DouYu International Holdings Limited
Annual Report 2021

Plain-text annual report

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 20-F (Mark One) ☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934 OR ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2021. OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 OR ☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of event requiring this shell company report For the transition period from to Commission file number: 001-38967 DouYu International Holdings Limited (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) 20/F, Building A, New Development International Center, No. 473 Guanshan Avenue, Hongshan District, Wuhan, Hubei Province, 430073, People’s Republic of China (Address of principal executive offices) Shaojie Chen Chief Executive Officer Tel: +86 27 8775 0710 E-mail: ir@douyu.tv 20/F, Building A, New Development International Center, No. 473 Guanshan Avenue, Hongshan District, Wuhan, Hubei Province, 430073, People’s Republic of China (Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person) Securities registered or to be registered pursuant to Section 12(b) of the Act. Title of each class American depositary shares, every 10 American depositary shares represent one ordinary share, par value US$0.0001 per share Trading Symbol DOYU Name of each exchange on which registered The Nasdaq Global Select Market Ordinary shares, par value US$0.0001 per share* N/A The Nasdaq Global Select Market * Not for trading, but only in connection with the listing of the American depositary shares on the Nasdaq Global Select Market. 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. 32,327,391 ordinary shares, par value $0.0001 per share as of December 31, 2021. Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒ If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes ☐ No ☒ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐ Emerging growth company ☐ If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards † provided pursuant to Section 13(a) of the Exchange Act. ☐ † The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012. Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the eff ectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒ 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 18 If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒ (APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS) Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☐ No ☐ Table of Contents TABLE OF CONTENTS INTRODUCTION FORWARD-LOOKING INFORMATION PART I ITEM 1. ITEM 2. ITEM 3. ITEM 4. ITEM 4A. ITEM 5. ITEM 6. ITEM 7. ITEM 8. ITEM 9. ITEM 10. ITEM 11. ITEM 12. PART II ITEM 13. ITEM 14. ITEM 15. ITEM 16.A. ITEM 16.B. ITEM 16.C. ITEM 16.D. ITEM 16.E. ITEM 16.F. ITEM 16.G. ITEM 16.H. PART III ITEM 17. ITEM 18. ITEM 19. FINANCIAL STATEMENTS FINANCIAL STATEMENTS EXHIBITS IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS OFFER STATISTICS AND EXPECTED TIMETABLE KEY INFORMATION INFORMATION ON THE COMPANY UNRESOLVED STAFF COMMENTS OPERATING AND FINANCIAL REVIEW AND PROSPECTS DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS FINANCIAL INFORMATION THE OFFER AND LISTING ADDITIONAL INFORMATION QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES ITEM DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS CONTROLS AND PROCEDURES AUDIT COMMITTEE FINANCIAL EXPERT CODE OF ETHICS PRINCIPAL ACCOUNTANT FEES AND SERVICES EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT CORPORATE GOVERNANCE MINE SAFETY DISCLOSURE i Page ii iv 1 1 1 1 59 97 97 115 124 125 127 127 136 136 138 138 138 139 140 140 140 140 141 141 141 142 142 142 142 142 Table of Contents Except where the context otherwise indicates and for the purpose of this annual report only: INTRODUCTION • • • • • • • • • • • • • • • • • • “active users” refers to users who visited our platform through a PC or mobile app at least once in a given period; the number of active PC users is measured as the number of independent cookies generated by our website when users visited our platform through a PC in a given period, and the number of active mobile users is measured as the number of mobile devices that launched our mobile apps in a given period. The number of active users is calculated by treating each distinguishable independent cookie or mobile device as a separate user even though some individuals may access our platform with more than one independent cookie or using more than one mobile device and multiple individuals may access our services with the same independent cookie or using the same mobile device; “ADSs” refers to the American Depositary Shares, every 10 ADSs represent one ordinary share, par value US$0.0001 per share; “annual paying users” refer to the total paying users for a given year after removing double-counting because of multiple payments; “ARPPU” refers to average livestreaming revenue per paying user in a given period; “average mobile MAUs” for a given period of time is calculated by dividing (i) the sum of active mobile users for each month of such period by (ii) the number of months in such period; “average next-month active user retention rate” for any period is calculated by dividing (i) the sum of next-month active user retention rate for each month of such period by (ii) the total number of months in such period; “average total eSports MAU” refers to the average total eSports MAUs during a given period of time calculated by dividing (i) the sum of active users, including active PC users and active mobile users who accessed game-themed channels on our platform in each month of such period by (ii) the number of months in such period; “Beijing Fengye” refers to Beijing Fengye Equity Investment Center (Limited Partnership); “Beijing Phoenix” refers to Beijing Phoenix Rich Investment Management Center (Limited Partnership); “CDN” refers to content delivery network; “China” or “PRC” refer to the People’s Republic of China, excluding, for the purposes of this annual report only, Taiwan, Hong Kong and Macau; “Douyu Education” refers to Wuhan Douyu Education Consulting Co., Ltd.; “Douyu Yule” refers to Wuhan Douyu Culture Network Technology Co., Ltd.; “Gogo Glocal” refers to Gogo Glocal Holding Limited, an exempted company incorporated under the laws of the Cayman Islands; “Guangzhou Douyu” refers to Guangzhou Douyu Internet Technology Co., Ltd.; “Huya” refers to HUYA Inc.; “Linzhi Lichuang” refers to Linzhi Lichuang Information Technology Co., Ltd., an entity controlled by Tencent Holdings Limited; “MAUs” refers to the number of active users, including active PC users and active mobile users in a given month; • “Merger Agreement” refers to the Agreement and Plan of Merger dated October 12, 2020 entered into by DouYu, Huya, Tiger Company Ltd. and Nectarine; • “Nectarine” refers to Nectarine Investment Limited, a wholly-owned subsidiary of Tencent Holdings Limited; • “next-month active user retention rate” is calculated by dividing (i) the sum of active users who visited our platform through a PC or mobile app at least once in the next month after a given month by (ii) the sum of all active users in that given month; • • “ordinary shares” refers to our ordinary shares of par value US$0.0001 per share; “P2P” refers to peer-to-peer; • “paying user” for any period in the context of our operating data refers to a registered user that has purchased virtual gifts on our platform at least once during the relevant period. A paying user is not necessarily a unique user, however, as a unique user may set up multiple paying user accounts on our platform, and consequently, the number of paying users we present in this annual report may not equal to the number of unique individuals who made purchases on our platform for any given period of time; ii Table of Contents • “Penguin” or “Penguin Business” refers to the game livestreaming business operated by the Tencent group under the “Penguin e-Sports” brand; • • • • • • • • • • “quarterly average paying users” refers to the average paying users for each quarter during a given period of time calculated by dividing (i) the sum of paying users for each quarter of such period by (ii) the number of quarters in such period; “Reassignment” refers to the proposed reassignment of the Penguin Business by Nectarine to DouYu, whereby upon its completion, we will beneficially own and operate the Penguin Business; “Reassignment Agreement” refers to the reassignment agreement, dated October 12, 2020, by and between Nectarine and us; “registered streamer” refers to a user that has been registered on our platform as a streamer; “registered user” refers to a user that has registered and logged onto our platform at least once since registration. We calculate registered users as the cumulative number of user accounts at the end of the relevant period that have logged onto our platform at least once after registration. Each individual user may have more than one registered user account, and consequently, the number of registered users we present in this annual report may not equal to the number of unique individuals who are our registered users; “retention rate” refers to the percentage of users who make at least one repeat use after a certain duration; “RMB” or “Renminbi” refers to the legal currency of the People’s Republic of China; “RSU” refers to restricted share unit; “Tencent” refers to Tencent Holdings Limited; “US$,” “dollars” or “U.S. dollars” refers to the legal currency of the United States; • “We,” “Us,” “Our company,” “the Group,” “Our,” or “Douyu” refers to DouYu International Holdings Limited, a Cayman Islands exempted company and its subsidiaries, and, in the context of describing our consolidated financial information, business operations and operating data, the variable interest entities (“VIEs”) and their subsidiaries. As described elsewhere in this annual report, we do not own the VIEs, and the results of the VIEs’ operations only accrue to us through contractual arrangements between the VIEs, and the VIEs’ nominee shareholders, and certain of our subsidiaries. Accordingly, in appropriate contexts we will describe the VIEs’ activities separately from those of our direct and indirect owned subsidiaries and our use of the terms “we,” “us,” and “our” may not include the VIEs in those contexts; • • • • • • • “Wuhan Douyu” refers to Wuhan Douyu Internet Technology Co., Ltd.; “Wuhan Ouyue” refers to Wuhan Ouyue Online TV Co., Ltd.; “Wuhan Yuwan” refers to Wuhan Yuwan Culture Media Co., Ltd.; “Yu Leyou” refers to Wuhan Yu Leyou Internet Technology Co., Ltd.; “Yuxing Tianxia” refers to Wuhan Yuxing Tianxia Culture Media Co., Ltd.; “Yuyin Raoliang” refers to Wuhan Yuyin Raoliang Culture Media Co., Ltd.; and “Zhejiang Ouyue” refers to Zhejiang Ouyue Online TV Co., Ltd., which was subsequently renamed Wuhan Ouyue. Unless the context otherwise requires, the operating data presented for our company in this annual report excludes Gogo Glocal, an exempted company incorporated under the laws of the Cayman Islands, or any other platform we incorporated to conduct our business overseas. We acquired a controlling stake of Gogo Glocal in October 2018 and all of its shares in February 2020. We have made rounding adjustments to some of the figures included in this annual report. Accordingly, numerical figures shown as totals or percentages may not be an arithmetic calculation of the figures that preceded them. Unless otherwise noted, all translations from Renminbi to U.S. dollars and from U.S. dollars to Renminbi in this annual report are made at RMB6.3726 to US$1.00, the exchange rate set forth in the H.10 statistical release of the Federal Reserve Board on December 30, 2021. We make no representation that any Renminbi or U.S. dollar amounts could have been, or could be, converted into U.S. dollars or Renminbi, as the case may be, at any particular rate, the rates stated below, or at all. iii Table of Contents This annual report contains statements that constitute forward-looking statements. Many of the forward-looking statements contained in this annual report can be identified by the use of forward-looking words such as “anticipate,” “believe,” “could,” “expect,” “should,” “plan,” “intend,” “estimate” and “potential,” among others. FORWARD-LOOKING INFORMATION Forward-looking statements appear in a number of places in this annual report and include, but are not limited to, statements regarding our intent, belief or current expectations. Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to our management. Such statements are subject to risks and uncertainties, and actual results may differ materially from those expressed or implied in the forward-looking statements due to various factors, including, but not limited to, those identified under the section entitled “Item 3. Key Information—3.D. Risk Factors” in this annual report. These risks and uncertainties include factors relating to: • • • • • • • • • our goals and growth strategies; our future business development, results of operations and financial condition; relevant government policies and regulations relating to our business and industry; our expectation regarding the use of proceeds from our initial public offering in July 2019; general economic and business condition in China; status of the COVID-19 pandemic; assumptions underlying or related to any of the foregoing; other factors that may affect our financial condition, liquidity and results of operations; and other risk factors discussed under “Item 3. Key Information—3.D. Risk Factors.” Forward-looking statements speak only as of the date they are made, and we do not undertake any obligation to update them in light of new information or future developments or to release publicly any revisions to these statements in order to reflect later events or circumstances or to reflect the occurrence of unanticipated events. iv Table of Contents ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS Not applicable. PART I ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE Not applicable. ITEM 3. KEY INFORMATION Our Contractual Arrangements and Corporate Structure We are a Cayman Islands holding company instead of an operating company in China. We conduct our operations in China through our PRC subsidiaries and consolidated variable interest entities (“the VIEs”). Currently we conduct substantially all of our business operations in the PRC through Douyu Yule, our subsidiary incorporated in the PRC, and the VIEs. Douyu Yule controls Wuhan Ouyue and Wuhan Douyu, and the VIEs in the PRC, through a series of contractual arrangements. We conduct a significant portion of our businesses in China through Wuhan Ouyue and Wuhan Douyu. It is the VIEs that hold our key operating licenses, provide services to our customers, and enter into contracts with our suppliers. In 2019, 2020 and 2021, the amount of revenues generated by the VIEs accounted for 99%, 91% and 98%, respectively, of our total net revenues. As of December 31, 2020 and 2021, total assets of the VIEs, excluding amounts due from other companies in the Group, equaled 27% and 27% of our consolidated total assets as of the same dates, respectively. As used in this annual report, “we,” “us,” “our company,” “the Group,” “our,” or “Douyu” refers to DouYu International Holdings Limited and its subsidiaries, and, in the context of describing our consolidated financial information, business operations and operating data, the consolidated VIEs. “Douyu Yule” refers to Wuhan Douyu Culture Network Technology Co., Ltd., “Wuhan Ouyue” refers to Wuhan Ouyue Online TV Co., Ltd., and “Wuhan Douyu” refers to Wuhan Douyu Internet Technology Co., Ltd. We refer to Wuhan Douyu Education Consulting Co., Ltd., Wuhan Yuwan Culture Media Co., Ltd., Wuhan Yuxing Tianxia Culture Media Co., Ltd., Wuhan Yuyin Raoliang Culture Media Co., Ltd., Wuhan Yu Leyou Internet Technology Co., Ltd., and Wuhan Yule as the PRC subsidiaries in the context of describing of their activities. We refer to Wuhan Ouyue and Wuhan Douyu as the VIEs in the context of describing their activities and contractual arrangements with us. The VIEs primarily conduct operations in China, and the VIEs are consolidated for accounting purposes but are not entities in which we own equity, and our Company does not conduct operations by itself. Investors in our ADSs are purchasing equity securities of a Cayman Islands holding company rather than equity securities issued by our subsidiaries and the VIEs. Investors who are non-PRC residents may never directly hold equity interests in the VIEs under current PRC laws and regulations. We and our direct and indirect subsidiaries do not, and it is virtually impossible us to, have any equity interests in the VIEs in practice because current PRC laws and regulations restrict foreign investment in companies that engage in value-added telecommunication services. As a result, we depend on certain contractual arrangements with the VIEs to operate a significant portion of our business. These contractual arrangements entered into with the VIEs allow us to (i) exercise effective control over the VIEs, (ii) receive substantially all of the economic benefits of the VIEs, and (iii) have an exclusive option to purchase all or part of the equity interests in the VIEs when and to the extent permitted by PRC law. These contractual arrangements include the operating agreement, equity pledge agreement, exclusive purchase option agreement, shareholder voting right trust agreement, loan agreement and cooperation agreement, as the case may be. As a result of these contractual arrangements, we exert effective control over, and are considered the primary beneficiary of, the VIEs and consolidate their operating results in our financial statements under U.S. GAAP. The VIEs are owned by certain nominee shareholders, and not by us. All of these nominee shareholders are also beneficial owners of the Company. For more details of these contractual arrangements, see “Item 4. Information on the Company—4.C. Organizational Structure—Contractual Arrangements with the VIEs and the VIEs’ Respective Shareholders.” However, the contractual arrangements may not be as effective as direct ownership in providing us with control over the VIEs and we may incur substantial costs to enforce the terms of the arrangements. If the VIEs or the nominee shareholders fail to perform their respective obligations under the contractual arrangements, we could be limited in our ability to enforce the contractual arrangements that give us effective control over the VIEs. Furthermore, if we are unable to maintain effective control, we would not be able to continue to consolidate the financial results of these entities in our financial statements. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure—Any failure by the VIEs or their shareholders to perform their obligations under our contractual arrangements with them would have a material adverse effect on our business” and “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure— We rely on contractual arrangements with the VIEs and their shareholders for our operations in China, which may not be as effective in providing operational control as direct ownership.” Our corporate structure involves unique risks to investors in the ADSs. Our contractual arrangements with the VIEs have not been tested in court. If the PRC government deems that our contractual arrangements with the VIEs do not comply with PRC regulatory restrictions on foreign investment in the relevant industries, or if these regulations or the interpretation of existing regulations change in the future, we could be subject to material penalties or be forced to relinquish our interests in those operations or otherwise significantly change our corporate structure. We and our investors face significant uncertainty about potential future actions by the PRC government that could affect the legality and enforceability of the contractual arrangements with the VIEs and, consequently, significantly affect our ability to consolidate the financial results of the VIEs and the financial performance of our company as a whole. Our ADSs may decline in value or become worthless if we are unable to effectively enforce our contractual control rights over the assets and operations of the VIEs that conduct a significant portion of our business in China. See “Item 3. Key Information—3.D. Risk Factor—Risks Related to Our Corporate Structure” for a detailed discussion. 1 Table of Contents We face various legal and operational risks and uncertainties as a company based in and primarily operating in China. The PRC government has significant authority to exert influence on the ability of a China-based company, like us, to conduct its business, accept foreign investments or be listed on a U.S. stock exchange. For example, we face risks associated with regulatory approvals of offshore offerings, anti-monopoly regulatory actions, cybersecurity and data privacy, as well as the lack of inspection from the U.S. Public Company Accounting Oversight Board, or PCAOB, on our auditors. The PRC government may also intervene with or influence our operations as the government deems appropriate to further regulatory, political and societal goals. The PRC government has recently published new policies that have significantly affected our industry and we cannot rule out the possibility that it will, in the future, further release regulations or policies regarding our industry that could adversely affect our business, financial condition and results of operations. Any such action, once taken by the PRC government, could cause the value of such securities to significantly decline or in extreme cases, become worthless. You should carefully consider all of the information in this annual report before making an investment in the ADSs. Below, please find a summary of the principal risks and uncertainties we face organized under relevant headings. In particular, as we are a China-based company incorporated in the Cayman Islands, you should pay special attention to subsections headed “Item 3. Key Information—3.D. Risk Factors—Risks Related to Doing Business in China” and “Item 3. Key Information—3.D. Risk Factors—Risks Related to Our Corporate Structure.” Recent Regulatory Development on Cybersecurity in the PRC On June 10, 2021, the Standing Committee of the National People’s Congress of China promulgated the Data Security Law, which took effect on September 1, 2021. The Data Security Law introduces a data classification and hierarchical protection system based on the importance of data in economic and social development, and the degree of harm it may cause to national security, public interests, or legitimate rights and interests of individuals or organizations if such data are tampered with, destroyed, leaked, illegally acquired or illegally used. The appropriate level of protection measures is required to be taken for each respective category of data. The Data Security Law also requires data processing operators to establish a sound data security management system throughout the whole process, organize data security education and training, and take corresponding technical measures and other necessary measures to ensure data security. On December 28, 2021, the Cyberspace Administration of China, or the CAC, the National Development and Reform Commission, or the NDRC, the Ministry of Industry and Information Technology, or the MIIT and several other PRC governmental authorities jointly issued the Cybersecurity Review Measures, which became effective on February 15, 2022. Pursuant to Cybersecurity Review Measures, critical information infrastructure operators that procure inertent products and servies and network platform operators engaging in data processing activities are subject to cybersecurity review under the Cybersecurity Review Measures if their activities affect or may affect national security. The relevant competent governmental authorities may initiate the cybersecurity review against the relevant operators if the authorities believe that the network product or service or data processing activities of such operators affect or may affect national security. In addition, network platform operators who possess personal information of more than one million users, and intend to be listed on a foreign stock exchange, must be subject to the cybersecurity review. On November 14, 2021, the CAC published the Draft Measures for Internet Data Security, which provide that data processors conducting certain activities must apply for cybersecurity review, including, among others, merger, reorganization or separation of Internet platform operators that have acquired a large number of data resources related to national security, economic development or public interests that affects or may affect national security and the listing abroad of data processors processing over one million users’ personal information. The Draft Measures for Internet Data Security also require data processors processing over one million users’ personal information to comply with the regulations on important data processors, including, among others, appointing a person in charge of data security and establishing a data security management organization, filing with the competent authority within 15 working days after identifying its important data, formulating data security training plans, and organizing data security education and training for all staff every year, and that the education and training time of data-security-related technical and management personnel shall not be less than 20 hours per year. The Draft Measures for Internet Data Security also provides that data processors processing important data or going public overseas shall conduct an annual data security assessment by themselves or entrust a data security service institution to do so, and submit the data security assessment report of the previous year to the local branch of CAC before January 31 of each year. As advised by our PRC legal counsel, the Draft Measures for Internet Data Security have not been adopted and it remains unclear whether the formal version adopted in the future will have any further material changes, it is uncertain how the measures will be enacted, interpreted or implemented and how they will affect us. We cannot predict the impact of the draft measures, if any, at this stage, and we will closely monitor and assess any development in the rule-making process. If a final version of the Draft Measures for Internet Data Security is adopted, we may be subject to review when conducting data processing activities and annual data security assessment, and may face challenges in addressing its requirements and make necessary changes to our internal policies and practices in data processing. In addition, if the enacted version of the Draft Measures for Internet Data Security mandates clearance of cybersecurity review and other specific actions to be completed by China-based companies, such as us, that have been listed on overseas stock exchange, we face uncertainties as to whether we could obtain such clearance in a timely manner, or at all. During such review, we may be required to suspend providing any existing or new services to our customers and/or experience other disruptions of our operations, and such review could also result in negative publicity with respect to our company and diversion of our managerial and financial resources. 2 Table of Contents As of the date of this annual report, we have not been involved in any investigations or become subject to a cybersecurity review initiated by the CAC based on the Cybersecurity Review Measures, and we have not received any inquiry, notice, warning or sanctions in such respect or any regulatory objections to our listing status from the CAC. Potential Approval or Filing of CSRC of other PRC Government Authorities Required for the Listing of our ADSs On July 6, 2021, certain PRC regulatory authorities issued Opinions on Strictly Cracking Down on Illegal Securities Activities in accordance with the Law. These opinions call for strengthened regulation over illegal securities activities and supervision on overseas listings by China-based companies and propose to take effective measures, such as promoting the development of relevant regulatory systems to deal with the risks and incidents faced by China-based overseas-listed companies. On December 24, 2021, the CSRC published the Administrative Provisions and the Draft Measures for public comments. Pursuant to these drafts, PRC domestic companies that directly or indirectly offer or list their securities in an overseas market, including a PRC company limited by shares and an offshore company whose main business operations are in China and intends to offer shares or be listed in an overseas market based on its onshore equities, assets, incomes or other similar interests, are required to file with the CSRC within three business days after submitting their listing application documents to the regulator in the place of intended listing. The Draft Measures also provide that a China-based company that has been listed in an overseas market is also required to file with the CSRC within three business days for its follow-on offering of securities in the overseas market after the completion of the issuance. However, there is no timetable as to when these drafts will be enacted. As of the date of this annual report, the Administrative Provisions and the Draft Measures have not been adopted. The interpretation and implementation of these opinions and new rules remain unclear at this stage. We cannot assure you that we will not be required to obtain the approval of or file with the CSRC or other regulatory authorities to maintain the listing status of our ADSs on Nasdaq or to conduct offerings of securities in the future. We have been closely monitoring regulatory developments in China regarding any necessary approvals from or filing with the CSRC, the CAC, or other PRC regulatory authorities required for overseas listings. As of the date of this annual report, we have not received any inquiry, notice, warning, sanctions or regulatory objection from the CSRC. Material Licenses and Permits Our PRC subsidiaries and the VIEs have obtained all material licenses and approvals required for our operations in China. For risks relating to licenses and approvals required for our operations in China, see “Item 3. Key Information—3.D. Risk Factors—Risks Related to Our Business and Industry.” Transfer of Funds and Other Assets DouYu International Holdings Limited, our Cayman Islands holding company, transfers cash to our wholly-owned Hong Kong subsidiary (through intermediate holding companies in the British Virgin Islands), by making capital contributions or providing loans, and our Hong Kong subsidiary transfers cash to our PRC subsidiaries by making capital contributions or providing loans to them. Because DouYu International Holdings Limited and its subsidiaries control the VIEs through contractual arrangements, they are not able to make direct capital contribution to the VIEs and their subsidiaries. However, under relevant PRC laws and regulations, we are permitted to remit funds to the VIEs through loans rather than capital contributions. In 2019, 2020 and 2021, we did not make any loans to the VIEs. The VIEs fund their operations primarily using cash generated from operating and financing activities. 3 Table of Contents As of December 31, 2021, DouYu International Holdings Limited had made cumulative capital contributions of US$250.0 million to our PRC subsidiaries through our intermediate holding company, and those contributions were accounted as long-term investments of DouYu International Holdings Limited. These funds have been used by our PRC subsidiaries for their operations. As of December 31, 2020 and 2021, the loan balance owed under the VIE agreements was US$54.5 million and US$48.0 million, respectively. In 2019, 2020 and 2021, the VIEs transferred RMB5,062.2 million, RMB866.3 million and RMB937.9 million (US$147.2 million), respectively, to our PRC subsidiaries as payment or prepayment of service fees. The VIEs may transfer cash to Douyu Yule by paying service fees according to the respective exclusive business cooperation agreements. Pursuant to these agreements between each of the VIEs and Douyu Yule, each of the VIEs agrees to pay Douyu Yule for services related to business support, technical and consulting services, including technical services, network support, business consultation, intellectual property licensing, equipment leasing, market consultancy, system integration, product research and development and system maintenance at an amount equal to all of the net profit of each of the VIEs, subject to adjustment at Douyu Yule’s sole discretion. For details of the contractual arrangements with the VIE, see “Item 4. Information on the Company—4.C. Organizational Structure—Contractual Arrangements with The VIEs and The VIEs’ Respective Shareholders.” As of December 31, 2020 and 2021, the outstanding balance of service fees owed by the VIEs to our PRC subsidiaries were RMB2,493.8 million and RMB3,278.2 million (US$514.4 million), respectively. There were no other assets transferred between VIEs and non-VIEs in 2019, 2020 and 2021. 4 Table of Contents Condensed Consolidating Schedule The following tables set forth the summary condensed consolidated balance sheets data as of December 31, 2020 and 2021 of (i) our Company and our subsidiaries and (ii) the VIEs and VIEs’ subsidiaries, and the summary of the condensed consolidated statements of operations and cash flows for the years ended December 31, 2019, 2020 and 2021. Our consolidated financial statements are prepared and presented in accordance with accounting principles generally accepted in the United States. The historical results of us and the VIEs and VIEs’ subsidiaries are not necessarily indicative of results expected for future periods. You should read this information together with our consolidated financial statements and the related notes and “Item 5. Operating and Financial Review and Prospects” included elsewhere in this annual report. Net revenues (1) Total operating cost and expenses (1) (Loss) income from operations Total other income (expenses) Income(loss) from equity in affiliates Loss from equity in subsidiaries and the VIEs and VIEs’ subsidiaries(2) Net income (loss) Net revenues (1) Total operating cost and expenses (1) (Loss) income from operations Total other income (expenses) Income(loss) from equity in affiliates Income from equity in subsidiaries and the VIEs and VIEs’ subsidiaries(2) Net income (loss) For the Year Ended December 31, 2019 Our Company VIEs and VIEs’ subsidiaries Our subsidiaries Eliminating adjustments between (i)our Company and our subsidiaries and (ii)the VIEs and VIEs’ subsidiaries Consolidated (RMB in thousands) — (34,956) (34,956) 148,245 — 7,207,666 (6,246,296) 961,370 20,786 2,878 4,794,355 (5,852,439) (1,058,084) (771) (6,120) (4,718,791) 4,718,791 — — — 7,283,230 (7,414,900) (131,670) 168,260 (3,242) (73,536) 39,753 — 985,034 — (1,064,975) 73,536 73,536 — 33,348 For the Year Ended December 31, 2020 Our Company VIEs and VIEs’ subsidiaries Our subsidiaries Eliminating adjustments between (i)our Company and our subsidiaries and (ii)the VIEs and VIEs’ subsidiaries Consolidated (RMB in thousands) — (54,597) (54,597) 116,757 — 8,697,485 (8,234,402) 463,083 (31,635) 1,283 2,305,426 (2,451,850) (146,424) 56,245 23 (1,401,037) 1,401,037 — — — 9,601,874 (9,339,812) 262,062 141,367 1,306 423,339 485,499 — 432,731 — (90,156) (423,339) (423,339) — 404,735 5 Table of Contents Net revenues (1) Total operating cost and expenses (1) (Loss) income from operations Total other income (expenses) Income(loss) from equity in affiliates Loss from equity in subsidiaries and the VIEs and VIEs’ subsidiaries(2) Net income (loss) Notes: For the Year Ended December 31, 2021 Our Company VIEs and VIEs’ subsidiaries Our subsidiaries Eliminating adjustments between (i)our Company and our subsidiaries and (ii)the VIEs and VIEs’ subsidiaries Consolidated (RMB in thousands) — (110,279) (110,279) 33,568 — 8,965,084 (8,623,534) 341,550 32,066 14,503 1,824,996 (2,704,928) (879,932) (22,094) (29,631) (1,624,749) 1,624,749 — — — 9,165,331 (9,813,992) (648,661) 43,540 (15,128) (505,172) (581,883) — 388,119 — (931,657) 505,172 505,172 — (620,249) (1) (2) The eliminations are mainly related to the service fees charged between our subsidiaries and VIEs. The eliminations are mainly related to the investment loss picked up from subsidiaries and VIEs. Assets Cash and cash equivalents Restricted cash Short-term bank deposits Accounts receivable, net Prepayments Other current assets Investments in subsidiaries and the VIEs and VIEs’ subsidiaries (1) Amounts due from internal companies (2) Amounts due from related parties Property and equipment, net Intangible assets, net Long-term bank deposits Investments Goodwill Right-of-use assets Other non-current assets Total assets Accounts payable Advances from customers Deferred revenue Accrued expenses and other current liabilities Amounts due to internal companies (2) Amounts due to related parties Lease liabilities due within one year Lease liabilities Other liabilities Total liabilities Total shareholders’ equity Total liabilities and shareholders’ equity As of December 31, 2020 Our VIEs and VIEs’ Our Company subsidiaries subsidiaries Eliminating adjustments between (i)our Company and our subsidiaries and (ii)the VIEs and VIEs’ subsidiaries Consolidated (RMB in thousands) 577,711 11,243 860,000 187,884 63,120 157,178 8,000 — 8,465 15,236 102,837 100,000 302,111 — 32,362 4,766 2,430,913 868,772 9,700 225,282 208,531 — 215,467 17,175 13,038 — 1,557,965 872,948 2,430,913 252,791 632 — 11,860 2,247 55,259 — 2,841,112 580 22,556 38,835 — 198,548 12,933 29,779 14,238 640,258 251,426 1,211 4,420 156,391 2,841,112 8,058 19,106 3,914 — 3,285,638 195,732 3,481,370 4,449,400 — 1,370,229 — 890 24,267 1,118,657 38,100 — — — — — — — — 7,001,543 12,311 19,119 317 30,779 62,526 6,939,017 7,001,543 6 — — — — — — (1,126,657) (2,879,212) — — — — — — — — (4,005,869) (134,125) — — — (2,841,429) — — — — (2,975,554) (1,030,315) (4,005,869) 5,279,902 11,875 2,230,229 199,744 66,257 236,704 — — 9,045 37,792 141,672 100,000 500,659 12,933 62,141 19,004 8,907,957 986,073 10,911 242,013 384,041 — 223,525 36,281 16,952 30,779 1,930,575 6,977,382 8,907,957 Table of Contents Assets Cash and cash equivalents Restricted cash Short—term bank deposits Accounts receivable, net Prepayments Other current assets Investments in subsidiaries and the VIEs and VIEs’ subsidiaries (1) Amounts due from internal companies (2) Amounts due from related parties Property and equipment, net Intangible assets, net Long—term bank deposits Investments Goodwill Right-of-use assets Other non-current assets Total assets Accounts payable Advances from customers Deferred revenue Accrued expenses and other current liabilities (2) Amounts due to internal companies Amounts due to related parties Lease liabilities due within one year Lease liabilities Other liabilities Total liabilities Total shareholders’ equity Total liabilities and shareholders’ equity As of December 31, 2021 Our VIEs and VIEs’ Our Company subsidiaries subsidiaries Eliminating adjustments between (i)our Company and our subsidiaries and (ii)the VIEs and VIEs’ subsidiaries Consolidated (RMB in thousands) 4,206,259 — 956,355 — 11,476 14,644 1,158,039 — — — — — — — — — 6,346,773 — — 12,030 57,801 310 — — — 18,045 88,186 6,258,587 6,346,773 189,363 10,703 820,000 179,041 62,633 293,554 — — 36,879 7,688 124,766 100,000 252,607 — 60,037 59,613 2,196,884 851,736 7,474 216,716 255,958 — 283,758 26,589 30,576 — 1,672,807 524,077 2,196,884 60,784 — 300,000 12,348 6,608 68,169 — 3,584,797 280 17,423 36,774 — 238,818 12,637 12,272 5,172 4,356,082 104,531 2 6,388 144,569 3,584,487 9,750 3,828 702 — 3,854,257 509,825 4,356,082 — — — — — — (1,158,039) (3,584,797) — — — — — — — — (4,742,836) (132,139) — — — (3,584,797) — — — — (3,716,936) (1,025,900) (4,742,836) 4,456,406 10,703 2,076,355 191,389 80,717 376,367 — — 37,159 25,111 161,540 100,000 491,425 12,637 72,309 64,785 8,156,903 824,128 7,476 235,134 458,328 — 293,508 30,417 31,278 18,045 1,898,314 6,258,589 8,156,903 Notes: (1) (2) The eliminations are mainly related to the investments and loans to subsidiaries and VIEs. The eliminations are mainly related to the service fees balance between subsidiaries and VIEs. For the Year Ended December 31, 2019 Our Company VIEs and VIEs’ subsidiaries Eliminating adjustments between (i)our Company and our subsidiaries and (ii)the VIEs and VIEs’ subsidiaries Our subsidiaries (RMB in thousands) Consolidated Net cash provided by operating activities (1) Net cash used in investing activities (2) Net cash provided by (used in) financing activities (2) 816,656 4,904,276 154,444 (151,882) (133,917) (112,636) 3,270,974 (1,363,044) 140,534 813,176 (5,062,200) 152,132 (246,303) (152,132) 1,896,332 7 Table of Contents For the Year Ended December 31, 2020 Net cash provided by operating activities (1) Net cash used investing activities (2) Net cash (used in) provided by financing activities (2) Our Company VIEs and VIEs’ subsidiaries 107,968 (1,795,318) (579,825) 899,235 (1,179,666) — Our subsidiaries (RMB in thousands) 526,721 (93,408) 556,402 Consolidated (866,275) 455,772 (455,772) 667,649 (2,612,620) (479,195) Eliminating adjustments between (i)our Company and our subsidiaries and (ii)the VIEs and VIEs’ subsidiaries Net cash (used in) provided by operating activities (1) Net cash (used in) provided by investing activities (2) Net cash (used in) provided by financing activities (2) Notes: For the Year Ended December 31, 2021 Our Company VIEs and VIEs’ subsidiaries Our subsidiaries Eliminating adjustments between (i)our Company and our subsidiaries and (ii)the VIEs and VIEs’ subsidiaries Consolidated (RMB in thousands) (1,763) (10,685) (107,152) (402,928) 14,040 — 756,307 (404,344) 381,860 (937,874) 381,860 (381,860) (586,258) (19,129) (107,152) (1) (2) The eliminations are mainly related to the investments and loans to subsidiaries and VIEs. The eliminations are mainly related to the payment of service fees between subsidiaries and VIEs. Restrictions on Foreign Exchange and the Ability to Transfer Cash between Entities, Across Borders and to U.S. Investors In the future, if or when we become profitable, DouYu International Holdings Limited’s ability to pay dividends, if any, to its shareholders and ADS holders and to service any debt it may incur will depend upon dividends paid by our PRC subsidiaries. Under PRC laws and regulations, our PRC subsidiaries are subject to certain restrictions with respect to paying dividends or otherwise transferring any of their net assets offshore to DouYu International Holdings Limited. In particular, under the current effective PRC laws and regulations, dividends may be paid only out of distributable profits. Distributable profits are the net profit as determined under PRC GAAP, less any recovery of accumulated losses and appropriations to statutory and other reserves required to be made. Each of our PRC subsidiaries is required to set aside at least 10% of its after-tax profits each year, after making up previous years’ accumulated losses, if any, to fund certain statutory reserve funds, until the aggregate amount of such a fund reaches 50% of its registered capital. As a result, our PRC subsidiaries may not have sufficient distributable profits to pay dividends to us in the near future. Furthermore, if certain procedural requirements are satisfied, the payment of current account items, including profit distributions and trade and service related foreign exchange transactions, can be made in foreign currencies without prior approval from SAFE or its local branches. However, where RMB is to be converted into foreign currency and remitted out of China to pay capital expenses, such as the repayment of loans denominated in foreign currencies, approval from or registration with competent government authorities or its authorized banks is required. The PRC government may take measures at its discretion from time to time to restrict access to foreign currencies for current account or capital account transactions. If the foreign exchange control system prevents us from obtaining sufficient foreign currencies to satisfy our foreign currency demands, we may not be able to pay dividends in foreign currencies to our offshore intermediary holding companies or ultimate parent company, and therefore, our shareholders or investors in our ADSs. Further, we cannot assure you that new regulations or policies will not be promulgated in the future, which may further restrict the remittance of RMB into or out of the PRC. We cannot assure you, in light of the restrictions in place, or any amendment to be made from time to time, that our current or future PRC subsidiaries will be able to satisfy their respective payment obligations that are denominated in foreign currencies, including the remittance of dividends outside of the PRC. If any of our subsidiaries incurs debt on its own behalf in the future, the instruments governing such debt may restrict its ability to pay dividends to DouYu International Holdings Limited. In addition, our PRC subsidiaries are required to make appropriations to certain statutory reserve funds, which are not distributable as cash dividends except in the event of a solvent liquidation of the companies. For PRC and United States federal income tax consideration of an investment in the ADSs, see “Item 10. Additional Information—10.E. Taxation.” 8 Table of Contents Taxation on Dividends or Distributions As advised by our PRC counsel, for any amounts owed by the VIEs to our PRC subsidiaries under the VIE agreements, unless otherwise required by PRC tax authorities, we are able to settle such amounts without limitations under the current effective PRC laws and regulations, provided that the VIEs have sufficient funds to do so. DouYu International Holdings Limited has not previously declared or paid any cash dividend or dividend in kind, and has no plan to declare or pay any dividends in the near future on our shares or the ADSs representing our ordinary shares. We currently intend to retain most, if not all, of our available funds and any future earnings to operate and expand our business. See “Item 8.—Financial Information—8.A. Consolidated Statements and Other Financial Information—Dividend Policy.” For PRC and United States federal income tax considerations of an investment in our ADSs, see “Item 10. Additional Information—10.E. Taxation.” Implication of the Holding Foreign Companies Accountable Act The HFCAA was enacted on December 18, 2020. The HFCAA states if the SEC determines that we have filed audit reports issued by a registered public accounting firm that has not been subject to inspection by the PCAOB for three consecutive years beginning in 2021, the SEC shall prohibit our shares or ADSs from being traded on a national securities exchange or in the over-the-counter trading market in the United States. On December 16, 2021, PCAOB issued the HFCAA Determination Report, according to which our auditors are subject to the determinations. In March 2022, the SEC issued its first “Conclusive list of issuers identified under the HFCAA” indicating that those companies are now formally subject to the delisting provisions if they remain on the list for three consecutive years. Accordingly, we expect to be identified as a “Commission Identified Issuer” shortly after the filing of this annual report. Our auditor, the independent registered public accounting firm that issues the audit report included elsewhere in this annual report, as an auditor of companies that are traded publicly in the United States and a firm registered with the PCAOB, is subject to laws in the United States pursuant to which the PCAOB conducts regular inspections to assess its compliance with the applicable professional standards. Since our auditor is located in China, a jurisdiction where the PCAOB has been unable to conduct inspections without the approval of the PRC authorities, our auditor is currently not inspected by the PCAOB. Final rules implementing the submission and disclosure requirements in the HFCAA were adopted by the SEC on December 2, 2021, and became effective on January 10, 2022. The delisting of the ADSs, or the threat of their being delisted, may materially and adversely affect the value of your investment. The PCAOB is currently unable to inspect our auditors in relation to their audit work performed for our financial statements and inability of the PCAOB to conduct inspections over our auditors deprives our investors with the benefits of such inspections. For the details of the risks associated with the enactment of the HFCAA, see “Item 3. Key Information—D. Risk Factors—Our ADSs may be delisted and our ADSs and shares may be prohibited from trading in the over-the-counter market under the Holding Foreign Companies Accountable Act, or the HFCAA, if the PCAOB is unable to inspect or fully investigate auditors located in China, which may materially and adversely affect the value of your investment.” 3.A. [Reserved] 3.B. Capitalization and Indebtedness Not applicable. 9 Table of Contents 3.C. Reason for the Offer and Use of Proceeds Not applicable. 3.D. Risk Factors Below please find a summary of the principal risks we face, organized under relevant headings. Risks Related to Doing Business in China • • • • • • • Uncertainties in the interpretation and enforcement of PRC laws and regulations, including uncertainties regarding the enforcement of laws, and sudden or unexpected changes in policies, laws and regulations in China, could limit the legal protections available to you and us. Regulation and censorship of information disseminated over mobile devices and the Internet in China may adversely affect our business and subject us to liability for streaming content or posted on our platform. Adverse changes in global or China’s economic, political or social conditions or government policies could have a material adverse effect on our business, financial condition and results of operations. Currently there is no law or regulation specifically governing virtual asset property rights and therefore it is not clear what liabilities, if any, online game operators may have for virtual assets. The PCAOB is currently unable to inspect our auditor in relation to their audit work performed for our financial statements included elsewhere in this annual report. Our ADSs may be delisted and our ADSs and shares may be prohibited from trading in the over-the-counter market under the Holding Foreign Companies Accountable Act, or the HFCAA, if the PCAOB is unable to inspect or fully investigate auditors located in China, which may materially and adversely affect the value of your investment. The potential enactment of the Accelerating Holding Foreign Companies Accountable Act would decrease the number of non-inspection years from three years to two years, thus reducing the time period before our ADSs may be delisted or prohibited from over-the-counter trading. If this bill were enacted, our ADSs could be delisted from the exchange and prohibited from over-the-counter trading in the U.S. in 2023. Risks Related to Our Business and Industry • • • • • • • • • • If we fail to retain our existing users, keep them engaged or further grow our user base, our business, operation, profitability and prospects may be materially and adversely affected. We may fail to attract, cultivate and retain top streamers, which may materially and negatively affect our user retention and thus our business and operations. We may fail to offer attractive content, in particular popular game content, on our platform. We have significant reliance on the eSports industry. If we fail to effectively manage our growth and control our periodic spending to maintain such growth, our brand, business and results of operations may be materially and adversely affected. We have incurred net losses since inception, and we may continue to incur losses in the future. Our business may suffer if we fail to successfully implement our monetization strategies. Our content monitoring system may not be effective in preventing misconduct by our platform users and misuse of our platform and such misconduct or misuse may materially and adversely impact our brand image, business and operating results. Our limited operating history with a relatively new business model in a relatively new market makes it difficult to evaluate our business and growth prospects. We face risks related to natural disasters, health epidemics and other outbreaks of contagious diseases. Risks Related to Our Corporate Structure • There are substantial uncertainties regarding the interpretation and application of current and future PRC laws, regulations, and rules relating to the agreements that establish the VIE structure for our operations in China, including potential future actions by the PRC government, which could affect the enforceability of our contractual arrangements with the VIEs and, consequently, significantly affect the financial condition and results of operations performance of Douyu. If the PRC government finds such agreements non-compliant with relevant PRC laws, regulations, and rules, or if these laws, regulations, and rules or the interpretation thereof change in the future, we could be subject to severe penalties or be forced to relinquish our interests in the VIEs. 10 Table of Contents • • • • • Any failure by the VIEs or their shareholders to perform their obligations under our contractual arrangements with them would have a material adverse effect on our business. The approval, filing or other requirements of the China Securities Regulatory Commission or other PRC government authorities may be required under PRC law in connection with our issuance of securities overseas. We rely on contractual arrangements with the VIEs and their shareholders for our operations in China, which may not be as effective in providing operational control as direct ownership. We may lose the ability to use and enjoy assets held by the VIEs and their subsidiaries that are important to our business if the VIEs and their subsidiaries declare bankruptcy or become subject to a dissolution or liquidation proceeding. Contractual arrangements we have entered into with the VIEs may be subject to scrutiny by the PRC tax authorities. A finding that we owe additional taxes could negatively affect our financial condition and the value of your investment. Risks Related to our American Depositary Shares • • • • The market price for our ADSs may be volatile. If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, the market price for our ADSs and trading volume could decline. If securities or industry analysts do not publish favorable research, or if they adversely change their recommendations regarding the ADSs, the market price for the ADSs and trading volume could decline. We were likely a passive foreign investment company, or PFIC, for 2021 and there is a significant risk that we will be a PFIC for 2022 and possibly subsequent taxable years. Risks Related to Doing Business in China Uncertainties in the interpretation and enforcement of PRC laws and regulations, including uncertainties regarding the enforcement of laws, and sudden or unexpected changes in policies, laws and regulations in China, could limit the legal protections available to you and us. The PRC legal system is based on written statutes where prior court decisions have limited value as precedents. Our PRC subsidiaries and the VIEs, in particular Douyu Yule, a wholly foreign-owned enterprise, is subject to laws and regulations applicable to foreign-invested enterprises as well as various Chinese laws and regulations generally applicable to companies incorporated in China. However, since these laws and regulations are relatively new and the PRC legal system continues to rapidly evolve, the interpretations of many laws, regulations and rules are not always uniform and enforcement of these laws, regulations and rules involves uncertainties. From time to time, we may have to resort to administrative and court proceedings to enforce our legal rights. However, since PRC administrative and court authorities have significant discretion in interpreting and implementing statutory and contractual terms, it may be more difficult to evaluate the outcome of administrative and court proceedings, and the level of legal protection we enjoy, than in more developed legal systems. The PRC government has significant oversight and discretion over the conduct of our business and may intervene with or influence our operations as the government deems appropriate to further regulatory, political and societal goals. The PRC government has recently published new policies that adversely affected our industry and our business, and we cannot rule out the possibility that it will, in the future, release regulations or policies regarding our industry that could further adversely affect our business, financial condition and results of operations. Furthermore, the PRC government has also recently indicated an intent to exert more oversight and control over securities offerings and other capital markets activities that are conducted overseas and foreign investment in China-based companies like us. Any such action, once taken by the PRC government, could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or in extreme cases, become worthless. However, as there are still regulatory uncertainties in this regard, we cannot assure you that we will be able to comply with new laws and regulations in all respects, and we may be ordered to rectify, suspend or terminate any actions or services that are deemed illegal by the regulatory authorities and become subject to material penalties, which may materially harm our business, financial condition, results of operations and prospects. Furthermore, the PRC legal system is based in part on government policies and internal rules that may have retroactive effect. As a result, we may not be aware of our violation of these policies and rules until sometime after the violation. Such uncertainties, including uncertainty over the scope and effect of our contractual, property (including intellectual property) and procedural rights, could materially and adversely affect our business and impede our ability to continue our operations. 11 Table of Contents Regulation and censorship of information disseminated over mobile devices and the Internet in China may adversely affect our business and subject us to liability for streaming content or posted on our platform. Internet companies in China are subject to a variety of existing and new rules, regulations, policies, and license and permit requirements. In connection with enforcing these rules, regulations, policies and requirements, relevant government authorities may suspend services by revoking the licenses of, any Internet or mobile content service provider that is deemed to provide illicit content online or on mobile devices, and such activities may be intensified in connection with any ongoing government campaigns to eliminate prohibited content online. For example, in recent years, the Office of the Anti-Pornography and Illegal Publications Working Group, the State Internet Information Office, the MIIT, the Ministry of Culture and the Ministry of Public Security have jointly or independently been launching a series of “Cleaning Up the Internet” campaigns. Based on publicly available information, these campaigns are aimed to eliminate pornographic, harmful and illegal information and content from the Internet information services industry by, among other things, holding liable individuals and corporate entities that facilitate the distribution of pornographic information and content. For example, in 2020, the Ministry of Public Security launched a “Cleaning Up the Internet 2020” campaign, which is aimed at cracking down on illegal or criminal activities in relation to telecommunication network fraud, online gambling, online “water army” and other severe illegal or criminal activities. In 2021, the Office of the Anti-Pornography and Illegal Publications Working Group, together with relevant PRC government authorities, launched a “Cleaning Up the Internet 2021” campaign, which is aimed to eliminate pornographic, violent, terrorist, and superstitious information and content and other inappropriate contents from the livestreaming, online games, network literature industries, pop-up advertising and online social media platforms. During the campaigns, relevant government authorities have shut down certain websites, removed certain links and closed certain accounts. Certain Chinese Internet companies voluntarily initiated self-investigations to filter and remove content from their websites and cloud servers. At the press conference held recently, the officials from the CAC confirmed that the regulators would launch the “Cleaning Up the Internet 2022” campaign in 2022 with a key focus on regulating issues in certain areas, including among others, short videos, livestreaming, network environment for minors during summer holiday, application information services and application algorithms. On April 15, 2022, the CAC, the State Taxation Administration, or the SAT, and the State Administration for Market Regulation, or the SAMR jointly launched a two-month “Cleaning Up” campaign to regulate the chaos in the livestreaming and short video industry. The campaign is aimed to regulate “pornographic, ugliness, bizarre, fake, vulgar and gambling” contents and other illicit contents and rectify prominent issues in the industry, such as “key opinion leaders’ chaos”, excessive reward, illegal profit and malicious marketing. We endeavor to eliminate illicit content from our platform. We have made substantial investments in resources to monitor content that users post on our platform and the way in which our users engage with each other through our platform. We use a variety of methods to ensure our platform remains a healthy and positive experience for our users. See “Item 4. Information of the Company—4.B. Business Overview—Content Monitoring System.” Although we employ these methods to filter content posted on our platform, we cannot be sure that our internal content control efforts will be sufficient to remove all content that may be viewed as indecent or otherwise non-compliant with PRC law and regulations. Government standards and interpretations as to what constitutes illicit online content or behavior are subject to interpretation and may change in a manner that could render our current monitoring efforts insufficient. The Chinese government has wide discretion in regulating online activities and, irrespective of our efforts to control the content on our platform, government campaigns and other actions to reduce illicit content and activities could subject us to negative press or regulatory challenges and sanctions, including fines, confiscation of illegal income, suspension or revocation of our licenses to operate in China or a suspension or ban on our mobile or online platform, including suspension or closure of one or more parts of or our entire business. Further, our senior management could be held criminally liable if we are deemed to be profiting from illicit content on our platform. Although our business and operations have not been materially and adversely affected by government campaigns or any other regulatory actions in the past, we cannot assure you that our business and operations will be immune from government actions or sanctions in the future. If government actions or sanctions are brought against us, or if there are widespread rumors that government actions or sanctions have been brought against us, our reputation could be harmed, we may lose users and customers, our revenues and results of operation may be materially and adversely affected and the value of our ADSs could be dramatically reduced. Adverse changes in global or China’s economic, political or social conditions or government policies could have a material adverse effect on our business, financial condition and results of operations. Our revenues are substantially sourced from China. Accordingly, our results of operations, financial condition and prospects are influenced by economic, political and legal developments in China. Economic reforms begun in the late 1970s have resulted in significant economic growth. However, any economic reform policies or measures in China may from time to time be modified or revised. China’s economy differs from the economies of most developed countries in many respects, including with respect to the amount 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 40 years, growth has been uneven across different regions and among different economic sectors, and the rate of growth has been slowing. 12 Table of Contents China’s economic conditions are sensitive to global economic conditions. The global financial markets have experienced significant disruptions since 2008 and the United States, Europe and other economies have experienced periods of recession. The global macroeconomic environment is facing new challenges and there is considerable uncertainty over the long-term effects of the expansionary monetary and fiscal policies adopted by the central banks and financial authorities of some of the world’s leading economies. Recent international trade disputes, including tariff actions announced by the United States, the PRC and certain other countries, and the uncertainties created by such disputes may cause disruptions in the international flow of goods and services and may adversely affect the Chinese economy as well as global markets and economic conditions. There have also been concerns about the economic effect of the military conflicts and political turmoil or social instability in the Middle East, Europe, Africa and other places. Any severe or prolonged slowdown in the global economy may adversely affect the Chinese economy which in turn may adversely affect our business and operating results. The PRC government exercises significant control over China’s economic growth through strategically allocating resources, controlling the payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies. Although the PRC economy has grown significantly in the past decade, that growth may not continue, as evidenced by the slowing of the growth of the PRC economy since 2012. Any adverse changes in economic conditions in China, in the policies of the PRC government or in the laws and regulations in China could have a material adverse effect on the overall economic growth of China. Such developments could adversely affect our business and operating results, lead to a reduction in demand for our services and adversely affect our competitive position. Currently there is no law or regulation specifically governing virtual asset property rights and therefore it is not clear what liabilities, if any, online game operators may have for virtual assets. While participating on our platform, our users acquire, purchase and accumulate some virtual assets, such as gifts or certain status. Such virtual assets can be important to users and have monetary value. In practice, virtual assets can be lost for various reasons, often through unauthorized use of the user account of one user by other users and occasionally through data loss caused by delay of network service, network crash or hacking activities. Currently, there is no PRC law or regulation specifically governing virtual asset property rights. As a result, there is uncertainty as to who the legal owner of virtual assets is, whether and how the ownership of virtual assets is protected by law, and whether an operator of a livestreaming platform such as us would have any liability, whether in contract, tort or otherwise, to users or other interested parties, for loss of such virtual assets. Based on recent PRC court judgments, the courts have typically held online platform operators liable for losses of virtual assets by platform users, and ordered online platform operators to return the lost virtual items to users or pay damages and losses. In case of a loss of virtual assets, we may be sued by our users and held liable for damages, which may negatively affect our reputation and business, financial condition and results of operations. Our business is subject to complex and evolving Chinese and international laws and regulations, including those regarding data privacy and cybersecurity. Many of these laws and regulations are subject to change and uncertain interpretation. We are required by privacy and data protection laws in China and other jurisdictions, including, without limitation, the PRC Cyber Security Law, to ensure the confidentiality, integrity and availability of the information of our users, third-party agents, content providers and other data, which is also essential to maintaining their confidence in our services. However, the regulatory framework for the collection, protection, use, sharing, transfer and other processing of data worldwide is rapidly evolving and remains uncertain. For example, the SCNPC, promulgated the Cyber Security Law in November 2016, which requires network operators to perform certain functions related to cyber-security protection and strengthened network information management through taking technical and other necessary measures as required by laws and regulations to safeguard the operation of networks, respond to network security effectively, prevent illegal and criminal activities, and maintain the integrity and confidentiality and usability of network data. Regulatory authorities in China have implemented and are considering a number of legislative and regulatory proposals concerning cybersecurity and data protection. The interpretation and application of cybersecurity, information security, privacy and data protection laws in China are often uncertain and in flux. It is possible that existing or newly introduced laws and regulations, or their interpretation, application or enforcement, could significantly affect our business practice and force us to change our business practices. For example, on August 20, 2021, the SCNPC promulgated the PRC Personal Information Protection Law, which integrates the scattered rules with respect to personal information rights and privacy protection. The PRC Personal Information Protection Law also provides specific protection requirements for processing personal information, and such requirements remain to be clarified by governmental authorities and courts in practice. We may be required to make adjustments to our business practices to comply with the personal information protection laws and regulations. In June 2021, the SCNPC promulgated the Data Security Law, which took effect on September 1, 2021. The Data Security Law introduces a data classification and hierarchical protection system based on the importance of data and provides a national security review procedure for those data activities, which may affect national security and imposes export restrictions on certain data and information. 13 Table of Contents On December 28, 2021, the CAC, the NDRC, the MIIT, and several other PRC governmental authorities jointly issued the Cybersecurity Review Measures, which became effective on February 15, 2022. Pursuant to the Cybersecurity Review Measures, critical information infrastructure operators that procure inertent products and servies and network platform operators engaging in data processing activities are also subject to cybersecurity review under the Cybersecurity Review Measures if their activities affect or may affect national security. The relevant competent governmental authorities may initiate the cybersecurity review against the relevant operators if the authorities believe that the network product or service or data processing activities of such operators affect or may affect national security. In addition, the Cybersecurity Review Measures provide that network platform operators holding over one million users’ personal information must apply with the Cybersecurity Review Office for a cybersecurity review before listing on a foreign stock exchange. As of the date of this annual report, we have not received any notice from any authorities identifying us as a critical information infrastructure operator or requiring us to undertake a cybersecurity review. However, as the Cybersecurity Review Measures are recently issued, we still face uncertainties that the measures may be interpreted or implemented in ways that will negatively affect us. In addition, on November 14, 2021, the CAC published Measures on Network Data Security Management (Draft for Comment), or the Draft Measures for Internet Data Security, which provides that data processors conducting certain activities must apply for cybersecurity review, including, among others, merger, reorganization or separation of internet platform operators that have acquired a large number of data resources related to national security, economic development or public interests and how this affects or may affect national security and listing abroad of data processors processing over one million users’ personal information. The Draft Measures for Internet Data Security also provides that data processors processing important data or going public overseas shall conduct an annual data security assessment by themselves or entrust a data security service institution to do so. As advised by Han Kun Law Offices, our PRC legal counsel, the Draft Measures for Internet Data Security have not been adopted and it remains unclear whether the formal version adopted in the future will have any further material changes, it is uncertain how the measures will be enacted, interpreted or implemented and how they will affect us. We cannot predict the impact of the draft measures, if any, at this stage. If a final version of the Draft Measures for Internet Data Security is adopted, we may be subject to review when conducting data processing activities and annual data security assessment and may face challenges in addressing its requirements and making necessary changes to our internal policies and practices in data processing. In addition, if the enacted version of the Draft Measures for Internet Data Security mandates clearance of cybersecurity review and other specific actions to be completed by China-based companies that have been listed on overseas stock exchanges, such as us, we face uncertainties as to whether we could obtain such clearance in a timely manner, or at all. Any failure or delay in the completion of the cybersecurity review procedures may prevent us from using or providing certain network products and services, and may result in penalties, including fines, suspension of business and revocation of required licenses, and our reputation and results of operations could be materially and adversely affected. Compliance with the above PRC laws and regulations as well as additional laws and regulations that PRC regulatory bodies may enact in the future, including laws and regulations regarding cybersecurity, information security, privacy and data protection, may result in additional expenses to us and subject us to negative publicity, which could harm our reputation and business operations. There are also uncertainties with respect to how such laws and regulations will be implemented and interpreted in practice. PRC regulators have been increasingly focused on regulation in the areas of data security and data protection, and are enhancing the protection of privacy and data security by rule-making and enforcement actions at central and local levels. For example, in July 2021, certain PRC regulatory authorities issued Opinions on Strictly Cracking Down on Illegal Securities Activities in accordance with the Law, which further emphasized to improve relevant laws and regulations on data security, cross-border data transmission and confidential information management. We expect that these areas will receive greater and continued attention and scrutiny from regulators and the public going forward, which could increase our compliance costs and subject us to heightened risks and challenges associated with data security and protection. While we have taken various measures to comply with all applicable laws and regulations regarding cybersecurity, information security, privacy and data protection in China, we cannot assure you that the measures we have taken or will take are adequate underthese laws and regulations, and we may be held liable in the event of any breach of the relevant requirements under or other relevant laws and regulations. Any failure or perceived failure by us to prevent information security breaches or to comply with data security and privacy policies or related legal obligations, or any compromise of security that results in the unauthorized use, release or transfer of personally identifiable information or other data, could cause our users to lose trust in us and could expose us to legal claims or penalties. Any perception by the public that privacy of user information or data security are becoming increasingly unsafe or vulnerable to attacks could inhibit the growth of our products and services generally. We may also be held liable in the event of any breach of general clauses on our compliance with such statutory requirements as well as some other specific requirements related to data protection under the relevant contracts. We may have to spend much more personnel cost and time evaluating and managing these risks and challenges in connection with our products and services in the ordinary course of our business operations, and have cooperated, and will continue cooperating in the future, with the competent regulators in these respects. If further changes in our business practices are required under China’s evolving regulatory framework for the protection of information in cyberspace, our business, financial condition and results of operations may be adversely affected. These proceedings or actions could subject us to significant penalties and negative publicity, require us to change our business practices, increase our costs and severely disrupt our business, hinder our global expansion or negatively affect the trading prices of our ADSs, shares and/or other securities. If we are unable to manage these risks, we could become subject to penalties, including fines, suspension of business and revocation of required licenses, and our reputation and results of operations could be materially and adversely affected. 14 Table of Contents Any failure or perceived failure by us to comply with Anti-monopoly Guidelines on Platform Economies and other anti-monopoly laws and regulations may result in governmental investigations or enforcement actions, litigation or claims against us and could have an adverse effect on our business, financial condition and results of operations. In recent years, PRC anti-monopoly enforcement agencies have strengthened enforcement under the PRC Anti-monopoly Law. In March 2018, the SAMR was formed as a new governmental agency to take over, among other things, the anti-monopoly enforcement functions from the relevant departments under the Ministry of Commerce, the NDRC and the State Administration for Industry and Commerce (the predecessor of the SAMR), respectively. Since its inception, the SAMR has continued to strengthen anti-monopoly enforcement. In December 2018, the SAMR issued the Notice on Anti-monopoly Enforcement Authorization, which grants authority to its province-level branches to conduct anti-monopoly enforcement within their respective jurisdictions. In November 2021, the National Anti-monopoly Bureau was inaugurated by the State Council, which aims to further implement the fair competition policies, and strengthen anti-monopoly supervision in the PRC, especially to strengthen oversight and law enforcement in areas involving innovation, science and technology, information security and people’s livelihood. The PRC anti-monopoly regulators may also issue implementation rules or guidelines from time to time to reinforce their regulation on certain industrial sectors. In February 2021, the Anti-monopoly Commission of the State Council published the Anti- monopoly Guidelines on Platform Economies. These guidelines prohibit monopolistic conduct such as entering into monopoly agreements, abusing market dominance and concentration of undertakings that may have the effect of eliminating or restricting competition in the field of platform economies. More specifically, the Anti- monopoly Guidelines on Platform Economies outline certain practices that may, if without justifiable reasons, constitute abuse of a dominant position, including without limitation, discriminating against customers in terms of pricing and other transactional conditions using big data and analytics, coercing counterparties into exclusivity arrangements, refusing to deal with counterparties on reasonable conditions, using bundle services to sell services or products, and compulsory collection of users’ unnecessary data. The Anti-monopoly Guidelines on Platform Economies further expressly state that concentration involving VIE will also be subject to antitrust filing requirements, and therefore will also fall within the scope of the antitrust review. In addition, Anti-monopoly Guidelines on Platform Economies reinforce antitrust merger review for internet platform related transactions to safeguard market competition. Since the Anti-monopoly Guidelines on Platform Economies are relatively new and may be subject to interpretation by the regulators in the process of implementing such guidelines, we cannot assure you that our business operations will comply with such regulation in all respects, and any failure or perceived failure by us to comply with such regulation may result in governmental investigations, fines and/or other sanctions on us. Furthermore, on October 23, 2021, the SCNPC issued a consultation draft of the amended Anti-monopoly Law, which proposes to increase the fines for illegal concentration of business operators to no more than ten percent of sales revenue of the preceding financial year if the concentration of business operator has or may have an effect of excluding or limiting competition; or a fine of up to RMB5 million if the concentration of business operators does not have an effect of excluding or limiting competition. The draft also proposes that the relevant authority shall investigate a transaction where there is any evidence that the concentration has or may have the effect of eliminating or restricting competitions, even if such concentration does not reach the filing threshold. See “Item 4. Information of the Company—4.B. Business Overview—Regulation.” We may be involved in investigations, inquiries, claims, complaints or other administrative requirements in relation to anti-monopoly laws and regulations in the PRC from time to time. In the case of our failure or perceived failure to comply with these laws and regulations and new legislations or guidelines to be promulgated from time to time, governmental agencies and regulators may, among other things, prohibit or rescind our acquisitions, divestitures, or combinations, impose significant fines or penalties, require divestiture of certain of our assets, or impose other restrictions that limit or require us to modify our operations. Any anti-monopoly related lawsuits, regulatory investigations or administrative proceedings initiated against us could also result in our being subject to regulatory actions and constraints on our investments and acquisitions, which could include forced termination of any agreements or transactions, required divestitures, and business practices or significant fines. For example, in October 2020, we entered into an Agreement and Plan of Merger with Huya and other related parties, pursuant to which Huya would acquire all our outstanding ordinary shares, including ordinary shares represented by ADSs, through a stock-for-stock merger. On July 10, 2021, the SAMR, posted an announcement of its decision to prohibit the merger transaction following its anti-monopoly review. See “Item 4. Information of the Company—4.A. History and Development of Company—Merger between Our Company and Huya and its Termination.” Moreover, any noncompliance or associated inquiries, investigations or other governmental actions may divert significant management time and attention and financial resources, bring negative publicity, subject us to liabilities or administrative penalties, and materially and adversely affect our financial conditions, results of operations, and business prospects. Under the PRC enterprise income tax law, we may be classified as a PRC “resident enterprise,” which could result in unfavorable tax consequences to us and our shareholders and have a material adverse effect on our results of operations and the value of your investment. Under the PRC enterprise income tax law that became effective on January 1, 2008, and was last amended on December 29, 2018, an enterprise established outside the PRC with “de facto management bodies” within the PRC is considered a “resident enterprise” for PRC enterprise income tax purposes and is generally subject to a uniform 25% enterprise income tax rate on its worldwide income. On April 22, 2009, the SAT, issued the Circular Regarding the Determination of Chinese-Controlled Overseas Incorporated Enterprises as PRC Tax Resident Enterprise on the Basis of De Facto Management Bodies, or SAT Circular 82, which provides certain specific criteria for determining whether the “de facto management body” of a PRC-controlled enterprise that is incorporated offshore is located in China. Further to SAT Circular 82, on July 27, 2011, the SAT issued the Administrative Measures of Enterprise Income Tax of Chinese-Controlled Offshore Incorporated Resident Enterprises (Trial), or SAT Bulletin 45, which became effective on September 1, 2011, to provide more guidance on the implementation of SAT Circular 82. 15 Table of Contents According to SAT Circular 82, an offshore incorporated enterprise controlled by a PRC enterprise or a PRC enterprise group will be considered a PRC tax resident enterprise by virtue of having its “de facto management body” in China and will be subject to PRC enterprise income tax on its worldwide income only if all of the following conditions are met: (a) the senior management and core management departments in charge of its daily operations function have their presence mainly in the PRC; (b) its financial and human resources decisions are subject to determination or approval by persons or bodies in the PRC; (c) its major assets, accounting books, company seals, and minutes and files of its board and shareholders’ meetings are located or kept in the PRC; and (d) not less than half of the enterprise’s directors or senior management with voting rights habitually reside in the PRC. SAT Bulletin 45 provides further rules on residence status determination, post-determination administration as well as competent tax authorities procedures. Although SAT Circular 82 and SAT Bulletin 45 apply only to offshore incorporated enterprises controlled by PRC enterprises or a PRC enterprise group and not those controlled by PRC individuals or foreigners, Han Kun Law Offices, our legal counsel as to PRC law, has advised us that the determination criteria set forth therein may reflect SAT’s general position on how the term “de facto management body” could be applied in determining the tax resident status of offshore enterprises, regardless of whether they are controlled by PRC enterprises, individuals or foreigners. We do not meet all of the conditions set forth in SAT Circular 82. Therefore, we believe that we should not be treated as a “resident enterprise” for PRC tax purposes even if the standards for “de facto management body” prescribed in the SAT Circular 82 applied to us. For example, certain of our minutes and files of the resolutions of our board of directors and the resolutions of our shareholders are maintained outside the PRC. However, the PRC tax authorities may take a different view. Han Kun Law Offices, our legal counsel as to PRC law, has advised us that if the PRC tax authorities determine that our Cayman Islands holding company or any Hong Kong subsidiary is a PRC resident enterprise for PRC enterprise income tax purposes, its world-wide income could be subject to PRC tax at a rate of 25%, which could reduce our net income. In addition, we will also be subject to PRC enterprise income tax reporting obligations. Although dividends paid by one PRC tax resident to another PRC tax resident should qualify as “tax-exempt income” under the enterprise income tax law, dividends paid by our PRC subsidiary to us or any of our Hong Kong subsidiaries could be subject to a 10% withholding tax if we or any of our Hong Kong subsidiaries were treated as a PRC resident enterprise. The PRC foreign exchange control authorities, which enforce the withholding tax on dividends, and the PRC tax authorities have not yet issued guidance with respect to the processing of outbound remittances to entities that are treated as resident enterprises for PRC enterprise income tax purposes. If we are treated as a resident enterprise, non-PRC resident ADS holders may also be subject to PRC withholding tax on dividends paid by us and PRC tax on gains realized on the sale or other disposition of ADSs or ordinary shares if such income is sourced from within the PRC. The tax would be imposed at the rate of 10% in the case of non-PRC resident enterprise holders and 20% in the case of non-PRC resident individual holders. In the case of dividends, we would be required to withhold the tax at source. Any PRC tax liability may be reduced under applicable tax treaties or similar arrangements, but it is unclear whether our non-PRC shareholders company would be able to obtain the benefits of any tax treaties between their country of tax residence and the PRC in the event that we are treated as a PRC resident enterprise. Although our holding company is incorporated in the Cayman Islands, it remains unclear whether dividends received and gains realized by our non-PRC resident ADS holders will be regarded as income from sources within the PRC if we are classified as a PRC resident enterprise. Any such tax will reduce the returns on your investment in our ADSs. There are uncertainties with respect to indirect transfers of PRC taxable properties outside a public stock exchange. We face uncertainties on the reporting and consequences on private equity financing transactions, private share transfers and share exchange involving the transfer of shares in our company by non-resident investors. According to the Notice on Several Issues Concerning Enterprise Income Tax for Indirect Share Transfer by Non-PRC Resident Enterprises, or SAT Circular 7, issued by the State Taxation Administration on February 3, 2015, an “indirect transfer” of assets of a PRC resident enterprise, including a transfer of equity interests in a non-PRC holding company of a PRC resident enterprise, by non-PRC resident enterprises may be re-characterized and treated as a direct transfer of PRC taxable properties, if such transaction lacks reasonable commercial purpose and was undertaken for the purpose of reducing, avoiding or deferring PRC enterprise income tax. As a result, gains derived from such indirect transfer may be subject to PRC enterprise income tax, and tax filing or withholding obligations may be triggered, depending on the nature of the PRC taxable properties being transferred. According to SAT Circular 7, “PRC taxable properties” include assets of a PRC establishment or place of business, real properties in the PRC, and equity investments in PRC resident enterprises, in respect of which gains from their transfer by a direct holder, being a non-PRC resident enterprise, would be subject to PRC enterprise income taxes. When determining if there is a “reasonable commercial purpose” of the transaction arrangement, features to be taken into consideration include: whether the main value of the equity interest of the relevant offshore enterprise derives from PRC taxable properties; whether the assets of the relevant offshore enterprise mainly consists of direct or indirect investment in China or if its income mainly derives from China; whether the offshore enterprise and its subsidiaries directly or indirectly holding PRC taxable properties have a real commercial nature which is evidenced by their actual function and risk exposure; the duration of existence of the business model and organizational structure; the replicability of the transaction by direct transfer of PRC taxable properties; and the tax situation of such indirect transfer outside China and its applicable tax treaties or similar arrangements. In respect of an indirect offshore transfer of assets of a PRC establishment or place of business of a foreign enterprise, the resulting gain is to be included with the annual enterprise filing of the PRC establishment or place of business being transferred, and would consequently be subject to PRC enterprise income tax at a rate of 25%. Where the underlying transfer relates to PRC real properties or to equity investments in a PRC resident enterprise, which is not related to a PRC establishment or place of business of a non-resident enterprise, a PRC enterprise income tax at 10% would apply, subject to available preferential tax treatment under applicable tax treaties or similar arrangements, and the party who is obligated to make the transfer payments has the withholding obligation. Where the payer fails to withhold any or sufficient tax, the transferor shall declare and pay such tax to the competent tax authority by itself within the statutory time limit. Late payment of applicable tax will subject the transferor to default interest. Currently, SAT Circular 7 does not apply to the sale of shares by investors through a public stock exchange where such shares were acquired in a transaction on a public stock exchange. 16 Table of Contents The PRC tax authorities could, at their discretion, adjust any capital gains and impose tax return filing and withholding or tax payment obligations and associated penalties with respect to any internal restructuring, and our PRC subsidiary may be requested to assist in the filing. Any PRC tax imposed on a transfer of our shares not through a public stock exchange, or any adjustment of such gains would cause us to incur additional costs and may have a negative impact on the value of your investment in our company. Implementation of the labor laws and regulations in China may adversely affect our business and results of operations. Pursuant to the PRC Labor Contract Law that took effect in January 2008, its implementation rules that took effect in September 2008 and its amendment that took effect in July 2013, employers are subject to stricter requirements in terms of signing labor contracts, minimum wages, paying remuneration, determining the term of employees’ probation and unilaterally terminating labor contracts. Due to lack of detailed interpretative rules and uniform implementation practices and broad discretion of the local competent authorities, it is uncertain as to how the PRC Labor Contract Law and its implementation rules will affect our current employment policies and practices. Our employment policies and practices may violate the PRC Labor Contract Law or its implementation rules, and we may thus be subject to related penalties, fines or legal fees. Compliance with the PRC Labor Contract Law and its implementation rules may increase our operating expenses, in particular our personnel expenses. We may, from time to time, optimize our employees’ utilization and adjust our employee structure. In the event that we decide to terminate some of our employees or otherwise change our employment or labor practices, the PRC Labor Contract Law and its implementation rules may also limit our ability to effect those changes in a desirable or cost-effective manner, which could adversely affect our business and results of operations. On October 28, 2010, the SCNPC promulgated the PRC Social Insurance Law, or the Social Insurance Law, which became effective on July 1, 2011 and was amended on December 29, 2018. According to the Social Insurance Law, employees must participate in pension insurance, work-related injury insurance, medical insurance, unemployment insurance and maternity insurance and the employers must, together with their employees or separately, pay the social insurance premiums for such employees. We expect our labor costs to increase due to the implementation of these laws and regulations. Although as of the date of this annual report, we are not aware of any notice from regulatory authorities or any material claim or request from these employees in this regard, as the interpretation and implementation of these new laws and regulations are still evolving, we cannot assure you that our employment practices will at all times be deemed in full compliance with labor-related laws and regulations in China, which may subject us to labor disputes or government investigations. If we are deemed to have violated relevant labor laws and regulations, we could be required to provide additional compensation to our employees, and our business, financial condition and results of operations could be materially and adversely affected. Further, labor disputes, work stoppages or slowdowns at our company or any of our third-party service providers could significantly disrupt our daily operation or our expansion plans and have a material adverse effect on our business. It may be difficult for overseas regulators to conduct investigations or collect evidence in China. Shareholder claims or regulatory investigations that are common in the United States (including securities law class actions and fraud claims) are generally difficult to apply as a matter of law and/or in practice in China. For example, in China, there are significant legal and other obstacles in the process of gathering information needed for regulatory investigations or litigations initiated outside China. Although the governmental authorities in China may establish a regulatory cooperation mechanism with the securities regulatory authorities of another country or region to implement cross- border supervision and administration, such cooperation with the securities regulatory authorities in the Unities States may not be efficient in the absence of a mutual and practical cooperation mechanism. Furthermore, according to Article 177 of the PRC Securities Law, or Article 177, which became effective in March 2020, no overseas securities regulator may directly conduct investigations or collect evidence and, without proper authorization as stipulated under Article 177, no entities or individuals may provide documents or materials in connection with securities activities. While detailed interpretation of or implementation rules under Article 177 have not been promulgated, the inability of an overseas securities regulator to directly conduct investigations or collect evidence in China may further increase difficulties faced by you in protecting your interests. 17 Table of Contents China’s M&A Rules and certain other PRC regulations establish complex procedures for certain acquisitions of Chinese companies by foreign investors, which could make it more difficult for us to pursue growth through acquisitions in China. The Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rules, and other recently adopted regulations and rules concerning mergers and acquisitions established additional procedures and requirements that could make merger and acquisition activities by foreign investors more time consuming and complex. For example, the M&A Rules require that the Ministry of Commerce be notified in advance of any change-of-control transaction in which a foreign investor takes control of a PRC domestic enterprise, if (i) any important industry is concerned, (ii) such transaction involves factors that impact or may impact national economic security or (iii) such transaction will lead to a change in control of a domestic enterprise which holds a famous trademark or PRC time-honored brand. Moreover, the PRC Anti-monopoly Law promulgated by the SCNPC in 2008 requires that transactions which are deemed concentrations and involve parties with specified turnover thresholds (i.e., during the previous fiscal year, (i) the total global turnover of all operators participating in the transaction exceeds RMB10 billion and at least two of these operators each had a turnover of more than RMB400 million within China or (ii) the total turnover within China of all the operators participating in the concentration exceeded RMB2 billion, and at least two of these operators each had a turnover of more than RMB400 million within China) must be cleared by the anti-monopoly enforcement authority before they can be completed. On December 14, 2020, the SAMR announced three cases of administrative penalties for the acquirers’ failures to make proper concentration declarations to the relevant authorities about their past acquisitions. This is also the first time that the SAMR imposed administrative penalties for declarations on illegal concentrations involved entities structured under a VIE arrangement. In addition, in 2011, the General Office of the State Council promulgated the Notice on Establishing the Security Review System for Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, also known as Circular 6, which officially established a security review system for mergers and acquisitions of domestic enterprises by foreign investors. Further, the Ministry of Commerce promulgated the Regulations on Implementation of Security Review System for the Merger and Acquisition of Domestic Enterprises by Foreign Investors, effective in 2011, to implement Circular 6. Under Circular 6, a security review is required for mergers and acquisitions by foreign investors 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 foregoing Ministry of Commerce regulations, the Ministry of Commerce will focus on the substance and actual impact of the transaction when deciding whether a specific merger or acquisition is subject to security review. If the Ministry of Commerce decides that a specific merger or acquisition is subject to a security review, it will submit it to the Inter-Ministerial Panel, an authority established under Circular 6 led by the NDRC, and the Ministry of Commerce under the leadership of the State Council, to carry out security review. The regulations prohibit foreign investors from bypassing the security review by structuring transactions through trusts, indirect investments, leases, loans, control through contractual arrangements or offshore transactions. There is no explicit provision or official interpretation stating that the merging or acquisition of a company engaged in the Internet content or mobile games business requires security review, and there is no requirement that acquisitions completed prior to the promulgation of the Security Review Circular are subject to the Ministry of Commerce review. On December 26, 2019, the State Council issued the Order No. 723, the Implementation Regulations for the PRC Foreign Investment Law, or the Foreign Investment Law Implementation Regulations, which became effective on January 1, 2020. The Foreign Investment Law Implementation Regulations declare that China will establish a foreign investment security review system, and conduct security review for foreign investments which have or may have an adverse impact on national security. In addition, the Ministry of Commerce promulgated the Measures on Reporting of Foreign Investment Information, effective on January 1, 2020, which provides detailed submission requirements for foreign investors. Foreign investors undertaking a merger and acquisition of a non-foreign investment enterprise in China is required to submit an initial report through the enterprise registration system upon completion of amendment registration for the target enterprise. In December 2020, the NDRC and the Ministry of Commerce promulgated the Measures for the Security Review of Foreign Investment, which came into effect on January 18, 2021. See “Item 4. Information of the Company—4.B. Business Overview—Regulation” for more details. As these measures are recently promulgated, official guidance has not been issued by the designated office in charge of such security review yet. At this stage, the interpretation of those measures remains unclear in many aspects such as what would constitute “important information technology and Internet services and products” and whether these measures may apply to foreign investment that is implemented or completed before the enactment of these new measures. As our business may be deemed to constitute the foregoing circumstances, we cannot assure you that our current business operations will remain fully compliant, or we can adapt our business operations to new regulatory requirements on a timely basis, or at all. In the future, we may grow our business by acquiring complementary businesses. Complying with the requirements of the above-mentioned regulations and other relevant rules to complete such transactions could be time consuming, and any required approval processes, including obtaining approval from the Ministry of Commerce or its local counterparts may delay or inhibit our ability to complete such transactions. We believe that it is unlikely that our business would be deemed to be in an industry that raises “national defense and security” or “national security” concerns. However, the Ministry of Commerce or other government agencies may publish explanations in the future determining that our business is in an industry subject to the security review, in which case our future acquisitions in China, including those by way of entering into contractual control arrangements with target entities, may be closely scrutinized or prohibited. 18 Table of Contents PRC regulations relating to offshore investment activities by PRC residents may limit our PRC subsidiary’s ability to increase their registered capital or distribute profits to us or otherwise expose us to liability and penalties under PRC law. The State Administration of Foreign Exchange, or the SAFE, promulgated the Circular on Relevant Issues Relating to Foreign Exchange Control on Domestic Resident’s Offshore Investment and Financing and Roundtrip Investment through Special Purpose Vehicles, or the SAFE Circular 37, in July 2014 that requires PRC residents or entities to register with SAFE or its local branch in connection 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 vehicle undergoes material events relating to any change of basic information (including change of such PRC citizens or residents, name and operation term), increases or decreases in investment amount, transfers or exchanges of shares, or mergers or divisions. According to the Notice on Further Simplifying and Improving Policies for the Foreign Exchange Administration of Direct Investment released on February 13, 2015 by the SAFE, as amended in December 2019, local banks will examine and handle foreign exchange registration for overseas direct investment, including the initial foreign exchange registration and amendment registration, under SAFE Circular 37 from June 1, 2015. If our shareholders who are PRC residents or entities do not complete their registration with the local SAFE branches, our PRC subsidiary may be prohibited from distributing their profits and proceeds from any reduction in capital, share transfer or liquidation to us, and we may be restricted in our ability to contribute additional capital to our PRC subsidiary. Moreover, failure to comply with the SAFE registration described above could result in liability under PRC laws for evasion of applicable foreign exchange restrictions. However, we may not at all times be fully aware or informed of the identities of all our shareholders or beneficial owners that are required to make such registrations, and we cannot compel our beneficial owners to comply with SAFE registration requirements. As a result, we cannot assure you that all of our shareholders or beneficial owners who are PRC residents or entities have complied with, and will in the future make or obtain any applicable registrations or approvals required by, SAFE regulations. Failure by such shareholders or beneficial owners to comply with SAFE regulations, or failure by us to amend the foreign exchange registrations of our PRC subsidiary, could subject us to fines or legal sanctions, restrict our overseas or cross-border investment activities, limit our subsidiaries’ ability to make distributions or pay dividends or affect our ownership structure, which could adversely affect our business and prospects. PRC regulation of direct investment and loans by offshore holding companies to PRC entities may delay or limit us from using the proceeds of our initial public offering to make additional capital contributions or loans to our PRC subsidiary. We are an offshore holding company conducting our operations in China through our PRC subsidiary, variable interest entities and their subsidiaries. We may make loans to our PRC subsidiary, variable interest entities and their subsidiaries, or we may make additional capital contributions to our PRC subsidiary. Any capital contributions or loans that we, as an offshore entity, make to our PRC subsidiary, including from the proceeds of our initial public offering, are subject to PRC regulations. Capital contributions to our PRC subsidiaries are subject to the approval of or filing with the Ministry of Commerce and the SAMR in its local branches and registration with a local bank authorized by SAFE. There is no statutory limit on the amount of capital contribution that we can make to our PRC subsidiaries. Any medium or long-term loan to be provided by us to the VIEs must be registered with the NDRC and SAFE or its local branches. With respect to loans to the PRC subsidiaries by us, the outstanding amount of the loans shall not exceed the difference between the total investment and the registered capital of the PRC subsidiaries or 250% of the net asset of the relevant PRC subsidiary. The Circular on Reforming the Administration of Foreign Exchange Settlement of Capital of Foreign-Invested Enterprises, or SAFE Circular 19, effective as of June 1, 2015, allows foreign invested enterprises, or FIEs, to settle their foreign exchange capital at their discretion, but continues to prohibit FIEs from using the Renminbi fund converted from their foreign exchange capitals for expenditure beyond their business scopes, and also prohibit FIEs from using such Renminbi fund to provide loans to persons other than affiliates unless otherwise permitted under its business scope. As a result, we are required to apply Renminbi funds converted from the net proceeds we received from our initial public offering within the business scopes of our PRC subsidiaries. According to the Circular on Optimizing the Administration of Foreign Exchange to Support the Development of Foreign- related Business issued by the SAFE on April 10, 2020, eligible enterprises are allowed to make domestic payments using the income under their capital accounts generated from their capital, foreign debt and overseas listing, without providing materials for each transaction evidencing the authenticity in advance, provided that the capital usage is authentic and compliant with the current capital account income usage management regulations. On October 23, 2019, the SAFE issued Notice of the State Administration of Foreign Exchange on Further Promoting the Facilitation of Cross-border Trade and Investment, or Circular 28. Circular 28 allows non-investment foreign-invested enterprises to use their capital funds to make equity investments in China, provided that such investments do not violate the Negative List and the target investment projects are genuine and in compliance with PRC laws. Since Circular 28 was relatively new, its interpretation and implementation in practice are still subject to substantial uncertainties. See “Item 4. Information on the Company—4.B. Business Overview—Regulation—Regulations Relating to Foreign Currency Exchange and Dividend Distribution.” In light of the various requirements imposed by PRC regulations on loans to and direct investment in PRC entities by offshore holding companies, we cannot assure you that we will be able to complete the necessary registration or obtain the necessary approval on a timely basis, or at all. If we fail to complete the necessary registration or obtain the necessary approval, our ability to make loans or equity contributions to our PRC subsidiary may be negatively affected, which could adversely affect our PRC subsidiary’s liquidity and its ability to fund its working capital and expansion projects and meet its obligations and commitments. 19 Table of Contents Our PRC subsidiary and PRC variable interest entities are subject to restrictions on paying dividends or making other payments to us, which may restrict our ability to satisfy our liquidity requirements. We are a holding company incorporated in the Cayman Islands. We rely on dividends from our PRC subsidiary which in turn relies on consulting and other fees paid by the VIEs for our cash and financing requirements, such as the funds necessary to pay dividends and other cash distributions to our shareholders, including holders of our ADSs, and service any debt we may incur. Current PRC regulations permit our PRC subsidiary to pay dividends to us only out of their accumulated after-tax profits upon satisfaction of relevant statutory condition and procedures, if any, determined in accordance with Chinese accounting standards and regulations. In addition, our PRC subsidiary is required to set aside at least 10% of its accumulated profits each year, if any, to fund certain reserve funds until the total amount set aside reaches 50% of its registered capital. As of December 31, 2021, we had not made appropriations to statutory reserves as our subsidiary and the VIEs (including their subsidiaries) reported accumulated loss. Furthermore, if our PRC subsidiary, variable interest entities and their subsidiaries incur debt on their own behalf in the future, the instruments governing the debt may restrict their ability to pay dividends or make other payments to us, which may restrict our ability to satisfy our liquidity requirements. In addition, the PRC Enterprise Income Tax Law, and its implementation rules provide that the withholding tax rate of 10% will be applicable to dividends payable by Chinese companies to non-PRC-resident enterprises unless otherwise exempted or reduced according to treaties or arrangements between the PRC central government and governments of other countries or regions where the non-PRC-resident enterprises are incorporated. As of December 31, 2021, our subsidiary and the VIEs (including their subsidiaries) located in the PRC reported accumulated loss and therefore they could not pay any dividends. Fluctuations in exchange rates could have a material adverse effect on our results of operations and the value of your investment. The value of the RMB against the U.S. dollar and other currencies is affected by changes in China’s political and economic conditions and by China’s foreign exchange policies, among other things. In July 2005, the PRC government changed its decades-old policy of pegging the value of the RMB to the U.S. dollar, and the RMB appreciated more than 20% against the U.S. dollar over the following three years. Between July 2008 and June 2010, this appreciation halted and the exchange rate between the RMB and the U.S. dollar remained within a narrow band. Since June 2010, the RMB has fluctuated against the U.S. dollar, at times significantly and unpredictably. On November 30, 2015, the Executive Board of the International Monetary Fund (IMF) completed the regular five-year review of the basket of currencies that makes up the Special Drawing Right, or the SDR, and decided that effective October 1, 2016, RMB would be a freely usable currency and would be included in the SDR basket as a fifth currency, along with the U.S. dollar, the Euro, the Japanese yen and the British pound. In the fourth quarter of 2016, the RMB depreciated significantly in the backdrop of a surging U.S. dollar and persistent capital outflows of China. In 2017, the RMB appreciated approximately 6.3% against the U.S. dollar. In 2018 and 2019, however, the RMB depreciated approximately 5.7% and 1% against the U.S. dollar. In 2020 and 2021, the RMB continues to fluctuate against the U.S. dollar. It remains unclear what further fluctuations may occur. With the development of the foreign exchange market and progress towards interest rate liberalization and RMB internationalization, the PRC government may in the future announce further changes to the exchange rate system and the RMB could appreciate or depreciate significantly in value against the U.S. dollar in the future. It is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate between the RMB and the U.S. dollar in the future. There remains significant international pressure on the Chinese government to adopt a flexible currency policy to allow the RMB to appreciate against the U.S. dollar. Significant revaluation of the RMB may have a material adverse effect on your investment. Substantially all of our revenues and costs are denominated in RMB. Any significant revaluation of RMB may materially and adversely affect our revenues, earnings and financial position, and the value of, and any dividends payable on, our ADSs in U.S. dollars. To the extent that we need to convert U.S. dollars into RMB for capital expenditures and working capital and other business purposes, appreciation of the RMB against the U.S. dollar would have an adverse effect on the RMB amount we would receive from the conversion. Conversely, a significant depreciation of the RMB against the U.S. dollar may significantly reduce the U.S. dollar equivalent of our earnings, which in turn could adversely affect the price of our ADSs, and if we decide to convert RMB into U.S. dollars for the purpose of making payments for dividends on our ordinary shares or ADSs, strategic acquisitions or investments or other business purposes, appreciation of the U.S. dollar against the RMB would have a negative effect on the U.S. dollar amount available to us. Very limited hedging options are available in China to reduce our exposure to exchange rate fluctuations. To date, we have not entered into any hedging transactions in an effort to reduce our exposure to foreign currency exchange risk. While we may decide to enter into hedging transactions in the future, the availability and effectiveness of these hedges may be limited and we may not be able to adequately hedge our exposure or hedge it at all. In addition, our currency exchange losses may be magnified by PRC exchange control regulations that restrict our ability to convert RMB into foreign currency. As a result, fluctuations in exchange rates may have a material adverse effect on your investment. 20 Table of Contents Governmental control of currency conversion may limit our ability to utilize our revenues effectively and affect the value of your investment. The PRC government imposes control on the convertibility of the RMB into foreign currencies and, in certain cases, the remittance of currency out of China. We receive substantially all of our revenues in RMB. Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior SAFE approval by complying with certain procedural requirements. Therefore, our PRC subsidiary is able to pay dividends in foreign currencies to us without prior approval from the SAFE. However, approval from or registration with appropriate government authorities is required where RMB is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign currencies. The PRC government may also at its discretion restrict access to foreign currencies for current account transactions in the future. If the foreign exchange control system prevents us from obtaining sufficient foreign currencies to satisfy our foreign currency demands, we may not be able to pay dividends in foreign currencies to our shareholders, including holders of our ADSs. Failure to comply with PRC regulations regarding the registration requirements for employee stock ownership plans or share option plans may subject the PRC plan participants or us to fines and other legal or administrative sanctions. Pursuant to SAFE Circular 37, PRC residents who participate in share incentive plans in overseas non-publicly-listed companies may submit applications to SAFE or its local branches for the foreign exchange registration with respect to offshore special purpose companies. In the meantime, our directors, executive officers and other employees who are PRC citizens or who are non-PRC residents residing in the PRC for a continuous period of not less than one year, subject to limited exceptions, and who have been granted incentive share awards by us, may follow the Circular on Issues Concerning the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plan of Overseas Publicly-Listed Company, or the SAFE Circular 7, promulgated by the SAFE in 2012. Pursuant to the SAFE Circular 7, PRC citizens and non-PRC citizens who reside in China for a continuous period of not less than one year who participate in any stock incentive plan of an overseas publicly listed company, subject to a few exceptions, are required to register with the SAFE through a domestic qualified agent, which could be the PRC subsidiaries of such overseas listed company, and complete certain other procedures. In addition, an overseas entrusted institution must be retained to handle matters in connection with the exercise or sale of stock options and the purchase or sale of shares and interests. We and our executive officers and other employees who are PRC citizens or who reside in the PRC for a continuous period of not less than one year and who have been granted options are subject to these regulations. Failure to complete the SAFE registrations may subject them to fines, and legal sanctions and may also limit our ability to contribute additional capital into our PRC subsidiary and limit our PRC subsidiary’s ability to distribute dividends to us. We also face regulatory uncertainties that could restrict our ability to adopt additional incentive plans for our directors, executive officers and employees under PRC law. See “Item 4. Information on the Company —4.B. Business Overview—Regulation—Regulations Relating to Foreign Currency Exchange and Dividend Distribution—Stock Option Rules.” The SAT has issued certain circulars concerning equity incentive awards. Under these circulars, our employees working in China who exercise share options or are granted restricted shares or restricted stock units, or RSUs, will be subject to PRC individual income tax. Our PRC subsidiary has obligations to file documents related to employee share options, restricted shares or RSUs with relevant tax authorities and to withhold individual income taxes of those employees. If our employees fail to pay or we fail to withhold their income taxes according to relevant laws and regulations, we may face sanctions imposed by the tax authorities or other PRC governmental authorities. See “Item 4. Information on the Company—4.B. Business Overview—Regulation—Regulations Relating to Foreign Currency Exchange and Dividend Distribution—Stock Option Rules.” Our leased property interests may be defective and our right to lease the properties affected by such defects may be challenged, which could adversely affect our business. Under PRC laws, all lease agreements are required to be registered with local housing authorities. We lease seven premises in China. Some landlords of these premises have not registered the relevant lease agreements with the government authorities or have not completed registration of their ownership rights to the premises, and some of the premises have defective title. We may be subject to monetary fines due to failure by the landlords to complete the required registrations. We may also be forced to relocate our operations if the landlords do not obtain valid title to or complete the required registrations with local housing authorities in a timely manner or at all. We might not be able to locate desirable alternative sites for our operations in a timely and cost-effective manner which may adversely affect our business. The PCAOB is currently unable to inspect our auditor in relation to their audit work performed for our financial statements included elsewhere in this annual report. 21 Table of Contents Our auditor is an independent public accounting firm registered with the Public Company Accounting Oversight Board (United States), or the PCAOB. As an auditor of companies traded publicly in the United States, it issues the audit report included elsewhere in this annual report. Our auditor is subject to laws in the United States pursuant to which the PCAOB conducts regular inspections to assess its compliance with the applicable professional standards. Since our auditor is located in China, a jurisdiction where the PCAOB has been unable to conduct inspections without the approval of the Chinese authorities, our auditor is not currently inspected by the PCAOB. The lack of the PCAOB inspections in China prevents the PCAOB from fully evaluating audits and quality control procedures of our independent registered public accounting firm, depriving us and investors in our ADSs of the benefits of such PCAOB inspections. The inability of the PCAOB to conduct inspections of auditors in China makes it more difficult to evaluate the effectiveness of our independent registered public accounting firm’s audit procedures or quality control procedures as compared to auditors outside of China that are subject to the PCAOB inspections. This could cause investors and potential investors in our ADSs to lose confidence in our audit procedures and reported financial information and the quality of our financial statements. Our ADSs may be delisted and our ADSs and shares may be prohibited from trading in the over-the-counter market under the Holding Foreign Companies Accountable Act, or the HFCAA, if the PCAOB is unable to inspect or fully investigate auditors located in China, which may materially and adversely affect the value of your investment. As part of a continued regulatory focus in the United States on access to audit information and other information currently protected by national law in some jurisdictions, such as those in China, the Holding Foreign Companies Accountable Act, or the HFCAA, was signed into law on December 18, 2020. The HFCAA states that the SEC shall prohibit our shares or ADSs from being traded, on a national securities exchange or in the over-the-counter trading market in the U.S., in the event that the SEC determines our audit reports are issued by a registered public accounting firm that has not been subject to the PCAOB inspection for three consecutive years starting from 2021. Pursuant to the HFCAA, the foregoing prohibition on trading could begin to take place in 2024, at the earliest. On December 2, 2021, the SEC adopted final amendments to its rules implementing the HFCAA (the “Final Amendments”). The Final Amendments state that an SEC-reporting company shall publicly disclose certain information for each year that the PCAOB is unable to inspect its accounting firm, such as the following: • • • • • the auditor’s name and location; the percentage of issuer’s shares owned by governmental entities; whether governmental entities in the applicable foreign jurisdiction where the auditor resides have a controlling financial interest in the issuer; the name of each official of the Chinese Communist Party who is a member of the board of the issuer; and whether the articles of incorporation of the issuer contains any charter of the Chinese Communist Party. The Final Amendments also establish procedures that the SEC will follow in identifying issuers and prohibiting trading by certain issuers under the HFCAA. On December 16, 2021, PCAOB issued the HFCAA Determination Report, according to which, our auditor is subject to the determination that the PCAOB is unable to inspect or investigate it completely. In March 2022, the SEC issued its first “Conclusive list of issuers identified under the HFCAA” indicating that those companies are now formally subject to the delisting provisions if they remain on the list for three consecutive years. Accordingly, we expect to be identified as a “Commission Identified Issuer” shortly after the filing of this annual report on Form 20-F. Under the current law, delisting and prohibition from over-the-counter trading in the U.S. could begin to take place in 2024, at the earliest. In such circumstance, there is no certainty that we will be able to list our ADSs or shares on a non-U.S. exchange or that a market for our shares will develop outside of the U.S in a timely manner, or at all. The actual or threatened delisting of our ADSs may materially and adversely affect the value of your investment. The HFCAA or other efforts to increase U.S. regulatory access to audit information could cause uncertainty for investors of certain issuers, including us, and the market price of our ADSs could be adversely affected. Additionally, whether the PCAOB will be able to conduct inspections of our auditor before the issuance of our financial statements on Form 20-F for the year ended December 31, 2023, which is due by April 30, 2024, is subject to substantial uncertainty and depends on a number of factors out of our control. If we are unable to meet the PCAOB inspection requirement in time, or at all, we could be delisted from the Nasdaq Global Select Market and our ADSs will not be permitted for trading in the over-the-counter market. This would substantially impair your ability to sell or purchase our ADSs when you wish to do so, and the risk and uncertainty associated with delisting and trading prohibition would have a negative impact on the price of our ADSs. Also, such a delisting or trading prohibition would significantly affect our ability to raise capital on terms acceptable to us, or at all, which would have a material adverse impact on our business, financial condition and prospects. 22 Table of Contents The potential enactment of the Accelerating Holding Foreign Companies Accountable Act would decrease the number of non-inspection years from three years to two years, thus reducing the time period before our ADSs may be delisted or prohibited from over-the-counter trading. If this bill were enacted, our ADSs could be delisted from the exchange and prohibited from over-the-counter trading in the U.S. in 2023. On June 22, 2021, the U.S. Senate passed a bill to amend Section 104(i) of the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7214(i)), which is known as the Accelerating Holding Foreign Companies Accountable Act. It proposes to prohibit securities of any registrant from being listed on any of the U.S. securities exchanges or traded over-the-counter if the auditor of the registrant’s financial statements is not subject to PCAOB inspection for two consecutive years, instead of three consecutive years as currently enacted in the HFCAA. In addition, the same two-year amendments was included in the America Competes Act of 2022 passed by the U.S. House of Representatives on February 4, 2022. There are, however, certain differences between the Accelerating Holding Foreign Companies Accountable Act and the America Competes Act, such as those relating to the U.S. Innovation and Competition Act passed by the Senate in 2021. The U.S. House of Representatives and U.S. Senate will need to align their respective legislation and pass their amended bills before the President can sign these bills into law. It is unclear when the U.S. Senate and U.S. House of Representatives will resolve the foregoing differences in the respective bills currently passed, or when the U.S. President will sign on the bill to make the amendment into law, if at all. However, in the case that the bill becomes the law, it will reduce the time period before our ADSs could be delisted from the exchange and prohibited from over-the-counter trading in the U.S. from 2024 to 2023. Proceedings instituted by the SEC against certain PRC-based accounting firms, including our independent registered public accounting firm, could result in financial statements being determined to be out of compliance with the requirements of the Exchange Act. In December 2012, the SEC brought administrative proceedings against the PRC-based affiliates of the Big Four accounting firms, including our independent registered public accounting firm, alleging that they had violated U.S. securities laws by failing to provide audit work papers and other documents related to certain other PRC-based companies under investigation by the SEC. On January 22, 2014, an initial administrative law decision was issued, censuring and suspending these accounting firms from practicing before the SEC for a period of six months. The decision was neither final nor legally effective until reviewed and approved by the SEC, and on February 12, 2014, the PRC-based accounting firms appealed this decision with the SEC. In February 2015, each of the four PRC-based accounting firms agreed to a censure and to pay a fine to the SEC to settle the dispute and avoid suspension of their ability to practice before the SEC. The settlement requires the firms to follow detailed procedures to seek to provide the SEC with access to such firms’ audit documents via the CSRC. If the firms do not follow these procedures or if there is a failure in the process between the SEC and the CSRC, the SEC could impose penalties such as suspensions, or it could restart the administrative proceedings. On February 6, 2015, each of the four China-based accounting firms agreed to a censure and to paid fines to the SEC to settle the dispute and avoid suspension of their ability to practice before the SEC and audit U.S.-listed companies. The settlement required the firms to follow detailed procedures and to seek to provide the SEC with access to Chinese firms’ audit documents via the CSRC. Under the terms of the settlement, the underlying proceeding against the four China-based accounting firms was deemed dismissed with prejudice for four years after entry of the settlement. The four-year mark occurred on February 6, 2019. We cannot predict whether the SEC will further challenge the four China-based accounting firms. In the event that the SEC restarts the administrative proceedings, depending upon the final outcome, listed companies in the United States with major PRC operations may find it difficult or impossible to retain auditors in respect of their operations in the PRC, which could result in financial statements being determined to be out of compliance with the requirements of the Exchange Act, including possible delisting. Moreover, any negative news about the proceedings against these audit firms may cause investor uncertainty regarding PRC-based, United States-listed companies and the market price of our ADSs may be adversely affected. If our independent registered public accounting firm was denied, even temporarily, the ability to practice before the SEC and we were unable to timely find another registered public accounting firm to audit and issue an opinion on our financial statements, our financial statements could be determined to be out of compliance with the requirements of the Exchange Act. Such a determination could ultimately lead to the delisting of our ordinary shares from the Nasdaq or deregistration from the SEC, or both, which would substantially reduce or effectively terminate the trading of our ADSs in the United States. 23 Table of Contents The approval, filing or other requirements of the China Securities Regulatory Commission or other PRC government authorities may be required under PRC law in connection with our issuance of securities overseas. The M&A Rules purport to require offshore special purpose vehicles that are controlled by PRC companies or individuals and that have been formed for the purpose of seeking a public listing on an overseas stock exchange through acquisitions of PRC domestic companies or assets to obtain approval from the China Securities Regulatory Commission, or the CSRC, prior to publicly listing their securities on an overseas stock exchange. The interpretation and application of the regulations remain unclear. If the approval from CSRC under the M&A Rules is required, it is uncertain whether it would be possible for us to obtain the approval, and any failure to obtain or delay in obtaining the approval for our future issuance of securities overseas would subject us to sanctions imposed by the CSRC and other PRC regulatory agencies. Furthermore, the recently issued Opinions on Strictly Cracking Down on Illegal Securities Activities in accordance with the Law emphasized the need to strengthen the administration over illegal securities activities and the supervision on overseas listings by China-based companies, and proposed to take effective measures, such as promoting the construction of relevant regulatory systems to deal with the risks and incidents faced by China-based overseas-listed companies. Such opinions further provided that the special provisions of the State Council on overseas offerings and listings by those companies limited by shares will be revised and therefore the duties of domestic industry-competent authorities and regulatory agencies will be clarified. On December 24, 2021, the CSRC published the draft Administrative Provisions of the State Council on the Overseas Issuance and Listing of Securities by Domestic Companies (Draft for Comments), or the Administrative Provisions, and the draft Measures for the Overseas Issuance and Listing of Securities Record-filings by Domestic Companies (Draft for Comments), or the Draft Measures, for public comments. See “Item 4. Information on the Company—4.B. Business Overview—Regulation—Regulations Relating to M&A and Overseas Listings.” Pursuant to these drafts, PRC domestic companies that directly or indirectly offer or list their securities in an overseas market, including a PRC company limited by shares and an offshore company whose main business operations are in China and that intends to offer shares or be listed in an overseas market based on its onshore equities, assets, incomes, or other similar interests, are required to file with the CSRC within three business days after submitting their listing application documents to the regulator in the place of intended listing. Pursuant to the Draft Measures, as to a China-based company that has been listed in an overseas market, it is also required to file with the CSRC within three business days for its follow-on offering of securities in the overseas market after the completion of the issuance. As of the date of this annual report, there is no schedule for the adoptions of such drafts. As it remains unclear whether the formal version to be adopted in the future will have any further material changes, it is uncertain how the measures will be enacted, interpreted or implemented and how they will affect us. We are closely monitoring regulatory developments in China regarding any necessary approvals from or filing with the CSRC, the CAC, or other PRC regulatory authorities required for overseas listings and offerings. If the CSRC or other relevant PRC regulatory agencies subsequently determine that prior approval and filing is required for any of our future offerings of securities overseas or to maintain the listing status of our ADSs, we cannot guarantee that we will be able to obtain such approval or complete such filing in a timely manner, or at all. The CSRC or other PRC regulatory agencies also may take actions requiring us, or making it advisable for us, not to proceed with such offering or maintain the listing status of our ADSs. If we proceed with any such offering or maintain the listing status of our ADSs without obtaining the CSRC’s approval to the extent it is required, or if we are unable to comply with any new approval requirements which might be adopted for offerings that we have completed prior to the publication of the above-referenced opinions, we may face regulatory actions or other sanctions from the CSRC or other PRC regulatory agencies. These regulatory agencies may impose fines and penalties on our operations in China, limit our ability to pay dividends outside of China, limit our operating privileges in China, delay or restrict the repatriation of the proceeds from offerings of securities overseas into China or take other actions that could have a material adverse effect on our business, financial condition, results of operations and prospects, as well as the trading price of the ADSs. Furthermore, if there are any other approvals, filings and/or other administration procedures, including the cybersecurity review under the Cybersecurity Review Measures and the Draft Measures for Internet Data Security, to be obtained from or completed with the CSRC or other PRC regulatory agencies as required by any new laws and regulations for any of our future proposed offering of securities overseas or the listing of the ADSs, we cannot assure you that we can obtain the required approval or complete the required filings or other regulatory procedures in a timely manner, or at all. Any failure to obtain the relevant approvals or complete the filings and other relevant regulatory procedures may subject us to regulatory actions or other sanctions from the CSRC or other PRC government authorities, which may have a material adverse effect on our business, financial condition or results of operations. Risks Related to Our Business and Industry If we fail to retain our existing users, keep them engaged or further grow our user base, our business, operation, profitability and prospects may be materially and adversely affected. 24 Table of Contents The size of our user base and the level of our user engagement are critical to our success. Our main monetization strategies—livestreaming, advertisement and others depend on our ability to maintain and increase the size of our user base and user engagement level. If our user base becomes smaller or our users become less active, it is probable that they would spend less on our virtual gifts and jointly operated games or visit our advertisements less frequently, or access our platform less in general. This would in turn drive top streamers away from our platform, discourage companies from purchasing advertisements on our platform and dissuade game developers and publishers from distributing their games through our platform. Our financial condition would suffer from the consequential decline in revenue and our business and operating results would be materially and adversely impacted. We are one of China’s leading game-centric livestreaming platforms in terms of the size of our user base and the level of user engagement. Maintaining and improving the current size of user base and level of user engagement are critical to our continued success. However, to maintain and improve this already large size of user base and high level of user engagement, we would have to ensure that we adequately and timely respond to changes in user preferences, attract and retain enough popular streamers, and offer new features and content that may attract new users. There is no guarantee that we could meet all of these goals. A number of factors could negatively affect user retention, growth and engagement, including the following: • • • • • • • • we are unable to combat spam on or inappropriate or abusive use of our platform, which may lead to negative public perception of us and our brand; technical or other problems prevent us from delivering our services in a rapid and reliable manner or otherwise adversely affect the user experience; we fail to innovate our communities, user-generated content and our virtual gifts that keep our users interested and eager to return to our platform on a regular basis; our streamers fail to keep our users engaged on our platform over a long period of time; we suffer from negative publicity, fail to maintain our brand or our reputation is damaged; we fail to address user concerns related to privacy and communication, safety, security or other factors; there are adverse changes in our services that are mandated, or that we elect to make, to address, legislation, regulations or government policies; and the growth of the number of PC and smartphone users in China stalls. We may fail to attract, cultivate and retain top streamers, which may materially and negatively affect our user retention and thus our business and operations. Our registered streamers include a high number of top streamers each of whom entered into an exclusive contract with us directly. Our top streamers tend to have large fan bases following them who regularly support these streamers with virtual gifts, and they also tend to attract many integrated promotion activities during livestreaming compared to self-registered streamers. Their charisma and the high-quality content that they create are primary contributors to user stickiness and are hard to replicate with self-registered streamers. Although we have signed exclusive contracts with top streamers at typically three- to five-year terms that contain non-compete clauses, top streamers may still choose to depart from us when their contract period ends, and their departure may cause a corresponding decline in our user base. As we attract top streamers from other platforms, we have also been and are currently involved in legal disputes concerning top streamers with competing platforms. Although we are not the primary target of these legal disputes, such streamers may be subject to fines or even injunctions which may render our investment in recruiting them meaningless. On the other hand, some of our top streamers have left us for competing platforms despite still being in a contractual relationship with us which may raise legal disputes. Although we have won some of the legal disputes against these breaching streamers, their departures may still have a negative impact on user retention and reputation. To retain top streamers, we must devise better streamer compensation schemes, improve our monetization capabilities and help the top streamers reach a wider audience. Although we strive to improve ourselves in these aspects, we cannot guarantee that our streamers will not leave us even if we do our best to retain them. In terms of streamer cultivation, we cannot guarantee that the performance metrics we use to track promising streamers will enable us to identify future top streamers. Some of the streamers we identify as promising may turn out to be underperforming, and we may also fail to spot truly promising streamers in early stages of their careers. In addition to a waste of resources, either one of these scenarios could prevent us from cultivating top streamers, which could weaken our core competitive strength against competing platforms and thus cause an outflow of users to those platforms. We may fail to offer attractive content, in particular popular game content, on our platform. 25 Table of Contents We offer comprehensive livestreaming content with a primary focus on games. Our content library is constantly evolving and growing. Game content has been the key component of our content offerings since our inception. A majority of our streamers were game streamers and game streaming also contributed significantly to the total viewing hours on our platform. In response to viewers’ growing interests, we also have expanded our coverage into other entertainment content genres. We actively track viewership growth and community feedback to identify trending content and encourage our streamers and talent agencies to create content that caters to viewers constantly changing tastes. However, if we fail to expand and diversify our content offerings, identify trending and popular genres, or maintain the quality of our content, we may experience decreased viewership and user engagement, which may materially and adversely affect our results of operations and financial conditions. In addition, we largely rely on our streamers to create high-quality and fun livestreaming content. We have in place a comprehensive and effective incentive mechanism to encourage streamers and talent agencies to supply content that is attractive to our viewers. Also, talent agencies cooperating with us may guide or influence streamers to livestream content that is well received by our viewers. However, if we fail to observe the latest trends and timely guide streamers and talent agencies accordingly, or fail to attract streamers who are capable of creating content based on popular games, or if streamers fail to produce content for trending games, our viewer numbers may decline and our financial condition and results of operations may be materially and adversely affected. We have significant reliance on the eSports industry. As the nexus of the eSports ecosystem, our platform connects game developers and publishers, professional eSports teams or players and eSports tournament organizers, advertisers and viewers. User generated content covering eSports games is the largest contributor to our user base. Our average mobile eSports MAUs were approximately 34.0 million and 37.1 million in the fourth quarter of 2020 and 2021, respectively. In addition to streaming of eSports games, major eSports events and tournaments, we also sponsor leading eSports teams and organize our own eSports tournaments. We rely heavily on a number of eSports games to generate our user traffic. For example, the most popular eSports games on our platform attracted a large amount of average mobile MAUs and generated significant hours spent by our users. As a result, if we fail to maintain our market position in the eSports industry or to attract users through livestreaming of popular eSports games, if the game developers and publishers fail to maintain the normal publication and operation of their online games or if any of these games fails to attract enough users, our user base and streamer base may shrink significantly. We may experience decreased viewership and user engagement, which may materially and adversely affect our results of operations and financial condition. If we fail to effectively manage our growth and control our periodic spending to maintain such growth, our brand, business and results of operations may be materially and adversely affected. We have experienced a period of significant growth and expansion in the past, which placed significant strain on our management and resources. However, given our limited operating history and the rapidly evolving market in which we compete, we may encounter difficulties as we establish and expand our operations, research and development, sales and marketing, and general and administrative capabilities. We cannot assure you that this level of growth will be sustainable or achieved at all in the future. We believe that our continued growth will depend on our ability to attract and retain viewers and top streamers, develop an infrastructure to service and support an expanding body of viewers and streamers, explore new monetization avenues, convert non-paying users to paying users, increase user engagement levels and capitalize on the eSports industry. We cannot assure you that we will be successful with any of the above. To manage our growth and maintain profitability, we expect our costs and expenses to continue to increase in the future as we anticipate that we will need to continue to implement, from time to time, a variety of new and upgraded operational, informational and financial systems, procedures and controls on an as-needed basis, including the continued improvement of our accounting and other internal management systems. We will also need to expand, train, manage and motivate our workforce and manage our relationships with viewers and streamers, game developers and publishers, advertisers and other business partners. All of these endeavors involve risks and will require substantial management efforts and skills and significant additional expenditures. We expect to continue to invest in our infrastructure in order to enable us to provide our services rapidly and reliably to viewers and streamers. Continued growth could end up straining our ability to maintain reliable service levels for all of our viewers and streamers, develop and improve our operational, financial, legal and management controls, and enhance our reporting systems and procedures. Managing our growth will require significant expenditures and the allocation of valuable management resources. If we fail to achieve the necessary level of efficiency in our organization as we grow, our business, operating results and financial condition could be harmed. 26 Table of Contents We have incurred net losses since inception, and we may continue to incur losses in the future. We have incurred significant accumulated net losses to date. Although experiencing net incomes since 2019, we may not generate sufficient revenues to offset such costs to achieve or sustain profitability in the future. We generated net incomes in 2020 but incurred net losses in 2021. We have generated gross profit since 2018, and this may not translate into continued net after-tax profit. The time it will take for us to eventually achieve profitability hinges on our ability to grow rapidly in a cost-effective way, and we may not be able to grow this way successfully. While our future revenue growth will be linked with the realization of our monetization strategies, which will be affected by user engagement, streamer retention and product offering, our cost-effective growth will primarily rely on improvement of operational efficiency. We may not be able to improve our operational efficiency in the future, or our operational efficiency improvement may not reach a sufficient level to generate profitability. Our ability to continue to improve operational efficiency will depend on our ability to maintain stronger bargaining positions in contract negotiations with top streamers, streamline our operation, achieve economies of scale and employ more advanced streaming technologies at lower cost, among other things. Additionally, our ability to achieve profitability is affected by various external factors, many of which are beyond our control, such as the PC and mobile games market and eSports industry in China, and the development of social networking, livestreaming services and mobile marketing services. We cannot assure you that we will be able to improve our operational efficiency in the future. We may again incur losses in the near future due to our continued investment in services, technologies, overseas expansion, research and development and our continued sales and marketing initiatives. Changes in the macroeconomic and regulatory environment or competitive dynamics and our inability to respond to these changes in a timely and effective manner may also impact our profitability. Accordingly, we cannot assure you that our company will turn profitable in the short term just because we have made substantial investments in various areas. Our business may suffer if we fail to successfully implement our monetization strategies. Our monetization model is new and evolving. Our streaming platform is free to access, and we generate revenues primarily from livestreaming and advertisement. As a result, our revenue is affected by our ability to increase user engagement and convert non-paying users into paying users, which in turn depends on our ability to offer content, virtual gifts, advertisements and other services. In 2019, 2020 and 2021, we generated RMB6,617.3 million, RMB8,852.2 million and RMB8,596.6 million (US$1,349.0 million) from livestreaming, representing 90.9%, 92.2% and 93.8% of our total revenues for the same period. We also generate a sizeable portion of our revenues from providing advertisement and other services on our platform. In 2019, 2020 and 2021, we generated RMB665.9 million, RMB749.7 million and RMB568.7 million (US$89.2 million) from advertisements and others, representing 9.1%, 7.8% and 6.2% of our total revenues for the same period. We also generate a small portion of our revenue from game distribution, which involves revenue-sharing arrangements with game developers and publishers. If we are not successful in enhancing our ability to monetize our existing services or developing new approaches to monetization, we may not be able to maintain or increase our revenues and profits or recover any associated costs. We monitor market developments and may adjust our monetization strategies accordingly from time to time, which may result in decreases of our overall revenue or revenue contributions from some monetization channels. In addition, we may in the future introduce new services to diversify our revenue streams, including services with which we have little or no prior development or operating experience. If these new or enhanced services fail to engage customers or platform partners, we may fail to generate sufficient revenues to justify our investments, and our business and operating results may suffer as a result. Our content monitoring system may not be effective in preventing misconduct by our platform users and misuse of our platform and such misconduct or misuse may materially and adversely impact our brand image, business and operating results. We are a game-centric livestreaming platform that provides real-time streaming and interactions. Because we do not have full control over how streamers or viewers will use our platform to communicate, our platform may be misused by individuals or groups of individuals to engage in immoral, disrespectful, fraudulent or illegal activities. For example, we must detect spam accounts, through which illegal or inappropriate content is streamed or posted and illegal or fraudulent activities are conducted, on a timely basis. Media reports and Internet forums have covered some of these incidents which have, in some cases, generated negative publicity about our platform and brand. We have implemented control procedures to detect and block illegal or inappropriate content and illegal or fraudulent activities conducted through the misuse of our platform, but such procedures may not prevent all such content from being broadcasted or posted or activities from being carried out. Moreover, as we have limited control over real-time and offline behavior of our users, to the extent such behavior is associated with our platform, our ability to protect our brand image and reputation may be limited. Our business and the public perception of our brand may be materially and adversely affected by misuse of our platform. 27 Table of Contents In addition, if any of our viewers suffers or alleges to have suffered physical, financial or emotional harm following contact initiated on our platform or after watching illegal or inappropriate content that our content monitoring system failed to filter out, we may face civil lawsuits or other liabilities initiated by the affected viewer, or governmental or regulatory actions against us. In response to allegations of illegal or inappropriate activities conducted through our platform or any negative media coverage about us, PRC government authorities may intervene and hold us liable for noncompliance with PRC laws and regulations concerning the dissemination of information on the Internet and subject us to administrative penalties or other sanctions, such as requiring us to restrict or discontinue some of the features and services provided on our website and mobile application, or even revoke our licenses or permits to provide Internet content service. We endeavor to ensure that all streamers are in compliance with relevant regulations, but we cannot guarantee that all streamers will comply with all the PRC laws and regulations in all aspects. Therefore, our livestreaming service may be subject to investigations or subsequent penalties if content displayed on our platform is deemed to be illegal or inappropriate under PRC laws and regulations. Especially, if our top streamers violate the policy of our platform to conduct any illegal or inappropriate behavior on our platform or in private, we may be required to block the account of such top streamers. As a result, our business may suffer and our user base, revenues and profitability may be materially and adversely affected. Our limited operating history with a relatively new business model in a relatively new market makes it difficult to evaluate our business and growth prospects. Our business operations commenced in 2014, with commercialization beginning midway through 2015. We have experienced year-over-year growth in the number of active and paying users and total revenue since 2016. However, our growth in the past may not be indicative of our future performance, as our operating results represent a limited-size sample of operational results and may be hard to repeat in the future. Many of the elements of our business are unique and evolving. The markets for our livestreaming platform and the related products and services are relatively new and rapidly developing and are subject to significant challenges, especially in terms of converting non-paying users to paying users, maintaining a stable paying user base and attracting new paying users. Our business plan relies heavily upon an expanding user base and the resulting increased revenue from livestreaming and advertisement, as well as our ability to capitalize on the eSports industry and explore other monetization avenues. We may not succeed in any of these aspects. As the livestreaming industry in China is relatively young, there are few proven methods of projecting user demand or available industry standards on which we can rely. Some of our current monetization methods are also in a relatively preliminary stage. For example, if we fail to properly manage the volume and price of our virtual gifts, our users may be less likely to purchase them. We cannot assure you that our attempts to monetize our viewers and streamers will continue to be successful, profitable or accepted, and therefore the income potential of our business is difficult to gauge. Our growth prospects should be considered in light of the risks and uncertainties that fast-growing early-stage companies with limited operating histories in evolving industries may encounter, including, among others, risks and uncertainties regarding our ability to: • • • • develop new virtual gifts that are appealing to users; develop new advertisement formats that are appealing to advertising partners; maintain stable relationships with game developers and publishers; and expand to new geographic markets with good eSports environment and high growth potential. Addressing these risks and uncertainties will require significant capital expenditures and allocation of valuable management and employee resources. If we fail to successfully address any of the above risks and uncertainties, the size of our user base, our revenue and operating margin may decline. We face risks related to natural disasters, health epidemics and other outbreaks of contagious diseases. Our business could be adversely affected by natural disasters or outbreaks of epidemics. These natural disasters, outbreaks of contagious diseases, and other adverse public health developments in China or any other market in which we operate and conduct business could severely disrupt our business operations by damaging our network infrastructure or information technology system or affecting the productivity of our workforce. The outbreak of any severe epidemic disease, such as avian flu, H1N1 flu, SARS or coronavirus, may disrupt our operations, which could negatively affect our financial condition and business prospects. COVID-19 has and is continuing to spread worldwide. The epidemic has resulted in mandatory quarantines, travel restrictions, and the temporary closure of stores and facilities in certain parts of the world. In March 2020, the World Health Organization declared the COVID-19 a pandemic. 28 Table of Contents In response to efforts to contain the spread of COVID-19, we or our business partners may need to implement adjustments to work schedules to allow workers to work remotely from home, quarantine our employees or our offices, or impose temporary office closure and travel restrictions, which may result in lower work efficiency and/or productivity. There might be travel restrictions imposed by various government authorities that could prevent our employees from travelling. These emergency measures have been significantly relaxed in China as of the date of this annual report. However, there have been occasional outbreaks of COVID-19 in various cities in China, and the Chinese government may again take measures to keep COVID-19 in check. Our user acquisition and engagement may fluctuate depending on factors beyond our control, such as the shelter-in-place restrictions due to the COVID-19 pandemic. In addition, our users may have less disposable income and the industry in which we operate may experience a general decline. We may also experience negative impacts on our advertisement revenue or other revenue, and our suppliers may not be able to deliver our orders in time. Although the Chinese economy has been gradually recovering since then, if the impact of COVID-19 is prolonged or worsens further, it may still adversely affect our revenue and financial conditions. The global stock markets have experienced, and may continue to experience, significant decline or even trade suspension due to the COVID-19 outbreak, which may result in a negative impact on our company, our overseas business and also a decline of value in the companies we invested in. While the outbreak of COVID-19 has come under control in the PRC since the second quarter of 2020, there was a significant rise in COVID-19 cases, including the COVID-19 Delta and Omicron variant cases, in various cities in China in early 2022. The local governments of the affected cities have reinstated certain COVID-related measures, including travel restrictions and stay-at-home orders. The extent to which the COVID-19 outbreak might impact our results will depend on future developments, which are highly uncertain and cannot be predicted, including but not limited to new information on the effectiveness of the mitigation strategies, the duration, spread, severity and recurrence of COVID-19 and any COVID-19 variants and related travel advisories and restrictions, and the efficacy of Covid-19 vaccines, which may also take extended time to be widely and adequately distributed. We may need to adjust our forecast downward or record impairment of the fair value of our investments should the situation continue to worsen. In our market, we mainly compete with other established streaming platforms and other entertainment mediums. If we are unable to compete effectively, our business and operating results may be materially and adversely affected. Since running a successful livestreaming platform requires intensive capital outlay and a large team of quality streamers, who remain in short supply due to the fact that most have signed contracts with existing platforms, there are high entry barriers for our industry. As a result, our major competitors are streaming platforms with an established presence in the industry, as well as other short or medium video platforms, social media platforms and other online entertainment platforms. While such competition may only come from a few established players instead of many newcomers, competition remains intense. As it is unlikely that viewers will watch streams on two platforms at once, and most top streamers sign exclusive contracts with only one platform, we compete mainly for user traffic and top streamers. If we are not able to effectively compete with other platforms, our overall user base and level of user engagement may decrease, which may result in loss of top streamers to other platforms. Such loss may also lead to fewer paying users and make us less attractive to advertisers and game developers and publishers, which may adversely affect our monetization success. To better compete with other platforms which may have more cash, traffic, technological advantages, top streamers, business networks and other resources than we do, we may be required to spend additional resources, which may adversely affect our profitability. Furthermore, if we are involved in disputes with any of our competitors that result in negative publicity for us, such disputes, regardless of their veracity or outcome, may harm our reputation or brand image and in turn lead to reduced numbers of viewers and streamers. Our competitors may unilaterally decide to adopt a wide range of measures targeted at us, including approaching our top streamers, purchasing exclusive streaming rights to eSports tournaments or events that used to be streamed on our platform, or even attacking our platform. Any legal proceedings or measures we take in response to competition and disputes with our competitors may be expensive, time-consuming and disruptive to our operations and divert our management’s attention. We believe that our ability to compete effectively depends upon many factors both within and beyond our control, including: • • • • the popularity, usefulness, ease of use, performance and reliability of our services compared to those of our competitors, and our research and development abilities relative to our competitors; changes mandated, or that we elect to make, to address, legislation, regulations or government policies, some of which may have a disproportionate effect on us; acquisitions or consolidation within our industry, which may result in more formidable competitors; and our reputation and brand strength relative to our competitors. In addition, our users have a vast array of entertainment choices. Other forms of entertainment, such as other online video services including video platforms, social networking, traditional PC and console games, as well as more traditional mediums such as television, movies and sports spectating, are much more well-established in mature markets and may be perceived by our users to offer greater variety, affordability, interactivity and enjoyment. Our platform competes against these other forms of entertainment for the discretionary time and spending of our users. If we are unable to sustain sufficient interest in our platform in comparison to other forms of entertainment, including new forms of entertainment that may emerge in the future, our business model may no longer be viable. 29 Table of Contents Our revenue growth is heavily dependent on paying users and revenue per paying user. If we fail to continue to grow or maintain our paying users and continue to increase revenue per paying user, our livestreaming revenue may not increase, which may materially and adversely affect our business operation and financial results. Our annual paying user base was 20.7 million in 2020 and 17.5 million in 2021. Whether we can increase the number of our paying users depends on many factors, and many of them are out of our control. For example, our paying users may have less disposable income as they need to meet financial obligations elsewhere, they may decide to no longer support a particular streamer that they used to follow financially, and overall worsening economic conditions can lower disposable income for all existing paying users, causing them to spend less on our platform. We expect that our business will continue to be heavily dependent on revenue collected from paying users in the near future. We have significant reliance on revenues from virtual gift sales. Any limitation imposed by PRC authorities on the sale, exchange or circulation of virtual gifts in the future may reduce the virtual gift payments our users make to streamers, which is critical to our business and results of operations. In November 2020, National Radio and Television Administration, or the NRTA, promulgated the Notice on Strengthening the Management of Online Show Livestreaming and E-commerce Livestreaming, or Notice 78, which requires the livestreaming platform to set a limit on the maximum amount of virtual gifting per time, per day, and per month. On February 9, 2021, the CAC, the National Office of Anti-Pornography and Illegal Publication, the MIIT, the Ministry of Public Security, the Ministry of Culture and Tourism, the SAMR, and the NRTA jointly issued the Guidance Opinions on the Strengthening the Regulation and Management Work of Internet Streaming, or the 2021 Streaming Guidance Opinions. Pursuant to the 2021 Streaming Guidance Opinions, Internet streaming platforms should set up appropriate caps on the maximum purchase price for each piece of virtual gift and maximum value of virtual gifts that the users may give to the streamers each time, and should notify the users who reach the daily cap of giving virtual gifts. Internet streaming platforms are further required, if necessary, to set up a cooling-off period and a delayed-fund-transfer system for giving virtual gifts, and are required to implement a tiered and classified management system over the streamers in which different maximum values of a virtual gift to be received by streamers in one streaming session shall be established differently in accordance with the tiers and classes that the streamers belong to. Notice 78 and the 2021 Streaming Guidance Opinions are silent on the specific amount of such caps. As the Notice 78 and the 2021 Streaming Guidance Opinions are relatively new and pending further interpretation and implementation, we are still in the process of waiting for further guidance from regulatory authorities and evaluating the applicability and effect of the various requirements under Notice 78 and the 2021 Streaming Guidance Opinions. Stricter limitations on giving virtual gifts may restrict our users’ ability to give virtual gifts to streamers, and result in decline in the number of paying users, so our results of financials and operations may be materially and adversely affected. See “—Our business may suffer if we fail to successfully implement our monetization strategies.” We generate a portion of our revenues from advertisement. If we fail to maintain or grow advertisement revenue, our financial results may be adversely affected. In 2019, 2020 and 2021, we generated RMB513.3 million, RMB645.2 million and RMB464.9 million (US$72.9 million) from the sale of advertisements, representing 7.0%, 6.7% and 5.1% of our total revenues for the same period. Our revenues from advertisement represent an important part of our total revenue, and our financial results could be adversely affected if we fail to maintain or grow it in the future. For us to maintain or grow our advertisement revenue, we need to attract more advertisers to our platforms with our increased user traffic and engagement level, or offer more variety in terms of advertisement products that encourage more spending from advertisers. We offer (i) integrated promotion activities during livestreaming, (ii) advertisement display and (iii) online and offline events-related advertisements. We may need to introduce more innovative promotion activities to maintain our revenues from advertisement, and failure to do so may adversely impact our advertisement revenue. In addition, traditional display advertisements are subject to time and space restrictions, especially when displayed on mobile devices which have become popular among our users. As a result, our business and results of operations may be adversely impacted. Advertisement revenue is also affected by the online advertising industry in China and advertisers’ allocation of budgets to internet advertising and promotion. Companies that decide to advertise or promote online may utilize more established methods or channels for online advertising and promotion, such as more established Chinese internet portals or search engines, over advertising and promotion on our platforms. If the online advertising market size does not increase from current levels, or if we are unable to capture and retain a sufficient share of that market, our ability to maintain or increase our current level of advertisement revenue and our profitability and prospects could be adversely affected. If we fail to obtain or maintain the required licenses and approvals or if we fail to comply with laws and regulations applicable to our industry, our business, financial condition and results of operations may be materially and adversely affected. The internet industry in China is highly regulated, which requires certain licenses, permits, filings and approvals to conduct and develop business. Currently, we have obtained the following valid licenses through our PRC variable interest entities: Value-added Telecommunication Business License for provision of internet information services, or the ICP License, Internet Culture Operation License for operating online culture products, Commercial Performance License for providing streamer agency services, License for Online Transmission of Audio/Video Programs for providing online streaming of video and Radio and Television Program Production and Operating Permit for producing radio and television programs. 30 Table of Contents Due to the uncertainties of interpretation and implementation of existing and future laws and regulations, the licenses we held may be deemed insufficient by governmental authorities, which may restrain our ability to expand our business scope and may subject us to fines or other regulatory actions by relevant regulators if our practice is deemed as violating relevant laws and regulations. As we develop and expand our business scope, we may need to obtain additional qualifications, permits, approvals or licenses. Moreover, we may be required to obtain additional licenses or approvals if the PRC government adopts more stringent policies or regulations for our industry. For example, according to the Administrative Provisions for Audio/Video Programs Services through Internet, or the Audio/Video Measures, which was promulgated by the State Administration for Radio, Film and Television, or the SARFT (currently known as the National Radio and Television Administration), which came into effect on January 31, 2008, and was amended on August 28, 2015, to engage in the business of transmitting audio/video programs, a License for Online Transmission of Audio/Video Programs is required. We have obtained the License for Online Transmission of Audio/Video Programs for offering live video programs on our platforms. Further, the License for Online Transmission of Audio/Video Programs is subject to periodical renewal. Although we have successfully renewed it in the past, there is no guarantee that we will be able to continue to do so in the future. We may not be able to continue to hold the License for Online Transmission of Audio/Video Programs. The scope specified in our License for Online Transmission of Audio/Video Programs may not be able to cover all the needs that arise or will arise in our operations from time to time, and we may not be able to expand the scope of our License for Online Transmission of Audio/Video Programs under the current regulatory regime as we are not a wholly state-owned or state-controlled entity as required for holding such license under PRC laws. Failure to expand the scope of our current License for Online Transmission of Audio/Video Programs or to continue to hold such license may result in fines or other penalties being imposed on us, which may adversely affect our business. Furthermore, we may also be required to complete filing with the National Information Registration Administration System of Online Audio/Video Platforms for offering live video programs on our platforms. We may not be able to complete such filing in a timely manner, or at all. In addition, for the purpose of providing internet audio/video program service, we have adopted and will adopt various operating strategies and measures. Due to the uncertainties of interpretation and application of pertinent laws by the government authority, such strategies and measures may be challenged under PRC laws and regulations and if so, we may be subject to fines, confiscation-of-income related or other penalties and, in certain circumstances, suspension or revocation of the license, which may materially and adversely affect our business. In addition, publishing and the commercial launch of domestic online games is subject to the pre-approval by the National Press and Publication Administration, or the NPPA. The NPPA suspended such permission from March to December 2018 and has since restored it. Such suspension caused significant delays in the approval of the online games in the Chinese market. As a result, game publishers may not be able to obtain approval or make timely filings with the NPPA for their online games or at all. In December 2019, the Department of Law Enforcement of the Ministry of Culture and Tourism further published a circular reiterating that online games streamed or operated by livestreaming platforms shall also obtain requisite pre-approvals from the NPPA. In March 2021, the National Municipal Office of Anti-Pornography and Illegal Publication and the NPPA jointly launched the “New Trend 2021” campaign , reiterating that a livestreaming platform shall not stream online games which have not obtained the approval from the NPPA. The “Cleaning Up the Internet” campaigns launched by the relevant authorities have also inspected and imposed penalties in connection with livestreaming of non-approved online games. On April 12, 2022, the Online Audio-visual Program Management Department of NRTA and the Publishing Bureau of the Central Propaganda Department issued the Notice on Strengthening the Management of Livestreaming of Online Games on the Online Audio-visual Program Platforms, which reiterates that online audio-visual program platforms, including live streaming platforms are prohibited from disseminating illegal games on audio-visual program platforms, streaming online games that have not been approved by the competent authorities and using livestreaming rooms and other forms to drive traffic for the illegal game content on various platforms. Although the game publishers are responsible for obtaining the required approvals, filings or permits for these online games streamed or operated on our platform, we may still be subject to fines, confiscation of income from these games, suspension of operations, revocation of licenses and other penalties due to game publishers’ failure to obtain such approvals, filings or permits, which could materially and adversely affect our business and results of operations. Given our significant reliance on eSports content, if game publishers and operators fail to maintain the normal publication and operation of their online games, or fail to complete or obtain the necessary approvals and filings of their online games, or if more stringent regulations are adopted or the government authority takes more strict regulation or action against the online games industry or livestreaming industry in the future, our business, operation and financial condition will be adversely impacted. As the internet industry in China is still at a relatively early stage of development, new laws and regulations may be adopted from time to time to address new issues that come to the authorities’ attention. Considerable uncertainties still exist with respect to the interpretation and implementation of existing and future laws and regulations governing our business activities. We could be found in violation of any future laws and regulations or any of the laws or regulations currently in effect due to changes in the relevant authorities’ interpretation of these laws and regulations. See “—We may be materially and adversely affected by the complexity, uncertainties and changes in PRC regulation of the Internet industry and companies.” 31 Table of Contents As of the date of this annual report, we have not received any material penalties from the relevant government authorities for our past operations. We cannot assure you, however, that the government authorities will not do so in the future. In addition, we may be required to obtain additional license or permits, and we cannot assure you that we will be able to timely obtain or maintain all the required licenses or permits or make all the necessary filings in the future. If we fail to obtain, hold or maintain any of the required licenses or permits or make the necessary filings on time or at all, we may be subject to various penalties, such as confiscation of the net revenues that were generated through the unlicensed activities, the imposition of fines and the discontinuation or restriction of our operations. Any such penalties may disrupt our operations and materially and adversely affect our business, financial condition and results of operations. We may be subject to intellectual property infringement claims or other allegations by third parties for information or content displayed on, retrieved from or linked to our platform, or distributed to our users, or for proprietary information appropriated by former employees, which may materially and adversely affect our business, financial condition and prospects. We have been and may, in the future, be subject to intellectual property infringement claims or other allegations by third parties for services we provide or for information or content displayed on, retrieved from or linked to, recorded, stored or made accessible on our platform, or otherwise distributed to our users, including in connection with the music, movies, video and games played, recorded, stored or made accessible on our platform, which may materially and adversely affect our business, financial condition and prospects. Under our agreements with top streamers, we obtain the license for the intellectual property arising from their livestreaming on our platform. We have implemented internal control measures to ensure that the design of our platform and the content that is streamed on it does not infringe on valid intellectual property, such as patents and copyrights held by third parties. We also license certain intellectual properties from third parties to implement certain functions available on our platform. However, companies in the internet, technology and media industries are frequently involved in litigation based on allegations of infringement of intellectual property rights, unfair competition, invasion of privacy, defamation and other violations of other parties’ rights. In China, the validity, enforceability and scope of protection of intellectual property rights in internet-related industries, especially in our evolving livestreaming industry, are uncertain and still evolving. We face, from time to time, and expect to face in the future, allegations that we have featured pirated or illegally downloaded music and movies on our platform, and that we have infringed on the trademarks, copyrights, patents and other intellectual property rights of third parties, including our competitors, or allegations that we are involved in unfair trade practices. Some of the game streaming on our platform may be alleged to infringe on the copyright on works of literature and art of a game of the game producers, which may also constitute an unfair competition claim. As we face increasing competition and as litigation becomes a more common method for resolving commercial disputes in China, we face a higher risk of being the subject of intellectual property infringement claims or other legal proceedings. We allow streamers to upload text, graphics, audio, video and other content to our platform and users to download, share, link to and otherwise access games and other content on our platform and we also upload high-quality video clips recorded and restored from selective livestreaming content. Under applicable PRC laws and regulations, online service providers, which provide storage space for users to upload works or links to other services or content, could be held liable for copyright infringement under various circumstances, including situations where the online service provider knows or should reasonably have known that the relevant content uploaded or linked to on its platform infringes upon the copyright of others and the online service provider failed to take necessary actions to prevent such infringement. We have procedures implemented to reduce the likelihood that content might be used without proper licenses or third-party consents. However, these procedures may not be effective in preventing the unauthorized posting or distribution of copyrighted content and we may be considered as failing to take necessary actions against such infringement. Therefore, we may face liability for copyright or trademark infringement, defamation, unfair competition, libel, negligence and other claims based on the nature and content of the materials that are delivered, shared or otherwise accessed through our platform. Certain of our employees were previously employed at other peer companies, including our current and potential competitors. To the extent that these employees are involved in the development of content or technology similar to ours at their former employers, we may become subject to claims that such employees, or we, may have appropriated proprietary information or intellectual properties of the former employers of our employees. If we fail to successfully defend such claims, our results of operations may be materially and adversely affected. Defending claims is costly and can impose a significant burden on our management and employees, and there can be no assurances that favorable final outcomes will be obtained in all cases. Such claims, even if they do not result in liability, may harm our reputation. Any resulting liability or expenses, or changes required to our platform to reduce the risk of future liability, may have a material adverse effect on our business, financial condition and prospects. 32 Table of Contents We may be held liable for information or content displayed on, retrieved from or linked to our platform, or distributed to our users if such content is deemed to violate any PRC laws or regulations, and PRC authorities may impose legal sanctions on us. We are a livestreaming platform that enables our users to exchange information, generate content, advertise products and services, and engage in various other online activities. Although real-name registration is required for streamers by our platform, we may not be able to verify the identity information provided by our streamers as true and accurate. For registration of users, we verify identities primarily based on verification text messages sent to their mobile devices, which may not always be reliable. As a majority of the video and audio communications on our platform is conducted in real time, we cannot filter the content generated by our streamers and users on air before they are streamed on our platform. Therefore, users may solicit or engage in illegal conversations or activities, including publishing inappropriate or illegal content on our platforms that may be prohibited under PRC laws and regulations. See “—Our content monitoring system may not be effective in preventing misconduct by our platform users and misuse of our platform, and such misconduct or misuse may materially and adversely impact our brand image, business and operating results.” We require users to agree to our terms of service upon account registration. Our terms of service set out types of content strictly prohibited on our platform, and we have also developed a robust content monitoring system. However, although we use our best efforts to monitor content on our platform, we cannot detect every incident of inappropriate content on our platform due to the immense quantity of user-generated content, and as such, government authorities may hold us liable for inappropriate content on our platform. Although we report violations of our terms of service to PRC local authorities, such authorities may not take any action with respect to these violations on a timely basis, if at all. On December 15, 2019, the CAC promulgated the Provisions on the Ecological Governance of Network Information Contents, which became effective on March 1, 2020. It requires network platform operators like us not to disseminate illegal contents that, among other things, violates PRC laws and regulations, impairs the national dignity of China or the public interest, nor to present obscure, superstitious, fraudulent, gambling, violent, defamatory, exaggerated, sexually suggestive, discriminative or other inappropriate contents that are “socially destabilizing” or leaking “state secrets” of China. Notice 78 also requests the livestreaming platforms to strengthen positive value guidance and to prevent the spread of the information related to wealth flaunting, money worshiping and vulgarity. We may be subject to fines or other disciplinary actions, including, in serious cases, suspension or revocation of the licenses necessary to operate our platform if we are deemed to have facilitated the appearance of inappropriate content placed by third parties on our platform under PRC laws and regulations. In addition, application stores may temporarily take down our applications if the content was deemed to violate applicable PRC laws or regulations. Meanwhile, we may face claims for defamation, libel, negligence, copyright, patent or trademark infringement, other unlawful activities or other theories and claims based on the nature and content of the information delivered on or otherwise accessed through our platform. Defending any such actions could be costly and require significant time and attention of our management and other resources, which would materially and adversely affect our business. We may be materially and adversely affected by the complexity, uncertainties and changes in PRC regulation of the Internet industry and companies. The PRC government extensively regulates the Internet industry, including foreign ownership of, and the licensing and permit requirements pertaining to, companies in the Internet industry. These Internet-related laws and regulations are relatively new and evolving, and their interpretation and enforcement involve significant uncertainties, so we may be subject to the interpretations made in policies and guidelines of regulators. As a result, in certain circumstances it may be difficult to determine what actions or omissions may be deemed to be in violation of applicable laws and regulations. Issues, risks and uncertainties relating to PRC regulation of the Internet business include, but are not limited to, the following: • There are uncertainties relating to the regulation of the Internet business in China, including evolving licensing practices. Permits, licenses or operations at some of our subsidiaries and PRC variable interest entity levels may be subject to challenge. We may not be able to timely obtain or maintain all the required licenses or approvals, permits, or to complete filing, registration or other formalities necessary for our present or future operations, and we may not be able to renew certain permits or licenses or renew certain filing or registration or other formalities. See “—If we fail to obtain or maintain the required licenses and approvals or if we fail to comply with laws and regulations applicable to our industry, our business, financial condition and results of operations may be materially and adversely affected” and “Regulation and “Item 4. Information of the Company—4.B. Business Overview—Regulation.” 33 Table of Contents • PRC governmental authorities may impose additional requirements on real-name registration for livestreaming platforms. In August 2018, the National Office of Anti-Pornography and Illegal Publication and five other authorities jointly issued the Notice on Strengthen the Management of Livestreaming Service, which required the real-name registration system for users to be put in place by livestreaming service providers. Pursuant to Notice 78 and the 2021 Streaming Guidance Opinions, online streaming platforms shall implement a real- name registration system. Under the above real-name registration system, we validate the identity information of the registered streamers primarily based on their identification cards and validate the identity information of the registered users primarily based on their mobile numbers. Currently, we are not required to obtain information such as legal names, citizen identification cards or other personal information during the registration process to validate the identity information of our users who are not streamers. However, the PRC government authorities may further tighten the real-name registration requirements or require us to implement a more thorough compulsory real-name registration system such as adopting a mandatory face-recognition system for all users on our platform in the future. If we were required to implement a more rigid real-name registration system for users on our platform, our users’ experiences on the platform may be downgraded and potential users may be deterred from registering with our platform, which may in turn negatively affect the growth of our user base and prospects. • Pursuant to Notice 78 and the 2021 Streaming Guidance Opinions, the online streaming platforms shall adopt a tiered and classified management system over the streamers accounts, with the streamer accounts managed in different tiers and classes based on the nature of the streamers, operational contents, number of fans, popularity of the streaming, time limit of the streaming and other factors. Online streaming platforms shall set up appropriate limitations for streamers’ accounts in different tiers or classes in terms of the total amount of virtual gifts received in any single session of streaming performance, the popularity of the streaming, the time length of the streaming, the sessions of the streaming in any single day, the time gap between different streaming sessions and other factors, and take necessary warning measures against the streamers who violate relevant laws and regulations. In addition, the online streaming platforms are required, among other things, to set up appropriate limitations for the maximum purchase price for each virtual gift and the maximum value of virtual gifts that the users send to the streamers each time. As Notice 78 and the 2021 Streaming Guidance Opinions are relatively new and pending further interpretation and implementation, we are still in the process of waiting for further guidance from regulatory authorities and evaluating the applicability and effect of the various requirements under Notice 78 and the 2021 Streaming Guidance Opinions. Moreover, if the government requires us to supervise the streamers and their streaming sessions in a stricter method, we may incur additional cost and our user experiences may be downgraded, which may further adversely affect our ability to attract viewers and streamers. • The evolving PRC regulatory system for the Internet industry may lead to the establishment of new regulatory agencies. For example, in May 2011, the State Council announced the establishment of a new department, the State Internet Information Office. The primary role of this new agency is to facilitate the policy-making and legislative development in this field to direct and coordinate with the relevant departments in connection with online content administration and to deal with cross-ministry regulatory matters in relation to the Internet industry. We are unable to determine what policies this new agency or any new agencies to be established in the future may have or how they may interpret existing laws, regulations and policies and how they may affect us. On May 14, 2019, the Ministry of Culture and Tourism declared in a circular that it would no longer assume the responsibility of supervising the online games industry and would no longer approve or issue the Online Culture Operating Permits regarding online games. The Online Culture Operating Permits held by Wuhan Ouyue, one of the VIEs, no longer contained content related to online games operation when we renewed it upon expiration in 2020. We believe it is not necessary for an enterprise to obtain Online Culture Operating Permits to operate an online game operation business since the Ministry of Culture and Tourism no longer assumes the responsibility to supervise the operation of online games. As of the date of this annual report, no PRC laws and regulations have been officially promulgated to clarify whether the responsibility of supervising the online games and virtual currency previously taken by the Ministry of Culture and Tourism will be re-designated to another government agency or if so, whether such other government agency taking over the responsibility will require similar or new regulatory requirements for operating online games and virtual currencies. Further, new laws, regulations or policies may be promulgated or announced that will regulate Internet activities, including online video and online advertising businesses. If these new laws, regulations or policies are promulgated, additional licenses may be required for our operations. If our operations do not comply with these new regulations after they become effective, or if we fail to obtain any licenses required under these new laws and regulations, we could be subject to penalties. 34 Table of Contents • In recent years, PRC government has introduced new laws and regulations to reflect its growing concern about the negative impacts of the internet on society, particularly the impacts of internet on minors. On April 15, 2007, eight PRC government authorities, including the General Administration of Press and Publication, or the GAPP, the Ministry of Education, the Ministry of Public Security and the Ministry of Information Industry (which is the predecessor of MIIT), issued a notice requiring all Chinese online game operators to adopt an “anti- fatigue system” in an effort to curb addiction to online games by minors. As of October 1, 2011, online game players in China are required to register and verify their names and identity card numbers with the National Citizen Identity Information Center, a subordinate public institution of the Ministry of Public Security, before playing an online game. On October 25, 2019, the GAPP issued the Circular on Preventing Minors from Indulging in Online Games to reiterate the requirements on real name registration and verification, the anti- indulgence system for minors, and other measures to address relevant minors’ issues on the online games. Pursuant to the 2021 Streaming Guidance Opinions, an online streaming platform shall not be allowed to open the streamer account for users under 16, and shall only open the streamer account for users between 16-18 with their guardians’ prior consents. The 2021 Streaming Guidance Opinions also require all online streaming platforms to adopt a “teenager mode” to prevent the minor users from obsessive use of the platforms, block detrimental content to the minor users, and refrain from providing virtual gift purchase services to the minors. In addition, online streaming platforms shall establish a customer service team exclusively for minor users to address their complaints and disputes in a timely manner. The online streaming platforms shall make refunds in the event that a minor user purchases virtual gifts for the streamers by using an adult account. As of the date of this annual report, we have taken certain measures including displaying a pop-up page to guide the minors to use the “teenage mode”, requiring the users to enter the guardian password if the usage time under the “teenage mode” reaches 40 minutes per day and building up an exclusive content pool for the minors in which contents that are not appropriate for the minors are screened out. Despite the measures we have taken, however, minor users may still use our services through adult accounts if their guardians fail to keep minors under responsible supervision when using our services. On August 30, 2021, the GAPP issued the Circular on Further Strengthening Regulation to Effectively Prevent Online Gaming Addictions among Minors, pursuant to which online game operators are only allowed to provide online game services to minors from 8:00 p.m. to 9:00 p.m. on Fridays, Saturdays, Sundays and public holidays. The restrictions above may lead to a decrease in the number or engagement of game players, which could adversely affect our game livestreaming service and have a material effect on our results of operations. More stringent government regulations could be promulgated in future, which will also adversely affect our results of operations by deterring viewers to use our platform or downgrading our viewers’ experiences on our platform. The interpretation and application of existing PRC laws, regulations and policies and possible new laws, regulations or policies relating to the Internet industry have created substantial uncertainties regarding the legality of existing and future foreign investments in, and the businesses and activities of, Internet businesses in China, including our business. There are also risks that we may be found to violate existing or future laws and regulations given the uncertainty and complexity of China’s regulation of Internet business. Increases in the costs of content on our platform, such as higher streamer compensation and recruitment cost for top streamers, may have an adverse effect on our business, financial condition and results of operations. We need to continue offering popular and attractive content on our platform to provide our viewers with engaging and satisfying viewing experiences, and our ability to provide such content is dependent on our ability to attract and retain top streamers. We enter into exclusive contracts with our top streamers, under which they are paid a base compensation in addition to a certain percentage of the sales of virtual gifts that they receive. We also sponsor pro players and eSports teams to have them stream their gameplay on our platform. The compensation and recruitment costs that we incur with respect to retaining top streamers may increase, depending on the streamers’ revenue contribution. If our competitor platforms offer higher compensation with an intent to attract our popular streamers, costs to retain our streamers may increase. If we are not able to continue to retain our streamers and produce high quality content on our platform at commercially acceptable costs, our business, financial condition and results of operations would be adversely impacted. Furthermore, as our business and user base further expands, we may have to devote more resources in encouraging our streamers to produce content that meets the varied interests of a diverse user base, which would increase the costs of contents on our platform. If we are unable to generate sufficient revenues that outpace our increased content costs, our business, financial condition and results of operations may be materially and adversely affected. Any compromise to the cyber security of our platform could materially and adversely affect our business, reputation and results of operations. On November 7, 2016, the SCNPC released the PRC Cyber Security Law, which took effect on June 1, 2017. The PRC Cyber Security Law requires network operators to fulfill certain obligations to safeguard security in cyberspace and enhance network information management. 35 Table of Contents Our products and services are generally provided through the Internet and involve the storage and transmission of users’ information. Any security breach would expose us to a risk of loss of information and result in litigation and potential liability. As the techniques used to obtain unauthorized access, disable or degrade Internet services or sabotage operating systems change frequently and often are not recognized until launched against a target, we may not be able to anticipate such techniques or implement adequate preventative measures. Our user data is encrypted and saved in two different places within our internal servers rather than client-based servers, protected by access control, and further backed up in our long-distance disaster recovery system, so as to minimize the possibility of data loss or breach. Upon a security breach, our technical team will be notified immediately and coordinate with the local supporting staff to diagnose and solve the technical problems. As of the date of this annual report, we have not experienced any material incidents of security breach. Despite the security measures we have implemented, our facilities, systems and procedures and those of our third-party providers, may be vulnerable to security breaches, acts of vandalism, software viruses, misplaced or lost data, programming or human errors or other similar events which may disrupt our delivery of services or expose the confidential information of our users and others. If an actual or perceived breach of our security occurs, the market perception of the effectiveness of our security measures could be harmed, we may lose current and potential users and may be exposed to legal and financial risks, including legal claims, regulatory fines and penalties, which in turn could adversely affect our business, reputation and results of operations. Our operations depend on the performance of the Internet infrastructure and fixed telecommunications networks in China, which may experience unexpected system failure, interruption, inadequacy or security breaches. Almost all access to the Internet in China is maintained through state-owned telecommunication operators under the administrative control and regulatory supervision of MIIT. Moreover, we primarily rely on a limited number of telecommunication service providers to provide us with data communications capacity through local telecommunications lines and Internet data centers to host our servers. We have limited access to alternative networks or services in the event of disruptions, failures or other problems with China’s Internet infrastructure or the fixed telecommunications networks provided by telecommunication service providers. Web traffic in China has experienced significant growth during the past few years. Effective bandwidth and server storage at Internet data centers in large cities such as Beijing are scarce. With the expansion of our business, we may be required to upgrade our technology and infrastructure to keep up with the increasing traffic on our platform. We cannot assure you that the Internet infrastructure and the fixed telecommunications networks in China can support the demands associated with the continued growth in Internet usage. If we cannot increase our capacity to deliver our online services, we may not be able to accommodate the increases in traffic we anticipate from our expanding user base, and the adoption of our services may be hindered, which could adversely impact our business and profitability. In addition, we have no control over the costs of the services provided by telecommunication service providers. If the prices we pay for telecommunications and Internet services rise significantly, our results of operations may be materially and adversely affected. Furthermore, if Internet access fees or other charges to Internet users increase, some users may be prevented from accessing the mobile Internet and thus cause the growth of mobile Internet users to decelerate. Such deceleration may adversely affect our ability to continue to expand our user base. The proper functioning of our platform is essential to our business. Any disruption to our IT systems could materially affect our ability to maintain the satisfactory performance of our platform. The proper functioning of our platform is essential to our business. The satisfactory performance, reliability and availability of our IT systems are critical to our success and our ability to provide content to attract and retain users. Our technology or infrastructure may not function properly at all times. Any system interruptions caused by telecommunications failures, computer viruses, hacking or other attempts to harm our systems could result in the unavailability or slowdown of our platform and the attractiveness of content provided on it. Our servers may also be vulnerable to computer viruses, physical or electronic break-ins and similar disruptions, which could lead to system interruptions, website or mobile app slowdown or unavailability or loss of data. Any such occurrences could cause severe disruption to our daily operations. As a result, our reputation may be materially and adversely affected, our market share could decline and we could be subject to liability claims. Our core values of focusing on user experience and satisfaction first and acting for the long-term may conflict with the short-term operating results of our business, and also negatively impact our relationships with advertisers or other third parties. One of our core values is to focus on user experience and satisfaction, which we believe is essential to our success and serves the best, long-term interests of our company and our shareholders. Therefore, we have made, and may make in the future, significant investments or changes in strategy that we think will benefit our users, even if our decision negatively impacts our operating results in the short-term. For example, in order to provide users of our platform with uninterrupted entertainment options, we do not place significant advertising on our platform. While this decision adversely affects our operating results in the short-term, we believe it enables us to provide higher quality user experience on our platform, which will help us expand and maintain our current large user base and create better monetizing potential in the long-term. In addition, this philosophy of putting our users first may also negatively impact our relationships with advertisers or other third parties, and may not result in the long-term benefits that we expect, in which case the success of our business and operating results could be harmed. 36 Table of Contents We cooperate with various talent agencies to manage our streamers. If we are not able to maintain our relationship with talent agencies, our operations may be materially and adversely affected. We cooperate with talent agencies to manage and organize streamers on our platform. As we are an open platform that welcomes all streamers to register on our platform, cooperation with talent agencies increases our operational efficiency in terms of discovering, supporting and managing streamers in a more organized and structured manner and turning amateur streamers to full-time streamers. We pay certain of our streamers or their talent agencies fees based on a percentage of revenue from virtual gift sales that is attributable to the streamers’ livestreams. If we cannot balance the interests between us and the streamers and the talent agencies design a compensation system that is agreeable to both streamers and talent agencies, we may not be able to retain or attract streamers or talent agencies, or both. In addition, some of the talent agencies have exclusive cooperation relationships with us. If other platforms offer better incentive to talent agencies, such talent agencies may choose to devote more of their resources to streamers who stream on the other platforms, or they may encourage their streamers to use or even enter into an exclusive agreement with other platforms, all of which could materially and adversely affect our business, financial condition and results of operations. We use third-party services and technologies in connection with our business, and any disruption to the provision of these services and technologies to us could result in adverse publicity and a slowdown in the growth of our users, which could materially and adversely affect our business, financial condition and results of operations. Our business depends upon services provided by, and relationships with, third parties. For example, some third-party software we use in our operations is currently publicly available without charge. If the owner of any such software decides to make claims against us, charge users, or no longer makes the software publicly available, we may need to enter into settlement with such owners, incur significant cost to license the software, find replacement software or develop it on our own. If we are unable to find or develop replacement software at a reasonable cost, or at all, our business and operations may be adversely affected. Our overall network relies on broadband connections provided by third-party operators and we expect this dependence on third parties to continue. The networks maintained and services provided by such third parties are vulnerable to damage or interruption, which could impact our results of operations. See “—Our operations depend on the performance of the Internet infrastructure and fixed telecommunications networks in China, which may experience unexpected system failure, interruption, inadequacy or security breaches.” We also sell a significant portion of our products and services through third-party online payment systems. If any of these third-party online payment systems suffer from security breaches, users may lose confidence in such payment systems and refrain from purchasing our virtual gifts online, in which case our results of operations would be negatively impacted. We exercise no control over the third parties with whom we have business arrangements. For some services and technologies, such as online payment systems, we rely on a limited number of third-party providers with limited access to alternative networks or services in the event of disruptions, failures or other problems. If such third parties increase their prices, fail to provide their services effectively, terminate their service or agreements or discontinue their relationships with us, we could suffer service interruptions, reduced revenues or increased costs, any of which may have a material adverse effect on our business, financial condition and results of operations. Our business depends on a strong brand, and any failure to maintain, protect and enhance our brand would hurt our ability to retain or expand our user and customer base, or our ability to increase their level of engagement. In China, we market our services under the brand “斗鱼”. Our business and financial performance are highly dependent on the strength and the market perception of our brand and services. A well-recognized brand is critical to increasing our user base and, in turn, facilitating our efforts to monetize our services and enhancing our attractiveness to customers. From time to time, we conduct marketing activities across various media to enhance our brand and to guide public perception of our brand and services. In order to create and maintain brand awareness and brand loyalty, to influence public perception and to retain existing and attract new mobile users, customers and platform partners, we may need to substantially increase our marketing expenditures. Since we operate in a highly competitive market, brand maintenance and enhancement directly affect our ability to maintain our market position. We must exercise strict quality control of our platform to ensure that our brand image is not tarnished by substandard products or services. We must also find ways to distinguish our platform from those of our competitors. If for any reason we are unable to maintain and enhance our brand recognition, or if we incur excessive expenses in this effort, our business, results of operations and prospects may be materially and adversely affected. 37 Table of Contents Concerns about the collection, use and disclosure of personal data and other privacy-related and security matters could deter customers and users from using our services and adversely affect our reputation and business. We collect, process, and store data concerning our users, business partners and employees, including personal and transaction data involving our users. Concerns about our practices with regard to the collection, use or disclosure of personal information or other privacy-related and security matters, even if unfounded, could damage our reputation and operations. On November 28, 2019, the Secretary Bureau of the CAC, the General Office of the MIIT, the General Office of the Ministry of Public Security and the General Office of the SAMR promulgated the Identification Method of Illegal Collection and Use of Personal Information Through App, which provides guidance for the regulatory authorities to identify the illegal collection and use of personal information through mobile apps, and for the app operators to conduct self-examination and self-correction and for other participants to voluntarily monitor compliance. The PRC Constitution, the PRC Criminal Law, the PRC Civil Code and the PRC Cyber Security Law protect individual privacy in general, which requires certain authorization or consent from Internet users prior to collection, use or disclosure of their personal data and also protection of the security of the personal data of such users. In particular, Amendment 7 to the PRC Criminal Law prohibits institutions, companies and their employees in the telecommunications and other industries from selling or otherwise illegally disclosing a citizen’s personal information obtained during the course of performing duties or providing services. On January 23, 2019, the Office of the Central Cyberspace Affairs Commission and other authorities jointly vowed to carry out special campaigns against illegal collection and usage of personal information by mobile Internet application operators, including collecting personal information irrelevant to their services, or forcing users to give authorization in disguised manner. On July 22, 2020, the MIIT issued the Notice on Carrying out Special Rectification Actions in Depth against the Infringement on Users’ Rights and Interests by Apps to urge app service providers, among others, to strengthen the protection of users’ personal information in relation to the download, installing and upgrade of apps. On March 12, 2021, the CAC, the MIIT and the Ministry of Public Security issued the Notice on Promulgation of the Rules on the Scope of Necessary Personal Information for Common Types of Mobile Internet Applications, which provides that network operators shall not collect personal information irrelevant to the services they provide and the app operators shall not refuse to provide basic services to users on the grounds of users’ refusal to provide their personal non-essential information. Further, on August 20, 2021, the SCNPC promulgated the PRC Personal Information Protection Law, which became effective on November 1, 2021. The PRC Personal Information Protection Law provides detailed rules on how to handle personal information and sets forth legal responsibilities. See “Item 4. Information of the Company—4.B. Business Overview—Regulation—Regulations Relating to Privacy Protection” for detailed information. Our internal policy requires our employees to protect the personal data of our users, and employees who violate such policy are subject to disciplinary actions, including dismissal. While we strive to comply with all applicable data protection laws and regulations, as well as our own privacy policies, any failure or perceived failure to comply may result in proceedings or actions against us by government entities or private individuals, which could have an adverse effect on our business. Moreover, failure or perceived failure to comply with applicable laws and regulations related to the collection, use, or sharing of personal information or other privacy-related and security matters could result in a loss of confidence in us by customers and users, which could adversely affect our business, financial condition and results of operations. As we continue to expand overseas, foreign and international laws, regulations, standards, and other obligations, and changes in the interpretation of such laws, regulations, standards, and other obligations could result in increased regulation, increased costs of compliance and penalties for non-compliance, and limitations on data collection, use, disclosure, and transfer for us and our users. In 2016, the European Union (“EU”) adopted a new regulation governing data privacy called the General Data Protection Regulation, or the GDPR, which became effective in May 2018. The GDPR establishes new requirements applicable to the handling of personal data and imposes penalties for non-compliance of up to 4% of worldwide revenue. In addition, to the extent we deploy services of any third party suppliers to support our overseas business, we must continue to seek assurances from our sub-processors that they are handling personal data in accordance with GDPR requirements in order to meet our own obligations under the GDPR. In addition, in June 2018, the California Consumer Privacy Act, or the CCPA, which takes effect on January 1, 2020, was enacted. The CCPA gives California consumers certain rights similar to those provided by the GDPR, and users may seek similar assurances from suppliers regarding compliance. Our overseas operations may not be successful and may be adversely affected by legal, regulatory, political and economic risks. We began our overseas expansion through acquisition of Nonolive in 2018, which is a mobile livestreaming platform focused on the Southeast Asia market. We also expanded into other overseas markets through various channels, such as Japan and South America. As we explore the overseas markets further, we may be subject to the laws of the foreign countries in which we operate. If any of our overseas operations violate such laws, we could become subject to sanctions or other penalties, which could negatively affect our reputation, business and operating results. 38 Table of Contents Our overseas expansion may not be successful and may expose us to a number of risks inherent in doing business internationally, including: • • • • • • • • • • • challenges in recruiting quality local streamers to attract and engage local users; challenges in attracting local users by producing content that is appealing to them while in compliance with local rules and regulations; challenges in monetizing local users and generating sustainable cash flow; difficulties with staffing and managing foreign operations, which may be exacerbated as a result of distance, time zone, language and cultural differences; challenges in establishing overseas IT systems and infrastructure; competitions from other participants in the market, including international leading companies; currency exchange rate fluctuations; cultural differences, political or social unrest or economic instability; difficulties in obtaining licenses, permits or other applicable governmental authorizations, and content control from local authorities; complexity of intellectual property protection and enforcement regimes overseas and the potential exposure of claims relating to intellectual property infringement; and increased costs associated with doing business in foreign jurisdictions. One or more of these factors could harm our overseas operations and consequently, could harm our reputation, overall business and results of operations. Our overseas operations historically incurred net losses and may not generate net profits in the short term. In addition, the regulatory framework for the industry we operate in is still developing and remains uncertain in some countries where we are exploring overseas opportunities. As we continue to expand our business overseas, we cannot assure you that we will be able to fully comply with the legal requirements of each foreign jurisdiction and successfully adapt our business models to local market conditions. Unauthorized use of our intellectual property by our streamers and employees and other third parties and the expenses incurred in protecting our intellectual property rights may harm our brands and reputation and materially and adversely affect our business. We regard our copyrights, trademarks and other intellectual properties as critical to our success, and rely on a combination of trademark and copyright laws, trade secrets protection, restrictions on disclosure and other agreements that restrict the use of our intellectual properties to protect these rights. Although our contracts with users typically prohibit the unauthorized use of our brands, images, characters and other intellectual property rights, we cannot ensure that they will always comply with these terms. These agreements may not effectively prevent disclosure of confidential information and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. Although we enter into confidentiality agreements and intellectual property ownership agreements with our employees, these confidentiality agreements could be breached, we may not have adequate remedies for any breach, and our proprietary technology, know-how or other intellectual property could otherwise become known to third parties. In addition, third parties may independently discover trade secrets and proprietary information, limiting our ability to assert any trade secret rights against such parties. While we actively take steps to protect our proprietary rights, such steps may not be adequate to prevent the infringement or misappropriation of our intellectual property. In addition, we cannot assure you that any of the above trademark applications will ultimately proceed to registration or will result in registration with adequate scope for our business. Some of our pending applications or registrations may be successfully challenged or invalidated by others. If our trademark applications are not successful, we may have to use different marks for affected products or services, or seek to enter into arrangements with any third parties who may have prior registrations, applications or rights, which might not be available on commercially reasonable terms, if at all. Implementation of intellectual property laws in China has historically been lacking, primarily because of ambiguities in the laws and difficulties in enforcement. Accordingly, intellectual property right protection in China may not be as effective as in other jurisdictions with a more developed legal framework regulating intellectual property rights. Policing unauthorized use of our proprietary technology, trademarks and other intellectual property is difficult and expensive, and litigation may be necessary in the future to enforce our intellectual property rights. Future litigation could result in substantial costs and diversion of our resources, and could disrupt our business, as well as materially adversely affect our financial condition and results of operations. 39 Table of Contents Our failure to anticipate or successfully implement new technologies could render our proprietary technologies or platform unattractive or obsolete, and reduce our revenues and market share. Our technological capabilities and infrastructure underlying our livestreaming platform are critical to our success. The Internet industry is subject to rapid technological changes and also evolving quickly in terms of technology innovation. We need to anticipate the emergence of new technologies and assess their market acceptance. We also need to invest significant resources, including financial resources, in research and development to keep pace with technological advances in order to make our development capabilities, our platform and our services competitive in the market. However, development activities are inherently uncertain, and we might encounter practical difficulties in commercializing our development results. Our significant expenditures on research and development may not generate corresponding benefits. Given the fast pace with which the Internet technology has been and will continue to be developed, we may not be able to timely upgrade our streaming technology, our engines or the software framework for our platform development in an efficient and cost-effective manner, or at all. New technologies in programming or operations could render our technologies, our platform or products or services that we are developing or expect to develop in the future obsolete or unattractive, thereby limiting our ability to recover related product development costs, outsourcing costs and licensing fees, which could result in a decline in our revenues and market share. User growth and engagement depend upon effective interoperation with operating systems, networks, mobile devices and standards that we do not control. We make our services available across a variety of PC and mobile operating systems and devices. We are dependent on the interoperability of our services with popular mobile devices and mobile operating systems that we do not control, such as Windows, Android and iOS. Any changes in such operating systems or devices that degrade the functionality of our services or give preferential treatment to competitive services could adversely affect usage of our services. Further, if the number of platforms for which we develop our services increases, which is typically seen in a dynamic and fragmented mobile services market such as China, it will result in an increase in our costs and expenses. In order to deliver high quality services, it is important that our services work well across a range of mobile operating systems, networks, mobile devices and standards that we do not control. We may not be successful in developing relationships with key participants in the mobile industry or in developing services that operate effectively with these operating systems, networks, devices and standards. In the event that it is difficult for our viewers and streamers to access and use our services, particularly on their mobile devices, our user growth and user engagement could be harmed, and our business and operating results could be adversely affected. Our business depends substantially on the continuing efforts of our executive officers, key employees and qualified personnel, and our business may be adversely and negatively impacted if we lose their services. Our future success depends substantially on the continued efforts of our executive officers and key employees. In particular, we rely on the expertise, experience and vision of Mr. Shaojie Chen, our founder, chairman and chief executive officer as well as other members of our senior management team. If one or more of our executive officers or key employees were unable or unwilling to continue their services with us, we might not be able to replace them easily, in a timely manner, or at all. Since the game-centric livestreaming industry is characterized by high demand and intense competition for talent, we cannot assure you that we will be able to attract or retain qualified staff or other highly skilled employees. In addition, as our company is relatively young, our ability to train and integrate new employees into our operations may not meet the growing demands of our business which may materially and adversely affect our ability to grow our business and hence our results of operations. We do not have key man insurance for our executive officers or key employees. If any of our executive officers and key employees terminates their services with us, our business may be severely and adversely affected, our financial condition and results of operations may be materially and adversely affected and we may incur additional expenses to recruit, train and retain qualified personnel. If any of our executive officers or key employees joins a competitor or forms a competing company, we may lose customers, know-how and key professionals and staff members. Each of our executive officers and key employees has entered into an employment agreement and a non-compete agreement with us. However, certain provisions under the non-compete agreement may be deemed invalid or unenforceable under PRC laws. If any dispute arises between our executive officers and key employees and us, we cannot assure you that we would be able to enforce these non-compete agreements in China, where these executive officers reside, in light of uncertainties with China’s legal system. We rely on our mobile application and PC application to provide services to our viewers and streamers which, if inaccessible, may have material adverse impact on our business and results of operations. We rely on third-party mobile application and PC application distribution channels such as Apple’s App Store, various Android application stores, and websites to distribute our applications to viewers and streamers. We expect that a substantial number of downloads of our mobile applications and PC applications will continue to be derived from these distribution channels. As such, the promotion, distribution and operation of our applications are subject to such distribution platforms’ standard terms and policies for application developers, which are subject to the interpretation of, and frequent changes by, these distribution channels. If Apple’s App Store or any other major distribution channel interprets or changes its standard terms and conditions in a manner that is detrimental to us, or terminates its existing relationship with us, our business, financial condition and results of operations may be materially and adversely affected. 40 Table of Contents Furthermore, our mobile application was removed temporarily from these third-party distribution channels for a short period of time in the past due to personal misconduct of a streamer, which involved distribution of inappropriate content on our platform in violation of relevant laws and regulations. We promptly removed such streamer from our platform and implemented measures to procure compliance from our platform users, in particular our streamers, with relevant laws and regulations. However, we cannot guarantee that all platform users will comply with all the laws and regulations as well as our policies. For details, please refer to “—Our content monitoring system may not be effective in preventing misconduct by our platform users and misuse of our platform, and such misconduct or misuse may materially and adversely impact our brand image, business and operating results.” As a result, our application may again be taken down from these third-party distribution channels, or certain functions of our mobile application or PC application may be disabled, which may be disrupting to our operations and have a material adverse effect on our business and results of operations. We are subject to risks relating to litigation, which could adversely affect our business, prospects, results of operations and financial condition. We have been involved in and may be subject to litigation and claims of various types, including litigation alleging infringement of intellectual property rights and claims and disputes involving streamers, customers, our employees and suppliers. Litigation is expensive, subjects us to the risk of significant damages, requires significant management time and attention and could have a material and adverse effect on our business, financial condition and results of operations. We have been involved in litigation brought by other livestreaming platforms against streamers who left these platforms to join us, or against us based on allegations of unfair competition. For details, please refer to “Item 8—Financial Information—Item 8.A. Consolidated Statements and Other Financial Information—Litigation.” The courts in some of these legal proceedings held that these streamers violated their non-compete obligations to other livestreaming platforms and ordered us to ban these streamers from livestreaming on our platform. We may be forced to ban other streamers on our platform who violate non-compete obligations to other livestreaming platforms and could face fines and other penalties for failing to do so, or we may also be deemed to be engaged in unfair competition with these livestreaming platforms and may be forced to compensate them accordingly, which could adversely affect our business, financial condition and results of operations. Some of our products and services contain open source software, which may pose particular risk to our proprietary software, products and services in a manner that negatively affects our business. We use open source software in some of our products and services and will continue to use open source software in the future. There is a risk that open source software licenses could be constructed in a manner that imposes unanticipated conditions or restrictions on our ability to provide or distribute our products or services. Additionally, we may face claims from third parties claiming ownership of, or demanding release of, the open source software or derivative works that we developed using such software. These claims could result in litigation and could require us to make our software source code freely available, purchase a costly license or cease offering the implicated products or services unless and until we can re-engineer them to avoid infringement. This re-engineering process could require significant additional research and development resources, and we may not be able to complete it successfully. Negative publicity may materially and adversely affect our brand, reputation, business and growth prospects. Negative publicity involving us, our streamers, our viewers, our management, our livestreaming platform or our business model may materially and adversely harm our brand and our business. We cannot assure you that we will be able to defuse negative publicity about us, our management and/or our services to the satisfaction of our investors, viewers and streamers, customers and platform partners. There has been negative publicity about our company and the misuse of our services, which has adversely affected our brand, public image and reputation. Such negative publicity, especially when it is directly addressed against us, may also require us to engage in defensive media campaigns. This may cause us to increase our marketing expenses and divert our management’s attention and may adversely impact our business and results of operations. Contractual disputes with our streamers and talent agencies may harm our reputation and subject us to contractual liabilities, and may be costly or time-consuming to resolve. We enter into contracts with some streamers on our platform, either directly or through talent agencies, the terms of which are generally negotiated on a case-by-case basis. The contractual terms between us and our streamers vary depending on factors such as the talent, popularity and revenue- generating potential of the streamers, as well as the minimum streaming hours they commit to our platform. Some of our contracted streamers enjoy fixed base fees while others do not, and some of our contracted streamers are bound by exclusivity clauses while others are not. We also enter into contractual arrangements with certain talent agencies, who are responsible for recruiting and training streamers, and we share with them a certain percentage of the revenue generated by the streamers they manage. From time to time, there may be contractual disputes between streamers, talent agencies and/or us or between us and other third parties relating to our streamers. Any such disputes may not only be costly and time-consuming to resolve, but may also be detrimental to the quality of the content produced by our streamers, causing our streamers to leave our platform, decrease user engagement on our platform or otherwise adversely affect our business, financial condition and results of operations. 41 Table of Contents Advertisements 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 and its form displayed on our platform to ensure that such content is true and accurate and in full compliance with applicable laws and regulations. In addition, where a special government review is required for specific types of advertisements prior to Internet posting, such as advertisements relating to pharmaceuticals, medical instruments, agrochemicals and veterinary pharmaceuticals, we are obligated to confirm that such review has been performed and approval has been obtained. Violation of these laws and regulations may subject us to penalties, including fines, confiscation of our advertisement income, orders to cease dissemination of the advertisements, orders to publish an announcement correcting the misleading information, or be held liable for damages of our users. In circumstances involving serious violations by us, PRC governmental authorities may force us to terminate our advertisement operations or revoke our licenses. In addition to the advertisements that were placed by the advertising agencies or advertisers we directly cooperate with, our platform displays side-bar advertisements placed by streamers on their own streaming channels. We also engage our streamers to advertise products or services of third- party clients by way of livestreaming on our platform. In November 2020, the National Radio and Television Administration issued the Notice on Strengthening the Management of Network Live-performance Streaming and E-Commerce Streaming, which provides several requirements on strengthening the management over live-performance streaming and e-commerce streaming. In November 2020, the SAMR issued the Guidance Opinions on Strengthening the Regulation on the Network Advertising Streaming Activities, which requires that Internet streaming platform shall comply with the PRC E-Commerce Law and PRC Advertisement Law as to the services provided by Internet streaming platforms in relation to advertising streaming activities. If we fail to comply with any of the relative rules or regulations, certain liabilities or governmental actions may be imposed on us. See “Item 4. Information of the Company—4.B. Business Overview—Regulation” for more details. On November 26, 2021, the SAMR published the Draft Administrative Measures on Internet Advertising for public comment, or the Draft Measures on Internet Advertising, which requires that users should be able to close pop-up advertisements using one button and provide that the pop-up advertisements shall not contain a countdown timer or require more than one click to close and shall not pop up more than once on the same page. The Draft Measures on Internet Advertising further specifies that advertising activities via livestreaming is subject to the new rules. Furthermore, the Draft Measures prohibit internet operators from publishing advertisement on after-school tutoring for primary school and middle school students and kindergarteners and prohibits advertisements for certain items on internet media that targets minors, including, among others, advertisements related to online games that are harmful to the physical or mental health of minors, cosmetics, alcohol, or beauty. As of the date of this annual report, the draft measures were released for public comment only, and its implementation provisions and anticipated adoption or effective date may be subject to change. The Chinese government may, from time to time, promulgate new advertising laws and regulations in the future to impose additional requirements on online advertising services relating to certain industries, such as medical, pharmaceutical, health care and after-school tutoring. For example, the Circular on the Administration of After-School Tutoring Advertisement jointly issued by the SAMR and seven other government authorities on November 3, 2021 mandates that new media, internet platforms and other mainstream media shall not publish or broadcast any advertisement on after-school tutoring services targeting primary and middle school students and pre-school children. We may be required to modify the operation of our advertising business and curb advertisements in connection with certain restricted sectors in order to meet the evolving compliance requirements on the industry, which may adversely affect our online marketing revenue. While we have made significant efforts to ensure that the advertisements shown on our platform are in full compliance with applicable PRC laws and regulations, we cannot ensure that all the content contained in such advertisements or offers is true and accurate as required by the advertising laws and regulations, especially given the uncertainty in the interpretation of these PRC laws and regulations. If we are found to be in violation of any applicable PRC law or regulation, we may be subject to penalties and our reputation may be harmed, which may have a material adverse effect on our business, financial condition, results of operations and prospects. Our key performance metrics, such as MAUs and paying users, may overstate the number of active and paying users that we have, which may therefore lead to an inaccurate interpretation of our revenue metrics and of our business operations by our management and by investors, and may affect advertisers’ decisions on the amount spent on advertising with us. For performance tracking purposes, we monitor metrics such as the number of registered user accounts, active users and paying users. We calculate certain operating metrics in the following ways: (a) the number of registered users, which refers to the number of users that has registered and logged onto our platform at least once since registration; (b) the number of active users, which refers to the number of users who visited our platform through PC or mobile app at least once in a given period; and (c) the number of paying users, which refers to the number of users that have purchased virtual gifts on our platform at least once in a given period. The actual number of individual users, however, is likely to be potentially significantly lower than that of registered users, active users and paying users due to various reasons such as fraudulent representation or improper registration. Some of our user accounts may also be created for specific purposes such as to increase virtual gifting for certain performers in various contests, but the number of registered users, active users and paying users do not exclude user accounts created for such purposes. We have limited ability to validate or confirm the accuracy of information provided during the user registration process to ascertain whether a new user account created was actually created by an existing user who is registering duplicative accounts. The respective number of our registered users, active users and paying users may overstate the number of individuals who register on our platforms, sign onto our platforms, purchase virtual gifts or other products and services on our platforms and access DouYu.com, respectively, which may lead to an inaccurate interpretation of our operating metrics. 42 Table of Contents If the tracked growth in the number of our registered users, active users and paying users is higher than the actual growth in the number of individual registered, active or paying users, our user engagement level, sales and our business may not grow as quickly as we expect, and advertisers may reduce the amount spent on advertising with us, which may harm our business, financial condition and results of operations. In addition, such overstatement may cause inaccurate evaluation of our operations by our management and by investors, which may also materially and adversely affect our business and results of operations. We are subject to risks relating to our third-party online payment platforms. Currently, we sell almost all of our products and services to our users through third-party online payment systems. We expect that an increasing amount of our sales will be conducted over the Internet as a result of the growing use of online payment systems. We utilize third-party online payment platforms to receive cash proceeds from sales of our virtual currency through direct purchases on our platform. Any scheduled or unscheduled interruption in the ability of our users to use these and other online payment platforms could adversely affect our payment collection, and in turn, our revenue. In addition, in online payment transactions, secure transmission of user information, such as debit and credit card numbers and expiration dates, personal information and billing addresses over public networks is essential to user privacy protection and maintaining their confidence in our platform. We do not have control over the security measures of our third-party payment platforms, and their security measures may not be adequate at present or may not be adequate with the expected increased usage of online payment platforms. We could be exposed to litigation and possible liability if the online transaction safety of our users is compromised in transactions involving payments for our virtual currency, which could harm our reputation and our ability to attract users and may materially adversely affect our business. We also rely on the stability of such payment transmissions to ensure the continued payment services provided to our users. If any of these third-party online payment platforms fails to process, or ensure the security of, users’ payments for any reason, our reputation will be damaged and we may lose our paying users and discourage potential purchases, which in turn, will materially and adversely affect our business, financial condition and prospects. Restrictions on virtual currency may adversely affect our revenues, business and reputation. In 2015, we launched “Yuchi,” the virtual currency that can be used by our viewers to purchase the virtual gifts. Due to the relatively short history of virtual currency in China, the regulatory framework governing the industry is still under development. On January 25, 2007, the Ministry of Public Security, the Ministry of Culture (the predecessor of the Ministry of Culture and Tourism), the MIIT and the GAPP jointly issued a circular regarding online gambling which has implications on the use of virtual currency. To curtail online games that involve online gambling, as well as address concern that virtual currency could be used for money laundering or illicit activities, the circular (a) prohibits online game operators from charging commissions in the form of virtual currency in relation to winning or losing of games, (b) requires online game operators to impose limits on use of virtual currency in guessing and betting games, (c) bans the conversion of virtual currency into actual currency or property and (d) prohibits services that enable game players to transfer virtual currency to other players. On June 4, 2009, the Ministry of Culture and the Ministry of Commerce jointly issued the Notice on the Strengthening of the Administration of Online Game Virtual Currency, or the Virtual Currency Notice, which defines what virtual currency is and requires that entities obtain the approval from the competent culture administrative department before issuing virtual currency and engaging in transactions using virtual currency in connection with online games. The Virtual Currency Notice requires that virtual currency only be used to purchase services and products provided by the online service provider that issues the virtual currency, prohibits businesses that issue online game virtual currency from issuing virtual currency to game players through means other than purchases with legal currency, and prohibits setting game features that involve the direct payment of cash or virtual currency by players for the chance to win virtual gifts or virtual currency based on random selection through a lucky draw, wager or lottery. These restrictions on virtual currency may result in lower sales of online virtual currency, and could have an adverse effect on our revenues from the online game business. Currently, the PRC government has not promulgated any specific rules, laws or regulations to directly regulate virtual currency, except for the above-mentioned online game related virtual currency. Although the term “virtual currency” is widely used in livestreaming industry, we believe that such “virtual currency” used in our livestreaming communities, including Yuchi, does not fall into the virtual currency defined under the Virtual Currency Notice, and we are not subject to any online game virtual currency laws and regulations for our livestreaming business. Further, given that the Ministry of Culture and Tourism withdrew from overseeing virtual currency in May 2019, the uncertainty deepened as to which authority will regulate the industry and how. Due to the uncertainties of the interpretation and implementation of the laws and regulations, we cannot assure you that the PRC regulatory authorities will not take a view contrary to ours, including expanding the applicability of the existing virtual currency related laws and regulations to non-online game related virtual currency. In such case, we may be required to obtain additional approvals or licenses, or apply for a specific license for virtual currency from the designated regulatory authority in the future, or change our current business model and may be subject to fines or other penalties, which could adversely affect our business. 43 Table of Contents In addition, there are online lucky draws, raffles, interactive patterns and other similar activities conducted on our platform to promote user engagement, which involve virtual currencies (such as Yuchi). The prize of such activities can only be used to purchase virtual gifts or to give to streamers as rewards on our platform. We do not believe such activities are specifically prohibited under PRC laws and regulations. We cannot assure you, however, that our platform will not be subject to liabilities due to third party activities (including streamer or user activities), or that the PRC government authority will not take a different view or impose limitations on such activities, whether or not specifically against our platform. We may also be subject to the uncertainties around the interpretation and enforcement of the virtual currency related laws, regulations and policies, and as a result, we may remove, limit or modify the rules of such activities on our platform from time to time to adapt to the constantly changing regulatory trends. It was reported that “Shanshanjiu Huwai” and “Changsha Xiangcun Gansidui,” two streamers on our platforms, initiated lucky draws during their streaming sessions and then repurchased gifts from winning users offline, in order to attract and incentivize users to participate in the lucky draw on our platform, in violation of the rule and policy of our platform. Such activities are explicitly forbidden by our platform and may be suspected of being involved in illegal gambling activities by these streamers. We have blocked these streamers’ accounts after we became aware of those incidents, but such similar incidents and related media coverage may still adversely affect our business and reputation. If our platform is deemed to be engaged in or facilitate certain illegal or inappropriate activities, we may need to remove such activities permanently, or modify rules for such activities that could make them less attractive, or even be subject to fines, penalties or criminal or civil liabilities, which may have an adverse impact on our business, results of operation and reputation. Present and future business partnerships or acquisitions may fail and materially and adversely affect our business, reputation and results of operations. We may enter into business partnerships, including joint ventures or minority equity investments, with third parties from time to time in connection with our business. These partnerships could subject us to a number of risks, including risks associated with sharing proprietary information, non-performance by third parties and increased expenses in establishing new business partnerships, any of which may materially and adversely affect our business. We may have limited ability to monitor or control the actions of these third parties and, to the extent any of these strategic third parties suffers negative publicity or harm to their reputation from events relating to their business, we may also suffer negative publicity or harm to our reputation by virtue of our association with any such third party. In addition, we may acquire additional assets, products, technologies or businesses that are complementary to our existing business. Future acquisitions and the subsequent integration of new assets and businesses into our own would require significant attention from our management and could divert resources from our existing business, which in turn could adversely affect our operations. Acquired assets or businesses may not generate the financial results we expect. Acquisitions could result in the use of substantial amounts of cash, potentially dilutive issuances of equity securities, significant goodwill impairment charges, amortization expenses for other intangible assets and exposure to potential unknown liabilities of the acquired businesses. Moreover, the costs of identifying and consummating acquisitions may be significant. In addition to possible shareholder approval, we may have to obtain approvals and licenses from government authorities and comply with applicable PRC laws and regulations, which could result in increased delays and costs. We may not realize the benefits we expect from our strategic cooperation with Tencent, which may materially and adversely affect our business and results of operations. We and Tencent, through our respective PRC affiliated entities, have entered into a strategic cooperation framework memorandum which became effective on January 31, 2018 and was subsequently replaced by the amended and restated strategic cooperation framework memorandum dated April 1, 2019 (the “Amended and Restated SCFM”). For details, please refer to “Item 4. Information of the Company—4.B. Business Overview—Our Relationship with Tencent.” As of March 31, 2022, Tencent held 12,070,080 of our ordinary shares, representing 38.0% of our total voting power (excluding 259,743 ordinary shares issued to Douyu Employees Limited, our employee shareholding platform established for the RSUs granted under the Amended and Restated 2018 RSU Scheme and 2,560,562 ordinary shares repurchased in the form of ADSs), through its wholly-owned subsidiaries, Nectarine and Distribution Pool Limited, which held 12,068,104 ordinary shares and 1,976 ordinary shares in the form of ADSs, respectively. For details, see “Item 6. Directors, Senior Management and Employees—6.E. Share Ownership.” As a result, Tencent has substantial influence over our business and their interests may not be aligned with ours or the other shareholders. For details please refer to “—Certain existing shareholders have substantial influence over our company and their interests may not be aligned with the interests of our other shareholders.” 44 Table of Contents If we encounter difficulties implementing our strategic cooperation with Tencent, our management may need to divert their attention from existing operations. In addition, certain terms of the Amended and Restated SCFM may limit our ability to collaborate with third-party game developers or publishers. Our relationship with Tencent does not restrict Tencent from entering into collaboration with other parties. Tencent has, in the past, invested in, and may in the future continue to invest in, our direct or indirect competitors, including companies such as Huya. Tencent may devote resources or attention to the other companies it has an interest in, including our direct or indirect competitors. As a result, we may not fully realize the benefits we expect from the strategic cooperation with Tencent. Failure to realize the intended benefits from the strategic cooperation with Tencent, or potential restrictions on our collaboration with other parties, could materially and adversely affect our business and results of operations. Certain existing shareholders have substantial influence over our company and their interests may not be aligned with the interests of our other shareholders. As of March 31, 2022, our directors and executive officers beneficially owned, after taking into account RSUs that will become vested within 60 days after the date of this annual report, an aggregate of 17.3% of our total outstanding ordinary shares (excluding 259,743 ordinary shares issued to Douyu Employees Limited, our employee shareholding platform established for the RSUs granted under the Amended and Restated 2018 RSU Scheme and 2,560,562 ordinary shares repurchased in the form of ADSs). As of March 31, 2022, Tencent held 12,070,080 of our ordinary shares, representing 38.0% of our total voting power (excluding 259,743 ordinary shares issued to Douyu Employees Limited, our employee shareholding platform established for the RSUs granted under the Amended and Restated 2018 RSU Scheme and 2,560,562 ordinary shares repurchased in the form of ADSs), through its wholly-owned subsidiaries, Nectarine and Distribution Pool Limited, which held 12,068,104 ordinary shares and 1,976 ordinary shares in the form of ADSs, respectively. In addition, pursuant to the terms of our Fourth Amended and Restated Memorandum and Articles of Association, Mr. Shaojie Chen and Mr. Wenming Zhang, and entities which hold shares of our company on behalf of and are controlled by Mr. Shaojie Chen and Mr. Wenming Zhang, have the right to appoint up to four directors. Nectarine, a wholly-owned subsidiary of Tencent, has the right to appoint up to two directors as long as it beneficially owns no less than 33% of the shares it beneficially owns immediately prior to the completion of our initial public offering in July 2019. Our board of directors has the right to appoint up to four independent directors and may appoint additional directors, if any. Directors appointed by a specified group may only be removed by the affirmative vote of such group. Our officers are nominated by Mr. Shaojie Chen (who has a second or deciding vote when there is an equality of votes) and Mr. Wenming Zhang, and entities which hold shares of our company on behalf of and are controlled by Mr. Shaojie Chen and Mr. Wenming Zhang, and are elected by the board at such terms and remuneration as the board sees fit. For details, please refer to “Item 6. Directors, Senior Management and Employees—6.C. Board Practices—Terms of Directors and Officers.” They may take actions that are not in the best interest of us or our other shareholders and conflicts of interest between them and us may arise as a result of their operation of or investment in businesses that compete with us. Such concentration of ownership and corporate governance mechanism may discourage, delay or prevent a change in control of our company, which could deprive our shareholders of a premium for their shares as part of a sale of our company and may reduce the price of the ADSs. These actions may be taken even if they are opposed by our other shareholders, including holders of our ADSs. In addition, such significant concentration of share ownership and corporate governance mechanism may adversely affect the trading price of the ADSs due to investors’ perception that conflicts of interest may exist or arise. For more information regarding our principal shareholders and their affiliated entities, see “Item 6. Directors, Senior Management and Employees—6.E. Share Ownership.” Our results of operations may be subject to quarterly fluctuations due to seasonality. We historically experienced seasonality in our business, reflecting seasonal fluctuations in Internet usage. As a result, comparing our historical operating results on a period-to-period basis may not be meaningful. For example, the number of active users used to be higher during school holidays and certain parts of the school year, and lower at the beginning or exam periods of the school year, which affected our cash flow for those periods. Furthermore, the number of paying users of our online livestreaming platform generally correlated with the marketing campaigns and promotional activities we conducted, which might coincide with popular western or Chinese festivals. As a result, we cannot rule out the possibility that our operating results in future quarters or years may fall below the expectations of securities analysts and investors due to seasonality. 45 Table of Contents We do not currently have business insurance to cover our main assets and business. Any uninsured occurrence of business disruption, litigation or natural disaster could expose us to significant costs, which could have an adverse effect on our results of operations. We do not have any business liability or disruption insurance to cover our operations. We may not be able to insure against certain risks related to our assets or business even if we desire to in the future. In addition, the costs of insuring for such risks and the difficulties associated with acquiring such insurance on commercially reasonable terms make it impractical for us to have such insurance. Any uninsured occurrence of business disruption, litigation or natural disaster, or significant damages to our uninsured equipment or facilities could disrupt our business operations, requiring us to incur substantial costs and divert our resources, which could have an adverse effect on our results of operations and financial condition. If we fail to maintain an effective internal control over financial reporting, we may be unable to accurately report our results of operations, meet our reporting obligations or prevent fraud and investor confidence in our company and the market price of our ADSs may decline. As a public company, we are subject to the Sarbanes-Oxley Act of 2002. Section 404 of the Sarbanes-Oxley Act of 2002 requires us to evaluate and determine the effectiveness of our internal control over financial reporting, report any material weaknesses in such internal controls and provide a management report on internal control over financial reporting. Our management has concluded that our internal control over financial reporting was effective as of December 31, 2021. However, we can not assure you that in the future we will not identify any material weaknesses in our internal control over financial reporting. In addition, because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or management override of internal controls, material misstatements due to error or fraud might not be prevented or detected on a timely basis. If we fail to maintain effective internal control environment, we could suffer material misstatements in our financial statements and fail to meet our reporting obligations, which could cause investors to lose confidence in our reported financial information. This could in turn limit our access to capital markets, harm our results of operations, and lead to a negative impact on the trading price of our ADSs. Additionally, ineffective internal control over financial reporting could expose us to increased risk of fraud or misuse of corporate assets and subject us to potential delisting from Nasdaq, regulatory investigations and civil or criminal sanctions. We have granted RSUs in the past and will continue to grant share-based awards in the future, which may have an adverse effect on our future profit. Exercise of the share options and the vesting of the RSUs granted will increase the number of our Shares in circulation, which may adversely affect the market price of our Shares. We adopted a share incentive plan in April 2018, which was amended and restated in April 2019 (the “Amended and Restated 2018 RSU Scheme”), for the purpose of granting share-based compensation awards to employees, directors and consultants to incentivize their performance and align their interests with ours. Under the Amended and Restated 2018 RSU Scheme, we are authorized to grant RSUs. The maximum aggregate number of ordinary shares we are authorized to issue pursuant to all awards under the Amended and Restated 2018 RSU Scheme is 2,106,321 ordinary shares. In April 2019, we adopted the 2019 Share Incentive Plan (the “2019 Share Incentive Plan”), pursuant to which we may grant options, restricted shares, restricted share units, share appreciation rights, rights to dividends, dividend equivalent rights and other rights or benefits. The maximum aggregate number of shares we may issue under the 2019 Share Incentive Plan is 3,456,869. We may adopt share incentive plans in the future that permits granting of share-based compensation to employees and directors. We recognize expenses of RMB132.1 million in our consolidated statement of income for the year ended December 31, 2021. As a result, these awards start vesting upon the completion of our initial public offering in July 2019. As of December 31, 2021, our unrecognized share-based compensation expenses amounted to RMB72.6 million. As of March 31, 2022, 2,076,349 RSUs have been granted that are not forfeited under the Amended and Restated 2018 RSU Scheme and no award has been granted and outstanding under the 2019 Share Incentive Plan. As of March 31, 2022, 1,846,578 RSUs corresponding to 1,846,578 ordinary shares have become vested. We believe the granting of share-based awards is of significant importance to our ability to attract and retain key personnel and employees, and we will continue to grant share-based compensation to employees in the future. As a result, our expenses associated with share-based compensation may increase, which may have an adverse effect on our results of operations. Competition for highly skilled personnel is often intense and we may incur significant costs or be unsuccessful in attracting, integrating, or retaining qualified personnel to fulfill our current or future needs. We have, from time to time, experienced, and we expect to continue to experience, difficulty in hiring and retaining highly skilled employees with appropriate qualifications. Our ability to attract or retain highly skilled employees may be adversely affected by declines in the perceived value of our equity or equity awards. Furthermore, there are no assurances that the number of shares reserved for issuance under our share incentive plans will be sufficient to grant equity awards adequate to recruit new employees and to compensate existing employees. 46 Table of Contents We may be the subject of allegations, harassment or other detrimental conduct by third parties, which could harm our reputation and cause us to lose market share, users and customers and incur actual losses. We have been subject to allegations by third parties or purported former employees, negative Internet postings and other adverse public exposure on our business, operations and staff compensation. We may also become the target of harassment or other detrimental conduct by third parties or disgruntled former or current employees. Such conduct may include complaints, anonymous or otherwise, to regulatory agencies, media or other organizations. We may be subject to government or regulatory investigation or other proceedings as a result of such third-party conduct and may be required to spend significant time and incur substantial costs to address such third-party conduct, and there is no assurance that we will be able to conclusively refute each of the allegations within a reasonable period of time, or at all. Additionally, allegations, directly or indirectly against us, may be posted on the Internet, including social media platforms by anyone, whether or not related to us, on an anonymous basis. Any negative publicity on us or our management can be quickly and widely disseminated. Social media platforms and devices immediately publish the content of their subscribers and participants posts, often without filters or checks on accuracy of the content posted. Information posted may be inaccurate and adverse to us, and it may harm our reputation, business or prospects. The harm may be immediate without affording us an opportunity for redress or correction. Our reputation may be negatively affected as a result of the public dissemination of negative and potentially false information about our business and operations, which in turn may cause us to lose market share, users or customers and incur actual losses. Non-compliance on the part of our employees or third parties involved in our business could adversely affect our business. Our compliance controls, policies and procedures may not protect us from acts committed by our employees, agents, contractors, or collaborators that violate the laws or regulations of the jurisdictions in which we operate, which may adversely affect our business. Moreover, we may be exposed to gross negligence, fraud or other misconduct committed by our employees or other third parties, including but not limited to our users and business partners, or other events that are out of our control. In addition, our business partners or other third parties involved in our business through our business partners (such as contractors, talent agencies or other third parties entered into business relationship with our third-party business partners) may be subject to regulatory penalties or punishments because of their regulatory compliance failures, which may, directly or indirectly, disrupt our business. Although we conduct review of legal formalities and certifications before entering into contractual relationship with other businesses such as third-party game developers, advertisers and talent agencies, and take measures to reduce the risks that we may be exposed to in case of any non-compliance by third parties, we cannot be certain whether such third party has infringed or will infringe any third parties’ legal rights or violate any regulatory requirements or rule out the likelihood of incurring any liabilities imposed on us due to any regulatory failures by third parties. We identify irregularities or noncompliance in the business practices of any parties with whom we pursue existing or future cooperation and we cannot ensure that any of these irregularities will be corrected in a prompt and proper manner. In addition, for those third parties actively involved in our business through our business partners such as our sales agents, we also request our business partners to supervise and administrate relevant business activities of such third parties, but we cannot ensure that our business partners will be able to supervise and administrate in an effective way. The legal liabilities and regulatory actions on our business partners or other third parties involved in our business may affect our business activities and reputation and in turn, our results of operations. We may not be able to ensure compliance with United States economic sanctions laws. The U.S. Department of the Treasury’s Office of Foreign Assets Control, or OFAC, administers laws and regulations that generally prohibit U.S. persons and, in some instances, foreign entities owned or controlled by U.S. persons, from conducting activities or transacting business with certain countries, governments, entities or individuals that are targets of U.S. economic sanctions. In the past, we have identified a small number of users on our platform that appear to have been located in countries that are targets of U.S. economic sanctions. We have taken measures to prevent such persons from accessing our platform, either as streamers or users, in a manner that would violate U.S. economic sanctions. However, we cannot ensure that such measures will be effective. While we believe that we have been, and that we continue to be, in compliance with applicable U.S. economic sanctions, our failure to employ appropriate safeguards with respect to streamers and users located in countries that are targets of U.S. economic sanctions may result in a violation of such laws. Non-compliance with applicable U.S. economic sanctions could subject us to adverse media coverage, investigations, and severe administrative, civil and possibly criminal sanctions, expenses related to remedial measures, and legal expenses, which could materially adversely affect our business, results of operations, financial condition and reputation. 47 Table of Contents Spammers and malicious software and applications may affect user experience, which could reduce our ability to attract users and advertisers and materially and adversely affect our business, financial condition and results of operations. Spammers may use our streaming platform to send spam messages to users, which may affect user experience. As a result, our users may reduce using our products and services or stop using them altogether. In spamming activities, spammers typically create multiple user accounts for the purpose of sending a high volume of repetitive messages. Although we attempt to identify and delete accounts created for spamming purposes, we may not be able to effectively eliminate all spam messages from our platform in a timely fashion. Any spamming activities could have a material and adverse effect on our business, financial condition and results of operations. In addition, malicious software and applications may interrupt the operations of our websites, our PC clients or mobile apps and pass on such malware to our users which could adversely hinder user experience. Although we have been successfully blocking these attacks in the past, we cannot guarantee that this will always be the case, and in the case of users experiencing a malware attack by using our platform, our users may associate the malware with our websites, our PC clients or mobile apps, and our reputation, business, and results of operations would be materially and adversely affected. Our users may suffer from third-party fraud when purchasing our virtual currency and we may suffer fraud when selling virtual currency to users. We offer our users multiple options to purchase Yuchi, our virtual currency. Users can purchase these virtual currencies directly on our web streaming portal, making in-app purchases using third-party payment channels. Other than the official purchase channels, there is no other means to purchase Yuchi. However, from time to time, certain third parties fraudulently claim that users can purchase Yuchi through them. If our users choose to purchase our virtual currency from such third parties, they may suffer losses from such fraudulent activities by third parties. Although we are not directly responsible for such fraudulent activities conducted by third parties, our user experience may be adversely affected and they may choose to leave our platform as a result. Such fraudulent activities by third parties might also generate negative publicity, disputes or even legal claims. The measures we take in response to such negative publicity, disputes or legal claims may be expensive, time consuming and disruptive to our operations and divert our management’s attention. In addition, in 2019, 2020 and 2021, we experienced multiple incidents where the users paid for our virtual currency through fraudulent methods, including illegal use of credit cards. While such incidents have decreased significantly given tightened regulation, we may lose all the revenue we were supposed to generate from the sales as we were not able to collect or recover on any of it when such incidents occurred. Although we have instated authentication mechanisms that help us detect such fraudulent paying methods, we still cannot guarantee that our mechanisms can prevent all fraudulent virtual currency purchases. These fraudulent transactions cause harm to our financial results and business operations. We will incur additional costs as a result of being a public company. We are a public company and expect to incur significant legal, accounting and other expenses that we did not incur as a private company. These additional costs could negatively affect our financial results. In addition, changing laws, regulations and standards relating to corporate governance and public disclosure, including regulations implemented by Nasdaq, may increase legal and financial compliance costs and make some activities more time-consuming. These laws, regulations and standards are subject to varying interpretations and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of management’s time and attention from revenue-generating activities to compliance activities. If, notwithstanding our efforts to comply with new laws, regulations and standards, we fail to comply, regulatory authorities may initiate legal proceedings against us and our business may be harmed. Risks Related to Our Corporate Structure There are substantial uncertainties regarding the interpretation and application of current and future PRC laws, regulations, and rules relating to the agreements that establish the VIE structure for our operations in China, including potential future actions by the PRC government, which could affect the enforceability of our contractual arrangements with the VIEs and, consequently, significantly affect the financial condition and results of operations performance of Douyu. If the PRC government finds such agreements non-compliant with relevant PRC laws, regulations, and rules, or if these laws, regulations, and rules or the interpretation thereof change in the future, we could be subject to severe penalties or be forced to relinquish our interests in the VIEs. 48 Table of Contents Foreign investment in the value-added telecommunication services industry in China is extensively regulated and subject to numerous restrictions. Pursuant to the list of special management measures for the market entry of foreign investment, or the Negative List, published by the NDRC and the Ministry of Commerce in December 2021 and effective on January 1, 2022, with a few exceptions, foreign investors are not allowed to own more than 50% of the equity interests in a value-added telecommunication service provider. We are a Cayman Islands company and our wholly-owned PRC subsidiaries are currently considered foreign-invested enterprise. Accordingly, our PRC subsidiaries are not eligible to provide value-added telecommunication services in China. To ensure strict compliance with the PRC laws and regulations, we conduct such business activities through Wuhan Douyu and Wuhan Ouyue, the VIEs. Wuhan Yule, our wholly-owned subsidiary in China, has entered into a series of contractual arrangements with the VIEs and their shareholders, which enable us to (i) exercise effective control over the VIEs, (ii) receive substantially all of the economic benefits of the VIEs, and (iii) have an exclusive option to purchase all or part of the equity interests and assets in the VIEs when and to the extent permitted by PRC law. As a result of these contractual arrangements, we have control over and are the primary beneficiary of the VIEs and hence consolidate their financial results as the VIEs under U.S. GAAP. See “Item 4. Information on the Company—4.C. Organizational Structure—Contractual Arrangements with The VIEs and The VIEs’ Respective Shareholders” for further details. If the PRC government finds that our contractual arrangements do not comply with its restrictions on foreign investment in the value-added telecommunication services, or if the PRC government otherwise finds that we or the VIEs are in violation of PRC laws or regulations or lack the necessary permits or licenses to operate our business, the relevant PRC regulatory authorities, including the MIIT and SAMR, would have broad discretion in dealing with such violations or failures, including, without limitation: • • • • revoking the business licenses and/or operating licenses of such entities; discontinuing or placing restrictions or onerous conditions on our operation through any transactions between our PRC subsidiaries and the VIEs; imposing fines, confiscating the income from our PRC subsidiaries or the VIEs, or imposing other requirements with which we or the VIEs may not be able to comply; or requiring us to restructure our ownership structure or operations, including terminating the contractual arrangements with the VIEs and deregistering the equity pledges of the VIEs, which in turn would affect our ability to consolidate, derive economic interests from, or exert effective control over the VIEs. Any of these actions could cause significant disruptions to our business operations and severely damage our reputation, which would in turn materially and adversely affect our business, financial condition and results of operations. In addition, new PRC laws, regulations, and rules may be introduced to impose additional requirements, posing additional challenges to our corporate structure and contractual arrangements. If any of these occurrences result in our inability to direct the activities of the VIEs or our failure to receive the economic benefits from the VIEs and/or our inability to claim our contractual control rights over the assets of the VIEs that conduct substantially all of our operations in China, we may not be able to consolidate the entity in our consolidated financial statements in accordance with U.S. GAAP which could materially and adversely affect our financial condition and results of operations and cause our ADSs to significantly decline in value or become worthless. Any failure by the VIEs or their shareholders to perform their obligations under our contractual arrangements with them would have a material adverse effect on our business. Since PRC laws prohibit or restrict foreign equity ownership in certain kinds of business in China, we have relied and expect to continue to rely on the contractual arrangements with the VIEs and their shareholders to operate our business in China. However, these contractual arrangements may not be as effective as direct ownership in providing us with control over our affiliated entities. Any of our affiliated entities, including the VIEs and its shareholders, could breach their contractual arrangements with us by, among other things, failing to conduct their operations in an acceptable manner or taking other actions that are detrimental to our interests. In the event that the shareholders of the VIEs breach the terms of these contractual arrangements and voluntarily liquidate the VIEs, or the VIEs declare bankruptcy and all or part of their assets become subject to liens or rights of third-party creditors, or are otherwise disposed of without our consent, we may be unable to conduct some or all of our business operations or otherwise benefit from the assets held by our affiliated entities, which could have a material adverse effect on our business, financial condition and results of operations. 49 Table of Contents Most of the nominee shareholders of the VIEs are also beneficial owners of the Company, particularly, the sole shareholder of Wuhan Ouyue, Mr. Shaojie Chen, our founder, CEO and director, and the shareholders of Wuhan Douyu which includes Mr. Shaojie Chen and Mr. Wenming Zhang, our former co-founder, former co-CEO and former director. The enforceability of the contractual agreements between us, the VIEs and their shareholders depends to a large extent upon whether the VIEs and their shareholders will fulfill these contractual agreements. Their interests in enforcing these contractual agreements may not align with our interests or the interests of our shareholders. If their interest diverges from that of our company and other shareholders, it may potentially increase the risk that they could seek to act contrary to these contractual arrangements. If the VIEs or their shareholders fail to perform their respective obligations under the contractual arrangements, we may have to incur substantial costs and expend additional resources to enforce such arrangements. We may also have to rely on legal remedies under PRC law, including seeking specific performance or injunctive relief, and contractual remedies, which we cannot assure you will be sufficient or effective under PRC law. Our contractual arrangements are governed by PRC law and provide for the resolution of disputes through litigation in China. Accordingly, these agreements would be interpreted in accordance with PRC law and any disputes would be resolved in accordance with PRC legal procedures. The legal system in the PRC is not as developed as in some other jurisdictions, such as the United States. As a result, uncertainties in the PRC legal system could limit our ability to enforce these contractual arrangements. Meanwhile, there are very few precedents and little formal guidance as to how contractual arrangements in the context of a consolidated variable interest entity should be interpreted or enforced under PRC law. There remain significant uncertainties regarding the ultimate outcome of such adjudication should legal action become necessary. In the event that we are unable to enforce these contractual arrangements, or if we suffer significant delay or other obstacles in the process of enforcing these contractual arrangements, we may not be able to exert effective control over our affiliated entities, and our ability to conduct our business may be negatively affected. We rely on contractual arrangements with the VIEs and their shareholders for our operations in China, which may not be as effective in providing operational control as direct ownership. Due to PRC restrictions or prohibitions on foreign ownership of Internet and other related businesses in China, we operate our business in China through the VIEs and their subsidiaries, in which we have no ownership interest. We rely on a series of contractual arrangements with the VIEs and their shareholders, including the powers of attorney, to control and operate the business of the VIEs. These contractual arrangements are intended to provide us with effective control over the VIEs and allow us to obtain economic benefits from them. See “Item 4. Information on the Company—4.C. Organizational Structure—Contractual Arrangements with The VIEs and The VIEs’ Respective Shareholders” for more details about these contractual arrangements. In particular, our ability to control the VIEs depends on the powers of attorney, pursuant to which Douyu Yule (our wholly-owned subsidiary in China) can vote on all matters requiring shareholder approval in the VIEs. We believe these powers of attorney are legally enforceable but may not be as effective as direct equity ownership. Although we have been advised by our PRC counsel, Han Kun Law Offices, that each of the contractual arrangements among Douyu Yule, the VIEs and their shareholders is valid, binding and enforceable under existing PRC laws and regulations, these contractual arrangements may not be as effective in providing control over the VIEs and their subsidiaries as direct ownership. If the VIEs or their shareholders fail to perform their respective obligations under the contractual arrangements, we may incur substantial costs and expend substantial resources to enforce our rights. Although Douyu Yule has an option, subject to the registration process with PRC governmental authorities, to purchase the equity of the VIEs, if the shareholders of VIEs do not cooperate or there are any disputes relating to these contractual arrangements, we will have to enforce our rights under these contracts under PRC laws through arbitration, the outcome of which is uncertain. These contractual arrangements are governed by and interpreted in accordance with PRC laws, and disputes arising from these contractual arrangements will be resolved through arbitration in China. However, the legal system in China, particularly as it relates to arbitration proceedings, is not as developed as the legal system in many other jurisdictions, such as the United States. There are very few precedents and little official guidance as to how contractual arrangements in the context of a variable interest entity should be interpreted or enforced under PRC law. There remain significant uncertainties regarding the ultimate outcome of arbitration should legal action become necessary. These uncertainties could limit our ability to enforce these contractual arrangements. In addition, 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 we experience significant delays or other obstacles in the process of enforcing these contractual arrangements, we may not be able to exert effective control over the VIEs and may lose control over the assets owned by the VIEs. As a result, we may be unable to consolidate the financial results of such entities in our consolidated financial statements, our ability to conduct our business may be negatively affected, and our operations could be severely disrupted, which could materially and adversely affect our results of operations and financial condition. 50 Table of Contents We may lose the ability to use and enjoy assets held by the VIEs and their subsidiaries that are important to our business if the VIEs and their subsidiaries declare bankruptcy or become subject to a dissolution or liquidation proceeding. The VIEs hold certain assets that are important to our operations, including the ICP License, the Internet Culture Operation License, the Commercial Performance License, the License for Online Transmission of Audio/Video Programs and the Radio and Television Program Production and Operating Permit. Under our contractual arrangements, the shareholders of the VIEs may not voluntarily liquidate the VIEs or approve them to sell, transfer, mortgage or dispose of their assets or legal or beneficial interests exceeding certain thresholds in the business in any manner without our prior consent. However, in the event that the shareholders breach this obligation and voluntarily liquidate the VIEs, or the VIEs declare bankruptcy, or all or part of their assets become subject to liens or rights of third-party creditors, we may be unable to continue some or all of our operations, which could materially and adversely affect our business, financial condition and results of operations. Furthermore, if the VIEs or their subsidiaries undergo a voluntary or involuntary liquidation proceeding, their shareholders or unrelated third-party creditors may claim rights to some or all of its assets, hindering our ability to operate our business, which could materially and adversely affect our business, financial condition and results of operations. Contractual arrangements we have entered into with the VIEs may be subject to scrutiny by the PRC tax authorities. A finding that we owe additional taxes could negatively affect our financial condition and the value of your investment. Pursuant to applicable PRC laws and regulations, arrangements and transactions among related parties may be subject to audit or challenge by PRC tax authorities. We may be subject to adverse tax consequences if the PRC tax authorities determine that the contractual arrangements among Douyu Yule, the VIEs and their shareholders are not on an arm’s length basis and therefore constitute favorable transfer pricing. As a result, the PRC tax authorities could require that the VIEs adjust their taxable income upward for PRC tax purposes. Such an adjustment could increase the VIEs’ tax expenses without reducing the tax expenses of Douyu Yule, subject the VIEs to late payment fees and other penalties for under-payment of taxes, and result in the loss of any preferential tax treatment Douyu Yule may have. As a result, our consolidated results of operations may be adversely affected. If the chops of our PRC subsidiaries, the VIEs and their subsidiaries, are not kept safely, are stolen or are used by unauthorized persons 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 when unaccompanied by a signature. Each legally registered company in China is required to maintain a company chop, which must be registered with the local Public Security Bureau. In addition to this mandatory company chop, companies may have several other chops which can be used for specific purposes. The chops of our PRC subsidiaries, the VIEs and their subsidiaries are generally held securely by personnel designated or approved by us in accordance with our internal control procedures. To the extent those chops are not kept safe, are stolen or are used by unauthorized persons or for unauthorized purposes, the corporate governance of these entities could be severely and adversely compromised and those corporate entities may be bound to abide by the terms of any documents so chopped, even if they were chopped by an individual who lacked the requisite power and authority to do so. If any of our authorized personnel obtains, misuses or misappropriates our chops for whatever reason, we could experience disruptions in our operations. We may also have to take corporate or legal action, which could require significant time and resources to resolve while distracting management from our operations. Any of the foregoing could adversely affect our business and results of operations. Our shareholders or the shareholders of the VIEs may have potential conflicts of interest with us, which may materially and adversely affect our business. The shareholders of the VIEs include persons who are also our shareholders or affiliates of our shareholders, and, in some cases, our directors or officers. Conflicts of interest may arise between the roles of them as shareholders, directors or officers of our company and as shareholders of the VIEs. For individuals who are also our directors and officers, we rely on them to abide by the laws of the Cayman Islands, which provide that directors and officers owe a fiduciary duty to our company to act in good faith and in the best interest of our company and not to use their positions for personal gain. The shareholders of the VIEs have executed powers of attorney to appoint Douyu Yule (our wholly-owned subsidiary in China) or a person designated by Douyu Yule to vote on their behalf and exercise voting rights as shareholders of the VIEs. We cannot assure you that when conflicts arise, these shareholders 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. Additionally, we rely on our shareholders and the shareholders of the VIEs to secure, both at the internal and external level, all the necessary approvals, permits, filings or other formalities and proceedings in relation to their respective investment in us and/or the VIEs. We cannot assure you that our shareholders and shareholders of the VIEs have obtained all of such necessary approvals, permits, filings or other formalities and proceedings. The failure to obtain such approvals, permits, filings or other formalities and proceedings may adversely affect our business and results of operation. 51 Table of Contents We may rely on dividends paid by our PRC subsidiaries to fund cash and financing requirements. Any limitation on the ability of our PRC subsidiaries to pay dividends to us could have a material adverse effect on our ability to conduct our business and to pay dividends to holders of the ADSs and our ordinary shares. We are a holding company, and we may rely on dividends to be paid by our PRC subsidiaries for our cash and financing requirements, including the funds necessary to pay dividends and other cash distributions to the holders of the ADSs and our ordinary shares and service any debt we may incur. If our PRC subsidiaries incur debt on their own behalf in the future, the instruments governing the debt may restrict their ability to pay dividends or make other distributions to us. Under PRC laws and regulations, a wholly foreign-owned enterprise in China, such as Douyu Yule, may pay dividends only out of its accumulated profits as determined in accordance with PRC accounting standards and regulations. In addition, a wholly foreign-owned enterprise is required to set aside at least 10% of its after-tax profits each year, after making up previous years’ accumulated losses, if any, to fund certain statutory reserve funds, until the aggregate amount of such fund reaches 50% of its registered capital. These reserve funds are not distributable as cash dividends. Any limitation on the ability of our PRC subsidiaries to pay dividends or make other distributions to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends, or otherwise fund and conduct our business. Substantial uncertainties exist with respect to whether the foreign investor’s controlling PRC onshore variable interest entities via contractual arrangements will be recognized as “foreign investment” and how it may impact the viability of our current corporate structure and operations. On March 15, 2019, the National People’s Congress of the PRC adopted the PRC Foreign Investment Law, which came into force on January 1, 2020. The PRC Foreign Investment Law defines the “foreign investment” as the investment activities in China conducted directly or indirectly by foreign investors in the following manners: (i) the foreign investor, by itself or together with other investors establishes a foreign invested enterprises in China; (ii) the foreign investor acquires shares, equities, asset tranches, or similar rights and interests of enterprises in China; (iii) the foreign investor, by itself or together with other investors, invests and establishes new projects in China; or (iv) the foreign investor invests through other approaches as stipulated by laws, administrative regulations or otherwise regulated by the State Council. The PRC Foreign Investment Law keeps silent on how to define and regulate the “variable interest entities”, while adding a catch-all clause that “other approaches as stipulated by laws, administrative regulations or otherwise regulated by the State Council” can fall into the concept of “foreign investment,” which leaves uncertainty as to whether the foreign investor’s controlling PRC onshore variable interest entities via contractual arrangements will be recognized as “foreign investment.” Pursuant to the PRC Foreign Investment Law, PRC governmental authorities will regulate foreign investment by applying the principle of pre-entry national treatment together with a “negative list,” which will be promulgated by or promulgated with approval by the State Council. Foreign investors are prohibited from making any investments in the industries which are listed as “prohibited” in such negative list; and, after satisfying certain additional requirements and conditions as set forth in the “negative list,” are allowed to make investments in the industries which are listed as “restricted” in such negative list. For any foreign investor that fails to comply with the negative list, the competent authorities are entitled to ban its investment activities, require such investor to take measures to correct its non-compliance and impose other penalties. The Internet content service, Internet audio-visual program services, radio and television production and operation and online culture activities that we conduct through our consolidated variable interest entities are subject to foreign investment restrictions/prohibitions set forth in the Special Administrative Measures for Entrance of Foreign Investment (Negative List) (2021 Version). It provides that, with a few exceptions, foreign investors are generally not allowed to own more than 50% of the equity interests in a value-added telecommunication service provider. The Provisions on the Administration of Foreign Invested Telecommunications Enterprises (2016 Revision) requires that the major foreign investor in a value-added telecommunication service provider in China must have experience in providing value-added telecommunications services overseas and maintain a good track record. In addition, foreign investors are prohibited from investing in companies engaged in online publishing businesses, Internet audio-visual programs businesses, Internet culture businesses (except for music), and radio and television program production businesses. The PRC Foreign Investment Law leaves leeway for future laws, administrative regulations or provisions of the State Council to provide for contractual arrangements as a form of foreign investment. It is therefore uncertain whether our corporate structure will be seen as violating foreign investment rules as we are currently using the contractual arrangements to operate certain businesses in which foreign investors are currently prohibited from or restricted to investing. Furthermore, if future laws, administrative regulations or provisions of 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. If we fail to take appropriate and timely measures to comply with any of these or similar regulatory compliance requirements, our current corporate structure, corporate governance and business operations could be materially and adversely affected. 52 Table of Contents Risks Related to our American Depositary Shares The market price for our ADSs may be volatile. 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 companies with business operations located mainly 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 user base or user engagement; 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; 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 equity securities; 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 particular, since the COVID-19 outbreaks, concerns over the economic slowdown resulting from COVID-19 have led to a significant decrease in the major indices of the U.S. capital markets and an increase in the market volatility, which have, and may continue to have, adversely affected the market price of our ADSs. For risks related to COVID-19, see “—Risks Related to Our Business and Industry—We face risks related to natural disasters, health epidemics and other outbreaks of contagious diseases.” In the past, shareholders of public companies have often brought securities class action suits against those companies following periods of instability in the market price of their securities. If we were involved in a class action suit, it could divert a significant amount of our management’s attention and other resources from our business and operations and require us to incur significant expenses to defend the suit, which could harm our results of operations. Any such class action suit, whether or not successful, could harm our reputation and restrict our ability to raise capital in the future. In addition, if a claim is successfully made against us, we may be required to pay significant damages, which could have a material adverse effect on our financial condition and results of operations. Public companies listed in the United States that have a substantial majority of their operations in China have been the subject of short selling. Short selling is the practice of selling securities that the seller does not own but rather has borrowed from a third party with the intention of buying identical securities back at a later date to return to the lender. The short seller hopes to profit from a decline in the value of the securities between the sale of the borrowed securities and the purchase of the replacement shares, as the short seller 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 security to decline, many short sellers publish, or arrange for the publication of, negative opinions regarding the relevant issuer and its business 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. If we became a subject of unfavorable allegations made by short sellers, whether such allegations are proven to be true or untrue, the market price for our ADSs may be adversely affected. If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, 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 about our business. If one or more analysts who cover us downgrade our ADSs, the market price for our ADSs would likely decline. If one or more of these analysts cease to cover us or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause the market price or trading volume for our ADSs to decline. If securities or industry analysts do not publish favorable research, or if they adversely change their recommendations regarding the ADSs, the market price for the ADSs and trading volume could decline. The trading market for the ADSs will be influenced by research or reports that industry or securities analysts publish about our company. If we do not receive favorable research reports, the market price of our ADSs would likely decline. If the research analysts cease to cover us or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause the market price or trading volume for the ADSs to decline. 53 Table of Contents Because we do not expect to pay dividends in the foreseeable future, you must rely on price appreciation of our ADSs for return on your investment. We currently intend to retain most, if not all, of our available funds and any future earnings to fund the development and growth of our business. As a result, we do not expect to pay any cash dividends in the foreseeable future. Therefore, you should not rely on an investment in our ADSs as a source for any future dividend income. Our board of directors has complete discretion as to whether to distribute dividends, subject to certain requirements of Cayman Islands law. In addition, our shareholders may by ordinary resolution declare a dividend, but no dividend may exceed the amount recommended by our board of directors. Under Cayman Islands law, a Cayman Islands company may pay a dividend out of either profit or share premium account, provided that in no circumstances may a dividend be paid if this would result in the company being unable to pay its debts as they come due in the ordinary course of business. Even if our board of directors decides to declare and pay dividends, the timing, amount and form of future dividends, if any, will depend on, among other things, our future results of operations and cash flow, our capital requirements and surplus, the amount of distributions, if any, received by us from our subsidiaries, our financial condition, contractual restrictions and other factors deemed relevant by our board of directors. Accordingly, the return on your investment in our ADSs will likely depend entirely upon any future price appreciation of our ADSs. There is no guarantee that our ADSs will appreciate in value or even maintain the price at which you purchased the ADSs. You may not realize a return on your investment in our ADSs and you may even lose your entire investment in our ADSs. The sale or potential sales of our ADSs in the public market could cause the price of our ADSs to decline. Sales of our ADSs in the public market, or the perception that these sales could occur, could cause the market price of our ADSs to decline. The ADSs representing our ordinary shares sold in our initial public offering are freely transferable by persons other than our “affiliates” without restriction or further registration under the Securities Act. The remaining ordinary shares outstanding will be available for sale, upon the expiration of a 180-day lock-up period from our initial public offering, subject to volume and other restrictions as applicable under Rules 144 and 701 under the Securities Act. To the extent ordinary shares are sold into the market, the market price of the ADSs could decline. Certain holders of our ordinary shares may cause us to register under the Securities Act the sale of their shares. Registration of these shares under the Securities Act would result in ADSs representing these shares becoming freely tradable without restriction under the Securities Act immediately upon the effectiveness of the registration. Sales of these registered shares in the form of ADSs in the public market could cause the price of our ADSs to decline. The voting rights of holders of ADSs are limited by the terms of the deposit agreement, and you may not be able to exercise your right to direct the voting of the underlying ordinary shares which are represented by your ADSs. As a holder of our ADSs, you will only be able to exercise the voting rights with respect to the underlying ordinary shares representing your ADSs in accordance with the provisions of the deposit agreement. Under the deposit agreement, you must vote by giving voting instructions to the depositary. Upon receipt of your voting instructions, the depositary will vote the underlying ordinary shares representing your ADSs in accordance with these instructions. You will not be able to directly exercise your right to vote with respect to the underlying ordinary shares representing your ADSs unless you withdraw the shares and become the registered holder of such shares prior to the record date for the general meeting. Under our Fourth Amended and Restated Memorandum and Articles of Association, the minimum notice period required for convening a general meeting is 15 days. When a general meeting is convened, you may not receive sufficient advance notice to enable you to withdraw the shares underlying your ADSs and become the registered holder of such shares prior to the record date of the general meeting to allow you to vote with respect to any specific matter. In addition, under our Fourth Amended and Restated Memorandum and Articles of Association, for the purposes of determining those shareholders who are entitled to attend and vote at any general meeting, our directors may close our register of members or fix in advance a record date for such meeting, and such closure of our register of members or the setting of such a record date may prevent you from withdrawing the shares underlying your ADSs and becoming the registered holder of such shares prior to the record date, so that you would not be able to attend the general meeting or to vote directly. Where any matter is to be put to a vote at a general meeting, the depositary will use its best endeavors to notify you of the upcoming vote and to deliver our voting materials to you. We cannot assure you that you will receive the voting materials in time to ensure that you can instruct the depositary to vote your shares. In addition, the depositary and its agents are not responsible for failing to carry out voting instructions or for their manner of carrying out your voting instructions. This means that you may not be able to exercise your right to vote and you may have no legal remedy if the shares underlying your ADSs are not voted as you requested. 54 Table of Contents Except in limited circumstances, the depositary for our ADSs will give us a discretionary proxy to vote the ordinary shares underlying your ADSs if you do not vote at shareholders’ meetings, which could adversely affect your interests. Under the deposit agreement for the ADSs, if you do not timely and properly give voting instructions to the depository as to how to vote the ordinary shares underlying your ADSs, the depositary will give us or our nominee a discretionary proxy to vote the ordinary shares underlying your ADSs at shareholders’ meetings if: • • • • • we have timely provided the depositary with notice of meeting and related voting materials; we have instructed the depositary that we wish a discretionary proxy to be given; we have informed the depositary that there is no substantial opposition as to a matter to be voted on at the meeting; a matter to be voted on at the meeting would not have a material adverse impact on shareholders; and the depository has received an opinion of counsel in form and substance satisfactory to the depository. The effect of this discretionary proxy is that if you do not timely and properly give voting instructions to the depository as to how to vote the ordinary shares underlying your ADSs at shareholders’ meetings, you cannot prevent such ordinary shares underlying your ADSs from being voted, except under the circumstances described above. This may make it more difficult for shareholders to influence the management of our company. Holders of our ordinary shares are not subject to this discretionary proxy. In addition, in the event that voting on any resolution or matter is conducted on a show of hands basis in accordance with our constituent documents, the depositary will refrain from voting and the voting instructions received by the depositary from holders shall lapse. 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 the deposit agreement or the transactions contemplated thereby or by virtue of owning the ADSs may only be instituted in a state or federal court in New York, New York, and you, as a holder of our ADSs, will have irrevocably waived any objection that you may have to the laying of venue of any such proceeding, and irrevocably submitted to the nonexclusive jurisdiction of such courts in any such action or proceeding. As a result, you, as a holder of our ADSs, may not initiate legal proceedings against or involving the depositary, arising out of or based upon the deposit agreement, the ADSs, the ADRs or the transactions contemplated therein or thereby, in any jurisdictions outside of a state or federal court in New York, New York, while proceedings against you may be initiated in a state or federal court in New York, New York or other jurisdictions. The depositary may, in its sole discretion, require that any dispute or difference arising from the relationship created by the deposit agreement be referred to and finally settled by an arbitration conducted under the terms described in the deposit agreement. The arbitration provisions in the deposit agreement do not preclude you from pursuing claims under federal securities laws in federal courts. Also, we may amend or terminate the deposit agreement without your consent. If you continue to hold your ADSs after an amendment to the deposit agreement, you agree to be bound by the deposit agreement as amended. ADSs holders may not be entitled to a jury trial with respect to claims arising under the deposit agreement, which could result in less favorable outcomes to the plaintiff(s) in any such action. The deposit agreement governing the ADSs representing our ordinary shares provides that, to the fullest extent permitted by law, ADS holders waive the right to a jury trial for any claim they may have 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 were to oppose a jury trial based on this waiver, the court would have to determine whether the waiver was enforceable based on the facts and circumstances of the case in accordance with applicable state and federal law. To our knowledge, the enforceability of a contractual pre-dispute jury trial waiver in connection with claims arising under the federal securities 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 the deposit agreement, or by a federal or state court in the City of New York, which has nonexclusive jurisdiction over claims against or involving ADS holders arising out of or based upon the deposit agreement, the ADSs, the ADRs or the transactions contemplated therein or thereby. In determining whether to enforce a contractual pre-dispute jury trial waiver, courts will generally consider whether a party knowingly, intelligently and voluntarily waived the right to a jury trial. We believe that this would be the case with respect to the deposit agreement and the ADSs. It is advisable that you consult legal counsel regarding the jury waiver provision before investing in the ADSs. If you or any other holders or beneficial owners of ADSs bring a claim against us or the depositary in connection with matters arising under the deposit agreement or the ADSs, including claims under federal securities laws, you or such other holder or beneficial owner may not be entitled to a jury trial with respect to such claims, which may have the effect of limiting and discouraging lawsuits against us or the depositary. If a lawsuit is brought against us or the depositary under the deposit agreement, it may be heard only by a judge or justice of the applicable trial court, which would be conducted according to different civil procedures and may result in different outcomes than a trial by jury would have, including outcomes that could be less favorable to the plaintiff(s) in any such action. 55 Table of Contents Nevertheless, if this jury trial waiver is not permitted by applicable law, an action could proceed under the terms of the deposit agreement with a jury trial. No condition, stipulation or provision of the deposit agreement or the ADSs serves as a waiver by any holder or beneficial owner of ADSs or by us or the depositary of compliance with any substantive provision of U.S. federal securities laws and the rules and regulations promulgated thereunder. Your right to participate in any future rights offerings may be limited, which may cause dilution to your holdings. We may from time to time distribute rights to our shareholders, including rights to acquire our securities. However, we cannot make such rights available to you in the United States unless we register both the rights and the securities to which the rights relate under the Securities Act or an exemption from the registration requirements is available. Under the deposit agreement, the depositary will not make rights available to you unless both the rights and the underlying securities to be distributed to ADS holders are either registered under the Securities Act or exempt from registration under the Securities Act. We are under no obligation to file a registration statement with respect to any such rights or securities or to endeavor to cause such a registration statement to be declared effective and we may not be able to establish a necessary exemption from registration under the Securities Act. Accordingly, you may be unable to participate in our rights offerings in the future and may experience dilution in your holdings. You may not receive dividends or other distributions on our ordinary shares and you may not receive any value for them, if it is illegal or impractical to make them available to you. The depositary of our ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian receives on ordinary shares or other deposited securities underlying our ADSs, after deducting its fees and expenses. You will receive these distributions in proportion to the number of ordinary shares your ADSs represent. However, the depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any holders of ADSs. For example, it would be unlawful to make a distribution to a holder of ADSs if it consists of securities that require registration under the Securities Act but that are not properly registered or distributed under an applicable exemption from registration. The depositary may also determine that it is not feasible to distribute certain property through the mail. Additionally, the value of certain distributions may be less than the cost of mailing them. In these cases, the depositary may determine not to distribute such property. We have no obligation to register under U.S. securities laws any ADSs, ordinary shares, rights or other securities received through such distributions. We also have no obligation to take any other action to permit the distribution of ADSs, ordinary shares, rights or anything else to holders of ADSs. This means that you may not receive distributions we make on our ordinary shares or any value for them if it is illegal or impractical for us to make them available to you. These restrictions may cause a material decline in the value of our ADSs. You may be subject to limitations on transfer of your ADSs. Your ADSs are transferable on the books of the depositary. However, the depositary may close its books at any time or from time to time when it deems expedient in connection with the performance of its duties. The depositary may close its books from time to time for a number of reasons, including in connection with corporate events such as a rights offering, during which time the depositary needs to maintain an exact number of ADS holders on its books for a specified period. The depositary may also close its books in emergencies, and on weekends and public holidays. The depositary may refuse to deliver, transfer or register transfers of our ADSs generally when our share register or the books of the depositary are closed, or at any time if we or the depositary thinks that it is advisable to do so because of any requirement of law or of any government or governmental body, or under any provision of the deposit agreement, or for any other reason in accordance with the terms of the deposit agreement. As a result, you may be unable to transfer your ADSs when you wish to. Certain judgments obtained against us by our shareholders may not be enforceable. We are an exempted company limited by shares incorporated under the laws of the Cayman Islands. We conduct substantially all of our operations in China and substantially all of our assets are located in China. In addition, a majority of our directors and executive officers reside within China, and most of the assets of these persons are located within China. As a result, it may be difficult or impossible for you to effect service of process within the United States upon these individuals, or to bring an action against us or against these individuals in the United States in the event that you believe your rights have been infringed under the U.S. federal securities laws or otherwise. Even if you are successful in bringing an action of this kind, the laws of the Cayman Islands and of the PRC may render you unable to enforce a judgment against our assets or the assets of our directors and officers. 56 Table of Contents Our memorandum and articles of association contain anti-takeover provisions that could have a material adverse effect on the rights of holders of our ordinary shares and ADSs. Our Fourth Amended and Restated Memorandum and Articles of Association contain certain provisions to limit the ability of others to acquire control of our company or cause us to engage in change-of-control transactions, including a provision that grants authority to our board of directors to establish and issue from time to time one or more series of preferred shares without action by our shareholders and to determine, with respect to any series of preferred shares without action by our shareholders, the terms and rights of that series. These provisions could have the effect of depriving our shareholders and ADSs holders of the opportunity to sell their shares or ADSs at a premium over the prevailing market price by discouraging third parties from seeking to obtain control of our company in a tender offer or similar transactions. 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 affairs are governed by our Fourth Amended and Restated Memorandum and Articles of Association, the Companies Act (As Revised) of the Cayman Islands and the common law of the Cayman Islands. The rights of shareholders to take action against the directors, actions by minority shareholders and the fiduciary duties of our directors to us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from the common law of England and Wales, the decisions of whose courts are of persuasive authority, but are not binding, on a court in the Cayman Islands. The rights of our shareholders and the fiduciary duties of our directors under Cayman Islands law are not as clearly established as they would be under statutes or judicial precedent in some jurisdictions in the United States. In particular, the Cayman Islands has a less developed body of securities laws than the United States. Some U.S. states, such as Delaware, have more fully developed and judicially interpreted bodies of corporate law than the Cayman Islands. In addition, Cayman Islands companies may not have standing to initiate a shareholder derivative action in a federal court of the United States. Shareholders of Cayman Islands exempted companies like us have no general rights under Cayman Islands law to inspect corporate records or to obtain copies of lists of shareholders of these companies (except for our memorandum and articles of association and our register of mortgages and charges). Our directors have discretion under our memorandum and articles of association, to determine whether or not, and under what conditions, our corporate records may be inspected by our shareholders, but are not obliged to make them available to our shareholders. This may make it more difficult for you to obtain the information needed to establish any facts necessary for a shareholder resolution or to solicit proxies from other shareholders in connection with a proxy contest. As a result of all of the above, our public shareholders may have more difficulty in protecting their interests in the face of actions taken by management, members of the board of directors or controlling shareholders than they would as public shareholders of a company incorporated in the United States. You must rely on the judgment of our management as to the use of the net proceeds from our initial public offering, and such use may not produce income or increase our ADS price. Our management will have considerable discretion in the application of the net proceeds received by us. You will not have the opportunity, as part of your investment decision, to assess whether proceeds are being used appropriately. The net proceeds may be used for corporate purposes that do not improve our efforts to achieve or maintain profitability or increase our ADS price. The net proceeds from our initial public offering may be placed in investments that do not produce income or that lose value. We are a foreign private issuer within the meaning of the rules under the Exchange Act, and as such we are exempt from certain provisions applicable to U.S. domestic public companies. Because we qualify as a foreign private issuer under the Exchange Act, we are exempt from certain provisions of the securities rules and regulations in the United States that are applicable to U.S. domestic issuers, including: • • • the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q or current reports on Form 8-K; the sections of the Exchange Act regulating the solicitation of proxies, consents, or authorizations in respect of a security registered under the Exchange Act; the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and liability for insiders who profit from trades made in a short period of time; and 57 Table of Contents • the selective disclosure rules by issuers of material nonpublic information under Regulation FD. We will be required to file an annual report on Form 20-F within four months of the end of each fiscal year. In addition, we intend to publish our results on a quarterly basis as press releases, distributed pursuant to the rules and regulations of the Nasdaq. Press releases relating to financial results and material events will also be furnished to the SEC on Form 6-K. However, the information we are required to file with or furnish to the SEC will be less extensive and less timely compared to that required to be filed with the SEC by U.S. domestic issuers. As a result, you may not be afforded the same protections or information that would be made available to you were you investing in a U.S. domestic issuer. As an exempted company incorporated in the Cayman Islands, we are permitted to adopt certain home country practices in relation to corporate governance matters that differ significantly from the Nasdaq corporate governance listing standards; these practices may afford less protection to shareholders than they would enjoy if we complied fully with the Nasdaq corporate governance listing standards. As an exempted company incorporated in the Cayman Islands that is listed on the Nasdaq, we are subject to the Nasdaq corporate governance listing standards. However, Nasdaq rules permit a foreign private issuer like us to follow the corporate governance practices of its home country. Certain corporate governance practices in the Cayman Islands, which is our home country, may differ significantly from the Nasdaq corporate governance listing standards. We have relied on and plan to rely on home country practice with respect to our corporate governance. Specifically, we do not plan to have a majority of independent directors serving on our board of directors or to establish a nominating committee and a compensation committee composed entirely of independent directors. For details, please refer to “Item 6. Directors, Senior Management and Employees—6.C. Board Practices— Board of Directors.” As a result, our shareholders may be afforded less protection than they otherwise would enjoy under the Nasdaq corporate governance listing standards applicable to U.S. domestic issuers. We were likely a passive foreign investment company, or PFIC, for 2021 and there is a significant risk that we will be a PFIC for 2022 and possibly subsequent taxable years, in which case U.S. investors will generally be subject to adverse U.S. federal income tax consequences. In general, a non-U.S. corporation is a passive foreign investment company (a “PFIC”) for U.S. federal income tax purposes for any taxable year in which (i) 75% or more of its gross income consists of passive income; or (ii) 50% or more of the value of its assets (generally determined on a quarterly average basis) consists of assets that produce, or are held for the production of, passive income. For purposes of the above calculations, a non-U.S. corporation that owns, directly or indirectly, at least 25% by value of the shares of another corporation is treated as if it held its proportionate share of the assets of the other corporation and received directly its proportionate share of the income of the other corporation. Passive income generally includes dividends, interest, rents, royalties and certain gains. Cash is a generally passive asset for these purposes. Goodwill is generally characterized as a non-passive or passive asset based on the nature of the income produced in the activity to which the goodwill is attributable. The assets shown on our balance sheet consist primarily of cash and cash equivalents, and while this continues to be the case our PFIC status for any taxable year depends largely on the value of our goodwill. The value of our goodwill for any taxable year may be determined in large part by reference to the average of our market capitalization for that year. Because generally our market capitalization has declined substantially since the beginning of 2021, if the value of our goodwill is determined by reference to the average of our quarterly market capitalization then we were likely a PFIC for our 2021 taxable year. Due to our declining market capitalization, there is a significant risk that we will also be a PFIC for 2022 and possibly future taxable years. In addition, the extent to which our goodwill should be characterized as a non-passive asset is not entirely clear. We have not obtained any valuation of our assets (including goodwill). U.S. holders of our ADSs or ordinary shares should consult their tax advisers regarding the value and characterization of our assets for purposes of the PFIC rules, which are subject to some uncertainties. Moreover, it is not entirely clear how the contractual arrangements between us, our wholly-owned subsidiaries, our VIEs and the shareholders of our VIEs will be treated for purposes of the PFIC rules, and we may be or become a PFIC for any taxable year if our VIEs are not treated as owned by us for these purposes. For these reasons, we cannot express an expectation as to our PFIC status for 2022 or any future taxable year. If we are a PFIC for any taxable year during which a U.S. taxpayer holds ADSs or ordinary shares, the U.S. taxpayer generally will be subject to adverse U.S. federal income tax consequences, including increased tax liability on disposition gains and “excess distributions” and additional reporting requirements. This will generally continue to be the case even if we cease to be a PFIC in a later taxable year, unless a “deemed sale” election is made. See “Item 10. Additional Information—10.E. Taxation—U.S. Federal Income Tax Considerations—Passive Foreign Investment Company Rules.” 58 Table of Contents ITEM 4. INFORMATION ON THE COMPANY 4.A. History and Development of the Company Corporate History We commenced operations and launched our livestreaming platform in 2014 with the establishment of Guangzhou Douyu. Wuhan Douyu was established in May 2015. In February 2016, Guangzhou Douyu and Wuhan Douyu entered into an asset and business transfer agreement, pursuant to which Guangzhou Douyu transferred all of its business operations and assets to Wuhan Douyu (the “2016 Wuhan Douyu Restructuring”). In February 2016, Wuhan Douyu, Wuhan Ouyue, the successor of Zhejiang Ouyue, which was acquired by Mr. Shaojie Chen in November 2015, and Mr. Chen entered into a series of contractual arrangements, by which Wuhan Douyu may exert control over Wuhan Ouyue and consolidate Wuhan Ouyue’s financial statements. In May 2018, such contractual arrangements were terminated and replaced by contractual arrangements between Douyu Yule, Wuhan Ouyue and Mr. Chen. In June 2016, each of Yuxing Tianxia, Yuyin Raoliang and Wuhan Yuwan was incorporated in the PRC by Wuhan Douyu. In November 2016, each of Douyu Education and Yu Leyou was incorporated in the PRC by Wuhan Douyu. These entities focus on entering into business contracts with streamers. In 2018, we undertook an equity restructuring in order to redomicile our business from the PRC to the Cayman Islands (the “2018 Restructuring”). We were incorporated in the Cayman Islands as the holding company of the Group, and through our wholly owned subsidiaries in the PRC, we entered into a series of contractual arrangements (“VIE agreements”) with Wuhan Douyu, Wuhan Ouyue, and their respective shareholders. As a result of these contractual arrangements, we exert effective control over, and are considered the primary beneficiary of, Wuhan Douyu and Wuhan Ouyue. In July 2019, we completed an initial public offering in which we and certain selling shareholders offered and sold an aggregate of 6,738,711 ordinary shares in the form of ADSs. On July 17, 2019, the ADSs began trading on the Nasdaq Global Select Market under the symbol “DOYU.” We are a holding company and do not directly own any substantive business operations in the PRC. We currently focus our business operations within the PRC through Douyu Yule and the VIEs. See “Item 3. Key Information—3.D. Risk Factors—Risks Related to Our Corporate Structure.” Wuhan Douyu, Wuhan Ouyue and their respective subsidiaries hold our ICP License, the License for Online Transmission of Audio/Video Programs, the Internet Culture Operation License, and other licenses or permits that are necessary for our business operations in the PRC. Our principal executive offices are located at 20/F, Building A, New Development International Center, No. 473 Guanshan Avenue, Hongshan District, Wuhan, Hubei Province, the People’s Republic of China. Our telephone number at this address is +86 27 8775 0710. Our registered office in the Cayman Islands is located at the offices of Maples Corporate Services Limited at PO Box 309, Ugland House, Grand Cayman KY1-1104, Cayman Islands. Our agent for service of process in the United States is Cogency Global Inc. located at 10 E. 40th Street, 10th Floor, New York, NY 10016. Our corporate website is www.douyu.com. The information contained in our website is not a part of this annual report. The SEC maintains an Internet site at http://www.sec.gov that contains reports, information statements and other information regarding issuers that file electronically with the SEC. Merger between Our Company and Huya and its Termination On October 12, 2020, we entered into an Agreement and Plan of Merger (“Merger Agreement”) dated October 12, 2020, with Huya, Tiger Company Ltd., a newly-formed company with limited liability, incorporated under the laws of the Cayman Islands and a direct wholly-owned subsidiary of Huya (“Merger Sub”), and, solely for the limited purposes set forth therein, Nectarine, under which Huya would acquire all the outstanding ordinary shares of us, including ordinary shares represented by ADSs, through a stock-for-stock merger (the “Merger”). 59 Table of Contents Concurrently with the execution of the Merger Agreement, we and Nectarine entered into a Reassignment Agreement dated October 12, 2020, pursuant to which Nectarine will assign its interests in the game livestreaming business operated by the Tencent group under the “Penguin e-Sports” brand (the “Penguin Business”) to us and deepen its business cooperation with us in order to integrate the Penguin Business with the business of the combined Huya and us upon the Merger, for a total consideration of US$500,000,000. On July 12, 2021, we entered into a termination agreement with Huya, Tiger Company Ltd. and Nectarine, pursuant to which the Merger Agreement dated October 12, 2020, including all schedules and exhibits thereto, and all ancillary agreements contemplated thereby or entered pursuant thereto, were terminated with immediate effect. We also entered into a termination agreement with Nectarine dated July 12, 2021, pursuant to which the Reassignment Agreement dated October 12, 2020, including all schedules and exhibits thereto, and all ancillary agreements contemplated thereby or entered pursuant thereto, were terminated with immediate effect. 4.B. Business Overview We are a leading game-centric livestreaming platform in China and a pioneer in the eSports value chain. We aim to build an integrated game- centric ecosystem of livestreaming, video, graphic content and other interactive and community features. We operate our platform both on PC and mobile apps, through which users can enjoy immersive and interactive games and entertainment livestreaming, access to a wide array of video and graphic contents, and participate in community events and discussions. Our platform attracts a large number of highly loyal and engaged user base through both organic growth and traffic acquisition. As of December 31, 2020 and 2021, we had 394.3 million and 433.4 million registered users on PC and mobile apps, respectively. Our average mobile MAUs on the mobile platform was 62.4 million for the fourth quarter of 2021, representing a 4.9% year-over-year growth from the fourth quarter of 2020. We believe our diverse content offerings and interactive product features allow us to retain user and promote their engagement level. Our average next- month active mobile user retention rate was 73.0% and 68.7% over the preceding 12-month periods as of December 2020 and December 2021, respectively. Our platform brings together a deep pool of streamers and provides a sustainable streamer development system. We entered into exclusive contracts with the top streamers to ensure a consistent supply of quality content. We supplement the exclusive contract model with the talent agency model, which captures a large group of promising and rising streamers. With years of experience, we have developed a well-designed system to discover, train and promote streamers who are already popular or have demonstrated the potential to become popular, and to help them grow and monetize their popularity. The passion for games and interactions among gamers and game enthusiasts extends beyond just playing. Against the backdrop of eSports’ booming popularity, we believe China has a massive and growing gamer community that is seeking interactive and engaging entertainment through game livestreaming, short video, graphic content and community discussions. As one of the first game-centric livestreaming platforms to make the foray into eSports, we are strategically positioned to benefit from the proliferation of the eSports industry in China. The eSports industry generates highly attractive content and helps to transform our platform into an engaged and vibrant community. Through our investments in and collaborations with a variety of participants across the value chain, we have gained coveted access to premium eSports content attracting millions of viewers to our platform, enabling us to organize our own tournaments and produce exclusive eSports content only available on our platform which further attracts users and improves their stickiness. Our average mobile eSports MAUs were approximately 34.0 million and 37.1 million in the fourth quarter of 2020 and 2021, respectively. We have been expanding our content offerings beyond eSports to cover more types of non-eSports games with an aim to satisfy our engaged users’ evolving needs and further incresase the size of our active user base. We have built a powerful technology infrastructure to help ensure an optimized user experience. The optimized user experience attracts a large number of users on our platform and enables us to collect and analyze vast amounts of behavioral data leveraging our big data analytics capabilities. Investing in user experience generates significant benefits for our platform. Through comprehensive content offerings and refined content categorization, customized recommendations and development of new products and features, we enhance user experience to attract new users and increase user loyalty. We employ a multi-channel monetization model. We believe the vibrant and interactive game community created on our platform drives user satisfaction, which provides diversified opportunities for user spending. Leveraging a large number of viewers and a deep pool of streamers, our monetization channels primarily include livestreaming and advertisement. Livestreaming is our main monetization channel and mainly involves sales of a wide array of virtual gifts. Our large and highly engaged user base attracts advertisers from a wide spectrum of industries, which has contributed to our advertising revenue. In addition, we generate a small portion of revenue from game distribution, which involves revenue-sharing arrangements with game developers and publishers. We believe these channels supplement each other and create future monetization potential. 60 Table of Contents OUR BUSINESS Content on Our Platform We are dedicated to providing a wide range of game-centric integrated content ranging from livestreaming, video, graphic contents to community features, with a primary focus on games, especially on eSports. We have been expanding our content offerings beyond eSports to cover more types of non-eSports games to further grow our user base. Our diverse content offering also covers other entertainment options such as talent shows, music and outdoor activities to better serve a broad user base and cater to diverse interests. Games Games content, especially eSports content, has been our focus since inception. A majority of our streamers were game streamers and game streaming also contributed significantly to the total viewing hours on our platform. Our massive user base, deep pool of top streamers and strong brand awareness allow us to secure coveted game content, especially eSports content. Leveraging our business acumen and insight, as well as big data capabilities, we in turn identify and promote top trending games. Our dynamic game streaming content is generated primarily from eSports. In addition to competitive eSports games, we also offer other games genres such as role-playing games, simulation games and console-based games. eSports We made the foray into eSports since inception and prioritized eSports in our business development. With our game-centric nature, brand awareness and well-established online distribution capabilities, we believe we are the partner of choice for various participants along the eSports industry. We attracted a large number of eSports viewers. In addition to streaming major eSports events and tournaments, we also sponsor or cooperate with professional players and teams, and organize our proprietary eSports tournaments to further grow our eSports viewer base. Coveted Access to Premium eSports Content By providing access to our massive user base, we have successfully fostered long-term partnerships with major game developers and leading eSports teams. As eSports content is primarily accessible online, game developers and publishers have been increasingly relying on livestreaming platforms to promote the awareness and popularity of newly published games. As a result, we may be uniquely positioned to help connect downstream users with upstream game developers. We believe livestreaming platforms such as our platform played a significant role in the commercial success of some of the major games today. This mutually beneficial relationship has solidified our partnerships with participants on the eSports industry. These partnerships give us access to premium quality eSports content that attracts a large number of enthusiastic viewers to our platform. Leveraging our collaborative relationships with major game developers and publishers, we stream official tournaments for some of the most popular eSports games. We differentiate ourselves from other platforms streaming eSports tournaments by creating our proprietary content involving popular streamers for better viewing experience. We believe that our proprietary content and features provided will further increase the popularity of eSports tournaments. On our official streaming channel, we produce commentary programs before and after matches to provide informed match previews and post-match reviews by professional players. In addition, our platform has incorporated an on-demand playback function and developed a series of relevant video clips, graphics and community discussions, all tailored to satisfying viewer demand and improving the viewing experience. eSports Team Professionals or Collaboration We sponsor, promote and collaborate with professional eSports teams who either display our brand in eSports tournaments or produce exclusive content, including play-through, training, tutoring and commentating on eSports tournaments. We sponsor various leading eSports teams internationally and domestically. Under our collaborative framework, we have the naming rights of certain teams we sponsor and their related products. We have the right to commercialize the popularity of their team members, and we may have exclusive intellectual property rights to certain content generated by the members of the teams we sponsor. We also have the right to arrange various activities and events for them and receive a portion or all of the revenues generated thereof. In return, we pay a sponsorship fee and promote the sponsored teams on our platform. Our sponsorship of eSports teams allows us to discover and recruit high-quality streamers more efficiently as professional players naturally have more competitive advantages in becoming top-performing game streamers. 61 Table of Contents Organization of eSports Tournaments In addition to streaming eSports tournaments and events held by others, we organize our own eSports tournaments, whose participants are often our streamers and viewers, which add on to the interactive nature of our platform and enhance the user experience. For example, in some of these self- organized tournaments our top streamers lead teams formed by our viewers to compete with each other. We livestream these tournaments and promote them by partnership with certain media outlets. Through our organization and promotion, we have propelled the popularity of a group of streamers who emerged from these competitions and have recruited many rising-star streamers. Our self-organized eSports tournaments further expand our content offering and bring monetization opportunities of selling sponsorship rights to third-party sponsors. Non-eSports Games We have been expanding our content offerings beyond eSports to cover more types of non-eSports games. We endeavor to cover more game genres, deepen cooperation with more game developers and strengthen the operation management of each game by leveraging our integrated content. Since non-eSports gaming content is better-viewed in the graphic and video format, we have upgraded our products to integrate livestreaming, video, graphics with community features, which we believe will enable us attract more high-quality gamers and content producers to our platform. Other entertainment content To accommodate our users’ diverse interests and retain our strong game-centric traffic, we have expanded our content to include a wide spectrum of livestreaming entertainment options, such as talent shows, music, outdoor and travel. This helps promote our brand, attract a diverse user base, increase user monetization potential and drive user engagement and retention. Video and graphics In addition to providing livestreaming content, we also offer video clips and graphics on our platform, which supplements our comprehensive content offerings to better serve users’ evolving needs. Our video and graphic contents are uploaded by livestreamers, content creators and users. Video clips include replays of selective livestreaming content and other engaging and diversified content. Graphics include game guides, tutorials, news and other types of content. We encourage our streamers and users to create and generate more videos and/or graphic content on our platform by introducing creative and user- friendly content production tools. The flexibility of video clips and graphic edits allow streamers and users to explore more content genres and therefore enhances user engagement. Community We organize and operate a wide array of game-specific communities on our platform, which offer high-quality game content that integrates livestreaming, video, graphics contents with community features, providing users with bespoke experience based on their game preferences. Normally, each community corresponds to one game. The community’s content display preference is tailored to each game’s characteristics and features, which is aimed to meet the diverse and evolving needs of our users, and to further foster user engagement and stickiness. Our Users We have a large and engaging young user base with willingness to spend and share on social networks. As of December 31, 2020 and 2021, we had 394.3 million and 433.4 million registered users on our PC and mobile apps, respectively. Our average mobile MAUs increased from 58.2 million in the fourth quarter of 2020 to 62.4 million in the fourth quarter of 2021. Expansion in our user base is mainly driven by traffic acquisition and organic growth, as a result of our diverse and high quality content product offerings and strong brand recognition, and may be impacted by seasonality in our business. Our users are attracted to and retained by our rich game-centric content and influential streamers. Our average mobile eSports MAUs were approximately 34.0 million and 37.1 million in the fourth quarter of 2020 and 2021, respectively. Our user base is also loyal and highly engaged. In 2021, our average next-month active mobile user retention rate was 68.7%, and was 73.0% in 2020. We strive to cultivate the paying habits of our users. Our quarterly average paying users were 7.6 million and 7.3 million in the fourth quarter of 2020 and the fourth quarter of 2021, respectively. 62 Table of Contents Given the lifestyle of younger generations, our users tend to be young individuals who enjoy eSports and other visual entertainment content through livestreaming, while socializing with others on a real-time basis. We target a young user base by establishing our brand in comprehensive gaming content and offering features popular among the younger generation on our platform. We believe their willingness to spend more time and to pay grows in parallel with their income as they age. Our Streamers Our streamers are the primary source of new content on our platform. A majority of our registered streamers and exclusive streamers were game streamers who are professional or recreational game players that enjoy playing games and sharing their skills and insights. Our streamers also include self-made entertainers such as singers who can utilize our platform to showcase their skills, talents and ideas. Being a new social phenomenon in China, streamers are similar to key opinion leaders or social icons who have gained popularity among the younger generation. As the population of streamer population grows and their needs to commercialize their popularity continue to rise, we believe we can serve as the medium to facilitate the monetization of this new social phenomenon. We entered into exclusive contracts with the top streamers. In addition, we entered into collaborative agreements with talent agencies which are associations of streamers that organize streaming activities for their member streamers and promote them. Talent agencies provide us with a diversified pool of streamers. For details, please refer to “—Streamer Engagement.” Streamer Engagement Our platform engages streamers in three ways: (i) exclusive contracts with streamers directly; (ii) contracts with streamer talent agencies to manage our streamers; and (iii) self-registration by streamers. Some streamers may belong to eSports clubs, which is also an important content producer on our platform. Similar to talent agencies, we generally enter into contracts with the eSports clubs directly to engage their members. Exclusive Contract Model Under this model, we enter into exclusive contracts with certain top individual streamers directly, or through tri-party contracts among us, certain top individual streamers and the talent agencies to which such streamers belong. The exclusive contract model is an important way to recruit and retain high-quality streamers. We believe our strategic focus on exclusive contracts with top streamers offers us unique competitive advantages as compared to other game-centric livestreaming platforms. Our exclusive contracts have exclusivity clauses that require streamers to livestream on our platform only during the contract term. In addition to revenue sharing of a portion of virtual gift sales and advertisement sales, we also set compensation terms based on the popularity of the content and the user traffic it generates. As such, our exclusive streamers are incentivized to produce engaging content that attracts more viewers and promotes spending on our platform. We have the right to commercialize the streamers and the content they produce as our intellectual property under the exclusive contract model. We promote and monetize the popularity of our exclusive streamers through online and offline commercial activities. The typical contract term is three to five years and may be renewable upon mutual consent. After signing, we are responsible for arranging commercial activities for them. Under this contract model, we may establish certain performance-based target for the exclusive streamers. Utilizing our big data analytic capabilities, we allocate the livestreaming hours for these streamers to match user activity levels to maximize our operational efficiency. We may also provide guidance over the content streamed by exclusive streamers. We have dedicated teams that focus on signing exclusive streamers broadcasting different genres of content to diversify our content offering. Talent Agency Model We also enter into collaboration agreements with talent agencies to manage our streamers. Talent agencies are responsible for recruiting, training, managing and promoting their own member streamers, and are also responsible for organizing streaming activities on our platform. We usually pay talent agencies a portion of the virtual gift sales, which are typically redistributed to their members. Contracting with talent agencies is an important component of our operations. It contributes to our revenue and ability to discover and recruit diversified streamers in an efficient way. We can access a diverse range of streamers by entering into collaboration contracts with their talent agencies. Under the talent agency model, we provide guidance on content monitoring to the talent agencies, who in turn manage and promote their members. All talent agencies and their members must comply with our guidance and policies. 63 Table of Contents Self-Registration Model A large number of streamers self-registered on our platform to share their enthusiasm in games. The self-registered streamers are usually attracted to our platform by virtue of our reputation and scale. They form a large talent pool providing steady supply of future popular streamers. Streamer Discovery and Development With the help of our comprehensive performance metric analytical system, we identify top streamers with potential, with whom we seek to sign exclusive contracts. These metrics include the quality of a streamer’s content, activity levels and user engagement. After identifying streamers with potential, we put them into different categories according to the demographics that they likely will appeal to and help direct traffic from their target users. If these streamers perform well after a monitoring period, we may sign exclusive contracts with them and help further promote them. Leveraging our unique industry insights and proprietary big data analytics capabilities, we establish development plans for streamers which not only optimize the content they produce, but also help guide the streamers to focus on trendy topics and increasing the streamers’ positive public exposure. We promote streamers’ content on and outside of our platform, boost their popularity through traditional media channels and provide them with opportunities to attend online and offline activities where they can further increase public exposure, such as Yule Ceremony (“鱼乐盛典”). Streamer Retention We retain our top streamers by increasing the attractiveness of our platform. Our streamers enjoy broad exposure to a large user base on our network. We also invest in streamers’ professional development by providing online and offline promotion activities to propel them to greater stardom. We take steps to mitigate the risk of losing our streamers to other platforms. For every streaming genre or section, we have several top streamers that are in friendly competition with each other to avoid a monopoly by one streamer. This also helps to attract viewers who may be viewing at different times of the day. We also try to discover and cultivate emerging streamers to continuously replenish our streamer base. Our streamers are also subject to certain non-compete clauses during or after the contract period. Monetization Opportunities We generate revenue through sales of virtual gifts during livestreaming, advertisement services and others. Livestreaming We derive a substantial portion of our revenues from livestreaming, mainly from the sale of virtual gifts. In 2019, 2020 and 2021, we generated RMB6,617.3 million, RMB8,852.2 million and RMB8,596.6 million (US$1,349.0 million) respectively from livestreaming, representing 90.9%, 92.2% and 93.8% of our total net revenues for the same periods. In 2021, we had a total of 17.5 million annual paying users. Users are able to purchase virtual gifts on our platform using our virtual currency and send them to streamers as a gesture of appreciation or support. Users can purchase the virtual currency on our site via various online third-party payment platforms. In addition to purchasing these virtual currencies on our site, users can purchase virtual currencies from our online store at third-party websites such as Tmall.com. The price of our virtual currency does not change and virtual currency does not expire. However, virtual currency is non-refundable and may not be converted back to cash or be transferred between users. When a streamer receives a virtual gift, that virtual gift is displayed in his or her profile. We share with our streamers revenue from virtual gift sales. We also offer other subscription-based privileges to incentivize user spending, such as our premium monthly subscription service, a prepaid package that encourages user spending. A wide variety of virtual gifts are available to our users, with prices ranging from approximately RMB0.1 to approximately RMB2,000. We provide an innovative and diverse selection of virtual gifting to convert our active users to paying users and constantly release new virtual goods related to events and trendy topics to increase sales. In addition, we organize streamer popularity contests to promote spending by viewers to show support of the streamers they follow. 64 Table of Contents Advertisement and Others We generate revenues from advertisement and other services, including brand advertisements, game advertisements and to a lesser extent, game distribution. Our advertisement and other revenue was RMB665.9 million, RMB749.7 million and RMB568.7 million (US$89.2 million) respectively in 2019, 2020 and 2021, which constituted approximately 9.1%, 7.8% and 6.2% of our total revenues for the same periods. Advertisement Our value proposition to advertisers is driven by our strong brand recognition and massive and engaged user base. We offer a full suite of precise and effective advertisement products and marketing strategies, attracting a large number of advertisers. We distribute advertisements ways such as: (i) integrated promotion activities during livestreaming, where advertising partners integrate their service or products with livestreaming programs through active promotion by our streamers; (ii) traditional display advertisements in various areas of our platform; and (iii) online and offline events- related advertisements. As integrated promotion activities and online and offline events-related advertisements cause fewer interruptions to our users while offering greater potential due to less time and space restrictions than traditional display advertisements, they are an important part in our advertisement revenue. We expect such advertising format to contribute an increasing portion of advertisement revenues. Our streamers must sign advertisement contracts with us and are entitled to a portion of the fees. A direct contract between the advertiser and our streamer is not permitted. The price of our advertising services depends on various factors, including the form and size of the advertisement, the popularity of the content or event in which the advertisements will be placed and specific targeting requirements. Our traditional display advertisements include, but are not limited to, full screen advertisements, slides, banners, links, videos, logos and buttons. We offer advertisement placements on our home page or prior to streaming. Such placements may stay on the top or bottom of the streaming interface or appear as pop-ups. For integrated promotion activities during livestreaming, we usually cooperate with third-party advertising agencies to identify advertisers to place orders with us. For traditional display advertisements, we usually work with advertisers directly. Our advertising agency partners include members of the American Association of Advertising Agencies, or the 4As, and other leading Chinese advertising agencies. We have been building connections with our advertisers and plan to sign more contracts with them directly going forward. Our brand and game advertising contracts are usually in the form of collaborative frameworks for a given period of time. Brand advertising contracts require third-party agencies to generate sales exceeding certain thresholds and the third-party advertising agencies are generally billed upon each advertisement and are required to pay promptly. For game advertisements, we provide links to the advertisers’ games on our platform and are entitled to fees such as incentive fees for effective registration solicited through our platform, and we also utilize soft-product placements or ask our hosts to produce play-throughs of the games we promote. Others We also generate a small portion of our revenues from other services, including game distribution. With many of our audience being gamers, we believe our platform is a prime gateway for distributing games from developers and publishers to their target customers. Based on revenue-sharing contracts with developers and publishers of mobile and web-based games, we usually receive fees based on transaction volume our platform relating to the games we distribute. These revenue-sharing arrangements are usually in the form of collaborative frameworks for a period of time, which may be renewed in good faith upon expiration. Our Platform Our platform offers unique features to our users, such as content recommendation and search, data analytic tools and room control. With its diverse content offering and advanced technological features, we believe our platform creates an interactive, engaging and fun community. Livestreaming Process and Platform Interface We operate our platform both on PC and mobile apps, through which users can enjoy immersive and interactive games and entertainment livestreaming. 65 Table of Contents Streaming Process Livestreaming is conducted in the form of real-time streaming units, also known as rooms or channels, on our website, mobile apps. The following flow chart illustrates the viewing and streaming process: To broaden our user base, we allow users to watch livestreaming on our platform without registration, either through our website or mobile apps. To become a streamer, a user must register on our platform and verify his or her identity with a government issued ID. As a result, certain of our streamers are also active users as well as paying users on our platform. After the streamer’s identity is verified, he or she may apply to create a new room for streaming. Once a room or channel is created, our streamers may customize video, audio and other room settings. We provide streamers and room managers with administrative accounts and they are responsible for monitoring and ensuring that their rooms’ content comply with our terms of service. We usually assign one room to one streamer, who can then connect with other streamers using our livestreaming platform to co-stream together. During streaming, viewers are able to interact with streamers and with each other mainly through bullet chats, and browse game-related and other content in the livestreaming room. Access Our Streaming Platform Viewer Access We developed a web-based streaming portal and its supplemental applications as well as mobile streaming apps to provide comprehensive viewing experiences for our viewers. Viewers can access our platform via our web portal at www.douyu.com or PC application Douyu PC Client Portal (“斗鱼 PC客户端”). Alternatively, viewers can download our mobile app Douyu Livestreaming (斗鱼直播) free of charge. Our web portal and mobile streaming app offer substantially similar functions and features, with our mobile streaming app providing simplified and easy to use functions tailored for mobile users. Viewer Features Our viewers have access to the following features: Watching, following and sharing. When watching a livestream or videos on our platform, viewers have the option to specify screen resolutions, screen size and stream quality, or have the platform automatically adjust the settings based on their Internet connection. Viewers may choose to click on the “follow” button in a stream room to follow the streamer and receive notifications for future streaming. Viewers are also able to share links to livestreams on social media platforms. Interaction. Bullet chatting is featured on our platform to allow viewers to post messages that glide across the screen. Bullet chats are visible by all viewers who watch the same livestream, stimulating interactions among viewers. Viewers can also communicate with each other or the streamer in real time through our regular chat room function. Lastly, viewers can initiate direct voice chat requests with the streamers. Content catalog and recommendations. With our advanced matching algorithm and massive user data base, we are able to generate an individualized front page containing content recommendations for each user after they have signed in. To help our users navigate and explore our selection of livestreaming rooms, we have created online catalogs grouped by categories for our users. These online catalogs are also searchable by keywords, game titles, streamers’ names and room numbers. Purchasing and gifting. Viewers can purchase various virtual gifts on our platform with virtual currencies and send them to streamers. In addition, we offer features such as “Streamer Tailor-made Gifts” that allow top streamers to design unique gifts to be purchased by their followers. See “— Monetization Opportunities—Livestreaming.” Purchases and payments may also be made through third-party platforms. Other social features. We also develop new products and features to enhance user experience and increase user engagement. For example, each livestreaming room is embedded with a plug-in, namely Hot Chat (“热议”), which collects and displays all the hot topics and user posts on our platform. In addition, our users, streamers and game developers may join Yu Bar (“鱼吧”), a short- blogging community where all participants can interact with each other by posting and replying to short blogs. Yu Bar offers and witnesses a significant amount of interactions including posts, responses, likes and forwards. 66 Table of Contents Streamer Access In addition to accessing our PC portal and mobile applications, streamers can easily livestream through the streaming applications we specifically developed for them, including our PC application Douyu Streaming Assistant (“斗鱼直播伴侣”) and the mobile app Douyu Game-centric Streaming Assistant (“斗鱼直播助手”). With our mobile app, our streamers can stream anywhere and anytime. Streaming outdoor activities, which has become popular among younger users, is made more convenient with our mobile app. Streamer Features Our streamers have access to the following features to optimize the streaming experience: Streaming and uploading. Our platform synchronizes and integrates multimedia streams, including audio and video streams and picture display, into one livestreaming output. Streamers can easily start livestreaming utilizing our easy-to-use interface. Streamers may also appoint room managers, make announcements, send notifications to viewers and change the room’s title. Other than livestreaming, streamers can store streaming archives on Douyu Streaming Video (“斗鱼视频”) and upload to their profile page for their followers to watch or revisit after the livestreaming. Streamers may also set up an account in Yu Bar (“鱼吧”), a short-blogging community where they can interact with their followers by posting and replying to short blogs. Performance analytical tools. Our platform provides certain analytical tools for streamers to monitor their performance statistics in real time. These performance statistics include peak number, current number and cumulative number of viewers in the room, number of chats and comments, average time watched per user and number of virtual gifts received. Facial beautification. Streamers on our platform can utilize the beautification tools on our platform to improve their appearances during streaming. Our facial beautification feature has been serving many streamers as a useful tool since its launch. Our Technology Our advanced technology infrastructure and capabilities allow us to efficiently and effectively provide our services with superior user experience. Our platform incorporates the following features: Proprietary P2P Technology Our internally developed CDN and P2P technologies bring advanced distribution and transmission technologies with a high utilization rate and improved distribution effect. Our technologies have refined bandwidth resource scheduling capability and infrastructure framework to reduce redundant overhead, and enable proactive self-adjustment of resource distribution based on the prediction of the bandwidth usage throughout the whole platform. Our technologies also optimize costs by leveraging the preferential billing rates of some suppliers. Video and Audio Quality We strive to adopt the latest video and audio industry standards across multiple devices and networks. Our state-of-the-art technology allows us to provide smooth audio-visual transmission while minimizing the bandwidth used in the transmission of our content, while minimizing to minimize data loss and jitter. Our mobile apps are designed to run smoothly on all mobile phones. Our PC and mobile apps support blue-ray high quality livestreaming. Content Recommendation Since 2016, we have invested considerable resources in developing and implementing an individualized content recommendation system. This system is built on the user data that we have accumulated over the years, analyzed through algorithms embedded in our cutting-edge AI and machine learning capabilities. Our content recommendation system precisely matches users with their favorite kinds of content. We have also upgraded our platform’s search function to support multiple forms of content. By enabling searching and accessing historical livestreams, videos and visual graphic content on our platform, we believe we are able to better satisfy users’ search queries for specific game content. 67 Table of Contents Image Recognition Leveraging advanced cloud-based recognition technology, we are able to add tags to the livestreaming content on a real-time basis, which allows the users to perform real-time secondary screening based on streaming content. Advanced Streaming Capabilities Our technology infrastructure enables real-time multicast video streaming and communication between users across multiple devices. The technology infrastructure underlying our platform can support simultaneous viewing from tens of millions of devices. Utilizing peer-to-peer technology, we have also minimized the bandwidth used in transmission of our content. We believe our advanced video compression techniques enable better streaming experience. Cloud-based Network Infrastructure Our team of experts developed a cloud-based network infrastructure specifically designed to handle multi-party audio-and video-enabled real-time online interactions. We own several servers that are hosted in three Internet data centers in China. Our cloud-based network infrastructure provides quality data delivery and allows multiple users to interact online from anywhere in China easily and with minimal delay. We engaged multiple industry leading cloud service providers in China to maintain our network infrastructure. Automated Production of Content Leveraging our proprietary audio and video recognition technology, users are able to grade the videos on our platform, which allows us to quickly identify and capture high-quality content. After the high-quality content is identified, such content will be automatically edited and uploaded to our platform, making it more accessible to our users. Content Monitoring System Our livestreaming platform contains real-time content, which we monitor to maintain a healthy ecosystem and ensure compliance with PRC laws and regulations. We have developed a comprehensive system to monitor content on our platform and filter inappropriate and illegal content and content that may infringe on the intellectual property rights of third parties. We developed the following mechanisms to monitor the content on our platform: • • • • AI-backed Automatic Detection Process. We utilize an automatic system to monitor our platform and the data generated in our system for sensitive key words or questionable materials on a real-time basis. The text identification system screens text content based on preset key words and an anti-spam system; the picture identification system screens picture content based on optical character recognition and illegal content detection; and the audio identification system screens audio content by converting it into text content and analyzing for illegal content. We have also developed an in-house proprietary monitoring system that takes screenshots of our livestreaming channels every 10 seconds based on our “smart” image detection technology. Our system has machine learning capability and will update our database automatically. Manual Review. All of the automatic detection results that are escalated are reviewed by our content monitoring staff manually. We have a dedicated content monitoring team who also proactively check our rooms on a 24/7 basis for inappropriate or illegal content. Self-regulation system by streamers, room managers. We require streamers and room managers to monitor the content in their rooms and ensure that their rooms’ content complies with our terms of service. We provide streamers and room managers with administrative accounts, which give them special privileges such as forcibly removing or banning viewers from the room. Streamers and room managers are incentivized to ensure the compliance of their room with our terms of service pursuant to our policies. Report by users. Our users are encouraged to report any noncompliance of our terms of service via the “report” button on our website and mobile apps. We review users’ reports on a 24/7 basis and strive to resolve each report within 90 seconds. Reporting users are entitled to awards in the form of our virtual currency, should their reports be considered valid. We deal with violations of varying severity in accordance with our strict policies and applicable regulations. Our actions may include warnings, cutting off or temporary suspension of the room and/or account for minor violations, with follow-up reviews to ensure effective enforcement and rectification. For serious violations, the relevant account is deleted permanently and all virtual currency and items are forfeited, and the room may be permanently closed. Our streamers agree to indemnify us for all damages arising from third-party claims against us caused by the infringing content produced by them. 68 Table of Contents Teenager Mode We also place great emphasis on the protection of minors. When our users sign in our platform, a pop-up window will automatically be opened and our users can elect to be identified as a teenager. Once identified as a teenager, our users will sign into our teenager mode, where we would filter out and display contents that are suitable for minors. The users of teenager mode are not allowed to purchase virtual gifts or currencies, send virtual gifts, send bullet chats, or host livestreaming on our platform. In addition, the users of teenager mode are prohibited from accessing our platform from 10 p.m. to 6 a.m every day. In teenager mode, if the total time spent in a single day exceeds 40 minutes for a user, the user will be required to enter the guardianship password to continue using our platform. Our Relationship with Tencent Tencent became a shareholder of Wuhan Douyu, one of our wholly-owned subsidiaries, in April 2016 when it purchased certain of Wuhan Douyu’s shares through Linzhi Lichuang, an entity controlled by Tencent. Tencent subsequently increased its investment in Wuhan Douyu by purchasing shares in Wuhan Douyu’s subsequent rounds of financing and in our company by subscribing for Series E Preferred Shares. As of March 31, 2022, Tencent holds approximately 38.0% of our total outstanding ordinary shares (excluding 259,743 ordinary shares issued to Douyu Employees Limited, our employee shareholding platform established for the RSUs granted under the Amended and Restated 2018 RSU Scheme and 2,560,562 ordinary shares repurchased in the form of ADSs) through its wholly-owned subsidiaries, Nectarine and Distribution Pool Limited, representing 38.0% of our total voting power. See “Item 6. Directors, Senior Management and Employees—6.E. Share Ownership.” On December 20, 2017, we and Tencent, through our respective PRC affiliated entities, entered into a strategic cooperation agreement, which became effective on January 31, 2018 and was subsequently replaced by the Amended and Restated SCFM dated April 1, 2019. Pursuant to the Amended and Restated SCFM, the parties agreed to pursue strategic cooperation in various areas of game livestreaming, advertisement and game distribution. We plan to promote content related to games owned by or licensed to Tencent at certain prominent places of our platform. The specific location, content, and operations of the cooperation between Tencent and us are subject to further negotiation pursuant to market principles. The Amended and Restated SCFM has a term of three years, which may be renewed if certain conditions are met. We also use CDN, P2P streaming technologies, online payment and website technology support services provided by Tencent and engage in other related party transactions with Tencent. See “Item 7. Major Shareholders and Related Party Transactions—7.B. Related Party Transactions.” For risks in connection with our relationship with Tencent, see “Item 3. Key Information—3.D. Risk Factors—Risks Related to Our Business and Industry—We may not realize the benefits we expect from our strategic cooperation with Tencent, which may materially and adversely affect our business and results of operations” and “Item 3. Key Information—3.D. Risk Factors—Certain existing shareholders have substantial influence over our company and their interests may not be aligned with the interests of our other shareholders.” Branding and Marketing Leveraging our diverse and quality content offerings, optimal user experience and deep pool of talented streamers, we believe that we have built significant goodwill and brand awareness among viewers and streamers. Our market position benefits significantly from our large and engaged user base and word-of-mouth effect. In addition to word-of-mouth marketing, we also leverage our position in the eSports industry, and promote our brand awareness by sponsoring leading eSports teams and organizing proprietary eSports tournaments. We host many online and offline activities to enhance our brand recognition and positive publicity. For example, Yule Ceremony (“鱼乐盛典”), which was an award event for popular streamers and has since become a symbolic game pop culture event in China. Competition The game-centric content offering service is an emerging industry in China. As one of the leading players in this market, we face competition from providers of similar services, and other online entertainment platforms. Other game-centric livestreaming competes directly with us for viewers and streamers. In addition, we compete with other large video streaming platforms, short or medium video platforms, social media platforms and other platforms offering online entertainment. We believe that our ability to compete effectively for users depends upon many factors, including the quality and variety of our content, user experience on our platform, recruitment and retention of top streamers, capability to adjust to changes in technology and customer tastes and the strength of our brands. 69 Table of Contents Licenses and Approvals The following table sets forth a list of material licenses and approvals, subject to further renewal, that our PRC subsidiaries and VIEs are required to obtain to carry out our operations in China. Entity Holding the License Wuhan Douyu Type of the Entity VIE License License for Value-added Telecommunications Business License for Online Culture Business License for Commercial Performance License for Online Transmission of Audio-visual Programs License for Production and Operation of Radio and Television Programs License for Online Culture Business License for Commercial Performance License for Value-added Telecommunications Business License for Commercial Performance Intellectual Property Wuhan Douyu Wuhan Douyu Wuhan Ouyue Wuhan Ouyue Wuhan Ouyue Wuhan Ouyue Wuhan Ouyue Douyu Yule VIE VIE VIE VIE VIE VIE VIE Regulatory Authority Communications Administration of Hubei Province Bureau of Culture and Tourism of Wuhan Municipality Administration Committee of Wuhan East Lake High-Tech Development Zone (former) National Administration for Press, Publication, Radio and Television Administration for Radio and Television of Hubei Province Bureau of Culture and Tourism of Wuhan Municipality Administration Committee of Wuhan East Lake High-Tech Development Zone Communications Administration of Hubei Province Wholly Foreign- owned Enterprise Department of Culture and Tourism of Hubei Province We regard our proprietary domain names, copyrights, trademarks, trade secrets and other intellectual property as critical to our operations. We rely on a combination of patents, copyrights, trademarks and trade secret laws to protect our intellectual property. As of December 31, 2021, we had registered: • • • • 477 trademarks in China, including the logo for douyu.com; 61 domain names, including douyutv.com, douyu.tv and douyu.com; 1,899 patents in China, three patents in the United States; and 96 software copyrights in China, relating to all of our online communities and other products. As of December 31, 2021, we had 145 pending trademark applications in China and other jurisdictions, including but not limited to the United States, Japan, European Union, Singapore, Malaysia, Thailand, Indonesia and Turkey. As of December 31, 2021, we have submitted 1,047 pending patent applications independently or jointly with third parties in China. Substantially all of our intellectual property is owned by Wuhan Douyu, and certain trademarks, copyrights and domain names are owned by Wuhan Ouyue for the purpose of maintaining and renewing their operating licenses as required by relevant PRC government authorities. Douyu Yule obtained certain patents and copyrights in 2020. We implement comprehensive measures to protect our intellectual property in addition to making trademark and patent registration applications. Our key measures to protect our intellectual properties include: (i) trademark searches prior to the launch of our new products; (ii) timely registration and filing with relevant authorities and application of intellectual property rights for our significant technologies and self-developed software; and (iii) overall source code protection of proprietary information. 70 Table of Contents Regulation Regulations Relating to Foreign Investment The Foreign Investment Law of the PRC, adopted by the National People’s Congress on March 15, 2019 and its Implementing Regulation adopted by the State Council on December 12, 2019 became effective on January 1, 2020. Pursuant to the Foreign Investment Law of the PRC, China will grant national treatment to foreign invested entities, except for those foreign-invested entities that operate in industries that fall within “restricted” or “prohibited” categories as prescribed in the “negative list” to be released or approved by the State Council. On December 31, 2019, the Ministry of Commerce and the SAMR jointly promulgated the Measures for Information Reporting on Foreign Investment, which became effective on January 1, 2020. Pursuant to the measures, where a foreign investor directly or indirectly carries out investment activities in the PRC, the foreign investor or the foreign-invested enterprise must submit the investment information to the competent commerce department for further handling. On December 27, 2021, the Ministry of Commerce and the NDRC promulgated the Special Administrative Measures for Entrance of Foreign Investment, or the Negative List, which came into effect on January 1, 2022. Pursuant to the Negative List, foreign investors should refrain from making investment in any of prohibited sectors specified in the Negative List, and foreign investors are required to obtain the permit for access to other sectors that are listed in the Negative List but not classified as “prohibited.” In December, 2020, the NDRC and the Ministry of Commerce promulgated the Measures for the Security Review of Foreign Investment, which came into effect on January 18, 2021. The NDRC and the Ministry of Commerce will establish a working mechanism office in charge of the security review of foreign investment. Such measures define foreign investment as direct or indirect investment by foreign investors in the PRC, which include: (i) investment in new onshore projects or establishment of wholly foreign owned onshore companies or joint ventures with foreign investors; (ii) acquiring equity or asset of onshore companies by merger and acquisition; and (iii) onshore investment by and through any other means. Foreign investment in certain key areas with national security concerns, such as important cultural products and services, important information technology and Internet products and services, key technologies and others which results in the acquisition of de facto control of invested companies, shall be filed with a specifically established office before such investment is carried out. What may constitute “onshore investment by and through any other means” or “de facto control” is not clearly defined under such measures, and could be broadly interpreted. It is likely that control through contractual arrangement be regarded as de facto control based on provisions applied to security review of foreign investment. Failure to make such filing may subject such foreign investor to rectification within a prescribed period, and the foreign investor will be negatively recorded in the relevant national credit information system, which would then subject such investor to joint punishment as provided by relevant rules. If such investor fails to or refuses to undertake such rectification, it would be ordered to dispose of the equity or asset and to take any other necessary measures so as to return to the status quo and to erase the impact to national security. We are a Cayman Islands company and our businesses by nature in China are mainly value-added telecommunication services and online culture services, which are restricted or prohibited for foreign investors by the Negative List. We conduct business operations that are restricted or prohibited for foreign investment through the VIEs. Regulations Relating to Telecommunications Services In September 2000, the State Council issued the Regulations on Telecommunications in China, or the Telecommunications Regulations, as amended on July 29, 2014 and February 6, 2016, to regulate telecommunications activities in China. The Telecommunications Regulations set out basic guidelines on different types of telecommunications business activities in China. According to the Catalog of Telecommunications Business (2015 Amendment), or the Telecom Catalog, implemented on March 1, 2016 (as amended on February 6, 2019), Internet information services constitute a type of value-added telecommunications service. The Telecommunications Regulations require operators of value-added telecommunications services to obtain value-added telecommunications business operation licenses from the MIIT, or its provincial branches prior to the commencement of such services. The Telecommunication Regulations categorize all telecommunication businesses in the PRC as either basic or value-added. The Telecom Catalog, which was issued as an attachment to the Telecommunication Regulations and most recently updated on June 6, 2019, further categorizes value-added telecommunication services into two classes: class I value-added telecommunication services and class II value-added telecommunication services. Information services provided via cable networks, mobile networks or Internet fall within class II value-added telecommunications services. 71 Table of Contents The Regulations for the Administration of Foreign-Invested Telecommunications Enterprises, or the FITE Regulations, which took effect on January 1, 2002 and were amended on September 10, 2008 and February 6, 2016, regulate foreign direct investment in telecommunications companies in China. The FITE Regulations stipulate that foreign investors are generally prohibited from holding more than 50% of equity interest in a foreign- invested enterprise that provides value-added telecommunications services, including, among others, provisions of Internet content. In addition, foreign investors are required to have sufficient experience operating value-added telecommunications business when applying for the MIIT’s value-added telecommunications business operation license. On April 7, 2022, the State Council of the PRC issued the Decision to Amend and Abolish Certain Administrative Regulations, which makes amendments to the FITE Regulations. The amendments include, among others, removing the performance and operational experience requirements for foreign investors that hold equity interest in PRC companies conducting value-added telecommunication business as set out in the FITE Regulations. The amended regulations will take effect on May 1, 2022. On July 13, 2006, the Ministry of Information Industry (which is the predecessor of MIIT) issued the Circular on Strengthening the Administration of Foreign Investment in Value-added Telecommunications Services, or the MIIT Circular 2006, which provides that: (i) foreign investors can only operate a telecommunications business in China through telecommunications enterprises with a valid telecommunications business operation license; (ii) domestic license holders may not rent, transfer or sell telecommunications business operation licenses to foreign investors in any form or provide any foreign investors with resources, venues or facilities to promote unlicensed operations of telecommunications businesses in China; (iii) value-added telecommunications service providers or their shareholders must directly own the domain names and registered trademarks that are used in their daily operations; (iv) each value-added telecommunications service provider must have necessary facilities for its approved business operations and maintain such facilities in the geographic regions specified in its license; and (v) all value-added telecommunications service providers should improve their network and information security, establish a relevant information safety system and set up emergency plans to ensure network and information safety. Pursuant to the Measures on Telecommunications Business Operating Licenses (2017 Revision), or the Telecom License Measures, promulgated by the MIIT on March 1, 2009 and last amended on July 3, 2017, any approved telecommunications services provider shall conduct its business in accordance with the specifications in its license for value-added telecommunications services, or VATS License. The Telecom License Measures further prescribes types of requisite licenses for VATS Licenses together with qualifications and procedures for obtaining such VATS Licenses. Based on the Notice regarding the Strengthening of Ongoing and Post Administration of Foreign Investment Telecommunication Enterprises issued by the MIIT in October 2020, the MIIT will not issue Examination Letter for Foreign Investment in Telecommunication Business. Foreign invested enterprises would need to submit relevant foreign investment materials to MIIT for the establishment or change of telecommunication operating permits. Regulations Relating to Internet Information Services The Administrative Measures on Internet Information Services, or the ICP Measures, issued by the State Council on September 25, 2000 and amended on January 8, 2011, regulate provisions of Internet information services in the PRC. According to the ICP Measures, Internet information services refer to provisions of information through the Internet to online subscribers, including commercial and non-commercial services. Pursuant to the ICP Measures, commercial Internet information service providers shall obtain ICP Licenses from relevant PRC local authorities before engaging in commercial Internet information services in China. In addition, according to applicable PRC laws, administrative regulations or rules, providers of Internet information services in respect of news, publishing, education, medical treatment, health, pharmaceuticals or medical apparatuses shall obtain consent of the relevant PRC competent authority before applying for an operating permit or carrying out record-filing procedures. Additionally, the ICP Measures and other relevant measures also prohibit publication of any content that propagates, among others, obscenity, pornography, gambling and violence, incites the commission of crimes or infringes upon the lawful rights and interests of third parties. If an Internet information services provider detects that information transmitted on its system falls under the specified prohibition, such provider must immediately terminate the transmission and delete the information and report it to the government authorities. Any provider’s violation of these prohibitions, in serious cases, will lead to revocation of its ICP License and shutdown of its Internet systems. On January 8, 2021, the State Council issued the Revised Draft for Comment of the ICP Measures, or the ICP Measures Draft, which reinforces the responsibilities of Internet information services providers and includes: (i) establishing a review system of content publication, (ii) verifying the truthfulness of identity of users; and (iii) protecting the privacy and safety of personal information. As of the date of this annual report, the ICP Measures Draft is not effective regulation. 72 Table of Contents Regulations Relating to Mobile Internet Applications Information Services In addition to the Telecommunications Regulations and other regulations above, mobile applications (“APPs”) and the Internet application store (the “APP Store”) are specially regulated by the Regulations for the Administration of Mobile Internet Applications Information Services (the “APP Provisions”), which were promulgated by the CAC on June 28, 2016 and became effective on August 1, 2016. Pursuant to the APP Provisions, the APP information service providers shall satisfy relevant qualifications required by laws and regulations, strictly carry out the information security management responsibilities and fulfill their obligations in various aspects relating to the real-name system, protection of users’ information and the examination and management of information content. The APP Store service providers shall file with the local cyberspace administration authorities within 30 days after its APP Store services have launched, and such APP Store service providers are responsible for overseeing APP providers operated on their stores. On January 5, 2022, the CAC issued the draft Regulations for the Administration of Mobile Internet Applications Information Services (Draft for Comments) for public comment. Pursuant to the draft regulations, the APP information service providers are required to fulfill their obligations, including without limitation, establishing a real-name system and protection of users’ personal information and protection of minors. In addition, the draft regulations require APP information service providers to establish and improve mechanisms for the management of information content reviews, establish and improve management measures, including without limitation, user registration, account management, information review, routine inspections and emergency response and handling and allot professional personnel and technical capabilities corresponding to the scale of the services. The APP information service providers shall not induce users to download applications through actions such as false promotions and bundling downloads, or by using illegal and negative information and shall not rig rankings, rig volume, or control reviews and ratings through either machine or manual methods to create fake traffic. Furthermore, it provider that APP information service providers shall conduct security assessments in accordance with relevant laws and regulations before launching new technologies, applications or functions with public opinion features or social mobilization capabilities. On November 28, 2019, the Secretary Bureau of the CAC, the General Office of the MIIT, the General Office of the Ministry of Public Security and the General Office of the SAMR promulgated the Identification Method of Illegal Collection and Use of Personal Information Through App, which provides guidance for the regulatory authorities to identify the illegal collection and use of personal information through mobile apps, and for the app operators to conduct self-examination and self-correction and for other participants to voluntarily monitor compliance. On July 22, 2020, the MIIT issued the Notice on Carrying out Special Rectification Actions in Depth against the Infringement on Users’ Rights and Interests by Apps to urge app service providers, among others, to enhance the protection of users’ personal information in relation to the download, installing and upgrade of apps. Regulations Relating to Online Transmission of Audio-Visual Programs and Online Streaming On April 13, 2005, the State Council promulgated the Certain Decisions on the Entry of the Private Capital into the Cultural Industry, according to which private capital was prohibited from engaging in the business of online transmission of audio-visual programs. On December 20, 2007, the SARFT and the MIIT jointly promulgated the Audio/Video Measures, which took effect on January 31, 2008 and were subsequently amended on August 28, 2015. Under these provisions, foreign investors are prohibited from engaging in the business of distributing audio-visual programs through the Internet. Providers of audio-visual program services through the Internet (including through mobile networks) in general must be either state-owned or state-controlled entities, and the business to be carried out by such providers must satisfy the overall planning and guidance catalog for Internet audio- visual program service determined by SARFT; and such providers are required to obtain the License for Online Transmission of Audio/Video Programs issued by National Radio and Television Administration, or complete certain registration procedures with National Radio and Television Administration. On May 21, 2008, SARFT issued a Notice on Relevant Issues Concerning Application and Approval of License for the Online Transmission of Audio-Visual Programs, as amended on August 28, 2015, which further sets out detailed provisions concerning the application and approval process regarding the License for Online Transmission of Audio/Video Programs. The notice also stipulates that Internet audio-visual program services providers engaging in such services prior to the promulgation of the Audio/Video Measures are able to apply for the license so long as their violation of the laws and regulations is minor in scope and can be rectified in a timely manner and they have no record of violation during the three months prior to the promulgation of the Audio/Video Measures. Further, on March 30, 2009, SARFT promulgated the Notice on Strengthening the Administration of the Content of Internet Audio-Visual Programs, which reiterates the pre-approval requirements for the audio-visual programs transmitted through the Internet, including through mobile networks, where applicable, and prohibits certain types of Internet audio-visual programs containing violence, pornography, gambling, terrorism, superstition or other similarly prohibited elements. On April 1, 2010, the SARFT issued the Internet Audio-Visual Program Services Categories (Provisional), or the Provisional Categories, as adjusted on March 10, 2017, which classified Internet audio/visual program services into four categories. In addition, the Notice concerning Strengthening the Administration of the Streaming Service of Online Audio/Visual Programs promulgated by the State Administration of Press, Publication, Radio, Film and Television (or the SAPPRFT, which is the predecessor of National Radio and Television Administration) on September 2, 2016 emphasizes that, unless a specific license is granted, an audio/visual programs service provider is forbidden from engaging in livestreaming on major political, military, economic, social, cultural and sports events. 73 Table of Contents On July 6, 2012, the SARFT and the CAC issued the Notice Regarding Further Enhancement of Management of Online Audio and Video Programs such as Online Drama Series and Micro Films, pursuant to which providers of Internet audio-visual program services that are engaged in the production of online audio-visual programs such as online drama series and micro-films and broadcast such programs on their own websites shall lawfully obtain the Radio and Television Program Production and Operating Permit issued by local branches of the National Radio and Television Administration and the corresponding License for Online Transmission of Audio/Video Program at the same time. Providers of Internet audio-visual program services shall report the information on online audio-visual programs such as online drama series and micro-films which have been reviewed and approved to the provincial branches of the National Radio and Television Administration in their domiciles for filing. In April 2016, the SAPPRFT promulgated the Provisions on the Administration of Private Network and Targeted Transmission Audio-visual Program Services, which apply to the provision of radio, television programs and other audio-visual programs to a targeted audience on television and all types of handheld electronic equipment. This provision covers the Internet and other information networks as targeted transmission channels, including the provision of content, integrated broadcast control, transmission and distribution and other activities conducted in such forms as Internet protocol television, private network mobile television and Internet television. Anyone who provides private network and targeted transmission audio- visual program services must obtain a License for Online Transmission of Audio/Video Program issued by the SARFT and operate its business pursuant to the scope as provided in such license. Foreign-invested enterprises are not allowed to engage in the above-referenced businesses. In July 2016, the Ministry of Culture promulgated the Notice on Strengthening the Administration of Network Performance, which regulates the behavior of entities conducting businesses related to network performance and performers. Entities operating network performances shall be responsible for the services and content posted on their website by performers. They must refine their content management mechanism and shut down the channel and stop the dissemination of any network performance as soon as they realize that such network performance is in violation of relevant laws and regulations. Network performers shall be responsible for their performances and shall not perform any program containing violence, pornography, or other similarly prohibited elements. In addition, the SAPPRFT issued the Notice Concerning Strengthening the Administration the Streaming Service of Online Audio-Visual Programs in September 2016, pursuant to which an Internet livestreaming service provider shall: (i) equip personnel to review the content of livestreamiong content; (ii) establish the technical methods and work mechanisms in order to replace the unlawful content by using the backup program; and (iii) record the livestreaming program and keep the records for at least 60 days to fulfill the inspection requirements by competent administrative authorities. The CAC promulgated the Regulations for the Administration of Online Livestreaming Services, or Internet Livestreaming Services Provisions, on November 4, 2016, which came into effect on December 1, 2016. According to the Internet Livestreaming Services Provisions, an Internet livestreaming service provider shall: (a) establish a livestreaming content review platform; (b) conduct authentication registration of Internet livestreaming issuers based on their identity certificates, business licenses and organization code certificates; and (c) enter into a service agreement with Internet livestreaming services user to specify both parties’ rights and obligations. In March 2018, the SAPPRFT issued the Notice on Further Regulating the Transmission Order of Internet Audio-Visual Programs, which requires that, among others, audio-visual platforms shall: (i) not produce or transmit programs intended to parody or denigrate classic works; (ii) not re-edit, re-dub, re-caption or otherwise ridicule classic works, radio and television programs, or original Internet audio-visual programs without authorization; (iii) not transmit re-edited programs, which unfairly distort the original content; (iv) strictly monitor the adapted content uploaded by platform users and not provide transmission channels for illicit content; (v) immediately take down unauthorized content upon receipt of complaints from copyright owners, radio and television stations, or film and television production institutions; (vi) strengthen the administration of movie trailers and prevent improper broadcasting of movie clips and trailers prior to authorized release; and (vii) strengthen the administration of sponsorship and endorsement for Internet audio-visual programs. Pursuant to this notice, the provincial branches of the National Radio and Television Administration shall have the authority to supervise radio and television stations and websites that offer audio-visual programs within its jurisdiction and require them to further improve their content management systems and implement relevant management requirements. On November 18, 2019, the CAC, the Ministry of Culture and Tourism and the National Radio and Television Administration jointly issued the Administrative Provisions on Internet Audio-Video Information Services, or the Internet Audio-Video Information Services Provisions, which became effective on January 1, 2020. The Internet Audio-Video Information Services Provisions define “Internet audio-video information services” as providing audio and video information production, uploading and transmission to the public via Internet platforms such as websites and applications. Entities providing Internet audio-video information services must obtain relevant licenses subject to applicable PRC laws and regulations and are required to authenticate users’ identities based on their organizational codes, PRC ID numbers or mobile phone numbers, etc. 74 Table of Contents In November 2020, the National Radio and Television Administration issued the Notice on Strengthening the Management of Network Live- performance Streaming and E-Commerce Streaming, which requires a live-performance streaming platform to adopt and practically implement the real- name registration system for the streamers and the viewers who purchase virtual gifts for streamers by taking measures including real-name verification, face recognition and human review. Viewers who fail to pass the real-name registration shall not be allowed to purchase virtual gifts. Live-performance streaming platforms shall block any mechanism that allows minors to purchase any virtual gifts for the streamers. A platform shall set the limitations of maximum amount for purchasing virtual gifts for each time, each day and each month. If a viewer making virtual gift purchases that aggregately reach the half of the daily or monthly limitations, the platform shall notify such viewer and allow such viewer to make further purchase only when he or she confirms the payment through SMS verification or other methods. If a viewer making virtual gift purchases that aggregately reach the full daily or monthly limitations, the platform shall suspend purchase services to such viewer. A platform shall also adopt a delayed-fund-transfer system such that if a streamer commits illegal activities, the purchase of virtual gifts shall be refunded to viewers. In addition, the live-performance streaming platform shall not adopt operational strategies that encourage viewers to purchase virtual gifts irrationally. If the platform finds that any streamer or his or her agent implies, solicits or encourages viewers to make large amount purchases by means of disseminating vulgar information, engaging in organized publicity stunt or engaging a “water army” to purchase virtual gifts in large volumes, the platform shall take measures against such streamer and such agent, list him or her on a watch list and report him or her to the radio and television administration authorities. In addition, it requires live-performance streaming platforms and e-commerce streaming platforms to complete filing with the National Information Registration Administration System of Online Audio/Video Platforms prior to November 30, 2020. In February 2021, the CAC, the National Office of Anti-Pornography and Illegal Publication, the MIIT, the Ministry of Public Security, the Ministry of Culture and Tourism, the SAMR and the NTRA jointly promulgated the 2021 Streaming Guidance Opinions. Pursuant to the 2021 Streaming Guidance Opinions, the online streaming platforms shall adopt a tiered and classified management system over the streamers’ accounts, with those accounts managed in different tiers and classes based on the nature of the streamers, operational contents, number of fans, popularity of the streaming, time limit of the streaming and other factors. Online streaming platforms shall set up appropriate limitations for streamers’ accounts in different tiers or classes in terms of the total amount of virtual gifts received in any single session of streaming performance, the popularity of the streaming, the time length of the streaming, the sessions of the streaming in any single day, the time gap between different streaming sessions and other factors, and take necessary warning measures against the streamers who violate relevant laws and regulations. In addition, online streaming platforms are required, among other things, to set up appropriate limitations for the maximum purchase price for each virtual gift and the maximum value of virtual gifts that the users send to the streamers each time, and online streaming platforms are required, if necessary, to set up a cooling-off period and a delayed-fund-transfer system for giving virtual gifts. The 2021 Streaming Guidance Opinions further provides that all livestreaming platforms that provide online audio/video services shall obtan a License for Online Transmission Audio/Video Programs or complete filing with the National Information Registration Administration System of Online Audio/Video Platforms. On March 25, 2022, the CAC, the SAMR and the SAT jointly issued the Opinions on Further Regulating the Profit-making Behaviors of livestreaming to Promote the Healthy Development of the Industry, pursuant to which, online streaming platforms shall strengthen the management of online livestreaming account registration and implement the real-name registration system for the streamers based on their ID number or unified social credit code. Online streaming platforms shall report the relevant information of streamers who have profit-making behaviors in the livestreaming to the local cyberspace administration department and competent tax authorities every six months. Further, online streaming platforms are required to adopt a tiered and classified management system over the livestreamers’ accounts. The Opinions also propose to strengthen the tax obligations of streamers. Online streaming platforms are required to (i) clearly indicate the rights and obligations of the streamers, such as the requirement to complete registration with relevant authorities and their tax liabilities, in the service agreements with streamers; (ii) clearly identify the sources and nature of income of streamers; and (iii) perform their tax withholding obligations for personal income of streamers. The platforms shall not assign or evade their tax withholding obligations for personal income of streamers by any means and shall not assist streamers with tax evasion. In addition, the Opinions provide specific requirements for online streaming platforms to regulate livestreaming marketing activities. For example, online streaming platforms and streamers should not conduct false or misleading commercial publicity on commodity producers and operators as well as the performance, function, quality, source, honors won, qualification, sales status, transaction information, user evaluation and other statistics of the products, and online streaming platforms. 75 Table of Contents On April 12, 2022, the Online Audio-visual Program Management Department of NRTA and the Publishing Bureau of the Central Propaganda Department issued the Notice on Strengthening the Management of Livestreaming of Online Games on the Online Audio-visual Program Platforms. The Notice provides that online audio-visual program platforms, including live streaming platforms shall not (i) disseminate illegal games on audio-visual program platforms; (ii) stream online games that have not been approved by the competent authorities; and (iii) use live broadcast rooms and other forms to drive traffic for the illegal game content on various platforms. Further, the Notice requires live streaming platforms to strengthen the management of game livestreaming content. For example, livestreaming platforms, in particular, online game livestreaming platforms, shall strictly control the content setting, publicity and interactions of users and take effective measures to strengthen the management of livestreaming of online games, such as establishing and improving the management system of information release, follow-up comments and emergency response related to living game programs and improving the program monitoring and public opinion monitoring mechanism. In addition, livestreaming platforms are also required to strengthen the guidance of the game anchor’s code of conduct and establish and implement the protection mechanism for minors. The platforms that conduct livestreaming of online games shall set up anti-addiction mechanisms for minors, take effective measures to ensure that the “teenager model” is effective, implement the requirements of real-name system, prohibit minors from recharging and rewarding, and set up special channels for refund of rewards given by minors. The Notice also provides that those who violate the law should not use livestreaming to make sound appearances. In addition, online audio-visual platforms (including various domestic and overseas individual and institutional accounts opened on relevant platforms) should not live broadcast overseas game programs or competitions with obtaining approval from relevant authorities. Regulations Relating to Online Cultural Activities The Ministry of Culture promulgated the Provisional Measures on Administration of Internet Culture in 2011, as most recently amended in 2017, and the Notice on Issues Relating to Implementing the Newly Revised Provisional Measures on Administration of Internet Culture promulgated by the Ministry of Culture in 2011, which apply to entities that engage in activities related to “online cultural products.” “Online cultural products” are classified as cultural products developed, published and disseminated through the Internet which mainly include (i) online cultural products particularly developed for publishing through the Internet, such as, among other things, online music and video files, network games and online animation features and cartoons (including flash animation), and (ii) online cultural products converted from audio and visual products, games, performing arts, artworks and animation features and cartoons, and published on the Internet. Pursuant to this legislation, entities are required to obtain the Internet Culture Operation Licenses from the applicable provincial level counterpart of the Ministry of Culture and Tourism if they intend to engage commercially in any of the following types of activities: • • • production, duplication, import, release or broadcasting of online cultural products; publishing of online cultural products on the Internet or transmission thereof to computers, fixed-line or mobile phones, radios, television sets or game consoles for the purpose of browsing, reading, reviewing, using or downloading such products by online users; or exhibitions or contests related to online cultural products. In August 2013, the Ministry of Culture issued the Administrative Measures for Content Self-Review by Internet Culture Business Entities, which requires Internet culture business entities to review the content of products and services to be provided prior to providing such content and services to the public. The content management system of an Internet culture business entity is required to specify the responsibilities, standards and processes for content review as well as accountability measures, and is required be filed with the provincial level counterpart of the Ministry of Culture and Tourism. The Regulations for the Administration of Audio and Video Products, as released by the State Council in December, 2001 and last amended in November 2020, require that the publication, production, duplication, importation, wholesale, retail and renting of audio and video products are subject to a license issued by competent authorities. In September 2021, the State Council released the Opinions on Improvement of Internet Civilization, which reiterates the necessity of strengthen the order in cyberspace and requires Internet platforms to strengthen the responsibility of network platform, strengthen the website platform community rules, user agreement construction, and enhance national security awareness. On September 15, 2021, the CAC released the Opinions on Further Intensifying Responsibilities of Website Platform for Information Content, which provides specific requirements for website platforms from various aspects, such as community rules, accounts, content moderation, content quality management, key functions, platform operation, minors’ online protection and personnel management. Pursuant to the Opinions, website platforms shall create a positive and healthy cyberspace and steer public opinion in the correct direction. Website platform are also required to strengthen the management of pop-ups, accurately handle the procedures of sending out push notifications to users and strictly control the frequency of push notifications. Regulations Relating to Online Game Operation The Notice on Interpretation of the State Commission Office for Public Sector Reform on Several Provisions relating to Animation, Online Game and Comprehensive Law Enforcement in Culture Markets in the “Three Provisions” jointly promulgated by the Ministry of Culture, the SARFT and the GAPP, which was issued by the State Commission Office for Public Sector Reform (a division of the State Council) and became effective on September 7, 2009, provides that the SAPPRFT is responsible for the examination and approval of online games to be uploaded on the Internet and that, after being uploaded, online games are subject to management by the Ministry of Culture and Tourism. 76 Table of Contents The Circular Regarding the Consistent Implementation of the “Regulation on Three Provisions” of the State Council and the Relevant Interpretations of the State Commission Office for Public Sector Reform and the Further Strengthening of the Administration of Pre-examination and Approval of Online Games and the Examination and Approval of Imported Online Games, promulgated by the GAPP, together with the National Copyright Administration and the Office of the National Working Group for Crackdown on Pornographic and Illegal Publications, on September 28, 2009, provides, among other things, that games are not allowed to be put online for operation without obtaining pre-approval from the GAPP. Foreign investors are prohibited from investing or engaging in online game operations in China through establishing wholly-owned subsidiaries, or equity joint ventures or cooperative joint ventures with Chinese partners, and expressly prohibits foreign investors from gaining control over or participating in domestic online game operations indirectly by establishing other forms of joint venture, establishing contractual agreements or providing technical support. Material violation of this Circular will result in suspension or revocation of relevant licenses and registrations. In addition, according to the Administrative Provisions on Online Publishing Services, before publishing an online game, an online publishing service provider shall file an application with the appropriate administrative department of SAPPRFT for the province, autonomous region or municipality in the place where it is located and the application, after being approved at the provincial level, shall be submitted to the SAPPRFT for final approval. Online game operations are also categorized as Internet culture operation and the Internet culture provisions shall govern online game operations as well. In 2010, the Ministry of Culture promulgated the Provisional Measures on the Administration of Online Games, or Online Game Measures, as most recently amended in 2017, which set forth a broad range of activities related to the online game business, including the development and production of online games, the operation of online games, the issuance of virtual currencies used for online games and virtual currency trading services. Online Game Measures provide that any entity that is engaged in online game operations must obtain an Internet Culture Operation License, and require that the content of an imported online game be examined and approved by the Ministry of Culture and Tourism prior to the launch of the game and that the content of a domestic online game must be filed within 30 days of its launch with the Ministry of Culture and Tourism. The Online Game Measures also request online game operators to protect the interests of online players and specify certain terms that must be included in the service agreements between online game operators and the players of their online games. Furthermore, the online game operators are required to take technical and managerial measures to ensure online information security, including preventing computer virus invasion, attack or damage, backing up important data and saving user registration information, operating information, maintaining logs and other information, and protecting state secrets, trade secrets and users’ personal information. In May 2019, the Ministry of Culture and Tourism declared that it would no longer oversee the online game industry. In July 2019, the Ministry of Culture and Tourism abolished the Online Game Measures. Regulations Relating to Protection of Minors and Real-Name Registration System On April 15, 2007, eight PRC government authorities, including the GAPP, the Ministry of Education, the Ministry of Public Security and the Ministry of Information Industry, jointly issued a circular requiring the implementation of an anti-fatigue compliance system and a real-name registration system by all PRC online game operators. Under the anti-fatigue compliance system, three hours or less of continuous game playing by minors, defined as game players under 18 years of age, is considered to be “healthy,” three to five hours is deemed “fatiguing” and five hours or more is deemed “unhealthy.” Game operators are required to reduce the value of in-game benefits to a game player by half if it discovers that the amount of time a game player spends online has reached the “fatiguing” level and to zero in case of a game player reaches an “unhealthy” level. Pursuant to the PRC Minors Protection Law (2020 Revision) which became effective on June 1, 2021, providers of network products and services may not provide minors with products or services that induce addictive usage. Providers of network services such as online games, network livestreaming, network audio and video, and social networking shall set up corresponding time management, authority management, consumption management and other functions for minors who use their services. In addition, the State Press and Publication Administration issued the Circular on Preventing Minors from Indulging in Online Games in October 2019, which came into force on November 1, 2019, and it requires that all online game players register with real names. Also, it strictly controls the period and length of minor’s use of online games. Online game companies shall not provide game services to minors every day from 10:00 p.m. to 8:00 a.m. and the length of providing games to minors shall not exceed three hours per day on statutory holidays and 1.5 hours per day on other days. The circular restricts online game companies from collecting payment from minors that are incompatible with their affordability. To identify whether a game player is a minor and thus subject to the anti-fatigue compliance system, a real-name registration requires online game players to register their real identity information before playing online games. Pursuant to a notice issued by the relevant eight government authorities on July 1, 2011, online game operators must submit the identity information of game players to the National Citizen Identity Information Center, a subordinate public institution of the Ministry of Public Security, for verification as of October 1, 2011. 77 Table of Contents In addition, pursuant to the Internet Livestreaming Services Provisions, livestreaming service providers should verify the identity of users on a livestreaming platform with their information such as through their mobile phone number. Also, according to the Administrative Measures for Business Activities of Online Performances issued by Ministry of Culture on December 2, 2016 and in effect as of January 1, 2017, livestreaming service providers must require streamers on a livestreaming platform to make real-name registration. Moreover, the 2021 Streaming Guidance Opinions provide that: (i) livestreaming platforms shall strictly forbid providing account registration services to users under age of 16, and shall obtain prior consent from the guardians of the users under the ages of 16-18 before providing account registration services to them; (ii) “Teenager Mode” shall be provided to minors to prevent them from indulging in livestreaming; (iii) contents on the platform that are not conducive to the healthy growth of minors shall be screened; and (iv) virtual gift purchases shall not be provided to minors. In addition, a livestreaming platform shall establish a customer service team providing services specifically to minors such that complaints and disputes in relation to them will be handled in priority and in a timely manner. If a minor purchases virtual gifts for streamers using an adult account, the platform shall issue refunds after verification in accordance with relevant regulations. On March 29, 2019, the NRTA promulgated Regulations on Administration of Minors Program, or the Minors Program Regulation, which came into effect on April 30, 2019 and amended on October 8, 2021, to regulate the programs for minors. Pursuant to the Minors Program Regulation, minor- oriented programs refer to radio and television programs and network audio-visual programs with minors as main participants or main target audience. The Minor Program Regulation provide specific requirements on the conent of minor-oriented programs, including among others, minor-oriented programs shall not contain any violence, pornography, gambling, terrorism, superstition or other prohibited elements. On August 30, 2021, the GAPP issued the Circular on Further Strengthening Regulation to Effectively Prevent Online Gaming Additions among Minors, which provides that online game operators can only provide online game services to minors from 8:00 p.m. to 9:00 p.m. on Fridays, Saturdays, Sundays and public holidays. In addition, online game operators shall not provide online game services in any form to users who have not logged in with their real-name registration. Failure to comply with the foregoing provisions may subject the online game operator to sanctions. On October 20, 2021, the Ministry of Education issued the Circular on Further Preventing Middle School and Primary Students from Addiction to Online Games. Pursuant to this circular, online game operators shall take technical measures to avoid primary and secondary school students being exposed to inappropriate games or game features and shall not operate online games without approval. Online game operators are further required to strictly implement the requirements of real-name registration. All real-name registration information submitted by online game users must be verified by the real-name verification system of the GAPP. On November 29, 2021, the Ministry of Culture and Tourism issued the Opinions of the General Office of the Ministry of Culture and Tourism on Strengthening the Protection of Minors in Online Cultural Markets, which reiterates the necessity of comprehensive governance in the field of culture and entertainment and the importance of network protection of minors. Pursuant to the opinions, (i) online cultural service provider shall improve the ability to identify the accounts of users who are minors; (ii) online cultural service providers shall not provide registration services for livestreaming publisher accounts for minors under the age of 16 and shall obtain prior consent from the guardians of the users under age of 16-18 before providing account registration services to them; (iii) online cultural service providers shall strictly protect personal information and take necessary measures in a timely manner to stop the cyberbullying and prevent the spread of relevant information upon receiving notification from a minor who has been cyberbullying or his/her parents or other guardians; (iv) online cultural service providers shall block harmful content to minors and prohibit live broadcast rooms from luring minors to access harmful contents by displaying vulgar pictures, suggestive messages and private contact information such as phone numbers, WeChat numbers and QR codes; (v) solo appearances of minors or appearances by adults of more than a certain duration and recognized as using minors to accumulate popularity and profit by live rooms or short video accounts, or accounts that take the use of child models to attract attention or profit from goods shall be seriously punished; (iv) online cultural service providers shall set up protection mechanisms such as password lock, time lock, consumption limit, behavior tracking and uninstall and reinstall inheritance (anti-bypass) for minor-aged users, to prevent loopholes such as theft, fraudulent use and borrowed accounts in time. Regulations Relating to Virtual Currency On January 25, 2007, the Ministry of Public Security, the Ministry of Culture, the Ministry of Information Industry and the GAPP jointly issued a circular regarding online gambling, which has implications on the issuance and use of virtual currency. To curtail online games that involve gambling while addressing concerns that virtual currency might be used for money laundering or illicit trade, the circular (i) prohibits online game operators from charging commissions in the form of virtual currency in connection with the winning or losing of games; (ii) requires online game operators to impose limits on use of virtual currency in guessing and betting games; (iii) bans the conversion of virtual currency into real currency or property; and (iv) prohibits services that enable game players to transfer virtual currency to other players. To comply with the relevant section of the circular that bans the conversion of virtual currency into real currency or property, in relation to online music and entertainment, our virtual currency currently can only be used by viewers to exchange for virtual items to be used to show support for performers or gain access to privileges and special features in the channels which are services in nature instead of “real currency or property.” Once the virtual currency is exchanged by viewers for virtual items or the relevant privileged services, the conversion transaction is completed and we immediately cancel the virtual item in our internal system. 78 Table of Contents In February 2007, 14 PRC regulatory authorities jointly issued a circular to further strengthen the oversight of Internet cafes and online games. In accordance with the circular, the People’s Bank of China, or PBOC, has the authority to regulate virtual currency, including: (i) setting limits on the aggregate amount of virtual currency that can be issued by online game operators and the amount of virtual currency that can be purchased by an individual; (ii) stipulating that virtual currency issued by online game operators can only be used for purchasing virtual products and services within the online games and not for purchasing tangible or physical products; (iii) requiring that the price for redemption of virtual currency shall not exceed the respective original purchase price; and (iv) banning the trading of virtual currency. On June 4, 2009, the Ministry of Culture and the Ministry of Commerce jointly issued a notice to strengthen the administration of online game virtual currency. The Virtual Currency Notice requires businesses that (i) issue online game virtual currency (in the form of prepaid cards and/or prepayment or prepaid card points), or (ii) offer online game virtual currency transaction services to apply for approval from the Ministry of Culture and Tourism through its provincial branches within three months after the issuance of the notice. The Virtual Currency Notice businesses that issue virtual currency for online games are prohibited from offering services that can trade virtual currency. Any company that fails to file the necessary application will be subject to sanctions, including but not limited to, mandatory corrective actions and fines. Under the Virtual Currency Notice, “online games virtual currency trading service provider” refers to the business that provides platform services related to virtual trading in online games among game users. The Virtual Currency Notice further requires an online game virtual currency transaction service provider to comply with relevant e-commerce regulations issued by the Ministry of Commerce. According to the Guiding Opinions on Online Trading (Interim) issued by the Ministry of Commerce on March 6, 2007, online platform services are trading services provided to online buyers and sellers through a computer information system operated by the service provider. The Virtual Currency Notice regulates, among others, the amount of virtual currency a business can issue, the retention period of user records, the function of virtual currency and the return of unused virtual currency upon the termination of online services. Online game operators are prohibited from distributing virtual items or virtual currencies to players through random selection methods such as lottery or betting, and the player directly pays cash or virtual currency. Game operators are prohibited from issuing virtual currency to game players in any way other than legal tender purchases. Any business that provides online game virtual currency transaction services is required to adopt technical measures to restrict the transfer of online game virtual currency among accounts of different game players. In May 2019, the Ministry of Culture and Tourism announced that it would no longer assume the responsibility of overseeing the online games industry. On August 31, 2018, the SCNPC promulgated the E-commerce Law, or the PRC E-commerce Law, which became effective on January 1, 2019. The E-commerce Law clarifies on the obligations of the e-commerce platform operators. On March 15, 2021, the SAMR issued the Measures for the Supervision and Administration of Online Transactions, or the Online Transaction Measures, which became effective on May 1, 2021 and replaced the Administrative Measures for the Online Trading promulgated on January 24, 2016. The Online Transaction Measures further emphasize, among others, that e-commerce platform operators are required to establish a mechanism to inspect and monitor products and services provided by the merchants, and shall submit the identity information of those merchants to the local branches of the SAMR. Regulations on Online Music On November 20, 2006, the Ministry of Culture issued the Several Opinions of the Ministry of Culture on the Development and Administration of Online Music, or the Online Music Opinions, which became effective on the same date. The Online Music Opinions provide that, among other things, an Internet music service provider must obtain an Internet Culture Operation License. On October 23, 2015, the Ministry of Culture promulgated the Circular on Further Strengthening and Improving the Content Administration of Online Music, effective as of January 1, 2016, which provides that Internet culture operating entities shall report to a nationwide administrative platform the details of its self-monitoring activities on a quarterly basis. 79 Table of Contents In 2010 and 2011, the Ministry of Culture greatly intensified its regulations on online music products by issuing a series of circulars regarding online music industry, such as the Circular on Regulating the Market Order of Online Music Products and Renovating Illegal Conducts of Online Music Websites and the Circular on Investigating Illegal Online Music Websites in 2010. In addition, the Ministry of Culture issued the Circular on Clearing Illegal Online Music Products, which clarified that entities engaging in any of the following conducts will be subject to relevant penalties or sanctions imposed by the Ministry of Culture: (i) providing online music products or relevant services without obtaining corresponding qualifications; (ii) importing online music products that have not been reviewed by the Ministry of Culture; or (iii) providing domestically developed online music products that have not been filed with the Ministry of Culture. On July 8, 2015, the National Copyright Administration issued the Circular regarding Ceasing Transmitting Unauthorized Music Products by Online Music Service Providers, which requires that (i) all unauthorized music products on the platforms of online music services providers shall be removed prior to July 31, 2015, and (ii) the National Copyright Administration investigate and punish the online music services providers who continue to transmit unauthorized music products following July 31, 2015. Regulations Relating to Commercial Performances The Administrative Regulations on Commercial Performances (2020 Revision) was promulgated by the State Council and took effect on November 29, 2020. According to these regulations, to engage legally in commercial performances, a culture and arts performance group shall have full-time performers and equipment in line with its performing business, and file an application with the culture administrative department of the people’s government at the county level for approval; while a performance brokerage agency shall have three or more full-time performance brokers and funds suitable for the relevant business, and file an application with the culture administrative department at the provincial level. The culture administrative department shall make a decision within 20 days from the receipt of the application whether to approve the application, and upon approval, will issue a commercial performance license. Anyone or any entity engaging in commercial performance activities without approval may have a penalty imposed, in addition to being ordered to cease its actions. Such penalty may include confiscation of performance equipment and illegal proceeds, and a fine of eight to 10 times the illegal proceeds. Where there are no illegal proceeds or the illegal proceeds are less than RMB10,000, a fine of RMB50,000 to RMB100,000 will be imposed. Regulations Relating to Production of Radio and Television Programs On July 19, 2004, the SARFT issued the Regulations on the Administration of Production and Operation of Radio and Television Programs, or the Radio and TV Programs Regulations, which took effect on August 20, 2004 and was amended on August 28, 2015 and October 29, 2020, respectively. The Radio and TV Programs Regulations require any entities engaging in the production and operation of radio and television programs to obtain a license for such businesses from the National Radio and Television Administration or its provincial branches. Entities with the Radio and Television Program Production and Operating Permit must conduct their business operations strictly in compliance with the approved scope of production and operations and these entities (except radio and TV stations) must not produce radio and TV programs regarding current political news or similar subjects. Regulations Relating to Advertising Business The SAMR (formerly known as State Administration of Industry and Commerce) is the primary governmental authority regulating advertising activities in China. Regulations that apply to the advertising business primarily include (i) the PRC Advertisement Law, promulgated by the SCNPC on October 27, 1994 and most recently amended on April 29, 2021, and (ii) the Administrative Regulations for Advertising, promulgated by the State Council on October 26, 1987 and which has been effective since December 1, 1987. According to the above regulations, companies that engage in advertising activities must obtain, from the SAMR or its local branches, a business license, which specifically includes operating an advertising business in its business scope. Enterprises engaged in the advertising business with such advertising business in its business scope do not need to apply for an advertising operation license, but such enterprise cannot be a radio station, a television station, a newspaper and magazine publishing house or any entity otherwise specified in the relevant laws or administrative regulations. The business license of an advertising company is valid for the duration of its existence, unless the license is suspended or revoked due to a violation of any relevant laws or regulations. PRC advertising laws and regulations set certain content requirements for advertisements in China, including, among other things, prohibitions on false or misleading content, misleading wording, (or) excess wordiness, socially destabilizing content or content involving obscenities, superstition, violence, discrimination or infringement of the public interest. Advertisers, advertising agencies and advertising distributors are required to ensure that the content of the advertisements they prepare or distribute is true and in complete compliance with applicable laws. In providing advertising services, advertising operators and advertising distributors must review supporting documents provided by advertisers for advertisements and verify that the content of the advertisements complies with applicable PRC laws and regulations. Prior to distributing advertisements that are subject to government censorship and approval, advertising distributors are obligated to confirm that such censorship has been performed and approval has been obtained. Violation of these regulations may result in penalties, including fines, confiscation of advertising income, orders to cease dissemination of the advertisements and orders to publish an advertisement correcting the misleading information. Where serious violations occur, the SAMR or its local branches may revoke such offenders’ licenses or permits for their advertising business operations. 80 Table of Contents On July 4, 2016, the SAMR issued the Interim Measures for the Administration of Internet Advertising, or the Internet Advertising Measures, which became effective on September 1, 2016. According to the Internet Advertising Measures, Internet Advertising refers to commercial advertising for direct or indirect marketing goods or services in the form of text, image, audio, video, or other means through websites, web pages, Internet apps, or other Internet media. The Internet Advertising Measures specifically set out the following requirements: (i) advertisements must be identifiable and marked with the word “advertisement” enabling consumers to distinguish them from non-advertisement information; (ii) sponsored search results must be clearly distinguished from organic search results; (iii) it is forbidden to send advertisements or advertisement links by email without the recipient’s permission or induce Internet users to click on an advertisement in a deceptive manner; and (iv) Internet information service providers that do not participate in the operation of Internet advertisements must stop publishing illegal advertisements if they have known or should know that the advertisements are illegal. On March 9, 2020, the SAMR promulgated the Notice on the issuance of the “Key Points of the Inter-Ministry Joint Conference on Rectifying False and Illegal Advertising in 2020” and the “Work System of the Inter-Ministry Joint Conference on Rectifying False and Illegal Advertising.” According to the above regulations, the SAMR will study and strengthen the supervision of emerging advertising formats, especially key platforms and key media, and supervise Internet platforms to consciously fulfill their legal obligations and responsibilities to verify relevant certification documents and advertising contents, as well as avoiding publishing false and illegal advertisements. On November 26, 2021, the SAMR published the Draft Administrative Measures on Internet Advertising for public comment, or the Draft Measures on Internet Advertising, which requires that users should be able to close pop-up advertisements using one button and provide that the pop-up advertisements shall not contain a countdown timer or require more than one click to close and shall not pop up more than once on the same page. In addition, the Draft Measures on Internet Advertising provides that internet advertising operators and distributers shall establish a system for registering and reviewing advertisers and advertisements and verify and update such system on a regular basis. Platform operators that provide internet information services are required to inspect the content of advertisements displayed and published by using their information services and cooperate with market supervision administration authorities to inspect advertisements and provide information and evidence on alleged illegal advertisements requested by such authorities. The Draft Measures on Internet Advertising also provides that advertising via livestreaming is subject to the new rules. Further, the Draft Measures prohibits internet operators from publishing advertisement on after-school training for primary school and middle school students and kindergarteners and prohibits advertisements for certain items on internet media that targets minors, including, among others, advertisements related to online games that are harmful to the physical or mental health of minors, cosmetics, alcohol or beauty. Regulations Relating to Intellectual Property Rights Copyright China has enacted various laws and regulations relating to the protection of copyright. China is a signatory to some major international conventions on protection of copyright and became a member of the Berne Convention for the Protection of Literary and Artistic Works in October 1992, the Universal Copyright Convention in October 1992 and the Agreement on Trade-Related Aspects of Intellectual Property Rights upon its accession to the World Trade Organization in December 2001. The PRC Copyright Law, promulgated in 1990 and amended in 2001, 2010 and 2020 respectively, or the Copyright Law, and its related implementing regulations, promulgated in 2002 and amended in 2013, are the principal laws and regulations governing copyright related matters. The Copyright Law provides that Chinese citizens, legal persons, or other organizations shall, whether published or not, enjoy copyright of their works, which include, among others, works of literature, art, natural science, social science, engineering technology and computer software. The State Council and the National Copyright Administration have promulgated various rules and regulations relating to the protection of software in China. According to these rules and regulations, software owners, licensees and transferees may register their rights in software with the Copyright Protection Center of China and obtain software copyright registration certificates. Although such registration is not mandatory under PRC law, software owners, licensees and transferees are encouraged to go through the registration process and registered software rights may be entitled to better protection. For the number of software programs for which we had registered software copyrights as of the date of this annual report, see “Item 4. Information of the Company—4.B. Business Overview—Intellectual Property.” 81 Table of Contents The amended Copyright law covers Internet activities, products disseminated over the Internet and software products, among the subjects entitled to copyright protection. Registration of copyright is voluntary, and it is administrated by the Copyright Protection Center of China. To further clarify some key Internet copyright issues, on December 17, 2012, the PRC Supreme People’s Court promulgated the Regulation on Several Issues Concerning Applicable Laws on Trial of Civil Disputes over the Infringement of Information Network Transmission Right, or the 2013 Regulation. The 2013 Regulation took effect on January 1, 2013, and replaced the Interpretations on Some Issues Concerning Applicable Laws for Trial of Disputes over Internet Copyright, which was initially adopted in 2000 and subsequently amended in 2004 and 2006. Under the 2013 Regulation, where an Internet information service provider works in cooperation with others to jointly provide works, performances, audio and video products of which the right holders have information network transmission right, such behavior will constitute joint infringement of third parties’ information network transmission right, and the PRC court shall order such Internet information service provider to assume joint liability for such infringement. To address the problem of copyright infringement related to content posted or transmitted on the Internet, the National Copyright Administration and Ministry of Information Industry jointly promulgated the Measures for Administrative Protection of Copyright Related to Internet on April 29, 2005. These measures, which became effective on May 30, 2005, apply to acts of automatically providing services such as uploading, storing, linking or searching works, audio or video products, or other content through the Internet based on the instructions of Internet users who publish content on the Internet, or the Internet Content Providers, without editing, amending or selecting any stored or transmitted content. When imposing administrative penalties upon the act which infringes upon any user’s right of communication through information networks, the Measures for Imposing Copyright Administrative Penalties, promulgated in 2009, shall be applied. Where a copyright holder finds that certain Internet content infringes upon its copyright and sends a notice to the relevant Internet information service operator, the relevant Internet information service operator is required to (i) immediately take measures to remove the relevant content, and (ii) retain all infringement notices for six months and to record the content, display time and IP addresses or the domain names related to the infringement for 60 days. If the content is removed by an Internet information service operator according to the notice of a copyright holder, the content provider may deliver a counter-notice to both the Internet information service operator and the copyright holder, stating that the removed content does not infringe upon the copyright of other parties. After the delivery of such counter-notice, the Internet information service operator may immediately reinstate the removed content and shall not bear administrative legal liability for such reinstatement. An Internet information service operator may be subject to cease-and-desist orders and other administrative penalties such as confiscation of illegal income and fines, if it is clearly aware of a copyright infringement through the Internet or, although not aware of such infringement, it fails to take measures to remove relevant content upon receipt of the copyright owner’s notice of infringement and, as a result, damages public interests. Where there is no evidence to indicate that an Internet information service operator is clearly aware of the existence of copyright infringement, or the Internet information service operator has taken measures to remove relevant content upon receipt of the copyright owner’s notice, the Internet information service provider shall not bear the relevant administrative legal liabilities. We have adopted measures to mitigate copyright infringement risks, but we could still face copyright infringement claims with respect to copyrighted content being streamed live, recorded or made accessible, or songs performed live, recorded or made accessible on our platform. See “Item 3. Key Information—3.D. Risk Factors—Risks Related to Our Business and Our Industry—We may be subject to intellectual property infringement claims or other allegations by third parties for information or content displayed on, retrieved from or linked to our platform, or distributed to our users, or for proprietary information appropriated by former employees, which may materially and adversely affect our business, financial condition and prospects.” Patent The National People’s Congress adopted the PRC Patent Law in 1984 and amended it in 1992, 2000, 2008 and 2020, respectively, the latest amendment of which will be effective on June 1, 2021. A patentable invention, utility model or design must meet three conditions: novelty, inventiveness and practical applicability. Patents cannot be granted for scientific discoveries, rules and methods for intellectual activities, methods used to diagnose or treat diseases, animal and plant breeds or substances obtained by means of nuclear transformation. The Patent Office under the State Intellectual Property Office is responsible for receiving, examining and approving patent applications. A patent is valid for a 20-year term for an invention and a ten-year term for a utility model or design. Except under certain specific circumstances provided by law, any third-party user must obtain consent or a proper license from the patent owner to use the patent, or else the use will constitute an infringement of the rights of the patent holder. For the number of patent applications, we made as of the date of this annual report, see “Item 4. Information of the Company—4.B. Business Overview—Intellectual Property.” According to the PRC Patent Law, if the Patent Office finds the application of an invention conforms to legal requirements after its preliminary examination of such application documents, it shall publish the application promptly within 18 full months after the filing date. According to the Guidelines of Patent Examination, the examination of a patent shall include preliminary examination, substantive examination, examination of international applications entering the national phase and review. However, the above-mentioned regulations do not explicitly state how long it takes for a patent application to be approved or denied. In practice, it generally may take up to one year for the Patent Office to review and approve or deny applications of patents in the category of utility model or design and two to five years in the category of invention. 82 Table of Contents Trademark The PRC Trademark Law, adopted in 1982 and amended in 1993, 2001, 2013 and 2019, with its implementation rules adopted in 2014, protects registered trademarks. The Trademark Office of National Intellectual Property Administration, or the Trademark Office handles trademark registrations and grants a protection term of ten years to registered trademarks, which may be extended for another ten years upon request. Trademark license agreements must be filed with the Trademark Office for record. For the number of trademarks, we had and trademark applications we have made as of the date of this annual report, see “Item 4. Information of the Company—4.B. Business Overview—Intellectual Property.” Domain name The MIIT promulgated the Measures on Administration of Internet Domain Names, or the Domain Name Measures, on August 24, 2017, which took effect on November 1, 2017 and replaced the Administrative Measures on China Internet Domain Names promulgated on November 5, 2004. According to the Domain Name Measures, the MIIT is in charge of the administration of PRC internet domain names. The domain name registration follows a first-to-file principle. Applicants for registration of domain names shall provide the true, accurate and complete information of their identities to domain name registration service institutions. The applicants will become the holder of such domain names upon the completion of the registration procedure. On November 27, 2017, the MIIT promulgated the Notice of the Ministry of Industry and Information Technology on Regulating the Use of Domain Names in Providing Internet-based Information Services, which became effective on January 1, 2018. Pursuant to the notice, the domain name used by an internet-based information service provider in providing internet-based information services must be registered and owned by such provider in accordance with the law. If the internet-based information service provider is an entity, the domain name registrant must be the entity (or any of the entity’s shareholders), or the entity’s principal or senior manager. For the number of domain names we registered as of the date of this annual report, see “Item 4. Information of the Company—4.B. Business Overview—Intellectual Property.” Regulations Relating to Internet Infringement The PRC Civil Code, which was adopted by the National People’s Congress on May 28, 2020 and became effective on January 1, 2021, provides that: an online service provider should be held liable for its own tortious acts in providing online services; (ii) where an Internet user engages in tortious conduct through Internet services, the obligee shall have the right to notify the Internet service provider that it should take necessary action such as by deleting content, screening, breaking links, etc.; after receiving the notice, the network service provider shall promptly forward the notice to the relevant network user and take necessary measures in light of the preliminary evidence of infringement and the type of service; if the Internet service provider fails to take necessary action after being notified, it shall be jointly and severally liable with the Internet user with regard to the additional injury or damage suffered; and (iii) where an Internet service provider knows or should have known that an Internet user is infringing upon other people’s civil rights and interests through its Internet service but fails to take necessary action, it shall be jointly and severally liable with the Internet user. Regulations Relating to Internet Content The Administrative Measures on Internet Information Services specify that Internet information services regarding news, publications, education, medical and health care, pharmaceutical and medical appliances, among other things, are to be examined, approved and regulated by the relevant authorities. Internet information providers are prohibited from providing services beyond those included in the scope of their ICP Licenses or filings. The PRC government has promulgated measures relating to Internet content through a number of governmental agencies, including the MIIT, the Ministry of Culture and the GAPP. These measures specifically prohibit Internet activities that result in the publication of any content which is found to propagate obscenity, gambling or violence, instigate crimes, undermine public morality or the cultural traditions of the PRC or compromise state security or secrets. Internet information providers must monitor and control the information posted on their websites. If any prohibited content is found, they must remove the offensive content immediately, keep a record of it and report it to the appropriate authorities. On December 28, 2012, the SCNPC reiterated relevant rules on the protection of Internet information by issuing the Decision on Strengthening the Protection of Network Information, or the 2012 Decision. The 2012 Decision distinctly clarified certain relevant obligations of Internet information service providers. Once it discovers any transmission or disclosure of information prohibited by relevant laws and regulations, the Internet information service provider shall stop transmission of such information, take measures such as elimination, keeping relevant records and reporting to relevant authorities. 83 Table of Contents On December 15, 2019, the CAC promulgated the Provisions on the Ecological Governance of Network Information Contents, which became effective on March 1, 2020. It requires network platform operators like us not to disseminate illegal content, nor to present exaggerated, sexually suggestive, discriminative or otherwise inappropriate contents in eye-catching areas such as home page, popup and hot search list. To comply with the above laws and regulations, we have developed the following mechanisms to monitor the content on our platform as AI-backed automatic detection process, manual review, self-regulation system by streamers and room managers and report by users, see “Item 4. Information of the Company—4.B. Business Overview—Content Monitoring System.” Regulations Relating to Internet Security The National People’s Congress, China’s national legislative body, enacted the Decisions on the Maintenance of Internet Security on December 28, 2000 and subsequently amended on August 27, 2009, that may subject persons to criminal liability in China for any attempt to: (i) hack into a computer or system of strategic importance; (ii) intentionally invent and spread destructive programs such as computer viruses to attack the computer system and the communications network and damage the computer system and the communications networks; (iii) discontinue the computer network or the communications service without authorization in violation of national regulations; (iv) leak state secrets; (v) spread false commercial information; or (vi) infringe on intellectual property rights. The Ministry of Public Security has promulgated measures that prohibit the use of the Internet in ways which, among other things, result in a leakage of state secrets or the spread of socially destabilizing content. On December 13, 2005, the Ministry of Public Security promulgated Provisions on Technological Measures for Internet Security Protection, or the Internet Protection Measures, which took effect on March 1, 2006. The Internet Protection Measures require all Internet information services operators to take proper measures including anti-virus, data back-up and other related measures, and keep records of certain information about their users (including user registration information, log-in and log-out time, IP address, content and time of posts by users) for at least 60 days and submit the above information as required by laws and regulations. In 1997, the Ministry of Public Security issued the Administration Measures on the Security Protection of Computer Information Network with International Connections (2011 Revision), which prohibit using the Internet in ways which, among others, result in a leak of state secrets or a spread of socially destabilizing content. The Ministry of Public Security has supervision and inspection powers in this regard, and relevant local security bureaus may also have jurisdiction. If an ICP License holder violates these measures, the PRC government may revoke its ICP License and shut down its website. On July 1, 2015, the SCNPC issued the PRC National Security Law, which came into effect on the same day. The National Security Law provides that the state shall safeguard the sovereignty, security and cybersecurity development interests of the state, and that the state shall establish a national security review and supervision system to review, among other things, foreign investment, key technologies, internet and information technology products and services, and other important activities that are likely to impact national security of China. In November 2016, the SCNPC promulgated the PRC Cyber Security Law of the PRC, or the Cyber Security Law, which took effect on June 1, 2017. In accordance with the Cyber Security Law, network operators must comply with applicable laws and regulations and fulfill their obligations to safeguard network security in conducting business and providing services. Network service providers must take technical and other necessary measures as required by laws, regulations and mandatory requirements to safeguard the operation of networks, respond to network security effectively, prevent illegal and criminal activities, and maintain the integrity, confidentiality and usability of network data. On December 28, 2021, the CAC, the NDRC, the MIIT, and several other PRC governmental authorities jointly issued the Cybersecurity Review Measures, which became effective on February 15, 2022 and replaces the Measures for Cybersecurity Review. Pursuant to Cybersecurity Review Measures, critical information infrastructure operators that purchase network products and services and network platform operators engaging in data processing activities are subject to cybersecurity review under the Cybersecurity Review Measures if their activities affect or may affect national security. According to the Cybersecurity Review Measures, before purchasing any network products or services, a critical information infrastructure operator shall assess potential national security risks that may arise from the launch or use of such products or services, and apply for a cybersecurity review with the cybersecurity review office of CAC if national security will or may be affected. In addition, network platform operators who possess personal information of more than one million users and intend to be listed on a foreign stock exchange must be subject to the cybersecurity review. The relevant competent governmental authorities may initiate the cybersecurity review against the relevant operators if the authorities believe that the network product or service or data processing activities of such operators affect or may affect national security. 84 Table of Contents On June 10, 2021, the SCNPC promulgated the Data Security Law, which took effect on September 1, 2021.The Data Security Law introduces a data classification and hierarchical protection system based on the importance of data in economic and social development, and the degree of harm it may cause to national security, public interests, or legitimate rights and interests of individuals or organizations if such data are tampered with, destroyed, leaked, illegally acquired or illegally used. The appropriate level of protection measures is required to be taken for each respective category of data. The Data Security Law also requires data processing operators to establish a sound data security management system throughout the whole process, organize data security education and training, and take corresponding technical measures and other necessary measures to ensure data security. In addition, PRC entities and individuals shall not provide any data stored in the PRC to foreign justice or enforcement agencies without the approval of PRC government authorities. On July 6, 2021, the General Office of the Central Committee of the Communist Party of China and the General Office of the State Council jointly issued Opinions on Strictly Cracking Down Illegal Securities Activities in Accordance with the Law, which stipulates improvement on the laws and regulations related to data security, cross-border data transfer and the management of confidential information, strengthens principal responsibility for the information security of overseas listed companies, strengthens standardized mechanisms for providing cross-border information, and improves upon of cross-border audit regulatory cooperation in accordance with the law and the principle of reciprocity. On July 30, 2021, the State Council promulgated the Regulations on Protection of Security of Critical Information Infrastructure, effective on September 1, 2021, pursuant to which, a “critical information infrastructure” refers to refer to critical network facilities and information systems involved in important industries and sectors, such as public communication and information services, energy, transportation, water conservancy, finance, public services, governmental digital services, science and technology related to national defense industry, as well as those which may seriously endanger national security, the national economy and citizens’ livelihoods or public interests if damaged or malfunctioned, or if any leakage of data in relation thereto occurs. The appropriate governmental departments and supervision and management departments of the aforementioned important industries will be responsible for (i) organizing the identification of critical information infrastructures in their respective industries in accordance with relevant identification rules, and (ii) promptly notifying the identified operators and the public security department of the State Council of the identification results. In the event of occurrence of any major cybersecurity incident or discovery of any major cybersecurity threat for the critical information infrastructure, the operator shall report to the protection authorities and the public security authorities as required. On October 29, 2021, the CAC published the Measures for the Security Assessment of Cross-border Transfer of Data (Draft for Comments) for public comments, pursuant to which data processors must conduct security assessments if they intend to provide any of the following data to an overseas recipient: (i) any personal information that is subject to security assessment according to applicable laws; or (ii) any important data collected and generated in their business operation within the territory of the PRC. If any of the following circumstances is implicated in a cross-border data transfer, the data processor must apply to the appropriate cyberspace administration authority for a security assessment: (a) where the data to be transferred to an overseas recipient are personal information or important data collected and generated by operators of critical information infrastructure; (b) where the data to be transferred to an overseas recipient contain important data; (c) where a personal information processor that has processed personal information of more than one million people provides personal information overseas; (d) where the personal information of more than 100,000 individuals or sensitive personal information of more than 10,000 individuals are transferred overseas, in each case as calculated cumulatively; or (e) other circumstances under which security assessment of data cross-border transfer is required as prescribed by the national cyberspace administration. As of date of this annual report, the measures have not been formally adopted. On November 14, 2021, the CAC published Measures on Network Data Security Management (Draft for Comment), or the Draft Measures for Internet Data Security, which provides that data processors conducting the following activities shall must for cybersecurity review: (i) merger, reorganization or separation of Internet platform operators that have acquired a large number of data resources related to national security, economic development or public interests affecting or possibly affecting national security; (ii) listing abroad of data processors processing over one million users’ personal information; (iii) listing in Hong Kong that affects or may affect national security; and (iv) other data processing activities that affect or may affect national security. The Draft Measures for Internet Data Security also requires data processors processing over one million users’ personal information to comply with the regulations on important data processors, including, among others, appointing a person in charge of data security and establishing a data security management organization, filing with the competent authority within 15 working days after identifying its important data, formulating data security training plans and organizing data security education and training for all staff every year, and that the education and training time of data security related technical and management personnel shall not be less than 20 hours per year. The Draft Measures for Internet Data Security also provides that data processors processing important data or going public overseas shall conduct an annual data security assessment by themselves or entrust a data security service institution to do so, and submit the data security assessment report of the previous year to the local branch of CAC before January 31 of each year. Further, the Draft Measures for Internet Data Security also require Internet platform operators to establish platform rules, privacy policies and algorithm strategies related to data, and solicit public comments on their official websites and personal information protection- related sections for no less than 30 working days when they formulate platform rules or privacy policies or makes any amendments that may have a significant impacts on users’ rights and interests. Platform rules and privacy policies formulated by operators of large Internet platforms with more than 100 million daily active users, or amendments to such rules or policies by perators of large Internet platforms with more than 100 million daily active users that may have significant impacts on users’ rights and interests shall be evaluated by a third-party organization designated by the CAC and reported to local branch of the CAC for approval. 85 Table of Contents On September 17, 2021, the CAC and other eight government authorities jointly issued the Guiding Opinions on Strengthening the Comprehensive Governance of Network Information Service Algorithms with the aim to, within three years, gradually establish a comprehensive governance pattern for algorithm security with a complete governance mechanism, a refined regulatory system and a standardized algorithm ecosystem. According to the Guiding Opinions on Strengthening the Comprehensive Governance of Network Information Service Algorithms, enterprises shall establish an algorithm security accountability system and a system for the review of scientific and technological ethics, enhance the organizational structure for algorithm security, intensify efforts in the prevention of risks and the handling of hidden dangers, and increase the capacity and level in handling algorithm security emergencies. Enterprises shall raise their awareness of responsibility and assume primary responsibilities for outcomes caused by the application of algorithms. On September 30, 2021, the MIIT released the Administrative Measures on the Administration of Data Security in the Industry and Information Technology Areas (for Trial Implementation) (Draft for Comment), pursuant to which, industrial and telecommunications data processors shall be responsible for the security of the main data processing activities and take the necessary measures to ensure that the data continue to be in a state of effective protection, including but not limited to to: establishing a data security management system; (ii) reasonably determining the operational authority for data processing activities; and (iii) developing contingency plans for data security incidents. On December 31, 2021, the CAC, the MIIT, the Ministry of Public Security, the Ministry of State Security promulgated the Administrative Provisions on Internet Information Service Algorithm Recommendation, which implements classification and hierarchical management for algorithm recommendation service providers based on varies criteria. Moreover, it requires algorithmic recommendation service providers to provide users with options that are not specific to their personal characteristics, or provide users with convenient options to cancel algorithmic recommendation services. If the users choose to cancel the algorithm recommendation service, the algorithm recommendation service provider shall immediately stop providing such services. Algorithmic recommendation service providers shall also provide users with the ability to select, modify or delete user labels which are used for algorithmic recommendation services. Regulations Relating to Privacy Protection Under the Several Provisions on Regulating the Market Order of Internet Information Services, issued by the MIIT in December 2011, an ICP service operator may not collect any user personal information or provide such information to third parties without the consent of a user. An ICP service operator must expressly inform the users of the method, content and purpose for the collection and processing of such user personal information and may only collect such information necessary for the provision of its services. PRC laws and regulations prohibit Internet content providers from disclosing any information transmitted by users through their networks to any third parties without their authorization unless otherwise permitted by law. An ICP service operator is also required to properly store user personal information, and in case of any leak or likely leak of the user personal information, the ICP service operator must take immediate remedial measures and, in severe circumstances, make an immediate report to the telecommunications regulatory authority. In addition, pursuant to the 2012 Decision and the Order for the Protection of Telecommunication and Internet User Personal Information issued by the MIIT in July 2013, any collection and use of user personal information must be subject to the consent of the user, abide by the principles of legality, rationality and necessity and be within the specified purposes, methods and scope. An ICP service operator must also keep such information strictly confidential, and is further prohibited from divulging, tampering or destroying of any such information, or selling or providing such information to other parties. If an Internet content provider violates these regulations, the MIIT or its local bureaus may impose penalties and the Internet content provider may be liable for damages caused to its users. Pursuant to the Ninth Amendment to the Criminal Law of the PRC issued by the SCNPC on August 29, 2015, effective on November 1, 2015, any Internet service provider that fails to fulfill the obligations related to Internet information security as required by applicable laws and refuses to take corrective measures, will be subject to criminal liability for: (i) any large-scale dissemination of illegal information; (ii) any severe effect due to the leakage of users’ personal information; (iii) any serious loss of evidence of criminal activities; or (iv) other severe situations, and any individual or entity that (a) sells or provides personal information to others unlawfully or (b) steals or illegally obtains any personal information will be subject to criminal liability in severe situations. 86 Table of Contents On November 7, 2016, the SCNPC promulgated the PRC Cybersecurity Law, which came into effect on June 1, 2017. Pursuant to the Cybersecurity Law, network operators shall follow their cybersecurity obligations according to the requirements of the classified protection system for cybersecurity, including: (i) formulating internal security management systems and operating instructions, determining the persons responsible for cybersecurity and implementing the responsibility for cybersecurity protection; (ii) taking technological measures to prevent computer viruses, network attacks, network intrusions and other actions endangering cybersecurity; (iii) taking technological measures to monitor and record the network operation status and cybersecurity incidents; (iv) taking measures such as data classification, and back-up and encryption of important data; and (v) other obligations stipulated by laws and administrative regulations. In addition, network operators shall follow the principles of legitimacy to collect and use personal information and disclose their rules of data collection and use, clearly express the purposes, means and scope of collecting and using the information and obtain the consent of the persons whose data is gathered. On January 23, 2019, the Office of the Central Cyberspace Affairs Commission and other three authorities jointly issued the Circular on the Special Campaign of Correcting Unlawful Collection and Usage of Personal Information via Apps. Pursuant to this 2019 circular: (i) App operators are prohibited from collecting any personal information irrelevant to the services provided by such operator; (ii) information collection and usage policy should be presented in a simple and clear way, and such policy should be consented by the users voluntarily; (iii) authorization from users should not be obtained by coercing users with default or bundling clauses or making consent a condition of a service. App operators violating such rules can be ordered by authorities to correct its incompliance within a given period, be reported in public; or even quit its operation or cancel its business license or operational permits. On October 1, 2019, the Office of the Central Cyberspace Affairs Commission issued the Provisions on the Cyber Protection of Children’s Personal Information, which requires, among others, that network operators who collect, store, use, transfer and disclose personal information of children under the age of 14 shall establish special rules and user agreements for the protection of children’s personal information, inform the children’s guardians in a noticeable and clear manner and shall obtain the consent of the children’s guardians. Furthermore, the authorities issuing the circular vow to initiate a campaign to correct unlawful collection and usage of personal information via Apps from January 2019 through December 2019. The PRC Civil Code further provides in a stand-alone chapter of right of personality and reiterates that the personal information of a natural person shall be protected by the law. Any organization or individual shall legitimately obtain such personal information of others in due course on a need-to-know basis and ensure the safety and privacy of such information, and refrain from excessively handling or using such information. According to the Administrative Provisions on Official Account Information Services for Internet Users, or the Official Account Information Services Provisions, which was first promulgated by the Office of the Central Cyberspace Affairs Commission on September 7, 2017 and amended recently on January 22, 2021 (effective on February 22, 2021), official account information service platforms shall fulfill their responsibilities for the management of information content and official accounts, assign management personnel and provide technical capabilities suitable for their business scale, set up the post of content security officer, establish, improve and strictly implement management systems for account registration, information content security, ecological governance, emergency response, cybersecurity, data security, personal information protection, intellectual property protection and credit evaluation. The Official Account Information Services Provisions further provide that official account information service platforms not only shall establish systems of categorical registration and creation for official accounts, and implement categorical management, but also shall, in accordance with the information content production quality and information dissemination capabilities of official accounts, the credit evaluation of account entities and other indicators, establish level-by-level management systems and implement level-by-level management. The amendment to the Official Account Information Services Provisions in 2021 emphasizes and enhances the responsibility of the official account information service platforms, including without limitation (i) that they shall verify the legality and compliance of the names, profile photos and introductions of the online public accounts registered by Internet users, and shall suspend provision of services for the users and notify such users to make corrections within a prescribed time frame in case of any inconsistency between such account name, profile photos or introductions and their real identity information, and (ii) that without informed consent of the Internet users, they shall not force the Internet users to subscribe or follow the online public accounts in any manner. On March 12, 2021, the CAC, the MIIT and the Ministry of Public Security issued the Notice on Promulgation of the Rules on the Scope of Necessary Personal Information for Common Types of Mobile Internet Applications, which came into effect on May 1, 2021. The notice clarifies that network operators shall not collect personal information irrelevant to the services they provide and the app operators shall not refuse to provide basic services to users on the ground of users’ refusal to provide their personal non-essential information. In particular, as for online communities apps, the necessary personal information includes mobile phone numbers of registered users, and as for online streaming and online video apps, the basic functional services should be accessible without collecting personal information from users. 87 Table of Contents On April 26, 2021, the MIIT issued the Interim Administrative Provisions on Personal Information Protection in Internet Mobile Applications (Draft for Comment),which sets forth two principles of collection and utilization of personal information, namely “explicit consent” and “minimum necessity.” On August 20, 2021, the SCNPC promulgated the PRC Personal Information Protection Law, effective from November 1, 2021. The Personal Information Protection Law requires, among others, that (i) the processing of personal information should have a clear and reasonable purpose which should be directly related to the processing purpose, in a method that has the least impact on personal rights and interests, and (ii) the collection of personal information should be limited to the minimum scope necessary to achieve the processing purpose to avoid the excessive collection of personal information. Different types of personal information and personal information processing will be subject to various rules on consent, transfer and security. For example, according to the Personal Information Protection Law, sensitive personal information refers to personal information that, if leaked or used illegally, may easily cause harm to the dignity of natural persons, or serious damage to the safety of individuals and properties, including information relating to biometric identification, religious beliefs, specific identities, healthcare, financial account, individual location tracking, etc., as well as personal information of minors under the age of 14. The Personal Information Protection Law requires that separate consent shall be obtained from individuals when processing sensitive personal information, unless otherwise specified by other laws and regulations. When processing personal information of a minor under the age of 14, processors of personal information shall obtain the consent of the minor’s parent or guardian, and establish specific processing rules. It also provides that individuals shall have the right to access and obtain a copy of their personal information from the processors of personal information. In addition, the Personal Information Protection Law provides that individuals shall have the right to withdraw their consent to the processing of their personal information, and processors of personal information shall not deny offering products or services on the ground that individuals refuse to give consent or withdraw their consent to the processing of their personal data. Entities handling personal information shall be liable for their personal information handling activities, and shall adopt necessary measures to safeguard the security of the personal information they handle. Otherwise, the entities handling personal information could be ordered to rectify or suspend or terminate the provision of services, and face confiscation of illegal income, fines or other penalties. The Personal Information Protection Law further provides that personal information processors shall not provide any personal information stored in the PRC to foreign justice or enforcement agencies without the approval of PRC government authorities. Regulations Relating to Internet Publication and Cultural Products On February 4, 2016, the State Administration of Press, Publication, Radio, Film and Television, or the SAPPRFT (the predecessor of National Radio and Television Administration), and the MIIT issued the Administrative Provisions on Online Publishing Services, or the Online Publishing Provisions, which took effect in March 2016. According to the Online Publishing Provisions, all online publishing services provided within the territory of China are subject to the Online Publishing Provisions, and an online publishing services permit shall be obtained in order to provide online publishing services. Pursuant to the Online Publishing Provisions, “online publishing services” refer to providing online publications to the public through information networks, and “online publications” refer to digital works with publishing features such as having been edited, produced or processed and are made available to the public through information networks, including: (i) written works, pictures, maps, games, cartoons, audio-visual reading materials and other original digital works containing useful knowledge or ideas in the field of literature, art, science or other fields; (ii) digital works of which the content is identical to that of any published book, newspaper, periodical, audio-visual product, electronic publication or the like; (iii) network literature databases or other digital works, derived from any of the aforesaid works by selection, arrangement, collection or other means; and (iv) other types of digital works as may be determined by the SAPPRFT. Regulations Relating to Foreign Currency Exchange and Dividend Distribution Foreign currency exchange The core regulations governing foreign currency exchange in China are the Foreign Exchange Administration Regulations, as amended in August 2008, or the FEA Regulations. Certain organizations in the PRC, including foreign invested enterprises, may purchase, sell and/or remit foreign currencies at certain banks authorized to conduct foreign exchange business upon providing valid commercial documents. However, approval of the SAFE is required for capital account transactions. On August 29, 2008, the SAFE issued Circular 142 to regulate the conversion of foreign currency into Renminbi by a foreign-invested enterprise by restricting the ways in which converted Renminbi may be used. Circular 142 requires that the registered capital of a foreign-invested enterprise converted into Renminbi from foreign currencies may only be utilized for purposes within its business scope. Meanwhile, the SAFE strengthened its oversight of the flow and the use of the registered capital of a foreign-invested enterprise settled in Renminbi converted from foreign currencies. The use of such Renminbi capital may not be changed without the SAFE’s approval, and may not in any case be used as repayment of Renminbi loans if the proceeds of such loans have not been used. 88 Table of Contents In November 2012, SAFE promulgated the Circular of Further Improving and Adjusting Foreign Exchange Administration Policies on Direct Investment, as amended, which substantially amends and simplifies the foreign exchange procedure. Pursuant to this circular, the opening of various special purpose foreign exchange accounts, such as pre-establishment expenses accounts, foreign exchange capital accounts and guarantee accounts, the reinvestment of RMB proceeds by foreign investors in the PRC and remittance of foreign exchange profits and dividends by a foreign-invested enterprise to its foreign shareholders no longer require the approval or verification of SAFE, and multiple capital accounts for the same entity may be opened in different provinces, which was not possible previously. In addition, SAFE promulgated the Circular on Printing and Distributing the Provisions on Foreign Exchange Administration over Domestic Direct Investment by Foreign Investors and the Supporting Documents in May 2013, as amended, which specifies that the administration by SAFE or its local branches over direct investment by foreign investors in the PRC shall be conducted by way of registration and banks shall process foreign exchange business relating to the direct investment in the PRC based on the registration information provided by SAFE and its branches. After a Notice on Further Simplifying and Improving Foreign Exchange Administration Policy on Direct Investment, or SAFE Notice 13, became effective on June 1, 2015, instead of applying for approvals regarding foreign exchange registrations of foreign direct investment and overseas direct investment from SAFE, entities and individuals will be required to apply for such foreign exchange registrations from qualified banks. The qualified banks, under the supervision of SAFE, directly examine the applications and conduct the registration. In 2014, the SAFE decided to further reform the foreign exchange administration system to satisfy and facilitate the business and capital operations of foreign-invested enterprises, and issued the Circular on the Relevant Issues Concerning the Launch of Reforming Trial of the Administration Model of the Settlement of Foreign Currency Capital of Foreign-Invested Enterprises in Certain Areas on July 4, 2014, or SAFE Circular 36. The SAFE Circular 36 suspends the application of SAFE Circular 142 in certain areas and allows a foreign-invested enterprise registered in such areas to use the Renminbi capital converted from foreign currency registered capital for equity investments within the scope of business, which will be regarded as the reinvestment of foreign-invested enterprise. On March 30, 2015, the SAFE issued the Circular on the Reforming of the Management Method of the Settlement of Foreign Currency Capital of Foreign-Invested Enterprises, or SAFE Circular 19, effective on June 1, 2015 and amended on December 30, 2019, which replaced SAFE Circular 142 and SAFE Circular 36. Under SAFE Circular 19, a foreign-invested enterprise, within the scope of business, may also choose to convert its registered capital from foreign currency to Renminbi on a discretionary basis, and the Renminbi capital so converted can be used for equity investments within the PRC, which will be regarded as the reinvestment of foreign-invested enterprise. Nevertheless, Circular 19 reiterates the principle that Renminbi converted from foreign currency-denominated capital of a foreign-invested company may not be directly or indirectly used for purposes beyond its business scope. Further, in June 2016, the SAFE issued the Circular on Reforming and Regulating Policies on the Control over Foreign Exchange Settlement of Capital Accounts, or Circular 16, which took effect on the same day. Compared to Circular 19, Circular 16 provides that discretionary foreign exchange settlement applies to foreign exchange capital, foreign debt offering proceeds and remitted foreign listing proceeds, and the corresponding Renminbi obtained from foreign exchange settlement are not restricted from extending loans to related parties or repaying the intercompany loans (including advances by third parties). On October 23, 2019, SAFE issued the Circular on Further Promoting Cross-border Trade and Investment Facilitation, or SAFE Circular 28. Among others, SAFE Circular 28 relaxes the prior restrictions and allows the foreign-invested enterprises without equity investment as in their approved business scope to use their capital obtained from foreign exchange settlement to make domestic equity investment as long as the investments are real and in compliance with the foreign investment-related laws and regulations. In addition, SAFE Circular 28 stipulates that qualified enterprises in certain pilot areas may use their capital income from registered capital, foreign debt and overseas listing, for the purpose of domestic payments without providing authenticity certifications to the relevant banks in advance for those domestic payments. According to the Circular on Optimizing the Administration of Foreign Exchange to Support the Development of Foreign-related Business issued by the SAFE on April 10, 2020, eligible enterprises are allowed to make domestic payments using the income under their capital accounts generated from their capital, foreign debt and overseas listing, without providing materials for each transaction evidencing the authenticity in advance, provided that the capital usage is authentic and compliant with the current capital account income usage management regulations. Dividend distribution Pursuant to the SAFE’s Circular on Relevant Issues Relating to Domestic Resident’s Investment and Financing and Roundtrip Investment through Special Purpose Vehicles, or SAFE Circular 37, issued and effective on July 4, 2014, and its appendices, PRC residents, including PRC institutions and individuals, must register with local branches of the SAFE in connection with their direct establishment or indirect control of an offshore entity, for the purpose of overseas investment and financing, with such PRC residents’ legally owned assets or equity interest in domestic enterprises or offshore assets or interests, referred to in SAFE Circular 37 as a “special purpose vehicle.” SAFE Circular 37 further requires amendment to the registration in the event of any significant changes with respect to the special purpose vehicle, including but not limited to increases or decreases of capital contributed by PRC individuals, share transfer or exchange, merger, division or other material event. According to the Notice on Further Simplifying and Improving Policies for the Foreign Exchange Administration of Direct Investment released on February 13, 2015 by the SAFE, local banks will be responsible for examining and handling foreign exchange registration for overseas direct investment, including the initial foreign exchange registration and the amendment registrations. 89 Table of Contents In the event that a PRC shareholder holding interests in a special purpose vehicle fails to fulfill the required SAFE registration, the PRC subsidiaries of that special purpose vehicle may be prohibited from making distributions of profit to the offshore parent and from carrying out subsequent cross-border foreign exchange activities and the special purpose vehicle may be restricted in their ability to contribute additional capital into its PRC subsidiary. And, failure to comply with the various SAFE registration requirements described above could result in liability under PRC law for foreign exchange evasion, including (i) up to 30% of the total amount of foreign exchange remitted overseas and deemed to have been evasive and (ii) in circumstances involving serious violations, a fine of no less than 30% of and up to the total amount of remitted foreign exchange deemed evasive. Furthermore, the persons-in-charge and other persons at our PRC subsidiaries who are held directly liable for the violations may be subject to criminal sanctions. These regulations apply to our direct and indirect shareholders who are PRC residents and may apply to any offshore acquisitions and share transfer that we make in the future if our shares are issued to PRC residents. See “Item 3. Key Information—3.D. Risk Factors—Risks Related to Doing Business in China—PRC regulations relating to offshore investment activities by PRC residents may limit our PRC subsidiary’s ability to increase their registered capital or distribute profits to us or otherwise expose us to liability and penalties under PRC law.” Stock Option Rules Pursuant to the Circular on Issues Concerning the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plan of Overseas Publicly Listed Company issued by the SAFE in February 2012, or the SAFE Circular 7, employees, directors, supervisors and other senior management participating in any stock incentive plan of an overseas publicly listed company who are PRC citizens or who are 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 the SAFE through a domestic qualified agent, which could be a PRC subsidiary of such overseas listed company, and complete certain other procedures. Failure to complete the SAFE registrations may subject them to fines and legal sanctions and may also limit our ability to contribute additional capital into our wholly foreign-owned subsidiaries in China and limit these subsidiaries’ ability to distribute dividends to us. The PRC agents shall, on behalf of the PRC residents who have the right to exercise the employee share options, apply to the SAFE or its local branches for an annual quota for the payment of foreign currencies in connection with the PRC residents’ exercise of the employee share options. The foreign exchange proceeds received by the PRC residents from the sale of shares under the stock incentive plans granted and dividends distributed by the overseas listed companies must be remitted into the bank accounts in the PRC opened by the PRC agents before distribution to such PRC residents. In addition, the PRC agents shall file each quarter the form for record-filing of information of the Domestic Individuals Participating in the Stock Incentive Plans of Overseas Listed Companies with the SAFE or its local branches. We and our PRC citizen employees who have been granted share options, or PRC option holders, will be subject to the SAFE Circular 7 when our company becomes an overseas listed company upon the completion of our initial public offering in July 2019. If we or our PRC option holders fail to comply with the SAFE Circular 7, we and our PRC option holders may be subject to fines and other legal sanctions. See “Item 3. Key Information—3.D. Risk Factors— Failure to comply with PRC regulations regarding the registration requirements for employee stock ownership plans or share option plans may subject the PRC plan participants or us to fines and other legal or administrative sanctions.” In addition, the State Administration for Taxation has issued circulars concerning employee share options, under which our employees working in the PRC who exercise share options will be subject to PRC individual income tax. Our PRC subsidiaries have obligations to file documents related to employee share options with relevant tax authorities and to withhold individual income taxes of those employees who exercise their share options. If our employees fail to pay or if we fail to withhold their income taxes as required by relevant laws and regulations, we may face sanctions imposed by the PRC tax authorities or other PRC government authorities. Regulations Relating to Tax PRC enterprise income tax The PRC enterprise income tax is calculated based on the taxable income determined under the PRC Enterprise Income Tax Law and its implementation rules. On March 16, 2007, the National People’s Congress of China enacted the PRC Enterprise Income Tax Law, which became effective on January 1, 2008 and was subsequently amended on February 24, 2017 and December 29, 2018. On December 6, 2007, the State Council promulgated the implementation rules to the PRC Enterprise Income Tax Law, which was effective in 2008 and was amended in 2019. Under the PRC Enterprise Income Tax Law, an enterprise established outside China with “de facto management bodies” within China is considered a “resident enterprise” for PRC enterprise income tax purposes and is generally subject to a uniform 25% enterprise income tax rate on its worldwide income. A circular issued by the State Taxation Administration in April 2009 and amended in 2017 regarding the standards used to classify certain Chinese invested enterprises controlled by Chinese enterprises or Chinese enterprise groups and established outside of China as “resident enterprises,” or the SAT Circular 82, clarified that dividends and other income paid by such PRC “resident enterprises” will be considered PRC source income and subject to PRC withholding tax, currently at a rate of 10% when paid to non PRC enterprise shareholders. This circular also subjects such PRC “resident enterprises” to various reporting requirements with the PRC tax authorities. Under the implementation regulations to the PRC Enterprise Income Tax Law, a “de facto management body” is defined as a body that has material and overall management and control over the manufacturing and business operations, personnel and human resources, finances and properties of an enterprise. On July 27, 2011, the SAT issued the Administrative Measures of Enterprise Income Tax of Chinese-Controlled Offshore Incorporated Resident Enterprises (Trial), or SAT Bulletin 45, which became effective on September 1, 2011. Such administrative measures further provide guidance on residence status determination and post-determination administration as well as the relevant procedures for competent tax authorities. 90 Table of Contents According to the SAT Circular 82 and SAT Bulletin 45, a Chinese-controlled offshore-incorporated enterprise will be regarded as a PRC tax resident by virtue of having its “de facto management body” in China and will be subject to PRC enterprise income tax on its global income only if all of the following conditions set forth in Circular 82 are met: (i) the primary location of the day-to-day operational management is in the PRC; (ii) decisions relating to the enterprise’s financial and human resource matters are made or are subject to approval by organizations or personnel in the PRC; (iii) the enterprise’s primary assets, accounting books and records, company seals and board and shareholder resolutions are located or maintained in the PRC; and (iv) 50% or more of voting board members or senior executives habitually reside in the PRC. We do not meet all of the conditions set forth in SAT Circular 82. Therefore, we believe that we should not be treated as a “resident enterprise” for PRC tax purposes even if the standards for “de facto management body” prescribed in the SAT Circular 82 are applied to us. For example, certain of our minutes and files of the resolutions of our board of directors and the resolutions of our shareholders are maintained outside the PRC. However, it is possible that the PRC tax authorities may take a different view. See “Item 3. Key Information—3.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.” Pursuant to the PRC EIT Laws, an entity qualified as software enterprise, or an SE, is entitled to an exemption from income taxation for the first two years, counting from the year the entity makes profit, and a reduction of half EIT tax rate for the next three years. Douyu Yule has been qualified as an SE. PRC indirect transfer tax On February 3, 2015, the SAT issued the Notice on Several Issues Concerning Enterprise Income Tax for Indirect Assets Transfer by Non-PRC Resident Enterprises, as amended in 2017, or SAT Circular 7. Pursuant to SAT Circular 7, an “indirect transfer” of assets, including equity interests in a PRC resident enterprise, by non-PRC resident enterprises may be recharacterized and treated as a direct transfer of PRC taxable assets, if such arrangement does not have a reasonable commercial purpose and was established for the purpose of avoiding payment of PRC enterprise income tax. As a result, gains derived from such indirect transfer may be subject to PRC enterprise income tax. When determining whether there is a “reasonable commercial purpose” of the transaction arrangement, features to be taken into consideration include, inter alia, whether the main value of the equity interest of the relevant offshore enterprise derives directly or indirectly from PRC taxable assets; whether the assets of the relevant offshore enterprise mainly consist of direct or indirect investment in China or if its income is mainly derived from China; and whether the offshore enterprise and its subsidiaries directly or indirectly holding PRC taxable assets have real commercial nature which is evidenced by their actual function and risk exposure. According to SAT Circular 7, where the payor fails to withhold any or sufficient tax, the transferor shall declare and pay such tax to the tax authority by itself within the statutory time limit. Late payment of applicable tax will subject the transferor to default interest. SAT Circular 7 does not apply to transactions of sale of shares by investors through a public stock exchange where such shares were acquired on a public stock exchange. On October 17, 2017, the SAT issued the Circular on Issues of Tax Withholding of Income Tax of Non-resident Enterprise at Source, or SAT Circular 37, which further elaborates the relevant implemental rules regarding the calculation, reporting and payment obligations of the withholding tax by the non-resident enterprises. Nonetheless, there remain uncertainties as to the interpretation and application of SAT Circular 7. SAT Circular 7 may be determined by the tax authorities to be applicable to our offshore transactions or sale of our shares or those of our offshore subsidiaries where non-resident enterprises, being the transferors, were involved. Value added tax On January 1, 2012, the State Taxation Administration officially launched a pilot VAT reform program, or Pilot Program, applicable to businesses in selected industries. Businesses in the Pilot Program would pay VAT instead of business tax. The Pilot Industries in Shanghai included industries involving the leasing of tangible movable property, transportation services, research and development and technical services, information technology services, cultural and creative services, logistics and ancillary services, certification and consulting services. The Pilot Program initially applied only to transportation industry and modern service industries, Pilot Industries, in Shanghai in 2011 and expanded to eight trial regions (including Beijing and Guangdong province) and nationwide progressively from August to August 2013. Revenues generated by advertisement services, a type of “cultural and creative services,” are subject to the VAT rate of 6%. According to official announcements made by competent authorities in Beijing and Guangdong province, Beijing launched the same Pilot Program on September 1, 2012, and Guangdong province launched it on November 1, 2012. Revenues generated by advertisement services, a type of “cultural and creative services,” are subject to the VAT rate of 6%. 91 Table of Contents On December 12, 2013, the Ministry of Finance and the SAT issued the Circular on Including the Railway Transportation and Postal Industries in the Pilot Program of Replacing Business Tax with Value-Added Tax, or the Pilot Collection Circular. The scope of certain modern services industries under the Pilot Collection Circular is expanded to cover research and development and technical services, cultural and creative services, and radio, film and television services. In addition, according to the Notice on Including the Telecommunications Industry in the Pilot Program of Levying Value-added Tax in Lieu of Business Tax, which became effective on June 1, 2014, the scope of certain modern services industries under the Pilot Collection Circular is further expanded to cover the telecommunications industry. On March 23, 2016, the MOF and the SAT issued the Circular on Comprehensively Promoting the Pilot Program of the Collection of Value added Tax in Lieu of Business Tax. Effective from May 1, 2016, the PRC tax authorities collect VAT in lieu of Business Tax in all regions and industries. All of our entities were subject to VAT at the rate of 6% for services provided and 16% for goods sold as of December 31, 2018. On March 20, 2019, the SAT announced that the VAT rate of 16% for sale of goods be reduced to 13%, effective from April 1, 2019. Withholding Tax on Dividend A PRC resident enterprise which distributes dividends to its non-PRC shareholders should withhold PRC income tax at a rate of 10% according to PRC law. However, pursuant to the Arrangement between the PRC and the Hong Kong Special Administrative Region on the Avoidance of Double Taxation and Prevention of Fiscal Evasion with respect to Taxes on Income, if the beneficial owner of the dividends is a Hong Kong resident enterprise, which directly holds at least 25% of the equity interest of the aforesaid enterprise (i.e., the dividend distributor), the tax levied shall be 5% of the distributed dividends. Meanwhile, the Announcement of the State Administration of Taxation on Issues Relating to “Beneficial Owner” in Tax Treaties has stipulated some factors that are unfavorable to the determination of “beneficial owner,” particularly in the case of holding companies. In addition, pursuant to the Circular of the State Taxation Administration on Relevant Issues Relating to the Implementation of Dividend Clauses in Tax Treaties, which was issued by the SAT on February 20, 2009, for a tax resident of the counterparty to the tax treaty to be entitled to such tax treatment specified in the tax treaty for with respect to the dividends paid to it by a Chinese resident company, all of the following requirements should be satisfied: (i) the tax resident who obtains dividends should be a company as provided in the tax treaty; (ii) the equity interests and the voting shares of the Chinese resident company directly owned by such tax resident is at least a specified percentage; and (iii) the capital ratio of the Chinese resident company directly owned by such tax resident is at least the percentage specified in the tax treaty at any time within 12 months prior to acquiring the dividends. Regulations Relating to Labor and Social Insurance The principal laws that govern employment include (i) the PRC Labor Law, promulgated by the SCNPC on July 5, 1994, which has been effective since January 1, 1995 and most recently amended on December 29, 2018, and (ii) the PRC Labor Contract Law, promulgated by the SCNPC on June 29, 2007 and amended on December 28, 2012. According to the PRC Labor Law and the PRC Labor Contract Law, employers must execute written labor contracts with full-time employees. All employers must compensate their employees with wages equal to at least the local minimum wage standards. All employers are required to establish a system for labor safety and sanitation, strictly comply with state rules and standards and provide employees with workplace safety training. Violations of the PRC Labor Contract Law and the PRC Labor Law may result in the imposition of fines and other administrative penalties. For serious violations, criminal liability may arise. In addition, an employer is obligated to sign an indefinite term labor contract with an employee if the employer continues to employ the employee after two consecutive fixed term labor contracts. The employer also have to pay compensation to the employee if the employer terminates an indefinite term labor contract. Moreover, employers in China are required to provide employees with welfare schemes covering pension insurance, unemployment insurance, maternity insurance, work-related injury insurance, medical insurance and housing funds. According to the PRC Social Insurance Law promulgated by the National People’s Congress of the PRC on October 28, 2010, effective since July 1, 2011 and amended on December 29, 2018, together with other relevant laws and regulations, an employer that fails to make social insurance contributions may be ordered to pay the required contributions within a stipulated deadline and be subject to a late fee. If the employer still fails to rectify the failure to make social insurance contributions within the stipulated deadline, it may be subject to a fine ranging from one to three times the amount overdue. According to the Regulations on Administration of Housing Fund promulgated by the State Council on April 3, 1999 and amended in 2002 and 2019 respectively, an enterprise that fails to make housing fund contributions may be ordered to rectify the noncompliance and pay the required contributions within a stipulated deadline; otherwise, an application may be made to a local court for compulsory enforcement. 92 Table of Contents Regulations Relating to Anti-monopoly Matters related to Internet Platform Companies The PRC Anti-monopoly Law, which took effect on August 1, 2008, prohibits monopolistic conduct such as entering into monopoly agreements, abusing market dominance and concentration of undertakings that may have the effect of eliminating or restricting competition. The PRC Anti- monopoly Law requires that the anti-monopoly law enforcement agency be notified in advance of any transaction where the parties’ turnover in the China market and/or global market exceed certain thresholds and the buyer would obtain control of, or decisive influence over, the target as a result of the business combination. As further clarified by the Provisions of the State Council on the Threshold of Filings for Undertaking Concentrations issued by the State Council in 2008 and amended in September 2018, such thresholds include (i) the total global turnover of all operators participating in the transaction exceeds RMB10 billion in the preceding fiscal year and at least two of these operators each had a turnover of more than RMB400 million within China in the preceding fiscal year, or (ii) the total turnover within China of all the operators participating in the transaction exceeded RMB2 billion in the preceding fiscal year, and at least two of those operators that had a turnover of more than RMB400 million within China in the preceding fiscal year. There are numerous factors the Anti-monopoly law enforcement agency considers in determining “control” or “decisive influence,” and, depending on certain criteria, the Anti-monopoly law enforcement agency may conduct Anti-monopoly review of transactions in respect of which it was notified. On October 23, 2021, the SCNPC issued a discussion draft of the amended Anti-monopoly Law, which proposes to increase the fines for illegal concentration of business operators to no more than 10% of its last year’s sales revenue if the concentration of business operator has or may have an effect of excluding or limiting competitions; or a fine of up to RMB5 million if the concentration of business operator does not have an effect of excluding or limiting competition. The draft also proposes that the relevant authority shall investigate a transaction where there is any evidence that the concentration has or may have the effect of eliminating or restricting competitions, even if such concentration does not reach the filing threshold. On September 11, 2020, the SAMR issued the Anti-monopoly Compliance Guideline for Operators, which requires, under the PRC Anti- monopoly Law, operators to establish Anti-monopoly compliance management systems to prevent Anti-monopoly compliance risks. On February 7, 2021, the Anti-monopoly Bureau of the State Council officially promulgated the Guidelines to Anti-monopoly in the Field of Internet Platforms, or the Anti-monopoly Guidelines on Platform Economies. Pursuant to an official interpretation from the Anti-monopoly Bureau of the State Council, the Anti-monopoly Guidelines on Platform Economies mainly covers five aspects, including general provisions, monopoly agreements, abusing market dominance, concentration of undertakings, and abusing of administrative powers eliminating or restricting competition. The Anti-monopoly Guidelines on Platform Economies prohibits certain monopolistic acts of Internet platforms so as to protect market competition and safeguard interests of users and undertakings participating in Internet platform economy, including without limitation, prohibiting platforms with dominant position from abusing their market dominance (such as discriminating customers in terms of pricing and other transactional conditions using big data and analytics, coercing counterparties into exclusivity arrangements, using technology means to block competitors’ interface, favourable positioning in search results of goods displays, using bundle services to sell services or products, compulsory collection of users’ unnecessary data). In addition, the Anti-monopoly Guidelines on Platform Economies also reinforces antitrust merger review for Internet platform related transactions to safeguard market competition. On August 17, 2021, the SAMR issued the Provisions on Preventing Online Unfair Competition (Draft for Public Comments), or the Draft Provisions on Preventing Online Unfair Competition, which aims to regulate the unfair competition behaviours of business operators through Internet and other information networks. The Draft Provisions on Preventing Online Unfair Competition provides, among others, business operators should not use any technical means to impede, interfere or conduct unfair competition behaviours. Regulations Relating to M&A and Overseas Listings On August 8, 2006, six PRC governmental agencies jointly promulgated the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rules, which became effective on September 8, 2006, and were amended on June 22, 2009. The M&A Rules require offshore special purpose vehicles formed to pursue overseas listing of equity interests in PRC companies and controlled directly or indirectly by PRC companies or individuals to obtain the approval of the China Securities Regulatory Commission, or the CSRC, prior to the listing and trading of such special purpose vehicle’s securities on any stock exchange overseas. The M&A Rules also establish procedures and requirements that could make some acquisitions of PRC companies by foreign investors more time consuming and complex, including requirements in some instances that the Anti- monopoly law enforcement agency be notified in advance of any change-of-control transaction in which a foreign investor takes control of a PRC domestic enterprise. 93 Table of Contents In addition, the Rules on Implementation of Security Review System for the Merger and Acquisition of Domestic Enterprises by Foreign Investors issued by the Ministry of Commerce in 2011 specify that mergers and acquisitions by foreign investors that raise “national defense and security” concerns and mergers and acquisitions through which foreign investors may acquire de facto control over domestic enterprises and that raise “national security” concerns are subject to strict review by the Ministry of Commerce, and prohibit any activities attempting to bypass such security review, including by structuring the transaction through a proxy or contractual control arrangement. On July 6, 2021, the General Office of the State Council and General Office of the Central Committee of the Communist Party of China issued Opinions on Strictly Cracking Down Illegal Securities Activities in accordance with the Law. The opinions emphasized the need to strengthen the administration over illegal securities activities and the supervision on overseas listings by China-based companies and proposed to take effective measures, such as promoting the construction of relevant regulatory systems to deal with the risks and incidents faced by China-based overseas-listed companies. On December 24, 2021, the CSRC published the draft Administrative Provisions of the State Council on the Overseas Issuance and Listing of Securities by Domestic Companies (Draft for Comments), or the Administrative Provisions, and the draft Measures for the Overseas Issuance and Listing of Securities Record-filings by Domestic companies (Draft for Comments), or the Draft Measures, for public comments. Pursuant to these drafts, PRC domestic companies that directly or indirectly offer or list their securities in an overseas market, including a PRC company limited by shares and an offshore company whose main business operations are in China and intends to offer shares or be listed in an overseas market based on its onshore equities, assets or similar interests, are required to file with the CSRC within three business days after submitting their listing application documents to the regulator in the place of intended listing. Failure to complete the filing under the Administrative Provisions may subject the domestic enterprise to a warning or a fine of RMB one million to RMB ten million. If the circumstances are serious, the domestic enterprise may be ordered to suspend its business or suspend its business pending rectification, or its permits or businesses license may be revoked. The Draft Measures also provide that a China-based company that has been listed in an overseas market is also required to file with the CSRC within three business days for its follow-on offering of securities on the overseas market after the completion of the issuance. However, there is no timetable as to when these drafts will be enacted. 4.C. Organizational Structure The following diagram illustrates our corporate structure as of the date of this annual report, including our significant subsidiaries and variable interest entities. 94 Table of Contents Notes: (1) (2) The sole shareholder of Wuhan Ouyue is Mr. Shaojie Chen, our founder, CEO and director. The shareholders of Wuhan Douyu and their relationship with our company are as follows: (i) Mr. Chen (50.23%), our founder, CEO and director; (ii) Linzhi Lichuang (18.98%), an affiliate of Nectarine, one of our shareholders; (iii) Beijing Fengye (13.16%), with 99.99% of its interests owned by Wuhan Ouyue; (iv) Beijing Phoenix (8.08%), an affiliate of Phoenix Fuju Limited, one of our shareholders; (v) Mr. Wenming Zhang (3.92%), our co-founder, former co-CEO and former director, and (vi) Wuhan Chaosai Business Information Consulting Partnership (Limited Partnership) (5.63%), with 99.99% of its interests owned by Wuhan Ouyue. Contractual Arrangements with The VIEs and The VIEs’ Respective Shareholders Currently, our business in China are operated primarily through Wuhan Douyu and Wuhan Ouyue due to PRC legal restrictions on foreign ownership in value-added telecommunication services and other Internet related business. The Special Administrative Measures for Entrance of Foreign Investment (Negative List) (2021 Version) provides that foreign investors are generally not allowed to own more than 50% of the equity interests in a value-added telecommunication service provider other than an e-commerce service provider. In addition, foreign investors are prohibited from investing in companies engaged in certain online and culture related businesses. See “Item 4. Information on the Company—4.B. Business Overview—Regulation —Regulations Relating to Telecommunications Services,” “Item 4. Information on the Company—4.B. Business Overview—Regulation—Regulations Relating to Online Transmission of Audio-Visual Programs,” and “Item 4. Information on the Company—4.B. Business Overview—Regulation— Regulations Relating to Online Game Operation.” We are a company incorporated in the Cayman Islands. Douyu Yule, our PRC subsidiary, is considered as a foreign-invested enterprise. To comply with the foregoing PRC laws and regulations, we primarily conduct our business in China through Wuhan Ouyue and Wuhan Douyu, the VIEs and their subsidiaries in the PRC, based on a series of contractual arrangements. As a result of these contractual arrangements, we exert effective control over the VIEs and consolidate their operating results in our consolidated financial statements under U.S. GAAP. These contractual arrangements may not be as effective as direct ownership in providing us with control over the VIEs. If the VIEs or their respective shareholders fail to perform their respective obligations under the contractual arrangements, we could be limited in our ability to enforce the contractual arrangements that give us effective control over our business operations in the PRC and may have to incur substantial costs and expend additional resources to enforce such arrangements. We may also have to rely on legal remedies under PRC law, including seeking specific performance or injunctive relief, and claiming damages, which we cannot assure will be effective under PRC law. For details, please refer to “Item 3. Key Information—3.D. Risk Factors—Risks Related to Our Corporate Structure.” In the opinion of Han Kun Law Offices, our PRC counsel: • • the ownership structures of the VIEs and Douyu Yule as of the date of this annual report do not and will not contravene any PRC laws or regulations currently in effect; and each of the agreements under the contractual arrangements among Douyu Yule, the VIEs and their respective shareholders governed by PRC laws is valid and binding upon each party to such agreements and enforceable against each party thereto in accordance with their terms and applicable PRC laws and regulations currently in effect. There are substantial uncertainties regarding the interpretation and application of current and future PRC laws, regulations and rules. In particular, in March 2019, the National People’s Congress of the PRC adopted the PRC Foreign Investment Law, which became effective on January 1, 2020. Among other things, the PRC Foreign Investment Law defines “foreign investment” as investment activity in China by foreign investors in a direct or indirect manner, including those circumstances explicitly listed thereunder as establishing new projects or foreign invested enterprises or acquiring shares of enterprises in China, and other approaches of investment as stipulated by laws, administrative regulations or otherwise regulated by the State Council. The PRC Foreign Investment Law leaves uncertainty as to whether foreign investors’ controlling PRC onshore variable interest entities via contractual arrangements will be recognized as “foreign investment” and thus be subject to the restrictions/prohibitions on foreign investments. Accordingly, the PRC regulatory authorities may in the future take a view that is contrary to the above opinion of our PRC counsel. If the PRC government finds that the agreements that establish the structure for operating our livestreaming business and other Internet related business do not comply with PRC government restrictions on foreign investment in certain industries, such as value-added telecommunications services business, we could be subject to severe penalties, including being prohibited from continuing operations. See “Item 3. Key Information—3.D. Risk Factors—Risks Related to Our Corporate Structure.” The following is a summary of the contractual arrangements by and among Douyu Yule, Wuhan Douyu and the shareholders of Wuhan Douyu, and Wuhan Ouyue and Mr. Shaojie Chen, the sole shareholder of Wuhan Ouyue. 95 Table of Contents Wuhan Douyu Share Pledge Agreement Pursuant to a series of share pledge agreements entered into in May 2018 by and among Douyu Yule, Wuhan Douyu and the shareholders of Wuhan Douyu, the shareholders of Wuhan Douyu pledged all of their equity interests in Wuhan Douyu to Douyu Yule, to guarantee Wuhan Douyu’s performance of its obligations under the exclusive business cooperation agreement. If Wuhan Douyu breaches its contractual obligations under the exclusive business cooperation agreement, Douyu Yule will be entitled to certain rights, including but not limited to the rights to auction or sell the pledged equity interests. The pledges under the share pledge agreements have been registered with the relevant PRC legal authority pursuant to PRC laws and regulations. In January 2019, the existing share pledge agreement to which Mr. Chen is a party was replaced with an amended and restated share pledge agreement on substantially similar terms due to equity transfers. In April 2020 and July 2020, Douyu Yule, Wuhan Douyu and Mr. Chen entered into two additional share pledge agreements on substantially similar terms due to equity transfers. In October 2021, Douyu Yule, Wuhan Douyu and Wuhan Chaosai Business Information Consulting Partnership (Limited Partnership) entered into a share pledge agreement on substantially similar terms due to transfers of equity interest in Wuhan Douyu. Exclusive Option Agreement Pursuant to a series of exclusive option agreements entered into in May 2018 by and among Douyu Yule, Wuhan Douyu and the shareholders of Wuhan Douyu, the shareholders of Wuhan Douyu irrevocably granted Douyu Yule or its designated person an exclusive option to purchase at its discretion all or part of the equity interests in Wuhan Douyu held by the shareholders of Wuhan Douyu at the price of RMB1.0 or at the lowest price permitted by PRC law, whichever is lower. In addition, Wuhan Douyu irrevocably granted Douyu Yule or its designated person an exclusive option to purchase at its discretion, all or part of the assets held or entitled to be used by Wuhan Douyu, to the extent permitted under PRC law and at the lowest price permitted by PRC law. In January 2019, the existing exclusive option agreement to which Mr. Chen is a party was replaced with an amended and restated exclusive option agreement on substantially similar terms due to equity transfers, and the amended and restated exclusive option agreement was further replaced with two exclusive option agreements on substantially similar terms in April 2020 and July 2020 due to equity transfers. In October 2021, Douyu Yule, Wuhan Douyu and Wuhan Chaosai Business Information Consulting Partnership (Limited Partnership) entered into an exclusive option agreement on substantially similar terms due to transfers of equity interest in Wuhan Douyu. Exclusive Business Cooperation Agreement Pursuant to the exclusive business cooperation agreement entered into in May 2018 by and between Douyu Yule and Wuhan Douyu, Wuhan Douyu agreed to engage Douyu Yule as its exclusive provider of business support, technical and consulting services, including technical services, network support, business consultation, intellectual property licensing, equipment leasing, market consultancy, system integration, product research and development and system maintenance, in exchange for service fees. Under these arrangements, the service fees, subject to adjustment at Douyu Yule’s sole discretion, are equal to all of the net profit of Wuhan Douyu. Therefore, Douyu Yule enjoys all the economic benefits derived from the businesses of Wuhan Douyu. Power of Attorney Pursuant to a series of powers of attorney issued by each shareholder of Wuhan Douyu in May 2018, the shareholders of Wuhan Douyu irrevocably appointed Douyu Yule or a director authorized by Douyu Yule as their attorney-in-fact to act on their behalf on all matters of Wuhan Douyu and to exercise all of their rights as registered shareholders of Wuhan Douyu. In January 2019, the existing power of attorney issued by Mr. Chen was replaced with a new power of attorney on substantially similar terms due to equity transfers, and such new power of attorney was further replaced with two powers of attorney on substantially similar terms in April 2020 and July 2020 due to equity transfers. In October 2021, Wuhan Chaosai Business Information Consulting Partnership (Limited Partnership) signed a power of attorney on substantially similar terms due to transfers of equity interest in Wuhan Douyu. Spousal Consent Letters Pursuant to a series of spousal consent letters executed by the spouses of the individual shareholders of Wuhan Douyu, Mr. Chen, and Mr. Wenming Zhang in May 2018, the signing spouses confirmed and agreed that the equity interests of Wuhan Douyu are the own property of their spouses and shall not constitute the community property of the couples. The spouses also irrevocably waived any potential right or interest that may be granted by operation of applicable law in connection with the equity interests of Wuhan Douyu held by their spouses. In January 2019, the existing spousal consent letter executed by Mr. Chen’s spouse was replaced with a new spousal consent letter on substantially similar terms due to equity transfers. In April 2020 and July 2020, the spouse of Mr. Chen issued two additional spousal consent letters on substantially similar terms due to equity transfers. Wuhan Ouyue Share Pledge Agreement Pursuant to the share pledge agreement dated May 29, 2018 by and among Douyu Yule, Wuhan Ouyue and Mr. Chen, the sole shareholder of Wuhan Ouyue, Mr. Chen pledged all of his equity interests in Wuhan Ouyue to Douyu Yule, to guarantee Wuhan Ouyue’s performance of its obligations under the exclusive business cooperation agreement. If Wuhan Ouyue breaches its contractual obligations under the exclusive business cooperation agreement, Douyu Yule will be entitled to certain rights, including but not limited to the rights to auction or sell the pledged equity interests. The pledge under the share pledge agreement has been registered with the relevant PRC legal authority pursuant to PRC laws and regulations. 96 Table of Contents Exclusive Option Agreement Pursuant to the exclusive option agreement dated May 29, 2018 by and among Douyu Yule, Wuhan Ouyue and Mr. Chen, the sole shareholder of Wuhan Ouyue, Mr. Chen irrevocably granted Douyu Yule or its designated person an exclusive option to purchase at its discretion, all or part of the equity interests in Wuhan Ouyue held by Mr. Chen at the price of RMB1.0 or at the lowest price permitted by PRC law, whichever is lower. In addition, Wuhan Ouyue irrevocably granted Douyu Yule or its designated person an exclusive option to purchase at its discretion all or part of the assets held or entitled to be used by Wuhan Ouyue, to the extent permitted under PRC law. Subject to relevant PRC laws and regulations, Wuhan Ouyue and Mr. Chen shall return any amount of purchase price they have received to Douyu Yule. Exclusive Business Cooperation Agreement Pursuant to the exclusive business operation agreement dated May 29, 2018 by and between Douyu Yule and Wuhan Ouyue, Wuhan Ouyue agreed to engage Douyu Yule as its exclusive provider of business support, technical and consulting services, including technical services, network support, business consultation, intellectual property licensing, equipment leasing, market consultancy, system integration, product research and development and system maintenance, in exchange for service fees. Under these arrangements, the service fees, subject to Douyu Yule’s adjustment, are equal to all of the net profit of Wuhan Ouyue. Douyu Yule may adjust the service fees at its sole discretion. Douyu Yule enjoys all the economic benefits derived from the businesses of Wuhan Ouyue. Power of Attorney Pursuant to the power of attorney dated May 29, 2018 issued by Mr. Chen, the sole shareholder of Wuhan Ouyue, Mr. Chen irrevocably appointed Douyu Yule or a director authorized by Douyu Yule as his attorney-in-fact to act on his behalf on all matters of Wuhan Ouyue and to exercise all of his rights as a registered shareholder of Wuhan Ouyue. Spousal Consent Letter Pursuant to the spousal consent letter dated May 29, 2018 executed by the spouse of Mr. Chen, the sole shareholder of Wuhan Ouyue, the signing spouse confirmed and agreed that the equity interests of Wuhan Ouyue are the own property of Mr. Chen and shall not constitute the community property of the couple. The signing spouse also irrevocably waived any potential right or interest that may be granted by operation of applicable law in connection with the equity interests of Wuhan Ouyue held by Mr. Chen. 4.D. Property, Plant and Equipment Our corporate headquarters are located in Wuhan, China. As of December 31, 2021, we have leased office space with an aggregate area of approximately 35,225 square meters, of which approximately 30,804 square meters are in Wuhan, approximately 1,859 square meters are in Shanghai, approximately 2,418 square meters are in Beijing, and approximately 144 square meters are in Guangzhou. Our physical servers are primarily hosted at Internet data centers owned by major domestic Internet data center providers. We believe that our existing facilities are generally adequate in meeting our current needs, but we expect to seek additional space as needed to accommodate future growth. ITEM 4A. UNRESOLVED STAFF COMMENTS None. ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS You should read the following discussion together with our consolidated financial statements and the related notes included elsewhere in this annual report. This discussion may contain forward-looking statements about our business and operations. Our actual results may differ materially from those we currently anticipate as a result of many factors, including those we describe under “Item 3. Key Information—Item 3.D. Risk Factors” and elsewhere in this annual report. 97 Table of Contents For the impact of foreign currency fluctuations on the company, and the extent to which foreign currency net investments are hedged by currency borrowing and other hedging instruments, please refer to “Item 11. Quantitative and Qualitative Disclosures about Market Risk—Foreign exchange risk.” 5.A. Operating Results General Factors Affecting Our Results of Operations Our business and operating results are affected by general factors affecting China’s game-centric livestreaming industry, which include: • • • • • China’s overall economic growth; the usage and penetration rate of mobile Internet and mobile payment; the growth and competitive landscape of China’s livestreaming market, especially game-centric livestreaming market; the growth of China’s online gaming market, especially the e-Sports market; and governmental policies and initiatives affecting China’s livestreaming industry, including game livestreaming and eSports. Unfavorable changes in any of these general industry conditions could negatively affect demand for our services and materially and adversely affect our results of operations. Specific Factors Affecting Our Results of Operations While our business is influenced by general factors affecting the game-centric livestreaming industry in China, we believe our results of operations are more directly affected by company-specific factors, including the following major factors: Our ability to maintain and expand our user base and enhance our user engagement We have a large and highly engaged user base, which drives our revenue growth. As of December 31, 2020 and 2021, we had 394.3 million and 433.4 million registered users, respectively. Our average mobile MAUs increased from 58.2 million in the fourth quarter of 2020 to 62.4 million in the fourth quarter of 2021. Our brand awareness and pivotal position in the game-centric livestreaming industry allows us to continue to acquire users through organic growth and traffic acquisition. Our ability to effectively maintain and expand our user base will affect the growth of our business and our revenue going forward. Our user base and level of user engagement help us attract top streamers who produce quality content. The curated content and interactive features of our platform help attract and retain users and encourage user participation, which in turn drives up virtual gifting activities and our livestreaming revenue. Our game livestreaming combined with a broad range of other entertainment contents have been highly effective in attracting user traffic and boosting user spending. In addition, the broad user reach and attractive commercial proposition of our platform continuously draw advertisers, game developers and other participants of the eSports industry to our platform. We seek to continually grow our user base, invest in our brand recognition and stimulate active user engagement to strengthen our leadership position in the game-centric livestreaming market. Our ability to maintain and expand our user base, as well as maintain and enhance user engagement, depends on, among other things, our ability to recruit, train, and retain high-quality streamers, continually produce quality content, maintain our pivotal position in the ever-growing eSports industry in China, and continually improve our users’ entertainment experience through technological innovation. We intend to further explore overseas markets to expand our user base through both organic expansion and selective investments. We acquired Nonolive in 2018, which is a mobile livestreaming platform mainly focused on the Southeast Asia market. We also expanded into other overseas markets through various channels, such as Japan. Our ability to attract and retain popular streamers and to enhance the quality of our content Popular streamers are critical to maintaining and expanding our user base and enhancing user engagement. The high quality content generated by our top streamers increases the vibrancies of our user community and in turn drives the growth of our revenue across livestreaming, advertisement and game distribution. Our ability to attract and retain top streamers depends on, among other things, our brand awareness, size and engagement of our user base, the support from our platform, and monetization opportunities. 98 Table of Contents We will continue to attract, nurture and promote our streamers through our comprehensive streamer development system and increase our streamers’ stickiness to and reliance on our platform. Our ability to capitalize on the eSports industry We believe our platform is strategically positioned to benefit from the growth of the eSports market in China. Our average mobile eSports MAUs were approximately 34.0 million and 37.1 million in the fourth quarter of 2020 and 2021, respectively. Leveraging our early-mover advantage in eSports in China, we have built a platform that is appealing to eSports streamers, game developers and publishers, professional players and eSports tournament organizers as a result of our broad user reach, high user engagement, strong brand awareness, and attractive monetization opportunities. We expect to continue to source and promote more eSports content on our platform, explore and selectively obtain broadcasting rights, invest in eSports sponsorships, and organize high-profile eSports events. Our ability to secure coveted eSports content allows us to attract and retain more users, and also allows us to enhance our user engagement, increase our users’ willingness to pay, extend the lifespan of the related eSports games, and strengthen our brand awareness among all participants in the eSports industry, which drives the growth of our paying users and our business in the long term. Our ability to strengthen monetization capabilities We generate revenue from a diverse range of monetization channels including (i) livestreaming and (ii) advertisement and others. Our livestreaming revenue is primarily driven by the number of paying users and ARPPU. We have experienced growth in the number of paying users since 2017 as a result of continual promotion of our streamers and expansion of virtual gifting scenarios. Our annual paying user base was 20.7 million in 2020 and 17.5 million in 2021. We intend to attract and train more popular streamers, provide more quality content, diversify user paying scenarios on our platform, and enhance interaction between streamers and viewers to increase user willingness to pay. We have generally experienced a steady increase in the number of our paying users due to active cultivation of our users’ paying habits through compelling content and various promotional activities and events. We have experienced in the past and may continue to experience some fluctuations in our paying users due to fewer promotional activities in some quarters or a diluted paying user base as compared to total MAUs. We provide effective and targeted advertising solutions that reach a broad audience with attractive demographics to incentivize more spending by existing advertising customers and to attract new advertising customers. We continue to innovate our advertising methods, as well as to improve advertisement efficiency. We will monitor market developments and consider deepening our partnerships with game developers and publishers to increase our participation in game distribution. We also plan to further explore other monetization channels including promotional channels for new games and other game events to provide a holistic suite of services to our users. We believe our large and engaged user base and our leading position in China’s game-centric livestreaming ecosystem will allow us to continue to enhance our monetization efficiency and diversification. Our ability to further improve cost efficiency and economies of scale We have made significant investments in our technology, brand, streamers and team. Our costs consist primarily of revenue sharing fees, content cost and bandwidth costs. Our expenses primarily consist of sales and marketing expenses, general and administrative expenses and research and development expenses. It is critical for us to manage our costs and expenses effectively and improve operational efficiency, and we believe our platform has achieved strong operating leverage and economies of scale. Our ability to achieve greater cost efficiency and economies of scale also depends on our ability to efficiently manage and control our costs and expenses. We plan to upgrade our technological capabilities and infrastructure to support the growth of our business. We expect that the adoption of advanced streaming technologies and strong business growth will enable us to improve operational efficiency and to benefit further from economies of scale. 99 Table of Contents Key Components of Results of Operations Net revenues(1) Cost of revenues Gross profit Operating expenses: Sales and marketing expenses(2) Research and development expenses(2) General and administrative expenses(2) Other operating income, net Total operating expenses (Loss) income from operations Other expense, net Foreign exchange gain, net Interest income Gain on disposal of subsidiary Income (loss) before income taxes Income tax expense Share of (loss) income in equity method investments Net income (loss) Net loss attributable to noncontrolling interest Net income (loss) attributable to ordinary shareholders of the Company Net income (loss) Other comprehensive loss, net of tax of nil: Foreign currency translation adjustments Comprehensive income (loss) For the Year Ended December 31, 2021 2019 RMB 2020 RMB RMB US$ (in millions) 7,283.2 9,601.9 9,165.3 1,438.2 (6,087.0) (8,041.6) (8,075.4) (1,267.2) 171.0 1,196.2 1,560.3 1,089.9 (580.4) (416.3) (375.9) 74.4 (598.7) (383.9) (446.1) 100.8 (952.9) (490.0) (376.0) 80.3 (1,327.9) (1,298.2) (1,738.6) (648.7) (33.8) — 77.4 — (605.1) — (15.1) (620.2) (38.4) (581.8) (620.2) (131.7) (22.8) 32.0 159.1 — 36.6 — (3.3) 33.3 (6.5) 39.8 33.3 262.1 (27.4) — 145.2 23.5 403.4 — 1.3 404.7 (80.8) 485.5 404.7 (149.5) (76.9) (59.0) 12.6 (272.8) (101.8) (5.3) — 12.1 — (95.0) — (2.4) (97.4) (6.0) (91.4) (97.4) 109.5 142.8 (425.7) (21.0) (123.6) (743.8) (19.4) (116.8) Notes: (1) We adopted ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)” and its amendments on January 1, 2019 with the modified retrospective method, and thus results for reporting periods beginning after January 1, 2019 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with the historic accounting under Topic 605. Includes share-based compensation of RMB290.8 million, RMB142.1 million and RMB132.1 million (US$20.7 million) in 2019, 2020 and 2021, respectively. (2) Revenue We generate revenue mainly from (i) livestreaming and (ii) advertisement and other revenues. The following table sets forth sources of our revenue in absolute amounts and as percentages of total net revenue for the periods indicated: 100 Table of Contents Net revenues Livestreaming Advertisement Other Total Livestreaming For the Year Ended December 31, 2021 2020 RMB % RMB % RMB US$ 2019 % (in millions, except for percentages) 6,617.3 90.9 8,852.2 92.2 8,596.6 1,349.0 93.8 5.1 513.3 152.7 1.1 7,283.3 100.0 9,601.9 100.0 9,165.3 1,438.2 100.0 7.0 645.2 2.1 104.6 6.7 464.9 1.1 103.8 72.9 16.3 We primarily generate livestreaming revenues through the sales of virtual gifts. See “Item 4. Information of the Company—4.B. Business Overview—Monetization opportunities—Livestreaming.” Advertisement and Others We generate advertisement revenue primarily through offering various forms of advertising services and promotion campaigns to advertisers, including (i) integrated promotion activities during livestreaming, (ii) advertisement display, and (iii) online and offline events-related advertisements. To a lesser extent, we also generate revenue from revenue sharing arrangements with game developers and publishers through game distribution. See “Item 4. Information of the Company—4.B. Business Overview—Monetization Opportunities—Advertisement and Others.” Cost of Revenues Our cost of revenues consists of (i) revenue sharing fees and content cost, (ii) bandwidth cost, and (iii) other. The table below sets forth a breakdown of the components of cost of revenues in absolute amounts and as percentages of total cost of revenues for the periods indicated: Cost of Revenues Revenue sharing fees and content cost(1) Bandwidth cost Other Total For the Year Ended December 31, 2021 2020 RMB % RMB % RMB US$ 2019 % (in millions, except for percentages) 5,176.5 85.0 7,129.1 88.7 7,153.2 1,122.5 88.6 8.2 617.8 10.1 661.1 292.7 3.2 4.9 251.4 6,087.0 100.0 8,041.6 100.0 8,075.4 1,267.2 100.0 8.2 665.2 104.4 40.3 3.1 257.0 Note: (1) Include content right costs which are expensed over the streaming periods. Revenue sharing fees and content cost. Our revenue sharing fees represent our payment to streamers and talent agencies based on a percentage of revenue from sales of virtual items, including virtual gifts and other subscription-based privileges. When a viewer sends a virtual gift to a streamer, we pay a certain percentage of the sales of virtual gifts to the streamers or the talent agency of which the streamer is a member. Our content cost mainly covers (i) sign-up bonus to top exclusive streamers, a monthly payment that is determined based on the streamers’ performance matrix, (ii) costs we incurred in purchasing content rights, and (iii) our investments in generating self-produced content. Bandwidth cost. Bandwidth cost is fees that we pay to telecommunication service providers for bandwidth and content delivery-related services. Others. Other costs include fees that we pay to third-party payment processing platforms through which our users purchase our virtual currencies, depreciation of servers, cost, related to data center services, costs related to eSports teams which we invested in and other IT infrastructure expenditures. 101 Table of Contents Operating Expenses Our operating expenses consist of (i) sales and marketing expenses; (ii) research and development expenses; (iii) general and administrative expenses; and (iv) other operating income. The following table sets forth the components of our operating expenses in absolute amounts and as percentages of total operating expenses for the periods indicated: Operating Expenses Sales and Marketing expenses Research and development expenses General and administrative expenses Other operating income, net Total Sales and Marketing Expenses For the Year Ended December 31, 2019 2020 2021 US$ % RMB RMB RMB % (in millions, except for percentages) 598.7 45.1 580.4 44.7 952.9 149.5 54.8 383.9 28.9 416.3 32.1 490.0 76.9 28.2 446.1 33.6 375.9 28.9 376.0 59.0 21.6 (100.8) (4.6) 1,327.9 100.0 1,298.2 100.0 1,738.6 272.8 100.0 (80.3) (12.6) (74.4) (5.7) (7.6) % Our sales and marketing expenses primarily consist of (i) salaries and benefits for our sales and marketing employees, (ii) branding and advertisement expenses, including costs of placing advertisements, holding promotional events and developing and designing marketing campaigns to generate user traffic to our platform, and (iii) share-based compensation and (iv) other expenses, such as sponsorship of eSports tournaments for which we have naming rights. We expect our sales and marketing expenses to continue to grow moderately in absolute amount as we continue to promote our upgraded game-centric platform as well as grow our business. Research and Development Expenses Our research and development expenses primarily consist of (i) salaries and benefits for our research and development employees, and (ii) share- based compensation and (iii) other expenses primarily including depreciation related to research use. We expect our research and development expenses to remain stable as percentage of our revenue as we continue to upgrade IT technology and infrastructure to offer better user experience and gradually achieve the economies of scale. General and Administrative Expenses Our general and administrative expenses primarily consist of (i) salaries and benefits for our general and administrative staff, (ii) share-based compensation, (iii) professional service fees, and (iv) other expenses primarily including travel expenses, general office expenses, and office rental expenses. We expect our general and administrative expenses to remain stable as percentage of our revenue as we continue to grow our business while improving our operating efficiency. Other Operating Income, net Our other operating income, net primarily consists of (i) gain on government subsidies, which refers to funds we received from local government, and (ii) gain or loss on litigations. Other expense, net Our other expense, net primarily consists of the impairment loss from equity method investments, and the disposal loss of cost method investments. Foreign currency translation adjustments Foreign currency translation adjustments are reported as cumulative translation adjustments and are shown as a component of other comprehensive income. A cumulative translation adjustment results from the translation of the financial statements of the consolidating entities within the group with functional currency other than the group’s reporting currency in Renminbi. The cumulative translation adjustment for the year ended December 31, 2021 was mainly attributable to the amount of cash and cash equivalents held at the Cayman Islands holding company level and the appreciation in Renminbi against U.S. dollar for the year ended December 31, 2021. We expect that the foreign currency translation adjustments will continue to fluctuate in accordance with the fluctuation between Renminbi and U.S. dollars in future periods. 102 Table of Contents Results of Operations Year Ended December 31, 2021 Compared to Year Ended December 31, 2020 Revenue. Our revenue decreased from RMB9,601.9 million in 2020 to RMB9,165.3 million (US$1,438.2 million) in 2021, mainly attributable to the decrease in our livestreaming revenue as well as advertising and other revenues. Livestreaming revenue. Our livestreaming revenue decreased by 2.9% from RMB8,852.2 million in 2020 to RMB8,596.6 million (US$1,349.0 million) in 2021, which was mainly due to the decrease of our paying users from 20.7 million in 2020 to 17.5 million in 2021, as a result of reversion of paying users’ consumption habits amid the COVID-19 pandemic recovery in the first half of the year and our implementation of stable operating strategies in the second half of the year. The implementation of stable operating strategies mainly refers to our strategic adjustments to certain interactive features and the related operational efforts with an aim to promoting the long-term development of our platform. Advertisement and other revenues. Our advertisement and other revenues decreased from RMB749.6 million in 2020 to RMB568.7 million (US$89.2 million) in 2021, primarily due to the continued development of our new commercialization model, to which we strategically directed a portion of our advertising traffic that could have been directly monetized, as well as the reduced advertisement expenses as a result of the evolving macro environment. Cost of revenues. Our cost of revenues remained stable from RMB8,041.6 million in 2020 to RMB8,075.4 million (US$1,267.2 million) in 2021. Revenue sharing fees and content cost. Our revenue sharing fees and content cost increased by 0.3% from RMB7,129.1 million in 2020 to RMB7,153.2 million (US$1,122.5 million) in 2021, which was primarily due to our increased content costs, as a result of our continued investment in game-centric content. Bandwidth cost. Our bandwidth cost remained stable at RMB665.2 million (US$104.4 million) in 2021, as compared to RMB661.1 million in 2020. Gross profit (loss) and gross profit margin. As a result of the foregoing, we had gross profit of RMB1,089.9 million (US$171.0 million) in 2021, as compared to the gross profit of RMB1,560.3 million in 2020. Our gross margin decreased from 16.3% to 11.9% during the same periods. Total operating expenses. Our total operating expenses increased by 33.9% from RMB1,298.2 million in 2020 to RMB1,738.6 million (US$272.8 million) in 2021. Sales and marketing expenses. Our sales and marketing expenses inreased by 64.2% from RMB580.4 million in 2020 to RMB952.9 million (US$149.5 million) in 2021. Such increase was primarily attributable to the increased expenses relating to our online traffic acquisition channels to further promote our integrated game-centric platform. Research and development expenses. Our research and development expenses increased by 17.7% from RMB416.3 million in 2020 to RMB490.0 million (US$76.9 million) in 2021. Such increase was primarily due to the increased payroll-related expenses for our R&D personnel as we continue to invest in the product upgrades to continuously implement our game-centric content strategies. General and administrative expenses. Our general and administrative expenses remained stable from RMB375.9 million in 2020 to RMB376.0 million (US$59 million) in 2021. Other operating income, net. Our other operating income, net increased from RMB74.4 million in 2020 to RMB80.3 million (US$12.6 million) in 2021. Such increase was mainly attributable to the increased litigation gains, partially offset by the decreased government subsidies. Foreign exchange gain (loss), net. We did not record any foreign exchange gain in 2020 and 2021. 103 Table of Contents Interest income. Interest income consists of interests earned on bank deposits. We recorded RMB145.2 million in 2020 and RMB77.4 million (US$12.1 million) in 2021, respectively. The decrease in interest income was mainly due to the decrease in the interest rate. Loss (income) before income tax expenses. As a result of the foregoing, we realized a loss before income tax expenses of RMB605.1 million (US$95.0 million) in 2021, compared with an income before income tax expenses of RMB403.4 million in 2020. Income tax expense. We had no income tax expense in 2020 and 2021 due to our cumulative net losses and the resulting tax loss carryforward. Net loss (income). We realized a net loss of RMB620.2 million (US$97.4 million) in 2021, compared with a net income of RMB404.7 million in 2020. Adjusted net income. We realized an adjusted net loss of RMB439.3 million (US$68.5 million) in 2021, compared with an adjusted net income of RMB541.6 million in 2020. Year Ended December 31, 2020 Compared to Year Ended December 31, 2019 Revenue. Our revenue increased by 31.8% from RMB7,283.2 million in 2019 to RMB9,601.9 million (US$1,471.6 million) in 2020, mainly attributable to the increase in our livestreaming revenue. Livestreaming revenue. Our livestreaming revenue increased by 33.8% from RMB6,617.3 million in 2019 to RMB8,852.2 million (US$1,356.7 million) in 2020, which was mainly due to growth of our paying users from 17.5 million in 2019 to 20.7 million in 2020, as a result of our continuing efforts in growing our user base, and developing users’ willingness to pay through diversifying content on the platform, upgrading user experience and strengthening user-streamer interactions. Advertisement and other revenues. Our advertisement and other revenues increased by 12.6% from RMB665.9 million in 2019 to RMB749.7 million (US$114.9 million) in 2020, primarily as a result of the company’s broadened brand awareness and the corresponding increase in demand from advertisers. Cost of revenues. Our cost of revenues increased by 32.1% from RMB6,087.0 million in 2019 to RMB8,041.6 million (US$1,232.4 million) in 2020, primarily due to the increase in revenue sharing fees and content cost. Revenue sharing fees and content cost. Our revenue sharing fees and content cost increased by 37.7% from RMB5,176.5 million in 2019 to RMB7,129.1 million (US$1,092.7 million) in 2020, primarily due to increases in revenue sharing fees which were in line with the increases in total net revenue, and the increases in content costs attributable to the Company’s investment in eSports-related content. Bandwidth cost. Our bandwidth cost increased by 7.0% from RMB617.8 million in 2019 to RMB661.1 million (US$101.3 million) in 2020, primarily as a result of the increases in bandwidth usage resulting from growing user traffic and user engagement on our platform, partially offset by a lower unit purchase price and improved utilization efficiency as a result of our proactive management in peak traffic times and technology upgrades. Gross profit (loss) and gross profit margin. As a result of the foregoing, we had gross profit of RMB1,560.3 million (US$239.1 million) in 2020, as compared to the gross profit of RMB1,196.2 million in 2019. Our gross margin slightly decreased from 16.4% to 16.3% during the same periods. Total operating expenses. Our total operating expenses slightly decreased by 2.2% from RMB1,327.9 million in 2019 to RMB1,298.2 million (US$198.9 million) in 2020. Sales and marketing expenses. Our sales and marketing expenses decreased by 3.1% from RMB598.7 million in 2019 to RMB580.4 million (US$88.9 million) in 2020. This decrease was primarily attributable to the decrease in the number of marketing events as a result of the COVID-19 pandemic outbreak. Research and development expenses. Our research and development expenses increased by 8.4% from RMB383.9 million in 2019 to RMB416.3 million (US$63.8 million) in 2020. The increase was primarily due to the increase in staff cost as a result of the continual research and development efforts for various business segments. 104 Table of Contents General and administrative expenses. Our general and administrative expenses decreased by 15.7% from RMB446.1 million in 2019 to RMB375.9 million (US$57.6 million) in 2020. This decrease was primarily attributable to the decrease in share-based compensation expenses. Other operating income, net. Our other operating income, net decreased from RMB100.8 million in 2019 to RMB74.4 million (US$11.4 million) in 2020. The decrease is mainly attributable to our government subsidies being offset by the increase in the litigation costs, of which RMB49.7 million resulted from our settlement of a contract dispute related to one of our streamers. Foreign exchange gain (loss), net. We had a foreign exchange gain of RMB32.0 million in 2019. We did not record any forign exchange gain in 2020. The change is mainly because we realized a gain from a repayment in U.S. dollars from one of our shareholders in connection with our reorganization in 2019 as a result of the fluctuations in foreign exchange rates. Interest income. Interest income consists of interest earned on bank deposits. We recorded RMB159.1 million in 2019 and RMB145.2 million (US$22.3 million) in 2020, respectively. The decrease in interest income was mainly due to the decrease in the interest rate. Income before income tax expenses. As a result of the foregoing, we realized an income before income tax expenses of RMB36.6 million and RMB403.4 million (US$61.8 million) in 2019 and 2020, respectively. Income tax expense. We had no income tax expense in 2019 and 2020 due to our cumulative net losses and the resulting tax loss carryforward. Net income. We realized a net income of RMB33.3 million and RMB404.7 million (US$62.0 million) in 2019 and 2020, respectively. Adjusted net income. We realized an adjusted net income of RMB346.4 million and RMB541.6 million (US$83.0 million) in 2019 and 2020, respectively. Taxation Cayman Islands We are incorporated in the Cayman Islands. Under the current law of the Cayman Islands, we are not subject to income or capital gains tax. In addition, dividend payments are not subject to withholding tax in the Cayman Islands. There are no other taxes likely to be material to us levied by the government of the Cayman Islands except for stamp duties which may be applicable on instruments executed in, or, after execution, brought within the jurisdiction of the Cayman Islands. Japan Our subsidiaries in Japan are subject to an income tax rate calculated according to relevant regulations of Japan’s Ministry of Finance. We may be required to withhold a 5% withholding tax from dividends we pay to our shareholders that are non-resident enterprises. Hong Kong Our subsidiaries in Hong Kong are subject to Hong Kong profits tax on their activities conducted in Hong Kong at a uniform tax rate of 16.5%. Payments of dividends by our subsidiaries to us are not subject to withholding tax in Hong Kong. PRC Generally, our subsidiary and consolidated variable interest entities in China are subject to enterprise income tax on their taxable income in China at a rate of 25%, except where a special preferential rate applies such as a rate of 15% applicable to enterprises qualified as a “High and New Technology Enterprise,” subject to various criteria. The enterprise income tax is calculated based on the entity’s global income as determined under PRC tax laws and accounting standards. In addition, a Software Enterprise is entitled to an income tax exemption for two years beginning with its first year of profitable operation after offsetting tax losses incurred from prior years and a 50% reduction to a rate of 12.5% for the subsequent three years. Enterprises wishing to enjoy the status of a Software Enterprise must perform a self-assessment each year to ensure they meet the criteria for qualification and file required supporting documents with the tax authorities before using the preferential enterprise income tax rates. These enterprises will be subject to the tax authorities’ review each year as to whether they are entitled to use the relevant preferential treatments. If at any time during the preferential tax treatment years an enterprise uses the preferential rate but the relevant authorities determine that it fails to meet applicable criteria for qualification, the relevant authorities may revoke the enterprise’s Software Enterprise status. Douyu Yule, Wuhan Ouyue and Wuhan Douyu obtained the Software Enterprise status in 2019, but they have not enjoyed the preferential tax treatment with such status. Douyu Yule obtained a “Software Enterprise Certificate,” which enables it to enjoy a tax holiday consisting of a two-year-exemption commencing from first profitable calendar year and a 50% reduction in ordinary tax rate for the following three calendar years. 105 Table of Contents In April 2009, the State Administration of Taxation issued a circular, known as SAT Circular 82, which provides certain specific criteria for determining whether the “de facto management body” of a PRC-controlled enterprise that is incorporated offshore is located in China. Although this circular only applies to offshore enterprises controlled by PRC enterprises or PRC enterprise groups, not those controlled by PRC individuals or foreigners, the criteria set forth in the circular may reflect the State Administration of Taxation’s general position on how the “de facto management body” test should be applied in determining the tax resident status of all offshore enterprises. According to SAT Circular 82, an offshore incorporated enterprise controlled by a PRC enterprise or a PRC enterprise group will be regarded as a PRC tax resident by virtue of having its “de facto management body” in China only if all of the following conditions are met: (i) the primary location of the day-to-day operational management is in the PRC; (ii) decisions relating to the enterprise’s financial and human resource matters are made or are subject to approval by organizations or personnel in the PRC; (iii) the enterprise’s primary assets, accounting books and records, company seals, and board and shareholder resolutions are located or maintained in the PRC; and (iv) at least 50% of voting board members or senior executives habitually reside in the PRC. Further to the SAT Circular 82, the SAT issued the SAT Bulletin 45, which became effective since September 2011, to provide more guidance on the implementation of the SAT Circular 82. The SAT Bulletin 45 provides for detailed procedures and administration with respect to determination of residence status and administration of post- determination matters. DouYu International Holdings Limited is a company incorporated outside the PRC. As a holding company, its key assets are its ownership interests in its subsidiaries, and its key assets are located, and its records (including the resolutions of its board of directors and the resolutions of its shareholders) are maintained, outside the PRC. However, the tax resident status of an enterprise is subject to determination by the PRC tax authorities and uncertainties remain with respect to the interpretation of the term “de facto management body.” There can be no assurance that the PRC government will ultimately take a view that is consistent with us. If the PRC tax authorities determine that DouYu International Holdings Limited is a PRC resident enterprise for enterprise income tax purposes, we may be required to withhold a 10% withholding tax from dividends we pay to our shareholders that are non-resident enterprises, including the holders of the ADSs. In addition, non-resident enterprise shareholders (including the ADS holders) may be subject to a 10% PRC tax on gains realized on the sale or other disposition of ADSs or Class A ordinary shares, if such income is treated as sourced from within the PRC. It is unclear whether our non-PRC individual shareholders (including the ADS holders) would be subject to any PRC tax on dividends or gains obtained by such non-PRC individual shareholders in the event we are determined to be 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. It is also unclear whether non-PRC shareholders of DouYu International Holdings Limited would be able to claim the benefits of any tax treaties between their country of tax residence and the PRC in the event that DouYu International Holdings Limited is treated as a PRC resident enterprise. If our holding company in the Cayman Islands or any of our subsidiaries outside of China were deemed to be a “resident enterprise” under the PRC Enterprise Income Tax Law, it would be subject to enterprise income tax on its worldwide income at a rate of 25%. See “Item 3. Key Information —3.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.” We are subject to value-added tax, or VAT, at a rate of 6% on the services we provide less any deductible VAT we have already paid or borne. We are also subject to surcharges on VAT payments in accordance with PRC law. British Virgin Islands Under the current laws of the British Virgin Islands, our company is not subject to tax on income or capital gains. In addition, upon payments of dividends by our British Virgin Islands subsidiary to its shareholders who are not resident in the British Virgin Islands, no British Virgin Islands withholding tax will be imposed. 106 Table of Contents Non-GAAP Financial Measure To supplement our consolidated financial statements, which are prepared and presented in accordance with U.S. GAAP, we use the following non-GAAP financial measures to understand and evaluate our core operating performance: adjusted operating income (loss), which is calculated as operating income (loss) adjusted for share-based compensation expenses; adjusted net income (loss), which is calculated as net loss adjusted for shared- based compensation expenses, share of loss (income) in equity method investments and impairment losses and fair value adjustments on investments; adjusted net income (loss) attributable to DouYu, which is calculated as net income (loss) attributable to DouYu adjusted for share-based compensation expenses, share of loss (income) in equity method investments and impairment losses and fair value adjustments on investments; and adjusted basic and diluted net income per ordinary shares, which is the non-GAAP net income (loss) attributable to ordinary shareholders divided by the weighted average number of ordinary shares used in the calculation of non-GAAP basic and diluted net income per ordinary share. The non-GAAP financial measures are presented to enhance investors’ overall understanding of our financial performance and should not be considered a substitute for, or superior to, the financial information prepared and presented in accordance with U.S. GAAP. Investors are encouraged to review the reconciliation of the historical non-GAAP financial measures to the most directly comparable GAAP financial measures. As non-GAAP financial measures have material limitations as an analytical metric and may not be calculated in the same manner by all companies, they may not be comparable to other similarly titled measures used by other companies. In light of the foregoing limitations, you should not consider non-GAAP financial measures as a substitute for, or superior to, such metrics prepared in accordance with GAAP. We encourage investors and others to review our financial information in its entirety and not rely on any single financial measure. 107 Table of Contents The table below sets forth a reconciliation from the GAAP measures to the non-GAAP measures for the years indicated: Operating income (loss) Add: Share-based compensation expenses Adjusted operating income (loss) Net income (loss) Add: Share-based compensation expenses Share of (income) loss in equity method investments Gain on disposal of subsidiary Impairment losses and fair value adjustments on investments Adjusted net income (loss) Net income (loss) attributable to DouYu Add: Share-based compensation expenses Share of income (loss) in equity method investments Gain on disposal of subsidiary Impairment losses and fair value adjustments on investments Adjusted net income (loss) attributable to DouYu Adjusted net income (loss) per ordinary share Basic Diluted Adjusted net income (loss) per ADS Basic Diluted Weighted average number of ordinary shares used in calculating adjusted net income (loss) per ordinary share Basic Diluted Weighted average number of ordinary shares used in calculating adjusted net income (loss) per ADS Basic Diluted 5.B. Liquidity and Capital Resources Liquidity and Capital Resources Cash flows and working capital For the Year Ended December 31, 2019 RMB 2020 RMB 2021 RMB US$ (in millions, excepts for shares, ADSs, per share and per ADS data) (131.7) 262.1 (648.7) (101.8) 290.8 159.1 33.3 290.8 3.3 — 19.0 346.4 39.8 290.8 3.3 — 19.0 352.9 17.58 11.74 1.76 1.17 142.1 404.2 404.7 142.1 (1.3) (23.4) 19.5 541.6 485.5 142.1 (1.3) (23.4) 19.5 622.4 132.1 (516.6) (620.2) 132.1 15.1 — 33.7 (439.3) (581.9) 132.1 15.1 — 33.7 (401.0) 19.47 19.47 (12.32) (12.32) 1.95 1.95 (1.23) (1.23) 20.7 (81.1) (97.3) 20.7 2.4 — 5.3 (68.9) (91.3) 20.7 2.4 — 5.3 (62.9) (1.93) (1.93) (0.19) (0.19) 19,254,661 31,963,526 32,544,878 32,544,878 31,442,931 33,012,682 32,544,878 32,544,878 192,546,612 319,635,264 325,448,779 325,448,779 314,429,306 330,126,823 325,448,779 325,448,779 Our principal sources of liquidity have been cash generated from our operations and contributions from our shareholders. As of December 31, 2021, we had RMB4,456.4 million (US$699.3 million) in cash and cash equivalents. Our cash and cash equivalents consist primarily of cash on hand and time deposits placed with banks with maturities of three months or less and money market funds stated at cost plus accrued interest. 108 Table of Contents We intend to finance our future working capital requirements and capital expenditures from cash generated from operating activities and funds raised from financing activities, including the net proceeds we received from our initial public offering in July 2019. We may, however, require additional cash due to changing business conditions or other future developments, including any investments or acquisitions we may decide to pursue. We believe that our current cash and cash equivalents, together with our cash generated from operating activities and financing activities will be sufficient to meet our present anticipated working capital requirements and capital expenditures. If our existing cash is insufficient to meet our requirements, we may seek to issue debt or equity securities or obtain additional credit facilities. Financing may be unavailable in the amounts we need or on terms acceptable to us, if at all. Issuance of additional equity securities, including convertible debt securities, would dilute our earnings per share. The incurrence of debt would divert cash for working capital and capital expenditures to service debt obligations and could result in operating and financial covenants that restrict our operations and our ability to pay dividends to our shareholders. If we are unable to obtain additional equity or debt financing as required, our business and prospects may suffer. As a holding company with no material operations of our own, we conduct our operations primarily through our PRC subsidiaries, variable interest entities and their subsidiaries. We are permitted under PRC laws and regulations to provide funding to our PRC subsidiaries in China through capital contributions or loans, subject to the approval of government authorities and limits on the amount of capital contributions and loans. See “Item 3. Key Information—3.D. Risk Factors—Risks Related to Doing Business in China—PRC regulation of direct investment and loans by offshore holding companies to PRC entities may delay or limit us from using the proceeds of our initial public offering to make additional capital contributions or loans to our PRC subsidiary” and “Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds—14.E. Use of Proceeds.” The ability of our subsidiaries in China to make dividends or other cash payments to us is subject to various restrictions under PRC laws and regulations. See “Item 3. Key Information—3.D. Risk Factors—Risks Related to Doing Business in China—Our PRC subsidiary and PRC variable interest entities are subject to restrictions on paying dividends or making other payments to us, which may restrict our ability to satisfy our liquidity requirements” and “Item 3. Key Information—3.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.” 109 Table of Contents The following table presents the summary of our consolidated cash flow data for the years ended December 31, 2019, 2020 and 2021. For the Year Ended December 31, 2021 2019 RMB 2020 RMB RMB US$ Net cash provided by (used in) operating activities Net cash used in investing activities Net cash provided by (used in) financing activities Effect of foreign exchange rate changes on cash and cash equivalents Net increase in cash and cash equivalents Cash, cash equivalents and restricted cash at the beginning of the year Cash, cash equivalents and restricted cash at the end of the year Operating activities (19.1) (in millions) 667.6 (586.3) (92.0) 813.2 (3.0) (246.3) (2,612.6) (479.2) (107.2) (16.8) 1,896.3 109.5 (418.9) (112.1) (17.6) 2,572.7 (2,843.1) (824.7) (129.4) 5,562.2 8,134.9 5,291.8 830.4 8,134.9 5,291.8 4,467.1 701.0 Net cash used in operating activities was RMB586.3 million (US$92.0 million) in 2021. The difference between our net cash from operating activities and our net loss of RMB620.2 million (US$97.3 million) was due to recognition of share-based compensation of RMB132.1 million (US$20.7 million), increase in accrued expenses and other current liabilities of RMB74.3 million (US$11.7 million), amortization of intangible assets of RMB70.5 million (US$11.1 million), partially offset by decrease in accounts payable of RMB161.9 million (US$25.4 million) and a decrease in other current assets of RMB139.7 million (US$21.9 million). Net cash provided by operating activities was RMB667.6 million in 2020. The difference between our net cash from operating activities and our net income of RMB404.7 million was due to recognition of share-based compensation of RMB142.1 million in 2020, increase in accounts payables of RMB96.4 million, and increase in amortization of intangible assets of RMB89.8 million, partially offset by increase in amounts due to related parties of RMB75.2 million. Net cash provided by operating activities was RMB813.2 million in 2019. The difference between our net cash from operating activities and our net income of RMB33.3 million was due to the recognition of share-based compensation of RMB290.8 million in 2019, increase in deferred revenue of RMB130.0 million, increase in accounts payable of RMB86.4 million, decrease in prepayments of RMB85.5 million and increase in amounts due to related parties of RMB65.5 million, partially offset by increase in accounts receivable of RMB69.5 million. The share-based compensation was recognized following our IPO in July 2019. The increase in accounts payable, amount due to related parties was mainly driven by growth in livestreaming revenue, which contributed to more revenue sharing fee payables to our streamers or talent agencies. The increase in account receivables was primarily attributable to the increase in receivables generated from our customers such as advertisers, which was in line with our business growth. The decrease in prepayments was mainly due to our declining prepayments to exclusive top streamers as a result of industry-wide rationalization of their sign-up bonus. Investing activities Net cash used in investing activities was RMB19.1 million (US$3.0 million) in 2021 primarily due to purchases of short-term bank deposits of RMB1,736.4 million (US$272.5 million), purchases of intangible assets of RMB115.6 million (US$18.1 million), and payments for acquisitions of equity investments of RMB107.1 million (US$16.8 million), partially offset by mature of short-term investments of RMB1,840.2 million (US$288.8 million). Net cash used in investing activities was RMB2,612.6 million in 2020 primarily due to payment for investments of RMB276.3 million, purchases of long-term investments of RMB220.0 million, purchases of intangible assets of RMB63.2 million, partially offset by proceeds from disposal of long- term investments of RMB120.0 million. Net cash used in investing activities was RMB246.3 million in 2019 primarily due to payment for investments of RMB114.6 million, purchase of intangible assets of RMB105.9 million, purchase of property and equipment of RMB16.0 million and payment for acquisition of subsidiary, net of cash acquired, of RMB11.0 million, partially offset by proceeds on disposal of investment in associate of RMB1.0 million. Financing activities Net cash used in financing activities was RMB107.2 million (US$16.8 million) in 2021 which was due to repurchase of ordinary shares of RMB107.2 million (US$16.8 million). 110 Table of Contents Net cash used in financing activities was RMB479.2 million in 2020 primarily due to repurchase of ordinary shares of RMB579.8 million, partially offset by proceeds from capital contribution from noncontrolling interest shareholder of RMB105.1 million. Net cash provided by financing activities was RMB1,896.3 million in 2019 primarily due to proceeds of RMB3,422.5 million received on issuance of ordinary shares upon our completion of IPO in July 2019, partially offset by repurchase of shares under a share repurchase program authorized by our board of directors of RMB115.3 million in December 2019. Material Cash Requirements Our material cash requirements as of December 31, 2021 and any subsequent interim period primarily include our capital expenditures and operating lease obligations. We made capital expenditures of RMB122.0 million, RMB82.1 million and RMB122.5 million (US$19.2 million) in 2019, 2020 and 2021, respectively. In these years, our capital expenditures were mainly used for purchases of intangible assets such as agency contract rights and computer software, and plant and equipment such as servers and computers. We will continue to make capital expenditures to meet the expected growth of our business. As of December 31, 2021, we did not have significant capital commitments. As of December 31, 2021, we also had operating lease liabilities amounting to RMB61.7 million (US$9.7 million), which were unsecured and unguaranteed. We intend to fund our existing and future material cash requirements with our existing cash balance and other financing alternatives. We will continue to make cash commitments, including capital expenditures to support the short-term and/or long-term growth of our business. Execept as otherwise disclosed in this annual report, we have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties. We do not have retained or contingent interests in assets transferred. We have not entered into contractual arrangements that support the credit, liquidity or market risk for transferred assets. We do not have obligations that arise or could arise from variable interests held in an unconsolidated entity, or obligations related to derivative instruments that are both indexed to and classified in our own equity, or not reflected in the statement of financial position. Other than as discussed above, we did not have any significant capital and other commitments, long-term obligations or guarantees as of December 31, 2021. Off-Balance Sheet Arrangements We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as shareholder’s equity or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. Holding Company Structure DouYu International Holdings Limited is a holding company with no material operations of its own. We conduct our operations primarily through our subsidiaries, variable interest entities and their subsidiaries in China. As a result, our ability to pay dividends depends upon dividends paid by our subsidiaries, variable interest entities and their subsidiaries. If our subsidiaries and variable interest entities or any newly formed subsidiaries incur debt on their own behalf in the future, the instruments governing their debt may restrict their ability to pay dividends to us. In addition, our subsidiaries, variable interest entities and their subsidiaries in China are permitted to pay dividends to us only out of their retained earnings, if any, as determined in accordance with the Accounting Standards for Business Enterprise as promulgated by the Ministry of Finance of the PRC, or PRC GAAP. Pursuant to the law applicable to China’s foreign investment enterprise, our subsidiaries, variable interest entities and their subsidiaries that are foreign investment enterprise in the PRC have to make appropriation from their after-tax profit, as determined under PRC GAAP, to reserve funds including (i) general reserve fund, (ii) enterprise expansion fund and (iii) staff bonus and welfare fund. The appropriation to the general reserve fund must be at least 10% of the after-tax profits calculated in accordance with PRC GAAP. Appropriation is not required if the reserve fund has reached 50% of the registered capital of our subsidiaries, variable interest entities and their subsidiaries. Appropriation to the other two reserve funds are at our subsidiary’s discretion. 111 Table of Contents As an offshore holding company, we are permitted under PRC laws and regulations to provide funding from the proceeds of our offshore fundraising activities to our PRC subsidiaries only through loans or capital contributions, and to our consolidated affiliated entity only through loans, in each case subject to the satisfaction of the applicable government registration and approval requirements. See “Item 3. Key Information—3.D. Risk Factors—Risks Related to Doing Business in China—PRC regulation of direct investment and loans by offshore holding companies to PRC entities may delay or limit us from using the proceeds of our initial public offering to make additional capital contributions or loans to our PRC subsidiary.” As a result, there is uncertainty with respect to our ability to provide prompt financial support to our PRC subsidiaries when needed. Notwithstanding the foregoing, our PRC subsidiaries may use their own retained earnings (rather than Renminbi converted from foreign currency denominated capital) to provide financial support to our consolidated affiliated entity either through entrustment loans from our PRC subsidiaries or direct loans to such consolidated affiliated entity’s nominee shareholders, which would be contributed to the consolidated variable entity as capital injections. Such direct loans to the nominee shareholders would be eliminated in our consolidated financial statements against the consolidated affiliated entity’s share capital. 5.C. Research and Development, Patents and Licenses, Etc. Our advanced technology infrastructure and capabilities allow us to efficiently and effectively provide our services with superior user experience. Our platform incorporates the following features: (i) video and audio quality, (ii) content recommendation, (iii) image recognition, (iv) streamer discovery and evaluation and (v) advanced streaming capabilities. We continue to strengthen our technologies and big data analytic capabilities to enhance user experience and achieve operational efficiencies. See “Item 4. Information on the Company—4.B. Business Overview—Our Technology.” 5.D. Trend Information Other than as disclosed elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or events for the year ended December 31, 2021 that are reasonably likely to have a material and adverse effect on our net revenues, income, profitability, liquidity or capital resources, or that would cause the disclosed financial information to be not necessarily indicative of future results of operations or financial condition. 5.E. Critical Accounting Estimates We prepare our financial statements in conformity with U.S. GAAP. The preparation of these financial statements requires us to make estimates, judgments, and assumptions that can have a meaningful effect on the reporting of consolidated financial statements. We continually evaluate these estimates and assumptions based on the most recently available information, our own historical experience and various other assumptions that we believe to be reasonable under the circumstances. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from our expectations as a result of changes in our estimates. Critical accounting estimates are defined as those reflective of significant judgments, estimates and uncertainties, which may result in materially different results under different assumptions and conditions. As conditions resulting from the COVID-19 pandemic continue to evolve, we expect these judgments and estimates may be subject to change, which could materially impact future periods. The following descriptions of critical accounting estimates should be read in conjunction with our consolidated financial statements and accompanying notes and other disclosures included in this annual report. When reviewing our financial statements, you should consider (i) our selection of critical accounting estimates, (ii) the judgments and other uncertainties affecting the application of such policies and (iii) the sensitivity of reported results to changes in conditions and assumptions. Impairment on Investments Description We hold equity method investments and investments in equity securities without readily determinable fair values. We elected to measure these equity securities without readily determinable fair values at cost minus impairment, if any, adjusted up or down for observable price changes in orderly transactions for the identical or similar investment of the same issuer. Any adjustment to the carrying amount is recorded in other income (expense), net. We make qualitative assessment at each reporting period and if the assessment indicates that the fair value of the investment is less than the carrying value, the investment in equity securities will be written down to its fair value, with the difference between the fair value of the investment and its carrying amount recorded as investment loss. 112 Table of Contents Judgements and uncertainties The impairment assessments of equity method investments and equity securities without readily determinable fair values require significant judgments made to identify impairment indicators and to estimate the fair value of these investments in order to determine the amount of impairment. We make significant judgments made to identify impairment indicators and to estimate the fair value of these investments in order to determine the amount of impairment. These judgements include valuation methods and key valuation assumptions and estimate used in estimating impairment amounts, which comprised the investees’ cash flow forecasts, operating performance of the investees and market conditions. Sensitivity of the estimate to chang Changes in these estimates and assumptions could materially affect the fair value of equity method investments and investments in equity securities without readily determinable fair values. The failure to identify impairment indicators could result to material impairment losses in the future. We believe the estimates applied in the estimated fair value of the investments is based on reasonable assumptions, but which are inherently uncertain. As a result, actual results may differ from the assumptions and judgments used to determine fair value of the investments, which could lead to the fair value of the assets is less than its carrying amount. As a result, the impairment losses of equity securities without readily determinable fair value recognized in other income (loss), nil, RMB28.1 million and RMB 33.7 million for the years ended December 31, 2019, 2020 and 2021, respectively. The impairment loss of equity method investments recognized in other income (loss), RMB 20.1 million, nil and nil for the years ended December 31, 2019, 2020 and 2021, respectively. Realization of Deferred Tax Assets Description Deferred income taxes are provided using assets and liabilities method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined on the basis of the differences between financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets are recognized to the extent that these assets are more likely than not to be realized. In making such a determination, the management consider all positive and negative evidence, including future reversals of projected future taxable income and results of recent operation. Deferred tax assets are then reduced by a valuation allowance through a charge to income tax expense when, in the opinion of management, it is more likely than not that a portion of or all of the deferred tax assets will not be realized. Judgements and uncertainties We have provided a full valuation allowance for the deferred tax assets as of December 31, 2019, 2020 and 2021, as we are not able to conclude that the future realization of those net operating loss carry forwards and other deferred tax assets are more likely than not. We take the position that full valuation allowance shall be provided considering all the positive and negative evidences with our judgments. We consider the facts and evidence include the amounts available in the carryback periods, reversal patterns of existing taxable temporary differences, our projections of future income and available qualified tax-planning strategies, which have uncertainties in the future period. 113 Table of Contents Sensitivity of the estimate to change While we consider the facts above, our projections of future income qualified tax-planning strategies may be changed due to the macroeconomic conditions and our business development. The DTAs could be utilized in the future years if we make profits in the future, the valuation allowance shall be reversed and has a material impact on our income taxes and ETR in our financial statements. We recognized valuation allowance of RMB795.7 million, RMB706.5 million, RMB1,092.2 million as of December 31, 2019, 2020 and 2021, respectively. 114 Table of Contents ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES 6.A. Directors and Senior Management The following table sets forth information regarding our executive officers and directors as of the date of this annual report. Directors and Executive Officers Shaojie Chen Chao Cheng Mingming Su Hao Cao Yang Deng Song Zhou Haiyang Yu Xi Cao Zhaoming Chen Xuehai Wang Zhi Yan Age 38 31 37 42 41 43 39 37 39 47 49 Position/Title Founder, Chief Executive Officer, Director Chief Operational Officer Chief Strategy Officer, Director Vice President, Director Director Director Director Independent Director Independent Director Independent Director Independent Director Shaojie Chen is our founder. Mr. Chen has served as our director and chief executive officer since May 2014. Mr. Chen was the founder of Shenzhen Zhangmenren Network Technology Co., Ltd. and served as its general manager from May 2008 to March 2010. He was also the founder of Acfun, an online video platform in China and served as its chief executive officer from March 2010 to March 2012. Mr. Chen joined Tsinghua SEM Entrepreneur Fellows Program in September 2020. Mr. Chen graduated from Shandong Youth University of Political Science in July 2007 majoring in computer science. Mr. Chen also completed the chief executive officer series courses (CKGSB CEO Program) in Cheung Kong Graduate School of Business in November 2018. Chao Cheng has served as our chief operational officer since May 2014, responsible for our operations and content management. Mr. Cheng served as the operational specialist of Shenzhen Zhangmenren Network Technology Co., Ltd. from June 2010 to April 2011 and served as the project operational manager of Hangzhou Bianfeng Network Technology Co., Ltd. from April 2011 to June 2013. Mr. Cheng graduated from China University of Geosciences (Hankou Branch) in June 2012 majoring in computer science and has completed the courses for the EMBA program of Guanghua School of Management at Peking University in June 2018. Mr. Cheng also qualified as the Cisco Certified Internet Expert in August 2010. Mingming Su has served as our chief strategy officer since November 2015 and our director since October 2016. Mr. Su oversees advertising, investor relations, investment and financing. Mr. Su served as the investment analyst of Shanda Computer (Shanghai) Co., Ltd. from March 2010 to March 2011, the investment manager of Hangzhou Bianfeng Network Technology Co., Ltd. from March 2011 to August 2012 and the vice president of investment at Shenzhen Qingsong Investment Management Partnership (Limited Partnership) from August 2012 to November 2015. Mr. Su has also served as the independent director of Ebang International Holdings Inc. since November 2021. Mr. Su obtained his bachelor’s degree majoring in library science and minoring in English from Anhui University in July 2007. Mr. Su also obtained his master of management majoring in library science from Chinese Academy of Sciences in March 2010. Hao Cao has served as our vice president from November 2015 and as our director since October 2016. Mr. Cao is in charge of the internal control, corporate finance, and matters related to the financial management of our company. Mr. Cao served as the audit manager of Deloitte from July 2004 to January 2011, the chief financial officer of Firstextile AG from February 2011 to June 2015. Mr. Cao obtained his bachelor of science majoring in geology from China University of Geosciences in June 2001, and his master degree majoring in finance from Fudan University in June 2004. He is also qualified as a Certified Public Accountants in China and is a CFA Charterholder. Yang Deng has served as our director since December 2021, our legal director since August 2015, and vice president of our legal affairs since February 2017. Ms. Deng served as a senior in-house counsel at Vipshop Holdings Limited (NYSE: VIPS) from 2013 to 2015. Prior to that, Ms. Deng was a legal specialist with Xunlei Limited (Nasdaq: XNET). Ms. Deng received her bachelor’s and master’s degrees in computer science from Southeast University in China. She obtained her PRC legal and patent agent qualifications in 2008 and 2009, respectively. Song Zhou has served as our director since March 2020. Ms. Zhou served as the auditor at Arthur Andersen Huaqiang Accounting Firm from July 2001 to June 2002, senior auditor at PricewaterhouseCoopers from July 2002 to June 2004, senior manager at Protiviti Shanghai Consulting Co. LTD from June 2004 to March 2011, the vice general manager of finance at Tencent from April 2011 till now. Ms. Zhou obtained her bachelor’s degree majoring in accounting from Sun Yat-sen University in June 2001. 115 Table of Contents Haiyang Yu has served as our director since May 2018. Mr. Yu has also served as a director of Kanzhun Limited (Nasdaq: BZ) since July 2019 and a director of Waterdrop Inc. (NYSE: WDH) from October 2019. Mr. Yu served as a director of Tongcheng Travel Holdings Limited (HKEX: 0780) from January 2020 to April 2020. Mr. Yu served as the associate at China Growth Capital from April 2007 to February 2010, the associate at WI Harper Group from March 2010 to August 2011, the vice general manager at Tencent from August 2011 till now. Mr. Yu obtained his bachelor of science degree majoring in civil engineering from Tsinghua University in 2005. Xi Cao has served as our director since November 2014. Mr. Cao is a partner of Sequoia Capital China. Prior to joining Sequoia Capital China in August 2013, he served as the product manager of Tencent Technology (Shenzhen) Co., Ltd. from June 2008 to March 2010, the operational director of Kingsoft Software Co. Ltd. from March 2010 to August 2011, and the investment director of Cowin Venture Capital Investments Limited from August 2011 to August 2013. Mr. Cao obtained his bachelor’s degree of science from Peking University in June 2008. Zhaoming Chen has served as our director since July 2019. Mr. Chen has served as the chief financial officer of Dada Nexus Limited, a leading platform of local on-demand retail and delivery in China, from December 2018. Prior to that, Mr. Chen was the chief financial officer of Baozun Inc. (Nasdaq: BZUN), the leading brand e-commerce service partner in China from December 2012 to November 2018. Mr. Chen also served as the financial controller at LaShou Group Inc., an online social commerce company in China from 2011 to 2012 and an audit manager at Deloitte Touche Tohmatsu Certified Public Accountants LLP from 2004 to 2011. Mr. Chen obtained his bachelor’s degree in economics from Fudan University in 2004. He is also qualified as a Certified Public Accountants in China and is a CFA Charterholder. Xuehai Wang has served as our director since July 2019. Mr. Wang has served as the chairman of Jissbon Sanitary Products Co., Ltd. from December 1999 to August 2009 and then from August 2017 till now. Mr. Wang has also served as the president of Humanwell Healthcare (Group) Co., Ltd. from February 2003 to August 2006 and as the chairman from August 2006 till now. Mr. Wang obtained his bachelor’s degree in Geochemistry from China University of Geosciences in July 1996. He also obtained his master degree and doctorate degree in business management from Wuhan University in July 1999 and July 2003, respectively. Mr. Wang has also completed the courses for the EMBA program at Central Connecticut State University in August 2002. Zhi Yan has served as our director since July 2019. Mr. Yan has served as the chairman of Zall Holding Co., Ltd. since December 2002, the co-chairman and co-chief executive officer of Zall Smart Commerce Group since June 2011, the chairman and director of China Infrastructure & Logistics Group Ltd. since November 2011, the director of LightInTheBox Holding Co., Ltd. (NYSE: LITB) since March 2016 and the chairman and the director of Hanshang Group since March 2019. Mr. Yan has completed the courses for the EMBA program at Wuhan University in February 2008 and also completed the courses for the EMBA program in Cheung Kong Graduate School of Business in September 2013. Mr. Yan obtained his doctorate degree in Chinese History from Wuhan University in June 2018. 6.B. Compensation Compensation For the fiscal year ended December 31, 2021, we paid an aggregate of RMB16.4 million (US$2.6 million) in cash to our directors and executive officers, and we paid an aggregate of RMB8.0 million (US$1.2 million) cash compensation to our non-executive directors. We have not set aside or accrued any amount to provide pension, retirement or other similar benefits to our executive officers and directors. Our PRC subsidiaries, variable interest entities and their subsidiaries are required by law to make contributions equal to certain percentages of each employee’s salary for his or her pension insurance, medical insurance, unemployment insurance and other statutory benefits and a housing provident fund. For share incentive grants to our directors and executive officers, see “—Share Incentive Plan.” Employment Agreements and Indemnification Agreements We have entered into an employment agreement with each of our executive officers. Each of our executive officers is employed for a specified time period, which will be automatically extended unless upon 30-day prior written notice by us or 60-day prior written notice by the executive officer to terminate such employment. We may terminate the executive officer’s employment for cause, at any time, without advance notice or remuneration, for certain acts of the executive officer, such as conviction or plea of guilty to a felony or any crime involving moral turpitude, negligent or dishonest acts to our detriment, or misconduct or a failure to perform agreed upon duties. 116 Table of Contents Each executive officer has agreed not to disclose, use, transfer or sell, except in the course of employment with our company and for the purpose of carrying out his or her duties as an officer of our company, any of our confidential information or proprietary data so long as such information or proprietary data remains confidential and has not been disclosed or is not otherwise in the public domain. Each officer has agreed that we shall own all the intellectual property developed by such officer during his or her employment. In addition, each executive officer has agreed to be bound by non-competition and non-solicitation restrictions during the term of his or her employment and typically for two years following the last date of employment. We have also entered into indemnification agreements with each of our directors and executive officers. Under these agreements, we agreed to indemnify our directors and executive officers against certain liabilities and expenses incurred by such persons in connection with claims made by reason of their being a director or officer of our company. Share Incentive Plan DouYu International Holdings Limited 2019 Share Incentive Plan In April 2019, we adopted the 2019 Share Incentive Plan (the “2019 Share Incentive Plan”). Under the 2019 Share Incentive Plan, the maximum aggregate number of shares we may issue is 3,456,869. The term of the options will not exceed ten years from the date the 2019 Share Incentive Plan was approved by the board. As of the date of this annual report, we have not granted any options under the 2019 Share Incentive Plan. The following paragraphs summarize the terms of the 2019 Share Incentive Plan. Types of Awards. The 2019 Share Incentive Plan permits the awards of options, restricted shares, restricted share units, share appreciation rights, rights to dividends, dividend equivalent rights and other rights or benefits under the 2019 Share Incentive Plan. Plan Administration. After the completion of our initial public offering in July 2019, a committee formed in accordance with applicable stock exchange rules has administered the 2019 Share Incentive Plan, unless otherwise determined by the board. Eligibility. Employees, directors and officers and the consultants of our company or an affiliate are eligible to participate pursuant to the terms of the 2019 Share Incentive Plan, provided, however, that the aggregate amount of awards to be granted to any participant shall not exceed 1% of the maximum aggregate number of shares that may be issued pursuant to all awards under the 2019 Share Incentive Plan. Conditions of Award. The board, individuals authorized by the board or the committee formed after our initial public offering in July 2019 to administer the 2019 Share Incentive Plan, as the administrator, shall determine the participants, types of awards, numbers of shares to be covered by awards, terms and conditions of each award, and provisions with respect to the vesting schedule, settlement, exercise, repurchase, cancellation, forfeiture, restrictions, limitations or suspension of awards. Term of Award. The term of each award shall be fixed by the administrator and is stated in the award agreement between the recipient of an award and us. No award shall be granted under the 2019 Share Incentive Plan after ten years from the date the 2019 Share Incentive Plan was approved by the board. Transfer Restrictions. Unless otherwise determined by the administrator of the 2019 Share Incentive Plan, no award and no right under any such award shall be assignable, alienable, saleable or transferable by the employee otherwise than by will or by the laws of descent and distribution, provided that if so determined by the administrator, the recipient of an award may, in the manner established by such administrator, designate a beneficiary or beneficiaries to exercise his or her rights, and to receive any property distributable, with respect to any award upon the death of the recipient. All shares or other securities issued or transferred under the 2019 Share Incentive Plan pursuant to any award or the exercise, sale, transfer and disposition thereof shall be subject to such stop transfer orders and other transfer or conversion restrictions as the administrator may deem advisable under the plan or the rules, regulations, and other requirements of the SEC, any stock exchange upon which such shares or other securities are then listed, any applicable laws, and any arrangement to be entered into by our company with any depositary bank and/or the underwriters. DouYu International Holdings Limited Amended and Restated Restricted Share Unit Scheme We adopted a restricted share unit scheme in April 2018 which was amended and restated in April 2019, or the Amended and Restated 2018 RSU Scheme. The purpose of the Amended and Restated 2018 RSU Scheme is to recognize and reward suitable personnel for their contribution to our Company, to attract suitable personnel, and to provide incentives to them to remain with and further contribute to our Company. Under the Amended and Restated 2018 RSU Scheme, the maximum aggregate number of ordinary shares we are authorized to issue pursuant to all awards is 2,106,321 ordinary shares. As of March 31, 2022, a total of 2,076,349 RSUs corresponding to 2,076,349 ordinary shares were granted and not forfeited under the Amended and Restated 2018 RSU Scheme. The RSUs are vested by equal installment for 36 months upon our initial public offering in July 2019. As of March 31, 2022, 1,846,578 RSUs corresponding to 1,846,578 ordinary shares have vested. 117 Table of Contents We issued 2,106,321 ordinary shares to Douyu Employees Limited for the purpose of transferring such shares to the plan participants according to the RSUs issued or to be issued to them under our Amended and Restated 2018 RSU Scheme adopted in April 2018. Douyu Employees Limited is an exempted company incorporated in the Cayman Islands and acts according to the Amended and Restated 2018 RSU Scheme and the trust deed entered into by and between our company and Maples Trustee Services (Cayman) Limited on May 16, 2018. As of March 31, 2022, 1,846,578 RSUs corresponding to 1,846,578 ordinary shares out of such 2,106,321 ordinary shares have become vested. Douyu Employees Limited has waived its rights associated with the remaining 259,743 of such ordinary shares, including voting rights and dividend rights before the corresponding RSUs vest pursuant to the vesting schedule. The following paragraphs summarize the terms of the Amended and Restated 2018 RSU Scheme. Types of Awards. The Amended and Restated 2018 RSU Scheme permits the awarding of RSUs. Scheme Administration. The Amended and Restated 2018 RSU Scheme shall be administrated by the board and the trustee in accordance with the Amended and Restated 2018 RSU Scheme and the trust deed entered into by and between our Company and Maples Trustee Services (Cayman) Limited on May 16, 2018. The powers and obligations of the trustee will be limited as set forth in the aforementioned trust deed. The board may by resolution delegate any or all of its powers in the administration of this Amended and Restated 2018 RSU Scheme to the administration committee or any other committee as authorized by the board for such purpose. Eligibility. RSUs may be granted to any employee or any person as determined by the board to be eligible to participate in the Amended and Restated 2018 RSU Scheme. Notice of Grant. Each award under the Amended and Restated 2018 RSU Scheme shall be evidenced by a letter or any such notice or document in such form as the board may from time to time determine, an offer of grant of award, which shall attach an acceptance notice. The grantee shall sign the acceptance notice and return it to the trustee or our Company within the time period and in a manner prescribed in the notice of grant. Conditions of Award. The board shall determine the provisions, terms, and conditions of each award including, but not limited to, eligible participant, vesting schedule, the lock-up arrangements upon vesting and other terms and conditions that the award is subject to. Transfer Restrictions. Any award granted pursuant to this Amended and Restated 2018 RSU Scheme shall be personal to the grantee and shall not be assignable or transferable. No grantee shall in any way sell, transfer, assign, charge, mortgage, encumber, hedge or create any interest in favor of any other person over or in relation to any RSUs or any other property held by the trustee on trust for the grantees, awards, shares underlying any awards or any interest or benefits therein. Voting Power and Dividend Right of the RSUs. No grantee shall enjoy any of the rights of a shareholder by virtue of the grant of an award pursuant to the Amended and Restated 2018 RSU Scheme, unless and until such shares underlying the award are actually transferred to the grantee upon the vesting of the RSU. None of the RSUs granted under this Amended and Restated 2018 RSU Scheme carry any right to vote at general meetings of our Company or have any rights to any cash or non-cash income, dividends or distributions and/or the sale proceeds of non-cash and non-scrip distributions from any shares underlying an unvested RSU, unless otherwise specified by the board. Amendment of the Amended and Restated 2018 RSU Scheme. The Amended and Restated 2018 RSU Scheme may be altered, amended or waived in any respect by the board, provided that, such alteration, amendment or waiver shall not affect any subsisting rights of any grantee thereunder. Term of the Amended and Restated 2018 RSU Scheme. The Amended and Restated 2018 RSU Scheme shall remain valid and effective until the 10th anniversary date of the date if was adopted. Termination of the Amended and Restated 2018 RSU Scheme. The Amended and Restated 2018 RSU Scheme may be terminated at any time prior to the expiry of its term by the board, provided that, such termination shall not affect any subsisting rights of any grantee thereunder. 118 Table of Contents The following table summarizes, as of the date of this annual report, the number of RSUs that we granted to our directors and executive officers under the Amended and Restated 2018 RSU Scheme. We have not granted other equity awards to our directors or executive officers. Name Shaojie Chen Chao Cheng Mingming Su Hao Cao Yang Deng Song Zhou Haiyang Yu Xi Cao Zhaoming Chen Xuehai Wang Zhi Yan Ordinary Shares Underlying RSUs 1,430,315 * * * * — — — — — — Exercise Price (US$/Share) — — — — — — — — — — — Date of Grant April 1, 2018 April 1, 2018 April 1, 2018 April 1, 2018 April 1, 2018 — — — — — — Date of Expiration — — — — — — — — — — — Note: * Less than 1% of our total outstanding shares. As of March 31, 2022, other grantees under the Amended and Restated 2018 RSU Scheme as a group held 77,330 RSUs. For discussions of our accounting policies and estimates for awards granted pursuant to the Amended and Restated 2018 RSU Scheme, see “Item 5. Operating and Financial Review and Prospects—5.A. Operating Results—Critical Accounting Policies, Judgments and Estimates—Share-based compensation.” 6.C. Board Practices Board of directors Our board of directors consists of ten directors, including four independent directors. A director is not required to hold any shares in our company to qualify to serve as a director. The Listing Rules of the Nasdaq Stock Market generally require that a majority of an issuer’s board of directors must consist of independent directors. However, the Listing Rules of the Nasdaq Stock Market permit foreign private issuers like us to follow “home country practice” in certain corporate governance matters. We rely on this “home country practice” exception and do not have a majority of independent directors serving on our board of directors. A director who is in any way, whether directly or indirectly, interested in a contract or proposed contract with our company is required to declare the nature of his or her interest at a meeting of our directors. In addition, the interested director shall not vote (nor be counted in the quorum) on any resolution of our Board approving any contract or arrangement or any other proposal in which he or any of his close associates is materially interested in except for certain circumstances as set out in the Articles of Association. Our board of directors may exercise all of the powers of our company to borrow money, to mortgage or charge its undertaking, property and uncalled capital, or any part thereof, and to issue debentures, debenture stock or other securities whenever money is borrowed or as security for any debt, liability or obligation of our company or of any third party. None of our directors has a service contract with us that provides for benefits upon termination of service as a director. Committees of the board of directors We have established the following committees in our board of directors: an audit committee, a compensation committee and a nominating and corporate governance committee. The committees operate in accordance with terms of reference established by our board of directors. Audit Committee. Our audit committee consists of Mr. Zhaoming Chen, Mr. Xuehai Wang and Mr. Zhi Yan. Mr. Zhaoming Chen is the chairman of our audit committee. We have determined that each of Mr. Zhaoming Chen, Mr. Xuehai Wang and Mr. Zhi Yan satisfies the “independence” requirements of Rule 5605(a)(2) of the Listing Rules of the Nasdaq Stock Market and Rule 10A-3 under the Securities Exchange Act of 1934. We have determined that Mr. Zhaoming Chen qualifies as an “audit committee financial expert.” The audit committee oversees our accounting and financial reporting processes and the audits of the financial statements of our company. The audit committee is responsible for, among other things: • selecting the independent registered public accounting firm and pre-approving all auditing and non-auditing services permitted to be performed by the independent registered public accounting firm; 119 Table of Contents • • • • • • • reviewing with the independent registered public accounting firm any audit problems or difficulties and management’s response; reviewing and approving all proposed related party transactions, as defined in Item 404 of Regulation S-K under the Securities Act; discussing the annual audited financial statements with management and the independent registered public accounting firm; reviewing major issues as to the adequacy of our internal controls and any special audit steps adopted in light of material control deficiencies; annually reviewing and reassessing the adequacy of our audit committee charter; meeting separately and periodically with management and the independent registered public accounting firm; and reporting regularly to the board. Compensation Committee. Our compensation committee consists of Mr. Shaojie Chen, Mr. Mingming Su and Mr. Zhi Yan and is chaired by Mr. Shaojie Chen. We have determined that Mr. Zhi Yan satisfies the “independence” requirements of Rule 5605(a)(2) of the Listing Rules of the Nasdaq Stock Market. The compensation committee assists the board in reviewing and approving the compensation structure, including all forms of compensation, relating to our executive officers. Our officer may not be present at any committee meeting during which such officer’s compensation is deliberated upon. The compensation committee is responsible for, among other things: • • • reviewing and approving, or recommending to the board for its approval, the compensation for our executive officers; reviewing periodically and approving any incentive compensation or equity plans, programs or similar arrangements; and selecting compensation consultant, legal counsel or other adviser only after taking into consideration all factors relevant to that person’s independence from management. Nominating and Corporate Governance Committee. Our nominating and corporate governance committee consists of Mr. Shaojie Chen, Mr. Mingming Su and Mr. Xuehai Wang, and is chaired by Mr. Shaojie Chen. We have determined that Mr. Xuehai Wang satisfies the “independence” requirements of Rule 5605(a)(2) of the Listing Rules of the Nasdaq Stock Market. The nominating and corporate governance committee assists the board in selecting individuals qualified to become our directors and in determining the composition of the board and its committees. The nominating and corporate governance committee is responsible for, among other things: • • • • • • • recommending nominees to the board for election or re-election to the board, or for appointment to fill any vacancy on the board pursuant to the terms of the Fourth Amended and Restated Memorandum and Articles of Association, effective upon the completion of our initial public offering in July 2019; reviewing annually with the board the current composition of the board with regards to characteristics such as independence, knowledge, skills, experience, expertise, diversity and availability of service to us; developing and recommending to our board such policies and procedures with respect to nomination or appointment of members of our board and chairs and members of its committees or other corporate governance matters as may be required pursuant to any SEC or Nasdaq rules, or otherwise considered desirable and appropriate; selecting and recommending to the board the names of directors to serve as members of the audit committee and the compensation committee, as well as of the nominating and corporate governance committee itself; developing and reviewing at least annually the corporate governance principles adopted by the board and advising the board with respect to significant developments in the law and practice of corporate governance and our compliance with such laws and practices; evaluating the performance and effectiveness of the board as a whole; and reviewing and approving compensation for our directors. 120 Table of Contents Duties and Functions of Directors Under Cayman Islands law, our directors owe fiduciary duties to our company, including a duty to act honestly and a duty to act in what they consider in good faith to be in our best interests. Our directors must also exercise their powers only for a proper purpose. Our directors also owe to our company a duty to exercise the skill they actually possess and such care and diligence that a reasonable director would exercise in comparable circumstances. It was previously considered that a director need not exhibit in the performance of his duties a greater degree of skill than may reasonably be expected from a person of his knowledge and experience. However, English and Commonwealth courts have moved towards an objective standard with regard to the required skill and care and these authorities are likely to be followed in the Cayman Islands. In fulfilling their duty of care to us, our directors must ensure compliance with our memorandum and articles of association, as amended and restated from time to time. Our company has the right to seek damages if a duty owed by our directors is breached. In limited exceptional circumstances, a shareholder may have the right to seek damages in our name if a duty owed by our directors is breached. The functions and powers of our board of directors include, among others, (i) convening shareholders’ annual general meetings and reporting its work to shareholders at such meetings, (ii) declaring dividends and other distributions, (iii) appointing officers and determining their terms of offices and responsibilities, and (iv) approving the transfer of shares of our company, including the registering of such shares in our share register. Terms of Directors and Officers Our directors are elected pursuant to the terms of our Fourth Amended and Restated Memorandum and Articles of Association. Mr. Shaojie Chen and Mr. Wenming Zhang, and entities which hold shares of our company on behalf of and are controlled by Mr. Shaojie Chen and Mr. Wenming Zhang, have the right to appoint up to four directors. Nectarine, a wholly-owned subsidiary of Tencent, has the right to appoint up to two directors as long as it beneficially owns no less than 33% of the shares it beneficially owns immediately prior to the completion of our initial public offering in July 2019. Our board of directors has the right to appoint up to four independent directors and may appoint additional directors, if any. Directors appointed by a specified group may only be removed by the affirmative vote of such group. Our directors are not subject to a term of office and hold office until such time as they are removed from office pursuant to the terms of the Fourth Amended and Restated Memorandum and Articles of Association. A director will cease to be a director if, among other things, the director (i) becomes bankrupt or makes any arrangement or composition with his creditors; (ii) is found to be or becomes of unsound mind; (iii) resigns his office by notice in writing; (iv) is prohibited by any applicable law or regulations of the Nasdaq from being a director; (v) without special leave of absence from the board, is absent from meetings of the board for three consecutive meetings and the board resolves that his office be vacated; or (vi) is removed from office pursuant to any other provision of our Fourth Amended and Restated Memorandum and Articles of Association. Our officers are nominated by Mr. Shaojie Chen (who has a second or casting vote when there is an equality of votes) and Mr. Wenming Zhang, and entities which hold shares of our company on behalf of and are controlled by Mr. Shaojie Chen and Mr. Wenming Zhang, and are elected by the board at such term and remuneration as the board sees fit. 121 Table of Contents 6.D. Employees We had 2,155 employees as of December 31, 2021, and substantially all of our employees were based in China. The following table sets forth a breakdown of our employees by function as of December 31, 2021: Operation and products Research and development Sales and marketing General and administration Total Number of Employees 425 713 220 797 2,155 Percentage 19.7 33.1 10.2 37.2 100.0 Our success depends on our ability to attract, retain and motivate qualified personnel. We adopt high standards in recruitment with strict procedures to ensure the quality of new hires. Moreover, we provide a robust training program for new employees that we hire, which we believe are effective in equipping them with the skill set and workplace ethics that we require of our employees. We have developed a dynamic corporate culture that encourages innovation, technical skills and self-development. We enter into standard contracts and agreements regarding confidentiality, intellectual property, employment, commercial ethics policies and non-competition with most of our executive officers, managers and employees. These contracts typically include a non-competition provision effective during and up to two years after their employment with us and a confidentiality provision effective during and after their employment with us. Our employees have formed an employee union. We believe that we maintain a good working relationship with our employees and we have not experienced any material labor disputes. 6.E. Share Ownership The following table sets forth information concerning the beneficial ownership of our ordinary shares as of March 31, 2022 by: • • • each of our directors and executive officers; all of our directors and executive officers as a group; and each of our principal shareholders who beneficially own more than 5% of our total outstanding ordinary shares. The calculations in the table below are based on 31,748,384 ordinary shares issued and outstanding as of March 31, 2022. 122 Table of Contents Beneficial ownership is determined in accordance with the rules and regulations of the SEC. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, we have included shares that the person has the right to acquire within 60 days, including through the exercise of any option, warrant, or other right or the conversion of any other security. These shares, however, are not included in the computation of the percentage ownership of any other person. The table below excludes 259,743 ordinary shares issued to Douyu Employees Limited, our employee shareholding platform established for the RSUs granted under the Amended and Restated 2018 RSU Scheme, which has waived its rights associated with these 259,743 ordinary shares, including voting rights and dividend rights, before the corresponding RSUs vest pursuant to the vesting schedule, except when calculating the number of shares underlying share options held by such person or group that are exercisable or RSUs that will become vested within 60 days after the date of this annual report. Directors and Executive Officers† Shaojie Chen(1) Chao Cheng Mingming Su Hao Cao Yang Deng Song Zhou Haiyang Yu Xi Cao Zhaoming Chen Xuehai Wang Zhi Yan All Directors and Executive Officers as a Group Principal Shareholders: Entities affiliated with Tencent(2) Warrior Ace Holding Limited(3) Number 5,362,488 * * * * — — — — — — 5,477,340 12,070,080 5,283,026 Ordinary Shares Percentage of total ordinary shares 16.9 * * * * — — — — — — 17.3 38.0 16.6 Percentage of aggregate voting power*** 16.9 * * * * — — — — — — 17.3 38.0 16.6 Notes: * ** Less than 1% of our total outstanding shares. For each person and group included in this column, percentage ownership is calculated by dividing the number of shares beneficially owned by such person or group by the sum of (i) 31,748,384, being the number of ordinary shares outstanding as of March 31, 2022 (excluding 259,743 ordinary shares issued to Douyu Employees Limited, our employee shareholding platform established for the RSUs granted under the Amended and Restated 2018 RSU Scheme, which has waived its rights associated with these 259,743 ordinary shares, including voting rights and dividend rights, before the corresponding RSUs vest pursuant to the vesting schedule, and 2,560,562 ordinary shares repurchased in the form of ADSs) and (ii) the number of ordinary shares underlying share options held by such person or group that are exercisable or RSUs that will become vested within 60 days after the date of this annual report. *** For each person and group included in this column, percentage of voting power is calculated by dividing the voting power beneficially owned by † (1) such person or group by the voting power of all of our ordinary shares as a single class. The address of our directors and executive officers except for Ms. Song Zhou, Mr. Haiyang Yu, Mr. Xi Cao, Mr. Zhaoming Chen, Mr. Xuehai Wang and Mr. Zhi Yan is 20/F, Building A, New Development International Center, No. 473 Guanshan Avenue, Hongshan District, Wuhan, Hubei Province, the People’s Republic of China. The business address for Ms. Zhou is Room 1631, Building C, Kexing Science Park, Kejizhongsan Avenue, Nanshan District, Shenzhen, the People’s Republic of China, the business address for Mr. Yu is 29/F, Three Pacific Place, No. 1 Queen’s Road East, Wanchai, Hong Kong; the business address for Mr. Cao is Room 3606, China Central Place Tower 3, 77 Jianguo Road, Beijing 100025, China; the business address of Mr. Chen is 22/F, Oriental Fisherman’s Wharf, No. 1088 Yangshupu Road, Yangpu District, Shanghai, the People’s Republic of China; the business address for Mr. Wang is No. 666 Gaoxin Avenue, East Lake New Technology Development Zone, Wuhan, the People’s Republic of China; and the business address for Mr. Yan is Special #1, Julong Avenue, Panlong Town Economics Development Zone, Wuhan, the People’s Republic of China. The number of ordinary shares beneficially owned represents (i) 5,283,026 ordinary shares held by Mr. Chen through Warrior Ace Holding Limited, or Warrior Ace; and (ii) 79,462 ordinary shares underlying the RSUs we granted to Mr. Chen under our Amended and Restated 2018 RSU Scheme, which will vest within 60 days after the date of this annual report. Warrior Ace is an exempted company incorporated with limited liability under the laws of the British Virgin Islands, wholly-owned by Mr. Chen. The registered address of Warrior Ace is Sea Meadow House, Blackburne Highway, (P.O. Box 116), Road Town, Tortola, British Virgin Islands. Warrior Ace is beneficially owned and controlled by Mr. Chen. 123 Table of Contents (2) Represents (i) 12,068,104 ordinary shares held by Nectarine, an exempted company incorporated with limited liability under the laws of the British Virgin Islands and a wholly-owned subsidiary of Tencent, and (ii) 1,976 ordinary shares in the form of ADSs held by Distribution Pool Limited, a limited liability incorporated under the laws of the British Virgin Islands and a wholly-owned subsidiary of Tencent. Tencent is a Cayman Islands exempted company listed on the Main Board of the Hong Kong Stock Exchange. The principal business address of Nectarine is Level 29, Three Pacific Place, No. 1 Queen’s Road East, Wanchai, Hong Kong. The registered office of Distribution Pool Limited is Vistra Corporate Services Centre, Wickhams Cay II, Road Town, Tortola, VG1110, British Virgin Islands. (3) Represents 5,362,488 ordinary shares beneficially owned by Mr. Chen, our chief executive officer and director, as set forth in note (1) above. To our knowledge, as of March 31, 2022, a total of 17,628,996 ordinary shares are held by one record holder in the United States, representing approximately 55.5% of our total outstanding shares. The holder is JPMorgan Chase Bank, N.A., the depositary of our ADS program. None of our shareholders has informed us that it is affiliated with a member of Financial Industry Regulatory Authority, or FINRA. We are not aware of any arrangement that may, at a subsequent date, result in a change of control of our company. ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS 7.A. Major Shareholders Please refer to “Item 6. Directors, Senior Management and Employees — 6.E. Share Ownership.” The company’s major shareholders do not have different voting rights than the other shareholders. 7.B. Related Party Transactions Transactions with Tencent In 2019, 2020 and 2021, we provided services to Tencent’s PRC affiliated entities in relation to advertisements, game distribution and promotional activities on our platform for the total amount of approximately RMB29.3 million, RMB9.0 million and RMB42.8 million (US$6.7 million) in fees, respectively. As of December 31, 2021, we had an amount of approximately RMB37.1 million (US$5.8 million) due from certain of Tencent’s PRC affiliated entities, representing the unsettled balance of fees for the services we provided to them. In 2019, 2020 and 2021, Tencent provided services to us through its PRC affiliated entities in relation to CDN, P2P streaming technologies, online payment and website technology support and licensed certain copyrights to us for the total amount of approximately RMB377.6 million, RMB330.6 million and RMB868.7 million (US$136.3 million) in fees, respectively. As of December 31, 2021, we had an amount of approximately RMB253.9 million (US$39.8 million) due to certain of Tencent’s PRC affiliated entities, representing the unsettled balance of fees for the services and copyrights they provided to us. We have entered into the Amended and Restated SCFM and other agreements with Tencent through its PRC affiliated entities. Transactions with Equity Method Investee Talent Agencies We cooperate with certain talent agencies to manage and organize streamers on our platform and may enter into revenue sharing arrangements with them. We have also made equity investments in certain talent agencies and exercise significant influence over them. Such investments are accounted for as equity method investee talent agencies. In 2019, 2020 and 2021, we received livestreaming revenue and other revenue from the equity method investee talent agencies of RMB78.9 million, RMB23.9 million and nil, respectively. In 2019, 2020 and 2021, we paid revenue sharing fees and content costs of RMB715.5 million, RMB435.5 million and RMB357.4 million (US$56.1 million), respectively, to the equity method investee talent agencies. For details, please refer to Note 18 to the consolidated financial statements for the years ended December 31, 2019, 2020 and 2021 included elsewhere in this annual report. 124 Table of Contents Terms of Directors and Officers See “Item 6. Directors, Senior Management and Employees—6.C. Board Practices—Terms of Directors and Officers.” Board Diversity Matrix Country of Principal Executive Offices: Foreign Private Issuer Disclosure Prohibited Under Home Country Law Total Number of Directors Board Diversity Matrix (As of March 31, 2022) Part I: Gender Identity Directors Part II: Demographic Background Underrepresented Individual in Home Country Jurisdiction LGBTQ+ Did Not Disclose Demographic Background 2 0 0 0 People’s Republic of China Yes No 10 Female Male Non-Binary Did Not Disclose Gender 8 0 0 Contractual Arrangements with The VIEs and The VIEs’ Respective Shareholders See “Item 4. Information on the Company—4.C. Organizational Structure—Contractual Arrangements with The VIEs and The VIEs’ Respective Shareholders.” Employment Agreements and Indemnification Agreements See “Item 6. Directors, Senior Management and Employees—6.B. Compensation—Employment Agreements and Indemnification Agreements.” Share Incentives See “Item 6. Directors, Senior Management and Employees—6.B. Compensation—Share Incentive Plan.” 7.C. Interests of Experts and Counsel Not applicable. ITEM 8. FINANCIAL INFORMATION 8.A. Consolidated Statements and Other Financial Information We have appended consolidated financial statements filed as part of this annual report. Litigation We have been and may become a party to various legal or administrative proceedings arising in the ordinary course of our business, including matters relating to contractual disputes, intellectual property infringement and unfair competition. Litigation or any other legal or administrative proceeding, regardless of the outcome, is likely to result in substantial cost and diversion of our resources, including our management’s time and attention. See “Item 3. Key Information—Item 3.D. Risk Factors—Risks Related to Our Business and Our Industry—We may be subject to intellectual property infringement claims or other allegations by third parties for information or content displayed on, retrieved from or linked to our platform, or distributed to our users, or for proprietary information appropriated by former employees, which may materially and adversely affect our business, financial condition and prospects,” “Item 3. Key Information—Item 3.D. Risk Factors—Risks Related to Our Business and Our Industry—We may be held liable for information or content displayed on, retrieved from or linked to our platform, or distributed to our users if such content is deemed to violate any PRC laws or regulations, and PRC authorities may impose legal sanctions on us,” “Item 3. Key Information— Item 3.D. Risk Factors— Risks Related to Our Business and Our Industry—Implementation of the new labor laws and regulations in China may adversely affect our business and results of operations,” and “Item 3. Key Information—Item 3.D. Risk Factors—We are subject to risks relating to litigation, which could adversely affect our business, prospects, results of operations and financial condition.” 125 Table of Contents In March and April 2020, we and certain of our current and former officers and directors were also named as defendants in several putative securities class actions filed in state and federal courts alleging that we made material misstatements and omissions in our IPO registration statement. The cases allege claims under the Securities Act. The actions have been transferred and consolidated into the two pending actions: In re Douyu Int’l Holdings Ltd. Secs. Litig., Index No. 651703/2020 (Sup. Ct. N.Y. Cty.) (the “Consolidated State Court Action”), and In re Douyu Int’l Holdings Ltd. Secs. Litig., 20-cv-7234 (S.D.N.Y.) (the “Consolidated Federal Court Action”). We filed a motion to dismiss the Consolidated State Court Action on August 14, 2020. The plaintiffs filed an opposition to motion to dismiss on September 29, 2020, and we filed a reply to opposition on October 20, 2020. On March 16, 2021, the court issued an order denying the motion to dismiss. On April 27, 2021, we filed a notice of appeal, which was perfected on July 12, 2021. In the Consolidated Federal Court Action, an Amended Class Action Complaint was filed on December 24, 2020. Pursuant to the individual practices of the judge presiding over the Federal Court Action, on February 19, 2021, we filed a letter requesting a pre-motion conference with the federal court regarding our anticipated motion to dismiss. Plaintiffs responded to the letter by seeking leave to file a second amended complaint, which was granted by the federal court on March 15, 2021. Plaintiffs filed a second amended complaint on April 2, 2021. We filed motion to dismiss the second amended complaint on May 21, 2021. On June 11, 2021, Plaintiffs filed a third amended complaint. On July 19, 2021, we filed a motion to dismiss the third amended complaint. On January 1, 2022, we reached an agreement in principle to settle both the Consolidated State Court Action and the Consolidated Federal Court Action. The settlement in principle is contingent on the negotiation and execution of a stipulation of settlement and subject to approval from the state court. Dividend Policy We have not previously declared or paid cash dividends and we have no plan to declare or pay any dividends in the near future on our ordinary shares or the ADSs representing our ordinary shares. We currently intend to retain most, if not all, of our available funds and any future earnings to operate and expand our business. We are a holding company incorporated in the Cayman Islands. We rely principally on dividends from our PRC subsidiaries for our cash requirements, including any payment of dividends to our shareholders. PRC regulations may restrict the ability of our PRC subsidiaries to pay dividends to us. See “Item 4. Information on the Company—4.B. Business Overview—Regulation—Regulations Relating to Foreign Currency Exchange and Dividend Distribution.” Our board of directors has discretion as to whether to distribute dividends, subject to certain requirements of Cayman Islands law. In addition, our shareholders may by ordinary resolution declare a dividend, but no dividend may exceed the amount recommended by our board of directors. Under Cayman Islands law, a Cayman Islands company may pay a dividend out of either profit or its share premium account, provided that 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 in the ordinary course of business. Even if our board of directors decides to pay dividends, the form, frequency and amount will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that our board of directors may deem relevant. If we pay any dividends on our ordinary shares, we will pay those dividends which are payable in respect of the ordinary shares underlying the ADSs to the depositary, as the registered holder of such ordinary shares, and the depositary then will pay such amounts to the ADS holders in proportion to the ordinary shares underlying the ADSs held by such ADS holders, subject to the terms of the deposit agreement, including the fees and expenses payable thereunder. See “Item 12. Description of Securities Other Than Equity Securities—12.D. American Depositary Shares.” 8.B. Significant Changes Except as otherwise disclosed in this report, we have not experienced any significant changes since the date of our audited consolidated financial statements included herein. 126 Table of Contents ITEM 9. THE OFFER AND LISTING 9.A. Offering and Listing Details Our ADSs have been listed on the Nasdaq Global Select Market since July 17, 2019 under the symbol “DOYU.” Every 10 American depositary shares represent one ordinary share, par value US$0.0001 per share. 9.B. Plan of Distribution Not applicable. 9.C. Markets Every 10 of our American depositary shares represent one ordinary share. Our ADSs have been listed on the Nasdaq Global Select Market since July 17, 2019. Our ADSs trade under the symbol “DOYU.” 9.D. Selling Shareholders Not applicable. 9.E. Dilution Not applicable. 9.F. Expenses of the Issue Not applicable. ITEM 10. ADDITIONAL INFORMATION 10.A. Share Capital Not applicable. 10.B. Memorandum and Articles of Association We are an exempted company incorporated under the laws of the Cayman Islands and our affairs are governed by our Fourth Amended and Restated Memorandum and Articles of Association, as amended and restated from time to time, and Companies Act (As Revised) of the Cayman Islands, which we refer to as the Companies Act below, and the common law of the Cayman Islands. We incorporate by reference into this annual report our Fourth Amended and Restated Memorandum and Articles of Association, the form of which was filed as Exhibit 3.2 to our registration statement on Form F-1 (File Number 333-230976) filed with the Securities and Exchange Commission on April 22, 2019, as amended. Our shareholders adopted our Fourth Amended and Restated Memorandum and Articles of Association by a special resolution in May 2019, which became effective immediately prior to completion of our initial public offering of ADSs representing our ordinary shares. The following are summaries of material provisions of our Fourth Amended and Restated Memorandum and Articles of Association and the Companies Act insofar as they relate to the material terms of our ordinary shares. Registered Office and Objects Our registered office in the Cayman Islands is at the offices of Maples Corporate Services Limited, PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands. According to Clause 3 of our Fourth Amended and Restated Memorandum and Articles of Association, the objects for which the Company is established are unrestricted and the Company shall have full power and authority to carry out any object not prohibited by any law as provided by Section 7(4) of the Companies Act or as the same may be revised from time to time, or any other law of the Cayman Islands. 127 Table of Contents Board of Directors See “Item 6. Directors, Senior Management and Employees.” Ordinary Shares General Our authorized share capital is US$100,000 divided into (i) 500,000,000 ordinary shares of a nominal or par value of US$0.0001 each, and (ii) 500,000,000 shares of a par value of US$0.0001 as our board of directors may determine in accordance with our Fourth Amended and Restated Memorandum and Articles of Association. Holders of our ordinary shares will have the same rights except for voting and conversion rights. All of our issued and outstanding ordinary shares are fully paid and non-assessable. Certificates representing the ordinary shares are issued in registered form. We may not issue shares to bearer. Our shareholders who are non-residents of the Cayman Islands may freely hold and transfer their ordinary shares. Dividends The holders of our ordinary shares are entitled to such dividends as may be declared by our board of directors subject to our Fourth Amended and Restated Memorandum and Articles of Association and the Companies Act. In addition, our shareholders may by ordinary resolution declare a dividend, but no dividend may exceed the amount recommended by our directors. In either case, under the laws of the Cayman Islands, our company may pay a dividend out of either profits or our share premium account, provided that in no circumstances may a dividend be paid if this would result in our company being unable to pay its debts as they fall due in the ordinary course of business. Voting Rights In respect of all matters subject to a shareholders’ vote, each ordinary share is entitled to one vote for each ordinary share registered in his or her name on our register of members. Voting at any meeting of shareholders is by show of hands unless a poll is demanded. A poll may be demanded by the chairman of such meeting or any one shareholder. A quorum required for a meeting of shareholders consists of one or more shareholders holding not less than one-third of the votes attaching to the issued and outstanding shares entitled to vote at general meetings present in person or by proxy or, if a corporation or other non-natural person, by its duly authorized representative. As a Cayman Islands exempted company, we are not obliged by the Companies Act to call shareholders’ annual general meetings. Our Fourth Amended and Restated Memorandum and Articles of Association provide that we may (but are not obliged to) in each year hold a general meeting as our annual general meeting, in which case we will specify the meeting as such in the notices calling it, and the annual general meeting will be held at such time and place as may be determined by our directors. We, however, will hold an annual shareholders’ meeting during each fiscal year, as required by the Listing Rules at the Nasdaq. Each general meeting, other than an annual general meeting, shall be an extraordinary general meeting. Shareholders’ annual general meetings and any other general meetings of our shareholders may be called by a majority of our board of directors or our chairman or upon a requisition of shareholders holding at the date of deposit of the requisition not less than one-third of the votes attaching to the issued and outstanding shares entitled to vote at general meetings, in which case the directors are obliged to call such meeting and to put the resolutions so requisitioned to a vote at such meeting; however, our Fourth Amended and Restated Memorandum and Articles of Association do not provide our shareholders with any right to put any proposals before 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 meeting and other general meetings unless such notice is waived in accordance with our articles of association. An ordinary resolution to be passed at a meeting by the shareholders requires the affirmative vote of a simple majority of the votes attaching to the ordinary shares cast by those shareholders entitled to vote who are present in person or by proxy or, in the case of corporations, by their duly authorized representatives, at a general meeting, while a special resolution also requires the affirmative vote of no less than two-thirds of the votes attaching to the ordinary shares cast by those shareholders entitled to vote who are present in person or by proxy or, in the case of corporations, by their duly authorized representatives, at a general meeting. A special resolution will be required for important matters such as making changes to our Fourth Amended and Restated Memorandum and Articles of Association. Transfer of Ordinary Shares Subject to the restrictions in our Fourth Amended and Restated Memorandum and Articles of Association as set out below, any of our shareholders may transfer all or any of his or her ordinary shares by an instrument of transfer in the usual or common form or any other form approved by our board of directors. 128 Table of Contents 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 on which 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 other evidence 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 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 exceed four; and a fee of such maximum sum as the Nasdaq may determine to be payable or such lesser sum as our directors may from time to time require is paid to us in respect thereof. If our directors refuse to register a transfer they shall, within one month after the date on which the instrument of transfer was lodged, send to each of the transferor and the transferee notice of such refusal. The registration of transfers may, on ten calendar days’ notice being given by advertisement in such one or more newspapers or by electronic means, or after compliance with any notice required of the Nasdaq, be suspended and the register of members 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 of members closed for more than 30 calendar days in any year. Liquidation On a return of capital on winding-up or otherwise (other than on conversion, redemption or purchase of ordinary shares), if the assets available for distribution amongst our shareholders shall be more than sufficient to repay the whole of the share capital at the commencement of the winding-up, the surplus shall be distributed amongst our shareholders in 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 in respect of which there are monies due, of all monies payable to our company for unpaid calls or otherwise. If our assets available for distribution are 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 the par value of the shares held by them. Any distribution of assets or capital to a holder of ordinary share will be the same in any liquidation event. Redemption, Repurchase and Surrender of Ordinary Shares We may issue shares on terms that such shares are subject to redemption, at our option or at the option of the holders thereof, on such terms and in such manner as may be determined, before the issue of such shares, by our board of directors or by an ordinary resolution of our shareholders. Our company may also repurchase any of our shares provided that the manner and terms of such purchase have been approved by our board of directors or by ordinary resolution of our shareholders, or are otherwise authorized by our Fourth Amended and Restated Memorandum and Articles of Association. Under the Companies Act, the redemption or repurchase of any share may be paid out of our company’s profits or out of the proceeds of a fresh issue of shares made for the purpose of such redemption or repurchase, or out of capital (including share premium account and capital redemption reserve) if the company 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 or repurchase would result in there being no shares issued and outstanding, or (c) if the company has commenced liquidation. In addition, our company 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 or series of shares, the rights attached to any class or series of shares (unless otherwise provided by the terms of issue of the shares of that class or series), whether or not our company is being wound up, may be varied with the consent in writing of the holders of not less than two-thirds of the issued shares of the relevant class, or with the sanction of a resolution passed at a separate meeting of the holders of the shares of such class by the holders of two-thirds of the votes cast at such a meeting. 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 adversely varied by the creation or issue of further shares ranking pari passu with such existing class of shares. 129 Table of Contents Inspection of Books and Records Holders of our ordinary shares have no general right under the Companies Act to inspect or obtain copies of our list of shareholders or our corporate records (except for our memorandum and articles of association and our register of mortgages and charges). However, we will provide our shareholders with annual audited financial statements. Issuance of Additional Shares Our Fourth Amended and Restated Memorandum and Articles of Association authorizes our board of directors to issue additional ordinary shares from time to time as our board of directors shall determine, to the extent of available authorized but unissued shares. Our Fourth Amended and Restated Memorandum and Articles of Association also authorizes our board of directors to establish from time to time one or more series of preferred shares and to determine, with respect to any series of preferred shares, the terms and rights of that series, including: • • • • the designation of the series; the number of shares of the series; 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 preferred shares without action by our shareholders to the extent authorized but unissued. Issuance of these shares may dilute the voting power of holders of ordinary shares. Anti-Takeover Provisions Some provisions of our Fourth Amended and Restated Memorandum and Articles of Association may discourage, delay or prevent a change of control of our company or management that shareholders may consider favorable, including provisions that authorize our board of directors to issue preferred shares in one or more series and to designate the price, rights, preferences, privileges and restrictions of such preferred shares without any further vote or action by our shareholders. However, under Cayman Islands law, our directors may only exercise the rights and powers granted to them under our Fourth Amended and Restated Memorandum and Articles of Association for a proper purpose and for what they believe in good faith to be in the best interests of our company. Exempted Company We are an exempted company with limited liability under the Companies Act. The Companies Act distinguishes between ordinary resident companies and exempted companies. Any company that is registered in the Cayman Islands but conducts business mainly outside the Cayman Islands may apply to be registered as an exempted company. The requirements for an exempted company 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 of the Cayman Islands; is not required to open its register of members for inspection; does not have to hold an annual general meeting; may issue 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 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 that shareholder’s shares of the company, except in exceptional circumstances, such as involving fraud, the establishment of an agency relationship or an illegal or improper purpose or other circumstances in which a court may be prepared to pierce or lift the corporate veil. 130 Table of Contents 10.C. Material Contracts We have not entered into any material contracts other than in the ordinary course of business and other than those described in this annual report. 10.D. Exchange Controls The Cayman Islands currently has no exchange control regulations or currency restrictions. See “Item 4. Information of the Company—4.B. Business Overview—Regulation—Regulations Relating to Foreign Currency Exchange and Dividend Distribution.” 10.E. Taxation Cayman Islands Taxation The Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains or appreciation, and there is no taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to us or holders of our ADSs or ordinary shares levied by the government of the Cayman Islands, except for stamp duties which may be applicable on instruments executed in, or after execution brought within the jurisdiction of the Cayman Islands. The Cayman Islands are not party to any double tax treaties that are applicable to any payments made to or by our company. There are no exchange control regulations or currency restrictions in the Cayman Islands. Payments of dividends and capital in respect of the ADSs or ordinary shares will not be subject to taxation in the Cayman Islands and no withholding will be required on the payment of a dividend or capital to any holder of the ADSs or ordinary shares, nor will gains derived from the disposal of the ADSs or ordinary shares be subject to Cayman Islands income or corporation tax. People’s Republic of China Taxation Under the PRC Enterprise Income Tax Law, which became effective on January 1, 2008 and amended on February 24, 2017 and December 29, 2018, an enterprise established outside the PRC with “de facto management bodies” within the PRC is considered a “resident enterprise” for PRC enterprise income tax purposes and is generally subject to a uniform 25% enterprise income tax rate on its worldwide income. Under the implementation rules to the PRC Enterprise Income Tax Law, a “de facto management body” is defined as a body that has material and overall management and control over the manufacturing and business operations, personnel and human resources, finances and properties of an enterprise. SAT Circular 82 issued by the SAT in April 2009 specifies that certain offshore incorporated enterprises controlled by PRC enterprises or PRC enterprise groups will be classified as PRC resident enterprises only if all of the following conditions are met: (a) the senior management and core management departments in charge of its daily operations function have their presence mainly in the PRC; (b) its financial and human resources decisions are subject to determination or approval by persons or bodies in the PRC; (c) its major assets, accounting books, company seals, and minutes and files of its board and shareholders’ meetings are located or kept in the PRC; and (d) not less than half of the enterprise’s directors or senior management with voting rights habitually reside in the PRC. Although SAT Circular 82 and SAT Bulletin 45 apply only to offshore incorporated enterprises controlled by PRC enterprises or PRC enterprise group and not those controlled by PRC individuals or foreigners, Han Kun Law Offices, our legal counsel as to PRC law, has advised us that the determination criteria set forth therein may reflect SAT’s general position on how the term “de facto management body” could be applied in determining the tax resident status of offshore enterprises, regardless of whether they are controlled by PRC enterprises, individuals or foreigners. Further to SAT Circular 82, the SAT issued the SAT Bulletin 45, which took effect in September 2011, to provide more guidance on the implementation of SAT Circular 82. SAT Bulletin 45 provides for procedures and administration details regarding the determination on residence status and administration on post-determination matters. Our company is a company incorporated outside the PRC. As a holding company, its key assets are its ownership interests in its subsidiaries, and its key assets are located, and its records (including the resolutions of its board of directors and the resolutions of its shareholders) are maintained, outside the PRC. As such, we do not believe that our company meets all of the conditions above or is a PRC resident enterprise for PRC tax purposes even if the standards for “de facto management body” prescribed in SAT Circular 82 are applicable to us. For similar reasons, we believe our other entities outside China are not PRC resident enterprises either. However, the tax resident status of an enterprise is subject to determination by the PRC tax authorities and uncertainties remain with respect to the interpretation of the term “de facto management body.” There can be no assurance that the PRC government will ultimately take a view that is consistent with us. If the PRC tax authorities determine that our Cayman Islands holding company is a PRC resident enterprise for PRC enterprise income tax purposes, a number of unfavorable PRC tax consequences could follow. For example, a 10% withholding tax would be imposed on dividends we pay to our non-PRC enterprise shareholders (including our ADS holders). In addition, non-resident enterprise shareholders (including our ADS holders) may be subject to a 10% PRC tax on gains realized on the sale or other disposition of ADSs or ordinary shares, if such income is treated as sourced from within the PRC. Furthermore, if we are deemed a PRC resident enterprise, dividends paid to our non-PRC individual shareholders (including our ADS holders) and any gain realized on the transfer of ADSs or ordinary shares by such shareholders may be subject to PRC tax at a rate of 20% (which, in the case of dividends, may be withheld at source by us). These rates may be reduced by an applicable tax treaty, but it is unclear whether non-PRC shareholders of our company would be able to obtain the benefits of any tax treaties between their country of tax residence and the PRC in the event that we are treated as a PRC resident enterprise. See “Item 3. Key Information—3.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.” 131 Table of Contents U.S. Federal Income Tax Considerations The following are certain U.S. federal income tax consequences to the U.S. Holders described below of owning and disposing of the ADSs or ordinary shares, but this discussion does not purport to be a comprehensive description of all of the tax considerations that may be relevant to a particular person’s decision to hold or dispose of the ADSs or ordinary shares. This discussion applies only to a U.S. Holder that holds the ADSs or ordinary shares as capital assets for U.S. federal income tax purposes (generally, property held for investment). It does not describe all of the tax consequences that may be relevant in light of a U.S. Holder’s particular circumstances, including any alternative minimum tax or Medicare contribution tax considerations and tax consequences applicable to U.S. Holders subject to special rules, such as: • • • • • • • • • • • certain financial institutions; dealers or traders in securities that use a mark-to-market method of tax accounting; persons holding ADSs or ordinary shares as part of a straddle, integrated or similar transaction; persons whose functional currency for U.S. federal income tax purposes is not the U.S. dollar; entities classified as partnerships for U.S. federal income tax purposes and their partners; tax-exempt entities, “individual retirement accounts” or “Roth IRAs”; insurance companies; certain U.S. expatriates; persons that own or are deemed to own ADSs or ordinary shares representing 10% or more of our voting power or value; persons who acquired our ADSs or ordinary shares pursuant to the exercise of an employee stock option or otherwise as compensation; or persons holding ADSs or ordinary shares in connection with a trade or business outside the United States. If a partnership (or other entity that is classified as a partnership for U.S. federal income tax purposes) owns ADSs or ordinary shares, the U.S. federal income tax treatment of a partner will generally depend on the status of the partner and the activities of the partnership. Partnerships owning ADSs or ordinary shares and their partners should consult their tax advisers as to their particular U.S. federal income tax consequences of owning and disposing of ADSs or ordinary shares. This discussion is based on the Internal Revenue Code of 1986, as amended, or the Code, administrative pronouncements, judicial decisions, final, temporary and proposed Treasury regulations, and the income tax treaty between the United States and the PRC, or the Treaty, all as of the date hereof, any of which is subject to change, possibly with retroactive effect. As used herein, a “U.S. Holder” is a person eligible for Treaty benefits that is, for U.S. federal income tax purposes, a beneficial owner of the ADSs or ordinary shares and: • • • a citizen or individual resident of the United States; a corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States, any state therein or the District of Columbia; or an estate or trust the income of which is subject to U.S. federal income taxation regardless of its source. Treasury regulations that apply to taxable years beginning on or after December 28, 2021, or the Foreign Tax Credit Regulations, may in some circumstances prohibit a U.S. person from claiming a foreign tax credit with respect to certain non-U.S. taxes that are not creditable under applicable income tax treaties. Accordingly, U.S. investors that are not eligible for Treaty benefits should consult their tax advisers regarding the creditability or deductibility of any PRC taxes imposed on dividends on, or dispositions of, the ADSs or ordinary shares. The discussions below regarding the creditability or deductibility of PRC taxes, if any, do not apply to investors in this special situation. In general, a U.S. Holder that owns ADSs will be treated as the owner of the underlying ordinary shares represented by those ADSs for U.S. federal income tax purposes. Accordingly, no gain or loss will be recognized if a U.S. Holder exchanges ADSs for the underlying ordinary shares represented by those ADSs. 132 Table of Contents This discussion does not address any U.S. federal taxes (such as estate or gift taxes) other than income taxes, nor does it address any state, local or non-U.S. considerations. U.S. Holders should consult their tax advisers concerning the U.S. federal, state, local and non-U.S. tax consequences of owning and disposing of ADSs or ordinary shares in their particular circumstances. Passive Foreign Investment Company Rules In general, a non-U.S. corporation is a passive foreign investment company (a “PFIC”) for U.S. federal income tax purposes for any taxable year in which (i) 75% or more of its gross income consists of passive income; or (ii) 50% or more of the value of its assets (generally determined on a quarterly average basis) consists of assets that produce, or are held for the production of, passive income. For purposes of the above calculations, a non-U.S. corporation that owns, directly or indirectly, at least 25% by value of the shares of another corporation is treated as if it held its proportionate share of the assets of the other corporation and received directly its proportionate share of the income of the other corporation. Passive income generally includes dividends, interest, rents, royalties and certain gains. Cash is a generally passive asset for these purposes. Goodwill is generally characterized as a non-passive or passive asset based on the nature of the income produced in the activity to which the goodwill is attributable. The assets shown on our balance sheet consist primarily of cash and cash equivalents, and while this continues to be the case our PFIC status for any taxable year depends largely on the value of our goodwill. The value of our goodwill for any taxable year may be determined in large part by reference to the average of our market capitalization for that year. Because generally our market capitalization has declined substantially since the beginning of 2021, if the value of our goodwill is determined by reference to the average of our quarterly market capitalization then we were likely a PFIC for our 2021 taxable year. Due to our declining market capitalization, there is a significant risk that we will also be a PFIC for 2022 and possibly future taxable years. In addition, the extent to which our goodwill should be characterized as a non-passive asset is not entirely clear. We have not obtained any valuation of our assets (including goodwill). U.S. Holders of our ADSs or ordinary shares should consult their tax advisers regarding the value and characterization of our assets for purposes of the PFIC rules, which are subject to some uncertainties. Moreover, it is not entirely clear how the contractual arrangements between us, our wholly-owned subsidiaries, our VIEs and the shareholders of our VIEs will be treated for purposes of the PFIC rules, and we may be or become a PFIC for any taxable year if our VIEs are not treated as owned by us for these purposes. For these reasons, we cannot express an expectation as to our PFIC status for 2022 or any future taxable year. If we are a PFIC for any taxable year and any of our subsidiaries, VIEs or other companies in which we own or are treated as owning equity interests is also a PFIC (any such entity, a “Lower-tier PFIC”), U.S. Holders will be deemed to own a proportionate amount (by value) of the shares of each Lower-tier PFIC and will be subject to U.S. federal income tax according to the rules described in the subsequent paragraph on (i) certain distributions by the Lower-tier PFIC and (ii) dispositions of shares of the Lower-tier PFIC, in each case as if the U.S. Holders held such shares directly, even though the U.S. Holders will not receive the proceeds of those distributions or dispositions. In general, if we are a PFIC for any taxable year during which a U.S. Holder owns ADSs or ordinary shares, gain recognized by such U.S. Holder on a sale or other disposition (including certain pledges) of its ADSs or ordinary shares will be allocated ratably over that U.S. Holder’s holding period. The amounts allocated to the taxable year of the sale or disposition and to any year before we became a PFIC will be taxed as ordinary income. The amount allocated to each other taxable year will be subject to tax at the highest rate in effect for individuals or corporations, as appropriate, for that taxable year, and an interest charge will be imposed on the resulting tax liability for each such year. Furthermore, to the extent that distributions received by a U.S. Holder in any taxable year on its ADSs or ordinary shares exceed 125% of the average of the annual distributions on the ADSs or ordinary shares received during the preceding three taxable years or the U.S. Holder’s holding period, whichever is shorter, such excess distributions will be subject to taxation in the same manner. Under a rule commonly referred to as the “once a PFIC always a PFIC” rule, if we are a PFIC for any taxable year during which a U.S. Holder owns ADSs or ordinary shares, we will generally continue to be treated as a PFIC with respect to the U.S. Holder for all succeeding years during which the U.S. Holder owns the ADSs or ordinary shares, even if we cease to meet the threshold requirements for PFIC status. If we are a PFIC for any taxable year but cease to be PFIC for subsequent years, U.S. Holders should consult their tax advisers regarding the advisability of making a “deemed sale” election that will allow them to eliminate the continuing PFIC status under certain circumstances, but may require them to recognize gain taxed under the general PFIC rules described in this paragraph. 133 Table of Contents Alternatively, if we are a PFIC and if the ADSs are “regularly traded” on a “qualified exchange,” a U.S. Holder of ADSs could make a mark-to-market election that will result in tax treatment different from the general tax treatment for PFICs described above. The ADSs will be treated as “regularly traded” for any calendar year in which more than a de minimis quantity of the ADSs are traded on a qualified exchange on at least 15 days during each calendar quarter. Nasdaq, where the ADSs are listed, is a qualified exchange for this purpose. There can be no assurance that our ADSs will be regularly traded for any relevant period. If a U.S. Holder makes a mark-to-market election, the U.S. Holder generally will recognize as ordinary income any excess of the fair market value of the ADSs at the end of each taxable year over their adjusted tax basis, and will recognize an ordinary loss in respect of any excess of the adjusted tax basis of the ADSs over their fair market value at the end of the taxable year (but only to the extent of the net amount of income previously included as a result of the mark-to-market election). If a U.S. Holder makes the election, the U.S. Holder’s tax basis in the ADSs will be adjusted to reflect the income or loss amounts recognized. Any gain recognized on the sale or other disposition of ADSs in a year in which we are a PFIC will be treated as ordinary income and any loss will be treated as an ordinary loss (but only to the extent of the net amount of income previously included as a result of the mark-to-market election, with any excess treated as capital loss). If a U.S. Holder makes the mark-to-market election, distributions paid on ADSs will be treated as discussed under “—Taxation of Distributions” below (but subject to the discussion in the immediately subsequent paragraph). If we are a PFIC for any taxable year, U.S. Holders should consult their tax advisers regarding the availability and advisability of making a mark-to-market election in their particular circumstances. In particular, U.S. Holders should consider carefully the impact of a mark-to-market election with respect to their ADSs given that we may have Lower-tier PFICs for which a mark-to-market election likely cannot be made. If we are a PFIC (or with respect to a particular U.S. Holder are treated as a PFIC) for a taxable year in which we pay a dividend or the prior taxable year, dividends paid to non-corporate U.S. Holders will not qualify for a preferential tax rate. We do not intend to provide information necessary for U.S. Holders to make qualified electing fund elections which, if available, would result in tax treatment different from the tax treatment for PFICs described above. If we are a PFIC for any taxable year during which a U.S. Holder owns any ADSs or ordinary shares, the U.S. Holder will generally be required to file annual reports with the Internal Revenue Service. U.S. Holders should consult their tax advisers regarding the PFIC rules and their application to us. Taxation of Distributions The following is subject to the discussion regarding the PFIC rules described above. Distributions paid on the ADSs or ordinary shares, other than certain pro rata distributions of ADSs or ordinary shares, will be treated as dividends to the extent paid out of our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. Because we do not maintain calculations of our earnings and profits under U.S. federal income tax principles, it is expected that distributions, if any, generally will be reported to U.S. Holders as dividends. Dividends will not be eligible for the dividends-received deduction generally available to U.S. corporations under the Code. Subject to applicable limitations, dividends paid to certain non-corporate U.S. taxpayers may in some circumstances be taxable at a preferential rate if certain conditions are met (including a minimum holding period and other requirements). However, as discussed above this preferential rate will not apply if we are a PFIC (or are treated as a PFIC with respect to a U.S. Holder under the “once a PFIC always a PFIC” rule described above) for the taxable year of distribution or the preceding taxable year. Non-corporate U.S. Holders should consult their tax advisers regarding the availability of this favorable rate in general and in their particular circumstances. Dividends will be included in a U.S. Holder’s income on the date of the U.S. Holder’s, or in the case of ADSs, the depositary’s, receipt. The amount of any dividend income paid in foreign currency will be the U.S. dollar amount calculated by reference to the spot rate in effect on the date of actual or constructive receipt, regardless of whether the payment is in fact converted into U.S. dollars on such date. If the dividend is converted into U.S. dollars on the date of receipt, a U.S. Holder generally should not be required to recognize foreign currency gain or loss in respect of the amount received. A U.S. Holder may have foreign currency gain or loss if the dividend is converted into U.S. dollars after the date of receipt. Dividends will be treated as foreign-source income and will constitute passive category income or in certain cases, general category income, for foreign tax credit purposes. As described in “—People’s Republic of China Taxation,” dividends paid by us may be subject to PRC withholding tax. For U.S. federal income tax purposes, the amount of the dividend income will include any amounts withheld in respect of PRC withholding tax. Subject to applicable limitations, which vary depending upon the U.S. Holder’s circumstances, PRC taxes withheld from dividend payments (at a rate not exceeding the applicable rate provided in the Treaty) generally will be creditable against a U.S. Holder’s U.S. federal income tax liability. The rules governing foreign tax credits are complex, and U.S. Holders should consult their tax advisers regarding the creditability of foreign taxes in their particular circumstances. In lieu of claiming a credit, a U.S. Holder may elect to deduct creditable PRC taxes in computing its taxable income, subject to applicable limitations. An election to deduct foreign taxes instead of claiming foreign tax credits applies to all creditable foreign taxes paid or accrued in the relevant taxable year. 134 Table of Contents Sale or Other Taxable Disposition of ADSs or Ordinary Shares The following is subject to the discussion regarding the PFIC rules described above. A U.S. Holder will generally recognize capital gain or loss on a sale or other taxable disposition of ADSs or ordinary shares in an amount equal to the difference between the amount realized on the sale or disposition and the U.S. Holder’s tax basis in the ADSs or ordinary shares disposed of, in each case as determined in U.S. dollars. The gain or loss will be long-term capital gain or loss if, at the time of the sale or disposition, the U.S. Holder has owned the ADSs or ordinary shares for more than one year. Long-term capital gains recognized by non-corporate U.S. Holders are subject to tax rates that are lower than those applicable to ordinary income. The deductibility of capital losses is subject to limitations. As described in “—People’s Republic of China Taxation,” gains on the sale of ADSs or ordinary shares may be subject to PRC taxes. Under the Code, capital gains of U.S. persons are generally treated as U.S.-source income. However, a U.S. Holder may be able to elect to treat the gain as foreign- source income under the Treaty and claim foreign tax credit in respect of any PRC tax on dispositions. The Foreign Tax Credit Regulations generally preclude a U.S. Holder from claiming a foreign tax credit with respect to PRC income taxes on gains from dispositions of ADS or ordinary shares if the U.S. Holder does not elect to apply the benefits of the Treaty. However, in that case it is possible that any PRC taxes on disposition gains may either be deductible or reduce the amount realized on the disposition. The rules governing foreign tax credits and deductibility of foreign taxes are complex. U.S. Holders should consult their tax advisers regarding the consequences of the imposition of any PRC tax on disposition gains, including the Treaty’s resourcing rule, any reporting requirements with respect to a Treaty-based return position and the creditability or deductibility of the PRC tax on disposition gains in their particular circumstances (including any applicable limitations). Information Reporting and Backup Withholding Payments of dividends and sales proceeds that are made within the United States or through certain U.S.-related intermediaries may be subject to information reporting and backup withholding, unless (i) the U.S. Holder is a corporation or other “exempt recipient” and (ii) in the case of backup withholding, the U.S. Holder provides a correct taxpayer identification number and certifies that it is not subject to backup withholding. Backup withholding is not an additional tax. The amount of any backup withholding from a payment to a U.S. Holder will be allowed as a credit against the U.S. Holder’s U.S. federal income tax liability and may entitle it to a refund, provided that the required information is timely furnished to the Internal Revenue Service. 10.F. Dividends and Paying Agents Not applicable. 10.G. Statement by Experts Not applicable. 10.H. Documents on Display We previously filed with the SEC registration statement on Form F-1 (File Number 333-230976), as amended, including annual report contained therein, to register additional securities that become effective immediately upon filing, to register our ordinary shares in relation to our initial public offering. We also filed with the SEC related registration statement on Form F-6 (File Number 333-232579) to register the ADSs and registration statement on Form S-8 (File Number 333-235862) to register our securities to be issued under our DouYu International Holdings Limited Amended and Restated Restricted Share Unit Scheme. We are subject to the periodic reporting and other informational requirements of the Exchange Act as applicable to foreign private issuers. Under the Exchange Act, we are required to file reports and other information with the SEC. Specifically, we are required to file annually a Form 20-F within four months after the end of each fiscal year. Copies of reports and other information, when so filed with the SEC, can be inspected and copied at the public reference facilities maintained by the SEC at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. You can request copies of these documents, upon payment of a duplicating fee, by writing to the SEC. The SEC also maintains a web site at www.sec.gov that contains reports, proxy and information statements, and other information regarding registrants that make electronic filings with the SEC using its EDGAR system. As a foreign private issuer, we are exempt from the rules of the Exchange Act prescribing the furnishing and content of quarterly reports and proxy statements, and our executive officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we are not required under the Exchange Act to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act. We will furnish JPMorgan Chase Bank, N.A., the depositary of our ADSs, with our annual reports, which will include a review of operations and annual audited consolidated financial statements prepared in conformity with U.S. GAAP, and all notices of shareholders’ meetings and other reports and communications that are made generally available to our shareholders. The depositary will make such notices, reports and communications available to holders of ADSs and, upon our request, will mail to all record holders of ADSs the information contained in any notice of a shareholders’ meeting received by the depositary from us. 135 Table of Contents 10.I Subsidiary information Not applicable. ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest rate risk We have not been exposed to material risks due to changes in market interest rates, and we have not used any derivative financial instruments to manage our interest risk exposure. We may invest the net proceeds we receive from the offering in interest-earning instruments. Investments in both fixed rate and floating rate interest-earning instruments carry a degree of interest rate risk. Fixed rate securities may have their fair market value adversely impacted due to a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Foreign exchange risk Substantially all of our revenues are denominated in Renminbi. The Renminbi is not freely convertible into foreign currencies for capital account transactions. The value of the Renminbi against the U.S. dollar and other currencies is affected by, among other things, changes in China’s political and economic conditions and China’s foreign exchange policies. On July 21, 2005, the PRC government changed its decade-old policy of pegging the value of the Renminbi to the U.S. dollar, and the Renminbi appreciated more than 20% against the U.S. dollar over the following three years. Between July 2008 and June 2010, this appreciation halted and the exchange rate between the Renminbi and the U.S. dollar remained within a narrow band. Since June 2010, the Renminbi has fluctuated against the U.S. dollar, at times significantly and unpredictably. It is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate between the Renminbi and the U.S. dollar in the future. To date, we have not entered into any hedging transactions in an effort to reduce our exposure to foreign currency exchange risk. To the extent that we need to convert U.S. dollars we received from our initial public offering in July 2019 into Renminbi for our operations or capital expenditures, appreciation of the Renminbi against the U.S. dollar would have an adverse effect on the Renminbi amount we would receive from the conversion. Conversely, if we decide to convert our Renminbi into U.S. dollars for the purpose of making payments for dividends on our ordinary shares or ADSs or for other business purposes, appreciation of the U.S. dollar against the Renminbi would have a negative effect on the U.S. dollar amount available to us. As of December 31, 2021, we had U.S. dollar-denominated cash and cash equivalents of US$667.2 million. A 10% depreciation of the U.S. dollar against the Renminbi based on the foreign exchange rate on December 31, 2021 would result in a decrease of RMB425.4 million in cash and cash equivalents. A 10% appreciation of the U.S. dollar against the Renminbi based on the foreign exchange rate on December 31, 2021 would result in an increase of RMB425.4 million in cash and cash equivalents. Inflation risk Since our inception, 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 2019, 2020 and 2021 were increases of 4.5%, 0.2% and 1.5%, respectively. Although we have not in the past been materially affected by inflation since our inception, we can provide no assurance that we will not be affected in the future by higher rates of inflation in China. ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES 12.A. Debt Securities Not applicable. 12.B. Warrants and Rights Not applicable. 136 Table of Contents 12.C. Other Securities Not applicable. 12.D. American Depositary Shares Fees and Expenses Pursuant to the terms of the deposit agreement, the depositary may charge each person to whom ADSs are issued, including, without limitation, issuances against deposits of shares, issuances in respect of share distributions, rights and other distributions, issuances pursuant to a stock dividend or stock split declared by us or issuances pursuant to a merger, exchange of securities or any other transaction or event affecting the ADSs or deposited securities, and each person surrendering ADSs for withdrawal of deposited securities or whose ADRs are cancelled or reduced for any other reason, $5.00 for each 100 ADSs (or any portion thereof) issued, delivered, reduced, cancelled or surrendered, or upon which a share distribution or elective distribution is made or offered, as the case may be. The depositary may sell (by public or private sale) sufficient securities and property received in respect of a share distribution, rights and/or other distribution prior to such deposit to pay such charge. The following additional charges shall also be incurred by the ADR holders, the beneficial owners, by any party depositing or withdrawing shares or by any party surrendering ADSs and/or to whom ADSs are issued (including, without limitation, issuance pursuant to a stock dividend or stock split declared by us or an exchange of stock regarding the ADSs or the deposited securities or a distribution of ADSs), whichever is applicable: • • • a fee of U.S.$1.50 per ADR or ADRs for transfers of certificated or direct registration ADRs; a fee of U.S.$0.05 or less per ADS held for any cash distribution made, or for any elective cash/stock dividend offered, pursuant to the deposit agreement; an aggregate fee of U.S.$0.05 or less per ADS per calendar year (or portion thereof) for services performed by the depositary in administering the ADRs (which fee may be charged on a periodic basis during each calendar year and shall be assessed against holders of ADRs as of the record date or record dates set by the depositary during each calendar year and shall be payable in the manner described in the next succeeding provision); • a fee for the reimbursement of such fees, charges and expenses as are incurred by the depositary and/or any of its agents (including, without limitation, the custodian and expenses incurred on behalf of ADR holders in connection with compliance with foreign exchange control regulations or any law or regulation relating to foreign investment) in connection with the servicing of the shares or other deposited securities, the sale of securities (including, without limitation, deposited securities), the delivery of deposited securities or otherwise in connection with the depositary’s or its custodian’s compliance with applicable law, rule or regulation (which fees and charges shall be assessed on a proportionate basis against ADR holders as of the record date or dates set by the depositary and shall be payable at the sole discretion of the depositary by billing such ADR holders or by deducting such charge from one or more cash dividends or other cash distributions); • • • • • • a fee for the distribution of securities (or the sale of securities in connection with a distribution), such fee being in an amount equal to the $0.05 per ADS issuance fee for the execution and delivery of ADSs which would have been charged as a result of the deposit of such securities (treating all such securities as if they were shares) but which securities or the net cash proceeds from the sale thereof are instead distributed by the depositary to those ADR holders entitled thereto; stock transfer or other taxes and other governmental charges; cable, telex and facsimile transmission and delivery charges incurred at your request in connection with the deposit or delivery of shares, ADRs or deposited securities; transfer or registration fees for the registration of transfer of deposited securities on any applicable register in connection with the deposit or withdrawal of deposited securities; in connection with the conversion of foreign currency into U.S. dollars, JPMorgan shall deduct out of such foreign currency the fees, expenses and other charges charged by it and/or its agent (which may be a division, branch or affiliate) so appointed in connection with such conversion; and fees of any division, branch or affiliate of the depositary utilized by the depositary to direct, manage and/or execute any public and/or private sale of securities under the deposit agreement. JPMorgan and/or its agent may act as principal for such conversion of foreign currency. For further details see https://www.adr.com. 137 Table of Contents We will pay all other charges and expenses of the depositary and any agent of the depositary (except the custodian) pursuant to agreements from time to time between us and the depositary. The right of the depositary to receive payment of fees, charges and expenses survives the termination of the deposit agreement, and shall extend for those fees, charges and expenses incurred prior to the effectiveness of any resignation or removal of the depositary. The fees and charges described above may be amended from time to time by agreement between us and the depositary. The depositary may make available to us a set amount or a portion of the depositary fees charged in respect of the ADR program or otherwise upon such terms and conditions as we and the depositary may agree from time to time. The depositary collects its fees for issuance and cancellation of ADSs directly from investors depositing shares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting for them. The depositary collects fees for making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of distributable property to pay the fees. The depositary may collect its annual fee for depositary services by deduction from cash distributions, or by directly billing investors, or by charging the book-entry system accounts of participants acting for them. The depositary will generally set off the amounts owing from distributions made to holders of ADSs. If, however, no distribution exists and payment owing is not timely received by the depositary, the depositary may refuse to provide any further services to ADR holders that have not paid those fees and expenses owing until such fees and expenses have been paid. At the discretion of the depositary, all fees and charges owing under the deposit agreement are due in advance and/or when declared owing by the depositary. Payments by Depositary In 2021, excluding withholding tax, we received cash payment of US$325.5 thousand from JPMorgan Chase Bank, N.A., the depositary bank for our ADR program. ITEM 13. ITEM DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES None. PART II ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS 14.A. – 14.D. Material Modifications to the Rights of Security Holders See “Item 10. Additional Information” for a description of the rights of shareholders, which remain unchanged. 14.E. Use of Proceeds The following “Use of Proceeds” information relates to the registration statement on Form F-1 (File No. 333-230976), as amended, including the annual report contained therein, which registered 6,738,711 ordinary shares represented by ADSs and was declared effective by the SEC on July 16, 2019, for our initial public offering, which closed in July 19, 2019, at an initial offering price of US$11.50 per ADS. Morgan Stanley & Co. LLC, J.P. Morgan Securities LLC and BofA Securities, Inc. were the representatives of the underwriters. For the period from the effective date of the registration statement on Form F-1 to December 31, 2021, our expenses incurred and paid to others in connection with the issuance and distribution of the ADSs in our initial public offering totaled approximately US$27.2 million, which included US$23.4 million for underwriting discounts and commissions and US$3.8 million for net expenses. None of the transaction expenses included direct or indirect payments to directors or officers of our company or their associates, persons owning more than 10% or more of our equity securities or our affiliates or others. We received an aggregate net proceeds of approximately US$489.4 million from our initial public offering. For the period from the effective date of the registration statement on Form F-1 to December 31, 2021, we used US$168.5 million of the net proceeds received from our initial public offering primarily for overseas expansion. We still intend to use the remainder of the proceeds from our initial public offering as disclosed in our registration statements on Form F-1. None of these net proceeds from our initial public offering and the optional offering was paid, directly or indirectly, to any of our directors or officers or their associates, persons owning 10% or more of our equity securities or our affiliates or others. 138 Table of Contents ITEM 15. CONTROLS AND PROCEDURES Disclosure Controls and Procedures Our management, with the participation of our Chief Strategy Officer, has performed an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report, as required by Rule 13a-15(b) under the Exchange Act. Based upon that evaluation, our management has concluded that, as of December 31, 2021, our disclosure controls and procedures were effective in ensuring that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act was recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our chief executive officer and chief financial officer, to allow timely decisions regarding required disclosure. Management’s Annual Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. As required by Rule 13a-15(c) of the Exchange Act, our management conducted an evaluation of our company’s internal control over financial reporting as of December 31, 2021 based on the framework in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2021. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness of our internal control over financial reporting to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Attestation Report of the Registered Public Accounting Firm Our independent registered public accounting firm, Deloitte Touche Tohmatsu Certified Public Accountants LLP, has audited the effectiveness of our internal control over financial reporting as of December 31, 2021, as stated in its report, which appears on page F-2 of this annual report. Changes in Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP and includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of our company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with U.S. GAAP, and that receipts and expenditures of our company are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of the unauthorized acquisition, use or disposition of our company’s assets that could have a material effect on the consolidated financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Our management conducted an assessment of the effectiveness of our company’s internal control over financial reporting as of December 31, 2021 based on the framework in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, our management concluded that our internal control over financial reporting was effective as of December 31, 2021. 139 Table of Contents The effectiveness of internal control over financial reporting as of December 31, 2021 has been audited by Deloitte Touche Tohmatsu Certified Public Accountants LLP, an independent registered public accounting firm, who has also audited our consolidated financial statements for the year ended December 31, 2021. ITEM 16.A. AUDIT COMMITTEE FINANCIAL EXPERT Our board of directors has determined that Mr. Zhaoming Chen, an independent director and the chairman of our audit committee, qualifies as an “audit committee financial expert” within the meaning of the SEC rules and possesses financial sophistication within the meaning of Listing Rules of the Nasdaq Stock Market. Mr. Zhaoming Chen satisfies the “independence” requirements of Rule 5605(a)(2) of the Listing Rules of the Nasdaq Stock Market and Rule 10A-3 under the Securities Exchange Act of 1934. ITEM 16.B. CODE OF ETHICS Our board of directors has adopted a code of business conduct and ethics that applies to all of our directors, officers, and employees, including certain provisions that specifically apply to our principal executive officer, principal financial officer, principal accounting officer or controller and any other persons who perform similar functions for us. We have filed our code of business conduct and ethics as Exhibit 99.1 of our registration statement on Form F-1 (file No. 333-230976) filed with the SEC on April 22, 2019, as amended, and posted a copy of our code of business conduct and ethics on our website at https://ir.douyu.com/. We hereby undertake to provide to any person, without charge, a copy of our code of business conduct and ethics within ten working days after we receive such person’s written request. ITEM 16.C. PRINCIPAL ACCOUNTANT FEES AND SERVICES Auditor Fees The following table sets forth the aggregate fees by categories specified below in connection with certain professional services rendered by Deloitte Touche Tohmatsu Certified Public Accountants LLP, our independent registered public accounting firm, for the periods indicated. Services Audit Fees(1) Audit-Related Fees(2) Tax Fees(3) Total Year Ended December 31, 2019 RMB 2020 2021 RMB RMB (in thousands) 6,899 8,483 8,284 — 1,958 997 45 89 2,175 6,988 12,616 9,326 (1) (2) (3) “Audit fees” means the aggregate fees billed for professional services rendered by our principal auditors for the audit of our annual financial statements and the review of our comparative interim financial statements. “Audit-related fees” means the aggregate fees billed for professional services rendered by our principal accounting firm for the assurance and related services, which mainly included the audit and review of financial statements and are not reported under “Audit fees” above. “Tax fees” means the aggregate fees billed for professional services rendered by our principal accounting firm for tax compliance, tax advice and tax planning. The policy of our audit committee is to pre-approve all audit and non-audit services provided by Deloitte Touche Tohmatsu Certified Public Accountants LLP, including audit services, audit-related services and tax services as described above, other than those for de minimis services which are approved by the audit committee prior to the completion of the audit. ITEM 16.D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES Not applicable. 140 Table of Contents ITEM 16.E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS On December 20, 2019, our board of directors authorized a share repurchase program whereby our company was authorized a share repurchase program under which the Company may repurchase up to US$100.0 million of its ordinary shares in the form of American depositary shares during a period of up to 12 months commencing on December 20, 2019 (the “2019 Share Repurchase Program”). The 2019 Share Repurchase Program was concluded in February 2020. On August 30, 2021, our board of directors authorized a share repurchase program whereby our company was authorized a share repurchase program under which the Company may repurchase up to US$100.0 million of its ordinary shares in the form of American depositary shares during a period of up to 12 months commencing on August 30, 2021 (the “2021 Share Repurchase Program”). The Company’s share repurchases may be made from time to time on the open market at prevailing market prices, in open-market transactions, privately negotiated transactions or block trades, and/or through other legally permissible means, depending on market conditions and in accordance with the applicable rules and regulations. The timing and conditions of the share repurchases will be subject to various factors including the requirements under Rule 10b-18 and Rule 10b5-1 of the Exchange Act. Our board of directors will review the share repurchase program periodically and may authorize adjustments to its terms and size or suspend or discontinue the program. As of March 31, 2022, we had repurchased a total of approximately 33.9 million ADSs under this share repurchase program. The following table summarizes the details of the repurchases made in accordance with the 2021 Share Repurchase Program from August 30, 2021 to March 31, 2022: Period August 2021 September 2021 October 2021 November 2021 December 2021 January 2022 February 2022 March 2022 Total Total Number of ADSs Purchased — 1,183,588.00 552,819.00 293,862.00 3,752,775.00 2,071,051.00 3,287,987.00 2,688,544.00 13,830,626.00 Average Price Paid Per ADS(1) — $ 3.64 $ 3.44 $ 3.41 $ 2.54 $ 2.41 $ 2.28 $ 1.73 $ 2.45 Total Number of ADSs Purchased as Part of the Publicly Announced Plan Approximate Dollar Value of ADSs that May Yet Be Purchased Under the Plan — 1,183,588.00 552,819.00 293,862.00 3,752,775.00 2,071,051.00 3,287,987.00 2,688,544.00 13,830,626.00 $ 100,000,000.00 $ 95,697,641.62 $ 93,796,670.71 $ 92,795,402.45 $ 83,262,652.33 $ 78,266,149.01 $ 70,754,602.49 $ 66,104,079.28 — Notes: (1) Every 10 ADSs represent one ordinary share. Average price paid per ADS is calculated using the execution price for each repurchase excluding commissions paid to the broker. ITEM 16.F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT Not applicable. ITEM 16.G. CORPORATE GOVERNANCE Rule 5635(c) of the Nasdaq Rules requires a Nasdaq-listed company to obtain its shareholders’ approval of all equity compensation plans, including stock plans, and any material amendments to such plans. Rule 5615 of the Nasdaq Rules permits a foreign private issuer like our company to follow home country practice in certain corporate governance matters. If we choose to follow home country practice, our shareholders may be afforded less protection than they otherwise would under the Nasdaq Global Market corporate governance listing standards applicable to U.S. domestic issuers. Specifically, we do not plan to have a majority of independent directors serving on our board of directors. In addition, we relied on our home country practice exemption to be exempt from Rule 5605(d)(2) of the Nasdaq Rules, which requires a Nasdaq-listed company to establish a compensation committee comprised entirely of independent directors and two out of three members of our compensation committee are independent directors. We relied on our home country practice exemption to be exempt from Rule 5605(e)(1) of the Nasdaq Rules, which requires a Nasdaq-listed company to nominate director nominees either by a majority independent board or by a nominations committee comprised solely of independent directors and we do not have a majority independent board or a nominations committee comprised solely of independent directors. We relied on our home country practice exemption to be exempt from Rule 5250(b)(3) of the Nasdaq Rules, which requires a Nasdaq-listed company to disclose third party director and nominee compensation no later than when the companies files its next Form 20-F. Subject to Nasdaq Rules, we may also opt to rely on additional home country practice exemptions in the future. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our American Depositary Shares—As an exempted company incorporated in the Cayman Islands, we are permitted to adopt certain home country practices in relation to corporate governance matters that differ significantly from the Nasdaq corporate governance listing standards; these practices may afford less protection to shareholders than they would enjoy if we complied fully with the Nasdaq corporate governance listing standards.” 141 Table of Contents ITEM 16.H. MINE SAFETY DISCLOSURE Not applicable. ITEM 16.I. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS Not applicable. PART III ITEM 17. FINANCIAL STATEMENTS We have elected to provide financial statements pursuant to Item 18. ITEM 18. FINANCIAL STATEMENTS The consolidated financial statements of DouYu International Holdings Limited are included at the end of this annual report. ITEM 19. EXHIBITS Exhibit Number Description of Document 1.1 2.1 2.2 2.3 2.4 2.5* 4.1 4.2 4.3 4.4 4.5 4.6 Fourth Amended and Restated Memorandum and Articles of Association of the Registrant (incorporated herein by reference to Exhibit 3.2 to our registration statement on Form F-1 (File No. 333-230976), as amended, initially filed with the SEC on April 22, 2019) Form of Registrant’s Specimen American Depositary Receipt (incorporated by reference to Exhibit 4.3 to our registration statement on Form F-1 (File No. 333-230976), as amended, initially filed with the SEC on April 22, 2019) Registrant’s Specimen Certificate for Ordinary shares (incorporated by reference to Exhibit 4.2 to our registration statement on Form F-1 (File No. 333-230976), as amended, initially filed with the SEC on April 22, 2019) Form of Deposit Agreement (incorporated by reference to Exhibit 4.3 to our registration statement on Form F-1 (File No. 333-230976), as amended, initially filed with the SEC on April 22, 2019) Shareholders Agreement dated May 29, 2018 among the Registrant, its ordinary shareholders, preferred shareholders and other parties named therein (incorporated by reference to Exhibit 4.4 to our registration statement on Form F-1 (File No. 333-230976), as amended, initially filed with the SEC on April 22, 2019) Description of Securities DouYu International Holdings Limited Amended and Restated Restricted Share Unit Scheme (incorporated by reference to Exhibit 10.1 to our registration statement on Form F-1 (File No. 333-230976), as amended, initially filed with the SEC on April 22, 2019) DouYu International Holdings Limited 2019 Share lncentive Plan (incorporated by reference to Exhibit 10.2 to our registration statement on Form F-1 (File No. 333-230976), as amended, initially filed with the SEC on April 22, 2019) Form of Indemnification Agreement with the Registrant’s directors (incorporated by reference to Exhibit 10.3 to our registration statement on Form F-1 (File No. 333-230976), as amended, initially filed with the SEC on April 22, 2019) Form of Employment Agreement between the Registrant and an executive officer of the Registrant (incorporated by reference to Exhibit 10.4 to our registration statement on Form F-1 (File No. 333-230976), as amended, initially filed with the SEC on April 22, 2019) Series E Preferred Share Purchase Agreement dated March 8, 2018 among the Registrant, Nectarine Investment Limited and other parties named therein (incorporated by reference to Exhibit 10.5 to our registration statement on Form F-1 (File No. 333-230976), as amended, initially filed with the SEC on April 22, 2019) Share Purchase Agreement dated May 14, 2018 among the Registrant, SCC Growth IV 2018-D, L.P., SCC Growth IV 2018-F, L.P., Sequoia Capital Global Growth Fund II, L.P., Sequoia Capital Global Growth II Principals Fund, L.P. and other parties named therein (incorporated by reference to Exhibit 10.6 to our registration statement on Form F-1 (File No. 333-230976), as amended, initially filed with the SEC on April 22, 2019) 142 Table of Contents Exhibit Number 4.7 4.8 4.9 4.10 4.11 4.12 4.13 4.14 Description of Document English translation of the amended and restated strategic cooperation framework memorandum between the respective PRC affiliated entities of the Registrant and Tencent, effective April 1, 2019 (incorporated by reference to Exhibit 10.7 to our registration statement on Form F-1 (File No. 333-230976), as amended, initially filed with the SEC on April 22, 2019) English translation of the amended share pledge agreements entered into on January 10, 2019 by and among Douyu Yule, Wuhan Douyu and Mr. Shaojie Chen, one of the shareholders of Wuhan Douyu (incorporated by reference to Exhibit 10.8 to our registration statement on Form F-1 (File No. 333-230976), as amended, initially filed with the SEC on April 22, 2019) English translation of the share pledge agreement entered into on May 8, 2018 by and among Douyu Yule, Wuhan Douyu and Mr. Wenming Zhang, one of the shareholders of Wuhan Douyu (incorporated by reference to Exhibit 10.9 to our registration statement on Form F-1 (File No. 333-230976), as amended, initially filed with the SEC on April 22, 2019) English translation of the share pledge agreement entered into on May 14, 2018 by and among Douyu Yule, Wuhan Douyu and Mr. Dongqing Cai, one of the shareholders of Wuhan Douyu (incorporated by reference to Exhibit 10.10 to our registration statement on Form F-1 (File No. 333-230976), as amended, initially filed with the SEC on April 22, 2019) English translation of the share pledge agreement entered into on May 14, 2018 by and among Douyu Yule, Wuhan Douyu and Beijing Fengye Equity Investment Center (Limited Partnership), one of the shareholders of Wuhan Douyu (incorporated by reference to Exhibit 10.11 to our registration statement on Form F-1 (File No. 333-230976), as amended, initially filed with the SEC on April 22, 2019) English translation of the share pledge agreement entered into on May 14, 2018 by and among Douyu Yule, Wuhan Douyu and Linzhi Lichuang Information Technology co., Ltd., one of the shareholders of Wuhan Douyu (incorporated by reference to Exhibit 10.14 to our registration statement on Form F-1 (File No. 333-230976), as amended, initially filed with the SEC on April 22, 2019) English translation of the share pledge agreement entered into on May 14, 2018 by and among Douyu Yule, Wuhan Douyu and Beijing Fenghuang Fuju Investment Management Center (Limited Partnership), one of the shareholders of Wuhan Douyu (incorporated by reference to Exhibit 10.15 to our registration statement on Form F-1 (File No. 333-230976), as amended, initially filed with the SEC on April 22, 2019) English translation of the share pledge agreement entered into on May 14, 2018 by and among Douyu Yule, Wuhan Douyu and Shenzhen Innovation Investment Group Co., Ltd., one of the shareholders of Wuhan Douyu (incorporated by reference to Exhibit 10.16 to our registration statement on Form F-1 (File No. 333-230976), as amended, initially filed with the SEC on April 22, 2019) 4.15*† English translation of the share pledge agreement entered into on October 9, 2021 by and among Douyu Yule, Wuhan Douyu and Wuhan Chaosai Business Information Consulting Partnership (Limited Partnership), one of the shareholders of Wuhan Douyu 4.16 4.17 4.18 4.19 English translation of the share pledge agreement entered into on May 29, 2018 by and among Douyu Yule, Wuhan Ouyue and Mr. Shaojie Chen, the sole shareholder of Wuhan Ouyue (incorporated by reference to Exhibit 10.18 to our registration statement on Form F-1 (File No. 333-230976), as amended, initially filed with the SEC on April 22, 2019) English translation of the amended exclusive option agreement entered into on July 25, 2020, by and among Douyu Yule, Wuhan Douyu and Mr. Shaojie Chen, one of the shareholders of Wuhan Douyu (incorporated by reference to Exhibit 4.19 to our annual report on Form 20-F (File No. 001-38967) filed with the SEC on April 30, 2020) English translation of the exclusive option agreement entered into on May 8, 2018 by and among Douyu Yule, Wuhan Douyu and Mr. Wenming Zhang, one of the shareholders of Wuhan Douyu (incorporated by reference to Exhibit 10.20 to our registration statement on Form F-1 (File No. 333-230976), as amended, initially filed with the SEC on April 22, 2019) English translation of the exclusive option agreement entered into on May 14, 2018 by and among Douyu Yule, Wuhan Douyu and Mr. Dongqing Cai, one of the shareholders of Wuhan Douyu (incorporated by reference to Exhibit 10.21 to our registration statement on Form F-1 (File No. 333-230976), as amended, initially filed with the SEC on April 22, 2019) 143 Table of Contents Exhibit Number 4.20 4.21 4.22 4.23 Description of Document English translation of the exclusive option agreement entered into on May 14, 2018 by and among Douyu Yule, Wuhan Douyu and Beijing Fengye Equity Investment Center (Limited Partnership), one of the shareholders of Wuhan Douyu (incorporated by reference to Exhibit 10.22 to our registration statement on Form F-1 (File No. 333-230976), as amended, initially filed with the SEC on April 22, 2019) English translation of the exclusive option agreement entered into on May 14, 2018 by and among Douyu Yule, Wuhan Douyu and Linzhi Lichuang Information Technology Co., Ltd., one of the shareholders of Wuhan Douyu (incorporated by reference to Exhibit 10.25 to our registration statement on Form F-1 (File No. 333-230976), as amended, initially filed with the SEC on April 22, 2019) English translation of the exclusive option agreement entered into on May 14, 2018 by and among Douyu Yule, Wuhan Douyu and Beijing Fenghuang Fuju Investment Management Center (Limited Partnership), one of the shareholders of Wuhan Douyu (incorporated by reference to Exhibit 10.26 to our registration statement on Form F-1 (File No. 333-230976), as amended, initially filed with the SEC on April 22, 2019) English translation of the exclusive option agreement entered into on May 14, 2018 by and among Douyu Yule, Wuhan Douyu and Shenzhen Innovation Investment Group Co., Ltd., one of the shareholders of Wuhan Douyu (incorporated by reference to Exhibit 10.27 to our registration statement on Form F-1 (File No. 333-230976), as amended, initially filed with the SEC on April 22, 2019) 4.24*† English translation of the exclusive option agreement entered into on October 9, 2021 by and among Douyu Yule, Wuhan Douyu and Wuhan Chaosai Business Information Consulting Partnership (Limited Partnership), one of the shareholders of Wuhan Douyu 4.25 4.26 4.27 4.28 4.29 4.30 4.31 4.32 4.33 English translation of the exclusive option agreement dated May 29, 2018 by and among Douyu Yule, Wuhan Ouyue and Mr. Shaojie Chen, the sole shareholder of Wuhan Ouyue (incorporated by reference to Exhibit 10.29 to our registration statement on Form F-1 (File No. 333-230976), as amended, initially filed with the SEC on April 22, 2019) English translation of exclusive business cooperation agreement dated May 14, 2018 by and between Douyu Yule and Wuhan Douyu (incorporated by reference to Exhibit 10.30 to our registration statement on Form F-1 (File No. 333-230976), as amended, initially filed with the SEC on April 22, 2019) English translation of the exclusive business operation agreement dated May 29, 2018 by and between Douyu Yule and Wuhan Ouyue (incorporated by reference to Exhibit 10.31 to our registration statement on Form F-1 (File No. 333-230976), as amended, initially filed with the SEC on April 22, 2019) English translation of amended powers of attorney dated July 25, 2020, issued by Mr. Shaojie Chen, one of the shareholders of Wuhan Douyu (incorporated by reference to Exhibit 4.32 to our annual report on Form 20-F (File No. 001-38967) filed with the SEC on April 30, 2020) English translation of powers of attorney dated May 8, 2018 issued by Mr. Wenming Zhang, one of the shareholders of Wuhan Douyu (incorporated by reference to Exhibit 10.33 to our registration statement on Form F-1 (File No. 333-230976), as amended, initially filed with the SEC on April 22, 2019) English translation of powers of attorney dated May 14, 2018 issued by Mr. Dongqing Cai, one of the shareholders of Wuhan Douyu (incorporated by reference to Exhibit 10.34 to our registration statement on Form F-1 (File No. 333-230976), as amended, initially filed with the SEC on April 22, 2019) English translation of powers of attorney dated May 14, 2018 issued by Beijing Fengye Equity Investment Centre (Limited Partnership), one of the shareholders of Wuhan Douyu (incorporated by reference to Exhibit 10.35 to our registration statement on Form F-1 (File No. 333-230976), as amended, initially filed with the SEC on April 22, 2019) English translation of powers of attorney dated May 14, 2018 issued by Linzhi Lichuang Information Technology Co., Ltd., one of the shareholders of Wuhan Douyu (incorporated by reference to Exhibit 10.38 to our registration statement on Form F-1 (File No. 333-230976), as amended, initially filed with the SEC on April 22, 2019) English translation of powers of attorney dated May 14, 2018 issued by Beijing Fenghuang Fuju Investment Management Center (Limited Partnership), one of the shareholders of Wuhan Douyu (incorporated by reference to Exhibit 10.39 to our registration statement on Form F-1 (File No. 333-230976), as amended, initially filed with the SEC on April 22, 2019) 144 Table of Contents Exhibit Number 4.34 4.35* 4.36 4.37 4.38 4.39 4.40 4.41 8.1* 11.1 12.1* 12.2* 13.1** 13.2** 15.1* 15.2* 15.3* Description of Document English translation of powers of attorney dated May 14, 2018 issued by Shenzhen Innovation Investment Group Co., Ltd., one of the shareholders of Wuhan Douyu (incorporated by reference to Exhibit 10.40 to our registration statement on Form F-1 (File No. 333-230976), as amended, initially filed with the SEC on April 22, 2019) English translation of power of attorney dated October 9, 2021 issued by Wuhan Chaosai Business Information Consulting Partnership (Limited Partnership), one of the shareholders of Wuhan Douyu English translation of powers of attorney dated May 29, 2018 issued by Mr. Shaojie Chen, the sole shareholder of Wuhan Ouyue (incorporated by reference to Exhibit 10.42 to our registration statement on Form F-1 (File No. 333-230976), as amended, initially filed with the SEC on April 22, 2019) English translations of amended consent letter dated July 25, 2020, executed by the spouse of Mr. Shaojie Chen, one of the individual shareholders of Wuhan Douyu (incorporated by reference to Exhibit 4.43 to our annual report on Form 20-F (File No. 001-38967) filed with the SEC on April 30, 2020) English translations of consent letter dated May 8, 2018 executed by the spouse of Mr. Wenming Zhang, one of the individual shareholders of Wuhan Douyu (incorporated by reference to Exhibit 10.44 to our registration statement on Form F-1 (File No. 333-230976), as amended, initially filed with the SEC on April 22, 2019) English translations of consent letter dated May 14, 2018 executed by the spouse of Mr. Dongqing Cai, one of the individual shareholders of Wuhan Douyu (incorporated by reference to Exhibit 10.45 to our registration statement on Form F-1 (File No. 333-230976), as amended, initially filed with the SEC on April 22, 2019) English translations of consent letter dated May 29, 2018 executed by the spouse of Mr. Shaojie Chen, the sole shareholder of Wuhan Ouyue (incorporated by reference to Exhibit 10.46 to our registration statement on Form F-1 (File No. 333-230976), as amended, initially filed with the SEC on April 22, 2019) Termination Agreement, dated as of July 12, 2021, by and among Huya, Merger Sub, DouYu and Tencent (incorporated herein by reference to Exhibit 99.2 to our report on Form 6-K (File Number 001-38967), furnished to the SEC on July 12, 2021) Significant subsidiaries of the registrant Code of Business Conduct and Ethics of the Registrant (incorporated by reference to Exhibit 99.1 to our registration statement on Form F-1 (File No. 333-230976), as amended, initially filed with the SEC on April 22, 2019) Certification by Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Certification by Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Certification by Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Certification by Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Consent of Maples and Calder (Hong Kong) LLP Consent of Han Kun Law Offices Consent of Deloitte Touche Tohmatsu Certified Public Accountants LLP 101.INS* Inline XBRL Instance Document 101.SCH* Inline XBRL Taxonomy Extension Schema Document 101.CAL* Inline XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF* Inline XBRL Taxonomy Extension Definition Linkbase Document 101.LAB* Inline XBRL Taxonomy Extension Label Linkbase Document 101.PRE* Inline XBRL Taxonomy Extension Presentation Linkbase Document 104* Cover Page Interactive Data File (embedded within the Inline XBRL document) * ** † Filed herewith Furnished herewith Portions of this exhibit have been omitted in reliance of the revised Item 601 of Regulation S-K. 145 Table of Contents SIGNATURES The registrant hereby certifies that it meets all of the requirements for filing its annual report on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf. DouYu International Holdings Limited By: /s/ Shaojie Chen Name: Shaojie Chen Title: Chief Executive Officer and Director Date: April 29, 2022 146 Table of Contents DOUYU INTERNATIONAL HOLDINGS LIMITED INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm (PCAOB ID Number: 1113) Consolidated Balance Sheets as of December 31, 2020 and 2021 Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2019, 2020 and 2021 Consolidated Statements of Changes in Shareholders’ Equity (Deficit) for the years ended December 31, 2019, 2020 and 2021 Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2020 and 2021 Notes to the Consolidated Financial Statements Schedule I—Additional information of the parent company F-1 Page F-2 F-5 F-6 F-7 F-8 F-10 F-40 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and the Board of Directors of DouYu International Holdings Limited Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of DouYu International Holdings Limited, and its subsidiaries (the “Company”) as of December 31, 2020 and 2021, the related consolidated statements of comprehensive income (loss), changes in shareholders’ equity (deficit), and cash flows, for each of the three years in the period ended December 31, 2021, and the related notes and the financial statement schedule included in 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 the Company as of December 31, 2020 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated April 29, 2022, expressed an unqualified opinion on the Company’s internal control over financial reporting. Convenience Translation Our audits also comprehended the translation of Renminbi amounts into United States dollar amounts and, in our opinion, such translation has been made in conformity with the basis stated in Note 2 to the consolidated financial statements. Such United States dollar amounts are presented solely for the convenience of readers outside the People’s Republic of China. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. F-2 Table of Contents Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Investments – Impairment on Investments - Refer to Notes 2.15 and 7 to the financial statements Critical Audit Matter Description The Company holds equity method investments and investments in equity securities without readily determinable fair values amounted to RMB304,725,132 as of December 31, 2021. During the year ended December 31, 2021, impairment losses totaling RMB33,653,746 had been recognized against these investments. We identified the impairment assessments of equity method investments and equity securities without readily determinable fair values as a critical audit matter because of the significant judgments made by management to identify impairment indicators and to estimate the fair value of these investments in order to determine the amount of impairment, if any, that should be recorded against the investments’ carrying amounts. This required a high degree of auditor judgment and an increased extent of effort when performing audit procedures to evaluate the reasonableness of management’s significant judgments. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures relating to the impairment on equity method investments and investments in equity securities without readily determinable fair values included the following, among others: • We tested the effectiveness of the internal controls which address risks of material misstatement with respect to management’s assessment of whether or not impairment indicators are present, and if so, the estimated fair value of these investments and conclusions as to whether or not an impairment has occurred. • We tested management’s evaluation of impairment for these investments accounted equity method investments and equity securities without readily determinable fair value by: • • evaluating the appropriateness of the indicators used by management to determine whether impairment on these investments has occurred, and testing management’s evaluation of whether indicators of impairment existed by considering both quantitative and qualitatively factors. testing the appropriateness of the valuation methodology and assumptions used in the fair value calculations of potentially impaired investments including whether the valuation methodology used is an acceptable method to value such investment and whether the assumptions and projections used by management are reasonable and supportable. /s/ Deloitte Touche Tohmatsu Certified Public Accountants LLP Shanghai, the People’s Republic of China April 29, 2022 We have served as the Company’s auditor since 2015. F-3 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and the Board of Directors of DouYu International Holdings Limited Opinion on Internal Control over Financial Reporting We have audited the internal control over financial reporting of DouYu International Holdings Limited, and its subsidiaries (the “Company”) as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2021, of the Company and our report dated April 29, 2022, expressed an unqualified opinion on those financial statements and included an explanatory paragraph regarding to (1) the convenience translation of Renminbi amounts into United States dollar amounts and (2) the Company’s adoption of FASB Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842) and related ASUs. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Deloitte Touche Tohmatsu Certified Public Accountants LLP Shanghai, the People’s Republic of China April 29, 2022 F-4 Table of Contents ASSETS Current assets: DOUYU INTERNATIONAL HOLDINGS LIMITED CONSOLIDATED BALANCE SHEETS Cash and cash equivalents Restricted cash Short-term bank deposits Accounts receivable, net of allowance for credit loss of RMB12,573,550 and RMB13,845,960 as of December 31, 2020 and December 31, 2021, respectively Prepayments Amounts due from related parties Other current assets Total current assets Property and equipment, net Intangible assets, net Long-term bank deposits Investments Goodwill Right-of-use assets Other non-current assets TOTAL ASSETS LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: (including amounts of the consolidated VIEs without recourse to DouYu International Holdings Limited. See Note 2.2) Accounts payable Advances from customers Deferred revenue Accrued expenses and other current liabilities Amounts due to related parties Lease liabilities due within one year Total current liabilities Lease liabilities Deferred revenue TOTAL LIABILITIES Commitments and contingencies (Note 20) SHAREHOLDERS’ EQUITY 2020 RMB As of December 31, 2021 RMB US$ (Note 2.6) 5,279,902,398 4,456,405,874 10,702,719 2,230,229,000 2,076,355,000 11,875,079 699,307,327 1,679,490 325,825,409 199,744,129 66,257,313 9,045,078 236,704,095 191,388,528 80,716,962 37,158,946 376,366,810 8,033,757,092 7,229,094,839 25,110,713 161,540,392 100,000,000 491,424,800 12,636,845 72,309,492 64,785,300 8,907,957,330 8,156,902,381 37,791,688 141,671,881 100,000,000 500,658,570 12,932,564 62,141,054 19,004,481 986,073,111 10,910,989 242,013,205 384,040,820 223,524,929 36,280,773 824,127,774 7,476,002 235,134,242 458,327,992 293,507,806 30,417,376 1,882,843,827 1,848,991,192 31,278,210 18,044,867 1,930,574,343 1,898,314,269 16,951,948 30,778,568 30,033,036 12,666,253 5,831,049 59,060,165 1,134,402,729 3,940,419 25,349,213 15,692,182 77,115,275 1,982,997 11,346,937 10,166,227 1,279,995,979 129,323,632 1,173,148 36,897,694 71,921,663 46,057,780 4,773,150 290,147,067 4,908,234 2,831,633 297,886,934 Ordinary shares (US$0.0001 par value, 500,000,000 shares authorized, 34,568,689 shares issued and 33,445,346 shares outstanding as of December 31, 2020 and 34,568,689 shares issued and 34,136,627 shares outstanding as of December 31, 2021) Treasury shares (1,177,499 and 1,755,803 ordinary shares as of December 31, 2020 and 22,630 23,043 3,616 2021, respectively) Additional paid-in capital Accumulated deficit Accumulated other comprehensive income (loss) Total DouYu Shareholder’s Equity Noncontrolling interests Total Shareholders’ Equity TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY The accompanying notes are an integral part of these consolidated financial statements. F-5 10,911,853 (695,097,853) (802,249,761) (125,890,494) 10,486,398,881 10,618,537,927 1,666,280,314 (2,863,219,263) (3,445,102,409) (540,611,745) (17,672,801) 982,108,890 155 982,109,045 1,279,995,979 6,939,016,248 6,258,587,124 988 6,977,382,987 6,258,588,112 8,907,957,330 8,156,902,381 (112,621,676) 38,366,739 Table of Contents DOUYU INTERNATIONAL HOLDINGS LIMITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) Net revenues (including related party revenues of RMB108,214,768, RMB32,910,229 and RMB29,900,069 for the years ended December 31, 2019, 2020 and 2021, respectively) Cost of revenues Gross profit Operating (expense) income: Sales and marketing expenses General and administrative expenses Research and development expenses Other operating income, net Total operating expenses (Loss) income from operations Other expenses, net Foreign exchange gain, net Interest income Gain on disposal of subsidiary 2019 RMB Years ended December 31, 2020 RMB RMB 2021 US$ (Note 2.6) 7,283,230,253 9,601,873,937 9,165,330,760 1,438,240,398 (6,087,073,336) (8,041,528,585) (8,075,420,524) (1,267,209,698) 171,030,700 1,196,156,917 1,560,345,352 1,089,910,236 (598,695,105) (446,142,859) (383,886,857) 100,898,056 (580,373,601) (375,935,570) (416,272,985) 74,298,644 (952,902,024) (375,975,505) (490,018,940) 80,325,008 (1,327,826,765) (1,298,283,512) (1,738,571,461) (648,661,225) (33,852,394) — 77,392,560 — (131,669,848) (22,882,425) 32,045,080 159,096,901 — 262,061,840 (27,393,678) — 145,235,383 23,525,694 (149,531,121) (58,998,761) (76,894,665) 12,604,747 (272,819,800) (101,789,100) (5,312,179) — 12,144,581 — Income (loss) before income taxes and share of (loss) income in equity method investments Income tax expense Share of (loss) income in equity method investments Net income (loss) Net loss attributable to noncontrolling interest Net income (loss) attributable to ordinary shareholders of the 36,589,708 — (3,241,580) 33,348,128 6,405,104 403,429,239 — 1,306,287 404,735,526 80,763,071 (605,121,059) — (15,127,838) (620,248,897) 38,365,751 (94,956,698) — (2,373,888) (97,330,586) 6,020,424 Company 39,753,232 485,498,597 (581,883,146) (91,310,162) Net income (loss) per ordinary share attributable to ordinary shareholders Basic Diluted Net income (loss) per ADS* Basic Diluted Weighted average shares used in calculating net income (loss) per ordinary share Basic Diluted Weighted average number of ADS used in calculating net income (loss) per ADS Basic Diluted Net income (loss) Other comprehensive income (loss), net of tax of nil: Foreign currency translation adjustments Comprehensive income (loss) Comprehensive income attributable to noncontrolling interests Comprehensive income (loss) attributable to the ordinary 1.32 1.26 0.13 0.13 15.19 14.71 1.52 1.47 (17.88) (17.88) (1.79) (1.79) (2.81) (2.81) (0.28) (0.28) 19,254,661 31,442,931 31,963,526 33,012,682 32,544,878 32,544,878 32,544,878 32,544,878 192,546,612 314,429,306 33,348,128 — 109,461,578 142,809,706 6,244,303 319,635,264 330,126,823 404,735,526 — (425,737,643) (21,002,117) 82,518,577 325,448,779 325,448,779 (620,248,897) — (123,533,529) (743,782,426) 38,365,751 325,448,779 325,448,779 (97,330,586) — (19,385,106) (116,715,692) 6,020,424 shareholders 149,054,009 61,516,460 (705,416,675) (110,695,268) * Every ten ADSs represent one ordinary share. The accompanying notes are an integral part of these consolidated financial statements. F-6 Table of Contents DOUYU INTERNATIONAL HOLDINGS LIMITED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIT) Ordinary shares Treasury shares Number of shares RMB 8,063,790 5,148 Number of shares RMB — — Additional paid-in capital Accumulated deficit Accumulated other comprehensive income Total shareholders’ equity (deficit) attributable to DouYu Noncontrolling interests Total shareholders’ equity (deficit) RMB 48,989,244 (3,388,471,092) 325,593,213 (3,013,883,487) RMB RMB RMB RMB RMB — (3,013,883,487) 4,492,473 3,092 — — 3,373,014,806 — — 3,373,017,898 — 3,373,017,898 19,906,105 13,701 — — — — — 6,644,808,938 — — — — — — — — (291,207) (168,567,125) — — — — — — — 6,644,822,639 — 6,644,822,639 — — 5,980,924 5,980,924 — — 7,921,555 7,921,555 — (168,567,125) — (168,567,125) — — — — (22,209,344) — — (22,209,344) 22,209,344 — — — — — 203 — — 289,451 — — — — — — — — (11,107,350) 290,781,764 (203) — — — — 39,753,232 — — — — (11,107,350) 290,781,764 — 39,753,232 (8,412,650) — — (6,405,104) (19,520,000) 290,781,764 — 33,348,128 — — 32,751,819 22,144 — 109,461,578 (291,207) (168,567,125) 10,324,277,855 (3,348,717,860) 434,893,990 7,241,909,004 21,454,870 7,263,363,874 — 109,300,777 109,300,777 160,801 — — — — (886,292) (526,530,728) — — — (526,530,728) — (526,530,728) — — — — — — — 11,171,730 — (2,271,492) — — — 11,171,730 (11,171,730) — — (2,271,492) (2,228,508) (4,500,000) — — — — 18,767,750 — — 18,767,750 — 18,767,750 — — — — — — 486 693,527 — — — — — — — — (7,700,837) — 142,154,361 (486) — 485,498,597 — — — — — — (7,700,837) 112,830,684 485,498,597 (80,763,071) — 142,154,361 — — 105,129,847 404,735,526 142,154,361 — (425,737,643) 33,445,346 22,630 (1,177,499) (695,097,853) 10,486,398,881 (2,863,219,263) 10,911,853 6,939,016,248 38,366,739 6,977,382,987 — (423,982,137) — — (423,982,137) (1,755,506) — — — — — — — — — 413 691,281 (578,304) (107,151,908) — — — — — — — — 132,139,459 (413) — (581,883,146) — — — — — — — (107,151,908) (581,883,146) (38,365,751) — 132,139,459 — — (107,151,908) (620,248,897) 132,139,459 — (123,533,529) 34,136,627 23,043 (1,755,803) (802,249,761) 10,618,537,927 (3,445,102,409) (112,621,676) 6,258,587,124 — (123,533,529) — — — — — — (123,533,529) 988 6,258,588,112 Balance at December 31, 2018 Issuance of ordinary shares at the initial public offering (“IPO”), net of issuance cost of RMB49,479,335 Conversion of preferred shares to ordinary shares upon the completion of the IPO Noncontrolling interest arising from business acquisition Noncontrolling interest arising from a newly established subsidiary Repurchase of ordinary shares (Note 11) Noncontrolling interest arising from vest of nonrestricted shares in Gogo Glocal (Note 14) Acquisition of noncontrolling interest in Gogo Glocal (Note 12) Share-based compensation Vesting of restricted share units Net income (loss) Foreign currency translation adjustments Balance at December 31, 2019 Repurchase of ordinary shares (Note 11) Acquisitions of noncontrolling interests in Gogo Glocal (Note 12) Acquisitions of noncontrolling interests in Shuangsi (Note 12) Contribution from shareholder in connection with an acquisition of an equity method investment (Note 7) Capital contribution from noncontrolling interest shareholder in DouYu Japan (Note 12) Net income (loss) Shared-based compensation Vesting of restricted share units Foreign currency translation adjustments Balance at December 31, 2020 Repurchase of ordinary shares (Note 11) Net loss Shared-based compensation Vesting of restricted share units Foreign currency translation adjustments Balance at December 31, 2021 The accompanying notes are an integral part of these consolidated financial statements. F-7 Table of Contents DOUYU INTERNATIONAL HOLDINGS LIMITED CONSOLIDATED STATEMENTS OF CASH FLOWS Cash flows from operating activities: Net income (loss) Adjustments to reconcile net income (loss) to net cash used in operating activities: Years ended December 31, 2019 RMB 2020 RMB 2021 RMB US$ (Note 2.6) 33,348,128 404,735,526 (620,248,897) (97,330,586) Depreciation of property and equipment Loss from the disposal of intangible assets Amortization of intangible assets Non-cash operating lease expenses Loss from the disposal of property and equipment Provision for allowance for credit loss Dividends from an equity investee Share of loss (income) in equity method investments Gain on disposal of a subsidiary Impairment losses and fair value adjustments on investments Share-based compensation Foreign exchange gain Changes in operating assets and liabilities: Accounts receivable Prepayments Other current assets Other non-current assets Amounts due from related parties Accounts payable Advances from customers Accrued expenses and other current liabilities Amounts due to related parties Deferred revenue Lease liabilities Net cash provided by (used in) operating activities Cash flows from investing activities: Proceeds on disposal of property and equipment Purchases of property and equipment Proceeds from disposal of intangible assets Purchases of intangible assets Purchases of short-term investments Purchases of long-term investments Proceeds from disposal of short-term investments Proceeds from disposal of long-term investments Proceeds from disposal of equity method investee Proceeds from disposal of subsidiary, net of cash disposed Payment for business acquisition, net of cash acquired Payments for acquisitions of equity investments Loan to related parties Receipts from loan to related parties Repayment of loan from related parties Cash used in investing activities Cash flows from financing activities Proceeds on issuance of ordinary shares through IPO Payment of IPO offering costs Acquisition of noncontrolling interest Proceeds from capital contribution from noncontrolling interest shareholder Repurchase of ordinary shares Settlement of redemption liability to a preferred shareholder in connection with 2018 Restructuring Repayment of advances from related party Cash provided by (used in) financing activities Effect of foreign exchange rate changes on cash and cash equivalents Net increase (decrease) in cash, cash equivalents and restricted cash Cash, cash equivalent and restricted cash at the beginning of the year Cash, cash equivalent and restricted cash at the end of the year Supplemental disclosure on non-cash investing and financing activities: Accured purchases of property and equipment Payable for repurchase of ordinary shares not yet paid 32,814,894 16,667 57,306,920 — 44,421 13,563,744 — 3,241,580 — 19,076,725 290,781,764 (32,045,080) (69,456,813) 85,451,242 25,627,488 (723,216) 40,026,364 86,444,383 7,426,481 24,734,559 65,514,731 129,981,038 — 813,176,020 21,126,504 550,590 89,790,156 44,300,218 24,880 3,270,564 297,690 (1,306,287) (23,525,694) 19,517,062 142,154,361 — (25,808,778) (26,602,239) (33,345,122) (10,457,638) 14,909,528 96,426,827 (6,083,543) 43,125,766 (75,208,093) 30,738,939 (40,982,350) 667,648,867 18,275,703 — 2,867,857 — 70,456,937 11,056,231 7,237,268 46,120,215 1,932 12,315 342,416 2,182,083 — — 2,373,888 15,127,838 — — 33,653,746 5,281,007 132,139,459 20,735,565 — — (5,214,782) (28,113,868) 968,760 6,173,518 (4,489,626) (28,610,593) (139,662,715) (21,916,128) (818,313) (4,411,679) (161,945,337) (25,412,757) (3,434,987) (539,024) 74,287,172 11,657,278 69,982,877 10,981,841 (3,077,655) (19,612,664) (47,825,789) (7,504,910) (586,257,769) (91,996,635) — (220,000,000) 503,894 (6,873,896) — (213,662) (18,897,736) 1,991,510 (63,243,106) 260,408 (16,045,562) — (105,905,115) 79,072 (1,078,664) — (115,631,314) (18,145,076) (4,309,500,000) (4,836,476,896) (1,736,355,000) (272,471,989) (7,061,482) 4,309,500,000 2,606,247,896 1,840,229,000 288,772,087 151,102,000 23,711,201 — — — (107,103,932) (16,806,944) — — — (3,001,795) 120,000,000 — 50,543,502 — (276,291,399) (10,000,000) — 33,720,064 (246,303,031) (2,612,619,827) — 1,000,000 — (11,012,762) (114,600,000) (5,000,000) 5,000,000 — — — — (19,129,248) — — — (45,000,000) — — — — 3,422,497,233 (36,249,484) (19,520,000) 7,921,555 (115,273,325) (1,323,049,149) (39,995,000) 1,896,331,830 109,483,281 — — — — — (4,500,000) — 105,129,847 (107,151,908) (16,814,473) (579,824,528) — — — — (107,151,908) (16,814,473) (479,194,681) (112,129,959) (17,595,640) (418,949,871) 2,572,688,100 (2,843,115,512) (824,668,884) (129,408,543) 5,562,204,889 8,134,892,989 5,291,777,477 830,395,360 8,134,892,989 5,291,777,477 4,467,108,593 700,986,817 — — 5,527,829 53,293,800 764,669 — 442,148 — 69,383 — The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the statement of financial position that sum to the total of the same such amounts shown in the statement of cash flows. F-8 Table of Contents DOUYU INTERNATIONAL HOLDINGS LIMITED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) Cash and cash equivalents Restricted cash Total cash, cash equivalents and restricted cash shown in the statement of cash flows The accompanying notes are an integral part of these consolidated financial statements. F-9 2019 RMB Years ended December 31, 2020 RMB 8,091,990,270 5,279,902,398 4,456,405,874 10,702,719 8,134,892,989 5,291,777,477 4,467,108,593 42,902,719 11,875,079 2021 RMB Table of Contents Notes to the Consolidated Financial Statements 1. Organization and principal activities DouYu International Holdings Limited (the “Company” or “DouYu International”) was incorporated under the laws of Cayman Islands on January 5, 2018. The Company, its subsidiaries and the variable interest entities(“the VIEs”) and the VIEs’ subsidiaries (collectively referred to as the “Group”) operate platform on PC and mobile apps, through which users can enjoy immersive and interactive gaming and entertainment live streaming. History of the Group The Group’s history began with the commencement of operations of Guangzhou Douyu Internet Technology Co., Ltd. (“Guangzhou Douyu”), a limited liability company established in Guangdong Province, the People Republic of China (the “PRC”) on April 3, 2014, which was owned by two founders, Mr. Shaojie Chen and Mr. Wenming Zhang (the “Founders”) and an outside investor (collectively referred to as the “Original Shareholders”). In 2018, the Original Shareholders and all of the investors undertook an equity restructuring in order to redomicile its business from PRC to the Cayman Islands (the “2018 Restructuring”), the Company was incorporated in the Cayman Islands to be the holding company of the Group and through its wholly owned subsidiary in PRC, entered into a series of contractual arrangement (“VIE agreements”) with Wuhan Douyu Network Technology Co., Ltd. (“Wuhan Douyu”) and its respective shareholders. The arrangements pursuant to which the Company and its subsidiary were established as a primary beneficiary of Wuhan Douyu. On July 17, 2019, the Company completed its initial public offering (“IPO”) and issued 44,924,730 American Depositary shares (“ADSs”), representing 4,492,473 ordinary shares. Every ten ADSs represent one ordinary share. Net proceeds from the IPO after deducting underwriting discount and offering costs were US$497.3 million. As of December 31, 2021, the Company’s principal subsidiaries, VIEs are as follows: Wholly owned subsidiaries Wuhan Douyu Education Consulting Co., Ltd. Wuhan Yuwan Culture Media Co., Ltd. Wuhan Yuxing Tianxia Culture Media Co., Ltd. Wuhan Yuyin Raoliang Culture Media Co., Ltd. Wuhan Yu Leyou Internet Technology Co., Ltd. Wuhan Douyu Culture Network Technology Co., Ltd. (“Douyu Yule”) DouYu Network Inc. Douyu Hongkong Limited Gogo Glocal Holding Limited VIEs Wuhan Ouyue Online TV Co., Ltd. (“Wuhan Ouyue”) Wuhan Douyu Network Technology Co., Ltd. F-10 Date of incorporation/ establishment Place of incorporation/ establishment Percentage of direct/indirect ownership November 9, 2016 June 28, 2016 June 24, 2016 June 23, 2016 November 9, 2016 April 2, 2018 January 12, 2018 January 24, 2018 October 8, 2018 Wuhan Wuhan Wuhan Wuhan Wuhan Wuhan The British Virgin Islands Hong Kong Cayman February 3, 2016 May 8, 2015 Wuhan Wuhan 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Table of Contents 2. Summary of significant accounting policies 2.1 Basis of Presentation Notes to the Consolidated Financial Statements (Continued) The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). 2.2 Basis of Consolidation The consolidated financial statements of the Company, its subsidiaries and the VIEs and VIE’s subsidiaries. All inter-company transactions and balances have been eliminated. The Company, through its wholly-owned foreign invested subsidiary, WFOE in the PRC, entered into a series of contractual arrangements (“VIE agreements”) with Wuhan Douyu and Wuhan Ouyue (collectively known as “the VIEs”) and their respective shareholders that enable the Company to (1) have power to direct the activities that most significantly affects the economic performance of the VIEs, and (2) receive the economic benefits of the VIEs that could be significant to the VIEs. In October 2021, the shareholders of Wuhan Douyu were changed from Nanshan Lanyue Asset Management (Tianjin) Partnership (Limited Partnership) (4.35%), Suzhou Industrial Park Yuanhe Nanshan Equity Investment Partnership (0.53%) and Nanshan Douyu Asset Management (Tianjin) Partnership (Limited Partnership) (0.75%).to Wuhan Chaosai Business Information Consulting Partnership (Limited Partnership) (“Wuhan Chaosai”) (5.63%), which 99.99% of its interests owned by Wuhan Ouyue. Subsequently, Douyu Yule, Wuhan Douyu and Wuhan Chaosai which is the new shareholder of Wuhan Douyu, entered into a series of contractual arrangements in October 2021. Based on management’s assessment, there is no substantial change in the contractual arrangements and the Company continues to be the primary beneficiary of Wuhan Douyu. Applicable PRC laws and regulations currently limit foreign ownership of companies that provide internet valued-added businesses. The Company is deemed a foreign legal person under PRC laws and accordingly subsidiaries owned by the Company are not eligible to engage in provisions of internet content or online services. The Group therefore operates its business, primarily through the VIEs and the subsidiaries of the VIEs. The following financial statement amounts and balances of the VIEs were included in the accompanying consolidated financial statements after elimination of intercompany transactions and balances: As of December 31, 2020 RMB 2021 RMB ASSETS Cash and cash equivalents Restricted cash Short-term bank deposits Accounts receivable, net Prepayments Amounts due from related parties Other current assets Property and equipment, net Long-term bank deposits Intangible assets, net Right-of-use assets Investments Other non-current assets Total Assets LIABILITIES Accounts payable Advances from customers Deferred revenue Accrued expenses and other current liabilities Amounts due to related parties Lease liabilities Total Liabilities F-11 11,242,719 63,119,815 8,464,978 577,710,921 189,362,884 10,702,719 860,000,000 820,000,000 187,884,372 179,040,751 62,633,147 36,878,846 157,178,414 293,554,059 7,688,346 100,000,000 100,000,000 124,765,811 102,837,070 32,361,695 60,036,918 310,111,384 252,607,366 59,613,379 2,430,914,042 2,196,884,226 15,236,373 4,766,301 9,700,361 868,771,872 851,736,160 7,473,644 225,282,265 216,715,786 208,531,141 255,957,711 215,467,131 283,757,603 57,164,354 1,557,965,240 1,672,805,258 30,212,470 Table of Contents Notes to the Consolidated Financial Statements (Continued) 2. Summary of significant accounting policies (Continued) 2.2 Basis of Consolidation (Continued) Net revenue Net income Net cash provided by (used in) operating activities Net cash used in investing activities Net cash used in financing activities 2019 RMB Years ended December 31, 2020 RMB 7,207,666,259 8,697,485,194 8,965,084,213 985,034,474 432,731,451 388,119,110 2021 RMB 2019 RMB Years ended December 31, 2020 RMB 2021 RMB 899,235,343 (402,927,749) 816,655,741 (133,917,000) (1,179,665,550) 14,039,712 — (1,363,044,149) — The WFOE is entitled to receive substantially all of the net income and transfer a majority of the economic benefits in the form of service fees from the VIEs. The inter-company service fees charged by WFOE were RMB4,618,911,571, RMB1,401,036,611 and RMB1,624,748,798 for the years ended December 31, 2019, 2020 and 2021, respectively. The amounts due to WFOE were RMB2,493,814,825 and RMB 3,278,174,124 as of December 31, 2020 and 2021, respectively. The inter-company operating cash outflows were RMB4,667,280,643, RMB794,124,509 and RMB840,389,499 for the years ended December 31, 2019, 2020 and 2021, respectively. These inter-company transactions and balances were eliminated in the consolidated financial statements. The VIEs contributed 99%, 91%, and 98% of the Group’s consolidated revenue for the years ended December 31, 2019, 2020 and 2021, respectively. As of December 31, 2020 and 2021, the VIEs accounted for an aggregate of 27% and 27% of the consolidated total assets and 81% and 81% of the consolidated total liabilities. There are no terms in any arrangements, considering both explicit arrangements and implicit variable interests that require the Company or its subsidiaries to provide financial support to the VIEs. However, if the VIEs were ever to need financial support, the Group may provide financial support to the VIEs through loans to the shareholders of the VIEs or entrustment loans to 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. As the VIEs are incorporated as limited liability companies under the PRC Company 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 its statutory reserve and its registered capital, to the Company in the form of loans and advances or cash dividends. 2.3 Use of Estimates The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reporting period. Actual results could differ materially from such estimates. Significant accounting estimates reflected in the Group’s consolidated financial statements include revenue recognition, share-based compensation, realization of deferred tax assets, impairment of investment, and allowance for credit loss. 2.4 Fair value measurements Fair value reflects the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Group considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the assets or liabilities. The Group applies a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. This guidance specifies a hierarchy of valuation techniques, which is based on whether the inputs into the valuation technique are observable or unobservable. The hierarchy is as follows: Level 1 — Valuation techniques in which all significant inputs are unadjusted quoted prices from active markets for assets or liabilities that are identical to the assets or liabilities being measured. F-12 Table of Contents Notes to the Consolidated Financial Statements (Continued) 2. Summary of significant accounting policies (Continued) 2.4 Fair value measurements (Continued) Level 2 — Valuation techniques in which significant inputs include quoted prices from active markets for assets or liabilities that are similar to the assets or liabilities being measured and/or quoted prices for assets or liabilities that are identical or similar to the assets or liabilities being measured from markets that are not active. Also, model-derived valuations in which all significant inputs 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 market participants 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) market approach; (2) income approach and (3) cost approach. The market approach uses prices and other relevant information generated from market transactions involving identical or comparable assets or liabilities. The income approach uses valuation techniques to convert future amounts to a single present value amount. The measurement is based on the value indicated by current market expectations about those future amounts. The cost approach is based on the amount that would currently be required to replace an asset. When available, the Group uses quoted market prices to determine the fair value of an asset or liability. If quoted market prices are not available, the Group will measure fair value using valuation techniques that use, when possible, current market-based or independently sourced market parameters, such as interest rates and currency rates. The Group’s short-term financial instruments include cash and cash equivalents, restricted cash, short-term investments, receivables, payables, other current assets, amounts due from related parties, other current liabilities, amounts due to related parties and short-term loan. The carrying amounts of these short-term financial instruments approximate their fair values due to the short-term maturity of these instruments. The carrying amounts of the long-term time deposits and long-term bank borrowings approximate their fair values as the interest rates are comparable to the prevailing interest rates in the market. 2.5 Foreign currency translation The functional currency of the Company and Douyu Hongkong Limited are in US dollars (“US$”). The functional currency of the Group’s subsidiaries and VIEs in the PRC is Renminbi (“RMB”). The functional currency of DouYu Japan is Japanese Yen (“JPY”). Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency at the rates of exchange ruling at the balance sheet date. Transactions in currencies other than the functional currency are measured and recorded in the functional currency at the exchange rate prevailing on the transaction date. Translation gains and losses are recognized in the consolidated statements of comprehensive income (loss). The Group’s reporting currency is Renminbi (“RMB”). For entities within the Group that have a functional currency other than the reporting currency, assets and liabilities are translated from each entity’s functional currency to the reporting currency at the exchange rates in effect on the balance sheet date. Equity amounts are translated at historical exchange rates. Revenues, expenses, gains and losses are translated using the average rates for the year. Translation adjustments are reported as cumulative translation adjustments and are shown as a component of other comprehensive income in the consolidated statements of comprehensive income (loss) and the consolidated statements of changes in shareholders’ equity (deficit). 2.6 Convenience Translation into United States Dollars Translations of balances in the consolidated balance sheets, consolidated statements of comprehensive income (loss) and consolidated statements of cash flows from RMB into United States dollars are solely for the convenience of the reader and were calculated at the rate of US$1.00 = RMB6.3726 on December 30, 2021 as set forth in H.10 statistical release of the Federal Reserve Board. The translation is not intended to imply that the RMB amounts could have been, or could be, converted, realized or settled into United States dollars at that rate on December 31, 2021, or at any other rate. 2.7 Cash and cash equivalents Cash and cash equivalents primarily consist of cash on hand and highly liquid investments, which are unrestricted as to withdrawal and use. F-13 Table of Contents Notes to the Consolidated Financial Statements (Continued) 2. Summary of significant accounting policies (Continued) 2.8 Restricted cash The Group’s restricted cash represents cash restricted by court related to lawsuits in which the group is involved. The restriction will be removed when the cases are closed. 2.9 Short-term and long-term bank deposits The Group holds fixed term certificates of deposit with commercial banks in the PRC. Certificate of deposits with maturities between three months to one year are classified as short-term bank deposits and fixed term certificates of deposit with maturities beyond one year are classified as long term bank deposits. 2.10 Accounts receivable, net of allowance for credit loss Accounts receivable, net are stated at the historical carrying amount net of allowance for credit loss. On January 1, 2020, the Group adopted ASU No. 2016-13 “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”, using the modified retrospective transition method. Based on the Group’s assessment, the adoption of ASC 326 did not have any material impact to the Group’s consolidated financial statements and there were no material differences between the Group’s adoption of ASC 326 and its historic accounting method. ASU 2016-13 replaces the existing incurred loss impairment model with a forward-looking current expected credit loss (“CECL”) methodology, which results in more timely recognition of credit losses. The Group has developed a CECL model based on historical experience, the age of the accounts receivable balances, credit quality of its customers, current economic conditions, reasonable and supportable forecasts of future economic conditions, and other factors that may affect its ability to collect from customers. The cumulative effect from the adoption as of January 1, 2020 was immaterial to the consolidated financial statements. 2.11 Property and equipment, net Property and equipment are recorded at cost less accumulated depreciation. Depreciation is calculated on a straight-line basis over the following estimated useful lives: Computer and transmission equipment Leasehold improvements Furniture and office equipment Motor vehicles 3 years Over the shorter of the lease term or expected useful lives 5 years 5 years Gains and losses from disposals of property and equipment are included in other operating income or expense in the consolidated statements of comprehensive income (loss). 2.12 Intangible assets, net Intangible assets are recorded at the cost to acquire these assets less accumulated amortization. Amortization of finite-lived intangible assets is computed using the straight-line method over their estimated useful lives. License for Online Transmission of Audio/Video Programs is determined to have an infinite useful life and is not subject to amortization, as such license is renewable every three years and can be renewed indefinitely. Brand name Agency contract rights License for Online Transmission of Audio/Video Programs Platform Software Licensed copyrights of content Others 10 years Over the shorter of the contract period or expected useful lives Infinite life 5 years 3 - 5 years 1 - 2 years 3 - 10 years F-14 Table of Contents Notes to the Consolidated Financial Statements (Continued) 2. Summary of significant accounting policies (Continued) 2.13 Goodwill Goodwill is recognized for the excess of the purchase price over the fair value of tangible and identifiable intangible net assets of business acquired. Several factors give rise to goodwill in the Group’s acquisitions, such as the expected benefit from the existing workforce and client service capability of the acquired business. Goodwill is not amortized but is tested for impairment on an annual basis, or more frequently if events or changes in circumstances indicate that it might be impaired. Prior to January 1, 2020, the Group performed a two-step test to determine the amount, if any, of goodwill impairment. In Step 1, the Group compares the fair value of the reporting unit with its carrying amount, including goodwill. If the carrying amount of the reporting unit exceeds its fair value, the Group performs Step 2 and compares the implied fair value of goodwill with the carrying amount of that goodwill for that reporting unit. An impairment charge equal to the amount by which the carrying amount of goodwill for the reporting unit exceeds the implied fair value of that goodwill is recorded, limited to the amount of goodwill allocated to that reporting unit. Starting from January 1, 2020, the Group adopted ASU 2017-04, “Intangibles — Goodwill and Other (Topic 350): simplifying the test for goodwill impairment”, which simplifies the accounting for goodwill impairment by eliminating Step 2 from the goodwill impairment test. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss shall be recognized in an amount equal to that excess, versus determining an implied fair value in Step 2 to measure the impairment loss. For the years ended December 31, 2019, 2020 and 2021, no impairment charge was recognized on goodwill. 2.14 Impairment of long-lived assets and intangible assets The Group evaluates its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. When these events occur, the Group measures impairment by comparing the carrying amount of the assets to future undiscounted net cash flows expected to result from the use of the assets and their eventual disposition. The Group evaluates intangible asset that is not subject to amortization for impairment annual and more frequently if events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Group conducts quantitative impairment test for indefinite-lived intangible asset and compares of the fair value of the asset with its carrying amount. The Group recognizes impairment loss on the amount by which the carrying value exceeds the fair value of the asset. After an impairment loss is recognized, the Group uses adjusted carrying amount of the long-lived assets and intangible asset as its new accounting basis. 2.15 Long-term investments Investments held by the Group comprised of equity investments in privately-held entities. Equity method investments The Group accounts for its equity investments over which it has significant influence but does not own a majority equity interest or otherwise control using the equity method. The Group adjusts the carrying amount of the investments by recognizing investment income or loss for share of the earnings or loss of the investee after the date of investment, as well as any impairment loss. The Group assesses its equity method investments for impairment by considering factors including, but not limited to, current economic and market conditions, operating performance of the entities, including current earnings trends and undiscounted cash flows, and other entity-specific information. The fair value determination, particularly for investments in privately-held entities, requires judgment to determine appropriate estimates and assumptions. Changes in these estimates and assumptions could affect the calculation of the fair value of the investments and determination of whether any identified impairment is other-than-temporary. If the decline in the fair value is deemed to be other-than-temporary, the carrying value of the equity method investment is written down to fair value. The Group recorded impairment loss of RMB20,872,725, nil and nil, respectively in other expense, net for the years ended December 31, 2019, 2020 and 2021, respectively. F-15 Table of Contents Notes to the Consolidated Financial Statements (Continued) 2. Summary of significant accounting policies (Continued) 2.15 Long-term investments (Continued) Equity securities without readily determinable fair value The Group’s investment in equity securities comprise of investment in privately-held companies. On January 1, 2019, the Group adopted ASC Topic 321, Investments—Equity Securities (“ASC 321”) and elected to measure these investments at cost minus impairment, if any, adjusted up or down for observable price changes in orderly transactions for the identical or similar investment of the same issuer. Any adjustment to the carrying amount is recorded in other income (expense), net. The Group also makes qualitative assessment at each reporting period and if the assessment indicates that the fair value of the investment is less than the carrying value, the investment in equity securities will be written down to its fair value, with the difference between the fair value of the investment and its carrying amount recorded as investment loss. For years ended December 2019, 2020 and 2021, the Group recorded impairment loss of nil, RMB28,088,491 and RMB33,653,746 in other expenses, net, respectively. 2.16 Revenue recognition On January 1, 2019, the Group adopted ASC 606, “Revenue from Contracts with Customers” using the modified retrospective method applied to those contracts which 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 not adjusted and continue to be reported in accordance with the Group’s historic accounting under Topic 605. Based on the Group’s assessment, the adoption of ASC 606 did not have any material impact to the Group’s consolidated financial statements. The following table disaggregates the Group’s revenue by major type of services for the years ended December 31, 2019, 2020 and 2021: Live streaming Advertisement Other Total Live streaming 2019 RMB Years ended December 31, 2020 RMB 6,617,291,032 8,852,225,839 8,596,599,175 513,265,806 645,227,128 464,866,153 152,673,415 104,420,970 103,865,432 7,283,230,253 9,601,873,937 9,165,330,760 2021 RMB The Group is principally engaged in operating its own live streaming platforms, which enable streamers and users to interact with each other during live streaming. The users have the option to purchase virtual currency, which is non-refundable and can only be used to redeem for virtual items to be used in the live streaming sessions on the Group’s platforms. Unredeemed virtual currency is recorded as deferred revenue. Virtual currencies used to purchase virtual items are recognized as revenue according to the prescribed revenue recognition policies of virtual items addressed below. Virtual items are categorized as consumable and time-based items. Consumable items consist of virtual gifts presented from the users to the streamers to show their support, and are consumed immediately upon redemption and time-based items consist of monthly premium subscription services. F-16 Table of Contents Notes to the Consolidated Financial Statements (Continued) 2. Summary of significant accounting policies (Continued) 2.16 Revenue recognition (Continued) Live streaming (Continued) The Group has evaluated and determined that it is the principal and views the users to be its customers. Specifically, the Group controls the virtual items before they are transferred to users. Its control is evidenced by the Group’s sole ability to monetize the virtual items before they are transferred to users, and is further supported by the Group being primarily responsible to the users for the delivery of the virtual items as well as having full discretion in establishing pricing for the virtual items. Accordingly, the Group reports its live streaming revenue on a gross basis with amounts billed to users for the virtual items recorded as revenues and the revenue sharing fee paid to streamers or talent agencies recorded as cost of revenues. Sales proceeds are initially recorded as deferred revenue and recognized as revenue based on the consumption of the virtual items. The Group has determined that the virtual items represent one performance obligation in the live streaming service. Revenue related to each of the consumable items is recognized at the point in time when the virtual gifts is transferred directly to the streamers and consumed by them, while revenue related to time-based items is recognized ratably over a fixed period on a straight line basis. Although some virtual items have expiry dates, the Group considers that the impact of breakage for the virtual items is insignificant as historical data shows that virtual items are consumed shortly after they are released to users and the forfeiture rate remains relatively low for the periods presented. The Group does not have further performance obligations to the user after the virtual items are consumed. Virtual items can be sold individually or bundled into one arrangement. When the Group’s users purchase multiple virtual items bundled within the same arrangement, the Group allocates the total consideration to each distinct virtual item based on their relative standalone selling prices. In instances where standalone selling price is not directly observable as the Group does not sell the virtual items separately, the Group determines the standalone selling price based on pricing strategies, market factors and strategic objectives. The Group recognizes revenue for each of the distinct virtual item in accordance with the revenue recognition method discussed above unless otherwise stated. Advertisement The Group generates advertisement revenues from rendering of various forms of advertisement services and provision of promotion campaigns on the live streaming platforms by way of advertisement display or integrated promotion activities in shows and programs on the live streaming platforms. The Group determined that it is the principal in the advertisement service. Advertisements on the Group’s platforms are generally charged on the basis of duration whereby revenue is recognized ratably over the contract period of display. The Group provides sales incentives in the forms of discounts and rebates to advertisers or advertisement agencies based on purchase volume. Revenue is recognized based on the price charged to the advertisers or agencies, net of sales incentives provided to the advertisers or agencies. Sales incentives are estimated and recorded at the time of revenue recognition based on the contracted rebate rates and estimated sales volume based on historical experience. Other revenue Other revenue mainly consists of game distribution revenue. Online games developed by third party game developers are displayed through the Group’s platforms to attract users to download and play the games. The Group earns revenues from game developers in accordance with the pre-determined arrangements based on the in game purchase amounts for the games downloaded or played through the Group’s platforms. The Group considers itself as agent in these arrangement. Game distribution revenue is recognized at a point in time when the purchase in game is made. F-17 Table of Contents Notes to the Consolidated Financial Statements (Continued) 2. Summary of significant accounting policies (Continued) 2.16 Revenue recognition (Continued) Practical expedients and exemptions The Group’s contracts have an original duration of one year or less. Accordingly, the Group does not disclose the value of unsatisfied performance obligations. Contract balances Contract balances include accounts receivable, advances from customers and deferred revenue. Accounts receivable represent cash due from third-party application stores as well as from advertising customers and are recorded when the right to consideration is unconditional. The allowance for credit loss reflects the best estimate of probable losses inherent to the accounts receivable balance. Advances from customers primarily represent cash received from the Group’s advertisement customers. Deferred revenue primarily includes cash received from paying users related to the Group’s live streaming service. Deferred revenue is recognized as revenue when all of the revenue recognition criteria have been met or over the estimated service period. Revenue recognized in 2021 that was included in the deferred revenue balance as of January 1, 2021 was RMB229,701,778, which consists primarily of virtual items consumption. Opening Balance as of January 1, 2020 Increase (decrease), net Ending Balance as of December 31, 2020 Decrease, net Ending Balance as of December 31, 2021 2.17 Cost of revenues Deferred revenue RMB Accounts receivable RMB Advances from customers RMB 188,099,873 17,134,532 182,819,528 11,644,256 (6,223,543) 46,882,250 199,744,129 10,910,989 229,701,778 (6,597,447) 191,388,528 7,476,002 223,104,331 (8,355,601) (3,434,987) Amounts recorded as cost of revenues relate to direct expenses incurred in order to generate revenue. Such costs are recorded as incurred. Cost of revenues consists primarily of (i) revenue sharing fees paid to live streamers and talent agencies determined based on a percentage of revenue from sale of virtual items, (ii) content costs, (iii) bandwidth, (iv) salaries and welfare, (v) server costs, depreciation and amortization expense for servers and other equipment, and intangibles directly related to operating the platform, and (vi) payment handling costs. 2.18 Research and development expenses Research and development expenses primarily consist of (i) salaries and benefits expenses incurred for research and development personnel, (ii) rental, general expenses and depreciation expenses associated with the research and development activities and (iii) share-based compensation. Expenditures incurred during the research phase are expensed as incurred and no research and development expenses were capitalized as of December 31, 2019, 2020 and 2021. 2.19 Sales and marketing expenses Sales and marketing expenses consist primarily of (i) advertising and market promotion expenses, (ii) salaries and welfare for sales and marketing personnel and (iii) share-based compensation. The advertising and market promotion expenses amounted to RMB135,859,453, RMB219,369,426 and RMB495,504,251 for the years ended December 31, 2019, 2020 and 2021, respectively. 2.20 General and administrative expenses General and administrative expenses consist primarily of (i) consulting fees, and (ii) share-based compensation, salaries and welfare for general and administrative personnel and (iii) allowance for credit loss. F-18 Table of Contents Notes to the Consolidated Financial Statements (Continued) 2. Summary of significant accounting policies (Continued) 2.21 Income taxes Current income taxes are provided for in accordance with the laws of the relevant tax authorities. Deferred income taxes are provided using assets and liabilities method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined on the basis of the differences between financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets are recognized to the extent that these assets are more likely than not to be realized. In making such a determination, the management consider all positive and negative evidence, including future reversals of projected future taxable income and results of recent operation. Deferred tax assets are then reduced by a valuation allowance through a charge to income tax expense when, in the opinion of management, it is more likely than not that a portion of or all of the deferred tax assets will not be realized. The Group accounts for uncertainty in income taxes recognized in the consolidated financial statements by applying a two-step process to determine the amount of the benefit to be recognized. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon external examination by the taxing authorities. If the tax position is deemed more-likely-than-not to be sustained (defined as a likelihood of more than fifty percent of being sustained upon an audit, based on the technical merits of the tax position), the tax position is then assessed to determine the amount of benefits to recognize in the consolidated financial statements. The amount of the benefits that may be recognized is the largest amount that has a greater than 50% likelihood of being realized upon ultimate settlement. Interest and penalties on income taxes will be classified as a component of the provisions for income taxes. The Group did not recognize any income tax due to uncertain tax position or incur any interest and penalties related to potential underpaid income tax expenses for the years ended December 31, 2019, 2020 and 2021. 2.22 Segment information The Group uses management approach to determine operating segments. The management approach considers the internal organization and reporting used by the Group’s chief operating decision maker (“CODM”) for making decisions, allocation of resource and assessing performance. The Group’s CODM has been identified as the chief executive officer who reviews the consolidated results of operations when making decisions about allocating resources and assessing performance of the Group. The Group operates and manages its business as a single operating segment. 2.23 Operating leases as lessee On January 1, 2020, the Group adopted ASU No. 2016-02, Leases (Topic 842) by using the modified retrospective method and did not restate the comparable periods. The Company has elected the package of practical expedients, which allows the Company not to reassess (1) whether any expired or existing contracts as of the adoption date are or contain a lease, (2) lease classification for any expired or existing leases as of the adoption date and (3) initial direct costs for any expired or existing leases as of the adoption date. Lastly, the Company elected the short-term lease exemption for all contracts with lease terms of 12 months or less. Under the new lease accounting standard, the Group determines if an arrangement is a lease or contains a lease at lease inception. The Group measures the operating lease liabilities at the commencement date based on the present value of remaining lease payments over the lease term, which was computed using the Group’s incremental borrowing rate, an estimated rate the Group would be required to pay for a collateralized borrowing equal to the total lease payments over the lease term. The Group measures the operating lease ROU assets based on the corresponding lease liability adjusted for payments made to the lessor at or before the commencement date, and initial direct costs it incurs under the lease. The Group begins recognizing operating lease expense based on lease payments on a straight-line basis over the lease term when the lessor makes the underlying asset available to the Group. RMB100,318,025 of lease assets and RMB81,851,982 of liabilities were recognized on the balance sheet upon adoption as of January 1. The adoption had no impact on the Group’s opening balance of retained earnings as of January 1, 2020. F-19 Table of Contents Notes to the Consolidated Financial Statements (Continued) 2. Summary of significant accounting policies (Continued) 2.24 Government subsidies Government subsidies are primarily referred to the amounts received from various levels of local governments from time to time which are granted for general corporate purposes and to support its ongoing operations in the region. The grants are determined at the discretion of the relevant government authority and there are no restrictions on their use. The government subsidies are recorded as other operating income, net in the period the cash is received. Government subsidies recognized for the years ended December 31, 2019, 2020 and 2021 were RMB68,834,899, RMB92,708,856 and RMB71,162,166, respectively. 2.25 Certain risks and concentrations Foreign currency risk The revenues and expenses of the Group’s entities in the PRC are generally denominated in RMB and their assets and liabilities are denominated in RMB. The RMB is not freely convertible into foreign currencies. Remittances of foreign currencies into the PRC or remittances of RMB out of the PRC as well as exchange between RMB and foreign currencies require approval by foreign exchange administrative authorities and certain supporting documentation. The State Administration for Foreign Exchange, under the authority of the People’s Bank of China, controls the conversion of RMB into other currencies. The PRC government imposes controls on the convertibility of RMB into foreign currencies. The Group’s cash and cash equivalents denominated in RMB that are subject to such government controls amounted to RMB178,802,402, which accounted for 4.0% of total cash and cash equivalents as of December 31, 2021. Concentration of revenue No customer individually represents greater than 10% of the total net revenues. Concentration of sales and marketing expenses Vendors accounting for 10% or more of sales and marketing expenses is as follows: Years ended December 31, Company A 2.26 Recently issued accounting pronouncements Recent accounting pronouncements not yet adopted 2019 RMB % % — — 26,245,483 5% 142,715,543 15% % RMB RMB 2020 2021 In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832)—Disclosures by Business Entities about Government Assistance. The amendments in this ASU require disclosures about transactions with a government that have been accounted for by analogizing to a grant or contribution accounting model to increase transparency about (1) the types of transactions, (2) the accounting for the transactions, and (3) the effect of the transactions on an entity’s financial statements. The amendments in this ASU are effective for all entities within their scope for financial statements issued for annual periods beginning after December 15, 2021. Early application of the amendments is permitted. The Company does not expect this ASU would have a material impact on the consolidated financial statements. F-20 Table of Contents 3. Accounts receivable, net Accounts receivable, net consisted of the followings: Notes to the Consolidated Financial Statements (Continued) Accounts receivable, gross Less: allowance for credit loss Accounts receivable, net As of December 31, 2020 RMB 2021 RMB 212,317,679 205,234,488 (12,573,550) (13,845,960) 199,744,129 191,388,528 The Group recorded a provision for current expected credit loss. The following table sets out movements of the expected credit loss provision for the years ended December 31, 2019, 2020 and 2021: Balance as of January 1 Addition Write offs Balance as of December 31 2019 RMB As of December 31, 2020 RMB 5,907,369 15,834,902 12,573,550 13,563,744 3,270,564 2,182,083 (3,636,211) (6,531,916) (909,673) 15,834,902 12,573,550 13,845,960 2021 RMB The following customers accounted for 10% or more of accounts receivable, net: 2020 As of December 31, 2021 Company A Company B F-21 RMB % — — 21,191,007 11% 3,325,331 11% 43,563,107 22% 20,559,665 11% 3,226,260 11% RMB % US$ % Table of Contents Notes to the Consolidated Financial Statements (Continued) 4. Other current assets Other current assets consist of the following: Value-added tax recoverable Funds receivable from third party payment service providers (1) Interest receivable Content rights Others Total As of December 31, 2020 RMB 2021 RMB 89,697,345 179,370,960 91,623,838 97,558,304 29,768,158 43,423,502 11,710,702 38,557,515 13,904,052 17,456,529 236,704,095 376,366,810 (1) The Group opened accounts with external online payment service providers to collect funding from users. 5. Property and equipment, net Property and equipment, net consists of the following: Gross carrying amount Computer and transmission equipment Leasehold improvements Furniture and office equipment Motor vehicles Total Less: accumulated depreciation Property and equipment, net As of December 31, 2020 RMB 2021 RMB 6,370,893 410,200 96,712,005 100,007,413 24,726,231 24,462,607 7,272,327 410,200 128,219,329 132,152,547 (90,427,641) (107,041,834) 37,791,688 25,110,713 Depreciation expense was RMB32,814,894, RMB21,126,504 and RMB18,275,703 for the years ended December 31, 2019, 2020 and 2021, respectively. 6. Intangible assets, net Intangible assets, net consists of the following: Gross carrying amount Brand name Agency contract rights(1) License for Online Transmission of Audio/Video Programs(2) Platform Software Licensed copyrights of content Others Total of gross carrying amount Less: accumulated amortization Brand name Agency contract rights Platform Software Licensed copyrights of content Others Total of accumulated amortization Intangible assets, net F-22 As of December 31, 2020 RMB 2021 RMB 38,606,076 37,723,300 194,320,755 218,806,605 7,988,748 7,988,748 9,462,274 9,245,907 9,359,079 18,684,575 24,359,078 55,377,358 5,760,599 289,856,609 353,587,092 5,760,599 (4,338,452) (3,335,165) (17,741,239) (3,274,165) (8,525,509) (12,102,892) (110,970,198) (159,504,274) (6,088,430) (5,868,964) (4,721,697) (3,760,443) (148,184,728) (192,046,700) 141,671,881 161,540,392 Table of Contents 6. Intangible assets, net (Continued) Notes to the Consolidated Financial Statements (Continued) (1) (2) The agency contract rights, which represent upfront payments of cooperation cost to top streamers, acquired during the years ended December 31, 2020 and 2021 are RMB28,301,887 and RMB24,485,849, respectively, with weighted average amortization period of 2 years and 2.1 years. In February 2016, Wuhan Douyu obtained effective control of Wuhan Ouyue, a PRC legal entity from Mr. Shaojie Chen, the Group’s CEO through a series of contractual arrangements. Wuhan Ouyue has no business and holds one asset, License for Online Transmission of Audio/Video Programs. The transaction was deemed as an asset acquisition under ASC 805 and the License for Online Transmission of Audio/Video Programs was recognized based on the consideration paid, which approximate the market value of the asset acquired. The license permits the Group in the provision of online streaming of video on its platforms. The license is renewable every 3 years and may be renewed indefinitely. The Group has renewed this license in March 2021 which remains valid until March 2024, and intends to renew the license indefinitely. Amortization expenses were RMB57,306,920, RMB89,790,156 and RMB70,456,937 for the years ended December 31, 2019, 2020 and 2021 respectively. The Group expects to record amortization expenses in the future 5 years as below: 2022 2023 2024 2025 2026 and thereafter Future amortization expenses RMB 67,954,112 56,259,589 12,973,156 4,793,787 4,570,857 The weighted average amortization periods of intangible assets as of December 31, 2020 and 2021 are as below: Brand name Agency contract rights Platform Software Others 7. Investments Equity method investments: Wuhan Shayu Network Technology Co., Ltd. (“Shayu”) (1) Others F-23 As of December 31, 2021 2020 10 years 10 years 3.5 years 3.3 years 5 years 5 years 3.2 years 3.6 years 2.2 years 3.2 years As of December 31, 2020 RMB 2021 RMB 184,555,328 168,416,427 27,911,733 18,283,241 212,467,061 186,699,668 Table of Contents Notes to the Consolidated Financial Statements (Continued) 7. Investments (Continued) Equity method investments: (Continued) (1) In 2016, the Group invested RMB10 million for 8.5% equity interest in Shayu, a live streaming platform in the PRC, and accounted for this investment as an equity security without a readily determinable fair value. In May 2020, the Group completed the following transactions with respect to its investment in Shayu: • The Group acquired 19.125% equity interest in Shayu from Mr. Chen Shaojie, the Group’s CEO and shareholder for a cash consideration of RMB24,850,000. The purchase price paid by the Group was below fair value of the acquired equity interest, which is determined to be RMB43,617,750 by the Group with the assistance of an independent appraiser. The excess amount of RMB18,767,750 between the fair value of the equity interest acquired in Shayu over the consideration paid is accounted as contribution from shareholder in the consolidated statement of changes in shareholders’ equity. • The Company injected cash of RMB80,000,000 and its holding of 100% equity interest in Chengdu Shuangsi Culture Broadcasting Co., Ltd (“Shuangsi”) with a fair value determined to be RMB54,391,900 into Shayu, in exchange for 8.309% of newly issued equity interest in Shayu. Upon the completion of these transactions, the Group aggregately owned 35.084% equity interest of Shayu and accounts for its investment in Shayu under the equity method. Equity securities without readily determinable fair values: Content producers Technology and software companies Others As of December 31, 2020 RMB 2021 RMB 196,465,009 246,170,165 49,102,000 48,554,967 42,624,500 10,000,000 288,191,509 304,725,132 Equity securities without readily determinable fair value were accounted as cost method investments prior to adopting ASC 321, on January 1, 2019. For the years ended 2019, 2020 and 2021, RMB nil, RMB28,088,491 and RMB33,653,746 impairment were recorded and an upward adjustments of RMB1,796,000, RMB8,571,429 and RMB nil as result of observable price change for the identical or similar investment of the same investees was recognized in other expenses, net. 8. Accrued expenses and other current liabilities Accrued expenses and other current liabilities consist of the following: Accrued payroll and welfare Accrued marketing cost Accrued settlement relating to class action lawsuits Other tax payable Deposits Others Total F-24 As of December 31, 2020 RMB 176,217,767 132,487,573 — 18,974,895 19,994,929 36,365,656 384,040,820 2021 RMB 198,311,616 149,202,671 38,254,200 25,482,315 22,924,693 24,152,497 458,327,992 Table of Contents Notes to the Consolidated Financial Statements (Continued) 9. Cost of revenues Cost of revenues consist of the following: Revenue sharing fees and content costs Bandwidth costs Others Total 10. Income taxes Cayman Islands 2019 RMB Years ended December 31, 2020 RMB 5,176,508,004 7,129,094,348 7,153,155,717 617,801,344 661,129,019 665,274,852 292,763,988 251,305,218 256,989,955 6,087,073,336 8,041,528,585 8,075,420,524 2021 RMB Under the current laws of the Cayman Islands, the Company and its subsidiaries incorporated in the Cayman Islands are not subject to tax on income or capital gain. Additionally, the Cayman Islands does not impose a withholding tax on payments of dividends to shareholders. Hong Kong Entities incorporated in Hong Kong are subject to Hong Kong profits tax at a rate of 16.5%. Operations in Hong Kong have incurred net accumulated operating losses for income tax purpose and no income tax provisions are recorded for the period presented. Japan Entities incorporated in Japan are subject to an income tax rate calculated according to relevant regulations of Japan Ministry of Finance. Operations in Japan have incurred net accumulated operating losses for income tax purpose and no income tax provisions are recorded for the period presented. China The Company’s subsidiaries and consolidated VIEs established in the PRC are subject to an income tax rate of 25%, according to the PRC Enterprise Income Tax (“EIT”) Law. The subsidiaries and the VIEs of the Group in the PRC are subject to a uniform income tax rate of 25% for years presented. Wuhan Douyu obtained High and New Technology Enterprise (“HNTE”) status from 2016 to 2018. It enjoyed a favorable statutory tax rate of 15% from 2017 to 2018 and it did not renew the status since 2019. In 2019, Wuhan Douyu, Douyu Yule and Wuhan Ouyue obtained “Software Enterprise Certificate”, which enable they to enjoy a tax holiday of a two-year exemption commencing from first profitable calendar year and a 50% reduction in uniform tax rate for the following three calendar years. As of December 31, 2021, Douyu Yule is profitable after offsetting its accumulated loss and starts to enjoy the tax benefit of software enterprise, while Wuhan Douyu, and Wuhan Ouyue are still in accumulative loss status and have not enjoyed the tax benefit yet. According to a policy promulgated by the State Tax Bureau of the PRC and effective from 2018 to 2021, enterprises engaged in research and development activities are entitled to claim 175% of the research and development expenses so incurred in a year as tax deductible expenses in determining its tax assessable profits for that year (“Super Deduction”). Uncertainties exist with respect to how the current income tax law in the PRC applies to the Group’s overall operations, and more specifically, with regard to tax residency status. The EIT Law includes a provision specifying that legal entities organized outside of the PRC will be considered residents for Chinese Income Tax purposes if the place of effective management or control is within the PRC. The implementation rules to the EIT Law provide that non-resident legal entities will be considered PRC residents if substantial and overall management and control over the manufacturing and business operations, personnel, accounting and properties, occurs within the PRC. Despite the present uncertainties resulting from the limited PRC tax guidance on the issue, the Group does not believe that the legal entities organized outside of the PRC within the Group should be treated as residents for EIT law purposes. If the PRC tax authorities subsequently determine that the Company and its subsidiaries registered outside the PRC should be deemed resident enterprises, the Company and its subsidiaries registered outside the PRC will be subject to the PRC income taxes, at a statutory income tax rate of 25%. The Group is not subject to any other uncertain tax position. F-25 Table of Contents 10. Income taxes (Continued) China (Continued) Notes to the Consolidated Financial Statements (Continued) According to PRC Tax Administration and Collection Law, the statute of limitations is three years if the underpayment of taxes is due to computational errors made by the taxpayer or withholding agent. The statute of limitations will be extended five years under special circumstances, which are not clearly defined (but an underpayment of tax liability exceeding RMB0.1 million 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. Income (loss) before income taxes consist of: PRC Foreign Total 2019 RMB Years ended December 31, 2020 RMB 143,570,454 710,575,006 (15,493,030) (106,980,746) (307,145,767) (589,628,029) 36,589,708 403,429,239 (605,121,059) 2021 RMB The Group did not incur any current or deferred component of income tax expenses for the years ended December 31, 2019, 2020 and 2021. The reconciliation of total tax expenses computed by applying the respective statutory income tax rate to pre-tax income is as follows: PRC income tax rate Expenses not deductible for tax purposes Super deduction on research and development expenses Effect of expired tax loss Effect of change in income tax rate Effect of tax holiday Effect of tax rate in different tax jurisdiction Change in valuation allowance Total The aggregate amount and per share effect of the tax holiday are as follows: Years ended December 31, 2019 25.00% 157.72% (145.44)% — (555.07)% — 4.82% 512.97% 0.00% 2020 25.00% 26.87% (8.37)% — — (36.13%) 14.16% (21.53)% 0.00% 2021 25.00% (4.00%) 3.96% (0.40%) — 47.40% (6.07%) (65.89%) 0.00% Years ended December 31, The aggregate dollar effect Per share effect—basic and diluted Deferred tax assets are as follows: Deferred tax assets Tax loss carried forward Deductible temporary differences Tax basis difference upon the restructuring in 2016 Allowance for credit loss Total deferred tax assets Less: valuation allowance Net deferred tax assets F-26 2020 RMB 2019 RMB — 145,777,478 286,804,076 8.81 — 4.56 2021 RMB Years ended December 31, 2021 2020 RMB RMB 581,481,841 1,003,286,365 37,326,947 62,849,372 44,899,742 55,895,669 6,711,512 6,251,724 706,478,606 1,092,224,566 (706,478,606) (1,092,224,566) — — Table of Contents 10. Income taxes (Continued) Notes to the Consolidated Financial Statements (Continued) Deferred tax assets are as follows: (Continued) The movement of deferred tax valuation allowance is as follows: Balance at beginning of the year Increase Decrease Balance at end of the year 2019 RMB Years ended December 31, 2020 RMB 606,708,962 795,745,498 706,478,606 408,704,189 72,777,388 433,166,584 (47,420,624) (219,667,653) (162,044,280) 795,745,498 706,478,606 1,092,224,566 2021 RMB The Group operates through its subsidiaries, the VIEs and the VIEs’ subsidiaries. According to the Article 18 of PRC Tax Law, the enterprise can carry over the losses to the succeeding five tax years. As of December 31, 2019, 2020 and 2021, the Group had tax operating loss carry forwards of RMB2,493,643,064, RMB2,414,846,539 and RMB3,740,244,579 respectively from its subsidiaries, VIEs and subsidiaries of the VIEs registered in the PRC, which can be carried forward to offset taxable income and will expire during the period from 2020 to 2024, 2021 to 2025 and 2022 to 2026, respectively. The Group considers positive and negative evidence to determine whether some portion or all of the deferred tax assets will be more likely than not realized. This assessment considers, among other matters, the nature, frequency and severity of recent losses and forecasts of future profitability. These assumptions require significant judgment and the forecasts of future taxable income are consistent with the plans and estimates the Group is using to manage the underlying businesses. Valuation allowances are established for deferred tax assets based on a more likely than not threshold. The Group’s ability to realize deferred tax assets depends on its ability to generate sufficient taxable income within the carry forward periods provided for in the tax law. The Group has provided a full valuation allowance for the deferred tax assets as of December 31, 2020 and 2021, as management is not able to conclude that the future realization of those net operating loss carry forwards and other deferred tax assets are more likely than not. In accordance with the EIT Law, dividends, which arise from profits of foreign invested enterprises (“FIEs”) earned after January 1, 2008, are subject to a 10% withholding income tax. In addition, under tax treaty between the PRC and Hong Kong, if the foreign investor is incorporated in Hong Kong and qualifies as the beneficial owner, the applicable withholding tax rate is reduced to 5%, if the investor holds at least 25% in the FIE, or 10%, if the investor holds less than 25% in the FIE. 11. Ordinary shares In accordance with the Company’s memorandum and articles of association, total authorized shares for ordinary shares are 500,000,000 shares with par value of US$0.0001. Upon the incorporation of the Company on January 5, 2018, the Original Shareholders of the Group subscribed to 8,188,790 ordinary shares of the Company at par value of US$0.0001. In May 2018, the Company converted 2,944,395 ordinary shares held by the Original Shareholder to 2,944,395 shares of Angel Preferred Shares with no change to the rights and obligations associated with these shares. As the terms of the Angel Preferred Shares are identical to those for the Ordinary Shares, the Company believe it is appropriate to continue to treat the Angel Preferred Shares as ordinary shares issued and outstanding in the consolidated financial statements as well as for the purpose of EPS calculations. F-27 Table of Contents 11. Ordinary shares (Continued) Notes to the Consolidated Financial Statements (Continued) In May 2018, the Company repurchased 125,000 shares of ordinary shares from one investor and issued 125,000 Series B-4 Preferred Share to the same shareholder for zero consideration. As disclosed in Note 14, 2,106,321 ordinary shares of the Company were issued to Douyu Employee Benefit Trust (the “Trust”) to establish a reserve pool for future issuances of equity share incentive to the Group’s employees. All shareholder rights of these 2,106,321 ordinary shares including but not limited to voting rights and dividend rights are unconditionally waived until the corresponding restrict share units are vested. While the ordinary shares were legally issued to the Trust, the Trust does not have any of the rights associated with the ordinary shares, as such the Company accounted for these shares as issued but no outstanding until the waiver is released by the Company, which occur when the restricted share units vest and ordinary shares are awarded to the employees. Upon the IPO in July 2019, the Company issued 4,492,473 ordinary shares. On December 20, 2019, the Company announced the repurchase program whereby the Company may repurchase up to US$100 million of its ordinary shares in the form of American depositary shares during a period of up to 12 months commencing on December 20, 2019. As of December 31, 2020, the Company has repurchased an aggregate of 1,177,499 ordinary shares for total cash consideration of US$99,999,998 (equivalent of RMB695,097,853) including repurchase commissions, among which 291,207 ordinary shares for total cash consideration of US$16,471,881 (equivalent of RMB115,273,325). On August 30, 2021, the Company announced the repurchase program whereby the Company may repurchase up to US$100 million of its ordinary shares in the form of American depositary shares during a period of up to 12 months commencing on September 30, 2021. As of December 31, 2021, the Company has repurchased an aggregate of 578,304 ordinary shares for total cash consideration of US$16,737,290 (equivalent of RMB107,151,908) including repurchase commissions, among which 578,304 ordinary shares for total cash consideration of US$16,737,290 (equivalent of RMB107,151,908) (the “2021 Share Repurchase Program”). F-28 Table of Contents 12. Noncontrolling Interest Notes to the Consolidated Financial Statements (Continued) As of December 31, 2021, the Group’s noncontrolling interest mainly included equity interest in DouYu Japan. The following schedule shows the effects of changes in the ownership interest of the Company in its subsidiaries on equity attributed to DouYu for the years ended December 31, 2019, 2020 and 2021. Below are the changes in the Group’s ownership in its subsidiaries on the Group’s equity. Net income (loss) attributable to DouYu’s ordinary shareholders Transfers to noncontrolling interest Decrease in DouYu’s additional paid-in capital for acquisition of noncontrolling interest in Shuangsi (1) Decrease in DouYu’s additional paid-in capital due to capital contribution from noncontrolling interest shareholder in DouYu Japan (2) Increase in DouYu’s additional paid-in capital due to repurchase of noncontrolling interest in Gogo Glocal (Note 14) Decrease in DouYu’s additional paid-in capital due to vest of Gogo Glocal’s noncontrolling interest restricted shares (Note 14) Decrease in DouYu’s additional paid-in capital for acquisition of shares of Gogo Glocal’s noncontrolling interest Net transfers to noncontrolling interest Change from net income attribute to DouYu and transfers to 2019 RMB Years ended December 31, 2020 RMB 2021 RMB 39,753,232 485,498,597 (581,883,146) — (2,271,492) — — (7,700,837) — — 11,171,730 — (22,209,344) — — (11,107,350) (33,316,694) — 1,199,401 — — noncontrolling interest 6,436,538 486,697,998 (581,883,146) (1) (2) In March 2020, the Group purchased 15% equity of Chengdu Shuangsi with cash consideration of RMB4,500,000. The difference between the fair value of the consideration paid and the carrying amount of the noncontrolling interest acquired was recognized in additional paid-in capital. In April, June and November, 2020, the Group and noncontrolling interest shareholder purchased the newly issued common shares of DouYu Japan with consideration of JPY4,189,200,000 (equivalent of RMB272,248,433 ) and JPY1,610,800,000 (equivalent of RMB105,129,847 ), respectively. As a result of these transactions, the noncontrolling interest shareholder’s ownership interest increased from 14.9% to 28.9% while the Group retains its controlling financial interest in DouYu Japan. The difference between the consideration received and the amount of the noncontrolling interest was adjusted was recognized in additional paid-in capital. F-29 Table of Contents 13. Convertible redeemable preferred shares Series A Preferred Equity Notes to the Consolidated Financial Statements (Continued) In January 2015, Beijing Sequoia acquired 20.49% of Guangzhou Douyu’s equity interest with preference rights for a total consideration of RMB106,999,090 (Series A Preferred Equity). Series B Preferred Equity In April 2015, Guangzhou Douyu entered into an agreement with Beijing Sequoia for a convertible loan and a detachable warrant for a total proceed of RMB50 million. In April 2016, Beijing Sequoia converted the outstanding loan principal and unpaid interest expense amounted RMB56,187,500 into 2.71% of the equity interest of Wuhan Douyou with preference rights (Series B-1 Preferred Equity). In April 2016, Wuhan Douyu issued 18.80% and 1.96% equity interest with preference rights (Series B-2 and B-3 Preferred Equity) for a cash consideration of RMB381,504,000 and RMB50,000,000, respectively, to a group of third party investors. The subscription prices of two of these investors were below fair value of Series B-2 and Series B-3 Preferred Equity. The difference between the fair value of these preferred equity and the subscription consideration paid by these Series B-2 and Series B-3 investors amounted to RMB72,736,597 was recognized as deemed dividend in the consolidated statements of changes in shareholders’ equity (deficit). In April 2016, concurrent with the issuance of Series B-2 and B-3 Preferred Equity, Wuhan Douyu repurchased 5.95% of its equity interest from the Original Shareholders at a consideration of RMB162,775,040. The fair value of equity interest repurchased was RMB77,396,500 as determined by the Group with the assistance of independent valuation firm was below the consideration paid by Wuhan Douyu. As such, the amount of RMB85,378,540 paid by Wuhan Douyu that was in excess of the fair value of the equity interest at the time of the repurchase was recognized as deemed dividend in the consolidated statements of changes in shareholders’ equity (deficit). Series C Preferred Equity In August 2016, Wuhan Douyu issued 15.80% of the equity interest with preference rights to a group of investors with a total consideration of RMB1,067,000,000 (Series C-1 Preferred Equity). Concurrent with the issuance of Series C-1 Preferred Equity, Wuhan Douyu repurchased and cancelled 2.94% of its equity interest from the Original Shareholders with a consideration of RMB198,848,000. The fair value of the equity interest repurchased was RMB72,020,079 as determined by the Group with the assistance of independent valuation firm was below the repurchase consideration paid by Wuhan Douyu. As such, the amount of RMB126,827,921 paid by Wuhan Douyu in excess of the fair value of the equity interest at the time of the repurchase was recognized as deemed dividend in the consolidated statements of changes in shareholders’ equity (deficit). In August 2016, Shanghai Qincheng exercised the warrant to purchase 0.49% of the equity interest of Wuhan Douyu with a subscription price of RMB30,000,000 (Series C-2 Preferred Equity). Series C-2 Preferred Equity was repurchased by Wuhan Douyu in January 2018 at fair value for a cash consideration of RMB39,995,000. Series D Preferred Equity On November 14, 2017, Wuhan Douyu issued 5.81% equity interest of Wuhan Douyu with preferred rights (Series D Preferred Equity) for a consideration of RMB500,000,000 to three new investors. Upon the 2018 Restructuring, as described in Note 1, upon obtaining all necessary approvals from the PRC government, the Preferred Equity shareholders subscribed for convertible redeemable preferred shares (Preferred Shares) at no consideration, all in the same proportions, on an as converted basis, as the percentage of equity interest they held in Wuhan Douyu. In conjunction with the issuance of Series E Preferred Shares, the Company modified certain terms of Series A, B, C and D Preferred Shares to extend the date of qualified IPO from December 31, 2020 to December 31, 2022, as well as change certain calculation of the redemption value. The Company does not consider these changes as an extinguishment of Series A, B, C and D as the impact of these changes was insignificant. In January 2018, Wuhan Douyu repurchased Series C-2 Preferred Equity from its investor at fair value for a cash consideration of RMB39,995,000. The difference of RMB6,661,667 between the consideration paid and the carrying amount of Series C-2 Preferred Equity at the date of repurchase was recorded in additional paid-in capital. F-30 Table of Contents 13. Convertible redeemable preferred shares (Continued) Series D Preferred Equity (Continued) Notes to the Consolidated Financial Statements (Continued) In May 2018, the Company repurchased 125,000 ordinary shares from one of the investors and issued the corresponding number of Series B-4 Preferred Shares to the same investor with no cash consideration. The difference between the fair value of ordinary shares repurchased and that of the Series B-4 Preferred Shares issued is immaterial. The key terms of the Preferred Shares are summarized as follows: Dividend Rights In the event the Company declares dividends, for holder of each series of Convertible Redeemable Preferred Shares, at the rate of eight percent of issue cost. Liquidation Rights In the event of any liquidation, dissolution or winding up of the Company (each a “Liquidation Event”), whether voluntary or involuntary, all assets and funds of the Company legally available for distribution to the Members (after satisfaction of all creditors’ claims and claims that may be preferred by Law) shall be distributed to the Members of the Company as follows: The liquidation right should be settled in the sequence of (i) Series E Convertible Redeemable Preferred Shares, (ii) Series D Convertible Redeemable Preferred Shares, (iii) Series C-1 Convertible Redeemable Preferred Shares, (iv) Series B-1, Series B-2, Series B-3 and Series B-4 Convertible Redeemable Preferred Shares (Series B Convertible Redeemable Preferred Shares), and (v) Series A Convertible Redeemable Preferred Shares. If there are any assets or funds remaining after the aggregate Series A Preference Amount, Series B Preference Amount, Series C Preference Amount, Series D Preference Amount and Series E Preference Amount have been distributed or paid in full to the applicable holders of Preferred Shares, the remaining assets and funds of the Company available for distribution to the Members shall be distributed ratably among all Members in proportion to the number of Ordinary Shares (on an as-converted basis) held by them. Total liquidation value for all preferred shares was nil. Conversion Rights The holders of the Preferred Shares shall have the rights to convert of the Preferred Shares into Ordinary Shares at an initial conversion ratio of one for one. The holders of each Convertible Redeemable Preferred Shares, at the option of the holders, has the right to convert the Convertible Redeemable Preferred Shares into Ordinary Shares at any time. Each Convertible Redeemable Preferred Share shall automatically be converted, into Ordinary Shares upon the earlier of (i) the closing of a Qualified IPO, or (ii) the written notice signed by the Majority Holders. Voting Rights The Preferred Shareholders are entitled to vote with ordinary shareholders on an as-converted basis. Redemption Upon the earlier of (a) the Company has not consummated a Qualified IPO by December 31, 2022, (b) there is a material breach of the Articles of the Memorandum, (c) the creditworthiness of any Founder or any holder of Ordinary Shares (other than any Investor) is materially damaged, or there is any fraud, gross negligence or willful misconduct of any Founder or any holder of Ordinary Shares (other than any Investor), or there is any misconduct of any Founder or any Management Director, any of which results in damages to the Group Companies that cannot be cured, or (d) any event (other than force majeure) that result in the shutdown of the website (including the main website, IOS and Android apps) of the Group for more than 60 days, the holder of each series of Convertible Redeemable Preferred Shares except for the holder of Series C-2 Convertible Redeemable Preferred Shares and Series Angel Convertible Redeemable Preferred Shares has the right to require the Company to redeem all or any number of the then outstanding Convertible Redeemable Preferred Shares at a pre-determined Redemption Price. F-31 Table of Contents Notes to the Consolidated Financial Statements (Continued) 13. Convertible redeemable preferred shares (Continued) Series D Preferred Equity (Continued) The key terms of the Preferred Shares are summarized as follows: (Continued) Redemption (Continued) The redemption right should be settled in the sequence of (i) Series E Convertible Redeemable Preferred Shares (“Series E Preferred Shares”), (ii) Series D Convertible Redeemable Preferred Shares, (iii) Series C-1 Convertible Redeemable Preferred Shares, (iv) Series B-1, Series B-2 and Series B-3 Convertible Redeemable Preferred Shares, and (v) Series A Convertible Redeemable Preferred Shares. Management of the Group evaluated that redemption was not probable and therefore did not accrete the Preferred Shares to the redemption value. The redemption value as of December 31, 2020 and 2021 would be. All of the preferred shares were converted to ordinary shares immediately upon the completion of the Group’s IPO on July 17, 2019. The following is the rollforward of the carrying amounts of Preferred Share for the years ended December 31, 2018 and 2019: Series A RMB Series B-1 RMB Series B-2 RMB Series B-3 RMB Series B-4(1) RMB Series C-1 RMB Series C-2(2) RMB Series D RMB Series E(3) RMB December 31, 2017 Issuance December 31, 2018 Conversion 106,999,090 56,187,500 464,343,750 202,671,887 — — — — 22,254,400 — 1,265,848,000 33,333,333 500,000,000 — (33,333,333) — — 4,026,518,01 106,999,090 56,187,500 464,343,750 202,671,887 22,254,400 1,265,848,000 — 500,000,000 4,026,518,01 into ordinary shares upon IPO (106,999,090) (56,187,500) (464,343,750) (202,671,887) (22,254,400) (1,265,848,000) — (500,000,000) (4,026,518,01 December 31, 2019 — — — — — — — — — (1) (2) In May 2018, the Company repurchased 125,000 ordinary shares from one of the investors and issued the corresponding number of Series B-4 Preferred Shares to the same investor with no cash consideration. The difference between the fair value of ordinary shares repurchased and that of the Series B-4 Preferred Shares issued is immaterial. In January 2018, Wuhan Douyu repurchased Series C-2 Preferred Equity from its investor at fair value for a cash consideration of RMB39,995,000. The difference of RMB6,661,667 between the consideration paid and the carrying amount of Series C-2 Preferred Equity at the date of repurchase was recorded in additional paid-in capital. (3) On May 29, 2018, the Company issued 7,828,728 shares of Series E Preferred Shares at a per-share purchase price of US$80.57 for cash consideration of RMB4,026,518,012. 14. Share-based compensation Non-vested Gogo Glocal restricted shares In connection of the acquisition of Nonolive, Gogo Glocal issued 4,900,000 ordinary shares, which represents 46% of its equity, to the founders for Nonolive. These ordinary shares are subject to transfer restriction and repurchase by the Group for a consideration of US$1 upon early termination of their requisite employment service period of 15 months. These ordinary shares are vested upon the earlier of the satisfaction of certain performance target as measured by number of Daily Active Users or the requisite service period. This arrangement has been accounted as a grant of restricted share awards subject to service and performance conditions. With the assistance of third party valuation firm, the Group used the discounted cash flow method to determine the underlying equity value of Gogo Glocal and adopted equity allocation model to determine the fair value of the restricted ordinary share as of the dates of issuance, which was determined to be RMB18.45 per share. The aggregate fair value of the restricted shares was RMB90,425,865. On September 30, 2019, the Group and the founders of Nonolive entered into another agreement to renew the arrangement. Pursuant to the agreement, (i) the Group injected additional capital of RMB100 million in Gogo Glocal; (ii) the Group repurchased 1,039,780 shares of ordinary shares from one of the founders for a consideration of US$1 due to an early termination of his requisite employment service, which was considered as a forfeiture of the unvested restricted shares; (iii) 1,696,895 ordinary shares were vested immediately, of which 444,444 shares were repurchased by the Group at fair value of RMB43.92 per share; and (iv) the remaining 2,163,325 non-vested restricted shares held by the founders are subject to transfer restriction and repurchase by the Group for a consideration of US$1 upon early termination of their renewed requisite employment service period and will be vested monthly in equal installments over the next 36 months, which was considered as a modification of unvested restricted shares. F-32 Table of Contents Notes to the Consolidated Financial Statements (Continued) 14. Share-based compensation (Continued) Non-vested Gogo Glocal restricted shares (Continued) As a result of the modification, an incremental compensation cost of RMB28,224,142 was measured as the excess of the fair value of the modified restricted share award over the fair value of the original restricted share. The fair value per share of the modified restricted shares of RMB43.92 is determined according to the share price and other pertinent factors at the modification date. (1) (2) In February 2020, the Group repurchased 1,429,906 shares of unvested restricted shares from one of the Gogo Glocal’s founders with a consideration of US$1 due to the early termination of his requisite employment service, which was considered as a forfeiture of the unvested restricted shares. In February 2020, the Group canceled 557,455 unvested restricted shares granted. The corresponding unrecognized share-based compensation expense of RMB7,451,210 was immediately recognized in the consolidated statement of comprehensive income for the year ended December 31, 2020. As of December 31, 2021, the total unrecognized share-based compensation expense was nil. For the years ended December 31, 2019, 2020 and 2021, the Group recorded compensation expenses of RMB55,275,106, RMB8,029,561 and RMB nil, respectively. Restricted share units On April 1, 2018, the Company’s board of director approved the 2018 Restricted Share Unit Scheme (“2018 Plan”). In connection with the 2018 Plan, the Company established Douyu Employee Benefit Trust (the “Trust”) as a holding platform and 2,106,321 share of ordinary shares were issued to the Trust as a reserve pool for future issuance of equity share incentive to the Group’s employees. All shareholder rights of these 2,106,321 ordinary shares including but not limited to voting rights and dividend rights are unconditionally waived until the corresponding restrict share units are vested. The Group referred to the interest in Trust as Restricted Share Units and each Restricted Share Unit represents one ordinary share. The Scheme shall be valid and effective for a period of 10 years. On April 1, 2018, pursuant to a board of director resolution, 2,098,069 restricted share units corresponding to 2,098,069 ordinary shares were granted to certain employees, directors and officers for zero cash subscription. The restricted share units will begin vesting by equal instalment for 36 months upon a qualified IPO. The Group has determined the per share fair value of the restricted share unit to be RMB274.51 with the assistance of an independent valuation firm based on the fair value of the underlying ordinary shares which was determined by using the hybrid method of the probability weighted expected return method (“PWERM”) and the option pricing method (“OPM”) to allocate equity value to preferred and ordinary shares on a fully diluted basis. A summary of restricted share units activity during the years ended December 31, 2021 is presented below: Outstanding as of December 31, 2020 Vested Forfeited Outstanding as of December 31, 2021 Number of restricted shares 1,096,667 (691,281) (3,037) 402,349 Weighted average grant-date fair value RMB 274.55 274.55 274.55 274.55 Weighted average remaining contractual life Years 1.58 0.58 The Group has recorded compensation expenses of RMB235,506,658, RMB134,124,800 and RMB132,139,458 for the years ended December 31, 2019, 2020 and 2021 relating to these restricted share units. As of December 31, 2020 and 2021, there were RMB207,249,251and RMB72,612,268, respectively, unrecognized share-based compensation expenses related to the restricted share. F-33 Table of Contents 15. Net income (loss) per share and net income (loss) attributable to ordinary shareholders Notes to the Consolidated Financial Statements (Continued) The Group’s convertible redeemable preferred shares are participating securities as the preferred shares participate in undistributed earnings on an as-if converted basis. For the year ended December 31, 2019, the Group used the two-class method of computing basic earnings per share. Under this method, net income applicable to holders of ordinary shares is allocated on a pro-rata basis to the ordinary and preferred shares to the extent that each class may share in income for the period had it been distributed. Diluted net income per share for the year ended December 31, 2019 is computed using as-if-converted method and assumes the vest of restricted share units using the treasury stock method as this method is more dilutive than the two- class method. Upon the consummation of the Company’s IPO on July 17, 2019, the convertible redeemable preferred shares were automatically converted into ordinary shares. The two-class method of computing earnings per share ceased to apply on the conversion date. Basic and diluted net income (loss) per share for each of the years presented were calculated as follows: Basic net income (loss) per share calculation Numerator: Net income (loss) attributable to DouYu Holdings Limited shareholders Amounts allocated to convertible redeemable preferred shares for 2019 RMB Years ended December 31, 2020 RMB 2021 RMB 39,753,232 485,498,597 (581,883,146) participating rights to dividends (14,283,763) — — Net income (loss) attributable to ordinary shareholders for computing basic net income (loss) per share 25,469,469 485,498,597 (581,883,146) Denominator: Weighted average number of ordinary shares used in computing basic income (loss) per ordinary share Basic net income (loss) per ordinary share 19,254,661 31,963,526 15.19 1.32 32,544,878 (17.88) Diluted net income (loss) per share calculation Numerator: Net income (loss) attributable to ordinary shareholders of DouYu Holdings Limited Add: undistributed earnings allocated to participating securities Net income (loss) attributable to ordinary shareholders for computing diluted 25,469,469 485,498,597 (581,883,146) — 14,283,763 — net income (loss) per ordinary share 39,753,232 485,498,597 (581,883,146) Denominator: Weighted average number of ordinary shares used in computing basic income (loss) per ordinary share 19,254,661 31,963,526 32,544,878 Add: conversion of convertible redeemable preferred shares into ordinary shares Restricted Share Units Weighted average ordinary shares used in computing diluted income (loss) per ordinary share Diluted net income (loss) per ordinary share 10,798,380 1,389,890 — 1,049,156 — — 31,442,931 33,012,682 32,544,878 1.26 14.71 (17.88) F-34 Table of Contents 15. Net income (loss) per share and net income(loss) attributable to ordinary shareholders (Continued) Notes to the Consolidated Financial Statements (Continued) As of December 31, 2019, 2020 and 2021, diluted net loss per share does not include the following instruments as their inclusion would be antidilutive: Restricted share units — — Years ended December 31, 2020 RMB 2019 RMB 2021 RMB 321,378 16. Statutory reserves and restricted net assets As a result of the PRC laws and regulations and the requirement that distributions by PRC entities can only be paid out of distributable profits computed in accordance with PRC GAAP, the PRC entities are restricted from transferring a portion of their net assets to the Group. Amounts restricted include paid-in capital, additional paid-in capital, and the statutory reserves of the Company’s PRC subsidiaries and VIEs. As of December 31, 2021, total restricted net assets were RMB3,486,367,108. 17. Segment Information The Group uses the management approach to determine operation segments. The management approach considers the internal organization and reporting used by the Group’s chief operating decision maker (“CODM”) for making decisions, allocation of resources and assessing performance. The Group’s CODM has been identified as the chief executive officer who reviews the consolidated results of operations when making decisions about allocating resources and assessing performance of the Group. The Group operates and manages its business as a single operating segment. The following table summarizes the revenue by type of service provided by the Group: Live streaming Advertisement Other Total 2019 RMB Years ended December 31, 2020 RMB 6,617,291,032 8,852,225,839 8,596,599,175 513,265,806 645,227,128 464,866,153 152,673,415 104,420,970 103,865,432 7,283,230,253 9,601,873,937 9,165,330,760 2021 RMB 99.5%, 98.8% and 97.9% of the Group’s revenue for the years ended December 31, 2019, 2020 and 2021, respectively, were generated from the PRC. As of December 31, 2020 and 2021, 100% and 100% of long-lived assets of the Group were located in the PRC. There were no customers from whom revenue accounted for 10% or more of total revenue for the years ended December 31, 2019, 2020 and 2021, respectively. F-35 Table of Contents 18. Related party transactions The table below sets forth major related parties and their relationships with the Group: Notes to the Consolidated Financial Statements (Continued) Company Name Tencent Holdings Limited (“Tencent Group”) Parent company of one of our ordinary shareholders Relationship with the Group For the years ended December 31, 2019, 2020 and 2021, significant related party transactions were as follows: Live streaming revenue derived from Equity method investees- talent agencies Advertisement revenue derived from Tencent Group Other revenue derived from Tencent Group Equity method investees- talent agencies Total Bandwidth fees paid to Tencent Group Revenue sharing fees and content cost paid to Tencent Group Equity method investees- talent agencies Total Payment handling fees paid to Tencent Group Content rights purchased from Tencent Group 2019 RMB Years ended December 31, 2020 RMB 2021 RMB 78,933,963 23,679,248 — 2,699,737 743,697 17,190,776 26,581,068 — 26,581,068 8,282,751 12,709,293 — 8,487,284 12,709,293 204,533 230,752,735 212,785,773 240,737,980 4,986,374 510,285 715,473,955 435,496,349 361,296,329 720,460,329 441,698,772 361,806,614 6,202,423 29,546,113 36,033,966 33,693,357 112,354,423 75,528,302 304,500,878 F-36 Table of Contents Notes to the Consolidated Financial Statements (Continued) 18. Related party transactions (Continued) As of December 31, 2019, 2020 and 2021, the amounts due from/to related parties are as follows: Amounts due from related parties Tencent Group Equity method investees- talent agencies Total Amounts due to related parties Tencent Group Equity method investees- talent agencies Total 19. Leases 2019 RMB Years ended December 31, 2020 RMB 2021 RMB 23,935,019 108,831 24,043,850 9,045,078 37,158,946 — 9,045,078 37,158,946 — 251,069,127 201,579,602 255,438,628 47,663,895 21,945,327 38,069,178 298,733,022 223,524,929 293,507,806 The Group’s leases consist of operating leases for administrative office spaces in different cities of Asia. As of December 31, 2021 the Group had no long-term leases that were classified as a financing lease. For the years ended December 31, 2020 and 2021, the lease expense is as: Operating lease expense Short-term lease expense Total lease expense Year ended December 31, 2020 RMB 44,300,218 7,781,246 52,081,464 Year ended December 31, 2021 RMB 46,120,215 2,256,674 48,376,889 F-37 Table of Contents 19. Leases (Continued) Notes to the Consolidated Financial Statements (Continued) Supplemental consolidated balance sheet information related to leases was as follows: Operating lease: Operating leases right-of-use assets Current portion of lease liabilities Non-current portion of lease liabilities Total operating lease liabilities Weighted-average remaining lease term (in years) – operating leases Weighted-average discount rate – operating leases Supplemental cash flow information related to leases are as follows: Cash paid for operating leases Lease liabilities arising from obtaining right-of-use assets As of December 31, 2020 RMB 62,141,054 36,280,773 16,951,948 53,232,721 1.75 4.25% As of December 31, 2021 RMB 72,309,492 30,417,376 31,278,210 61,695,586 2.08 4.65% For the year ended December 31,2020 RMB For the year ended December 31,2021 RMB 54,493,222 47,825,788 25,873,961 56,288,653 As of December 31, 2021, future minimum lease payments under non-cancellable operating lease agreements for which the Group has recognized operating lease right-of-use assets and liabilities are as follows: Years ending 2022 2023 2024 2025 and thereafter Total undiscounted cash flows Less: imputed interest Total Lease liabilities due within one year Lease liabilities due after one year F-38 RMB 31,896,262 20,657,789 12,039,468 41,850 64,635,369 2,939,783 61,695,586 30,417,376 31,278,210 Table of Contents 20. Commitments and contingencies Litigations Notes to the Consolidated Financial Statements (Continued) In March and April 2020, the Company and certain of the Company’s current and former officers and directors were named as defendants in several putative securities class actions filed with the state and federal courts in the United States, alleging that the Company made material misstatements and omissions in its initial public offering registration statement. The cases allege claims under the United Sates Securities Act of 1933. The actions have been transferred and consolidated into the two pending actions: In re Douyu Int’l Holdings Ltd. Secs. Litig., Index No. 651703/2020 (Sup. Ct. N.Y. Cty.) (the “Consolidated State Court Action”), and In re Douyu Int’l Holdings Ltd. Secs. Litig., 20-cv-7234 (S.D.N.Y.) (the “Consolidated Federal Court Action”). The Company is in the process to settle both the Consolidated State Court Action and the Consolidated Federal Court Action and has reached an agreement in principle with the plaintiffs. The settlement in principle is contingent on the negotiation and execution of a stipulation of settlement and subject to approval from the state court. 21. Subsequent events As of March 31, 2022, the Company repurchased 804,759 of ordinary shares under the 2021 Share Repurchase Program for cash consideration of US$17,158,573 (equivalent of RMB108,966,882). F-39 Table of Contents SCHEDULE I—ADDITIONAL INFORMATION OF THE PARENT COMPANY DOUYU INTERNATIONAL HOLDINGS LIMITED CONDENSED BALANCE SHEETS 2020 RMB As of December 31, 2021 RMB US$ ASSETS Current assets: Cash and cash equivalents Short-term deposits Prepayments Other current assets Amounts due from subsidiaries and VIEs Total current assets Other non-current assets Investments in subsidiaries and VIEs Total assets LIABILITIES Current liabilities: Accrued expenses and other current liabilities Amounts due to subsidiaries and VIEs Deferred revenue Total current liabilities Non-current liabilities Total liabilities Shareholders’ equity (deficit) Ordinary shares Treasury share Additional paid-in capital Accumulated deficit Accumulated other comprehensive income Total shareholders’ equity TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY F-40 4,449,399,546 4,206,259,255 660,053,863 956,355,000 150,072,969 1,370,229,000 1,800,876 889,759 2,297,958 24,267,221 — 38,099,544 5,882,885,070 5,188,734,479 814,225,666 — 1,118,657,273 1,158,038,640 181,721,531 7,001,542,343 6,346,773,119 995,947,197 11,476,260 14,643,964 — — — 19,118,882 317,218 12,311,427 31,747,527 30,778,568 62,526,095 57,801,248 309,967 12,029,913 70,141,128 18,044,867 88,185,995 9,070,277 48,641 1,887,756 11,006,674 2,831,633 13,838,307 23,043 22,630 (695,097,853) 3,616 (802,249,761) (125,890,494) 10,486,398,881 10,618,537,927 1,666,280,314 (540,611,745) (2,863,219,263) (3,445,102,409) (17,672,801) (112,621,676) 6,939,016,248 6,258,587,124 982,108,890 7,001,542,343 6,346,773,119 995,947,197 10,911,853 Table of Contents SCHEDULE I—ADDITIONAL INFORMATION OF THE PARENT COMPANY DOUYU INTERNATIONAL HOLDINGS LIMITED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) General and administrative expenses Research and development expenses Other operating income (expense), net Interest income Equity (deficit) in equity of subsidiaries and VIE Net income (loss) Other comprehensive income (loss): Foreign currency translation adjustment Comprehensive income (loss) 2019 RMB Years ended December 31, 2020 RMB RMB 2021 US$ — (41,464,310) (63,824,140) (83,456,188) (13,096,097) (385,221) (2,454,862) (3,787,468) (3,823,818) 6,508,518 13,014,651 (24,367,660) 148,245,151 116,756,835 33,567,582 5,267,486 (73,536,127) 423,338,719 (505,172,018) (79,272,512) 39,753,232 485,498,597 (581,883,146) (91,310,162) 109,300,777 (423,982,137) (123,533,529) (19,385,105) 149,054,009 61,516,460 (705,416,675) (110,695,267) F-41 Table of Contents SCHEDULE I—ADDITIONAL INFORMATION OF THE PARENT COMPANY DOUYU INTERNATIONAL HOLDINGS LIMITED CONDENSED STATEMENTS OF CASH FLOWS 2019 RMB Years ended December 31, 2020 RMB RMB 2021 US$ 39,753,232 485,498,597 (581,883,146) (91,310,162) 73,536,127 23,241,480 (423,338,719) 505,172,018 12,144,578 16,059,123 79,272,512 1,905,749 CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) Adjustments to reconcile net loss to net cash provided by operating activities: Loss from equity in earnings of subsidiaries and VIEs Share-based compensation Changes in operating assets and liabilities: Prepayments Other current assets Amounts due from subsidiaries and VIEs Accrued expenses and other current liabilities Other liabilities CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES Proceeds from disposal of short-term investments Purchases of short-term investments Investment in subsidiaries CASH USED IN INVESTING ACTIVITIES Proceeds on issuance of ordinary shares through IPO Payment of deferred offering costs Repurchase of ordinary shares (425,088,709) (424,558,504) (10,684,504) — — (579,824,528) (107,151,908) (579,824,528) (107,151,908) CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES Effect of foreign exchange rate changes (424,004,077) (123,540,779) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,382,843,042 (2,691,177,986) (243,140,291) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR CASH AND CASH EQUIVALENTS AT YEAR END (151,881,863) (151,881,863) (1,795,317,709) — 3,422,497,233 (36,249,484) — (115,273,325) 3,270,974,424 109,306,264 (10,586,501) 9,623,257 38,099,544 38,682,365 (13,015,215) (1,763,100) (51,361) 32,573,755 1,895,888 11,474,356 (16,143,311) 107,968,328 (1,661,254) (789,065) 1,510,099 3,661,959 5,978,650 (39,995,000) 6,070,107 (4,197,822) (2,042,371) 59,233,306 (276,670) 154,444,217 — — 1,370,229,000 215,018,831 — (1,370,229,000) (956,355,000) (150,072,969) (66,622,494) (1,676,632) — — (16,814,473) (16,814,473) (19,386,244) (38,154,019) 3,757,734,490 7,140,577,532 4,449,399,546 698,207,882 7,140,577,532 4,449,399,546 4,206,259,255 660,053,863 Supplemental disclosure on non-cash investing and financing activities: Payable for repurchase of ordinary shares not yet paid 53,293,800 — — — F-42 Table of Contents SCHEDULE I—NOTES TO CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY 1. Schedule I has been provided pursuant to the requirements of Rule 12-04(a) and 5-04(c) of Regulation S-X, which require condensed financial information as to the financial position, changes in financial position and results of operations of a parent company as of the same date and for the same period for which audited consolidated financial statements have been presented when the restricted net assets of consolidated subsidiaries exceed 25 percent of consolidated net assets as of the end of the most recently completed fiscal year. 2. The condensed financial information has been prepared using the same accounting policies as set out in the consolidated financial statements except that the equity method has been used to account for investments in its subsidiaries and VIEs. For the parent company, the Company records its investments in subsidiaries and VIEs under the equity method of accounting as prescribed in ASC 323, Investments— Equity Method and Joint Ventures. Such investments are presented on the Condensed Balance Sheet as “Investments in subsidiaries and VIEs” and the subsidiaries and VIEs’ profit or loss as “Loss from equity in earnings of subsidiaries and VIEs” on the Condensed Statements of Comprehensive Income (loss). Ordinarily under the equity method, an investor in an equity method investee would cease to recognize its share of the losses of an investee once the carrying value of the investment has been reduced to nil absent an undertaking by the investor to provide continuing support and fund losses. For the purpose of this Schedule I, the parent company has continued to reflect its share, based on its proportionate interest, of the losses of subsidiaries and VIE regardless of the carrying value of the investment even though the parent company is not obligated to provide continuing support or fund losses. 3. For the years ended December 31, 2019, 2020 and 2021, there were no material contingencies, significant provisions of long-term obligations, guarantees of the Company. 4. Translations of balances in the additional financial information of Parent Company—Financial Statements Schedule I from RMB into US$ as of and for the year ended December 31, 2021 are solely for the convenience of the readers and were calculated at the rate of US$1.00= RMB6.3726, as set forth in H.10 statistical release of the Federal Reserve Board on December 30, 2021 The translation is not intended to imply that the RMB amounts could have been, or could be, converted, realized or settled into United States dollars at that rate on December 31, 2021, or at any other rate. F-43 Exhibit 2.5 DESCRIPTION OF SECURITIES REGISTERED UNDER SECTION 12 OF THE SECURITIES EXCHANGE ACT OF 1934 (THE “EXCHANGE ACT”) As of December 31, 2021, DouYu International Holdings Limited (“we,” “us,” and “our”) had the following series of securities registered pursuant to Section 12(b) of the Exchange Act: Title of each class American depositary shares, every 10 American depositary shares represent one ordinary share, par value US$ 0.0001 per share Trading symbol DOYU Name of each exchange on which registered The Nasdaq Global Select Market Ordinary shares, par value US$0.0001 per share* N/A The Nasdaq Global Select Market * Not for trading, but only in connection with the listing of the American depositary shares on the Nasdaq Global Select Market. American Depositary Shares (“ADSs”), every 10 American depositary ordinary shares represent one ordinary share, par value US$0.0001 per share (the “ordinary shares”), have been available in the US through an American Depositary Receipt (“ADR”) program since July 2019. This program was established pursuant to the deposit agreement that we entered into with JPMorgan Chase Bank, N.A. (“JPMorgan Chase”), as depositary (“Deposit Agreement”). Our ADRs have been listed on the Nasdaq Global Select Market (“Nasdaq”) since July 2019 and are traded under the symbol DOYU. In connection therewith, the ordinary shares are registered under Section 12(b) of the Exchange Act. This exhibit contains a description of the rights of (i) the holders of ordinary shares and (ii) ADR holders. The ordinary shares underlying the ADSs are held by JPMorgan Chase, the depositary, and holders of ADSs will not be treated as holders of the ordinary shares. DESCRIPTION OF ORDINARY SHARES The following is a summary of material provisions of our currently effective Fourth Amended and Restated Memorandum and Articles of Association (the “Fourth Memorandum and Articles of Association”), as well as the Companies Law (as amended) 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 not contain all the information that you may otherwise deem important. For more complete information, you should read the entire Fourth Memorandum and Articles of Association, which has been filed with the Securities and Exchange Commission (the “SEC”) as an exhibit to our Registration Statement on Form F-1 (File No. 333-230976), as amended, initially filed with the SEC on April 22, 2019. Type and Class of Securities (Item 9.A.5 of Form 20-F) Each of our ordinary shares has nominal value of US$0.0001 per share. The respective number of our ordinary shares that have been issued as of December 31, 2021 is provided on the cover of the annual report on Form 20-F filed on April 29, 2022 (the “2021 Form 20-F”). Our ordinary shares may be held in either certificated or uncertificated form. Certificates representing the ordinary shares are issued in registered form. We may not issue share to bearer. Our shareholders who are non-residents of the Cayman Islands may freely hold and transfer their ordinary shares. All of our ordinary shares have equal voting rights and carry equal entitlements to dividends. No participation certificates, non-voting equity securities or profit-sharing certificates have been issued. 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) Not applicable. Rights of Other Types of Securities (Item 9.A.7 of Form 20-F) Not applicable. Rights of Ordinary Shares (Item 10.B.3 of Form 20-F) General Our authorized share capital is US$100,000 divided into (i) 500,000,000 ordinary shares of a nominal or par value of US$0.0001 each, and (ii) 500,000,000 shares of a par value of US$0.0001 as our board of directors may determine in accordance with our Fourth Amended and Restated Memorandum and Articles of Association. Holders of our ordinary shares will have the same rights except for voting and conversion rights. All of our issued and outstanding ordinary shares are fully paid and non-assessable. Dividends The holders of our ordinary shares are entitled to such dividends as may be declared by our board of directors subject to our Fourth Amended and Restated Memorandum and Articles of Association and the Companies Law. In addition, our shareholders may by ordinary resolution declare a dividend, but no dividend may exceed the amount recommended by our directors. No dividend may be declared and paid unless our directors determine that, immediately after the payment, we will be able to pay our debts as they become due in the ordinary course of business and we have funds lawfully available for such purpose. Voting Rights In respect of all matters subject to a shareholders’ vote, each ordinary share is entitled to one vote for each ordinary share registered in his or her name on our register of members. Voting at any meeting of shareholders is by show of hands unless a poll is demanded. A poll may be demanded by the chairman of such meeting or any one shareholder. A quorum required for a meeting of shareholders consists of one or more shareholders holding not less than one-third of the votes attaching to the issued and outstanding shares entitled to vote at general meetings present in person or by proxy or, if a corporation or other non-natural person, by its duly authorized representative. As a Cayman Islands exempted company, we are not obliged by the Companies Law to call shareholders’ annual general meetings. Our Fourth Amended and Restated Memorandum and Articles of Association provide that we may (but are not obliged to) in each year hold a general meeting as our annual general meeting in which case we will specify the meeting as such in the notices calling it, and the annual general meeting will be held at such time and place as may be determined by our directors. We, however, will hold an annual shareholders’ meeting during each fiscal year, as required by the Listing Rules at the Nasdaq. Each general meeting, other than an annual general meeting, shall be an extraordinary general meeting. Shareholders’ annual general meetings and any other general meetings of our shareholders may be called by a majority of our board of directors or our chairman or upon a requisition of shareholders holding at the date of deposit of the requisition not less than one-third of the votes attaching to the issued and outstanding shares entitled to vote at general meetings, in which case the directors are obliged to call such meeting and to put the resolutions so requisitioned to a vote at such meeting; however, our Fourth Amended and Restated Memorandum and Articles of Association do not provide our shareholders with any right to put any proposals before 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 meeting and other general meetings unless such notice is waived in accordance with our articles of association. An ordinary resolution to be passed at a meeting by the shareholders requires the affirmative vote of a simple majority of the votes attaching to the ordinary shares cast by those shareholders entitled to vote who are present in person or by proxy at a general meeting, while a special resolution also requires the affirmative vote of no less than two-thirds of the votes attaching to the ordinary shares cast by those shareholders entitled to vote who are present in person or by proxy at a general meeting. A special resolution will be required for important matters such as making changes to our Fourth Amended and Restated Memorandum and Articles of Association. Transfer of Ordinary Shares Subject to the restrictions in our Fourth Amended and Restated Memorandum and Articles of Association as set out below, any of our shareholders may transfer all or any of his or her ordinary shares 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 on which 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 other evidence 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 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 exceed four; and a fee of such maximum sum as the Nasdaq may determine to be payable or such lesser sum as our directors may from time to time require is paid to us in respect thereof. If our directors refuse to register a transfer they shall, within one month after the date on which the instrument of transfer was lodged, send to each of the transferor and the transferee notice of such refusal. The registration of transfers may, on ten calendar days’ notice being given by advertisement in such one or more newspapers or by electronic means, or after compliance with any notice required of the Nasdaq, be suspended and the register of members 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 of members closed for more than 30 calendar days in any year. Liquidation On a return of capital on winding up or otherwise (other than on conversion, redemption or purchase of ordinary shares), if the assets available for distribution amongst our shareholders shall be more than sufficient to repay the whole of the share capital at the commencement of the winding up, the surplus shall be distributed amongst our shareholders in 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 in respect of which there are monies due, of all monies payable to our company for unpaid calls or otherwise. If our assets available for distribution are 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 the par value of the shares held by them. Any distribution of assets or capital to a holder of ordinary share will be the same in any liquidation event. Redemption, Repurchase and Surrender of Ordinary Shares We may issue shares on terms that such shares are subject to redemption, at our option or at the option of the holders thereof, on such terms and in such manner as may be determined, before the issue of such shares, by our board of directors or by an ordinary resolution of our shareholders. Our company may also repurchase any of our shares provided that the manner and terms of such purchase have been approved by our board of directors or by ordinary resolution of our shareholders, or are otherwise authorized by our Fourth Amended and Restated Memorandum and Articles of Association. Under the Companies Law, the redemption or repurchase of any share may be paid out of our company’s profits or out of the proceeds of a fresh issue of shares made for the purpose of such redemption or repurchase, or out of capital (including share premium account and capital redemption reserve) if the company can, immediately following such payment, pay its debts as they fall due in the ordinary course 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 such redemption or repurchase would result in there being no shares issued and outstanding, or (c) if the company has commenced liquidation. In addition, our company may accept the surrender of any fully paid share for no consideration. Requirements to Change the Rights of Holders of 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 or series of shares, the rights attached to any class or series of shares (unless otherwise provided by the terms of issue of the shares of that class or series), whether or not our company is being wound- up, may be varied with the consent in writing of the holders of not less than two-thirds of the issued shares of the relevant class, or with the sanction of a resolution passed at a separate meeting of the holders of the shares of such class by the holders of two-thirds of the votes cast at such a meeting. 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 adversely varied by the creation or issue of further shares ranking pari passu with such existing class of shares. Limitations on the Rights to Own Ordinary Shares (Item 10.B.6 of Form 20-F) There are no limitations under the laws of the Cayman Islands or under the Fourth Amended and Restated Memorandum and Articles of Association that limit the right of non-resident or foreign owners to hold or vote ordinary shares, other than anti-takeover provisions contained in the Fourth Amended and Restated Memorandum and Articles of Association to limit the ability of others to acquire control of our company or cause our company to engage in change-of-control transactions. Provisions Affecting Any Change of Control (Item 10.B.7 of Form 20-F) Anti-Takeover Provisions Some provisions of our Fourth Amended and Restated Memorandum and Articles of Association may discourage, delay or prevent a change of control of our company or management that shareholders may consider favorable, including provisions that authorize our board of directors to issue preferred shares in one or more series and to designate the price, rights, preferences, privileges and restrictions of such preferred shares without any further vote or action by our shareholders. Under Cayman Islands law, our directors may only exercise the rights and powers granted to them under the Fourth Memorandum and Articles 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 under the law of the Cayman Islands or under the Fourth Amended and Restated Memorandum and Articles of Association that govern the ownership threshold above which shareholder ownership must be disclosed. Differences between the Law of Different Jurisdictions (Item 10.B.9 of Form 20-F) We were incorporated under, and are governed by, the laws of the Cayman Islands. The Companies Law is derived, to a large extent, from the older Companies Acts of England, but does not follow many recent English law statutory enactments. In addition, the Companies Law differs from laws applicable to United States corporations and their shareholders. Set forth below is a summary of the significant differences between the provisions of the Companies Law applicable to us and the laws applicable to companies incorporated in the State of Delaware. Mergers and Similar Arrangements The Companies Law permits mergers and consolidations between Cayman Islands companies and between Cayman Islands companies and non- Cayman Islands companies. For these purposes, (a) “merger” means the merging of two or more constituent 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 each constituent company must approve a written plan of merger or consolidation, which must then be authorized by (a) a special resolution of the shareholders of each constituent company, and (b) such other authorization, if any, as may be specified in such constituent company’s articles of association. The written plan of merger or consolidation must be filed with the Registrar of Companies of the Cayman Islands together with a declaration as to the solvency of the consolidated or surviving company, a declaration as to the assets and liabilities of each constituent company and an undertaking that a copy of the certificate of merger or consolidation will be given to the members and creditors of each constituent company and that notification of the merger or consolidation will be published in the Cayman Islands Gazette. Court approval is not required for a merger or consolidation which is effected in compliance with these statutory procedures. A merger between a Cayman parent company and its Cayman subsidiary or subsidiaries does not require authorization by a resolution of shareholders of that Cayman subsidiary if a copy of the plan of merger is given to every member of that Cayman subsidiary to be merged unless that member agrees otherwise. For this purpose a company is a “parent” of a subsidiary if it holds issued shares that together represent at least ninety 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 waived by 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 is entitled to payment of the fair value of his shares (which, if not agreed between the parties, will be determined by the Cayman Islands court) upon dissenting 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 be entitled 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 that facilitate the reconstruction and amalgamation of companies by way of schemes of arrangement, provided that the arrangement is approved by a majority 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 a meeting, or meetings, convened for that purpose. The convening of the meetings and subsequently the arrangement must be sanctioned by the Grand 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 be approved, 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 without coercion 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 his interest; 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 a dissenting minority shareholder upon a tender offer. When a tender offer is made and accepted by holders of 90.0% 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 to transfer 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 unlikely to 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 no rights comparable to appraisal rights, which would otherwise ordinarily be available to dissenting shareholders of Delaware corporations, providing rights to receive payment in cash for the judicially determined value of the shares. Shareholders’ Suits In principle, we will normally be the proper plaintiff to sue for a wrong done to us as a company, and as a general rule a derivative action may not be brought by a minority shareholder. However, based on English authorities, which would in all likelihood be of persuasive authority in the Cayman Islands, the Cayman Islands court can be expected to follow and apply the common law principles (namely the rule in Foss v. Harbottle and the exceptions thereto) which permit a minority shareholder to commence a class action against or derivative actions in the name of the company to challenge actions where: • • • a company acts or proposes to act illegally or ultra vires; an action which requires a resolution with a qualified (or special) majority which has not 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 a company’s memorandum and articles of association may provide for indemnification of officers and directors, except to the extent any such provision may be held by the Cayman Islands courts to be contrary to public policy, such as to provide indemnification against civil fraud or the consequences of committing a crime. Our Fourth Amended and Restated Memorandum and Articles of Association provide that that we shall indemnify our officers and directors against all actions, proceedings, costs, charges, expenses, losses, damages or liabilities incurred or sustained by such directors or officer, other than by reason of such person’s dishonesty, willful default or fraud, in or about the conduct of our company’s business or affairs (including as a result of any mistake of judgment) or in the execution or discharge of his duties, powers, authorities or discretions, including without prejudice to the generality of the foregoing, any costs, expenses, losses or liabilities incurred by such director or officer in defending (whether successfully or otherwise) any civil proceedings concerning our company or its affairs in any court whether in the Cayman Islands or elsewhere. This standard of conduct is generally the same as permitted under the Delaware General Corporation Law for a Delaware corporation. In addition, we have entered into indemnification agreements with our directors and executive officers that provide such persons with additional indemnification beyond that provided in our Fourth Amended and Restated Memorandum and Articles of Association. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers or persons controlling us under the foregoing provisions, we have been informed that in the opinion of the SEC, such indemnification is against public policy as expressed in 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 corporation and 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 good faith, with the care that an ordinarily prudent person would exercise under similar circumstances. Under this duty, a director must inform himself of, and disclose to shareholders, all material information reasonably available regarding a significant transaction. The duty of loyalty requires that a director acts in a manner he reasonably believes to be in the best interests of the corporation. He must not use his corporate position for personal gain or advantage. This duty prohibits self-dealing by a director and mandates that the best interest of the corporation and its shareholders take precedence 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 the best interests of the corporation. However, this presumption may be rebutted by evidence of a breach of one of the fiduciary duties. Should such evidence be presented concerning a transaction by a director, the director must prove the procedural fairness of the transaction, and that the transaction 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 company and 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 duty not to make a profit based on his position as director (unless the company permits him to do so), a duty not to put himself in a position where the interests of the company conflict with his personal interest or his duty to a third party, and a duty to exercise powers for the purpose for which such powers were intended. A director of a Cayman Islands company owes to the company a duty to act with skill and care. It was previously considered that a director need not exhibit in the performance of his duties a greater degree of skill than may reasonably be expected from a person of his knowledge and experience. However, English and Commonwealth courts have moved towards an objective standard with regard to the required skill and care and these authorities are likely to be followed in the Cayman Islands. Shareholder Action by Written Consent Under the Delaware General Corporation Law, a corporation may eliminate the right of shareholders to act by written consent by amendment to its certificate of incorporation. The Companies Law and our Fourth Amended and Restated Memorandum and Articles of Association provide that our shareholders may approve corporate matters by way of a unanimous written resolution signed 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. Shareholder Proposals Under the Delaware General Corporation Law, a shareholder has the right to put any proposal before the annual meeting of shareholders, provided it complies with the notice provisions in the governing documents. A special meeting may be called by the board of 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 shareholders with any right to put any proposal before a general meeting. However, these rights may be provided in a company’s articles of association. Our Fourth Amended and Restated Memorandum and Articles of Association allow our shareholders holding in aggregate not less than one-third of all votes attaching to the issued and outstanding shares of our company entitled to vote at general meetings to requisition an extraordinary general meeting of our shareholders, in which case our board is obliged to convene an extraordinary general meeting and to put the resolutions so requisitioned to a vote at such meeting. Other than this right to requisition a shareholders’ meeting, our Fourth Amended and Restated Memorandum and Articles of Association do not provide our shareholders with any other right to put proposals before annual general meetings or extraordinary general meetings not called by such shareholders. As an exempted Cayman Islands company, we are not obliged by law to call shareholders’ annual general meetings. Cumulative Voting Under the Delaware General Corporation Law, cumulative voting for elections of directors is not permitted unless the corporation’s certificate of incorporation specifically provides for it. Cumulative voting potentially facilitates the representation of minority shareholders on a board of directors since it permits the minority shareholder to cast all the votes to which the shareholder is entitled on a single director, which increases the shareholder’s voting power with respect to electing such director. There are no prohibitions in relation to cumulative voting under the laws of the Cayman Islands but our Fourth Amended and Restated Memorandum and Articles of Association do not provide for cumulative voting. As a result, our shareholders are not afforded any less protections or rights on this issue than shareholders of a Delaware corporation. Removal of Directors Under the Delaware General Corporation Law, a director of a corporation with a classified board may be removed only for cause with the approval of a majority of the outstanding shares entitled to vote, unless the certificate of incorporation provides otherwise. Under our Fourth Amended and Restated Memorandum and Articles of Association, directors elected by a specified group of persons may only be removed by such group, and the other directors may be removed by the board, with or without cause. A director shall hold office until the expiration of his or her term or his or her successor shall have been elected and qualified, or until his or her office is otherwise vacated. In addition, a director’s office shall be vacated if the director (i) becomes bankrupt or makes any arrangement or composition with his creditors; (ii) is found to be or becomes of unsound mind; (iii) resigns his office by notice in writing; (iv) is prohibited by any applicable laws or regulations of the Nasdaq from being a director; (v)without special leave of absence from our board of directors, is absent from three consecutive meetings of the board and the board resolves that his office be vacated; or (vi) is removed from office pursuant to any other provisions of our Fourth Amended and Restated Memorandum and Articles of Association. Transactions with Interested Shareholders The Delaware General Corporation Law contains a business combination statute applicable to Delaware corporations whereby, unless the corporation has specifically elected not to be governed by such statute by amendment to its certificate of incorporation, it is prohibited from engaging in certain business combinations with an “interested shareholder” for three years following the date that 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 make a 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 the date on which such shareholder becomes an interested shareholder, the board of directors approves either the business combination or the transaction which resulted in the person becoming an interested shareholder. This encourages any potential acquirer of a Delaware corporation to negotiate 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 Delaware business combination statute. However, although Cayman Islands law does not regulate transactions between a company and its significant shareholders, the directors of the company are required to comply with fiduciary duties which they owe to the company under Cayman Islands laws, including the duty to ensure that, in their opinion, any such transactions must be entered into bona fide in the best interests of the company, and are entered into for a proper corporate purpose and not with the effect of constituting 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 the board of directors may it be approved by a simple majority of the corporation’s outstanding shares. Delaware law allows a Delaware corporation to include in its certificate of incorporation a supermajority voting requirement in connection with dissolutions initiated by the board. Under the Companies Law, a company may be wound up by either an order of the courts of the Cayman Islands or by a special resolution of 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 to order 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 the Companies Law and our Fourth Amended and Restated Memorandum and Articles of Association, our company may be dissolved, liquidated or wound 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 with the approval of a majority of the outstanding shares of such class, unless the certificate of incorporation provides otherwise. Under Cayman Islands law and our Fourth Amended and Restated Memorandum and Articles of Association, if our share capital is divided into more than one class of shares, we may vary the rights attached to any class with the written consent of the holders of not less than 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 votes cast at such a meeting. Amendment of Governing Document Under the Delaware General Corporation Law, a corporation’s governing documents may be amended with the approval of a majority of the outstanding shares entitled to vote, unless the certificate of incorporation provides otherwise. Under the Companies Law and our Fourth Amended and Restated Memorandum and Articles of Association, our memorandum and articles of association may only be amended by a special resolution of our shareholders. Rights of Nonresident or Foreign Shareholders There are no limitations imposed by our Fourth Amended and Restated Memorandum and Articles of Association on the rights of nonresident or foreign shareholders to hold or exercise voting rights on our shares. In addition, there are no provisions in our Fourth Amended and Restated Memorandum and Articles of Association governing the ownership threshold above which shareholder ownership must be disclosed. Exempted Company We are an exempted company with limited liability under the Companies Law. The Companies Law distinguishes between ordinary resident companies and exempted companies. Any company that is registered in the Cayman Islands but conducts business mainly outside the Cayman Islands may apply to be registered as an exempted company. The requirements for an exempted company 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 of the Cayman Islands; is not required to open its register of members for inspection; does not have to hold an annual general meeting; may issue 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 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 that shareholder’s shares of the company, except in exceptional circumstances, such as involving fraud, the establishment of an agency relationship or an illegal or improper purpose 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) We may from time to time by ordinary resolution increase the share capital by such sum, to be divided into shares of such classes and amount, as the resolution shall prescribe. We may by ordinary resolution: • • • • increase its share capital by new shares of such amount as the resolution shall prescribe and with such rights, priorities and privileges annexed thereto, as we may determine in general meeting; consolidate and divide all or any of its share capital into shares of a larger amount than its existing shares; subdivide its shares, or any of them, into shares of an amount smaller than that fixed by our Fourth Amended and Restated Memorandum and Articles of Association, provided that in the subdivision the proportion between the amount paid and the amount, if any, unpaid on each reduced share shall be the same as it was in case of the Share from which the reduced share is derived; and cancel any shares that, at the date of the passing of the resolution, have not been taken or agreed to be taken by any person and diminish the amount of its share capital by the amount of the shares so cancelled. We may by special resolution reduce its share capital and any capital redemption reserve in any manner authorised by the Companies Law. Item 12. A Debt Securities Not applicable Item 12. B Warrants and Rights Not applicable Item 12. C Other Securities Not applicable DESCRIPTION OF AMERICAN DEPOSITARY SHARES (ITEMS 12.D.1 AND 12.D.2 OF FORM 20-F) JPMorgan Chase, as depositary, issues the ADSs. Every 10 American depositary shares represent one ordinary share, par value US$0.0001 per share, deposited with the custodian, as agent of the depositary, under the deposit agreement among ourselves, the depositary, yourself as an ADR holder and all other ADR holders, and all beneficial owners of an interest in the ADSs evidenced by ADRs from time to time. The depositary’s office is located at 383 Madison Avenue, Floor 11, New York, NY 10179. The ADS to share ratio is subject to amendment as provided in the form of ADR (which may give rise to fees contemplated by the form of ADR). In the future, each ADS also represents any securities, cash or other property deposited with the depositary but which they have not distributed directly to you. A beneficial owner is any person or entity having a beneficial ownership interest ADSs. A beneficial owner need not be the holder of the ADR evidencing such ADS. If a beneficial owner of ADSs is not an ADR holder, it must rely on the holder of the ADR(s) evidencing such ADSs in order to assert any rights or receive any benefits under the deposit agreement. A beneficial owner shall only be able to exercise any right or receive any benefit under the deposit agreement solely through the holder of the ADR(s) evidencing the ADSs owned by such beneficial owner. The arrangements between a beneficial owner of ADSs and the holder of the corresponding ADRs may affect the beneficial owner’s ability to exercise any rights it may have. An ADR holder shall be deemed to have all requisite authority to act on behalf of any and all beneficial owners of the ADSs evidenced by the ADRs registered in such ADR holder’s name for all purposes under the deposit agreement and ADRs. The depositary’s only notification obligations under the deposit agreement and the ADRs is to registered ADR holders. Notice to an ADR holder shall be deemed, for all purposes of the deposit agreement and the ADRs, to constitute notice to any and all beneficial owners of the ADSs evidenced by such ADR holder’s ADRs. Unless certificated ADRs are specifically requested, all ADSs are issued on the books of our depositary in book-entry form and periodic statements are mailed to you which reflect your ownership interest in such ADSs. In our description, references to American depositary receipts or ADRs shall include the statements you receive which reflect your ownership of ADSs. You may hold ADSs either directly or indirectly through your broker or other financial institution. If you hold ADSs directly, by having an ADS registered in your name on the books of the depositary, you are an ADR holder. This description assumes you hold your ADSs directly. If you hold the ADSs through your broker or financial institution nominee, you must rely on the procedures of such broker or financial institution to assert the rights of an ADR holder described in this section. You should consult with your broker or financial institution to find out what those procedures are. As an ADR holder or beneficial owner, we do not treat you as a shareholder of ours and you do not have any shareholder rights. Cayman Island law governs shareholder rights. Because the depositary or its nominee is the shareholder of record for the shares represented by all outstanding ADSs, shareholder rights rest with such record holder. Your rights are those of an ADR holder or of a beneficial owner. Such rights derive from the terms of the deposit agreement to be entered into among us, the depositary and all holders and beneficial owners from time to time of ADRs issued under the deposit agreement and, in the case of a beneficial owner, from the arrangements between the beneficial owner and the holder of the corresponding ADRs. The obligations of the depositary and its agents are also set out in the deposit agreement. Because the depositary or its nominee is actually the registered owner of the shares, you must rely on it to exercise the rights of a shareholder on your behalf. The deposit agreement and the ADSs are governed by New York law. Under the deposit agreement, by holding or owning an ADR or ADS or an interest therein, ADR holders and beneficial owners each irrevocably agree that any legal suit, action or proceeding against or involving ADR holders or beneficial owners brought by us or the depositary, arising out of or based upon the deposit agreement, the ADSs, the ADRs or the transactions contemplated thereby, may be instituted in a state or federal court in New York, New York, irrevocably waive any objection which you may have to the laying of venue of any such proceeding, and irrevocably submit to the non-exclusive jurisdiction of such courts in any such suit, action or proceeding. By holding or owning an ADR or ADS or an interest therein, ADR holders and beneficial owners each also irrevocably agree that any legal suit, action or proceeding against or involving the depositary brought by ADR holders or beneficial owners, arising out of or based upon the deposit agreement, the ADSs, the ADRs or the transactions contemplated thereby, may only be instituted in a state or federal court in New York, New York. As a result, ADR holders may not initiate legal proceedings against or involving the depositary, arising out of or based upon the deposit agreement, the ADSs, the ADRs or the transactions contemplated therein or thereby, in any jurisdictions outside of a state or federal court in New York, New York, while proceedings against the ADR holders may be initiated in a state or federal court in New York, New York or other jurisdictions. The following is a summary of what we believe to be the material terms of the deposit agreement. Notwithstanding this, because it is a summary, it may not contain all the information that you may otherwise deem important. For more complete information, you should read the entire deposit agreement and the form of ADR which contains the terms of your ADSs. The deposit agreement has been filed with the SEC as an exhibit to a Registration Statement on Form F-6 (File No. 333-232579) for the Company. The form of ADR has been filed with the SEC as an exhibit to our Registration Statement on Form F-1 (File No. 333-230976), as amended, initially filed with the SEC on April 22, 2019. Share Dividends and Other Distributions How will I receive dividends and other distributions on the shares underlying my ADSs? We may make various types of distributions with respect to our securities. The depositary has agreed that, to the extent practicable, it will pay to you the cash dividends or other distributions it or the custodian receives on shares or other deposited securities, after converting any cash received into U.S. dollars (if it determines such conversion may be made on a reasonable basis) and, in all cases, making any necessary deductions provided for in the deposit agreement. The depositary may utilize a division, branch or affiliate of JPMorgan Chase to direct, manage and/or execute any public and/or private sale of securities under the deposit agreement. Such division, branch and/or affiliate may charge the depositary a fee in connection with such sales, which fee is considered an expense of the depositary. You will receive these distributions in proportion to the number of underlying securities that your ADSs represent. Except as stated below, the depositary will deliver such distributions to ADR holders in proportion to their interests in the following manner: • Cash. The depositary will distribute any U.S. dollars available to it resulting from a cash dividend or other cash distribution or the net proceeds of sales of any other distribution or portion thereof (to the extent applicable), on an averaged or other practicable basis, subject to (i) appropriate adjustments for taxes withheld, (ii) such distribution being impermissible or impracticable with respect to certain registered ADR holders, and (iii) deduction of the depositary’s and/or its agents’ expenses in (1) converting any foreign currency to U.S. dollars to the extent that it determines that such conversion may be made on a reasonable basis, (2) transferring foreign currency or U.S. dollars to the United States by such means as the depositary may determine to the extent that it determines that such transfer may be made on a reasonable basis, (3) obtaining any approval or license of any governmental authority required for such conversion or transfer, which is obtainable at a reasonable cost and within a reasonable time and (4) making any sale by public or private means in any commercially reasonable manner. If exchange rates fluctuate during a time when the depositary cannot convert a foreign currency, you may lose some or all of the value of the distribution. • • (i) (ii) • Shares. In the case of a distribution in shares, the depositary will issue additional ADRs to evidence the number of ADSs representing such shares. Only whole ADSs will be issued. Any shares which would result in fractional ADSs will be sold and the net proceeds will be distributed in the same manner as cash to the ADR holders entitled thereto. Rights to receive additional shares. In the case of a distribution of rights to subscribe for additional shares or other rights, if we timely provide evidence satisfactory to the depositary that it may lawfully distribute such rights, the depositary will distribute warrants or other instruments in the discretion of the depositary representing such rights. However, if we do not timely furnish such evidence, the depositary may: sell such rights if practicable and distribute the net proceeds in the same manner as cash to the ADR holders entitled thereto; or if it is not practicable to sell such rights by reason of the non-transferability of the rights, limited markets therefor, their short duration or otherwise, do nothing and allow such rights to lapse, in which case ADR holders will receive nothing and the rights may lapse. Other Distributions. In the case of a distribution of securities or property other than those described above, the depositary may either (i) distribute such securities or property in any manner it deems equitable and practicable or (ii) to the extent the depositary deems distribution of such securities or property not to be equitable and practicable, sell such securities or property and distribute any net proceeds in the same way it distributes cash. If the depositary determines in its discretion that any distribution described above is not practicable with respect to any specific registered ADR holder, the depositary may choose any method of distribution that it deems practicable for such ADR holder, including the distribution of foreign currency, securities or property, or it may retain such items, without paying interest on or investing them, on behalf of the ADR holder as deposited securities, in which case the ADSs will also represent the retained items. Any U.S. dollars will be distributed by checks drawn on a bank in the United States for whole dollars and cents. Fractional cents will be withheld without liability and dealt with by the depositary in accordance with its then current practices. The depositary is not responsible if it fails to determine that any distribution or action is lawful or reasonably practicable. There can be no assurance that the depositary will be able to convert any currency at a specified exchange rate or sell any property, rights, shares or other securities at a specified price, nor that any of such transactions can be completed within a specified time period. All purchases and sales of securities will be handled by the depositary in accordance with its then current policies, which are currently set forth in the “Depositary Receipt Sale and Purchase of Security” section of https://www.adr.com/Investors/FindOutAboutDRs, the location and contents of which the depositary shall be solely responsible for. Deposit, Withdrawal and Cancellation How does the depositary issue ADSs? The depositary will issue ADSs if you or your broker deposit shares or evidence of rights to receive shares with the custodian and pay the fees and expenses owing to the depositary in connection with such issuance. Shares deposited in the future with the custodian must be accompanied by certain delivery documentation and shall, at the time of such deposit, be registered in the name of JPMorgan Chase Bank, N.A., as depositary for the benefit of holders of ADRs or in such other name as the depositary shall direct. The custodian will hold all deposited shares for the account and to the order of the depositary, in each case for the benefit of ADR holders. ADR holders and beneficial owners thus have no direct ownership interest in the shares and only have such rights as are contained in the deposit agreement. The custodian will also hold any additional securities, property and cash received on or in substitution for the deposited shares. The deposited shares and any such additional items are referred to as “deposited securities”. Deposited securities are not intended to, and shall not, constitute proprietary assets of the depositary, the custodian or their nominees. Beneficial ownership in deposited securities is intended to be, and shall at all times during the term of the deposit agreement continue to be, vested in the beneficial owners of the ADSs representing such deposited securities. Notwithstanding anything else contained herein, in the deposit agreement, in the form of ADR and/or in any outstanding ADSs, the depositary, the custodian and their respective nominees are intended to be, and shall at all times during the term of the deposit agreement be, the record holder(s) only of the deposited securities represented by the ADSs for the benefit of the ADR holders. The depositary, on its own behalf and on behalf of the custodian and their respective nominees, disclaims any beneficial ownership interest in the deposited securities held on behalf of the ADR holders. Upon each deposit of shares, receipt of related delivery documentation and compliance with the other provisions of the deposit agreement, including the payment of the fees and charges of the depositary and any taxes or other fees or charges owing, the depositary will issue an ADR or ADRs in the name or upon the order of the person entitled thereto evidencing the number of ADSs to which such person is entitled. All of the ADSs issued will, unless specifically requested to the contrary, be part of the depositary’s direct registration system, and a registered holder will receive periodic statements from the depositary which will show the number of ADSs registered in such holder’s name. An ADR holder can request that the ADSs not be held through the depositary’s direct registration system and that a certificated ADR be issued. How do ADR holders cancel an ADS and obtain deposited securities? When you turn in your ADR certificate at the depositary’s office, or when you provide proper instructions and documentation in the case of direct registration ADSs, the depositary will, upon payment of certain applicable fees, charges and taxes, deliver the underlying shares to you or upon your written order. Delivery of deposited securities in certificated form will be made at the custodian’s office. At your risk, expense and request, the depositary may deliver deposited securities at such other place as you may request. The depositary may only restrict the withdrawal of deposited securities in connection with: • • • temporary delays caused by closing our transfer books or those of the depositary or the deposit of shares in connection with voting at a shareholders’ meeting, or the payment of dividends; the payment of fees, taxes and similar charges; or compliance with any U.S. or foreign laws or governmental regulations relating to the ADRs or to the withdrawal of deposited securities. This right of withdrawal may not be limited by any other provision of the deposit agreement. Record Dates The depositary may, after consultation with us if practicable, fix record dates (which, to the extent applicable, shall be as near as practicable to any corresponding record dates set by us) for the determination of the registered ADR holders who will be entitled (or obligated, as the case may be): • • • • to receive any distribution on or in respect of deposited securities, to give instructions for the exercise of voting rights at a meeting of holders of shares, or to pay the fee assessed by the depositary for administration of the ADR program and for any expenses as provided for in the ADR, to receive any notice or to act in respect of other matters, all subject to the provisions of the deposit agreement. Voting Rights How do I vote? If you are an ADR holder and the depositary asks you to provide it with voting instructions, you may instruct the depositary how to exercise the voting rights for the shares which underlie your ADSs. Subject to the next sentence, as soon as practicable after receiving notice from us of any meeting at which the holders of shares are entitled to vote, or of our solicitation of consents or proxies from holders of shares, the depositary shall fix the ADS record date in accordance with the provisions of the deposit agreement, provided that if the depositary receives a written request from us and at least 30 days prior to the date of such vote or meeting, the depositary shall, at our expense, distribute to the registered ADR holders a “voting notice” stating (i) final information particular to such vote and meeting and any solicitation materials, (ii) that each ADR holder on the record date set by the depositary will, subject to any applicable provisions of Cayman Islands law, be entitled to instruct the depositary as to the exercise of the voting rights, if any, pertaining to the deposited securities represented by the ADSs evidenced by such ADR holder’s ADRs and (iii) the manner in which such instructions may be given, including instructions for giving a discretionary proxy to a person designated by us. Each ADR holder shall be solely responsible for the forwarding of voting notices to the beneficial owners of ADSs registered in such ADR holder’s name. There is no guarantee that ADR holders and beneficial owners generally or any holder or beneficial owner in particular will receive the notice described above with sufficient time to enable such ADR holder or beneficial owner to return any voting instructions to the depositary in a timely manner. Following actual receipt by the ADR department responsible for proxies and voting of ADR holders’ instructions (including, without limitation, instructions of any entity or entities acting on behalf of the nominee for DTC), the depositary shall, in the manner and on or before the time established by the Depositary for such purpose, endeavor to vote or cause to be voted the deposited securities represented by the ADSs evidenced by such ADR holders’ ADRs in accordance with such instructions insofar as practicable and permitted under the provisions of or governing deposited securities. To the extent we have provided the depositary with at least 35 days’ notice of a proposed meeting and the notice will be received by all holders and beneficial owners of interests in ADSs no less than 10 days prior to the date of the meeting and/or the cut-off date for the solicitation of consents, if voting instructions are not timely received by the depositary from any holder, such holder shall be deemed, and in the deposit agreement the depositary is instructed to deem such holder, to have instructed the depositary to give a discretionary proxy to a person designated by us to vote the shares represented by their ADSs as desired, provided that no such instruction shall be deemed given and no discretionary proxy shall be given unless (a) we inform the depositary in writing (and we agree to provide the depositary with such instruction promptly in writing) that (i) we wish such proxy to be given, (ii) there is no substantial opposition existing with respect to any agenda item for which the proxy would be given and (iii) the agenda item(s), if approved, would not materially or adversely affect the rights of holders of shares and (b) with respect to such meeting, the depositary obtained an opinion of counsel, in form and substance satisfactory to the depositary, confirming that (a) the granting of such discretionary proxy does not subject the depositary to any reporting obligations in the Cayman Islands, (b) the granting of such proxy will not result in a violation of the laws, rules, regulations or permits of the Cayman Islands and (c) the voting arrangement and deemed instruction as contemplated under the deposit agreement will be given effect under the laws, rules and regulations of the Cayman Islands and (d) the granting of such discretionary proxy will not under any circumstances result in the shares represented by the ADSs being treated as assets of the depositary under the laws, rules or regulations of the Cayman Islands. The depositary may from time to time access information available to it to consider whether any of the circumstances described above exist, or request additional information from us in respect thereto. By taking any such action, the depositary shall not in any way be deemed or inferred to have been required, or have had any duty or responsibility (contractual or otherwise), to monitor or inquire whether any of the circumstances described above existed. In addition to the limitations provided for in the deposit agreement, ADR holders and beneficial owners are advised and agree that (a) the depositary will rely fully and exclusively on us to inform it of any of the circumstances set forth above, and (b) neither the depositary, the custodian nor any of their respective agents shall be obliged to inquire or investigate whether any of the circumstances described above exist and/or whether we complied with our obligation to timely inform the depositary of such circumstances. Neither the depositary, the custodian nor any of their respective agents shall incur any liability to ADR holders or beneficial owners (i) as a result of our failure to determine that any of the circumstances described above exist or our failure to timely notify the depositary of any such circumstances or (ii) if any agenda item which is approved at a meeting has, or is claimed to have, a material or adverse effect on the rights of holders of shares. Holders are strongly encouraged to forward their voting instructions to the depositary as soon as possible. For instructions to be valid, the ADR department of the depositary that is responsible for proxies and voting must receive them in the manner and on or before the time specified, notwithstanding that such instructions may have been physically received by the depositary prior to such time. The depositary will not itself exercise any voting discretion in respect of deposited securities. The depositary and its agents will not be responsible for any failure to carry out any instructions to vote any of the deposited securities, for the manner in which any voting instructions are given, including instructions to give a discretionary proxy to a person designated by us, for the manner in which any vote is cast, including, without limitation, any vote cast by a person to whom the depositary is instructed to grant a discretionary proxy, or for the effect of any such vote. Notwithstanding anything contained in the deposit agreement or any ADR, the depositary may, to the extent not prohibited by any law, regulation, or requirement of the stock exchange on which the ADSs are listed, in lieu of distribution of the materials provided to the depositary in connection with any meeting of, or solicitation of consents or proxies from, holders of deposited securities, distribute to the registered holders of ADRs a notice that provides such holders with, or otherwise publicizes to such holders, instructions on how to retrieve such materials or receive such materials upon request (i.e., by reference to a website containing the materials for retrieval or a contact for requesting copies of the materials). We have advised the depositary that under the Cayman Islands law and our constituent documents, each as in effect as of the date of the deposit agreement, voting at any meeting of shareholders is by show of hands unless a poll is (before or on the declaration of the results of the show of hands) demanded. In the event that voting on any resolution or matter is conducted on a show of hands basis in accordance with our constituent documents, the depositary will refrain from voting and the voting instructions received by the depositary from holders shall lapse. The depositary will not demand a poll or join in demanding a poll, whether or not requested to do so by holders of ADSs. There is no guarantee that you will receive voting materials in time to instruct the depositary to vote and it is possible that you, or persons who hold their ADSs through brokers, dealers or other third parties, will not have the opportunity to exercise a right to vote. Reports and Other Communications Will ADR holders be able to view our reports? The depositary will make available for inspection by ADR holders at the offices of the depositary and the custodian the deposit agreement, the provisions of or governing deposited securities, and any written communications from us which are both received by the custodian or its nominee as a holder of deposited securities and made generally available to the holders of deposited securities. Additionally, if we make any written communications generally available to holders of our shares, and we furnish copies thereof (or English translations or summaries) to the depositary, it will distribute the same to registered ADR holders. Reclassifications, Recapitalizations and Mergers If we take certain actions that affect the deposited securities, including (i) any change in par value, split-up, consolidation, cancellation or other reclassification of deposited securities or (ii) any distributions of ordinary shares or other property not made to holders of ADRs or (iii) any recapitalization, reorganization, merger, consolidation, liquidation, receivership, bankruptcy or sale of all or substantially all of our assets, then the depositary may choose to, and shall if reasonably requested by us: • • • • • amend the form of ADR; distribute additional or amended ADRs; distribute cash, securities or other property it has received in connection with such actions; sell by public or private sale any securities or property received; or none of the above. If the depositary does not choose any of the above options, any of the cash, securities or other property it receives will constitute part of the deposited securities and each ADS will then represent a proportionate interest in such property. Amendment and Termination How may the deposit agreement be amended? We may agree with the depositary to amend the deposit agreement and the ADSs without your consent for any reason. ADR holders must be given at least 30 days’ notice of any amendment that imposes or increases any fees or charges (other than stock transfer or other taxes and other governmental charges, transfer or registration fees, SWIFT, cable, telex or facsimile transmission costs, delivery costs or other such expenses), or otherwise prejudices any substantial existing right of ADR holders or beneficial owners. Such notice need not describe in detail the specific amendments effectuated thereby, but must identify to ADR holders and beneficial owners a means to access the text of such amendment. If an ADR holder continues to hold an ADR or ADRs after being so notified, such ADR holder and any beneficial owner are deemed to agree to such amendment and to be bound by the deposit agreement as so amended. No amendment, however, will impair your right to surrender your ADSs and receive the underlying securities, except in order to comply with mandatory provisions of applicable law. Any amendments or supplements which (i) are reasonably necessary (as agreed by us and the depositary) in order for (a) the ADSs to be registered on Form F-6 under the Securities Act of 1933 or (b) the ADSs or shares to be traded solely in electronic book-entry form and (ii) do not in either such case impose or increase any fees or charges to be borne by ADR holders, shall be deemed not to prejudice any substantial rights of ADR holders or beneficial owners. Notwithstanding the foregoing, if any governmental body or regulatory body should adopt new laws, rules or regulations which would require amendment or supplement of the deposit agreement or the form of ADR to ensure compliance therewith, we and the depositary may amend or supplement the deposit agreement and the ADR at any time in accordance with such changed laws, rules or regulations. Such amendment or supplement to the deposit agreement in such circumstances may become effective before a notice of such amendment or supplement is given to ADR holders or within any other period of time as required for compliance. Notice of any amendment to the deposit agreement or form of ADRs shall not need to describe in detail the specific amendments effectuated thereby, and failure to describe the specific amendments in any such notice shall not render such notice invalid, provided, however, that, in each such case, the notice given to the ADR holders identifies a means for ADR holders and beneficial owners to retrieve or receive the text of such amendment (i.e., upon retrieval from the SEC’s, the depositary’s or our website or upon request from the depositary). How may the deposit agreement be terminated? The depositary may, and shall at our written direction, terminate the deposit agreement and the ADRs by mailing notice of such termination to the registered holders of ADRs at least 30 days prior to the date fixed in such notice for such termination; provided, however, if the depositary shall have (i) resigned as depositary under the deposit agreement, notice of such termination by the depositary shall not be provided to registered ADR holders unless a successor depositary shall not be operating under the deposit agreement within 60 days of the date of such resignation, and (ii) been removed as depositary under the deposit agreement, notice of such termination by the depositary shall not be provided to registered holders of ADRs unless a successor depositary shall not be operating under the deposit agreement on the 60th day after our notice of removal was first provided to the depositary. After the date so fixed for termination, (a) all direct registration ADRs shall cease to be eligible for the direct registration system and shall be considered ADRs issued on the ADR register maintained by the depositary and (b) the depositary shall use its reasonable efforts to ensure that the ADSs cease to be DTC eligible so that neither DTC nor any of its nominees shall thereafter be a registered holder of ADRs. At such time as the ADSs cease to be DTC eligible and/or neither DTC nor any of its nominees is a registered holder of ADRs, the depositary shall (a) instruct its custodian to deliver all shares to us along with a general stock power that refers to the names set forth on the ADR register maintained by the depositary and (b) provide us with a copy of the ADR register maintained by the depositary. Upon receipt of such shares and the ADR register maintained by the depositary, we have agreed to use our best efforts to issue to each registered ADR holder a Share certificate representing the Shares represented by the ADSs reflected on the ADR register maintained by the depositary in such registered ADR holder’s name and to deliver such Share certificate to the registered ADR holder at the address set forth on the ADR register maintained by the depositary. After providing such instruction to the custodian and delivering a copy of the ADR register to us, the depositary and its agents will perform no further acts under the deposit agreement or the ADRs and shall cease to have any obligations under the deposit agreement and/or the ADRs. Limitations on Obligations and Liability to ADR holders Limits on our obligations and the obligations of the depositary; limits on liability to ADR holders and holders of ADSs Prior to the issue, registration, registration of transfer, split-up, combination, or cancellation of any ADRs, or the delivery of any distribution in respect thereof, and from time to time in the case of the production of proofs as described below, we or the depositary or its custodian may require: • • payment with respect thereto of (i) any stock transfer or other tax or other governmental charge, (ii) any stock transfer or registration fees in effect for the registration of transfers of shares or other deposited securities upon any applicable register and (iii) any applicable fees and expenses described in the deposit agreement; the production of proof satisfactory to it of (i) the identity of any signatory and genuineness of any signature and (ii) such other information, including without limitation, information as to citizenship, residence, exchange control approval, beneficial or other ownership of, or interest in, any securities, compliance with applicable law, regulations, provisions of or governing deposited securities and terms of the deposit agreement and the ADRs, as it may deem necessary or proper; and • compliance with such regulations as the depositary may establish consistent with the deposit agreement. The issuance of ADRs, the acceptance of deposits of shares, the registration, registration of transfer, split-up or combination of ADRs or the withdrawal of shares, may be suspended, generally or in particular instances, when the ADR register or any register for deposited securities is closed or when any such action is deemed advisable by the depositary; provided that the ability to withdraw shares may only be limited under the following circumstances: (i) temporary delays caused by closing transfer books of the depositary or our transfer books or the deposit of shares in connection with voting at a shareholders’ meeting, or the payment of dividends, (ii) the payment of fees, taxes, and similar charges, and (iii) compliance with any laws or governmental regulations relating to ADRs or to the withdrawal of deposited securities. The deposit agreement expressly limits the obligations and liability of the depositary, ourselves and our respective agents, provided, however, that no disclaimer of liability under the Securities Act of 1933 is intended by any of the limitations of liabilities provisions of the deposit agreement. The deposit agreement provides that each of us, the depositary and our respective agents will: • incur or assume no liability if any present or future law, rule, regulation, fiat, order or decree of the Cayman Islands, Hong Kong, the People’s Republic of China, the United States or any other country or jurisdiction, or of any governmental or regulatory authority or securities exchange or market or automated quotation system, the provisions of or governing any deposited securities, any present or future provision of our charter, any act of God, war, terrorism, nationalization, expropriation, currency restrictions, work stoppage, strike, civil unrest, revolutions, rebellions, explosions, computer failure or circumstance beyond our, the depositary’s or our respective agents’ direct and immediate control shall prevent or delay, or shall cause any of them to be subject to any civil or criminal penalty in connection with, any act which the deposit agreement or the ADRs provide shall be done or performed by us, the depositary or our respective agents (including, without limitation, voting); • incur or assume no liability by reason of any non-performance or delay, caused as aforesaid, in the performance of any act or things which by the terms of the deposit agreement it is provided shall or may be done or performed or any exercise or failure to exercise discretion under the deposit agreement or the ADRs including, without limitation, any failure to determine that any distribution or action may be lawful or reasonably practicable; • • • • • incur or assume no liability if it performs its obligations under the deposit agreement and ADRs without gross negligence or willful misconduct; in the case of the depositary and its agents, be under no obligation to appear in, prosecute or defend any action, suit or other proceeding in respect of any deposited securities the ADSs or the ADRs; in the case of us and our agents, be under no obligation to appear in, prosecute or defend any action, suit or other proceeding in respect of any deposited securities the ADSs or the ADRs, which in our or our agents’ opinion, as the case may be, may involve it in expense or liability, unless indemnity satisfactory to us or our agent, as the case may be against all expense (including fees and disbursements of counsel) and liability be furnished as often as may be requested; not be liable for any action or inaction by it in reliance upon the advice of or information from any legal counsel, any accountant, any person presenting shares for deposit, any registered holder of ADRs, or any other person believed by it to be competent to give such advice or information and/or, in the case of the depositary, us; or may rely and shall be protected in acting upon any written notice, request, direction, instruction or document believed by it to be genuine and to have been signed, presented or given by the proper party or parties. Neither the depositary nor its agents have any obligation to appear in, prosecute or defend any action, suit or other proceeding in respect of any deposited securities, the ADSs or the ADRs. We and our agents shall only be obligated to appear in, prosecute or defend any action, suit or other proceeding in respect of any deposited securities, the ADSs or the ADRs, which in our opinion may involve us in expense or liability, if indemnity satisfactory to us against all expense (including fees and disbursements of counsel) and liability is furnished as often as may be required. The depositary and its agents may fully respond to any and all demands or requests for information maintained by or on its behalf in connection with the deposit agreement, any registered holder or holders of ADRs, any ADRs or otherwise related to the deposit agreement or ADRs to the extent such information is requested or required by or pursuant to any lawful authority, including without limitation laws, rules, regulations, administrative or judicial process, banking, securities or other regulators. The depositary shall not be liable for the acts or omissions made by, or the insolvency of, any securities depository, clearing agency or settlement system. Furthermore, the depositary shall not be responsible for, and shall incur no liability in connection with or arising from, the insolvency of any custodian that is not a branch or affiliate of JPMorgan Chase. Notwithstanding anything to the contrary contained in the deposit agreement or any ADRs, the depositary shall not be responsible for, and shall incur no liability in connection with or arising from, any act or omission to act on the part of the custodian except to the extent that any registered ADR holder has incurred liability directly as a result of the custodian having (i) committed fraud or willful misconduct in the provision of custodial services to the depositary or (ii) failed to use reasonable care in the provision of custodial services to the depositary as determined in accordance with the standards prevailing in the jurisdiction in which the custodian is located. The depositary and the custodian(s) may use third party delivery services and providers of information regarding matters such as, but not limited to, pricing, proxy voting, corporate actions, class action litigation and other services in connection with the ADRs and the deposit agreement, and use local agents to provide services such as, but not limited to, attendance at any meetings of security holders of issuers. Although the depositary and the custodian will use reasonable care (and cause their agents to use reasonable care) in the selection and retention of such third party providers and local agents, they will not be responsible for any errors or omissions made by them in providing the relevant information or services. The depositary shall not have any liability for the price received in connection with any sale of securities, the timing thereof or any delay in action or omission to act nor shall it be responsible for any error or delay in action, omission to act, default or negligence on the part of the party so retained in connection with any such sale or proposed sale. The depositary has no obligation to inform ADR holders or beneficial owners about the requirements of the laws, rules or regulations or any changes therein or thereto of the Cayman Islands, Hong Kong, the People’s Republic of China, the United States or any other country or jurisdiction or of any governmental or regulatory authority or any securities exchange or market or automated quotation system. Additionally, none of us, the depositary or the custodian shall be liable for the failure by any registered holder of ADRs or beneficial owner therein to obtain the benefits of credits or refunds of non-U.S. tax paid against such ADR holder’s or beneficial owner’s income tax liability. The depositary is under no obligation to provide the ADR holders and beneficial owners, or any of them, with any information about our tax status. Neither we nor the depositary shall incur any liability for any tax or tax consequences that may be incurred by registered ADR holders or beneficial owners on account of their ownership or disposition of ADRs or ADSs. Neither the depositary nor its agents will be responsible for any failure to carry out any instructions to vote any of the deposited securities, for the manner in which any voting instructions are given, including instructions to give a discretionary proxy to a person designated by us, for the manner in which any vote is cast, including, without limitation, any vote cast by a person to whom the depositary is instructed to grant a discretionary proxy, or for the effect of any such vote. The depositary may rely upon instructions from us or our counsel in respect of any approval or license required for any currency conversion, transfer or distribution. The depositary shall not incur any liability for the content of any information submitted to it by us or on our behalf for distribution to ADR holders or for any inaccuracy of any translation thereof, for any investment risk associated with acquiring an interest in the deposited securities, for the validity or worth of the deposited securities, for the credit-worthiness of any third party, for allowing any rights to lapse upon the terms of the deposit agreement or for the failure or timeliness of any notice from us. The depositary shall not be liable for any acts or omissions made by a successor depositary whether in connection with a previous act or omission of the depositary or in connection with any matter arising wholly after the removal or resignation of the depositary. Neither the depositary nor any of its agents shall be liable for any indirect, special, punitive or consequential damages (including, without limitation, legal fees and expenses) or lost profits, in each case of any form incurred by any person or entity (including, without limitation holders or beneficial owners of ADRs and ADSs), whether or not foreseeable and regardless of the type of action in which such a claim may be brought. No provision of the deposit agreement or the ADRs is intended to constitute a waiver or limitation of any rights which an ADR holder or any beneficial owner may have under the Securities Act of 1933 or the Securities Exchange Act of 1934, to the extent applicable. The depositary and its agents may own and deal in any class of securities of our company and our affiliates and in ADRs. Disclosure of Interest in ADSs To the extent that the provisions of or governing any deposited securities may require disclosure of or impose limits on beneficial or other ownership of, or interest in, deposited securities, other shares and other securities and may provide for blocking transfer, voting or other rights to enforce such disclosure or limits, you as ADR holders or beneficial owners agree to comply with all such disclosure requirements and ownership limitations and to comply with any reasonable instructions we may provide in respect thereof. Books of Depositary The depositary or its agent will maintain a register for the registration, registration of transfer, combination and split-up of ADRs, which register shall include the depositary’s direct registration system. Registered holders of ADRs may inspect such records at the depositary’s office at all reasonable times, but solely for the purpose of communicating with other ADR holders in the interest of the business of our company or a matter relating to the deposit agreement. Such register may be closed at any time or from time to time, when deemed expedient by the depositary or, in the case of the issuance book portion of the ADR Register, when reasonably requested by the Company solely in order to enable the Company to comply with applicable law. The depositary will maintain facilities for the delivery and receipt of ADRs. Appointment In the deposit agreement, each registered holder of ADRs and each beneficial owner, upon acceptance of any ADSs or ADRs (or any interest in any of them) issued in accordance with the terms and conditions of the deposit agreement will be deemed for all purposes to: • • be a party to and bound by the terms of the deposit agreement and the applicable ADR or ADRs, appoint the depositary its attorney-in-fact, with full power to delegate, to act on its behalf and to take any and all actions contemplated in the deposit agreement and the applicable ADR or ADRs, to adopt any and all procedures necessary to comply with applicable laws and to take such action as the depositary in its sole discretion may deem necessary or appropriate to carry out the purposes of the deposit agreement and the applicable ADR and ADRs, the taking of such actions to be the conclusive determinant of the necessity and appropriateness thereof; and • acknowledge and agree that (i) nothing in the deposit agreement or any ADR shall give rise to a partnership or joint venture among the parties thereto, nor establish a fiduciary or similar relationship among such parties, (ii) the depositary, its divisions, branches and affiliates, and their respective agents, may from time to time be in the possession of non-public information about us, ADR holders, beneficial owners and/or their respective affiliates, (iii) the depositary and its divisions, branches and affiliates may at any time have multiple banking relationships with us, ADR holders, beneficial owners and/or the affiliates of any of them, (iv) the depositary and its divisions, branches and affiliates may, from time to time, be engaged in transactions in which parties adverse to us, ADR holders, beneficial owners and/or their respective affiliates may have interests, (v) nothing contained in the deposit agreement or any ADR(s) shall (A) preclude the depositary or any of its divisions, branches or affiliates from engaging in any such transactions or establishing or maintaining any such relationships, or (B) obligate the depositary or any of its divisions, branches or affiliates to disclose any such transactions or relationships or to account for any profit made or payment received in any such transactions or relationships, (vi) the depositary shall not be deemed to have knowledge of any information held by any branch, division or affiliate of the depositary and (vii) notice to an ADR holder shall be deemed, for all purposes of the deposit agreement and the ADRs, to constitute notice to any and all beneficial owners of the ADSs evidenced by such ADR holder’s ADRs. For all purposes under the deposit agreement and the ADRs, the ADR holders thereof shall be deemed to have all requisite authority to act on behalf of any and all beneficial owners of the ADSs evidenced by such ADRs. Governing Law The deposit agreement, the ADSs and the ADRs are governed by and construed in accordance with the internal laws of the State of New York. In the deposit agreement, we have submitted to the non-exclusive jurisdiction of the courts of the State of New York and appointed an agent for service of process on our behalf. Any action based on the deposit agreement, the ADSs, the ADRs or the transactions contemplated therein or thereby may be instituted by the depositary against us in any competent court in the Cayman Islands, Hong Kong, the People’s Republic of China, the United States and/or any other court of competent jurisdiction. Under the deposit agreement, by holding or owning an ADR or ADS or an interest therein, ADR holders and beneficial owners each irrevocably agree that any legal suit, action or proceeding against or involving ADR holders or beneficial owners brought by us or the depositary, arising out of or based upon the deposit agreement, the ADSs, the ADRs or the transactions contemplated thereby, may be instituted in a state or federal court in New York, New York, irrevocably waive any objection which you may have to the laying of venue of any such proceeding, and irrevocably submit to the non- exclusive jurisdiction of such courts in any such suit, action or proceeding. By holding or owning an ADR or ADS or an interest therein, ADR holders and beneficial owners each also irrevocably agree that any legal suit, action or proceeding against or involving the depositary brought by ADR holders or beneficial owners, arising out of or based upon the deposit agreement, the ADSs, the ADRs or the transactions contemplated thereby, may only be instituted in a state or federal court in New York, New York. As a result, ADR holders may not initiate legal proceedings against or involving the depositary, arising out of or based upon the deposit agreement, the ADSs, the ADRs or the transactions contemplated therein or thereby, in any jurisdictions outside of a state or federal court in New York, New York, while proceedings against the ADR holders may be initiated in a state or federal court in New York, New York or other jurisdictions. Notwithstanding the foregoing, (i) the depositary may, in its sole discretion, elect to institute any dispute, suit, action, controversy, claim or proceeding directly or indirectly based on, arising out of or relating to the deposit agreement, the ADSs, the ADRs or the transactions contemplated therein or thereby, including without limitation any question regarding its or their existence, validity, interpretation, performance or termination, against any other party or parties to the deposit agreement (including, without limitation, against ADR holders and beneficial owners of interests in ADSs), by having the matter referred to and finally resolved by an arbitration conducted under the terms described below, and (ii) the depositary may in its sole discretion require, by written notice to the relevant party or parties, that any dispute, suit, action, controversy, claim or proceeding against the depositary by any party or parties to the deposit agreement (including, without limitation, by ADR holders and beneficial owners of interests in ADSs) shall be referred to and finally settled by an arbitration conducted under the terms described below. Any such arbitration shall be conducted in the English language either in New York, New York in accordance with the Commercial Arbitration Rules of the American Arbitration Association or in Hong Kong following the arbitration rules of the United Nations Commission on International Trade Law (UNCITRAL). Notwithstanding the foregoing, such provisions do not prevent an ADS holder form pursuing claims under the United States federal securities laws in federal courts. Jury Trial Waiver In the deposit agreement each party thereto (including, for avoidance of doubt, each holder and beneficial owner and/or holder of interests in ADSs and ADRs) irrevocably waives, to the fullest extent permitted by applicable law, any right it may have to a trial by jury in any suit, action or proceeding against the depositary and/or us directly or indirectly arising out of or relating to the shares or other deposited securities, the ADSs or the ADRs, the deposit agreement or any transaction contemplated therein, or the breach thereof (whether based on contract, tort, common law or any other theory), including any claim under the U.S. federal securities laws. If we or the depositary were to oppose a jury trial demand based on such waiver, the court would determine whether the waiver was enforceable in the facts and circumstances of that case in accordance with applicable state and federal law, including whether a party knowingly, intelligently and voluntarily waived the right to a jury trial. The waiver to right to a jury trial of the deposit agreement is not intended to be deemed a waiver by any holder or beneficial owner of ADSs of the Company’s or the depositary’s compliance with the U.S. federal securities laws and the rules and regulations promulgated thereunder. THE SYMBOL “[ ]” DENOTES PLACES WHERE CERTAIN IDENTIFIED INFORMATION HAS BEEN EXCLUDED FROM THE EXHIBIT BECAUSE IT IS BOTH (i) NOT MATERIAL, AND (ii) IS THE TYPE THAT THE REGISTRANT TREATS AS PRIVATE OR CONFIDENTIAL Exhibit 4.15 Share Pledge Agreement This Share Pledge Agreement (this “Agreement”) is entered into as of October 9, 2021 by and among the following parties in Beijing, China: Party A: Wuhan Douyu Culture Network Technology Co., Ltd. (“Pledgee”) Registered Address: 6th-7th Floor, Building B1, Software Industry Phase 4.1, No.1 Software Park East Road, East Lake New Technology Development Zone, Wuhan (Wuhan Free Trade Zone) Legal Representative: Jie Gao Party B: Wuhan Chaosai Business Information Consulting Partnership (Limited Partnership)(“Pledgor”) Registered Address: Room 906-13, 9th Floor, Building 6, Guannan Fuxing Pharmaceutical Park, No. 58 Guanggu Avenue, East Lake New Technology Development Zone, Wuhan (Wuhan Free Trade Zone) Authorized Representative: Jie Gao Party C: Wuhan Douyu Internet Technology Co. Ltd. Registered Address: Room 01, 12th-19th Floor, Building B3, Software Industry Phase 4.1, No.1 Software Park East Road, East Lake New Technology Development Zone, Wuhan. Legal Representative: Jie Gao Pledgee, Pledgor and Party C are hereinafter collectively referred to as the “Parties” and individually as a “Party”. WHEREAS, 1. 2. 3. Pledgor is Wuhan Chaosai Business Information Consulting Partnership (Limited Partnership) and owns 5.6344% equity of Party C. Party C is a limited liability company incorporated in Wuhan, Hubei, the PRC. Party C acknowledges the respective rights and obligations of Pledgor and Pledgee hereunder and agrees to provide necessary assistance for the registration of such pledge; Pledgee is a wholly foreign-owned enterprise incorporated in the PRC. Pledgee and Party C entered into the Exclusive Business Cooperation Agreement on May 14, 2018; In order to guarantee that Pledgee receives all payments due and payable by Party C from Party C, including but not limited to the consultation and service fee, Pledgor pledges all of its equity in Party C for the payment of the consultation and service fee by Party C under the Exclusive Business Cooperation Agreement. 1. Definition Unless otherwise provided herein, the following terms shall have the following meaning: 1.1. “Pledge” refers to the security interest granted by Pledgor to Pledgee under Article 2 hereof, that is, the right of Pledgee of being paid in priority with the proceeds from the conversion, auction or sale of the Equity. 1.2. “Equity” refers to all equity lawfully now held and hereafter acquired by Pledgor in Party C. 1.3. “Term of Pledge” refers to the term set forth in Article 3 hereof. 1.4. “Business Cooperation Agreement” refers to the Exclusive Business Cooperation Agreement entered into on May 14, 2018 by and between Pledgee and Party C which is partly owned by Pledgor. 1.5. “Event of Default” refers to any circumstance stated in Article 7 hereof. 1.6. “Notice of Default” refers to the notice issued by Pledgee in accordance with this Agreement declaring an Event of Default. 2. 2.1. 2.2. 2.3. Pledge As the guarantee for the immediate and full payment and performance of any or all payments (including but not limited to the consultation and service fee payable to Pledgee under the Business Cooperation Agreement when due and payable, whether on the stipulated due date, by acceleration or otherwise, collectively as the “Secured Debt”. The Parties hereby unanimously confirm that, in order to meet the requirements of registration of pledge, the Secured Debt is provisionally set at CNY236,854,941,000, and the amount of Secured Debt will be adjusted according to the actual payments ) owed by Party C under the Business Cooperation Agreement, Pledgor hereby pledges its 5.6344% equity of Party C (including the registered capital of CNY1,258,826 (contribution amount) of Party C currently owned by Pledgor and all equity interests related thereto, and further registered capital of Party C (contribution amount) that Pledgor may obtain in the future and all equity interests related thereto) to Pledgee as first priority pledge. The Parties understand and agree that the monetary valuation arising out of or in connection with the Secured Debt until the Accounting Date (as defined below) shall be changing and floating valuation. In case of any of the following events (“Accounting Event”), the value of the Secured Debt shall be determined per the total payable Secured Debt due but unpaid to Pledgee on the latest date before the occurrence of the Accounting Event or on the occurrence date thereof (“Determined Debt”): 2.3.1. Where the Business Cooperation Agreement expires or terminates pursuant to its relevant terms; 2.3.2. Where an Event of Default set forth in Article 7 hereof occurs and has not been cured, causing Pledgee to serve a Notice of Default to Pledgor in accordance with Article 7.3 hereof; 2.3.3. Pledgee, upon proper investigation, reasonably believes that Pledgor and/or Party C is insolvent or may be put into insolvency; or 2.3.4. Any other matter as required by the PRC laws to determine the Secured Debt. 2.4. For the avoidance of doubt, the occurrence date of Accounting Event shall be the accounting date (“Accounting Date”). Pledgee shall be entitled to enforce the Pledge at its option on or after the Accounting Date in accordance with Article 8. 2.5. Within the Term of Pledge (as defined below), Pledgee shall be entitled to collect any dividend or other distributable profit arising from the 3. 3.1. Equity. Term of Pledge The Pledge shall take effect as of the date on which the administration for commerce and industry at the place where Party C is located (“Registration Authority”) registers and creates the same, and the term of such Pledge (“Term of Pledge”) shall last until the repayment or performance of the last obligation secured by such Pledge. The Parties agree that upon the execution and effectiveness of this Agreement, Pledgor and Party A shall immediately (and in no event later than the 20th day as of the Effective Date hereof) apply with the Registration Authority for registration of the creation of the Equity Pledge in accordance with the Measures for the Registration of Equity Pledge with the Administration for Commerce and Industry. The Parties further agree to complete all Equity pledge registration formalities, obtain the registration notice issued by the Registration Authority and have the Registration Authority fully and accurately record the pledge of the Equity on the register of equity pledge, within fifteen (15) days as of the official acceptance of the Equity pledge registration application by the Registration Authority. Party C acknowledges the respective rights and obligations of Pledgor and Pledgee hereunder and agrees to provide any necessary assistance for the registration of such pledge. 3.2. Within the Term of Pledge, if Party C fails to pay the exclusive consultation or service fee or any Secured Debt pursuant to the Business Cooperation Agreement or perform other aspect thereof, Pledgee has the right but not the obligation to dispose such Pledge in accordance with this Agreement. 4. 4.1. Custody of Records for Equity subject to Pledge Party C shall register the pledge hereunder in the register of shareholders of Party C on the Effective Date hereof, and provide Pledgee with a photocopy or scanned copy of such register of shareholders. Within the Term of Pledge set forth herein, Pledgee shall deliver the original of the contribution certificate of the Equity and the register of shareholders recording the Pledge (and other document as Pledgee may reasonably require, including but not limited to the Equity Registration Notice issued by the administration for commerce and industry) to Pledgee for custody within one week as of the creation of the Pledge upon registration. Pledgee shall always keep such items during the whole Term of Pledge set forth herein. 4.2. Within the Term of Pledge, Pledgee shall be entitled to collect the dividends arising from the Equity. 5. Representations and Warranties of Pledgor and Party C Pledgor represents and warrants to Pledgee that: 5.1. Pledgor is the sole legal and beneficial owner of the Equity, and except for being subject to the agreement otherwise entered into by and between Pledgor and Pledgee, it has legal, complete and full ownership to and in the Equity. 5.2. Pledgee shall be entitled to dispose the Equity in accordance with this Agreement. 5.3. Except for the Pledge and the agreement otherwise entered into by and between Pledgor and Pledgee, Pledgor has not created any security interest or other encumbrance over the Equity, and the Equity has no dispute over its ownership, is not subject to any detention or other legal proceeding or has similar threat, and may be pledged and transferred pursuant to applicable laws. 5.4. The execution of this Agreement and exercise of its rights hereunder or performance of its obligations hereunder by Pledgor will not violate any law, regulation, any agreement or contract to which Pledgor is a party, or any undertaking made by Pledgor to any third party. 5.5. All documents, materials, statements and certificates etc., if any, provided to Pledgee by Pledgor are accurate, authentic, complete and valid. Party C represents and warrants to Pledgee that: 5.6. It is a limited liability company duly registered and lawfully existing under the PRC Laws with independent legal personality, and has full and independent legal status and capacity to execute, deliver and perform this Agreement. 5.7. This Agreement, upon duly execution by it, constitutes its legal, valid and binding obligations. 5.8. It has full internal right and authorization to execute and deliver this Agreement and all other documents related to the transactions contemplated hereby as well as full right and authorization to consummate the transactions contemplated hereby. 5.9. With respect to its assets, there is no security interest or other encumbrance which may materially affect the right and interest of Pledgee in and to the Equity, including but not limited to transfer of any intellectual property right or asset with a value of over CNY100,000 of Party C, or any title or use encumbrance over such assets. 5.10. There is no pending or to the knowledge of Party C threatened litigation, arbitration or other legal proceeding against the Equity, Party C or its assets in any court or arbitral tribunal which has not been disclosed to Party A and Party B, and there is no pending or to the knowledge of Party C threatened administrative proceeding or administrative punishment against the Equity, Party C or its assets in any governmental authority or administrative authority which has not been disclosed to Party A and Party B, which in each case will have material or adverse effect on Party C’s economic status or the capacity of Pledgor to perform the obligations and security liability. 5.11. Party C hereby agrees to be jointly and severally liable to Pledgee for the representations and warranties made hereunder by all Pledgors or any one of them. 5.12. Party C hereby warrants to Pledgee that the said representations and warranties will be true and correct and fully complied with at any time and in any case before the obligations hereunder are fully performed or the Secured Debt is fully discharged. 6. Covenants and Further Agreement of Pledgor and Party C Pledgor covenants and further agrees that: 6.1. During the term of this Agreement, Pledgor hereby covenants to Pledgee that Pledgor will: 6.1.1. Unless otherwise agreed between Pledgor, Pledgee and Party C, without prior written consent of Pledgee, not transfer all or part of the Equity, create or allow any security interest or other encumbrance which may affect the rights and interests of Pledgee in the Equity, or permit others to do so; 6.1.2. Comply with all laws and regulations applicable to the pledge of rights; present to Pledgee the notices, orders or suggestions with respect to the Pledge (or any other related respect) issued or made by relevant government authorities within five (5) days upon receipt of such notices, orders or suggestions, without violating any laws or regulations and to the extent allowed by the competent authority; and comply with such notices, orders or suggestions or, alternatively, at the reasonable request of Pledgee or with consent of Pledgee, raise objection and provide statement to such notices, orders or suggestions; 6.1.3. Immediately notify Pledgee about any event or any notice received by Pledgor which may affect Pledgee’s right to all or any part of the Equity, and any event or any notice received by Pledgor which may affect Pledgor’s warranties and other obligations hereunder. Pledgor agrees that Pledgee’s rights to the Pledge acquired hereunder shall not be interrupted or jeopardized by any legal proceeding initiated by Pledgor or any successor or representative of Pledgor or any other person. In order to protect or effect the security interest granted by this Agreement for the payment of the consultation and service fee under the Business Cooperation Agreement and the performance of the Business Cooperation Agreement, Pledgor hereby covenants that it will sincerely execute and cause other parties which have interest in the Pledge to execute all certificates, agreements, deeds and/or covenants required by Pledgee. Pledgor further covenants that it will do and cause other parties which have interest in the Pledge to do all acts required by Pledgee in furtherance of Pledgee’s exercise of its rights and authority granted hereby, and enter into all documents regarding the ownership of the Equity with Pledgee or a (natural/legal) person designated by Pledgee. Pledgor covenants that it will provide all notices, orders and decisions regarding the Pledge as Pledgee may require to Pledgee within reasonable period. 6.2. 6.3. 6.4. 6.5. Pledgor hereby covenants to Pledgee that it will comply with and perform all warranties, covenants, agreements, representations and conditions hereunder. In the event that the Equity pledged hereunder is subject to any mandatory measures imposed by the court or other governmental authority for whatsoever reason, Pledgor shall make best reasonable efforts, including (but not limited to) providing other guarantees to the court or taking other measures, to terminate such mandatory measures taken by the court or other governmental authority. 6.6. Without prior written consent of Pledgee, neither Pledgor nor Party C shall (or assist other party to) increase, decrease or transfer Party C’s registered capital (or its contribution amount to Party C) or create any encumbrance over the same (including the Equity). Subject to this provision, Party C’s equity registered and obtained by Pledgor after the date hereof shall be referred to as the “Extra Equity”. Pledgor and Party C shall, at the time when Pledgor obtains the Extra Equity, immediately enter into a supplementary equity pledge agreement with Pledgee with respect to the Extra Equity, and cause the board of directors and the shareholders’ meeting of Party C to approve such supplementary equity pledge agreement, and provide Pledgee with all documents necessary for the supplementary equity pledge agreement, including but not limited to: (a) the original of the shareholder’s contribution certificate with respect to the Extra Equity issued by Party C; and (b) the photocopy of the capital verification report with respect to the Extra Equity issued by a Chinese Certified Public Accountant. Pledgor and Party C shall go through the pledge registration formalities for the Extra Equity in accordance with Article 3.1 hereof. 6.7. 6.8. Unless with the prior written instructions of Pledgee to the contrary, Pledgor and/or Party C agree that in case of any transfer of all or part of the Equity between Pledgor and any third party (“Equity Transferee”) in breach of this Agreement, Pledgor and/or Party C shall procure Equity Transferee to unconditionally acknowledge the Pledge and fulfill necessary pledge registration change formalities (including but not limited to execution of relevant documents), so as to ensure the existence of the Pledge. If Pledgee provides a loan to Party C, Pledgor and/or Party C agree to grant the pledge to Pledgee with the Equity as the collateral to guarantee such loan, and fulfill relevant formalities, if any, as soon as possible pursuant to the laws, regulations or local customs, including but not limited to execution of relevant documents and handling relevant pledge creation (or change) registration formalities. Party C covenants and further agrees that: 6.9. Where the execution and performance of this Agreement and the grant of the Equity Pledge hereunder require the consent, permission, waiver, authorization of any third party, or approval, permission, exemption of any governmental authority, or registration or filing with any governmental authority (if required by law), then Party C shall try to assist in obtaining and maintaining the same fully valid within the term hereof. 6.10. Without prior written consent of Pledgee, Party C will not assist or allow Pledgor to create any new pledge or grant any other security interest over the Equity, nor assist or allow Pledgor to transfer the Equity. 6.11. Party C agrees to strictly comply with the obligations under Articles 6.6, 6.7 and 6.8 hereof, jointly with Pledgor. 6.12. Without prior written consent of Pledgee, Party C shall not transfer Party C’s assets or create or allow the existence of any security interest or other encumbrance which may affect the right and interest of Pledgee in and to the Equity, including but not limited to transfer of any intellectual property right or asset with a value of over CNY100,000 of Party C, or any title or use encumbrance over such assets. 6.13. In case of any legal litigation, arbitration or other claim, which may have adverse effect on Party C, the Equity or the interests of Pledgee under the cooperation agreements (including but not limited to the Business Cooperation Agreement) and this Agreement, Party C covenants that it will promptly and timely notify Pledgee in writing and per the reasonable request of Pledgee, take all necessary measures to ensure the pledge interest of Pledgee over the Equity. 6.14. Party C shall not do or allow any act or action which may have adverse effect on the interest of Pledgee under the cooperation agreements (including but not limited to the Business Cooperation Agreement) and this Agreement or the Equity. 6.15. Party C will provide Pledgee with the financial statements of Party C for the previous calendar quarter in the first month of each calendar quarter, including but not limited to the balance sheet, income statement and cash flow statement. 6.16. Party C covenants to take all necessary measures and execute all necessary documents per the reasonable request of Pledgee, so as to ensure the pledge interest of Pledgee over the Equity and the exercise and realization of such interest. 6.17. In case of any transfer of Equity arising out of the exercise of the Pledge hereunder, Party C covenants to take all measures to complete such transfer. 7. Event of Default 7.1. Each of the following events shall be regarded as an Event of Default: 7.1.1. Where Party C fails to fully pay the consultation and service fee payable under the Business Cooperation Agreement or any Secured Debt, or repay the loan mentioned in Article 6.8, if any, or breaches any other obligation of Party C thereunder; 7.1.2. Where any representation or warranty made by Pledgor in Article 5 hereof contains serious misrepresentation or error, and/or Pledgor breaches any warranty in Article 5 hereof; 7.1.3. Where Pledgor and Party C fail to complete the Equity pledge registration with the Registration Authority pursuant to Article 3.1 hereof; 7.1.4. Where Pledgor and Party C breach any provision of this Agreement; 7.1.5. Where Pledgor transfers or purports to transfer or waive the pledged Equity, or without written consent of Pledgee, assign the pledged Equity, except under the specified circumstance set forth in Article 6.1.1; 7.1.6. Where any of Pledgor’s own loans, guarantees, compensations, undertakings or other debt liabilities to any third party (1) is required for early repayment or performance due to Pledgor’s default; or (2) becomes due but cannot be repaid or performed as scheduled, causing material adverse effect on Pledgor’s ability to perform the obligations hereunder; 7.1.7. Where any approval, permit, license or authorization of the governmental authority which makes this Agreement enforceable, lawful and effective is withdrawn, suspended, invalid or substantially changed; 7.1.8. Where this Agreement becomes illegal or Pledgor cannot continue performing its obligations hereunder due to the promulgation of any applicable law; 7.1.9. Where there is any adverse change to the properties owned by Pledgor, which causes Pledgee to believe that the ability of Pledgor to perform the obligations hereunder has been affected; 7.1.10. Where the successor or trustee of Party C may only partially perform or refuses to perform, the payment obligations under the Business Cooperation Agreement; and 7.1.11. Other circumstances where Pledgee cannot or may not exercise its rights to and in the Pledge. Pledgor shall immediately notify Pledgee in writing once it is aware of or finds out any circumstance set forth in Article 7.1 or the occurrence of any event which may lead to the said circumstance. Unless the Event of Default listed in this Article 7.1 has been resolved satisfactory to Pledgee within thirty (30) days as of the notice of Pledgee to Pledgor and/or Party C requiring the latter to remedy their/its default, Pledgee may give a Notice of Default to Pledgor at any time thereafter, requiring the Pledgor to dispose the Pledge in accordance with Article 8 hereof. Exercise of the Pledge Prior to the full performance of the Business Cooperation Agreement and the full payment of the consultation and service fee set forth thereunder, without written consent of Pledgee, Pledgor shall not transfer the Pledge or its Equity in Party C. 7.2. 7.3. 8. 8.1. 8.2. Pledgee may give a Notice of Default to Pledgor when it intends to exercise the Pledge. 8.3. 8.4. Subject to Article 7.3, Pledgee may exercise the right to enforce the Pledge simultaneously with or at any time after the issuance of the Notice of Default in accordance with Article 7.2. Once Pledgee chooses to enforce the Pledge, Pledgor shall no longer own any right or interest relating to the Equity. In case of default, within the permitted scope and in accordance with applicable laws, Pledgee shall be entitled to legally dispose the pledge Equity; and the balance, if any, of all proceeds received by Pledgee from its exercise of the Pledge after discharge of the secured obligation shall be paid to Pledgor or the person entitled to receive such amount, without interest. 8.5. When Pledgee disposes the Pledge in accordance with this Agreement, Pledgor and Party C shall give necessary assistance so that Pledgee may enforce the Pledge in accordance with this Agreement. 8.6. All actual expenses, taxes and all legal costs, etc. relating to the creation of equity pledge hereunder and the realization of the rights of Pledgee shall be borne by Party C. Should applicable laws require Pledgee or Pledgor to assume several taxes and fees, Party C shall fully reimburse Pledgee or Pledgor for the taxes and fees that have been paid. 9. Assignment 9.1. Pledgor may not assign or delegate its rights and obligations hereunder without prior written consent of Pledgee. 9.2. 9.3. 9.4. 9.5. This Agreement shall be binding upon Pledgor and his successors and permitted assigns and effective for Pledgee and each of its successors and permitted assigns. Pledgee may assign any and all of its rights and obligations under the Business Cooperation Agreement to any (natural/legal) person designated by it at any time, in which case, the assignee shall enjoy and assume the rights and obligations of Pledgee hereunder, as if he/it is an original party hereto. When Pledgee assigns the rights and obligations under the Business Cooperation Agreement, at the request of Pledgee, Pledgor shall execute the relevant agreements and/or other documents with respect to such assignment. In case that pledgee changes due to such assignment, then at the request of Pledgee, Pledgor and Party C shall enter into a new pledge contract with the same terms and conditions as this Agreement, with the new pledgee. Pledgor shall be in strict compliance with this Agreement and other contracts jointly or severally signed with all or one of the other Parties hereto, including the Exclusive Option Agreement and the Power of Attorney granted to Pledgee, and perform its obligations under this Agreement and other contracts, and refrain from any act/omission which may affect the validity and enforceability thereof. Pledgor shall not exercise any of its remaining right over the Equity pledged hereunder unless otherwise instructed by Pledgee in writing. 10. Termination Upon the full performance of the Business Cooperation Agreement and the full payment of the consultation and service fee thereunder, and after the obligations of Party C thereunder terminate, this Agreement shall terminate, and Pledgee shall terminate this Agreement as soon as reasonably practicable. 11. Fees and Other Charges Party C shall be responsible for all fees and actual expenses in relation to this Agreement, including but not limited to attorney’s fee, production costs, stamp duty and any other taxes and charges. Should applicable laws require Pledgee or Pledgor to assume several taxes and fees, Party C shall fully reimburse Pledgee or Pledgor for the taxes and fees that have been paid. 12. Confidentiality Liabilities The Parties acknowledge that any oral or written information exchanged with respect to this Agreement shall be confidential information. Each Party shall keep in confidential all such information, and without written consent of the other Parties, it shall not disclose any relevant information to any third party except under the following circumstances: (a) where such information is or becomes known by the general public (for reasons other than the disclosure to the public by the Party receiving such information); (b) where the disclosure of such information is required by applicable laws or stock exchange rules or regulations; or (c) where a Party discloses such information for the purpose of the transaction contemplated herein to its legal or financial advisor which is also bound by the confidentiality obligation similar to that provided in this Article. The disclosure of any confidential information by the staff or organization hired or engaged by a Party shall be deemed as the disclosure of such confidential information by such Party, and such Party shall be held liable for breach of this Agreement. This Article shall survive the termination of this Agreement for whatsoever reason. 13. Governing Law and Dispute Resolution 13.1. The execution, validity, interpretation and performance of this Agreement and the resolution of dispute hereunder shall be governed by the PRC laws officially published and publicly available. International legal principles and practices shall apply to the matters on which the PRC laws officially published and publicly available are silent. 13.2. Any dispute arising out of the interpretation and performance of this Agreement shall be resolved by the Parties through good-faith negotiation. In case that the Parties fail to resolve such dispute within 30 days as of the request of a Party for resolution through negotiation, either Party then may submit such dispute to the China International Economic and Trade Arbitration Commission for arbitration in accordance with its arbitration rules then in force. The arbitration shall take place in Beijing and the language of arbitration shall be Chinese. The arbitration award shall be final and binding upon the Parties. The arbitral tribunal may rule on compensating or offsetting Party A’s loss caused by the breach of contract of the other Party hereto with respect to Party C’s equity interest, asset or property interest, decide on injunctive relief with respect to business or mandatory asset transfer, or order Party C to go bankrupt. Upon the effectiveness of the arbitral award, either Party may apply with a competent court for enforcement of the arbitration award. When necessary, the arbitration institution may, before the final award on the dispute of the parties, rule that the breaching party immediately ceases the breach or that the breaching party may not act in furtherance of the loss suffered by Party A. The competent courts in Hong Kong, the Cayman Islands or other jurisdiction (including the courts at the domicile of Party C, or the courts at the place where the main assets of Party C or Party A are located, which shall be deemed as competent) shall also be entitled to grant or enforce the award of the tribunal and rule or enforce provisional relief in respect of Party C’s equity interest or property interest, and also make decision or ruling to grant provisional relief to the Party requesting for arbitration pending the composition of the tribunal or in other proper circumstances, such as decision or ruling that the breaching party immediately ceases the breach of contract or that the breaching party may not act in furtherance of the loss suffered by Party A. 13.3. In case of any dispute arising out of the interpretation and performance of this Agreement, or during the arbitration of any dispute, except for the disputed matter, the Parties shall continue exercising their rights and performing their obligations hereunder. 14. Notice 14.1. All notices and other communication required or permitted hereunder shall be sent to the following address of the Party by personal delivery, or registered mail with postage prepaid, commercial courier service or fax. For each notice, a confirmation shall be also be sent via email. Such notice shall be deemed validly served on the date below: 14.1.1. If given by personal delivery, courier service or registered mail with postage prepaid, on the date of delivery or refusal at the recipient address designated in the notice. 14.1.2. If given by fax, on the date of successful transmission, as evidenced by an automatically generated confirmation of transmission. 14.2. For the purpose of notice, the addresses of the Parties shall be as follows: Party A: Address: Attn.: Email: Tel: Party B: Address: Attn.: Email: Tel: Party C: Address: Attn.: Email: Tel: Wuhan Douyu Culture Network Technology Co., Ltd. 19th Floor, Building F3, Guanggu Software Park, Guanshan Avenue, Hongshan District, Wuhan, Hubei Mingming Su [ ] [ ] Wuhan Chaosai Business Information Consulting Partnership (Limited Partnership) 19th Floor, Building F3, Guanggu Software Park, Guanshan Avenue, Hongshan District, Wuhan, Hubei Mingming Su [ ] [ ] Wuhan Douyu Internet Technology Co. Ltd. 19th Floor, Building F3, Guanggu Software Park, Guanshan Avenue, Hongshan District, Wuhan, Hubei Mingming Su [ ] [ ] 14.3. Either Party may change its address for notice at any time upon notice to the other Parties per this Article. 15. Severability Where any provision or several provisions hereof are held to be invalid, illegal or unenforceable in any aspect under any applicable law or regulation, the validity, legality and enforceability of the remaining provisions hereof shall in no way be affected or damaged. The Parties shall, through good faith negotiation, make efforts to replace such invalid, illegal or unenforceable provisions with valid provisions to the fullest extent permitted by laws and meeting expectations of the Parties, and the economic effects produced by such valid provisions shall be close to the economic effects of such invalid, illegal or unenforceable provisions as much as possible. 16. Appendix The appendices attached hereto shall be integral parts of this Agreement. 17. Effectiveness 17.1. This Agreement shall take effect as of the day immediately following the expiry of fifteen (15) business days after the signature or seal by the Parties (“Effective Date”). Any amendment, change and supplement to this Agreement shall be made in writing. 17.2. This Agreement is written in Chinese and made in quadruplicate (4). Pledgor, Pledgee and Party C shall each hold one (1) copy and file one (1) copy with the Registration Authority. Each copy of this Agreement shall have the same effect. (The remainder of this page is intentionally left blank.) IN WITNESS WHEREOF, the Parties have caused their authorized representatives to execute this Share Pledge Agreement on the date first written above. Party A: Wuhan Douyu Culture Network Technology Co., Ltd. (Seal) /s/ Seal of Wuhan Douyu Culture Network Technology Co., Ltd. /s/ Jie Gao Party C: Wuhan Douyu Internet Technology Co. Ltd. (Seal) /s/ Seal of Wuhan Douyu Internet Technology Co. Ltd. /s/ Jie Gao IN WITNESS WHEREOF, the Parties have caused their authorized representatives to execute this Share Pledge Agreement on the date first written above. Party B: Wuhan Chaosai Business Information Consulting Partnership (Limited Partnership) (Seal) /s/ Seal of Wuhan Chaosai Business Information Consulting Partnership (Limited Partnership) /s/ Jie Gao THE SYMBOL “[ ]” DENOTES PLACES WHERE CERTAIN IDENTIFIED INFORMATION HAS BEEN EXCLUDED FROM THE EXHIBIT BECAUSE IT IS BOTH (i) NOT MATERIAL, AND (ii) IS THE TYPE THAT THE REGISTRANT TREATS AS PRIVATE OR CONFIDENTIAL Exhibit 4.24 Exclusive Option Agreement This Exclusive Option Agreement (“Agreement”) is executed as of October 9, 2021 by and among the following parties in Wuhan, Hubei Province, China: Party A: Party B: Party C: Wuhan Douyu Culture Network Technology Co., Ltd., a limited liability company incorporated and existing under the PRC laws, with its registered address at 6th-7th Floor, Building B1, Software Industry Phase 4.1, No.1 Software Park East Road, East Lake New Technology Development Zone, Wuhan (Wuhan Free Trade Zone); Wuhan Chaosai Business Information Consulting Partnership (Limited Partnership), a limited partnership established and existing under the PRC laws, with its registered address at Room 906-13, 9th Floor, Building 6, Guannan Fuxing Pharmaceutical Park, No. 58 Guanggu Avenue, East Lake New Technology Development Zone, Wuhan (Wuhan Free Trade Zone); and Wuhan Douyu Internet Technology Co. Ltd., a limited liability company incorporated and existing under the PRC laws, with its registered address at Room 01, 12th-19th Floor, Building B3, Software Industry Phase 4.1, No.1 Software Park East Road, East Lake New Technology Development Zone, Wuhan. Party A, Party B and Party C are hereinafter collectively referred to as the “Parties” and individually as a “Party”. WHEREAS, 1. 2. Party B holds approximately 5.6345% equity interest of Party C; and Party B intends to grant Party A an irrevocable and exclusive option to purchase all equity of Party C held by Party B; and Party B and Party C intend to grant Party A an irrevocable and exclusive option to purchase all assets of Party C; NOW, THEREFORE, the Parties, upon negotiation, hereby agree as follows: 1. Purchase and Sale of Equity 1.1. Grant of Rights Party B hereby irrevocably grants Party A, to the extent permitted by the laws of the People’s Republic of China (the “PRC”), an irrevocable and exclusive option to purchase all or part of equity of Party C held by Party B by itself or one or several persons it designates (“Designee”) from Party B at any time, once or more times, per the exercise steps at Party A’s sole discretion and at the price set forth in Article 1.3 hereof (“Equity Call Option”). No third person other than Party A and the Designee may enjoy the Equity Call Option or other rights related to the equity held by Party B. Party C hereby agrees that Party B grants the Equity Call Option to Party A. For the purpose of this clause and this Agreement, a “Person” refers to any individual, corporation, joint venture, partnership, enterprise, trust or unincorporated organization. 1.2. Exercise Steps Party A shall exercise its Equity Call Option subject to the PRC laws and regulations. When exercising the Equity Call Option, Party A shall give a written notice to Party B (“Equity Purchase Notice”), specifying (a) the decision made by Party A or the Designee on the exercise of the Equity Call Option; (b) the percentage of equity proposed to be purchased by Party A or the Designee from Party B (“Purchased Equity”); and (c) the purchase date/transfer date of the Purchased Equity. 1.3. Equity Purchase Price and Payment Thereof The purchase price for the Purchased Equity (“Equity Purchase Price”) shall be CNY 1 or the lowest price permitted by the then PRC laws or the competent governmental authority, whichever lower, unless the PRC laws or the competent governmental authority requires evaluation thereof when Party A or the Designee exercises the option. Upon necessary tax withholding and payment for the Equity Purchase Price in accordance with the PRC laws, if necessary, Party A or the Designee shall pay the Equity Purchase Price to the account designated by Party B within seven (7) days as of the official transfer of the Purchased Equity to Party A or the Designee. 1.4. Transfer of Purchased Equity At each exercise of the Equity Call Option by Party A: 1.4.1. 1.4.2. 1.4.3. Party B shall cause Party C to timely convene the shareholders’ meeting, on which, a resolution shall be adopted to approve the transfer of the Purchased Equity from Party B to Party A and/ or the Designee; Party B shall enter into an equity transfer contract with Party A and/or (where applicable) the Designee for each transfer in accordance with the provisions of this Agreement and the Equity Purchase Notice; The relevant parties shall sign all other requisite contracts, agreements or documents (including but not limited to the amendment to the articles of association), obtain all requisite licenses and permits from the government (including but not limited to the business license of the company), and take all necessary actions, so as to transfer the valid ownership of the Purchased Equity to Party A and/or the Designee free of any security interest and cause Party A and/or the Designee to be the registered owner of the Purchased Equity. For the purpose of this clause and this Agreement, “Security Interest” includes guarantee, mortgage, third-party right or interest, any share option, right to acquire, right of first refusal, right of offset, retention of title or other security arrangements; and for the sake of clarity, excludes any security interest created under this Agreement and Party B’s Share Pledge Agreement. The “Party B’s Share Pledge Agreement” mentioned in this clause and this Agreement refers to the share pledge agreement entered into by Party A, Party B and Party C on the date hereof (the “Share Pledge Agreement”), whereby Party B pledges all equity of Party C held by Party B to Party A for the purpose of guaranteeing Party C’s performance of the obligations under the Exclusive Business Cooperation Agreement by and between Party C and Party A entered into on the date hereof (the “Exclusive Business Cooperation Agreement”). 2. Purchase and Sale of Assets 2.1. Grant of Rights Party C hereby irrevocably grants Party A, to the extent permitted by the PRC laws, an irrevocable and exclusive option to purchase all or part of assets of Party C by itself or one or several persons it designates (“Designee”) from Party C at any time, one or more times, per the exercise steps at Party A’s sole discretion and at the price set forth in Article 2.3 hereof (“Asset Purchase Option”). No third person other than Party A and the Designee may enjoy the Asset Purchase Option or other rights related to Party C’s assets. Party B, as a shareholder of Party C, hereby agrees that Party C grants the Asset Purchase Option to Party A. For the purpose of this clause and this Agreement, a “person” refers to any individual, corporation, joint venture, partnership, enterprise, trust or unincorporated organization. 2.2. Exercise Steps Party A shall exercise its Asset Purchase Option subject to the PRC laws and regulations. When exercising the Asset Purchase Option, Party A shall give a written notice to Party C (“Notice for Assets Purchase”), specifying (a) the decision made by Party A or the Designee on the exercise of the Asset Purchase Option; (b) the assets share proposed to be purchased by Party A or the Designee from Party C (“Purchased Assets”); and (c) the purchase date/transfer date of the Purchased Assets. 2.3. Assets Purchase Price and Payment Thereof The purchase price for the Purchased Assets (“Assets Purchase Price”) shall be the lowest price permitted by the then PRC laws or the competent governmental authority, unless the PRC laws or the competent governmental authority requires evaluation thereof when Party A or the Designee exercises the option. Upon necessary tax withholding and payment for the Assets Purchase Price in accordance with the PRC laws, if necessary, Party A or the Designee shall pay the Assets Purchase Price to the account designated by Party C within seven (7) days as of the official transfer of the Purchased Assets to and the registration thereof in the name of Party A or the Designee. The Assets Purchase Price shall be refunded in full to Party A or the Designee within one month as of the receipt by Party C. 2.4. Transfer of Purchased Assets At each exercise of the Asset Purchase Option by Party A: 2.4.1. Party C shall timely call for the shareholders’ meeting, on which, a resolution shall be adopted to approve the transfer of the Purchased Assets from Party C to Party A and/ or the Designee. As for the adoption of such resolution, the shareholders of Party C shall give all necessary cooperation; 2.4.2. 2.4.3. Party C shall enter into an assets transfer contract with Party A and/or (where applicable) the Designee for each transfer in accordance with the provisions of this Agreement and the Assets Purchase Notice; The relevant parties shall sign all other requisite contracts, agreements or documents (including but not limited to the amendment to the articles of association), obtain all requisite licenses and permits from the government (including but not limited to the business license of the company), and take all necessary actions, so as to transfer the valid ownership of the Purchased Assets to Party A and/or the Designee free of any security interest and cause Party A and/or the Designee to be the registered owner of the Purchased Assets. For the purpose of this clause and this Agreement, “security interest” includes guarantee, mortgage, third-party right or interest, any share option, right to acquire, right of first refusal, right of offset, retention of title or other security arrangements; and for the sake of clarity, excludes any security interest created under this Agreement and Party B’s Share Pledge Agreement. The term of “Party B’s Share Pledge Agreement” mentioned in this clause and this Agreement refers to the share pledge agreement entered into by Party A, Party B and Party C on the date hereof (the “Share Pledge Agreement”), whereby Party B pledges all equity of Party C held by Party B to Party A for the purpose of guaranteeing Party C’s performance of the obligations under the Exclusive Business Cooperation Agreement by and between Party C and Party A entered into on May 14, 2018 (the “Exclusive Business Cooperation Agreement”). 3. Covenants 3.1. Covenants concerning Party C Party B, as a shareholder of Party C, and Party C hereby severally and not jointly covenants that: 3.1.1. Without the prior written consent of Party A, it shall neither agree to nor cause other to supplement, revise or amend the articles of association or bylaws of Party C in any form, or increase or decrease its registered capital, or otherwise change its registered capital structure; 3.1.2. It shall make its best efforts to cause Party C to maintain its existence according to good financial and business standards and practices, and make its best efforts to cause Party C to prudently and effectively conduct its business and transact its affairs, and make its best efforts to cause Party C to perform its obligations under the Exclusive Business Cooperation Agreement; 3.1.3. Without the prior written consent of Party A, it shall not sell, transfer, mortgage or otherwise dispose any legal or beneficial interests in and to any assets, business or revenue of Party C, or permit the creation of any encumbrance of security interests thereon, at any time from the date hereof; 3.1.4. Upon the statutory liquidation set forth in Article 4.6, Party B will pay any remaining residual value collected by it on a non-two-way payment basis to Party A in full amount, or cause such payment. If the PRC laws prohibit such payment, Party B shall pay Party A or the party designated by Party A such revenue to the extent permitted by the PRC laws; 3.1.5. Without the prior written consent of Party A, Party C shall not incur, inherit, guarantee or permit the existence of any debt, except for (i) debts arising in the ordinary course of business other than through loan; and (ii) debts disclosed to Party A and consented by Party A in writing; 3.1.6. It shall make its best efforts to cause Party C to maintain the asset value of Party C in the ordinary course of business, and refrain from any act or omission which may affect the operating condition or asset value of Party C; 3.1.7. Without prior written consent of Party A, it shall not cause Party C to enter into any material contract, other than in the ordinary course of business (for the purpose of this paragraph, if the value of a contract exceeds CNY100,000, it shall be deemed as a material contract); 3.1.8. Without the prior written consent of Party A, it shall not cause Party C to provide any loan or credit or security in any form to any person; 3.1.9. At the request of Party A, it shall make its best efforts to cause Party C to provide Party A with all information on the operational and financial condition of Party C; 3.1.10. If requested by Party A, it shall make its best efforts to cause Party C to take out insurance for Party C’s assets and business with an insurer acceptable by Party A, the amount and types of which shall be consistent with those of the companies engaging in similar business; 3.1.11. Without prior written consent of Party A, it shall not cause or allow Party C to merge or consolidate with any person, or acquire or invest in any person, or cause or allow Party C to sell its asset with a value of more than CNY100,000; 3.1.12. It shall, to the extent of its knowledge, make its best efforts to cause Party C to immediately notify Party A about any pending or threatened litigation, arbitration, or administrative proceeding in connection with Party C’s asset, business or income and any circumstance which may have adverse effect on Party C’s existence, business operation, financial conditions, asset or goodwill, and cause Party C to take all measures accepted by Party A to eliminate such adverse conditions or take remedial measures effective upon such conditions; 3.1.13. In order to make its best efforts to cause Party C to maintain its ownership over all of its assets, it shall make its best efforts to cause Party C to execute all necessary or appropriate documents, take all necessary or appropriate actions, file all necessary or appropriate complaints, or make all necessary and appropriate defenses against all claims; 3.1.14. Without prior written consent of Party A, it shall cause Party C not to distribute dividends in any form to its shareholders, provided that at the written request of Party A, Party C shall immediately distribute all distributable profits to its shareholders; and 3.1.15. At the request of Party A, it shall appoint any person designated by Party A as the director of Party C and/or remove any current director of Party C. 3.2. Covenants of Party B and Party C Party B and Party C hereby severally and not jointly covenants that: 3.2.1. Without the prior written consent of Party A, Party B shall not sell, transfer, mortgage or otherwise dispose any of its legal or beneficial interest in any equity of Party C it holds, or permit the creation of any encumbrance of security interests thereon, except for the pledge created on such equity pursuant to the Party B’s Share Pledge Agreement; 3.2.2. 3.2.3. 3.2.4. 3.2.5. 3.2.6. 3.2.7. Party B shall not require Party C to pay dividend or make other form of profit distribution with respect to Party C’s equity held by Party B, or propose any matter related thereto for resolution at the shareholders’ meeting, or vote in favor of such matter for resolution at the shareholders’ meeting. In any event, should Party B receive any proceeds, profit distribution, dividends from Party C, Party B shall, to the extent permitted by the PRC laws, immediately pay or transfer the same to Party A or a party designated by Party A for the benefit of Party C, as the Service Fee payable by Party C to Party A under the Exclusive Business Cooperation Agreement. Party B shall cause the shareholders’ meeting and/or board of directors of Party C not to approve, without the prior written consent of Party A, to sell, transfer, mortgage or otherwise dispose any of the legal or beneficial interest in any equity of Party C held by Party B, or permit the creation of any encumbrance of security interests thereon, except for the pledge created on such equity pursuant to the Party B’s Share Pledge Agreement; Party B shall cause the shareholders’ meeting or board of directors of Party C not to approve, without the prior written consent of Party A, to merge or consolidate with any person, or acquire or invest in any person; Party B shall, to the extent of its knowledge, immediately notify Party A about any pending or threatened litigation, arbitration or administrative proceedings relating to Party C’s equity it owns and any circumstance which may have adverse effect on Party C’s existence, business operation, financial conditions, asset or goodwill, and cause Party C to timely take all measures accepted by Party A to eliminate such adverse conditions or take remedial measures effective upon such conditions; Party B shall cause the shareholders’ meeting or board of directors of Party C to vote in favor of the transfer of the Purchased Equity hereunder and take any and all other actions as Party A may request; In order to maintain its ownership over Party C’s equity, Party B shall execute all necessary or appropriate documents, take all necessary or appropriate actions, file all necessary or appropriate complaints, or make all necessary and appropriate defenses against all claims; 3.2.8. At the request of Party A, Party B shall appoint any person designated by Party A as the director of Party C; 3.2.9. At Party A’s request at any time, Party B shall immediately and unconditionally transfer its equity of Party C to the Designee of Party A per the Equity Call Option hereunder, and Party B hereby waives its right of first refusal, if any, over the equity transfer of other existing shareholders of Party C; and 3.2.10. Party B shall be in strict compliance with this Agreement, other contracts entered into by Party B, Party C and Party A jointly or severally, perform its obligations hereunder and thereunder, and refrain from any act/omission which may affect the validity and enforceability thereof. In the event that Party B has any remaining rights with respect to the equity under this Agreement or the share pledge agreement among the Parties hereto or under the Power of Attorney granted in favor of Party A, then unless otherwise instructed by Party A in writing, Party B shall not exercise such rights. 4. Representations and Warranties Party B and Party C hereby severally and not jointly represents and warrants to Party A on the date hereof and each date of transfer of the Purchased Equity that: 4.1. 4.2. 4.3. 4.4. It has the authority to execute and deliver this Agreement and any equity transfer contract to which it is a party in connection with its equity to be transferred hereunder (each a “Transfer Contract”) and perform its obligations under this Agreement and any Transfer Contract. Party B and Party C agree that when Party A exercises the Equity Call Option, it will execute a Transfer Contract with the same terms as this Agreement. This Agreement and a Transfer Contract to which it is a party constitute or will constitute its legal, valid and binding obligations and shall be enforceable against it in accordance with their terms; Neither the execution and delivery of this Agreement or any Transfer Contract nor the obligations under this Agreement or any Transfer Contract will: (i) violate any applicable PRC laws; (ii) conflict with the articles of association, by-laws or other organization documents of Party C; (iii) violate, or constitute default under, any contract or instrument to which it is a party or which is binding upon it; (iv) cause violation of any condition for granting and/or maintaining the validity of any license or permit granted to any of them; or (v) cause any license or permit granted to any of them to be suspended, canceled or imposed with additional conditions; Party B has good and marketable title to Party C’s equity held by it. Except for this Agreement and the Party B’s Share Pledge Agreement, Party B has not created any security interest on such equity; Party C has good and marketable title to the assets it owns and except for this Agreement, Party C has not created any security interest over such assets; 4.5. 4.6. Party C has no outstanding debt, except for (i) debts arising in the ordinary course of business; and (ii) debts disclosed to Party A and consented by Party A in writing; If Party C is dissolved or liquidated as required by the PRC laws, Party C shall, to the extent permitted by the PRC laws, sell all of its assets to Party A or other qualified entity designated by Party A at the lowest price permitted by the PRC laws. Party C shall exempt Party A or the qualified entity designated by Party A from any payment obligation incurred thereby, as applicable under the then-current valid PRC laws; or the proceeds from any of such transaction shall be paid to Party A or the qualified entity designated by Party A as part of the Service Fee under the Exclusive Business Cooperation Agreement, as applicable under the then-current valid PRC laws; 4.7. Party C will comply with all PRC laws and regulations applicable to asset acquisition; and 4.8. There is no pending or threatened litigation, arbitration or administrative proceedings relating to Party C’s equity, Party C’s assets or Party C. Articles 4.4, 4.5, 4.6, 4.7 and 4.8 above are Party C’s sole representations and warranties, for which Party B assumes no representation or warranty liability. 5. Effective Date This Agreement shall take effect after fifteen (15) natural days from the date when the Parties execute this Agreement and be valid for 10 years, and Party A may choose to extend the term. This Agreement shall automatically extend if Party A fails to confirm the extension of this Agreement upon the expiry of the term hereof, until Party A delivers a confirmation letter specifying the extended term of this Agreement. 6. Governing Law and Dispute Resolution 6.1. Governing Law The execution, validity, interpretation, performance, amendment and termination of this Agreement and the resolution of dispute hereunder shall be governed by the PRC laws officially published and publicly available. International legal principles and practices shall apply to the matters on which, the PRC laws officially published and publicly available, are silent. 6.2. Dispute Resolution Any dispute arising out of the interpretation and performance of this Agreement shall be first resolved by the Parties through friendly negotiation. In case that the Parties fail to resolve such dispute within 30 days as of the request of a Party to other Parties for resolution through negotiation, either Party then may submit such dispute to the China International Economic and Trade Arbitration Commission for arbitration in accordance with its arbitration rules then in force. The arbitration shall take place in Beijing and the language of arbitration shall be Chinese. The arbitration award shall be final and binding upon the Parties. The arbitral tribunal may rule on compensating or offsetting Party A’s loss caused by the breach of contract of the other Party hereto with respect to Party C’s equity interest, asset or property interest, decide on injunctive relief with respect to business or mandatory asset transfer, or order Party C to go bankrupt. Upon the effectiveness of the arbitral award, either Party may apply with a competent court for enforcement of the arbitration award. When necessary, the arbitration institution may, before the final award on the dispute of the parties, rule that the breaching party immediately ceases the breach or that the breaching party may not act in furtherance of the loss suffered by Party A. The competent courts in Hong Kong, the Cayman Islands or other jurisdiction (including the courts at the domicile of Party C, or the courts at the place where the main assets of Party C or Party A are located, which shall be deemed as competent) shall also be entitled to grant or enforce the award of the tribunal and rule or enforce provisional relief in respect of Party C’s equity interest or property interest, and also make decision or ruling to grant provisional relief to the Party requesting for arbitration pending the composition of the tribunal or in other proper circumstances, such as decision or ruling that the breaching party immediately ceases the breach of contract or that the breaching party may not act in furtherance of the loss suffered by Party A. 7. Taxes and Expenses Any and all transfer and registration taxes, expenses and costs paid for the preparation and execution of this Agreement and the Transfer Contract and the completion of the transaction contemplated by this Agreement and the Transfer Contract shall be borne by Party A or Party C. 8. 8.1. Notice All notices and other communications required or permitted hereunder shall be sent to the following address of the Party by personal delivery, or registered mail with postage prepaid, commercial courier service or fax. For each notice, a confirmation shall be also be sent via email. Such notice shall be deemed validly served on the date below: 8.1.1. If given by personal delivery, courier service or registered mail with postage prepaid, on the date of delivery or refusal at the recipient address designated in the notice. 8.1.2. If given by fax, on the date of successful transmission, as evidenced by an automatically generated confirmation of transmission. 8.2. For the purpose of notice, the addresses of the Parties shall be as follows: Party A: Wuhan Douyu Culture Network Technology Co., Ltd. Address: 7th Floor, Building 2, Binjiang International Plaza, No. 1062 Yangshupu Road, Yangpu District, Shanghai Attn.: Mingming Su Email: [ ] Tel: [ ] Party B: Wuhan Chaosai Business Information Consulting Partnership (Limited Partnership) Address: 7th Floor, Building 2, Binjiang International Plaza, No. 1062 Yangshupu Road, Yangpu District, Shanghai Attn.: Mingming Su Email: [ ] Tel: [ ] Party C: Wuhan Douyu Internet Technology Co. Ltd. Address: 7th Floor, Building 2, Binjiang International Plaza, No. 1062 Yangshupu Road, Yangpu District, Shanghai Attn.: Mingming Su Email: [ ] Tel: [ ] 8.3. Either Party may change its address for notice at any time upon notice to the other Parties per this Article. 9. Confidentiality Liabilities The Parties acknowledge that any oral or written information exchanged with respect to this Agreement shall be confidential information. Each Party shall keep in confidential all such information, and without written consent of the other Parties, it shall not disclose any relevant information to any third party except under the following circumstances: (a) where such information is or becomes known by the general public (for reasons other than the disclosure to the public by the Party receiving such information); (b) where the disclosure of such information is required by applicable laws or stock exchange rules or regulations; or (c) where a Party discloses such information for the purpose of the transaction contemplated herein to its legal or financial advisor which is also bound by the confidentiality obligation similar to that provided in this Article. The disclosure of any confidential information by the staff or organization hired or engaged by a Party shall be deemed as the disclosure of such confidential information by such Party, and such Party shall be held liable for breach of this Agreement. This Article shall survive the termination of this Agreement for whatsoever reason. 10. Further Assurance The Parties agree to promptly execute documents that are reasonably required for or are conducive to the implementation of the provisions and purpose of this Agreement and take further actions that are reasonably required for or are conducive to the implementation of the provisions and purpose of this Agreement. 11. Miscellaneous 11.1. Amendment, Change and Supplement Any amendment, change or supplement to this Agreement shall be made in a written agreement signed by all Parties. 11.2. Entire Agreement Except for the amendments, supplements or changes made in writing after the execution of this Agreement, this Agreement shall constitute the entire agreement reached by and among the Parties hereto with respect to the subject matter hereof, and shall supersede all prior oral and written consultations, representations and contracts reached with respect to the subject matter of this Agreement. 11.3. Heading The headings of this Agreement are for reading convenience only, and shall not be used to interpret, explain or otherwise affect the meanings of the provisions of this Agreement. 11.4. Language This Agreement shall be written in Chinese and made in triplicate (3), with Party A, Party B and Party C each holding one (1) copy of the same legal effect. 11.5. Severability Where any provision or several provisions hereof are held to be invalid, illegal or unenforceable in any aspect under any applicable law or regulation, the validity, legality and enforceability of the remaining provisions hereof shall in no way be affected or damaged. The Parties shall, through good-faith negotiation, make efforts to replace such invalid, illegal or unenforceable provisions with valid provisions to the fullest extent permitted by laws and meeting expectations of the Parties, and the economic effects produced by such valid provisions shall be close to the economic effects of such invalid, illegal or unenforceable provisions as much as possible. 11.6. Successor This Agreement shall be binding upon and inure to the benefit of the respective successors and permitted assigns of the Parties. 11.7. Survival 11.7.1. Any obligation due or accrued due to this Agreement prior to the expiration or early termination of this Agreement shall survive the expiration or early termination of this Agreement. 11.7.2. Articles 6, 8, 9 and 11.7 shall survive the termination of this Agreement. 11.8. Waiver Any Party may waive the terms and conditions of this Agreement, provided that such waiver shall be made in writing and signed by the Parties. No waiver by a Party of the breach of other Parties in certain circumstances shall be deemed as a waiver by such Party of any similar breach in other circumstances. (The remainder of this page is intentionally left blank.) IN WITNESS WHEREOF, the Parties have caused their authorized representatives to execute this Exclusive Option Agreement on the date first written above. Party A: Wuhan Douyu Culture Network Technology Co., Ltd. (Seal) /s/ Seal of Wuhan Douyu Culture Network Technology Co., Ltd. Party C: Wuhan Douyu Internet Technology Co. Ltd. (Seal) /s/ Seal of Wuhan Douyu Internet Technology Co. Ltd. IN WITNESS WHEREOF, the Parties have caused their authorized representatives to execute this Exclusive Option Agreement on the date first written above. Party B: Wuhan Chaosai Business Information Consulting Partnership (Limited Partnership) (Seal) /s/ Seal of Wuhan Chaosai Business Information Consulting Partnership (Limited Partnership) Power of Attorney Exhibit 4.35 Date: October 9, 2021 The undersigned, Wuhan Chaosai Business Information Consulting Partnership (Limited Partnership) (the “Principal”), a limited partnership established in the People’s Republic of China (the “PRC”), with Unification Code No. 91420100MA4F32EB9T, holding 5.6345% of the entire registered capital (the “Equity”) of Wuhan Douyu Internet Technology Co. Ltd. (“Wuhan Douyu”), hereby irrevocably authorize: (i) Wuhan Douyu Culture Network Technology Co., Ltd. (the “WFOE”) and (ii) the directors designated by the WFOE and their successors (including any liquidator who replaces such directors) (and the foregoing persons referred to in item (i) and (ii) above are hereinafter collectively referred to as the “Attorney”), to exercise the following rights with respect to the Equity during the term of this Power of Attorney: The WFOE is hereby authorized to act as the Principal’s sole and exclusive proxy and attorney on the Principal’s behalf with respect to all matters relating to the Equity, including but not limited to: (1) proposing, convening and attending Wuhan Douyu’s shareholders’ meeting; (2) exercising all shareholder’s rights and voting rights enjoyed by the Principal under the PRC laws and the articles of association of Wuhan Douyu, including, without limitation, voting on the sale, transfer, pledge or disposition of the Equity, in whole or in part, or executing and delivering any written resolution in the name of and on behalf of the Principal, and/or receiving Wuhan Douyu’s dividends or any other form of distribution; and (3) designating and appointing the legal representative (chairman of the board of directors), directors, supervisors, chief executive officer (or manager) and other senior officers of Wuhan Douyu on the Principal’s behalf. Without limiting the generality of the power granted hereunder, the WFOE shall have the power and authorization hereunder to enter into the Transfer Contract set forth in the Exclusive Option Agreement on the Principal’s behalf to the extent that the Principal is required to be a party thereto, and perform the terms of the Share Pledge Agreement and the Exclusive Option Agreement, of even date herewith, to which the Principal is a party. All the actions of the WFOE in relation to the Equity shall be deemed as the Principal’s own actions, and all documents executed by the WFOE shall be deemed to be executed by the Principal itself. The WFOE may decide at its sole and absolute discretion when conducting all such actions, without securing prior consent from the Principal (but prior written notice to the Principal), and the Principal hereby acknowledges and authorizes such actions and/or documents taken and executed by the WFOE, and accepts and assumes the legal consequence arising out of such actions and/or documents, except for those actions which the Principal has reasonable grounds to believe that the WFOE has any willful misconduct or gross negligence or has violated applicable laws and regulations, which causes material adverse effect on relevant interests of the Principal in Wuhan Douyu and has not been corrected within a reasonable time limit. The WFOE shall have the right to delegate or assign, at its own discretion, its rights relating to the matters above to any other person or entity, without securing prior consent from the Principal, but prior notice to the Principal. As long as the Principal is a shareholder of Wuhan Douyu, this Power of Attorney and the power granted hereunder shall be coupled with interest and irrevocable and be continuously effective from the date hereof. The Principal hereby waives, and shall not exercise in person, all rights granted to the WFOE relating to the Equity hereunder during the term of this Power of Attorney. This Power of Attorney is written in Chinese. (The remainder of this page is intentionally left blank.) [Signature Page to the Power of Attorney] Wuhan Chaosai Business Information Consulting Partnership (Limited Partnership) (seal) /s/ Seal of Wuhan Chaosai Business Information Consulting Partnership (Limited Partnership) Significant Subsidiaries Wuhan Douyu Education Consulting Co., Ltd. Wuhan Yuwan Culture Media Co., Ltd. Wuhan Yuxing Tianxia Culture Media Co., Ltd. Wuhan Yuyin Raoliang Culture Media Co., Ltd. Wuhan Yu Leyou Internet Technology Co., Ltd. Wuhan Douyu Culture Network Technology Co., Ltd. DouYu Network Inc. Douyu Hongkong Limited Gogo Glocal Holding Limited VIEs Wuhan Ouyue Online TV Co., Ltd. Wuhan Douyu Culture Network Technology Co., Ltd. Exhibit 8.1 Place of Incorporation PRC PRC PRC PRC PRC PRC The British Virgin Islands Hong Kong Cayman PRC PRC Place of Incorporation Exhibit 12.1 Certification by the Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, Shaojie Chen, certify that: 1. 2. 3. 4. I have reviewed this annual report on Form 20-F of DouYu International Holdings Limited (the “Company”); Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report; The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and15d-15(f)) for the company and have: (a) (b) (c) (d) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and 5. The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors: (a) (b) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting. Date: April 29, 2022 /s/ Shaojie Chen By: Name: Shaojie Chen Title: Chief Executive Officer and Director (principal executive officer) Exhibit 12.2 Certification by the Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, Mingming Su, certify that: 1. 2. 3. 4. I have reviewed this annual report on Form 20-F of DouYu International Holdings Limited (the “Company”); Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report; The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have: (a) (b) (c) (d) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and 5. The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors: (a) (b) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting. Date: April 29, 2022 /s/ Mingming Su By: Name: Mingming Su Title: Chief Strategy Officer and Director (principal financial officer) Exhibit 13.1 Certification by the Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 In connection with the annual report of DouYu International Holdings Limited (the “Company”) on Form 20-F for the year ended December 31, 2021 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Shaojie Chen, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge: (1) (2) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: April 29, 2022 /s/ Shaojie Chen By: Name: Shaojie Chen Title: Chief Executive Officer and Director (principal executive officer) Exhibit 13.2 Certification by the Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 In connection with the annual report of DouYu International Holdings Limited (the “Company”) on Form 20-F for the year ended December 31, 2021 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Mingming Su, Chief Strategy Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge: (1) (2) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: April 29, 2022 /s/ Mingming Su By: Name: Mingming Su Title: Chief Strategy Officer and Director (principal financial officer) Exhibit 15.1 Our ref LWP/739086-000004/23307213v1 DouYu International Holdings Limited 20/F, Building A, New Development International Center, No. 473 Guanshan Avenue, Hongshan District, Wuhan, Hubei Province, People’s Republic of China 29 April 2022 DouYu International Holdings Limited We have acted as legal advisors as to the laws of the Cayman Islands to DouYu International Holdings Limited, an exempted limited liability company incorporated in the Cayman Islands (the “Company”), in connection with the filing by the Company with the United States Securities and Exchange Commission of an annual report on Form 20-F for the fiscal year ended 31 December 2021. We hereby consent to the reference of our name under the heading “Item 10. Additional Information E. Taxation – Cayman Islands Taxation” in the Form 20-F, and further consent to the incorporation by reference of the summaries of our opinions that appear in the annual report on Form 20-F into the Registration Statement (No. 333-235862) on Form S-8. 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) LLP Maples and Calder (Hong Kong) LLP Exhibit 15.2 Consent of Han Kun Law Offices To: DouYu International Holdings Limited 20/F, Building A, New Development International Center No. 473 Guanshan Avenue Hongshan District, Wuhan Hubei Province, 430073 People’s Republic of China Date: April 29, 2022 Dear Sirs, We consent to the reference to our firm under the headings “Item 3.D—Risk Factors,” “Item 4.B—Business Overview—Regulation,” “Item 4.C— Organizational Structure—Contractual Arrangements with The VIEs and The VIE’s Respective Shareholders” and “Item 10.E—Taxation—People’s Republic of China Taxation” in DouYu International Holdings Limited’s Annual Report on Form 20-F for the year ended December 31, 2021, which will be filed with the Securities and Exchange Commission (the “SEC”), and further consent to the incorporation by reference of the summaries of our opinions that appear in the annual report on Form 20-F into the Registration Statement (No. 333-235862) on Form S-8. We also consent to the filing of this consent letter with the SEC as an exhibit to the Annual Report on Form 20-F for the year ended December 31, 2021. Yours faithfully, /s/ HAN KUN LAW OFFICES HAN KUN LAW OFFICES CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the incorporation by reference in the Registration Statement No. 333-235862 on Form S-8 of our reports dated April 29, 2022, relating to (1) the financial statements of DouYu International Holdings Limited, and its subsidiaries (collectively, the “Company”) and (2) the effectiveness of the Company’s internal control over financial reporting, appearing in this Annual Report on Form 20-F of DouYu International Holdings Limited for the year ended December 31, 2021. Exhibit 15.3 /s/ Deloitte Touche Tohmatsu Certified Public Accountants LLP Deloitte Touche Tohmatsu Certified Public Accountants LLP Shanghai, the People’s Republic of China April 29, 2022 

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