyor indirectly through a third party (except for shares held through an open securities exchange market which are less than5% of the outstanding shares, or through the direct or indirect holding of funds without actual control, or through trustswhose beneficiaries are not the employees or their connected persons).4. If Party B breaches any of the aforesaid provisions, Party A is entitled to unilaterally terminate this Agreement withParty B in part or in whole, and Party B shall pay Party A, the liquidated damages for breach of Agreement, equal toRMB100,000 or 50% of the order (contract) amount involved, whichever is larger. Party B shall pay the liquidateddamages within 5 working days following the date on which the breach is found by Party A; otherwise, Party A is entitledto deduct the liquidated damages for breach directly from any payment hereunder. Regardless of whether Party B offers toor is required to provide Improper Advantages to employees of Party A or their connected persons, if Party B proactivelyprovides Party A with valid information, Party A may, in its sole judgment and discretion, give Party B the opportunity tocontinue the cooperation and/or reduce the aforesaid liability for breach, according to the actual situation. If Party Bbreaches this Agreement, Party A reserves the right to hold Party B13/15and the directly responsible person of Party B civilly and/or criminally liable.5. If any breach or attempted breach of the anti-commercial bribery agreement and any law and regulation on anti-commercial bribery and anti-corruption as well as policies of Party A is found during the business cooperation, Party Bmay report such breach to Party A. Party A shall keep confidential the information on any whistleblowing behavior andthe identity of any whistleblower; with regard to any true and valid whistleblowing behavior and whistleblower, Party Awill grant the whistleblower a reward of RMB10,000 to RMB1 million according to corporate policies and the particularsof the reported event, after the reported event turns out to be true.Party A’s special email for receiving report and complaint: 【 】XI. Dispute Resolution1. This Agreement is signed in Haidian District, Beijing. Any dispute arising from this Agreement shall be resolved by theparties through amicable negotiation. If the dispute cannot be resolved through negotiation, either party is entitled tosubmit the dispute to the Haidian District People’s Court of Beijing for litigation, which shall be conducted in accordancewith the laws, regulations and rules then in force.2.The conclusion, execution and interpretation of this Agreement shall be governed by the laws of the People’s Republicof China.XII. Notice and Service1. Unless otherwise agreed in this Agreement, notices, documents and information sent by Party A or Party B to each otherdue to the conclusion and performance of this Agreement may be delivered by fax, post or email.Party A: Hubei **** Technology Co., Ltd.Email:Postal address:14/15Party B:Contact person:Email:Tel:Fax:Postal address:2. If either party changes its fax number, postal address or email address, it shall notify the other party in writing 5working days prior to the change.3. Notice is deemed to have been received, if sent by fax, at the time of transmission; if sent by mail, upon delivery to thepostal address; if sent by email, 24 hours after sending.XIII. Effect of the Agreement1. This Agreement comes into force on the date on which it is sealed by both parties.2. This Agreement is executed in duplicate. Party A and Party B shall each keep one copy, and each copy has the samelegal effect.3. Any matters not covered by this Agreement shall be resolved by both parties throuth friendly communication and asupplementary agreement shall be signed. The supplementary agreement shall take effect after it is sealed by both partiesand shall has the same legal effect as this Agreement.Party A: Hubei **** Technology Co., Ltd.Party B: 【Name of Party B】Seal:Seal:Date: [Execution Date]Date: [Execution Date]The form of Chuan Shan Jia Distribution Cooperation Agreement signed by certain VIEs of the Registrant and a scheduleof all executed Chuan Shan Jia Distribution Cooperation Agreements adopting the same form in respect of each of theseVIEs of the Registrant.15/15Schedule of Material DifferencesOne or more persons entered into Chuan Shan Jia Distribution Cooperation Agreement by using this form.Pursuant to Instruction ii to Item 601 of Regulation S-K, the Registrant may only file this form as an exhibit with aschedule setting forth the material details in which the executed agreements differ from this form:No. Name of Party B Name of Website/Application of Party B Execution Date Cooperation Period1. Molihong (Shenzhen) InternetTechnology Co., Ltd. Kaiyunbao December 11, 2019 From January 1, 2020to December 31, 20212. Shanghai Chubao (CooTek)Information Technology Co., Ltd. Touchpal Phonebook December 11, 2019 From January 1, 2020to December 31, 20213. Yingsun Information Technology(Ningbo) Co., Ltd. Hailaidian December 12, 2019 From January 1, 2020to December 31, 2021 Exhibit 8.1List of Principal Subsidiaries and Variable Interest Entities of the Registrant*Subsidiary Place of IncorporationNova (Cayman) Inc.Cayman IslandsTouchPal HK Co., LimitedHong KongCooTek Hong Kong LimitedHong KongTouchPal, IncUnited StatesShanghai Chule (CooTek) Information Technology Co., Ltd.People's Republic of ChinaYingsun Information Technology (Ningbo) Co., Ltd.People's Republic of ChinaVariable Interest Entity Place of IncorporationShanghai Chubao (CooTek) Information Technology Co., LtdPeople's Republic of ChinaMolihong (Shenzhen) Internet Technology Co., Ltd.People's Republic of ChinaShanghai Qiaohan Technology Co., Ltd.People's Republic of ChinaShanghai Dengyong Information Technology Co., Ltd.People's Republic of ChinaShanghai Qinglin Network Technology Co., Ltd.People's Republic of China*Other entities of CooTek (Cayman) Inc. have been omitted from this list since, considered in the aggregate as a single entity, they would notconstitute a significant subsidiary. Exhibit 12.1Certification by the Principal Executive OfficerPursuant to Section 302 of the Sarbanes-Oxley Act of 2002I, Karl Kan Zhang, certify that:1.I have reviewed this annual report on Form 20-F of CooTek (Cayman) 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 necessaryto make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the periodcovered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all materialrespects 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 (asdefined 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 oursupervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us byothers 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 designedunder our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financialstatements 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 conclusionsabout the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on suchevaluation; and(d)Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the periodcovered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control overfinancial reporting; and5.The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financialreporting, 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 whichare 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’sinternal control over financial reporting.Date: April 26, 2021By:/s/ Karl Kan ZhangName:Karl Kan ZhangTitle:Chairman of the Board of Directors and Chief Technology Officer Exhibit 12.2Certification by the Chief Financial OfficerPursuant to Section 302 of the Sarbanes-Oxley Act of 2002I, Robert Yi Cui, certify that:1.I have reviewed this annual report on Form 20-F of CooTek (Cayman) 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 necessaryto make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the periodcovered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all materialrespects 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 (asdefined 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 oursupervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us byothers 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 designedunder our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financialstatements 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 conclusionsabout the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on suchevaluation; and(d)Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the periodcovered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control overfinancial reporting; and5.The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financialreporting, 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 whichare 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’sinternal control over financial reporting.Date: April 26, 2021By:/s/ Robert Yi CuiName:Robert Yi CuiTitle:Chief Financial Officer Exhibit 13.1Certification by the Principal Executive OfficerPursuant to Section 906 of the Sarbanes-Oxley Act of 2002In connection with the Annual Report of CooTek (Cayman) Inc. (the “Company”) on Form 20-F for the fiscal year ended December 31,2020 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Karl Kan Zhang, Principal Executive Officer ofthe Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that tomy 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 operationsof the Company.Date: April 26, 2021By:/s/ Karl Kan ZhangName:Karl Kan ZhangTitle:Chairman of the Board of Directors and Chief Technology Officer Exhibit 13.2Certification by the Chief Financial OfficerPursuant to Section 906 of the Sarbanes-Oxley Act of 2002In connection with the Annual Report of CooTek (Cayman) Inc. (the “Company”) on Form 20-F for the fiscal year ended December 31,2020 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Robert Yi Cui, Chief Financial Officer of theCompany, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to myknowledge:(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 operationsof the Company.Date: April 26, 2021By:/s/ Robert Yi CuiName:Robert Yi CuiTitle:Chief Financial Officer Exhibit 15.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe consent to the incorporation by reference in the Registration Statements No. 333-229171 on Form S-8 and No. 333-251355 on FormF-3 of our report dated April 26, 2021, relating to the consolidated financial statements and financial statement schedule of CooTek (Cayman) Inc.and its subsidiaries, appearing in this Annual Report on Form 20-F of CooTek (Cayman) Inc. for the year ended December 31, 2020./s/ Deloitte Touche Tohmatsu Certified Public Accountants LLPDeloitte Touche Tohmatsu Certified Public Accountants LLPShanghai, ChinaApril 26, 2021 EXHIBIT 15.2April 26, 2021CooTek (Cayman) Inc. 9-11F, No.16, Lane 399, Xinlong Road Minhang District Shanghai People’s Republic of ChinaDear Sir/Madam:We hereby consent to the reference of our name under the headings “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure” and “Item 4. Information on the Company—C. Organizational Structure” in CooTek (Cayman) Inc.’s Annual Report on Form 20-F for the year ended December 31, 2020 (the “Annual Report”), which will be filed with the Securities and Exchange Commission (the “SEC”) on thedate hereof, and further consent to the incorporation by reference of the summary of our opinion under this heading into the Company’s registrationstatements on Form S-8 (File No. 333-229171) and Form F-3 (No. 333-251355) that was filed on December 15, 2020. We also consent to the filing of this consent letter with the SEC as an exhibit to the Annual Report.In giving such consent, we do not thereby admit that we come within the category of persons whose consent is required under Section 7 of theSecurities Act of 1933, or under the Securities Exchange Act of 1934, in each case, as amended, or the regulations promulgated thereunder.Very truly yours,/s/ JunHe LLPJunHe LLP Exhibit 15.3CooTek (Cayman) Inc. 9-11F, No.16, Lane 399, Xinlong Road Minhang District Shanghai 201101 People’s Republic of China26 April, 2021Dear SirsCooTek (Cayman) Inc.We have acted as legal advisers as to the laws of the Cayman Islands to CooTek (Cayman) Inc., an exempted company incorporated in the CaymanIslands with limited liability (the “Company”), in connection with the filing by the Company with the United States Securities and ExchangeCommission (the “SEC”) of an annual report on Form 20-F for the year ended 31 December 2020 (the “Annual Report”).We hereby consent to the reference to our firm under the heading “Item 10. Additional Information—E. Taxation—Cayman Islands Taxation” inthe Annual Report, and further consent to the incorporation by reference of the summary of our opinion under this heading into the Company’sregistration statements on Form S-8 (File No. 333-229171) that was filed on 9 January, 2019.We consent to the filing with the SEC of this consent letter as an exhibit to the Annual Report. In giving such consent, we do not thereby admit that we come within the category of persons whose consent is required under Section 7 of the Securities Act of 1933, or under the Securities Exchange Act of 1934, in each case, as amended, or the regulations promulgated thereunder.Yours faithfully/s/ Maples and Calder (Hong Kong) LLPMaples and Calder (Hong Kong) LLP

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