Annual and Transition Report (foreign Private Issuer) (20-f)

falseFY0001733298truetrueFor the years ended December 31, 2020, 2021 and 2022, the service fee of RMB250.9 million, RMB39.8 million and RMB2.5 million charged to related parties represents advertising and marketing services provided to companies under the common control of the founder, to help promote these companies’ online applications, which were developed in late 2018. As of December 31, 2021 and 2022, the amounts due from related parties that pertains to accounts receivable from related party revenues generated was RMB246.5 million and RMB48.8 million respectively. Although the balance as of December 31, 2022 is overdue, as these companies are under the common control of the founder and they have demonstrated an ability to continuously pay off their balances, the Company did not view this delay in payment as a sign of collectability risk.In 2019 the Group entered into CPM (cost per impression) arrangements with media platforms under the common control of the founder for the Group’s customer’s advertisement placement. The total service fee charged from related parties amounted to RMB29.2 million, RMB103.3 million and RMB14.6 million for the years ended December 31, 2020, 2021 and 2022, respectively.In July 2019, the Company invested RMB3.0 million in a game developing company which the founder’s controlled entity has significant influence in. The investment was measured using the measurement alternative recorded at cost less any impairment since it does not have a readily determinable fair value. The investment was fully impaired as of December 31, 2021. (Note 6). In 2019 the Group entered into a game cooperation agreement with this company and the Group is the principal in the arrangement. The total service fee represents the amount paid to this company in relation to the arrangement.For the years ended December 31, 2020, 2021 and 2022, the service fee charged from related parties represented the expense charged from companies under common control of the founder which provided the Group advertising and marketing related promotion services.This balance is primarily related to a cultural development fee on the provision of advertising services in the PRC that the Group is subject to. The applicable tax rate was 3% of the net advertising revenues up until June 30, 2019, and was updated to 1.5% effective July 1, 2019. Due to the COVID-19 pandemic, the Group was exempt from the cultural development fee for 2020, 2021. The Company received non-refundable incentive payment of US$1.8 million (RMB12.5 million) from depositary bank in September 2018, and the amount will be recorded ratably over a 5-year arrangement period. For the years ended December 31, 2021 and 2022, the Company recorded amount of RMB2.5 million each year as a reduction in general and administrative expenses. 0001733298 2022-12-31 0001733298 2022-01-01 2022-12-31 0001733298 2021-12-31 0001733298 2021-01-01 2021-12-31 0001733298 2020-01-01 2020-12-31 0001733298 2019-01-01 2019-06-30 0001733298 2019-07-01 2019-07-01 0001733298 2020-01-01 2020-03-31 0001733298 2020-12-31 0001733298 2018-09-01 2018-09-30 0001733298 2019-04-04 2019-04-05 0001733298 2017-07-17 0001733298 2017-09-01 0001733298 2017-09-01 2017-09-01 0001733298 2019-01-01 2019-12-31 0001733298 2019-07-31 0001733298 2022-11-01 2022-11-30 0001733298 2019-12-31 0001733298 srt:AffiliatedEntityMember 2021-12-31 0001733298 qtt:AdvertisingAndPromotionalCostsOthersMember 2021-12-31 0001733298 qtt:GamingCostSharingMember 2021-12-31 0001733298 qtt:GroupAdvertisementCostsChargedFromARelatedPartyMember 2021-12-31 0001733298 qtt:ConvertibleLoanAgreementMember 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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM

20-F

(Mark One)

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

☒	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2022

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

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

Date of event requiring this shell company report

For the transition period from to

Commission file

number

001-38644

Qutoutiao Inc.

(Exact name of Registrant as specified in its charter)

Cayman Islands

(Exact name of Registrant as specified in its charter)

Building No. 2, Shanghai Pudong Software Park

519 Yi De Road, Pudong New Area

Shanghai 200124

People’s Republic of China

(Address of principal executive offices)

Mr. Eric Siliang Tan, Chief Executive Officer and Interim Chief Financial Officer

Telephone:

+86-21-5889-0398

Email: ir@qutoutiao.net

At the address of the Company set forth above

(Name, Telephone,

E-mail

and/or Facsimile number and Address of Company Contact Person)

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


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
None	None	None

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

Class A Ordinary Shares, par value US$0.0001 per share

American Depositary Shares, every two representing five Class A ordinary shares

(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None.

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

46,920,018 Class A ordinary shares were outstanding as of December 31, 2022

32,937,193 Class B ordinary shares were outstanding as of December 31, 2022

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

during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒

Yes

☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a

non-accelerated

filer, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in

Rule 12b-2

of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☐	Non-accelerated filer	☒

				Emerging growth company	☒

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

☒

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

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.

☐

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

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentivebased compensation received by any of the registrant’s executive offi cers during the relevant recovery period pursuant to

§240.10D-1(b). ☐

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


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

If “Other” has been checked in response to the previous question, indicate by check mark which consolidated 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 Securities Exchange Act of 1934) ☐ Yes

☒

(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


			Page
PART I				4
	ITEM 1.	IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS		4
	ITEM 2.	OFFER STATISTICS AND EXPECTED TIMETABLE		4
	ITEM 3.	KEY INFORMATION		4
	ITEM 4.	INFORMATION ON THE COMPANY		72
	ITEM 4A.	UNRESOLVED STAFF COMMENTS		110
	ITEM 5.	OPERATING AND FINANCIAL REVIEW AND PROSPECTS		110
	ITEM 6.	DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES		127
	ITEM 7.	MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS		136
	ITEM 8.	FINANCIAL INFORMATION		137
	ITEM 9.	THE OFFER AND LISTING		139
	ITEM 10.	ADDITIONAL INFORMATION		139
	ITEM 11.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		147
	ITEM 12.	DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES		147

PART II				149
	ITEM 13.	DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES		149
	ITEM 14.	MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS		149
	ITEM 15.	CONTROLS AND PROCEDURES		149
	ITEM 16.	[RESERVED]		151
	ITEM 16A.	AUDIT COMMITTEE FINANCIAL EXPERT		151
	ITEM 16B.	CODE OF ETHICS		151
	ITEM 16C.	PRINCIPAL ACCOUNTANT FEES AND SERVICES		151
	ITEM 16D.	EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES		151
	ITEM 16E.	PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS		151
	ITEM 16F.	CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT		151
	ITEM 16G.	CORPORATE GOVERNANCE		152
	ITEM 16H.	MINE SAFETY DISCLOSURE		152
	ITEM 16I.	DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS		152
	ITEM 16J.	INSIDER TRADING POLICIES		153

PART III				153
	ITEM 17.	FINANCIAL STATEMENTS		153
	ITEM 18.	FINANCIAL STATEMENTS		153
	ITEM 19.	EXHIBITS		153

CONVENTIONS THAT APPLY TO THIS ANNUAL REPORT ON FORM 20-F

Except where the context otherwise requires, references in this annual report to:

•

“installed users” are to the aggregate number of unique mobile devices that have downloaded and launched the Group’s relevant mobile application at least once;

•

“ADSs” are to American depositary shares, with every four ADSs representing one Class A ordinary share, and “ADRs” are to American depositary receipts that evidence ADSs;

•

“CAGR” are to compound annual growth rate;

•

“China” and the “PRC” are to the People’s Republic of China, excluding, for the purposes of this annual report only, Taiwan, the Hong Kong Special Administrative Region and the Macao Special Administrative Region;

•

“DAUs” are to the number of unique mobile devices that accessed the Group’s relevant mobile application on a given day. “Combined average DAUs” for a particular period is the average of the DAUs for all of the Group’s mobile applications on each day during that period;

•

“the Group” are to Qutoutiao Inc., the Group VIEs and their respective subsidiaries;

•

“Group VIEs” are to the variable interest entities, or VIEs, that are controlled by us through contractual arrangements and are consolidated into the Group’s consolidated financial statements in accordance with U.S. GAAP;

•

“Key WFOEs” are to material wholly foreign-owned entities of Qutoutiao Inc., namely Shanghai Quyun Network Technology Co., Ltd. and Shanghai Zhicao Information Technology Co., Ltd.;

•

“Key VIEs” are to material variable interest entities of Qutoutiao Inc., namely Shanghai Jifen Culture Communications Co., Ltd., Shanghai Big Rhinoceros Horn Information Technology Co., Ltd. and Beijing Churun Technology Co., Ltd.;

•

“MAUs” are to the number of unique mobile devices that accessed the Group’s relevant mobile application in a given month. “Combined average MAUs” for a particular period is the average of the MAUs for all of the Group’s mobile applications in each month during that period;

•

“oCPC” are to optimized cost-per-click as basis for charging the Group’s advertising services;

•

“oCPM” are to optimized cost-per-thousand-impressions as basis for charging the Group’s advertising services;

•

“Qutoutiao,” “we,” “us,” “our company” and “our” are to Qutoutiao Inc., its subsidiaries, and, in the context of describing its operations and consolidated financial information, the Group VIEs;

•

“R&D” are to research and development;

•

“registered users” are to users that have registered accounts on the Group’s relevant mobile application;

•

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

•

“lower-tier cities” are to cities in China that are not tier-1 and tier-2 cities;

•

“tier-1 and tier-2 cities” refer to (i) tier-1 cities in China, which are Beijing, Shanghai, Guangzhou and Shenzhen and (ii) tier-2 cities in China, which are Hangzhou, Nanjing, Jinan, Chongqing, Qingdao, Dalian, Ningbo, Xiamen, Tianjin, Chengdu, Wuhan, Harbin, Shenyang, Xi’an, Changchun, Changsha, Fuzhou, Zhengzhou, Shijiazhuang, Suzhou, Foshan, Dongguan, Wuxi, Yantai, Taiyuan, Hefei, Kunming, Nanchang, Nanning, Tangshan, Wenzhou and Zibo; and

•

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

On December 10, 2021, we effected a change of the ratio of our ADSs to Class A ordinary shares from the then ADS ratio of four (4) ADSs to one (1) Class A ordinary share to a new ADS ratio of two (2) ADS representing five (5) Class A ordinary shares. Unless otherwise indicated, ADSs and per ADS amount in this annual report have been retroactively adjusted to reflect the change in ratio for all periods presented.

Unless specifically indicated otherwise or unless the context otherwise requires, all references to our ordinary shares exclude ordinary shares issuable upon the exercise of outstanding options with respect to our ordinary shares under our share incentive plan.

This annual report contains translations between Renminbi and U.S. dollars solely for the convenience of the reader. The translations from Renminbi to U.S. dollars and from U.S. dollars to Renminbi in this annual report were made at a rate of RMB6.8972 to US$1.00, the exchange rate set forth in the H.10 statistical release of the Federal Reserve Board on December 30, 2022. We make no representation that the Renminbi or U.S. dollar amounts referred to in this annual report could have been or could be converted into U.S. dollars or Renminbi, as the case may be, at any particular rate or at all.

Unless the context indicates otherwise, all share and per share data in this annual report have given effect to a share split in September 2017 in which each one of the previously issued ordinary shares was split into 10,000 ordinary shares.

This annual report on Form 20-F includes the Group’s audited consolidated financial statements for the years ended December 31, 2020, 2021 and 2022, and as of December 31, 2021 and December 31, 2022.

FORWARD-LOOKING INFORMATION

This annual report on Form 20-F contains statements of a forward-looking nature. All statements other than statements of historical facts are forward-looking statements. These forward-looking statements are made under the “safe harbor” provision under Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and as defined in the Private Securities Litigation Reform Act of 1995. These statements involve known and unknown risks, uncertainties and other factors that may cause the Group’s actual results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements. In some cases, these forward-looking statements can be identified by words or phrases such as “may,” “will,” “expect,” “anticipate,” “aim,” “estimate,” “intend,” “plan,” “believe,” “potential,” “continue,” “is/are likely to” or other similar expressions. These forward-looking statements relate to, among others:

•

the Group’s goal and strategies;

•

the Group’s ability to maintain and strengthen its position as a leader amongst mobile content platform companies in China’s mobile content industry;

•

the Group’s expansion plans;

•

the Group’s ability to monetize through advertising and other products and services that it plans to introduce;

•

the Group’s future business development, financial condition and results of operations;

•

PRC laws, regulations, and policies relating to the Internet and Internet content providers; and

•

general economic and business conditions.

We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect the Group’s financial condition, results of operations, business strategy and financial needs.

You should read these statements in conjunction with the risks disclosed in “Item 3. Key Information—D. Risk Factors” of this annual report and other risks outlined in our other filings with the Securities and Exchange Commission, or the SEC. Moreover, the Group operates in an emerging and evolving environment. New risks may emerge from time to time, and it is not possible for our management to predict all risks, nor can we assess the impact of such risks on the Group’s business or the extent to which any risk, or combination of risks, may cause actual results to differ materially from those contained in any forward-looking statements. The forward-looking statements made in this annual report relate only to events or information as of the date on which the statements are made in this annual report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date on which the statements are made or to reflect the occurrence of unanticipated events. You should read this annual report and the documents that we have referred to in this annual report, completely and with the understanding that the Group’s actual future results may be materially different from what we expect.

PART I

ITEM 1.

IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not Applicable.

ITEM 2.

OFFER STATISTICS AND EXPECTED TIMETABLE

Not Applicable.

ITEM 3.

KEY INFORMATION

Our Corporate Structure and Contractual Arrangements

Qutoutiao Inc. is not a Chinese operating company but a holding company incorporated in the Cayman Islands as an exempted company with limited liability, with operations primarily conducted (i) through contractual arrangements with certain variable interest entities, or the Group VIEs, in China and (ii) by our subsidiaries in China. Qutoutiao Inc. does not own equity interests in the Group VIEs, and does not conduct business operations directly. PRC laws and regulations impose certain restrictions or prohibitions on foreign ownership of companies that engage in certain value-added telecommunication services, internet audio-video program services and certain other businesses. Therefore, we operate such businesses in China through the Group VIEs and their subsidiaries, and rely on contractual arrangements among our PRC subsidiaries, the Group VIEs and their respective shareholders to control the business operations of the Group VIEs. Investors in our ADSs do not hold equity interests in the Group’s operating entities in China, but instead hold equity interests in Qutoutiao Inc., a Cayman Islands holding company. See “Item 4. Information on the Company—D. Organizational Structure” for a diagram illustrating our corporate structure. As used in this annual report, “Qutoutiao,” “we,” “us,” “our company” or “our” refers to Qutoutiao Inc., its subsidiaries, and, in the context of describing its operations and consolidated financial information, the Group VIEs; “the Group” refers to Qutoutiao Inc., the Group VIEs and their respective subsidiaries; and “the Group VIEs” refer to the variable interest entities that conduct our business operations in China.

The contractual arrangements among our PRC subsidiaries, the Group VIEs and their respective shareholders collectively enable us to:

•

exercise effective control over the Group VIEs and their subsidiaries;

•

receive substantially all the economic benefits of the Group VIEs; and

•

have an exclusive option to purchase all or part of the equity interests and assets of the Group VIEs when and to the extent permitted by PRC law.

As a result of the contractual arrangements, Qutoutiao Inc. and certain of its subsidiaries are considered the primary beneficiaries of the Group VIEs for accounting purposes, and we have consolidated the financial results of the Group VIEs in the Group’s consolidated financial statements. For more details on the contractual arrangements, see “Item 4. Information on the Company—D. Organizational Structure—Contractual Arrangements among Our Key WFOEs, the Key VIEs and Their Respective Shareholders.” Terms contained in each set of contractual arrangements with the Group VIEs are substantially similar.

We are subject to risks associated with our contractual arrangements with the Group VIEs and their shareholders. Our Cayman Islands holding company and its investors may never hold equity interests in the Group VIEs. The contractual arrangements may be less effective than equity ownership in providing us with control over the Group VIEs and we may incur substantial costs to enforce the terms of the arrangements. If the Group VIEs or their shareholders fail to perform their respective obligations under these contractual arrangements, our ability, as a Cayman Islands holding company, to enforce these contractual arrangements may be limited. The contractual arrangements have not been tested in a court of law in China. There are very few precedents and little formal guidance as to how contractual arrangements in the context of a variable interest entity should be interpreted or enforced under PRC law. In the event we are unable to enforce these contractual arrangements, or if we suffer significant delay or other obstacles in the process of enforcing these contractual arrangements, we may not be able to exert effective control over the Group VIEs, and our ability to conduct the Group’s business and the Group’s results of operations and financial condition may be materially and adversely affected. See “—D. Risk Factors—Risks Relating to Our Corporate Structure—We rely on contractual arrangements with the Group VIEs and their respective shareholders to operate the Group’s business, which may be less effective than equity ownership in providing operational control and otherwise materially and adversely affect the Group’s business” and “—The shareholders of the Group VIEs may have potential conflicts of interest with us, which may materially and adversely affect the Group’s business, results of operations and financial condition.”

There are also substantial uncertainties regarding the interpretation and application of current and future PRC laws, regulations and rules with regard to our corporate structure and the contractual arrangements with the Group VIEs and their shareholders. If Chinese regulatory authorities disallow such structure and arrangements, it would have a material effect on our operations and cause the value of our ADSs to significantly decline or become worthless. See “—D. Risk Factors—Risks Relating to Our Corporate Structure—If the PRC government deems that the contractual arrangements in relation to the Group 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 severe penalties or be forced to relinquish our interests in those operations. In addition, our ADSs may significantly decline in value or become worthless if we are unable to assert our contractual control over the assets of the Group VIEs” and “—Substantial uncertainties exist with respect to whether the controlling of PRC onshore variable interest entities by foreign investors via contractual arrangements will be recognized as ‘foreign investment’ and how it may impact the viability of the Group’s current corporate structure and operations.”

The Group also faces various legal and operational risks and uncertainties associated with being based in or having its operations primarily in China and the country’s complex and evolving laws and regulations. For example, the Group faces risks associated with regulatory approvals on offerings conducted overseas by and foreign investment in China-based issuers, the use of the Group VIEs, anti-monopoly regulatory actions, and oversight on cybersecurity and data privacy, which may impact the Group’s ability to conduct certain businesses, accept foreign investments, or list on a U.S. or other foreign exchange outside of China. These risks could result in a material adverse change in the Group’s operations and the value of our ADSs, significantly limit or completely hinder our ability to offer or continue to offer securities to investors, or cause the value of such securities to significantly decline or become worthless. See “—D. Risks Factors—Risks Relating to Doing Business in China.”

Holding Foreign Companies Accountable Act

The Holding Foreign Companies Accountable Act, or the HFCAA, was enacted in December 2020 and amended pursuant to the Consolidated Appropriations Act, 2023 on December 29, 2022, and may affect the trading of our ADSs in the over-the-counter, or OTC, trading market in the United States. Pursuant to the HFCAA, if the SEC determines that we are an issuer, or a covered issuer, that has filed audit reports issued by a registered public accounting firm that has not been subject to inspection for the U.S. Public Company Accounting Oversight Board, or the PCAOB, for two consecutive years, the SEC shall prohibit our ADSs from being traded on a national securities exchange or in the OTC trading market in the United States. In December 2021, the PCAOB determined that it is unable to inspect or investigate completely registered public accounting firms headquartered in mainland China and Hong Kong, including our auditor as an independent registered public accounting firm. On December 15, 2022, the PCAOB announced that it was able to secure complete access to inspect and investigate PCAOB-registered public accounting firms headquartered in mainland China and Hong Kong completely in 2022. The PCAOB Board vacated its previous 2021 determinations that the PCAOB was unable to inspect or investigate completely registered public accounting firms headquartered in mainland China and Hong Kong. However, whether the PCAOB will continue to be able to satisfactorily conduct inspections of PCAOB-registered public accounting firms headquartered in mainland China and Hong Kong is subject to uncertainties and depends on a number of factors out of our and our auditor’s control. The PCAOB continues to demand complete access in mainland China and Hong Kong moving forward and is making plans to resume regular inspections in early 2023 and beyond, as well as to continue pursuing ongoing investigations and initiate new investigations as needed. The PCAOB has also indicated that it will act immediately to consider the need to issue new determinations with the HFCAA if needed. If the PCAOB is unable to inspect and investigate completely registered public accounting firms located in China and we fail to retain another registered public accounting firm that the PCAOB is able to inspect and investigate completely in 2023 and beyond, or if we otherwise fail to meet the PCAOB’s requirements, our ADSs may be prohibited from trading on the OTC under the HFCAA.

Permissions and Approvals

As of the date of this annual report, the Group has obtained all material permissions and approvals that are, or may be, required for the Group’s main operations in China, except as disclosed in “—D. Risk Factors—Risk Relating to Our Business and Industry—The Group’s inability to fully comply with Audio-visual Program Provisions may expose it to administrative sanctions, which would materially and adversely affect the Group’s business, results of operations and financial condition” and “—The Group may be adversely affected by the complexity, uncertainties and changes in PRC regulation of Internet businesses and companies, including limitations on its ability to own key assets such as its mobile applications.” No material permission or approval for the Group has been denied by relevant authorities in China. See “Item 4. Information on the Company—C. Regulations—Permissions and Licenses Requirements” for more details.

In addition, we, our PRC subsidiaries and the Group VIEs may be required to obtain permissions from the China Securities Regulatory Commission, or the CSRC, and may be required to go through cybersecurity review by the Cyberspace Administration of China, or the CAC, in connection with any future offering and listing in an overseas market. As of the date of this annual report, we have not been subject to any cybersecurity review made by the CAC. See “—D. Risks Factors—Risks Relating to Doing Business in China—The approval of and the filing with the China Securities Regulatory Commission, or the CSRC, or other PRC government authorities may be required in connection with our future offshore offerings under PRC law, which may hinder our ability to continue to offer securities to investors offshore; in addition, the regulation of the CSRC or other PRC regulatory agencies establish complex procedures for acquisitions conducted by foreign investors that could make it more difficult for us to grow through acquisitions” and “—Risks Relating to Our Industry and Business—We may be subject to cybersecurity review by regulatory authorities of the PRC in the future.”

Given the uncertainties of interpretation and implementation of relevant laws and regulations and the enforcement practice by relevant government authorities, we may be required to obtain additional licenses, permits, filings or approvals for the functions and services of our platform in the future, and may not be able to maintain or renew our current licenses, permits, filings or approvals. In addition, rules and regulations in China can change quickly with little advance notice. Uncertainties due to evolving laws and regulations could impede the ability of a China-based issuer, such as us, to obtain or maintain permits or licenses required to conduct business in China. In the absence of required permits or licenses, governmental authorities could impose material sanctions or penalties on us. See “—D. Risks Factors—Risks Relating to Doing Business in China—Changes in the political and economic policies of the PRC government may materially and adversely affect the Group’s business, results of operations and financial condition and may result in the Group’s inability to sustain our growth and expansion strategies. The PRC government may intervene or influence our operations at any time, which could result in a material change in the Group’s operations and/or the value of our ADSs. Any actions by the Chinese government to exert more oversight and control over offerings that are conducted overseas and/or foreign investment in China-based issuers could significantly limit or completely hinder the Group’s ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or become worthless” and “—There are uncertainties regarding the interpretation and enforcement of PRC laws, rules and regulations. In addition, rules and regulations in China can change quickly with little advance notice.”

Cash Transfers Through Our Organization

Qutoutiao Inc. is a holding company with no material operations of its own. We conduct our operations primarily (i) through contractual arrangements with the Group VIEs in China and (ii) by our subsidiaries in China. As a result, Qutoutiao Inc.’s ability to pay dividends depends upon dividends paid by our PRC subsidiaries and remittances from the Group VIEs. If our PRC subsidiaries or the Group VIEs incur debt on their own in the future, the instruments governing their debt may restrict their ability to pay dividends or make other distributions or remittances to us. In addition, current PRC regulations permit our PRC subsidiaries to pay dividends to their respective shareholders only out of their retained earnings, if any, determined in accordance with PRC accounting standards and regulations. Furthermore, each of our PRC subsidiaries and the Group VIEs is required to set aside at least 10% of its net income each year to fund certain statutory reserves until the cumulative amount of such reserves reaches 50% of its registered capital. These reserves, together with the registered capital, are not distributable as cash dividends. For more details, see “—D. Risks Factors—Risks Relating to Doing Business in China—We rely to a significant extent on dividends and other distributions on equity paid by our principal operating subsidiaries and the Group VIEs to fund offshore cash and financing requirements. Any limitation on the ability of our PRC operating subsidiaries or the Group VIEs to make payments to us could materially and adversely affect our ability to conduct the Group’s business.”

Set forth in the table below is a summary of cash transfers that have occurred between our subsidiaries and the Group VIEs for the years ended December 31, 2020, 2021 and 2022, respectively.


	Year Ended December 31,
	2020			2021			2022

	(RMB in thousands)
Cash paid by the Group VIEs to our subsidiaries under service agreements		(297,510	)		(756,962	)		(376,184	)
Cash received by the Group VIEs from our subsidiaries under service agreements		—			188,798			236,903
Cash received by the Group VIEs from our subsidiaries for intra-Group financing		462,233			137,515			606,146

For the years ended December 31, 2020, 2021 and 2022, no subsidiaries or Group VIEs paid dividends or made other distributions to the Cayman Islands holding company, and no dividends or distributions were paid or made to U.S. investors. For the years ended December 31, 2020, 2021 and 2022, no assets were transferred between our subsidiaries and the Group VIEs other than the cash transfers set forth in the table above. We do not have any present plan to pay any dividends on our shares in the foreseeable future. We 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—A. Consolidated Statements and Other Financial Information—Dividend Policy.” However, if our PRC subsidiaries or Group VIEs declare and distribute profits to us, such payments will be subject to withholding tax, which will increase our tax liability and reduce the amount of cash available to us. For PRC and United States federal income tax considerations in connection with an investment in our ADSs, see “Item 10. Additional Information—E. Taxation.” We plan to continue to determine the amount of service fee and payment method with the Group VIEs and their shareholders through bona fide negotiation, and settle fees under the contractual arrangements accordingly in the future.

In addition, our PRC subsidiaries, the Group VIEs and their subsidiaries generate their revenue primarily in Renminbi, which is not freely convertible into other currencies. As a result, any restriction on currency exchange may limit the ability of our PRC subsidiaries to pay dividends to us or our ability to pay dividends in foreign currencies to our investors. For more details, see “Item 3. Key Information—D. Risk Factors—Risks Relating to Doing Business in China—We are subject to restrictions on currency exchange.”

Financial Information Related to the Group VIEs

We do not own any equity interest in the Group VIEs that are consolidated in the Group’s financial statements. The Group consolidates the results of the Group VIEs and their subsidiaries under U.S. GAAP through our contractual arrangements with the Group VIEs and their respective shareholders. For more details on such contractual arrangements, see “Item 4.—Information on the Company—D. Organizational Structure—Contractual Arrangements among Our Key WFOEs, the Key VIEs and Their Respective Shareholders.”

Condensed Consolidated Schedule of Results of Operation

The following table presents the Group’s condensed consolidated schedules of results of operations for our holding company, Qutoutiao Inc., our wholly foreign-owned entities that are the primary beneficiaries of the Group VIEs under U.S. GAAP, or the Primary Beneficiaries of the Group VIEs, our other subsidiaries that are not the Primary Beneficiaries of the Group VIEs, or Other Subsidiaries, and the Group VIEs and their subsidiaries that the Group consolidates for the periods presented:


	For the Year Ended December 31, 2020
	Qutoutiao Inc.			Other subsidiaries			Primary Beneficiaries of the Group VIEs			Group VIEs and their subsidiaries			Eliminating adjustments			Consolidated totals

	(RMB in thousands)
Revenues:
Third-party revenues		—			—			1,513			5,283,682			—			5,285,195
Intra-Group revenues (2)		—			—			560,789			—			(560,789	)		—

Total revenues		—			—			562,302			5,283,682			(560,789	)		5,285,195
Cost of revenues:
Third-party cost of revenues		—			(189	)		(198,011	)		(1,476,216	)		—			(1,674,416	)
Intra-Group cost of revenues (2)		—			—			—			(15,462	)		15,462			—

Total cost of revenues		—			(189	)		(198,011	)		(1,491,678	)		15,462			(1,674,416	)

Gross profit		—			(189	)		364,291			3,792,004			(545,327	)		3,610,779

Operating expenses:
Third-party operating expenses (1)		(471,730	)		(9,706	)		(346,422	)		(4,357,603	)		463,214			(4,722,247	)
Intra-Group operating expenses (2)		—			—			—			(545,327	)		545,327			—

Total operating expenses		(471,730	)		(9,706	)		(346,422	)		(4,902,930	)		1,008,541			(4,722,247	)

Other operating income/(expense)		—			—			56,300			22,999			—			79,299
Loss from Operations		(471,730	)		(9,895	)		74,169			(1,087,927	)		463,214			(1,032,169	)
Non-operating income/(expense)		(34,003	)		(31,889	)		168			(8,281	)		—			(74,005	)

Loss before income tax expense		(505,733	)		(41,784	)		74,337			(1,096,208	)		463,214			(1,106,174	)
Income tax benefits/expense		—			—			1,008			—			—			1,008
Loss from subsidiaries and VIEs (1)		(598,706	)		(1,020,863	)		(1,096,208	)		—			2,715,777			—

Net Loss		(1,104,439	)		(1,062,647	)		(1,020,863	)		(1,096,208	)		3,178,991			(1,105,166	)
Less: Net loss attributable to the noncontrolling interest shareholders		—			727			—			—			—			727
Net loss attributable to Qutoutiao Inc.		(1,104,439	)		(1,061,920	)		(1,020,863	)		(1,096,208	)		3,178,991			(1,104,439	)

Accretion to convertible redeemable preferred shares redemption value		(48,277	)		—			—			—			—			(48,277	)
Gain on repurchase of Shares B Convertible Preferred		14,842			—			—			—			—			14,842

Net loss attributable to Qutoutiao Inc.’s ordinary shareholders		(1,137,874	)		(1,061,920	)		(1,020,863	)		(1,096,208	)		3,178,991			(1,137,874	)


	For the Year Ended December 31, 2021
	Qutoutiao Inc.			Other subsidiaries			Primary Beneficiaries of the Group VIEs			Group VIEs and their subsidiaries			Eliminating adjustments			Consolidated totals

	(RMB in thousands)
Revenues:
Third-party revenues		—			225			2,990			4,336,388			—			4,339,603
Intra-Group revenues (2)		—			—			970,661			188,298			(1,158,959	)		—

Total revenues		—			225			973,651			4,524,686			(1,158,959	)		4,339,603
Cost of revenues:
Third-party cost of revenues		—			(325	)		(303,600	)		(867,701	)		—			(1,171,626	)

Intra-Group cost of revenues (2)		—			—			—			(18,959	)		18,959			—

Total cost of revenues		—			(325	)		(303,600	)		(886,660	)		18,959			(1,171,626	)
Gross profit		—			(100	)		670,051			3,638,026			(1,140,000	)		3,167,977
Operating expenses:
Third-party operating expenses		(208,594	)		(12,210	)		(379,130	)		(4,067,548	)		200,184			(4,467,298	)
Intra-Group operating expenses (2)		—			—			(188,298	)		(951,702	)		1,140,000			—

Total operating expenses		(208,594	)		(12,210	)		(567,428	)		(5,019,250	)		1,340,184			(4,467,298	)

Other operating income/(expense)		—			—			87,439			18,659			—			106,098
Loss from Operations		(208,594	)		(12,310	)		190,062			(1,362,565	)		200,184			(1,193,223	)
Non-operating income/(expense)		(58,313	)		(16,944	)		12,267			22,282			—			(40,708	)

Loss before income tax expense		(266,907	)		(29,254	)		202,329			(1,340,283	)		200,184			(1,233,931	)
Income tax benefits/expense		—			(1	)		(2,918	)		(131	)		—			(3,050	)
Loss from subsidiaries and VIEs (1)		(972,710	)		(1,144,198	)		(1,343,609	)		—			3,460,517			—
Equity in loss of affiliate companies		—			—			—			(3,195	)		—			(3,195	)
Net Loss		(1,239,617	)		(1,173,453	)		(1,144,198	)		(1,343,609	)		3,660,701			(1,240,176	)

Less: Net loss attributable to the noncontrolling interest shareholders		—			559			—			—			—			559
Net loss attributable to Qutoutiao Inc.		(1,239,617	)		(1,172,894	)		(1,144,198	)		(1,343,609	)		3,660,701			(1,239,617	)

Accretion to convertible redeemable preferred shares redemption value		(108,896	)		—			—			—			—			(108,896	)

Net loss attributable to Qutoutiao Inc.’s ordinary shareholders		(1,348,513	)		(1,172,894	)		(1,144,198	)		(1,343,609	)		3,660,701			(1,348,513	)


	For the Year Ended December 31, 2022
	Qutoutiao Inc.			Other subsidiaries			Primary Beneficiaries of the Group VIEs			Group VIEs and their subsidiaries			Eliminating adjustments			Consolidated totals

	(RMB in thousands)
Revenues:
Third-party revenues		—			297			254,407			828,341			—			1,083,045
Intra-Group revenues (2)		—			—			750,372			579,967			(1,330,339	)		—

Total revenues		—			297			1,004,779			1,408,308			(1,330,339	)		1,083,045
Cost of revenues:
Third-party cost of revenues		—			(14	)		(115,170	)		(446,189	)		(1,234	)		(562,607	)

Intra-Group cost of revenues (2)		—			—			(523,625	)		(376,184	)		899,809			—

Total cost of revenues		—			(14	)		(638,795	)		(822,373	)		898,575			(562,607	)
Gross profit		—			283			365,984			585,935			(431,764	)		520,438
Operating expenses:
Third-party operating expenses		(77,185	)		2,277			(301,059	)		(572,365	)		47,567			(900,765	)
Intra-Group operating expenses (2)		—			—			—			(384,197	)		384,197			—

Total operating expenses		(77,185	)		2,277			(301,059	)		(956,562	)		431,764			(900,765	)

Other operating income/(expense)		—			—			52,676			9,153			—			61,829
Loss from Operations		(77,185	)		2,560			117,601			(361,474	)		—			(318,498	)
Non-operating income/(expense)		(468,035	)		(49,754	)		(68,801	)		(9,311	)		—			(595,901	)

Loss before income tax expense		(545,220	)		(47,194	)		48,800			(370,785	)		—			(914,399	)
Income tax benefits/expense		—			(15	)		1,117			(54	)		—			1,048
Loss from subsidiaries and VIEs (1)		(369,547	)		(322,338	)		(372,255	)		—			1,064,140			—
Equity in loss of affiliate companies		—			—			—			(1,416	)		—			(1,416	)
Net Loss		(914,767	)		(369,547	)		(322,338	)		(372,255	)		1,064,140			(914,767	)

Less: Net loss attributable to the noncontrolling interest shareholders		—			—			—			—			—			—
Net loss attributable to Qutoutiao Inc.		(914,767	)		(369,547	)		(322,338	)		(372,255	)		1,064,140			(914,767	)

Accretion to convertible redeemable preferred shares redemption value		—			(124,677	)		—			—			—			(124,677	)

Net loss attributable to Qutoutiao Inc.’s ordinary shareholders		(914,767	)		(494,224	)		(322,338	)		(372,255	)		1,064,140			(1,039,444	)

Notes:

(1)

Represents the elimination of investments among Qutoutiao Inc., the Primary Beneficiaries of the Group VIEs, the Other Subsidiaries, and the Group VIEs and their subsidiaries that the Group consolidates. The deficit of investment in subsidiaries and the Group VIEs of Qutoutiao Inc. as of December 31, 2020 have been revised from amounts previously disclosed in the audit report. Share-based compensation expenses are recorded in Qutoutiao Inc., which issued these equity awards, and are also pushed down to the VIEs and subsidiaries. The expenses pushed down to the VIEs and subsidiaries are eliminated upon consolidation to avoid duplication.

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

Condensed Consolidated Schedule of Balance Sheets

The following table presents the Group’s condensed consolidated schedule of financial position for Qutoutiao Inc., the Primary Beneficiaries of the Group VIEs, our Other Subsidiaries, and the Group VIEs and their subsidiaries that the Group consolidates as of the dates presented:


	As of December 31, 2021
	Qutoutiao Inc.			Other subsidiaries			Primary Beneficiaries of the Group VIEs			Group VIEs and their subsidiaries			Eliminating adjustments			Consolidated totals

	(RMB in thousands)
ASSETS
Current assets:
Cash and cash equivalents		19,633			99,871			101,064			19,783			—			240,351
Restricted cash		—			—			62,322			13,160			—			75,482
Short-term investments		—			150,117			159,300			33,600			—			343,017
Accounts receivable, net		—			122			—			770,797			—			770,919
Amount due from related parties		—			—			—			259,863			—			259,863
Prepaid and other current assets		4,605			313			53,642			114,317			—			172,877
Intra-Group receivables due from the Company’s subsidiaries (1)		3,521,857			670,178			5,996,426			937,831			(11,126,292	)		—

Total current assets		3,546,095			920,601			6,372,754			2,149,351			(11,126,292	)		1,862,509

Noncurrent assets:		—			—			—			—			—			—
Account receivables, non-current		—			—			—			—			—			—
Property and equipment, net		—			—			33			12,828			—			12,861
Right-of-use assets, net		—			—			222			26,120			—			26,342
Intangible assets		—			—			65,688			99,582			—			165,270
Goodwill		—			—			7,268			—			—			7,268
Long-term Investments		—			—			—			1,416			—			1,416
Other non-current assets		2,645			—			—			2,164			—			4,809
Total noncurrent assets		2,645			—			73,211			142,110			—			217,966

Total assets		3,548,740			920,601			6,445,965			2,291,461			(11,126,292	)		2,080,475
LIABILITIES
Current liabilities:
Short-term borrowings		—			—			20,000			—			—			20,000
Accounts payable		—			—			58,586			255,182			—			313,768
Amount due to related parties		—			—			5,433			1,495			—			6,928
Registered users’ loyalty payable		—			6,299			—			55,392			—			61,691
Advance from advertising customers and deferred revenue		—			—			3			122,594			—			122,597
Salary and welfare payable		—			74			23,676			42,237			—			65,987
Tax payable		—			—			28,591			15,288			—			43,879
Lease liabilities, current		—			—			222			11,675			—			11,897
Accrued liabilities related to users’ loyalty program		—			—			—			99,360			—			99,360
Accrued liabilities and other current liabilities		3,312			687			31,547			1,299,057			—			1,334,603
Convertible Loan—current		1,182,963			—			—			—			—			1,182,963
Intra-Group payables due to the Company’s subsidiaries (1)		281,201			3,552,395			1,787,252			5,505,444			(11,126,292	)		—

Total current liabilities		1,467,476			3,559,455			1,955,310			7,407,724			(11,126,292	)		3,263,673

Lease liabilities, non-current		—			—			—			15,985			—			15,985
Other non current liabilities		1,733			—			—			—			—			1,733
Deferred tax liabilities		—			—			16,422			—			—			16,422
Deficit of investment in subsidiaries and VIEs (2)		4,469,087			658,015			5,132,248			—			(10,259,350	)		—

Total long-term liabilities		4,470,820			658,015			5,148,670			15,985			(10,259,350	)		34,140

Total liabilities		5,938,296			4,217,470			7,103,980			7,423,709			(21,385,642	)		3,297,813

Commitments and contingencies
Mezzanine equity
Redeemable non-controlling interests		—			1,172,218			—			—			—			1,172,218
SHAREHOLDERS’ deficit
Total Qutoutiao Inc. shareholders’ deficit		(2,389,556	)		(4,469,087	)		(658,015	)		(5,132,248	)		10,259,350			(2,389,556	)
Noncontrolling interest		—			—			—			—			—			—

Total shareholders’ deficit (2)		(2,389,556	)		(4,469,087	)		(658,015	)		(5,132,248	)		10,259,350			(2,389,556	)

Total liabilities and shareholders’ deficit		3,548,740			920,601			6,445,965			2,291,461			(11,126,292	)		2,080,475


	As of December 31, 2022
	Qutoutiao Inc.			Other subsidiaries			Primary Beneficiaries of the Group VIEs			Group VIEs and their subsidiaries			Eliminating adjustments			Consolidated totals

	(RMB in thousands)
ASSETS
Current assets:
Cash and cash equivalents		50,989			34,984			4,681			32,147			—			122,801
Restricted cash		—			—			216			7,384			—			7,600
Short-term investments		—			—			20,000			6,402			—			26,402
Accounts receivable, net		—			133			6,753			110,523			—			117,409
Amount due from related parties		—			—			788			48,284			(270	)		48,802
Prepaid and other current assets		2,935			2,005			58,303			95,568			—			158,811
Intra-Group receivables due from the Company’s subsidiaries (1)		3,698,706			426,911			5,752,591			470,966			(10,349,174	)		—

Total current assets		3,752,630			464,033			5,843,332			771,274			(10,349,444	)		481,825

Noncurrent assets:
Property and equipment, net		—			—			11			5,002			—			5,013
Right-of-use assets, net		—			—			—			21,879			—			21,879
Intangible assets		—			—			56,075			6,574			—			62,649
Goodwill		—			—			7,268			—			—			7,268
Long-term Investments		—			—			—			—			—			—
Other non-current assets		1,476			—			—			1,426			—			2,902
Total noncurrent assets		1,476			—			63,354			34,881			—			99,711

Total assets		3,754,106			464,033			5,906,686			806,155			(10,349,444	)		581,536
LIABILITIES
Current liabilities:
Accounts payable		—			—			64,444			330,550			—			394,994
Amount due to related parties		—			—			862			—			(270	)		592
Registered users’ loyalty payable		—			—			—			29,773			—			29,773
Advance from advertising customers and deferred revenue		—			—			36,743			11,963			—			48,706
Salary and welfare payable		—			82			31,431			28,048			—			59,561
Tax payable		—			—			10,890			29,584			—			40,474
Lease liabilities, current		—			—			—			15,083			—			15,083
Accrued liabilities related to users’ loyalty program		—			—			—			64,589			—			64,589
Accrued liabilities and other current liabilities		978			2,313			31,033			301,713			225			336,262
Convertible Loan—current		1,746,188			—			—			—			—			1,746,188
Intra-Group payables due to the Company’s subsidiaries (1)		181,598			3,710,864			928,758			5,644,725			(10,465,945	)		—

Total current liabilities		1,928,764			3,713,259			1,104,161			6,456,028			(10,465,990	)		2,736,222

Lease liabilities, non-current		—			—			—			7,599			—			7,599
Deferred tax liabilities		—			—			14,019			—			—			14,019
Deficit of investment in subsidiaries and VIEs (2)		5,416,081			868,966			5,657,472			—			(11,942,519	)		—

Total long-term liabilities		5,416,081			868,966			5,671,491			7,599			(11,942,519	)		21,618

Total liabilities		7,344,845			4,582,225			6,775,652			6,463,627			(22,408,509	)		2,757,840

Commitments and contingencies		—			—			—			—			—			—
Mezzanine equity
Redeemable non-controlling interests		—			1,414,435			—			—			—			1,414,435
SHAREHOLDERS’ deficit
Total Qutoutiao Inc. shareholders’ deficit		(3,590,739	)		(5,532,627	)		(868,966	)		(5,657,472	)		12,059,065			(3,590,739	)
Noncontrolling interest		—			—			—			—			—			—

Total shareholders’ deficit (2)		(3,590,739	)		(5,532,627	)		(868,966	)		(5,657,472	)		12,059,065			(3,590,739	)

Total liabilities and shareholders’ deficit		3,754,106			464,033			5,906,686			806,155			(10,349,444	)		581,536

Notes:

(1)

Represents the elimination of intercompany balances among Qutoutiao Inc., the Primary Beneficiaries of the Group VIEs, the Other Subsidiaries, and the Group VIEs and their subsidiaries that we consolidate. The intra-Group receivables and payables of Qutoutiao Inc. as of December 31, 2020 have been revised from amounts previously disclosed in the audit report included in this annual report.

(2)

Condensed Consolidated Schedule of Cash Flows

The following table presents our condensed consolidated schedules of cash flows for Qutoutiao Inc., the Primary Beneficiaries of the Group VIEs, our Other Subsidiaries, and the Group VIEs and their subsidiaries that the Group consolidates for the periods presented:


	For the Year Ended December 31, 2020
	Qutoutiao Inc.			Other subsidiaries			Primary Beneficiaries of the Group VIEs			Group VIEs and their subsidiaries			Eliminating adjustments			Consolidated totals

	(RMB in thousands)
Cash flows from operating activities:
Net cash provided by/(used in) transactions with external parties		(354	)		956			(770,879	)		(93,497	)		—			(863,774	)
Net cash provided by/(used in) transactions with intra-Group entities		—			—			297,510			(297,510	)		—			—

Net cash provided by/(used in) operating activities		(354	)		956			(473,369	)		(391,007	)		—			(863,774	)
Cash flows from investing activities:
Net cash provided by/(used in) transactions with external parties		594,486			241,302			27,263			(80,506	)		—			782,545
Cash used in capital contribution to intra-Group entities		—			(924,020	)		—			—			924,020			—
Cash used in providing borrowings to intra-Group entities		(604,494	)		—			(462,233	)		—			1,066,727			—

Net cash provided by/(used in) investing activities		(10,008	)		(682,718	)		(434,970	)		(80,506	)		1,990,747			782,545
Cash flows from financing activities:
Net cash provided by/(used in) transactions with external parties		(135,744	)		373,490			20,000			50,000			—			307,746
Cash provided by capital contribution from intra-Group entities		—			—			924,020			—			(924,020	)		—
Cash provided by borrowings from intra-Group entities		—			604,494			—			462,233			(1,066,727	)		—

Net cash provided by/(used in) financing activities		(135,744	)		977,984			944,020			512,233			(1,990,747	)		307,746


	For the Year Ended December 31, 2021
	Qutoutiao Inc.			Other subsidiaries			Primary Beneficiaries of the Group VIEs			Group VIEs and their subsidiaries			Eliminating adjustments			Consolidated totals

	(RMB in thousands)
Cash flows from operating activities:
Net cash provided by/(used in) transactions with external parties		(14,807	)		67,637			(709,141	)		377,189			—			(279,122	)
Net cash provided by/(used in) transactions with intra-Group entities		—			—			568,164			(568,164	)		—			—

Net cash provided by/(used in) operating activities		(14,807	)		67,637			(140,977	)		(190,975	)		—			(279,122	)
Cash flows from investing activities:
Net cash provided by/(used in) transactions with external parties		—			(84,723	)		97,197			63,047			—			75,521
Cash used in capital contribution to intra-Group entities		—			(198,086	)		—			—			198,086			—
Cash used in providing borrowings to intra-Group entities		—			—			(137,515	)		—			137,515			—
Cash provided by repayment of borrowings from intra-Group entities		32,506			—			—			—			(32,506	)		—

Net cash provided by/(used in) investing activities		32,506			(282,809	)		(40,318	)		63,047			303,095			75,521
Cash flows from financing activities:
Net cash provided by/(used in) transactions with external parties		—			(13,050	)		—			(53,044	)		—			(66,094	)
Cash provided by capital contribution from intra-Group entities		—			—			198,086			—			(198,086	)		—
Cash provided by borrowings from intra-Group entities		—			—			—			137,515			(137,515	)		—
Cash used in repayment of borrowings to intra-Group entities		—			(32,506	)		—			—			32,506			—

Net cash provided by/(used in) financing activities		—			(45,556	)		198,086			84,471			(303,095	)		(66,094	)


	For the Year Ended December 31, 2022
	Qutoutiao Inc.			Other subsidiaries			Primary Beneficiaries of the Group VIEs			Group VIEs and their subsidiaries			Eliminating adjustments			Consolidated totals

	(RMB in thousands)
Cash flows from operating activities:
Net cash provided by/(used in) transactions with external parties		(39,578	)		(3,089	)		227,053			(628,183	)		—			(443,797	)
Net cash provided by/(used in) transactions with intra-Group entities		—			—			(606,146	)		606,146			—			—

Net cash provided by/(used in) operating activities		(39,578	)		(3,089	)		(379,093	)		(22,037	)		—			(443,797	)
Cash flows from investing activities:
Net cash provided by/(used in) transactions with external parties		—			99,630			139,300			28,625			—			267,555
Cash used in capital contribution to intra-Group entities		68,089			(101,304	)		—			—			33,215			—
Cash used in providing borrowings to intra-Group entities		—			—			—			—			—			—

Net cash provided by/(used in) investing activities		68,089			(1,674	)		139,300			28,625			33,215			267,555
Cash flows from financing activities:
Net cash provided by/(used in) transactions with external parties		—			—			(20,000	)		—			—			(20,000	)
Cash provided by capital contribution from intra-Group entities		—			(68,089	)		101,304			—			(33,215	)		—
Cash provided by borrowings from intra-Group entities		—			—			—			—			—			—

Net cash provided by/(used in) financing activities		—			(68,089	)		81,304			—			(33,215	)		(20,000	)

A.	[Reserved]

B.	Capitalization and Indebtedness

Not Applicable.

C.	Reasons for the Offer and Use of Proceeds

Not Applicable.

D.	Risk Factors

Summary of Risk Factors

An investment in our ADSs is subject to a number of risks, including risks relating to our industry and business, risks relating to the Group’s corporate structure, risks relating to doing business in China and risks relating to the ADSs. The following summarizes some, but not all, of these risks. Please carefully consider all of the information discussed in “Item 3. Key Information— D. Risk Factors” in this annual report for a more thorough description of these and other risks.

Risks Relating to Our Industry and Business

•

The Group has a limited operating history, which makes it difficult to evaluate its business.

•

If the Group fails to acquire new users or retain existing users, or if user engagement on the Group’s platform declines, its business, results of operations and financial condition may be materially and adversely affected.

•

There is substantial doubt as to our ability to continue as a going concern.

•

We require a significant amount of cash to fund our operations as well as to meet our Convertible Loan obligations. If we cannot obtain additional financing and liquidity, our business, financial condition and results of operation will be materially and adversely affected.

•

The Group has incurred net losses in the past and may continue to incur losses in the future.

•

The Group’s inability to fully comply with Audio-visual Program Provisions may expose it to administrative sanctions, which would materially and adversely affect the Group’s business, results of operations and financial condition.

•

If the Group does not continue to increase the strength of its brand, the Group may not be able to maintain current or attract new users and customers for its products and services.

•

Any catastrophe, including natural catastrophes and outbreaks of health pandemics and other extraordinary events, could disrupt the Group’s business operation. For example, the COVID-19 pandemic may have a material adverse effect on the Group’s business, results of operations and financial condition, as well as the trading price of the ADSs.

•

If the Group is unable to compete effectively in the industry it operates, the Group’s business, results of operations and financial condition may be materially and adversely affected.

•

The Group generates a substantial majority of its revenues from advertising and marketing. A decline in the Group’s advertising and marketing revenues could harm its business.

•

The Group may be adversely affected by the complexity, uncertainties and changes in PRC regulation of Internet businesses and companies, including limitations on its ability to own key assets such as its mobile applications.

•

Privacy concerns relating to the Group’s products and services and the use of user information could damage its reputation, deter current and potential users and customers from using the Group’s mobile applications and negatively impact its business.

•

We may be subject to cybersecurity review by regulatory authorities of the PRC in the future.

Risks Relating to Our Corporate Structure

•

We rely on contractual arrangements with the Group VIEs and their respective shareholders to operate the Group’s business, which may be less effective than equity ownership in providing operational control and otherwise materially and adversely affect the Group’s business.

•

The shareholders of the Group VIEs may have potential conflicts of interest with us, which may materially and adversely affect the Group’s business, results of operations and financial condition.

•

If the PRC government deems that the contractual arrangements in relation to the Group 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 severe penalties or be forced to relinquish our interests in those operations. In addition, our ADSs may significantly decline in value or become worthless if we are unable to assert our contractual control over the assets of the Group VIEs.

•

Substantial uncertainties exist with respect to whether the controlling of PRC onshore variable interest entities by foreign investors via contractual arrangements will be recognized as “foreign investment” and how it may impact the viability of the Group’s current corporate structure and operations.

Risks Relating to Doing Business in China

•

Changes in the political and economic policies of the PRC government may materially and adversely affect the Group’s business, results of operations and financial condition and may result in the Group’s inability to sustain our growth and expansion strategies. The PRC government may intervene or influence our operations at any time, which could result in a material change in the Group’s operations and/or the value of our ADSs. Any actions by the Chinese government to exert more oversight and control over offerings that are conducted overseas and/or foreign investment in China-based issuers could significantly limit or completely hinder the Group’s ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or become worthless.

•

There are uncertainties regarding the interpretation and enforcement of PRC laws, rules and regulations. In addition, rules and regulations in China can change quickly with little advance notice.

•

The approval of and the filing with the China Securities Regulatory Commission, or the CSRC, or other PRC government authorities may be required in connection with our future offshore offerings under PRC law, which may hinder our ability to continue to offer securities to investors offshore; in addition, the regulation of the CSRC or other PRC regulatory agencies establish complex procedures for acquisitions conducted by foreign investors that could make it more difficult for us to grow through acquisitions.

•

PRC regulations relating to investments in offshore companies by PRC residents may subject our PRC-resident beneficial owners or our PRC subsidiaries to liability or penalties, limit our ability to inject capital into our PRC subsidiaries or limit our PRC subsidiaries’ ability to increase their registered capital or distribute profits.

•

We rely to a significant extent on dividends and other distributions on equity paid by our principal operating subsidiaries and the Group VIEs to fund offshore cash and financing requirements. Any limitation on the ability of our PRC operating subsidiaries or the Group VIEs to make payments to us could materially and adversely affect our ability to conduct the Group’s business.

•

We are subject to restrictions on currency exchange.

•

The audit report included in this annual report is prepared by an auditor which the U.S. Public Company Accounting Oversight Board was unable to inspect and investigate completely before 2022 and, as such, our investors have been deprived of the benefits of such inspections in the past, and may be deprived of the benefits of such inspections in the future.

•

Our ADSs will be prohibited from trading on the OTC in the United States under the Holding Foreign Companies Accountable Act, as amended, or the HFCAA if the PCAOB is unable to inspect or fully investigate auditors located in China at any point in the future.

Risks Relating to the ADSs

•

The trading price of the ADSs may be volatile, which could result in substantial losses to you.

•

The delisting of our ADSs from Nasdaq may continue to have a material adverse effect on the trading and price of our ADSs, and we cannot assure you that our ADSs will be relisted, or that once relisted, they will remain listed.

•

There are no independent directors on our board, which may create a potential conflict of interest.

•

Because we do not expect to pay cash dividends in the foreseeable future, you may not receive any return on your investment unless you sell your Class A ordinary shares or ADSs for a price greater than that which you paid for them.

•

Your right to participate in any future rights offerings may be limited, which may cause dilution to your holdings.

•

The dual-class structure of our ordinary shares may adversely affect the trading market for the ADSs.

•

You may face difficulties in protecting your interests, and your ability to protect your rights through U.S. courts may be limited, because we are incorporated under Cayman Islands law.

•

We are an emerging growth company and may take advantage of certain reduced reporting requirements.

Risks Relating to Our Industry and Business

The Group has a limited operating history, which makes it difficult to evaluate its business.

The Group launched Qutoutiao in June 2016 and Midu Novels in May 2018, and further introduced Midu Lite in May 2019. The Group has experienced rapid growth in terms of installed users, MAUs, DAUs and revenues from 2016 to 2020, but declines in terms of these operating metrics and revenues in 2021 and 2022. As our operating history has suggested, the Group’s historical development trend may not be indicative of its future performance, and we cannot assure you that the level of growth we had prior to 2020 will be sustainable or achievable at all in the future. The Group’s growth prospects should be considered in light of the risks and uncertainties that companies with a limited operating history in our industry may encounter, including, among others, risks and uncertainties regarding our ability to:

•

retain existing users on, and attract new users to, the Group’s platform;

•

present real-time customized feeds to users based on their profiles, behaviors and social relationships;

•

maintain the effectiveness of the Group’s user loyalty programs;

•

maintain stable relationships with the Group’s content providers;

•

develop and implement successful monetization measures;

•

convince advertising customers of the benefits of the Group’s advertising and marketing services compared to alternative forms of marketing;

•

increase brand awareness through marketing and promotional activities;

•

upgrade existing technology and infrastructure and develop new technologies to support increasing user traffic, improve user experience, expand functionality and ensure system stability;

•

successfully compete with other companies that are currently in, or may in the future enter, our industry;

•

attract, retain and motivate talented employees;

•

adapt to the evolving regulatory environment; and

•

defend the Group against litigation, regulatory, intellectual property, privacy or other claims.

All of these endeavors involve risks and will require significant capital expenditures and allocation of valuable management and employee resources. We cannot assure you that we will be able to effectively manage the Group’s growth or implement our business strategies effectively. If the market for the Group’s platform does not develop as we expect or if we fail to address the needs of this dynamic market, the Group’s business, results of operations and financial condition will be materially and adversely affected.

The size of the Group’s user base and the level of user engagement are critical to its success. The Group’s mobile applications had approximately 31.4 million combined average MAUs, approximately 9.9 million combined average DAUs and average daily time spent per DAU of approximately 40.9 minutes in the three months ended December 31, 2022. The Group’s business has been and will continue to be significantly affected by its ability in growing the number of active users and increasing their overall level of engagement on the Group’s platform. The size of the Group’s user base and the level of user engagement faced downward pressures in 2021 and 2022 due to the change of the operating strategies we adopted as we faced uncertainties in the advertising market, the tightening regulatory environment in internet and technology sector in China and the negative impacts of the COVID-19 pandemic on China’s macro-economic environment. We could also see user base decreases for certain future periods of time if we further adjust or change our strategy. To the extent the Group’s user growth rate slows or its user base decreases, the Group’s success will become increasingly dependent on our ability to increase user engagement with the Group’s platform. The Group has implemented user account systems and loyalty programs to, among other things, help it cost-effectively acquire new users and develop an engaged and loyal user base. However, although such user account systems and loyalty programs have contributed significantly to the growth in the Group’s installed users and high user engagement in the past, there can be no assurance that such systems and programs will continue to function effectively. Additionally, the Group’s acquisition cost per user may increase as it implements new marketing initiatives, such as placing advertisements in app stores. The Group’s user engagement efforts, including by increasing the number of content providers, expanding the breadth and quality of content, including video and user generated content, on its platform, diversifying into new content formats and strengthening its content recommendation capabilities, may also not achieve expected results. Users may no longer perceive content and other products and services on the Group’s platform to be entertaining and relevant, and it may not be able to attract users or increase their usage frequency of its platform. If we fail to execute any such new initiatives successfully or in a cost-effective manner, the Group’s business, results of operations and financial condition would be materially and adversely affected. If the Group is unable to grow its user base or the level of user engagement, or if the number of users or their level of engagement declines, this could result in its platform being less attractive to potential new users and thus advertising customers, which would have a material and adverse impact on the Group’s business, results of operations and financial condition.

The Chinese government may prevent the Group from distributing content that it believes is noncompliant and the Group may be subject to penalties for such content or the Group may have to interrupt or suspend the operation of the Group’s platform to comply with these regulatory requirements from time to time, which may materially and adversely affect the Group’s results of operation.

China has enacted regulations governing Internet access and the distribution of news and other information. In the past, the Chinese government has stopped the distribution of information over the Internet or through mobile Internet devices that it believes violates Chinese law, including content that it believes is obscene, defamatory, misleading or inappropriately satirical, incites violence, endangers the national security, concerns politically sensitive topics, or contravenes the national interest. In the past, new downloads of certain mobile content aggregator applications and mobile news applications were temporarily blocked and suspended for different lengths of time, ranging from a few days to weeks, following the publication of content considered to be noncompliant. In July 2018, PRC governmental and regulatory authorities responsible for “eradicating pornography and illegal publications” announced new coordinated efforts to regulate and control the nascent online short video sector, including citations against 19 online short video platforms which allegedly had disregarded repeated warnings not to distribute content deemed by the authorities as obscene, misleading, pornographic, violent, infringing, sensationalist, deviant from socialist core values, harmful to younger viewers, or otherwise unlawful or detrimental.

Of these 19 platforms, 15 had their applications removed from app stores and new downloads blocked; among these 15 platforms, three also had their operations suspended by relevant authorities. Any such future suspension in operations or downloads of the Group’s mobile applications for this or other reasons may negatively affect the Group’s relationships with users and advertisers, and adversely affect the Group’s business and results of operations.

While we strive to comply with applicable regulatory requirements and other obligations we may have with respect to the Group’s operation, the failure or perceived failure to comply may result, and in some cases has resulted, in inquiries and other proceedings or actions against us by government agencies or others, as well as negative publicity and damage to our reputation and brand, any of which could cause the Group to lose users and customers and may materially and adversely affect the Group’s business, results of operations and financial condition. For example, in order to comply with regulatory requirements, the Group undertook product upgrades and temporarily suspended content updates and certain commercial activities on Midu Novels from July 16 to October 15, 2019. Midu Novels has resumed regular content updates and commercial activities since October 16, 2019. We have endeavored to use the Group’s technologies, employees and other resources in a manner that complies with applicable regulatory requirements, and as such, we believe that the likelihood of us receiving material administrative penalties is low. However, there can be no assurance that similar suspensions relating to the Group’s mobile applications will not recur in the future, or that such incidents will not result in loss of users or advertisers, decrease in revenues or reputational damage to us, or have an adverse effect on the Group’s business and results of operations.

The Chinese government may continue to implement stricter standards for compliant content, and increase enforcement against content considered to be noncompliant. In addition, certain news items, such as news relating to national security, may not be published without permission from the Chinese government. If the Chinese government were to take any action to limit or prohibit the distribution of information through the Group’s mobile applications, or to limit or regulate any current or future content or services available to users on the Group’s platform, the Group’s business could be significantly harmed. Although we have adopted internal procedures to monitor the content displayed on the Group’s platform, due to the significant amount of content, including user generated content, we may not be able to identify all the content that may violate relevant laws and regulations, whether or not due to our fault or oversight in content monitoring. Failure to identify and prevent inappropriate or illegal content from being displayed on the Group’s platform may subject us to penalties, including suspension of operations.

Moreover, as the interpretation of noncompliant content is vague and subjective in many cases, and the definition of noncompliant content may be subject to constant changes, it is not always possible to determine or predict what content might be considered noncompliant under existing restrictions, or what restrictions might be imposed in the future. Chinese government authorities may also prohibit the marketing of other types of wireless value-added services and contents through mobile applications, which could materially and adversely affect the Group’s business, results of operations and financial condition.

There is substantial doubt as to our ability to continue as a going concern.

The following factors raise substantial doubt about our ability to continue as a going concern:

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For the years ended December 31, 2020, 2021 and 2022, we incurred net losses of RMB1,105.2 million, RMB1,240.2 million and RMB914.8 million (US$132.6 million), respectively.

•

For the years ended December 31, 2020, 2021 and 2022, we had net cash used in operating activities of RMB863.8 million, RMB279.1 million and RMB443.8 million (US$64.3 million), respectively.

•

As of December 31, 2022, we had an accumulated deficit of RMB8,395.2 million (US$1,217.2 million) and a deficit in working capital of RMB2,254.4 million (US$326.9 million).

•

As of December 31, 2022, as discussed in Note 14 and Note 26 to the consolidated financial statements, the Group has a convertible loan from Alibaba, or the Convertible Loan, of approximately RMB1.74 billion (US$253.2 million), including principal of US$171.1 million and unpaid interest that was expected to be matured within one year from the date of the issuance of the consolidated financial statements.

Our ability to continue as a going concern is dependent upon our continued operations, which in turn is dependent on our ability to adjust the pace of the operation expansion, control operating costs and expenses to reduce the cash used in operating cash flows, pursue financing arrangements, including the renewal of the Convertible Loan with the creditor, and obtain additional funds from sale of our assets, which in turn, are subject to various risks discussed herein including, among others, risks relating to our ability to maintain and improve our liquidity and financial position. See “— We require a significant amount of cash to fund our operations as well as to meet our Convertible Loan obligations. If we cannot obtain additional financing and liquidity, our business, financial condition and results of operation will be materially and adversely affected.”

The audited consolidated financial statements included in this annual report on Form 20-F were prepared on the basis of our continuing as a going concern. Facts and circumstances including accumulated and recurring losses from operations, net cash used in operating activities, negative working capital and uncertainties on the repayment of the Convertible Loan raise substantial doubt about our ability to continue as a going concern. Likewise, the report of our independent registered public accounting firm includes a qualification that there is substantial doubt about our ability to continue as a going concern. The audited financial statements do not include any adjustments that might result from the outcome of these uncertainties. If we become unable to continue as a going concern, we may have to liquidate our assets, and the value we receive for our assets in liquidation or dissolution could be significantly lower than the values reflected in our audited consolidated financial statements. Our lack of cash resources and our potential inability to continue as a going concern may materially and adversely affect the price of our ADSs and our ability to continue our operations.

We require a significant amount of cash to fund our operations. The Group had negative cash flow from operating activities of RMB863.8 million, RMB279.1 million and RMB443.8 million (US$64.3 million) for the years ended December 31, 2020, 2021 and 2022, respectively. Our ability to increase or maintain our user base, net revenues and gross profit will depend to a significant degree on our ability to obtain a sufficient amount of additional cash and liquidity to fund our operations.

We also require a significant amount of cash to meet our Convertible Loan obligations. We have a Convertible Loan of US$171.1 million advanced by Alibaba with an original maturity date of April 4, 2022. We and Alibaba entered into several supplemental agreements to the original convertible loan agreement, pursuant to which the maturity date of the Convertible Loan has been extended to September 30, 2023. The interest rate of the Convertible Loan has also been amended from an original compound rate of 3% per annum to a compound rate of 9% per annum plus a simple rate of 3% per annum, calculated from the original loan drawdown date of April 4, 2019. The total amount of the principal and accumulated interest payable of the Convertible Loan, including the incremental interest related to the increase in interest rate under the supplemental agreements, will amount to approximately US$270.3 million (RMB1,882.4 million) as of September 30, 2023. See “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources” for further details. We cannot assure you that we will be able to further extend the maturity date of the principal and accrued and unpaid interest of the Convertible Loan or repay the principal and accrued and unpaid interest of the Convertible Loan as they become due. Given the significance of the amount repayable upon maturity, the maturity of the Convertible Loan will have a significant impact on our liquidity.

In addition, the investors of Fun Literature Limited, our subsidiary that is the holding company of the entities that operate Midu Novels, have the right to require Fun Literature Limited to repurchase all of their preferred shares and the right to sell all of their preferred shares to Qutoutiao Inc. upon occurrence of certain triggering events, including, among others, failure of Fun Literature Limited to complete a qualified IPO by the end of 2024, material breach of representations, warranties and covenants under the transactions documents, and willful or fraudulent misconduct of any entity within the Group that results in a material adverse effect of the Group’s business. In addition, the investors of Fun Literature Limited may also require us to purchase their shares upon a sale of the shares of Fun Literature Limited that we hold or upon change of control resulting from such sale. If such right to repurchase or sell is triggered, we cannot assure you that we will have sufficient funds to pay the purchase price of the preferred shares. The obligation to make such payment will place additional significant burden on our liquidity and cash position, and we may not have sufficient cash to fund our operations.

There can also be no assurance that new financings, additional funds from sale of our assets or other transactions will be available to us on commercially acceptable terms, or at all. In addition, the potential worsening global economic conditions may adversely impact our ability to secure additional financing. If we are unable to generate sufficient cash in the future or obtain sufficient financing in a timely manner or on commercially acceptable terms or at all, our business, financial condition and results of operations will be materially and adversely affected and you may lose the entire value of your investment in our ADSs.

The Group has incurred net losses in the past and may continue to incur losses in the future.

The Group incurred net losses of RMB1,105.2 million, RMB1,240.2 million and RMB914.8 million (US$132.6 million) for the years ended December 31, 2020, 2021 and 2022, respectively. If we are unable to generate adequate revenues and to manage our cost and expenses, we may continue to incur significant losses in the future and may not be able to achieve profitability. In addition, we may continue to incur losses in the future due to a number of reasons, many of which are beyond our control, including tightening advertising budget of the Group’s advertising customers, declining demand for the Group’s products and services, increasing competition, emergence of alternative business models, changes in regulations and government policies, changes in general economic conditions, COVID-19 as well as other risks described in this annual report.

Pursuant to the Administrative Provisions on Internet Audio-visual Program Service, or the Audio-visual Program Provisions, which was issued by the National Radio and Television Administration of the PRC, or the NRTA (previously known as the State Administration of Radio and Television, or the SART, the General Administration of Press and Publication, or the GAPPRFT and the State Administration of Radio, Film and Television, or the SARFT) and MIIT on December 20, 2007 and came into effect on January 31, 2008 and was amended on August 28, 2015, online transmission of audio and video programs requires an Internet audio-visual program transmission license and online audio-visual service providers must be either wholly state-owned or state-controlled. In a press conference jointly held by NRTA and MIIT to answer questions with respect to the Audio-visual Program Provisions in February 2008, NRTA and MIIT clarified that online audio-visual service providers that had already been operating lawfully prior to the issuance of the Audio-visual Program Provisions may re-register and continue to operate without becoming state-owned or controlled, provided that such providers have not engaged in any unlawful activities. This exemption will not be granted to online audio/video service providers established after the Audio-visual Program Provisions were issued. See “Item 4. Information on the Company—C. Regulations—Regulation on Online Transmission of Audio-visual Programs.”

Although the Group has been taking measures to ensure compliance, it may not be able to fully comply with Audio-visual Program Provisions. As a result, the Group may face, according to Audio-visual Program Provisions, administrative sanctions, including receiving a warning and being ordered to pay a fine of not more than RMB30,000. In the case of severe contravention, the Group may be ordered to cease transmission of audio and video programs, be subject to a penalty equal to one to two times the Group’s total investment in the affected business and the devices it used for such operation may be confiscated. Furthermore, according to the Audio-visual Program Provisions, the telecommunications administrative authorities may, based on written opinions of the competent department of radio, film and television, and in accordance with the relevant laws and regulations on supervision of telecommunications and Internet, close the Group’s platform, revoke its permit(s) or cancel its record-filing, and order the relevant network operation entity which provides us signal access services to stop such provision of services. Such penalties would materially and adversely affect the Group’s business, results of operations and financial condition.

If the Group fails to maintain its Internet news information services license, it may be exposed to administrative sanctions, including an order to cease its Internet information services that provide news or to cease the Internet access services provided by third parties to the Group.

The PRC government regulates the Internet industry extensively, including foreign ownership of, and the licensing requirements pertaining to, companies in the Internet industry. A number of regulatory agencies, including the Ministry of Culture, or the MOC, the Ministry of Industry and Information Technology, or MIIT, the Cyberspace Administration of China, or the CAC, the NRTA (previously known as the SART, GAPPRFT and SARFT), the State Council Information Office, or the SCIO, and other governmental authorities, jointly regulate all major aspects of the Internet industry. Operators are required to obtain various government approvals and licenses prior to providing the relevant Internet information services.

The Group’s platform primarily focuses on light entertainment content. Nonetheless, certain content related to current affairs, finance, society and economy provided on the Group’s Qutoutiao mobile application may be deemed to be news content. According to the Provisions for the Administration of Internet News Information Services issued by the CAC on May 2, 2017 that became effective on June 1, 2017, an Internet news information services license shall be obtained for a provider of Internet news information services to the public in a variety of ways, including through the offering of platforms for the dissemination of Internet news.

Shanghai Jifen Culture Communications Co., Ltd., or Shanghai Jifen, one of the Group VIEs, obtained an Internet news information services license from the CAC in July 2019 and had it renewed in July 2022. However, if the Group fails to maintain such license, it may be ordered to cease disseminating news and impose a fine on the Group of not less than RMB10,000 but not more than RMB30,000. In the event the Group was ordered to cease disseminating news, its business, results of operations and financial condition could be materially and adversely affected.

If the Group does not continue to increase the strength of its brand, the Group may not be able to maintain current or attract new users and customers for its products and services.

The Group’s operational and financial performance is highly dependent on the strength of our brand. We believe the Group enjoys lower user acquisition cost compared to acquiring users through other means. The Group’s platform’s innovative user account systems and gamified loyalty programs enable it to focus its resources on directly connecting with new users. In order to further expand the Group’s user base, it may need to substantially increase its marketing expenditures to enhance brand awareness.

In addition, negative coverage in the media of our company could threaten the perception of our brand, and we cannot assure you that we will be able to defuse negative press coverage about our company to the satisfaction of our investors, users, advertising customers and content providers. If we are unable to defuse negative press coverage about our company, our brand may suffer in the marketplace, the Group’s operational and financial performance may be negatively impacted and the price of the ADSs may decline.

Negative publicity about the Group, the Group’s services, operations and our management has adversely affected and may adversely affect our reputation and business in the future.

We have from time to time received negative publicity, including negative Internet and blog postings about us, the Group’s services, operations and our management. For example, a short seller published a report on December 10, 2019 with certain negative opinions on the Group, such as the Group’s related party transactions, the Group’s products, the Group’s financial conditions and the Group’s acquisition decision, which could have a negative impact on our reputation, despite the fact that the short seller’s claims were based on factual errors and misunderstanding of business and accounting rules, which we subsequently explained in a detailed public response. On January 18, 2020, the same short seller published another report on us, containing mostly the same negative opinions regarding us, and we reported in detail the unfounded allegations in this report to the then audit committee of our board of directors. On July 16, 2020, China Central Television, or CCTV, reported in its Annual Consumer Rights Show that certain advertisements placed by third-party advertising agents on Qutoutiao exaggerated the health benefits of certain food and diet products and promoted activities that may involve online-gambling, which led to negative media publicity on us.

Negative publicity could be the result of malicious intentions, direct or indirect anti-competitive behaviors, agendas of short sellers or advertisements placed on the Group’s platform. We may even be subject to government or regulatory investigation as a result of such third-party conduct or misconduct and may be required to spend significant time and incur substantial costs to defend ourselves against such third-party conduct or misconduct, and we may not be able to conclusively refute each of the allegations within a reasonable period of time, or at all. Our brand and reputation may be materially and adversely affected as a result of any negative publicity, which in turn may cause us to lose market share, users, advertising customers and other third parties the Group conducts business with. As a result, the Group’s financial position or operating results may be adversely affected and the price of the ADSs may decline.

The Group has implemented user loyalty programs to gamify user experience and tap into the competitive reward psyche of users. However, some users have taken an interest in utilizing aggressive tactics to extract maximum monetary reward from the applications. Although the Group has put in mechanisms to detect and prevent such behaviors and the absolute amount of monetary reward so earned is never more than paltry, this feature of the Group’s applications has in some cases given rise to criticisms from the very same users who take it to be a case of the Group not adequately rewarding or in fact overpromising reward to users in general. Such negative reviews could appear in open blogs on the Internet, and, however unmerited, may twist the perception of those unfamiliar with or have no prior experience with the Group’s applications, hence adversely impacting its ability to acquire new users.

Techniques employed by short sellers may drive down the market price of the ADSs.

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, justified or not, 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.

Public companies that have substantially all of their operations in China have been the subject of short-selling. Much of the scrutiny and negative publicity has centered on allegations of a lack of effective internal control over financial reporting resulting in financial and accounting irregularities and mistakes, inadequate corporate governance policies or a lack of adherence thereto and, in many cases, allegations of fraud. As a result, many of these companies are now conducting internal and external investigations into the allegations and, in the interim, are subject to shareholder lawsuits and/or SEC enforcement actions.

A short seller published reports with certain negative opinions regarding us on December 10, 2019 and January 18, 2020, which negatively affected our reputation. However, it is not clear what effect such negative publicity could continue to have on us. If we were to become the subject of any unfavorable allegations, whether such allegations are proven to be true or untrue, we might have to expend a significant amount of resources to investigate such allegations and/or defend ourselves. While we would strongly defend against any such short seller attacks, we may be constrained in the manner in which we can proceed against the relevant short seller by principles of freedom of speech, applicable state law or issues of commercial confidentiality. Such a situation could be costly and time-consuming, and could distract our management from growing the Group’s business. Even if such allegations are ultimately proven to be groundless, allegations against us could severely impact the Group’s business operations and the trading price of the ADSs, and any investment in the ADSs could be greatly reduced or even rendered worthless.

The Group is vulnerable to natural disasters and other calamities. Fire, floods, typhoons, earthquakes, power loss, telecommunications failures, break-ins, war, riots, terrorist attacks or similar events may give rise to server interruptions, breakdowns, system failures or Internet failures, which could cause loss or corruption of data or malfunctions of software or hardware as well as adversely affect the Group’s ability to provide its products or services. The Group’s business could also be adversely affected by the effects of Ebola virus disease, H1N1 flu, H7N9 flu, avian flu, Severe Acute Respiratory Syndrome, or SARS, COVID-19, or other epidemics.

In particular, the COVID-19 pandemic has negatively affected the global and Chinese economy as well as the advertising market in China since the beginning of 2020, and put constraints on the advertising budget of the Group’s advertising customers, which might negatively affect its business, results of operations and financial condition, as well as the trading price of the ADSs.

The Group’s operations have been impacted by measures taken by national and regional Chinese governments to contain COVID-19, including lockdowns, travel restrictions, closures and quarantines. For example, a wave of infections caused by the Omicron variant emerged in Shanghai, where the majority of the Group’s workforce is based, in early 2022, and a series of restrictions and quarantines were implemented to contain the spread. From March to June 2022, residents in Shanghai were placed under a strict COVID-19-related city-wide lockdown. As a result of the lockdown, our employees in Shanghai were not able to work in the office and we were not able to conduct our business operations as usual, which had significant adverse impact on the Group’s business and results of operations. China began to modify its zero-COVID policy at the end of 2022, and most of the travel restrictions and quarantine requirements were lifted in December 2022. There were surges of cases in many cities during this time, and there remains uncertainty as to the future impact of the virus, especially in light of this change in policy. We cannot be assured that more lockdowns and other restrictive measures will not be implemented in the future, and the Group’s business, results of operations and financial condition may be adversely affected by such measures.

The Group’s business operations could also be disrupted if any of its employees is suspected of being infected with COVID-19, since it could require the Group’s employees to be quarantined and/or the Group’s offices to be shut down for disinfection. The Group may be short on workforce if a large number of the Group’s employees are diagnosed with COVID-19 or are required to be self-isolated. The Group’s business could also be impacted if any of its advertising customers or suppliers is affected by COVID-19, which may result in suspension of the Group’s services, reduction in its advertising and marketing revenues, delay in collection of account receivables and additional allowances for doubtful accounts.

In addition, COVID-19 may continue to adversely affect national and regional economy in China as well as global economy and financial markets, which could cause economic downturn or financial crisis. The Group’s business, results of operations and financial condition could be adversely affected to the extent that COVID-19 harms the Chinese and global economy in general, and the trading price of the ADSs may decline significantly.

We have been closely monitoring the impact of COVID-19 on macro economy and advertising market in general, as well as the impact on the Group’s business, results of operations and financial condition. The extent to which COVID-19 may continue to impact the Group’s results is uncertain and difficult to predict and will depend on future developments, including the duration, severity and reach of the COVID-19 pandemic, and actions taken to contain the outbreak or treat its impacts.

New content formats and other products and services and changes to existing content formats and products and services could fail to attract users or generate revenues.

The Group’s ability to increase the size and engagement level of its user base, attract advertising customers and generate revenues will depend in part on its ability to create and offer successful new content formats and other products and services. Such new content formats and other products and services may involve new distribution capabilities or technologies with which we have little or no prior development or operating experience, such as literature, online games and live-streaming. We may also continuously refine the Group’s existing content formats and other products and services as part of the Group’s efforts to further enhance user engagement. However, if such efforts or the Group’s efforts in launching new content formats and other products and services fail to engage users, the Group may fail to attract or retain users or to generate sufficient revenues to justify our investments, and the Group’s business, results of operations and financial condition could be adversely affected.

If the Group is unable to compete effectively in the industry it operates, the Group’s business, results of operations and financial condition may be materially and adversely affected.

Competition for user traffic and user engagement, as well as advertising and marketing spending, is intense and we face strong competition in the Group’s business. The Group’s primary competitors include content aggregators such as Jinritoutiao (operated by Bytedance), Kuaibao (operated by Tencent) and Yidianzixun (an affiliate of Phoenix News). To a lesser extent, we also compete with mobile news portals such as Tencent News, SINA News, Sohu News, NetEase News and Phoenix News. We also compete with other mobile literature applications, such as iReader, QQ Reading, Qimao Free Novels and Fanqie Novels, as well as other mobile literature applications that have a business model similar to ours. To a lesser extent, we compete with traditional PC-based online literature platforms. Many of the Group’s competitors have more resources and longer operating histories than us. New players may emerge and seek to imitate the Group’s business strategies, thereby directly competing with us for users. Furthermore, we may face potential competition from global online content delivery platforms that seek to enter the China market, whether independently or through the formation of strategic alliances with, or acquisition of, PRC Internet companies. If we are not able to effectively compete with the Group’s competitors, the Group’s overall user base and level of user engagement may decrease. We may be required to spend additional resources to further enhance the Group’s brand recognition and promote the Group’s products and services, and such additional spending could adversely affect the Group’s profitability. Furthermore, if we are involved in disputes with any of the Group’s competitors that result in negative publicity to us, such disputes, regardless of their veracity or outcome, may harm the Group’s reputation or brand image and in turn lead to reduced number of users and advertising customers. The Group’s competitors may unilaterally decide to adopt a wide range of measures targeted at us, including possibly designing their products to negatively impact the Group’s operations. Any legal proceedings or measures we take in response to competition and disputes with the Group’s competitors may be expensive, time-consuming and disruptive to the Group’s operations and divert our management’s attention.

In addition, the Group’s users face a vast array of entertainment choices. Other forms of entertainment, including other Internet-based activities such as social networking, online video or games, live-streaming, as well as offline games and activities such as television, movies and sports, are much larger and more well-established markets and may be perceived by the Group’s users to offer greater variety, affordability, interactivity and enjoyment. The Group’s platform competes against these other forms of entertainment for the discretionary time and spending of the Group’s users. If we are unable to sustain sufficient interest in the Group’s platform in comparison to other forms of entertainment, including new forms of entertainment that may emerge in the future, the Group’s business model may no longer be viable.

The Group generates a substantial majority of its revenues from advertising and marketing. A decline in the Group’s advertising and marketing revenues could harm its business.

The Group generated a substantial majority of its revenues from advertising and marketing services in 2020, 2021 and 2022. Given the Group’s short history, it has limited experience in operating the programmatic advertising system and in acquiring its own advertising agents and advertising customers. The Group may not be able to recruit sufficient sales personnel to effectively and efficiently acquire and retain advertising agents and advertising customers. The effectiveness of the Group’s programmatic advertising system may not perform as expected and achieve widespread acceptance by advertising customers.

The Group’s advertising customers for its programmatic advertising system are comprised of advertising agents and end advertisers. There can be no assurance that these advertising agents will continue to attract advertising customers to the Group’s platform. Furthermore, as is common in the industry, the Group does not enter into long-term agreements with advertising agents or advertising customers. Advertising agents and advertising customers are not obligated to use the Group’s advertising and marketing solutions on an exclusive basis and they generally use multiple channels to manage their advertising and marketing needs. Accordingly, we or advertising agents must convince advertising customers to use the Group’s programmatic advertising system, increase their usage and spend a larger share of their online advertising and marketing budgets with the Group, and to do so on an ongoing basis. Advertising customers may not continue to utilize the Group’s platform or may only be willing to advertise with the Group at reduced prices if it does not deliver advertising and marketing services in an effective manner, including persuading the Group’s advertising customers as to the relevancy of the Group’s user base for their products or services, or if they do not believe that their investment in advertising and marketing with the Group’s will generate a competitive return relative to alternative advertising platforms. If the Group fails to retain existing advertising customers or ensure that their advertising spends with the Group remains at similar or increased levels or attract new advertising customers to advertise on the Group’s platform, the Group’s business, results of operations and financial condition may be materially and adversely affected.

Our efforts to expand the monetization of the Group’s products and services in addition to advertising may not be successful.

In order to sustain the Group’s operation and revenue, we must effectively monetize the Group’s user base and expand the monetization of the Group’s products and services in addition to advertising. We plan to leverage the Group’s user account systems and loyalty programs to induce users not only to spend the cash credits in their accounts from using the Group’s platform but also to supplement their spending on the Group’s platform with additional funds. These measures include introducing paid content such as literature, online games, short videos, as well as live-streaming products. There can be no assurance that we can successfully capture such monetization opportunities. For example, users may prefer to purchase merchandise from “pure play” e-commerce platforms, which tend to offer wider selections and may provide better services due to their deeper industry experience. In addition, the Group has primarily offered free content to users, and the Group’s paid content may not gain significant user acceptance. If we were unable to successfully execute the Group’s monetization strategies, the Group’s business, results of operations and financial condition would be materially and adversely affected.

If we fail to continue to anticipate user preferences and interests, the Group may not be able to generate sufficient user traffic to remain competitive.

The Group’s success depends on its ability to intelligently deliver personalized light entertainment content to users. Through an automated process, the Group develops interest and social graphs for each user based on such person’s profile, behavior and social relationships. The user’s behavior also provides the Group with a granular view of the topics and content characteristics that likely are of interest to the user. In addition, the interest and social graphs take into account the user’s social relationships with other users and such other users’ interests, including their behaviors. The Group’s content recommendation engine analyzes content and the interest and social graphs of each user to identify content that is most likely to interest such person. Such recommendation is based on analysis the Group has made as to user preferences and interests, and any errors in such analysis may lead the Group’s system to recommend content that fails to attract users. Furthermore, the Group’s future success will depend on its ability to anticipate and adapt new technologies. If the Group fails to continuously improve user experience through better recommendation results, we may not be able to compete effectively with the Group’s competitors, and the Group’s business, results of operations and financial condition may be materially and adversely affected.

If content providers on the Group’s platform do not continue to contribute content, decrease the amount of content contributed or the quality of their contribution declines, the Group may experience a decrease in the number of users and level of user engagement.

The Group’s success depends on its ability to generate sufficient user traffic through the intelligent delivery of personalized light entertainment content, which in turn depends on the content contributed by the Group’s content providers. We believe that access to light entertainment-oriented and easily digestible content is one of the main reasons users visit Qutoutiao. We encourage the Group’s content providers to actively contribute quality content that will resonate with the Group’s users by implementing a system in which fees paid to them are related to the number of views associated with content they contribute. We also seek to foster a broader and more engaged user base by encouraging social interactions and production of user generated content. If the Group’s content providers do not continue to contribute content, including user generated content, to the Group’s mobile applications due to their dissatisfaction with the Group’s fee arrangements with them, their entry into exclusive arrangements with other platforms or any other reasons, or the attractiveness of their content declines, and the Group is unable to provide users with entertaining and relevant content, the Group’s user base and user engagement may decline. If the Group is required to share a higher proportion of advertising and marketing revenues with content providers in order to enhance the quality of content delivered by it or increase the amount of content provided to it, the Group’s profitability could be materially and adversely affected. If the Group experiences a decline in the number of users or the level of user engagement, advertising customers may not view the Group’s platform as attractive for their advertising expenditures and may reduce their spending with the Group, which would harm the Group’s business, results of operations and financial condition.

The Group’s user metrics and other estimates are subject to inherent challenges in measuring its operating performance, which may harm its reputation.

We regularly review MAUs, DAUs, average time spent per DAU and other operating metrics to evaluate growth trends, measure the Group’s performance, and make strategic decisions. These metrics are calculated using internal company data, have not been validated by an independent third party, and may not be indicative of the Group’s future financial results. While these numbers are based on what we believe to be reasonable estimates for the applicable period of measurement, there are inherent challenges in measuring how the Group’s platform is used across a large population in China. For example, we may not be able to distinguish individual users who have multiple registered accounts.

Errors or inaccuracies in the Group’s metrics or data could result in incorrect business decisions and inefficiencies. For instance, if a significant understatement or overstatement of active users were to occur, we might expend resources to implement unnecessary business measures or fail to take required actions to remedy an unfavorable trend. If advertising customers or investors do not perceive the Group’s user or other operating metrics to accurately represent the Group’s user base, or if we discover inaccuracies in the Group’s user or other operating metrics, our reputation may be harmed.

If we fail to effectively manage the Group’s operation, the Group’s business, results of operations and financial condition could be harmed.

We have faced downward pressures in the Group’s business and operations in 2021 and 2022, which have placed and will continue to place significant demands on our management, operational and financial resources. We may encounter difficulties as the Group establishes and expands its operations, product development, sales and marketing, and general and administrative capabilities. We face significant competition for talented employees from other high-growth companies, which include both publicly traded and privately held companies, and we may not be able to hire new employees quickly enough to meet the Group’s needs. To attract highly skilled personnel, we have had to offer, and believe we will need to continue to offer, competitive compensation packages. We are subject to the risks of over-hiring, over-compensating the Group’s employees and over-expanding the Group’s operating infrastructure, and to the challenges of integrating, developing and motivating a growing employee base. In addition, we may not be able to innovate or execute as quickly as a smaller and more efficient organization. If we fail to effectively manage the Group’s hiring needs and successfully integrate the Group’s new hires, the Group’s efficiency and ability to meet the Group’s forecasts and the Group’s employee morale, productivity and retention could suffer, and the Group’s business, results of operations and financial condition could be adversely affected.

Providing products and services to users may be costly and we expect the Group to continue to incur significant expenses in the future as it maintains its user base and user engagement, and develop and implement new content formats, features, products and services that require more infrastructure, such as literature, online games and live-streaming. Historically, changes in the Group’s costs and expenses have affected its results of operations and financial condition. We expect to continue to invest in the Group’s infrastructure to enable it to provide its products and services rapidly and reliably to users. This could also strain the Group’s ability to maintain reliable service levels for its users, content providers and advertising customers, develop and improve the Group’s operational, financial, legal and management controls, and enhance the Group’s reporting systems and procedures. The Group’s expenses may grow faster or decrease slower than its revenues, and its expenses may be greater than we anticipate. Managing the Group’s operation will require significant expenditures and allocation of valuable management resources. If we fail to achieve the necessary level of efficiency in the Group’s organization, the Group’s business, results of operations and financial condition could be harmed.

Advertisements on the Group’s mobile applications may subject us to legal proceedings, penalties and other administrative actions.

Under PRC advertising laws and regulations, we are obligated to monitor the advertising content shown on the Group’s mobile applications to ensure that such content is true, accurate and in full compliance with applicable laws and regulations. On October 27, 1994, the Standing Committee of the National People’s Congress, or the SCNPC, issued the Advertisement Law, which was amended on April 24, 2015, October 26, 2018 and April 29, 2021, to further strengthen the supervision and management of advertisement services. On July 4, 2016, SAIC issued the Interim Measures for the Administration of Internet Advertising, or the New Interim Measures, to further regulate Internet advertising activities. Pursuant to these laws and regulations, any advertisement that contains false or misleading information to deceive or mislead consumers shall be deemed false advertising. Furthermore, the Advertisement Law explicitly stipulates detailed requirements for the content of several different kinds of advertisements, including advertisements for medical treatment, pharmaceuticals, medical instruments, health food, alcoholic drinks, education or training, products or services having an expected return on investment, real estate, pesticides, feed and feed additives, and some other agriculture-related advertisement. Also, according to the New Interim Measures, no advertisement of such special products or services which are subject to examination by an advertising examination authority shall be published unless it has passed such examination. In addition, an Internet advertisement shall be identifiable and clearly identified as an “advertisement” so that consumers will know that it is an advertisement. The New Interim Measures also provide that Internet advertisement publishers shall verify related supporting documents, check the content of the advertisement and be prohibited from publishing any advertisement with nonconforming content or without all the necessary certification documents. However, for the determination of the truth and accuracy of the advertisements, there are no implementing rules or official interpretations, and such a determination is at the sole discretion of the relevant local branch of the State Administration for Market Regulation, or the SAMR (successor of SAIC and the State Food and Drug Administration), which results in uncertainty in the application of these laws and regulations. In addition, advertising content deemed as obscene, defamatory, inappropriately satirical or otherwise inappropriate by a relevant government authority may also subject us to penalties. For instance, the Chinese government has temporarily suspended advertising services on a short video platform in China because advertising content shown on the platform was deemed to be offensive and disrespectful to a revolutionary figure.

On November 26, 2021, the SAMR publicly solicited opinions on the Measures for the Administration of Online Advertising (Draft for Comments), or the Draft Internet Advertising Measures. On February 25, 2023, the SAMR issued the Measures for the Administration of Online Advertising, or the Internet Advertising Measures, which took effect on May 1, 2023. The Internet Advertising Measures states that platform operators providing Internet information services shall take measures to prevent and stop false and illegal advertisements. The Internet Advertising Measures further strengthen the one-click-to-close requirement and prohibit 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. We cannot assure you that all the advertisements shown on the Group’s mobile applications are true, accurate, appropriate and in full compliance with applicable laws and regulations. For example, advertisers on the Group’s mobile applications, or their agents, may use measures that are designed to evade the Group’s monitoring, such as providing inauthentic material that does not match the actual advertisement, or supplying advertising which is superficially compliant but nevertheless is linked to one or more webpages that feature noncompliant advertising content. In addition, the Group’s employees responsible for reviewing advertisements may not fully understand the relevant laws and regulations or may be inappropriately influenced by the advertisers. In each case, we may still be held responsible for noncompliant advertising content. We include clauses in most of the Group’s advertising contracts requiring that all advertising content provided by advertising customers must comply with relevant laws and regulations. Pursuant to the contracts between the Group and the relevant advertising agents or advertising customers, they are liable for all damages to us caused by their breach of such representations. However, there can be no assurance that we will be able to successfully enforce the Group’s contractual rights.

On November 1, 2021, the MIIT promulgated the Notice of the Ministry of Industry and Information Technology on Launching the Action for Improvements to the Perception of Information and Communications Services, under which, internet enterprises shall set obvious and effective close buttons in the splash ads of their apps. On September 9, 2022, the Administrative Provisions on Internet Pop-up Window Information Notification Services was issued by the CAC, the MIIT and the SAMR, effective from September 30, 2022, which requires that pop-up ads shall be subject to content compliance review and shall be identifiable, prominently marked as “advertisement,” and users shall be notified expressly. Besides, pop-up ads shall be able to be closed with a single click, it is not allowed to present such information as third-party links and QR codes leading and redirecting malicious traffic by way of pop-up information push services, or induce users to click through such services to falsify or hijack traffic.

Violation of these laws and regulations may subject the Group to penalties, including fines, confiscation of the Group’s advertising income, orders to cease dissemination of the advertisements and orders to eliminate the effect of illegal advertisement. If an illegal advertisement featured on the Group’s mobile applications were to have excessive negative effects, our brand and reputation may be harmed, and PRC governmental authorities may pursue more severe penalties and administrative actions against us. PRC governmental authorities may even force us to terminate the Group’s advertising operation or revoke the Group’s licenses in circumstances involving serious violations. Such penalties may have a material and adverse effect on the Group’s business, results of operations and financial condition.

On July 16, 2020, CCTV reported in its Annual Consumer Rights Show that certain advertisements placed by third-party advertising agents on Qutoutiao exaggerated the health benefits of certain food and diet products and promoted activities that may involve online-gambling. In response, we promptly took appropriate measures such as immediate suspension of all employees involved in these advertisements, including the person in charge of advertising operations, stricter management of all third-party advertising agents, enhancement of content management capabilities in identifying misleading or inappropriate advertisements, and the launch of an easy-to-use and easy-to-find complaint channel on the home screen of Qutoutiao so that users can file their complaints with us on any advertisement placed on the Group’s app. The Qutoutiao app was temporarily removed from several major Android-based app stores in China after the report but was reinstated on July 31, 2020. On October 14, 2020, Shanghai Jifen and Shanghai Dianguan were fined by a local Regulator for certain false advertisements placed on the Qutoutiao app. The advertisement fees that these two entities earned from the false advertisements were also confiscated. The aggregate amounts of the fines and confiscated earnings were approximately RMB0.6 million for Shanghai Jifen and RMB2.0 million for Shanghai Dianguan, which were fully paid on November 27, 2020. On February 8, 2023, Midu Lite was notified by MIIT for deceiving, misleading and compelling users (for example, the users’ click would trigger automatic downloads of ads) and ordered to conduct rectification. On February 10, 2023, we submitted the remediation report to MIIT and completed the rectification. Although we have enhanced the Group’s internal procedures by taking remedial actions, we cannot assure you that all of the advertisements on the Group’s platform will be fully in compliance with the applicable rules and regulations.

In addition, advertisements on the Group’s mobile applications may also subject us to legal proceedings, which may result in penalties on us and adversely affect our financial condition. For instance, in 2022, one of our material subsidiaries and one of the Key VIEs paid fines of RMB82.8 million in aggregate as a result of alleged fraudulent advertisements that an advertising customer placed on the Group’s online platform. See “Item 8. Financial Information—A. Consolidated Statement and other Financial Information—Legal and Administrative Proceedings—Lawsuit Relating to Advertisements on Our Online Platform.” We have continued to implement various measures to improve our internal procedures. For instance, we have further enhanced screening and review of the qualification of the advertising agents and advertisers that place advertisements on our online platform. We have also further optimized our advertising business team and devoted additional efforts to handle complaints relating to advertisements on our online platform.

Increased government regulation of content platforms may subject us to penalties and other administrative actions.

In recent years, PRC government authorities have strengthened their oversight of content platforms similar to the Group’s mobile applications. Other than the content that are considered to be violating PRC laws and regulations, such oversight has tended to pay more attention to content that is or may be deemed misleading, obscene, pornographic, detrimental, and/or contrary to social values and morals prevailing in China, which content may subject the platform’s operator to penalties and other administrative actions. For example, in April 2018, a platform that provides entertainment-oriented contents was ordered by the NRTA to permanently cease its operation for delivering content that were considered to be vulgar and “deviating from mainstream values.” In addition, in July 2018, PRC governmental and regulatory authorities responsible for “eradicating pornography and illegal publications” announced new coordinated efforts to regulate and control the nascent online short video sector, including citations against 19 online short video platforms which allegedly had disregarded previous and repeated warnings not to distribute content deemed by the authorities as obscene, misleading, pornographic, violent, infringing, sensationalist, deviant from socialist core values, harmful to younger viewers, or otherwise unlawful or detrimental. Of these 19 platforms, 15 had their applications removed from app stores and new downloads blocked; among these 15 platforms, three also had their operations suspended by relevant authorities.

Government regulation of content and of content platforms generally may broaden in scope and oversee additional aspects of content platforms’ operation, such as information security, user suitability management, anti-addiction, and sales and marketing, in addition to being strengthened and becoming stricter as to content and advertising. For example, on December 15, 2019, the CAC promulgated the Provisions on Ecological Governance of Network Information Content, which became effective on March 1, 2020. The Provisions specify the information that is encouraged for, prohibited from or prevented and rejected from dissemination, to further regulate the network information and content. In addition, on November 29, 2021, the Office of the Ministry of Culture and Tourism issued the Opinions on Strengthening the Protection of Minors in the Network Cultural Market, which propose the entities to strengthen the construction of online content, explore the establishment of the review and judgment standards of the content unsuitable for minors to access, continue to improve the ability to identify illegal content models and improve the professionalism and effectiveness of manual audit to block and clean up the harmful content timely and effectively such as cult, pornography, illegal missionary, dangerous behavior, negative values and so on. Any such new or broadened regulatory measures or oversight may cause the Group to incur higher compliance costs, revise the Group’s operational strategies, target user groups or promotional models, and thereby adversely affect the Group’s business and results of operations.

If we fail to detect click-through fraud of the Group’s platform, we could lose the confidence of advertising customers and the Group’s revenues could decline.

We are exposed to the risk of click-through fraud on the Group’s advertising services. Click-through fraud occurs when a person, automated script or computer program imitates a legitimate user clicking on an advertisement, for the purpose of generating a charge per click without having an actual interest in the target of the advertisement’s link. If we fail to detect fraudulent clicks or otherwise are unable to prevent such fraudulent activity, the affected advertising customers may experience a reduced return on their investment in the Group’s mobile advertising services and lose confidence in the integrity of the Group’s services. If this happens, our reputation may be damaged and the Group may be unable to retain existing advertising customers and attract new advertising customers for the Group’s advertising services and the Group’s advertising revenue could decline.

If we fail to detect user misconduct on the Group’s platform, the Group’s business, results of operations and financial condition may be materially and adversely affected.

The Group’s platform enables users to upload content, post comments, interact with others and engage in various other online activities. As the gatekeeper for the Group’s platform, the Group’s content management system is designed to ensure both the quality and appropriateness of information presented to users, which include content and comment postings. The Group undertakes an efficient and thorough screening process that involves both algorithm-based screening and manual review. The Group has also implemented a complaint procedure that enables it to identify bad content with its users’ help. However, such procedures may not prevent all illegal or inappropriate content or comments from being posted, and the Group’s staff may fail to review and screen such content or comments effectively. In response to allegations of illegal or inappropriate activities conducted through the Group’s platform or any negative media coverage about the Group, PRC government authorities may intervene and hold the Group liable and subject it to administrative penalties or other sanctions, such as requiring the Group to restrict or discontinue some of the features and services provided on its mobile application. As a result, the Group’s business may suffer and its user base, revenues and profitability may be materially and adversely affected, and the price of the ADSs may decline.

Additionally, the Group may be subject to fines or other disciplinary actions, including suspension or revocation of the licenses necessary to operate the Group’s platform, if it is deemed to have facilitated the appearance of inappropriate content placed by third parties on its platform, including user generated content. Although the Group requires content providers on its platform to promise that they will not infringe upon the intellectual property rights of third parties, such content may nevertheless be unauthorized and infringe upon others’ intellectual property, including copyrights, and the Group may not be able to detect and identify every instance of intellectual property infringement. See “— Non-compliance with law on the part of third parties with which the Group conducts business could disrupt the Group’s business and adversely affect results of its operation and financial condition” and “The Group 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 the Group’s platform, or delivered to the Group’s users, which may materially and adversely affect the Group’s business, financial condition and prospects.” As a result, the Group may face claims for defamation, libel, negligence, copyright, patent or trademark infringement, other unlawful activities or other claims based on the nature and content of the information delivered on or otherwise accessed through the Group’s platform. Defending such actions could be costly and involve significant time and attention of our management and other resources, which would materially and adversely affect the Group’s business, results of operations and financial conditions.

The Group’s ability to prevent the misuse of its user loyalty programs while ensuring their efficacy in user acquisition and engagement will have a material effect as to the Group’s business, results of operations and financial condition.

To incentivize word-of-mouth viral referrals and improve user engagement and loyalty, the Group’s mobile applications have game-like features allowing users to earn loyalty points while enjoying the content and earn cash credit in some cases by participating in fun tasks. Registered users of the Group’s mobile applications can earn loyalty points if they become active users, refer others who later register and become active users, or engage in various activities while logged in. Accumulated loyalty points, if exceeding a certain threshold, can be withdrawn by the user in the form of cash by directly crediting the user’s electronic wallet. We have the sole discretion in determining the withdrawal threshold and the exchange rate between loyalty points and the monetary value available to be withdrawn. The Group’s user loyalty programs have contributed significantly to the growth in the Group’s installed users and high user engagement. Although we believe consuming content, rather than earning loyalty points, is the main purpose for the Group’s registered users to use applications, we have nonetheless designed the Group’s loyalty programs to balance between their efficacy in user acquisition and engagement while preventing users from using the Group’s mobile applications merely for the loyalty points. Our inability to achieve such balance may make the Group’s user loyalty programs no longer becoming enticing to users, which may materially and adversely affect user growth and user engagement. Moreover, we cannot assure you that there will still be users who are only attracted to the Group’s mobile applications because of the Group’s user loyalty programs. We have mechanisms in place to prevent potential abuse of the Group’s user loyalty programs. For example, the Group’s system takes into account how fast the user scrolls down the page to determine whether the viewer has actually viewed the article and loyalty points are now provided on a per minute spent on viewing content basis. However, the Group’s system may not be able to detect all instances of abuse. Furthermore, although the Group’s loyalty programs are designed so that only a small amount of loyalty points is provided for taking any specific action with the aim to entice user referral and engagement, we cannot ensure you that there will not be users who will be able to hack the Group’s user loyalty programs to make earning loyalty points a highly lucrative endeavor. We have also focused on developing fraud detection technologies to combat fraudulent users and activities targeting the Group’s user loyalty programs and we cannot assure you that such system will be effective in identifying fraud. If we allow users to improperly earn loyalty points, the Group’s business, results of operations and financial condition may be materially and adversely affected. As clearly stated in the Group’s user agreement, the Group has the sole discretion in determining user misuse of the Group’s user loyalty programs, and the Group may freeze a user’s account if it finds such user misused the Group’s user loyalty programs. Certain users that have their accounts frozen have complained online. Such complaints could undermine the public perception and credibility of the Group’s platform, and the Group’s business, results of operations and financial condition could be materially and adversely affected.

The Group’s results of operations may fluctuate from quarter to quarter, which makes them difficult to predict.

The Group’s quarterly results of operations have fluctuated in the past and will continue to fluctuate in the future. As a result, the Group’s past quarterly results of operations are not necessarily indicators of future performance. The Group’s results of operations in any given quarter can be influenced by numerous factors, many of which we are unable to predict or are outside of our control, including:

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the Group’s ability to maintain its user base and user engagement;

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fluctuations in spending by the Group’s advertising customers, including as a result of seasonality or other factors;

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the Group’s ability to attract and retain advertising customers;

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the occurrence of planned or unplanned significant events, including events that may cause substantial share-based compensation or other charges;

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the development and introduction of new content formats, products or services or changes in features of existing content formats, products or services;

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the impact of competitors or competitive products and services;

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increases in the Group’s costs and expenses that we may incur to grow and expand the Group’s operations and to remain competitive;

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changes in the legal or regulatory environment or proceedings, including with respect to security, privacy or enforcement by government regulators, including fines, orders or consent decrees; and

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changes in Chinese or global business or macroeconomic conditions.

Given the Group’s limited operating history and the rapidly evolving market in which we compete, the Group’s historical results of operations may not be sufficiently informative for you in predicting the Group’s future results of operations. The Group’s short operating history makes it difficult for us to identify recurring seasonal trends in the Group’s business. The advertising industry in China experiences seasonality. Historically, advertising spending and user activities on the Group’s platform tend to be the lowest in the first quarter of each calendar year due to long holidays around the Lunar New Year, during which users tend to spend more time with family and celebrations offline and less time online, including on the Group’s mobile applications. In addition, advertising customers, such as those in the e-commerce industry, may also reduce their advertising spending during the holidays around the Lunar New Year due to reduced consumer spending or reduced or suspended production and logistics activities by manufacturers or other service providers. We believe this seasonality affects the Group’s quarterly results, especially the Group’s results of operations in the first quarter of each year.

The Chinese government heavily regulates the Internet industry, including foreign investment in the Chinese Internet industry, content on the Internet and license and permit requirements for service providers in the Internet industry. Since some of the laws, regulations and legal requirements with respect to the Internet are relatively new and evolving, their interpretation and enforcement involve significant uncertainties. In addition, the Chinese legal system is based on written statutes, such that prior court decisions can only be cited for reference and have little precedential value. As a result, in many cases it is difficult to determine what actions or omissions may result in liabilities. Issues, risks and uncertainties relating to China’s government regulation of the Chinese Internet sector include the following:

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The Group operates its mobile applications in China through businesses controlled via contractual arrangements rather than equity ownership due to restrictions on foreign investment in businesses providing value-added telecommunication services, including substantially all of the Group’s paid services and advertising services.

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Uncertainties relating to the regulation of the Internet business in China, including evolving licensing practices, give rise to the risk that some of the Group’s permits, licenses or operations may be subject to challenge, which may be disruptive to the Group’s business, subject us to sanctions or require us to increase capital, compromise the enforceability of relevant contractual arrangements, or have other adverse effects on the Group. For example, some of our business activities involve providing 1v1 real-time audio and video social communication functions, which might be regarded as provision of value-added telecommunications services of instant information interaction services under Catalog of Telecommunications Business and we might be ordered to obtain the value-added telecommunications service license covering service scope for provision of instant information interaction services which we have not obtained yet. Apart from this, the numerous and often vague restrictions on acceptable content in China subject the Group to potential civil and criminal liability, temporary blockage of the Group’s mobile applications or complete shutdown of the Group’s mobile applications. For example, the State Secrecy Bureau, which is directly responsible for the protection of state secrets of all Chinese government and Chinese Communist Party organizations, is authorized to block any website or mobile applications it deems to be leaking state secrets or failing to meet the relevant regulations relating to the protection of state secrets in the distribution of online information. In addition, the Law on Preservation of State Secrets which became effective on October 1, 2010 provides that whenever an Internet service provider detects any leakage of state secrets in the distribution of online information, it should stop the distribution of such information and report to the authorities of state security and public security. As per request of the authorities of state security, public security or state secrecy, the Internet service provider should delete any content on its website that may lead to disclosure of state secrets. Failure to do so on a timely and adequate basis may subject the service provider to liability and certain penalties imposed by the State Security Bureau, Ministry of Public Security and/or MIIT or their respective local counterparts.

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On September 28, 2009, the NRTA (previously known as the SART, GAPPRFT and SARFT) and the National Office of Combating Pornography and Illegal Publications jointly published a circular expressly prohibiting foreign investors from participating in Internet game operating business via wholly owned, equity joint venture or cooperative joint venture investments in China, and from controlling and participating in such businesses directly or indirectly through contractual or technical support arrangements.

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On February 4, 2016, the NRTA and the MIIT jointly issued the Rules for the Administration for Internet Publishing Services, or the Internet Publishing Rules, which took effect on March 10, 2016, and prohibit wholly foreign-owned enterprises, Sino-foreign equity joint ventures and Sino-foreign cooperative enterprises from engaging in the provision of web publishing services. Under such rules, an Internet publishing license is required for a provider of online publications. Uncertainty remains regarding the interpretation of relevant concepts, including “online publications.” Although we have not been explicitly required by the NRTA or other relevant authorities to obtain an Internet publishing license to continue our business so far, we may face further scrutiny by such authorities, which may require us to apply for such license and/or subject us to penalties. In addition, project cooperation between an Internet publishing service provider and a wholly foreign-owned enterprise, Sino-foreign equity joint venture, or Sino-foreign cooperative enterprise within China or an overseas organization or individual involving Internet publishing services shall be subject to examination and approval by the NRTA in advance.

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In November 2020, the NRTA promulgated the Circular on Strengthening the Administration of the Online Show Live Streaming and E-commerce Live Streaming, or Circular 78. According to Circular 78, platforms providing online show live streaming or e-commerce live streaming services shall, among other things, register their information and business operations in the National Internet Audio-visual Platforms Information Management System, ensure real-name registration for all live streaming hosts and virtual gifting users, prohibit users that are minors or without real-name registration from virtual gifting, and 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 Anti-Illegal, the MIIT, the Ministry of Public Security, or the MPS, the MCT, the SAMR and the NRTA jointly issued the Circular on the Guiding Opinions on Strengthening Standardized Management of Online Live Streaming, which further states that live-streaming platforms which carry out commercial online performances shall hold the Internet Cultural Business License, or ICB License, and go through ICP record-filing and live streaming platforms which provide online audio-visual program services must obtain the Audio-Visual Permit (or complete the registration on the National Internet Audio-visual Platforms Information Management System) and complete the ICP filing procedure. As of the date of this annual report, Beijing Supreme Pole International Sports Development Co., Ltd. has obtained the Audio-Visual Permit and the Group has been registered in the National Internet Audio-visual Platforms Information Management System with the Qutoutiao app. We cannot assure you all the live streaming platforms operated by us can be successfully registered with the National Internet Audio-visual Platforms Information Management System. Failure to make such registration may have adverse impact on the Group’s business. On March 25, 2022, the CAC, the SAT and the SAMR jointly issued Opinions on Further Regulating Profit-making Behaviors of Webcast to Promote the Healthy Development of the Industry, which provides that online live streaming platforms shall, on a semi-annual basis, submit to the cyberspace administration at the provincial level and the competent tax authorities information such as the personal identity of an online live streaming publisher who engages in online live streaming for profit, his or her live streaming account, online nickname, account name, type of income, and profitability and cooperate with cyberspace, market regulation, taxation and other authorities to conduct supervision and inspection according to the relevant laws. Circular 78 also sets forth requirements for certain live streaming businesses with respect to live streaming review personnel requirements, content tagging requirements, and other requirements. For more information on Circular 78, see “Item 4. Information on the Company— C. Regulations— Regulations Related to Online Live Streaming Services.” As there remain uncertainties to some of the requirements in Circular 78 and its implementation standards, we are still in the process of getting further guidance from regulatory authorities and evaluating the applicability and effect of the various requirements under Circular 78 on the Group’s business. Any further regulatory updates with respect to Circular 78 or other intensified regulation with respect to live streaming may increase the Group’s compliance burden in the live streaming business, and may have an adverse impact on the Group’s business and results of operations.

Due to the increasing popularity and use of the Internet and other online services, it is possible that a number of laws and regulations may be adopted with respect to the Internet or other online services covering issues such as user privacy, pricing, content, copyrights, distribution, antitrust and characteristics and quality of products and services. The adoption of additional laws or regulations may impede the growth of the Internet or other online services, which could, in turn, decrease the demand for the Group’s products and services and increase the Group’s cost of doing business. Moreover, the applicability to the Internet and other online services of existing laws in various jurisdictions governing issues such as property ownership, sales and other taxes, libel and personal privacy is uncertain and may take years to resolve. Any new legislation or regulation, the application of laws and regulations from jurisdictions where laws do not currently apply to the Group’s business, or the application of existing laws and regulations to the Internet and other online services could significantly disrupt the Group’s operations or subject us to penalties.

The interpretation and application of existing PRC laws, regulations and policies, the stated positions of relevant PRC government authorities and possible new laws, regulations or policies 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 the Group’s business.

Non-compliance with law on the part of third parties with which the Group conducts business could disrupt the Group’s business and adversely affect results of its operation and financial condition.

Third parties with which the Group conducts business, such as content providers, advertising agents, advertising customers and merchandise suppliers, may be subject to regulatory penalties or punishments because of their regulatory compliance failures, subject to criminal investigations or legal proceedings, or infringe upon other parties’ legal rights, which may, directly or indirectly, disrupt the Group’s business. Although the Group conducts reviews of legal formalities and certifications before entering into contractual relationships with third parties, and takes measures to reduce the risks that it may be exposed to in case of any non-compliance by third parties, we cannot be certain whether such third party has violated any regulatory requirements, breached any applicable laws, or infringed or will infringe any other parties’ legal rights. For example, content providers may submit copyrighted content that they have no right to distribute. While the Group’s content management system screens content for potential copyright infringements, it may not be able to identify all instances of copyright infringement. In the event the Group delivers content that violates the copyrights of a third party, it may be required to pay damages to compensate such third party. Even though the Group has the contractual right to seek indemnification from the relevant content provider for such payment, there can be no assurance that the Group will be able to enforce such right. As a result, the Group’s business, results of operations and financial condition could be materially and adversely affected. Similarly, advertising content of advertising customers may also not be in full compliance with applicable laws and regulations that may subject us to legal proceedings, penalties and other administrative actions, and have an adverse effect on the Group’s business, results of operations and financial condition. See “— Advertisements on the Group’s mobile applications may subject us to legal proceedings, penalties and other administrative actions.” In November 2022, one of the Group VIEs was ordered by local police to pay an amount of RMB10.0 million (US$1.4 million) in connection with investigation on alleged fraudulent conduct of an advertising agent which has placed advertisements on one of our mobile applications. We are not certain whether and when such amount would be returned to us by the local police, and whether such investigation will result in legal proceedings against us. If the amount is not returned to us for a prolonged period of time or at all, our working capital and business operations may be materially and adversely affected.

We cannot rule out the possibility of incurring liabilities or suffering losses due to any non-compliance by third parties. We cannot assure you that the Group will be able to identify irregularities or non-compliance in the business practices of third parties the Group conducts business with, or that such irregularities or non-compliance will be corrected in a prompt and proper manner. Any legal liabilities and regulatory actions affecting third parties involved in the Group’s business may affect its business activities and reputation, and may in turn affect the Group’s business, results of operations and financial condition.

The Group collects personal data from its users in order to better understand its users and their needs and to help advertising customers target specific demographic groups. Through an automated process, the Group develops a social graph for each user based on such person’s profile, behavior and social relationships. Concerns about the collection, use, disclosure or security of personal information or other privacy-related matters, even if unfounded, could damage our reputation, cause the Group to lose users and customers and adversely affect the Group’s business, results of operations and financial condition. While the Group strives to comply with applicable data protection laws and regulations, as well as its own posted privacy policies and other obligations it may have with respect to privacy and data protection, the failure or perceived failure to comply may result, and in some cases has resulted, in inquiries and other proceedings or actions against us by government agencies or others, as well as negative publicity and damage to our reputation and brand, each of which could cause the Group to lose users and customers, which could have an adverse effect on the Group’s business.

Any systems failure or compromise of the Group’s security that results in the unauthorized access to or release of the Group’s users’ or customers’ data could significantly limit the adoption of the Group’s products and services, as well as harm our reputation and brand and, therefore, the Group’s business. We expect to continue to expend significant resources to protect against security breaches. The risk that these types of events could seriously harm the Group’s business is likely to increase as the Group expands the number of products and services it offers and expands its user base.

New laws or regulations concerning data protection, or the interpretation and application of existing consumer and data protection laws or regulations, which is often uncertain and in flux, may be inconsistent with the Group’s practices. Complying with new laws and regulations could cause the Group to incur substantial costs or require the Group to change its business practices in a manner materially adverse to its business. For example, if privacy concerns or regulatory restrictions prevent the Group from selling demographically targeted advertising, the Group may become less attractive to advertising customers.

If the Group is unable to keep pace with rapid technological changes in the mobile Internet industries, its business may suffer.

The mobile content industry, and the Internet industry in general, are characterized by constant changes, including rapid technological evolution, continual shifts in customer demands, frequent introductions of new products and services and constant emergence of new industry standards and practices. Thus, the Group’s success will depend, in part, on its ability to respond to these changes in a cost-effective and timely manner. If we are unable to keep up with big data analysis, artificial intelligence and other technological developments, users may no longer be attracted to the Group’s platform. A decrease in the number of active users may reduce the Group’s monetization opportunities and have a material and adverse effect on the Group’s business, results of operations and financial condition.

The Group’s technological capabilities and infrastructure underlying its platform are critical to the Group’s success. The industry the Group operates in is subject to rapid technological changes and is 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 the Group’s products and services competitive in the market. However, development activities are inherently uncertain, and we might encounter practical difficulties in commercializing the Group’s development results. The Group’s significant expenditures on research and development may not generate corresponding benefits. Given the fast pace with which the technology has been and will continue to be developed, we may not be able to timely upgrade the Group’s technologies in an efficient and cost-effective manner, or at all. New technologies in programming or operations could render the Group’s technologies, the Group’s platform or products or services that we are developing or expect to develop in the future obsolete or unattractive, thereby limiting the Group’s ability to recover related product development costs, outsourcing costs and licensing fees, which could result in a decline in the Group’s revenues and market share.

If the Group’s security measures are breached, or if the Group’s products and services are subject to attacks that degrade or deny the ability of users to access the Group’s products and services, the Group’s products and services may be perceived as not being secure, users may curtail or stop using the Group’s products and services and the Group’s business, results of operations and financial condition may be harmed.

The Group’s products and services involve the storage and transmission of users’ information, and security breaches expose us to a risk of loss of this information, litigation and potential liability. We may experience cyber-attacks of varying degrees, including attempts to hack into the Group’s user accounts or redirect the Group’s user traffic to other websites. Functions that facilitate interactivity with other mobile applications, such as WeChat, which among other things allows users to log into the Group’s platform using their WeChat identities, could increase the scope of access of hackers to user accounts. The Group’s security measures may also be breached due to employee error, malfeasance or otherwise. Additionally, outside parties may attempt to fraudulently induce employees or users to disclose sensitive information in order to gain access to the Group’s data or the Group’s users’ data or accounts, or may otherwise obtain access to such data or accounts. Any such breach or unauthorized access could result in significant legal and financial exposure, damage to our reputation and a loss of confidence in the security of the Group’s products and services that could have an adverse effect on the Group’s business, results of operations and financial condition. Because the techniques used to obtain unauthorized access, disable or degrade service or sabotage systems change frequently and often are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. If an actual or perceived breach of the Group’s security occurs, the market perception of the effectiveness of the Group’s security measures could be harmed, the Group could lose users and we may be exposed to significant legal and financial risks, including legal claims and regulatory fines and penalties. Any of these actions could have a material and adverse effect on the Group’s business, results of operations and financial condition.

The Group relies on third-party online payment platforms as to certain aspects of its operations.

The Group’s users withdraw cash credits from their accounts on the Group’s mobile applications through third-party online payment systems. The Group’s users also can use third-party online payment systems to supplement their spending on the Group’s mobile applications with additional funds. In such online payment transactions, secured transmission of confidential information such as customers’ personal information over public networks is essential to maintain consumer confidence.

We do not have control over the security measures of these third-party online payment platforms, and security breaches of the online payment systems that the Group uses could expose us to litigation and possible liability for failing to secure confidential customer information and could, among other things, damage our reputation and the perceived security of all of the online payment systems that the Group uses. If a well-publicized Internet or mobile network security breach were to occur, users concerned about the security of their online financial transactions may become reluctant to purchase the Group’s virtual items even if the publicized breach did not involve payment systems or methods used by the Group. In addition, there may be billing software errors that would damage customer confidence in these online payment systems. If any of the above were to occur and damage our reputation or the perceived security of the online payment systems the Group uses, the Group may lose active users, which may have an adverse effect on the Group’s business.

Furthermore, if any of the payment platforms the Group uses to decide to significantly increase the percentage they charge us for using their payment systems, the Group’s business, results of operations and financial condition may be materially and adversely affected.

We may be subject to cybersecurity review by regulatory authorities of the PRC in the future.

On April 13, 2020, the CAC, together with 11 other government authorities, jointly issued the Cybersecurity Review Measures, or the Review Measures. The Review Measures, under which the scope of application, reporting procedures, evaluation factors and legal responsibilities are stipulated, were implemented on June 1, 2020 to replace the Measures for Security Review of Cyber Products and Services (for Trial Implementation) issued by the CAC on May 2, 2017. According to the Review Measures, any operator of critical information infrastructure, which, according to the Reply to Questions on the Review Measures published by the CAC, includes critical network and information system operators in the telecommunications industry, purchases any network product or service that affect or may affect national security, must apply for a cybersecurity review to be conducted by Cybersecurity Review Office.

On November 14, 2021, the CAC issued the Draft Network Data Security Management Regulations for public comments, pursuant to which, data processors carrying out the following activities must, in accordance with the relevant national regulations, apply for a cybersecurity review: (i) the merger, reorganization or spin-off of internet platform operators that possess a large number of data resources related to national security, economic development and public interests that affects or may affect national security; (ii) listing in a foreign country of data processors that process the personal information of more than one million users; (iii) listing in Hong Kong of data processors and such listing affects or may affect national security; and (iv) other data processing activities that affect or may affect national security. The scope of and threshold for determining what “affects or may affect national security” is still subject to uncertainty and further elaboration by the CAC. It further requires that a data processor which processes important data or is listed overseas shall complete an annual data security assessment either self-conducted or conducted by a data security service organization engaged, and before January 31 of each year, submit the annual data security assessment report of the previous year to the local cyberspace affairs administration department. As of the date of this annual report, the Network Data Security Management Regulations was released for public comment only, and no interpretation or implementation rules for this proposed regulation have been issued by the CAC or any other PRC regulatory authorities. It remains uncertain when the Network Data Security Management Regulations will be adopted and become effective and whether it will be adopted as was initially proposed.

On December 28, 2021, the CAC and 12 other PRC regulatory authorities jointly issued the revised Cybersecurity Review Measures, which became effective from February 15, 2022, superseding and replacing the cybersecurity review measures that had been in effect since June 2020. The revised Cybersecurity Review Measures require that, (i) any procurement of network products and services by critical information infrastructure operators, which affects or may affect national security, (ii) any data processing activities by network platform operators, which affects or may affect national security, or (iii) any network platform operators which has personal information of more than one million users and is going to be listed abroad, shall be subject to cybersecurity review. Furthermore, the relevant PRC governmental authorities may initiate cybersecurity review if they determine certain network products, services, or data processing activities affect or may affect national security. During such review, the Group may be required to suspend new user registration in China and/or experience other disruptions of the Group’s operations. Cybersecurity review could also result in negative publicity with respect to our company and diversion of our managerial and financial resources. Furthermore, if the Group was found to be in violation of applicable laws and regulations of the PRC during such review, it could be subject to administrative penalties, such as warnings, fines, service suspension or removal of the Group’s apps from the relevant app stores. Therefore, cybersecurity review could have a material and adverse impact on the Group’s business, results of operations and financial condition. Since the measures were recently promulgated, there exist uncertainties with respect to their interpretation and implementation.

As of the date of this annual report, the Group has not been informed by any PRC governmental authority of any requirement for us to file for a cybersecurity review. However, in anticipation of the strengthened implementation of cybersecurity laws and regulations and the continued expansion of the Group’s business, the Group faces potential risks if it is deemed as a “critical information infrastructure operator” or a “network platform operator” that affects or may affect national security under the Cybersecurity Review Measures and relevant regulations, and would be required to follow cybersecurity review procedures.

On June 10, 2021, the Standing Committee of the National People’s Congress, or the SCNPC, promulgated the PRC Data Security Law, which came into effect on September 1, 2021. The PRC Data Security Law imposes data security and privacy protection obligations on entities and individuals carrying out data activities, including but not limited to the collection, storage, use, processing, transmission, provision, and public disclosure of data. Furthermore, the PRC Data Security Law proposes to establish a data classification and hierarchical protection system to protect data by classification and level, depending on the importance of the data in economic and social development, and the damage may be caused to national security, public interests, or the legitimate rights and interests of individuals and organizations if the data is falsified, damaged, disclosed, illegally obtained or illegally used. The PRC Data Security Law also provides a national security review procedure for data activities that may affect national security and imposes export restrictions on certain data and information.

On July 7, 2022, the CAC promulgated the Measures for the Security Assessment of Cross-Border Data Transfer, which took effect on September 1, 2022. These measures require the data processor providing data overseas and falling under any of the following circumstances apply for the security assessment of cross-border data transfer by the national cybersecurity authority through its local counterpart: (i) where the data processor intends to provide important data overseas; (ii) where the critical information infrastructure operator and any data processor who has processed personal information of more than 1,000,000 individuals intend to provide personal information overseas; (iii) where any data processor who has provided personal information of 100,000 individuals or sensitive personal information of 10,000 individuals to overseas recipients accumulatively since January 1 of the last year intends to provide personal information overseas; and (iv) other circumstances where the security assessment of cross-border data transfer is required as prescribed by the CAC. Furthermore, the data processor shall conduct a self-assessment on the risk of cross-border data transfer prior to applying for the foregoing security assessment, under which the data processor shall focus on certain factors, including, among others, the legitimacy, fairness and necessity of the purpose, scope and method of cross-border data transfer and the data processing of overseas recipients, the risks that the cross-border data transfer may bring to national security, public interests and the legitimate rights and interests of individuals or organizations as well as whether the cross-border data transfer related contracts or the other legally binding documents to be entered with overseas recipients have fully included the data security protection responsibilities and obligations. Any failure to comply with such requirements may subject us to, among others, suspension of services, fines, revoking relevant business permits or business licenses and penalties.

On February 22, 2023, the CAC issued the Measures for the Standard Contract for Outbound Transfer of Personal Information, or the Standard Contract Measures, which will take effect on June 1, 2023, regulates any personal information handler who intends to transfer personal information outside the PRC to a foreign recipient by entering into the standard contract. It provides that the previous transferring of personal information shall meet all of the following conditions: (i) it is not a critical information infrastructure operator; (ii) it processes the personal information of less than one million individuals; (iii) it has cumulatively transferred abroad the personal information of less than 100,000 individuals since January 1 of the previous year; and (iv) it has cumulatively transferred abroad the sensitive personal information of less than 10,000 individuals since January 1 of the previous year and prior to the outbound transfer of personal information, the personal information handler shall conduct a personal information protection impact assessment. Furthermore, the personal information handler shall, within ten working days after the standard contract enters into effect, apply for filing with the cyberspace administration at the provincial level. Any failure in the completion of the filing and compliance with such requirements may result in fines or other penalties, including suspension of services, fines or revoking relevant business permits or business licenses.

The Group has been making constant efforts to comply with the revised Cybersecurity Review Measures and other data protection laws and regulations of the PRC. Our mobile apps and websites only collect basic user information which are necessary for the provision of the corresponding services. The Group updates its privacy policies and adjusts its data processing practices from time to time to meet the latest regulatory requirements of CAC and other authorities and adopts technical and organizational measures to protect data and cybersecurity. However, since the revised Cybersecurity Review Measures were recently promulgated, there exist uncertainties with respect to their interpretation and implementation, and as the Draft Network Data Security Management Regulations has not been adopted and it remains unclear whether the formal version adopted in the future will have any further material changes, the Group still faces uncertainties that the rules may be enacted, interpreted or implemented in ways that will negatively affect the Group. The Group could be subject to cybersecurity review, and if so, it may not be able to pass such a review. In addition, the Group could become subject to enhanced cybersecurity review or investigations launched by PRC regulators in the future. Any failure or delay in the completion of the cybersecurity review procedures or any other non-compliance with the related laws and regulations may result in fines or other penalties, including suspension of business, website closure, removal of the Group’s app from app stores, and revocation of licenses, as well as reputational damage or legal proceedings or actions against the Group, which may have a material adverse effect on the Group’s business, financial condition or results of operations. In addition, our ability to continue to offer our ADSs to investors could be significantly limited or completely hindered, and the value of our ADSs could significantly decline or become worthless. Our Qutoutiao and Midu Novels mobile applications were listed in the notices issued by CAC in June 2021 and August 2021, respectively, for issues regarding collection of personal data, and we were asked to undertake remedial measures. Since then, we have implemented measures to improve the data privacy protection of our mobile applications, and we have not received any administrative penalties in this regard. As of the date of this annual report, the Group has not been involved in any cybersecurity review initiated by the CAC or other relevant governmental regulatory authorities, and it has not received any inquiry, notice, warning, or sanction in such respect, other than the incidents mentioned above. However, we cannot rule out the possibility that the Group may be subject to the cybersecurity review or other investigations initiated by the CAC or the related governmental regulatory authorities.

The PRC has adopted regulations governing the use of algorithms. If new or existing regulations restrict our ability to use algorithms in our business, our business, results of operations and prospects would be adversely impacted.

The PRC has adopted regulations governing the use of algorithms. On August 17, 2021, the SAMR issued a discussion draft of Provisions on the Prohibition of Unfair Competition on the Internet, under which business operators should not use data or algorithms to hijack traffic or influence users’ choices, or use technical means to illegally capture or use other business operators’ data. On September 17, 2021, the CAC, together with certain other governmental authorities, jointly issued the Guidelines on Strengthening the Comprehensive Regulation of Algorithms for Internet Information Services, which provide that, daily monitoring of data use, application scenarios and effects of algorithms shall be carried out by the relevant regulators, and the relevant regulators should conduct security assessments of algorithms. The guidelines also provide that an algorithm filing system should be established, and classified security management of algorithms should be promoted. On December 31, 2021, the CAC and certain other PRC governmental authorities promulgated the Administrative Provisions on Algorithm Recommendation for Internet Information Services, which took effect on March 1, 2022, provides that an algorithm recommendation service provider with public opinion attribute or social mobilization ability shall, within ten working days from the date of provision of services, fill in such information as the service provider’s name, service form, application field, algorithm type, algorithm self-assessment report and content to be disclosed via the internet information service algorithm record-filing system to go through record-filing formalities. These provisions require that algorithmic recommendation service providers shall inform users in a conspicuous manner of their provision of algorithmic recommendation services, and publicize the basic principles, purposes, and main operating mechanisms of algorithmic recommendation services in an appropriate manner. For more information about PRC laws and regulations relating to algorithms, see “Item 4. Information on the Company— C. Regulations— Regulation on Cybersecurity and Censorship.”

Algorithms are an effective tool for us in improving the features of our mobile applications and improving user experience. For example, we leverage algorithms to push personalized content to our users, which helps us attract and retain users and improve user engagement. If new or existing regulations restrict our ability to use algorithms in our business, we may be unable to leverage this technology to the same extent, and our business, results of operations and prospects would be adversely impacted.

Any change, disruption, or discontinuity in the features and functions of major social networks could limit the Group’s ability to continue growing the Group’s user base, and the Group’s business may be materially and adversely affected.

The Group leverages social networks, such as WeChat and QQ, as part of its user acquisition and engagement effort. These social networks enable users to share content on the Group’s mobile applications or recommend the Group’s mobile applications to their friends, family and other social contacts to generate low-cost organic traffic and enhance user engagement for the Group. To the extent that the Group fails to leverage such social networks, its ability to attract or retain users may be harmed. If any of these social networks makes changes to its functions or support, or stops offering its functions or support to the Group, the Group may not be able to locate alternative social networks of similar scale to provide similar functions or support. Furthermore, the Group may fail to establish or maintain relationships with additional social network operators to support the growth of its business on economically viable terms, or at all. Any interruption to or discontinuation of the Group’s relationships with major social network operators may severely and negatively impact its ability to continue growing its user base, and any occurrence of the circumstances mentioned above may have a material adverse effect on the Group’s business, financial condition and results of operations.

The Group’s business and growth could suffer if it is unable to hire and retain key personnel.

We depend on the continued contributions of our senior management and other key employees, many of whom are difficult to replace. The loss of the services of any of our executive officers or other key employees could harm the Group’s business. Competition for qualified talent in China is intense. The Group’s future success is dependent on our ability to attract a significant number of qualified employees and retain existing key employees. If we are unable to do so, the Group’s business and growth may be materially and adversely affected and the trading price of the ADSs could suffer. Our need to significantly increase the number of our qualified employees and retain key employees may cause us to materially increase compensation-related costs, including share-based compensation.

We are also dependent on the services of Mr. Eric Siliang Tan, our co-founder, chairman, chief executive officer and interim chief financial officer. Although Mr. Tan spends significant time with us and is active in the management of the Group’s business, he does not devote his full time and attention to us. If Mr. Tan reduces his time with us in the future and becomes less involved with the management of the Group’s business, we may no longer benefit from his extensive industry experience and the Group’s business and growth may suffer.

Our co-founder, chairman, chief executive officer and interim chief financial officer, Mr. Eric Siliang Tan, has control over us and our corporate matters. Our dual-class voting structure will limit your ability to influence corporate matters and could discourage others from pursuing any change of control transactions that holders of our Class A ordinary shares and ADSs may view as beneficial.

We have a dual-class share structure which consists of Class A ordinary shares and Class B ordinary shares. In respect of matters requiring the votes of shareholders, holders of Class B ordinary shares are entitled to ten (10) votes per share, subject to certain conditions, while holders of Class A ordinary shares are entitled to one vote per share. Each Class B ordinary share is convertible into one Class A ordinary share at any time by the holder thereof, while Class A ordinary shares are not convertible into Class B ordinary shares under any circumstances. Upon any transfer of Class B ordinary shares by a holder to any person or entity which is not an affiliate of such holder, each of such Class B ordinary shares shall be converted into one Class A ordinary share in accordance with our amended and restated memorandum and articles of association.

Our co-founder, chairman, chief executive officer and interim chief financial officer, Mr. Eric Siliang Tan, has control over us and our corporate matters. Mr. Tan beneficially owns 27,123,442 of our Class B ordinary shares through Innotech Group Holdings Ltd., a British Virgin Islands limited liability company which is ultimately controlled by him. As of the date of this annual report on Form 20-F, these Class B ordinary shares constituted approximately 41.2% of our total issued and outstanding share capital and 87.5% of the aggregate voting power of our total issued and outstanding share capital due to the disparate voting powers associated with our dual-class share structure. See “Item 6. Directors, Senior Management and Employees— C. Share Ownership.” As a result of the dual-class share structure and the concentration of ownership, Mr. Tan has considerable influence over matters such as decisions regarding mergers, consolidations and the sale of all or substantially all of our assets, election of directors and other significant corporate actions. This concentrated control will limit your ability to influence corporate matters and could also discourage others from pursuing any potential merger, takeover or other change of control transactions, which could have the effect of depriving the holders of our ordinary shares and the ADSs of the opportunity to sell their shares at a premium over the prevailing market price.

The Group has incurred and may continue to incur substantial share-based compensation expenses.

We have adopted an equity incentive plan that permits the grant of share options, restricted shares, restricted share units, dividend equivalents, share appreciation rights and share payments as equity-based awards, to our directors, officers, employees and consultants. The equity incentive plan replaced the 2017 equity incentive plan and 2018 equity incentive plan that we previously adopted in their entirety and assumed all awards granted under these two plans. The maximum aggregate number of ordinary shares that may be issued pursuant to all share options and other awards under our equity incentive plan was initially 12,464,141 Class A ordinary shares. On March 5, 2019, the Company increased the aggregate number of Class A ordinary shares reserved for issuance pursuant to awards granted under the equity incentive plan by 3.5% of the total number of Class A ordinary shares and Class B ordinary shares outstanding as of December 31, 2018. On every January 1 thereafter for four years, the aggregate number of Class A ordinary shares reserved and available for issuance pursuant to awards granted under the equity incentive plan will be increased by 2.0% of the total number of Class A ordinary shares and Class B ordinary shares outstanding on December 31 of the preceding calendar year. As of the date of this annual report on Form 20-F, options to purchase 6,041,461 Class A ordinary shares had been granted and were outstanding under our equity incentive plan. The Group is required to account for options granted to our employees, directors and consultants. The Group is required to classify options granted to our employees, directors and consultants as equity awards and recognize share-based compensation expense based on the fair value of such share options, with the share-based compensation expense recognized over the period in which the recipient is required to provide service in exchange for the share option or other equity award. In 2020, 2021 and 2022, RMB463.2 million, RMB200.2 million and RMB70.1 million (US$10.2 million) was recognized as share-based compensation expenses, respectively.

We believe the granting of share-based compensation is of significant importance to our ability to attract, retain and motivate our management team and talented employees, and we will continue to grant share-based compensation to employees in the future. As a result, the Group’s expenses associated with share-based compensation may increase significantly, which may have an adverse effect on the Group’s results of operations and financial condition. See Note 16 to our audited consolidated financial statements included elsewhere in this annual report.

Future investments in and acquisitions of complementary assets, technologies and businesses may fail and may result in equity or earnings dilution.

We may invest in or acquire assets, technologies and businesses that are complementary to the Group’s existing business. Our investments or acquisitions may not yield the results we expect. In addition, investments and acquisitions could result in the use of substantial amounts of cash, potentially dilutive issuances of equity securities, significant amortization expenses related to goodwill or intangible assets and exposure to potential unknown liabilities of the acquired business. Furthermore, if such goodwill or intangible assets become impaired, the Group may be required to record a significant charge to its results of operations. Such investments and acquisitions may also require our management team to devote a significant amount of attention. Moreover, the cost of identifying and consummating investments and acquisitions, and integrating the acquired businesses into the Group’s, may be significant, and the integration of acquired businesses may be disruptive to the Group’s existing business operations. In addition, we may have to obtain approval from the relevant PRC governmental authorities for the investments and acquisitions and comply with any applicable PRC rules and regulations, which may be costly. In the event our investments and acquisitions are not successful, the Group’s results of operations and financial condition may be materially and adversely affected.

We may not be able to adequately protect the Group’s intellectual property, which could cause the Group to be less competitive.

We regard the Group’s intellectual property as critical to its success. Such intellectual property includes trademarks, patents, domain names, copyrights, know-how and proprietary technologies. We currently rely on trademarks, copyrights, trade secret law and confidentiality, invention assignment and non-compete agreements with the Group’s employees and others to protect the Group’s proprietary rights. See “Item 4. Information on the Company— B. Business Overview— Intellectual Property” and “Item 4. Information on the Company— C. Regulations— Regulations Related to Intellectual Property Rights.” However, we cannot assure you that any of the Group’s intellectual property rights would not be challenged, invalidated or circumvented, or such intellectual property will be sufficient to provide us with competitive advantages. One of the Group’s competitors previously filed an objection when we applied for the trademark registration for “Qutoutiao” on the purported ground that “Qutoutiao” is similar to a trademark registered by such competitor. Although such objection was denied by the Trademark Office and we have successfully registered trademark for “Qutoutiao” in 2019, we have received a verdict in which the Trademark Office partially supported such competitor’s subsequent challenge against the validity of this registered trademark. We have brought administrative proceedings against the Trademark Office to dispute the verdict. We were supported by the Beijing Intellectual Property Court, which requires the Trademark Office to withdraw the verdict. However, the competitor appealed to the Higher People’s Court of Beijing in February 2022 and was partially supported by the Higher People’s Court of Beijing, which made our “Qutoutiao” deregistered on Category 42.

We will use our best efforts to maintain, protect and enforce the Group’s intellectual property rights. However, there can be no assurance that we will always prevail and the Group’s trademarks and other intellectual property will be fully protected. In addition, other parties may misappropriate the Group’s intellectual property rights, which would cause the Group to suffer economic or reputational damages. Because of the rapid pace of technological change, nor can we assure you that all of the Group’s proprietary technologies and similar intellectual property can be patented in a timely or cost-effective manner, or at all. Furthermore, parts of the Group’s business rely on technologies developed or licensed by other parties, or co-developed with other parties, and the Group may not be able to obtain or continue to obtain licenses and technologies from these other parties on reasonable terms, or at all.

It is often difficult to register, maintain and enforce intellectual property rights in China. Statutory laws and regulations are subject to judicial interpretation and enforcement and may not be applied consistently due to the lack of clear guidance on statutory interpretation. Confidentiality, invention assignment and non-compete agreements may be breached by counterparties, and there may not be adequate remedies available to us for any such breach. Accordingly, we may not be able to effectively protect the Group’s intellectual property rights or to enforce the Group’s contractual rights in China. Preventing any unauthorized use of the Group’s intellectual property is difficult and costly and the steps we take may be inadequate to prevent the misappropriation of the Group’s intellectual property. In the event that we resort to litigation to enforce the Group’s intellectual property rights, such litigation could result in substantial costs and a diversion of the Group’s managerial and financial resources. We can provide no assurance that we will prevail in such litigation. In addition, the Group’s trade secrets may be leaked or otherwise become available to, or be independently discovered by, the Group’s competitors. To the extent that the Group’s employees or consultants use intellectual property owned by others in their work for us, disputes may arise as to the rights in related know-how and inventions. Any failure in protecting or enforcing the Group’s intellectual property rights could materially and adversely affect the Group’s business, results of operations and financial condition.

The Group 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 the Group’s platform, or delivered to the Group’s users, which may materially and adversely affect the Group’s business, financial condition and prospects.

We may be subject to intellectual property infringement claims or other allegations by third parties for products or services on the Group’s platform, which may materially and adversely affect the Group’s business, financial condition and prospects.

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. The validity, enforceability and scope of protection of intellectual property rights in Internet-related industries, particularly in China, are uncertain and still evolving. As we face increasing competition and as litigation becomes more common in China in resolving commercial disputes, we face a higher risk of being the subject of intellectual property infringement claims.

The Group allows content providers to upload texts, images and videos on its platform. We have procedures designed 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 of copyrighted content. 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 the Group’s platform. As of the date of this annual report, the Group is in the process of defending certain claims against it for the alleged unauthorized content delivered, shared or otherwise accessed through the Group’s platform.

Defending intellectual property litigation 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 the Group’s platform to reduce the risk of future liability, may materially and adversely affect the Group’s business, financial condition and prospects.

If we fail to implement and maintain an effective system of internal control, we may be unable to accurately or timely report the Group’s results of operations or prevent fraud, and investor confidence and the market price of the ADSs may be materially and adversely affected.

We are subject to the reporting requirements of the Exchange Act and the Sarbanes-Oxley Act. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. We must perform system and process evaluation and testing of our internal control over financial reporting to allow management to report on the effectiveness of our internal control over financial reporting in our Form 20-F, as required by Section 404 of the Sarbanes-Oxley Act.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) under the Exchange Act). Our internal control system was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation and fair presentation of its published consolidated financial statements. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective may not prevent or detect misstatements and can provide only reasonable assurance with respect to financial statement preparation and presentation. 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. As required by Section 404 of the Sarbanes-Oxley Act of 2002 and related rules promulgated by the Securities and Exchange Commission, our management conducted an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2022. In making this assessment, it used the criteria established within the Internal Control— Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, our management has concluded that, as of December 31, 2022, our internal control over financial reporting was ineffective due to the material weakness identified below.

In accordance with reporting requirements set forth by the SEC, a “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our company’s annual or interim consolidated financial statements will not be prevented or detected on a timely basis. The material weakness, which was first identified in the course of preparing the Group’s consolidated financial statements for the year ended December 31, 2017, relates to the lack of sufficient financial reporting and accounting personnel with appropriate knowledge of U.S. GAAP and SEC reporting requirements to formalize key controls over financial reporting and to prepare consolidated financial statements and related disclosures. To remedy our previously identified material weakness, we have undertaken and will continue to undertake steps to strengthen our internal control over financial reporting, including: (i) hiring more qualified resources including financial controller, equipped with relevant U.S. GAAP and SEC reporting experience and qualifications to strengthen the financial reporting function and to set up a financial and system control framework, (ii) implementing regular and continuous U.S. GAAP accounting and financial reporting training programs for our accounting and financial reporting personnel, (iii) establishing effective oversight and clarifying reporting requirements for non-recurring and complex transactions to ensure consolidated financial statements and related disclosures are accurate, complete and in compliance with SEC reporting requirements, and (iv) enhancing an internal audit function as well as engaging an external consulting firm to help us assess our compliance readiness under rule 13a-15 of the Exchange Act and improve overall internal control. However, such measures have not been fully implemented and we concluded that the material weakness in our internal control over financial reporting had not been remediated as of December 31, 2022.

Since we qualified as an “emerging growth company” as defined under the JOBS Act as of December 31, 2022, this annual report on Form 20-F does not include an attestation report of our independent registered public accounting firm. Once we cease to be an “emerging growth company” as the term is defined in the JOBS Act, our independent registered public accounting firm must attest to and report on the effectiveness of our internal control over financial reporting. In the future, our management may conclude that our internal control over financial reporting is still not effective. Moreover, even if our management concludes that our internal control over financial reporting is effective, our independent registered public accounting firm, after conducting its own independent testing, may not reach the same conclusion. In addition, our reporting obligations may place a significant strain on our management, operational and financial resources and systems for the foreseeable future. We may be unable to timely complete our evaluation testing and any required remediation.

Our internal control over financial reporting will not prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud will be detected.

If we are unable to implement and maintain proper and effective internal control, we may not be able to produce timely and accurate financial statements. If that were to happen, the market price of the ADSs could decline and we could be subject to sanctions or investigations by the SEC or other regulatory authorities.

The discontinuation of any of the preferential tax treatments available to the Group in China could materially and adversely affect the Group’s results of operations and financial condition.

Under PRC tax laws and regulations, Shanghai Jifen, one of the Group VIEs, and Shanghai Chenxing Software Technology Co., Ltd., or Shanghai Chenxing, a subsidiary of Shanghai Quyun Network Technology Co., Ltd., or Shanghai Quyun, are both qualified to enjoy, certain preferential income tax benefits. The modified Enterprise Income Tax Law, effective on December 29, 2018, or the EIT Law, and its implementation rules generally impose a uniform income tax rate of 25% on all enterprises, but grant preferential treatment to “high and new technology enterprises strongly supported by the state”, or HNTEs, to enjoy a reduced enterprise tax rate of 15%. According to the relevant administrative measures, to qualify as a “HNTE”, Shanghai Jifen and Shanghai Chenxing must meet certain financial and non-financial criteria and complete verification procedures with the administrative authorities. Continued qualification as a “HNTE” is subject to review by the relevant government authorities in China once every three years, and in practice certain local tax authorities also require annual evaluation of the qualification. In addition to the foregoing tax benefit, Shanghai Chenxing is qualified to enjoy certain preferential value-added tax benefits, according to the Notice on Value-added Tax Policies for Software Products issued by the Ministry of Finance, or the MOF, and the State Administration of Taxation, or the SAT, on October 13, 2011. Apart from that, Shanghai Chenxing obtained the certificate of Qualified Software Enterprise. Once meeting other criteria, Shanghai Chenxing will be qualified to enjoy certain preferential enterprise income tax benefits, according to relevant rules, including the Notice on Enterprise Income Tax Policies for Further Encouraging the Development of Software and Integrated Circuit Industries issued by the MOF and the SAT on April 20, 2012, Notice on Relevant Issues concerning Preferential Enterprise Income Tax Policies for Enterprises in Software and Integrated Circuit Industries issued by the MOF, the SAT, the National Development and Reform Commission, or the NDRC, and the MIIT on May 4, 2016, and Announcement on the Enterprise Income Tax Policies for Promoting the High-quality Development of the Integrated Circuit Industry and the Software Industry jointly issued by the MOF, the SAT, the NDRC and the MIIT on December 11, 2020. In the event the preferential tax treatments for the entities are discontinued or are not verified by the local tax authorities, and the affected entity fails to obtain preferential tax treatments based on other qualifications such as Advanced Technology Service Enterprise, it will become subject to the standard tax rates and policies, including the PRC enterprise income tax rate of 25%. We cannot assure you that the tax authorities will not, in the future, discontinue any of the Group’s preferential tax treatments, potentially with retroactive effect.

User growth and engagement depend upon effective interoperation with operating systems, networks, devices and major mobile application distribution channels that the Group does not control.

We make the Group’s products and services available across a variety of mobile operating systems and through major mobile application distribution channels, namely app stores. We are dependent on the interoperability of the Group’s products and services with popular devices and mobile operating systems that the Group does not control, such as Android and iOS. We are also dependent on users’ ability to find and download the Group’s mobile applications through app stores operated by third parties, such as the Apple App Store and app stores operated by mobile phone manufacturers in China such as Huawei, Oppo, Vivo and Xiaomi.

Any changes in such operating systems, devices or mobile application distribution channels that degrade the functionality of the Group’s products and services or give preferential treatment to competitive products or services could adversely affect usage of the Group’s products and services. Further, if the number of platforms for which the Group develops its products increases, it will result in an increase in the Group’s costs and expenses. In order to deliver high-quality products and services, it is important that the Group’s products and services work well with a range of mobile operating systems and devices which the Group does not control. The various app stores also have their own rules and requirements that the Group’s mobile applications need to comply with for them to be included in the respective app stores. Such rules and requirements may change from time to time. There are no assurances that the Group’s mobile applications will be able to continue to meet these rules and requirements, which may result in their removal from the relevant app stores. Compliance with these rules and requirements may also prove to be costly or require change to the functionality of the Group’s mobile applications that may make them less desirable to users. We may not be successful in developing relationships with key participants in the mobile Internet industry or in developing products or services that operate effectively with these mobile operating systems, devices and mobile application distribution channels. In the event it is difficult for the Group’s users to access and use its products and services on their mobile devices, the Group’s user growth and user engagement could be harmed, and the Group’s business, results of operations and financial condition could be adversely affected.

The Group’s operations depend on the performance of the Internet infrastructure and fixed telecommunications networks in China.

Almost all access to the Internet in China is maintained through state-owned telecommunication operators under the administrative control and regulatory supervision of the Ministry of Industry and Information Technology, or the MIIT. Moreover, the Group primarily relies on a limited number of telecommunication service providers to provide the Group with data communications capacity through local telecommunications lines and Internet data centers to host the Group’s servers. The Group has 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. Internet 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 Shanghai are scarce. With the expansion of the Group’s business, it may be required to upgrade its technology and infrastructure to keep up with the increasing traffic on its platform. We cannot assure you that the Internet infrastructure and the fixed telecommunications networks in China will be able to support the demands associated with the continued growth in Internet usage. If we are unable to increase the Group’s online content and service delivering capacity accordingly, the Group may not be able to continuously grow its traffic, and the adoption of its products and services may be hindered, which could adversely impact the Group’s business and our share price.

In addition, we have no control over the costs of the services provided by telecommunication service providers. The Group’s information technology infrastructure cost increased as a result of our enriching the Group’s product offerings to include more engaging contents such as short videos, games and live-streaming. If the prices we pay for telecommunications and Internet services rise significantly, the Group’s business, results of operations and financial condition may be materially and adversely affected. Furthermore, if mobile Internet access fees or other charges to mobile 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 the Group’s user base and increase the Group’s attractiveness to online customers.

The Group’s business, results of operations and financial condition may be harmed by service disruptions, or by our failure to timely and effectively scale and adapt the Group’s existing technology and infrastructure.

We may experience service disruptions, outages and other performance problems due to a variety of factors, including infrastructure changes, human or software errors, hardware failure, capacity constraints due to an overwhelming number of people accessing the Group’s products and services simultaneously, computer viruses and denial of service, fraud and security attacks. Any disruption or failure in the Group’s infrastructure could hinder our ability to handle existing or increased traffic on the Group’s platform or cause us to lose content stored on the Group’s platform, which could significantly harm the Group’s business and our ability to retain existing users and attract new users.

As the number of the Group’s users increases and its users generate increasing volumes of user generated videos on the Group’s platform, and as we continue to diversify into new content formats, we may be required to expand and adapt the Group’s technology and infrastructure to continue to reliably store, analyze and deliver content. It may become increasingly difficult to maintain and improve the performance of the Group’s products and services, especially during peak usage times, as the Group’s products and services become more complex and the Group’s user traffic increases. In addition, because the Group leases its data center facilities, we cannot be assured that we will be able to expand the Group’s data center infrastructure to meet users’ demands in a timely manner, or on favorable economic terms. If the Group’s users are unable to access any of the Group’s mobile applications or we are not able to make information available rapidly on any of the Group’s mobile applications, or at all, users may become frustrated and seek other channels for their light entertainment needs, and may not return to the Group’s mobile applications or use the Group’s mobile applications as often in the future, or at all. This would negatively impact the Group’s ability to attract users and maintain high level of user engagement as well as the Group’s ability to attract advertising customers.

Legal or administrative proceedings or allegations of impropriety against us or our management could have a material adverse impact on the Group’s reputation, results of operation and financial condition.

We and members of our management may be subject to allegations or lawsuits brought by our competitors, individuals, government and regulatory authorities or other persons in the future. Any such lawsuit or allegation, with or without merit, or any perceived unfair, unethical, fraudulent or inappropriate business practice by the Group or perceived wrong-doing by any key member of our management team could harm our reputation and cause the Group’s user base to decline and distract our management from day-to-day operations of the Group’s. We cannot assure you that the Group or key members of our management team will not be subject to lawsuits or allegations of a similar nature in the future. Where we can make a reasonable estimate of the liability relating to pending litigation and determine that an adverse liability resulting from such litigation is probable, the Group will record a related contingent liability. As additional information becomes available, we will assess the potential liability and revise estimates as appropriate. In 2020, 2021 and 2022, the Group did not record any contingent liabilities relating to pending litigation. On August 20, 2020, we and certain of our current and former directors and officers were named as defendants in a putative shareholder class action lawsuit filed in the United States District Court for the Southern District of New York. This action is brought on behalf of a putative class of persons who purchased or acquired our securities pursuant or traceable to our September 2018 initial public offering or April 2019 secondary public offering, or otherwise acquired our securities between September 14, 2018 and December 16, 2020 or “the Putative Class Period.” The complaint alleges violations of Sections 11, 12(a)(2), and 15 of the Securities Act of 1933, Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder based on alleged materially false or misleading statements or omissions in offering documents and/or issued throughout the Putative Class Period. Lead Plaintiff was appointed, and a consolidated amended complaint was filed on January 15, 2021. We filed a motion to dismiss such amended complaint on March 16, 2021. Lead Plaintiff filed an opposition to the motion on May 17, 2021, and we filed a reply on July 1, 2021. A decision on the motion is pending. It is premature at this stage of the litigation to evaluate the likelihood of a favorable or unfavorable outcome. For instance, in 2022, one of our material subsidiaries and one of the Key VIEs paid fines of RMB82.8 million in aggregate as a result of alleged fraudulent advertisements that an advertising customer placed on the Group’s online platform. For a detailed description of these cases, please refer to “Item 8. Financial Information— A. Consolidated Statement and other Financial Information— Legal and Administrative Proceedings.”

When the Group records or revises our estimates of contingent liabilities in the future, the amount of our estimates may be inaccurate due to the inherent uncertainties relating to litigation. In addition, the outcomes of actions we institute against third parties may not be successful or favorable to us. Litigation and allegations against the Group or any of our management members, irrespective of their veracity, may also generate negative publicity that significantly harms our reputation, which may materially and adversely affect the Group’s user base and our ability to attract content providers and advertising customers. In addition to the related cost, managing and defending litigation and related indemnity obligations can significantly divert our management and the board of directors’ attention from operating the Group’s business. We may also need to pay damages or settle the litigation with a substantial amount of cash. All of these could have a material adverse impact on the Group’s reputation, results of operation and financial condition.

The Group may not have fully paid certain fees and surcharges in the past. As such, the Group may be subject to further scrutiny by the PRC tax authorities that may result in a finding which may subject the Group to additional taxes, fees and surcharges and fines or other penalties.

According to the Circular on Issues Relating to Cultural Undertaking Development Fee Policies and Administration of Levying and Collection Relating to Levying VAT in place of Business Tax, which was issued by the MOF and the SAT on March 28, 2016, or Circular 25, the provision of advertising services by advertising media agencies and outdoor advertisement business operators (including entities engaging in distribution, screening, promotion and exhibition of outdoor advertisements and other advertisements, as well as entities engaging in advertisement agency services) in China is subject to a cultural development fee. The fee was charged at an applicable rate of 3% of the net advertising revenues prior to June 30, 2019, which was reduced to 1.5% commencing on July 1, 2019, according to a preferential tax policy issued on June 12, 2019 by the government of Shanghai. The preferential policy is said to be in effect until December 31, 2024. The net advertising revenues refer to, as specified in Circular 25, the balance after deducting advertisement distribution fee paid to other advertising company or advertisement distributor, from the total tax inclusive price and out-of-pocket expenses obtained from provision of advertising and marketing services. Historically, the Group did not pay cultural development fees and surcharges for the part of the Group’s revenue that we did not consider as revenues from advertising services subject to Circular 25. Pursuant to the Announcement on the Supporting Tax and Fee Policy for Film Industry and Other Industries issued by the MOF and the SAT on May 13, 2020, the cultural development fee was waived from January 1, 2020 until December 31, 2020. Pursuant to the Announcement on the Extension of Certain Tax Preferential Policies in Response to COVID-19 Epidemic, the exemption period of the cultural development fee was extended until December 31, 2021. Although the Group has not been challenged by the tax authorities so far for our payment of cultural development fees and surcharges, it may face further scrutiny by the PRC tax authorities that may result in a conclusion that subjects the Group to additional taxes, fees and surcharges and substantially increases the Group’s taxes owed, thereby materially and adversely affecting the Group’s results of operations. As a result of not making adequate contributions, the Group may also be subject to fines or other penalties imposed by the relevant authorities pursuant to applicable laws and regulations.

A severe or prolonged downturn in the Chinese or global economy could materially and adversely affect the Group’s business, results of operations and financial condition.

Any prolonged slowdown in the Chinese or global economy may have a negative impact on the Group’s business, results of operations and financial condition. In particular, general economic factors and conditions in China or worldwide, including the general interest rate environment and unemployment rates, may affect advertising customers’ willingness to advertise or consumers’ willingness to spend on entertainment. Economic conditions in China 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 recovery from the lows of 2008 and 2009 has been uneven and is facing new challenges, including the escalation of the European sovereign debt crisis from 2011 and the slowdown of the Chinese economy since 2012. 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, including the United States and China. There have been concerns over unrest in North Korea, Ukraine, the Middle East and Africa, which have resulted in volatility in financial and other markets. There have also been concerns over the expected withdrawal of the United Kingdom from the European Union as well as concerns about the economic effect of the tensions in the relationship between the United States, China and neighboring Asian countries. If present Chinese and global economic uncertainties persist, the Group may have difficulty in attracting advertising customers or spending by consumers on entertainment. Additionally, continued turbulence in the international markets may adversely affect our ability to access the capital markets to meet liquidity needs.

We have limited business insurance coverage.

Insurance companies in China currently do not offer as extensive an array of insurance products as are offered by insurance companies in more developed economies. We do not have any business liability or disruption insurance coverage for the Group’s operations. Any uninsured business disruptions may result in the Group’s incurring substantial costs and diversion of resources, which could have an adverse effect on the Group’s results of operations and financial condition.

Risks Relating to Our Corporate Structure

We are not a Chinese operating company but a Cayman Island holding company with operations conducted by our operating subsidiaries and the Group VIEs based in China. We rely on contractual arrangements with the Group VIEs, especially the Key VIEs, and their respective shareholders to operate the Group’s business. For a description of these contractual arrangements, see “Item 4. —Information on the Company—D. Organizational Structure—Contractual Arrangements among Our Key WFOEs, the Key VIEs and Their Respective Shareholders.” The majority of the Group’s revenue is attributed to the Group VIEs and their subsidiaries. These contractual arrangements may be less effective than equity ownership in providing us with control over the Group VIEs. If the Group VIEs or their respective shareholders fail to perform their respective obligations under these contractual arrangements, our recourse to the assets held by the Group VIEs is indirect and we may have to incur substantial costs and expend significant resources to enforce such arrangements in reliance on legal remedies under PRC law. These remedies may not always be effective, particularly in light of uncertainties in the PRC legal system. Furthermore, in connection with litigation, arbitration or other judicial or dispute resolution proceedings, assets under the name of any of record holder of equity interest in the Group VIEs, including such equity interest, may be put under court custody. As a consequence, we cannot be certain that the equity interest will be disposed pursuant to the contractual arrangement or ownership by the record holder of the equity interest.

All of these contractual arrangements are governed by PRC law and provide for the resolution of disputes through arbitration in the PRC. Accordingly, these contracts would be interpreted in accordance with PRC laws and any disputes would be resolved in accordance with PRC legal procedures. The legal environment in the PRC is not as developed as in other jurisdictions, such as the U.S. As a result, uncertainties in the PRC legal system could limit our ability to enforce these contractual arrangements. In the event that we are unable to enforce these contractual arrangements, or if we suffer significant time delays or other obstacles in the process of enforcing these contractual arrangements, it would be very difficult to exert effective control over the Group VIEs, and our ability to conduct the Group’s business and the Group’s results of operations and financial condition may be materially and adversely affected. See “— Risks Relating to Doing Business in China—There are uncertainties regarding the interpretation and enforcement of PRC laws, rules and regulations. In addition, rules and regulations in China can change quickly with little advance notice.”

The arbitration provisions under these contractual arrangements have no effect on the rights of our shareholders to pursue claims against us under United States federal securities laws.

Furthermore, in connection with the share purchase agreement entered into with Shanghai Dongfang Newspaper Co., Ltd. and its subsidiaries, or collectively, The Paper, Shanghai Jifen has issued equity interests representing 1% of its enlarged share capital to Shanghai Xinpai Management Consulting Co., Ltd., or Shanghai Xinpai, an affiliate of The Paper, at a nominal price. However, Shanghai Xinpai is not a party to the contractual arrangements that are currently entered into among Shanghai Quyun and Shanghai Jifen and its shareholders. As such, despite the fact that we are still able to enjoy economic benefits and exercise effective control over Shanghai Jifen and its subsidiaries, in contrast to what we have been granted by other shareholders of Shanghai Jifen under the contractual arrangements, we are unable to purchase or have Shanghai Xinpai pledge such 1% equity interests in the same manner as agreed under existing contractual arrangements, nor have we been granted the authorization of voting rights over these 1% equity interests. We believe Shanghai Quyun, our wholly-owned PRC subsidiary, still controls and is the primary beneficiary of Shanghai Jifen as it continues to have a controlling financial interest in Shanghai Jifen pursuant to ASC 810-10-25-38A. See “Item 4. Information on the Company—D. Organizational Structure—Contractual Arrangements among Our Key WFOEs, the Key VIEs and Their Respective Shareholders—Supplemental Agreement to the Contractual Arrangements in Connection with The Paper.”

Any failure by the Group VIEs or their respective shareholders to perform their obligations under our contractual arrangements with them would materially and adversely affect the Group’s business.

We, through our subsidiaries and wholly foreign-owned enterprises in the PRC, have entered into a series of contractual arrangements with the Group VIEs and their respective shareholders. For a description of these contractual arrangements, see “Item 4. Information on the Company—D. Organizational Structure—Contractual Arrangements among Our Key WFOEs, the Key VIEs and Their Respective Shareholders.” If the Group VIEs or their respective shareholders fail to perform their respective obligations under these contractual arrangements, we may incur substantial costs and expend additional resources to enforce such arrangements. We may also have to rely on legal remedies under PRC laws, including seeking specific performance or injunctive relief, and claiming damages, which we cannot assure you will be effective under PRC laws. For example, if the shareholders of the Group VIEs were to refuse to transfer their equity interests in the Group VIEs to us or our designee when we exercise the purchase option pursuant to these contractual arrangements, or if they were otherwise to act in bad faith toward us, then we may have to take legal actions to compel them to perform their contractual obligations.

All the agreements under our contractual arrangements are governed by PRC laws and provide for the resolution of disputes through arbitration in China. Accordingly, these contracts would be interpreted in accordance with PRC laws 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. The contractual arrangements have not been tested in a court of law in China. There are very few precedents and little formal guidance as to how contractual arrangements in the context of a VIE should be interpreted or enforced under PRC laws. There remain significant uncertainties regarding the ultimate outcome of such arbitration should legal action become necessary. In addition, under PRC laws, rulings by arbitrators are final and parties cannot appeal arbitration results in court unless such rulings are revoked or determined unenforceable by a competent court. If the losing parties fail to carry out the arbitration awards within a prescribed time limit, the prevailing parties may only enforce the arbitration awards in PRC courts through arbitration award recognition proceedings, which would require additional expenses and delay. 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 the Group VIEs and relevant rights and licenses held by such VIEs which we require in order to operate the Group’s business, and our ability to conduct the Group’s business may be negatively affected. See “—Risks Related to Doing Business in China—There are uncertainties regarding the interpretation and enforcement of PRC laws, rules and regulations. In addition, rules and regulations in China can change quickly with little advance notice.”

The shareholders of the Group VIEs may have potential conflicts of interest with us, which may materially and adversely affect the Group’s business, results of operations and financial condition.

The interests of the shareholders of the Group VIEs in their capacities as such shareholders may differ from the interests of our company as a whole, as what is in the best interests of the Group VIEs, including matters such as whether to distribute dividends or to make other distributions to fund our offshore requirement, may not be in the best interests of our company. There can be no assurance that when conflicts of interest arise, any or all of these shareholders will act in the best interests of our company or those conflicts of interest will be resolved in our favor. In addition, these shareholders may breach or cause the Group VIEs and their subsidiaries to breach or refuse to renew the existing contractual arrangements with us.

Currently, we do not have arrangements to address potential conflicts of interest the shareholders of the Group VIEs may encounter, on the one hand, and as a beneficial owner of our company, on the other hand. We, however, could, at all times, exercise our option under the exclusive option agreement to cause them to transfer all of their equity ownership in the Group VIEs to a PRC entity or individual designated by us as permitted by the then applicable PRC laws. In addition, if such conflicts of interest arise, we could also, in the capacity of attorney-in-fact of the then-existing shareholders of the Group VIEs as provided under the power of attorney agreements, directly appoint new directors of the Group VIEs. We rely on the shareholders of the Group VIEs to comply with PRC laws and regulations, which protect contracts and provide that directors and executive officers owe a duty of loyalty to our company and require them to avoid conflicts of interest and not to take advantage of their positions for personal gains, and the laws of the Cayman Islands, which provide that directors have a duty of care and a duty of loyalty to act honestly in good faith with a view to our best interests. However, the legal frameworks of China and the Cayman Islands do not provide guidance on resolving conflicts in the event of a conflict with another corporate governance regime. If we cannot resolve any conflicts of interest or disputes between us and the shareholders of the Group VIEs, we would have to rely on legal proceedings, which could result in disruption of the Group’s business and subject us to substantial uncertainty as to the outcome of any such legal proceedings.

The PRC government regulates telecommunications-related businesses through strict business licensing requirements and other government regulations. These laws and regulations also include limitations on foreign ownership of PRC companies that engage in telecommunications-related businesses. Specifically, subject to undertakings for opening telecommunication industries made by China for joining WTO, foreign investors are not allowed to own more than a 50% equity interest in any PRC company engaging in value-added telecommunications businesses. It is required under the prior Provisions on the Administration of Foreign-Invested Telecommunications Enterprises, or the FITE Regulations, which were issued by the State Council on December 11, 2001, became effective on January 1, 2002 and amended and issued on February 6, 2016, that the primary foreign investor must also have experience and a good track record in providing value-added telecommunications services, or VATS, overseas. The FITE Regulations were amended on March 29, 2022 and became effective on May 1, 2022, among which, the previous requirement on experience and good track record has been cancelled. However, this modification is relatively new, uncertainties still exist in relation to its interpretation and implementation. In addition, foreign investors are prohibited from investing in enterprises engaging in internet cultural activities except for music.

Because we are an exempted company with limited liability incorporated in the Cayman Islands, we are classified as a foreign enterprise under PRC laws and regulations, and our wholly foreign-owned enterprise in the PRC is a foreign-invested enterprise, or FIE. Accordingly, our subsidiaries may not be eligible to operate VATS business in China. The Group conducts its business in China through the Group VIEs and their affiliates. Our PRC subsidiaries, Shanghai Quyun, Shanghai Zhicao Information Technology Co., Ltd., or Shanghai Zhicao and Hainan Mengbang Network Technology Co., Ltd., or Hainan Mengbang, have entered into a series of contractual arrangements with the Group VIEs and their respective shareholders, which enable us to (i) exercise effective control over the Group VIEs, (ii) receive substantially all of the economic benefits of the Group VIEs, and (iii) have an exclusive option to purchase all or part of the equity interests and assets in the Group 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 Group VIEs and hence consolidate its financial results as the Group VIEs under U.S. GAAP. For a description of these contractual arrangements, see “Item 4. Information on the Company — D. Organizational Structure — Contractual Arrangements among Our Key WFOEs, the Key VIEs and Their Respective Shareholders.”

We believe that the Group’s corporate structure and contractual arrangements comply with the current applicable PRC laws and regulations. Our PRC legal counsel, King & Wood Mallesons, based on its understanding of the relevant laws and regulations, is of the opinion that each of the contracts among our Key WFOEs, Key VIEs and their respective shareholders is valid, binding and enforceable in accordance with its terms. However, as there are substantial uncertainties regarding the interpretation and application of PRC laws and regulations, including the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rules, and the Telecommunications Regulations and the relevant regulatory measures concerning the telecommunications industry, there can be no assurance that the PRC government authorities, such as the MOFCOM or the MIIT, or other authorities that regulate Internet content providers and other participants in the telecommunications industry, would agree that our corporate structure or any of the above contractual arrangements comply with PRC licensing, registration or other regulatory requirements, with existing policies or with requirements or policies that may be adopted in the future. PRC laws and regulations governing the validity of these contractual arrangements are uncertain and the relevant government authorities have broad discretion in interpreting these laws and regulations.

If the Group’s corporate structure and contractual arrangements are deemed by the MIIT or the MOFCOM or other regulators having competent authority to be illegal, either in whole or in part, we may lose control of the Group VIEs and have to modify such structure to comply with regulatory requirements. However, there can be no assurance that we can achieve this without material disruption to the Group’s business. In addition, our ADSs may significantly decline in value or become worthless if we are unable to assert our contractual control over the assets of the Group VIEs. Further, if the Group’s corporate structure and contractual arrangements are found to be in violation of any existing or future PRC laws or regulations, the relevant regulatory authorities would have broad discretion in dealing with such violations, including:

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revoking the Group’s business and operating licenses;

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levying fines on us;

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confiscating any of the Group’s income that they deem to be obtained through illegal operations;

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shutting down the Group’s services;

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discontinuing or restricting the Group’s operations in China;

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imposing conditions or requirements with which the Group may not be able to comply;

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requiring us to change the Group’s corporate structure and contractual arrangements;

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restricting or prohibiting the Group’s use of the proceeds from overseas offering to finance the Group VIE’s business and operations; and

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taking other regulatory or enforcement actions that could be harmful to the Group’s business.

Furthermore, new PRC laws, rules and regulations may be introduced to impose additional requirements that may be applicable to our corporate structure and contractual arrangements. See “— Substantial uncertainties exist with respect to whether the controlling of PRC onshore variable interest entities by foreign investors via contractual arrangements will be recognized as ‘foreign investment’ and how it may impact the viability of the Group’s current corporate structure and operations.” Occurrence of any of these events could materially and adversely affect the Group’s business, results of operations and financial condition. In addition, if the imposition of any of these penalties or requirements to restructure our corporate structure causes us to lose the rights to direct the activities of the Group VIEs or our right to receive its economic benefits, we would no longer be able to consolidate the financial results of such VIEs in the Group’s consolidated financial statements. However, we do not believe that such actions would result in the liquidation or dissolution of our company, our wholly-owned subsidiaries in China or the Group VIEs or their subsidiaries. See “Item 4. Information on the Company — D. Organizational Structure — Contractual Arrangements among Our Key WFOEs, the Key VIEs and Their Respective Shareholders.”

Contractual arrangements in relation to the Group VIEs may be subject to scrutiny by the PRC tax authorities and they may determine that the Group VIEs owe additional taxes, which could negatively affect the Group’s results of operations and financial condition and the value of your investment.

Under applicable PRC laws and regulations, arrangements and transactions among related parties may be subject to audit or challenge by the PRC tax authorities. The PRC enterprise income tax law requires every enterprise in China to submit its annual enterprise income tax return together with a report on transactions with its related parties to the relevant tax authorities. The tax authorities may impose reasonable adjustments on taxation if they have identified any related party transactions that are inconsistent with arm’s length principles. We may face material and adverse tax consequences if the PRC tax authorities determine that the contractual arrangements among our wholly-owned PRC subsidiaries, Shanghai Quyun, Shanghai Zhicao and Hainan Mengbang, the Group VIEs and their respective shareholders were not entered into on an arm’s length basis in such a way as to result in an impermissible reduction in taxes under applicable PRC laws, regulations and rules, and adjust their income in the form of a transfer pricing adjustment. A transfer pricing adjustment could, among other things, result in a reduction of expense deductions recorded by Shanghai Quyun, Shanghai Zhicao, Hainan Mengbang or the Group VIEs for PRC tax purposes, which could in turn increase their tax liabilities without reducing their tax expenses. In addition, if our wholly-owned PRC subsidiaries, Shanghai Quyun, Shanghai Zhicao and Hainan Mengbang, request the shareholders of the Group VIEs to transfer their equity interests in the Group VIEs at nominal or no value pursuant to these contractual arrangements, such transfer could be viewed as a gift and subject the relevant subsidiaries to PRC income tax. Furthermore, the PRC tax authorities may impose late payment fees and other penalties on our PRC subsidiaries, Shanghai Quyun, Shanghai Zhicao and Hainan Mengbang, and the Group VIEs for adjusted but unpaid taxes according to applicable regulations. The Group’s financial position could be materially and adversely affected if the tax liabilities of our PRC subsidiaries, Shanghai Quyun, Shanghai Zhicao and Hainan Mengbang, and the Group VIEs increase, or if they are required to pay late payment fees and other penalties.

We may lose the ability to use and enjoy assets held by the Group VIEs that are material to the operation of the Group’s business if the entity goes bankrupt or becomes subject to a dissolution or liquidation proceeding.

The Group VIEs hold substantially all of the Group’s assets. Under the contractual arrangements, the Group VIEs may not and their respective shareholders may not cause it to, in any manner, sell, transfer, mortgage or dispose of its assets or its legal or beneficial interests in the business without our prior consent. However, in the event that the shareholders of the Group VIEs breach these contractual arrangements and voluntarily liquidate the Group VIEs, or the Group 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 continue some or all of the Group’s business activities, which could materially and adversely affect the Group’s business, results of operations and financial condition. If any of the Group VIEs undergoes a voluntary or involuntary liquidation proceeding, independent third-party creditors may claim rights to some or all of these assets, thereby hindering our ability to operate the Group’s business, which could materially and adversely affect the Group’s business, results of operations and financial condition.

If the custodians or authorized users of the Group’s controlling non-tangible assets, including chops and seals, fail to fulfill their responsibilities, or misappropriate or misuse these assets, the Group’s business and operations may be materially and adversely affected.

Under PRC law, legal documents for corporate transactions, including agreements and contracts that the Group’s business relies on, are executed using the chop or seal of the signing entity or with the signature of a legal representative whose designation is registered and filed with the relevant local branch of the SAMR. The Group generally executes legal documents by affixing chops or seals, rather than having the designated legal representatives sign the documents.

The Group has three major types of chops — corporate chops, contract chops and finance chops. The Group uses corporate chops generally for documents to be submitted to government agencies, such as applications for changing business scope, directors or company name, and for legal letters. The Group uses contract chops for executing leases and commercial contracts. The Group uses finance chops generally for making and collecting payments, including issuing invoices. Use of corporate chops and contract chops must be approved by our legal department and administrative department, and use of finance chops must be approved by our finance department. The chops of our subsidiaries and the Group VIEs and their subsidiaries are generally held by the relevant entities so that documents can be executed locally. Although we usually utilize chops to execute contracts, the registered legal representatives of our subsidiaries and the Group VIEs and their subsidiaries have the apparent authority to enter into contracts on behalf of such entities without chops, unless such contracts set forth otherwise.

In order to maintain the physical security of the Group’s chops, the Group generally has them stored in secured locations accessible only to the designated key employees of our legal, administrative or finance departments. The Group’s designated legal representatives generally do not have access to the chops. Although the Group has approval procedures in place and monitors its key employees, including the designated legal representatives of our subsidiaries and the Group VIEs and their subsidiaries, the procedures may not be sufficient to prevent all instances of abuse or negligence. There is a risk that the Group’s key employees or designated legal representatives could abuse their authority, for example, by binding our subsidiaries and the Group VIEs and their subsidiaries with contracts against our interests, as the Group would be obligated to honor these contracts if the other contracting party acts in good faith in reliance on the apparent authority of the Group’s chops or signatures of its legal representatives. If any designated legal representative obtains control of the chop in an effort to obtain control over the relevant entity, the Group would need to have a shareholder or board resolution to designate a new legal representative and to take legal action to seek the return of the chop, apply for a new chop with the relevant authorities, or otherwise seek legal remedies for the legal representative’s misconduct. If any of the designated legal representatives obtains and misuses or misappropriates the Group’s chops and seals or other controlling intangible assets for whatever reason, we could experience disruption to the Group’s normal business operations. The Group may have to take corporate or legal action, which could involve significant time and resources to resolve while distracting management from the Group’s operations, and the Group’s business and operations may be materially and adversely affected.

On March 15, 2019, the National People’s Congress of the PRC adopted the Foreign Investment Law, which came into force on January 1, 2020. The 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 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; (iv) the foreign investor invests through other approaches as stipulated by laws, administrative regulations or otherwise regulated by the State Council. The Foreign Investment Law keeps silent on how to define and regulate the VIEs, 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 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.

It is uncertain whether any of the businesses that the Group currently operates or plans to operate in the future through the Group VIEs would be on the “negative list” as updated by the governmental authority from time to time and therefore be subject to any foreign investment restrictions or prohibitions. If any of the businesses that we operate were in the “restricted” or “prohibited” category on the to-be-updated “negative list,” such determination would materially and adversely affect the value of the ADSs. We also face uncertainties as to whether the to-be-updated “negative list” would mandate further actions, such as MOFCOM market entry clearance, to be completed by companies with existing VIE structure and whether such clearance can be timely obtained, or at all. If we are not able to obtain any approval when required, the Group’s VIE structure may be regarded as invalid and illegal under the promulgated Foreign Investment Law, which may materially and adversely affect the Group’s business, results of operations and financial condition, for instance, we may not be able to (i) continue the Group’s business in China through our contractual arrangements with the Group VIEs, (ii) exert effective control over the Group VIEs, or (iii) consolidate the financial results of, and receive economic benefits from the Group VIEs under existing contractual arrangements.

In addition, our corporate governance practice may be materially impacted and our compliance costs could increase if we were considered as a FIE under the Foreign Investment Law. For instance, the Foreign Investment Law purports to impose stringent ad hoc and periodic information reporting requirements on foreign investors and the applicable FIEs. Any company found to be noncompliant with these information reporting obligations could potentially be subject to fines and/or administrative liabilities, according to the Foreign Investment Law.

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 the Group’s 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, the Group’s current corporate structure, corporate governance and business operations could be materially and adversely affected.

Risks Relating to Doing Business in China

Substantially all of the Group’s operations are conducted in the PRC and substantially all of the Group’s revenue is sourced from the PRC. Accordingly, the Group’s business, results of operations and financial condition are affected to a significant extent by economic, political and legal developments in the PRC.

The PRC economy differs from the economies of most developed countries in many respects, including the extent of government involvement, level of development, growth rate, control of foreign exchange and allocation of resources. Although the PRC government has implemented measures emphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive assets, and the establishment of improved corporate governance in business enterprises, a substantial portion of productive assets in China is still owned by the government. In addition, the PRC government continues to play a significant role in regulating industry development by impo

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