20-F

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 20-F

(Mark One)

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

OR

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

For the fiscal year ended December 31, 2022.

OR

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

OR

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

Date of event requiring this shell company report.………………………………

For the transition period from                      to                    

Commission file number: 001-38369

ZEPP HEALTH CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

N/A

(Translation of Registrant’s Name Into English)

Cayman Islands

(Jurisdiction of Incorporation or Organization)

Huami Global Innovation Center

Building B2, Zhong’an Chuanggu Technology Park

No. 900 Wangjiang West Road

Hefei, 230088

People’s Republic of China

(Address of Principal Executive Offices)

Leon Cheng Deng, Chief Financial Officer

Huami Global Innovation Center

Building B2, Zhong’an Chuanggu Technology Park

No. 900 Wangjiang West Road

Hefei, 230088

People’s Republic of China

Phone: +86 010 5940 3251

Email: ir@zepp.com

(Name, Telephone, Email and/or Facsimile number and Address of Company Contact Person)

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

Title of Each Class	Trading Symbol(s)	Name of Each Exchange On Which Registered
American depositary shares (each representing four Class A ordinary shares, par value US$0.0001 per share) Class A ordinary shares, par value US$0.0001 per shares*	ZEPP	New York Stock Exchange

*Not for trading, but only in connection with the listing of the American depositary shares on the New York Stock Exchange.

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

None

(Title of Class)

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

None

(Title of Class)

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

As of December 31, 2022, there were (i) 128,130,440 Class A ordinary shares issued and outstanding, par value US$0.0001 per share (excluding the 5,616,956 Class A ordinary shares issued to the depositary bank for bulk issuance of ADSs reserved for future issuances upon the exercise or vesting of awards granted under the 2015 Share Incentive Plan, the 2018 Share Incentive Plan and the 2023 Share Incentive Plan and the 12,875,736 treasury shares in the form of ADSs that we repurchased under our share repurchase program), and (ii) 117,208,247 Class B ordinary shares issued and outstanding, par value US$0.0001 per share.

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

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

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

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See 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 financial statements. ☐

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

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

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

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

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

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

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

TABLE OF CONTENTS

INTRODUCTION		1
FORWARD-LOOKING STATEMENTS		2
PART I		3
ITEM 1.	IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS	3
ITEM 2.	OFFER STATISTICS AND EXPECTED TIMETABLE	3
ITEM 3.	KEY INFORMATION	3
ITEM 4.	INFORMATION ON THE COMPANY	61
ITEM 4A.	UNRESOLVED STAFF COMMENTS	92
ITEM 5.	OPERATING AND FINANCIAL REVIEW AND PROSPECTS	92
ITEM 6.	DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES	107
ITEM 7.	MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS	120
ITEM 8.	FINANCIAL INFORMATION	122
ITEM 9.	THE OFFER AND LISTING	123
ITEM 10.	ADDITIONAL INFORMATION	124
ITEM 11.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	136
ITEM 12.	DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES	136
PART II		138
ITEM 13.	DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES	138
ITEM 14.	MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS	138
ITEM 15.	CONTROLS AND PROCEDURES	138
ITEM 16A.	AUDIT COMMITTEE FINANCIAL EXPERT	139
ITEM 16B.	CODE OF ETHICS	139
ITEM 16C.	PRINCIPAL ACCOUNTANT FEES AND SERVICES	140
ITEM 16D.	EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES	140
ITEM 16E.	PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS	140
ITEM 16F.	CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT	141
ITEM 16G.	CORPORATE GOVERNANCE	141
ITEM 16H.	MINE SAFETY DISCLOSURE	141
ITEM 16I.	DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS	141
PART III		141
ITEM 17.	FINANCIAL STATEMENTS	141
ITEM 18.	FINANCIAL STATEMENTS	141
ITEM 19.	EXHIBITS	142

i

INTRODUCTION

Unless otherwise indicated and except where the context otherwise requires, in this annual report on Form 20-F:

● “ADSs” refer to our American depositary shares, each of which represents four Class A ordinary shares;

● “ADRs” refer to the American depositary receipts that evidence our ADSs;

● “China” or the “PRC” refers to the People’s Republic of China, excluding, for the purpose of this annual report only, Hong Kong, Macau and Taiwan;

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

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

● “Memorandum and Articles” refer to the second amended and restated memorandum of association and articles of association adopted by a special resolution passed on January 12, 2018 and effective on February 12, 2018;

● “Mobile App MAUs” refer to monthly active users of our mobile apps, which are represented by the number of accounts that have been logged into on our mobile apps during a given calendar month. The numbers of our Mobile App MAUs are calculated using internal company data that have not been independently verified. It is possible that some users may have set up more than one account;

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

● “Our platform” refers to the products and mobile apps that we provide to users and platform partners;

● “the VIEs” refer to Anhui Huami Information Technology Co., Ltd. and Huami (Beijing) Information Technology Co., Ltd., each of which is a company incorporated in the PRC;

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

● “Shunyuan Kaihua” or “our WFOE” refers to Beijing Shunyuan Kaihua Technology Co., Ltd., a wholly owned foreign enterprise incorporated with limited liability in the PRC;

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

● “Xiaomi” refers to Xiaomi Corporation;

● “Xiaomi Wearable Products” refer to Xiaomi-branded smart bands, watches (excluding children watches and quartz watches), scales and associated accessories;

● “Zepp,” “we,” “us,” “our company” or “our” refer to Zepp Health Corporation, our Cayman Islands holding company, and its subsidiaries, and, in the context of describing our operations and consolidated financial information, the VIEs in China, including Anhui Huami Information Technology Co., Ltd. and Huami (Beijing) Information Technology Co., Ltd., and their subsidiaries; and

● “U.S. GAAP” refers to generally accepted accounting principles in the United States.

1

FORWARD-LOOKING STATEMENTS

This annual report on Form 20-F contains forward-looking statements that relate to our current expectations and views of future events. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements. These statements are made under the “safe harbor” provisions of the U.S. Private Securities Litigations Reform Act of 1995.

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

● our goals and strategies;

● our future business development, financial conditions and results of operations;

● the expected growth of the smart wearable devices industry;

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

● our expectations regarding our relationships Xiaomi, our other distributors, customers, contract manufacturers, component suppliers, strategic partners and other stakeholders;

● regulatory and operating conditions in the geographical markets in which we operate;

● competition in our industry; and

● relevant government policies and regulations relating to our industry.

You should read this annual report and the documents that we refer to in this annual report and have filed as exhibits to this annual report completely and with the understanding that our actual future results may be materially different from what we expect. Other sections of this annual report discuss factors which could adversely impact our business and financial performance. Moreover, we operate in an evolving environment. New risk factors emerge from time to time and it is not possible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. We qualify all of our forward-looking statements by these cautionary statements.

You should not rely upon forward-looking statements as predictions of future events. The forward-looking statements made in this annual report relate only to events or information as of the date on which the statements are made in this annual report. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events.

Unless otherwise noted, all translations from Renminbi to U.S. dollars and from U.S. dollars to Renminbi in this annual report are made at a rate of RMB6.8972 to US$1.00, the exchange rate in effect as of December 30, 2022 as set forth in the H.10 statistical release of The Board of Governors of the Federal Reserve System. We make no representation that any Renminbi or U.S. dollar amounts could have been, or could be, converted into U.S. dollars or Renminbi, as the case may be, at any particular rate, or at all.

2

PART I

ITEM 1.              IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

ITEM 2.              OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3.              KEY INFORMATION

Our Holding Company Structure and Contractual Arrangements with the VIEs

Zepp Health Corporation is not a Chinese operating company but a Cayman Islands holding company with no equity ownership in its consolidated variable interest entities, or VIEs. We conduct our operations in China through (i) our PRC subsidiaries and (ii) the VIEs with which we have maintained contractual arrangements and their subsidiaries in China. PRC laws and regulations impose certain restrictions or prohibitions on foreign ownership of companies that engage in developing substantial proprietary technology to produce consumer health and fitness devices. Accordingly, we operate these businesses in China through the VIEs and their subsidiaries, and rely on contractual arrangements among our PRC subsidiaries, the VIEs and their nominee shareholders to control the business operations of the VIEs. The VIEs are consolidated for accounting purposes, but are not entities in which our Cayman Islands holding company, or our investors, own equity. Revenues contributed by the VIEs accounted for 97.9%, 83.5% and 61.2% of our total revenues for the years ended December 31, 2020, 2021 and 2022, respectively. As used in this annual report, “Zepp,” “the Parent,” “we,” “us,” “our company” or “our” refers to Zepp Health Corporation, its subsidiaries, and, in the context of describing our consolidated financial information, the consolidated VIEs and their subsidiaries in China. “Consolidated VIEs” refer to Anhui Huami Information Technology Co., Ltd. and Huami (Beijing) Information Technology Co., Ltd., each of which is a company incorporated in the PRC. Investors in our ADSs thus are not purchasing equity interest in the consolidated VIEs in China but instead are purchasing equity interest in Zepp Health Corporation, a Cayman Islands holding company.

A series of contractual agreements, including loan agreement, equity pledge agreements, exclusive option agreements, exclusive consultation and service agreements, shareholder voting proxy agreements and powers of attorney, have been entered into by and among our subsidiaries, the VIEs and their respective shareholders. Terms contained in each set of contractual arrangements with the VIEs and their respective shareholders are substantially similar. As a result, despite the lack of equity ownership, Zepp Health Corporation is considered the primary beneficiary of the VIEs for accounting purposes as required by Accounting Standards Codification topic 810, Consolidation. Accordingly, we treat the VIEs as the consolidated entities under U.S. GAAP and we consolidate the financial results of the VIEs in our consolidated financial statements in accordance with U.S. GAAP. For more details of these contractual arrangements, see “Item 4. Information on the Company—C. Organizational Structure.”

However, the contractual arrangements may not be as effective as direct ownership in providing us with control over the VIEs and we may incur substantial costs to enforce the terms of the arrangements. Uncertainties in the PRC legal system may limit our ability, as a Cayman Islands holding company, to enforce these contractual arrangements. Meanwhile, the contractual arrangements with the VIEs and their respective shareholders have not been tested in a court of law. There are very few precedents as to whether contractual arrangements would be judged to form effective control over the relevant VIEs through the contractual arrangements, or how contractual arrangements in the context of a VIE should be interpreted or enforced by the PRC courts. Should legal actions become necessary, we cannot guarantee that the court will rule in favor of the enforceability of the VIE contractual arrangements. In the event we are unable to enforce these contractual arrangements, or if we suffer significant delay or other obstacles in the process of enforcing these contractual arrangements, we may not be able to exert effective control over the VIEs, and our ability to conduct our business may be materially adversely affected. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure—We rely on contractual arrangements with the VIEs and their shareholders for a large portion of our business operations, which may not be as effective as direct ownership in providing operational control” and “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure—The shareholders of the VIEs may have potential conflicts of interest with us, which may materially and adversely affect our business and financial condition.”

3

There are also substantial uncertainties regarding the interpretation and application of current and future PRC laws, regulations and rules regarding the status of the rights of our Cayman Islands holding company with respect to its contractual arrangements with the VIEs and their nominee shareholders. It is uncertain whether any new PRC laws or regulations relating to variable interest entity structures will be adopted or if adopted, what they would provide. If we or any of the VIEs is found to be in violation of any existing or future PRC laws or regulations, or fail to obtain or maintain any of the required permits or approvals, the relevant PRC regulatory authorities would have broad discretion to take action in dealing with such violations or failures. If the PRC government deems that our contractual arrangements with the VIEs do not comply with PRC regulatory restrictions on foreign investment in the relevant industries, or if these regulations or the interpretation of existing regulations change or are interpreted differently in the future, we could be subject to severe penalties or be forced to relinquish our interests in those operations. Our Cayman Islands holding company, our PRC subsidiaries and VIEs, and investors of our company face uncertainty about potential future actions by the PRC government that could affect the enforceability of the contractual arrangements with the VIEs and, consequently, significantly affect the financial performance of the VIEs and our company as a whole. The PRC regulatory authorities could disallow the VIE structure, which would likely result in a material adverse change in our operations, and our Class A ordinary shares or our ADSs may decline significantly in value or become worthless. As such, the VIE structure involves unique risks to our investors. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure—If the PRC government finds that the agreements that establish the structure for operating some of our operations in China do not comply with PRC regulations relating to the relevant industries, or if these regulations or the interpretation of existing regulations change in the future, we could be subject to severe penalties or be forced to relinquish our interests in those operations” and “—Our current corporate structure and business operations may be affected by the newly enacted Foreign Investment Law.”

We face various legal and operational risks and uncertainties associated with being based in or having our operations primarily in China and the complex and evolving PRC laws and regulations. For example, we face risks associated with the fact that the PRC government has significant authority in regulating our operations and may influence or intervene in our operations at any time, regulatory approvals or filing procedures on overseas offerings or listings by, and foreign investment in, China-based issuers, anti-monopoly regulatory actions, oversight on data security and the use of variable interest entities. In particular, the PRC regulatory and enforcement regime with regard to data security and data protection is evolving and may be subject to different interpretations or significant changes. Any failure to comply with applicable data security and privacy related regulations could result in regulatory enforcement actions against us, and the misuse of or failure to secure personal information could also result in violation of data privacy laws and regulations, proceedings against us by governmental entities or others, damage our reputation and credibility and could have a negative impact on our financial performance.

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

Risks and uncertainties arising from the legal system in China, including risks and uncertainties regarding the enforcement of laws and quickly evolving rules and regulations in China, could result in a material adverse change in our operations and the value of our ADSs. For more details, see “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—Uncertainties with respect to the PRC legal system and changes in laws and regulations in China could adversely affect us, and any lack of requisite approvals, licenses or permits applicable to our business may have a material adverse effect on our business and results of operations.”

4

The Holding Foreign Companies Accountable Act

Pursuant to the Holding Foreign Companies Accountable Act, or the HFCAA, if the SEC determines that we have filed audit reports issued by a registered public accounting firm that has not been subject to inspections by the PCAOB for two consecutive years, the SEC will prohibit our shares or the ADSs from being traded on a national securities exchange or in the over-the-counter trading market in the United States. On December 16, 2021, the PCAOB issued a report to notify the SEC of its determination that the PCAOB was unable to inspect or investigate completely registered public accounting firms headquartered in mainland China and Hong Kong, including our auditor. In May 2022, the SEC conclusively listed us as a Commission-Identified Issuer under the HFCAA following the filing of this annual report on Form 20-F for the fiscal year ended December 31, 2021. On December 15, 2022, the PCAOB issued a report that vacated its December 16, 2021 determination and removed mainland China and Hong Kong from the list of jurisdictions where it is unable to inspect or investigate completely registered public accounting firms. For this reason, we do not expect to be identified as a Commission-Identified Issuer under the HFCAA after we file this annual report on Form 20-F. Each year, the PCAOB will determine whether it can inspect and investigate completely audit firms in mainland China and Hong Kong, among other jurisdictions. If PCAOB determines in the future that it no longer has full access to inspect and investigate completely accounting firms in mainland China and Hong Kong and we continue to use an accounting firm headquartered in one of these jurisdictions to issue an audit report on our financial statements filed with the Securities and Exchange Commission, we would be identified as a Commission-Identified Issuer following the filing of the annual report on Form 20-F for the relevant fiscal year. There can be no assurance that we would not be identified as a Commission-Identified Issuer for any future fiscal year, and if we were so identified for two consecutive years, we would become subject to the prohibition on trading under the HFCAA. For more details, see “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—The PCAOB had historically been unable to inspect our auditor in relation to their audit work performed for our financial statements and the inability of the PCAOB to conduct inspections of our auditor in the past has deprived our investors with the benefits of such inspections.” and “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—Our ADSs may be prohibited from trading in the United States under the HFCAA in the future if the PCAOB is unable to inspect or investigate completely auditors located in China. The delisting of the ADSs, or the threat of their being delisted, may materially and adversely affect the value of your investment.”

Cash Flows through Our Organization

Zepp Health Corporation, our Cayman Islands holding company, or the Parent, may transfer cash to our wholly-owned Hong Kong subsidiary by making capital contributions or providing intra-group loans. Our Hong Kong subsidiary, in turn, may transfer cash to our PRC subsidiaries by making capital contributions or providing intra-group loans to them, provided that the statutory procedures under the PRC laws and regulations have been complied with. If our PRC subsidiaries realize accumulated after-tax profits, they may, upon satisfaction of relevant statutory conditions and procedures, pay dividends or distribute earnings to our Hong Kong Subsidiary. Our Hong Kong subsidiary, in turn, may transfer cash to the Parent through dividends or other distributions. With necessary funds, the Parent may pay dividends or make other distributions to U.S. investors and service any debt it may have incurred outside of the PRC. In addition, in the ordinary course of our business, Anhui Huami, one of the VIEs, sells our smart wearable products to Galaxy Trading Platform Limited, our intermediary company in Hong Kong, which in turn sells the products to overseas third parties. Anhui Huami also sells products to Zepp North America Inc. and Zepp Netherlands Trading B.V. through an independent customs clearance agency for the products to be distributed to local distributors and consumers in the U.S. and Europe, respectively. These entities settle payments of the smart wearable products in accordance with the specific transaction value and payment terms under the relevant contracts.

Because the Parent and its subsidiaries consolidate the financial results of the VIEs through contractual arrangements, they are not able to make direct capital contribution to the VIEs and its subsidiaries. However, they may transfer cash to the VIEs by loans or by making payment to the VIEs for intra-group transactions. The VIEs may transfer cash to our WFOEs by paying service fees according to the exclusive business cooperation agreements entered into by and among our WFOEs, the VIEs and their respective shareholders. Pursuant to these agreements between each of the VIEs and the corresponding WFOE, each of the VIEs agrees to pay the relevant WFOE (i) service fee at an amount that is equal to 100% of the net income of the VIE under local GAAP for the relevant year, which is subject to adjustments both upward and downward in accordance with the WFOE’s sole discretion, and (ii) service fee for certain other technical services provided to the VIE by the WFOE, the amount of which is to be mutually agreed between the VIE and the WFOE when such services are rendered, based on the nature and workload of such services. In the future, we plan to retain our sole discretion to determine the specific amount of the service fees payable by the VIEs pursuant to the contractual arrangements, and to obtain the earnings of the VIEs through charging service fees and collect the payments from the VIEs, taking into consideration of the business growth and working capital needs of the WFOEs and the VIEs. For details of the financial position, cash flows and results of operations of the VIEs, see “Financial Information Related to the VIEs.”

5

We have established stringent controls and procedures for cash flows within our organization. We have a centralized cash management system in place, consisting of a series of manuals and policies on funds management, bank accounts management, financing activities and safe handling of cash and assets. The system ensures that every fund transfer between our Cayman Islands holding company and a subsidiary, the VIEs or the subsidiaries of the VIEs goes through an appropriate review and approval process. The cash of our group is under the unified management of our finance department. Each cash requirement with intercompany transaction agreements, after analyzed by the specialist in the treasury department, is reviewed by the head of treasury department and the group finance controller. After such cash requirement is approved by the two responsible persons, the head of treasury department approves the cash transfer to the relevant operating entities. Besides, we have made offshore and onshore cash pooling arrangements with banks, which allow us to centralize our intra-group cash management across various subsidiaries. Account transfers are performed automatically between the accounts of the pool leader and the other pool participants, which are our operating entities. Our offshore entities outside of the mainland of China with the function of centralized cash management in offshore cash pooling arrangement mainly include Galaxy Trading Platform Ltd., our intermediate Hong Kong company acting as the pool leader, our subsidiaries in North America and our subsidiaries in Europe. In addition, entities within the mainland of China that participate in cash pooling arrangement with similar functions mainly include Shunyuan Kaihua (the WFOE and the primary beneficiary of the VIEs), Shanghai Shengyin Technology Co., Ltd. (a wholly-owned subsidiary of Shunyuan Kaihua) and Anhui Huami (a consolidated VIE). The centralized cash management function in these entities lead to daily cash transferred and dispatched to the remaining consolidated subsidiaries and consolidated VIEs. We have complied with the applicable laws and regulations for the operation of such cash centralized management accounts and completed necessary registration and approval procedures with relevant governmental authorities. The cash inflows of the Cayman Islands holding company were primarily generated from the proceeds we received from our public offerings of ordinary shares and other financing activities. The following table sets forth the amount of the transfers for the periods presented.

	Years Ended December 31,
	2020	2021	2022
	(RMB in thousands)
Cash transferred from Hong Kong company to PRC subsidiaries, the VIEs and the subsidiaries of the VIEs	19,575	70,099	(40,544)
Net cash paid by the VIEs to our subsidiaries in operating activities	(605,423)	374,705	(486,252)
Net cash received/(paid) by the VIEs (to)/from our subsidiaries in investing activities	(597,614)	(290,767)	—

For more details, see the condensed consolidating schedule and consolidated financial statements under “Financial Information Related to the VIEs.” Except the transactions described above, for the years ended December 31, 2020, 2021 and 2022, no assets other than cash were transferred between the Cayman Islands holding company and a subsidiary or a VIE, no subsidiaries or VIE paid dividends or made other distributions to the holding company, and no dividends or distributions were paid or made to U.S. investors. Through the contractual arrangements, the VIEs may transfer cash to the WFOEs by paying service fees according to the exclusive business cooperation agreements entered into by and among the WFOEs, the VIEs and their respective shareholders. Pursuant to these agreements between each of the VIEs and the corresponding WFOE, each of the VIEs agrees to pay the relevant WFOE (i) service fee at an amount that is equal to 100% of the net income of the VIE under local GAAP for the relevant year, which is subject to adjustments both upward and downward in accordance with the WFOE’s sole discretion, and (ii) service fee for certain other technical services provided to the VIE by the WFOE. If and when such other technical services are provided, the amount to be charged is to be mutually agreed between the VIEs and the WFOEs based on the nature and workload of the services. Historically, the WFOE has not charged such service fees, and as such, there is currently no fees to be settled under the contractual arrangements. In April 2022, our Cayman Islands holding company declared and distributed cash dividends with the amount of approximately US$6.30 million to its shareholders and ADS holders, which was funded by surplus cash on our balance sheet. Other than the cash dividends paid in April 2022, we currently intend to retain our available funds and any future earnings to operate and expand our business.

6

As a Cayman Islands holding company, we may receive dividends from our PRC subsidiaries. Under the Enterprise Income Tax Law of the PRC, or the EIT Law, and its implementation rules, dividends generated after January 1, 2008 and payable by a foreign-invested enterprise in China to its foreign enterprise investors are subject to a 10% withholding tax, unless any such foreign investor’s jurisdiction of incorporation has a tax treaty with China that provides for a different withholding arrangement. Dividends paid by our wholly foreign-owned subsidiary in China to our intermediate holding company in Hong Kong will be subject to a withholding tax rate of 10%, unless the relevant Hong Kong entity satisfies all the requirements under the China-HK Taxation Arrangement. Effective from January 1, 2020, if our Hong Kong subsidiary satisfies all the requirements under such arrangement, the dividends paid to the Hong Kong subsidiary would be subject to withholding tax at the standard rate of 5%. It could obtain such entitlement by itself at the time of making tax returns, or at the time of making withholding declarations via withholding agents. At the same time, the Hong Kong entity shall collect, gather and retain relevant materials for future reference in accordance with applicable rules, and shall accept the follow-up administration of tax authorities. However, we cannot assure you that we will be able to enjoy the preferential withholding tax rate of 5% under the China-HK Taxation Arrangement. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—We may rely on dividends and other distributions on equity paid by our PRC subsidiaries to fund any cash and financing requirements we may have, and any limitation on the ability of our PRC subsidiaries to make payments to us could have a material and adverse effect on our ability to conduct our business” for more details. If our holding company in the Cayman Islands or any of our subsidiaries outside of China were deemed to be a “resident enterprise” under the PRC Enterprise Income Tax Law, it would be subject to enterprise income tax on its worldwide income at a rate of 25%. See “Risk Factors—If we are classified as a PRC resident enterprise for PRC income tax purposes, such classification could result in unfavorable tax consequences to us and our non-PRC shareholders or ADS holders.”

For purposes of illustration, the following discussion reflects the hypothetical taxes that might be required to be paid within China, assuming that: (i) we have taxable earnings, and (ii) we determine to pay dividends in the future.

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

Notes:

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

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

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

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

7

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

Under PRC laws and regulations, we are subject to restrictions on foreign exchange and cross-border cash transfers, including to U.S. investors. Our ability to distribute earnings to the holding company and U.S. investors is also limited. We are a Cayman Islands holding company and we may rely on dividends and other distributions on equity paid by our PRC subsidiary, which in turn relies on consulting and other fees paid to us by the VIEs, for our cash and financing requirements, including the funds necessary to pay dividends and other cash distributions to our shareholders and service any debt we may incur. When any of our PRC subsidiary incurs debt on its own behalf, the instruments governing the debt may restrict its ability to pay dividends or make other distributions to us.

Our subsidiaries’ ability to distribute dividends is based upon their distributable earnings. Current PRC regulations permit our PRC subsidiaries to pay dividends to their respective shareholders only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, each of our PRC subsidiaries and the VIEs and their subsidiaries is required to set aside at least 10% of its after-tax profits each year, if any, to fund a statutory reserve until such reserve reaches 50% of its registered capital. Each of such entities in China is also required to further set aside a portion of its after-tax profits to fund the employee welfare fund, although the amount to be set aside, if any, is determined at the discretion of its board of directors. These reserves are not distributable as cash dividends.

In addition, our PRC subsidiaries, the 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. For more details, see “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—PRC regulation of loans to and direct investment in PRC entities by offshore holding companies and governmental control of currency conversion may delay or prevent us from using the proceeds of our initial public offering and our ADS offering in April 2019 to make loans or additional capital contributions to our PRC subsidiaries, which could materially and adversely affect our liquidity and our ability to fund and expand our business.”

Permissions Required from the PRC Authorities for Our Operations

We conduct our business primarily through our subsidiaries and VIEs in China. Our operations in China are governed by PRC laws and regulations. As of the date of this annual report, our PRC subsidiaries, VIEs and their subsidiaries have obtained the requisite licenses and permits from the PRC government authorities that are material for the business operations of our holding company, the VIEs in China, including, among others, the Business License, the ICP License, the Insurance Brokerage License, etc. Given the uncertainties of interpretation and implementation of relevant laws and regulations and the enforcement practice by relevant government authorities, we may be required to obtain additional licenses, permits, filings or approvals for the functions and services of our platform in the future. Any failure to obtain or delay in obtaining such permissions or approvals, or a rescission of any such approval if obtained by us, would subject us to sanctions by the applicable PRC regulatory authorities. These regulatory authorities may impose fines and penalties on our operations in China, limit our ability to pay dividends outside of China, limit our operating privileges in China, delay or restrict the repatriation of the proceeds from our offshore offerings into China or take other actions that could materially and adversely affect our business, financial condition, results of operations, and prospects, as well as the trading price of our ADSs. For more detailed information, see “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—Uncertainties with respect to the PRC legal system and changes in laws and regulations in China could adversely affect us, and any lack of requisite approvals, licenses or permits applicable to our business may have a material adverse effect on our business and results of operations.”

8

Furthermore, in connection with offering and listing in an overseas market, we, our PRC subsidiaries and the VIEs, under the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Companies (the “Trial Measures”) as well as five supporting guidelines, released by the China Securities Regulatory Commission, or the CSRC, on February 17, 2023, and took effect on March 31, 2023, may be required to fulfill filing procedures with and report material events to the CSRC, and under the Measures for Cybersecurity Review, which is effective on February 15, 2022, as well as its relevant laws, regulations and regulatory rules, may be required to go through cybersecurity review by the Cyberspace Administration of China, or the CAC. As of the date of this annual report, we have not received or were denied such requisite approval by the CSRC, nor have we been subject to any cybersecurity review made by the CAC. If we fail to obtain the relevant approval or complete other filing procedures, we may face sanctions by the CSRC or other PRC regulatory authorities, which may include fines and penalties on our operations in China, limitations on our operating privileges in China, restrictions on or prohibition of the payments or remittance of dividends by our subsidiaries in China, or other actions that could have a material and adverse effect on our business, financial condition, results of operations, reputation and prospects, as well as the trading price of our ADSs. If we had inadvertently concluded that such approvals were not required, or if applicable laws, regulations or interpretations change in a way that requires us to obtain such approval in the future, we may be unable to obtain such necessary approvals in a timely manner, or at all, and such approvals may be rescinded even if obtained. Any such circumstance could subject us to penalties, including fines, suspension of business and revocation of required licenses, significantly limit or completely hinder our ability to continue to offer securities to investors and cause the value of such securities to significantly decline or be worthless. For more detailed information, see “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—The filing with and/or approval of the CSRC or other PRC government authorities may be required in connection with our offshore offerings under PRC law, and, if required, we cannot predict whether or for how long we will be able to complete such filing or obtain such approval” and “—We collect, store, process and use personal information and other user data, which subjects us to laws, governmental regulations and other legal obligations related to privacy, information security and data protection, and any actual or perceived failure to comply with such legal obligations could harm our brand and business.”

A. Selected Financial Data

Our Selected Consolidated Financial Data

The following selected consolidated statements of operating data for the years ended December 31, 2020, 2021 and 2022, selected consolidated balance sheet data as of December 31, 2021 and 2022 and selected consolidated cash flow data for the years ended December 31, 2020, 2021 and 2022 have been derived from our audited consolidated financial statements included elsewhere in this annual report. The selected consolidated statements of operating data for the years ended December 31, 2018 and 2019, the selected consolidated balance sheet data as of December 31, 2018, 2019 and 2020 and selected consolidated cash flow data for the years ended December 31, 2018 and 2019 have been derived from our audited consolidated financial statements that are not included in this annual report. Our consolidated financial statements are prepared and presented in accordance with accounting principles generally accepted in the United States of America, or U.S. GAAP.

9

You should read the selected consolidated financial information in conjunction with our consolidated financial statements and related notes and “Item 5. Operating and Financial Review and Prospects” included elsewhere in this annual report. Our historical results are not necessarily indicative of our results expected for future periods.

	Years Ended December 31,
	2018	2019	2020	2021	2022
	RMB	RMB	RMB	RMB	RMB	US$
	(in thousands, except for per share data)
Selected Consolidated Statements of Operating Data:
Revenues(1)	3,645,335	5,812,255	6,433,363	6,250,109	4,142,862	600,659
Cost of revenues(2)	2,705,885	4,344,512	5,100,698	4,944,467	3,339,746	484,218
Gross profit	939,450	1,467,743	1,332,665	1,305,642	803,116	116,441
Operating expenses:
Research and development(3)	263,220	430,822	538,009	515,081	517,122	74,976
General and administrative(3)	213,973	248,462	261,805	258,346	235,932	34,207
Selling and marketing(3)	96,538	181,975	358,655	438,273	460,304	66,738
Total operating expenses	573,731	861,259	1,158,469	1,211,700	1,213,358	175,921
Operating income/(loss)	365,719	606,484	174,196	93,942	(410,242)	(59,480)
Other income and expenses:
Realized gain from investments	261	1,822	—	13,507	597	87
Gain from deconsolidation of a subsidiary	—	—	56,522	—	—	—
Interest income	11,595	33,478	46,118	16,686	12,334	1,788
Interest expense	—	—	(22,623)	(44,884)	(57,001)	(8,264)
Gain from fair value change of long-term investments	7,860	—	12,325	—	51,817	7,513
Impairment loss from long-term investments	(7,590)	(2,600)	—	—	(13,858)	(2,009)
Other income/(loss), net	8,768	13,186	(929)	27,418	43,820	6,353
Income/(Loss) before income tax	386,613	652,370	265,609	106,669	(372,533)	(54,012)
Income taxes (provision)/benefit	(52,036)	(77,887)	(31,154)	(10,745)	65,875	9,551
Income/(Loss) before income/(loss) from equity method investments	334,577	574,483	234,455	95,924	(306,658)	(44,461)
Income/(loss) from equity method investments	1,743	(1,112)	(4,749)	41,028	17,657	2,560
Net income/(loss)	336,320	573,371	229,706	136,952	(289,001)	(41,901)
Less: net (loss)/income attributable to non-controlling interest	(3,726)	(1,825)	953	(851)	(693)	(100)
Net income attributable to Zepp Health Corporation	340,046	575,196	228,753	137,803	(288,308)	(41,801)
Net income per share attributable to ordinary shareholders of Zepp Health Corporation:
Basic income/(loss) per ordinary share	0.54	2.35	0.92	0.55	(1.17)	(0.17)
Diluted income/(loss) per ordinary share	0.51	2.24	0.88	0.52	(1.17)	(0.17)

Notes:

(1) Includes RMB2,817.0 million, RMB4,281.0 million, RMB4,449.8 million, RMB3,350.0 million and RMB1,704.0 million (US$247.1 million) with related parties for the years ended December 31, 2018, 2019, 2020, 2021 and 2022, respectively.

(2) Includes RMB2,141.1 million, RMB3,342.1 million, RMB3,713.5 million, RMB2,760.0 million and RMB1,399.5 million (US$202.9 million) resulting from related parties sales for the years ended December 31, 2018, 2019, 2020, 2021 and 2022, respectively.

10

(3)Share-based compensation expenses were included in operating expenses. Our share-based compensation expenses were the result of our grants of options, restricted shares and restricted share units under our share incentive plans to our employees.

The following table presents our selected consolidated balance sheet data as of the dates indicated.

	As of December 31,
	2018	2019	2020	2021	2022
	RMB	RMB	RMB	RMB	RMB	US$
	(in thousands)
Selected Consolidated Balance Sheet Data:
Current assets:
Cash and cash equivalents	1,441,802	1,803,117	2,273,349	1,468,499	886,632	128,550
Restricted cash	10,010	874	2,401	41,040	86,708	12,571
Accounts receivable (net of allowance of nil, RMB814 and RMB1,466 as of December 31, 2020, 2021 and 2022, respectively)	58,925	188,940	298,038	537,084	682,103	98,896
Amount due from related parties (net of allowance of nil, nil and nil as of December 31, 2020, 2021 and 2022, respectively)	656,399	1,421,170	860,213	295,614	138,614	20,097
Inventories	484,622	893,806	1,217,537	1,249,327	1,021,923	148,165
Total current assets	2,857,456	4,392,452	4,827,866	3,930,953	2,958,548	428,948
Non-current assets:
Property, plant and equipment, net	40,042	64,350	124,619	133,873	100,605	14,586
Total assets	3,258,481	5,174,743	5,903,719	6,085,501	5,267,643	763,735
Current liabilities:
Accounts payable	1,064,106	1,999,951	1,951,335	1,317,306	456,585	66,198
Short-term bank borrowings	20,000	—	504,671	358,000	512,000	74,233
Total liabilities	1,448,903	2,677,155	3,173,461	3,152,062	2,582,722	374,459
Total liabilities and equity	3,258,481	5,174,743	5,903,719	6,085,501	5,267,643	763,735

The following table presents our selected cash flows for the years indicated.

	Years Ended December 31,
	2018	2019	2020	2021	2022
	RMB	RMB	RMB	RMB	RMB	US$
	(in thousands)
Selected Consolidated Cash Flow Data:
Net cash provided by/(used in) operating activities	707,605	427,999	157,302	(232,435)	(787,643)	(114,199)
Net cash used in investing activities	(324,841)	(112,703)	(206,880)	(1,069,289)	(42,258)	(6,127)
Net cash provided by financing activities	639,170	25,609	564,671	551,077	289,198	41,928
Net increase/(decrease) in cash and cash equivalents and restricted cash	1,021,934	340,905	515,093	(750,647)	(540,703)	(78,398)
Exchange rate effect on cash and cash equivalents and restricted cash	60,357	11,274	(43,334)	(15,564)	4,504	656
Cash and cash equivalents and restricted cash at the beginning of the year	369,521	1,451,812	1,803,991	2,275,750	1,509,539	218,863
Cash and cash equivalents and restricted cash at end of the year	1,451,812	1,803,991	2,275,750	1,509,539	973,340	141,121

11

Financial Information Related to the VIEs

The following table presents the condensed consolidating schedule of financial position for the VIEs and other entities as of the dates presented. In the following tables, “Primary Beneficiary of VIEs” refers to Beijing Shunyuan Kaihua Technology Co., Ltd., our WFOE who entered into contractual arrangements with the VIEs and their respective shareholders and acts as the primary beneficiary under the contractual arrangements. “Other Subsidiaries” refer to the subsidiaries of Zepp Health Corporation, our Cayman holding company, other than Beijing Shunyuan Kaihua Technology Co., Ltd., the VIEs and the subsidiaries of the VIEs.

Selected Condensed Consolidating Statements of Operations Data

	For the Year Ended December 31, 2022
			Primary	VIEs and
	Zepp Health	Other	Beneficiary of	VIEs’	Eliminating	Consolidated
	Corporation	Subsidiaries	VIEs	Subsidiaries	adjustments	Totals
	(RMB, in thousands)
Third-party revenues	—	1,605,999	—	2,536,863	—	4,142,862
Inter-company revenues	—	376,730	100,101	1,514,863	(1,991,694)	—
Total revenues	—	1,982,729	100,101	4,051,726	(1,991,694)	4,142,862
Total cost and expenses	(56,813)	(2,123,058)	(225,010)	(4,182,082)	2,033,859	(4,553,104)
Income/(loss) from subsidiaries and VIEs	(231,495)	(162,902)	(66,341)	—	460,738	—
Other income and expense	—	3,304	4,867	29,538	—	37,709
Income/(loss) before income tax expenses	(288,308)	(299,927)	(186,383)	(100,818)	502,903	(372,533)
Income tax benefits/(provision)	—	20,258	23,481	25,063	(2,927)	65,875
Income/(loss) before loss from equity method investments	(288,308)	(279,669)	(162,902)	(75,755)	499,976	(306,658)
Income from equity method investments	—	8,243	—	9,414	—	17,657
Net income/(loss)	(288,308)	(271,426)	(162,902)	(66,341)	499,976	(289,001)
Net loss attributable to non-controlling interests	—	693	—	—	—	693
Net income/(loss) attributable to Zepp Health Corporation’s shareholders	(288,308)	(270,733)	(162,902)	(66,341)	499,976	(288,308)

	For the Year Ended December 31, 2021
			Primary	VIEs and
	Zepp Health	Other	Beneficiary of	VIEs’	Eliminating	Consolidated
	Corporation	Subsidiaries	VIEs	Subsidiaries	adjustments	Totals
	(RMB, in thousands)
Third-party revenues	—	1,030,549	—	5,219,560	—	6,250,109
Inter-company revenues	—	533,943	240,103	1,202,152	(1,976,198)	—
Total revenues	—	1,564,492	240,103	6,421,712	(1,976,198)	6,250,109
Total costs and expenses	(94,824)	(1,561,349)	(240,920)	(6,063,153)	1,804,079	(6,156,167)
Income/(loss) from subsidiaries and VIEs	232,566	378,511	384,365	—	(995,442)	—
Income/(loss) from non-operations	61	1,174	(10)	34,728	(23,226)	12,727
Income/(loss) before income tax expenses	137,803	382,828	383,538	393,287	(1,190,787)	106,669
Income tax benefits/(provision)	—	8,501	(5,027)	(42,509)	28,290	(10,745)
Income/(loss) before loss from equity method investments	137,803	391,329	378,511	350,778	(1,162,497)	95,924
Income from equity method investments	—	7,441	—	33,587	—	41,028
Net income/(loss)(1)	137,803	398,770	378,511	384,365	(1,162,497)	136,952
Net loss attributable to non-controlling interests	—	851	—	—	—	851
Net income/(loss) attributable to Zepp Health Corporation’s shareholders	137,803	399,621	378,511	384,365	(1,162,497)	137,803

Note:

12

(1) The net income includes gain from inter-company transactions where the VIEs sold out products through our other subsidiaries functioning as international distributors of the group.

	For the Year Ended December 31, 2020
			Primary	VIEs and
	Zepp Health	Other	Beneficiary of	VIEs’	Eliminating	Consolidated
	Corporation	Subsidiaries	VIEs	Subsidiaries	adjustments	Totals
	(RMB, in thousands)
Third-party revenues	—	132,682	3,147	6,297,534	—	6,433,363
Inter-company revenues	—	285,645	147,237	184,619	(617,501)	—
Total revenues	—	418,327	150,384	6,482,153	(617,501)	6,433,363
Total cost and expenses	(81,162)	(530,557)	(215,859)	(6,007,145)	575,556	(6,259,167)
Income/(loss) from subsidiaries and VIEs	308,578	427,093	490,493	—	(1,226,164)	—
Income from non-operations	1,337	13,060	492	53,351	23,173	91,413
Income/(loss) before income tax expenses	228,753	327,923	425,510	528,359	(1,244,936)	265,609
Income tax benefit/(provision)	—	6,739	1,583	(39,476)	—	(31,154)
Income/(loss) before loss from equity method investments	228,753	334,662	427,093	488,883	(1,244,936)	234,455
(Loss)/income from equity method investments	—	(7,312)	—	2,563	—	(4,749)
Net income /(loss)	228,753	327,350	427,093	491,446	(1,244,936)	229,706
Net income attributable to non-controlling interests	—	—	—	(953)	—	(953)
Net income/(loss) attributable to Zepp Health Corporation’s shareholders	228,753	327,350	427,093	490,493	(1,244,936)	228,753

13

Selected Condensed Consolidating Balance Sheets Data

	As of December 31, 2022
			Primary	VIEs and
	Zepp Health	Other	Beneficiary of	VIEs’	Eliminating	Consolidated
	Corporation	Subsidiaries	VIEs	Subsidiaries	adjustments	Totals
	(RMB, in thousands)
Assets
Cash and cash equivalents	3,818	149,758	119,072	613,984	—	886,632
Restricted cash	—	620	—	86,088	—	86,708
Accounts receivable, net	—	304,275	3,217	374,611	—	682,103
Amount due from related parties	—	1,217	—	137,397	—	138,614
Inventories, net	—	294,518	—	735,600	(8,195)	1,021,923
Short-term investments	—	7,198	—	27,118	—	34,316
Prepaid expenses and other current assets	3,369	28,993	5,079	70,811	—	108,252
Intra-group receivable due from Zepp Health Corporation’s subsidiaries	850,623	1,045,050	201,527	1,916,093	(4,013,293)	—
Total current assets	857,810	1,831,629	328,895	3,961,702	(4,021,488)	2,958,548
Property, plant and equipment, net	—	12,045	6,190	82,370	-	100,605
Intangible assets, net	—	162,315	65,072	65,004	(169,091)	123,300
Long-term investments	—	1,230,599	—	456,029	—	1,686,628
Investment in subsidiaries and VIEs	1,914,207	447,195	338,024	—	(2,699,426)	—
Deferred tax assets	—	56,702	42,326	85,794	25,364	210,186
Amount due from a related party, non-current	—	6,333	—	—	—	6,333
Operating lease right-of-use assets	—	35,496	2,909	27,168	—	65,573
Goodwill	—	66,081	—	—	—	66,081
Other non-current assets	—	5,154	839	44,396	—	50,389
Intra-Group noncurrent receivable due to the Company's subsidiaries	—	—	—	377,084	(377,084)	—
Total non-current assets	1,914,207	2,021,920	455,360	1,137,845	(3,220,237)	2,309,095
Total assets	2,772,017	3,853,549	784,255	5,099,547	(7,241,725)	5,267,643
Liabilities
Accounts payable	—	4,411	135	452,039	—	456,585
Advance from customers	—	—	—	2,133	—	2,133
Amount due to related parties	—	—	2,065	38,913	—	40,978
Accrued expenses and other current liabilities	178	67,526	10,238	119,877	—	197,819
Intra-group payable due to Zepp Health Corporation’s subsidiaries	99,317	2,694,203	496,314	729,201	(4,019,035)	—
Income tax payables	—	2,308	—	407	—	2,715
Notes payable	—	—	—	456,438	—	456,438
Short-term bank borrowings	—	60,000	—	452,000	—	512,000
Total current liabilities	99,495	2,828,448	508,752	2,251,008	(4,019,035)	1,668,668
Deferred tax liabilities	—	3,159	—	32,393	—	35,552
Long-term borrowings	—	415,000	—	280,000	(10,790)	684,210
Other non-current liabilities	—	775	—	161,827	—	162,602
Intra-Group noncurrent payable due to the Company's subsidiaries	—	366,293	—	—	(366,293)	—
Non-current operating lease liabilities	—	21,414	—	10,276	—	31,690
Total non-current liabilities	—	806,641	—	484,496	(377,083)	914,054
Total liabilities	99,495	3,635,089	508,752	2,735,504	(4,396,118)	2,582,722
Total equity	2,672,522	218,460	275,503	2,364,043	(2,845,607)	2,684,921
Total liabilities and equity	2,772,017	3,853,549	784,255	5,099,547	(7,241,725)	5,267,643

14

	As of December 31, 2021
			Primary	VIEs and
	Zepp Health	Other	Beneficiary of	VIEs’	Eliminating	Consolidated
	Corporation	Subsidiaries	VIEs	Subsidiaries	adjustments	Totals
	(RMB, in thousands)
Assets
Cash and cash equivalents	19,634	464,638	30,809	953,418	—	1,468,499
Restricted cash	—	572	—	40,468	—	41,040
Term deposit	—	—	—	5,000	—	5,000
Accounts receivable, net	—	185,699	4,360	347,025	—	537,084
Amount due from related parties	—	—	322	295,292	—	295,614
Inventories, net	—	242,441	—	1,036,617	(29,731)	1,249,327
Short-term investments	—	—	—	19,351	—	19,351
Prepaid expenses and other current assets	3,010	16,804	2,921	292,303	—	315,038
Intra-group receivable due from Zepp Health Corporation’s subsidiaries	801,856	886,839	233,540	1,779,374	(3,701,609)	—
Total current assets	824,500	1,796,993	271,952	4,768,848	(3,731,340)	3,930,953
Property, plant and equipment, net	—	16,592	11,021	106,260	—	133,873
Intangible assets, net	—	183,580	73,251	67,353	(188,602)	135,582
Long-term investments	—	1,380,141	20,000	386,635	(234,185)	1,552,591
Investment in subsidiaries and VIEs	2,128,912	378,512	384,365	—	(2,891,789)	—
Deferred tax assets	—	36,017	18,847	60,265	28,290	143,419
Operating lease right-of-use assets	—	50,593	15,904	41,938	—	108,435
Goodwill	—	61,055	—	—	—	61,055
Other non-current assets	—	5,882	4,294	17,066	(7,649)	19,593
Total non-current assets	2,128,912	2,112,372	527,682	679,517	(3,293,935)	2,154,548
Total assets	2,953,412	3,909,365	799,634	5,448,365	(7,025,275)	6,085,501
Liabilities
Accounts payable	—	3,175	40	1,314,091	—	1,317,306
Advance from customers	—	1,683	285	2,262	—	4,230
Amount due to related parties	—	—	1,562	48,561	—	50,123
Accrued expenses and other current liabilities	8,914	112,128	29,860	165,181	—	316,083
Intra-group payable due to Zepp Health Corporation’s subsidiaries	24,150	2,707,043	325,052	641,675	(3,697,920)	—
Income tax payables	—	2,184	—	411	—	2,595
Notes payable	—	—	—	103,795	—	103,795
Short-term bank borrowings	—	55,000	—	303,000	—	358,000
Total current liabilities	33,064	2,881,213	356,799	2,578,976	(3,697,920)	2,152,132
Deferred tax liabilities	—	3,903	—	23,006	—	26,909
Long-term borrowings	—	480,000	—	254,500	(7,649)	726,851
Other non-current liabilities	—	2,318	—	172,735	—	175,053
Non-current operating lease liabilities	—	37,254	4,428	29,435	—	71,117
Total non-current liabilities	—	523,475	4,428	479,676	(7,649)	999,930
Total liabilities	33,064	3,404,688	361,227	3,058,652	(3,705,569)	3,152,062
Total equity	2,920,348	504,677	438,407	2,389,713	(3,319,706)	2,933,439
Total liabilities and equity	2,953,412	3,909,365	799,634	5,448,365	(7,025,275)	6,085,501

15

Selected Condensed Consolidating Cash Flows Data

	For the Year Ended December 31, 2022
			Primary	VIEs and
	Zepp Health	Other	Beneficiary of	VIEs’	Eliminating	Consolidated
	Corporation	Subsidiaries	VIEs	Subsidiaries	adjustments	Totals
	(RMB, in thousands)
Net cash (used in)/provided by transactions with external parties	(6,862)	(381,110)	(173,252)	(226,419)	—	(787,643)
Net cash (used in)/provided by transactions with intra-group entities	—	42,107	444,274	(486,252)	(129)	—
Cash flows from operating activities:	(6,862)	(339,003)	271,022	(712,671)	(129)	(787,643)
Net cash (used in)/provided by transactions with external parties	—	(15,648)	—	(26,610)	—	(42,258)
Net cash (used in)/provided by transactions with intra-group entities	84,277	182,761	—	—	(267,038)	—
Cash flows from investing activities:	84,277	167,113	—	(26,610)	(267,038)	(42,258)
Net cash (used in)/provided by transactions with external parties	(93,231)	(63,141)	—	445,570	—	289,198
Net cash provided by/(used in) transactions with intra-group entities	—	(86,255)	(182,759)	—	269,014	—
Cash flows from financing activities:	(93,231)	(149,396)	(182,759)	445,570	269,014	289,198

	For the Year Ended December 31, 2021
			Primary	VIEs and
	Zepp Health	Other	Beneficiary of	VIEs’	Eliminating	Consolidated
	Corporation	Subsidiaries	VIEs	Subsidiaries	adjustments	Totals
	(RMB, in thousands)
Net cash (used in)/provided by transactions with external parties	(14,164)	277,212	(199,623)	(295,860)	—	(232,435)
Net cash (used in)/provided by transactions with intra-group entities	(489)	(520,369)	146,153	374,705	—	—
Cash flows from operating activities:	(14,653)	(243,157)	(53,470)	78,845	—	(232,435)
Net cash (used in)/provided by transactions with external parties	—	(987,276)	(10,097)	(71,916)	—	(1,069,289)
Net cash (used in)/provided by transactions with intra-group entities	(146,699)	(15,751)	79,735	(290,767)	373,482	—
Cash flows from investing activities:	(146,699)	(1,003,027)	69,638	(362,683)	373,482	(1,069,289)
Net cash (used in)/provided by transactions with external parties	(8,298)	527,351	—	32,024	—	551,077
Net cash provided by/(used in) transactions with intra-group entities	—	386,704	—	—	(386,704)	—
Cash flows from financing activities:	(8,298)	914,055	—	32,024	(386,704)	551,077

16

	For the Year Ended December 31, 2020
			Primary	VIEs and
	Zepp Health	Other	Beneficiary of	VIEs’	Eliminating	Consolidated
	Corporation	Subsidiaries	VIEs	Subsidiaries	adjustments	Totals
	(RMB, in thousands)
Net cash (used in)/provided by transactions with external parties	1,880	(389,473)	(226,040)	770,935	—	157,302
Net cash (used in)/provided by transactions with intra-group entities	(14,671)	370,827	249,267	(605,423)	—	—
Cash flows from operating activities:	(12,791)	(18,646)	23,227	165,512	—	157,302
Net cash (used in)/provided by transactions with external parties	—	(66,079)	(9,618)	(131,183)	—	(206,880)
Net cash (used in)/provided by transactions with intra-group entities	(114,719)	—	—	(597,614)	712,333	—
Cash flows from investing activities:	(114,719)	(66,079)	(9,618)	(728,797)	712,333	(206,880)
Net cash (used in)/provided by transactions with external parties	—	—	—	564,671	—	564,671
Net cash provided by/(used in) transactions with intra-group entities	—	712,333	—	—	(712,333)	—
Cash flows from financing activities:	—	712,333	—	564,671	(712,333)	564,671

B.           Capitalization and Indebtedness

Not applicable.

C.           Reasons for the Offer and Use of Proceeds

Not applicable.

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D.           Risk Factors

Summary of Risk Factors

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

Risks Related to Our Business

● If we fail to successfully and timely develop and commercialize new products, services and technologies, our operating results may be materially and adversely affected. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business—If we fail to successfully and timely develop and commercialize new products, services and technologies, our operating results may be materially and adversely affected.”

● Our future success depends on our ability to promote our own brands and protect our reputation. The failure to establish and promote our brands, including Amazfit and Zepp, and any damage to our reputation will hinder our growth. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business—Our future success depends on our ability to promote our own brands and protect our reputation. The failure to establish and promote our brands, including Amazfit and Zepp, and any damage to our reputation will hinder our growth.”

● We are susceptible to supply shortages, long lead time for raw materials and components, and supply changes, any of which could disrupt our supply chain and have a material adverse impact on our results of operation because some of the key components of our products, such as Bluetooth Low Energy (BLE) system-on-chip and sensors, come from a limited number of sources of supply. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business—We are susceptible to supply shortages, long lead time for raw materials and components, and supply changes, any of which could disrupt our supply chain and have a material adverse impact on our results of operation because some of the key components of our products, such as Bluetooth Low Energy (BLE) system-on-chip and sensors, come from a limited number of sources of supply.”

● We operate in highly competitive markets and the scale and resources of some of our competitors may allow them to compete more effectively than we can, which could result in a loss of our market share and a decrease in our revenue and profitability. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business—We operate in highly competitive markets and the scale and resources of some of our competitors may allow them to compete more effectively than we can, which could result in a loss of our market share and a decrease in our revenue and profitability.”

● If we are unable to anticipate and satisfy consumer preferences in a timely manner or if technological innovation renders existing smart wearable technology non-competitive or obsolete, our business may be materially and adversely affected. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business—If we are unable to anticipate and satisfy consumer preferences in a timely manner or if technological innovation renders existing smart wearable technology non-competitive or obsolete, our business may be materially and adversely affected.”

● We do not have internal manufacturing capabilities and rely on several contract manufacturers to produce our products. If we encounter issues with these contract manufacturers, our business, brand and results of operations could be harmed. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business—We do not have internal manufacturing capabilities and rely on several contract manufacturers to produce our products. If we encounter issues with these contract manufacturers, our business, brand and results of operations could be harmed.”

● Xiaomi is our most important customer and distribution channel. Any deterioration of our relationship with Xiaomi or reduction of sales of Xiaomi Wearable Products could have a material adverse effect on our operating results. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business—Xiaomi is our most important customer and distribution channel. Any deterioration of our relationship with Xiaomi or reduction of sales of Xiaomi Wearable Products could have a material adverse effect on our operating results.”

● We collect, store, process and use personal information and other user data, which subjects us to laws, governmental regulations and other legal obligations related to privacy, information security and data protection, and any actual or perceived failure to comply with such legal obligations could harm our brand and business. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business—We collect, store, process and use personal information and other user data, which subjects us to laws, governmental regulations and other legal obligations related to privacy, information security and data protection, and any actual or perceived failure to comply with such legal obligations could harm our brand and business.”

● Any significant cybersecurity incident or disruption of our information technology systems or those of third-party partners could materially damage user relationships and subject us to significant reputational, financial, legal and operation consequences. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business—Any significant cybersecurity incident or disruption of our information technology systems or those of third-party partners could materially damage user relationships and subject us to significant reputational, financial, legal and operation consequences.”

Risks Related to Our Corporate Structure

● We are a Cayman Islands holding company with no equity ownership in the VIEs and we conduct our operations in China through (i) our PRC subsidiaries and (ii) the VIEs with which we have maintained contractual arrangements and their subsidiaries. Investors in our Class A ordinary shares or the ADSs thus are not purchasing equity interest in the VIEs in China but instead are purchasing equity interest in a Cayman Islands holding company. If the PRC government finds that the agreements that establish the structure for operating some of our operations in China do not comply with PRC regulations relating to the relevant industries, or if these regulations or the interpretation of existing regulations change in the future, we could be subject to severe penalties or be forced to relinquish our interests in those operations. Our holding company in the Cayman Islands, the VIEs and investors of our company face uncertainty about potential future actions by the PRC government that could affect the enforceability of the contractual arrangements with the VIEs and, consequently, significantly affect the financial performance of the VIEs and our company as a group. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure—If the PRC government finds that the agreements that establish the structure for operating some of our operations in China do not comply with PRC regulations relating to the relevant industries, or if these regulations or the interpretation of existing regulations change in the future, we could be subject to severe penalties or be forced to relinquish our interests in those operations.”

18

● We rely on contractual arrangements with the VIEs and their shareholders for a large portion of our business operations, which may not be as effective as direct ownership in providing operational control. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure—We rely on contractual arrangements with the VIEs and their shareholders for a large portion of our business operations, which may not be as effective as direct ownership in providing operational control.”

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

Risks Related to Doing Business in China

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

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

● The filing with and/or approval of the CSRC or other PRC government authorities may be required in connection with our offshore offerings under PRC law, and, if required, we cannot predict whether or for how long we will be able to complete such filing or obtain such approval. 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 our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or be worthless. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—The filing with and/or approval of the CSRC or other PRC government authorities may be required in connection with our offshore offerings under PRC law, and, if required, we cannot predict whether or for how long we will be able to complete such filing or obtain such approval.”

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

● Uncertainties with respect to the PRC legal system and changes in laws and regulations in China could adversely affect us, and any lack of requisite approvals, licenses or permits applicable to our business may have a material adverse effect on our business and results of operations. Rules and regulations in China can change quickly with little advance notice. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—Uncertainties with respect to the PRC legal system and changes in laws and regulations in China could adversely affect us, and any lack of requisite approvals, licenses or permits applicable to our business may have a material adverse effect on our business and results of operations.”

● The PRC government’s significant oversight and discretion over our business operation could result in a material adverse change in our operations and the value of our ADSs. The Chinese government may intervene or influence our operations at any time, or may exert more control over offerings conducted overseas and/or foreign investment in China-based issuers, which could result in a material change in our operations and/or the value of our securities. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—The PRC government’s significant oversight and discretion over our business operation could result in a material adverse change in our operations and the value of our ADSs.”

● You may experience difficulties in effecting service of legal process, enforcing foreign judgments or bringing actions in China against us or our management named in this annual report based on foreign laws. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—You may experience difficulties in effecting service of legal process, enforcing foreign judgments or bringing actions in China against us or our management named in this annual report based on foreign laws.”

Risks Related to our ADSs

● Recent disruptions in the financial markets and economic conditions could affect our ability to raise capital. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our ADSs—Recent disruptions in the financial markets and economic conditions could affect our ability to raise capital.”

● The trading price of our ADSs has fluctuated and is likely to be volatile, which could result in substantial losses to investors. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our ADSs—The trading price of our ADSs has fluctuated and is likely to be volatile, which could result in substantial losses to investors.”

19

Risks Related to Our Business

If we fail to successfully and timely develop and commercialize new products, services and technologies, our operating results may be materially and adversely affected.

Historically, sales of smart bands and watches contributed a significant majority of our revenues and our growth has been influenced by our product launches and product cycle. In particular, sales of our smart band products and watches contributed 88.0%, 90.6% and 92.2% of our total revenues in the years ended December 31 2020, 2021 and 2022, respectively. Our future growth depends on whether we can continually develop and introduce new generations of our existing product lines and new forms of smart wearable technology with enhanced functionalities and value-added services in a timely manner. This is particularly important in the current industry landscape where technology and consumer preference evolve constantly and rapidly, which may cause our existing products to reach the end of their lifecycles prematurely and require us to introduce new products with enhanced functionalities to sustain our growth. Our capability to roll out new or enhanced products and services in turn depend on a number of factors, including timely and successful research and development efforts by us as well as our suppliers to bring cutting-edge technologies to the market, quality control of service provision and product manufacturing and the effectiveness of our distribution channels. Pursuant to our strategic cooperation agreement with Xiaomi, we are also required to consult Xiaomi regarding the product launch timetable for Xiaomi Wearable Products. If we are unable to commercialize appealing new products, functionalities, services or innovative technologies leveraging our data in a timely manner and introduce them to consumers at attractive price points compared to our existing products and competing products, or our new products, services or technologies are not accepted or adopted by consumers, our competitors may increase their market share, which could adversely impact our operating results. In addition, the research and development of new or enhanced products and services can be complex and costly. Given the complexity, we could experience delays in completing the development and introduction of new and enhanced services and products in the future. Our research and development effort may not yield the benefits we expect to achieve at all after we dedicate our time and resources into it.

We are endeavoring to apply our products in more scenarios, and medical use is one area that we put in significant efforts. Some of our existing products monitor users’ cardiac cycle, which have significant potential for medical application. We will need to obtain the medical device certificate if our products are to be used for medical application. The process of obtaining regulatory clearances or approvals to market a medical device for our other products, however, can be costly and time consuming. We may not be able to obtain these clearances or approvals on a timely basis, or at all, in order to extend our business into the medical use wearable device market. Moreover, even if we successfully obtain the required approvals for our products, given the complex and stringent nature of regulations on medical devices, failure to comply with applicable National Medical Products Administration regulations will subject us to enforcement actions such as fines, civil penalties or recalls of products, which could harm our reputation and operating results.

Our future success depends on our ability to promote our own brands and protect our reputation. The failure to establish and promote our brands, including Amazfit and Zepp, and any damage to our reputation will hinder our growth.

Since September 2015, we have begun to use the brand “Amazfit” to sell our products to address the middle to high-end market. In August 2020, we introduced a new brand name, “Zepp” for our self-branded products. We believe the strategy to establish and promote our own brand is crucial to our future success as it expands our addressable market and gives us more flexibility in terms of pricing, distribution and marketing. We have invested, and will need to continue to dedicate, significant time, efforts and resources to build our own brand recognition. Revenues from our self-branded products and others segment, substantially all of which was from the sales of our self-branded products, contributed 31.0%, 46.5% and 59.0% of our total revenues in 2020, 2021 and 2022, respectively. For the year ended December 31, 2022, revenues from our self-branded products and others segment were RMB2,445.8 million (US$354.6 million). We expect the sales of our Amazfit and Zepp branded products to contribute more to our total revenues. However, we cannot guarantee that the shipment of our self-branded products will continue to grow, or that our promotion efforts will ultimately be successful, as it involves numerous factors including the effectiveness of our marketing efforts, our ability to provide consistent, high-quality products and services, and our consumers’ satisfaction with the technical support and software updates we provide.

In addition, negative publicity related to our brand, products, contract manufacturers, component suppliers, distributors, strategic partners and the celebrities we are associated with could damage and offset our effort to promote our own brands. In addition, although brand security initiatives are in place, we cannot guarantee that our efforts against the counterfeiting of our brands will be successful. If a third party copies our products in a manner that projects lesser quality or carries a negative connotation, our brand image could be materially and adversely affected.

20

We are susceptible to supply shortages, long lead time for raw materials and components, and supply changes, any of which could disrupt our supply chain and have a material adverse impact on our results of operation because some of the key components of our products, such as Bluetooth Low Energy (BLE) system-on-chip and sensors, come from a limited number of sources of supply.

All of the components and raw materials used to produce our products are sourced from third-party suppliers, and some of these components are sourced from a limited number of or a single supplier. Therefore, we are subject to risks of shortages or discontinuation in supply, long lead time, cost increases and quality control issues given the limited sources of suppliers. In addition, some of our suppliers may have more established relationships with our competitors, and as a result of such relationships, such suppliers may choose to limit or terminate their relationship with us or prioritize our competitors’ orders in the case of supply shortages. We have in the past experienced and may in the future experience component shortages. We also expect there may be a cost increase in source materials and shortage in chips with respect to BLE system-on-chip products. In addition, as many of electronics component suppliers are concentrated in East and Southeast Asia, there have been industry-wide conditions, health crisis, natural disasters and global events in the past that have caused material shortages for components. Starting from the second quarter of 2020, we have been experiencing components shortages and longer lead time for display driver integrated circuits, power management integrated circuits and near field communication integrated circuits, because the COVID-19 pandemic affected the countries and regions where these components are produced. We cannot guarantee that such component shortage will be resolved in the near future, the failure of which may materially and adversely affect our business, results of operations and financial performance.

In the event of a component shortage or supply interruption from suppliers of key components, we will need to identify alternate sources of supply, which can be time-consuming, difficult and costly. We may not be able to source these components on terms that are acceptable to us, or at all, which may undermine our ability to meet our production requirements or to fill our orders in a timely manner. This could cause delays in shipment of our products, harm our relationships with our customers, distributors and users, and adversely affect our results of operations.

We operate in highly competitive markets and the scale and resources of some of our competitors may allow them to compete more effectively than we can, which could result in a loss of our market share and a decrease in our revenue and profitability.

We offer a number of products and services and compete with a variety of competitors. For example, the smart wearables market has a multitude of participants, including consumer electronics companies specialized in smart wearable technology, such as Fitbit and Garmin; large, broad-based consumer electronics companies that either compete in our market or adjacent markets, or have announced plans to do so, such as Huawei, Apple, Samsung and Xiaomi; traditional health and fitness companies and traditional watch companies. We also face competition from local providers of similar products in the various regions and countries where our products are distributed. As we are rolling out more self-branded smart wearables, we face increasing competition from not only other participants in the industry, but also products under the Xiaomi brand. Intensified competition may result in pricing pressures and reduced profit margins and may impede our ability to continue to increase the sales of our products or cause us to lose market share, any of which could substantially harm our results of operations.

Many of our existing and potential competitors enjoy substantial competitive advantages, such as: (i) longer operating history, (ii) the capacity to leverage their sales efforts and marketing expenditures across a broader portfolio of products, (iii) more established relationships with a larger number of suppliers, contract manufacturers and channel partners, (iv) access to larger and broader user bases, (v) greater brand recognition, (vi) greater financial, research and development, marketing, distribution and other resources, (vii) more resources to make investments and acquisitions, (viii) larger intellectual property portfolios, and (ix) the ability to bundle competitive offerings with other products and services.

If we are unable to anticipate and satisfy consumer preferences in a timely manner or if technological innovation renders existing smart wearable technology non-competitive or obsolete, our business may be materially and adversely affected.

Consumer preferences in smart wearable devices are changing rapidly and difficult to predict. Consumers may decide not to purchase our products and services as their preferences shift to different types or designs of smart wearable devices, or even move away from these categories of products and services altogether. In particular, new technologies might bring about industry-wide impacts and make the category of smart bands and watches less appealing or obsolete. In addition, our new products and services with additional features have higher prices than many of our earlier products, which may not appeal to as large consumer base as before. Accordingly, if we fail to anticipate and satisfy consumer preferences in a timely manner, or if it is perceived that our future products and services will not satisfy consumer preferences, our business may be adversely affected.

21

In addition, as the smart wearable technology continues to develop, the functions of smart bands and smart watches may converge, which in turn may cause our smart band product lines to compete with our smart watch product lines and inhibit our future growth.

We do not have internal manufacturing capabilities and rely on several contract manufacturers to produce our products. If we encounter issues with these contract manufacturers, our business, brand and results of operations could be harmed.

We do not maintain our own manufacturing capabilities and rely on contract manufactures to produce our products. We assign the production of Mi Band series, Mi Smart Scale series and our self-branded product lines to a number of corresponding manufacturers. We may experience operational difficulties with our manufacturers, including reductions in the availability of production capacity, failures to comply with product specifications, insufficient quality control, failures to meet production deadlines, increases in manufacturing costs and longer lead time required. Our manufacturers may experience disruptions in their manufacturing operations due to equipment breakdowns, labor strikes or shortages, natural disasters, lockdowns as a result of new waves of outbreaks of the COVID-19 pandemic or other epidemics, component or material shortages, cost increases or other similar problems. In addition, we may not be able to renew contracts with our contract manufacturers or identify manufacturers who are capable of producing new products we target to launch in the future.

Xiaomi is our most important customer and distribution channel. Any deterioration of our relationship with Xiaomi or reduction of sales of Xiaomi Wearable Products could have a material adverse effect on our operating results.

Xiaomi is the sole customer and distribution channel for all Xiaomi Wearable Products, and it held 14.7% of our total outstanding shares as of February 28, 2023. For the years ended December 31, 2020, 2021 and 2022, sales of Xiaomi Wearable Products contributed 69.0%, 53.5% and 41.0% of our revenues, respectively.

We entered into a strategic cooperation agreement with Xiaomi in October 2017, which grants us the most-preferred-partner status globally to develop future Xiaomi Wearable Products. In October 2020, we extended the strategic cooperation agreement with Xiaomi for three years, which will end in October 2023. The renewed agreement deepened our cooperation with Xiaomi by reinstating our most-preferred-partner status globally to develop future Xiaomi Wearable Products, and expanding our most-preferred-partner status to each other to the research and development of AI-chips and algorithms for wearable devices. This strategic cooperation agreement can be terminated by Xiaomi and we can therefore lose the most-preferred-partner status if we fail to meet the various requirements set out in the agreement, such as requirements on product launching timetable, product quality and annual sales target of Xiaomi Wearable Products. In addition, Xiaomi has the option to develop by itself or engage other companies to develop similar and competing products, if such companies can offer better terms and services than we do—for example, such companies may ask for less profit sharing or less intellectual property rights from their cooperation with Xiaomi. On the other side, we may decide whether and how to cooperate with Xiaomi in product development based on our analysis of Xiaomi products’ profit margins. If for any reason, we cannot maintain our cooperation relationship with Xiaomi or renew the strategic cooperation agreement with terms equally favorable to us as compared to those in the existing agreement, our business and operation results may be materially and adversely affected. For more details of the strategic cooperation agreement with Xiaomi, including under what circumstances it can be early terminated, please see “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transaction—Our Relationship with Xiaomi—Strategic Cooperation Agreement.”

In February 2023, we entered into a new business cooperation agreement with Xiaomi for the next two years, which will be effective after the signoff and end in January 2025. Pursuant to our business cooperation agreement with Xiaomi, we and Xiaomi shall jointly set the retail price of Xiaomi Wearable Products (including the Mi Band Series). Because we cannot unilaterally determine the retail price of Xiaomi Wearable Products, we cannot assure you that we will be able to continue to introduce Xiaomi Wearable Products with retail price levels that can sustain or improve our gross or net profit margins. In addition, marketing considerations on the part of Xiaomi and other factors beyond our control may also cause Xiaomi Wearable Products to be priced at relatively low levels that may negatively affect the gross and net profit margins of Xiaomi Wearable Products, as a result of which our business and operation results may be materially and adversely affected. Furthermore, negative publicity related to Xiaomi, including products offered by Xiaomi, the celebrities Xiaomi is associated with, or even the labor policies of any of Xiaomi’s suppliers or manufacturers may have a material adverse effect on the sales of our products.

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In addition, Xiaomi sells a broad spectrum of electronic products through its online and offline channels. We cannot assure you that our products can always receive the same level of attention and promotion efforts from Xiaomi, especially given the sales of Xiaomi wearable products decreased in 2022 as compared to 2021. In the event that Xiaomi dedicates less resources in promoting and selling our products, our revenue may decrease as well. Although we have been building our own distribution network to reduce reliance on the distribution network of Xiaomi in case we lose Xiaomi as our customer or distribution channel for any reason, there is no assurance that our own distribution network will be as effective and efficient as the sales channels of Xiaomi. In November 2019, Xiaomi launched its own smart watch product, the Xiaomi Mi Watch series. We believe this launch has, to some extent, diluted potential buyers’ attention to the products we designed and manufactured for Xiaomi and our self-branded watches, and we expect the dilution to continue, which negatively affects our sales performance and in turn, our results of operations.

When exercising its rights as our shareholder, Xiaomi may take into account not only the interests of our company and our shareholders but also its interests and the interests of its other affiliates. The interests of our company and our shareholders may at times conflict with the interests of Xiaomi and its affiliates. Such conflicts may result in lost cooperation opportunities for our company, including opportunities to enter into lines of business that may overlap with those pursued by Xiaomi and/or the companies within its ecosystem.

Our operating results could be materially harmed if we or Xiaomi is unable to accurately forecast consumer demand for our products and services or manage our inventory.

To ensure adequate inventory supply for our products, we procure raw materials and components based on sales and production forecasts. The ability to accurately forecast demand for our products and services could be affected by many factors, including changes in customer demand for our products and services or our competitors’, sales promotions by us or our competitors, sales channel inventory levels, and unanticipated changes in general market and economic conditions. In addition, as we continue to introduce new products and services, we may also face challenges managing the production plan of our existing products, which may in turn affect the inventory management for our existing products. If we or Xiaomi fails to accurately forecast customer demand, we may experience excess inventory levels or a shortage of products available for sale. After we sell Xiaomi Wearable Products to Xiaomi, Xiaomi will only have limited right of return if the products have quality issues or returned by end consumers and will largely bear the inventory risks of such products. However, inventory levels in excess of end-customer demand may still ultimately result in inventory write-downs or write-offs and the sale of excess inventory at discounted prices, which may cause our gross margin to suffer and could impair the strength of our brand. On the other hand, in the case we experience shortage of products, we may be unable to meet the demand for our products, and our business and operating results could be adversely affected. We expect that it will become more difficult to forecast demand as we introduce and develop a more diverse product portfolio and as market competition for similar products intensifies.

We collect, store, process and use personal information and other user data, which subjects us to laws, governmental regulations and other legal obligations related to privacy, information security and data protection, and any actual or perceived failure to comply with such legal obligations could harm our brand and business.

Due to the volume and sensitivity of the personal information and biometric data we collect and manage and the nature of our products, the security features of our enterprise platform and information systems are critical. We face risks inherent in handling and protecting large volume of data. In particular, we face a number of challenges relating to data from transactions and other activities on our platforms, including:

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

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

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

In general, we expect that data security and data protection compliance will receive greater attention and focus from regulators, both domestically and globally, as well as attract continued or greater public scrutiny and attention going forward, which could increase our compliance costs and subject us to heightened risks and challenges associated with data security and protection. If we are unable to manage these risks, we could become subject to penalties, including fines, suspension of business and revocation of required licenses, and our reputation and results of operations could be materially and adversely affected.

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The PRC regulatory and enforcement regime with regard to data security and data protection is evolving and may be subject to different interpretations or significant changes. Moreover, different PRC regulatory bodies, including the Standing Committee of the NPC, the Ministry of Industry and Information Technology, or the MIIT, the CAC, the Ministry of Public Security and the State Administration of Market Regulation, or the SAMR, have enforced data privacy and protections laws and regulations with varying standards and applications. See “Item 4. Information on the Company—B. Business Overview—Regulation—Regulation on Information Security” and “Item 4. Information on the Company—B. Business Overview—Regulation—Regulation on Internet Privacy.” The following are examples of certain recent PRC regulatory activities in this area:

Data Security

● In June 2021, the Standing Committee of the NPC promulgated the Data Security Law, which took effect in September 2021. The Data Security Law, among other things, provides for security review procedure for data-related activities that may affect national security. In July 2021, the state council promulgated the Regulations on Protection of Critical Information Infrastructure, which became effective on September 1, 2021. Pursuant to this regulation, critical information infrastructure means key network facilities or information systems of critical industries or sectors, such as public communication and information service, energy, transportation, water conservation, finance, public services, e-government affairs and national defense science, the damage, malfunction or data leakage of which may endanger national security, people’s livelihoods and the public interest. In December 2021, the CAC, together with other authorities, jointly promulgated the Cybersecurity Review Measures, which became effective on February 15, 2022 and replaces its predecessor regulation. Pursuant to the Cybersecurity Review Measures, critical information infrastructure operators that procure internet products and services must be subject to the cybersecurity review if their activities affect or may affect national security. The Cybersecurity Review Measures further stipulates that network platform operators that hold personal information of over one million users shall apply with the Cybersecurity Review Office for a cybersecurity review before any initial public offering at a foreign stock exchange. As of the date of this annual report, no detailed rules or implementation rules have been issued by any authority and we have not been informed that we are a critical information infrastructure operator by any government authorities. Furthermore, the exact scope of “critical information infrastructure operators” under the current regulatory regime remains unclear, and the PRC government authorities may have wide discretion in the interpretation and enforcement of the applicable laws. Therefore, it is uncertain whether we would be deemed to be a critical information infrastructure operator under PRC law. If we are deemed to be a critical information infrastructure operator under the PRC cybersecurity laws and regulations, we may be subject to obligations in addition to what we have fulfilled under the PRC cybersecurity laws and regulations.

● In November 2021, the CAC released the Regulations on the Network Data Security (Draft for Comments), or the Draft Regulations. The Draft Regulations provide that data processors refer to individuals or organizations that, during their data processing activities such as data collection, storage, utilization, transmission, publication and deletion, have autonomy over the purpose and the manner of data processing. In accordance with the Draft Regulations, data processors shall apply for a cybersecurity review for certain activities, including, among other things, (i) the listing abroad of data processors that process the personal information of more than one million users and (ii) any data processing activity that affects or may affect national security. However, there have been no clarifications from the relevant authorities as of the date of this annual report as to the standards for determining whether an activity is one that “affects or may affect national security.” In addition, the Draft Regulations requires that data processors that process “important data” or are listed overseas must conduct an annual data security assessment by itself or commission a data security service provider to do so, and submit the assessment report of the preceding year to the municipal cybersecurity department by the end of January each year. The period for which the CAC solicited comments on this draft ended on December 13, 2021, but there is no timetable as to when the Draft Regulations will be enacted.

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● In July 2022, the CAC promulgated the Measures for the Security Assessment of Cross-border Data Transfer, or the Security Assessment Measures, which took effect on September 1, 2022. The Security Assessment Measures require that any data processor who processes or exports personal information exceeding a certain volume threshold pursuant to the measures shall apply for a security assessment by the CAC before transferring any personal information abroad, including the following circumstances: (i) important data will be provided overseas by any data processor; (ii) personal information will be provided overseas by any operator of critical information infrastructure or any data processor who processes the personal information of more than 1,000,000 individuals; (iii) personal information will be provided overseas by any data processor who has provided the personal information of more than 100,000 individuals in aggregate or has provided the sensitive personal information of more than 10,000 individuals in aggregate since January 1 of last year; and (iv) other circumstances where the security assessment is required as prescribed by the CAC. A data processor shall, before applying for the security assessment of an outbound data transfer, conduct a self-assessment of the risks involved in the outbound data transfer. The security assessment of a cross-border data transfer shall focus on assessing the risks that may be brought about by the cross-border data transfer concerning national security, public interests, or the lawful rights and interests of individuals or organizations.

Personal Information and Privacy

● The Anti-monopoly Guidelines for the Platform Economy Sector published by the Anti-monopoly Committee of the State Council, effective on February 7, 2021, prohibits collection of user information through coercive means by online platforms operators.

● In August 2021, the Standing Committee of the NPC promulgated the Personal Information Protection Law (the “PIPL”), which integrates the scattered rules with respect to personal information rights and privacy protection and took effect on November 1, 2021. We update our privacy policies from time to time to meet the latest regulatory requirements of PRC government authorities and adopt technical measures to protect data and ensure cybersecurity in a systematic way. Nonetheless, the PIPL elevates the protection requirements for personal information processing, and many specific requirements of this law remain to be clarified by the CAC, other regulatory authorities, and courts in practice. We may be required to make further adjustments to our business practices to comply with the personal information protection laws and regulations.

● On November 4, 2022, the CAC and the SAMR jointly issued the Notification on the Implementation of Personal Information Protection Certification, which implements the personal information protection certification (the “PIPC”) mechanism to satisfy the requirements of the PIPL for the cross-border transfer out of mainland China of personal information. In parallel with such notification, on June 24, 2022, the National Information Security Standardization Technical Committee issued the first version of the Guidance on Network Security Standardized Practice—Specification for Certification of Personal Information Cross-Border Processing Activities (the “Certification Specification”), and on December 16, 2022, the National Information Security Standardization Technical Committee issued an updated version of the Certification Specification. The Certification Specification serves as an industry standard and provides the general principles and detailed requirements for personal information processors engaging in the cross-border transfer out of mainland China of personal information to meet in order to obtain a PIPC from qualified certification institutions with respect to such data transfers. Personal information processors that obtain a PIPC may rely on a PIPC to comply with the PIPL requirements for cross-border data transfers of personal information out of mainland China that do not need to undergo a security assessment.

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

We are constantly in the process of evaluating the potential impact of the PRC Cyber Security Law, the Data Security Law and other laws, regulations and policies relating to cybersecurity, privacy, data protection and information security on our current business practices. All these laws and regulations may result in additional expenses and obligations to us and subject us to negative publicity, which could harm our reputation and negatively affect the trading price of the ADSs. We expect that these areas will receive greater public scrutiny and attention from regulators and more frequent and rigid investigation or review by regulators, which may increase our compliance costs and subject us to heightened risks and challenges. We place a strong emphasis on data security. To achieve the objective, our board of directors has established an artificial intelligence and big data ethics committee to assist the board with respect to privacy and data usage matters, including to oversee compliance with the applicable privacy laws and regulations, management’s periodic assessment of data privacy ethics as well as any related policies with respect to risk assessment and risk management, among other things. We have adopted a series of internal policies on data collection, processing and usage. We conduct regular self-inspections with regard to data privacy and cybersecurity to ensure compliance with applicable laws and regulations. In addition, every year, we hire a qualified third-party professional evaluation firm to carry out testing and certification of our information system. Our information system has been certified as Safety Level III Computer Information System by such professional evaluation firm, and has passed the ISO27001 information security management system certification and the ISO27701 privacy information management system certification. We believe that we are currently in compliance with applicable laws, regulations and policies overseen by the CAC relating to cybersecurity, privacy, data protection and information security.

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

Moreover, regulatory authorities in China have recently increased their supervision on the collection and use of personal information, as well as cybersecurity and data compliance, over mobile applications. In October 2020, we received a notice from a governmental authority to make rectification on our app to avoid collecting certain information and we have passed the examination after rectification. In November 2021, we received an oral notice from the Beijing branch of CAC requiring us to make rectification on our app to change our keyword censorship mechanism. We have made the rectification as requested. In December 2021, we received a formal notice from the Beijing branch of CAC, stating that certain internet-based information services provided by us violated the relevant provisions under the PRC Cybersecurity Law and we were imposed with a fine of RMB0.5 million. We have paid up such fine and have adjusted our business practices to comply with the PRC Cybersecurity Law and other applicable regulations. On September 6, 2022, we received a notice from Beijing Communication Administration, requiring us to conduct self-review on the problems they found on our app in respect of infringement of users’ rights, threats to data security and potential hidden hazards. We submitted a rectification report on September 14, 2022 and have not received any further requirements from them on this since then. We cannot assure you that similar incident will not occur in the future. Any of these incidents may adversely affect our brand and reputation, consume our managerial resources, result in potential liability of us or administrative measures being enforced on us, or otherwise harm our business.

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In addition, regulatory authorities around the world have adopted or are considering a number of legislative and regulatory proposals concerning data protection. These legislative and regulatory proposals, if adopted, and the uncertain interpretations and application thereof could, in addition to the possibility of fines, result in an order requiring that we change our data practices and policies, which could have an adverse effect on our business and results of operations. The European Union General Data Protection Regulation (“GDPR”), which came into effect on May 25, 2018, includes operational requirements for companies that receive or process personal data of residents of the European Economic Area. The GDPR establishes new requirements applicable to the processing of personal data, affords new data protection rights to individuals and imposes penalties for serious data breaches. Individuals also have a right to compensation under the GDPR for financial or non-financial losses. Given our products are sold in Europe, and the resident of the European Economic Area can access our website and our mobile platform and input protected information, we are subject to provisions of the GDPR. In the United States, the Health Insurance Portability and Accountability Act, or HIPAA, governs the privacy and security of health information and require that covered entities, including most health care providers, implement administrative, physical, and technical safeguards to protect the security of individually identifiable health information that is maintained or transmitted electronically. Violations of the HIPAA privacy and security regulations could result in significant civil and criminal penalties. The California Consumer Privacy Act, or CCPA, which took effect in January 2020, also establishes certain transparency rules and creates new data privacy rights for users, including more ability to control how their data is shared with third parties. These laws and regulations are evolving and subject to interpretation. Similarly, there are a number of legislative proposals in the European Union, the United States, at both the federal and state level, as well as other jurisdictions that could impose new obligations or limitations in areas affecting our business. In addition, some countries are considering or have passed legislation implementing data protection requirements or requiring local storage and processing of data or similar requirements that could increase the cost and complexity of delivering our services. Moreover, a growing number of legislative and regulatory bodies have adopted consumer notification requirements in the event of unauthorized access to or acquisition of certain types of personal data. Such breach notification laws continue to evolve and may be inconsistent from one jurisdiction to another, which might become a particular concern as we accelerate our international expansion. Complying with these obligations could cause us to incur substantial costs and could increase negative publicity surrounding any incident that compromises user data. Any failure to comply with applicable regulations could also result in regulatory enforcement actions against us.

We generally comply with industry standards and are subject to the terms of our own privacy policies. Compliance with any additional laws could be expensive, and may place restrictions on the conduct of our business and the manner in which we interact with our customers. For each product we develop, we gather personnel from product team, research and development team, security team and legal team to thoroughly assess the privacy risks related to the product. We review the character, potential and defined sales areas, types of personal data to be collected, related purpose for data collection and other aspects of each product to ensure compliance with applicable laws and regulations, including GDPR and CCPA regulations. For upgraded services and additional functions to be added to established products, we go through the same procedures. In 2021, we obtained the ISO/IEC 27001 information security management system certification. However, we cannot guarantee that our efforts will be effective or sufficient. Compliance with existing, proposed and recently enacted laws (including implementation of the privacy and process enhancements called for under GDPR and the Committee on Foreign Investment in the United States) and regulations can be costly. Any failure to comply with applicable regulations could also result in regulatory enforcement actions against us, and the misuse of or failure to secure personal information could also result in violation of data privacy laws and regulations, proceedings against us by governmental entities or others, damage our reputation and credibility and could have a negative impact on revenues and profits.

Any significant cybersecurity incident or disruption of our information technology systems or those of third-party partners could materially damage user relationships and subject us to significant reputational, financial, legal and operation consequences.

We depend on our information technology systems, as well as those of third parties, to develop new products and services, operate our platform, host and manage our services, store data, process transactions, respond to user inquiries, and manage inventory and our supply chain. Any material disruption or slowdown of our systems or those of third parties whom we depend upon, including a disruption or slowdown caused by our failure to successfully manage significant increases in user volume, could cause outages or delays in our services, particularly in the form of interruption of services delivered by our mobile applications, which could harm our brand and adversely affect our operating results. We primarily rely on Amazon Web Services to store our data, except for the data in Russia. Problems with our cloud service providers or the telecommunications network providers with whom they contract could adversely affect the experience of our users. We cannot guarantee that our cloud service providers will provide us with continuously uninterrupted services. Any change in service levels at our cloud servers or any errors, defects, disruptions, or other performance problems with our platform could harm our brand and may damage the data of our users. If changes in technology cause our information systems, or those of third parties whom we depend upon, to become obsolete, or if our or their information systems are inadequate to handle our growth, we could lose users and our business and operating results could be adversely affected.

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We have adopted security policies and measures, including encryption technology, to protect our proprietary data and user information. However, our enterprise platform and information systems may be targets of attacks, such as viruses, malware or phishing attempts by cyber criminals or other wrongdoers seeking to steal our user data for financial gain or to harm our business operations or reputation. The loss, misuse or compromise of such information may result in costly investigations, remediation efforts and notification to affected users. If such content is accessed by unauthorized third parties or deleted inadvertently by us or third parties, our brand and reputation could be adversely affected. Cyber-attacks could also adversely affect our operating results, consume internal resources, and result in litigation or potential liability for us and otherwise harm our business. In addition, according to our cooperation agreement with Xiaomi, both Xiaomi and we have access and can collect and use user data of Xiaomi Wearable Products. Consequently, any leak or abuse of user data by Xiaomi may be perceived by consumers as a result of the compromise of our information security system. Any failure or perceived failure by us to prevent information security breaches or to comply with privacy policies or privacy-related legal and administrative obligations, or any compromise of security that results in the unauthorized release or transfer of personally identifiable information or other user data, could cause our users to lose trust in us and could expose us to legal claims.

Significant capital and other resources may be required to protect against information security breaches or to alleviate problems caused by such breaches or to comply with our privacy policies or privacy-related legal obligations. The resources required may increase over time as the methods used by hackers and others engaged in online criminal activities are increasingly sophisticated and constantly evolving. Any failure or perceived failure by us to prevent information security breaches or to comply with privacy policies or privacy-related legal obligations, or any compromise of security that results in the unauthorized release or transfer of personally identifiable information or other customer data, could cause our customers to lose trust in us and could expose us to legal claims. Any perception by the public that online transactions or the privacy of user information are becoming increasingly unsafe or vulnerable to attacks could inhibit the growth of our business in general, which may reduce the number of orders we receive.

Our patents, know-how, trade secrets and other intellectual property rights and proprietary rights are critical to our success. Any failure to obtain, maintain, enforce or protect our patents and other intellectual property rights would materially and adversely harm our business, competitive position, results of operations and financial condition.

We rely on intellectual property rights such as patents, trademarks, copyrights, and domain names in China and other foreign jurisdictions to carry out our business operations. Given our technological advantages and brand recognition, we may become an attractive target to counterfeiting and intellectual property theft activity. Despite the measures we have taken to safeguard our intellectual property rights, any of our intellectual property rights could be challenged, invalidated, circumvented, infringed or misappropriated. In addition, it is often difficult to register, maintain and enforce intellectual property rights in various developing countries around the world, such as 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. Accordingly, we may not be able to effectively protect our intellectual property rights or to enforce our contractual rights in a number of jurisdictions in which we operate, such as China. Policing any unauthorized use of our intellectual property is difficult and costly, and the steps we take may be inadequate to prevent the infringement or misappropriation of our intellectual property. In the event that we resort to litigation to enforce our intellectual property rights, such litigation could result in substantial costs and a diversion of our managerial and financial resources, and could put our intellectual property at risk of being invalidated or narrowed in scope. We can provide no assurance that we will prevail in such litigation, and even if we do prevail, we may not obtain a meaningful recovery.

Various other issues may arise with respect to our intellectual property portfolio. We and Xiaomi are co-owners of certain patents, certain other intellectual properties and user data related to Xiaomi Wearable Products. There is a possibility that Xiaomi may use these intellectual properties and user data to develop and manufacture competing products on its own or engage other companies leveraging such resources to do so. In addition, we may not have sufficient intellectual property rights in all countries and regions where unauthorized third-party copying or use of our proprietary technology may occur and the scope of our intellectual property might be more limited in certain countries and regions. Our existing and future patents may not be sufficient to protect our products, services, technologies or designs and/or may not prevent others from developing competing products, services, technologies or designs. We cannot predict the validity and enforceability of our patents and other intellectual property with certainty.

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We may not be able to protect our intellectual property rights throughout the world.

Filing, prosecuting and defending patents and other intellectual property on our products and services in all countries throughout the world would be prohibitively expensive. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of the United States, and we may encounter difficulties in protecting and defending such rights in foreign jurisdictions. Consequently, we may not be able to prevent third parties from practicing our intellectual property in all countries outside the United States, or from selling or importing products made using our intellectual property. Competitors may use our technologies in jurisdictions where we have not obtained intellectual property protection to develop their own products and may also export infringing products to territories where we have patent protection, but enforcement is not as strong as that in the United States. These products may compete with our products and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.

Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of many other countries do not favor the enforcement of patents and other intellectual property protection, which could make it difficult for us to stop the infringement of our intellectual property in such countries. Proceedings to enforce our intellectual property rights in foreign jurisdictions could result in substantial cost and divert our efforts and attention from other aspects of our business, could put our intellectual property at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing, and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop.

Our business may suffer if it is alleged or determined that our technologies, products, or other aspects of our business infringe third-party intellectual property or if third parties infringe our rights.

We may fail to own or apply for key trademarks or patents on important products, services, technologies or designs in a timely fashion, or at all, both in China and overseas. We have registered and applied to register trademarks and service marks, including, but not limited to, “Amazfit,” “ZEPP,” “华米” and “跃我” in China and foreign jurisdictions. We may not be able to adequately protect our trademarks and service marks, and our competitors and others may successfully challenge the validity and/or enforceability of our trademarks and service marks and other intellectual property. Additionally, we may be prohibited from entering into certain new markets due to restrictions surrounding competitors’ trademarks. For example, our company name in Chinese characters, “华米,” was previously registered as a trademark by a company unaffiliated to us in certain trademark categories in China. In August 2020, we engaged a trademark agent to file an invalidation petition against this registered trademark in the National Intellectual Property Administration. In July 2021, the National Intellectual Property Administration issued an order which invalidated this registered trademark. The invalidation decision was further confirmed by Beijing Intellectual Property Court and Beijing High People’s Court in June 2022 and December 2022, respectively. Furthermore, the “华米” trademark in one trademark category—which is contractually owned by Xiaomi only. If for any reason our cooperation relationship with Xiaomi is deteriorated in the future, we may not be able to use “华米” as a trademark in this category, which could negatively impact our operations.

It may be possible, in jurisdictions where the status of various applications is pending, unclear, challenged or rejected, for a third-party owner of the national trademark registration for a similar mark to prohibit the manufacture, sale or exportation of our products in or from that country. Failure to register our trademarks or purchase or license the right to use our trademarks or logos in these countries could limit our ability to obtain supplies from, or manufacture in, less costly markets or penetrate new markets should our business plan include selling our products in those countries. Additionally, we may receive from time-to-time letters alleging infringement of patents, trademarks or other intellectual property rights by us.

If we continue to grow, we may not be able to effectively manage our growth and the increased complexity of our business, which could negatively impact our brand and financial performance.

Since our founding in December 2013, our company has experienced rapid growth. Continued growth of our business requires us to expand our product development, sales and marketing, and distribution functions, to upgrade our management information systems and other processes and technology, and to secure more space for our expanding workforce. Such expansion could increase the strain on our resources, and we could experience serious operating difficulties, including difficulties in hiring, training, and managing an increasing number of employees.

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As we only have a limited history of operating our business at its current scale, it is difficult to evaluate our current business and future prospects, including our ability to plan for and model future growth. Our limited operating experience at this scale, combined with the rapidly evolving nature of the market in which we sell our products and services, substantial uncertainty concerning how these markets may develop, and other economic factors beyond our control, reduces our ability to accurately forecast quarterly or annual revenue. As such, any predictions about our future revenue and expenses may not be as accurate as they would be if we had a longer operating history or operated in a more developed and predictable market. Failure to manage our future growth effectively could have an adverse effect on our business, which, in turn, could have an adverse impact on our operating results and financial condition.

We are subject to a variety of costs and risks due to our continued expansion internationally that may not be successful and could adversely affect our profitability and operating results.

Our products have international versions that are manufactured for sales and distribution in overseas markets. The shipment volume of international versions of our products, as a percentage of our total shipment volume, increased from 54.1% in 2020 to 56.3% in 2021, but slightly decreased to 52.6% in 2022. International expansion represents a large opportunity to further grow our business and enhance our competitive position, and is one of our core strategies.

We may enter into new geographic markets where we have limited or no experience in marketing, selling, and localizing and deploying our products. International expansion has required and will continue to require us to invest significant capital and other resources and our efforts may not be successful. International sales and operations may be subject to risks such as:

● limited brand recognition (compared with our home market in China);

● costs associated with establishing new distribution networks;

● difficulties in capturing foreign consumers’ preferences and customs;

● difficulties in staffing and managing foreign operations;

● costs and difficulties associated with providing after-sales customer services;

● burdens of complying with a wide variety of local laws and regulations, including packaging and labeling;

● adverse tax effects and foreign exchange controls making it difficult to repatriate earnings and cash;

● political and economic instability;

● potential cross-border commercial disputes;

● trade restrictions, including sanction-related restrictions;

● differing employment practices and laws and labor disruptions;

● the imposition of government controls;

● lesser degrees of intellectual property protection;

● tariffs and customs duties and the classifications of our goods by applicable governmental bodies; and

● a legal system subject to undue influence or corruption.

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The occurrence of any of these risks could negatively affect our international business and consequently our business and operating results. In particular, the conflicts in Ukraine and the imposition of broad economic sanctions on Russia could raise energy prices and disrupt global markets, and may affect the demand for and sales of Xiaomi wearable products and our self-branded products in the affected regions. Furthermore, the operations of our local distributors in Ukraine and Russia may be disrupted by the conflicts between the two countries, which may cause delay in the collection of receivables and could negatively impact our operating results. In addition, the concern over these risks may also prevent us from entering into or releasing certain of our products in certain markets.

We distribute our products to Europe through our European headquarter located in the Netherlands. Local laws and regulations in the market where we maintain operations may create burdens for us. For example, we need to comply with the Dutch laws and regulations such as the Dutch Competition Act, which prohibits anti-competition agreements, and we could be subject to fines and penalties if we were found in violation of such laws and regulations.

In 2019, we started to explore domestic and international sales and marketing channels for our Amazfit products on our own, and we plan to keep doing so in the foreseeable future. In August 2020, we launched premium smart watches under our own “Zepp” brand. In 2021, we promoted our Amazfit products sold in China as Chinese characters “跃我,” which means “up your game” in Chinese. In 2022, we continued to develop international markets, especially Europe and the U.S. We have incurred expenses on a variety of different sales and marketing efforts designed to enhance our brand recognition and increase sales of our Amazfit and Zepp products. Our marketing and branding activities may not achieve anticipated results. If we fail to enhance our marketing approaches and experiment with new marketing methods, or fail to do so in a cost-effective manner, our expansion efforts will be hindered.

We are exposed to potential liabilities arising from the products we sell, and costs related to defective products could have a material adverse impact on us.

Contractual disputes over warranties of our products can arise in the ordinary course of our business. In extreme situations, we may be exposed to potential personal injury liabilities as a result of the misuse or quality defects of the products we sell. There can be no assurance that we will not experience material product liability losses in the future, or that we will be able to defend such claims at a contained level of cost. Although we purchased products liability insurance in 2022, which covers a wide range of our products, a successful claim brought against us in excess of our available insurance coverage may have a material adverse effect on our business. Although we had insignificant volume of product replacement or product return historically, the cost of product replacements or product returns may be substantial, and we could incur substantial costs in implementing modifications to fix the defects.

In addition, due to the nature of some of our smart wearable devices, some users have had in the past and may in the future experience skin irritations or other biocompatibility issues not uncommon with jewelry or other wearable products that stay in contact with skin for extended periods of time. There have been a limited number of reports from some users of certain of our devices experiencing skin irritations. This negative publicity could harm the sales of our products and also adversely affect our relationships with distributors and retailers that sell our products, including causing them to be reluctant to continue to sell our products. If large numbers of users experience these problems, we could be subject to enforcement actions or the imposition of significant monetary fines or other penalties by regulatory agencies, and face personal injury or class action litigation, any of which could have a material adverse impact on our business, financial condition and operating results.

We also rely on the accuracy of sensors and our algorithms to ensure that our products can offer high measurement accuracy. Additionally, usages of our products in different physical environments or by different types of users may require delicate modification of our sensors and algorithms. There is, however, no assurance that the functionality of sensors from our suppliers or our algorithms can progress as much and as quickly to meet the demand of our users. Although we have not received any significant claims of the inaccuracy of measurements by our products in the past, these claims may occur from time to time. Such claims may further prompt warranty claims, regulatory investigations and litigation. In that case, our brand may suffer from negative publicity, which may then result in loss of consumer confidence and reduction of sales in our products.

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Furthermore, levels of warranty claims or estimated costs of warranty claims might materially affect our gross margins and operating results. Any failure to detect, prevent, or fix defects, or an increase in defects could result in a variety of consequences, including a greater number of returns and replacement of products than expected from Xiaomi for Xiaomi Wearable Products, or from end users for our Amazfit and Zepp products. This will lead to increases in warranty costs, regulatory proceedings and product recalls, which could harm not only our revenue and operating results, but also our brand name. We currently offer a standard product warranty that the product will operate under normal use. We offer product warranty to Xiaomi and distributors of our self-branded products. For products sold to end users, either through Xiaomi and distributors of our self-branded products, or directly by us to end users, we offer a 12-month warranty. We have the obligation to either repair or replace the defect product for the customers if the product is still under warranty. Since September 2022, the after-sale service contract with Xiaomi was renewed, through which Xiaomi has a right to return products received from its end users in the 7-day period subsequent to the sale, or defective products under the warranty. Previously, Xiaomi enjoys the replacement right only for the afore-mentioned products. At the time revenue is recognized, an estimate of warranty costs in relation to the products sold is recorded as a component of cost of revenues. Therefore, the occurrence of real or perceived quality problems or material defects in our current and future products could expose us to warranty claims in excess of our current reserves. If we experience greater returns or replacement of defective products from Xiaomi or end users, or greater warranty claims, in excess of our reserves, our brand name could suffer, and our business, revenue, gross margin, and operating results could be harmed.

Our business, financial condition and results of operations have been, and may continue to be, adversely affected by the COVID-19 pandemic.

Beginning in 2020, outbreaks of COVID-19 resulted in the temporary closure of many corporate offices, retail stores, and manufacturing facilities across China. Normal economic life throughout China was sharply curtailed. We took a series of measures to protect our employees through the end of 2022, including temporarily closing our offices, facilitating remote working arrangements for our employees, and canceling business meetings and travels. The operations of our suppliers were also impacted. The population in most of the major cities in China was locked down to a greater or lesser extent at various times and opportunities for discretionary consumption were extremely limited. In particular, restrictions were imposed from time to time in certain cities to combat sporadic outbreaks, and our business activities were negatively affected due to occasional lockdowns, such as the lockdowns in Shenzhen, Shanghai and other cities in 2022. To the extent we have service centers, sales channels or manufacturing facilities in these locations, we had to adjust various aspects of our operations in response to the outbreaks. In addition, the global spread of COVID-19 pandemic has led to an increase in our logistics costs, and adversely affected our logistic network, delivery time and sales performance overseas. The pandemic has also led to shortages in electronic components and chips and an increase in raw material costs, as we source those from southeast Asia, Europe and other areas around the world. The shortages in electronic components and chips may negatively affect the supply and production cycle of our products, causing delay in production and in turn decreased sales result.

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. There were surges of cases in many cities during this time, which negatively affected consumers’ intentions and abilities to purchase our products. Further, there remains uncertainty as to the future impact of the virus, especially in light of this change in policy. The extent to which the pandemic impacts our results of operations going forward will depend on future developments which are highly uncertain and unpredictable, including the frequency, duration and extent of outbreaks of COVID-19, the appearance of new variants with different characteristics, the effectiveness of efforts to contain or treat cases, and future actions that may be taken in response to these developments. China may experience lower domestic consumption, higher unemployment, severe disruptions to exporting of goods to other countries and greater economic uncertainty, which may impact our business in a materially negative way as a majority of our business operations are conducted in China. For example, any reduction in disposable income of our customers resulting from a worsening economy still under COVID-19’s influence may lessen demands for our smart wearable products or put price pressure on our products. Consequently, the COVID-19 pandemic may materially and adversely affect our business, financial condition and results of operations in the current and future years.

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An occurrence of a widespread health epidemic or other outbreaks could materially and adversely affect our business, financial condition and results of operations.

In addition to the impact of COVID-19, our business could be adversely affected by the effects of epidemics, such as the Influenza A virus subtype H1N1, or the H1N1 virus, Severe Acute Respiratory Syndrome, or SARS, avian influenza or other epidemics or outbreaks on the economic and business climate. A prolonged outbreak of any of these illnesses or other adverse public health developments in China or elsewhere in the world could have a material adverse effect on our business operations. Such outbreaks could significantly impact the online and offline retail industry and cause a temporary closure of the facilities we use for our operations. Such impact or closures would severely disrupt our operations and adversely affect our business, financial condition and results of operations. Our operations could be disrupted if any of our employees or employees of our partners were suspected of having the COVID-19, the H1N1 virus, SARS or avian influenza, since this could require us or our partners to quarantine some or all of such employees or disinfect the facilities used for our operations and may deter our customers or potential customers from purchasing or accepting our products. In addition, our business, financial condition and results of operations could be adversely affected to the extent that an outbreak harms the global or Chinese economy in general, such as wars, acts of terrorism, snowstorms, earthquakes, fire, floods, environmental accidents, power shortage or communication interruptions.

We cooperate with a wide range of strategic partners to enable diversified application scenarios, further enhance the performance of our products and expand our sales channels. If we fail to expand or maintain the pool of our strategic partners, the number of application scenarios, the performance of our products and our sales channels may not grow or develop as quickly, or at all, which may reduce the attractiveness of our products. Any underperformance or negative publicity of our strategic partners may also adversely affect our operating results.

It requires resources and contributions from a variety of market players to capitalize on the data and user base that we have accumulated so far. We have been actively seeking strategic cooperation opportunities on this front to create diverse application scenarios of our products. Furthermore, we have been pursuing collaborative relationships with leading wearable hardware companies with advanced know-how in order to develop increasingly sophisticated products, as well as partnership opportunities to expand our sales channels. We anticipate that we will continue to leverage strategic relationships with existing strategic partners to grow our business while pursuing new relationships with additional strategic partners. Pursuing, establishing and maintaining relationships with strategic partners require significant time and resources. If we fail to expand or maintain the pool of our partners, the growth of application scenarios, the development and performance of our products and the expansion of our sales channels may slow down or even wither, which in turn may affect the willingness of our users to purchase our products.

As in any cooperation relationship, the success of our initiatives to extend the application scenarios of and further drive the performance of our products, as well as our sales channels, together with our strategic partners involves many factors beyond our control. Additionally, there can be no assurances that our choices of strategic partners can always deliver satisfactory performance to our users, that our strategic partners would not replace us with any of our competitors, and that our current strategic partners would not leave the market. Further, as we associate ourselves with these strategic partners in providing services, any negative publicity on them may also have adverse impact on our own reputation.

Our future success depends on the continuing efforts of our key employees, including our founder Mr. Wang Huang, and on our ability to attract and retain highly skilled personnel and senior management.

Our future success depends, in part, on our ability to continue to attract and retain highly skilled personnel. In particular, we are highly dependent on the contributions of our founder Mr. Wang Huang, as well as other members of our senior management team. The loss of any key personnel could be disruptive to our operations and research and development activities, reduce our employee retention and revenue, and impair our ability to compete.

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Certain director may have conflicts of interest.

Our director, Mr. De Liu, is also a co-founder and a senior vice president of Xiaomi. Mr. Wang Huang, the chairman of our board of directors and our chief executive officer, also serves as the chairman of the board of directors of Jiangsu Yitong High-tech Co., Ltd., or Jiangsu Yitong, an affiliate of our company. Our director, Ms. Yunfen Lu, also serves as a director of Jiangsu Yitong. Such association may give rise to potential conflicts of interest, especially with regarding to our business cooperation with Xiaomi and Jiangsu Yitong. Directors of our company are required by law to act honestly and in good faith with a view to the best of our interests and to disclose any interest that they may have in any of our projects or opportunities. In addition, we have adopted a code of ethics and an audit committee charter. The code of ethics provides that an interested director needs to refrain from participating in any discussion among senior officers of our company relating to an interested business and may not be involved in any proposed transaction with such interested business. Furthermore, the audit committee charter provides that most related party transactions must be pre-approved by the audit committee, a majority of which consists of independent directors. Our audit committee charter, however, exempts the pre-approval requirement for related party transactions that are immaterial to us or not unusual by nature. In the event of such transactions with Xiaomi or Jiangsu Yitong, Mr. Liu and Ms. Lu will still be entitled to vote in our board meeting, and we cannot assure you that their decision will not be impacted by any potential conflict of interest arising from their respective relationship with Xiaomi and Jiangsu Yitong.

We have granted, and may continue to grant, options and other types of awards under our share incentive plans, which may result in increased share-based compensation expenses.

We adopted a share incentive plan in 2015, 2018 and 2023, respectively, which we refer to as the 2015 Plan, the 2018 Plan and the 2023 Plan, respectively, in this annual report, for the purpose of granting share-based compensation awards to employees, directors and consultants to incentivize their performance and align their interests with ours. We recognize expenses in our consolidated statement of income in accordance with U.S. GAAP. Under our three share incentive plans, we are authorized to grant options and other types of awards. The maximum aggregate number of shares which may be issued pursuant to all awards under the 2015 Plan, the 2018 Plan and the 2023 Plan is 14,328,358, 21,509,115, and 10,322,520 Class A ordinary shares, respectively. As of March 31, 2023, awards to purchase 13,536,737 Class A ordinary shares under the 2015 Plan have been granted and outstanding, excluding awards that were forfeited or cancelled after the relevant grant dates. As of March 31, 2023, awards to purchase 20,966,518 Class A ordinary shares under the 2018 Plan have been granted and outstanding, excluding awards that were forfeited or cancelled after the relevant grant dates. As of March 31, 2023, awards to purchase 4,255,544 Class A ordinary shares under the 2023 Plan have been granted and outstanding, excluding awards that were forfeited or cancelled after the relevant grant dates. As of December 31, 2022, our unrecognized share-based compensation expenses amounted to RMB77.3 million (US$11.2 million).

We believe the granting of share-based awards is of significant importance to our ability to attract and retain key personnel and employees, and we will continue to grant share-based compensation to employees in the future. As a result, our expenses associated with share-based compensation may increase, which may have an adverse effect on our results of operations.

Competition for highly skilled personnel is often intense and we may incur significant costs or not successful in attracting, integrating, or retaining qualified personnel to fulfill our current or future needs. We have, from time to time, experienced, and we expect to continue to experience, difficulty in hiring and retaining highly skilled employees with appropriate qualifications. In addition, if any of our senior management or key personnel joins a competitor or forms a competing company, we may lose know-how, trade secrets, business partners and key personnel. Furthermore, perspective candidates and existing employees often consider the value of the equity awards they receive in connection with their employment. Thus, our ability to attract or retain highly skilled employees may be adversely affected by declines in the perceived value of our equity or equity awards. Furthermore, there are no assurances that the number of shares reserved for issuance under our share incentive plans will be sufficient to grant equity awards adequate to recruit new employees and to compensate existing employees.

Higher labor costs and inflation may adversely affect our business and our profitability.

Labor costs in China have risen in recent years as a result of the enactment of new labor laws and social development. Given our contract manufacturers are currently all located in China, rising labor costs in China will increase their costs, which in turn may be reflected in the manufacturing fees charged by these contract manufacturers to us.

In addition, we have witnessed growing inflation rates in many areas of the world, and particularly in Asia where we procure most of our raw materials, which adversely affects us and our suppliers alike.

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The rising costs as a result of higher labor cost of our contract manufacturers and increasing raw material price, on the other hand, cannot be easily passed to end consumers in the form of higher retail sale prices due to severe competition in the smart wearable device market. Our profitability therefore may be adversely affected if labor cost and inflation continue to rise in the future.

Our business is subject to seasonal fluctuations and if our sales fall below our forecasts, our overall financial conditions and results of operations could be adversely affected.

Our business is subject to seasonal fluctuations, which may be caused by product launches and various promotional events hosted by our distributors. Our revenues have been higher in the fourth quarter each year primarily as a result of (i) holiday sales for Black Friday and Cyber Monday and during the lead-up to Christmas and (ii) promotional events organized by Amazon and other e-commerce platforms. Accordingly, any shortfall in expected fourth quarter revenue would adversely affect our annual operating results.

Furthermore, our rapid growth may obscure the extent to which seasonality trends have affected our business. Accordingly, yearly or quarterly comparisons of our operating results may not be useful and our results in any particular period will not necessarily be indicative of the results to be expected for any future period.

You should not rely on our Mobile App MAU or number of registered users metrics as indicators of future retention of users, continual user engagement or other revenue opportunities.

Our MAU metric tracks the number of the accounts that have been logged into on our mobile apps during a given calendar month. Our number of registered users metric tracks the number of users who have completed the registration process on our mobile apps as of a specified date. They do not fully capture the frequency and duration that users engage with our devices as users may not sign in or stay logged in on our mobile apps when using our devices. The Mobile App MAU and the number of registered users metrics only represent the potential size or growth of our user community and are not necessarily indicators of the actual size and growth of our user community. In addition, most of the services provided on our mobile apps currently are offered to users for free once they have purchased our smart wearable devices. Therefore, our Mobile App MAU metric should not be relied upon as an indicator of the level of retention of individual users in the future, continual user engagement or the potential size and growth of our user community, all of which are indicators for other potential revenue opportunities.

We may engage in acquisition and investment activities, which could require significant management attention, disrupt our business, dilute shareholder value, and adversely affect our operating results.

As part of our business strategy, we have completed acquisitions in the past and may continue to acquire or make investments in other companies, products, or technologies to enhance the features and functionality of our devices, and accelerate the expansion of our platform and network of strategic partners. We may not be able to find suitable acquisition or investment candidates and we may not be able to complete acquisition and investment on favorable terms, if at all. If we do complete acquisition and investment as we expect, we may not ultimately strengthen our competitive position or achieve our goals; and any acquisition and investment we complete could be viewed negatively by users or investors. In addition, if we fail to successfully integrate such acquisitions into our company, the revenue and operating results of the combined company could be adversely affected, we may not realize the expected benefits from the transaction relative to the consideration paid, and our business, financial condition, and results of operations may be adversely affected. To be successful, the integration process requires us to achieve the benefits of combining the companies, including generating operating efficiencies and synergies and eliminating or reducing redundant costs. This integration process involves inherent uncertainties, and we cannot assure you that the anticipated benefits of these acquisitions will be fully realized without incurring unanticipated costs or diverting management’s attention from our core operations.

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Acquisitions and investments may disrupt our ongoing operations, divert management from their primary responsibilities, subject us to additional liabilities, increase our expenses, and adversely impact our business, financial condition, operating results, and cash flows. In particular, our acquisitions and investments may be subject to relevant laws, regulations and governmental approvals, potentially strict scrutiny by foreign governments, both retrospectively and prospectively. For example, in June 2020, we acquired PAI Health, a heart health software company incorporated in Canada. However, we cannot guarantee that the Canadian national security inspection or similar events in the future will not negatively affect our business and results of operations. Failure to obtain necessary governmental approvals or to comply with applicable laws and regulations in the jurisdictions where we or the companies we invest in or acquire operate could subject us to administrative liabilities, which will materially and adversely affect our results of operations and financial performance. In addition, certain early-stage enterprises that we have invested in may require a significant amount of cash to develop their businesses and maintain their daily operations, and therefore are susceptible to market risks. Certain enterprises we invested in that subsequently became public companies have been, and likely will continue to be, subject to severe volatility in stock prices, and the value of our investment may in turn be negatively affected. We may not accurately forecast the financial impact of an acquisition or investment transaction, including accounting charges. We would have to pay cash, incur debt, or issue equity securities to pay for any such acquisition and investment, each of which may affect our financial condition or the value of our capital stock and could result in dilution to our shareholders. We had RMB1,720.9 million (US$249.5 million) of short-term and long-term investments as of December 31, 2022.

Furthermore, our financial results could be adversely affected by our investments or acquisitions. The investments and acquired assets or businesses may not generate the financial results we expect. They could result in the occurrence of significant investments and goodwill impairment charges, and amortization expenses for other intangible assets. Most of our investee companies are in their early stages and may not be able to achieve profitability or generate positive operating cash flows in the near future. A partial or complete loss of our investments in these investee companies is possible. For example, in February 2021, we acquired 29.99% of the total outstanding shares of Jiangsu Yitong through one of our subsidiaries in China. We adopted the equity method and consolidated the income or loss of Jiangsu Yitong, which may affect our net income. If the stock price of Jiangsu Yitong decreases significantly for an extended period, the valuation of this investment may be adjusted and we may need to recognize an impairment loss.

Additionally, we may receive indications of interest from other parties interested in acquiring some or all of our business. The time required to evaluate such indications of interest could require significant attention from management, disrupt the ordinary functioning of our business, and adversely affect our operating results.

An economic downturn or economic uncertainty may adversely affect consumer discretionary spending and demand for our products and services.

Our products and services may be considered discretionary items for consumers. Factors affecting the level of consumer spending for such discretionary items include general economic conditions, and other factors, such as consumer confidence in future economic conditions, fears of recession, the availability and cost of consumer credit, levels of unemployment, and tax rates. As global economic uncertainty remains, trends in consumer discretionary spending also remain unpredictable and subject to reductions. Unfavorable economic conditions may lead consumers to delay or reduce purchases of our products and services and consumer demand for our products and services may not grow as we expect. Our sensitivity to economic cycles and any related fluctuation in consumer demand for our products and services may have an adverse effect on our operating results and financial condition.

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COVID-19 had a severe and negative impact on the Chinese and the global economy starting from 2020. COVID-19 currently remains a global emergency, even as many countries have managed to move towards a recovery phase, and whether this will lead to a prolonged downturn in the economy is still unknown. Even before the outbreak of COVID-19, the global macroeconomic environment was facing numerous challenges. The growth rate of the Chinese economy had gradually slowed since 2010, and it was further affected by the impact of COVID-19. There is considerable uncertainty over the long-term effects of the contractionary or expansionary monetary and fiscal policies which had been adopted by the central banks and financial authorities of some of the world’s leading economies, including the United States and China. For example, since 2022 the U.S. Federal Reserve, European Central Bank and some other major central banks around the world have tightened monetary policies in response to rising inflation. In addition, two large banks in the United States, Silicon Valley Bank and Signature Bank, collapsed during March 2023. Both Silicon Valley Bank and Signature Bank were deeply connected to many companies and institutions across the world, which may prompt concern of widespread, systematic failures.

Unrest, terrorist threats and the potential for war in the Middle East and elsewhere may increase market volatility across the globe. There have also been concerns about the relationship between China and other countries, including the surrounding Asian countries, which may potentially have economic effects. In particular, there is significant uncertainty about the future relationship between the United States and China with respect to trade policies, treaties, government regulations and tariffs. Economic conditions in China are sensitive to global economic conditions, as well as changes in domestic economic and political policies and the expected or perceived overall economic growth rate in China. Any severe or prolonged slowdown in the global or Chinese economy may materially and adversely affect our business, results of operations and financial condition.

We are subject to governmental economic sanctions laws that could subject us to liability and impair our ability to compete in international markets.

Our operations may be negatively affected by any deterioration in the political and economic relations among countries and various sanctions and export controls administered by relevant government authorities or organizations. For example, U.S. economic sanctions prohibit the provision of products and services to countries, governments, and persons targeted by U.S. sanctions. Even though we take precautions to prevent our products from being provided to the targets of U.S. sanctions, our products, including our firmware updates, could be provided to those targets through independent distributors despite such precautions. Any such provision could have negative consequences, including government investigations, penalties and reputational harm. We could be subject to future enforcement action with respect to compliance with governmental economic sanctions laws, which could result in penalties and costs and consequentially have a material effect on our business and operating results. Changes in U.S. and international trade policies, particularly with regard to China, may adversely impact our business and operating results.

The U.S. government has made statements and taken certain actions that may lead to potential changes to U.S. and international trade policies towards China. While the “Phase One” agreement was signed between the United States and China on trade matters, it remains unclear what additional actions, if any, will be taken by the U.S. or other governments with respect to international trade, tax policy related to international commerce, or other trade matters. The situation is further complicated by the political tensions between the United States and China that escalated during the COVID-19 pandemic and in the wake of the PRC National People’s Congress’ decision on Hong Kong national security legislation, sanctions imposed by the U.S. Department of Treasury on certain officials of the Hong Kong Special Administrative Region and the central government of the PRC and the executive orders issued by U.S. President in August 2020 that prohibit certain transactions with certain China-based companies and their respective subsidiaries. Rising trade and political tensions could reduce levels of trades, investments, technological exchanges and other economic activities between China and other countries, which would have an adverse effect on global economic conditions, the stability of global financial markets, and international trade policies.

Any unfavorable government policies on international trade, such as capital controls or tariffs, may affect the demand for our products and services, impact the competitive position of our products or prevent us from being able to sell products in certain countries. If any new tariffs, legislation and/or regulations are implemented, or if existing trade agreements are renegotiated or, in particular, if the U.S. government takes retaliatory trade actions due to the recent U.S.-China trade tension, such changes could have an adverse effect on our business, financial condition and results of operations.

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Our use of open source software could negatively affect our ability to sell our products and subject us to possible litigation.

Some of the technologies we use incorporate open source software, such as Zepp OS, and we may incorporate other open source software in the future. Such open source software is generally licensed by its authors or other third parties under open source licenses. These licenses may subject us to certain unfavorable conditions, including requirements that we offer our products and services that incorporate the open source software for no cost, that we make publicly available the source code for any modifications we made or derivative works we created based upon, incorporating, or using the open source software, or that we license such modifications or derivative works under the terms of the particular open source license. Additionally, if a third-party software provider has incorporated open source software into the software that we license from such provider, we could be required to disclose or provide at no cost any of our source code that incorporates or is a modification of such licensed software. If the author or other third-party distributor of the open source software that we use or license were to allege that we had not complied with the conditions of the applicable license, we could be required to incur significant legal expenses defending against such allegations and could be subject to significant damages and enjoined from the sale of our products and services that contained the open source software. Any of the foregoing could disrupt the distribution and sale of our products and services and harm our business.

We could be exposed to significant costs and business disruption resulted from product liability claims.

Although we purchased products liability insurance in 2022, which covers a wide range of our products, a successful liability claim against us due to injuries suffered by our users in excess of our available insurance coverage could materially and adversely affect our financial conditions, results of operations and reputation. In addition, we do not have any business disruption insurance. Any business disruption event could result in substantial cost to us and diversion of our resources.

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

We are subject to the reporting obligations under the U.S. securities laws. The Securities and Exchange Commission, or SEC, as required under Section 404 of the Sarbanes-Oxley Act of 2002, has adopted rules requiring a public company to include a report of management on the effectiveness of such company’s internal control over financial reporting in its annual report on Form 20-F. In addition, once we cease to be an “emerging growth company,” as such term is defined in the Jumpstart Our Business Startups Act of 2012 (as amended by the Fixing America’s Surface Transportation Act of 2015), or the JOBS Act, an independent registered public accounting firm for a public company must issue an attestation report on the effectiveness of our internal control over financial reporting.

Our management has concluded that our internal control over financial reporting was effective as of December 31, 2022. We will endeavor to maintain an effective internal control system, but any failure may cause our management and our independent registered public accounting firm to not be able to conclude that we have effective internal control over financial reporting at a reasonable assurance level in the future. This could in turn result in the loss of investor confidence in the reliability of our financial statements and negatively impact the trading price of our ADSs. Furthermore, we have incurred and may need to incur additional costs and use additional management and other resources in an effort to comply with Section 404 of the Sarbanes-Oxley Act and other requirements going forward.

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Increasing focus with respect to environmental, social and governance matters may impose additional costs on us or expose us to additional risks. Failure to adapt to or comply with the evolving expectations and standards on environmental, social and governance matters from investors and the PRC government may adversely affect our business, financial condition and results of operation.

The PRC government and public advocacy groups have been increasingly focused on environment, social and governance (“ESG”) issues in recent years, making our business more sensitive to ESG issues and changes in governmental policies and laws and regulations associated with environment protection and other ESG-related matters. Investor advocacy groups, certain institutional investors, investment funds, and other influential investors are also increasingly focused on ESG practices and in recent years have placed increasing importance on the implications and social cost of their investments. Regardless of the industry, increased focus from investors and the PRC government on ESG and similar matters may hinder access to capital, as investors may decide to reallocate capital or to not commit capital as a result of their assessment of a company’s ESG practices. Any ESG concern or issue could increase our regulatory compliance costs. If we do not adapt to or comply with the evolving expectations and standards on ESG matters from investors and the PRC government or are perceived to have not responded appropriately to the growing concern for ESG issues, regardless of whether there is a legal requirement to do so, we may suffer from reputational damage and the business, financial condition, and the price of our ADSs could be materially and adversely effected.

Risks Related to Our Corporate Structure

If the PRC government finds that the agreements that establish the structure for operating some of our operations in China do not comply with PRC regulations relating to the relevant industries, or if these regulations or the interpretation of existing regulations change in the future, we could be subject to severe penalties or be forced to relinquish our interests in those operations.

Our WFOE has entered into a series of contractual arrangements with the VIEs and their respective shareholders, respectively, which enable us to (i) exercise effective control over the VIEs, (ii) receive substantially all of the economic benefits of the VIEs, and (iii) have an exclusive option to purchase all or part of the equity interests and assets in the VIEs when and to the extent permitted by PRC law. As a result of these contractual arrangements, we have control over and are the primary beneficiary of the VIEs and hence consolidate their financial results into our consolidated financial statements under U.S. GAAP. See “Item 4. Information on the Company—C. Organizational Structure” for further details. We conduct our operations in China through (i) our PRC subsidiaries and (ii) the VIEs with which we maintained these contractual arrangements and their subsidiaries in China. Investors in our ADSs thus are not purchasing equity interest in the VIEs in China but instead are purchasing equity interest in a Cayman Islands holding company with no equity ownership in the VIEs.

In the opinion of Zhong Lun Law Firm, our PRC legal counsel, (i) the ownership structures of the VIEs in China and our WFOE comply with all existing PRC laws and regulations; and (ii) the contractual arrangements between our WFOE, the VIEs and their respective shareholders governed by PRC law are valid, binding and enforceable, and will not result in any violation of PRC laws or regulations currently in effect. However, our PRC legal counsel has also advised us that there are substantial uncertainties regarding the interpretation and application of current and future PRC laws, regulations and rules. Accordingly, the PRC regulatory authorities may take a view that is contrary to the opinion of our PRC legal counsel. Our holding company in the Cayman Islands, the VIEs and investments in our Company face uncertainty about potential future actions by the PRC government that could affect the enforceability of the contractual arrangements with VIEs and, consequently, the business, financial condition, and results of operations of the VIEs and our Company as a group. In addition, our ADSs may decline in value or become worthless if we are unable to assert our contractual control rights over the assets of the VIEs which contributed to 61.2% of our revenues in 2022. It is uncertain whether any new PRC laws or regulations relating to variable interest entity structures will be adopted or if adopted, what they would provide. If we or any of the VIEs are found to be in violation of any existing or future PRC laws or regulations, or fail to obtain or maintain any of the required permits or approvals, the relevant PRC regulatory authorities would have broad discretion to take action in dealing with such violations or failures, including:

● discontinuing or placing restrictions or onerous conditions on our operations through any transactions between our WFOE and the VIEs;

● imposing fines, confiscating the income from our WFOE or the VIEs, or imposing other requirements with which we or the VIEs may not be able to comply;

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● requiring us to restructure our ownership structure or operations, including terminating the contractual arrangements with the VIEs and deregistering the equity pledges of the VIEs, which in turn would affect our ability to consolidate, derive economic interests from, or exert effective control over the VIEs; or

● restricting or prohibiting our use of the proceeds of our initial public offering and our ADS offering in April 2019 to finance our business and operations in China.

The imposition of any of these penalties would result in a material and adverse effect on our ability to conduct our business. In addition, it is unclear what impact the PRC government actions would have on us and on our ability to consolidate the financial results of the VIEs in our consolidated financial statements, if the PRC government authorities were to find our legal structure and contractual arrangements to be in violation of PRC laws and regulations. If the imposition of any of these government actions causes us to lose our right to direct the activities of the VIEs or our right to receive substantially all the economic benefits and residual returns from the VIEs and we are not able to restructure our ownership structure and operations in a satisfactory manner, we would no longer be able to consolidate the financial results of the VIEs in our consolidated financial statements. Either of these results, or any other significant penalties that might be imposed on us in this event, would have a material adverse effect on our financial condition and results of operations.

We rely on contractual arrangements with the VIEs and their shareholders for a large portion of our business operations, which may not be as effective as direct ownership in providing operational control.

We have relied and expect to continue to rely on contractual arrangements with the VIEs and their shareholders to conduct certain of our key businesses. These contractual arrangements may not be as effective as direct ownership in providing us with control over the VIEs. For example, the VIEs and their shareholders could breach their contractual arrangements with us by, among other things, failing to conduct their operations in an acceptable manner or taking other actions that are detrimental to our interests.

If we had direct ownership of the VIEs, we would be able to exercise our rights as a shareholder to effect changes in the board of directors of the VIEs, which in turn could implement changes, subject to any applicable fiduciary obligations, at the management and operational level. However, under the current contractual arrangements, we rely on the performance by the VIEs and their respective shareholders of their obligations under the contracts to exercise control over the VIEs. However, the shareholders of the Consolidated VIEs may not act in the best interests of our company or may not perform their obligations under these contracts. Such risks exist throughout the period in which we intend to operate certain portions of our business through the contractual arrangements with the VIEs. If any disputes relating to these contracts remains unresolved, we will have to enforce our rights under these contracts through the operations of PRC law and arbitration, litigation and other legal proceedings and therefore will be subject to uncertainties in the PRC legal system. See “Item 3. Key Information—D. Risk Factors—Any failure by the VIEs or their shareholders to perform their obligations under our contractual arrangements with them would have a material and adverse effect on our business.” Therefore, our contractual arrangements with the VIEs may not be as effective in ensuring our control over the relevant portion of our business operations as direct ownership would be.

Any failure by the VIEs or their shareholders to perform their obligations under our contractual arrangements with them would have a material and adverse effect on our business.

We refer to the shareholders of each of the VIEs as its nominee shareholders because although they remain the holders of equity interests on record in each of the VIEs, pursuant to the terms of the relevant power of attorney, each such shareholder has irrevocably authorized our WFOE to exercise his, her or its rights as a shareholder of the relevant VIE. However, if the VIEs or their shareholders fail to perform their respective obligations under the contractual arrangements, we may have to incur substantial costs and expend additional resources to enforce such arrangements. We may also have to rely on legal remedies under PRC law, including seeking specific performance or injunctive relief, and claiming damages, which we cannot assure will be effective under PRC law. For example, if the shareholders of the VIEs refuse to transfer their equity interest in the VIEs to us or our designee if we exercise the purchase option pursuant to these contractual arrangements, or if they otherwise act in bad faith toward us, then we may have to take legal actions to compel them to perform their contractual obligations.

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All of the agreements under our contractual arrangements are governed by PRC law and provide for the resolution of disputes through arbitration in China. Accordingly, these contracts would be interpreted in accordance with PRC law and any disputes would be resolved in accordance with PRC legal procedures. The legal system in the PRC is not as developed as in some other jurisdictions, such as the United States. As a result, uncertainties in the PRC legal system could limit our ability to enforce these contractual arrangements. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China— Uncertainties with respect to the PRC legal system and changes in laws and regulations in China could adversely affect us, and any lack of requisite approvals, licenses or permits applicable to our business may have a material adverse effect on our business and results of operations.” Meanwhile, there are very few precedents as to whether contractual arrangements would be judged to form effective control over the relevant VIEs through the contractual arrangements, or how contractual arrangements in the context of a variable interest entity should be interpreted or enforced by the PRC courts. Should legal actions become necessary, we cannot guarantee that the court will rule in favor of the enforceability of the variable interest entity contractual arrangements. In addition, under PRC law, rulings by arbitrators are final, parties cannot appeal the arbitration results in courts, and 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 we are unable to enforce these contractual arrangements, or if we suffer significant delays or other obstacles in the process of enforcing these contractual arrangements, we may not be able to exert effective control over the VIEs, and our ability to conduct our business may be negatively affected.

The shareholders of the VIEs may have potential conflicts of interest with us, which may materially and adversely affect our business and financial condition.

The shareholders of the VIEs may have potential conflicts of interest with us. These shareholders may breach, or cause the VIEs to breach, or refuse to renew, the existing contractual arrangements we have with them and the VIEs, which would have a material and adverse effect on our ability to effectively control the VIEs and receive economic benefits from them. For example, the shareholders may be able to cause our agreements with the VIEs to be performed in a manner adverse to us by, among other things, failing to remit payments due under the contractual arrangements to us on a timely basis. We cannot assure you that when conflicts of interest arise any or all of these shareholders will act in the best interests of our company or such conflicts will be resolved in our favor. Currently, we do not have any arrangements to address potential conflicts of interest between these shareholders and our company. If we cannot resolve any conflict of interest or dispute between us and these shareholders, we would have to rely on legal proceedings, which could result in disruption of our business and subject us to substantial uncertainty as to the outcome of any such legal proceedings.

Contractual arrangements in relation to the VIEs may be subject to scrutiny by the PRC tax authorities and they may determine that we or our PRC VIEs owe additional taxes, which could negatively affect our 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. We could face material and adverse tax consequences if the PRC tax authorities determine that the VIE contractual arrangements 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, rules and regulations, and adjust the income of the VIEs 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 the VIEs for PRC tax purposes, which could in turn increase its tax liabilities without reducing our WFOE’s tax expenses. In addition, the PRC tax authorities may impose late payment fees and other penalties on the VIEs for the adjusted but unpaid taxes according to the applicable regulations. Our financial position could be materially and adversely affected if the VIEs’ tax liabilities increase or if it is required to pay late payment fees and other penalties.

We may lose the ability to use and enjoy assets held by the VIEs that are material to the operation of certain portion of our business if the VIEs go bankrupt or become subject to a dissolution or liquidation proceeding.

As part of our contractual arrangements with the VIEs, the VIEs and their subsidiaries hold certain assets that are material to the operation of certain portion of our business, including intellectual property and premise. If the VIEs go bankrupt and all or part of its assets become subject to liens or rights of third-party creditors, we may be unable to continue some or all of our business activities, which could materially and adversely affect our business, financial condition and results of operations. Under the contractual arrangements, the VIEs may not, in any manner, sell, transfer, mortgage or dispose of their assets or legal or beneficial interests in the business without our prior consent. If the VIEs undergo 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 our business, which could materially and adversely affect our business, financial condition and results of operations.

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Our current corporate structure and business operations may be affected by the newly enacted Foreign Investment Law.

On March 15, 2019, the National People’s Congress promulgated the Foreign Investment Law, or the FIL, which took effect on January 1, 2020, and replaced the previous laws regulating foreign investment in China, namely, the PRC Equity Joint Venture Law, the PRC Cooperative Joint Venture Law and the Wholly Foreign-owned Enterprise Law, together with their implementation rules and ancillary regulations, or collectively, the Outdated FIE Laws. See “Item 4. Information on the Company—B. Business Overview—Regulation—Regulation on Foreign Investment.”

Meanwhile, the Implementation Rules to the Foreign Investment Law came into effect on January 1, 2020, which clarify and elaborate on the relevant provisions of the Foreign Investment Law. However, uncertainties still exist in relation to interpretation and implementation of the FIL, especially in regard to, including, among other things, the nature of variable interest entities contractual arrangements and specific rules regulating the organization form of foreign-invested enterprises within the five-year transition period. The FIL does not explicitly classify whether variable interest entities that are controlled through contractual arrangements would be deemed as foreign-invested enterprises, but it has a catch-all provision under the definition of “foreign investment” that includes investments made by foreign investors in China through other means as provided by laws, administrative regulations or rules of the State Council, so there is still a possibility for future laws, administrative regulations or provisions of the State Council to stipulate contractual arrangements as a form of foreign investment. Therefore, there can be no assurance that our control over the VIEs through contractual arrangements will not be deemed as foreign investment in the future. In the event that any possible implementing regulations of the FIL, any other future laws, administrative regulations or provisions deem contractual arrangements as a way of foreign investment, or if any of our operations through contractual arrangements is classified in the “restricted” or “prohibited” industry in the future “negative list” under the FIL, our contractual arrangements may be deemed as invalid and illegal, and we may be required to unwind the variable interest entity contractual arrangements and/or dispose of any affected business, any of which may have a material adverse effect on our business operation. Also, if future laws, administrative regulations or provisions mandate further actions to be taken 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. Furthermore, under the FIL, foreign investors and foreign-invested enterprises will be subject to legal liabilities if they fail to report investment information in accordance with the FIL. In addition, the FIL provides that foreign-invested enterprises established according to the existing laws regulating foreign investment may maintain their structure and corporate governance within a five-year transition period, which means that we may be required to adjust the structure and corporate governance of certain of our PRC subsidiaries in such transition period. Failure to take timely and appropriate measures to cope with any of these or similar regulatory compliance challenges could materially and adversely affect our current corporate structure, corporate governance and business operations.

Risks Related to Doing Business in China

The PCAOB had historically been unable to inspect our auditor in relation to their audit work performed for our financial statements and the inability of the PCAOB to conduct inspections of our auditor in the past has deprived our investors with the benefits of such inspections.

Our auditor, the independent registered public accounting firm that issues the audit report included elsewhere in this annual report, as an auditor of companies that are traded publicly in the United States and a firm registered with the PCAOB, is subject to laws in the United States pursuant to which the PCAOB conducts regular inspections to assess its compliance with the applicable professional standards. Our auditor is located in mainland China, a jurisdiction where the PCAOB was historically unable to conduct inspections and investigations completely before 2022. As a result, we and investors in the ADSs were deprived of the benefits of such PCAOB inspections. The inability of the PCAOB to conduct inspections of auditors in China in the past has made it more difficult to evaluate the effectiveness of our independent registered public accounting firm’s audit procedures or quality control procedures as compared to auditors outside of China that are subject to the PCAOB inspections. On December 15, 2022, the PCAOB issued a report that vacated its December 16, 2021 determination and removed mainland China and Hong Kong from the list of jurisdictions where it is unable to inspect or investigate completely registered public accounting firms. However, if the PCAOB determines in the future that it no longer has full access to inspect and investigate completely accounting firms in mainland China and Hong Kong, and we use an accounting firm headquartered in one of these jurisdictions to issue an audit report on our financial statements filed with the Securities and Exchange Commission, we and investors in our ADSs would be deprived of the benefits of such PCAOB inspections again, which could cause investors and potential investors in the ADSs to lose confidence in the reported financial information and the quality of our financial statements.

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Our ADSs may be prohibited from trading in the United States under the HFCAA in the future if the PCAOB is unable to inspect or investigate completely auditors located in China. The delisting of the ADSs, or the threat of their being delisted, may materially and adversely affect the value of your investment.

Pursuant to the HFCAA, if the SEC determines that we have filed audit reports issued by a registered public accounting firm that has not been subject to inspections by the PCAOB for two consecutive years, the SEC will prohibit our shares or ADSs from being traded on a national securities exchange or in the over-the-counter trading market in the United States.

On December 16, 2021, the PCAOB issued a report to notify the SEC of its determination that the PCAOB was unable to inspect or investigate completely registered public accounting firms headquartered in mainland China and Hong Kong and our auditor was subject to that determination. In May 2022, the SEC conclusively listed us as a Commission-Identified Issuer under the HFCAA following the filing of our annual report on Form 20-F for the fiscal year ended December 31, 2021. On December 15, 2022, the PCAOB removed mainland China and Hong Kong from the list of jurisdictions where it is unable to inspect or investigate completely registered public accounting firms. For this reason, we do not expect to be identified as a Commission-Identified Issuer under the HFCAA after we file this annual report on Form 20-F for the fiscal year ended December 31, 2022.

Each year, the PCAOB will determine whether it can inspect and investigate completely audit firms in mainland China and Hong Kong, among other jurisdictions. If the PCAOB determines in the future that it no longer has full access to inspect and investigate completely accounting firms in mainland China and Hong Kong and we use an accounting firm headquartered in one of these jurisdictions to issue an audit report on our financial statements filed with the Securities and Exchange Commission, we would be identified as a Commission-Identified Issuer following the filing of the annual report on Form 20-F for the relevant fiscal year. In accordance with the HFCAA, our securities would be prohibited from being traded on a national securities exchange or in the over-the-counter trading market in the United States if we are identified as a Commission-Identified Issuer for two consecutive years in the future. If our shares and ADSs are prohibited from trading in the United States, there is no certainty that we will be able to list on a non-U.S. exchange or that a market for our shares will develop outside of the United States. A prohibition of being able to trade in the United States would substantially impair your ability to sell or purchase our ADSs when you wish to do so, and the risk and uncertainty associated with delisting would have a negative impact on the price of our ADSs. Also, such a prohibition would significantly affect our ability to raise capital on terms acceptable to us, or at all, which would have a material adverse impact on our business, financial condition, and prospects.

The filing with and/or approval of the CSRC or other PRC government authorities may be required in connection with our offshore offerings under PRC law, and, if required, we cannot predict whether or for how long we will be able to complete such filing or obtain such approval.

The Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rules, adopted by six PRC regulatory agencies in 2006 and amended in 2009, requires an overseas special purpose vehicle formed for listing purposes through acquisitions of PRC domestic companies and controlled by PRC persons or entities to obtain the approval of the CSRC prior to the listing and trading of such special purpose vehicle’s securities on an overseas stock exchange. The interpretation and application of the regulations remain unclear, and our offshore offerings may ultimately require approval of the CSRC. If the CSRC approval is required, it is uncertain whether we can or how long it will take us to obtain the approval and, even if we obtain such CSRC approval, the approval could be rescinded. Any failure to obtain or delay in obtaining the CSRC approval for any of our offshore offerings, or a rescission of such approval if obtained by us, would subject us to sanctions imposed by the CSRC or other PRC regulatory authorities, which could include fines and penalties on our operations in China, restrictions or limitations on our ability to pay dividends outside of China, and other forms of sanctions that may materially and adversely affect our business, financial condition, and results of operations.

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On July 6, 2021, the relevant PRC government authorities issued Opinions on Strictly Cracking Down Illegal Securities Activities in Accordance with the Law. These opinions emphasized the need to strengthen the administration over illegal securities activities and the supervision on overseas listings by China-based companies and proposed to take effective measures, such as promoting the construction of relevant regulatory systems to deal with the risks and incidents faced by China-based overseas-listed companies. On February 17, 2023, the CSRC promulgated a set of new regulations consists of the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Companies (the “Trial Measures”) and five supporting guidelines which took effect on March 31, 2023 to regulate overseas securities offering and listing activities by domestic companies either in direct or indirect form. According to the Trial Measures and the Notice on Administrative Arrangement of Overseas Securities Offering and Listing of Domestic Companies issued by the CSRC on February 17, 2023, we are required to conduct filing with the CSRC in connection with our future issuances of our equity securities, such as shares, depository receipts, convertible bonds and exchangeable bonds, etc. to foreign investors and listings, and to submit reports to the CSRC for some material events such as change of control, and voluntary or mandatory delisting, etc. For details, please see “—Regulations Relating to Overseas Issuance and Listing of Securities by Domestic Enterprises.” We cannot assure you that any new rules or regulations promulgated in the future will not impose additional requirements on us, and that to what extent the filing documents may satisfy the requirement of the CSRC. If it is determined in the future that additional filing requirement or approval from the CSRC or other regulatory authorities or other procedures, including the cybersecurity review under the enacted version of the revised Measures for Cybersecurity Review, are required for our offshore offerings, it is uncertain whether we can or how long it will take us to obtain such approval or complete such filing as well as any other related procedures, and any such approval obtained could be rescinded. Any failure to obtain or delay in obtaining such approval or completing filing or other such procedures for our offshore offerings, or a rescission of any such approval if obtained by us, would subject us to sanctions by the CSRC or other PRC regulatory authorities for failure to seek CSRC approval or other government authorization for our offshore offerings. These regulatory authorities may impose fines and penalties on our operations in China, limit our ability to pay dividends outside of China, limit our operating privileges in China, delay or restrict the repatriation of the proceeds from our offshore offerings into China or take other actions that could materially and adversely affect our business, financial condition, results of operations, and prospects, as well as the trading price of our ADSs. The CSRC or other PRC regulatory authorities also may take actions requiring us, or making it advisable for us, to halt our offshore offerings before settlement and delivery of the shares offered. Consequently, if investors engage in market trading or other activities in anticipation of and prior to settlement and delivery, they do so at the risk that settlement and delivery may not occur. In addition, if the CSRC or other regulatory authorities later promulgate new rules or explanations requiring that we obtain their approvals or accomplish the required filing or other regulatory procedures for our prior offshore offerings, we may be unable to obtain a waiver of such approval requirements, if and when procedures are established to obtain such a waiver. Any uncertainties or negative publicity regarding such approval requirement could materially and adversely affect our business, prospects, financial condition, reputation, and the trading price of our ADSs.

Changes in China’s economic, political or social conditions or government policies could have a material adverse effect on our business and operations.

Substantially all of our assets and operations are located in China. Accordingly, our business, financial condition, results of operations and prospects may be influenced to a significant degree by political, economic and social conditions in China generally. The Chinese economy differs from the economies of most developed countries in many respects, including the level of government involvement, level of development, growth rate, control of foreign exchange and allocation of resources. Although the Chinese 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 Chinese government continues to play a significant role in regulating industry development by imposing industrial policies. The Chinese government also exercises significant control over China’s economic growth through allocating resources, controlling payment of foreign currency-denominated obligations, setting monetary policy, and providing preferential treatment to particular industries or companies.

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While the Chinese economy has experienced significant growth over the past decades, growth has been uneven, both geographically and among various sectors of the economy, and the rate of growth has been slowing since 2012. Any adverse changes in economic conditions in China, in the policies of the Chinese government or in the laws and regulations in China could have a material adverse effect on the overall economic growth of China. Such developments could adversely affect our business and operating results, lead to reduction in demand for our services and adversely affect our competitive position. The Chinese government has implemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures may benefit the overall Chinese economy, but may have a negative effect on us. For example, our financial condition and results of operations may be adversely affected by government control over capital investments or changes in tax regulations. In addition, in the past the Chinese government has implemented certain measures, including interest rate adjustment, to control the pace of economic growth. These measures may cause decreased economic activity in China, which may adversely affect our business and operating results.

Uncertainties with respect to the PRC legal system and changes in laws and regulations in China could adversely affect us, and any lack of requisite approvals, licenses or permits applicable to our business may have a material adverse effect on our business and results of operations.

We conduct our business primarily through our PRC subsidiaries and consolidated variable interest entities in China. Our operations in China are governed by PRC laws and regulations. Our PRC subsidiaries are subject to laws and regulations applicable to foreign investment in China. The PRC legal system is a civil law system based on written statutes. Unlike the common law system, prior court decisions may be cited for reference but have limited precedential value. The PRC legal system is evolving rapidly, and the interpretation of many laws, regulations and rules may contain inconsistencies and enforcement of these laws, regulations and rules involves uncertainties.

From time to time, we may have to resort to administrative and court proceedings to enforce our legal rights. Any administrative and court proceedings in China may be protracted, resulting in substantial costs and diversion of resources and management attention. Since PRC administrative and court authorities have significant discretion in interpreting and implementing statutory provisions and contractual terms, it may be more difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection we enjoy than in more developed legal systems. These uncertainties may impede our ability to enforce the contracts we have entered into and could materially and adversely affect our business and results of operations.

Furthermore, the PRC legal system is based in part on government policies and internal rules, some of which are not published on a timely basis or at all and may have retroactive effect. As a result, we may not be aware of our violation of any of these policies and rules until sometime after the violation. Such unpredictability towards our contractual, property and procedural rights could adversely affect our business and impede our ability to continue our operations.

In addition, the interpretation and application of existing PRC laws, regulations and policies and possible new laws, regulations or policies have created substantial uncertainties regarding the legality of existing and future foreign investments and activities of our business. We cannot assure you that we have obtained all the permits or licenses required for conducting our business in China or will be able to maintain our existing licenses or obtain new ones. If the PRC government considers that we were operating without the requisite approvals, licenses or permits or promulgates new laws and regulations that require additional approvals or licenses or imposes additional restrictions on the operation of any part of our business, it has the power, among other things, to levy fines, confiscate our income, revoke our business licenses, and require us to discontinue our relevant business or impose restrictions on the affected portion of our business. Any of these actions by the PRC government may have a material adverse effect on our business and results of operations.

The PRC government’s significant oversight and discretion over our business operation could result in a material adverse change in our operations and the value of our ADSs.

We conduct our business primarily in China. Our operations in China are governed by PRC laws and regulations. The PRC government has significant oversight and discretion over the conduct of our business, and may intervene or influence our operations. The PRC government has recently published new policies that significantly affected certain industries and we cannot rule out the possibility that it will in the future release regulations or policies that directly or indirectly affect our industry or require us to seek additional permission to continue our operations, which could result in a material adverse change in our operation, and could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or become worthless. Therefore, investors of our company and our business face potential uncertainty from actions taken by the PRC government affecting our business.

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You may experience difficulties in effecting service of legal process, enforcing foreign judgments or bringing actions in China against us or our management named in this annual report based on foreign laws.

We are a company incorporated under the laws of the Cayman Islands, we conduct substantially all of our operations in China and substantially all of our assets are located in China. In addition, most of our directors and senior executive officers reside within China for a significant portion of the time and most are PRC nationals. As a result, it may be difficult for you to effect service of process upon us or those persons inside mainland China. It may also be difficult for you to enforce in U.S. courts judgments obtained in U.S. courts based on the civil liability provisions of the U.S. federal securities laws against us and our officers and directors who reside and whose assets are located outside the United States. In addition, there is uncertainty as to whether the courts of the Cayman Islands or the PRC would recognize or enforce judgments of U.S. courts against us or such persons predicated upon the civil liability provisions of the securities laws of the United States or any state.

The United States and the Cayman Islands do not have a treaty providing for reciprocal recognition and enforcement of judgments of U.S. courts in civil and commercial matters and that there is uncertainty as to whether the courts of the Cayman Islands would (i) recognize or enforce judgments of U.S. courts obtained against us or our directors or officers, predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States, or (ii) entertain original actions brought in the Cayman Islands against us or our directors or officers, predicated upon the securities laws of the United States or any state in the United States. A judgment obtained in any federal or state court in the United States will be recognized and enforced in the courts of the Cayman Islands at common law, without any re-examination of the merits of the underlying dispute, by an action commenced on the foreign judgment debt in the Grand Court of the Cayman Islands, provided such judgment (i) is given by a foreign court of competent jurisdiction, (ii) imposes on the judgment debtor a liability to pay a liquidated sum for which the judgment has been given, (iii) is final and conclusive, (iv) is not in respect of taxes, a fine or a penalty, and (v) was not obtained in a manner and is not of a kind the enforcement of which is contrary to natural justice or the public policy of the Cayman Islands. However, the Cayman Islands courts are unlikely to enforce a judgment obtained from the United States courts under the civil liability provisions of the securities laws if such judgment is determined by the courts of the Cayman Islands to give rise to obligations to make payments that are penal or punitive in nature. Because the courts of the Cayman Islands have yet to rule on whether such judgments are penal or punitive in nature, it is uncertain whether such civil liability judgments from U.S. courts would be enforceable in the Cayman Islands.

The recognition and enforcement of foreign judgments are provided for under the PRC Civil Procedures Law. PRC courts may recognize and enforce foreign judgments in accordance with the requirements of the PRC Civil Procedures Law based either on treaties between China and the country where the judgment is made or on principles of reciprocity between jurisdictions. China does not have any treaties or other forms of reciprocity with the United States that provide for the reciprocal recognition and enforcement of foreign judgments. In addition, according to the PRC Civil Procedures Law, the PRC courts will not enforce a foreign judgment against us or our directors and officers if they decide that the judgment violates the basic principles of PRC laws or national sovereignty, security or public interest. As a result, it is uncertain whether and on what basis a PRC court would enforce a judgment rendered by a court in the United States.

It may be difficult for overseas regulators to conduct investigation or collect evidence within China.

Shareholder claims or regulatory investigation that are common in the United States generally are difficult to pursue as a matter of law or practicality in China. For example, in China, there are significant legal and other obstacles to obtaining information needed for regulatory investigations or litigations initiated outside China. Although the authorities in China may establish a regulatory cooperation mechanism with the securities regulatory authorities of another country or region to implement cross-border supervision and administration, such cooperation with the securities regulatory authorities in the Unities States may not be efficient in the absence of mutual and practical cooperation mechanism. Furthermore, according to Article 177 of the PRC Securities Law, or Article 177, which became effective in March 2020, no overseas securities regulator is allowed to directly conduct investigation or evidence collection activities within the territory of the PRC, and no organization or individual may provide documents or materials relating to securities business activities to overseas parties arbitrarily without the consent of the competent securities regulatory authority in China. While detailed interpretation of or implementation rules under Article 177 have yet to be promulgated, the inability for an overseas securities regulator to directly conduct investigation or evidence collection activities within China may further increase the difficulties you face in protecting your interests. See also “—Risks Related to Our ADSs—You may face difficulties in protecting your interests, and your ability to protect your rights through U.S. courts may be limited, because we are incorporated under Cayman Islands law.” for risks associated with investing in us as a Cayman Islands company.

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We may rely on dividends and other distributions on equity paid by our PRC subsidiaries to fund any cash and financing requirements we may have, and any limitation on the ability of our PRC subsidiaries to make payments to us could have a material and adverse effect on our ability to conduct our business.

We are a Cayman Islands holding company and we may rely principally on dividends and other distributions on equity from our PRC subsidiaries for our cash requirements, including the funds necessary to pay dividends and other cash distributions to our shareholders for services of any debt we may incur. If any of our PRC subsidiaries incur debt on its own behalf in the future, the instruments governing the debt may restrict its ability to pay dividends or make other distributions to us. Under PRC laws and regulations, our PRC subsidiaries, each of which is a wholly foreign-owned enterprise may pay dividends only out of its respective accumulated profits as determined in accordance with PRC accounting standards and regulations. In addition, a wholly foreign-owned enterprise is required to set aside at least 10% of its accumulated after-tax profits each year, if any, to fund a certain statutory reserve fund, until the aggregate amount of such fund reaches 50% of its registered capital. Such reserve funds cannot be distributed to us as dividends.

Our PRC subsidiaries generate primarily all of their revenue in Renminbi, which is not freely convertible into other currencies. As result, any restriction on currency exchange may limit the ability of our PRC subsidiaries to use their Renminbi revenues to pay dividends to us.

The PRC government may continue to strengthen its capital controls, and more restrictions and substantial vetting process may be put forward by SAFE for cross-border transactions falling under both the current account and the capital account. Any limitation on the ability of our PRC subsidiaries to pay dividends or make other kinds of payments to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends, or otherwise fund and conduct our business.

In addition, the Enterprise Income Tax Law and its implementation rules provide that a withholding tax rate of up to 10% will be applicable to dividends payable by Chinese companies to non-PRC-resident enterprises unless otherwise exempted or reduced according to treaties or arrangements between the PRC central government and governments of other countries or regions where the non-PRC-resident enterprises are incorporated.

PRC regulation of loans to and direct investment in PRC entities by offshore holding companies and governmental control of currency conversion may delay or prevent us from using the proceeds of our initial public offering and our ADS offering in April 2019 to make loans or additional capital contributions to our PRC subsidiaries, which could materially and adversely affect our liquidity and our ability to fund and expand our business.

We are an offshore holding company conducting our operations in China through our PRC subsidiaries and VIEs. We may make loans to our PRC subsidiaries and VIEs subject to the approval or registration from governmental authorities and limitation of amount, or we may make additional capital contributions to our wholly foreign-owned subsidiaries in China. Any loans to our wholly foreign-owned subsidiaries in China, which are treated as foreign-invested enterprises under PRC law, are subject to foreign exchange loan registrations. In addition, SAFE issued the Circular on the Management Concerning the Reform of the Payment and Settlement of Foreign Currency Capital of Foreign-Invested Enterprises, or the SAFE Circular No. 19, which took effect on June 1, 2015. Pursuant to the SAFE Circular No. 19, an FIE shall use its capital pursuant to the principle of authenticity and self-use within its business scope. The capital of an FIE shall not be used for the following purposes: (i) directly or indirectly used for payment beyond the business scope of the enterprises or the payment prohibited by relevant laws and regulations; (ii) directly or indirectly used for investment in securities or investments other than banks’ principal-secured products unless otherwise provided by relevant laws and regulations; (iii) the granting of loans to non-affiliated enterprises, except where it is expressly permitted in the business license; and (iv) paying the expenses related to the purchase of real estate that is not for self-use (except for the foreign-invested real estate enterprises). On October 23, 2019, SAFE promulgated the Circular Regarding Further Promotion of the Facilitation of Cross-Border Trade and Investment, or the SAFE Circular No. 28. The SAFE Circular No. 28 allows foreign-invested enterprises whose business scope does not include investment, or non-investment foreign-invested enterprises, to make equity investments in the PRC with their capital funds in accordance with relevant laws and regulations. As the SAFE Circular No. 28 is newly issued and the relevant government authorities have broad discretion in its interpretation, it is unclear whether SAFE will, in actual practice, permit such capital funds to be used for equity investments in the PRC.

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In light of the various requirements imposed by PRC regulations on loans to and direct investment in PRC entities by offshore holding companies, we cannot assure you that we will be able to complete the necessary government registrations or record-filing on a timely basis, if at all, with respect to future loans by us to our PRC subsidiaries or VIEs or with respect to future capital contributions by us to our PRC subsidiaries. If we fail to complete such registrations or record-filing, our ability to use the proceeds from our initial public offering and our ADS offering in April 2019 and to capitalize or otherwise fund our PRC operations may be negatively affected, which could materially and adversely affect our liquidity and our ability to fund and expand our business.

Fluctuations in exchange rates could have a material and adverse effect on our results of operations and the value of your investment.

The value of the Renminbi against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in political and economic conditions in China and by China’s foreign exchange policies. It is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate between the RMB and the U.S. dollar in the future.

Significant revaluation of the Renminbi may have a material and adverse effect on your investment. For example, to the extent that we need to convert U.S. dollars we receive from our initial public offering and our ADS offering in 2019 into Renminbi for our operations, appreciation of the Renminbi against the U.S. dollar would have an adverse effect on the Renminbi amount we would receive from the conversion. Conversely, if we decide to convert our Renminbi into U.S. dollars for the purpose of making payments for dividends on our ordinary shares or ADSs or for other business purposes, appreciation of the U.S. dollar against the Renminbi would have a negative effect on the U.S. dollar amount available to us.

Very limited hedging options are available in China to reduce our exposure to exchange rate fluctuations. In an effort to reduce our exposure to foreign currency exchange risk, we have entered into several currency forward arrangements and there was no outstanding agreements at the end of 2022. While we consider the hedging transaction coverage currently sufficient based on the currency exposure amount and prediction on the future exchange rate, the effectiveness of these hedges may be limited, further hedging options may be limited, and we may not be able to adequately hedge our exposure. In addition, our currency exchange losses may be magnified by PRC exchange control regulations that restrict our ability to convert Renminbi into a foreign currency.

Governmental control of currency conversion may limit our ability to utilize our net revenues effectively and affect the value of your investment.

The PRC government imposes controls on the convertibility of the Renminbi into foreign currencies and, in certain cases, the remittance of currency out of China. We receive our revenues in Renminbi, US dollars and Euros. In 2022, we received approximately half of our revenues in Renminbi. Under our current corporate structure, our Cayman Islands holding company primarily relies on dividend payments from our PRC subsidiaries to fund any cash and financing requirements we may have. Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior approval of SAFE by complying with certain procedural requirements. Specifically, under the existing exchange restrictions, without prior approval of SAFE, cash generated from the operations of our PRC subsidiaries in China may be used to pay dividends to our company. However, approval from or registration with appropriate government authorities is required where Renminbi is to be converted into a foreign currency and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign currencies. As a result, we need to obtain SAFE approval to use cash generated from the operations of our PRC subsidiaries and VIEs to pay off their respective debt in a currency other than Renminbi owed to entities outside China, or to make other capital expenditure payments outside China in a currency other than Renminbi. The PRC government may at its discretion restrict access to foreign currencies for current account transactions in the future. If the foreign exchange control system prevents us from obtaining sufficient foreign currencies to satisfy our foreign currency demands, we may not be able to pay dividends in foreign currencies to our shareholders, including holders of our ADSs.

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Certain PRC regulations may make it more difficult for us to pursue growth through acquisitions.

Among other things, the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rules, adopted by six PRC regulatory agencies in 2006 and amended in 2009, established additional procedures and requirements that could make merger and acquisition activities by foreign investors more time-consuming and complex. Such regulation requires, among other things, that in some instances the MOFCOM shall be notified in advance of any change-of-control transaction in which a foreign investor takes control of an affiliated PRC domestic enterprise. Moreover, the Anti-Monopoly Law requires, among other things, that the anti-trust governmental authority shall be notified in advance of any concentration of undertakings if certain thresholds are triggered. In addition, the Notices on the Establishment of Security Review System for Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, which became effective in March 2011, require acquisitions by foreign investors of PRC companies engaged in military related or certain other industries that are crucial to national security be subject to security review before consummation of any such acquisition. We may pursue potential strategic acquisitions that are complementary to our business and operations. Complying with the requirements of these regulations to complete such transactions could be time-consuming, and any required approval processes, including obtaining approval or clearance from the MOFCOM, may delay or inhibit our ability to complete such transactions, which could affect our ability to expand our business or maintain our market share.

Any failure or perceived failure by us to comply with the anti-monopoly and anti-unfair competition laws and regulations may result in governmental investigations or enforcement actions, litigation or claims against us and could have an adverse effect on our business, financial condition and results of operations.

The PRC government has adopted a series of anti-monopoly and anti-unfair competition laws and regulations and has recently enhanced its enforcement of such laws and regulations. The PRC Anti-monopoly Law and the relevant implementing rules (i) require that where concentration of undertakings reaches the filing threshold stipulated by the State Council, a filing must be made with the anti-monopoly authority before the parties implement the concentration, (ii) prohibit a business operator with a dominant market position from abusing such position, such as by selling commodities at unfairly high prices or buying commodities at unfairly low prices, selling products at prices below cost without any justifiable cause, or refusing to trade with a trading party without any justifiable cause, and (iii) prohibit business operators from entering into monopoly agreements, which refer to agreements that eliminate or restrict competition with competing business operators or transaction counterparties, such as by boycotting transactions, fixing or changing the price of commodities, limiting the output of commodities or fixing the price of commodities for resale to third parties, unless the agreements satisfy certain exemptions under the PRC Anti-monopoly Law. Furthermore, in February 2021, the Anti-monopoly Commission of the State Council officially promulgated the Anti-Monopoly Guidelines for the Internet Platform Economy Sector, or the Anti-Monopoly Guidelines. The Anti-Monopoly Guidelines prohibit certain monopolistic acts of internet platforms so as to protect market competition and safeguard the interests of users and undertakings participating in the internet platform economy, including, without limitation, prohibiting platforms with a dominant position from abusing their market dominance (such as discriminating against customers in terms of pricing and other transactional conditions using big data and analytics, coercing counterparties into exclusivity arrangements, using technology to block competitors’ interfaces, favorable positioning in search results of goods displays, using bundle services to sell services or products, compulsory collection of unnecessary user data). In addition, the Anti-Monopoly Guidelines also reinforce antitrust merger review for internet platform related transactions to safeguard market competition. As the Anti-Monopoly Guidelines were newly promulgated, it is still uncertain how they will impact on our business, financial condition, results of operations and prospects.

According to the PRC Anti-unfair Competition Law, unfair competition, which refers to the production and operating activities where the operator disrupts the market competition order and damages the legitimate rights and interests of other operators or consumers in violation of the provisions of the PRC Anti-unfair Competition Law, shall be prohibited. Pursuant to the PRC Anti-unfair Competition Law, operators shall abide by the principle of voluntariness, equality, impartiality, integrity and adhere to laws and business ethics during market transactions. Operators in violation of the PRC Anti-unfair Competition Law may be subject to civil, administrative or criminal liabilities depending on the specific circumstances.

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In March 2018, the SAMR was formed as a new governmental agency to take over, among other things, the anti-monopoly enforcement functions from the relevant departments under the MOFCOM, the NDRC, and the former State Administration for Industry and Commerce, respectively. Since its inception, the SAMR has continued to strengthen anti-monopoly enforcement. In December 2018, the SAMR issued the Notice on Anti-monopoly Enforcement Authorization, which grants authorities to its provincial branches to conduct anti-monopoly enforcement within their respective jurisdictions. In September 2020, the SAMR issued Anti-monopoly Compliance Guideline for Operators, which requires operators to establish anti-monopoly compliance management systems to prevent anti-monopoly compliance risks. In particular, the PRC regulators have been increasingly focused on inspection and regulation on potential noncompliance with anti-unfair competition and antimonopoly related laws recently. For example, in April 2021, the SAMR, the Cyberspace Administration of China and the SAT, held an administrative guidance meeting for Internet platform enterprises. During the meeting, it was pointed out that illegal activities including, among others, forcing the implementation of “choose one” among the enterprise and its competitors, abusing dominant market position, “cash burning” to seize the “community group buying” market, making use of big data analysis to the disadvantage of existing customers, etc., shall be prohibited and rectified. In addition, many platforms, including 34 enterprises which attended such administrative guidance meeting as representatives of Internet platform enterprises, are required to conduct a comprehensive self-inspection and make necessary rectification accordingly. The competent administration for market regulation will organize and conduct inspections on the platforms’ rectification results. If the platforms are found to conduct illegal activities including forcing the implementation of “choose one” among them and their competitors, abusing dominant market position, infringing consumers rights and interests, etc., they will be imposed with more severe penalties in accordance with the laws. We have been conducting necessary self-inspection and rectifications in accordance with such guidance and are working on some of the rectification procedures, such as concentration notification for past deals. We cannot guarantee you that we will not be subject to more similar or even stricter rectification requests from the governmental authorities or that we will fully comply with all applicable rules and regulations at all times. As a result of the regulators’ focus on anti-monopoly and anti-unfair competition compliance and enhanced regulation of platform enterprises, our business practice and expansion strategy may be subject to heightened regulatory scrutiny. In order to comply with existing laws and regulations and new laws and regulations that may be enacted in the future, we may need to devote significant resources and efforts, including restructuring affected businesses and adjusting investment activities, which may adversely affect our business operation, growth prospects and reputation. In addition, we cannot assure you that our efforts are sufficient to comply with the all the applicable laws and regulations on anti-monopoly and anti-unfair competition and the authorities’ requirements in all respects. Any anti-monopoly or anti-unfair competition related lawsuit, regulatory investigations or administrative proceedings initiated against us could also result in our being subject to regulatory actions and constraints on our investments and acquisitions, which could include forced termination of any agreements or transactions, required divestitures, limitations on certain pricing and business practices or significant fines. As a result, we may be subject to significant difficulties in operating our current business and pursuing our investment and acquisition strategy.

PRC regulations relating to the establishment of offshore special purpose 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, limit our PRC subsidiaries’ ability to increase their registered capital or distribute profits to us, or may otherwise adversely affect us.

In July 2014, SAFE promulgated the Circular on Relevant Issues Concerning Foreign Exchange Control on Domestic Residents’ Offshore Investment and Financing and Roundtrip Investment Through Special Purpose Vehicles, or SAFE Circular 37, to replace the Notice on Relevant Issues Concerning Foreign Exchange Administration for Domestic Residents’ Financing and Roundtrip Investment Through Offshore Special Purpose Vehicles, or SAFE Circular 75, which ceased to be effective upon the promulgation of SAFE Circular 37. SAFE Circular 37 requires PRC residents (including PRC individuals and PRC corporate entities) to register with SAFE or its local branches in connection with their direct or indirect offshore investment activities. SAFE Circular 37 is applicable to our shareholders who are PRC residents and may be applicable to any offshore acquisitions that we make in the future.

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Under SAFE Circular 37, PRC residents who make, or have prior to the implementation of SAFE Circular 37 made, direct or indirect investments in offshore special purpose vehicles, or SPVs, will be required to register such investments with SAFE or its local branches. In addition, any PRC resident who is a direct or indirect shareholder of an SPV, is required to update its filed registration with the local branch of SAFE with respect to that SPV, to reflect any material change. Moreover, any subsidiary of such SPV in China is required to urge the PRC resident shareholders to update their registration with the local branch of SAFE. If any PRC shareholder of such SPV fails to make the required registration or to update the previously filed registration, the subsidiary of such SPV in China may be prohibited from distributing its profits or the proceeds from any capital reduction, share transfer or liquidation to the SPV, and the SPV may also be prohibited from making additional capital contributions into its subsidiary in China. On February 13, 2015, SAFE promulgated a Notice on Further Simplifying and Improving Foreign Exchange Administration Policy on Direct Investment, or SAFE Notice 13, which became effective on June 1, 2015. Under SAFE Notice 13, applications for foreign exchange registration of inbound foreign direct investments and outbound overseas direct investments, including those required under SAFE Circular 37, will be filed with qualified banks instead of SAFE. The qualified banks will directly examine the applications and accept registrations under the supervision of SAFE. SAFE Notice 13 also provides that the relevant entities which have completed the above foreign exchange registration shall complete annual existing right registration.

We have requested PRC residents who we know hold direct or indirect interest in our company to make the necessary applications, filings and registrations as required under SAFE Circular 37 and SAFE Notice 13. As of the date of this annual report, our PRC resident shareholders, namely Wang Huang, Yunfen Lu, Meihui Fan, Bin Fan, Yi Zhang and Xiaojun Zhang, have completed all necessary registrations with the local SAFE branch or qualified banks as required by SAFE Circular 37. However, we may not be informed of the identities of all the PRC residents holding direct or indirect interest in our company, and we cannot provide any assurance that these PRC residents will comply with our request to make or obtain any applicable registrations or comply with other requirements under SAFE Circular 37 and SAFE Notice 13. The failure or inability of our PRC resident shareholders to comply with the registration procedures set forth in these regulations may subject us to fines and legal sanctions, restrict our cross-border investment activities, limit the ability of our wholly foreign-owned subsidiaries in China to distribute dividends and the proceeds from any reduction in capital, share transfer or liquidation to us, and we may also be prohibited from injecting additional capital into these subsidiaries. Moreover, failure to comply with the various foreign exchange registration requirements described above could result in liability under PRC law for circumventing applicable foreign exchange restrictions. As a result, our business operations and our ability to distribute profits to you could be materially and adversely affected.

Any failure to comply with PRC regulations regarding the registration requirements for employee stock incentive plans may subject the PRC plan participants or us to fines and other legal or administrative sanctions.

In February 2012, SAFE promulgated the Notices on Issues Concerning the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plan of Overseas Publicly-Listed Company, replacing earlier rules promulgated in 2007. Pursuant to these rules, PRC citizens and non-PRC citizens who reside in China for a continuous period of not less than one year who participate in any stock incentive plan of an overseas publicly listed company, subject to a few exceptions, are required to register with SAFE through a domestic qualified agent, which could be the PRC subsidiaries of such overseas-listed company, and complete certain other procedures. In addition, an overseas-entrusted institution must be retained to handle matters in connection with the exercise or sale of stock options and the purchase or sale of shares and interests. We and our executive officers and other employees who are PRC citizens or who reside in the PRC for a continuous period of not less than one year and who have been granted options are subject to these regulations as our company has become an overseas-listed company. Failure to complete SAFE registrations may subject them to fines of up to RMB300,000 for entities and up to RMB50,000 for individuals, and legal sanctions and may also limit our ability to contribute additional capital into our PRC subsidiaries and limit our PRC subsidiaries’ ability to distribute dividends to us. We also face regulatory uncertainties that could restrict our ability to adopt additional incentive plans for our directors, executive officers and employees under PRC law. See “Item 4. Information on the Company—B. Business Overview—Regulation—Regulation on Employee Share Options.”

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If we are classified as a PRC resident enterprise for PRC income tax purposes, such classification could result in unfavorable tax consequences to us and our non-PRC shareholders or ADS holders.

Under the PRC Enterprise Income Tax Law and its implementation rules, an enterprise established outside of the PRC with “de facto management body” within the PRC is considered a “resident enterprise” and will be subject to the enterprise income tax on its global income at the rate of 25%. The implementation rules define the term “de facto management body” as the body that exercises full and substantial control and overall management over the business, productions, personnel, accounts and properties of an enterprise. In 2009, the State Administration of Taxation, or SAT, issued a circular, known as SAT Circular 82, which provides certain specific criteria for determining whether the “de facto management body” of a PRC-controlled enterprise that is incorporated offshore is located in China. Although this circular only applies to offshore enterprises controlled by PRC enterprises or PRC enterprise groups, not those controlled by PRC individuals or foreigners, the criteria set forth in the circular may reflect the SAT’s general position on how the “de facto management body” text should be applied in determining the tax resident status of all offshore enterprises. According to SAT Circular 82, an offshore incorporated enterprise controlled by a PRC enterprise or a PRC enterprise group will be regarded as a PRC tax resident by virtue of having its “de facto management body” in China and will be subject to PRC enterprise income tax on its global income only if all of the following conditions are met: (i) the primary location of the day-to-day operational management is in the PRC; (ii) decisions relating to the enterprise’s financial and human resource matters are made or are subject to approval by organizations or personnel in the PRC; (iii) the enterprise’s primary assets, accounting books and records, company seals, and board and shareholder resolutions, are located or maintained in the PRC; and (iv) at least 50% of voting board members or senior executives habitually reside in the PRC.

We believe that Zepp Health Corporation is not a PRC resident enterprise for PRC tax purposes. See “Item 4. Information on the Company—B. Business Overview—Regulation—Regulations on Tax—PRC Enterprise Income Tax.” However, the tax resident status of an enterprise is subject to determination by the PRC tax authorities and uncertainties remain with respect to the interpretation of the term “de facto management body.” If the PRC tax authorities determine that Zepp Health Corporation is a PRC resident enterprise for enterprise income tax purposes, we may be required to withhold a 10% withholding tax from dividends we pay to our shareholders that are non-resident enterprises, including the holders of our ADSs. In addition, non-resident enterprise shareholders (including our ADS holders) may be subject to PRC tax on gains realized on the sale or other disposition of ADSs or ordinary shares, if such income is treated as sourced from within the PRC. Furthermore, if we are deemed a PRC resident enterprise, dividends payable to our non-PRC individual shareholders (including our ADS holders) and any gain realized on the transfer of ADSs or ordinary shares by such shareholders may be subject to PRC tax at a rate of 20% unless a reduced rate is available under an applicable tax treaty. It is unclear whether non-PRC shareholders of our company would be able to claim the benefits of any tax treaties between their country of tax residence and the PRC in the event that we are treated as a PRC resident enterprise. Any such tax may reduce the returns on your investment in the ADSs or ordinary shares.

We face uncertainty with respect to indirect transfers of equity interests in PRC resident enterprises by their non-PRC holding companies.

On December 10, 2009, SAT issued the Notice on Strengthening Administration of Enterprise Income Tax for Share Transfers by Non-PRC Resident Enterprises, or SAT Circular 698, with retroactive effect from January 1, 2008, to December 1, 2017. Pursuant to the SAT Circular 698, where a non-resident enterprise transfers the equity interests of a PRC resident enterprise indirectly by disposition of the equity interests of an overseas holding company, or an Indirect Transfer, and such overseas holding company is located in a tax jurisdiction that: (i) has an effective tax rate less than 12.5% or (ii) does not tax foreign income of its residents, the non-resident enterprise, being the transferor, shall report to the competent tax authority of the PRC resident enterprise this Indirect Transfer.

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On February 3, 2015, the SAT issued the Public Notice Regarding Certain Corporate Income Tax Matters on Indirect Transfer of Properties by Non-Tax Resident Enterprises, or SAT Public Notice 7. SAT Public Notice 7 extends its tax jurisdiction to not only Indirect Transfers set forth under SAT Circular 698 but also transactions involving transfer of other taxable assets through offshore transfer of a foreign intermediate holding company. In addition, SAT Public Notice 7 provides clearer criteria than SAT Circular 698 for assessment of reasonable commercial purposes and has introduced safe harbors for internal group restructurings and the purchase and sale of equity through a public securities market. SAT Public Notice 7 also brings challenges to both foreign transferor and transferee (or other person who is obligated to pay for the transfer) of taxable assets. Where a non-resident enterprise transfers taxable assets indirectly by disposing of the equity interests of an overseas holding company, which is an Indirect Transfer, the non-resident enterprise as either transferor or transferee, or the PRC entity that directly owns the taxable assets, may report such Indirect Transfer to the relevant tax authority. Using a “substance over form” principle, the PRC tax authority may disregard the existence of the overseas holding company if it lacks a reasonable commercial purpose and was established for the purpose of reducing, avoiding or deferring PRC tax. As a result, gains derived from such Indirect Transfer may be subject to PRC enterprise income tax, and the transferee or other person who is obligated to pay for the transfer is obligated to withhold the applicable taxes, currently at a rate of 10% for the transfer of equity interests in a PRC resident enterprise. Both the transferor and the transferee may be subject to penalties under PRC tax laws if the transferee fails to withhold the taxes and the transferor fails to pay the taxes.

On October 17, 2017, the SAT released Public Notice Regarding Issues Concerning the Withholding of Non-resident Enterprise Income Tax at Source, or SAT Public Notice 37, effect from December 1, 2017. SAT Public Notice 37 replaced a series of important circulars, including, but not limited to, SAT Circular 698, and revised the rules governing the administration of withholding tax on China-source income derived by the nonresident enterprise. SAT Public Notice 37 provided certain key changes to the current withholding regime including, such as (i) the withholding obligation for non-resident enterprise deriving dividend arises on the day the payment is actually made rather than on the day of the resolution to declare the dividends; (ii) the provision that nonresident enterprise shall self-report tax within seven days if their withholding agents fail to withhold is removed, etc.

We face uncertainties as to the reporting and other implications of certain past and future transactions where PRC taxable assets are involved, such as offshore restructuring, sale of the shares in our offshore subsidiaries and investments. Our company may be subject to withholding obligations if our company is transferee in such transactions, under SAT Public Notice 37 and SAT Public Notice 7. For transfer of shares in our company by investors who are non-PRC resident enterprises, our PRC subsidiaries may be required to expend valuable resources to comply with SAT Public Notice 37 and SAT Public Notice 7 or to request the relevant transferors from whom we purchase taxable assets to comply with these circulars, or to establish that our company should not be taxed under these circulars, which may have an adverse effect on our financial condition and results of operations.

Risks Related to Our ADSs

Recent disruptions in the financial markets and economic conditions could affect our ability to raise capital.

In recent years, the United States and global economies suffered dramatic downturns as the result of a deterioration in the credit markets and related financial crisis as well as a variety of other factors including, among other things, extreme volatility in securities prices, severely diminished liquidity and credit availability, ratings downgrades of certain investments and declining valuations of others. The United States and certain foreign governments have taken unprecedented actions in an attempt to address and rectify these extreme market and economic conditions by providing liquidity and stability to the financial markets. If the actions taken by these governments are not successful, the return of adverse economic conditions may cause a significant adverse impact on our ability to raise capital, if needed, on a timely basis and on acceptable terms or at all.

The trading price of our ADSs has fluctuated and is likely to be volatile, which could result in substantial losses to investors.

Since we first listed our ADSs on the New York Stock Exchange, or NYSE, on February 8, 2018, the trading prices of our ADSs have been and may continue to be subject to wide fluctuations. In 2022, the trading prices of our ADSs on NYSE have ranged from US$1.12 to US$5.04 per ADS.

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The trading price of our ADSs is likely to be volatile and could fluctuate widely due to factors beyond our control. This may happen because of broad market and industry factors, including the performance and fluctuation of the market prices of other companies with business operations located mainly in China that have listed their securities in the United States. In addition to market and industry factors, the price and trading volume for our ADSs may be highly volatile for factors specific to our own operations, including the following:

● regulatory developments affecting us or our industry, customers or suppliers;

● announcements of studies and reports relating to the quality of our product and service offerings or those of our competitors;

● changes in the economic performance or market valuations of other smart wearables companies;

● actual or anticipated fluctuations in our quarterly results of operations and changes or revisions of our expected results;

● changes in financial estimates by securities research analysts;

● conditions in the online retail market;

● announcements by us or our competitors of new product and service offerings, acquisitions, strategic relationships, joint ventures, capital raisings or capital commitments;

● additions to or departures of our senior management;

● fluctuations of exchange rates between the RMB and the U.S. dollar;

● release or expiry of lock-up or other transfer restrictions on our outstanding shares or ADSs;

● sales or perceived potential sales of additional ordinary shares or ADSs;

● geopolitical tensions in Europe and across the world;

● any actual or alleged illegal acts of our shareholders or management; and

● proceedings instituted by the SEC against PRC-based accounting firms, including our independent registered public accounting firm.

Any of these factors may result in large and sudden changes in the volume and price at which our ADSs will trade.

In the past, shareholders of public companies have often brought securities class action suits against those companies following periods of instability in the market price of their securities. If we were involved in a class action suit, it could divert a significant amount of our management’s attention and other resources from our business and operations and require us to incur significant expenses to defend the suit, which could harm our results of operations. Any such class action suit, whether or not successful, could harm our reputation and restrict our ability to raise capital in the future. In addition, if a claim is successfully made against us, we may be required to pay significant damages, which could have a material adverse effect on our financial condition and results of operations.

If securities or industry analysts do not publish research or reports about our business, or if they adversely change their recommendations regarding our ADSs, the market price for our ADSs and trading volume could decline.

The trading market for our ADSs will be influenced by research or reports that industry or securities analysts publish about our business. If one or more analysts who cover us downgrade our ADSs, the market price for our ADSs would likely decline. If one or more of these analysts cease to cover us or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause the market price or trading volume for our ADSs to decline.

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The sale or availability for sale of substantial amounts of our ADSs could adversely affect their market price.

Sales of substantial amounts of our ADSs in the public market, or the perception that these sales could occur, could adversely affect the market price of our ADSs and could materially impair our ability to raise capital through equity offerings in the future. We cannot predict what effect, if any, market sales of securities held by our significant shareholders or any other shareholder or the availability of these securities for future sale will have on the market price of our ADSs.

Because we may not pay dividends again in the foreseeable future, you must rely on a price appreciation of our ADSs for return on your investment.

On March 17, 2022, our board of directors approved the declaration and payment of special cash dividends in an amount of US$0.025 per ordinary share (US$0.1 per American depositary share), representing an aggregate dividend payment to all shareholders of our company of RMB40.0 million (US$5.8 million), to be paid out of our cash balance. In April 2022, we paid such cash dividend to our shareholders of record at the close of business on March 28, 2022. Other than the payment of dividends in April 2022, we currently do not plan to declare or pay any dividends in the near future on our shares or ADSs. We currently intend to retain our available funds and any future earnings to operate and expand our business.

Our board of directors has complete discretion as to whether to distribute dividends, subject to certain requirements of Cayman Islands law. In addition, our shareholders may by ordinary resolution declare a dividend, but no dividend may exceed the amount recommended by our directors. Under Cayman Islands law, a Cayman Islands company may pay dividends out of either profit or share premium account, provided that in no circumstances may a dividend be paid if this would result in the company being unable to pay its debts as they fall due in the ordinary course of business. Even if our board of directors decides to declare and pay dividends, the timing, amount and form of future dividends, if any, will depend on our future results of operations and cash flow, our capital requirements and surplus, the amount of distributions, if any, received by us from our subsidiaries, our financial condition, contractual restrictions and other factors deemed relevant by our board of directors. Accordingly, the return on your investment in our ADSs will likely depend entirely upon any future price appreciation of our ADSs. There is no guarantee that our ADSs will appreciate in value or even maintain the price at which you purchased the ADSs. You may not realize a return on your investment in our ADSs and you may even lose your entire investment in our ADSs.

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 ordinary share structure. Our ordinary shares are divided into Class A ordinary shares and Class B ordinary shares. Holders of Class A ordinary shares are entitled to one vote per share, while holders of Class B ordinary shares are entitled to ten votes per share. Each Class B ordinary share is convertible into one Class A ordinary share at any time by the holder thereof, while Class A ordinary shares are not convertible into Class B ordinary shares under any circumstances. Upon any transfer of Class B ordinary shares by a holder thereof to any person or entity, such Class B ordinary shares shall be automatically and immediately converted into the equal number of Class A ordinary shares.

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As of February 28, 2023, holders of our Class B ordinary shares held an aggregate of 117,208,247 Class B ordinary shares, which represent 48.0% of the total outstanding shares and 90.2% of total voting power of our outstanding shares. Therefore, our Class B ordinary shareholders have decisive influence over matters requiring shareholders’ approval, including election of directors and significant corporate transactions, such as a merger or sale of our company or our assets. This concentrated control will limit your ability to influence corporate matters and could discourage others from pursuing any potential merger, takeover or other change of control transactions that holders of Class A ordinary shares and ADSs may view as beneficial.

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

In 2017, S&P Dow Jones and FTSE Russell announced changes to their eligibility criteria for inclusion of shares of public companies on certain indices, including the S&P 500, to exclude companies with multiple classes of shares and companies whose public shareholders hold no more than 5% of total voting power from being added to such indices. In addition, several shareholder advisory firms have announced their opposition to the use of multiple class structures. As a result, the dual class structure of our ordinary shares may prevent the inclusion of our ADSs, each representing four of our Class A ordinary shares, in such indices and may cause shareholder advisory firms to publish negative commentary about our corporate governance practices or otherwise seek to cause us to change our capital structure. Any such exclusion from indices could result in a less active trading market for our ADSs. Any actions or publications by shareholder advisory firms critical of our corporate governance practices or capital structure could also adversely affect the value of our ADSs.

Our Memorandum and Articles contain anti-takeover provisions that could have a material adverse effect on the rights of holders of our ordinary shares and ADSs.

Our Memorandum and Articles contain provisions to limit the ability of others to acquire control of our company or cause us to engage in change-of-control transactions. These provisions could have the effect of depriving our shareholders of an opportunity to sell their shares at a premium over prevailing market prices by discouraging third parties from seeking to obtain control of our company in a tender offer or similar transaction. Our board of directors has the authority, without further action by our shareholders, to issue preferred shares in one or more series and to fix their designations, powers, preferences, privileges, and relative participating, optional or special rights and the qualifications, limitations or restrictions, including dividend rights, conversion rights, voting rights, terms of redemption and liquidation preferences, any or all of which may be greater than the rights associated with our ordinary shares, in the form of ADS or otherwise. Preferred shares could be issued quickly with terms calculated to delay or prevent a change in control of our company or make removal of management more difficult. If our board of directors decides to issue preferred shares, the price of our ADSs may fall and the voting and other rights of the holders of our ordinary shares and ADSs may be materially and adversely affected.

Our directors, officers and principal shareholders collectively control a significant amount of our shares, and their interests may not align with the interests of our other shareholders.

As of February 28, 2023, our officers, directors and principal shareholders collectively held 95.1% of total voting power. This significant concentration of share ownership and voting power may adversely affect or reduce the trading price of our ADSs because investors often perceive a disadvantage in owning shares in a company with one or several controlling shareholders. Furthermore, our directors and officers, as a group, have the ability to significantly influence or control the outcome of all matters requiring shareholders’ approvals, including electing directors and approving mergers or other business combination transactions. These actions may be taken even if they are opposed by our other shareholders. This concentration of share ownership and voting power may also discourage, delay or prevent a change in control of our company, which could deprive our shareholders of an opportunity to receive a premium for their shares as part of a sale of our company.

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

We are an exempted company incorporated under the laws of the Cayman Islands. Our corporate affairs are governed by our Memorandum and Articles, the Companies Act (As Revised) of the Cayman Islands and the common law of the Cayman Islands. The rights of shareholders to take action against our directors, actions by our minority shareholders and the fiduciary duties of our directors to us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from the common law of England, the decisions of whose courts are of persuasive authority, but are not binding, on a court in the Cayman Islands. The rights of our shareholders and the fiduciary duties of our directors under Cayman Islands law are not as clearly established as they would be under statutes or judicial precedent in some jurisdictions in the United States. In particular, the Cayman Islands has a less developed body of securities laws than the United States. Some U.S. states, such as Delaware, have more fully developed and judicially interpreted bodies of corporate law than the Cayman Islands. In addition, Cayman Islands companies may not have standing to initiate a shareholder derivative action in a federal court of the United States.

Shareholders of Cayman Islands exempted companies like us have no general rights under Cayman Islands law to inspect corporate records (other than copies of the memorandum and articles of association, the register of mortgages and charges and any special resolutions passed by our shareholders) or to obtain copies of lists of shareholders of these companies. Our directors have discretion under our Memorandum and Articles to determine whether or not, and under what conditions, our corporate records may be inspected by our shareholders, but are not obliged to make them available to our shareholders. This may make it more difficult for you to obtain the information needed to establish any facts necessary for a shareholder motion or to solicit proxies from other shareholders in connection with a proxy contest.

As a result of all of the above, our public shareholders may have more difficulty in protecting their interests in the face of actions taken by management, members of the board of directors or controlling shareholders than they would as public shareholders of a company incorporated in the United States.

Certain judgments obtained against us by our shareholders may not be enforceable.

We are a Cayman Islands company and substantially all of our assets are located outside of the United States. Substantially all of our current operations are conducted in China. In addition, most of our current directors and officers are nationals and residents of countries other than the United States. Substantially all of the assets of these persons are located outside the United States. As a result, it may be difficult or impossible for you to bring an action against us or against these individuals in the United States in the event that you believe that your rights have been infringed under the U.S. federal securities laws or otherwise. Even if you are successful in bringing an action of this kind, the laws of the Cayman Islands and of China may render you unable to enforce a judgment against our assets or the assets of our directors and officers.

ADSs holders may not be entitled to a jury trial with respect to claims arising under the deposit agreement, which could result in less favorable outcomes to the plaintiff(s) in any such action.

The deposit agreement governing the ADSs representing our Class A ordinary shares provides that, subject to the depositary’s right to require a claim to be submitted to arbitration, the federal or state courts in the City of New York have exclusive jurisdiction to hear and determine claims arising under the deposit agreement and in that regard, to the fullest extent permitted by law, ADS holders waive the right to a jury trial of any claim they may have against us or the depositary arising out of or relating to our Class A shares, the ADSs or the deposit agreement, including any claim under the U.S. federal securities laws.

If we or the depositary opposed a jury trial demand based on the waiver, the court would determine whether the waiver was enforceable based on the facts and circumstances of that case in accordance with the applicable U.S. state and federal law. To our knowledge, the enforceability of a contractual pre-dispute jury trial waiver in connection with claims arising under the U.S. federal securities laws has not been finally adjudicated by the United States Supreme Court. However, we believe that a contractual pre-dispute jury trial waiver provision is generally enforceable, including under the laws of the State of New York, which govern the deposit agreement. In determining whether to enforce a contractual pre-dispute jury trial waiver provision, courts will generally consider whether a party knowingly, intelligently and voluntarily waived the right to a jury trial. We believe that this is the case with respect to the deposit agreement and the ADSs. It is advisable that you consult legal counsel regarding the jury waiver provision before investing in the ADSs.

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If you or any other holders or beneficial owners of ADSs bring a claim against us or the depositary in connection with matters arising under the deposit agreement or the ADSs, including claims under U.S. federal securities laws, you or such other holder or beneficial owner may not be entitled to a jury trial with respect to such claims, which may have the effect of limiting and discouraging lawsuits against us and/or the depositary. If a lawsuit is brought against us and/or the depositary under the deposit agreement, it may be heard only by a judge or justice of the applicable trial court, which would be conducted according to different civil procedures and may result in different outcomes than a trial by jury would have had, including results that could be less favorable to the plaintiff(s) in any such action.

Nevertheless, if this jury trial waiver provision is not enforced, to the extent a court action proceeds, it would proceed under the terms of the deposit agreement with a jury trial. No condition, stipulation or provision of the deposit agreement or ADSs serves as a waiver by any holder or beneficial owner of ADSs or by us or the depositary of compliance with any substantive provision of the U.S. federal securities laws and the rules and regulations promulgated thereunder.

The voting rights of holders of ADSs are limited by the terms of the deposit agreement, and you may not be able to exercise your right to vote your Class A ordinary shares.

Holders of ADSs do not have the same rights as our registered shareholders. As a holder of our ADSs, you will not have any direct right to attend general meetings of our shareholders or to cast any votes at such meetings. You will only be able to exercise the voting rights which are carried by the underlying Class A ordinary shares represented by your ADSs indirectly by giving voting instructions to the depositary in accordance with the provisions of the deposit agreement. Under the deposit agreement, you may vote only by giving voting instructions to the depositary. Upon receipt of your voting instructions, the depositary will try, as far as is practicable, to vote the Class A ordinary shares underlying your ADSs in accordance with your instructions. If we ask for your instructions, then upon receipt of your voting instructions, the depositary will try to vote the underlying Class A ordinary shares in accordance with these instructions. If we do not instruct the depositary to ask for your instructions, the depositary may still vote in accordance with instructions you give, but it is not required to do so. You will not be able to directly exercise your right to vote with respect to the underlying Class A ordinary shares unless you withdraw the shares, and become the registered holder of such shares prior to the record date for the general meeting. When a general meeting is convened, you may not receive sufficient advance notice of the meeting to withdraw the shares underlying your ADSs and become the registered holder of such shares to allow you to attend the general meeting and to vote directly with respect to any specific matter or resolution to be considered and voted upon at the general meeting. In addition, under our amended and restated articles of association, for the purposes of determining those shareholders who are entitled to attend and vote at any general meeting, our directors may close our register of members and/or fix in advance a record date for such meeting, and such closure of our register of members or the setting of such a record date may prevent you from withdrawing the Class A ordinary shares underlying your ADSs and becoming the registered holder of such shares prior to the record date, so that you would not be able to attend the general meeting or to vote directly. If we ask for your instructions, the depositary will notify you of the upcoming vote and will arrange to deliver our voting materials to you. We have agreed to give the depositary at least 30 days’ prior notice of shareholder meetings. Nevertheless, we cannot assure you that you will receive the voting materials in time to ensure that you can instruct the depositary to vote the underlying Class A ordinary shares represented by your ADSs. In addition, the depositary and its agents are not responsible for failing to carry out voting instructions or for their manner of carrying out your voting instructions. The deposit agreement provides that if the depositary does not timely receive voting instructions from the ADS holders and if voting is by poll, then such holder shall be deemed, and the depositary shall deem such holder, to have instructed the depositary to give a discretionary proxy to a person designated by us to vote the Class A ordinary shares underlying the relevant ADSs, with certain limited exceptions. This means that you may not be able to exercise your right to direct how the shares underlying your ADSs are voted and you may have no legal remedy if the shares underlying your ADSs are not voted as you requested.

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You may not receive dividends or other distributions on our ordinary shares and you may not receive any value for them, if it is illegal or impractical to make them available to you.

The depositary of our ADSs has agreed to pay you the cash dividends or other distributions or the custodian receives on ordinary shares or other deposited securities underlying our ADSs, after deducting its fees and expenses. You will receive these distributions in proportion to the number of Class A ordinary shares your ADSs represent. However, the depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any holders of ADSs. For example, it would be unlawful to make a distribution to a holder of ADSs if it consists of securities that require registration under the Securities Act but that are not properly registered or distributed under an applicable exemption from registration. The depositary may also determine that it is not feasible to distribute certain property through the mail. Additionally, the value of certain distributions may be less than the cost of mailing them. In these cases, the depositary may determine not to distribute such property. We have no obligation to register under U.S. securities laws any ADSs, ordinary shares, rights or other securities received through such distributions. We also have no obligation to take any other action to permit the distribution of ADSs, ordinary shares, rights or anything else to holders of ADSs. This means that you may not receive distributions we make on our ordinary shares or any value for them if it is illegal or impractical for us to make them available to you. These restrictions may cause a material decline in the value of our ADSs.

You may experience dilution of your holdings due to the inability to participate in rights offerings.

We may, from time to time, distribute rights to our shareholders, including rights to acquire securities. Under the deposit agreement, the depositary will not distribute rights to holders of ADSs unless the distribution and sale of rights and the securities to which these rights relate are either exempt from registration under the Securities Act with respect to all holders of ADSs, or are registered under the provisions of the Securities Act. The depositary may, but is not required to, attempt to sell these undistributed rights to third parties, and may allow the rights to lapse. We may be unable to establish an exemption from registration under the Securities Act, and we are under no obligation to file a registration statement with respect to these rights or underlying securities or to endeavor to have a registration statement declared effective. Accordingly, holders of ADSs may be unable to participate in our rights offerings and may experience dilution of their holdings as a result.

You may be subject to limitations on the transfer of your ADSs.

Your ADSs are transferable on the books of the depositary. However, the depositary may close its books at any time or from time to time when it deems it expedient in connection with the performance of its duties. The depositary may close its books from time to time for a number of reasons, including in connection with corporate events such as a right offering, during which time the depositary needs to maintain an exact number of ADS holders on its books for a specified period. The depositary may also close its books in emergencies, and on weekends and public holidays. The depositary may refuse to deliver, transfer or register transfers of our ADSs generally when our share register or the books of the depositary are closed, or at any time if we or the depositary thinks it is advisable to do so because of any requirement of law or of any government or governmental body, or under any provision of the deposit agreement, or for any other reason.

We are an emerging growth company within the meaning of the Securities Act and may take advantage of certain reduced reporting requirements.

We are an “emerging growth company,” as defined in the JOBS Act, and we may take advantage of certain exemptions from requirements applicable to other public companies that are not emerging growth companies including, most significantly, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002 for so long as we remain an emerging growth company. As a result of our current status as an emerging growth company, our investors may not have access to certain information they may deem important.

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We will incur increased costs after we cease to qualify as an “emerging growth company.”

We are a public company and have incurred significant legal, accounting and other expenses that we did not incur as a private company. The Sarbanes-Oxley Act of 2002, as well as rules subsequently implemented by the SEC and the New York Stock Exchange, impose various requirements on the corporate governance practices of public companies. As a company with less than US$1.235 billion in revenues for our last fiscal year, we qualify as an “emerging growth company” pursuant to the JOBS Act. An emerging growth company may take advantage of specified reduced reporting and other requirements that are otherwise applicable generally to public companies. These provisions include exemption from the auditor attestation requirement under Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, in the assessment of the emerging growth company’s internal control over financial reporting. The JOBS Act also permits an emerging growth company to delay adopting new or revised accounting standards until such time as those standards apply to private companies. However, we have elected to “opt out” of this provision and, as a result, we will comply with new or revised accounting standards as required when they are adopted for public companies. This decision to opt out of the extended transition period under the JOBS Act is irrevocable.

We expect these rules and regulations to increase our legal and financial compliance costs and to make some corporate activities more time-consuming and costly. After we are no longer an “emerging growth company,” we expect to incur significant expenses and devote substantial management effort toward ensuring compliance with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 and the other rules and regulations of the SEC. We are currently evaluating and monitoring developments with respect to these rules and regulations, and we cannot predict or estimate with any degree of certainty the amount of additional costs we may incur or the timing of such costs.

As a company incorporated in the Cayman Islands, we are permitted to adopt certain home country practices in relation to corporate governance matters that differ significantly from the NYSE corporate governance listing standards; these practices may afford less protection to shareholders than they would enjoy if we complied fully with the NYSE corporate governance listing standards.

As a Cayman Islands company listed on the New York Stock Exchange, we are subject to the NYSE corporate governance listing standards. However, the NYSE corporate governance listing standards permit a foreign private issuer like us to follow the corporate governance practices of its home country. Certain corporate governance practices in the Cayman Islands, which is our home country, may differ significantly from the NYSE corporate governance listing standards.

Pursuant to Sections 303A.01, 303A.04, 303A.05 and 303A.07 of the New York Stock Exchange Listed Company Manual, a company listed on the New York Stock Exchange must have a majority of independent directors, a nominating and corporate governance committee composed entirely of independent directors and a compensation committee composed entirely of independent directors. We currently follow our home country practice in lieu of these requirements. In January 2023, our board of directors approved the 2023 Share Incentive Plan. We followed our home country practice and our Memorandum and Articles, and did not convene a shareholder meeting to approve the 2023 Share Incentive Plan. We may also continue to rely on these and other exemptions available to foreign private issuers in the future, and to the extent that we choose to do so in the future, our shareholders may be afforded less protection than they otherwise would under the NYSE corporate governance listing standards applicable to U.S. domestic issuers. As a result, you may not be afforded the same protections or information, which would be made available to you, were you investing in a United States domestic issuer.

We believe that we were a passive foreign investment company, or PFIC, for U.S. federal income tax purposes for the taxable year ended December 31, 2022, which could subject U.S. investors in our ADSs or Class A ordinary shares to significant adverse U.S. income tax consequences.

A non-U.S. corporation, such as our company, will be classified as a passive foreign investment company, or PFIC, for U.S. federal income tax purposes for any taxable year if either (i) 75% or more of its gross income for such year consists of certain types of “passive” income; or (ii) 50% or more of the value of its assets (generally determined on the basis of a quarterly average) during such year is attributable to assets that produce or are held for the production of passive income.

Although the law in this regard is not entirely clear, we treat the consolidated VIEs as being owned by us for U.S. federal income tax purposes because we control their management decisions and are entitled to substantially all of the economic benefits associated with these entities. As a result, we consolidate their results of operations in our consolidated U.S. GAAP financial statements.

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Based upon the nature and composition of our assets (in particular, the retention of substantial amounts of cash and investments), and the market price of our ADSs, we believe that we were a PFIC for the taxable year ended December 31, 2022 and we will likely be a PFIC for our current taxable year unless the market price of our ADSs increases and/or we invest a substantial amount of the cash and other passive assets we hold in assets that produce or are held for the production of active income.

If we are a PFIC in any taxable year, a U.S. Holder (as defined in “Item 10. Additional Information—E. Taxation—United States Federal Income Tax Considerations”) will generally be subject to reporting requirements and may incur significantly increased United States income tax on gain recognized on the sale or other disposition of the ADSs or Class A ordinary shares and on the receipt of distributions on the ADSs or Class A ordinary shares to the extent such gain or distribution is treated as an “excess distribution” under the United States federal income tax rules, and such U.S. Holder may be subject to burdensome reporting requirements. Further, if we are a PFIC for any year during which a U.S. Holder holds our ADSs or Class A ordinary shares, we generally will continue to be treated as a PFIC for all succeeding years during which such U.S. Holder holds our ADSs or Class A ordinary shares, unless we were to cease to be a PFIC and the U.S. Holder were to make a “deemed sale” election with respect to the ADSs or Class A ordinary shares. For more information see “Item 10. Additional Information—E. Taxation—United States Federal Income Tax Considerations” and “Item 10. Additional Information—E. Taxation—United States Federal Income Tax Considerations—Passive Foreign Investment Company Rules.”

ITEM 4.              INFORMATION ON THE COMPANY

A.          History and Development of the Company

We commenced operations in December 2013 through Anhui Huami Information Technology Co., Ltd., or Anhui Huami, to develop, manufacture and sell smart wearable devices. In July 2014, we incorporated Huami (Beijing) Information Technology Co., Ltd., or Beijing Huami, to expand our operation.

In December 2014, we incorporated Zepp Health Corporation (formerly, Huami Corporation) in Cayman Islands as our offshore holding company to facilitate financing and offshore listing. Shortly following its incorporation, Zepp Health Corporation established a wholly-owned Hong Kong subsidiary, Hong Kong Zepp Holding Limited (formerly named Huami HK Limited). From December 2014 to April 2015, our Cayman holding company Zepp Health Corporation issued ordinary shares and preferred shares to the holding vehicles of the then shareholders of Anhui Huami, in proportion to these shareholders’ then respective equity interest percentages in Anhui Huami.

In February 2015, Hong Kong Zepp Holding Limited established a wholly-owned subsidiary in China, Beijing Shunyuan Kaihua Technology Co., Ltd., which we refer to as Shunyuan Kaihua or our WFOE in this annual report. Our WFOE later entered into a series of contractual arrangements with Anhui Huami, Beijing Huami, which two entities we collectively refer to as the VIEs in this annual report, and their respective shareholders. These contractual arrangements enable us to exercise effective control over the VIEs; receive substantially all of the economic benefits of the VIEs; and have an exclusive option to purchase all or part of the equity interests in and assets of them when and to the extent permitted by PRC law. As a result of these contractual arrangements, each of Anhui Huami and Beijing Huami is the consolidated variable interest entity, which generally refers to an entity in which we do not have any equity interests but whose financial results are consolidated into our consolidated financial statements in accordance with U.S. GAAP because we have effective financial control over, and are the primary beneficiary of, that entity. We treat each of Anhui Huami and Beijing Huami and their respective subsidiaries as the consolidated affiliated entities under U.S. GAAP and have consolidated their financial results in our consolidated financial statements in accordance with U.S. GAAP. However, those contractual arrangements may not be as effective as direct ownership in terms of providing operational control.

On February 8, 2018, our ADSs commenced trading on the NYSE under the symbol “HMI.” Counting in the ADSs sold upon the exercise of the over-allotment option by our underwriters, we raised from our initial public offering US$103.9 million in net proceeds after deducting underwriting commissions and discounts and the offering expenses payable by us.

In April 2019, we completed a registered follow-on offering of our ADSs, raising US$6.6 million in net proceeds after deducting underwriting commissions and discounts and the offering expenses payable by us.

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In February 2021, we, through Anhui Shunyuan Xinke Management Consulting Partnership (Limited Partnership), one of our subsidiaries in China, acquired 29.99% of the total outstanding shares of Jiangsu Yitong, a PRC company listed in Shenzhen Stock Exchange, for an aggregate consideration of RMB959.7 million in cash to expand the healthcare ecosystem for Chinese market in the long term. The transaction was completed in February 2021. In May 2022, we, through Anhui Shunyuan Xinke Management Consulting Partnership (Limited Partnership), acquired another 0.01% of the total outstanding shares of Jiangsu Yitong for an aggregate consideration of RMB232,847.

Effective February 25, 2021, we changed our corporate name from “Huami Corporation” to “Zepp Health Corporation,” and our trading symbol at the New York Stock Exchange from “HMI” to “ZEPP.”

Our principal executive offices are located at Huami Global Innovation Center, Building B2, Zhong’an Chuanggu Technology Park, No. 900 Wangjiang West Road Road, Hefei, 230088, People’s Republic of China. Our telephone number is +86 010-5940-3251. Our registered office in the Cayman Islands is located at the offices of Maples Corporate Services Limited at PO Box 309 Ugland House, Grand Cayman, KY1-1104, Cayman Islands. Our agent for service of process in the United States is Puglisi & Associates, located at 850 Library Avenue, Suite 204, Newark, Delaware 19711.

SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC on www.sec.gov. You can also find information on our website https:// ir.zepp.com/investor. The information contained on our website is not a part of this annual report.

B.           Business Overview

Our mission is to connect health with technology. In pursuit of that mission, we have developed substantial proprietary technology, which has enabled our company to become a significant global player in producing consumer health and fitness devices.

We shipped 20.3 million units of smart wearable devices in 2022 primarily from our own Amazfit and Zepp brands, and we had shipped an aggregate of 223.7 million units between our inception and December 31, 2022. In 2021, we promoted our Amazfit products sold in China as Chinese characters “跃我,” which means “up your game” in Chinese. We collaborate with partners across many verticals such as sports and social network, mobile payment and health and related industries. Our key product and technology offerings include our smart devices, home fitness equipment and healthcare initiatives, together forming our smart health ecosystem.

Smart Bands and Smart Watches

We have developed a wide range of smart wearables that offers robust features at competitive pricing, primarily under our own brands, Amazfit and Zepp. Mi Band series is our smart band series that is designed and manufactured for Xiaomi. We offer products in different styles, such as round versus rectangular, and specific functions targeting various audiences, such as ruggedized versus everyday, or sports versus fashion, to address the different needs of our consumers. For example, in 2022, we introduced fashion series GTR 4, GTS 4 and GTS 4 Mini fashion smart watches, providing periodic upgrades in features and materials at the $199.99 price point. In October 2022, we also launched premium multi-sport GPS watch Falcon, with AI-powered Zepp Coach guidance and 6 satellite positioning systems, at the US$499.99 price point.

We pursue a strategy of fast development and replacement cycles with shorter manufacturing runs. This brings new products to market fast, stimulating new purchase by delivering compelling newly launched or updated offerings throughout the year. All of our products utilize the same AI chipset and sensor array with important differentiating benefits for our data analytics service offerings, which provides consistent biometric data and allows users to connect with different terminals to improve the IoT application scenarios.

In 2022, we sold our own branded products under the Amazfit and Zepp brand names. Significant models include:

● Amazfit Band 7;

● Amazfit basic smart watches, Bip series;

● Amazfit sport and outdoor smart watches, Neo, T-Rex series, Stratos 3, and Falcon;

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● Amazfit fashion smart watches, GTR and GTS series and GT mini; and

● Zepp advanced smart watches, E and Z.

Smart Scales

Smart scales, which gather biometric and correlate data and analysis algorithms with other devices, such as smart watch and app, have been a strong component of the smart health device market for several years.

Hearables and Others

Smart ear buds, ear phones and other personal listening devices have become a fast-growing segment of the smart wearables industry in the last three years.

We introduced our first two smart hearable products, Amazfit PowerBuds and Amazfit ZenBuds, which incorporate true health monitoring and health benefits, in 2020. Amazfit PowerBuds are designed for listening use during exercise or outdoor activities, and provide heart rate monitoring and data sharing with our Zepp app. In 2021, we introduced a new smart hearable product, Amazfit PowerBuds Pro, an upgraded version of Amazfit PowerBud featuring true wireless stereo with powerful multi-scenario, active noise cancellation and advanced health monitoring functions, including cervical vertebrae and hearing protection.

In the first quarter of 2022, we launched the first and flagship product in our smart hearing aids product line, Zepp Clarity One, an adjustable, comfortable, invisible and discrete device for those hearing loss and especially, for those who don’t want others to notice, furnishing with a customer first, best-in-class support team guided by the audiology professionals to ensure the best possible experience for users from set-up to seamless life integration, which represents an important milestone in our expansion into the healthcare service sector.

We offer a home treadmill, Amazfit AirRun, primarily for sales in Asia. We also offer sportswear, home appliances and smart watch accessories.

Zepp Aura

Zepp Aura is a comprehensive, real-time based personalized sound health solution for improving sleep quality currently available in the U.S., Germany and Spain, featuring science-backed music composition, daily tips, etc., seamlessly integrating with our smart wearable devices. With its AI-generated compositions, the ability to read the user’s natural mood indicators such as heart rate, body temperature and blood oxygen level recorded by our smart watches, and a scientific rhythm library hand-crafted by professionals, Zepp Aura adjusts to the user’s biorhythmic feedback, providing therapeutic and sleep-enhancing soundscapes through our “Zepp” mobile app to help users relax, soothe, restore, focus, and ultimately achieve better holistic health.

Data Analytics Capability

We had more than 36.2 million Mobile App MAUs as of December 31, 2022, contributing to a large data set for health related data analytics. In addition, we use the same biosensor array in each of our products, regardless of price or type, which provides us with a consistency as to the quality and format of the data collected that many of our competitors do not possess.

Under strict guidance of our data privacy and security policies, we offer use of various sets of the data set we have accumulated. Use of user data may be individually identified or de-identified, depending upon the application, agreement with the company, and agreement with users. In some cases, users may opt-in to have their personal data seen by the population manager. Each use of data under data analytics services is specifically codified in contract language, with the default always to be protection of individuals’ personal identity and data, and only shared upon users’ specific instruction (opt-in).

In particular, PAI Health, which we acquired in 2020, developed a robust heart health algorithm that has proven to be a strong predictor of longevity. The PAI algorithm is built into our products to give consumers the benefit of health information and activity guidance. Since 2020, PAI Health cooperated with high-profiled insurance companies to conduct data analytics research with them to explore more efficient customer acquisition, generate increased customer engagement and enhance accuracy in insurance underwriting and pricing.

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Core Technology for Our Products and Services

We design and develop our own core technology for smart devices, which we deem as a key competitive edge of our company as compared to many competitors who outsource their key components. We believe this give us an edge in product design for current and future products, as well as cost advantages.

Huangshan AI-Powered Smart Chipset

In September 2018, we introduced the world’s first AI-powered wearable chipset, Huangshan-1. Leveraging the world’s first RISC-V open-source instruction set wearable processor, Huangshan-1 features four core artificial intelligence engines—cardiac biometrics engine, ECG, ECG Pro, and Hearth Rhythm Abnormality Monitoring Engine.

Huangshan-1 operates alongside an always-on (AON) module designed to transfer sensor data to internal static random access memory without waking the primary processor, with dedicated accelerators for neural network workloads. Huangshan-1 also supports real-time movement tracking, real-time biometric identification and real-time warning, among a huge array of functions. In addition, Huangshan-1 can scan the heart rate patterns of users through cloud-based AI, which helps monitor the user’s heart rate carefully, check for any unusual patterns and update users’ health statistics even when the users are not online. With lightning performance and minimal power consumption, Huangshan-1 has been applied on our Amazfit-branded health-oriented products since August 2019.

In June 2020, at a Zepp-sponsored AI Innovation conference, we announced our next generation of the Huangshan chipset, Huangshan-2. Based on RISC-V instruction set and a new independent neural network engine, the Huangshan-2 improves computing efficiency by 38% and can make software algorithms 26 times faster than other standard algorithms running on MCU core, at significantly lower power consumption than the Huangshan-1.

In July 2021, at our annual developers conference, we announced our new generation of smart wearable chip Huangshan-2s, the third generation Huangshan chip. Compared to its predecessor, the Huangshan-2s reduces operating power consumption by 56% and dormant power consumption by 93%, and improves graphics performance by 67%. Huangshan-2s smart wearable chips successfully taped out in March 2021, and have become one of the key smart wearable chips for our next generation of Amazfit smart watches.

BioTracker (TM) Sensor Array

We develop our own proprietary biosensor array for our smart devices. Like the Huangshan chipset, we believe this provides significant development and cost competitive advantages for our company.

In June 2020, we announced the second generation of our biosensor array, BioTracker^TM 2. The new sensor supports five AI-driven biologic data engines, including RealBeats^TM 2 heart rate monitoring, OxygenBeats^TM oxygen data monitoring, SomnusCare^TM sleep data monitoring, ExerSense^TM exercise data detection and monitoring and Zepp-PAI heart health monitoring and analysis. The upgrade to our biosensor capabilities includes improvements in sensitivity, accuracy and scope of information detected by our devices. In October 2021, we introduced the third generation of our biosensor array, BioTracker^TM 3, into our smart watch products Amazfit GTS 3, Amazfit GTR 3 and Amazfit GTR 3 Pro. The BioTracker^TM 3 monitors blood oxygen level, heart rate, stress level and sleep quality, providing users with easy-to-use enhanced health and sports experience. In September 2022, our brand new smart watch products Amazfit GTS 4 and Amazfit GTR 4 debuted the fourth generation of our biosensor array, BioTracker^TM 4, which collects 33% more data and is more accurate than the previous generation. Combined with the upgraded heart rate tracking algorithm of the GT 4 series, the BioTracker^TM 4 could greatly reduce potential signal interference caused by the user’s arm movement during exercise, which almost reaches the tracking level of heart rate belts.

Zepp OS Ecosystem

We announced the new Zepp OS in July 2021. Zepp OS is not only a smart watch operating system but also the core of an open platform, designed with emphasis on health, user experience and privacy protection with three key characteristics, namely being light, smooth and practical.

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The new Zepp OS provides a reliable and stable Bluetooth channel to better connect with smart phones, smart homes, other health devices and payment systems. We are also opening the Mini Program framework for developers to create new apps that leverage the high-quality data and intelligence from our company’s proprietary biosensor array and AI chip, creating a global open IoT ecosystem for smart wearable users. Our inclusive and innovative Zepp OS ecosystem has now launched over 180 mini programs now. In addition, we are constantly expanding our technology footprint to attract more users to join our Zepp OS ecosystem. For example, we hosted the first-ever Zepp OS Global Online Hackathon from June 1, 2022 to August 31, 2022, and collaborated with Stanford and UC, Berkeley on their Caltech event. We also launched our first Zepp OS technology and health campus innovation contest with the University of Science and Technology of China to inspire students to develop apps on smart wearable devices that could help people better manage their health and wellness and design their lives by healthy choices.

We also licensed Zepp OS and Huangshan-2s smart wearable chip technologies, including patents, technical secrets, integrated circuit layout-design, to Whale Microelectronics of Jiangsu Yitong.

PumpBeats™ Blood Pressure Measurement System

In July 2021, we introduced PumpBeats^TM, a non-invasive and sleeveless blood pressure measurement system on Amazfit smart watches, which enables both spot measurement and continuous monitoring during sleep. Based on five years of technical research and employing our proprietary Huangshan AI chip and biosensor array, the PumpBeats^TM algorithm is able to measure blood pressure through the watch’s optical sensors in only 30 seconds. This feature provides users with easy, convenient, accurate readings anytime and anywhere throughout their busy day. PumpBeats^TM is now being tested in Amazfit GTR 3 Pro introduced in October 2021 and undertaken clinical trial by Peking University First Hospital and Hefei High-tech Zone Cardiovascular Hospital in 2022.

Zepp Coach™

Launched in October 2022, the Amazfit Falcon debuted the new AI-powered Zepp Coach™, a self-developed smart coaching algorithm which offers AI-powered tailored guidance based on the user’s physical characteristics and workout experience level, to help them scientifically improve their sports performance and build better fitness habits. To help users train safely, the Zepp Coach™ can even detect whether the user is in an overtrained state, and appropriately reduce the intensity of scheduled exercise plans or recommend a rest day.

Zepp and Zepp Life Mobile Apps

We mainly offer two mobile apps: our “Zepp Life” mobile app (formerly known as the “Mi Fit” mobile app) and our “Zepp” mobile app (formerly known as the “Amazfit” mobile app). Both of our mobile apps sync automatically with, and display real-time data from our devices. They use charts and graphs to display analysis of the activity and biometric data collected from users. Our “Zepp Life” mobile app is designed with a focus on sports and fitness functions while our “Zepp” mobile app emphasizes functions relating to health and medical care.

Since our inception in 2013, we have amassed a large user base. As of December 31, 2022, we had 326.4 million registered users of our mobile apps. In 2022, we had an average Mobile App MAUs of 36.2 million.

We developed our mobile apps to support and expand the functionalities of our smart wearable devices as a way to attract users and promote sales of our wearable devices. We generate minor certain miscellaneous revenues from our mobile apps, such as Zepp Aura. However, the amounts of such revenues are immaterial. We continue to provide innovative features and functionalities to users through our mobile apps, including the following:

● Zepp OS. Zepp OS is a health management system for smart watches and wearable devices that aims to create user experiences based on the concept of “creating health value for users.” We created the innovative Zepp OS architecture to enable “24/7 health monitoring” so users can benefit from the most comprehensive health insights to improve their health.

● Zepp Aura. It is a software feature to provide sleep aid soundscapes adapt to help users fall asleep sooner and improve sleep quality. While playing music, this function will recommend the melody which can help users relax based on their heart rates, activities, sleep data and music preferences.

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● AI assistant. Our apps are compatible with virtual assistants including Amazon Alexa developed by Amazon. Users can connect to these virtual assistants directly from our apps.

Data Technology

Our strong data technology is vital in enhancing the performance of our products and in further expanding their applications, as well as in enhancing our various data-enabled services.

Data Sources and Storage

Our big data storage system stores and processes a massive amount of multi-dimensional user data, including activity data and biometric data, which serves as the foundation of our big data technology. Based on the foregoing two types of data, we are able to derive additional personal data such as calories burned, BMI, body fat composition, heart health index, personal activity index and even calculate the likelihood of certain heart diseases. We also collect and analyze software and hardware error data and product defects data to optimize our products.

Big Data Technology

The real-time iteration of our big data model is enabled by our big data infrastructure and algorithms. Our data platform can extract multi-dimensional features from multi-source data in a highly efficient and secure way to support modeling. Abiding by the data security regulations, we currently utilize our big data technology in the following areas:

● optimize the algorithms that count the number of steps taken by eliminating the effect of certain patterns of the hand movements that are not associated with walking;

● fine-tune our algorithms for tracking sleep duration and quality and then make personalized adjustment based on users’ sleep patterns;

● enhance the performance of our built-in GPS, enabling our products to draw users’ running tracks more accurately and more quickly;

● develop insights into massive market and consumer data, empowering a more streamlined and efficient product design and optimization process;

● perform statistical analysis to identify certain characteristics that are associated with heart diseases and sleep patterns and make related practice recommendations to our users;

● perform statistical analysis to identify certain characteristics that are associated with users’ health and make related recommendations of training courses to our users; and

● develop the capability to perform more granular analysis on the data we collect from our users and to allow our products to recognize types of activities and sports.

Data Privacy and Protection

We consider the protection of the personal privacy of each of our users to be of paramount importance. We think it is crucial that our users understand how we handle their information so that they can make informed choices in deciding how such information is used and shared.In 2021, we obtained the ISO/IEC 27001 information security management system certification.

To this end, we have developed a company-wide policy on data collection and use practices to preserve individual privacy rights in all respects, the key principles of which include: (i) providing adequate notice to users as to how their data is being collected and used, (ii) providing users with the option to opt out, (iii) making reasonable efforts to prevent loss/leakage of user data, (iv) giving users access to all information held about them, and (v) enforcing the policy with effective means.

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We also partner with several leading social networks in China. With the consent of our users, we allow them to import certain activity data collected by us to their platforms so that our users can utilize certain interactive functions offered on these social networks. In addition, our users can also import their data to third-party apps such as Apple Health Kit and Google Fit to obtain the data analytic services provided by them. Users can revoke their consent to share data with third parties at any time using their “Zepp Life” or “Zepp” account settings or the account settings on such third parties’ platforms. If users choose to share their data with a third party, the data is governed by the privacy policy of the third party. We do not distribute or share with third parties our users’ personal data to other companies for advertising or any other purposes.

Research and Development

We are passionate about developing new and innovative products and services that will make the world more connected. Our research and development team and our management team co-lead the product development process, including the upgrades for our existing products and the development of new product lines. We take a user centric approach to product development. We constantly engage and communicate with our users via the “Feedback” feature in our mobile apps, customer services, forums and user chat groups and interviews to help us identify meaningful features for users and refine existing products. Our research and development team has responded effectively to technological changes, and is driving continued innovation to unleash the potential of the wearable devices industry.

As of December 31, 2022, our total research and development staff consisted of 564 employees. Our global research and development team supports the design and development of our new products. Our research and development team is comprised of electrical engineers, mechanical engineers, computer scientists and mobile app developers. The team is further divided into four subgroups, including algorithms and AI, software engineering, hardware engineering and third-party service integration.

Algorithms and AI

Our algorithms and AI team is responsible for developing and refining our proprietary, artificial intelligence-based, computational algorithms, and leveraging the latest technology in artificial intelligence for applications in our products and services. Our algorithms and AI team incorporates open source software with our robust proprietary software to form an enterprise-grade platform to deliver an integrated suite of capabilities for data management, machine learning and advanced analytics. After data anonymization, this platform enables us to better serve and create value for our users and design innovative products and services. Our algorithms and AI team has developed a vibrant ecosystem around our platform, and has been building a growing range of applications on our platform, including the following:

● Disease diagnosis and health risk prediction. Machine learning is particularly suitable for processing unstructured raw data collected on individual devices by recognizing patterns and connections through which the raw data can be structured and analyzed. The vast amounts of raw data are uploaded to our cloud-based databases and then filtered by our algorithms to identify users with heightened risks of heart diseases or respiratory problems. Those results flagged by our algorithms are then verified by doctors, and the feedback from doctors is input into our algorithms to be used to analyze and filter the new data, thus forming a closed loop to allow us to continually fine-tune our algorithms to obtain more accurate assessment with each update.

● Sleep monitoring. Currently most sleep disorders can only be diagnosed in laboratories and hospitals. We are collaborating with Stanford Center for Sleep Sciences and Medicine to develop the capability to diagnose sleep disorders through consumer electronics and wearable technologies.

● Sports and fitness. We are developing algorithms to synthesize a wide variety of users’ daily activity data to understand users’ daily routines and habits and build our recommendation model accordingly through machine learning. Additionally, we also have developed the AI algorithms to recognize the daily workout or exercise, such as walking, running, cycling, rowing and elliptical training to automatically record the workout for customers and provided workout recommendations. Once the recommendation model is set up, we will be able to provide users with recommendations, such as exercise duration and intensity, running posture and foot posture, etc. We can also make personalized activity recommendations to help users achieve their fitness goals, such as weight loss.

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● Biometrics. ECG is just as unique to an individual as fingerprints. We have developed ECG recognition algorithms to recognize the unique cardiac rhythms of users, which can be utilized as a biometric ID to authenticate user’s identity. Currently we are exploring new scenarios where this feature can be applied, such as account login and user identification. In addition, we have developed or are in the process of developing AI algorithms to measure various health parameters, including real time heart rates, heart rate variability, arrhythmia (including atrial fibrillation), SpO₂, blood oxygen, blood pressure, body temperature and etc., with the bio-sensors embedded in our wearable devices.

In May 2020, we published a research article on infectious disease prediction based on data from wearable devices in journals of Discrete Dynamics in Nature and Society by Hindawi, which indicates that the popularity of wearable devices enables a new perspective for the precaution of the infectious diseases and can be the foundation for a health surveillance system. We plan to utilize the laboratory achievements to further develop our products and services in building a comprehensive health and fitness ecosystem.

Software Engineering

Our software engineering team is responsible for developing the company-wide software platform to support the integration of our products and applications, the transmission, storage and processing of user data, the implementation of user-product interaction and the development of core technologies. To provide users with valuable data and services, we rely on our software platform to connect individual devices, our cloud-based computing system and end users’ mobile apps. The key elements of our software engineering philosophy include security, reliability and extensibility.

Hardware Engineering

Our hardware engineering team supports the system-level product design, ultralow power system design and the design of key system components, including antenna, bio-sensors, battery, integrated circuits (“IC”) for battery protection, Bluetooth Low Energy system on chip IC, energy-efficient microprocessor and product testing apparatus. Our hardware engineering team also plays a key role in identifying opportunities for strategic investments upstream.

Third-Party Service Integration

Our third-party service integration team is responsible for exploring innovative ways to integrate social features with our products and services and introduce new third-party services to our platform. We currently focus on the opportunities in the areas of sports, fitness, health and medical care. We are also exploring cooperation opportunities with fitness trainers to help them tailor training programs and adjust exercise intensity based on our users’ activity and fitness levels.

Our Relationship with Xiaomi

Our strategic cooperation agreement with Xiaomi, initially entered into in October 2017 and renewed in October 2020 for another three years, grants us the most-preferred-partner status globally to develop future Xiaomi Wearable Products. We leverage Xiaomi’s brand recognition and global distribution networks for the sale of Xiaomi Wearable Products. Our sale of Xiaomi Wearable Products to Xiaomi is governed by a business cooperation agreement, pursuant to which Xiaomi is responsible for the distribution and sales of Xiaomi Wearable Products through their networks and sales channels.

We and Xiaomi discuss on, among others, functions and recommended price range throughout the development process. After we show Xiaomi of prototypes and our internal validation testing results, we start taking orders from Xiaomi for mass production. Xiaomi and us generally discuss order forecast months in advance of the delivery time, which sufficiently allows us to arrange raw material and component procurement and manufacturing. In addition to the recommended price of Xiaomi Wearable Products to be sold to users and wholesalers, we also discuss with Xiaomi and jointly determine discounts offered at promotional events from time to time. We and Xiaomi receive equal shares of gross profit from selling most of the Xiaomi Wearable Products. During the year ended December 31, 2022, we also sold one specific generation of Xiaomi Wearable Product, accounting for 26.1% of consolidated revenue, which we and Xiaomi have a standard selling price and does not include installment payments. In additional, we are exploring additional ODM collaboration opportunities with leading global consumer internet platforms, beyond our partnership with Xiaomi.

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Manufacturing and Fulfillment

Procurement and Manufacturing

We procure a majority of raw materials and components from suppliers within China, and then consign them to our manufacturers. In general, prices for our raw materials have been relatively stable. Through close coordination with our customers and manufacturers and frequent purchases of components from suppliers, we are able to carry a few raw material and in-process inventories and achieve prompt production, minimizing inventory risk. For Xiaomi Wearable Products, Xiaomi provides us with production forecasts on a rolling basis, which serves as the primary indicator for our component procurement effort. For our self-branded products, we procure components based on our internal sales and production plan for the next one to two months at the beginning of each month.

The key components of our products typically include Bluetooth Low Energy (BLE) system-on-chip, PPG sensor, flash memory, gravity sensor, battery and screen. Based on the specific product requirements, some of the key components, such as BLE system-on-chip, we utilize is currently procured from a number of sources of supply. The remaining key components of our products are generally procured from two to three suppliers.

We believe that outsourcing the manufacturing of our products enables greater scale and flexibility at lower costs than establishing our own manufacturing facilities. We outsource the manufacturing of our products to a number of contract manufacturers. We assign the production of Mi Band series, Mi Smart Scale series and our self-branded product lines to a number of corresponding manufacturers. Our manufacturers produce our products using design specifications and standards that we establish.

We evaluate on an ongoing basis our current contract manufacturers and component suppliers, including whether or not to utilize new or alternative contract manufacturers or component suppliers. We do not maintain purchase commitments with our suppliers. The terms of the supply agreements with our suppliers generally are two to three years. Our suppliers generally also provide direct order fulfillment services with logistics that include delivery of parts and assembly to our manufacturers.

Prior to entering commercial production, our new products need to go through three phases, including engineering validation testing, design validation testing and production validation testing. During the initial period after launch, we typically maintain low production volume to test the market and then gradually ramp up based on market reception of such new products.

Quality Assurance

We are committed to maintaining the highest level of quality in our products. We have designed and implemented a quality management system that provides the framework for continual improvement of products and processes.

For our new product lines, we conduct thorough examinations of product samples and each of their components at the product verification testing stage to make sure they satisfy all the technical requirements set forth in our structure design and industrial design. The examination results are recorded on a set of product sample documents, which are further reviewed and approved before they are handed over to our manufacturers to begin commercial production.

For our existing product lines, we also have a quality assurance team that establishes, communicates and monitors quality standards by product category. Suppliers are kept apprised of quality assurance expectations through a vendor management portal environment. In addition, we have quality assurance personnel stationed at the facilities of our key manufacturers to perform sampling inspection to ensure that our manufacturers fully adhere to our quality standards in the production process.

Sales and Marketing

Since September 2015, we have started to use the brand name “Amazfit” to market our self-branded products. In August 2020, we introduced a new brand name, “Zepp,” for our self-branded products. In 2020, we engaged in various marketing and branding activities, both in China and globally, to promote our Amazfit brand and Zepp brand. In 2021, we promoted our Amazfit products sold in China as Chinese characters “跃我” and promote a slogan “up your game.” We seek to further increase our brand awareness by expanding our marketing efforts, strengthening our competitive differentiation, and providing our users with consistent and high quality products.

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Our self-branded products are sold via both online and offline channels. In terms of online platforms, we operate storefront on e-commerce platforms and directly selling to certain of these e-commerce platforms who subsequently distribute to end users. For our offline network, we work with both well-established distributors to create points of purchase at their retail stores. In addition, our products have international versions that are manufactured for sales and distribution in overseas markets. In 2022, we expanded domestic and international sales and marketing channels for our Amazfit products and Zepp products on our own, and we plan to keep doing so in the foreseeable future.

Xiaomi directly handles the sales and distributions of Xiaomi Wearable Products and also bears the associated advertising and marketing costs. However, we also play an important role in driving the sales strategy for Xiaomi Wearable Products. For example, we and Xiaomi work together to determine the quantity to be produced, the final selling price, the distribution channel and promotional events.

Customer Service

User experience is a key focus for our business. We strive to provide personalized support for our users, including support from live customer service representatives.

The first point of contact for customer service inquiries is our self-service “Feedback” function embedded in our mobile apps. Our “Feedback” feature works 24/7 to collect complaints from our users. Representatives of Xiaomi and our distribution channels, especially those that manage our e-commerce channels, also provide customer services to users who purchased our products through their channels during normal working hours. These representatives are required to complete mandatory training on product knowledge, complaint handling and communication skills. In addition, we also maintain a call center to provide support to our users.

Additionally, we have set up mobile chat groups to connect with users who are also enthusiastic followers of our products, and conduct focus group study periodically to better understand what our users desire from our products.

Intellectual Property

Protection of our intellectual property is a strategic priority for our business. We rely on a combination of patent, copyright, trademark and trade secret laws, as well as confidentiality agreements, to establish and protect our proprietary rights. Except for certain licenses for the off-the-shelf software used in connection with our day-to-day operations, we generally do not rely on third-party licenses of intellectual property for use in our business.

As of February 28, 2023, we had obtained 824 patents and had submitted 347 additional patent applications. Our issued PRC patents will expire by 2041 and our issued foreign patents will expire by 2046. As of February 28, 2023, we had registered 2,154 trademarks and had submitted 386 additional trademark applications. Our registered PRC trademarks will expire by 2033 but can be renewed. Our registered foreign trademarks will expire by 2038 but can be renewed. As of February 28, 2023, we had obtained 77 software copyrights.

In addition to the foregoing protections, we generally control access to and use of our proprietary and other confidential information through the use of internal and external controls, such as use of confidentiality agreement with our employees and outside consultants.

Competition

We compete with other companies in every aspect of our business, particularly with companies that are in the smart wearables market. The smart wearables market has a multitude of participants, including consumer electronics companies specialized in smart wearable technology, such as Fitbit and Garmin, large, broad-based consumer electronics companies that either compete in our market or adjacent markets, or have announced plans to do so, such as Huawei, Apple, Samsung and Fitbit, traditional health and fitness companies and traditional watch companies. We also face competition from local providers of similar products in the different regions and countries where our products are distributed.

We believe that the principal competitive factors impacting the market for our products include:

● brand recognition;

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● breadth of product offerings;

● functionality;

● sales and distribution;

● data accuracy;

● sensor technology and algorithms;

● user services; and

● pricing.

We believe we can compete favorably with our competitors on the basis of these factors. We believe we have one of the largest accumulative registered user bases in the global wearable devices industry as a result of our large shipment volume. The large amount of data we collect from our user base allows us to continuously improve our proprietary algorithms to enhance the performance of our products. We plan to establish our own brands as lifestyle brands by consistently introducing innovative products that offer increasingly rich premium services and functionalities for our self-branded products. We primarily rely on our own sales channels for our Amazfit products and Zepp products, both in China and globally.

However, the industry in which we compete is evolving rapidly and is becoming increasingly competitive. For additional information, see “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business—We operate in highly competitive markets and the scale and resources of some of our competitors may allow them to compete more effectively than we can, which could result in a loss of our market share and a decrease in our revenue and profitability.”

Our Environmental, Social and Governance Initiatives

We are committed to promoting various aspects of our environmental, social and governance (“ESG”) initiatives. With the guidelines of the United Nation Global Compact Sustainable Development Goals, Global Reporting Initiative, and Greenhouse Gas Protocol, we have identified three important pillars in our ESG initiatives: Environmental Sustainability, Social Responsibility and Corporate Governance. We actively support the ESG and we aim at achieving the ESG initiatives by utilizing the unique characteristics of our business and products.

Environmental Sustainability

We leverage our technology, infrastructure and relationships with users and suppliers to reduce the environmental impacts of our business. To make a positive contribution to better protect the environment, we have taken a series of measures in energy-saving, recycling, and sustainable product design. Lower power consumption is always a key strategy of us. We strive to leverage our technological capabilities to improve the battery life and optimize the power consumption of our products. We also continue to increase the utilization of recyclable materials and reduce the use of packaging materials. For instance, we have begun to gradually replace paper user manuals with digital ones for our products.

Social Responsibility

We are fully committed to be socially responsible and make positive impact on the society. Our mission is to connect health with technology and our key strategy is to help our users to live healthier lives. We are consistently developing product functions that can track and help users’ health status. We have been making efforts to raise public awareness of the importance of sports and health by co-hosting a series of sports activities in the community, and we keep encouraging employees to maintain a healthy and joyful lifestyle. For example, on the first Friday of each month, we arrange various indoor and outdoor sports activities for our employees.

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Corporate Governance

We have established an environmental, social and governance communications and management mechanism to comprehensively protect the environment, benefit the society and improve our corporate governance. As a vital part of our company, our management and directors contribute their insights into the strategic decision-making process, by drawing on their own gender perspective and diversified background. Our board is composed of highly reputable members, including a female director. We have also established a Privacy and Ethics Committee and appointed Mr. Hongjiang Zhang as the chair, who is newly selected as an international member of the U.S. National Academy of Engineering.

We have been continuously improving our environmental, social and governance initiatives under the guidance of our sustainability framework. We appreciate the oversight, guidance and feedback from different parties and are committed to collaborating closely with domestic and international organizations to support broader industry-wide ESG practices, to explore multi-dimensional use cases for our technologies, to empower traditional industries with our capabilities and to promote a healthier and joyful lifestyle and the long-term sustainability of our society.

Seasonality

Our business has historically been subject to seasonal fluctuations, which may be caused by product launches and various promotional events hosted by our distributors. Although we have historically experienced higher sales during the fourth quarter, primarily due to (i) holiday sales for Black Friday and Cyber Monday and during the lead-up to Christmas and (ii) the “Singles’ Day” online shopping festival organized by Amazon, this pattern does not repeat itself every year. We typically experience our lowest sales volume and incur losses in the first quarter of each year.

Regulation

This section sets forth a summary of the most significant rules and regulations that affect our business activities in China or our shareholders’ rights to receive dividends and other distributions from us.

Regulation on Foreign Investment

Investment activities in the PRC by foreign investors are principally governed by the Catalogue of Industries for Encouraging Foreign Investment, or the Encouraging Catalogue, and the Special Management Measures (Negative List) for the Access of Foreign Investment, or the Negative List, both of which were promulgated and are amended from time to time by MOFCOM, and the NDRC. The Encouraging Catalogue and the Negative List lay out the basic framework for foreign investment in China, classifying businesses into three categories with regard to foreign investment: “encourage,” “restricted” and “prohibited.” Industries not listed in the Encouraging Catalogue and the Negative List are generally deemed as falling into a fourth category “permitted” unless specifically restricted by other PRC laws.

On October 26, 2022, MOFCOM and the NDRC released the Catalog of Industries for Encouraging Foreign Investment (2022 Version), which became effective on January 1, 2023, to replace the previous Encouraging Catalogue. On December 27, 2021, MOFCOM and the NDRC released the Special Management Measures (Negative List) for the Access of Foreign Investment (2021 Version), which became effective on January 1, 2022, to replace the previous Negative List. Furthermore, the Article 6 of the Negative List (2021 Version) provides that any domestic enterprise engaged in the business where foreign investment is “prohibited” shall apply to the relevant authorities for their review and approval as to its offering and listing in overseas markets, and overseas investors shall not participate in the operation and management of such domestic enterprise. According to the press conference conducted by MOFCOM in January 2022, the Article 6 of the Negative List (2021 Version) only applies to direct overseas listing by domestic companies, which is not applicable to us.

On March 15, 2019, the National People’s Congress promulgated the FIL, which came into effect on January 1, 2020 and replaced the Outdated FIE Laws. The FIL, by means of legislation, establishes the basic framework for the access, promotion, protection and administration of foreign investment in view of investment protection and fair competition.

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According to the FIL, foreign investment shall enjoy pre-entry national treatment, except for those foreign-invested entities that operate in industries deemed to be either “restricted” or “prohibited” in the “negative list.” The FIL provides that foreign-invested entities operating in foreign “restricted” or “prohibited” industries will require entry clearance and other approvals. In addition, the FIL does not comment on the concept of “de facto control” or contractual arrangements with variable interest entities, however, it has a catch-all provision under definition of “foreign investment” to include investments made by foreign investors in China through means stipulated by laws or administrative regulations or other methods prescribed by the State Council. Therefore, it still leaves leeway for future laws, administrative regulations or provisions to provide for contractual arrangements as a form of foreign investment. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—Uncertainties with respect to the PRC legal system and changes in laws and regulations in China could adversely affect us, and any lack of requisite approvals, licenses or permits applicable to our business may have a material adverse effect on our business and results of operations.”

The FIL also provides several protective rules and principles for foreign investors and their investments in the PRC, including, among others, that local governments shall abide by their commitments to the foreign investors; foreign-invested enterprises are allowed to issue stocks and corporate bonds; except for special circumstances, in which case statutory procedures shall be followed and fair and reasonable compensation shall be made in a timely manner, expropriate or requisition the investment of foreign investors is prohibited; mandatory technology transfer is prohibited; foreign investors’ funds are allowed to be freely transferred out and into the territory of PRC, which run through the entire lifecycle from the entry to the exit of foreign investment; and providing an all-around and multi-angle system to guarantee fair competition of foreign-invested enterprises in the market economy. In addition, foreign investors or the foreign investment enterprise should be imposed legal liabilities for failing to report investment information in accordance with the requirements. Furthermore, the FIL provides that foreign-invested enterprises established according to the existing laws regulating foreign investment may maintain their structure and corporate governance within five years after the implementing of the FIL, which means that foreign-invested enterprises may be required to adjust the structure and corporate governance in accordance with the current PRC Company Law and other laws and regulations governing the corporate governance.

On December 26, 2019, the State Council promulgated the Implementation Rules to the Foreign Investment Law, which became effective on January 1, 2020. The implementation rules further clarified that the State Council encourages and promotes foreign investment, protects the lawful rights and interests of foreign investors, regulates foreign investment administration, continues to optimize foreign investment environment and advances a higher-level opening.

On December 30, 2019, the MOFCOM and State Administration for Market Regulation jointly promulgated the Measures for Information Reporting on Foreign Investment, which became effective on January 1, 2020. Pursuant to the Measures for Information Reporting on Foreign Investment, in the case that a foreign investor carries out investment activities in China directly or indirectly, the foreign investor or the foreign invested enterprise shall submit the investment information to the competent commerce department.

On December 19, 2020, the MOFCOM and the NDRC jointly promulgated the Measures for the Security Review of Foreign Investments, which took effect on January 18, 2021. Pursuant to the measures, for foreign investments which affect or may affect national security, security review shall be conducted in accordance with the provisions of the measures. The State establishes a working mechanism, or the Working Mechanism, for the security review of foreign investments to be responsible for organizing, coordinating and guiding the security review of foreign investments. For foreign investments related to important cultural products and services, important information technology and internet products and services, and others, the foreign investors who obtains the actual controlling stake in the investee enterprise or relevant parties in the PRC shall declare to the office of the Working Mechanism prior to proceeding with the investments.

Regulation on Product Quality

The PRC Product Quality Law, amended by the Standing Committee of National People’s Congress in December 2018, applies to all production and sale activities in China.Pursuant to this law, products offered for sale must satisfy the relevant quality and safety standards. Enterprises may not produce or sell counterfeit products in any fashion. Violations of state or industrial standards for health and safety and any other related violations may result in civil liabilities and administrative penalties, such as compensation for damages, fines, suspension or shutdown of business, as well as confiscation of products illegally produced and sold and the proceeds from such sales. Severe violations may subject the responsible individual or enterprise to criminal liabilities. Where a defective product causes physical injury to a person or damage to another person’s property, the victim may claim compensation from the manufacturer or from the seller of the product. If the seller pays compensation and it is the manufacturer that should bear the liability, the seller has a right of recourse against the manufacturer. Similarly, if the manufacturer pays compensation and it is the seller that should bear the liability, the manufacturer has a right of recourse against the seller.

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Regulation on Consumer Protection

The PRC Consumer Protection Law, as amended on October 25, 2013 and effective on March 15, 2014, sets out the obligations of business operators and the rights and interests of the consumers. Pursuant to this law, business operators must guarantee that the commodities they sell satisfy the requirements for personal or property safety, provide consumers with authentic information about the commodities, and guarantee the quality, function, usage and term of validity of the commodities. Failure to comply with the Consumer Protection Law may subject business operators to civil liabilities such as refunding purchase prices, exchange of commodities, repairing, ceasing damages, compensation, and restoring reputation, and even subject the business operators or the responsible individuals to criminal penalties if business operators commit crimes by infringing the legitimate rights and interests of consumers. The amended PRC Consumer Protection Law further strengthens the protection of consumers and imposes more stringent requirements and obligations on business operators, especially on the business operators through the Internet. For example, the consumers are entitled to return the goods (except for certain specific goods) within seven days upon receipt without any reasons when they purchase the goods from business operators via the Internet. The consumers whose interests have been damaged due to their purchase of goods or acceptance of services on online marketplace platforms may claim damages from sellers or service providers.

Regulation on Torts

Under the Civil Code of the PRC, which was issued by the National Congress on May 28, 2020, and became effective on January 1, 2021, where damages to other persons are caused by defective products, the infringed person may claim compensation against the producers or the sellers of the product. Where the defection is due to the fault of the producers, the sellers who have paid compensation to the infringed person shall have the right to indemnification against the producers. Where damages to other persons are caused by defective products due to the fault of a third party, such as the parties providing transportation or warehousing, the producers and the sellers of the products have the right to recover their respective losses from such third parties. If defective products are identified after they have been put into circulation, the producers or the sellers shall take remedial measures such as ceasing the sale, warning and recall of products, etc. in a timely manner. The producers or the sellers shall be liable under tort if they fail to take remedial measures in a timely manner or have not made efforts to take remedial measures, thus causing damages. If the products are produced or sold with known defects, causing deaths or severe adverse health issues, the infringed party has the right to claim punitive damages in addition to compensatory damages.

Regulation on Intellectual Property Rights

The PRC has adopted comprehensive legislation governing intellectual property rights, including patents, trademarks, copyrights and domain names.

Patents

Pursuant to the PRC Patent Law, amended on December 27, 2008, or the PRC Patent Law (2008 version), and its implementation rules, last amended on January 9, 2010, patents in China fall into three categories: invention, utility model and design. An invention patent is granted to a new technical solution proposed in respect of a product or method or an improvement of a product or method. A utility model is granted to a new technical solution that is practicable for application and proposed in respect of the shape, structure or a combination of both of a product. A design patent is granted to the new design of a certain product in shape, pattern or a combination of both and in color, shape and pattern combinations aesthetically suitable for industrial application. Under the PRC Patent Law (2008 version), the term of patent protection starts from the date of application. Patents relating to invention are effective for twenty years, and utility models and designs are effective for ten years from the date of application. The PRC Patent Law (2008 version) adopts the principle of “first-to-file” system, which provides that where more than one person files a patent application for the same invention, a patent will be granted to the person who files the application first.

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Existing patents can become narrowed, invalid or unenforceable due to a variety of grounds, including lack of novelty, creativity, and deficiencies in patent application. In China, a patent must have novelty, creativity and practical applicability. Under the PRC Patent Law (2008 version), novelty means that before a patent application is filed, no identical invention or utility model has been publicly disclosed in any publication in China or overseas or has been publicly used or made known to the public by any other means, whether in or outside of China, nor has any other person filed with the patent authority an application that describes an identical invention or utility model and is recorded in patent application documents or patent documents published after the filing date. Creativity means that, compared with existing technology, an invention has prominent substantial features and represents notable progress, and a utility model has substantial features and represents any progress. Practical applicability means an invention or utility model can be manufactured or used and may produce positive results. Patents in China are filed with the State Intellectual Property Office, or SIPO. Normally, the SIPO publishes an application for an invention patent within 18 months after the filing date, which may be shortened at the request of applicant. The applicant must apply to the SIPO for a substantive examination within three years from the date of application.

Article 20 of the PRC Patent Law (2008 version) provides that, for an invention or utility model completed in China, any applicant (not just Chinese companies and individuals), before filing a patent application outside of China, must first submit it to the SIPO for a confidential examination. Failure to comply with this requirement will result in the denial of any Chinese patent for the relevant invention. This added requirement of confidential examination by the SIPO has raised concerns by foreign companies who conduct research and development activities in China or outsource research and development activities to service providers in China.

On October 17, 2020, the PRC Patent Law was further amended by the Standing Committee of the National People’s Congress, or the PRC Patent Law (2020 version), and took effect on June 1, 2021, pursuant to which invention patents are valid for twenty years, while design patents are valid for fifteen years and utility model patents are valid for ten years, commencing from the date of application. Where a patent right for invention is granted after three years from the date of request for substantial examination of a patent for invention and after four years from the filing date, the patent administrative department under the State Council shall grant compensation for the duration of the patent right due to any unreasonable delay in grant of patent rights at the request of the patentee, except for any unreasonable delay caused by the applicant. In addition, the PRC Patent Law (2020 version) provides a criterial for compensation amount for intentional patent infringement of one to five times of actual loss suffered by the rights holder due to the infringement or the gains obtained by the infringer from the infringement, and the extension of the limitation of action for patent infringement of up to three years.

Patent Enforcement

Unauthorized use of patents without consent from owners of patents, forgery of the patents belonging to other persons, or engagement in other patent infringement acts, will subject the infringers to infringement liability. Serious offences such as forgery of patents may be subject to criminal penalties.

When a dispute arises out of infringement of the patent owner’s patent right, Chinese law requires that the parties first attempt to settle the dispute through mutual consultation. However, if the dispute cannot be settled through mutual consultation, the patent owner, or an interested party who believes the patent is being infringed, may either file a civil legal suit or file an administrative complaint with the relevant patent administration authority. A Chinese court may issue a preliminary injunction upon the patent owner’s or an interested party’s request before instituting any legal proceedings or during the proceedings. Damages for infringement are calculated as the loss suffered by the patent holder arising from the infringement, and if the loss suffered by the patent holder arising from the infringement cannot be determined, the damages for infringement shall be calculated as the benefit gained by the infringer from the infringement. If it is difficult to ascertain damages in this manner, damages may be determined by using a reasonable multiple of the license fee under a contractual license. Statutory damages may be awarded in the circumstances where the damages cannot be determined by the above mentioned calculation standards. The damage calculation methods shall be applied in the aforementioned order. Generally, the patent owner has the burden of proving that the patent is being infringed. However, if the owner of an invention patent for manufacturing process of a new product alleges infringement of its patent, the alleged infringer has the burden of proof.

As of February 28, 2023, we had 429 patents granted and 227 patent applications pending in China, 395 patents granted and 120 patent applications pending outside China.

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Trademark Law

The PRC Trademark Law and its implementation rules protect registered trademarks. The PRC Trademark Office of National Intellectual Property Administration is responsible for the registration and administration of trademarks throughout the PRC. The Trademark Law has adopted a “first-to-file” principle with respect to trademark registration. As of February 28, 2023, we owned 1,270 registered trademarks in different applicable trademark categories and were in the process of applying to register 120 trademarks in China, 884 registered trademarks in different applicable trademark categories and were in the process of applying to register 266 trademarks outside China.

In addition, pursuant to the PRC Trademark Law, counterfeit or unauthorized production of the label of another person’s registered trademark, or sale of any label that is counterfeited or produced without authorization will be deemed as an infringement to the exclusive right to use a registered trademark. The infringing party will be ordered to stop the infringement immediately, a fine may be imposed and the counterfeit goods will be confiscated. The infringing party may also be held liable for the right holder’s damages, which will be equal to the gains obtained by the infringing party or the losses suffered by the right holder as a result of the infringement, including reasonable expenses incurred by the right holder for stopping the infringement. If the gains or losses are difficult to determine, the court may render a judgment awarding damages of no more than RMB5.0 million.

Software Copyright Law

In order to further implement the Computer Software Protection Regulations promulgated by the State Council on December 20, 2001, and latest amended on January 30, 2013, the National Copyright Administration issued the Computer Software Copyright Registration Procedures on February 20, 2002, which apply to software copyright registration, exclusive licensing contract registration and transfer contract registration. As of February 28, 2023, we had registered 77 computer software copyrights in China.

Regulation on Domain Name

The domain names are protected under the Administrative Measures on the Internet Domain Names promulgated by the Ministry of Industry and Information Technology, or the MIIT, effective on November 1, 2017. MIIT is the major regulatory body responsible for the administration of the PRC Internet domain names, under supervision of which China Internet Network Information Center, or CNNIC, is responsible for the daily administration of CN domain names and Chinese domain names. On June 18, 2019, CNNIC promulgated the Implementation Rules of Registration of Country Code Top-level Domain Name, or the ccTLD Registration Rules, which took effect on the same day. Pursuant to the Administrative Measures on the Internet Domain Names and the ccTLD Registration Rules, the registration of domain names adopts the “first to file” principle and the registrant shall complete the registration via the domain name registration service institutions. In the event of a domain name dispute, the disputed parties may lodge a complaint to the designated domain name dispute resolution institution to trigger the domain name dispute resolution procedure in accordance with the China ccTLD Dispute Resolution Policy promulgated by CNNIC, file a suit to the People’s Court or initiate an arbitration procedure. As of February 28, 2023, we had registered 139 domain names.

Regulation on Radio Transmission Equipment

The Regulations on Radio Administration of the PRC jointly issued by the State Council and the Central Military Commission on November 11, 2016 and became effective on December 1, 2016, provide requirements concerning verification and approval of the models of radio transmission equipment. Pursuant to this law, except for micro-power short-range radio transmission equipment, whoever manufactures or imports other radio transmission equipment for sales or use on the domestic market shall apply to the State Radio Administration for model verification and approval. Whoever manufactures or imports radio transmission equipment that has not obtained model verification and approval for sales or use on the domestic market shall be ordered by the relevant radio administration to make correction and subject to fines. To comply with these laws and regulations, we have obtained the necessary Radio Transmission Equipment Type Approval Certificates for all of our products manufacturing and selling in the PRC.

Regulation on Advertising Business

The State Administration for Market Regulation, or the SAMR, is the government agency responsible for regulating advertising activities in the PRC.

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According to the PRC laws and regulations, companies that engage in advertising activities must obtain from SAMR or its local branches a business license which specifically includes operating an advertising business within its business scope. The business license of an advertising company is valid for the duration of its existence, unless the license is suspended or revoked due to a violation of any relevant law or regulation. PRC advertising laws and regulations set forth certain content requirements for advertisements in the PRC including, among other things, prohibitions on false or misleading content, superlative wording, socially destabilizing content or content involving obscenities, superstition, violence, discrimination or infringement of the public interest. Advertisers, advertising agencies, and advertising distributors are required by PRC advertising laws and regulations to ensure that the content of the advertisements they prepare or distribute is true and in full compliance with applicable law. In providing advertising services, advertising operators and advertising distributors must review the supporting documents provided by advertisers for advertisements and verify that the content of the advertisements complies with applicable PRC laws and regulations. Prior to distributing advertisements that are subject to government censorship and approval, advertising distributors are obligated to verify that such censorship has been performed and approval has been obtained. The release or delivery of advertisements through the Internet shall not impair the normal use of the network by users. The advertisements released in pop-up form on the webpage of the Internet and other forms shall indicate the close flag in prominent manner and ensure one-key close. Violation of these regulations may result in penalties, including fines, confiscation of advertising income, orders to cease dissemination of the advertisements and orders to publish an advertisement correcting the misleading information. In circumstances involving serious violations, SAMR or its local branches may revoke violators’ licenses or permits for their advertising business operations.

On July 4, 2016, the State Administration of Industry and Commerce, the predecessor of SAMR, issued the Interim Measures for the Administration of Internet Advertising to regulate internet advertising activities. According to these measures, no advertisement of any medical treatment, medicines, food for special medical purpose, medical apparatuses, pesticides, veterinary medicines, dietary supplement or other special commodities or services subject to examination by an advertising examination authority as stipulated by laws and regulations may be published unless the advertisement has passed such examination. In addition, no entity or individual may publish any advertisement of prescription drugs or tobacco on the internet. An internet advertisement must be identifiable and clearly identified as an “advertisement” to the consumers. Paid search advertisements are required to be clearly distinguished from natural search results. In addition, the following internet advertising activities are prohibited: providing or using any applications or hardware to intercept, filter, cover, fast forward or otherwise restrict any authorized advertisement of other persons; using network pathways, network equipment or applications to disrupt the normal data transmission of advertisements, alter or block authorized advertisements of other persons or load advertisements without authorization; or using fraudulent statistical data, transmission effect or matrices relating to online marketing performance to induce incorrect quotations, seek undue interests or harm the interests of others. Internet advertisement publishers are required to verify relevant supporting documents and check the content of the advertisement and are prohibited from publishing any advertisement with unverified content or without all the necessary qualifications. Internet information service providers that are not involved in internet advertising business activities but simply provide information services are required to block any attempt to publish an illegal advisement that they are aware of or should reasonably be aware of through their information services.

To comply with these laws and regulations, we have obtained a business license, which allows us to operate advertising businesses, and adopted several measures. Our advertising contracts require that substantially all advertising agencies or advertisers that contract with us must examine the advertising content provided to us to ensure that such content is truthful, accurate and in full compliance with PRC laws and regulations.

Regulation on Information Security

The Standing Committee of the National People’s Congress promulgated the Cyber Security Law of the PRC, or the Cyber Security Law, which became effective on June 1, 2017, to protect cyberspace security and order. Pursuant to the Cyber Security Law, any individual or organization using the network must comply with the constitution and the applicable laws, follow the public order and respect social moralities, and must not endanger cyber security, or engage in activities by making use of the network that endanger the national security, honor and interests, or infringe on the fame, privacy, intellectual property and other legitimate rights and interests of others. The Cyber Security Law sets forth various security protection obligations for network operators, which are defined as “owners and administrators of networks and network service providers,” including, among others, complying with a series of requirements of tiered cyber protection systems; verifying users’ real identity; localizing the personal information and important data gathered and produced by key information infrastructure operators during operations within the PRC; and providing assistance and support to government authorities where necessary for protecting national security and investigating crimes.

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On September 14, 2022, the CAC published a draft amendment to the Cyber Security Law for public comment (the “Draft Amendment”) which was formulated to align the Cyber Security Law with several new laws that were released after the Cyber Security Law came into effect in June 2017, including the Administrative Punishment Law, the Data Security Law, and the Personal Information Protection Law, all of which were adopted or amended in 2021. The Draft Amendment mainly proposes revisions on legal responsibility to adjust the types and ranges of administrative penalties for violating the Cyber Security Law and to align them with other laws. Generally, the fines and penalties to be imposed by Chinese cyberspace regulators have been significantly increased and expanded.

On June 10, 2021, the Standing Committee of the National People’s Congress promulgated the PRC Data Security Law, which became effective in September 2021. The PRC Data Security Law provides for data security and privacy obligations on entities and individuals carrying out data activities and introduces a data classification and hierarchical protection system based on the importance of data in economic and social development, as well as the degree of harm it will cause to national security, public interests, or legitimate rights and interests of individuals or organizations when such data is tampered with, destroyed, leaked, or illegally acquired or used. The appropriate level of protection measures is required to be taken for each respective category of data. For example, a processor of important data shall designate the personnel and the management body responsible for data security, carry out risk assessments for its data processing activities and file the risk assessment reports with the competent authorities. In addition, the PRC Data Security Law provides a national security review procedure for those data activities which affect or may affect national security and imposes export restrictions on certain data and information.

On April 13, 2020, the CAC, the NDRC and several other administrations jointly promulgated the Measures for Cybersecurity Review, or the Review Measures, which became effective on June 1, 2020. The Review Measures establish the basic framework for national security reviews of network products and services, and provide the principal provisions for undertaking cyber security reviews. In addition, on July 22, 2020, the Ministry of Public Security issued the Guiding Opinions on Implementing the Cyber Security Hierarchical Protection System and Critical Information Infrastructure Security Protection System to further improve the national cyber security prevention and control system. On December 28, 2021, the CAC, together with certain other PRC governmental authorities, jointly released the Revised Cybersecurity Review Measures, which took effect on February 15, 2022. Pursuant to the Revised Cybersecurity Review Measures, operators of critical information infrastructure that intend to purchase network products and services, or online platform operators that conduct data processing activities, that affect or may affect national security must apply for a cybersecurity review. In addition, any online platform operator holding over one million users’ individual information must apply for a cybersecurity review before listing abroad. The cybersecurity review will evaluate, among others, the risk of critical information infrastructure, core data, important data, or the risk of a large amount of personal information being influenced, controlled or maliciously used by foreign governments after going public, and cyber information security risk. The Revised Cybersecurity Review Measures set out certain general factors which would be the focus in assessing the national security risk during a cybersecurity review. However, the scope of network product or service or data processing activities that will or may affect national security is still unclear, and the PRC government authorities may have wide discretion in the interpretation and enforcement of these laws, rules and regulations.

On July 30, 2021, the PRC State Council promulgated the Regulations on Security Protection of Critical Information Infrastructures, which took effect on September 1, 2021 and provide that “critical information infrastructures” shall mean any important network facilities or information systems of important industries or fields such as public communication and information service, energy, communications, water conservation, finance, public services, e-government affairs and national defense science, and any other important network facilities or information systems which may endanger national security, people’s livelihood and public interest in case of damage, function loss or data leakage. In addition, relevant administration departments of each critical industry and sector, or Protection Departments, shall be responsible to formulate eligibility criteria and determine the critical information infrastructure operator in the respective industry or field. The operators shall be informed about the final determination as to whether they are categorized as critical information infrastructure operators. The regulations further require critical information infrastructures operators, among others, (i) to report to the competent Protection Departments in a timely manner when the identification result may be affected due to material changes in the critical information infrastructures; (ii) to plan, construct or put into use the security protection measures and the critical information infrastructures simultaneously; and (iii) to report to the competent Protection Departments in a timely manner in the event of merger division or dissolution, and deal with critical information infrastructures as required by the competent Protection Departments. Operators in violation of the regulations may be ordered to rectify, subject to warnings, fines and other administrative penalties or even criminal liabilities, and the directly responsible personnel in charge may also be imposed on fines or other liabilities.

To comply with these laws and regulations, we have adopted security policies and measures to protect our cyber system and user information.

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In addition, on July 7, 2022, the CAC promulgated the Measures for the Security Assessment of Data Cross-border Transfer, or the Security Assessment Measures, which took effect on September 1, 2022 and requires that any data processor providing important data collected and generated during operations within the territory of the PRC or personal information that should be subject to security assessment according to law to an overseas recipient shall conduct security assessment. The Security Assessment Measures provides four circumstances, under any of which data processors shall, through the local cyberspace administration at the provincial level, apply to the national cyberspace administration for security assessment of data cross-border transfer. These circumstances include: (i) where the data to be transferred to an overseas recipient contain important data collected and generated by data processors; (ii) where the data to be transferred to an overseas recipient are personal information collected and generated by operators of critical information infrastructure or data processors processing over one million users’ individual information; (iii) where the personal information of more than 100,000 people or sensitive personal information of more than 10,000 people are transferred overseas accumulatively since January 1 of the previous year; or (iv) other circumstances under which security assessment of data cross-border transfer is required as prescribed by the national cyberspace administration.

On August 31, 2022, the CAC promulgated the first edition of the Guide to Applications for Security Assessment of Outbound Data Transfers, or the Security Assessment Guide. The Security Assessment Guide provides practical guidance to the implementation of the Security Assessment Measures. The Security Assessment Guide also reaffirms CAC’s position that a cross-border data transfer out of mainland China includes where a data processor stores data collected or generated in its operations in mainland China to an overseas recipient, and where a data processor allows an overseas entity, organization, or individual to access, retrieve, download, or export data the data processor collects or generates and stores in mainland China.

On February 22, 2023, the CAC promulgated the Measures for Standard Contract for Outbound Data Transfer of Personal Information, or the Measures, which will come into effect on June 1, 2023. The Measures provide a transitional period of six months from the effective date for companies to take necessary measures to comply with the requirements. According to the Measures, under certain circumstances, a personal information processor providing personal information abroad shall conclude a standard contract which shall strictly comply with the form Standard Contract as attached to the Measures. The Measures further provide that personal information processors may agree on other terms with overseas recipients which shall not conflict with the Standard Contract, and the personal information processor shall, within ten working days from the effective date of the standard contract, file with the local provincial cyberspace administration and submit the standard contract and personal information protection impact assessment report for record.

Furthermore, on 14 November 2021, the CAC publicly solicited opinions on the Regulations on the Administration of Cyber Data Security (Draft for Comments), or the Draft Data Security Regulations. According to the Draft Data Security Regulations, data processors shall, in accordance with relevant state provisions, apply for cyber security review when carrying out the following activities: (i) the merger, reorganization or separation of Internet platform operators that have acquired a large number of data resources related to national security, economic development or public interests, which affects or may affect national security; (ii) data processors that handle the personal information of more than one million people intends to be listed abroad; (iii) the data processor intends to be listed in Hong Kong, which affects or may affect national security; (iv) other data processing activities that affect or may affect national security. However, substantial uncertainties exist with respect to its enactment timetable, interpretation and implementation of the Draft Data Security Regulations.

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Regulation on Internet Privacy

The Administrative Measures on Internet Information Services, issued by the State Council on January 8, 2011, prohibit ICP service operators from insulting or slandering a third party or infringing upon the lawful rights and interests of a third party. Under the Several Provisions on Regulating the Market Order of Internet Information Services, issued by the MIIT on December 19, 2011, an ICP operator may not collect any user personal information or provide any such information to third parties without the consent of a user. An ICP service operator must expressly inform the users of the method, content and purpose of the collection and processing of such user personal information and may only collect such information necessary for the provision of its services. An ICP service operator is also required to properly keep the user personal information, and in case of any leak or likely leak of the user personal information, the ICP service operator must take immediate remedial measures and, in severe circumstances, to make an immediate report to the telecommunications regulatory authority. In addition, pursuant to the Decision on Strengthening the Protection of Online Information issued by the Standing Committee of the National People’s Congress on December 28, 2012 and the Order for the Protection of Telecommunication and Internet User Personal Information issued by the MIIT on July 16, 2013, any collection and use of user personal information must be subject to the consent of the user, abide by the principles of legality, rationality and necessity and be within the specified purposes, methods and scopes. An ICP service operator must also keep such information strictly confidential, and is further prohibited from divulging, tampering or destroying of any such information, or selling or proving such information to other parties. Any violation of the above decision or order may subject the ICP service operator to warnings, fines, confiscation of illegal gains, revocation of licenses, cancellation of filings, closedown of websites or even criminal liabilities.

Furthermore, on June 28, 2016, the CAC issued the Administrative Provisions on Mobile Internet Applications Information Services, which became effective on August 1, 2016, and was further amended and took effect on August 1, 2022, to further strengthen the regulation of the mobile applications information services. Pursuant to these provisions, owners or operators of mobile applications that provide information services are required to be responsible for information security management, establish and improve the protective mechanism for user information, observe the principles of legality, rightfulness and necessity and integrity, and expressly state the purpose, method and scope of, and obtain user consent to, the collection and use of users’ personal information. In addition, the Cyber Security Law also requires network operators to strictly keep confidential users’ personal information that they have collected and to establish and improve user information protective mechanism.

In addition, the Announcement of Launching Special Crackdown Against Illegal Collection and Use of Personal Information by Apps was issued with effect on January 23, 2019, and commenced a coordinated effort among the CAC, the MIIT, the Ministry of Public Security and the SAMR to combat the illegal collection and use of personal information by mobile apps throughout the PRC. On October 31, 2019, the MIIT issued the Notice on the Special Rectification of Apps Infringing Users’ Rights and Interests, pursuant to which app providers were required to promptly rectify issues the MIIT designated as infringing app users’ rights such as collecting personal information in violation of PRC regulations and setting obstacles for user account deactivation. On July 22, 2020, MIIT issued the Notice on Carrying out Special Rectification Actions in Depth against the Infringement upon Users’ Rights and Interests by Apps to rectify the following problems (i) illegal processing of personal information of users by the APP and the SDK; (ii) the conduct of setting up obstacles and frequently harassing users; (iii) cheating and misleading users; and (iv) inadequate implementation of application distribution platforms’ responsibilities.

Pursuant to the Civil Code of the PRC which came into effect on January 1, 2021, the personal information of a natural person shall be protected by the law. Any organization or individual that needs to obtain personal information of others shall obtain such information legally and ensure the safety of such information, and shall not illegally collect, use, process or transmit personal information of others, or illegally purchase or sell, provide or make public personal information of others.

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On August 20, 2021, the Standing Committee of the National People’s Congress promulgated the PRC Personal Information Protection Law, or the PIPL, which became effective on November 1, 2021. Pursuant to the PIPL, personal information refers to the information related to an identified or identifiable individual recorded electronically or by other means, excluding the anonymized information, and processing of personal information includes among others, the collection, storage, use, handling, transmission, provision, disclosure, deletion of personal information. The PIPL explicitly sets forth the circumstances where it is allowed to process personal information, including (i) the consent from the individual has been obtained; (ii) it is necessary for the conclusion and performance of a contract under which an individual is a party, or it is necessary for human resource management in accordance with the labor related rules and regulations and the collective contracts formulated or concluded in accordance with laws; (iii) it is necessary to perform statutory duties or statutory obligations; (iv) it is necessary to respond to public health emergencies, or to protect the life, health and property safety of individuals in emergencies; (v) carrying out news reports, public opinion supervision and other acts for the public interest, and processing personal information within a reasonable scope; (vi) processing personal information disclosed by individuals or other legally disclosed personal information within a reasonable scope in accordance with this law; or (vii) other circumstances stipulated by laws and administrative regulations. In addition, this law emphasizes that individuals have the right to withdraw their consent to process their personal information, and the processors must not refuse to provide products or services on the grounds that the individuals do not agree to the processing of their personal information or withdraw their consent, unless processing of personal information is necessary for the provision of products or services. Before processing the personal information, the processors should truthfully, accurately and completely inform individuals of the following matters in a conspicuous manner and in clear and easy-to-understand language: (i) the name and contact information of the personal information processor; (ii) the purpose of processing personal information, processing method, type of personal information processed, and the retention period; (iii) methods and procedures for individuals to exercise their rights under this law; (iv) other matters that should be notified according to laws and administrative regulations. Furthermore, the law provides that personal information processors who use personal information to make automated decisions should ensure the transparency of decision-making and the fairness and impartiality of the results, and must not impose unreasonable differential treatment on individuals in terms of transaction prices and other transaction conditions.

In addition to the aforementioned general rules, the PIPL also introduces the rules for processing sensitive personal information, which refers to the personal information that, once leaked or illegally used, can easily lead to the infringement of the personal dignity of natural persons or harm personal and property safety, including biometrics, religious beliefs, specific identities, medical health, financial accounts, whereabouts and other information, as well as personal information of minors under the age of fourteen. Personal information processors can process sensitive personal information only if they have a specific purpose and sufficient necessity, and take strict protective measures. In addition, the law provides rules for cross-border provision of personal information. In particular, it is provided that the operators of critical information infrastructures and the personal information processors that process personal information up to the number prescribed by the national cyberspace administration shall store personal information collected and generated within the PRC. If it is really necessary to provide such personal information overseas, they shall pass the security assessment organized by the national cyberspace administration, except as otherwise stipulated by laws, administrative regulations and the national cyberspace administration. Any processor in violation of this law may be subject to administrative penalties including rectifications, warnings, fines, confiscation of illegal gains, suspension of the apps illegally processing personal information or suspension of the relevant business, revocation of business operation permits or business licenses, civil liabilities or even criminal liabilities. The directly responsible personnel in charge and other directly responsible personnel may be imposed with fines and prohibited from serving as directors, supervisors, senior management personnel and personal information protection officers of related companies within a certain period of time.

To comply with these laws and regulations, we have required our users to consent to our collecting and using their personal information, and established information security systems to protect users’ privacy.

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Regulation on Employment

The Labor Law of the PRC, effective on January 1, 1995 and subsequently amended on August 27, 2009 and December 29, 2018, the PRC Labor Contract Law, effective on January 1, 2008 and subsequently amended on December 28, 2012 and the Implementing Regulations of the Employment Contract Law, effective on September 18, 2008, provide requirements concerning employment contracts between an employer and its employees. If an employer fails to enter into a written employment contract with an employee within one year from the date on which the employment relationship is established, the employer must rectify the situation by entering into a written employment contract with the employee and pay the employee twice the employee’s salary for the period from the day following the lapse of one month from the date of establishment of the employment relationship to the day prior to the execution of the written employment contract. The Labor Contract Law and its implementation rules also require compensation to be paid upon certain terminations, which significantly affects the cost of reducing workforce for employers. In addition, if an employer intends to enforce a non-compete provision in an employment contract or non-competition agreement with an employee, it has to compensate the employee on a monthly basis during the term of the restriction period after the termination or expiry of the labor contract. Employers in most cases are also required to provide severance payment to their employees after their employment relationships are terminated.

Enterprises in China are required by PRC laws and regulations to participate in certain employee benefit plans, including social insurance funds, namely a pension plan, a medical insurance plan, an unemployment insurance plan, a work-related injury insurance plan and a maternity insurance plan, and a housing provident fund, and contribute to the plans or funds in amounts equal to certain percentages of salaries, including bonuses and allowances, of the employees as specified by the local government from time to time at locations where they operate their businesses or where they are located. According to the Social Insurance Law, an employer that fails to make social insurance contributions may be ordered to pay the required contributions within a stipulated deadline and be subject to a late fee. If the employer still fails to rectify the failure to make social insurance contributions within the stipulated deadline, it may be subject to a fine ranging from one to three times the amount overdue. According to the Regulations on Management of Housing Fund, an enterprise that fails to make housing fund contributions may be ordered to rectify the noncompliance and pay the required contributions within a stipulated deadline; otherwise, an application may be made to a local court for compulsory enforcement.

Regulation on Insurance Brokerage Business

On June 30, 1995, the Standing Committee of People’s Congress issued the PRC Insurance Law which is the most important law in the regulatory and legal framework for the PRC insurance industry. The PRC Insurance Law was last amended on April 24, 2015, which provides that an insurance broker is an entity that, in the interest of the applicant, provides intermediary services between the applicant and the insurer for the conclusion of an insurance contract and receives a commission in accordance with relevant laws. An insurance broker shall obtain an Insurance Brokerage License before it engages in insurance brokerage business.

Since the promulgation and implementation of the PRC Insurance Law in 1995, the insurance supervision and regulatory authority has promulgated a series of departmental rules and regulations and other regulatory documents pursuant to the PRC Insurance Law, covering almost all aspects of insurance operations. Regarding the establishment of insurance brokers, there are other important laws and regulations besides the PRC Insurance Law, including the Regulatory Provisions on Insurance Brokerages, or the Insurance Brokerages Provisions, which became effective on May 1, 2018. Insurance Brokerages Provisions specify provisions regarding market access, operation rules, exit from market, industry self-discipline, monitoring and inspection and legal obligations for insurance brokers.

Regulation on Tax

PRC Enterprise Income Tax

The PRC Enterprise Income Tax Law, which was promulgated on March 16, 2007 and took effect on January 1, 2008, and further amended on February 24, 2017 and December 29, 2018, imposes a uniform enterprise income tax rate of 25% on all PRC resident enterprises, including foreign-invested enterprises, unless they qualify for certain exceptions. The enterprise income tax is calculated based on the PRC resident enterprise’s global income as determined under PRC tax laws and accounting standards. If a non-resident enterprise sets up an organization or establishment in the PRC, it will be subject to enterprise income tax for the income derived from such organization or establishment in the PRC and for the income derived from outside the PRC but with an actual connection with such organization or establishment in the PRC.

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The PRC Enterprise Income Tax Law and its implementation rules which was promulgated on December 6, 2007 and amended on April 23, 2019, permit certain “high and new technology enterprises strongly supported by the state” that independently own core intellectual property and meet statutory criteria, to enjoy a reduced 15% enterprise income tax rate. On January 29, 2016, the State Administration for Taxation, or SAT, the Ministry of Science and Technology and the Ministry of Finance, or MOF, jointly issued the Administrative Rules for the Certification of High and New Technology Enterprises specifying the criteria and procedures for the certification of High and New Technology Enterprises.

PRC Value Added Tax

On January 1, 2012, the State Council officially launched a pilot value-added tax reform program, or the Pilot Program, applicable to businesses in selected industries. Businesses in the Pilot Program would pay value added tax, or VAT, instead of business tax. The Pilot Program initially applied only to transportation industry and “modern service industries” in Shanghai and would be expanded to eight trial regions (including Beijing and Guangdong province) and nationwide if conditions permit.

On March 23, 2016, the MOF and the SAT jointly issued the Circular on the Pilot Program for Overall Implementation of the Collection of Value Added Tax Instead of Business Tax, or Circular 36, which took effect on May 1, 2016. Pursuant to the Circular 36, all the companies operating in construction, real estate, finance, modern service or other sectors which were required to pay business tax are required to pay VAT, in lieu of business tax. The VAT rate is 6%, except for rate of 11% for real estate sale, land use right transferring and providing service of transportation, postal sector, basic telecommunications, construction, real estate lease; rate of 17% for providing lease service of tangible property; and rate of zero for specific cross-border activities.

On April 4, 2018, the MOF and the SAT jointly promulgated the Circular of the Ministry of Finance and the State Administration of Taxation on Adjustment of Value-Added Tax Rates, or Circular 32, according to which, (i) for VAT taxable sales or importation of goods originally subject to value-added tax rates of 17% and 11% respectively, such tax rates shall be adjusted to 16% and 10%, respectively; (ii) for purchase of agricultural products originally subject to deduction rate of 11%, such deduction rate shall be adjusted to 10%; (iii) for purchase of agricultural products for the purpose of production and sales or consigned processing of goods subject to tax rate of 16%, such tax shall be adjusted to 12%; (iv) for exported goods originally subject to tax rate of 17% and export tax refund rate of 17%, the export tax refund rate shall be adjusted to 16%; and (v) for exported goods and cross-border taxable acts originally subject to tax rate of 11% and export tax refund rate of 11%, the export tax refund rate shall be adjusted to 10%. Circular 32 became effective on May 1, 2018 and shall supersede any previously existing provisions in case of inconsistency.

On March 20, 2019, the MOF, the SAT and the General Administration of Customs jointly issued the Announcement on Policies for Deepening the VAT Reform, or Announcement 39, to further lower value-added tax rates. According to the Announcement 39, (i) for general VAT payers’ sales activities or imports that are subject to an existing VAT rate of 16% or 10%, the VAT rate is adjusted to 13% or 9%, respectively; (ii) for the agricultural products purchased by taxpayers to which an existing 10% deduction rate is applicable, the deduction rate is adjusted to 9%; (iii) for the agricultural products purchased by taxpayers for production or commissioned processing, which are subject to an existing VAT rate of 13%, the input VAT will be calculated at a 10% deduction rate; (iv) for the exportation of goods or labor services that are subject to an existing VAT rate of 16%, with the applicable export refund at the same rate, the export refund rate is adjusted to 13%; and (v) for the exportation of goods or cross-border taxable activities that are subject to an existing VAT rate of 10%, with the export refund at the same rate, the export refund rate is adjusted to 9%. The Announcement 39 came into effect on April 1, 2019 and will prevail in case of any conflict with existing provisions.

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PRC Dividend Withholding Tax

Under the PRC tax laws effective prior to January 1, 2008, dividends paid to foreign investors by foreign-invested enterprises were exempt from PRC withholding tax. Pursuant to the EIT Law and the Implementation Rules, dividends generated after January 1, 2008 and payable by a foreign-invested enterprise in China to its foreign enterprise investors are subject to a 10% withholding tax, unless any such foreign investor’s jurisdiction of incorporation has a tax treaty with China that provides for a different withholding arrangement. Under the China-HK Taxation Arrangement, income tax on dividends payable to a company resident in Hong Kong that holds more than a 25% equity interest in a PRC resident enterprise may be reduced to a rate of 5%. In February 2018, the State Administration of Taxation issued the “Announcement on Issues concerning Beneficial Owners in Tax Treaties,” or Circular No. 9, effective on April 1, 2018, to replace the Circular of the State Administration of Taxation on the Interpretation and the Determination of the Beneficial Owners in the Tax Treaties, effective from October 2009. Circular No. 9 provides a more elastic guidance to determine whether the applicant engages in substantive business activities. Furthermore, under the “Administrative Measures for Non-Resident Taxpayers to Enjoy Treatments under Tax Treaties,” or SAT Circular No. 60, nonresident taxpayers who satisfy the criteria for entitlement to tax treaty benefits may, at the time of tax declaration or withholding declaration through a withholding agent, enjoy the tax treaty benefits, and be subject to follow-up administration by the tax authorities. Where the non-resident taxpayer does not apply to the withholding agent to claim the tax treaty benefits, or the materials and the information stated in the relevant reports and statements provided to the withholding agent do not satisfy the criteria for entitlement to tax treaty benefits, the withholding agent shall withhold tax pursuant to the provisions of PRC tax laws. The SAT issued the Announcement of State Taxation Administration on Promulgation of the Administrative Measures on Non-resident Taxpayers Enjoying Treaty Benefits, or SAT Circular No. 35, on October 14, 2019, which became effective on January 1, 2020. The SAT Circular No. 35 further simplified the procedures for enjoying treaty benefits and replaced the SAT Circular No. 60. According to the SAT Circular No. 35, no approvals from the tax authorities are required for a non-resident taxpayer to enjoy treaty benefits, where a non-resident taxpayer self-assesses and concludes that it satisfies the criteria for claiming treaty benefits, it may enjoy treaty benefits at the time of tax declaration or at the time of withholding through the withholding agent, but it shall gather and retain the relevant materials as required for future inspection, and accept follow-up administration by the tax authorities. In addition, according to a tax circular issued by SAT in February 2009, if the main purpose of an offshore arrangement is to obtain a preferential tax treatment, the PRC tax authorities have the discretion to adjust the preferential tax rate enjoyed by the relevant offshore entity. Although our WFOE is currently wholly owned by Hong Kong Zepp Holding Limited, we cannot assure you that we will be able to enjoy the preferential withholding tax rate of 5% under the China-HK Taxation Arrangement.

Regulation on Foreign Exchange

The principal regulations governing foreign currency exchange in China are the Foreign Exchange Administration Regulations, most recently amended on August 5, 2008. Under the Foreign Exchange Administration Regulations, payments of current account items, such as profit distributions and trade and service-related foreign exchange transactions can be made in foreign currencies without prior approval from State Administration of Foreign Exchange, or SAFE, by complying with certain procedural requirements. However, approval from or registration with appropriate government authorities is required where Renminbi is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of foreign currency-denominated loans.

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On August 29, 2008, SAFE issued the Circular on the Relevant Operating Issues Concerning the Improvement of the Administration of the Payment and Settlement of Foreign Currency Capital of Foreign-Invested Enterprises, or SAFE Circular No. 142, regulating the conversion by a foreign-invested enterprise of foreign currency-registered capital into Renminbi by restricting how the converted Renminbi may be used. SAFE Circular No. 142 provides that the Renminbi capital converted from foreign currency registered capital of a foreign-invested enterprise may only be used for purposes within the business scope approved by the applicable government authority and may not be used for equity investments within China. SAFE also strengthened its oversight of the flow and use of the Renminbi capital converted from foreign currency registered capital of foreign-invested enterprises. The use of such Renminbi capital may not be changed without SAFE’s approval, and such Renminbi capital may not in any case be used to repay Renminbi loans if the proceeds of such loans have not been used. On March 30, 2015, SAFE issued SAFE Circular No. 19, which took effective and replaced SAFE Circular No. 142 on June 1, 2015. Although SAFE Circular No. 19 allows for the use of Renminbi converted from the foreign currency-denominated capital for equity investments in China, the restrictions continue to apply as to foreign-invested enterprises’ use of the converted Renminbi for purposes beyond the business scope, for entrusted loans or for inter-company Renminbi loans. SAFE promulgated the Notice of the State Administration of Foreign Exchange on Reforming and Standardizing the Foreign Exchange Settlement Management Policy of Capital Account, or Circular 16, effective on June 9, 2016, which reiterates some of the rules set forth in Circular 19, but changes the prohibition against using Renminbi capital converted from foreign currency-denominated registered capital of a foreign-invested company to issue Renminbi entrusted loans to a prohibition against using such capital to issue loans to non-associated enterprises. Violations of SAFE Circular 19 or Circular 16 could result in administrative penalties. On October 23, 2019, SAFE issued the Circular Regarding Further Promotion of the Facilitation of Cross-Border Trade and Investment, or the SAFE Circular No. 28, pursuant to which all foreign-invested enterprises are allowed to make domestic equity investments with their capital funds in accordance with relevant laws and regulations.

On November 19, 2012, SAFE promulgated the Circular of Further Improving and Adjusting Foreign Exchange Administration Policies on Foreign Direct Investment (amended in May 2015) which substantially amends and simplifies the current foreign exchange procedure. Pursuant to this circular, the opening of various special purpose foreign exchange accounts (e.g., pre-establishment expenses accounts, foreign exchange capital accounts and guarantee accounts), the reinvestment of lawful incomes derived by foreign investors in China (e.g., profit, proceeds of equity transfer, capital reduction, liquidation and early repatriation of investment), and purchase and remittance of foreign exchange as a result of capital reduction, liquidation, early repatriation or share transfer in a foreign-invested enterprise no longer require SAFE approval, and multiple capital accounts for the same entity may be opened in different provinces, which was not possible before. In addition, SAFE promulgated the Circular on Printing and Distributing the Provisions on Foreign Exchange Administration over Domestic Direct Investment by Foreign Investors and the supporting documents in May 2013 (amended in December 2019), which specifies that the administration by SAFE or its local branches over direct investment by foreign investors in the PRC shall be conducted by way of registration and banks shall process foreign exchange business relating to the direct investment in China based on the registration information provided by SAFE and its branches.

On February 13, 2015, SAFE promulgated the Circular on Further Simplifying and Improving the Policies Concerning Foreign Exchange Control on Direct Investment, or SAFE Circular No. 13, which took effect on June 1, 2015 and was amended in December 2019. SAFE Circular No. 13 delegates the authority to enforce the foreign exchange registration in connection with the inbound and outbound direct investment under relevant SAFE rules to certain banks and therefore further simplifies the foreign exchange registration procedures for inbound and outbound direct investment.

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Regulation on Foreign Exchange Registration of Offshore Investment by PRC Residents

On July 4, 2014, SAFE issued the Circular on Relevant Issues Concerning Foreign Exchange Control on Domestic Residents’ Offshore Investment and Financing and Roundtrip Investment through Special Purpose Vehicles, or SAFE Circular 37, and its implementation guidelines, which abolished and superseded the Circular on Several Issues concerning Foreign Exchange Administration for Domestic Residents to Engage in Financing and in Return Investments via Overseas Special Purpose Companies, SAFE Circular 75. Pursuant to SAFE Circular 37 and its implementation guidelines, PRC residents (including PRC institutions and individuals) must register with local branches of SAFE in connection with their direct or indirect offshore investment in an overseas special purpose vehicle, or SPV, directly established or indirectly controlled by PRC residents for the purposes of offshore investment and financing with their legally owned assets or interests in domestic enterprises, or their legally owned offshore assets or interests. Such PRC residents are also required to amend their registrations with SAFE when there is a change to the basic information of the SPV, such as changes of a PRC resident individual shareholder, the name or operating period of the SPV, or when there is a significant change to the SPV, such as changes of the PRC individual resident’s increase or decrease of its capital contribution in the SPV, or any share transfer or exchange, merger, division of the SPV. Failure to comply with the registration procedures set forth in the Circular 37 may result in restrictions being imposed on the foreign exchange activities of the relevant onshore company, including the payment of dividends and other distributions to its offshore parent or affiliate, the capital inflow from the offshore entities and settlement of foreign exchange capital, and may also subject relevant onshore company or PRC residents to penalties under PRC foreign exchange administration regulations.

Wang Huang, Yunfen Lu, Meihui Fan, Bin Fan, Yi Zhang and Xiaojun Zhang, our PRC resident shareholders, have completed all necessary registrations with the local SAFE branch or qualified banks as required by SAFE Circular 37.

Regulation on Employee Share Options

On December 25, 2006, the People’s Bank of China promulgated the Administrative Measures for Individual Foreign Exchange. On February 15, 2012, SAFE issued the Notices on Issues concerning the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plans of Overseas Publicly-Listed Companies, or the Stock Option Rules, which replaced the Application Procedures of Foreign Exchange Administration for Domestic Individuals Participating in Employee Stock Ownership Plans or Stock Option Plans of Overseas Publicly-Listed Companies issued by SAFE on March 28, 2007. Pursuant to the Stock Option Rules, PRC residents who are granted shares or stock options by companies listed on overseas stock exchanges according to the stock incentive plans are required to register with SAFE or its local branches, and PRC residents participating in the stock incentive plans of overseas listed companies shall retain a qualified PRC agent, which could be a PRC subsidiary of such overseas publicly-listed company or another qualified institution selected by such PRC subsidiary, to conduct SAFE registration and other procedures with respect to the stock incentive plans on behalf of these participants. Such participants must also retain an overseas entrusted institution to handle matters in connection with their exercise of stock options, purchase and sale of corresponding stocks or interests, and fund transfer. In addition, the PRC agents are required to amend SAFE registration with respect to the stock incentive plan if there is any material change to the stock incentive plan, the PRC agents or the overseas entrusted institution or other material changes. The PRC agents shall, on behalf of the PRC residents who have the right to exercise the employee share options, apply to SAFE or its local branches for an annual quota for the payment of foreign currencies in connection with the PRC residents’ exercise of the employee share options. The foreign exchange proceeds received by the PRC residents from the sale of shares under the stock incentive plans granted and dividends distributed by the overseas listed companies must be remitted into the bank accounts in the PRC opened by the PRC agents before distribution to such PRC residents. In addition, the PRC agents shall file each quarter the form for record-filing of information of the Domestic Individuals Participating in the Stock Incentive Plans of Overseas Listed Companies with SAFE or its local branches.

Our PRC citizen employees who have been granted share options or restricted shares, or PRC grantees, are subject to the Stock Option Rules. If we or our PRC grantees fail to comply with the Individual Foreign Exchange Rule and the Stock Option Rules, we and/or our PRC grantees may be subject to fines and other legal sanctions. We may also face regulatory uncertainties that could restrict our ability to adopt additional share incentive plans for our directors and employees under PRC law. In addition, the State Administration for Taxation has issued certain circulars concerning employee share awards. Under these circulars, our employees working in the PRC who exercise share options or hold the vested restricted shares will be subject to PRC individual income tax. Our PRC subsidiaries have obligations to file documents related to employee share awards with relevant tax authorities and to withhold individual income taxes of those employees who exercise their share options or hold the vested restricted shares. If our employees fail to pay or we fail to withhold their income taxes according to relevant laws and regulations, we may face sanctions imposed by the tax authorities or other PRC government authorities.

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Regulation on Dividend Distributions

As the Foreign Investment Law came into effect on January 1, 2020 and replaced the Outdated FIE Laws, the principal regulations governing distribution of dividends paid by wholly foreign-owned enterprises include the Company Law, and the EIT Law and its implementation rules.

Under the current regulatory regime of the PRC, foreign-invested enterprises in the PRC may pay dividends only out of their retained earnings, if any, determined in accordance with PRC accounting standards and regulations. A PRC company is required to set aside as statutory reserve funds at least 10% of its after-tax profit, until the cumulative amount of such reserve funds reaches 50% of its registered capital unless laws and regulations regarding foreign investment provide otherwise. A PRC company is not permitted to distribute any profits until any losses from prior fiscal years have been offset. Profits retained from prior fiscal years may be distributed together with distributable profits from the current fiscal year.

Regulations Relating to Overseas Issuance and Listing of Securities by Domestic Enterprises

On February 17, 2023, the CSRC promulgated a new set of regulations consists of the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Companies, or the Trial Measures, and five supporting guidelines (collectively, the “Filing Measures”), which came into effect on March 31, 2023, to regulate overseas securities offering and listing activities by domestic companies either in direct or indirect form.

The Filing Measures apply to overseas securities offering and listing activities by domestic companies, the “securities” under the Filing Measures refer to equity shares, depository receipts, corporate bonds convertible to equity shares and other equity securities. Both direct and indirect overseas securities offering and listing by domestic companies will be regulated, of which the former refers to securities offering and listing in an overseas market made by a joint-stock company incorporated domestically, and the latter refers to overseas offering and listing by a company in the name of an overseas incorporated entity, whereas the company’s major business operations are located domestically and such offering and listing is based on the underlying equity, assets, earnings or other similar rights of a domestic company. According to the Filing Measures, any overseas offering and listing made by an issuer that meets both the following conditions will be determined as indirect: (i) 50% or more of the issuer’s operating revenue, total profit, total assets or net assets as documented in its audited consolidated financial statements for the most recent accounting year is accounted for by domestic companies; and; (ii) the main parts of the issuer’s business activities are conducted in the Chinese Mainland, or its main places of business are located in the Chinese Mainland, or the senior managers in charge of its business operation and management are mostly Chinese citizens or domiciled in the Chinese Mainland. The determination as to whether or not an overseas offering and listing by domestic companies is indirect, shall be made on a substance over form basis.

Under the Filing Measures, a filing-based regulatory system would be implemented covering both direct and indirect overseas offering and listing. For an issuer applying to or having completed indirect overseas offering or listing, it shall designate a major domestic operating entity as the domestic responsible entity to submit the filing documents to the CSRC within 3 working days (i) after the application for overseas initial offering or listing is submitted; (ii) after the subsequent securities offerings in the same overseas market; and (iii) after the application for offering or listing in other overseas markets. The CSRC would, within 20 working days if filing documents are complete and in compliance with the stipulated requirements, complete the filing and publish the filing information on the CSRC’s official website. While for confidential filings of overseas offering and listing application documents, the designated filing entity may apply for an extension of the publication of such filing. The issuer shall report to the CSRC within 3 working days after the overseas offering and listing application documents become public. In addition, subsequent securities offerings of an issuer in the same overseas market where it has previously offered or listed securities shall be filed with the CSRC within 3 working days after the offering is completed.

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Meanwhile, no overseas offering and listing shall be made under any of the following circumstances:(i) where such securities offering and listing is explicitly prohibited by provisions in laws, administrative regulations and relevant state rules; (ii) where the intended securities offering and listing may endanger national security as reviewed and determined by competent authorities under the State Council in accordance with law; (iii) where the domestic company intending to make the securities offering and listing, or its controlling shareholders and the actual controller, have committed crimes such as corruption, bribery, embezzlement, misappropriation of property or undermining the order of the socialist market economy during the latest three years; (iv) where the domestic company intending to make the securities offering and listing is suspected of committing crimes or major violations of laws and regulations, and is under investigation according to law, and no conclusion has yet been made thereof; (v) where there are material ownership disputes over equity held by the controlling shareholder or by other shareholders that are controlled by the controlling shareholder and/or actual controller. If a domestic company falls into the above circumstances, the domestic company shall postpone or terminate the intended overseas offering and listing, and report to the CSRC and competent authorities under the State Council in a timely manner.

If domestic companies fail to fulfill the above-mentioned filing procedures or offer and list in an overseas market against the prohibited circumstances, they would be warned and fined up to RMB10 million. The controlling shareholders and actual controllers of such domestic companies that organize or instruct the aforementioned violations would be fined up to RMB10 million and directly liable persons-in-charge and other directly liable persons would be each fined up to RMB 5 million.

On February 24, 2023, the CSRC, the National Administration of State Secrets Protection, the National Archives Administration of China and the MOF jointly promulgated the Provisions on Strengthening the Confidentiality and Archives Administration Related to Overseas Issuance and Listing of Securities by Domestic Enterprises, which came into effect on March 31, 2023, together with the Filing Measures, and replaced the Provisions on Strengthening Confidentiality and Archives Administration in Overseas Issuance and Listing of Securities issued in 2009. The provisions aim to develop a gatekeeping mechanism in provision of information by domestic enterprises to the relevant securities companies, securities service institutions, overseas regulatory authorities or other entity or individual, so as to prevent sensitive information from leakage and prescribe protective protocols for any residual sensitive information that still has to be provided. The provisions apply to both domestic issuer applying to or having completed direct overseas offering or listing and domestic operating entity of the issuer applying to or having completed indirect overseas offering or listing.

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C.           Organizational Structure

The following chart illustrates our company’s organizational structure, including our principal subsidiaries and the consolidated affiliated entities as of the date of this annual report:

Notes:

(1) Messrs. Wang Huang, Yunfen Lu, Meihui Fan, Bin Fan, Yi Zhang and Xiaojun Zhang are beneficial owners of the shares of our company and hold 90.1%, 2.1285%, 2.1285%, 2.1285%, 2.1285% and 1.386% equity interests in Beijing Huami, respectively. They are either directors or employees of our company.

(2) Messrs. Wang Huang and Yunfen Lu are beneficial owners of the shares of our company and hold 99.4% and 0.6% equity interests in Anhui Huami, respectively. They are also directors of our company.

The following is a summary of the currently effective contractual arrangements by and among our wholly-owned subsidiary, Shunyuan Kaihua (our WFOE), the VIEs and their respective shareholders. Such contractual arrangements enable us to exercise effective control over, receive substantially all of the economic benefits of, and have an exclusive option to purchase all or part of the equity interest and assets in the VIEs when and to the extent permitted by PRC law. Because of these contractual arrangements, we are the primary beneficiary of the VIEs in China and hence consolidate their financial results as the consolidated affiliated entities.

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Agreements that provide us with effective control over the VIEs

Shareholder Voting Proxy Agreements and Powers of Attorney. Pursuant to the second amended and restated Shareholder Voting Proxy Agreement, dated March 20, 2020, among our WFOE, Anhui Huami and each of the shareholders of Anhui Huami, each of the shareholders of Anhui Huami has executed a power of attorney to irrevocably authorize our WFOE or any person designated by our WFOE to act as his, her or its attorney-in-fact to exercise all of his, her or its rights as a shareholder of Anhui Huami, including, but not limited to, the right to convene and attend shareholders’ meetings, vote on any resolution that requires a shareholder vote, such as the appointment and removal of directors, supervisors and officers, as well as the sale, transfer and disposal of all or part of the equity interests owned by such shareholder. The power of attorney will remain effective until the termination of the Shareholder Voting Proxy Agreement unless otherwise instructed by our WFOE.

On March 20, 2020, our WFOE, Beijing Huami and each of the shareholders of Beijing Huami entered into the second amended and restated Shareholder Voting Proxy Agreement and power of attorney, which contain same terms as the Shareholder Voting Proxy Agreement and power of attorney executed by the shareholders of Anhui Huami described above.

Equity Pledge Agreements. Pursuant to the second amended and restated Equity Pledge Agreement, dated March 20, 2020, among our WFOE, Anhui Huami and each of the shareholders of Anhui Huami, the shareholders of Anhui Huami have pledged 100% equity interests in Anhui Huami to our WFOE to guarantee the performance by the shareholders of their obligations under the Exclusive Option Agreement, the Shareholder Voting Proxy Agreement and the Equity Pledge Agreement, as well as the performance by Anhui Huami of its obligations under the Exclusive Option Agreement, the Shareholder Voting Proxy Agreement, the Exclusive Service Agreement and the Equity Pledge Agreement. In the event of a breach by Anhui Huami or any shareholder of contractual obligations under the Equity Pledge Agreement, our WFOE, as pledgee, will have the right to dispose of the pledged equity interests in Anhui Huami and will have priority in receiving the proceeds from such disposal. The shareholders of Anhui Huami also undertake that, without the prior written consent of our WFOE, they will not dispose of, create or allow any encumbrance on the pledged equity interests. Anhui Huami undertakes that, without the prior written consent of our WFOE, they will not assist or allow any encumbrance to be created on the pledged equity interests. Each shareholder has also executed a power of attorney to irrevocably authorize Wang Huang as his, her or its attorney-in-fact to sign any legal documents that are required or useful in exercising our WFOE’s rights under the Equity Pledge Agreement.

On March 20, 2020, our WFOE, Beijing Huami and each of the shareholders of Beijing Huami entered into the second amended and restated Equity Pledge Agreement, which contains same terms as the Equity Pledge Agreement described above.

We have completed the registration of the equity pledge of Anhui Huami and the registration of the equity pledge of Beijing Huami with the competent office of the State Administration for Market Regulation in accordance with the PRC Property Rights Law.

Loan Agreement. Pursuant to the loan agreement between our WFOE and Mr. Wang Huang, one of shareholders of Anhui Huami, dated November 3, 2017, our WFOE made interest-free loans in an aggregate amount of RMB15 million to Mr. Wang Huang for the exclusive purpose of acquiring equity interests in Anhui Huami. The loans can only be repaid with the proceeds derived from the sale of all of the equity interests in Anhui Huami to our WFOE or its designated representatives pursuant to the Exclusive Option Agreements. The term of the Loan Agreement is ten years from the date of the loan agreement and will be extended on a yearly basis unless otherwise instructed by our WFOE until the loan is repaid.

Agreements that allow us to receive economic benefits from the VIEs

Exclusive Consultation and Service Agreements. Pursuant to the second amended and restated Exclusive Consultation Service Agreement, dated March 20, 2020, between our WFOE and Anhui Huami, our WFOE has the exclusive right to provide Anhui Huami with the consulting and technical services required by Anhui Huami’ business. Without our WFOE’s prior written consent, Anhui Huami may not accept any services subject to this agreement from any third party. Anhui Huami agrees to pay our WFOE an annual service fee at an amount that is equal to 100% of its net income or the amount which is adjusted in accordance with our WFOE’s sole discretion for the relevant year as well as the mutually-agreed amount for certain other technical services, both of which should be paid within three months after the end of the relevant calendar year. Our WFOE has the exclusive ownership of all the intellectual property rights created as a result of the performance of the Exclusive Consultation and Service Agreement, to the extent permitted by applicable PRC laws. To guarantee Anhui Huami’s performance of its obligations thereunder, the shareholders have pledged their equity interests in Anhui Huami to our WFOE pursuant to the Equity Pledge Agreement. The Exclusive Consultation and Service Agreement will remain effective for an indefinite term, unless otherwise terminated pursuant to mutual agreement in writing or applicable PRC laws.

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On March 20, 2020, our WFOE, Beijing Huami and each of the shareholders of Beijing Huami entered into the second amended and restated Exclusive Consultation and Service Agreement, which contains terms substantially similar to the Exclusive Consultation and Service Agreement described above.

Agreements that provide us with the option to purchase the equity interests in and assets of the VIEs

Exclusive Option Agreements. Pursuant to the second amended and restated Exclusive Option Agreement, dated March 20, 2020, among our WFOE, Anhui Huami and each of the shareholders of Anhui Huami, the shareholders of Anhui Huami have irrevocably granted our WFOE an exclusive option to purchase all or part of their equity interests in Anhui Huami, and Anhui Huami has irrevocably granted our WFOE an exclusive option to purchase all or part of its assets. Our WFOE or its designated person may exercise such options at the lowest price permitted under applicable PRC laws. The shareholders of Anhui Huami undertake that, without our WFOE’s prior written consent, they will not, among other things, (i) create any pledge or encumbrance on their equity interests in Anhui Huami, (ii) transfer or otherwise dispose of their equity interests in Anhui Huami, (iii) change Anhui Huami’s registered capital, (iv) amend Anhui Huami’s articles of association, (v) dispose of Anhui Huami’s material assets (except in the ordinary course of business), or (vi) merge Anhui Huami with any other entity. In addition, Anhui Huami undertakes that, without our WFOE’s prior written consent, it will not, among other things, create any pledge or encumbrance on any of its assets, or transfer or otherwise dispose of its material assets (except in the ordinary course of business). The Exclusive Option Agreement will remain effective until the entire equity interests in and all the assets of Anhui Huami have been transferred to our WFOE or its designated person.

On March 20, 2020, our WFOE, Beijing Huami and each of the shareholders of Beijing Huami entered into the second amended and restated Exclusive Option Agreement, which contains same terms as the Exclusive Option Agreement described above.

In the opinion of Zhong Lun Law Firm, our PRC legal counsel:

● the ownership structures of the VIEs in China and our WFOE comply with all existing PRC laws and regulations; and

● the contractual arrangements between our WFOE, the VIEs and their respective shareholders governed by PRC law are valid, binding and enforceable, and will not result in any violation of PRC laws or regulations currently in effect.

However, our PRC legal counsel has also advised us that there are substantial uncertainties regarding the interpretation and application of current and future PRC laws, regulations and rules. Accordingly, the PRC regulatory authorities may take a view that is contrary to the opinion of our PRC legal counsel. It is uncertain whether any new PRC laws or regulations relating to variable interest entity structures will be adopted or if adopted, what they would provide. If we or any of the VIEs are found to be in violation of any existing or future PRC laws or regulations, or fail to obtain or maintain any of the required permits or approvals, the relevant PRC regulatory authorities would have broad discretion to take action in dealing with such violations or failures. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure—If the PRC government finds that the agreements that establish the structure for operating some of our operations in China do not comply with PRC regulations relating to the relevant industries, or if these regulations or the interpretation of existing regulations change in the future, we could be subject to severe penalties or be forced to relinquish our interests in those operations” and “—Risks Related to Doing Business in China—Uncertainties with respect to the PRC legal system and changes in laws and regulations in China could adversely affect us, and any lack of requisite approvals, licenses or permits applicable to our business may have a material adverse effect on our business and results of operations.”

D.           Property, Plant and Equipment

Our headquarters are located in Hefei, where we own and lease the office building with an aggregate floor area of approximately 45,398 square meters. Our research and development facilities, including those for hardware engineering, structure design and mobile app development, and our management and operations facilities, including those for accounting, supply chain management, quality assurance and customer services, are located at our headquarters. We have sales and marketing, communication and business development personnel at our office in Beijing and supply chain management and factory management personnel at our office in Shenzhen. We also have research and development personnel who are responsible for biometric ID design and frontier technology at our office in Cupertino.

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We currently lease and occupy 7,641 square meters of office space in Shenzhen, 6,030 square meters of office space in Beijing, 1,438 square meters of office space in Nanjing, 791 square meters of office space in Vancouver, 365 square meters of office space in Cupertino, 277 square meters of office space in Shanghai, 250 square meters of office space in Irvine, 186 square meters in Xi’an, and 116 square meters of office space in Shijiazhuang. These leases vary in duration from one (1) year to six (6) years.

ITEM 4A.            UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 5.              OPERATING AND FINANCIAL REVIEW AND PROSPECTS

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and the related notes included elsewhere in this annual report on Form 20-F. This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Item 3. Key Information—D. Risk Factors” or in other parts of this annual report on Form 20-F.

A.           Operating Results

Key Factors Affecting Our Results of Operations

Our research and development of innovative products and services

We have dedicated and will continue to dedicate significant research and development efforts in developing innovative products and services, especially our self-branded products and new services as part of our healthcare initiatives. For the years ended December 31, 2020, 2021 and 2022, research and development expenses accounted for 46.4%, 42.5% and 42.6% of our total operating expenses and 8.4%, 8.2% and 12.5% of our revenues, respectively. Our future success is significantly dependent on our ability to continually launch products and services that are popular among consumers, particularly relative to those offered by our competitors. The popularity of our products and services in turn affects users’ engagement on our platform, the data of which form a critical foundation of our research and development efforts.

Increase of brand recognition and sales of our self-branded products

One of our important growth strategies is to attract new users and increase sales of our self-branded products through enhancing the brand recognition for our self-branded products. We plan to make the sale of self-branded products account for significant portion of our revenue in the future. To achieve the goal, we have engaged in a variety of marketing and brand promotion campaigns both in China and globally, which may cause our selling and marketing expenses to increase in the near future.

International expansion also represents a significant opportunity to further grow our business. We are building our own distribution network and promoting our own brand with a focus on North America, the European Union, Japan, Korea, India and Southeast Asia, which requires us to dedicate additional time and resources.

Effective control over material and manufacturing costs

Material and manufacturing costs of our products have historically accounted for the largest portion of our cost of revenues. Our ability to effectively control material and manufacturing costs, especially by enhancing our bargaining power with suppliers and manufacturers, has affected and will continue to affect our profitability significantly. We expect our material and manufacturing costs to increase in absolute amounts as we increase our smart wearable device shipment volume. However, given our efficient supply chain management and industry leading market share, we believe we have the ability to control the overall level of material and manufacturing costs as percentage of revenues.

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Relationship with Xiaomi

Our strategic cooperation agreement with Xiaomi grants us the most-preferred-partner status globally to develop future Xiaomi Wearable Products. Xiaomi is our exclusive distribution channel for all Xiaomi Wearable Products. Historically, we derived a substantial majority of our revenues from the sales of Xiaomi Wearable Products. For the years ended December 31, 2020, 2021 and 2022, revenues from our Xiaomi Wearable Products segment represented 69.0%, 53.5% and 41.0% of our total revenues, respectively. In February 2023, we entered into a new business cooperation agreement with Xiaomi for the next two years, which will end in January 2025. The sales of smart band category across the world decreased throughout 2022. For future product collaborations, we will continue following a disciplined approach and focusing on the profitability and return on investment.

Impact of COVID-19 on Our Operations

The majority of our revenues are derived from the sales of our smart wearable products in China and overseas. Our results of operations and financial condition in 2022 continued to be affected by the spread of COVID-19. In the beginning of 2022, the outbreak of COVID Omicron in certain cities in China led to an uncertain and prolonged lockdown, and business activities were largely affected. To the extent we have service centers, sales channels or contracted manufacturing facilities in these locations, we took a series of measures in response to the outbreak, including, among others, remote working arrangement for our employees. As a result, we are susceptible to factors adversely affecting one or more of these locations as a result of COVID-19. These restrictions and measures, if taken again in the future, could reduce the capacity and efficiency of our operations, which in turn could negatively affect our 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. However, there were surges of cases in many cities during this time which caused disruption to our and our suppliers’ operations, and there remains uncertainty as to the future impact of the virus, especially in light of this change in policy.

The COVID-19 has impact on the smart wearable industry in general, especially on consumers’ demand for smart wearable products, the manufacturing capabilities and supply chains. In particular, delays in the production of certain parts continued to affect the inventory availability for some of our new products throughout 2022. In key European, Indian and South American markets, continued battles with infection rates and lockdowns dampened our sales results in 2022. Although vaccinations became more widely available globally and most restrictions were lifted, the global parts and supply chain challenges as a result of the pandemic continued. The shortages in electronic components and chips negatively affected the supply and production cycle of our products, causing delay in production and in turn decreased sales result. The prolonged pandemic has, and may continue to, negatively affect our logistic network and delivery time.

The global spread of COVID-19 pandemic in a significant number of countries around the world has resulted in, and may intensify, global economic distress, and the extent to which it may affect our financial condition, results of operations, and cash flows will depend on future developments, which are highly uncertain and cannot be predicted. In addition, the worldwide pandemic has not only adversely affected our sales performance overseas, but also led to components and raw materials shortages as we source those from south east Asia, Europe and other areas around the world. We have been actively seeking alternative sources of components and raw materials to address the shortage, and have reached agreement on the provision of components and raw materials with certain China local suppliers. However, the adverse effect the pandemic has on our sales performance overseas continues as of the date of this annual report.

The extent to which the pandemic impacts our results of operations going forward will depend on future developments which are highly uncertain and unpredictable, including the frequency, duration and extent of outbreaks of COVID-19, the appearance of new variants with different characteristics, the effectiveness of efforts to contain or treat cases, and future actions that may be taken in response to these developments. In addition, our results of operations could be adversely affected to the extent that the pandemic harms the Chinese and global economy and consumer activities in general. See “Item 3. Key Information—D. Risk Factors— Risks Related to Our Business and Industry—Our business, financial condition and results of operations have been, and may continue to be, adversely affected by the COVID-19 pandemic.”

Our cash position at the end of 2022 was RMB973.3 million (US$141.1 million). We will pay close attention to the development of the COVID-19 pandemic, perform further assessment of its impact and take relevant measures to minimize the impact.

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Key Line Items and Specific Factors Affecting Our Results of Operations

Revenues

We derive our revenues from two operating segments, (i) our self-branded products and others, and (ii) Xiaomi Wearable Products. The following table sets forth our revenues by segment and as a percentage of total revenues for the periods indicated:

	Years Ended December 31,
	2020		2021		2022
	RMB	%	RMB	%	RMB	US$	%
	(in thousands, except for percentages)
Xiaomi Wearable Products	4,438,081	69.0	3,340,857	53.5	1,697,053	246,050	41.0
Self-branded products and others	1,995,282	31.0	2,909,252	46.5	2,445,809	354,609	59.0
Total revenues	6,433,363	100.0	6,250,109	100.0	4,142,862	600,659	100.0

We generate more than half of our revenues from sales of our self-branded products. Our self-branded products are our Amazfit-branded smart wearable products, which currently include smart bands, watches, modules and associated accessories, and our Zepp-branded smart wearable products, which currently include smart watches. We also generate revenues from the sale of Xiaomi Wearable Products, which include Xiaomi-branded smart bands, scales and associated accessories. Revenues from our self-branded products and others segment, substantially all of which was from the sales of our self-branded products, contributed 31.0%, 46.5% and 59.0% of our total revenues in 2020, 2021 and 2022, respectively. For the year ended December 31, 2022, revenues from our self-branded products and others segment were RMB2,445.8 million (US$354.6 million). We expect our self-branded products to contribute to a more portion of our revenues in the future.

Cost of Revenues

Our cost of revenues is comprised of the following:

● material costs;

● manufacturing and fulfillment costs of our products;

● an estimate of warranty costs; and

● related expenses that are directly attributable to the production of products.

We procure a variety of raw materials and components from third-party suppliers, and outsource our manufacturing and order fulfillment activities to third parties. Our product costs fluctuate with the costs of raw materials and underlying product components as well as the prices we are able to negotiate with our contract manufacturers and raw material and component suppliers. Shipping costs for raw materials and components from domestic locations are borne by our suppliers and contract manufacturers. For raw materials and components procured overseas, our suppliers cover the shipping costs from place of origin to China, and we are responsible for the additional logistics costs if we consign these raw materials and components to our contract manufacturers.

We offer a 12-month warranty.We have the obligation to either repair or replace the defect product for the customers if the product is still under warranty. At the time revenue is recognized, an estimate of warranty costs in relation to the products sold is recorded as a component of cost of revenues.

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The following table sets forth our cost of revenues by segment and as a percentage of total cost of revenues for the periods indicated:

	Years Ended December 31,
	2020		2021		2022
	RMB	%	RMB	%	RMB	US$	%
	(in thousands, except for percentages)
Xiaomi Wearable Products	3,706,495	72.7	2,754,086	55.7	1,394,460	202,178	41.8
Self-branded products and others	1,394,203	27.3	2,190,381	44.3	1,945,286	282,040	58.2
Total cost of revenues	5,100,698	100.0	4,944,467	100.0	3,339,746	484,218	100.0

The following table sets forth the gross profit and gross margin by segment:

	Years Ended December 31,
	2020		2021		2022
	RMB		RMB		RMB		US$
	(in thousands, except for percentages)
Xiaomi Wearable Products	731,586		586,771		302,593		43,872
Self-branded products and others	601,079		718,871		500,523		72,569
Total gross profit	1,332,665		1,305,642		803,116		116,441
Xiaomi Wearable Products	16.5	%	17.6	%	17.8	%
Self-branded products and others	30.1	%	24.7	%	20.5	%
Overall gross margin	20.7	%	20.9	%	19.4	%

Operating expenses

We classify our operating expenses into three categories: research and development, general and administrative, and selling and marketing.

Research and Development Expenses. Research and development expenses primarily consist of salaries and benefits (including employee benefit expenses and share-based compensation expenses) for research and development personnel and other expenses associated with our research and development activities.

General and Administrative Expenses. General and administrative expenses primarily consist of salaries and benefits (including employee benefit expenses and share-based compensation expenses) for administrative personnel, as well as other expenses primarily relating to professional services and our facilities and other administrative expenses.

Selling and Marketing Expenses. Selling and marketing expenses primarily consist of advertising and promotion expenses (including expenses for new product launch events), salaries and benefits for selling and marketing personnel (including employee benefit expenses and share-based compensation expenses), expenses related to business development through e-commerce platforms and other expenses associated with our selling and marketing activities. We bear the advertising and marketing expenses for our self-branded products. We do not bear such expenses for Xiaomi Wearable Products.

Other income

Other income primarily consists of subsidies received from local government authorities to encourage technology innovation and investment.

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Results of Operations

The following table sets forth a summary of our consolidated results of operations for the periods indicated, both in absolute amounts and as percentages of our total revenues. This information should be read together with our consolidated financial statements and related notes included elsewhere in this annual report. The operating results in any period are not necessarily indicative of the results that may be expected for any future period.

	Years Ended December 31,
	2020		2021		2022
	RMB	%	RMB	%	RMB	US$	%
	(in thousands, except for percentages)
Summary of Consolidated Statements of Operating Data:
Revenues(1)	6,433,363	100.0	6,250,109	100.0	4,142,862	600,659	100.0
Cost of revenues(2)	5,100,698	79.3	4,944,467	79.1	3,339,746	484,218	80.6
Gross profit	1,332,665	20.7	1,305,642	20.9	803,116	116,441	19.4
Operating expenses:
Research and development(3)	538,009	8.4	515,081	8.2	517,122	74,976	12.5
General and administrative(3)	261,805	4.1	258,346	4.1	235,932	34,207	5.7
Selling and marketing(3)	358,655	5.6	438,273	7.0	460,304	66,738	11.1
Total operating expenses	1,158,469	18.0	1,211,700	19.4	1,213,358	175,921	29.3
Operating income/(loss)	174,196	2.7	93,942	1.5	(410,242)	(59,480)	(9.9)
Realized gain from investments	—	—	13,507	0.2	597	87	0.0
Gain from deconsolidation of a subsidiary	56,522	0.9	—	—	—	—	0.0
Interest income	46,118	0.7	16,686	0.3	12,334	1,788	0.3
Interest expenses	(22,623)	(0.4)	(44,884)	(0.7)	(57,001)	(8,264)	(1.4)
Gain from fair value change of long-term investments	12,325	0.2	—	—	51,817	7,513	1.3
Impairment loss from long-term investments	—	—	—	—	(13,858)	(2,009)	(0.3)
Other income/(expenses), net	(929)	(0.0)	27,418	0.4	43,820	6,353	1.1
Income/(Loss) before income tax and income from equity method investments	265,609	4.1	106,669	1.7	(372,533)	(54,012)	(9.0)
Income taxes (provision)/benefit	(31,154)	(0.5)	(10,745)	(0.2)	65,875	9,551	1.6
Income/(Loss) before income from equity method investments	234,455	3.6	95,924	1.5	(306,658)	(44,461)	(7.4)
(Loss)/Income from equity method investments	(4,749)	(0.1)	41,028	0.7	17,657	2,560	0.4
Net income/(loss)	229,706	3.6	136,952	2.2	(289,001)	(41,901)	(7.0)

Notes:

(1) Includes RMB4,449.8 million, RMB3,350.0 million and RMB1,704.0 million (US$247.1 million) with related parties for the years ended December 31, 2020, 2021 and 2022, respectively.

(2) Includes RMB3,713.5 million, RMB2,760.0 million and RMB1,399.5 million (US$202.9 million) resulting from related parties sales for the years ended December 31, 2020, 2021 and 2022, respectively.

(3) Share-based compensation expenses were included in operating expenses. Our share-based compensation expenses were the result of our grants of options, restricted shares and restricted share units under our share incentive plans to our employees.

Year Ended December 31, 2022 Compared to Year Ended December 31, 2021

Revenues

Our revenues decreased by 33.7% from RMB6,250.1 million for the year ended December 31, 2021 to RMB4,142.9 million (US$600.7 million) for the year ended December 31, 2022. The decrease was primarily resulted from a 49.2% decline in the sales of Mi Band.

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Self-branded products and others. Our self-branded products and others segment revenues decreased by 15.9% from RMB2,909.3 million in 2021 to RMB2,445.8 million (US$354.6 million) in 2022. The decrease was primarily attributable to a decrease in shipment volume of our self-branded products from approximately 7.6 million in 2021 to approximately 6.3 million in 2022.

Xiaomi Wearable Products. Our Xiaomi Wearable Products segment revenues decreased by 49.2% from RMB3,340.9 million for the year ended December 31, 2021 to RMB1,697.1 million (US$246.1 million) for the year ended December 31, 2022. The decrease was primarily attributable to a decrease in shipment volume of our Xiaomi Wearable Products from approximately 28.5 million in 2021 to approximately 14.0 million in 2022.

Cost of revenues

Our cost of revenues decreased by 32.5% from RMB4,944.5 million for the year ended December 31, 2021 to RMB3,339.7 million (US$484.2 million) for the year ended December 31, 2022.

Self-branded products and others. Cost of revenues for our self-branded products and others segment decreased by 11.2% from RMB2,190.4 million for the year ended December 31, 2021 to RMB1,945.3 million (US$282.0 million) for the year ended December 31, 2022. The decrease was in line with a decrease in shipment volume of our self-branded products.

Xiaomi Wearable Products. Costs of revenues for our Xiaomi Wearable Products segment decreased by 49.2% from RMB2,754.1 million for the year ended December 31, 2021 to RMB1,394.5 million (US$202.2 million) for the year ended December 31, 2022. The decrease was in line with a decrease in the sales of our Xiaomi Wearable Products, and was partially driven by the increasing demand for our newly introduced self-branded products.

Gross profit

Our gross profit decreased by 38.5% from RMB1,305.6 million for the year ended December 31, 2021 to RMB803.1 million (US$116.4 million) for the year ended December 31, 2022. The decrease was mainly driven by the decrease in the gross profit for sales of Xiaomi wearable products and self-branded wearable products.

Research and development expenses

Research and development expenses increased by 0.4% from RMB515.1 million for the year ended December 31, 2021 to RMB517.1 million (US$75.0 million) for the year ended December 31, 2022, primarily due to a decrease of RMB40.5 million (US$5.9 million) in government subsidies that we received in 2022, partially offset by (i) a decrease of RMB 19.4 million (US$2.8 million) in expenses as we implemented strict expense control measures in 2022, and (ii) a decrease of RMB 19.1 million (US$2.8 million) in share-based compensation expenses.

General and administrative expenses

General and administrative expenses decreased by 8.7% from RMB258.3 million for the year ended December 31, 2021 to RMB235.9 million (US$34.2 million) for the year ended December 31, 2022, primarily due to a decrease of RMB23.4 million (US$3.4 million) in external service fees as we implemented strict expense control measures in 2022.

Selling and marketing expenses

Selling and marketing expenses increased by 5.0% from RMB438.3 million for the year ended December 31, 2021 to RMB460.3 million (US$66.7 million) for the year ended December 31, 2022, primarily due to an increase of RMB22.9 million (US$3.3 million) in advertisement promotion expenses related to our investments in establishing online and offline sales channels.

Operating income/(loss)

As a result of the factors set out above, we recorded an operating loss of RMB410.2 million (US$59.5 million) for the year ended December 31, 2022, as compared to an operating income of RMB93.9 million for the year ended December 31, 2021.

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Interest income

Interest income represents interest earned on bank deposits. We had interest income of RMB12.3 million (US$1.8 million) in 2022 and RMB16.7 million in 2021.

Interest expense

Interest expense represents interest charges for bank borrowings. We had interest expense of RMB57.0 million (US$8.3 million) in 2022 and RMB44.9 million in 2021.

Other (expenses)/income, net

We had other expenses of RMB27.4 million in 2021 and other income of RMB43.8 million (US$6.4 million) in 2022.

Income taxes (provision)/benefit

We recorded provision for income taxes in the amount of RMB10.7 million in 2021. In 2022, we recorded income taxes benefit in the amount of RMB65.9 million (US$9.6 million) in 2022.  In 2022, we recorded RMB35.2 million (US$5.1 million) valuation allowance for deferred tax asset which is a non-cash in nature and does not materially affect our operation.

Net income/(loss) attributable to Zepp Health Corporation

As a result of the foregoing, we recorded a net loss of RMB288.3 million (US$41.8 million) for the year ended December 31, 2022, as compared to a net income of RMB137.8 million for the year ended December 31, 2021.

Year Ended December 31, 2021 Compared to Year Ended December 31, 2020

Revenues

Our revenues decreased by 2.8% from RMB6,433.4 million for the year ended December 31, 2020 to RMB6,250.1 million for the year ended December 31, 2021, primarily due to the decline in the sales of Xiaomi Wearable Products, which contributed to 53.5% of our total revenues.

Xiaomi Wearable Products. Our Xiaomi Wearable Products segment revenues decreased by 24.7% from RMB4,438.1 million for the year ended December 31, 2020 to RMB3,340.9 million for the year ended December 31, 2021. The decrease was primarily attributable to a decrease in shipment volume of our Xiaomi Wearable Products from approximately 41.0 million in 2020 to approximately 28.5 million in 2021.

Self-branded products and others. Our self-branded products and others segment revenues increased significantly by 45.8% from RMB1,995.3 million in 2020 to RMB2,909.3 million in 2021. The increase was primarily attributable to an increase in shipment volume of our self-branded products from approximately 4.7 million in 2020 to approximately 7.6 million in 2021.

Cost of revenues

Our cost of revenues decreased by 3.1% from RMB5,100.7 million for the year ended December 31, 2020 to RMB4,944.5 million for the year ended December 31, 2021.

Xiaomi Wearable Products. Costs of revenues for our Xiaomi Wearable Products segment decreased by 25.7% from RMB3,706.5 million for the year ended December 31, 2020 to RMB2,754.1 million for the year ended December 31, 2021. The decrease was in line with a decrease in the sales of our Xiaomi Wearable Products, and was partially driven by the increasing demand for our newly introduced self-branded products.

Self-branded products and others. Cost of revenues for our self-branded products and others segment increased by 57.1% from RMB1,394.2 million for the year ended December 31, 2020 to RMB2,190.4 million for the year ended December 31, 2021. The increase was in line with the sales growth of our self-branded products and the changes in our product mix.

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Gross profit

Our gross profit decreased by 2.0% from RMB1,332.7 million for the year ended December 31, 2020 to RMB1,305.6 million for the year ended December 31, 2021. The slight decrease was mainly driven by the decrease in the gross profit for sales of Xiaomi wearable products and change in the product mix of our self-branded wearable products.

Research and development expenses

Research and development expenses decreased by 4.3% from RMB538.0 million for the year ended December 31, 2020 to RMB515.1 million for the year ended December 31, 2021, primarily due to (i) a decrease of RMB11.4 million in raw material expenses incurred in research and development activities, as a result of the optimization of the integrated product development process that controls the material waste in trial production; and (ii) a decrease of RMB9.5 million in other expenses, mainly due to a decrease in travel expenses as a result of travel restrictions led by the COVID-19 pandemic and discretionary savings.

General and administrative expenses

General and administrative expenses decreased by 1.3% from RMB261.8 million for the year ended December 31, 2020 to RMB258.3 million for the year ended December 31, 2021, primarily due to (i) a decrease of RMB6.4 million in share-based compensation expenses due to the vesting of fewer options and restricted share units in 2021 as compared to 2020; (ii) a decrease of RMB5.4 million in non-capital expenditure expenses, such as office supplies consumed, due to our cost control approach taken in 2021; (iii) a decrease of RMB3.6 million in professional fees for investment and acquisition, partially offset by an increase of RMB9.3 million in foreign exchange rate fluctuation.

Selling and marketing expenses

Selling and marketing expenses increased by 22.2% from RMB358.7 million for the year ended December 31, 2020 to RMB438.3 million for the year ended December 31, 2021, primarily due to (i) an increase of RMB30.1 million in personnel-related costs due to the increase in the proportion of overseas market sales personnel; (ii) an increase of RMB34.6 million in advertisement promotion expenses due to the expansion of overseas market and the enhancement of the promotion for our self-branded products; and (iii) an increase of RMB8.1 million in other expenses, mainly due to office relocation and decoration.

Operating income

As a result of the factors set out above, we recorded an operating income of RMB93.9 million for the year ended December 31, 2021, as compared to an operating income of RMB174.2 million for the year ended December 31, 2020.

Interest income

Interest income represents interest earned on bank deposits. We had interest income of RMB16.7 million in 2021 and RMB46.1 million in 2020.

Interest expense

Interest expense represents interest charges for bank borrowings. We had interest expense of RMB44.9 million in 2021 and RMB22.6 million in 2020.

Gain from deconsolidation of a subsidiary

We recognized RMB56.5 million gain from deconsolidation of Shenzhen Yunding Information Technology Co., Ltd. in 2020 when we sold our 26.7% equity interest to its founder. We did not have similar transactions in 2021.

Other (expenses)/income, net

We had other expenses of RMB0.9 million in 2020 and other income of RMB27.4 million in 2021.

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Provision for income taxes

We recorded provision for income taxes in the amount of RMB31.2 million in 2020 and RMB10.7 million in 2021. The material reconciling items between the tax expense computed by applying the PRC enterprise tax rate of 25% to income before income tax and the actual income tax expense is the tax impact from the tax holidays, which amounted to RMB41.9 million in 2020 and RMB19.4 million in 2021.

Net income attributable to Zepp Health Corporation

As a result of the foregoing, our net income decreased by 39.8% from RMB228.8 million for the year ended December 31, 2020 to RMB137.8 million for the year ended December 31, 2021.

Taxation

We generate the majority of our operating income from our PRC operations. Income tax liability is calculated based on a separate return basis as if we had filed separate tax returns for all the periods presented.

The Cayman Islands

We are not subject to income or capital gains tax under the current laws of the Cayman Islands. There are no other taxes likely to be material to us levied by the government of the Cayman Islands. In addition, the Cayman Islands does not impose withholding tax on dividend payments and have no estate duty, inheritance tax or gift tax.

Hong Kong

Our subsidiaries, Galaxy Trading Platform Limited and Hong Kong Zepp Holding Limited, are located in Hong Kong. Both Galaxy Trading Platform Limited and Hong Kong Zepp Holding Limited are subject to a two-tiered income tax rates for taxable income earned in Hong Kong. The first HK$2.0 million of profits earned by Galaxy Trading Platform Limited and Hong Kong Zepp Holding Limited will be taxed at half the current tax rate (i.e., 8.25%) while the remaining profits will continue to be taxed at the existing 16.5% tax rate. Under the Hong Kong tax laws, we are exempted from the Hong Kong income tax on our foreign-derived income. In addition, to avoid abuse of the two-tiered income tax rate regime, each group of connected entities can nominate only one entity to benefit from the two-tiered income tax rate. Additionally, payments of dividends from Hong Kong Zepp Holding Limited to us are not subject to any Hong Kong withholding tax.

Netherland

Our subsidiary, Zepp Europe Holding B.V., is located in Netherland and is subject to an income tax rate of 15% for taxable income earned as determined in accordance with relevant tax rules and regulations in Netherland.

United States

Our subsidiaries, ZEPP Inc. and Zepp North America Inc., are located in the United States and are subject to an income tax rate of 21% for taxable income earned as determined in accordance with relevant tax rules and regulations in the United States.

PRC

Generally, our PRC subsidiaries, VIEs and their subsidiaries are subject to enterprise income tax on their taxable income in China at a statutory rate of 25%. A “high and new technology enterprise” is entitled to a favorable statutory tax rate of 15% and such qualification is reassessed by relevant governmental authorities every three years. Anhui Huami began to qualify as a high and new technology enterprise, or HNTE, since 2015 and renewed the HNTE certificate in July 2018 and in September 2021. Anhui Huami Health Technology Co., Ltd. began to qualify as a HNTE since August 2020. Shunyuan Kaihua began to qualify as a HNTE since December 2021. Accordingly, Anhui Huami was subject to a tax rate of 15% during the years ended December 31, 2020, 2021 and 2022. The enterprise income tax is calculated based on the entity’s global income as determined under PRC tax laws and accounting standards.

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We are subject to value added tax, or VAT, at a rate of 17% (before May 1, 2018), 16% (on and after May 1, 2018 and before April 1, 2019), and 13% (on and after April 1, 2019) on sales and/or import goods and at a rate of 6% on the services (research and development services, technology services, information technology services and/or culture and creativity services), in each case less any deductible VAT we have already paid or borne. We are also subject to surcharges on VAT payments in accordance with PRC law.

Dividends paid by our wholly foreign-owned subsidiaries in China to our intermediary holding company in Hong Kong will be subject to a withholding tax rate of 10%, unless the relevant Hong Kong entity satisfies all the requirements under the Arrangement between the PRC and the Hong Kong Special Administrative Region on the Avoidance of Double Taxation and Prevention of Fiscal Evasion with respect to Taxes on Income and Capital and other related regulations, including Circular No. 9, and receives approval from the relevant tax authority. If Hong Kong Zepp Holding Limited satisfies all the requirements under the tax arrangement and receives approval from the relevant tax authority, then the dividends paid to the Hong Kong subsidiary would be subject to withholding tax at the standard rate of 5%. Effective from November 1, 2015, the above mentioned approval requirement has been abolished, but a Hong Kong entity is still required to file application package with the relevant tax authority, and settle the overdue taxes if the preferential 5% tax rate is denied based on the subsequent review of the application package by the relevant tax authority. According to the SAT Circular No. 35, effective from January 1, 2020, a Hong Kong entity shall adopt the method of “self-discrimination, declaration of enjoyment, and retention of relevant materials for future reference,” and the above mentioned requirement of filing application package with the relevant tax authority has been abolished. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—We may rely on dividends and other distributions on equity paid by our PRC subsidiaries to fund any cash and financing requirements we may have, and any limitation on the ability of our PRC subsidiaries to make payments to us could have a material and adverse effect on our ability to conduct our business.”

If our holding company in the Cayman Islands or any of our subsidiaries outside of China were deemed to be a “resident enterprise” under the PRC Enterprise Income Tax Law, it would be subject to enterprise income tax on its worldwide income at a rate of 25%. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—If we are classified as a PRC resident enterprise for PRC income tax purposes, such classification could result in unfavorable tax consequences to us and our non-PRC shareholders or ADS holders.”

B.          Liquidity and Capital Resources

The following table sets forth the movements of our cash flows for the periods presented:

	Years Ended December 31,
	2020	2021	2022
	RMB	RMB	RMB	US$
	(in thousands)
Selected Consolidated Cash Flow Data:
Net cash provided by (used in) operating activities	157,302	(232,435)	(787,643)	(114,199)
Net cash used in investing activities	(206,880)	(1,069,289)	(42,258)	(6,127)
Net cash provided by financing activities	564,671	551,077	289,198	41,928
Net increase/(decrease) in cash and cash equivalents and restricted cash	515,093	(750,647)	(540,703)	(7,898)
Exchange rate effect on cash and cash equivalents	(43,334)	(15,564)	4,504	656
Cash, cash equivalents and restricted cash at the beginning of year	1,803,991	2,275,750	1,509,539	218,863
Cash, cash equivalents and restricted cash at end of year	2,275,750	1,509,539	973,340	141,121

As of December 31, 2020, 2021 and 2022, our cash, cash equivalents and restricted cash were RMB2,275.8 million, RMB1,509.5 million and RMB973.3 million (US$141.1 million), respectively, out of which RMB609.7 million, RMB435.2 million and RMB263.4 million (US$38.2 million) were held in U.S. dollars, and RMB1,618.7 million, RMB1,030.7 million and RMB651.8 million (US$94.5 million) were held in Renminbi, as of December 31, 2020, 2021 and 2022, respectively. Our cash, cash equivalents and restricted cash primarily consist of cash at banks and on hand. 77.6% of our cash, cash equivalents and restricted cash as of December 31, 2022 were held in China, and 63.1% of our cash, cash equivalents and restricted cash were held by the VIEs.

We believe our current cash and cash equivalents and anticipated cash flow from operations will be sufficient to meet our current and anticipated needs for general corporate purposes for at least the next 12 months. We may decide to enhance our liquidity position or increase our cash reserve for future investments through additional capital and finance funding. The issuance and sale of additional equity would result in further dilution to our shareholders. The incurrence of indebtedness would result in increased fixed obligations and could result in operating covenants that would restrict our operations.

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Although we consolidate the results of the VIEs and their subsidiaries, we only have access to the assets or earnings of the VIEs and their subsidiaries through our contractual arrangements with the consolidated variable interest entities and their shareholders. See “Item 4. Information on the Company—C. Organizational Structure.” For restrictions and limitations on liquidity and capital resources as a result of our corporate structure, see “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Holding Company Structure.”

In utilizing the proceeds we received from our initial public offering and our ADS offering in April 2019, and the other cash that we hold offshore, we may make additional capital contributions to our PRC subsidiaries, establish new PRC subsidiaries and make capital contributions to these new PRC subsidiaries, make loans to our PRC subsidiaries, or acquire offshore entities with business operations in China in offshore transactions. However, most of these uses are subject to PRC regulations and approvals. For example:

● capital contributions to our PRC subsidiaries must be approved by the Ministry of Commerce or its local counterparts; and

● loans by us to our PRC subsidiaries to finance their activities cannot exceed statutory limits and must be registered with SAFE or its local branches.

See “Item 4. Information on the Company—B. Business Overview—Regulation—Regulation on Foreign Exchange.”

A substantial portion of our future revenues are likely to continue to be in the form of Renminbi. Under existing PRC foreign exchange regulations, Renminbi may be converted into foreign exchange for current account items, including profit distributions, interest payments and trade-and service-related foreign exchange transactions.

Our PRC subsidiaries may convert Renminbi amounts that they generate in their own business activities, including technical consulting and related service fees pursuant to their contracts with the consolidated variable interest entities, as well as dividends they receive from their own subsidiaries, into foreign exchange and pay them to their non-PRC parent companies in the form of dividends. However, current PRC regulations permit our PRC subsidiaries to pay dividends to us only out of their accumulated profits, if any, determined in accordance with Chinese accounting standards and regulations. Each of our PRC subsidiaries is required to set aside at least 10% of its after-tax profits after making up previous years’ accumulated losses each year, if any, to fund certain reserve funds until the total amount set aside reaches 50% of its registered capital. These reserves are not distributable as cash dividends. Furthermore, capital account transactions, which include foreign direct investment and loans, must be registered with SAFE and its local branches. The total amount of loans we can make to our PRC subsidiaries cannot exceed statutory limits and must be registered with the local counterpart of SAFE. The statutory limit for the total amount of foreign debts of a foreign-invested company is either (i) two and half times of the net assts of such foreign-invested company, or (ii) the difference between the amount of total investment and the amount of registered capital of such foreign-invested company, as the company wishes to choose.

Operating activities

Net cash used in operating activities for the year ended December 31, 2022 was RMB787.6 million (US$114.2 million). The difference between our net loss of RMB289.0 million (US$41.9 million) and the net cash used in operating activities was primarily due to additional used in working capital, partially offset by the adjustment of non-cash items, which primarily consisted of shared-based compensation, depreciation and amortization expenses, non-cash lease expenses and provision, write off for excess and obsolete inventories. Changes in working capital for the year ended December 31, 2022 primarily consisted of RMB904.9 million (US$131.2 million) accounts payable payment settlement cash outflow, partially offset and optimize by RMB187.9 million (US$27.2 million) better inventory management cash inflow and RMB210.8 million (US$30.6 million) cash saving in prepaid expenses and other current assets due to better expense control.

Net cash used in operating activities for the year ended December 31, 2021 was RMB232.4 million. The difference between our net income of RMB137.0 million and the net cash used in operating activities was primarily due to additional used in working capital, partially offset by the adjustment of non-cash items, which primarily consisted of shared-based compensation, depreciation and amortization expenses and provision and write off for excess and obsolete inventories. Changes in working capital for the year ended December 31, 2021 primarily consisted of a decrease by RMB673.2 million in accounts payable, which was due to the lower material purchase volume in fourth quarter 2021 compared with it was in fourth quarter 2020, partially offset and optimize by a net decrease of RMB304.7 million in amount due from related parties and accounts receivable.

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Net cash provided by operating activities for the year ended December 31, 2020 was RMB157.3 million. The difference between our net income of RMB229.7 million and the net cash provided by operating activities was primarily due to additional RMB210.0 million used in working capital, partially offset by the adjustment of RMB137.6 million in non-cash items, which primarily consisted of inventory provision and write-off and share-based compensation. Changes in working capital for the year ended December 31, 2020 primarily consisted of an increase by RMB410.7 million in inventories, a decrease by RMB149.4 million in accrued expense and other current liabilities, an increase by RMB131.2 million in accounts receivable, and an increase by RMB80.0 million in prepaid expenses and other current assets, partially offset by a decrease by RMB583.5 million in amount due from related parties.

As of December 31, 2020, 2021 and 2022, we had amount due from related parties of RMB860.2 million, RMB295.6 million and RMB144.9 million (US$21.0 million), respectively, among which RMB833.2 million, RMB287.2 million and RMB118.3 million (US$17.2 million) were from Xiaomi and its affiliates, respectively. Xiaomi usually places significant product orders in the fourth quarter of each year relating to major promotional events, and this results in high inventories and account receivables from Xiaomi at the end of each year. All of the amount due from Xiaomi as of December 31, 2020, 2021 and 2022 was collected in the first quarter of 2021, 2022 and 2023, respectively.

Investing activities

Net cash used in investing activities was RMB42.3 million (US$6.1 million) for the year ended December 31, 2022, primarily due to purchase of short-term investments of RMB16.3 million (US$2.4 million), loans provided to related parties of RMB15.5 million (US$2.2 million), and purchase of long-term investments of RMB12.7 million (US$1.8 million).

Net cash used in investing activities was RMB1,069.3 million for the year ended December 31, 2021, primarily due to purchase of long-term investments of RMB1,072.8 million mainly used in acquiring equity interests in Jiangsu Yitong, and purchase of property, plant and equipment of RMB46.1 million, partially offset by disposal of long-term investments of RMB20.0 million.

Net cash used in investing activities was RMB206.9 million for the year ended December 31, 2020, primarily due to purchase of term deposits of RMB212.1 million, purchase of property, plant and equipment of RMB83.6 million, purchase of long-term investments of RMB82.2 million and acquisition of businesses and assets of RMB26.7 million, partially offset by proceeds from the maturity of term deposits of RMB207.1 million.

Financing activities

Net cash provided by financing activities for the year ended December 31, 2022 was RMB289.2 million (US$41.9 million), primarily due to proceeds from letter of credit factoring of RMB310.3 million (US$45.0 million), bank borrowings of RMB838.9 million (US$121.6 million), partially offset by the repayment of bank borrowings of RMB727.5 million (US$105.5 million).

Net cash provided by financing activities for the year ended December 31, 2021 was RMB551.1 million, primarily due to bank borrowings of RMB1,473.6 million, including an RMB540.0 million loan with a term of seven years used in acquiring equity interests in Jiangsu Yitong, partially offset by the repayment of bank borrowings of RMB953.4 million.

Net cash provided by financing activities for the year ended December 31, 2020 was RMB564.7 million, primarily due to bank borrowings of RMB1,207.8 million, partially offset by the repayment of bank borrowing of RMB643.1 million.

Capital expenditures

Our capital expenditures primarily consist of purchases of property, plant and equipment and intangible assets. Our capital expenditures were RMB84.8 million, RMB53.1 million and RMB9.9 million (US$1.4 million) in the years ended December 31, 2020, 2021 and 2022, respectively. We will continue to make capital expenditures to meet the expected growth of our business.

Material cash requirements

Our material cash requirements as of December 31, 2022 and any subsequent interim period primarily include bank borrowings and operating lease obligations.

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Bank borrowings. As of December 31, 2022, we had outstanding bank loans with terms of one to seven years for an aggregate balance of RMB1.2 billion, including RMB512.0 million short-term bank loans and RMB280.0 million long-term bank loans used for our daily operations and RMB404.2 million long-term bank loans for the Jiangsu Yitong acquisition.

Notes payable and others. As of December 31, 2022, the balance of the notes payable and others is RMB456 million, which includes RMB146 million payables for short-term bank acceptance notes and RMB310 million payable for the letter of credits factored in the bank. The short-term bank acceptance notes and the letter of credit are normally settled within three months and twelve months, respectively.

Operating lease. We have operating lease arrangements for administrative office spaces in various cities in the PRC and overseas, and financial lease that is immaterial. As of December 31, 2022, we had RMB43.7 million of payables within the next 12 months.

We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties. We do not have retained or contingent interests in assets transferred. We have not entered into contractual arrangements that support the credit, liquidity or market risk for transferred assets. We do not have obligations that arise or could arise from variable interests held in an unconsolidated entity, or obligations related to derivative instruments that are both indexed to and classified in our own equity, or not reflected in the statement of financial position.

Other than as discussed above, we did not have any significant capital and other commitments, long-term obligations or guarantees as of December 31, 2022.

Holding Company Structure

Zepp Health Corporation is a holding company with no material operations of its own. We conduct our operations in China primarily through our PRC subsidiaries, the VIEs and their subsidiaries in China. As a result, Zepp Health Corporation’s ability to pay dividends depends upon dividends paid by our PRC subsidiaries. If our existing PRC subsidiaries or any newly formed ones incur debt on their own behalf in the future, the instruments governing their debt may restrict their ability to pay dividends to us. In addition, our wholly foreign-owned subsidiaries in China are permitted to pay dividends to us only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. Under PRC law, each of our subsidiaries and the VIEs in China is required to set aside at least 10% of its after-tax profits each year, if any, to fund certain statutory reserve funds until such reserve funds reach 50% of its registered capital. In addition, each of our wholly foreign-owned subsidiaries in China may allocate a portion of its after-tax profits based on PRC accounting standards to enterprise expansion funds and staff bonus and welfare funds at its discretion, and the VIEs may allocate a portion of their after-tax profits based on PRC accounting standards to a discretionary surplus fund at its discretion. The statutory reserve funds and the discretionary funds are not distributable as cash dividends. Remittance of dividends by a wholly foreign-owned company out of China is subject to examination by the banks designated by SAFE. Our PRC subsidiaries have not paid dividends and will not be able to pay dividends until they generate accumulated profits and meet the requirements for statutory reserve funds.

The table below sets forth the respective revenues contribution and assets of Zepp and our wholly-owned subsidiaries and the VIEs as of the dates and for the periods indicated:

	Revenues(1)						Total assets(1)
	For the Year Ended December 31,						As of December 31,
	2020		2021		2022		2021		2022
Zepp and its wholly-owned subsidiaries	2.1	%	16.5	%	38.8	%	39.4	%	46.2	%
VIEs	97.9	%	83.5	%	61.2	%	60.6	%	53.8	%
Total	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%

Note:

(1)The percentages exclude the inter-company transactions and balances between our subsidiaries and the VIEs.

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C.          Research and Development, Patents and Licenses, Etc.

See “Item 4. Information On the Company—B. Business Overview—Research and Development” and “—Intellectual Property.”

D.          Trend Information

Other than as disclosed elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or events since January 1, 2022 that are reasonably likely to have a material adverse effect on our net revenues, income, profitability, liquidity or capital resources, or that caused the disclosed financial information to be not necessarily indicative of future operating results or financial conditions.

E.          Critical Accounting Estimates

We prepare our financial statements in accordance with U.S. GAAP, which requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the balance sheet dates and the reported amounts of revenues and expenses during the reporting periods. We continually evaluate these judgments and estimates based on our own historical experience, knowledge and assessment of current business and other conditions, our expectations regarding the future based on available information and assumptions that we believe to be reasonable, which together form our basis for making judgments about matters that are not readily apparent from other sources. Since the use of estimates is an integral component of the financial reporting process, our actual results could differ from those estimates. Some of our accounting policies require a higher degree of judgment than others in their application.

The selection of critical accounting policies, the judgments and other uncertainties affecting application of those policies and the sensitivity of reported results to changes in conditions and assumptions are factors that should be considered when reviewing our financial statements. We believe the following accounting policies involve the most significant judgments and estimates used in the preparation of our financial statements.

Inventories, net

Inventories consist of raw materials, finished goods and work in process. Inventories are stated at the lower of cost or net realizable value on a weighted average basis. Inventory costs include expenses that are directly or indirectly incurred in the purchase, including shipping and handling costs charged to us by suppliers, production of manufactured product for sale, such as the cost of materials and supplies used in production, direct labor costs and allocated overhead costs such as depreciation, insurance, employee benefits and indirect labor. Cost is determined using the weighted average method. We assess the valuation of inventory and periodically write down and write off the value for estimated excess and obsolete inventory based upon the product life cycle.

Inventories are written down if the estimated net realizable value is less than the recorded value. We review the carrying cost of inventories by product to determine the adequacy of reserves for obsolescence. In accounting for inventories, we must make estimates regarding the estimated realizable value of inventory. The estimate is based, in part, on the product life cycle resulting in periodically write down and write off the value for estimated excess and obsolete inventories. Significant judgement is involved to assess the valuation of the inventory which include the estimated forecasts of future sales. If actual conditions are less favorable than those we haves projected, we may need to increase our reserves for excess and obsolete inventories. Any increase in the reserves will adversely impact the results of operations

Deferred income tax

Current income taxes are provided for in accordance with the laws of the relevant tax authorities. Deferred income taxes are recognized when temporary differences exist between the tax bases of assets and liabilities and their reported amounts in the consolidated financial statements. Net operating loss carry forwards and credits are applied using enacted statutory tax rates applicable to future years. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more-likely-than-not that a portion of or all of the deferred tax assets will not be realized.

We recognize deferred tax assets to the extent that we believe that these assets are more likely than not to be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary

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differences, projected future taxable income, tax-planning strategies, and results of recent operations. If we determine that we would be able to realize our deferred tax assets in the future in excess of their net recorded amount, we would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes. Significant judgment is required in determining the valuation allowance. In assessing the need for a valuation allowance, we consider all sources of taxable income, including projected future taxable income, reversing taxable temporary differences and ongoing tax planning strategies. If it is determined that we are unable to realize a deferred tax asset, we would adjust the valuation allowance in the period in which such a determination is made, with a corresponding decrease to earnings.

We account for uncertain tax positions by reporting a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return. Tax benefits are recognized from uncertain tax positions when we believe that it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. We recognize interest and penalties, if any, related to unrecognized tax benefits in income tax expenses.

Revenue

We have determined that our contracts with our customers include multiple performance obligations that we account for separately as those are distinct from other items in the contract, which include the smart and wearable device, the software services and the software updates. Significant judgements included in revenue recognition include:

● the allocation of the transaction price to all the performance obligations based on the relative standalone selling prices; and

● variable consideration

We allocate the transaction price to all performance obligations based on their relative standalone selling prices. The standalone selling prices are determined based on the expected cost plus margin as we determined that no observable price is available for any of our performance obligation. As such, we considered multiple factors when estimating the standalone selling price, which includes consumer behaviors and our internal pricing model. The estimated selling price for the smart and wearable devices comprised the majority of the transaction. Any significant changes in those estimates would result in changes in the in allocation of revenue which could have an impact on revenue.

Additionally, revenues from product sales are recorded at the net sales price (transaction price), which includes estimate of variable consideration which result from our cooperation agreement with one major customer. The amount of variable consideration is included in the transaction price to the extent it is not constrained and that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period. Actual amounts of consideration ultimately received may differ from our estimates. If actual results in the future vary from our estimates, we will adjust these estimates, which would affect revenue and earnings in the period such variances are known.

Recent Accounting Pronouncements

For a summary of recently issued accounting pronouncements, see Note 2 to the consolidated financial statements of Zepp Health Corporation and its subsidiaries pursuant to Item 17 of Part III of this annual report.

Off-balance Sheet Arrangements

We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any unconsolidated third parties. In addition, we have not entered into any derivative contracts that are indexed to our shares and classified as shareholders’ equity or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. Moreover, we do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or product development services with us.

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ITEM 6.              DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A.           Directors and Senior Management

The following table sets forth information regarding our directors and executive officers as of the date of this annual report.

Directors and Executive Officers	Age	Position/Title
Wang Huang	47	Chairman of the Board of Directors and Chief Executive Officer
De Liu	49	Director
Yunfen Lu	57	Director
Xiaojun Zhang	51	Director
Jimmy Lai	66	Independent Director
Hongjiang Zhang	62	Independent Director
Bing Xie	55	Independent Director
Leon Cheng Deng	40	Chief Financial Officer
Mike Yan Yeung	52	Chief Operating Officer
Meihui Fan	44	Chief Technology Officer
Hui Wang	45	Vice President of Corporate Strategy and General Manager of Beijing Operations
Pengtao Yu	41	Chief Industrial Designer

Mr. Wang Huang is our founder and has served as the chairman of our board of directors and our chief executive officer since our inception. Mr. Huang is a serial entrepreneur with significant experience and expertise in the technology and Internet sectors in China. Mr. Huang founded Anhui Huami in December 2013 to develop, manufacture and sell smart wearable devices. Prior to that, Mr. Huang founded Hefei Huaheng Electronic Technology Co., Ltd., a company focused on the development of tablets and tablet-based mobile apps and provision of e-magazine network services, and led the team that rolled out China’s first tablet. In 2002, Mr. Huang founded Hefei Huakai Yuanheng Information Technology Co., Ltd., a company focused on the development of embedded Linux software and hardware. In addition, Mr. Huang has served as the director, the executive director or the general manager at several other technology companies. Mr. Huang previously was a research and development engineer at Huawei Technologies Co. Ltd., a leading global information and communications technology solutions provider, where he played an instrumental role in the development of high-speed switching and routing equipment. Mr. Huang has received many honors in the business world as well. To name a few, he was awarded “Anhui Economic Person of the Year 2015,” “ Leading Talents of Strategic Emerging Industry Technology in Anhui” and “Hefei Youth Entrepreneurship.” Mr. Huang received his bachelor’s degree in applied physics from the University of Science and Technology of China in 1997. Mr. Huang is appointed as a director to our board by HHtech Holdings Limited, Haiyu Holding Limited, Fandler Holding Limited, Forest Mountain Holding Limited, Wenshui Holding Limited and Shu Hill Holdings, which we collectively refer to as the Co-Founder Entities in this annual report. Pursuant to the Memorandum and Articles, the Co-Founders Entities will be entitled to appoint three directors so long as they continue to beneficially own no less than 60% of the shares they beneficially owned as of January 12, 2018.

Mr. De Liu has served as our director since April 2015. Mr. Liu is one of the co-founders and a senior vice president of Xiaomi, a mobile Internet company, where he is responsible for the organization department. Mr. Liu is a leading figure in industrial design in China and has received numerous industrial design awards together with his team, including 5 Red Dot Design Awards (Germany), 18 iF Design Awards (Germany) and 10 Red Star Design Awards (Mainland, China). Mr. Liu also holds various positions, including the vice-chairman of China Industrial Design Association and a member of National Manufacturing Strategy Advisory Committee. He also serves as a director of Viomi Technology Co., Ltd., a Nasdaq-listed company. Mr. Liu has received many honors in the business world as well. To name a few, he was awarded “Zhongguancun Top Talent” in 2015 and “Beijing Top Innovative and Entrepreneurial Leading Talent” in 2016. Mr. Liu received his bachelor’s degree in industrial design and master’s degree in mechanical design and theory from Beijing Institute of Technology in 1996 and 2001, respectively, and his master’s degree in industrial design from the Art Center College of Design in 2010. Mr. Liu is appointed as a director to our board by People Better Limited. Pursuant to the currently effective memorandum and articles of association, People Better Limited will be entitled to appoint one director so long as it continues to beneficially own no less than 10% of the issued and outstanding shares of our company.

Ms. Yunfen Lu has served as our director since April 2015. Ms. Lu also serves as the director of Beijing Huami, Huami (Shenzhen) Information Technology Co., Ltd., Beijing Huami Intelligent Technology Co., Ltd., Hong Kong Zepp Holding Limited,

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Shenzhen Yunding Information Technology Co., Ltd., Jiangsu Yitong High-tech Co., Ltd. (Shenzhen: 300211) and Hefei Zhongan Huami Investment Management Co., Ltd. Ms. Lu served as the financial controller of Hefei Huaheng Electronic Technology Co., Ltd. From November 2002 to March 2009, Ms. Lu worked at Hefei Huakai Yuanheng Information Technology Co., Ltd, where she was responsible for overseeing financial accounting, procurement, administrative affairs and manufacturing management. Ms. Lu received her secondary vocational degree in accounting from Shanghai Lixin Vocational School of Accounting (now Shanghai Lixin University of Accounting and Finance) in 1986. Ms. Lu is appointed as a director to our board by the Co-Founder Entities. Pursuant to the Memorandum and Articles, the Co-Founders Entities will be entitled to appoint three directors so long as they continue to beneficially own no less than 60% of the shares they beneficially owned as of January 12, 2018.

Mr. Xiaojun Zhang has served as our director since April 2015. In addition to this role, Mr. Zhang has also served as vice president of Anhui Huami since January 2014, where he is responsible for overseeing human resources. Prior to joining us, Mr. Zhang served as the vice president of Hefei Huaheng Electronic Technology Co., Ltd from October 2011 to December 2013. From September 2010 to October 2011, Mr. Zhang served as deputy general manager of Anhui Mei Bang Investment Management Co., Ltd. From July 2009 to September 2010, Mr. Zhang served as head of the human resources and administrative affairs department at the Anhui branch of Sunshine Insurance Group Corporation Limited. Prior to that, Mr. Zhang worked at the Immigration Office of Anhui Provincial Public Security Department, where he held multiple positions including clerk, deputy chief officer and chief officer, from July 1994 to July 2009. Mr. Zhang received his bachelor’s degree in Chinese language and literature from Anhui University in 1994. Mr. Zhang is appointed as a director to our board by the Co-Founder Entities. Pursuant to the Memorandum and Articles, the Co-Founders Entities will be entitled to appoint three directors so long as they continue to beneficially own no less than 60% of the shares they beneficially owned as of January 12, 2018.

Mr. Jimmy Lai has served as our director since February 2018. In addition to this role, Mr. Lai also serves as chief financial officer of a biotechnology company, Acepodia, Inc., since March 2021. Mr. Lai has served as the chief financial officer of China Online Education Group, an NYSE-listed company and an online English language education services provider in China, from June 2015 to December 2018. In addition to his role at China Online Education, Mr. Lai serves as an independent director on the board of directors of PPDAI Group Inc., an NYSE-listed company and an online consumer finance provider in China. Prior to joining China Online Education Group, Mr. Lai served as the chief financial officer of Chukong Technologies Corp., a mobile entertainment platform company in China, from 2013 to 2015. Mr. Lai served as the chief financial officer of Gamewave Corporation, a webgame company in China, from 2011 to 2013. Prior to that, Mr. Lai served as the chief financial officer of Daqo New Energy Corp., an NYSE-listed company and a polysilicon manufacturer based in China, from 2009 to 2011. From 2008 to 2009, Mr. Lai served as the chief financial officer of Linktone Ltd., a Nasdaq-listed company and a provider of wireless interactive entertainment services to consumers in China. From 2006 to 2008, Mr. Lai was the chief financial officer of Palm Commerce Holdings, an information technology solution provider for the China lottery industry. Prior to that, he served as an associate vice president of investor relations at Semiconductor Manufacturing International Corporation, a company listed on the NYSE and the Hong Kong Stock Exchange, from 2002 to 2006, and as a controller and director of financial planning at AMX Corporation from 1997 to 2001. Mr. Lai received his bachelor’s degree in statistics from the National Cheng Kung University in Taiwan and his MBA from the University of Texas in Dallas. Mr. Lai is a certified public accountant licensed in the State of Texas.

Dr. Hongjiang Zhang has served as our director since February 2018. Currently, Dr. Zhang is a venture partner at Source Code Capital, a senior advisor of Carlyle Group. He currently also serves as the non-executive chairman of AAC Technologies Holdings Inc. (HKEX: 2018) and an independent non-executive director of XPeng Inc. (HKEX: 9968; NYSE: XPEV). Previously, Mr. Zhang was an independent director of Digital China Group Co., Ltd. (Shenzhen: 000034) and an independent non-executive director of BabyTree Group (HKEX: 1761). From October 2011 to November 2016, Dr. Zhang served as an executive director and the chief executive officer of Kingsoft Corporation Limited, a Chinese software and internet services company listed on the Hong Kong Stock Exchange. Dr. Zhang also served as a director and the chief executive officer of Kingsoft Cloud, a subsidiary of Kingsoft Corporation Limited, from January 2012 to December 2016. In addition, during his service to Kingsoft, he also served as a director at various public companies listed in the United States, including Cheetah Mobile Inc., Xunlei Limited and 21 Vianet Group, Inc., all listed in the United States. Prior to joining Kingsoft, Dr. Zhang was the chief technology officer for Microsoft Asia-Pacific Research and Development Group from January 2006 to October 2011, the managing director of the Microsoft Advanced Technology Center from January 2004 to October 2011, and the assistant managing director of Microsoft Research Asia from April 1999 to December 2003. Dr. Zhang received his bachelor’s degree in electrical engineering from Zhengzhou University in 1982 and Ph.D. in electrical engineering from the Technical University of Denmark in 1991.

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Mr. Bing Xie has served as our director since November 2020. Prior to that, Mr. Xie was senior vice president and executive officer of Texas Instrument from 2013 to 2020, leading the worldwide sales and applications teams. Mr. Xie started his career at Hewlett-Packard, and later joined Bay Networks and 3Com. He has lived and worked in China, Italy, America and Canada. Mr. Xie holds a bachelor of science degree in electronics engineering from Xidian University, and an MBA from Clemson University.

Mr. Leon Cheng Deng has served as our chief financial officer since October 2020. Mr. Deng has extensive experience in accounting, financial management, manufacturing, and international business with Royal Philips. He was the head of finance in Philips’ business group of domestic appliances from July 2019 to October 2020 and the head of finance in the business group of personal care from September 2018 to July 2019. Prior to that, Mr. Deng was the head of corporate finance and financial risks in Philips’ treasury group. Mr. Deng also played a critical leadership role in the divestiture of Philips’ TV and Audio divisions, the Philips Lighting separation, and a series of acquisitions in the past. Mr. Deng holds a CPA certificate in Australia, and a Chartered Global Management Accountant certification from CIMA. He earned a Bachelor of Finance degree from Shanghai International Studies University, and a Master of International Finance degree from the University of Amsterdam.

Mr. Mike Yan Yeung has served as our chief operating officer since January 2015. Prior to joining us, Mr. Yeung served as a vice president of Shunwei Capital, a China-based venture capital firm, where he was a key member of an investment team with a focus on mobile Internet applications, smart home technologies, smart wearables, IoT and online health care, and served as a board member of several portfolio companies. From 2012 to 2014, Mr. Yeung served as the principal group program manager of Microsoft, where he was responsible for managing the software development of Microsoft’s key digital advertising products and defining and implementing the Microsoft online ads platform strategy in China. Prior to that Mr. Yeung held several positions in Monster.com, TGC Inc., China.com Corp., Netscape Communications Corporation and Oracle Corporation from 1992 to 2012. Mr. Yeung received his bachelor’s degree and master’s degree in computer science from the University of California, Berkeley in 1992 and Stanford University in 1994, respectively.

Mr. Meihui Fan has gained extensive experience in the information technology industry. Prior to being appointed as our chief technology officer, he served as the President of Global Innovation Center and worked in other roles in our company from January 2014 to July 2021. He was in charge of all software related technical architecture and management of the entire research and development team. Prior to joining our company, Mr. Fan served as the technical director at Hefei Huaheng Electronic Technology Co., Ltd. from May 2009 to December 2013. From July 2004 to April 2009, Mr. Fan worked as the embedded system software development engineer, senior engineer and chief engineer in Hefei Huakaiyuanheng Information Technology Co., Ltd. Mr. Fan obtained a Bachelor’s Degree with a Double Major in Molecular Biology & Cell Biology and Signal & Information Systems at the University of Science and Technology of China.

Dr. Hui Wang has served as our vice president of corporate strategy group and general manager of Beijing operations since August 2014. Prior to joining us, Dr. Wang worked at Lenovo Group Ltd. from 2007 to 2014, first as a researcher and later as its chief product director. Prior to joining Lenovo, Dr. Wang worked at NEC Labs China from 2005 to 2007. Dr. Wang received his bachelor’s degree in electronic and information engineering and Ph.D. in communication and information system from the University of Science and Technology of China in 2000 and 2005, respectively.

Mr. Pengtao Yu has served as our chief industrial designer since October 2014. Prior to joining us, Mr. Yu worked at Moov Inc., a smart wearable device start-up company, as an industrial design consultant from June to October 2014 and played an instrumental role in designing and developing Moov’s fitness tracker. Prior to that, Mr. Yu was an industrial designer at Bould Design from October 2012 to June 2014, where his responsibilities included developing and designing consumer electronic products, such as thermostat and smoke alarm, for various Silicon Valley companies. From February 2012 to August 2012, Mr. Yu was an industrial design consultant of Harman International, where he worked closely with the marketing team in developing a new generation of earphones. Mr. Yu has received many awards in recognition of his industrial design accomplishments. He is a four-time Bronze winner of the International Design Excellence Award, and a three-time winner of the iF Design Award (Germany). He also received the Red Dot Design Award (Germany) in 2011 and 2016. Mr. Yu received his bachelor’s degree in engineering from Beijing Institute of Technology in 2003, and his bachelor’s degree in product design and master’s degree in industrial design from the Art Center College of Design in 2008 and 2011, respectively.

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Employment Agreements and Indemnification Agreements

We have entered into employment agreements with each of our executive officers. Under these agreements, each of our executive officers is employed for a specified time period. We may terminate employment for cause, at any time, without advance notice or remuneration, for certain acts of the executive officer, such as conviction or plea of guilty to a felony or any crime involving moral turpitude, negligent or dishonest acts to our detriment, or misconduct or a failure to perform agreed duties. We may also terminate an executive officer’s employment without cause upon three-month advance written notice. In such case of termination by us, we will provide severance payments to the executive officer as expressly required by applicable law of the jurisdiction where the executive officer is based. The executive officer may resign at any time with a three-month advance written notice.

Each executive officer has agreed to hold, both during and after the termination or expiry of his or her employment agreement, in strict confidence and not to use, except as required in the performance of his or her duties in connection with the employment or pursuant to applicable law, any of our confidential information or trade secrets, any confidential information or trade secrets of our clients or prospective clients, or the confidential or proprietary information of any third party received by us and for which we have confidential obligations. The executive officers have also agreed to disclose in confidence to us all inventions, designs and trade secrets which they conceive, develop or reduce to practice during the executive officer’s employment with us and to assign all right, title and interest in them to us, and assist us in obtaining and enforcing patents, copyrights and other legal rights for these inventions, designs and trade secrets.

In addition, each executive officer has agreed to be bound by non-solicitation restrictions during the term of his or her employment and typically for one year following the last date of employment. Specifically, each executive officer has agreed not to (i) approach our suppliers, clients, customers or contacts or other persons or entities introduced to the executive officer in his or her capacity as a representative of us for the purpose of doing business with such persons or entities that will harm our business relationships with these persons or entities; or (ii) seek directly or indirectly, to solicit the services of any of our employees who is employed by us on or after the date of the executive officer’s termination, or in the year preceding such termination, without our express consent.

We have also entered into indemnification agreements with each of our directors and executive officers. Under these agreements, we agree to indemnify our directors and executive officers against certain liabilities and expenses incurred by such persons in connection with claims made by reason of their being a director or officer of our company.

B.           Compensation

For the fiscal year ended December 31, 2022, we paid an aggregate of approximately RMB17.9 million (US$2.6 million) in cash to our executive officers and RMB2.0 million (US$0.3 million) to our non-executive directors. We have not set aside or accrued any amount to provide pension, retirement or other similar benefits to our directors and executive officers. Our PRC subsidiaries and VIEs are required by law to make contributions equal to certain percentages of each employee’s salary for his or her pension insurance, medical insurance, unemployment insurance and other statutory benefits and a housing provident fund.

2015 Share Incentive Plan

In October 2015, our shareholders and board of directors approved the 2015 Share Incentive Plan, which we refer to as the 2015 Plan in this annual report, to attract and retain the best available personnel, provide additional incentives to employees, directors and consultants, and promote the success of our business. The 2015 Plan consists of a share incentive plan for U.S. service providers and a share incentive plan for PRC service providers. The maximum aggregate number of Class A ordinary shares that may be issued pursuant to all awards under the 2015 Plan is 14,328,358 Class A ordinary shares. As of March 31, 2023, awards to purchase 13,536,737 Class A ordinary shares have been granted and are outstanding under the 2015 Plan, excluding awards that were forfeited or cancelled after the relevant grant dates. Grantees of our share incentive awards under the 2015 Plan resident in China were not permitted to exercise their options prior to the completion of our initial public offering.

The following paragraphs describe the principal terms of the 2015 Plan.

Types of Awards. The 2015 Plan permits the awards of options, restricted shares and restricted share units.

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Plan Administration. Our board of directors or a committee of one or more members of the board of directors will administer the 2015 Plan. The committee or the full board of directors, as applicable, will determine the participants to receive awards, the type and number of awards to be granted to each participant, and the terms and conditions of each award grant.

Award Agreement. Awards granted under the 2015 Plan are evidenced by an award agreement that sets forth the terms, conditions and limitations for each award, which may include the term of the award, the provisions applicable in the event that the grantee’s employment or service terminates, and our authority to unilaterally or bilaterally amend, modify, suspend, cancel or rescind the award.

Eligibility. We may grant awards to our employees, consultants and directors.

Vesting Schedule. In general, the plan administrator determines the vesting schedule, which is specified in the relevant award agreement.

Exercise of Options. The plan administrator determines the exercise price for each award, which is stated in the relevant award agreement. Options that are vested and exercisable will terminate if they are not exercised prior to the time as the plan administrator determines at the time of grant. However, the maximum exercisable term is ten years from the date of grant. Grantees resident in China are not legally allowed to exercise their options prior to the completion of our initial public offering.

Transfer Restrictions. Awards may not be transferred in any manner by the participant other than in accordance with the exceptions provided in the 2015 Plan or the relevant award agreement or otherwise determined by the plan administrator, such as transfers by will or the laws of descent and distribution.

Termination and Amendment of the 2015 Plan. Unless terminated earlier, the 2015 Plan has a term of ten years. With the approval of our board of directors, the plan administrator has the authority to terminate, amend or modify the 2015 Plan, provided that shareholder approval is obtained in certain circumstances set forth in the relevant award agreement. However, without the prior written consent of the participant, no such action may adversely affect in any material way any award previously granted pursuant to the 2015 Plan.

2018 Share Incentive Plan

In January 2018, our shareholders and board of directors adopted the 2018 Share Incentive Plan, which we refer to as the 2018 Plan in this annual report, to attract and retain the best available personnel, provide additional incentives to employees, directors and consultants, and promote the success of our business. The maximum aggregate number of shares which may be issued initially pursuant to all awards under the 2018 Plan is 9,559,607 ordinary shares. The number of shares reserved for future issuances under the 2018 Plan will be increased by (i) a number equal to 1.0% of the total number of outstanding shares immediately after our initial public offering, or (ii) such number of shares as may be determined by our board of directors, on the first day of each calendar year during the term of the 2018 Plan beginning in 2018. The number of Class A ordinary shares available for future issuance upon the exercise of future grants under the 2018 Share Incentive Plan was 21,509,115 as of January 1, 2023. As of March 31, 2023, awards to purchase 20,966,518 Class A ordinary shares under the 2018 Plan have been granted and outstanding, excluding awards that were forfeited or cancelled after the relevant grant dates.

The following paragraphs describe the principal terms of the 2018 Plan.

Types of Awards. The 2018 Plan permits the awards of options, restricted shares, restricted share units, or any other type of awards that the committee decides.

Plan Administration. Our board of directors or a committee of one or more members of the board of directors will administer the 2018 Plan. The committee or the full board of directors, as applicable, will determine the participants to receive awards, the type and number of awards to be granted to each participant, and the terms and conditions of each award grant.

Award Agreement. Awards granted under the 2018 Plan are evidenced by an award agreement that sets forth terms, conditions and limitations for each award, which may include the term of the award, the provisions applicable in the event of the grantee’s employment or service terminates, and our authority to unilaterally or bilaterally amend, modify, suspend, cancel or rescind the award.

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Eligibility. We may grant awards to our employees, directors and consultants of our company. However, we may grant options that are intended to qualify as incentive share options only to our employees and employees of our parent companies and subsidiaries.

Vesting Schedule. In general, the plan administrator determines the vesting schedule, which is specified in the relevant award agreement.

Exercise of Options. The plan administrator determines the exercise price for each award, which is stated in the award agreement. The vested portion of option will expire if not exercised prior to the time as the plan administrator determines at the time of its grant. However, the maximum exercisable term is ten years from the date of a grant. Grantees resident in China are not legally allowed to exercise their options prior to the completion of our initial public offering.

Transfer Restrictions. Awards may not be transferred in any manner by the recipient other than by will or the laws of descent and distribution, except as otherwise provided by the plan administrator.

Termination and Amendment of the 2018 Plan. Unless terminated earlier, the 2018 Plan has a term of seven years. Our board of directors has the authority to amend or terminate the plan. However, no such action may adversely affect in any material way any awards previously granted unless agreed by the recipient.

2023 Share Incentive Plan

In January 2023, our board of directors approved the 2023 Share Incentive Plan, which we refer to as the 2023 Plan in this annual report, to attract and retain the best available personnel, provide additional incentives to employees, directors and consultants, and promote the success of our business. The maximum aggregate number of Class A ordinary shares which may be issued initially pursuant to all awards under the 2023 Plan is 10,322,520 Class A ordinary shares. As of March 31, 2023, awards to purchase 4,255,544 Class A ordinary shares under the 2023 Plan have been granted and outstanding, excluding awards that were forfeited or cancelled after the relevant grant dates.

The following paragraphs describe the principal terms of the 2023 Plan.

Types of Awards. The 2023 Plan permits the awards of options, restricted shares and restricted share units.

Plan Administration. Our board of directors or a committee of one or more members of the board of directors will administer the 2023 Plan. The committee or the full board of directors, as applicable, will determine the participants to receive awards, the type and number of awards to be granted to each participant, and the terms and conditions of each award grant.

Award Agreement. Awards granted under the 2023 Plan are evidenced by an award agreement that sets forth the terms, conditions and limitations for each award, which may include the term of the award, the provisions applicable in the event the grantee’s employment or service terminates, and our authority to unilaterally or bilaterally amend, modify, suspend, cancel or rescind the award.

Eligibility. We may grant awards to our employees, directors and consultants of our company.

Vesting Schedule. In general, the plan administrator determines the vesting schedule, which is specified in the relevant award agreement.

Exercise of Options. The plan administrator determines the exercise price for each award, which is stated in the award agreement. The vested portion of option will expire if not exercised prior to the time as the plan administrator determines at the time of its grant. However, the maximum exercisable term is ten years from the date of a grant.

Transfer Restrictions. Awards may not be transferred in any manner by the participant other than in accordance with the exceptions provided in the 2023 Plan or the relevant award agreement or otherwise determined by the plan administrator, such as transfers by will or the laws of descent and distribution.

Termination and Amendment of the 2023 Plan. Unless terminated earlier, the 2023 Plan has a term of ten years. With the approval of our board of directors, the plan administrator has the authority to terminate, amend or modify the 2023 Plan, provided that shareholder approval is obtained in certain circumstances set forth in the relevant award agreement. However, without the prior written

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consent of the participant, no such action may adversely affect in any material way any award previously granted pursuant to the 2023 Plan.

The following table summarizes, as of March 31, 2023, the awards granted under our 2015 Plan, 2018 Plan and 2023 Plan to several of our executive officers, excluding awards that were forfeited or cancelled after the relevant grant dates:

	Ordinary Shares Underlying
	Options and
	Restricted Shares	Exercise Price
Name	Units	(US$/Share)	Date of Grant	Date of Expiration
Mike Yan Yeung	*(1)	—	March 3, 2015	—
	*	0.79	March 3, 2015	February 28, 2019
	*(1)	—	August 18, 2020	—
	*(1)	—	January 3, 2023	—
Leon Cheng Deng	*(1)	—	August 31, 2020	—
	*(1)	—	January 3, 2023	—
Hui Wang	*	—	August 20, 2014	August 20, 2024
	*	—	August 18, 2020	August 18, 2030
	*	—	January 3, 2023	January 3, 2033
Pengtao Yu	*(1)	—	March 3, 2015	—
	*(1)	—	August 18, 2020	—
	*(1)	—	January 3, 2023	—
Yunfen Lu	*	—	August 18, 2020	August 18, 2030
	*	—	January 3, 2023	January 3, 2033
Xiaojun Zhang	*	—	August 18, 2020	August 18, 2030
	*	—	January 3, 2023	January 3, 2033
Meihui Fan	*	—	May 13, 2021	May 6, 2031
	*	—	January 3, 2023	January 3, 2033
Total	11,434,700

Notes:

* Less than one percent of our total outstanding shares.

(1) Restricted share units

As of March 31, 2023, other employees as a group held outstanding options to purchase 14,495,279 Class A ordinary shares of our company, at a weighted average exercise price of US$0.04 per share, 4,225,417 restricted shares, and 7,334,938 restricted share units.

C.           Board Practices

Our board of directors consists of seven directors. A director is not required to hold any shares in our company to qualify to serve as a director. A director may vote with respect to any contract, proposed contract or arrangement in which he is materially interested provided (a) such director, if his interest in such contract or arrangement is material, has declared the nature of his interest at the earliest meeting of the board at which it is practicable for him to do so, either specifically or by way of a general notice, (b) such director has not been disqualified by the chairman of the relevant board meeting, and (c) if such contract or arrangement is a transaction with a related party, such transaction has been approved by the audit committee in accordance with the rules of the New York Stock Exchange. The directors may exercise all the powers of the company to borrow money, mortgage its undertaking, property and uncalled capital, and issue debentures or other securities whenever money is borrowed or as security for any obligation of the company or of any third party. None of our non-executive directors has a service contract with us that provides for benefits upon termination of service.

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Committees of the Board of Directors

We have established three committees under the board of directors: an audit committee, a compensation committee and a nominating and corporate governance committee. We have adopted a charter for each of the three committees. Each committee’s members and functions are described below.

Audit Committee. Our audit committee consists of Mr. Jimmy Lai, Dr. Hongjiang Zhang and Mr. Bing Xie. Mr. Lai is the chairman of our audit committee. We have determined that Mr. Jimmy Lai, Dr. Hongjiang Zhang, and Mr. Bing Xie satisfy the “independence” requirements of Section 303A of the Corporate Governance Rules of the New York Stock Exchange and Rule 10A3 under the Exchange Act. We have determined that Mr. Lai qualifies as an “audit committee financial expert.” The audit committee oversees our accounting and financial reporting processes and the audits of the financial statements of our company. The audit committee is responsible for, among other things:

● appointing the independent auditors and pre-approving all auditing and non-auditing services permitted to be performed by the independent auditors;

● reviewing with the independent auditors any audit problems or difficulties and management’s response;

● discussing the annual audited financial statements with management and the independent auditors;

● reviewing the adequacy and effectiveness of our accounting and internal control policies and procedures and any steps taken to monitor and control major financial risk exposures;

● reviewing and approving all proposed related party transactions;

● meeting separately and periodically with management and the independent auditors; and

● monitoring compliance with our code of business conduct and ethics, including reviewing the adequacy and effectiveness of our procedures to ensure proper compliance.

Compensation Committee. Our compensation committee consists of Mr. Wang Huang, Mr. Jimmy Lai, Dr. Hongjiang Zhang and Mr. Bing Xie. Dr. Zhang is the chairman of our compensation committee. We have determined that Mr. Jimmy Lai, Dr. Hongjiang Zhang, and Mr. Bing Xie satisfy the “independence” requirements of Section 303A of the Corporate Governance Rules of the New York Stock Exchange. The compensation committee assists the board in reviewing and approving the compensation structure, including all forms of compensation, relating to our directors and executive officers. Our chief executive officer may not be present at any committee meeting during which his compensation is deliberated. The compensation committee is responsible for, among other things:

● reviewing and approving, or recommending to the board for its approval, the compensation for our chief executive officer and other executive officers;

● reviewing and recommending to the board for determination with respect to the compensation of our non-employee directors;

● reviewing periodically and approving any incentive compensation or equity plans, programs or similar arrangements; and

● selecting compensation consultant, legal counsel or other adviser only after taking into consideration all factors relevant to that person’s independence from management.

Nominating and Corporate Governance Committee. Our nominating and corporate governance committee consists of Mr. Wang Huang, Mr. Jimmy Lai, Dr. Hongjiang Zhang and Mr. Bing Xie. Mr. Huang is the chairperson of our nominating and corporate governance committee. Mr. Jimmy Lai, Dr. Hongjiang Zhang, and Mr. Bing Xie satisfy the “independence” requirements of Section 303A of the Corporate Governance Rules of the New York Stock Exchange. The nominating and corporate governance

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committee assists the board of directors in selecting individuals qualified to become our directors and in determining the composition of the board and its committees. The nominating and corporate governance committee is responsible for, among other things:

● selecting and recommending to the board nominees for election by the shareholders or appointment by the board;

● reviewing annually with the board the current composition of the board with regards to characteristics such as independence, knowledge, skills, experience and diversity;

● making recommendations on the frequency and structure of board meetings and monitoring the functioning of the committees of the board; and

● advising the board periodically with regards to significant developments in the law and practice of corporate governance as well as our compliance with applicable laws and regulations, and making recommendations to the board on all matters of corporate governance and on any remedial action to be taken.

Duties of Directors

Under Cayman Islands law, our directors owe fiduciary duties to our company, including a duty of loyalty, a duty to act honestly, and a duty to act in what they consider in good faith to be in our best interests. Our directors must also exercise their powers only for a proper purpose. Our directors also have a duty to exercise the skills they actually possess and such care and diligence that a reasonably prudent person would exercise in comparable circumstances. In fulfilling their duty of care to us, our directors must ensure compliance with our Memorandum and Articles, as amended and restated from time to time, and the class rights vested thereunder in the holders of the shares. In certain limited exceptional circumstances, a shareholder may have the right to seek damages in our name if a duty owed by our directors is breached.

Our board of directors has all the powers necessary for managing, and for directing and supervising, our business affairs. The functions and powers of our board of directors include, among others:

● convening shareholders’ annual general meetings and reporting its work to shareholders at such meetings;

● declaring dividends and distributions;

● appointing officers and determining the term of office of the officers;

● exercising the borrowing powers of our company and mortgaging the property of our company; and

● approving the transfer of shares in our company, including the registration of such shares in our share register.

Terms of Directors and Officers

Our officers are elected by and serve at the discretion of the board of directors. Our directors are not subject to a term of office, unless such term is expressly specified in a written agreement between the company and the director or otherwise, and hold office until such time as they are removed from office by ordinary resolution of the shareholders or by the board. A director will be removed from office automatically if, among other things, the director (i) becomes bankrupt or makes any arrangement or composition with his creditors; or (ii) dies or is found by our company to be or becomes of unsound mind.

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D.           Employees

We had 1,507, 1,227 and 987 employees as of December 31, 2020, 2021 and 2022, respectively. The following table sets forth the numbers of our employees categorized by function as of December 31, 2022:

	As of
	December 31,
	2022
Function:
Research and development	564
Selling and marketing	220
Administrative	143
Supply chain management	60
Total	987

As of December 31, 2022, we had 369 employees in Shenzhen, 275 employees in Hefei, 142 employees in Beijing, 83 employees in Nanjing, 25 employees in other cities in mainland China, 47 employees in North America, 39 employees in Europe, 7 employees in other countries in Asia.

We believe we offer our employees competitive compensation packages and a merit-based work environment that encourages initiative, and as a result, we have generally been able to attract and retain qualified personnel and maintain a stable core management team.

As required by PRC regulations, we participate in various government statutory employee benefit plans, including social insurance funds, namely a pension contribution plan, a medical insurance plan, an unemployment insurance plan, a work-related injury insurance plan and a maternity insurance plan, and a housing provident fund. We are required under PRC law to make contributions to employee benefit plans at specified percentages of the salaries, bonuses and certain allowances of our employees, up to a maximum amount specified by the local government from time to time. We may be required to make up the contributions for these plans as well as to pay late fees and fines but have made adequate provisions. See “Item 4. Information on the Company—B. Business Overview—Regulation— Regulation on Employment.” In addition, as we have employees based in Europe, North America, and other countries in Asia, we are also subject to all applicable labor laws and regulations of those countries.

We enter into standard labor agreements with our employees and, in addition, enter into confidentiality and non-compete agreements with our key employees. The non-compete restricted period typically expires two years after the termination of employment, and we agree to compensate the employee with a certain percentage of his or her pre-departure salary during the restricted period.

We believe that we maintain a good working relationship with our employees, and we have not experienced any major labor disputes.

E.           Share Ownership

The following table sets forth information with respect to the beneficial ownership of our ordinary shares as of February 28, 2023 by:

● each of our directors and executive officers; and

● each person known to us to own beneficially 5% or more of our total outstanding shares.

The calculations in the table below are based on 126,944,152 Class A ordinary shares (excluding the 5,548,888 Class A ordinary shares issued to the depositary bank for bulk issuance of ADSs reserved for future issuances upon the exercise or vesting of awards granted under the 2015 Share Incentive Plan, the 2018 Share Incentive Plan and the 2023 Share Incentive Plan and the 14,130,092 treasury shares in the form of ADSs that we repurchased under our share repurchase program) and 117,208,247 Class B ordinary shares outstanding as of February 28, 2023.

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Beneficial ownership is determined in accordance with the rules and regulations of the SEC. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, we have included shares that the person has the right to acquire within 60 days, including through the exercise of any option, warrant or other right or the conversion of any other security. These shares, however, are not included in the computation of the percentage ownership of any other person.

	Ordinary Shares
	Beneficially Owned
						Percentage
				Percentage		of
	Class A	Class B	Total	of total		aggregate
	ordinary	ordinary	ordinary	ordinary		voting
	shares	shares	shares	shares		power†
Directors and Executive Officers:**
Wang Huang(1)	6,860,076	81,347,127	88,207,203	36.0	%	63.1	%
De Liu	—	—	—	—		—
Yunfen Lu(2)	*	3,450,746	3,770,746	1.5	%	2.7	%
Xiaojun Zhang(3)	*	2,107,463	2,467,463	1.0	%	1.6	%
Jimmy Lai(4)	*	—	*	*		*
Hongjiang Zhang	—	—	—	—		—
Bing Xie	—	—	—	—		—
Leon Cheng Deng(5)	*	—	*	*		*
Mike Yan Yeung(6)	*	—	*	*		*
Meihui Fan(7)	*	3,450,746	4,130,746	1.7	%	2.7	%
Hui Wang(8)	*	—	*	*		*
Pengtao Yu(9)	*	—	*	*		*
All Directors and Executive Officers as a Group	13,340,476	81,347,127	94,687,603	38.6	%	63.6	%
Principal Shareholders:
HHtech Holdings Limited(1)	6,800,000	81,347,127	88,147,127	36.1	%	63.1	%
People Better Limited(10)	—	35,861,112	35,861,112	14.7	%	27.6	%
Allspring Entities(11)	20,536,840	—	20,536,840	8.4	%	1.6	%
Shunwei High Tech Limited(12)	16,598,560	—	16,598,560	6.8	%	1.3	%
FIL Limited(13)	13,084,692	—	13,084,692	5.4	%	1.0	%

Notes:

†     For each person and group included in this column, percentage of voting power is calculated by dividing the voting power beneficially owned by such person or group by the voting power of all of our Class A and Class B ordinary shares as a single class. Each holder of Class A ordinary shares is entitled to one vote per share and each holder of our Class B ordinary shares is entitled to ten votes per share on all matters submitted to them for a vote. Our Class A ordinary shares and Class B ordinary shares vote together as a single class on all matters submitted to a vote of our shareholders, except as may otherwise be required by law. Our Class B ordinary shares are convertible at any time by the holder thereof into Class A ordinary shares on a one-for-one basis.

*     Less than 1% of our total outstanding ordinary shares and aggregate voting power.

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**   Each of Mr. Wang Huang, Yunfen Lu, Xiaojun Zhang, Leon Cheng Deng, Mike Yan Yeung, Meihui Fan and Hui Wang’s business address is Huami Global Innovation Center, Building B2, Zhong’an Chuanggu Technology Park, No. 900 Wangjiang West Road Road, Hefei, 230088, People’s Republic of China. Pengtao Yu’s business address is 10050 North Wolfe Road, Cupertino, California 95104. Mr. De Liu’s business address is Keliyuan Building, No.72 Anningzhuang East Road, Haidian District, Beijing, 100085, People’s Republic of China. Mr. Jimmy Lai’s business address is 4521 Turnberry Ct, Plano, Texas, 75024, USA. Dr. Hongjiang Zhang’s business address is 627 Jurong West St 65, #14-380, Singapore 640627. Bing Xie’s business address is 10005 Meadowbrook Drive, Dallas, Texas, U.S. 75229.

(1) Represents (i) 60,076 Class A ordinary shares in the form of ADSs held by Mr. Wang Huang; (ii) 3,800,000 Class A ordinary shares in the form of ADSs and 65,836,680 Class B ordinary shares held by HHtech Holdings Limited, a British Virgin Islands company; and (iii) 3,000,000 Class A ordinary shares (including 400,000 Class A ordinary shares in the form of ADSs) and 15,510,447 Class B ordinary shares beneficially owned by HHtech Holdings Limited as a result of the voting agreement dated January 12, 2018 by and among HHtech Holdings Limited, Fandler Holding Limited, Forest Mountain Holding Limited, Haiyu Holding Limited, Shu Hill Holding Limited and Wenshui Holding Limited. HHtech Holdings Limited is wholly owned by Wayne Holding Limited, which in turn is wholly owned by a trust established for the benefit of Mr. Wang Huang and his family members. Mr. Huang is the sole director of HHtech Holdings Limited, and also the settlor and investment decision maker of the abovementioned trust. Therefore, Mr. Huang is entitled to exercise voting and dispositive power over the shares held by HHtech Holdings Limited. The registered address of HHtech Holdings Limited is at Vistra Corporate Services Centre, Wickhams Cay II, Road Town, Tortola, VG1110, British Virgin Islands.

(2) Represents (i) the Class A ordinary shares held by Ms. Yunfen Lu; and (ii) 3,450,746 Class B ordinary shares held by Haiyu Holding Limited, a British Virgin Islands company. Haiyu Holding Limited is wholly owned by Hong An Holding Limited, which in turn is wholly owned by a trust established for the benefit of Ms. Yunfen Lu and her family members. Ms. Lu is the sole director of Haiyu Holding Limited, and also the settlor and investment decision maker of the abovementioned trust. Therefore, Ms. Lu is entitled to exercise voting and dispositive power over the shares held by Haiyu Holding Limited. The registered address of Haiyu Holding Limited is at Vistra Corporate Services Centre, Wickhams Cay II, Road Town, Tortola, VG1110, British Virgin Islands.

(3) Represents (i) the Class A ordinary shares held by Mr. Xiaojun Zhang, and (ii) 2,107,463 Class B ordinary shares held by Shu Hill Holding Limited, a British Virgin Islands company. Shu Hill Holding Limited is wholly owned by Sunflower International Limited, which in turn is wholly owned by a trust established for the benefit of Mr. Xiaojun Zhang and his family members. Mr. Zhang is the sole director of Shu Hill Holding Limited, and also the settlor and investment decision maker of the abovementioned trust. Therefore, Mr. Zhang is entitled to exercise voting and dispositive power over the shares held by Shu Hill Holding Limited. The registered address of Shu Hill Holding Limited is at Vistra Corporate Services Centre, Wickhams Cay II, Road Town, Tortola, VG1110, British Virgin Islands.

(4) Represents the Class A ordinary shares in the form of ADSs held by Mr. Jimmy Lai.

(5) Represents the Class A ordinary shares held by Mr. Leon Cheng Deng.

(6) Represents the Class A ordinary shares in the form of ADSs held by Mr. Mike Yan Yeung.

(7) Represents (i) the Class A ordinary shares held by Mr. Meihui Fan; and (ii) the 3,450,746 Class B ordinary shares held by Fandler Holding Limited, a British Virgin Islands company. Fandler Holding Limited is wholly owned by Telomere Holding Limited, which in turn is wholly owned by a trust established for the benefit of Mr. Meihui Fan and his family members. Mr. Fan is the sole director of Fandler Holding Limited, and also the settlor and investment decision maker of the abovementioned trust. Therefore, Mr. Fan is entitled to exercise voting and dispositive power over the shares held by Fandler Holding Limited. The registered address of Fandler Holding Limited is at NovaSage Chambers, P.O. Box 4389, Road Town, Tortola, British Virgin Islands.

(8) Represents the Class A ordinary shares held by Mr. Hui Wang.

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(9) Represents the Class A ordinary shares in the form of ADSs held by Mr. Pengtao Yu.

(10) Based on the statement on Schedule 13G filed on February 1, 2019 jointly by (i) People Better Limited, a British Virgin Islands company, (ii) Fast Pace Limited, a British Virgin Island company and (iii) Xiaomi, pursuant to which 35,861,112 Class B ordinary shares are held by People Better Limited. The registered address of People Better Limited is at Vistra Corporate Services Centre, Wickhams Cay II, Road Town, Tortola, VG1110, British Virgin Islands. People Better Limited is a wholly-owned subsidiary of Fast Pace Limited, which is a wholly-owned subsidiary of Xiaomi.

(11) Based on the statement on Schedule 13G/A filed on January 12, 2023 jointly by Allspring Global Investments Holdings, LLC, Allspring Global Investments, LLC and Allspring Funds Management, LLC, each of which is a Delaware limited liability company with the address of 525 Market St, 10th Fl, San Francisco, CA 94105, 20,536,840 Class A ordinary shares in the form of ADSs are held by Allspring Global Investments Holdings LLC.

(12) Based on the statement on Schedule 13G/A filed on February 9, 2021 jointly by (i) Shunwei High Tech Limited, (ii) Shunwei China Internet Fund II, L.P., (iii) Shunwei Capital Partners II GP, L.P., (iv) Shunwei Capital Partners II GP Limited and (v) Mr. Koh Tuck Lye, pursuant to which 16,598,560 Class A ordinary shares are held by Shunwei High Tech Limited, a British Virgin Islands company. The registered address of Shunwei High Tech Limited is Vistra Corporate Services Center, Wickhams Cay II, Road Town, Tortola, VG 1110, British Virgin Islands. Shunwei High Tech Limited is wholly owned by Shunwei China Internet Fund II, L.P. The general partner of Shunwei China Internet Fund II, L.P. is Shunwei Capital Partners II GP, L.P., and the general partner of Shunwei Capital Partners II GP, L.P. is Shunwei Capital Partners II GP Limited, which is controlled by Mr. Koh Tuck Lye.

(13) Based on the statement on Schedule 13G/A filed on February 9, 2023 jointly by FIL Limited, Pandanus Partners, L.P. and Pandanus Associates, Inc., pursuant to which 13,084,692 Class A ordinary shares are held by FIL Limited. Pandanus Partners owns more than 25% and less than 48.5% of the total voting stock of FIL Limited voting stock. Pandanus Partners is owned by trusts for the benefit of members of the Johnson family, including Abigail P. Johnson, the chairman of FIL Limited. Pandanus Associates, Inc. is the general partner of Pandanus Partners. The registered address of FIL Limited is Pembroke Hall, 42 Crow Lane, Hamilton, Bermuda, HM19.

To our knowledge, as of February 28, 2023, 137,357,820 of our Class A ordinary shares were held by one record holder in the United States, which was Deutsche Bank Trust Company Americas, the depositary of our ADS program. The number of beneficial owners of our ADSs in the United States is likely to be much larger than the number of record holders of our ordinary shares in the United States. We are not aware of any arrangement that may, at a subsequent date, result in a change of control of our company.

As of the date of this annual report, none of our ordinary shares are held by governmental entities of our place of incorporation, and no government entity in the place where our registered public accounting firm is located and organized has a controlling financial interest in our company.

Enforceability of Civil Liabilities

A majority of our operations are conducted outside of the United States, and a majority of our assets are located outside of the United States. A majority of our directors and executive officers are nationals or residents of jurisdictions other than the United States and most of their assets are located outside the United States. As a result, it may be difficult for a shareholder to effect service of process within the United States upon these individuals, or to bring an action against us or these individuals in the United States, or to enforce against us or them judgments obtained in United States courts, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States.

We have appointed Puglisi & Associates, located at 850 Library Avenue, Suite 204, Newark, Delaware 19711, as our agent upon whom process may be served in any action brought against us under the securities laws of the United States.

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We have been informed by our Cayman Islands legal counsel that the United States and the Cayman Islands do not have a treaty providing for reciprocal recognition and enforcement of judgments of U.S. courts in civil and commercial matters and that a final judgment for the payment of money rendered by any federal or state court in the United States based on civil liability, whether or not predicated solely upon the U.S. federal securities laws, would not be automatically enforceable in the Cayman Islands. We have also been advised by our Cayman Islands legal counsel that a judgment obtained in any federal or state court in the United States will be recognized and enforced in the courts of the Cayman Islands at common law, without any re-examination of the merits of the underlying dispute, by an action commenced on the foreign judgment debt in the Grand Court of the Cayman Islands, provided such judgment (i) is given by a foreign court of competent jurisdiction, (ii) imposes on the judgment debtor a liability to pay a liquidated sum for which the judgment has been given, (iii) is final and conclusive, (iv) is not in respect of taxes, a fine or a penalty, and (v) was not obtained in a manner and is not of a kind the enforcement of which is contrary to natural justice or the public policy of the Cayman Islands. A Cayman Islands court may stay enforcement proceedings if concurrent proceedings are being brought elsewhere.

There is uncertainty as to whether the courts of the Cayman Islands would recognize or enforce judgments of United States courts obtained against us or our directors or officers predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States. Such uncertainty relates to whether a judgment obtained from the United States courts under the civil liability provisions of the securities laws will be determined by the courts of the Cayman Islands as penal or punitive in nature. If such a determination is made, the courts of the Cayman Islands will not recognize or enforce the judgment against a Cayman Islands company or its directors and officers. Because the courts of the Cayman Islands have yet to rule on whether such judgments are penal or punitive in nature, it is uncertain whether they would be enforceable in the Cayman Islands.

Our PRC legal counsel has advised us that there is uncertainty as to whether the courts of China would:

● recognize or enforce judgments of United States courts obtained against us or our directors or officers predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States; or

● entertain original actions brought in each respective jurisdiction against us or our directors or officers predicated upon the securities laws of the United States or any state in the United States.

Our PRC legal counsel has further advised us that the recognition and enforcement of foreign judgments are provided for under the PRC Civil Procedures Law. PRC courts may recognize and enforce foreign judgments in accordance with the requirements of the PRC Civil Procedures Law based either on treaties between China and the country where the judgment is made or on principles of reciprocity between jurisdictions. China does not have any treaties or other form of reciprocity with the United States or the Cayman Islands that provide for the reciprocal recognition and enforcement of foreign judgments. In addition, according to the PRC Civil Procedures Law, courts in the PRC will not enforce a foreign judgment against us or our directors and officers if they decide that the judgment violates the basic principles of PRC law or national sovereignty, security or public interest. As a result, it is uncertain whether and on what basis a PRC court would enforce a judgment rendered by a court in the United States or in the Cayman Islands. Under the PRC Civil Procedures Law, foreign shareholders may originate actions based on PRC law against a company in China for disputes if they can establish sufficient nexus to the PRC for a PRC court to have jurisdiction, and meet other procedural requirements, including, among others, the plaintiff must have a direct interest in the case, and there must be a concrete claim, a factual basis and a cause for the suit.

It will be, however, difficult for U.S. shareholders to originate actions against us in the PRC in accordance with PRC laws because we are incorporated under the laws of the Cayman Islands and it will be difficult for U.S. shareholders, by virtue only of holding the ADSs or our ordinary shares, to establish a connection to the PRC for a PRC court to have jurisdiction as required under the PRC Civil Procedures Law.

F.           Disclosure of Registrant’s Action to Recover Erroneously Awarded Compensation

Not applicable.

ITEM 7.              MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A.           Major Shareholders

Please refer to “Item 6. Directors, Senior Management and Employees—E. Share Ownership.”

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B.           Related Party Transactions

Contractual Arrangements with the Variable Interest Entity and its Shareholders

See “Item 4. Information on the Company—C. Organizational Structure.”

Employment Agreements and Indemnification Agreements

See “Item 6. Directors, Senior Management and Employees—A. Directors and Senior Management— Employment Agreements and Indemnification Agreements.”

Share Incentive Plan

See “Item 6. Directors, Senior Management and Employees—B. Compensation—2015 Share Incentive Plan,” “2018 Share Incentive Plan” and “2023 Share Incentive Plan.”

Our Relationship with Xiaomi

As of February 28, 2023, Xiaomi held 14.7% of our total outstanding shares, and has appointed one director to our board. We have entered into a business cooperation agreement and a strategic cooperation agreement with Xiaomi, which grant us the most-preferred-partner status globally to develop future Xiaomi Wearable Products. In October 2020, we entered into the strategic cooperation agreement with Xiaomi for three years, which will end in October 2023. In February 2023, we entered into a new business cooperation agreement with Xiaomi for the next two years, which will end in January 2025.

Strategic Cooperation Agreement

Under our strategic cooperation agreement with a subsidiary of Xiaomi, (i) we are Xiaomi’s most preferred partner for Xiaomi-branded smart bands, smart watches (excluding children watches and quartz watches) and smart scales products, and (ii) if any other smart band, smart watch or smart scale is sold on any sales platform or channel operated by Xiaomi (including its official website, Mi.com, offline retail stores and online mobile apps), Xiaomi is required to provide better or equally prominent displays for our products.

This extended strategic cooperation agreement will expire in October 2023, and can be terminated earlier by Xiaomi if (i) we fail to deliver products to the market within the period mutually agreed by Xiaomi and us, or if the products do not meet Xiaomi’s requirements and (ii) return rates of our products are above certain thresholds or more than three consecutive months, or a material quality issue causes a massive product recall.

Business Cooperation Agreement

In February 2023, we entered into a business cooperation agreement with a subsidiary of Xiaomi for the sale of Xiaomi Wearable Products, including Mi Band series and Mi Smart Scale series. The business cooperation agreement is set to have a term of two years. Pursuant to this agreement we and Xiaomi agree that (i) Xiaomi is the exclusive distributor for Xiaomi Wearable Products, (ii) Xiaomi will purchase Xiaomi Wearable Products subject to the latest purchase order in force (including costs of raw materials, OEM fees, mold amortization fees (if shared and confirmed by both parties), and logistics expenses) in connection with the manufacturing and shipment of Xiaomi Wearable Products, (iii) Xiaomi and we will share all profits or losses, normally on a share ratio or proportion agreed by both parties in writing, derived from sales of Xiaomi Wearable Products, and (iv) we and Xiaomi shall jointly set the retail price of Xiaomi Wearable Products. During the year ended December 31, 2022, we also sold one specific generation of Xiaomi Wearable Product, accounting for 26.1% of consolidated revenue, which we and Xiao has a standard selling price and does not include installment payments.

With respect to intellectual properties, we and Xiaomi will have joint ownership over patents generated from the process of design, development, manufacturing and sales of Xiaomi Wearable Products as well as intellectual properties relating to certain industrial design of Xiaomi Wearable Products. We by ourselves own all other intellectual properties generated from the design, development, manufacturing and sales of Xiaomi Wearable Products.

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On user data, we and Xiaomi agree that both parties have access to and can collect and utilize user data of Xiaomi Wearable Products. In addition, unless our users instruct us or Xiaomi to disclose or transfer our data in a particular way, we need to obtain consent from Xiaomi if we want to disclose or license third parties to use user data of Xiaomi Wearable Products, and after user data of Xiaomi Wearable Products reaches certain volume threshold, Xiaomi will also need to obtain consent from us before it discloses or licenses other parties to the same user data.

Transactions with Xiaomi

In the year ended December 31, 2022, we recorded RMB1,704.0 million (US$247.1 million) in revenues from Xiaomi and its affiliate primarily for the sales of Xiaomi Wearable Products and self-branded products and others. As of December 31, 2022, the amount due from Xiaomi and its affiliates was RMB118.3 million (US$17.2 million).

In the year ended December 31, 2021, we recorded RMB3,350.0 million in revenues from Xiaomi and its affiliate primarily for the sales of Xiaomi Wearable Products and self-branded products and others. As of December 31, 2021, the amount due from Xiaomi and its affiliates was RMB287.2 million.

In the year ended December 31, 2020, we recorded RMB4,449.8 million in revenues from Xiaomi and its affiliates primarily for the sales of Xiaomi Wearable Products and self-branded products and others. As of December 31, 2020, the amount due from Xiaomi and its affiliates was RMB833.2 million.

Other Transactions with Related Parties

We have invested in a number of companies as a strategy to expand our business partner network.

In 2020, we sold 26.7% equity interest in Shenzhen Yunding Information Technology Co., Ltd. for a cash consideration of RMB22.5 million to Gongqingcheng Yunding Ruiheng Investment L.P. In 2021, we further sold 5% equity interest in Shenzhen Yunding Information Technology Co., Ltd. for a cash consideration of RMB20.0 million.

In 2020, we made a prepayment of RMB12.0 million to purchase a building of Hefei Yizhi Electronic Technology Co., Ltd., a company controlled by Mr. Wang Huang.

In 2021 and 2022, we purchased raw materials from Hefei Jingyu Micro-electronics Co., Ltd., a subsidiary of Jiangsu Yitong, an affiliate of our company, with total transaction amount of RMB146.8 million and RMB240.7 million, respectively.

C.           Interests of Experts and Counsel

Not applicable.

ITEM 8.              FINANCIAL INFORMATION

A.           Consolidated Statements and Other Financial Information

We have appended consolidated financial statements filed as part of this annual report.

Legal Proceedings

We are currently not a party to any material legal or administrative proceedings. We may from time to time be subject to various legal or administrative claims and proceedings arising in the ordinary course of business. Litigation or any other legal or administrative proceeding, regardless of the outcome, is likely to result in substantial cost and diversion of our resources, including our management’s time and attention.

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Dividend Policy

On March 17, 2022, our board of directors approved the declaration and payment of special cash dividends in an amount of US$0.025 per ordinary share (US$0.1 per American depositary share), representing an aggregate dividend payment to all shareholders of our company of RMB40.0 million (US$5.8 million), to be paid out of our cash balance. In April 2022, we paid such cash dividend to our shareholders of record at the close of business on March 28, 2022. Other than the payment of dividends in April 2022, we currently do not plan to declare or pay any dividends in the near future on our shares or ADSs. We currently intend to retain our available funds and any future earnings to operate and expand our business.

Our board of directors has discretion on whether to distribute dividends, subject to certain requirements of Cayman Islands law. In addition, our shareholders may by ordinary resolution declare a dividend, but no dividend may exceed the amount recommended by our board of directors. In either case, all dividends are subject to certain restrictions under Cayman Islands law, namely that our company may only pay dividends out of profits or share premium, and provided always that in no circumstances may a dividend be paid if this would result in our company being unable to pay its debts as they fall due in the ordinary course of business. Even if we decide to pay dividends, the form, frequency and amount will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that the board of directors may deem relevant.

When we pay any dividends on our Class A ordinary shares, we will pay those dividends which are payable in respect of the Class A ordinary shares underlying our ADSs to the depositary, as the registered holder of such Class A ordinary shares, and the depositary then will pay such amounts to our ADS holders in proportion to Class A ordinary shares underlying the ADSs held by such ADS holders, subject to the terms of the deposit agreement, including the fees and expenses payable thereunder. Cash dividends on our ordinary shares, if any, will be paid in U.S. dollars.

We are a holding company incorporated in the Cayman Islands. We may rely on dividends from our subsidiaries in China for our cash requirements, including any payment of dividends to our shareholders. PRC regulations may restrict the ability of our PRC subsidiaries to pay dividends to us. See “Item 4. Information on the Company—B. Business Overview—Regulation— Regulation on Dividend Distributions.”

B.           Significant Changes

We have not experienced any significant changes since the date of our audited consolidated financial statements included in this annual report.

ITEM 9.              THE OFFER AND LISTING

A.           Offering and Listing Details

Our ADSs, each representing four Class A ordinary shares of ours, have been listed on the NYSE since February 8, 2018. Our ADSs trade under the symbol “HMI.”

B.           Plan of Distribution

Not applicable.

C.           Markets

Our ADSs, each representing four Class A ordinary shares of ours, have been listed on the NYSE since February 8, 2018. Our ADSs traded under the symbol “HMI” from February 8, 2018 to February 24, 2021. Our ADSs started trading under the new symbol, “ZEPP” in February 25, 2021.

D.           Selling Shareholders

Not applicable.

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E.           Dilution

Not applicable.

F.           Expenses of the Issue

Not applicable.

ITEM 10.              ADDITIONAL INFORMATION

A.           Share Capital

Not applicable.

B.           Memorandum and Articles of Association

The following are summaries of material provisions of our Memorandum and Articles and of the Companies Act (As Revised), insofar as they relate to the material terms of our ordinary shares. Neither our certificate of incorporation nor our memorandum and articles of association contains any charter of the Chinese Communist party or any text thereof.

Objects of Our Company. Under our Memorandum and Articles, the objects of our company are unrestricted and we have the full power and authority to carry out any object not prohibited by the law of the Cayman Islands.

Ordinary Shares. Our ordinary shares are divided into Class A ordinary shares and Class B ordinary shares. Holders of our Class A ordinary shares and Class B ordinary shares will have the same rights except for voting and conversion rights. Our ordinary shares are issued in registered form and are issued when registered in our register of shareholders. We may not issue shares to bearer. Our shareholders who are nonresidents of the Cayman Islands may freely hold and vote their shares.

Conversion. Each Class B ordinary share is convertible into one Class A ordinary share at any time by the holder thereof. Class A ordinary shares are not convertible into Class B ordinary shares under any circumstances. Upon any sale transfer, assignment or disposition of any Class B ordinary shares by a holder thereof, or upon a change of ultimate beneficial ownership of any Class B ordinary shares to any person or entity, such Class B ordinary shares will be automatically and immediately converted into an equal number of Class A ordinary shares.

Dividends. The holders of our ordinary shares are entitled to such dividends as may be declared by our board of directors. In addition, our shareholders may by ordinary resolution declare a dividend, but no dividend may exceed the amount recommended by our directors. Our Memorandum and Articles provide that dividends may be declared and paid out of our profits, realized or unrealized, or from any reserve set aside from profits which our board of directors determine is no longer needed. Dividends may also be declared and paid out of share premium account or any other fund or account which can be authorized for this purpose in accordance with the Companies Act. Under the laws of the Cayman Islands, our company may pay a dividend out of either profit or share premium account, provided that in no circumstances may a dividend be paid if this would result in our company being unable to pay its debts as they fall due in the ordinary course of business.

Voting Rights. On a show of hands, each shareholder is entitled to one vote, or on a poll, each shareholder is entitled to one vote for each Class A ordinary share and ten votes for each Class B ordinary share, voting together as a single class, on all matters that require a shareholder’s vote. Voting at any shareholders’ meeting is by show of hands unless a poll is demanded. A poll may be demanded by the chairman of such meeting or any shareholder which is present in person or by proxy at the meeting.

An ordinary resolution to be passed at a meeting by the shareholders requires the affirmative vote of a simple majority of the votes attaching to the ordinary shares cast at a meeting, while a special resolution requires the affirmative vote of no less than two-thirds of the votes cast attaching to the outstanding ordinary shares at a meeting. A special resolution will be required for important matters such as a change of name or making changes to our Memorandum and Articles. Holders of the ordinary shares may, among other things, divide or combine their shares by ordinary resolution.

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General Meetings of Shareholders. As a Cayman Islands exempted company, we are not obliged by the Companies Act to call shareholders’ annual general meetings. Our Memorandum and Articles provide that we may (but are not obliged to) in each year hold a general meeting as our annual general meeting in which case we shall specify the meeting as such in the notices calling it, and the annual general meeting shall be held at such time and place as may be determined by our directors.

Shareholders’ general meetings may be convened by the chairman of our board of directors or a majority of our board of directors. Advance notice of at least ten (10) calendar days is required for the convening of our annual general shareholders’ meeting (if any) and any other general meeting of our shareholders. A quorum required for any general meeting of shareholders consists of at least one shareholder present or by proxy, representing not less than one-third of all votes attaching to all of our shares in issue and entitled to vote.

The Companies Act provides shareholders with only limited rights to requisition a general meeting, and does not provide shareholders with any right to put any proposal before a general meeting. However, these rights may be provided in a company’s articles of association. Our Memorandum and Articles provide that upon the requisition of shareholders representing in aggregate not less than one-third of the votes attaching to the issued and outstanding shares of our company entitled to vote at general meetings, our board will convene an extraordinary general meeting and put the resolutions so requisitioned to a vote at such meeting. However, our Memorandum and Articles do not provide our shareholders with any right to put any proposals before annual general meetings or extraordinary general meetings not called by such shareholders.

Transfer of Ordinary Shares. Subject to the restrictions set out below and the provisions above in respect of the transfer of Class B ordinary shares, any of our shareholders may transfer all or any of his or her ordinary shares by an instrument of transfer in the usual or common form or any other form approved by our board of directors.

Our board of directors may, in its absolute discretion, decline to register any transfer of any ordinary share which is not fully paid up or on which we have a lien. Our board of directors may also decline to register any transfer of any ordinary share unless:

● the instrument of transfer is lodged with us, accompanied by the certificate for the ordinary shares to which it relates and such other evidence as our board of directors may reasonably require to show the right of the transferor to make the transfer;

● the instrument of transfer is in respect of only one class of ordinary shares;

● the instrument of transfer is properly stamped, if required;

● in the case of a transfer to joint holders, the number of joint holders to whom the ordinary share is to be transferred does not exceed four; and

● a fee of such maximum sum as the New York Stock Exchange may determine to be payable or such lesser sum as our directors may from time to time require is paid to us in respect thereof.

If our directors refuse to register a transfer they shall, within three months after the date on which the instrument of transfer was lodged, send to each of the transferor and the transferee notice of such refusal.

The registration of transfers may, after compliance with any notice required of the New York Stock Exchange, be suspended and the register closed at such times and for such periods as our board of directors may from time to time determine, provided, however, that the registration of transfers shall not be suspended nor the register closed for more than 30 days in any year as our board may determine.

Liquidation. On the winding up of our company, if the assets available for distribution amongst our shareholders shall be more than sufficient to repay the whole of the share capital at the commencement of the winding up, the surplus shall be distributed amongst our shareholders in proportion to the par value of the shares held by them at the commencement of the winding up, subject to a deduction from those shares in respect of which there are monies due, of all monies payable to our company for unpaid calls or otherwise. If our assets available for distribution are insufficient to repay all of the paid-up capital, the assets will be distributed so that the losses are borne by our shareholders in proportion to the par value of the shares held by them.

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Calls on Shares and Forfeiture of Shares. Our board of directors may from time to time make calls upon shareholders for any amounts unpaid on their shares in a notice served to such shareholders at least 14 days prior to the specified time and place of payment. The shares that have been called upon and remain unpaid are subject to forfeiture.

Redemption, Repurchase and Surrender of Shares. We may issue shares on terms that such shares are subject to redemption, at our option or at the option of the holders of these shares, on such terms and in such manner as may be determined by our board of directors. Our Company may also repurchase any of our shares on such terms and in such manner as have been approved by our board of directors or by an ordinary resolution of our shareholders. Under the Companies Act, the redemption or repurchase of any share may be paid out of our Company’s profits or out of the proceeds of a new issue of shares made for the purpose of such redemption or repurchase, or out of capital (including share premium account and capital redemption reserve) if our company can, immediately following such payment, pay its debts as they fall due in the ordinary course of business. In addition, under the Companies Act no such share may be redeemed or repurchased (a) unless it is fully paid up, (b) if such redemption or repurchase would result in there being no shares outstanding or (c) if the company has commenced liquidation. In addition, our company may accept the surrender of any fully paid share for no consideration.

Variations of Rights of Shares. If at any time, our share capital is divided into different classes or series of shares, the rights attached to any class or series of shares (unless otherwise provided by the terms of issue of the shares of that class or series), whether or not our company is being wound-up, may be materially adversely varied with the consent in writing of the holders of two-thirds of the issued shares of that class or series or with the sanction of a special resolution passed by two-thirds of the votes cast at a separate meeting of the holders of the shares of the class or series. The rights conferred upon the holders of the shares of any class issued shall not, unless otherwise expressly provided by the terms of issue of the shares of that class, be deemed to be varied by the creation or issue of further shares ranking pari passu with such existing class of shares.

Issuance of Additional Shares. Our Memorandum and Articles authorize our board of directors to issue additional ordinary shares from time to time as our board of directors shall determine, to the extent of available authorized but unissued shares.

Our Memorandum and Articles also authorize our board of directors to establish from time to time one or more series of preference shares and to determine, with respect to any series of preference shares, the terms and rights of that series, including:

● the designation of the series;

● the number of shares of the series;

● the dividend rights, dividend rates, conversion rights, voting rights; and

● the rights and terms of redemption and liquidation preferences.

Our board of directors may issue preference shares without action by our shareholders to the extent authorized but unissued. Issuance of these shares may dilute the voting power of holders of ordinary shares.

Inspection of Books and Records. Holders of our ordinary shares will have no general right under Cayman Islands law to inspect or obtain copies of our list of shareholders or our corporate records (other than copies of the memorandum and articles of association, the register of mortgages and charges and any special resolutions passed by our shareholders). However, we will provide our shareholders with annual audited financial statements.

Anti-Takeover Provisions. Some provisions of our Memorandum and Articles may discourage, delay or prevent a change of control of our company or management that shareholders may consider favorable, including provisions that:

● authorize our board of directors to issue preference shares in one or more series and to designate the price, rights, preferences, privileges and restrictions of such preference shares without any further vote or action by our shareholders; and

● limit the ability of shareholders to requisition and convene general meetings of shareholders.

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However, under Cayman Islands law, our directors may only exercise the rights and powers granted to them under our Memorandum and Articles for a proper purpose and for what they believe in good faith to be in the best interests of our company.

Exempted Company. We are an exempted company with limited liability under the Companies Act. The Companies Act distinguishes between ordinary resident companies and exempted companies. Any company that is registered in the Cayman Islands but conducts business mainly outside of the Cayman Islands may apply to be registered as an exempted company. The requirements for an exempted company are essentially the same as for an ordinary company except that an exempted company:

● does not have to file an annual return of its shareholders with the Registrar of Companies;

● is not required to open its register of members for inspection;

● does not have to hold an annual general meeting;

● may issue negotiable or bearer shares or shares with no par value;

● may obtain an undertaking against the imposition of any future taxation (such undertakings are usually given for 20 years in the first instance);

● may register by way of continuation in another jurisdiction and be deregistered in the Cayman Islands;

● may register as a limited duration company; and

● may register as a segregated portfolio company.

“Limited liability” means that the liability of each shareholder is limited to the amount unpaid by the shareholder on the shares of the company (except in exceptional circumstances, such as involving fraud, the establishment of an agency relationship or an illegal or improper purpose or other circumstances in which a court may be prepared to pierce or lift the corporate veil).

Differences in Corporate Law

The Companies Act is derived, to a large extent, from the older Companies Acts of England but does not follow recent English statutory enactments and accordingly there are significant differences between the Companies Act and the current Companies Act of England. In addition, the Companies Act differs from laws applicable to U.S. corporations and their shareholders. Set forth below is a summary of certain significant differences between the provisions of the Companies Act applicable to us and the laws applicable to companies incorporated in the United States and their shareholders.

Mergers and Similar Arrangements. The Companies Act permits mergers and consolidations between Cayman Islands companies and between Cayman Islands companies and non-Cayman Islands companies. For these purposes, (i) “merger” means the merging of two or more constituent companies and the vesting of their undertaking, property and liabilities in one of such companies as the surviving company, and (ii) a “consolidation” means the combination of two or more constituent companies into a consolidated company and the vesting of the undertaking, property and liabilities of such companies to the consolidated company. In order to effect such a merger or consolidation, the directors of each constituent company must approve a written plan of merger or consolidation, which must then be authorized by (a) a special resolution of the shareholders of each constituent company, and (b) such other authorization, if any, as may be specified in such constituent company’s articles of association. The plan must be filed with the Registrar of Companies of the Cayman Islands together with a declaration as to the solvency of the consolidated or surviving company, a list of the assets and liabilities of each constituent company and an undertaking that a copy of the certificate of merger or consolidation will be given to the members and creditors of each constituent company and that notification of the merger or consolidation will be published in the Cayman Islands Gazette. Court approval is not required for a merger or consolidation which is effected in compliance with these statutory procedures.

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A merger between a Cayman parent company and its Cayman subsidiary or subsidiaries does not require authorization by a resolution of shareholders of that Cayman subsidiary if a copy of the plan of merger is given to every member of that Cayman subsidiary to be merged unless that member agrees otherwise. For this purpose a company is a “parent” of a subsidiary if it holds issued shares that together represent at least ninety percent (90%) of the votes at a general meeting of the subsidiary.

The consent of each holder of a fixed or floating security interest over a constituent company is required unless this requirement is waived by a court in the Cayman Islands.

Save in certain limited circumstances, a shareholder of a Cayman constituent company who dissents from the merger or consolidation is entitled to payment of the fair value of his shares (which, if not agreed between the parties, will be determined by the Cayman Islands court) upon dissenting to the merger or consolidation, provide the dissenting shareholder complies strictly with the procedures set out in the Companies Act. The exercise of dissenter rights will preclude the exercise by the dissenting shareholder of any other rights to which he or she might otherwise be entitled by virtue of holding shares, save for the right to seek relief on the grounds that the merger or consolidation is void or unlawful.

Separate from the statutory provisions relating to mergers and consolidations, the Companies Act also contains statutory provisions that facilitate the reconstruction and amalgamation of companies by way of schemes of arrangement, provided that the arrangement is approved by a majority in number of each class of shareholders and creditors with whom the arrangement is to be made, and who must in addition represent three-fourths in value of each such class of shareholders or creditors, as the case may be, that are present and voting either in person or by proxy at a meeting, or meetings, convened for that purpose. The convening of the meetings and subsequently the arrangement must be sanctioned by the Grand Court of the Cayman Islands. While a dissenting shareholder has the right to express to the court the view that the transaction ought not to be approved, the court can be expected to approve the arrangement if it determines that:

● the statutory provisions as to the required majority vote have been met;

● the shareholders have been fairly represented at the meeting in question and the statutory majority are acting bona fide without coercion of the minority to promote interests adverse to those of the class;

● the arrangement is such that may be reasonably approved by an intelligent and honest man of that class acting in respect of his interest; and

● the arrangement is not one that would more properly be sanctioned under some other provision of the Companies Act.

The Companies Act also contains a statutory power of compulsory acquisition which may facilitate the “squeeze out” of dissentient minority shareholder upon a tender offer. When a tender offer is made and accepted by holders of 90% of the shares affected within four months, the offeror may, within a two-month period commencing on the expiration of such four-month period, require the holders of the remaining shares to transfer such shares to the offeror on the terms of the offer. An objection can be made to the Grand Court of the Cayman Islands but this is unlikely to succeed in the case of an offer which has been so approved unless there is evidence of fraud, bad faith or collusion.

If an arrangement and reconstruction by way of scheme of arrangement is thus approved and sanctioned, or if a tender offer is made and accepted, in accordance with the foregoing statutory procedures, a dissenting shareholder would have no rights comparable to appraisal rights, save that objectors to a takeover offer may apply to the Grand Court of the Cayman Islands for various orders that the Grand Court of the Cayman Islands has a broad discretion to make, which would otherwise ordinarily be available to dissenting shareholders of Delaware corporations, providing rights to receive payment in cash for the judicially determined value of the shares.

Shareholders’ Suits. In principle, we will normally be the proper plaintiff to sue for a wrong done to us as a company, and as a general rule a derivative action may not be brought by a minority shareholder. However, based on English authorities, which would in all likelihood be of persuasive authority in the Cayman Islands, the Cayman Islands court can be expected to follow and apply the common law principles (namely the rule in Foss v. Harbottle and the exceptions thereto) so that a non-controlling shareholder may be permitted to commence a class action against or derivative actions in the name of the company to challenge actions where:

● a company acts or proposes to act illegally or ultra vires;

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● the act complained of, although not ultra vires, could only be effected duly if authorized by more than a simple majority vote that has not been obtained; and

● those who control the company are perpetrating a “fraud on the minority.”

Indemnification of Directors and Executive Officers and Limitation of Liability. Cayman Islands law does not limit the extent to which a company’s memorandum and articles of association may provide for indemnification of officers and directors, except to the extent any such provision may be held by the Cayman Islands courts to be contrary to public policy, such as to provide indemnification against civil fraud or the consequences of committing a crime. Our Memorandum and Articles of Association provide that that we shall indemnify our officers and directors against all actions, proceedings, costs, charges, expenses, losses, damages or liabilities incurred or sustained by such directors or officer, other than by reason of such person’s own dishonesty, willful default or fraud, in or about the conduct of our company’s business or affairs (including as a result of any mistake of judgment) or in the execution or discharge of his duties, powers, authorities or discretions, including without prejudice to the generality of the foregoing, any costs, expenses, losses or liabilities incurred by such director or officer in defending (whether successfully or otherwise) any civil proceedings concerning our company or its affairs in any court whether in the Cayman Islands or elsewhere. This standard of conduct is generally the same as permitted under the Delaware General Corporation Law for a Delaware corporation.

In addition, we have entered into indemnification agreements with our directors and executive officers that provide such persons with additional indemnification beyond that provided in our Memorandum and Articles of Association.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers or persons controlling us under the foregoing provisions, we have been informed that in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

C.           Material Contracts

We have not entered into any material contracts other than in the ordinary course of business and other than those described in “Item 4. Information on the Company,” “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions,” in this “Item 10. Additional Information—C. Material Contracts” or elsewhere in this annual report on Form 20-F.

D.           Exchange Controls

See “Item 4. Information on the Company—B. Business Overview—Regulation—Regulation on Foreign Exchange.”

E.           Taxation

The following summary of the material Cayman Islands, PRC and U.S. federal income tax consequences of an investment in our ADSs or ordinary shares is based upon laws and relevant interpretations thereof in effect as of the date of this annual report, all of which are subject to change. This summary does not deal with all possible tax consequences relating to an investment in our ADSs or ordinary shares, such as the tax consequences under U.S. state and local tax laws or under the tax laws of jurisdictions other than the Cayman Islands, the People’s Republic of China and the United States.

Cayman Islands Taxation

The Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains or appreciation and there is no taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to us levied by the government of the Cayman Islands except for stamp duties which may be applicable on instruments executed in, or, after execution, brought within the jurisdiction of the Cayman Islands. The Cayman Islands is not party to any double tax treaties that are applicable to any payments made to or by our company. There are no exchange control regulations or currency restrictions in the Cayman Islands.

Payments of dividends and capital in respect of our ordinary shares and ADSs will not be subject to taxation in the Cayman Islands and no withholding will be required on the payment of a dividend or capital to any holder of our ordinary shares or ADSs, nor will gains derived from the disposal of our ordinary shares or ADSs be subject to Cayman Islands income or corporation tax.

No stamp duty is payable in respect of the issue of the shares or on an instrument of transfer in respect of a share.

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People’s Republic of China Taxation

Under the PRC Enterprise Income Tax Law and its implementation rules, an enterprise established outside of the PRC with a “de facto management body” within the PRC is considered a resident enterprise and will be subject to the enterprise income tax at the rate of 25% on its global income. The implementation rules define the term “de facto management body” as the body that exercises full and substantial control over and overall management of the business, productions, personnel, accounts and properties of an enterprise. In April 2009, the State Administration of Taxation issued a circular, known as Circular 82, which provides certain specific criteria for determining whether the “de facto management body” of a PRC-controlled enterprise that is incorporated offshore is located in China. Although this circular only applies to offshore enterprises controlled by PRC enterprises or PRC enterprise groups, not those controlled by PRC individuals or foreigners, the criteria set forth in the circular may reflect the State Administration of Taxation’s general position on how the “de facto management body” test should be applied in determining the tax resident status of all offshore enterprises. According to Circular 82, an offshore incorporated enterprise controlled by a PRC enterprise or a PRC enterprise group will be regarded as a PRC tax resident by virtue of having its “de facto management body” in China only if all of the following conditions are met: (i) the primary location of the day-to-day operational management is in the PRC; (ii) decisions relating to the enterprise’s financial and human resource matters are made or are subject to approval by organizations or personnel in the PRC; (iii) the enterprise’s primary assets, accounting books and records, company seals, and board and shareholder resolutions, are located or maintained in the PRC; and (iv) at least 50% of voting board members or senior executives habitually reside in the PRC.

We believe that Zepp Health Corporation is not a PRC resident enterprise for PRC tax purposes. Zepp Health Corporation is not controlled by a PRC enterprise or PRC enterprise group and we do not believe that Zepp Health Corporation meets all of the conditions above. Zepp Health Corporation is a company incorporated outside the PRC. As a holding company, its key assets are its ownership interests in its subsidiaries, and its key assets are located, and its records (including the resolutions of its board of directors and the resolutions of its shareholders) are maintained, outside the PRC. For the same reasons, we believe our other entities outside of China are not PRC resident enterprises either. However, the tax resident status of an enterprise is subject to determination by the PRC tax authorities and uncertainties remain with respect to the interpretation of the term “de facto management body.” There can be no assurance that the PRC government will ultimately take a view that is consistent with us.

If the PRC tax authorities determine that Zepp Health Corporation is a PRC resident enterprise for enterprise income tax purposes, we may be required to withhold a 10% withholding tax from dividends we pay to our shareholders that are non-resident enterprises, including the holders of our ADSs. In addition, non-resident enterprise shareholders (including our ADS holders) may be subject to a 10% PRC tax on gains realized on the sale or other disposition of ADSs or ordinary shares, if such income is treated as sourced from within the PRC. It is unclear whether our non-PRC individual shareholders (including our ADS holders) would be subject to any PRC tax on dividends or gains obtained by such non-PRC individual shareholders in the event we are determined to be a PRC resident enterprise. If any PRC tax were to apply to such dividends or gains, it would generally apply at a rate of 20% unless a reduced rate is available under an applicable tax treaty. It is also unclear whether non-PRC shareholders of Zepp Health Corporation would be able to claim the benefits of any tax treaties between their country of tax residence and the PRC in the event that Zepp Health Corporation is treated as a PRC resident enterprise. Pursuant to the EIT Law and its implementation rules, if a nonresident enterprise has not set up an organization or establishment in China, or has set up an organization or establishment but the income derived has actual connection with such organization or establishment, it will be subject to a withholding tax on its PRC-sourced income at a rate of 10%. Pursuant to the Arrangement between Mainland China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and Tax Evasion on Income, the tax rate in respect to dividends paid by a PRC enterprise to a Hong Kong enterprise is reduced to 5% from a standard rate of 10% if the Hong Kong enterprise directly holds at least 25% of the PRC enterprise. Pursuant to the Notice of the State Administration of Taxation on the Issues concerning the Application of the Dividend Clauses of Tax Agreements, or SAT Circular 81, if the relevant PRC tax authorities determine, in their discretion, that a company benefits from such reduced income tax rate due to a structure or arrangement that is primarily tax-driven, such PRC tax authorities may adjust the preferential tax treatment.

Accordingly, our subsidiary Hong Kong Zepp Holding Limited may be able to enjoy the 5% tax rate for the dividends it receives from its PRC incorporated subsidiaries if they satisfy the conditions prescribed under SAT Circular 81 and other relevant tax rules and regulations and obtain the approvals as required. However, according to SAT Circular 81, if the relevant tax authorities determine our transactions or arrangements are for the primary purpose of enjoying a favorable tax treatment, the relevant tax authorities may adjust the favorable tax rate on dividends in the future.

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Provided that our Cayman Islands holding company, Zepp Health Corporation, is not deemed to be a PRC resident enterprise, holders of our ADSs and ordinary shares who are not PRC residents will not be subject to PRC income tax on dividends distributed by us or gains realized from the sale or other disposition of our shares or ADSs. SAT Public Notice 7 further clarifies that, if a non-resident enterprise derives income by acquiring and selling shares in an offshore listed enterprise in the public market, such income will not be subject to PRC tax. However, there is uncertainty as to the application of SAT Public Notice 37 and SAT Public Notice 7, we and our non-PRC resident investors may be at risk of being required to file a return and being taxed under SAT Public Notice 37 and SAT Public Notice 7 and we may be required to expend valuable resources to comply with SAT Public Notice 37 and SAT Public Notice 7 or to establish that we should not be taxed under SAT Public Notice 37 and SAT Public Notice 7. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—We face uncertainty with respect to indirect transfers of equity interests in PRC resident enterprises by their non-PRC holding companies.”

United States Federal Income Tax Considerations

The following discussion is a summary of U.S. federal income tax considerations generally applicable to the ownership and disposition of our ADSs or Class A ordinary shares by a U.S. Holder (as defined below) that acquires our ADSs and holds our ADSs as “capital assets” (generally, property held for investment) under the U.S. Internal Revenue Code of 1986, as amended, or the Code. This discussion is based upon existing U.S. federal tax law, which is subject to differing interpretations or change, possibly with retroactive effect. There can be no assurance that the Internal Revenue Service, or the IRS, or a court will not take a contrary position. This discussion, moreover, does not address the U.S. federal estate, gift, Medicare, and minimum tax considerations, or any state, local and non-U.S. tax considerations, relating to the ownership or disposition of our ADSs or Class A ordinary shares. The following summary does not address all aspects of U.S. federal income taxation that may be important to particular investors in light of their individual circumstances or to persons in special tax situations such as:

● banks and other financial institutions;

● insurance companies;

● pension plans;

● cooperatives;

● regulated investment companies;

● real estate investment trusts;

● broker-dealers;

● traders in securities that elect to use a mark-to-market method of accounting;

● certain former U.S. citizens or long-term residents;

● tax-exempt entities (including private foundations);

● persons liable for alternative minimum tax;

● holders who acquire their ADSs or Class A ordinary shares pursuant to any employee share option or otherwise as compensation;

● investors that will hold their ADSs or Class A ordinary shares as part of a straddle, hedge, conversion, constructive sale or other integrated transaction for U.S. federal income tax purposes;

● investors that have a functional currency other than the U.S. dollar;

● persons that actually or constructively own 10% or more of our stock by vote or value; or

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● partnerships or other entities taxable as partnerships for U.S. federal income tax purposes, or persons holding common stock through such entities.

All of whom may be subject to tax rules that differ significantly from those discussed below.

Each U.S. Holder is urged to consult its tax advisor regarding the application of U.S. federal taxation to its particular circumstances, and the state, local, non-U.S. and other tax considerations of the ownership and disposition of our ADSs or Class A ordinary shares.

General

For purposes of this discussion, a “U.S. Holder” is a beneficial owner of our ADSs or Class A ordinary shares that is, for U.S. federal income tax purposes:

● a trust (A) the administration of which is subject to the primary supervision of a U.S. court and which has one or more U.S. persons who have the authority to control all substantial decisions of the trust or (B) that has otherwise validly elected to be treated as a U.S. person under the Code.

● an estate the income of which is includible in gross income for U.S. federal income tax purposes regardless of its source; or

● a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) created in, or organized under the law of the United States or any state thereof or the District of Columbia;

● an individual who is a citizen or resident of the United States;

If a partnership (or other entity treated as a partnership for U.S. federal income tax purposes) is a beneficial owner of our ADSs or Class A ordinary shares, the tax treatment of a partner in the partnership will generally depend upon the status of the partner and the activities of the partnership. Partnerships holding our ADSs or Class A ordinary shares and their partners are urged to consult their tax advisors regarding an investment in our ADSs or Class A ordinary shares.

For U.S. federal income tax purposes, it is generally expected that a U.S. Holder of ADSs will be treated as the beneficial owner of the underlying shares represented by the ADSs. The remainder of this discussion assumes that a U.S. Holder of our ADSs will be treated in this manner. Accordingly, deposits or withdrawals of Class A ordinary shares for ADSs will generally not be subject to U.S. federal income tax.

Passive Foreign Investment Company Considerations

A non-U.S. corporation, such as our company, will be classified as a PFIC, for U.S. federal income tax purposes for any taxable year, if either (i) 75% or more of its gross income for such year consists of certain types of “passive” income or (ii) 50% or more of the value of its assets (generally determined on the basis of a quarterly average) during such year is attributable to assets that produce or are held for the production of passive income. For this purpose, cash and assets readily convertible into cash are categorized as a passive asset and the company’s goodwill and other unbooked intangibles are taken into account. Passive income generally includes, among other things, dividends, interest, rents, royalties, and gains from the disposition of passive assets. We will be treated as owning a proportionate share of the assets and earning a proportionate share of the income of any other corporation in which we own, directly or indirectly, 25% or more (by value) of the stock.

Although the law in this regard is not entirely clear, we treat the consolidated VIEs as being owned by us for U.S. federal income tax purposes because we control their management decisions and are entitled to substantially all of the economic benefits associated with these entities. As a result, we consolidate their results of operations in our consolidated U.S. GAAP financial statements.

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Based upon the nature and composition of our assets (in particular, the retention of substantial amounts of cash and investments), and the market price of our ADSs, we believe that we were a PFIC for the taxable year ended December 31, 2022 and we will likely be a PFIC for our current taxable year unless the market price of our ADSs increases and/or we invest a substantial amount of the cash and other passive assets we hold in assets that produce or are held for the production of active income.

If we are a PFIC for any year during which a U.S. Holder holds our ADSs or Class A ordinary shares, we generally will continue to be treated as a PFIC for all succeeding years during which such U.S. Holder holds our ADSs or Class A ordinary shares. However, if we cease to be a PFIC, provided that you have not made a mark-to-market election, as described below, you may avoid some of the adverse effects of the PFIC regime by making a “deemed sale” election with respect to the ADSs or Class A ordinary shares, as applicable. If such election is made, you will be deemed to have sold our ADSs or Class A ordinary shares you hold at their fair market value and any gain from such deemed sale would be subject to the rules described below under “Passive Foreign Investment Company Rules.” After the deemed sale election, so long as we do not become a PFIC in a subsequent taxable year, your ADSs or Class A ordinary shares with respect to which such election was made will not be treated as shares in a PFIC and you will not be subject to the rules described below with respect to any “excess distribution” you receive from us or any gain from an actual sale or other disposition of the ADSs or Class A ordinary shares. The rules dealing with deemed sale elections are very complex. Each U.S. Holder should consult its tax advisors regarding the possibility and considerations of making a deemed sale election.

Dividends

Subject to the discussion below under “—Passive Foreign Investment Company Rules,” any cash distributions (including the amount of any PRC tax withheld) paid on our ADSs or Class A ordinary shares out of our current or accumulated earnings and profits, as determined under U.S. federal income tax principles, will generally be includible in the gross income of a U.S. Holder as dividend income on the day actually or constructively received by the U.S. Holder, in the case of Class A ordinary shares, or by the depositary, in the case of ADSs. Because we do not intend to determine our earnings and profits on the basis of U.S. federal income tax principles, any distribution we pay will generally be treated as a “dividend” for U.S. federal income tax purposes. Dividends received on our ADSs or Class A ordinary shares will not be eligible for the dividends received deduction allowed to corporations. A non-corporate U.S. Holder will be subject to tax at the lower capital gain tax rate applicable to “qualified dividend income,” provided that certain conditions are satisfied, including that (1) our ADSs are readily tradeable on an established securities market in the United States, or, in the event that we are deemed to be a PRC resident enterprise under the PRC tax law, we are eligible for the benefit of the United States-PRC income tax treaty, (2) we are neither a PFIC nor treated as such with respect to a U.S. Holder (as discussed below) for the taxable year in which the dividend was paid and the preceding taxable year, and (3) certain holding period requirements are met. Our ADSs (but not our Class A ordinary shares) are listed on the New York Stock Exchange and is considered readily tradeable on an established securities market in the United States.

In the event that we are deemed to be a PRC resident enterprise under the PRC Enterprise Income Tax Law, we may be eligible for the benefits of the United States-PRC income tax treaty. If we are eligible for such benefits, dividends we pay on our Class A ordinary shares, regardless of whether such shares are represented by the ADSs, would be eligible for the reduced rates of taxation described in the preceding paragraph.

Dividends will generally be treated as income from foreign sources for U.S. foreign tax credit purposes and will generally constitute passive category income. Depending on the U.S. Holder’s individual facts and circumstances, a U.S. Holder may be eligible, subject to a number of complex limitations, to claim a foreign tax credit in respect of any foreign withholding taxes imposed on dividends received on our ADSs or Class A ordinary shares. A U.S. Holder who does not elect to claim a foreign tax credit for foreign tax withheld may instead claim a deduction, for U.S. federal income tax purposes, in respect of such withholding, but only for a year in which such holder elects to do so for all creditable foreign income taxes. The rules governing the foreign tax credit are complex and their outcome depends in large part on the U.S. Holder’s individual facts and circumstances. Accordingly, U.S. Holders are urged to consult their tax advisors regarding the availability of the foreign tax credit under their particular circumstances.

As discussed above, we believe that we were a PFIC for the taxable year ended December 31, 2022, and we will likely be classified as a PFIC for our current taxable year. U.S. Holders are urged to consult their tax advisors regarding the availability of the reduced rate of taxation on dividends with respect to our ADSs or Class A ordinary shares under their particular circumstances.

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Sale or Other Disposition

Subject to the discussion below under “Passive Foreign Investment Company Rules,” a U.S. Holder will generally recognize gain or loss upon the sale or other disposition of ADSs or Class A ordinary shares in an amount equal to the difference between the amount realized upon the disposition and the holder’s adjusted tax basis in such ADSs or Class A ordinary shares. The gain or loss will generally be capital gain or loss. Any capital gain or loss will be long term if the ADSs or Class A ordinary shares have been held for more than one year at the time of disposition. The deductibility of a capital loss may be subject to limitations.

Any such gain or loss that the U.S. Holder recognizes will generally be treated as U.S. source income or loss for foreign tax credit limitation purposes, which will generally limit the availability of foreign tax credits.

In the event that we are deemed to be a PRC resident enterprise under the PRC Enterprise Income Tax Law, gains from the disposition of the ADSs or Class A ordinary shares may be subject to PRC income tax and will generally be U.S. source, which may limit the ability to receive a foreign tax credit. If a U.S. Holder is eligible for the benefits of the Treaty, such holder may be able to elect to treat such gain as PRC source income under the Treaty. Pursuant to recently issued U.S. Treasury regulations, however, if a U.S. Holder is not eligible for the benefits of the Treaty or does not elect to apply the Treaty, then such holder may not be able to claim a foreign tax credit arising from any PRC tax imposed on the disposition of the ADSs or Class A ordinary shares. The rules regarding foreign tax credits and deduction of foreign taxes are complex. U.S. Holders are urged to consult their tax advisors regarding the availability of a foreign tax credit or deduction in light of their particular circumstances, including their eligibility for benefits under the Treaty, and the potential impact of the recently issued U.S. Treasury regulations.

As discussed above, we believe that we were a PFIC for the taxable year ended December 31, 2022, and we will likely be classified as a PFIC for our current taxable year. U.S. Holders are urged to consult their tax advisors regarding the tax considerations of the sale or other disposition of our ADSs or Class A ordinary shares under their particular circumstances.

Passive Foreign Investment Company Rules

As discussed above, we believe that we were a PFIC for the taxable year ended December 31, 2022, and we will likely be classified as a PFIC for our current taxable year. If we are classified as a PFIC for any taxable year during which a U.S. Holder holds our ADSs or Class A ordinary shares, and unless the U.S. Holder makes a mark-to-market election (as described below), the U.S. Holder will generally be subject to special tax rules on (i) any excess distribution that we make to the U.S. Holder (which generally means any distribution paid during a taxable year to a U.S. Holder that is greater than 125 percent of the average annual distributions paid in the three preceding taxable years or, if shorter, the U.S. Holder’s holding period for the ADSs or Class A ordinary shares), and (ii) any gain realized on the sale or other disposition of ADSs or Class A ordinary shares. Under the PFIC rules:

● the excess distribution or gain will be allocated ratably over the U.S. Holder’s holding period for the ADSs or Class A ordinary shares;

● the amount allocated to the current taxable year and any taxable years in the U.S. Holder’s holding period prior to the first taxable year in which we are classified as a PFIC (each, a “pre-PFIC year”), will be taxable as ordinary income;

● the amount allocated to each prior taxable year, other than a pre-PFIC year, will be subject to tax at the highest tax rate in effect for individuals or corporations, as appropriate, for that year; and

● the interest charge generally applicable to underpayments of tax will be imposed on the tax attributable to each prior taxable year, other than a pre-PFIC year.

If we are a PFIC for any taxable year during which a U.S. Holder holds our ADSs or Class A ordinary shares and any of our subsidiary, the VIEs or any of the subsidiaries of the VIEs is also a PFIC, such U.S. Holder would be treated as owning a proportionate amount (by value) of the shares of the lower-tier PFIC for purposes of the application of these rules. U.S. Holders are urged to consult their tax advisors regarding the application of the PFIC rules to any of our subsidiary, the VIEs or any of the subsidiaries of the VIEs.

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As an alternative to the foregoing rules, a U.S. Holder of “marketable stock” in a PFIC may make a mark-to-market election with respect to such stock, provided that such stock is regularly traded on a national securities exchange that is registered with the SEC. For those purposes, our ADSs, but not our Class A ordinary shares, are listed on the New York Stock Exchange, which is an established securities exchange in the United States. We anticipate that our ADSs should qualify as being regularly traded, but no assurances may be given in this regard. If a U.S. Holder makes this election, the holder will generally (i) include as ordinary income for each taxable year that we are a PFIC the excess, if any, of the fair market value of ADSs held at the end of the taxable year over the adjusted tax basis of such ADSs and (ii) deduct as an ordinary loss the excess, if any, of the adjusted tax basis of the ADSs over the fair market value of such ADSs held at the end of the taxable year, but such deduction will only be allowed to the extent of the amount previously included in income as a result of the mark-to-market election. The U.S. Holder’s adjusted tax basis in the ADSs would be adjusted to reflect any income or loss resulting from the mark-to-market election. If a U.S. Holder makes a mark-to-market election in respect of a corporation classified as a PFIC and such corporation ceases to be classified as a PFIC, the holder will not be required to take into account the gain or loss described above during any period that such corporation is not classified as a PFIC. If a U.S. Holder makes a mark-to-market election, any gain such U.S. Holder recognizes upon the sale or other disposition of our ADSs in a year when we are a PFIC will be treated as ordinary income and any loss will be treated as ordinary loss, but such loss will only be treated as ordinary loss to the extent of the net amount previously included in income as a result of the mark-to-market election.

Because a mark-to-market election cannot technically be made for any lower-tier PFICs that we may own, a U.S. Holder may continue to be subject to the PFIC rules with respect to such U.S. Holder’s indirect interest in any investments held by us that are treated as an equity interest in a PFIC for U.S. federal income tax purposes.

We do not intend to provide information necessary for U.S. Holders to make qualified electing fund elections which, if available, would result in tax treatment different from (and generally less adverse than) the general tax treatment for PFICs described above.

If a U.S. Holder owns our ADSs or Class A ordinary shares during any taxable year that we are a PFIC, the holder must generally file an annual IRS Form 8621. You should consult your tax advisors regarding the U.S. federal income tax consequences of owning and disposing of our ADSs or Class A ordinary shares if we are or become a PFIC.

F.           Dividends and Paying Agents

Not applicable.

G.           Statement by Experts

Not applicable.

H.           Documents on Display

We are subject to the periodic reporting and other informational requirements of the Exchange Act. Under the Exchange Act, we are required to file reports and other information with the SEC. Specifically, we are required to file annually a Form 20-F no later than four months after the close of each fiscal year. Copies of reports and other information, when so filed, may be inspected without charge and may be obtained at prescribed rates at the public reference facilities maintained by the SEC at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. The public may obtain information regarding the Washington, D.C. Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a web site at www.sec.gov that contains reports, proxy and information statements, and other information regarding registrants that make electronic filings with the SEC using its EDGAR system. As a foreign private issuer, we are exempt from the rules under the Exchange Act prescribing the furnishing and content of quarterly reports and proxy statements, and officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act.

We will furnish Deutsche Bank Trust Company Americas, the depositary of our ADSs, with our annual reports, which will include a review of operations and annual audited consolidated financial statements prepared in conformity with U.S. GAAP, and all notices of shareholders’ meetings and other reports and communications that are made generally available to our shareholders. The depositary will make such notices, reports and communications available to holders of ADSs and, upon our request, will mail to all record holders of ADSs the information contained in any notice of a shareholders’ meeting received by the depositary from us.

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I.           Subsidiary Information

Not applicable.

J.           Annual Report to Security Holders

Not applicable.

ITEM 11.              QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risks

Foreign Exchange Risk

Approximately 48% of our revenues and expenses are denominated in RMB. Although we do not believe that we currently have any significant direct foreign exchange risk, we entered into several hedging arrangements in 2021 and 2022 to hedge exposure to such risk. Although our exposure to foreign exchange risks should be limited in general, the value of your investment in our ADSs will be affected by the exchange rate between U.S. dollar and Renminbi because the value of our business is effectively denominated in RMB, while our ADSs will be traded in U.S. dollars.

The conversion of Renminbi into foreign currencies, including U.S. dollars and Euros, is based on rates set by the People’s Bank of China. The Renminbi has fluctuated against the U.S. dollar, at times significantly and unpredictably. It is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate between Renminbi and the U.S. dollar in the future.

To the extent that we need to convert U.S. dollars into Renminbi for our operations, appreciation of the Renminbi against the U.S. dollar would have an adverse effect on the RMB amount we receive from the conversion. Conversely, if we decide to convert Renminbi into U.S. dollars for the purpose of making payments for dividends on our ordinary shares or ADSs or for other business purposes, appreciation of the U.S. dollar against the Renminbi would have a negative effect on the U.S. dollar amounts available to us.

The RMB depreciated by 8.23% against the U.S. dollar in 2022. As of December 31, 2022, we had RMB-denominated cash and cash equivalents, and restricted cash of RMB651.8 million, and U.S. dollar-denominated cash and cash equivalents, and restricted cash of US$38.2 million. Assuming we had converted RMB651.8 million into U.S. dollars at the exchange rate of RMB6.8972 for US$1.0000 as of the end of 2022, our U.S. dollar cash balance would have been US$132.7 million. If the RMB had appreciated by 10% against the U.S. dollar, our U.S. dollar cash balance would have been US$124.1 million instead. Assuming we had converted US$38.2 million into RMB at the exchange rate of RMB6.8972 for US$1.0000 as of the end of 2022, our RMB cash balance would have been RMB915.3 million. If the RMB had appreciated by 10% against the U.S. dollar, our RMB cash balance would have been RMB888.9 million instead.

Interest Rate Risk

Our exposure to interest rate risk primarily relates to the interest income generated by excess cash, which is mostly held in interest-bearing bank deposits. Interest-earning instruments carry a degree of interest rate risk. We have not been exposed to material risks due to changes in interest rates, and we have not used any derivative financial instruments to manage our interest risk exposure. However, our future interest income may fall short of expectations due to changes in market interest rates.

ITEM 12.              DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

A.           Debt Securities

Not applicable.

B.           Warrants and Rights

Not applicable.

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C.           Other Securities

Not applicable.

D.           American Depositary Shares

Charges Our ADS Holders May Have to Pay

The depositary of our ADS facility, Deutsche Bank Trust Company Americas, shall charge the following fees for the services performed under the terms of the deposit agreement, provided, however, that no fees shall be payable upon distribution of cash dividends so long as the charging of such fee is prohibited by the exchange, if any, upon which the ADSs are listed:

● to any person to whom ADSs are issued or to any person to whom a distribution is made in respect of ADS distributions pursuant to stock dividends or other free distributions of stock, bonus distributions, stock splits or other distributions (except where converted to cash), a fee not in excess of US$5.00 per 100 ADSs (or fraction thereof) so issued under the terms of the deposit agreement to be determined by the depositary;

● to any person surrendering ADSs for withdrawal of deposited securities or whose ADSs are cancelled or reduced for any other reason including, inter alia, cash distributions made pursuant to a cancellation or withdrawal, a fee not in excess of US$5.00 per 100 ADSs reduced, cancelled or surrendered (as the case may be);

● to any holder of ADSs, a fee not in excess of US$5.00 per 100 ADSs held for the distribution of cash dividends;

● to any holder of ADSs, a fee not in excess of US$5.00 per 100 ADSs held for the distribution of cash entitlements (other than cash dividends) and/or cash proceeds, including proceeds from the sale of rights, securities and other entitlements;

● to any holder of ADSs, a fee not in excess of US$5.00 per 100 ADSs (or portion thereof) issued upon the exercise of rights; and

● for the operation and maintenance costs in administering the ADSs an annual fee of US$5.00 per 100 ADSs, such fee to be assessed against holders of record as of the date or dates set by the depositary as it sees fit and collected at the sole discretion of the depositary by billing such holders for such fee or by deducting such fee from one or more cash dividends or other cash distributions.

In addition, holders, beneficial owners, any person depositing Shares for deposit and any person surrendering ADSs for cancellation and withdrawal of deposited securities will be required to pay the following charges:

● taxes (including applicable interest and penalties) and other governmental charges;

● such registration fees as may from time to time be in effect for the registration of our ordinary shares or other deposited securities with the foreign registrar and applicable to transfers of ordinary shares or other deposited securities to or from the name of the custodian, the depositary or any nominees upon the making of deposits and withdrawals, respectively;

● such cable, telex, facsimile and electronic transmission and delivery expenses as are expressly provided in the deposit agreement to be at the expense of the depositor depositing or person withdrawing ordinary shares or holders and beneficial owners of ADSs;

● the expenses and charges incurred by the depositary and/or a division or affiliate(s) of the depositary in the conversion of foreign currency;

● such fees and expenses as are incurred by the depositary in connection with compliance with exchange control regulations and other regulatory requirements applicable to ordinary shares, deposited securities, ADSs and ADRs;

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● the fees and expenses incurred by the depositary in connection with the delivery of deposited securities, including any fees of a central depository for securities in the local market, where applicable; and

● any additional fees, charges, costs or expenses that may be incurred by the depositary or a division or affiliate(s) of the depositary from time to time.

Any other fees and charges of, and expenses incurred by, the depositary or the custodian under the deposit agreement will be paid by us unless otherwise agreed in writing between the depositary and us from time to time. All fees and charges may, at any time and from time to time, be changed by agreement between the depositary and us but subject, in the case of fees and charges payable by holders or beneficial owners, only in the manner contemplated by the deposit agreement.

Fees and Other Payments Made by the Depositary to Us

Our depositary anticipates to reimburse us for certain expenses we incur that are related to establishment and maintenance of the ADR program upon such terms and conditions as we and the depositary may agree from time to time. The depositary may make available to us a set amount or a portion of the depositary fees charged in respect of the ADR program or otherwise upon such terms and conditions as we and the depositary may agree from time to time. For the year ended December 31, 2022, we did not receive reimbursement from the depositary.

PART II

ITEM 13.              DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

None.

ITEM 14.              MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

Material Modifications to the Rights of Security Holders

See “Item 10. Additional Information—B. Memorandum and Articles of Association—Ordinary Shares” for a description of the rights of securities holders, which remain unchanged.

Use of Proceeds

By the end of 2019, we had applied all the net proceeds from our initial public offering and the registered follow-on offering of our ADSs in April 2019.

ITEM 15.              CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, including our chief executive officer and chief financial officer, has performed an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this annual report. Based upon that evaluation, our management has concluded that, as of December 31, 2022, our disclosure controls and procedures were effective in ensuring that the information required to be disclosed by us in the reports that we file and furnish under the Exchange Act was recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our chief executive officer and chief financial officer, to allow timely decisions regarding required disclosure.

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Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP and includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of our company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with U.S. GAAP, and that receipts and expenditures of our company are being made only in accordance with authorizations of our management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of the unauthorized acquisition, use or disposition of our company’s assets that could have a material effect on the consolidated financial statements. Because of its inherent limitations, internal control over financial reporting may not detect or prevent misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

As required by Section 404 of the Sarbanes-Oxley Act of 2002 and related rules as promulgated by the Securities and Exchange Commission, our management including our Chief Executive Officer and Chief Financial Officer assessed the effectiveness of internal control over financial reporting as of December 31, 2022 using the criteria set forth in the report “Internal Control—Integrated Framework (2013)” published by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2022.

Attestation Report of the Registered Public Accounting Firm

This annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting as we qualify as an “emerging growth company” under section 3(a) of the Securities Exchange Act of 1934, as amended, and are therefore exempt from the attestation requirement.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal controls over financial reporting that occurred during the period covered by this annual report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 16A.            AUDIT COMMITTEE FINANCIAL EXPERT

Our board of directors has determined that Jimmy Lai, a member of our audit committee and independent director (under the standards set forth in Section 303A of the Corporate Governance Rules of the NYSE and Rule 10A-3 under the Securities Exchange Act of 1934), is an audit committee financial expert.

ITEM 16B.            CODE OF ETHICS

In January 2018, our board of directors adopted a code of business conduct and ethics that applies to our directors, officers and employees. We have posted a copy of our code of business conduct and ethics on our website at https://ir.zepp.com/investor.

A copy of our code of business conduct and ethics will be provided at no cost to each person on the written or verbal request of that person made to:

Zepp Health Corporation

Huami Global Innovation Center

Building B2, Zhong’an Chuanggu Technology Park

No. 900 Wangjiang West Road

Hefei, 230088, People’s Republic of China

Tel: +86 010 5940 3251

Attention: Investor Relations Department

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ITEM 16C.            PRINCIPAL ACCOUNTANT FEES AND SERVICES

The following table sets forth the aggregate fees by categories specified below in connection with certain professional services rendered by Deloitte Touche Tohmatsu Certified Public Accountants LLP, our principal external auditors, for the periods indicated. We did not pay any other fees to our auditors during the periods indicated below.

	For the Year Ended December 31,
	2021	2022
	(in thousands of RMB)
Audit fees(1)	9,304	7,871
Tax fees(2)	550	450

Notes:

(1) “Audit fees” means the aggregate fees billed for professional services rendered by our principal auditors for the audit of our annual financial statements, other audit related fee and the review of our comparative interim financial statements.

(2) “Tax fees” represents the aggregated fees for professional services rendered by our independent registered public accounting firm for tax declaration service.

The policy of our audit committee is to pre-approve all audit and other service provided by Deloitte Touche Tohmatsu Certified Public Accountants LLP as described above, other than those for de minimis services which are approved by the Audit Committee prior to the completion of the audit.

ITEM 16D.            EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

Not applicable.

ITEM 16E.            PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

In November 2021, our board of directors authorized a share repurchase program under which we may repurchase up to US$20 million of our shares in the form of American depositary shares and/or the ordinary shares of our company over the next 12 months in the open market. The share repurchases may be made from time to time in the open market and through privately negotiated transactions, in block trades or through other legally permissible means, depending on market conditions and in accordance with applicable rules and regulations.

The table below summarizes the repurchases we made in the periods indicated.

			Total
			Number of
			Ordinary	Approximate
			Shares	Dollar Value of
			Purchased	Ordinary Shares
	Total Number	Average Price	as Part of	that May Yet Be
	of Ordinary	Paid Per	Share	Purchased Under
	Shares	Ordinary Share	Repurchase	Share Repurchase
Month	Purchased	(US$)	Program	Program (US$)
January 2022	1,285,856	1.27	1,285,856	14,962,062.12
February 2022	891,660	1.12	891,660	13,959,846.45
March 2022	1,329,132	0.76	1,329,132	12,953,304.65
April 2022	1,997,680	0.70	1,997,680	11,548,610.20
May 2022	492,636	0.62	492,636	11,243,931.51
August 2022	84,400	0.500	84,400	11,201,761.05
September 2022	805,108	0.445	805,108	10,843,829.29
October 2022	906,316	0.328	906,316	10,546,145.94
November 2022	945,400	0.319	945,400	10,244,444.38
December 2022	1,481,384	0.378	1,481,384	9,684,442.89

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ITEM 16F.            CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

Not applicable.

ITEM 16G.            CORPORATE GOVERNANCE

As a Cayman Islands company listed on the New York Stock Exchange, we are subject to the NYSE corporate governance listing standards. However, NYSE rules permit a foreign private issuer like us to follow the corporate governance practices of its home country. Certain corporate governance practices in the Cayman Islands, which is our home country, may differ significantly from the NYSE corporate governance listing standards. Pursuant to Sections 303A.01, 303A.04 and 303A.05 of the New York Stock Exchange Listed Company Manual, a company listed on the New York Stock Exchange must have a majority of independent directors, a nominating and corporate governance committee composed entirely of independent directors and a compensation committee composed entirely of independent directors. We currently follow our home country practice in lieu of these requirements. In January 2023, our board of directors approved the 2023 Share Incentive Plan. We followed our home country practice and did not convene a shareholder meeting to approve the 2023 Share Incentive Plan. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our ADSs—As a company incorporated in the Cayman Islands, we are permitted to adopt certain home country practices in relation to corporate governance matters that differ significantly from the NYSE corporate governance listing standards; these practices may afford less protection to shareholders than they would enjoy if we complied fully with the NYSE corporate governance listing standards.”

ITEM 16H.           MINE SAFETY DISCLOSURE

Not applicable.

ITEM 16I.          DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

In May 2022, we were conclusively listed by the SEC as a Commission-Identified Issuer under the HFCAA following the filing of our annual report on Form 20-F for the fiscal year ended December 31, 2021. Our auditor, a registered public accounting firm that the PCAOB was unable to inspect or investigate completely in 2021, issued the audit report for us for the fiscal year ended December 31, 2021. On December 15, 2022, the PCAOB issued a report that vacated its December 16, 2021 determination and removed mainland China and Hong Kong from the list of jurisdictions where it is unable to inspect or investigate completely registered public accounting firms. For this reason, we do not expect to be identified as a Commission-Identified Issuer under the HFCAA after we file this annual report on Form 20-F.

As of the date of this annual report, to our knowledge, (i) no governmental entities in the Cayman Islands or in China own shares of Zepp Health Corporation or the VIEs in China, (ii) the governmental entities in China do not have a controlling financial interest in Zepp Health Corporation or the VIEs, (iii) none of the members of the board of directors of Zepp Health Corporation or our operating entities, including the VIEs, is an official of the Chinese Communist Party, and (iv) none of the currently effective memorandum and articles of association (or equivalent organizing document) of Zepp Health Corporation or the VIEs contains any charter of the Chinese Communist Party.

PART III

ITEM 17.              FINANCIAL STATEMENTS

We have elected to provide financial statements pursuant to Item 18.

ITEM 18.              FINANCIAL STATEMENTS

The consolidated financial statements of Zepp Health Corporation are included at the end of this annual report.

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ITEM 19.              EXHIBITS

Exhibit Number	Description of Document
1.1*	Second Amended and Restated Memorandum and Articles of Association of the Registrant, as amended
2.1	Registrant’s Specimen American Depositary Receipt (included in Exhibit 2.3)
2.2	Registrant’s Specimen Certificate for Class A Ordinary Shares (incorporated herein by reference to Exhibit 4.2 to the registration statement on Form F-1/A filed with the Securities and Exchange Commission January 26, 2018 (File No. 333-222528))
2.3	Deposit Agreement, dated as of February 7, 2018, among the Registrant, Deutsche Bank Trust Company Americas as depositary, and all holders from time to time of American Depositary Receipts issued thereunder (incorporated herein by reference to Exhibit 4.3 to the registration statement on Form S-8 (File No. 333-226665), filed with the Securities and Exchange Commission on August 8, 2018)
2.4	Description of Securities (incorporated herein by reference to Exhibit 2.5 to the annual report on Form 20-F filed with the Securities and Exchange Commission April 23, 2020 (File No. 001-38369))
4.1	2015 Share Incentive Plan (incorporated herein by reference to Exhibit 10.1 to the registration statement on Form F-l filed with the Securities and Exchange Commission January 12, 2018 (File No. 333-222528))
4.2	2018 Share Incentive Plan (incorporated herein by reference to Exhibit 10.2 to the registration statement on Form F-l filed with the Securities and Exchange Commission January 12, 2018 (File No. 333-222528))
4.3	Form of Indemnification Agreement between the Registrant and its directors and executive officers (incorporated herein by reference to Exhibit 10.3 to the registration statement on Form F-1 filed with the Securities and Exchange Commission January 12, 2018 (File No. 333-222528))
4.4	Form of Employment Agreement between the Registrant and its executive officers (incorporated herein by reference to Exhibit 10.4 to the registration statement on Form F-1 filed with the Securities and Exchange Commission January 12, 2018 (File No. 333-222528))
4.5	English translation of the second amended and restated Shareholder Voting Proxy Agreement and Power of Attorney among our WFOE, Anhui Huami and shareholders of Anhui Huami dated March 20, 2020 (incorporated herein by reference to Exhibit 4.5 to the annual report on Form 20-F filed with the Securities and Exchange Commission April 23, 2020 (File No. 001-38369))
4.6	English translation of the second amended and restated Shareholder Voting Proxy Agreement and Power of Attorney among our WFOE, Beijing Huami and shareholders of Beijing Huami dated March 20, 2020 (incorporated herein by reference to Exhibit 4.6 to the annual report on Form 20-F filed with the Securities and Exchange Commission April 23, 2020 (File No. 001-38369))
4.7	English translation of the second amended and restated Equity, Pledge Agreement among our WFOE, Anhui Huami and shareholders of Anhui Huami dated March 20, 2020 (incorporated herein by reference to Exhibit 4.7 to the annual report on Form 20-F filed with the Securities and Exchange Commission April 23, 2020 (File No. 001-38369))
4.8	English translation of the second amended and restated Equity Pledge Agreement among our WFOE, Beijing Huami and shareholders of Beijing Huami dated March 20, 2020 (incorporated herein by reference to Exhibit 4.8 to the annual report on Form 20-F filed with the Securities and Exchange Commission April 23, 2020 (File No. 001-38369))
4.9	English translation of the second amended and restated Exclusive Consultation and Services Agreement among our WFOE, Anhui Huami dated March 20, 2020 (incorporated herein by reference to Exhibit 4.9 to the annual report on Form 20-F filed with the Securities and Exchange Commission April 23, 2020 (File No. 001-38369))
4.10	English translation of the second amended and restated Exclusive Consultation and Services Agreement among our WFOE, Beijing Huami dated March 20, 2020 (incorporated herein by reference to Exhibit 4.10 to the annual report on Form 20-F filed with the Securities and Exchange Commission April 23, 2020 (File No. 001-38369))
4.11	English translation of the second amended and restated Exclusive Option Agreement among our WFOE, Anhui Huami and shareholders of Anhui Huami dated March 20, 2020 (incorporated herein by reference to Exhibit 4.11 to the annual report on Form 20-F filed with the Securities and Exchange Commission April 23, 2020 (File No. 001-38369))
4.12	English translation of the second amended and restated Exclusive Option Agreement among our WFOE, Beijing Huami and shareholders of Beijing Huami dated March 20, 2020 (incorporated herein by reference to Exhibit 4.12 to the annual report on Form 20-F filed with the Securities and Exchange Commission April 23, 2020 (File No. 001-38369))
4.13	English translation of Loan Agreement between our WFOE and Mr. Wang Huang dated November 3, 2017 (incorporated herein by reference to Exhibit 10.13 to the registration statement on Form F-1 filed with the Securities and Exchange Commission January 12, 2018 (File No. 333-222528))

142

Exhibit Number	Description of Document
4.14	English translation of Business Cooperation Agreement between Anhui Huami and Xiaomi dated October 23, 2017 (incorporated herein by reference to Exhibit 10.14 to the registration statement on Form F-1 filed with the Securities and Exchange Commission January 12, 2018 (File No. 333-222528))
4.15	English translation of Strategic Cooperation Agreement between Anhui Huami and Xiaomi dated October 23, 2017 (incorporated herein by reference to Exhibit 10.15 to the registration statement on Form F-1 filed with the Securities and Exchange Commission January 12, 2018 (File No. 333-222528))
4.16	English translation of Intellectual Property Application Right Assignment Agreement between Xiaomi and Anhui Huami dated April 29, 2015 (incorporated herein by reference to Exhibit 10.16 to the registration statement on Form F-1 filed with the Securities and Exchange Commission January 12, 2018 (File No. 333-222528))
4.17	English translation of Trademark Licensing Agreement between Xiaomi and Anhui Huami dated October 23, 2017 (incorporated herein by reference to Exhibit 10.17 to the registration statement on Form F-1 filed with the Securities and Exchange Commission January 12, 2018 (File No. 333-222528))
4.18(1)	English translation of Product-related Strategic Cooperation Agreement between Xiaomi Communications Co., Ltd. and Anhui Huami Information Technology Co., Ltd. dated October 19, 2020 (incorporated herein by reference to Exhibit 4.18 to the annual report on Form 20-F filed with the Securities and Exchange Commission April 19, 2021 (File No. 001-38369))
4.19	English translation of Share Transfer Agreement in Respect of Shares in Jiangsu Yitong High-tech Co., Ltd. between Wang Zhenhong and Anhui Shunyuan Xinke Management Consulting Partnership (LP) dated January 5, 2021 (incorporated herein by reference to Exhibit 4.19 to the annual report on Form 20-F filed with the Securities and Exchange Commission April 19, 2021 (File No. 001-38369))
4.20	2023 Share Incentive Plan (incorporated herein by reference to Exhibit 99.1 to Form 6-K furnished with the Securities and Exchange Commission on January 11, 2023 (File No. 001-38369))
4.21*	English translation of Business Cooperation Agreement between Anhui Huami and Xiaomi dated February 22, 2023
8.1*	List of Principal Subsidiaries and Consolidated Variable Interest Entities of the Registrant
11.1	Code of Business Conduct and Ethics of the Registrant (incorporated herein by reference to Exhibit 99.1 to the registration statement on Form F-1 filed with the Securities and Exchange Commission January 12, 2018 (File No. 333-222528))
12.1*	CEO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
12.2*	CFO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
13.1**	CEO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
13.2**	CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
15.1*	Consent of Deloitte Touche Tohmatsu Certified Public Accountants LLP
15.2*	Consent of Zhong Lun Law Firm
101.INS*	Inline XBRL Instance Document — the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH*	Inline XBRL Taxonomy Extension Scheme Document
101.CAL*	Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*	Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*	Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE*	Inline XBRL Taxonomy Extension Presentation Linkbase Document
104*	Cover Page Interactive Data File (embedded within the Inline XBRL document)

*    Filed with this Annual Report on Form 20-F.

**  Furnished with this Annual Report on Form 20-F.

(1) Portions of this exhibit have been omitted in reliance of the revised Item 601 of Regulation S-K. The registrant hereby undertakes to furnish copies of any of the omitted portions upon request by the Securities and Exchange Commission.

143

SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

	Zepp Health Corporation
	By:	/s/ Wang Huang
	Name:	Wang Huang
	Title:	Chairman of the Board of Directors and Chief Executive Officer
Date: April 24, 2023

144

ZEPP HEALTH CORPORATION

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

CONTENTS	PAGE(S)
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (PCAOB ID: 1113)	F-2
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2021 AND 2022	F-3
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022	F-5
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS) FOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022	F-6
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022	F-7
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022	F-8
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS	F-9

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the shareholders and the Board of Directors of Zepp Health Corporation

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Zepp Health Corporation and its subsidiaries (the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive income/(loss), changes in equity, and cash flows for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

Convenience translation

Our audit also comprehended the translation of Renminbi amounts into United States dollar amounts and, in our opinion, such translation has been made in conformity with the basis stated in Note 2 to the financial statements. Such United States dollar amounts are presented solely for the convenience of readers outside the People’s Republic of China.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Deloitte Touche Tohmatsu Certified Public Accountants LLP

Shanghai, the People’s Republic of China

April 24, 2023

We have served as the Company’s auditor since 2016.

F-2

ZEPP HEALTH CORPORATION

CONSOLIDATED BALANCE SHEETS

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”)

except for number of shares and per share data, or otherwise noted)

	As of December 31
	2021	2022	2022
	RMB	RMB	US$
			(Note2)
Assets
Current assets:
Cash and cash equivalents	1,468,499	886,632	128,550
Restricted cash	41,040	86,708	12,571
Term deposit	5,000	—	—
Accounts receivable (net of allowance of RMB814 and RMB1,466 as of December 31, 2021 and 2022, respectively)	537,084	682,103	98,896
Amounts due from related parties (net of allowance of nil and nil as of December 31, 2021 and 2022, respectively)	295,614	138,614	20,097
Inventories, net	1,249,327	1,021,923	148,165
Short-term investments (including available-for-sale debt securities measured at fair value of RMB19,351 and RMB34,316 as of December 31, 2021 and 2022, respectively)	19,351	34,316	4,975
Prepaid expenses and other current assets	315,038	108,252	15,694
Total current assets	3,930,953	2,958,548	428,948
Property, plant and equipment, net	133,873	100,605	14,586
Intangible assets, net	135,582	123,300	17,877
Long-term investments (including available-for-sale debt securities measured at fair value of RMB108,448 and RMB148,819 as of December 31, 2021 and 2022, respectively)	1,552,591	1,686,628	244,538
Deferred tax assets	143,419	210,186	30,474
Operating lease right-of-use assets	108,435	65,573	9,507
Goodwill	61,055	66,081	9,581
Amount due from a related party, non-current	—	6,333	918
Other non-current assets	19,593	50,389	7,306
Total assets	6,085,501	5,267,643	763,735
Liabilities
Current liabilities:
Accounts payable (including accounts payable of the consolidated VIEs without recourse to the Group of RMB1,314,091 and RMB452,039 as of December 31, 2021 and 2022, respectively)	1,317,306	456,585	66,198
Advance from customers (including advance from customers of the consolidated VIEs without recourse to the Group of RMB2,262 and RMB2,133 as of December 31, 2021 and 2022, respectively)	4,230	2,133	309
Amounts due to related parties (including amount due to related parties of the consolidated VIEs without recourse to the Group of RMB48,561 and RMB38,913 as of December 31, 2021 and 2022,respectively)	50,123	40,978	5,941
Accrued expenses and other current liabilities (including accrued expenses and other current liabilities of the consolidated VIEs without recourse to the Group of RMB165,181 and RMB119,877 as of December 31, 2021 and 2022, respectively)	316,083	197,819	28,681
Income tax payables (including income tax payables of the consolidated VIEs without recourse to the Group of RMB411 and RMB407 as of December 31, 2021 and 2022, respectively)	2,595	2,715	394
Notes payable and others of the consolidated VIEs without recourse to the Group	103,795	456,438	66,177
Short-term bank borrowings (including short-term bank borrowings of the consolidated VIEs without recourse to the Group of RMB303,000 and RMB452,000 as of December 31, 2021 and 2022, respectively)	358,000	512,000	74,233
Total current liabilities	2,152,132	1,668,668	241,933
Deferred tax liabilities (including deferred tax liabilities of the consolidated VIEs without recourse to the Group of RMB23,006 and RMB32,393 as of December 31, 2021 and 2022, respectively)	26,909	35,552	5,155
Other non-current liabilities (including other non-current liabilities of the consolidated VIEs without recourse to the Group of RMB172,735 and RMB161,827 as of December 31, 2021 and 2022, respectively)	175,053	162,602	23,575
Long-term borrowings (including long-term borrowings of the consolidated VIEs without recourse to the Group of RMB254,500and RMB280,000 as of December 31, 2021 and 2022, respectively)	726,851	684,210	99,201
Non-current operating lease liabilities (including Noncurrent operating lease liabilities of the consolidated VIEs without recourse to the Group of RMB29,435 and RMB10,276 as of December 31, 2021 and 2022,respectively)	71,117	31,690	4,595
Total liabilities	3,152,062	2,582,722	374,459

F-3

ZEPP HEALTH CORPORATION

CONSOLIDATED BALANCE SHEETS - CONTINUED

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”)

except for number of shares and per share data, or otherwise noted)

	As of December 31
	2021	2022	2022
	RMB	RMB	US$
			(Note 2)
Equity
Class A Ordinary shares (US$ 0.0001 par value; 9,700,000,000 shares authorized as of December 31, 2021 and 2022; 133,992,912 and 128,130,440 shares outstanding as of December 31, 2021 and 2022, respectively)	85	85	12
Class B Ordinary shares (US$ 0.0001 par value; 200,000,000 shares authorized as of December 31, 2021 and 2022; 117,208,247 shares outstanding as of December 31, 2021 and 2022)	74	77	11
Additional paid-in capital	1,641,544	1,690,879	245,154
Treasury shares	(21,798)	(67,163)	(9,738)
Accumulated retained earnings	1,271,171	942,848	136,700
Accumulated other comprehensive income	29,271	105,796	15,339
Total Zepp Health Corporation shareholders’ equity	2,920,347	2,672,522	387,478
Noncontrolling interest	13,092	12,399	1,798
Total equity	2,933,439	2,684,921	389,276
Total liabilities and equity	6,085,501	5,267,643	763,735

The accompanying notes are an integral part of these consolidated financial statements.

F-4

ZEPP HEALTH CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”)

except for number of shares and per share data, or otherwise noted)

	For the years ended December 31,
	2020	2021	2022	2022
	RMB	RMB	RMB	US$
				(Note2)
Revenues (including RMB4,449,757, RMB3,350,032 and RMB1,703,995 with related parties for the years ended December 31, 2020, 2021 and 2022, respectively)	6,433,363	6,250,109	4,142,862	600,659
Cost of revenues (including RMB3,713,536, RMB2,759,980 and RMB1,399,491 resulting from related parties sales for the years ended December 31, 2020, 2021 and 2022, respectively)	5,100,698	4,944,467	3,339,746	484,218
Gross profit	1,332,665	1,305,642	803,116	116,441
Operating expenses
Selling and marketing	358,655	438,273	460,304	66,738
General and administrative	261,805	258,346	235,932	34,207
Research and development	538,009	515,081	517,122	74,976
Total operating expenses	1,158,469	1,211,700	1,213,358	175,921
Operating income/(loss)	174,196	93,942	(410,242)	(59,480)
Other income and expenses
Interest income	46,118	16,686	12,334	1,788
Interest expenses	(22,623)	(44,884)	(57,001)	(8,264)
Realized gain from investments	—	13,507	597	87
Gain from deconsolidation of a subsidiary	56,522	—	—	—
Gain from fair value change of long-term investments	12,325	—	51,817	7,513
Impairment loss from a long-term investment	—	—	(13,858)	(2,009)
Other (expenses)/ income, net	(929)	27,418	43,820	6,353
Income/(Loss) before income tax and income from equity method investments	265,609	106,669	(372,533)	(54,012)
Income taxes (provision)/benefit	(31,154)	(10,745)	65,875	9,551
Income/(Loss) before income from equity method investments	234,455	95,924	(306,658)	(44,461)
(Loss)/ Income from equity method investments	(4,749)	41,028	17,657	2,560
Net income/(loss)	229,706	136,952	(289,001)	(41,901)
Less: Net income/(loss) attributable to noncontrolling interest	953	(851)	(693)	(100)
Net income/(loss) attributable to Zepp Health Corporation	228,753	137,803	(288,308)	(41,801)
Net income/(loss) attributable to ordinary shareholders of Zepp Health Corporation	228,753	137,803	(288,308)	(41,801)
Net income/(loss) per share attributable to ordinary shareholders of Zepp Health Corporation
Basic income/(loss) per ordinary share	0.92	0.55	(1.17)	(0.17)
Diluted income/(loss) per ordinary share	0.88	0.52	(1.17)	(0.17)
Weighted average number of shares used in computing net income/(loss) per share
Ordinary share - basic	248,470,684	252,167,610	246,283,328	246,283,328
Ordinary share - diluted	260,351,994	264,368,629	246,283,328	246,283,328

The accompanying notes are an integral part of these consolidated financial statements.

F-5

ZEPP HEALTH CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/LOSS

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”)

except for number of shares and per share data, or otherwise noted)

	For the years ended December 31,
	2020	2021	2022	2022
	RMB	RMB	RMB	US$
				(Note2)
Net income/(loss)	229,706	136,952	(289,001)	(41,901)
Other comprehensive income/(loss), net of tax
Foreign currency translation adjustment	(45,117)	(17,938)	34,379	4,984
Unrealized (loss)/gain on available-for-sale investments and others, (net of tax effect of RMB4,017, nil and RMB7,096 for the years ended December 31, 2020, 2021 and 2022, respectively)	(21,340)	2,585	42,146	6,111
Comprehensive income/(loss)	163,249	121,599	(212,476)	(30,806)
Less: Net income /(loss) attributable to noncontrolling interest	953	(851)	(693)	(100)
Comprehensive income/(loss) attributable to Zepp Health Corporation	162,296	122,450	(211,783)	(30,706)

The accompanying notes are an integral part of these consolidated financial statements.

F-6

ZEPP HEALTH CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”)

except for number of shares and per share data, or otherwise noted)

								Total
						Accumulated		Zepp Health
	Ordinary Shares		Treasury Shares		Additional	Other	Accumulated	Corporation		Total
					Paid-in	Comprehensive	Retained	Shareholders’	Noncontrolling	Shareholders’
	Shares	Amount	Shares	Amount	Capital	Income	Earnings	Equity	Equity	Equity
		RMB		RMB	RMB	RMB	RMB	RMB	RMB	RMB
Balance as of December 31, 2019	247,519,987	155	—	—	1,478,902	111,081	910,612	2,500,750	(3,162)	2,497,588
Exercise of option	2,625,176	2	—	—	(2)	—	—	—	—	—
Net income	—	—	—	—	—	—	228,753	228,753	953	229,706
Foreign currency translation adjustment	—	—	—	—	—	(45,117)	—	(45,117)	—	(45,117)
Share-based compensation	—	—	—	—	67,212	—	—	67,212	—	67,212
Unrealized gain on available-for-sale investments, net of tax effect of RMB4,017	—	—	—	—	—	(21,340)	—	(21,340)	—	(21,340)
Statutory reserve	—	—	—	—	5,997	—	(5,997)	—	—	—
Deconsolidation of a subsidiary	—	—	—	—	—	—	—	—	2,209	2,209
Balance as of December 31, 2020	250,145,163	157	—	—	1,552,109	44,624	1,133,368	2,730,258	—	2,730,258
Exercise of option	3,712,160	2	—	—	5,463	—	—	5,465	—	5,465
Repurchase of ordinary shares	—	—	(2,656,164)	(21,798)	—	—	—	(21,798)	—	(21,798)
Net income	—	—	—	—	—	—	137,803	137,803	(851)	136,952
Foreign currency translation adjustment	—	—	—	—	—	(17,938)	—	(17,938)	—	(17,938)
Share-based compensation	—	—	—	—	83,972	—	—	83,972	—	83,972
Unrealized loss on available-for-sale investments, net of tax effect of RMB nil	—	—	—	—	—	2,585	—	2,585	—	2,585
Capital contribution from non-controlling interest	—	—	—	—	—	—	—	—	13,943	13,943
Balance as of December 31, 2021	253,857,323	159	(2,656,164)	(21,798)	1,641,544	29,271	1,271,171	2,920,347	13,092	2,933,439
Exercise of option	4,357,100	3	—	—	(3)	—	—	—	—	—
Repurchase of ordinary shares	—	—	(10,219,572)	(45,365)	—	—	—	(45,365)	—	(45,365)
Net loss	—	—	—	—	—	—	(288,308)	(288,308)	(693)	(289,001)
Foreign currency translation adjustment	—	—	—	—	—	34,379	—	34,379	—	34,379
Share-based compensation	—	—	—	—	49,338	—	—	49,338	—	49,338
Unrealized gain on available-for-sale investments, net of tax effect of 7,096	—	—	—	—	—	42,146	—	42,146	—	42,146
Cash dividend	—	—	—	—	—	—	(40,015)	(40,015)	—	(40,015)
Balance as of December 31, 2022	258,214,423	162	(12,875,736)	(67,163)	1,690,879	105,796	942,848	2,672,522	12,399	2,684,921

The accompanying notes are an integral part of these consolidated financial statements.

F-7

ZEPP HEALTH CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”)

except for number of shares and per share data, or otherwise noted)

	For the years ended December 31,
	2020	2021	2022	2022
	RMB	RMB	RMB	US$
				(Note2)
Cash Flows from Operating Activities
Net income/(loss)	229,706	136,952	(289,001)	(41,901)
Adjustment to reconcile net income to net cash provided by operating activities:
Non-cash lease expenses	48,191	41,536	40,571	5,882
Depreciation and amortization	27,129	51,884	58,618	8,498
Provision for excess and obsolete inventories	64,223	51,336	39,551	5,734
Share-based compensation	65,154	83,122	49,107	7,120
Share of results of equity method investment	4,749	(41,028)	(17,657)	(2,560)
Gain/(Loss) on disposal of property, plant and equipment and others	7,406	(304)	(1,909)	(277)
Gain from fair value change of long-term investments	(12,325)	—	(51,817)	(7,513)
Impairment loss from a long-term investment	—	—	13,858	2,009
Deferred income taxes	(10,442)	(18,694)	(65,220)	(9,456)
Gain from deconsolidation of a subsidiary	(56,522)	—	—	—
Allowance for doubtful accounts	—	814	652	95
Impairment loss from short-term investments	—	320	—	—
Realized gain from investments	—	(13,507)	(597)	(87)
Changes in operating assets and liabilities
Accounts receivable	(131,215)	(239,860)	(145,671)	(21,120)
Inventories	(410,691)	(83,126)	187,852	27,236
Prepaid expenses and other current assets	(79,957)	(158,829)	210,814	30,565
Amounts due from related parties	583,457	544,599	166,158	24,091
Other non-current assets	(33,049)	8,572	(30,795)	(4,465)
Amount due to related parties	(3,584)	38,938	(9,145)	(1,326)
Accounts payable	(9,761)	(673,224)	(910,679)	(132,036)
Notes payable	(2,184)	103,795	42,378	6,144
Advance from customers	(2,189)	(38,272)	(2,097)	(304)
Income tax payable	(40,148)	(25,111)	119	17
Accrued expenses and other current liabilities	(149,385)	7,767	(60,282)	(8,740)
Other non-current liability	68,739	(10,115)	(12,451)	(1,805)
Net Cash provided by/(used in) Operating Activities	157,302	(232,435)	(787,643)	(114,199)
Cash Flows from Investing Activities
Purchase of property, plant and equipment	(83,554)	(46,055)	(8,138)	(1,180)
Disposal of property, plant and equipment	—	2,520	—	—
Purchase of intangible assets	(1,220)	(7,027)	(1,782)	(258)
Purchase of term deposits	(212,065)	(5,000)	—	—
Proceeds from maturity of term deposits	207,065	5,000	5,000	725
Loans provided to third parties	(480)	—	—	—
Loans provided to related parties	—	—	(15,491)	(2,246)
Purchase of short-term investments	—	—	(16,339)	(2,369)
Disposal of short-term investments	—	—	3,981	577
Purchase of long-term investments	(82,221)	(1,072,783)	(12,733)	(1,846)
Disposal of long-term investments	—	20,000	2,841	412
Dividend received from an equity method investment	—	113	403	58
Acquisition of businesses and assets, net of cash acquired of RMB7,497	(26,713)	—	—	—
Deconsolidation of a subsidiary	(7,701)	20,000	—	—
Capital contribution from non-controlling interest	—	13,943	—	—
Other investing activities	9	—	—	—
Net Cash Used in Investing Activities	(206,880)	(1,069,289)	(42,258)	(6,127)
Cash Flows from Financing Activities
Exercise of share options	—	5,465	—	—
Bank borrowings received	1,207,793	1,473,567	838,859	121,623
Repayment of bank borrowings	(643,122)	(953,387)	(727,500)	(105,478)
Repurchase of ordinary shares	—	(13,763)	(53,216)	(7,716)
Proceeds from letter of credit factoring	—	—	310,265	44,984
Reverse factoring	—	39,195	(39,195)	(5,683)
Dividend distribution	—	—	(40,015)	(5,802)
Net Cash Provided by Financing Activities	564,671	551,077	289,198	41,928
Net increase in cash and cash equivalents and restricted cash	515,093	(750,647)	(540,703)	(78,398)
Effect of exchange rate changes	(43,334)	(15,564)	4,504	656
Cash and cash equivalents and restricted cash at beginning of the year	1,803,991	2,275,750	1,509,539	218,863
Cash and cash equivalents and restricted cash at end of the year	2,275,750	1,509,539	973,340	141,121
Supplemental disclosure of cash flow information
Income tax paid	82,406	74,377	3,443	499
Interest paid	14,858	47,132	55,847	8,097
Non-cash investing and financing activity
Payable for Intangible asset	1,641	1,031	—	—
Receivable from the disposal of a subsidiary	22,500	2,500	2,500	362
Conversion from convertible bond to equity interest investment	8,393	—	10,148	1,471
Disposal of previous equity interest in exchange for acquisition	87,716	—	—	—
Forgiveness of loan related to acquisition	13,711	—	—	—
Payable for property, plant and equipment	173	306	—	—
Payable for repurchasing of ordinary shares	—	8,044	129	19

The accompanying notes are an integral part of these consolidated financial statements.

F-8

ZEPP HEALTH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”)

except for number of shares and per share data, or otherwise noted)

1. ORGANAZATION AND PRINCIPAL ACTIVITIES

Zepp Health Corporation (the “Company”) was incorporated in the Cayman Islands in December 2014. The Company, its wholly owned subsidiaries and its variable interest entities (“VIEs”), Anhui Huami Information Technology Co., Ltd. (“Anhui Huami”), Huami (Beijing) Information Technology Co., Ltd. (“Beijing Huami”), Anhui Huami’s subsidiaries and Beijing Huami’s subsidiaries, are collectively referred to as the “Group”.

The Group primarily engages in the business of developing and manufacturing smart, wearable technological devices in the People’s Republic of China (“PRC”), and sells the products in PRC and overseas. During the years ended December 31, 2020, 2021 and 2022, the Group derived 69.0%, 53.5% and 41.0% of its revenue from sales of exclusively designed and manufactured smart wearable devices to one customer who is controlled by one of its shareholders.

As of December 31, 2022, details of the Company’s major subsidiaries, VIEs and major VIE’s subsidiary were as follows:

		Date of	Percentage
	Place of incorporation	Incorporation/acquisition	Of ownership
Major subsidiaries of the Company:
Hong Kong Zepp Holding Limited (“Zepp HK”)	Hong Kong (“HK”)	December 23, 2014	100%
ZEPP, INC. (“Zepp Inc”)	United States of America (“U.S.”)	January 15, 2015	100%
Beijing ShunYuan KaiHua Technology Co., Ltd. (“Shun Yuan”)	PRC	February 25, 2015	100%
Huami (Shenzhen) Information Technology Co., Ltd.	PRC	December 7, 2015	100%
Anhui Huami Health Technology Co., Ltd (“Anhui Health”)	PRC	December 28, 2015	100%
Zepp North America Inc. (“Zepp NA”)	U.S.	June 16, 2016	100%
Galaxy Trading Platform Limited (“Galaxy”)	HK	May 8, 2019	100%
Zepp Europe Holding B.V. (“Zepp Europe”)	Netherlands	June 11, 2020	100%
Zepp Netherlands Trading B.V. (“Netherland”)	Netherlands	April 20, 2021	100%
Variable interest entities of the Company:
Anhui Huami	PRC	December 27, 2013	Consolidated VIE
Beijing Huami	PRC	July 11, 2014	Consolidated VIE
Major subsidiary of Anhui Huami:
Anhui Huami Healthcare Co., Ltd. (“Anhui Healthcare”)	PRC	December 5, 2016	VIE’s subsidiary

The VIE arrangements

The Company conducts substantially all of its smart, wearable and technological devices business in the PRC through contractual arrangements with its VIEs, Anhui Huami and Beijing Huami and the VIEs’ subsidiaries. Since the operations of the VIEs and the VIEs’ subsidiaries are closely interrelated and almost indistinguishable from one another, the risks and rewards associated with their operations are substantially the same. In addition, the Company consolidates the VIEs and the VIEs’ subsidiaries as disclosed. Therefore, the Company aggregates disclosures related to the VIEs and the VIEs’ subsidiaries as variable interest entities and referred to them as “the VIEs” in the Company’s consolidated financial statements. The VIEs hold the requisite licenses and permits necessary to conduct the Company’s business. In addition, the VIEs hold the assets necessary to operate the Company’s business and generate substantially all of the Company’s revenues.

F-9

ZEPP HEALTH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”)

except for number of shares and per share data, or otherwise noted)

1. ORGANAZATION AND PRINCIPAL ACTIVITIES - CONTINUED

VIE Arrangements between the VIEs and the Company’s PRC subsidiary

The Company, through Shun Yuan, a wholly-owned subsidiary of the Company in the PRC (the “WFOE”) has entered into the following contractual arrangements with Anhui Huami, Beijing Huami and their shareholders that enable the Company to (1) have power to direct the activities that most significantly affects the economic performance of the VIEs, and (2) receive the economic benefits of the VIEs that could be significant to the VIEs. Accordingly, the Company is considered the primary beneficiary of the VIEs and has consolidated the VIEs’ financial results of operations, assets and liabilities in the Company’s consolidated financial statements. In making the conclusion that the Company is the primary beneficiary of the VIEs, the Company believes the Company’s rights under the terms of the purchase option agreement provide it with a substantive kick-out right. More specifically, the Company believes the terms of the purchase option agreement are valid, binding and enforceable under PRC laws and regulations currently in effect. The Company also believes that the consideration which is the minimum amount permitted by the applicable PRC law to exercise the option does not represent a financial barrier or disincentive for the Company to currently exercise its rights under the purchase option agreement.

A simple majority vote of the Company’s board of directors is required to pass a resolution to exercise the Company’s rights under the purchase option agreement, for which Mr. Wang Huang’s, the chief executive officer (“CEO”) of the Company (“Mr. Huang”), consent is not required. The Company’s rights under the purchase option agreement give the Company the power to control the shareholders of Anhui Huami and Beijing Huami. In addition, the Company’s rights under the power of attorney also reinforce the Company’s abilities to direct the activities that most significantly impact the VIEs’ economic performance. The Company also believes that this ability to exercise control ensures that the VIEs will continue to execute consulting and service agreements and also ensures that consulting and service agreements will be executed and renewed indefinitely unless a written agreement is signed by all parties to terminate it or a mandatory termination is requested by the local government. The Company has the rights to receive substantially all of the economic benefits from the VIEs.

Exclusive consulting and service agreement

On April 29, 2015, Shun Yuan entered into an exclusive consulting and service agreement with Anhui Huami and Beijing Huami to enable Shun Yuan to receive substantially all of the economic benefits of the VIEs and such agreement was amended on November 3, 2017. Under the exclusive consulting and service agreement, Shun Yuan has the exclusive right to provide or designate any entity affiliated with it to provide VIEs the technical and business support services, including information technology support, hardware management and updates, software development, maintenance and updates and other operating services. The exclusive consulting and service agreement could be indefinitely effective unless a written agreement is signed by all parties to terminate it or a mandatory termination is requested by the local government. The exclusive consulting and service agreement was effective on April 29, 2015.

On March 20, 2020, due to the change of the nominee shareholders in the VIEs, the exclusive consultation and service agreement of Anhui Huami and Beijing Huami was amended and restated with terms substantially similar as before.

Equity pledge agreement

Pursuant to the equity pledge agreements dated April 29, 2015 and amended on November 3, 2017 among Anhui Huami, Beijing Huami, all their shareholders and Shun Yuan, all shareholders of Anhui Huami and Beijing Huami agreed to pledge their equity interests in Anhui Huami or Beijing Huami to Shun Yuan to secure the performance of the VIEs’ obligations under the existing purchase option agreement, power of attorney, exclusive consulting and service agreement and also the equity pledge agreement.

F-10

ZEPP HEALTH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”)

except for number of shares and per share data, or otherwise noted)

1. ORGANAZATION AND PRINCIPAL ACTIVITIES - CONTINUED

Equity pledge agreement - continued

On March 20, 2020, due to the change of the nominee shareholders in the VIEs, the Group updated the registration of its equity pledge for Anhui Huami and Beijing Huami. The equity pledge agreement for Anhui Huami and Beijing Huami was amended and restated with the same terms as before.

Exclusive purchase option agreement

Pursuant to the exclusive purchase option agreements entered into on April 29, 2015 and amended on November 3, 2017 among Shun Yuan, Anhui Huami, Beijing Huami and their shareholders, the shareholders of Anhui Huami and Beijing Huami are obligated to sell their equity interest or any assets to Shun Yuan. Shun Yuan has the exclusive and irrevocable right to purchase, or cause the shareholders of Anhui Huami and Beijing Huami to sell to the party designated by Shun Yuan, in Shun Yuan’s sole discretion, all of the shareholders’ equity interests or any assets in Anhui Huami and Beijing Huami when and to the extent that applicable PRC law permits the Company to own such equity interests and assets in Anhui Huami and Beijing Huami. The price to be paid by Shun Yuan or any party designated by Shun Yuan will be the minimum amount of consideration permitted by applicable PRC law at the time when such transaction occurs. All of the shareholders promised and agreed that they will refund the consideration once received to Shun Yuan or any party designated by Shun Yuan within 10 working days. Also, the shareholders of Anhui Huami and Beijing Huami should try their best to help Anhui Huami and Beijing Huami develop well and are prohibited from transferring, pledging, intentionally terminating significant contracts or otherwise disposing of any significant assets in Anhui Huami and Beijing Huami without the Shun Yuan’s prior written consent.

On March 20, 2020, due to the change of the nominee shareholders in the VIEs, the exclusive purchase option agreement of Anhui Huami and Beijing Huami was amended and restated with the same terms as before.

Power of Attorney

On April 29, 2015 and amended on November 3, 2017, all of the shareholders of Anhui Huami and Beijing Huami have executed a power of attorney with Shun Yuan, Anhui Huami and Beijing Huami, whereby all of the shareholders irrevocably appoint and constitute the person designated by Shun Yuan as their attorney-in-fact to exercise on their behalf any and all rights that the shareholders have in respect of their equity interests in Anhui Huami and Beijing Huami. The power of attorney will be indefinitely effective unless all parties decide to terminate it by written agreement.

On March 20, 2020, due to the change of the nominee shareholders in the VIEs, the power of attorney agreement of Anhui Huami and Beijing Huami was amended and restated with the same terms as before.

F-11

ZEPP HEALTH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”)

except for number of shares and per share data, or otherwise noted)

1. ORGANAZATION AND PRINCIPAL ACTIVITIES - CONTINUED

Risks in relation to VIE structure

The Company believes that the contractual arrangements with its VIEs and their respective shareholders are in compliance with PRC laws and regulations and are legally enforceable. However, uncertainties in the PRC legal system could limit the Company’s ability to enforce the contractual arrangements. If the legal structure and contractual arrangements were found to be in violation of PRC laws and regulations, the PRC government could:

● revoke the business and operating licenses of the Company’s PRC subsidiaries and VIEs;

● discontinue or restrict the operations of any related-party transactions between the Company’s PRC subsidiaries and VIEs;

● limit the Group’s business expansion in China by way of entering into contractual arrangements;

● impose fines, confiscating the income from the WFOE or the VIEs or imposing other requirements with which the Company’s PRC subsidiaries and VIEs may not be able to comply;

● impose additional conditions or requirements with which the Group may not be able to comply;

● take other regulatory or enforcement actions against the Group that could be harmful to the Group’s business or

● require the Company or the Company’s PRC subsidiaries or VIEs to restructure the relevant ownership structure or operations.

● Restrict or prohibit the use of the proceeds of any offerings to financing the business and operations in the PRC

The Company’s ability to conduct its business may be negatively affected if the PRC government were to carry out any of the aforementioned actions. As a result, the Company may not be able to consolidate its VIEs in its consolidated financial statements as it may lose the ability to exert effective control over the VIEs and their respective shareholders and it may lose the ability to receive economic benefits from the VIEs. The Company, however, does not believe such actions would result in the liquidation or dissolution of the Company, its PRC subsidiaries or VIEs.

The VIE agreements were amended on November 3, 2017 and March 20, 2020 with no significant differences.

Mr. Huang is the largest shareholder of Anhui Huami and Beijing Huami, and Mr. Huang is also the largest beneficiary owner of the Company. The interests of Mr. Huang as the largest beneficiary owner of the VIEs may differ from the interests of the Company as a whole, since Mr. Huang is only one of the beneficiary shareholders of the Company, holding 28.4% of the total common shares as of December 31, 2022. The Company cannot assert that when conflicts of interest arise, Mr. Huang will act in the best interests of the Company or that conflicts of interests will be resolved in the Company’s favor. Currently, the Company does not have existing arrangements to address potential conflicts of interest Mr. Huang may encounter in his capacity as a beneficial owner and director of the VIEs, on the one hand, and as a beneficial owner and director of the Company, on the other hand. The Company believes Mr. Huang will not act contrary to any of the contractual arrangements and the exclusive option agreement provides the Company with a mechanism to remove Mr. Huang as a beneficiary shareholder of the VIEs should he act to the detriment of the Company. The Company relies on Mr. Huang, as a director and executive officer of the Company, to fulfill his fiduciary duties and abide by laws of the PRC and Cayman Islands and act in the best interest of the Company. If the Company cannot resolve any conflicts of interest or disputes between the Company and Mr. Huang, the Company would have to rely on legal proceedings, which could result in disruption of its business, and there is substantial uncertainty as to the outcome of any such legal proceedings.

F-12

ZEPP HEALTH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”)

except for number of shares and per share data, or otherwise noted)

1. ORGANAZATION AND PRINCIPAL ACTIVITIES - CONTINUED

Risks in relation to VIE structure - continued

In addition, most of the current shareholders of Anhui Huami and Beijing Huami are also beneficial owners of the Company and therefore have no current interest in seeking to act contrary to the contractual arrangements. However, to further protect the investors’ interest from any risk that the shareholders of Anhui Huami and Beijing Huami may act contrary to the contractual arrangements, the Company, through Shun Yuan, entered into an irrevocable power of attorney with all of the shareholders of Anhui Huami and Beijing Huami on April 29, 2015 and November 3, 2017. Through the power of attorney, all shareholders of Anhui Huami and Beijing Huami have entrusted the person designated by Shun Yuan as its proxy to exercise their rights as the shareholders of Anhui Huami and Beijing Huami with respect to an aggregate of 100% of the equity interests in Anhui Huami and Beijing Huami.

The following financial position, financial performance and cash flow of the VIEs and VIEs’ subsidiaries were included in the accompanying consolidated financial statements after the elimination of intercompany balances and transactions within the Group:

	As of December 31,
	2021	2022
	RMB	RMB
Total current assets	2,989,474	2,045,609
Total non-current assets	701,134	790,027
Total assets	3,690,608	2,835,636
Total current liabilities	1,937,301	1,521,807
Total non-current liabilities	479,676	484,496
Total liabilities	2,416,977	2,006,303

	For the years ended December 31,
	2020	2021	2022
	RMB	RMB	RMB
Revenues	6,297,534	5,219,560	2,536,863
Net income/(loss)	751,803	(61,184)	(1,282)

	For the years ended December 31,
	2020	2021	2022
	RMB	RMB	RMB
Net cash provided by/(used in) operating activities	770,935	(295,860)	(226,419)
Net cash used in investing activities	(131,183)	(71,916)	(26,610)
Net cash provided by financing activities	564,671	32,024	445,570

F-13

ZEPP HEALTH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”)

except for number of shares and per share data, or otherwise noted)

2. SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation and principle of consolidation

The consolidated financial statements of the Group have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The consolidated financial statements of the Group include the financial statements of the Company, its wholly-owned subsidiaries, its VIEs and the VIEs’ subsidiaries. The Company believes that the disclosures are adequate to make the information presented not misleading.

Use of estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the consolidated financial statements and accompanying notes. Significant accounting estimates reflected in the Group’s consolidated financial statements include inventory valuation, the useful lives of long-lived assets, impairment of long-lived assets, incremental borrowing rate for leases, product warranties, fair value measurement of long-term available-for-sale investments and long-term investments of non-marketable equity securities with fair value change through profit or loss, the valuation allowance for deferred tax assets and income tax. Actual results could differ from those estimates, and such differences may be material to the consolidated financial statements.

Fair value

Fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Group considers the principal or most advantageous market in which it would transact and it considers assumptions that market participants would use when pricing the asset or liability.

Authoritative literature provides a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The level in the hierarchy within which the fair value measurement in its entirety falls is based upon the lowest level of input that is significant to the fair value measurement as follows:

Level 1

Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.

Level 2

Level 2 applies to assets or liabilities for which there are inputs other than quoted prices included within Level 1 that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.

F-14

ZEPP HEALTH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”)

except for number of shares and per share data, or otherwise noted)

2. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

Fair value - continued

Level 3

Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.

Measured fair value on a recurring basis

The Group measured its financial assets primarily including available-for-sale investments at fair value on a recurring basis and equity securities with readily determinable fair value as of December 31, 2021 and 2022.

Measured fair value on a nonrecurring basis

The Group measured acquired intangible assets using the income approach-discounted cash flow method when events or changes in circumstances indicate that the carrying amount of an asset may no longer be recoverable. The fair values were determined using models with significant unobservable inputs (Level 3 inputs). The Group did not recognize any impairment loss related to acquired intangible assets arising from acquisitions during the years ended December 31, 2020, 2021 and 2022.

The Group measured goodwill at fair value on a nonrecurring basis when it is evaluated annually or whenever events or changes in circumstances indicate that the carrying amount of a reporting unit exceeds its fair value as a result of the impairment assessments. The fair value of the reporting unit is determined using discounted cash flows. The Group did not recognize any impairment loss related to goodwill during the years ended December 31, 2020, 2021 and 2022.

For equity investments without readily determinable fair values for which the Company elected to use the measurement alternative, the equity investment is measured at fair value on a nonrecurring basis when there is an orderly transaction for identical or similar investments of the same issuer.

Fair value of financial instruments

The Group’s financial instruments consist primarily of cash and cash equivalents, restricted cash, term deposit, accounts receivable, amounts due from related parties, available-for-sale investments, amount due from a related party, noncurrent, accounts payable, notes payable and others, short-term bank borrowings, amounts due to related parties and long-term bank borrowings. The Company carries its available-for-sales investments at fair value. The carrying amounts of cash and cash equivalents, restricted cash, term deposit, accounts receivable, amounts due from related parties, accounts payable, notes payable and others, amounts due to related parties and short-term bank borrowings approximate their fair values due to the short-term maturities of these instruments. The carrying amounts of amount due from a related party, noncurrent and long-term borrowings approximates its fair value as the interest rates are based on the prevailing interest rates in the market.

F-15

ZEPP HEALTH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”)

except for number of shares and per share data, or otherwise noted)

2. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

Cash and cash equivalents

Cash and cash equivalents consist of cash on-hand, demand deposits with financial institutions, term deposits with an original maturity of three months or less and highly liquid investments, which are unrestricted from withdrawal or use, or which have original maturities of three months or less when purchased.

Restricted cash

Restricted cash represents deposits made to the bank for bank acceptance notes (or notes payable) issued by the Group. When the Group issues the bank acceptance notes, the banks require the Group to make a deposit for 30% to 75% of the face value of the bank acceptance notes issued as collateral. The deposits for unsettled bank acceptance notes are recorded as restricted cash in the consolidated balance sheets as of December 31, 2021 and 2022.

Term deposit

Term deposits consist of deposits placed with financial institutions with original maturities of greater than three months and less than one year.

Accounts receivable

Accounts receivable represents those receivables derived in the ordinary course of business, net of allowance for doubtful accounts.

Allowance for doubtful accounts

The Group maintains an allowance for doubtful accounts for estimated losses on uncollected accounts receivable. Management considers the following factors when determining the collectability of specific accounts: creditworthiness of customers, aging of the receivables, past transaction history with customers and their current condition, changes in customer payment terms, specific facts and circumstances, and the overall economic climate in the industries the Group serves. The Group evaluates its accounts receivable for expected credit losses on a regular basis. The Group maintains an estimated allowance for credit loss to reduce its accounts receivable to the amount that it believes will be collected. The Group uses the creditworthiness of customers, aging of the receivables, past transaction history with customers and their current condition, changes in customer payment terms, specific facts and circumstances, and the overall economic climate in the industries the Group serves to monitor the Group’s receivables within the scope of expected credit losses model and use these as a basis to develop the Group’s expected loss estimates. As of December 31, 2021 and 2022, the Company recorded RMB814 and RMB1,466 allowance for doubtful account.

Inventories, net

Inventories of the Group consist of raw materials, finished goods and work in process. Inventories are stated at the lower of cost or net realizable value on a weighted average basis. Inventory costs include expenses that are directly or indirectly incurred in the purchase, including shipping and handling costs charged to the Group by suppliers, and production of manufactured product for sale, such as include the cost of materials and supplies used in production, direct labor costs and allocated overhead costs such as depreciation, insurance, employee benefits, and indirect labor. Cost is determined using the weighted average method. The Group assesses the valuation of inventory and periodically writes down and writes off the value for estimated excess and obsolete inventory based upon the product life cycle.

F-16

ZEPP HEALTH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”)

except for number of shares and per share data, or otherwise noted)

2. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

Short-term investments

Short-term investments are mainly consisting of investment in convertible bonds with a maturity of less than one year. These investments are accounted for as available-for-sale investments and measured at fair value. The Group recorded RMB1,243, RMB1,240, and RMB2,006 unrealized gains in accumulated other comprehensive income on such investments during the years ended December 31, 2020, 2021 and 2022, respectively.

Prepaid expenses and other current assets

Prepaid expenses and other current assets primarily consist of advance to suppliers, prepaid expenses, other receivables, rental deposits and value-added tax recoverable.

Property, plant and equipment, net

Property, plant and equipment are carried at cost less accumulated depreciation. Depreciation is calculated on a straight-line basis over the following estimated useful lives:

Software and electronic equipment	3-5 years
Building	20 years
Leasehold improvements	Shorter of the lease term or estimated useful lives

Intangible assets, net

Acquired intangible assets other than goodwill consist of the domain name for the Company’s website www.zepp.com, an insurance brokerage license, trademark and patents.

The domain name, insurance brokerage license and certain trademark are recognized as an intangible asset with indefinite life and evaluated for impairment at least annually or if events or changes in circumstances indicate that the asset might be impaired. Such impairment test compares the fair values of the asset with its carrying value amounts and an impairment loss is recognized if and when the carrying amounts exceed the fair value. The estimates of values of the intangible asset not subject to amortization are determined using discounted cash flow valuation approach. Significant assumptions are inherent in this process, including estimates of discount rates and cash flow.

Some trademark and patents are recognized as intangible assets with finite lives and are amortized on a straight-line basis over their expected useful economic lives. Amortization is calculated on a straight-line basis over the estimated useful life of 5 to10 years.

F-17

ZEPP HEALTH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”)

except for number of shares and per share data, or otherwise noted)

2. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

Leases

The Group leases administrative office spaces in different cities in the PRC, and in the United States and Canada under operating leases. The Group determines whether an arrangement constitutes a lease and records lease liabilities and right-of-use assets on its consolidated balance sheets at the lease commencement. The Group measures its lease liabilities based on the present value of the total lease payments not yet paid discounted based on its incremental borrowing rate, which is the estimated rate the Group would be required to pay for a collateralized borrowing equal to the total lease payments over the term of the lease. The Group estimates its incremental borrowing rate based on an analysis of publicly traded debt securities of companies with credit and financial profiles similar to its own. The Group measures right-of-use assets based on the corresponding lease liability adjusted for payments made to the lessor at or before the commencement date, and the initial direct costs it incurs under the lease. The Group begins recognizing operating lease expenses when the lessor makes the underlying asset available to the Group. The Group’s leases have remaining lease terms of up to four years, some of which include options to extend the leases for an additional period which has to be agreed with the lessors based on mutual negotiation. After considering the factors that create an economic incentive, the Group did not include renewal option periods in the lease term for which it is not reasonably certain to exercise. For all real estate leases, any non-lease components, including common area maintenance, have been separated from lease components and excluded from the associated right-of-use asset and lease liability calculations.

For short-term leases with lease term less than one year, the Group records operating lease expenses in its consolidated statements of operations on a straight-line basis over the lease term and record variable lease payments as incurred.

Goodwill

Goodwill represents the excess of the purchase price over the fair value of identifiable net assets acquired in business combination. Goodwill is not amortized but is tested for impairment annually or more frequently if events on changes in circumstance indicate that it might be impaired.

Goodwill is tested for impairment at the reporting unit level on an annual basis and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. These events or circumstances could include a significant change in the stock prices, business climate, legal factors, operating performance indicators, competition, or sale or disposition of a significant portion of a reporting unit.

Application of the goodwill impairment test requires judgment, including the identification of reporting units, assignment of assets and liabilities to reporting units, assignment of goodwill to reporting units, and determination of the fair value of each reporting unit. The estimation of fair value of each reporting unit using a discounted cash flow methodology also requires significant judgments, including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rate of growth for the Group’s business, estimation of the useful life over which cash flows will occur, determination of the Group’s weighted average cost of capital and consideration of the impact of COVID-19. The estimates used to calculate the fair value of a reporting unit change from year to year based on operating results and market conditions. Changes in these estimates and assumptions could materially affect the determination of fair value and goodwill impairment for the reporting unit.

The Group uses the one-step method for its goodwill impairment assessment for the years ended December 31, 2020, 2021 and 2022. Goodwill impairment is calculated as the amount by which a reporting unit’s carrying value exceeds its fair value.

During the years ended December 31, 2020, 2021 and 2022, the Group recognized nil impairment loss on goodwill.

F-18

ZEPP HEALTH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”)

except for number of shares and per share data, or otherwise noted)

2. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

Long-term investments

The Group’s long-term investments consist of equity securities with readily determinable fair value, equity securities without readily determinable fair value, equity method investments and available-for-sale investments.

(a) Equity securities with readily determinable fair value

Equity securities with readily determinable fair values are measured at fair value and any changes in fair value are recognized in the consolidated statements of operations.

(b) Equity securities without readily determinable fair value

The Group accounts for equity investments that do not have a readily determinable fair value under the measurement alternative prescribed within Accounting Standards Update (“ASU”) 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, to the extent such investments are not subject to consolidation or the equity method. Under the measurement alternative, these financial instruments are carried at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer.

The Group reviews its equity securities without readily determinable fair value for impairment at each reporting period by considering factors including, but not limited to, current economic and market conditions and the impact of COVID-19, the operating performance of the companies including current earning trends and other company specific information.

(c) Equity method investments

For an investee company over which the Group has the ability to exercise significant influence, but does not have a controlling interest, the Group accounts for the investment under the equity method. Significant influence is generally considered to exist when the Group has an ownership interest in the voting stock of the investee between 20% and 50%. Other factors, such as representation on the investee’s board of directors, voting rights and the impact of commercial arrangements are also considered in determining whether the equity method of accounting is appropriate.

Under the equity method of accounting, the investee company’s accounts are not reflected within the Group’s consolidated balance sheets and statements of operations; however, the Group’s share of the earnings or losses of the investee company is reflected in the caption “(loss)/income from equity method investments” in the consolidated statements of operations.

An impairment charge is recorded if the carrying amount of the investment exceeds its fair value and this condition is determined to be other-than-temporary. The Group estimated the fair value of the investee company based on comparable quoted price for similar investment in active market, if applicable, or discounted cash flow approach which requires significant judgments, including the estimation of future cash flows, which is dependent on internal forecasts, the estimation of long-term growth rate of a company’s business, the estimation of the useful life over which cash flows will occur, the determination of the weighted average cost of capital and the impact of COVID-19. The Group recorded nil impairment losses on its equity method investments during the years ended December 31, 2020, 2021 and 2022.

F-19

ZEPP HEALTH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”)

except for number of shares and per share data, or otherwise noted)

2. SIGNIFICANT ACCOUNTING POLICIES – CONTINUED

Long-term investments - continued

(d) Available-for-sale investments

For investments which are determined to be debt securities, the Group accounts for them as long-term available-for-sale investments when they are not classified as either trading or held-to-maturity investments.

Available-for-sale investment is carried at its fair value and the unrealized gains or losses from the changes in fair values are included in accumulated other comprehensive income. The Group recorded RMB(22,583), RMB1,345, and RMB40,140 unrealized (losses) /gains in accumulated other comprehensive income on its available-for-sale investments during the years ended December 31, 2020, 2021 and 2022, respectively.

The Group evaluates each individual investment periodically for impairment. For investments where the Group does not intend to sell, the Company evaluates whether a decline in fair value is due to deterioration in credit risk. Credit-related impairment losses, not to exceed the amount that fair value is less than the amortized cost basis, are recognized through an allowance for credit losses on the consolidated balance sheet with corresponding adjustment in the consolidated statements of operations and comprehensive income. Subsequent increases in fair value due to credit improvement are recognized through reversal of the credit loss and corresponding reduction in the allowance for credit loss. Any decline in fair value that is non-credit related is recorded in accumulated other comprehensive income as a component of shareholder’s equity. As of December 31, 2021 and 2022, there were no investments held by the Group that had been in continuous unrealized loss position.

Notes payable and others

Notes payable and others include short-term bank acceptance notes issued by financial institutions that entitle the holder to receive the stated amount from the financial institutions at the maturity date of the notes. The Group has utilized notes payable to settle amounts owed to suppliers and contractors. Notes payable and others also includes a letter of credit, which is issued by the bank to facilitate the settlement of the transactions with service providers. Once issued, the bank endorses to pay to the service provider, who is also the letter of credit holder, when the letter of credit matures. The short-term bank acceptance notes and the letter of credit are normally settled within three months and twelve months, respectively.

Revenue recognition

Nature of Goods and Services

The Group generates substantially all of its revenues from sales of smart wearable devices. The Group also generates a small amount of its revenues from its subscription-based services. For the years ended December 31, 2020, 2021 and 2022, the Group generated 69.0%, 53.5% and 41.0% of revenue from one customer for sales of exclusively designed and manufactured smart wearable devices, and generated 31.0%, 46.5% and 59.0% of revenue from sales of the Group’s self-branded products and others. Revenue is recognized when control of the promised goods or services is transferred to the customer, in an amount that reflects the consideration the Group expects to be entitled to in exchange for the goods or services. The Group recognizes revenue, net of estimated sales returns and value-added taxes (“VAT”).

F-20

ZEPP HEALTH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”)

except for number of shares and per share data, or otherwise noted)

2. SIGNIFICANT ACCOUNTING POLICIES – CONTINUED

Revenue recognition - continued

The Group has determined that its contracts with its customers include multiple performance obligations that the Group accounts for separately as those are distinct from other items in the contract. The first performance obligation is the smart wearable device and embedded firmware that is essential to the functionality of the device, which the customer can benefit from it on its own or with other resources that are readily available to the customer. The second performance obligation is the software services included with the products, which are provided free of charge and enable users to sync, view, and access real-time data on the Group’s mobile apps. The third performance obligation is the embedded right included with the purchase of the device to receive, on a when-and-if-available basis, future unspecified firmware upgrades and features relating to the product’s essential firmware.

The Group allocates the transaction price to all performance obligations based on their relative standalone selling prices. The standalone selling prices are determined based on the expected cost plus margin as the Group determined that no observable price is available for any of its performance obligation. The Group considered multiple factors in the process of determining its cost plus margin including consumer behaviors and the Group’s internal pricing model. The cost plus margin estimated selling price for the smart and wearable devices comprised the majority of the transaction. The Group recognizes revenue for the amounts allocated to the connected smart and wearable devices when the customer obtains control of the Group’s product, which occurs at a point of time, typically upon delivery to and acceptance by the reseller, who has been identified as the customer of the Group. Amounts allocated to the software services and unspecified upgrade rights are deferred and recognized over time as the customer simultaneously receives and consumes the benefit over an estimated nine-month period.

Sales of self-branded products and others

The Group’s revenue recognition for its self-branded products is consistent with that described in the preceding paragraphs.

Cooperation agreement with one customer

For the years ended December 31, 2020, 2021 and 2022, the Group generated 69.0%, 53.5% and 41.0% of revenue from one customer for sales of exclusively designed and manufactured smart wearable devices. That customer is also the sole distributor for such smart wearable devices and is controlled by one of the shareholders (see Note 22). Under the cooperation agreement with this customer, the Group produces and assembles final product for shipments of wearable devices to that customer, who are then responsible for commercial distribution and sale of the product. The arrangement includes two payment instalments. The first payment instalment is priced to recover the costs incurred by the Group in developing and shipping the devices to the customer and is due from the customer to the Group once the products have been delivered and accepted by the customer. The Group allocates the initial payment instalment between the hardware device, the software services, and the software upgrades based on their standalone selling price and recognizes revenue based on its recognition policy further described in the preceding paragraph. The Group is also entitled to receive a potential second instalment payment calculated as 50 percent of the future net profits from commercial sales made by the customer. The Group has determined that the second instalment consideration constitutes variable consideration and includes the amount in the transaction price to the extent it is not constrained and it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period (see below for further details). The second instalment is also allocated between the hardware device, the software services, and the software upgrades based on the relative standalone price and is recognized based on the Group’s recognition policy further described in the preceding paragraph. The Group’s revenue recognition policy of its products under its cooperation agreement is substantially consistent with that for its sales of self-branded products except that the instalment payments arrangement under the cooperation agreement is not available to the self-branded products.

During the year ended December 31, 2022, the Group also sold one specific generation of Xiaomi Wearable Product, accounting for 26.1% of consolidated revenue, which has a standard selling price and does not include installment payments described in the preceding paragraph. The revenue recognition for the sales of such specific generation of Xiaomi Wearable Product is consistent with the revenue recognition described for the self-branded products.

F-21

ZEPP HEALTH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”)

except for number of shares and per share data, or otherwise noted)

2. SIGNIFICANT ACCOUNTING POLICIES – CONTINUED

Revenue recognition - continued

Variable Consideration

Revenues from product sales are recorded at the net sales price (transaction price), which includes estimate of variable consideration which result from the Group’s cooperation agreement with one customer (see above for more details). The amount of variable consideration is included in the transaction price to the extent it is not constrained and that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period. Actual amounts of consideration ultimately received may differ from the Group’s estimates. If actual results in the future vary from the Group’s estimates, the Group will adjust these estimates, which would affect revenue and earnings in the period such variances are known.

Sales Incentive

The Group periodically provides sales incentives to its customers for self-branded products, including reduced sales prices and volume-based discounts. Volume discounts are negotiated on a contract-by-contract basis with customers and the discount will increase depending upon the volume purchased over the period. The sales incentives are discounts to be applied to future sales to the customer which cannot be exchanged for cash. To the extent that the volume discount or sales incentive represents a material right or options to acquire additional goods or services at a discount in the future period, the material right is recognized as a separate performance obligation at the outset of the arrangement based on the most likely amount of incentive to be provided to the customer. Amounts allocated to a material right are recognized as revenue when those future goods are sold to the customers.

Practical Expedients and Exemptions

The Group generally expenses sales commissions when incurred because the amortization period would have been one year or less. These costs are recorded within selling and marketing expenses. In addition, the Group does not disclose the value of unsatisfied performance obligations as all of its contracts have an original expected length of one year or less.

Value added taxes

VAT on sales was previously calculated at 17% on revenue from products before May 1, 2018 and thereafter, in accordance with Cai Shui [2018] No.32, the VAT rate decreased to 16%. Since April 1, 2019, in accordance with Cai Shui [2019] No.39, the VAT rate further decreased to 13%. VAT was calculated at 6% on the revenue from the service provided. The Group reports revenue net of VAT. Subsidiaries that are VAT general taxpayers are allowed to offset qualified input VAT paid against their output VAT liabilities.

Rights of return

The Group offers certain sales returns for products sold directly to end users and to its resellers. The Group estimates the amount of its products sales that may be returned by its end users and resellers and records this estimate as a reduction of revenue in the period the related revenue is recognized. The Group currently estimates product return liabilities using its expectations and historical experience.

F-22

ZEPP HEALTH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”)

except for number of shares and per share data, or otherwise noted)

2. SIGNIFICANT ACCOUNTING POLICIES – CONTINUED

Cost of revenues

Cost of revenues consists primarily of material costs, salaries and benefits for staff engaged in production activities and related expenses which are directly attributable to the production of products. The shipping and handling fees billed to the customers are presented as part of cost of revenues as well.

Product warranty

The Group offers standard product warranty to its customers, for a 12-month period starting from the sales of the goods to the end users. The Group has the obligation to either repair or replace the defect product for the customers if the product is still under warranty. At the time revenue is recognized, an estimate of future warranty costs is recorded as a component of cost of revenues. The reserves established are regularly monitored based upon historical experience and any actual claims charged against the reserve. Warranty reserves are recorded as a cost of revenues.

Research and development expenses

Research and development expenses primarily consist of salaries and benefits for research and development personnel, materials, office rental expenses, general expenses and depreciation expenses associated with research and development activities.

Advertising expenses

Advertising expenses are expensed as incurred and included in selling and marketing expenses. Total advertising expenses were RMB136,974, RMB151,744 and RMB172,577 for the years ended December 31, 2020, 2021 and 2022, respectively.

Government subsidies

Government subsidies represent government grants received from local government authorities to encourage the Group’s technology and innovations and also other subsidies for production.

The Group records such government subsidies as other income or reduction of expenses or cost of revenues when it has fulfilled all of its obligation related to the subsidy.

During the years ended December 31, 2020, 2021 and 2022, the Group recognized RMB13,461, RMB23,140 and RMB41,054 as subsidy income and recognized RMB10,408, RMB103,660 and RMB53,563 as reduction of expenses or cost of revenues, respectively. As of December 31, 2021 and 2022, subsidies of RMB3,129 and RMB1,745 were recorded as other current liabilities, RMB175,053 and RMB162,602 were recorded as other non-current liabilities as the Group has to meet certain performance conditions required by the government authorities.

F-23

ZEPP HEALTH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”)

except for number of shares and per share data, or otherwise noted)

2. SIGNIFICANT ACCOUNTING POLICIES – CONTINUED

Income taxes

Income taxes are provided for in accordance with the laws of the relevant tax authorities. Deferred tax assets and liabilities are recognized when temporary differences exist between the tax bases of assets and liabilities and their reported amounts in the consolidated financial statements. Net operating loss carry forwards and credits are applied using enacted statutory tax rates applicable to future years. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more-likely-than-not that a portion of or all of the deferred tax assets will not be realized.

The Group accounts for uncertain tax positions by reporting a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return. Tax benefits are recognized from uncertain tax positions when the Group believes that it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. The Group recognizes interest and penalties, if any, related to unrecognized tax benefits in income tax expenses.

Share-based payment

Share-based payment transactions with employees, such as share options and restricted shares are measured based on the grant date fair value of the equity instrument. The Group has elected to recognize compensation expenses using the straight-line method. For all employee’s equity awards granted with graded vesting provided, the amount of compensation cost recognized at any date is at least equal to the portion of the grant-date value of the options that are vested at that date, over the requisite service period of the award. The requisite service period is generally the vesting period of the award. The Group elects to recognize forfeitures when they occur.

Comprehensive income

Comprehensive income consists of two components, net income and other comprehensive income, net of tax. Other comprehensive income refers to revenue, expenses, and gains and losses that are recorded as an element of shareholders’ equity but are excluded from net income. The Group’s other comprehensive income consists of foreign currency translation adjustments from its subsidiaries not using the RMB as their functional currency and the fair value change of available-for-sale investments of the Group. Comprehensive income is reported in the consolidated statements of comprehensive income.

Foreign currencies

The functional currency of the Company is the US$ and the reporting currency of the Company is the RMB. The Company’s subsidiaries, consolidated VIEs and VIEs’ subsidiaries with operations in the PRC, Hong Kong, the United States and other jurisdictions generally use their respective local currencies as their functional currencies. The financial statements of the Company’s subsidiaries, other than the subsidiaries and consolidated VIEs with the functional currency of RMB, are translated into RMB using the exchange rate as of the balance sheet date for assets and liabilities and the average daily exchange rate for each month for income and expense items. Translation gains and losses are recorded in accumulated other comprehensive income or loss as a component of shareholders’ equity.

In the financial statements of the Company’s subsidiaries and consolidated VIEs and VIEs’ subsidiaries, transactions in currencies other than the functional currency are measured and recorded in the functional currency using the exchange rate in effect at the date of the transaction. At the balance sheet date, monetary assets and liabilities that are denominated in currencies other than the functional currency are translated into the functional currency using the exchange rate at the balance sheet date. All gains and losses arising from foreign currency transactions are recorded in the consolidated statements of operations during the year in which they occur. For the years ended December 31, 2020, 2021 and 2022, the transaction gains amounted to RMB27,451, RMB18,156 and RMB12,086 were recorded in general and administrative expenses.

F-24

ZEPP HEALTH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”)

except for number of shares and per share data, or otherwise noted)

2. SIGNIFICANT ACCOUNTING POLICIES – CONTINUED

Foreign currencies - continued

RMB is not a freely convertible currency. The State Administration for Foreign Exchange, under the authority of the People’s Bank of China, controls the conversion of RMB into other currencies. The value of the RMB is subject to changes in central government policies and to international economic and political developments affecting supply and demand in the China Foreign Exchange Trading System market. The Group’s cash and cash equivalents denominated in US$ and RMB amounted to RMB435,205 and RMB990,222 as of December 31, 2021, RMB263,400 and RMB565,721 as of December 31, 2022, respectively.

Convenience translation

Translations of balances in the consolidated balance sheets, consolidated statements of operations and consolidated statements of cash flows from RMB into US$ as of and during the year ended December 31, 2022 is solely for the convenience of the reader and were calculated at the rate of US$1.00 = RMB6.8972, representing the rate as certified by the statistical release of the Federal Reserve Board of United States on December 30, 2022. No representation is made that the RMB amounts could have been, or could be, converted, realized or settled into U.S. dollar at that rate on December 31, 2022, or at any other rate.

Net income per share

Basic net income per ordinary share is computed by dividing net income attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period.

Diluted income per ordinary share reflect the potential dilution that would occur if securities were exercised or converted into ordinary shares. The Group had share options, restricted shares and restricted stock units (“RSU”) which could potentially dilute basic income per ordinary share in the future. To calculate the number of shares for diluted income per ordinary shares, the effect of the share options, restricted shares and RSU is computed using the treasury stock method.

Concentration of credit risk

Financial instruments that potentially expose the Group to concentrations of credit risk consist primarily of cash and cash equivalents, term deposits, accounts receivable. The Group places its cash and cash equivalents with financial institutions with high credit ratings and quality.

The Group conducts credit evaluations of third-party customers and related parties, and generally does not require collateral or other security from its third-party customers and related parties. The Group establishes an allowance for doubtful accounts primarily based upon the age of the receivables and factors surrounding the credit risk of specific third-party customers and related parties.

F-25

ZEPP HEALTH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”)

except for number of shares and per share data, or otherwise noted)

2. SIGNIFICANT ACCOUNTING POLICIES – CONTINUED

Concentration of credit risk - continued

Accounts receivable concentration of credit risk is as below:

	As of December 31,
	2021			2022
	RMB			RMB
Company A	87,825	16.4	%	124,319	18.2	%
Company B	269,460	50.1	%	287,160	42.1	%
Total	357,285	66.5	%	411,479	60.3	%

Amounts due from related parties concentration of credit risk is as below:

	As of December 31,
	2021			2022
	RMB			RMB
Company C	286,341	96.9	%	117,944	81.4	%
Total	286,341	96.9	%	117,944	81.4	%

Revenue generated from Company C accounted for 69.1%, 53.5% and 41.0% of total revenue during the years ended December 31, 2020, 2021 and 2022, respectively. Company C is a subsidiary of a company controlled by one of the Group’s shareholders (see Note 22).

	For the years ended December 31,
	2020			2021			2022
	RMB			RMB			RMB
Company C	4,447,957	69.1	%	3,340,857	53.5	%	1,697,053	41.0	%
Total	4,447,957	69.1	%	3,340,857	53.5	%	1,697,053	41.0	%

Supplier Concentration

The Group relies on third parties for the supply and manufacturing of its products, as well as third-party logistics providers. In instances where these parties fail to perform their obligations, the Group may be unable to find alternative suppliers or satisfactorily deliver its products to its customers on time, if at all.

For the year ended December 31, 2020, 15.1% of its raw materials and semi-manufactures were purchased through Company D, respectively, but numerous alternate sources of supply are readily available on comparable terms. No purchases from a single suppliers account for more than 10% of total purchases during the years ended December 31, 2021 and 2022.

F-26

ZEPP HEALTH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”)

except for number of shares and per share data, or otherwise noted)

2. SIGNIFICANT ACCOUNTING POLICIES – CONTINUED

Newly adopted accounting pronouncements

In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832) — Disclosures by Business Entities about Government Assistance. The amendments in this ASU require disclosures about transactions with a government that have been accounted for by analogizing to a grant or contribution accounting model to increase transparency about (1) the types of transactions, (2) the accounting for the transactions, and (3) the effect of the transactions on an entity’s financial statements. The amendments in this ASU are effective for all entities within their scope for financial statements issued for annual periods beginning after December 15, 2021. Early application of the amendments is permitted. The Group adopted ASU 2021-10 in the year ended December 31, 2022 and the adoption did not have a material impact on the Group’s consolidated financial statements.

Recent accounting pronouncements not yet adopted

In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (ASU 2021-08), which clarifies that an acquirer of a business should recognize and measure contract assets and contract liabilities in a business combination in accordance with Topic 606, Revenue from Contracts with Customers. The new amendments are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The amendments should be applied prospectively to business combinations occurring on or after the effective date of the amendments, with early adoption permitted. The Group is currently evaluating the impact of the new guidance on its consolidated financial statements.

In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions, which clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The amendments also clarify that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction. This guidance also requires certain disclosures for equity securities subject to contractual sale restrictions. The new guidance is required to be applied prospectively with any adjustments from the adoption of the amendments recognized in earnings and disclosed on the date of adoption. This guidance is effective for the Group for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. Early adoption is permitted. The Group does not expect that the adoption of this guidance will have a material impact on its financial position, results of operations and cash flows.

On September 29, 2022, the FASB issued ASU 2022-04 to enhance transparency about an entity’s use of supplier finance programs. ASU 2022-04 requires the buyer in a supplier finance program to disclose qualitative and quantitative information about the program, and at a minimum, the following information at least annually:

F-27

ZEPP HEALTH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”)

except for number of shares and per share data, or otherwise noted)

2. SIGNIFICANT ACCOUNTING POLICIES – CONTINUED

The key terms of the program, including payment terms and assets pledged as security or other forms of guarantees.

The amount of obligations outstanding at the end of the reporting period that the buyer has confirmed as valid and:

- A description of where those obligations are presented in the balance sheet.

- Rollforward information for the annual period showing the amount at the beginning of the period, the amount added during the period, the amount settled during the period, and the amount outstanding at the end of the period.

The amendments in this Update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, except for the amendment on rollforward information, which is effective for fiscal years beginning after December 15, 2023. Early adoption is permitted. The Group is currently evaluating the impact of the new guidance on its consolidated financial statements but does not expect the adoption of this standard to have a material impact on its financial position, results of operations and cash flows.

3. ACQUISITIONS

Business acquisition of PAI Health Inc. (“PAI”)

On June 12, 2020, the Group acquired 100% equity interest in PAI from Global Technology and Innovation Ltd (“GTI”) to expand the business of health-related software and algorithms development. The purchase consideration included a previously held 40.49% equity interest held in GTI which was previously accounted as an equity method investment by the Group for which the fair value approximated RMB87,716, cash of RMB1,370 and RMB13,711 of loan deemed effectively settled as a result of the acquisition. The fair value of previously held equity interest held in GTI was estimated by the Group with the assistance of an independent valuation appraiser by applying the income approach, market multiple approach and recent investment price approach.

The acquisition was recorded using the acquisition method of accounting. Accordingly, the acquired assets and liabilities assumed were recorded at their fair value at the date of acquisition. The purchase price allocation described below was determined by the Group with the assistance of an independent valuation appraiser. The acquired net assets were recorded at their estimated fair values on the acquisition date. The acquired goodwill is not deductible for tax purposes.

PAI constituted less than 1% of revenue and total assets of the consolidated financial statement as of and during the year ended December 31, 2021 and 2022 and the results of operations attributable to PAI and pro forma results of operations for PAI have not been presented because they are not material to the consolidated statements of operations and comprehensive income for the years ended December 31, 2020, 2021 and 2022.

The purchase price was allocated as of June 12, 2020, the date of acquisition, as follows:

		Amortization
	RMB	period
Cash	5,554
Other current assets	4,704
Property, plant and equipment	149	3 years
Intangible assets
Patents	42,495	5 years
Goodwill	67,856
Other non-current assets	261
Other current liabilities	8,868
Deferred tax liabilities	6,374
Other non-current liabilities	2,980
Total	102,797

F-28

ZEPP HEALTH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”)

except for number of shares and per share data, or otherwise noted)

3. ACQUISITIONS – CONTINUED

Business acquisition of PAI Health Inc. (“PAI”) - continued

The goodwill is mainly attributable to intangible assets that cannot be recognized separately as identifiable assets under US GAAP, and comprise of (a) the assembled work force and (b) the expected but unidentifiable business growth as a result of synergy effect from the acquisition. Goodwill is not allocated to the Company’s operating segments in the measure of segment assets regularly reported to and used by the chief operating decision maker. However, for the purpose of the annual goodwill impairment test, goodwill is allocated to the operating segments (goodwill reporting units).

Asset acquisition of Guoxu Insurance Brokerage Co., Ltd. (“Guoxu”)

In July 2020, the Group entered into a purchase agreement with shareholders of Guoxu to acquire 100% of Guoxu’s equity ownership for a gross consideration of RMB67,914, of which RMB35,075 was related to the effective settlement of the selling shareholder’s loan payable to Guoxu upon closing. This resulted in a net cash consideration of RMB32,839.

Guoxu holds an insurance brokerage license. As of the acquisition day, the Group terminated all the labor relationship with the employees of Guoxu and did not buy any material contracts. The Group evaluated the acquisition of the purchased assets under ASC 805-Business Combination (ASC 805), and concluded that as substantially all of the fair value of the gross assets acquired is concentrated in the insurance brokerage license, the transaction did not meet the requirements to be accounted for as a business combination and therefore the transaction was accounted for as an asset acquisition.

4. DISPOSAL OF SUBSIDIARIES

Disposal of Shenzhen Yunding Information Technology Co., Ltd. (“Yunding”)

In December 2020, the Group sold 26.7% equity interest in Yunding to its founder for cash consideration of RMB22,500. The consideration also included a loan receivable from Yunding amounting to RMB24,514 to be repaid annually over three years for which the Group has a right to convert the unpaid balance into equity interest of Yunding after December 31, 2023. Yunding was previously part of the Group’s self-branded products and others segment. Subsequent to this disposal, the Group remeasured its remaining 24.3% investment in Yunding at fair value and accounted for it as equity method investment because the Group retained the ability to exercise significant influence. The fair value of its remaining investment in Yunding was estimated by using recent financing transaction of Yunding. The Group recognized RMB56,522 gain from deconsolidation of a subsidiary which was recorded as part of gain from deconsolidation of a subsidiary in the consolidated statements of operations for the year ended December 31, 2020. In 2021, the Group further sold 5% equity interest of Yunding for RMB20,000. The disposal of Yunding did not represent a strategic shift and did not have a major effect on the Group’s operation.

5. INVENTORIES, NET

Inventories consisted of the following:

	As of December 31,
	2021	2022
	RMB	RMB
Raw materials	282,939	97,266
Work in process	224,013	130,536
Finished goods	742,375	794,121
Inventories, net	1,249,327	1,021,923

During the years ended December 31, 2020, 2021 and 2022, the Group recorded a provision for the excess and obsolete inventories amounting to RMB64,223, RMB51,336 and RMB39,551 respectively.

F-29

ZEPP HEALTH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”)

except for number of shares and per share data, or otherwise noted)

6. SHORT-TERM INVESTMENTS

	As of December 31,
	2021	2022
	RMB	RMB
Convertible bonds:	19,351	34,316
Total:	19,351	34,316

Short-term investments included convertible bonds with maturities less than 1 year, which were classified as available-for-sales investments and measured at fair value. The Group recognized RMB1,243, RMB1,240 and RMB2,006 unrealized gains from these investments in 2020, 2021 and 2022.

7. PREPAID EXPENSES AND OTHER CURRENT ASSETS

	As of December 31,
	2021	2022
	RMB	RMB
Value-added tax recoverable	198,189	4,648
Other receivables	57,039	44,951
Prepaid expenses	51,156	53,682
Advances to suppliers	7,838	1,758
Rental deposits	816	3,213
Total	315,038	108,252

8. PROPERTY, PLANT AND EQUIPMENT, NET

Property, plant and equipment, net consisted of the following:

	As of December 31,
	2021	2022
	RMB	RMB
Software and electronic equipment	78,854	77,693
Buildings	34,764	34,764
Leasehold improvements	81,759	90,720
Total	195,377	203,177
Less: accumulated depreciation	(70,832)	(112,238)
Construction in progress	9,328	9,666
Property, plant and equipment, net	133,873	100,605

The Group has recorded depreciation expenses of RMB14,949, RMB35,109 and RMB41,406 during the years ended December 31, 2020, 2021 and 2022, respectively. No impairment was recorded during the years ended December 31, 2020, 2021 and 2022.

F-30

ZEPP HEALTH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”)

except for number of shares and per share data, or otherwise noted)

9. INTANGIBLE ASSETS, NET

Intangible assets, net, consisted of the following:

	As of December 31,
	2021	2022
	RMB	RMB
Intangible assets with indefinite lives:
Domain name	2,024	2,024
Insurance brokerage license, trademark and others	42,617	44,399
Intangible assets with finite lives:
Patents and trademark	128,332	131,480
Less: accumulated amortization	37,391	54,603
Intangible assets, net	135,582	123,300

Amortization expenses for the intangible assets for the years ended December 31, 2020, 2021 and 2022, were RMB12,180, RMB16,775 and RMB17,212, respectively. Future amortization expenses relating to the existing intangible assets amounted to RMB17,374 per year for each of the next two years, RMB13,600 for the third year, RMB9,097 for the fourth and fifth year and RMB10,335 thereafter.

10. LONG-TERM INVESTMENTS

Long-term investments consisted of the following:

	As of December 31,
	2021	2022
	RMB	RMB
Equity securities without readily determinable fair value
Sifive, Inc. (“Sifive”) (a)	21,759	95,613
AliveCor, Inc., (“Alivecor”) (b)	14,988	24,582
Promaxo, Inc.(“Promaxo”) (c)	25,490	27,589
Other equity securities without readily determinable fair value (d)	81,775	91,141
Equity securities with readily determinable fair value
Hyperfine Inc. (e)	31,669	4,413
Equity method investments:
Jiangsu Yitong High-Tech Co, Ltd(“Jiangsu Yitong”) (f)	960,832	968,242
Hefei Huaying Xingzhi Fund Partnership (limited partnership) (“Huaying Fund I”) (g)	61,014	60,262
Anhui Huaying Zhihui Wulian Fund Parnership(limited partnership)(“Huaying Fund II”) (h)	200,067	212,803
Other equity method investments (i)	46,548	53,164
Available-for-sale investments
Yunding (j)	50,431	74,912
Other available-for-sale investments (k)	58,018	73,907
Total	1,552,591	1,686,628

(a) In 2018, the Group invested RMB12,332 to acquire 1.01% equity interests in Sifive. Sifive is a private company engaging in the business of semiconductor. The equity interest is not considered in-substance common shares due to substantial liquidation preference rights. Accordingly, the investment in Sifive was accounted for as equity securities without readily determinable fair value. The Group recognized RMB3,304, nil and RMB66,322 gain from the fair value change of this investment during the years ended December 31, 2020, 2021 and 2022, respectively.

F-31

ZEPP HEALTH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”)

except for number of shares and per share data, or otherwise noted)

10. LONG-TERM INVESTMENTS - CONTINUED

(b) In 2019, the Group invested USD1,000 in a convertible bond issued by Alivecor with 3% interest rate. In February 2020, the Group converted the bond to 0.56% equity interest and the equity interest is not considered in-substance common shares due to substantial liquidation rights owned by the Group. Accordingly, the investment in Alivecor was accounted for equity securities without readily determinable fair value. The Group recognized RMB7,728, nil and RMB8,620 gain from the fair value change of this investment during the years ended December 31, 2020, 2021 and 2022, respectively.

(c) In 2020, the Group invested USD4,000 to acquire 4.05% equity interests in Promaxo. Promaxo is a private company engaging in the business of Magnetic Resonance (“MR”) technology. The equity interest is not considered in-substance common shares due to substantial liquidation preference rights. Accordingly, the investment in Promaxo was accounted for as equity securities without readily determinable fair value. For the year ended December 31, 2020, 2021 and 2022, no fair value change was observed and recognized.

(d) These other investments represent certain insignificant investments in the third-party private companies, which the Group has no significant influence over the investees and accounted for these investments using the measurement alternative method.

(e) In December 2021, Hyperfine was successfully listed in the US capital market through a special purpose acquisition and the investment in Hyperfine was converted from equity securities without readily determinable fair value to equity securities with readily determinable fair value. The Group recorded RMB194 and RMB28,466 realized loss from the fair value change of this investment during the years ended December 31, 2021 and 2022, respectively.

(f) In February 2021, the Group acquired 29.99% equity interest of Jiangsu Yitong, a company listed on the Shenzhen stock exchange, for a total cash consideration of RMB959.68 million. The purpose of the investment is to expand the healthcare ecosystem in the domestic market. The investment of Jiangsu Yitong is accounted for using the equity method as the Group can exercise significant influence through its board representation without obtaining control. During 2022, the Group further acquired 0.01% equity interest of Jiangsu Yitong. The Group recorded RMB1,152 and RMB7,580 income from this equity method investment during the year ended December 31, 2021 and 2022, respectively.

The total consideration of the investment in Jiangsu Yitong was RMB960,832 and the proportion of Jiangsu Yitong’s net assets that owned by the Group was RMB137,302 as of December 31, 2021. The difference between the total consideration and the proportion of net assets was RMB823,530, which has been allocated into goodwill, intangible assets and others assets with the amount of RMB636,672, RMB173,524 and RMB13,334, respectively.

As of December 31, 2022, the carrying value of the investment in Jiangsu Yitong is RMB968,242 and the difference with the proportionate share of Jiangsu Yitong’s net assets was RMB813,101, which allocated into goodwill, intangible assets and others assets with the amount of RMB636,672, RMB172,940 and RMB3,489, respectively.

The intangible assets are trademark with indefinite life and patents with definite life, which are amortized on a straight-line basis over the estimated useful life of 3 to 7 years.

(g) In 2016, the Group invested RMB50,000 to acquire a 49.5% equity interests in a limited partnership, Huaying Fund I, which is a fund engaged in investing activities in small and middle scale High Tech private companies. The Group accounted for the investment under the equity method because the investments are common stock and the Group has significant influence through its board seat but does not control Huaying Fund I. The Group recorded RMB(2,452), RMB7,910 and RMB(752) of (loss)/income from equity method investment during the years ended December 31, 2020, 2021 and 2022, respectively.

F-32

ZEPP HEALTH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”)

except for number of shares and per share data, or otherwise noted)

10. LONG-TERM INVESTMENTS – CONTINUED

(h) In 2019, the Group invested RMB102,000 to acquire a 34% equity interests in a limited partnership, Huaying Fund II, a fund engaged in investing activities in small and middle scale High Tech private companies. The Group accounted for the investment using the equity method as the Group has significant influence through its board seat but does not control Huaying Fund II. In March 2021, the Group paid the second installment of cash consideration in Huaying Fund II for an amount of RMB68 million. The Group recorded RMB5,297, RMB24,434 and RMB12,737 of income from equity method investment during the years ended December 31, 2020, 2021 and 2022, respectively.

(i) The other equity method investments represent several insignificant investments classified as equity method investments as the Group has the ability to exercise significant influence but does not have control over the investees.

(j) In 2020, the Group invested RMB22,000 in a convertible bond issued by Yunding with interest rates ranging from 4.35% to 8.7%. The Group also has some equity interests in Yuding and accounted them as available for sale investment due to the redemption feature included in the investment as of December 31, 2021 and 2022. During 2021, the Group disposed 5% equity interests in Yunding and recognized a realized gain with amount of RMB13,507 from the disposal. The Group also recorded an unrealized gain of nil, RMB903 and RMB20,943 in other comprehensive income/(loss) for the years ended December 31, 2020, 2021 and 2022, respectively.

(k) Available-for-sale investments represent investments in debt securities and measured at fair value. Those investments mainly include investments in convertible bonds as well as investment with redemption features considered debt instruments.

The Group summarizes the condensed financial information of the Group’s equity investments using equity method as a group below in accordance with Rule 4-08 of Regulation S-X:

	For the year ended December 31,
	2020	2021	2022
	RMB	RMB	RMB
Revenue	28,087	330,685	412,975
Gross profit	15,114	198,495	147,434
Income from operations	3,011	140,006	68,663
Net income	3,042	137,681	66,039
Net income attributable to ordinary shareholders	3,042	137,681	66,039

	As of December 31,
	2021	2022
	RMB	RMB
Current assets	941,812	825,465
Non-current assets	780,128	913,919
Current liabilities	122,430	88,454
Non-current liabilities	36,807	1,386

F-33

ZEPP HEALTH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”)

except for number of shares and per share data, or otherwise noted)

11. FAIR-VALUE MEASUREMENT

Fair-value measurement on a recurring basis

As of December 31, 2021 and 2022, the financial assets measured at fair value on a recurring basis mainly consist of available-for-sale investments and equity securities with readily determinable fair value. Available-for-sale investment includes convertible bonds and redeemable preferred shares, which are recorded in short-term and long-term investments. The fair value hierarchy of these investments as of December 31, 2021 and 2022 are as follows:

	As of December 31, 2021
	Quoted Prices in		Significant
	Active Market for	Significant Other	Unobservable
	Identical Assets	Observable Inputs	Inputs
Description	Level 1	Level 2	Level 3	Total
	RMB	RMB	RMB	RMB
Short-term investments:
Convertible bonds	—	19,351	—	19,351
Long-term investments:
Convertible bonds	—	43,055	—	43,055
Redeemable preferred shares	—	—	65,393	65,393
Equity securities with readily determinable fair value	—	31,669	—	31,669
Total:	—	94,075	65,393	159,468

	As of December 31, 2022
	Quoted Prices in		Significant
	Active Market for	Significant Other	Unobservable
	Identical Assets	Observable Inputs	Inputs
Description	Level 1	Level 2	Level 3	Total
	RMB	RMB	RMB	RMB
Short-term investments:
Convertible bonds	—	—	34,316	34,316
Long-term investments:
Convertible bonds	—	—	38,741	38,741
Redeemable preferred shares	—	37,044	73,034	110,078
Equity securities with readily determinable fair value	4,413	—	—	4,413
Total:	4,413	37,044	146,091	187,548

For equity securities with readily determinable fair value, the fair value of the investment is measured as the quoted market price with discounts for lack of marketability as of December 31, 2021, and classified as level 2 investments. The investment is classified as level 1 measurement as the investment has readily quoted market price as of December 31, 2022, due to the passage of the sale restricted period.

The Group measured the fair value of the convertible bonds based on the respective principals, expected returns and the estimated conversion value. Those convertible bonds are classified in Level 2 or Level 3 depending on whether significant unobservable inputs are used in the fair value determination.

F-34

ZEPP HEALTH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”)

except for number of shares and per share data, or otherwise noted)

11. FAIR-VALUE MEASUREMENT - CONTINUED

Fair-value measurement on a recurring basis - continued

The Group measured the fair value of the redeemable preferred shares based on the recent transactions or based on the market approach when no recent transactions are available. Recent transactions include the purchase price agreed by an independent third party for an investment with similar terms. These investments are classified as level 2 measurement. When no recent transactions are available, a market approach will be used by the Company to measure fair value. The market approach takes into consideration a number of factors including market multiple and discount rates from traded companies in the industry and requires the Company to make certain assumptions and estimates regarding industry factors. Specifically, some of the significant unobservable inputs included the investee’s historical earning, discount of lack of marketability, investee’s time to initial public offering as well as related volatility. The Company has classified these as level 3 measurement. The assumptions are inherently uncertain and subjective. Changes in any unobservable inputs may have a significant impact on the fair values.

There are certain redeemable preferred shares and convertible bonds transferred from level 2 to level 3 during the years ended December 31, 2021 and 2022. The following table provides additional information about the reconciliation of the fair value measurements of assets using significant unobservable inputs (level 3).

	Level 3
	investments
	RMB
Balance as of January 1, 2021	1,934
Initial recognition	24,960
Transfer from level 2	38,499
Balance as of December 31, 2021	65,393
Unrealized gain	19,575
Transfer from level 2	73,057
Transfer to level 2	(11,934)
Balance as of December 31, 2022	146,091

Fair-value measurement on a non-recurring basis

Goodwill and acquired intangible assets are measured at fair value on a non-recurring basis when an impairment is recognized. The Group measures goodwill at fair value annually or whenever events or changes in circumstances indicate that the carrying amount of a reporting unit exceeds its fair value. The fair value of goodwill is determined using discounted cash flows, and an impairment loss is recognized for any excess in the carrying value of goodwill over the implied fair value of goodwill. The Group measures acquired intangible assets using the income approach—discounted cash flow method, when events or changes in circumstances indicate that the carrying amount of an asset may no longer be recoverable. During the years ended December 31, 2020, 2021 and 2022, no impairment loss was recognized for goodwill and intangible assets.

The Group measures long-term investments (excluding the equity securities with readily determinable fair values and available-for-sale investments) at fair value on a nonrecurring basis only if an impairment indicator exist or an observable price adjustment is available in the current period. For equity securities without readily determinable fair value for which the Group elected to use the measurement alternative, the investment is measured at fair value on a nonrecurring basis whenever there is an impairment or any changes resulting from observable price changes in an orderly transaction for the identical or a similar investment of the same issuer. The fair value of the investment is categorized as level 2 in the fair value hierarchy when directly or indirectly observable inputs in the market place are identified. Whenever events or changes in circumstances indicate that the carrying value may no longer be recoverable, the fair value of aforementioned long-term investments is determined using models with significant unobservable inputs (Level 3 inputs), primarily the management projection of discounted future cash flow and the discount rate. During the years ended December 31, 2020, 2021 and 2022, the Group recognized an impairment loss of RMB nil, nil and 13,858 for the equity securities without readily determinable fair value.

F-35

ZEPP HEALTH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”)

except for number of shares and per share data, or otherwise noted)

12. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

	As of December 31,
	2021	2022
	RMB	RMB
Deferred revenue	87,980	61,164
Current operating lease liabilities	50,092	42,320
Accrued payroll and welfare	41,948	25,875
Other tax payable	23,541	20,535
Product warranty	24,858	17,748
Accrued expenses	17,058	6,703
Refund liabilities	5,745	4,845
Government subsidies	3,129	1,745
Reverse factoring	39,195	—
Other current liabilities	22,537	16,884
Total	316,083	197,819

Product warranty activities were as follows:

	RMB
Balance as of January 1, 2020	49,527
Provided during the year	74,742
Utilized during the year	(91,487)
Balance as of December 31, 2020	32,782
Provided during the year	63,540
Utilized during the year	(71,464)
Balance as of December 31, 2021	24,858
Provided during the year	27,146
Utilized during the year	(34,256)
Balance as of December 31, 2022	17,748

The warranty costs recorded in cost of revenues were RMB74,742, RMB63,540 and RMB27,146 during the years ended December 31, 2020, 2021 and 2022, respectively.

13. BANK BORROWINGS

The Group borrowed approximately RMB1,473,567 and RMB838,859 in different currencies from several commercial banks with weighted average interest rate of 3.83% and 3.13%, and repaid RMB953,387 and RMB727,500 in 2021 and 2022, respectively. These bank loans have maturities ranging from one to seven years and are used for the daily operations and investing activities of the Group. As of December 31, 2022, the unused lines of credit in the Group amounted to RMB1,789,015 which is available for future borrowing.

As of December 31, 2022, RMB464 million bank borrowing was provided by the bank for the sole use of the investment in Jiangsu Yitong and the Group has pledged 20.48% equity interest in Jiangsu Yitong to the bank. For some of the long-term bank borrowings, there are certain customary covenants regarding limits on levels of indebtedness, mergers, asset dispositions, changes in business, advances, investments, loans, restricted payments and financial condition such as the profitability, debt ratio, liquidation ratio and etc. Failure to meet any of the above requirements would result in an event of default that would allow lenders to declare amounts outstanding immediately due and payable and would allow the lenders to enforce their interests against collateral pledged if we were unable to settle the amounts outstanding. We were in compliance with all financial debt covenants as of December 31, 2022.

F-36

ZEPP HEALTH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”)

except for number of shares and per share data, or otherwise noted)

13. BANK BORROWINGS - CONTINUED

The principal repayment schedule of the bank borrowings in the following five years is listed as below:

	Repayment Amount
	RMB
2023	512,000
2024	140,000
2025	260,000
2026	65,000
2027 and thereafter	219,210

14. DIVIDEND

On March 17, 2022, the Company announced a special cash dividend of US$0.025 per ordinary share (US$0.1 per ADS) on its outstanding shares to shareholders of record as of the close of trading on March 28, 2022. The ex-dividend date is March 25, 2022 and the dividend was paid in April 2022.

15. REVENUE AND DEFERRED REVENUE

Disaggregation of revenue

All the revenues for the period were recognized from contracts with customers. For the years ended December 31, 2020, 2021 and 2022, the majority of the Group’s revenues result from sales of products which was recognized at a point of time. The following table provides information about disaggregated revenue by products, including a reconciliation of the disaggregated revenue with reportable segments:

	For the years ended December 31,
	2020	2021	2022
	RMB	RMB	RMB
Xiaomi Wearable Products	4,438,081	3,340,857	1,697,053
Self-branded products and other	1,995,282	2,909,252	2,445,809
Total	6,433,363	6,250,109	4,142,862

During the years ended December 31, 2020, 2021 and 2022, the majority of the Group’s products are sold to resellers and distributors in the PRC. This includes products that have international versions which are first sold to the Group’s domestic distributors who subsequently distribute those products internationally.

F-37

ZEPP HEALTH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”)

except for number of shares and per share data, or otherwise noted)

15. REVENUE AND DEFERRED REVENUE - CONTINUED

Contract balances

The following table provides information about receivables, deferred revenue and refund liability from contracts with customers:

	As of December 31,
	2021	2022
	RMB	RMB
Accounts receivables	537,084	682,103
Amounts due from related parties	295,614	138,614
Deferred revenue	87,980	61,164
Refund liability (sales return)	5,745	6,932

Accounts receivables are recorded when the right to consideration is unconditional and payments terms on invoiced amounts are typically 30 to 90 days. Amounts due from related parties include both amounts billed and unbilled due from related party under the cooperation agreement. As of December 31, 2021 and 2022, the amount due from related parties include the billed amount of RMB231,485 and RMB136,001, and unbilled amounted to RMB64,129 and RMB2,613, respectively. The amount billed is recorded when the right to the consideration is unconditional and payment terms on invoiced amounts are typically 30 to 60 days. Unbilled amount due from related party relate to contractual right to consideration under cooperation agreement for the second instalment payment not yet invoiced. The Company recorded no impairment charges related to contract assets during the years ended December 31, 2020, 2021 and 2022.

Deferred Revenue, recorded in accrued expenses in the consolidated balance sheet, include payment received in advance of performance under the contract related to software services which are realized over the estimated usage period and payment received related to a material right provided to a customer to acquire additional goods or services at a discount in a future period. Refund liability includes the Group’s estimated product sales that may be returned by the Group’s end users and resellers covered under the Group’s sale return policy. Refund liability is included in “Accrued expenses and other” and “Amounts due to related parties”. Additions to the allowance were RMB3,679, RMB84,869 and RMB 157,821 and deductions from the allowance were RMB3,895, RMB79,490 and RMB156,634 during the years ended December 31, 2020, 2021 and 2022.

During the years ended December 31, 2020, 2021 and 2022, the Group recognized RMB59,585, RMB51,780 and RMB87,980 of revenue previously included in deferred revenue as of December 31, 2019, December 31, 2020 and 2021, which mainly consist of revenue recognized related to its subscription-based service. Additionally, during the years ended December 31, 2020, 2021 and 2022, the Group billed RMB102,687, RMB80,675 and RMB64,129 to a related party, which was initially recorded as unbilled amount, mainly due to the timing of invoicing for the goods related to its cooperation agreement. The difference between the opening and closing balances of the Group’s contract liabilities primarily results from the timing difference between the Group’s performance and the customer’s payment.

16. INCOME TAXES

The Company is incorporated in the Cayman Islands. Under the current laws of the Cayman Islands, the Company is not subject to income or capital gains taxes. In addition, dividend payments are not subject to withholdings tax in the Cayman Islands.

The Company’s subsidiaries, Zepp HK and Galaxy, are located in HK and are subject to a two-tiered income tax rates for taxable income earned in HK with effect from April 1, 2018. The first HK$2 million of profits earned by Zepp HK and Galaxy will be taxed at 8.25%, while the remaining profits will continue to be taxed at the existing 16.5% tax rate. In addition, to avoid abuse of the two-tiered income tax rate regime, each group of connected entities can nominate only one entity to benefit from the two-tiered income tax rate. Additionally, payments of dividends by the subsidiaries incorporated in HK to the Company are not subject to any HK withholding tax. Under the HK tax laws, the Company is exempted from the HK income tax on foreign-derived income.

F-38

ZEPP HEALTH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”)

except for number of shares and per share data, or otherwise noted)

16. INCOME TAXES - CONTINUED

The Company’s subsidiaries Zepp Inc and Zepp NA are located in the U.S. and are subject to an income tax rate of 21% for taxable income earned as determined in accordance with relevant tax rules and regulations in the U.S.

The Company’s subsidiary Zepp Netherlands is located in Netherland and is subject to an income tax rate of 15% for taxable income earned as determined in accordance with relevant tax rules and regulations in Netherland.

The Company’s PRC subsidiaries, the VIEs and VIEs’ subsidiaries are subject to the 25% standard enterprise income tax rate except for Anhui Huami and Anhui Health and Shun Yuan that qualify as a high and new technology enterprise (“HNTE”), which are subject to a tax rate of 15%. Anhui Huami began to qualify as HNTE in 2015 and renewed the HNTE certificate in July 2018 and September 2021. Accordingly, Anhui Huami is subject to a tax rate of 15% during the years ended December 31, 2021, 2022 and 2023. Anhui Health qualifed as a HNTE in August 2020 and is subject to a tax rate of 15% during the year ended December 31, 2020, 2021 and 2022. In addition, Shun Yuan qualified as a HNTE since December 2021 and is subject to a tax rate of 15% during the years ended December 31, 2021, 2022 and 2023.

The current and deferred components of income taxes appearing in the consolidated statements of operation are as follows:

	For the years ended December 31,
	2020	2021	2022
	RMB	RMB	RMB
Current tax expenses	42,257	31,543	379
Deferred tax benefits	(11,103)	(20,798)	(66,254)
Income tax expenses/(benefit)	31,154	10,745	(65,875)

The significant components of the Group’s deferred tax assets were as follows:

	As of December 31,
	2021	2022
	RMB	RMB
Accrued expenses and other current liabilities	47,005	46,958
Net operating loss carry forwards	75,100	178,689
Intra-entity transfer of certain intangible assets	28,290	26,726
Total deferred tax assets	150,395	252,373
Less: valuation allowance	(6,976)	(42,187)
Deferred tax assets, net	143,419	210,186

As of December 31, 2022, the Group had RMB1,119,767 operating losses deriving from entities in the PRC, HK, U.S., Canada, and etc. The operating losses in the PRC amounted to RMB942,754 and can be carried forward for five years, or ten years if the Group qualifies as HNTE and operating losses are not utilized, some will begin to expire in 2023. The operating loss incurred in the U.S. before December 31, 2017 can be carried forward for 20 years to offset future taxable profit, while other losses incurred after December 31, 2017 may be carried forward indefinitely. The tax losses incurred in HK can be carried forward indefinitely. The operating loss incurred in the Canada can be carried back 3 years and forward 20 years for deduction against any form of income.

F-39

ZEPP HEALTH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”)

except for number of shares and per share data, or otherwise noted)

16. INCOME TAXES - CONTINUED

Management assesses the available positive and negative evidence in certain entities in the PRC, HK, U.S. and Canada to estimate if sufficient future taxable income will be generated to utilize the existing deferred tax assets and determines the valuation allowance on an entity by entity basis. In making such determination, the Group considers the following factors, among other matters, when determining whether some portion or all of the deferred tax assets will more likely than not be realized: the nature, frequency and severity of recent losses, forecasts of future profitability, the duration of statutory carry-forward periods, the Group’s experience with tax attributes expiring unused and tax planning alternatives. The Group’s ability to realize deferred tax assets depends on its ability to generate sufficient taxable income within the carry-forward periods provided for in the tax law. On the basis of this evaluation, for the years ended December 31, 2021 and 2022, the Group recorded RMB6,976 and RMB42,187 valuation allowance for the deferred tax assets.

Reconciliation between the tax expense computed by applying the PRC enterprise tax rate of 25% to income before income tax and the actual income tax expense were as follows:

	For the years ended December 31,
	2020	2021	2022
	RMB	RMB	RMB
Income/(loss) before income tax	265,609	106,669	(372,533)
Tax expense/(benefit) at PRC enterprise income tax rate of 25%	66,402	26,667	(93,133)
Effect of preferential tax rates	(41,869)	(19,387)	29,784
Tax effect of permanence differences	(20,001)	(34,587)	(53,808)
Effect of income tax rate differences in other jurisdictions	21,625	23,666	16,071
Change in tax rate	3,460	9,549	—
Changes in valuation allowances	1,537	4,837	35,211
Income tax benefits/(expenses)	31,154	10,745	(65,875)

If Anhui Huami, Anhui Health and Shun Yuan did not enjoy the tax holidays, tax expense would have increased by RMB41,869 and RMB19,387 for the years ended December 31, 2020 and 2021, respectively, and the tax benefit would have decreased by RMB29,784 for the year ended December 31, 2022. The decrease in basic net income per ordinary share would be RMB0.17 and RMB0.08 and the decrease in diluted net income per ordinary share would be RMB0.16 and RMB0.07 for the years ended December 31, 2020 and 2021. The increase in basic and diluted net loss per ordinary share would be RMB0.12 for the year ended December 31, 2022.

Under the Income Tax Law effective from January 1, 2008, the rules for determining whether an entity is resident in the PRC for tax purposes have changed and the determination of residence depends among other things on the “place of actual management”. If the Group, or its non-PRC subsidiaries, were to be determined as a PRC resident for tax purposes, they would be subject to a 25% income tax rate on their worldwide income including the income arising in jurisdictions outside the PRC. The Group does not believe that its legal entities organized outside of the PRC are considered PRC residents.

If the Company was to be a non-resident for PRC tax purposes, dividends paid to it out of profits earned after January 1, 2008 would be subject to a withholding tax. In the case of dividends paid by PRC entities to the entities organized outside of the PRC or any foreign investors, the withholding tax would be 10%, unless any entities organized outside of the PRC or any such foreign investors’ jurisdiction of incorporation has a tax treaty with China that provides for a different withholding arrangement.

F-40

ZEPP HEALTH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”)

except for number of shares and per share data, or otherwise noted)

16. INCOME TAXES - CONTINUED

Aggregate undistributed earnings of the Company’s PRC subsidiaries and VIEs that are available for distribution amounted to RMB2,228,550 and RMB1,993,460 as of December 31, 2021 and 2022, respectively. Upon distribution of such earnings, the Company will be subject to PRC EIT taxes, the amount of which is impractical to estimate. The Company did not record any tax on any of the aforementioned undistributed earnings because the relevant subsidiaries and VIEs do not intend to declare dividends and the Company intends to permanently reinvest it within the PRC. Additionally, no deferred tax liability was recorded for taxable temporary differences attributable to the undistributed earnings because the Company believes the undistributed earnings can be distributed in a manner that would not be subject to income tax.

The Group did not identify any significant unrecognized tax benefits for the years ended December 31, 2020, 2021 and 2022, respectively. The Group did not incur any significant interest and penalties related to potential underpaid income tax expenses and also does not anticipate any significant increases or decreases in unrecognized tax benefits in the next twelve months. The Group has no material unrecognized tax benefits which would favorably affect the effective income tax rate in future periods.

According to the PRC Tax Administration and Collection Law, the tax authority may require the taxpayer or the withholding agent to make delinquent tax payment within three years if the underpayment of taxes is resulted from the tax authority’s act or error. No late payment surcharge will be assessed under such circumstances. The statute of limitation will be three years if the underpayment of taxes is due to the computational errors made by the taxpayer or the withholding agent. Late payment surcharge will be assessed in such case. The statute of limitation will be extended to five years under special circumstances which are not clearly defined (but an underpayment of tax liability exceeding US$15 (RMB0.1 million) is specifically listed as a “special circumstance”). The statute of limitation for transfer pricing related issue is ten years. There is no statute of limitation in the case of tax evasion. Therefore, the Group’s PRC domiciled entities are subject to examination by the PRC tax authorities based on the above.

17. ORDINARY SHARES

As of December 31, 2022, the Company had 405,462,685 ordinary shares authorized with a par value of US$0.0001 per share. There are two classes of ordinary shares which include the class A ordinary shares and class B ordinary shares. Holders of class A ordinary shares are entitled to one vote per share, while holders of class B ordinary shares are entitled to ten votes per share.

The Company repurchased 2,656,164 and 10,219,572 class A shares from the market for a total consideration of US$ 3,411 (RMB21,798) and US$6,905 (RMB45,365), at a weighted average price of US$ 1.284 and US$0.671 per share during the years ended December 31, 2021 and 2022, respectively. The shares are reserved for the employees and non-employees in the share incentive plan.

18. SHARE-BASED PAYMENT

Share options

2015 Share Incentive Plan

On October 21, 2015, the Group adopted the 2015 share incentive plan (“2015 Plan”) which consists of a share incentive plan for U.S. service providers (“U.S. Plan”) and a share incentive plan for PRC service providers (“PRC Plan”). The maximum aggregate number of ordinary shares that may be issued under the 2015 Plan is 14,328,358 ordinary shares to be allocated to employees, officers, directors or consultants of the Company.

F-41

ZEPP HEALTH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”)

except for number of shares and per share data, or otherwise noted)

18. SHARE-BASED PAYMENT – CONTINUED

2015 Share Incentive Plan - continued

During the years ended December 31, 2020, 2021 and 2022, the Group granted nil share options to personnel under the 2015 Plan.

2018 Share Incentive Plan

In January 2018, The Company adopted the 2018 share incentive plan (“2018 Plan”), commencing on January 1, 2018, which provides additional incentives to employees, directors and consultants to promote the success of the Group’s business. Under the 2018 share incentive plan, the maximum aggregate number of shares which may be issued initially pursuant to all awards under the 2018 Plan is 9,559,607 ordinary shares. The number of shares reserved for future issuances under the 2018 Plan will be increased by (i) a number equal to 1.0% of the total number of outstanding shares immediately after IPO, or (ii) such number of shares as may be determined by the board of directors, on the first day of each calendar year during the term under 2018 Plan.

During the years ended December 31, 2020, 2021 and 2022, the Group granted 4,030,108, 8,988,000 and 1,492,332 share options to certain personnel under the 2018 Plan. The weighted average exercise price of options granted during the years ended December 31, 2020, 2021 and 2022 was US$0 per share, US$0.01 per share and US$0 per share. The Group has recorded RMB42,316, RMB64,415 and RMB32,916 share-based compensation expenses related to options in 2015 plan and 2018 plan for the years ended December 31, 2020, 2021 and 2022, respectively.

The Group calculated the estimated fair value of the options on the respective grant dates using the binomial option pricing model with assistance from independent valuation firms. Assumptions used to determine the fair value of share options granted during the years ended December 31, 2020, 2021 and 2022 are summarized in the following table:

	For the years ended December 31,
	2020		2021		2022
Risk-free interest rate	0.67%-0.72	%	1.66	%	4.25	%
Expected volatility	51.9%-52.0	%	52.2	%	52.4	%
Expected life of option (years)	10		10		10
Expected dividend yield	0.0	%	0.0	%	0.0	%
Fair value per ordinary share	RMB21.60-23.10		RMB8.05-12.98		RMB1.96

(i) Risk-free interest rate

Risk-free interest rate was estimated based on the yield to maturity of China international government bonds with a maturity period close to the contractual term of the options.

(ii) Expected life of option (years)

Expected life of option (years) represents the expected years to vest the options.

(iii) Volatility

The volatility of the underlying ordinary shares during the life of the options was estimated based on the historical stock price volatility of comparable listed companies over a period comparable to the contractual term of the options.

F-42

ZEPP HEALTH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”)

except for number of shares and per share data, or otherwise noted)

18. SHARE-BASED PAYMENT – CONTINUED

2018 Share Incentive Plan - continued

(iv) Dividend yield

The dividend yield was estimated by the Group based on its expected dividend policy over the contractual term of the options.

(v) Fair value of underlying ordinary shares

During the year ended December 31, 2020, 2021 and 2022, the fair value of the underlying ordinary shares is determined based on the closing market price of the share.

A summary of the stock option activity under the 2015 and 2018 Plan during the year ended December 31, 2022 is included in the table below.

		Weighted average
		exercise price
	Number of options	per option
		US$
Outstanding at January 1, 2022	16,798,153	0.07
Granted	1,492,332	—
Exercised	(4,357,100)	—
Forfeited	(1,105,682)	0.45
Outstanding at December 31, 2022	12,827,703	0.05

The following table summarizes information regarding the share options as of December 31, 2022:

	December 31, 2022
			Weighted
			average remaining
		Weighted	exercise
		average exercise	contractual	Aggregate
	Options Number	price per option	life (years)	intrinsic value
		US$		US$
Options
Outstanding	12,827,703	0.05	7.26	4,389
Exercisable	7,904,689	0.08	6.67	2,604
Expected to vest	4,923,014	—	8.21	1,784

The total intrinsic value of options exercised during the years ended December 31, 2020, 2021 and 2022 amounted RMB32,010, RMB14,094 and RMB10,894, respectively.

The weighted average grant date fair value of options granted during the year ended December 31, 2020, 2021 and 2022 was RMB22.42, RMB12.95 and RMB1.96 per share, respectively.

As of December 31, 2022, there was RMB47,616 of unrecognized compensation expenses related to the options.

F-43

ZEPP HEALTH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”)

except for number of shares and per share data, or otherwise noted)

18. SHARE-BASED PAYMENT – CONTINUED

Restricted Stock Units

During the years ended December 31, 2020, 2021 and 2022, the Company granted 2,216,120, 2,034,432 and 100,972 restricted stock units respectively to employees. Most of the shares have a vesting period of four or five years of employment services with the various vesting percentage in each year, or 20% on an annual basis over a five-year vesting period. The restricted stock units are not transferable and may not be sold or pledged and the holder has no voting or dividend right on the non-vested shares. In the event a non-vested shareholder’s employment for the Company is terminated for any reason prior to the fourth anniversary of the grant date, the holder’s right to the non-vested shares will terminate immediately. The outstanding restricted stock units shall be forfeited and automatically transferred to and reacquired by the Company at nil consideration.

The Group recognized compensation expenses over the service period on a straight-line basis. The aggregate fair value of the restricted stock units at grant dates was RMB137,036 as of December 31, 2022.The weighted average grant-date fair value of non-vested shares was RMB22.00 for the year ended December 31, 2022. The fair value of the vested restricted stock units was RMB21,020, RMB11,648 and RMB26,079 during the years ended December 31, 2020, 2021 and 2022.

During the years ended December 31, 2020, 2021 and 2022, the Group recorded compensation expenses of RMB22,838, RMB18,707 and RMB16,191 for the restricted stock units, respectively.

As of December 31, 2022, there was RMB29,700 unrecognized compensation expenses related to restricted stock units which is expected to be recognized over a weighted average vesting period of 2.13 years. The weighted average granted fair value of restricted stock units granted during the years ended December 31, 2020, 2021 and 2022 were RMB 22.84 per RSU, RMB21.44 per RSU and RMB6.88 per RSU.

A summary of the restricted stock units activity during the year ended December 31, 2022 is presented below:

	RSUs
Unvested balance as of January 1, 2022	3,079,436
Granted	100,972
Forfeited	(213,700)
Vested	(1,268,408)
Unvested balance as of December 31, 2021	1,698,300

Total share-based compensation recognized during the years ended December 31, 2020, 2021 and 2022 was as follows:

	For the years ended December 31,
	2020	2021	2022
	RMB	RMB	RMB
Cost of revenues	—	—	—
General and administrative	38,605	32,247	21,353
Research and development	23,978	42,677	23,585
Selling and marketing	2,571	8,198	4,169
Total share-based compensation expenses	65,154	83,122	49,107

F-44

ZEPP HEALTH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”)

except for number of shares and per share data, or otherwise noted)

19. MAINLAND CHINA CONTRIBUTION PLAN

Full time employees of the Group in the PRC participate in a government-mandated multi-employer defined contribution plan pursuant to which certain pension benefits, medical care, unemployment insurance, employee housing fund and other welfare benefits are provided to employees. Chinese labor regulations require the Group to accrue for these benefits based on certain percentages of the employees’ salaries. The total provisions for such employee benefits were RMB64,734, RMB104,650 and RMB101,345 during the years ended December 31, 2020, 2021 and 2022.

20. SEGMENT INFORMATION

The Group is mainly engaged in the business of smart wearable technology development. The Group’s chief operating decision maker (“CODM”) has been identified as the Chief Executive Officer of the Group, who reviews financial information of operating segments when making decisions about allocating resources and assessing performance of the Group. An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, and is identified on the basis of the internal financial reports that are provided to and regularly reviewed by the Group’s CODM. During the years ended December 31, 2020, 2021 and 2022, the Group identified two operating segments. Those segments include Xiaomi wearable products and Self-branded products and others. The Xiaomi wearable products segment comprise of sales of Xiaomi-branded products. The self-branded products and others segment comprises of self-branded products. Both Xiaomi wearable product and Self-branded products and others have been identified as reportable segments. The Group primarily operates in the PRC and long-lived assets are mostly located in the PRC.

The Group’s CODM evaluates performance based on each reporting segment’s revenue, costs of revenues and gross profit. Revenues, cost of revenues and gross profits by segment are presented below. Separate financial information of operating income by segment is not available.

	For the year ended December 31, 2020
	Xiaomi	Self-branded
	wearable	products
	Products	and others	Total
	RMB	RMB	RMB
Revenues	4,438,081	1,995,282	6,433,363
Cost of revenues	3,706,495	1,394,203	5,100,698
Gross Profit	731,586	601,079	1,332,665

	For the year ended December 31, 2021
	Xiaomi	Self-branded
	wearable	products
	Products	and others	Total
	RMB	RMB	RMB
Revenues	3,340,857	2,909,252	6,250,109
Cost of revenues	2,754,086	2,190,381	4,944,467
Gross Profit	586,771	718,871	1,305,642

F-45

ZEPP HEALTH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”)

except for number of shares and per share data, or otherwise noted)

20. SEGMENT INFORMATION – CONTINUED

	For the year ended December 31, 2022
	Xiaomi	Self-branded
	wearable	products
	Products	and others	Total
	RMB	RMB	RMB
Revenues	1,697,053	2,445,809	4,142,862
Cost of revenues	1,394,460	1,945,286	3,339,746
Gross Profit	302,593	500,523	803,116

The Group does not evaluate its segment on a fully allocated cost basis nor does the Group keeps track of segment assets separately.

21. STATUTORY RESERVES AND RESTRICTED NET ASSETS

PRC legal restrictions permit payments of dividends by the Group’s PRC subsidiaries only out of their retained earnings, if any, determined in accordance with PRC regulations. Prior to payment of dividends, pursuant to the laws applicable to the PRC Domestic Enterprises and PRC Foreign Investment Enterprises, the PRC subsidiaries must make appropriations from after-tax profit to non-distributable statutory reserve funds as determined by the Board of Directors of the Group. Subject to certain cumulative limits including until the total amount set aside reaches 50% of its registered capital, the general reserve fund requires annual appropriations of not less than 10% of after-tax profit (as determined under accounting principles and financial regulations applicable to PRC enterprises at each year-end). These reserve funds can only be used for specific purposes and are not distributable as cash dividends and the maximum required amount is 50% of registered capital. During the years ended December 31, 2020, 2021 and 2022, the Group accrued an additional RMB5,997, nil and nil statutory reserve from the new appropriable profit earned by certain PRC entities in the Group.

As a result of these PRC laws and regulations, the Group’s PRC subsidiaries are restricted in their ability to transfer a portion of their net assets to the Company either in the form of dividends, loans or advances. The balances of restricted net assets were RMB180,981, RMB252,220 and RMB252,220 as of December 31, 2020, 2021 and 2022, respectively.

22. RELATED PARTY BALANCES AND TRANSACTIONS

Name	Relationship with the Group
Xiaomi Communication Technology Co. Ltd.(“Xiaomi Communication”)	Controlled by one of the Company’s shareholders
Xiaomi Technology Co. Ltd. (“Xiaomi Technology”)	Controlled by one of the Company’s shareholders
Guangzhou Xiaomi Information Service Co. Ltd (“Xiaomi Information”)	Controlled by one of the Company’s shareholders
Youpin Information Technology Co. Ltd. (“Youpin Information”, together with Xiaomi Communication, Xiaomi Technology, Xiaomi Information as “Xiaomi”)	Controlled by one of the Company’s shareholders
Hefei Huaheng Electronic Technology Co. Ltd. (“Hefei Huaheng”)	Controlled by one of the Company’s shareholders
Shenzhen Yunding Information Technology Co., Ltd. (“Yunding”)	Significant influence by the Group
Hefei Jingyu Micro-electronics (“Hefei Jingyu”)	Significant influence by the Group
Gongqingcheng Yunding Ruiheng Investment Partnership (Limited Partnership). (“Gongqingcheng Yunding”)	Controlled by the founder of a company that the Group can exercise significant influence
Hefei Yizhi Electronic Technology Co., Ltd (“Hefei Yizhi”)	Controlled by one of the Company’s shareholders
Hefei Zepp Medical System Co., Ltd. (“Field Medical”)	Controlled by one of the Company’s shareholders
A vice president	Key management

F-46

ZEPP HEALTH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”)

except for number of shares and per share data, or otherwise noted)

22. RELATED PARTY BALANCES AND TRANSACTIONS - CONTINUED

(1)Balances:

	As of December 31,
	2021	2022
	RMB	RMB
Amount due from related parties:
Current:
Xiaomi Communication (a)	286,341	117,944
Field Medical (b)	—	10,375
Hefei Jingyu	1,101	2,648
Hefei LianRui Microelectronics Technology Co. Ltd	2,452	2,452
Yunding (c)	2,330	2,330
Gongqingcheng Yunding (d)	2,500	2,500
Others (a)	890	365
Non-current
A vice president (e)	—	6,333
Total	295,614	144,947

	As of December 31,
	2021	2022
	RMB	RMB
Amount due to related parties, current:
Hefei Jingyu	48,052	36,864
Xiaomi Communication	—	2,087
Xiaomi Technology(f)	1,562	1,965
Others	509	62
Total	50,123	40,978

F-47

ZEPP HEALTH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”)

except for number of shares and per share data, or otherwise noted)

22. RELATED PARTY BALANCES AND TRANSACTIONS - CONTINUED

(2)Transactions:

	For the years ended December 31,
	2020	2021	2022
	RMB	RMB	RMB
Sales to related parties:
Xiaomi Communication	4,447,957	3,340,857	1,697,053
Xiaomi Youpin	—	9,175	6,942
Others	1,800	—	—
Total	4,449,757	3,350,032	1,703,995

	For the years ended December 31,
	2020	2021	2022
	RMB	RMB	RMB
Purchase from related parties
Hefei Jingyu (g)	—	146,847	222,174
Others	12,000	—	—

(a) The amount due from Xiaomi represents receivables from the sales of products and services, which includes an unbilled amount of RMB64,129 and RMB2,613 as of December 31, 2021 and 2022, respectively.

(b) The amount due from Field Medical represents borrowings the Group provided to Field Medical to support the daily operation.

(c) The amount due from Yunding represents prepayment for the purchase of Yunding’ products which was collected in March 2023.

(d) In December 2020, the Group sold 26.7% equity interest in Yunding for a cash consideration of RMB22,500 to Gongqingcheng Yunding, of which RMB20,000 has been received in January 2021.

(e) The amount due from a vice president represents a loan provided to a key management.

(f) The amounts due to Xiaomi Technology represent the payable for the cloud service received by the Group.

(g) Hefei Jingyu is a subsidiary of Jiangsu Yitong, where the Group can exercise significant influence. During 2021 and 2022, the Group purchased some raw material from Hefei Jingyu with total transaction amount of RMB146,847 and RMB222,174.

F-48

ZEPP HEALTH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”)

except for number of shares and per share data, or otherwise noted)

23. NET INCOME/(LOSS) PER SHARE

The computation of basic and diluted net income per share for the years ended December 31, 2020, 2021 and 2022 is as follows:

	For the years ended December 31,
	2020	2021	2022
	RMB	RMB	RMB
Basic net income/(loss) per share calculation Numerator:
Net income/(loss) for the year attributable to the Company:	228,753	137,803	(288,308)
Net income/(loss) attributed to ordinary shareholders for computing net income per ordinary shares - basic	228,753	137,803	(288,308)
Denominator:
Weighted average ordinary shares outstanding used in computing net income/(loss) per ordinary shares – basic	248,470,684	252,167,610	246,283,328
Net income/(loss) per ordinary share attributable to ordinary shareholders—basic	0.92	0.55	(1.17)
Diluted net income/(loss) per share calculation
Net income/(loss) attributable to ordinary shareholders for computing net income per ordinary shares—basic and diluted	228,753	137,803	(288,308)
Denominator:
Weighted average ordinary shares outstanding used in computing net income per ordinary shares - basic	248,470,684	252,167,610	246,283,328
Effect of potentially diluted share options, restricted shares and RSUs	11,881,310	12,201,019	—
Weighted average ordinary shares outstanding used in computing net income per ordinary shares—diluted	260,351,994	264,368,629	246,283,328
Net income/(loss) per ordinary share attributable to ordinary shareholders—diluted	0.88	0.52	(1.17)

For the years ended December 31, 2020, 2021 and 2022, the following shares outstanding were excluded from the calculation of diluted net income per ordinary shares, as their inclusion would have been anti-dilutive for the years presented:

	For the years ended December 31,
	2020	2021	2022
Shares issuable upon exercise of share options, restricted shares and RSUs	89,165	301,946	7,390,487

F-49

ZEPP HEALTH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”)

except for number of shares and per share data, or otherwise noted)

24. LEASES

The Group’s leases consist of operating leases for administrative office spaces in different cities in the PRC and overseas and financial lease which is immaterial. The Group determines if an arrangement is a lease at inception. Some lease agreements contain lease and non-lease components, which the Group chooses to account for as separate components. The allocation of the consideration between the lease and the non-lease components is based on the relative stand-alone prices of lease components included in the lease contracts.

The following table represents lease costs recognized in the Group’s consolidated statements of operation for the years ended December 31, 2020, 2021 and 2022. Lease costs are included in selling expenses, general and administrative expenses and research and development expenses on the Group’s consolidated statements of operations.

	For the years ended December 31,
	2020	2021	2022
	RMB	RMB	RMB
Operating lease cost (1)	57,080	41,595	37,428
Sublease income	(537)	(3,591)	(8,796)
Total lease cost	56,543	38,004	28,632

(1) Operating lease cost includes short-term lease costs, which was not material in the period presented.

The following table represents the components of leases that are recognized on the Group’s consolidated balance sheets as of December 31, 2021 and 2022.

	As of December 31,
	2021		2022
	RMB		RMB
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	49,644		50,357
Non-cash Right-of-use assets in exchange for new lease liabilities:
Operating leases	2,157		1,674
Weighted average remaining lease term:
Operating leases	2.80 years		2.03 years
Weighted average discount rate:
Operating leases	5.27	%	5.32	%

The following is a maturity analysis of the annual undiscounted cash flows for the year ended December 31, 2022:

Year ending December 31,	RMB
2023	43,701
2024	26,291
2025	8,441
Total lease payments	78,433
Less: imputed interest	(4,423)
Present value of lease liabilities	74,010

F-50

ZEPP HEALTH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”)

except for number of shares and per share data, or otherwise noted)

25. SUBSEQUENT EVENT

2023 Share Incentive Plan

The Company adopted the 2023 Share Incentive Plan, approved and authorized by the board of directors of the Company, effective January 11, 2023. The maximum aggregate number of Class A ordinary shares of the Company available for grant as awards is 10,322,520 under the 2023 Share Incentive Plan.

F-51

EX-1.1

Exhibit 1.1

Registrar of Companies

Government Administration Building

133 Elgin Avenue

George Town

Grand Cayman

Huami Corporation (ROC # 294742) (the “Company”)

TAKE NOTICE that at the 2020 annual general meeting of the shareholders of the Company dated 25 February 2021, the following special resolutions were passed:

IT IS RESOLVED, as a special resolution:

THAT the change of the Company’s legal name from “Huami Corporation” to “Zepp Health Corporation”, which has been approved by the resolutions of the Company’s board of directors, be and hereby is, authorized and approved, and the Company’s memorandum and articles of association, be and hereby is, amended to reflect the change of the Company’s legal name;

THAT the change of the trading symbol of the Company’s American Depositary Shares at the New York Stock Exchange from “HMI” to “ZEPP”; and

THAT each director or officer of the Company, be and hereby is, authorized to take any and every action that might be necessary, appropriate or desirable to effect the foregoing resolution as such director or officer, in his or her absolute discretion, thinks fit.

/s/ Ashleigh Hydes

Ashleigh Hydes

Corporate Administrator

for and on behalf of

Maples Corporate Services Limited

Dated this 25th day of February 2021

	Filed: 25-Feb-2021 12:32 EST
www.verify.gov.ky File#: 294742	Auth Code: B46209421420

THE COMPANIES LAW (2016 REVISION)

OF THE CAYMAN ISLANDS

COMPANY LIMITED BY SHARES

SECOND AMENDED AND RESTATED

MEMORANDUM OF ASSOCIATION

OF

HUAMI CORPORATION

(adopted by a Special Resolution passed on January 12, 2018 and effective immediately prior to the completion of the initial public offering of the Company’s American Depositary Shares representing its Class A Ordinary Shares)

1. The name of the Company is Huami Corporation.

2. The Registered Office of the Company will be situated at the offices of Maples Corporate Services Limited, PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands, or at such other location within the Cayman Islands as the Directors may from time to time determine.

3. The objects for which the Company is established are unrestricted and the Company shall have full power and authority to carry out any object not prohibited by the Companies Law or any other law of the Cayman Islands.

4. The Company shall have and be capable of exercising all the functions of a natural person of full capacity irrespective of any question of corporate benefit as provided by the Companies Law.

5. The Company will not trade in the Cayman Islands with any person, firm or corporation except in furtherance of the business of the Company carried on outside the Cayman Islands; provided that nothing in this section shall be construed as to prevent the Company effecting and concluding contracts in the Cayman Islands, and exercising in the Cayman Islands all of its powers necessary for the carrying on of its business outside the Cayman Islands.

6. The liability of each Shareholder is limited to the amount, if any, unpaid on the Shares held by such Shareholder.

7. The authorised share capital of the Company is US$1,000,000 divided into 10,000,000,000 shares comprising of (i) 9,700,000,000 Class A Ordinary Shares of a par value of US$0.0001 each, (ii) 200,000,000 Class B Ordinary Shares of a par value of US$0.0001 each and (iii) 100,000,000 shares of a par value of US$0.0001 each of such class or classes (however designated) as the board of directors may determine in accordance with Article 9 of the Articles. Subject to the Companies Law and the Articles, the Company shall have power to redeem or purchase any of its Shares and to increase or reduce its authorised share capital and to sub-divide or consolidate the said Shares or any of them and to issue all or any part of its capital whether original, redeemed, increased or reduced with or without any preference, priority, special privilege or other rights or subject to any postponement of rights or to any conditions or restrictions whatsoever and so that unless the conditions of issue shall otherwise expressly provide every issue of shares whether stated to be ordinary, preference or otherwise shall be subject to the powers on the part of the Company hereinbefore provided.

8. The Company has the power contained in the Companies Law to deregister in the Cayman Islands and be registered by way of continuation in some other jurisdiction.

9. Capitalised terms that are not defined in this Memorandum of Association bear the same meanings as those given in the Articles of Association of the Company.

THE COMPANIES LAW (2016 REVISION)

OF THE CAYMAN ISLANDS

COMPANY LIMITED BY SHARES

SECOND AMENDED AND RESTATED

ARTICLES OF ASSOCIATION

OF

HUAMI CORPORATION

(adopted by a Special Resolution passed on January 12, 2018 and effective immediately prior to the completion of the initial public offering of the Company’s American Depositary Shares representing its Class A Ordinary Shares)

TABLE A

The regulations contained or incorporated in Table ‘A’ in the First Schedule of the Companies Law shall not apply to the Company and the following Articles shall comprise the Articles of Association of the Company.

INTERPRETATION

1. In these Articles the following defined terms will have the meanings ascribed to them, if not inconsistent with the subject or context:

“ADS”	means an American Depositary Share representing Class A Ordinary Shares;
“Affiliate”	means in respect of a Person, any other Person that, directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such Person, and (i) in the case of a natural person, shall include, without limitation, such person’s spouse, parents, children, siblings, mother-in-law, father-in-law, brothers-in-law and sisters-in-law, a trust for the benefit of any of the foregoing, and a corporation, partnership or any other entity wholly or jointly owned by any of the foregoing, and (ii) in the case of an entity, shall include a partnership, a corporation or any other entity or any natural person which directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, such entity. The term “control” shall mean the ownership, directly or indirectly, of shares possessing more than fifty per cent (50%) of the voting power of the corporation, partnership or other entity (other than, in the case of a corporation, securities having such power only by reason of the happening of a contingency), or having the power to control the management or elect a majority of members to the board of directors or equivalent decision-making body of such corporation, partnership or other entity;
“Articles”	means these articles of association of the Company, as amended or substituted from time to time;
“Board” and “Board of Directors” and “Directors”	means the directors of the Company for the time being, or as the case may be, the directors assembled as a board or as a committee thereof;

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“Chairman”	in relation to any meeting of the Board, shall mean the Chairman as determined pursuant to Article 88(c), and in relation to any meeting of the members shall mean: (a) The Chairman of the Board; or (b) If the Chairman of the Board is not present within 15 minutes after the time appointed for holding the meeting, the Directors present may choose one of their number to be Chairman of the meeting.
“Chairman of the Board”	shall mean the Chairman as appointed by the Board whose name is recorded in the register of directors and officers of the Company
“Class” or “Classes”	means any class or classes of Shares as may from time to time be issued by the Company;
“Class A Ordinary Share”	means an Ordinary Share of a par value of US$0.0001 in the capital of the Company, designated as a Class A Ordinary Shares and having the rights provided for in these Articles;
“Class B Ordinary Share”	means an Ordinary Share of a par value of US$0.0001 in the capital of the Company, designated as a Class B Ordinary Share and having the rights provided for in these Articles;
“Commission”	means the Securities and Exchange Commission of the United States of America or any other federal agency for the time being administering the Securities Act;
“Company”	means Huami Corporation, a Cayman Islands exempted company;
“Companies Law”	means the Companies Law (2016 Revision) of the Cayman Islands and any statutory amendment or re-enactment thereof;
“Company’s Website”	means the main corporate/investor relations website of the Company, the address or domain name of which has been disclosed in any registration statement filed by the Company with the Commission in connection with its initial public offering of ADSs, or which has otherwise been notified to Shareholders;
“Designated Stock Exchange”	means the stock exchange in the United States on which any Shares and ADSs are listed for trading;
“Designated Stock Exchange Rules”	means the relevant code, rules and regulations, as amended, from time to time, applicable as a result of the original and continued listing of any Shares or ADSs on the Designated Stock Exchange;
“electronic”	has the meaning given to it in the Electronic Transactions Law and any amendment thereto or re-enactments thereof for the time being in force and includes every other law incorporated therewith or substituted therefor;
“electronic communication”	means electronic posting to the Company’s Website, transmission to any number, address or internet website or other electronic delivery methods as otherwise decided and approved by not less than two-thirds of the vote of the Board;

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“Electronic Transactions Law”	means the Electronic Transactions Law (2003 Revision) of the Cayman Islands and any statutory amendment or re-enactment thereof;
“electronic record”	has the meaning given to it in the Electronic Transactions Law and any amendment thereto or re-enactments thereof for the time being in force and includes every other law incorporated therewith or substituted therefor;
“Memorandum of Association”	means the memorandum of association of the Company, as amended or substituted from time to time;
“Ordinary Resolution”	means a resolution: (a) passed by a simple majority of the votes cast by such Shareholders as, being entitled to do so, vote in person or, where proxies are allowed, by proxy or, in the case of corporations, by their duly authorised representatives, at a general meeting of the Company held in accordance with these Articles; or
	(b) approved in writing by all of the Shareholders entitled to vote at a general meeting of the Company in one or more instruments each signed by one or more of the Shareholders and the effective date of the resolution so adopted shall be the date on which the instrument, or the last of such instruments, if more than one, is executed;
“Ordinary Share”	means a Class A Ordinary Share or a Class B Ordinary Share;
“paid up”	means paid up as to the par value in respect of the issue of any Shares and includes credited as paid up;
“Person”	means any natural person, firm, company, joint venture, partnership, corporation, association or other entity (whether or not having a separate legal personality) or any of them as the context so requires;
“Register”	means the register of Members of the Company maintained in accordance with the Companies Law;
“Registered Office”	means the registered office of the Company as required by the Companies Law;
“Seal”	means the common seal of the Company (if adopted) including any facsimile thereof;
“Secretary”	means any Person appointed by the Directors to perform any of the duties of the secretary of the Company;
“Securities Act”	means the Securities Act of 1933 of the United States of America, as amended, or any similar federal statute and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time;
“Share”	means a share in the capital of the Company. All references to “Shares” herein shall be deemed to be Shares of any or all Classes as the context may require. For the avoidance of doubt in these Articles the expression “Share” shall include a fraction of a Share;
“Shareholder” or “Member”	means a Person who is registered as the holder of one or more Shares in the Register;
“Share Premium Account”	means the share premium account established in accordance with these Articles and the Companies Law;

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“signed”	means bearing a signature or representation of a signature affixed by mechanical means or an electronic symbol or process attached to or logically associated with an electronic communication and executed or adopted by a Person with the intent to sign the electronic communication;
“Special Resolution”	means a special resolution of the Company passed in accordance with the Companies Law, being a resolution: (a) passed by not less than two-thirds of the votes cast by such Shareholders as, being entitled to do so, vote in person or, where proxies are allowed, by proxy or, in the case of corporations, by their duly authorised representatives, at a general meeting of the Company of which notice specifying the intention to propose the resolution as a special resolution has been duly given; or (b) approved in writing by all of the Shareholders entitled to vote at a general meeting of the Company in one or more instruments each signed by one or more of the Shareholders and the effective date of the special resolution so adopted shall be the date on which the instrument or the last of such instruments, if more than one, is executed;
“Treasury Share”	means a Share held in the name of the Company as a treasury share in accordance with the Companies Law; and
“United States”	means the United States of America, its territories, its possessions and all areas subject to its jurisdiction.

2. In these Articles, save where the context requires otherwise:

(a) words importing the singular number shall include the plural number and vice versa;

(b) words importing the masculine gender only shall include the feminine gender and any Person as the context may require;

(c) the word “may” shall be construed as permissive and the word “shall” shall be construed as imperative;

(d) reference to a dollar or dollars (or US$) and to a cent or cents is reference to dollars and cents of the United States of America;

(e) reference to a statutory enactment shall include reference to any amendment or re-enactment thereof for the time being in force;

(f) reference to any determination by the Directors shall be construed as a determination by the Directors in their sole and absolute discretion and shall be applicable either generally or in any particular case;

(g) reference to “in writing” shall be construed as written or represented by any means reproducible in writing, including any form of print, lithograph, email, facsimile, photograph or telex or represented by any other substitute or format for storage or transmission for writing including in the form of an electronic record or partly one and partly another;

(h) any requirements as to delivery under the Articles include delivery in the form of an electronic record or an electronic communication;

(i) any requirements as to execution or signature under the Articles, including the execution of the Articles themselves, can be satisfied in the form of an electronic signature as defined in the Electronic Transaction Law; and

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(j) Sections 8 and 19(3) of the Electronic Transactions Law shall not apply.

3. Subject to the last two preceding Articles, any words defined in the Companies Law shall, if not inconsistent with the subject or context, bear the same meaning in these Articles.

PRELIMINARY

4. The business of the Company may be conducted as the Directors see fit.

5. The Registered Office shall be at such address in the Cayman Islands as the Directors may from time to time determine. The Company may in addition establish and maintain such other offices and places of business and agencies in such places as the Directors may from time to time determine.

6. The expenses incurred in the formation of the Company and in connection with the offer for subscription and issue of Shares shall be paid by the Company. Such expenses may be amortised over such period as the Directors may determine and the amount so paid shall be charged against income and/or capital in the accounts of the Company as the Directors shall determine.

7. The Directors shall keep, or cause to be kept, the Register at such place as the Directors may from time to time determine and, in the absence of any such determination, the Register shall be kept at the Registered Office.

SHARES

8. Subject to these Articles, all Shares for the time being unissued shall be under the control of the Directors who may, in their absolute discretion and without the approval of the Members, cause the Company to:

(a) issue, allot and dispose of Shares (including, without limitation, preferred shares) (whether in certificated form or non-certificated form) to such Persons, in such manner, on such terms and having such rights and being subject to such restrictions as they may from time to time determine;

(b) grant rights over Shares or other securities to be issued in one or more classes or series as they deem necessary or appropriate and determine the designations, powers, preferences, privileges and other rights attaching to such Shares or securities, including dividend rights, voting rights, conversion rights, terms of redemption and liquidation preferences, any or all of which may be greater than the powers, preferences, privileges and rights associated with the then issued and outstanding Shares, at such times and on such other terms as they think proper; and

(c) grant options with respect to Shares and issue warrants or similar instruments with respect thereto.

9. The Directors may authorise the division of Shares into any number of Classes and the different Classes shall be authorised, established and designated (or re-designated as the case may be) and the variations in the relative rights (including, without limitation, voting, dividend and redemption rights), restrictions, preferences, privileges and payment obligations as between the different Classes (if any) may be fixed and determined by the Directors or by a Special Resolution. The Directors may issue Shares with such preferred or other rights, all or any of which may be greater than the rights of Ordinary Shares, at such time and on such terms as they may think appropriate. Notwithstanding Article 17, the Directors may issue from time to time, out of the authorised share capital of the Company (other than the authorised but unissued Ordinary Shares), series of preferred shares in their absolute discretion and without approval of the Members; provided, however, before any preferred shares of any such series are issued, the Directors shall by resolution of Directors determine, with respect to any series of preferred shares, the terms and rights of that series, including:

(a) the designation of such series, the number of preferred shares to constitute such series and the subscription price thereof if different from the par value thereof;

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(b) whether the preferred shares of such series shall have voting rights, in addition to any voting rights provided by law, and, if so, the terms of such voting rights, which may be general or limited;

(c) the dividends, if any, payable on such series, whether any such dividends shall be cumulative, and, if so, from what dates, the conditions and dates upon which such dividends shall be payable, and the preference or relation which such dividends shall bear to the dividends payable on any shares of any other class or any other series of shares;

(d) whether the preferred shares of such series shall be subject to redemption by the Company, and, if so, the times, prices and other conditions of such redemption;

(e) whether the preferred shares of such series shall have any rights to receive any part of the assets available for distribution amongst the Members upon the liquidation of the Company, and, if so, the terms of such liquidation preference, and the relation which such liquidation preference shall bear to the entitlements of the holders of shares of any other class or any other series of shares;

(f) whether the preferred shares of such series shall be subject to the operation of a retirement or sinking fund and, if so, the extent to and manner in which any such retirement or sinking fund shall be applied to the purchase or redemption of the preferred shares of such series for retirement or other corporate purposes and the terms and provisions relative to the operation thereof;

(g) whether the preferred shares of such series shall be convertible into, or exchangeable for, shares of any other class or any other series of preferred shares or any other securities and, if so, the price or prices or the rate or rates of conversion or exchange and the method, if any, of adjusting the same, and any other terms and conditions of conversion or exchange;

(h) the limitations and restrictions, if any, to be effective while any preferred shares of such series are outstanding upon the payment of dividends or the making of other distributions on, and upon the purchase, redemption or other acquisition by the Company of, the existing shares or shares of any other class of shares or any other series of preferred shares;

(i) the conditions or restrictions, if any, upon the creation of indebtedness of the Company or upon the issue of any additional shares, including additional shares of such series or of any other class of shares or any other series of preferred shares; and

(j) any other powers, preferences and relative, participating, optional and other special rights, and any qualifications, limitations and restrictions thereof;

and, for such purposes, the Directors may reserve an appropriate number of Shares for the time being unissued. The Company shall not issue Shares to bearer.

10. The Company may insofar as may be permitted by law, pay a commission to any Person in consideration of his subscribing or agreeing to subscribe whether absolutely or conditionally for any Shares. Such commissions may be satisfied by the payment of cash or the lodgement of fully or partly paid-up Shares or partly in one way and partly in the other. The Company may also pay such brokerage as may be lawful on any issue of Shares.

11. The Directors may refuse to accept any application for Shares, and may accept any application in whole or in part, for any reason or for no reason.

CLASS A ORDINARY SHARES AND CLASS B ORDINARY SHARES

12. Holders of Class A Ordinary Shares and Class B Ordinary Shares shall at all times vote together as one class on all resolutions submitted to a vote by the Members. Each Class A Ordinary Share shall entitle the holder thereof to one (1) vote on all matters subject to vote at general meetings of the Company, and each Class B Ordinary Share shall entitle the holder thereof to ten (10) votes on all matters subject to vote at general meetings of the Company.

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13. Each Class B Ordinary Share is convertible into one (1) Class A Ordinary Share at any time at the option of the holder thereof. The right to convert shall be exercisable by the holder of the Class B Ordinary Share delivering a written notice to the Company that such holder elects to convert a specified number of Class B Ordinary Shares into Class A Ordinary Shares. In no event shall Class A Ordinary Shares be convertible into Class B Ordinary Shares.

14. Any conversion of Class B Ordinary Shares into Class A Ordinary Shares pursuant to these Articles shall be effected by means of the re-designation of each relevant Class B Ordinary Share as a Class A Ordinary Share. Such conversion shall become effective forthwith upon entries being made in the Register to record the re-designation of the relevant Class B Ordinary Shares as Class A Ordinary Shares.

15. Upon any sale, transfer, assignment or disposition of any Class B Ordinary Share by a Shareholder to any Person, or upon a change of ultimate beneficial ownership of any Class B Ordinary Share to any Person, such Class B Ordinary Share shall be automatically and immediately converted into one Class A Ordinary Share. For the avoidance of doubt, (i) a sale, transfer, assignment or disposition shall be effective upon the Company’s registration of such sale, transfer, assignment or disposition in its Register; and (ii) the creation of any pledge, charge, encumbrance or other third party right of whatever description on any Class B Ordinary Shares to secure a holder’s contractual or legal obligations shall not be deemed as a sale, transfer, assignment or disposition unless and until any such pledge, charge, encumbrance or other third party right is enforced and results in the third party holding legal title to the relevant Class B Ordinary Shares, in which case all the related Class B Ordinary Shares shall be automatically converted into the same number of Class A Ordinary Shares. For purpose of this Article 15, beneficial ownership shall have the meaning set forth in Rule 13d-3 under the United States Securities Exchange Act of 1934, as amended.

16. Save and except for voting rights and conversion rights as set out in Articles 12 to 16 (inclusive), the Class A Ordinary Shares and the Class B Ordinary Shares shall rank pari passu with one another and shall have the same rights, preferences, privileges and restrictions.

MODIFICATION OF RIGHTS

17. Whenever the capital of the Company is divided into different Classes the rights attached to any such Class may, subject to any rights or restrictions for the time being attached to any Class, only be materially adversely varied with the consent in writing of the holders of two-thirds of the issued Shares of that Class or with the sanction of a Special Resolution passed at a separate meeting of the holders of the Shares of that Class. To every such separate meeting all the provisions of these Articles relating to general meetings of the Company or to the proceedings thereat shall, mutatis mutandis , apply, except that the necessary quorum shall be one or more Persons holding or representing by proxy at least one-third in nominal or par value amount of the issued Shares of the relevant Class (but so that if at any adjourned meeting of such holders a quorum as above defined is not present, those Shareholders who are present shall form a quorum) and that, subject to any rights or restrictions for the time being attached to the Shares of that Class, every Shareholder of that Class shall on a poll have one vote for each Share of that Class held by him. For the purposes of this Article the Directors may treat all the Classes or any two or more Classes as forming one Class if they consider that all such Classes would be affected in the same way by the proposals under consideration, but in any other case shall treat them as separate Classes.

18. The rights conferred upon the holders of the Shares of any Class issued with preferred or other rights shall not, subject to any rights or restrictions for the time being attached to the Shares of that Class, be deemed to be materially adversely varied by, inter alia , the creation, allotment or issue of further Shares ranking pari passu with or subsequent to them or the redemption or purchase of any Shares of any Class by the Company. The rights of the holders of Shares shall not be deemed to be materially adversely varied by the creation or issue of Shares with preferred or other rights including, without limitation, the creation of Shares with enhanced or weighted voting rights.

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CERTIFICATES

19. Every Person whose name is entered as a Member in the Register may, without payment and upon its written request, request a certificate within two calendar months after allotment or lodgement of transfer (or within such other period as the conditions of issue shall provide) in the form determined by the Directors. All certificates shall specify the Share or Shares held by that Person, provided that in respect of a Share or Shares held jointly by several Persons the Company shall not be bound to issue more than one certificate, and delivery of a certificate for a Share to one of several joint holders shall be sufficient delivery to all. All certificates for Shares shall be delivered personally or sent through the post addressed to the Member entitled thereto at the Member’s registered address as appearing in the Register.

20. Every share certificate of the Company shall bear legends required under the applicable laws, including the Securities Act.

21. Any two or more certificates representing Shares of any one Class held by any Member may at the Member’s request be cancelled and a single new certificate for such Shares issued in lieu on payment (if the Directors shall so require) of one dollar (US$1.00) or such smaller sum as the Directors shall determine.

22. If a share certificate shall be damaged or defaced or alleged to have been lost, stolen or destroyed, a new certificate representing the same Shares may be issued to the relevant Member upon request, subject to delivery up of the old certificate or (if alleged to have been lost, stolen or destroyed) compliance with such conditions as to evidence and indemnity and the payment of out-of-pocket expenses of the Company in connection with the request as the Directors may think fit.

23. In the event that Shares are held jointly by several Persons, any request may be made by any one of the joint holders and if so made shall be binding on all of the joint holders.

FRACTIONAL SHARES

24. The Directors may issue fractions of a Share and, if so issued, a fraction of a Share shall be subject to and carry the corresponding fraction of liabilities (whether with respect to nominal or par value, premium, contributions, calls or otherwise), limitations, preferences, privileges, qualifications, restrictions, rights (including, without prejudice to the generality of the foregoing, voting and participation rights) and other attributes of a whole Share. If more than one fraction of a Share of the same Class is issued to or acquired by the same Shareholder such fractions shall be accumulated.

LIEN

25. The Company has a first and paramount lien on every Share (whether or not fully paid) for all amounts (whether presently payable or not) payable at a fixed time or called in respect of that Share. The Company also has a first and paramount lien on every Share registered in the name of a Person indebted or under liability to the Company (whether he is the sole registered holder of a Share or one of two or more joint holders) for all amounts owing by him or his estate to the Company (whether or not presently payable). The Directors may at any time declare a Share to be wholly or in part exempt from the provisions of this Article. The Company’s lien on a Share extends to any amount payable in respect of it, including but not limited to dividends.

26. The Company may sell, in such manner as the Directors in their absolute discretion think fit, any Share on which the Company has a lien, but no sale shall be made unless an amount in respect of which the lien exists is presently payable nor until the expiration of fourteen calendar days after a notice in writing, demanding payment of such part of the amount in respect of which the lien exists as is presently payable, has been given to the registered holder for the time being of the Share, or the Persons entitled thereto by reason of his death or bankruptcy.

27. For giving effect to any such sale the Directors may authorise a Person to transfer the Shares sold to the purchaser thereof. The purchaser shall be registered as the holder of the Shares comprised in any such transfer and he shall not be bound to see to the application of the purchase money, nor shall his title to the Shares be affected by any irregularity or invalidity in the proceedings in reference to the sale.

28. The proceeds of the sale after deduction of expenses, fees and commissions incurred by the Company shall be received by the Company and applied in payment of such part of the amount in respect of which the lien exists as is presently payable, and the residue shall (subject to a like lien for sums not presently payable as existed upon the Shares prior to the sale) be paid to the Person entitled to the Shares immediately prior to the sale.

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CALLS ON SHARES

29. Subject to the terms of the allotment, the Directors may from time to time make calls upon the Shareholders in respect of any moneys unpaid on their Shares, and each Shareholder shall (subject to receiving at least fourteen calendar days’ notice specifying the time or times of payment) pay to the Company at the time or times so specified the amount called on such Shares. A call shall be deemed to have been made at the time when the resolution of the Directors authorising such call was passed.

30. The joint holders of a Share shall be jointly and severally liable to pay calls in respect thereof.

31. If a sum called in respect of a Share is not paid before or on the day appointed for payment thereof, the Person from whom the sum is due shall pay interest upon the sum at the rate of eight percent per annum from the day appointed for the payment thereof to the time of the actual payment, but the Directors shall be at liberty to waive payment of that interest wholly or in part.

32. The provisions of these Articles as to the liability of joint holders and as to payment of interest shall apply in the case of non-payment of any sum which, by the terms of issue of a Share, becomes payable at a fixed time, whether on account of the amount of the Share, or by way of premium, as if the same had become payable by virtue of a call duly made and notified.

33. The Directors may make arrangements with respect to the issue of partly paid Shares for a difference between the Shareholders, or the particular Shares, in the amount of calls to be paid and in the times of payment.

34. The Directors may, if they think fit, receive from any Shareholder willing to advance the same all or any part of the moneys uncalled and unpaid upon any partly paid Shares held by him, and upon all or any of the moneys so advanced may (until the same would, but for such advance, become presently payable) pay interest at such rate (not exceeding without the sanction of an Ordinary Resolution, eight percent per annum) as may be agreed upon between the Shareholder paying the sum in advance and the Directors. No such sum paid in advance of calls shall entitle the Member paying such sum to any portion of a dividend declared in respect of any period prior to the date upon which such sum would, but for such payment, become presently payable.

FORFEITURE OF SHARES

35. If a Shareholder fails to pay any call or instalment of a call in respect of partly paid Shares on the day appointed for payment, the Directors may, at any time thereafter during such time as any part of such call or instalment remains unpaid, serve a notice on him requiring payment of so much of the call or instalment as is unpaid, together with any interest which may have accrued.

36. The notice shall name a further day (not earlier than the expiration of fourteen calendar days from the date of the notice) on or before which the payment required by the notice is to be made, and shall state that in the event of non-payment at or before the time appointed, the Shares in respect of which the call was made will be liable to be forfeited.

37. If the requirements of any such notice as aforesaid are not complied with, any Share in respect of which the notice has been given may at any time thereafter, before the payment required by notice has been made, be forfeited by a resolution of the Directors to that effect.

38. A forfeited Share may be sold or otherwise disposed of on such terms and in such manner as the Directors think fit, and at any time before a sale or disposition the forfeiture may be cancelled on such terms as the Directors think fit.

39. A Person whose Shares have been forfeited shall cease to be a Shareholder in respect of the forfeited Shares, but shall, notwithstanding, remain liable to pay to the Company all moneys which at the date of forfeiture were payable by him to the Company in respect of the Shares forfeited, but his liability shall cease if and when the Company receives payment in full of the amount unpaid on the Shares forfeited.

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40. A certificate in writing under the hand of a Director that a Share has been duly forfeited on a date stated in the certificate shall be conclusive evidence of the facts in the declaration as against all Persons claiming to be entitled to the Share.

41. The Company may receive the consideration, if any, given for a Share on any sale or disposition thereof pursuant to the provisions of these Articles as to forfeiture and may execute a transfer of the Share in favour of the Person to whom the Share is sold or disposed of and that Person shall be registered as the holder of the Share and shall not be bound to see to the application of the purchase money, if any, nor shall his title to the Shares be affected by any irregularity or invalidity in the proceedings in reference to the disposition or sale.

42. The provisions of these Articles as to forfeiture shall apply in the case of non-payment of any sum which by the terms of issue of a Share becomes due and payable, whether on account of the amount of the Share, or by way of premium, as if the same had been payable by virtue of a call duly made and notified.

TRANSFER OF SHARES

43. The instrument of transfer of any Share shall be in writing and in any usual or common form or such other form as the Directors may, in their absolute discretion, approve and be executed by or on behalf of the transferor and if in respect of a nil or partly paid up Share, or if so required by the Directors, shall also be executed on behalf of the transferee and shall be accompanied by the certificate (if any) of the Shares to which it relates and such other evidence as the Directors may reasonably require to show the right of the transferor to make the transfer. The transferor shall be deemed to remain a Shareholder until the name of the transferee is entered in the Register in respect of the relevant Shares.

44. (a)The Directors may in their absolute discretion decline to register any transfer of Shares which is not fully paid up or on which the Company has a lien.

(b) The Directors may also decline to register any transfer of any Share unless:

(i) the instrument of transfer is lodged with the Company, accompanied by the certificate for the Shares to which it relates and such other evidence as the Board may reasonably require to show the right of the transferor to make the transfer;

(ii) the instrument of transfer is in respect of only one Class of Shares;

(iii) the instrument of transfer is properly stamped, if required;

(iv) in the case of a transfer to joint holders, the number of joint holders to whom the Share is to be transferred does not exceed four; and

(v) a fee of such maximum sum as the Designated Stock Exchange may determine to be payable, or such lesser sum as the Board of Directors may from time to time require, is paid to the Company in respect thereof.

45. The registration of transfers may, on ten calendar days’ notice being given by advertisement in such one or more newspapers, by electronic means or by any other means in accordance with the Designated Stock Exchange Rules, be suspended and the Register closed at such times and for such periods as the Directors may, in their absolute discretion, from time to time determine, provided always that such registration of transfer shall not be suspended nor the Register closed for more than thirty calendar days in any calendar year.

46. All instruments of transfer that are registered shall be retained by the Company. If the Directors refuse to register a transfer of any Shares, they shall within three calendar months after the date on which the transfer was lodged with the Company send notice of the refusal to each of the transferor and the transferee.

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TRANSMISSION OF SHARES

47. The legal personal representative of a deceased sole holder of a Share shall be the only Person recognised by the Company as having any title to the Share. In the case of a Share registered in the name of two or more holders, the survivors or survivor, or the legal personal representatives of the deceased survivor, shall be the only Person recognised by the Company as having any title to the Share.

48. Any Person becoming entitled to a Share in consequence of the death or bankruptcy of a Shareholder shall, upon such evidence being produced as may from time to time be required by the Directors, have the right either to be registered as a Shareholder in respect of the Share or, instead of being registered himself, to make such transfer of the Share as the deceased or bankrupt Person could have made; but the Directors shall, in either case, have the same right to decline or suspend registration as they would have had in the case of a transfer of the Share by the deceased or bankrupt Person before the death or bankruptcy.

49. A Person becoming entitled to a Share by reason of the death or bankruptcy of a Shareholder shall be entitled to the same dividends and other advantages to which he would be entitled if he were the registered Shareholder, except that he shall not, before being registered as a Shareholder in respect of the Share, be entitled in respect of it to exercise any right conferred by membership in relation to meetings of the Company, provided however, that the Directors may at any time give notice requiring any such Person to elect either to be registered himself or to transfer the Share, and if the notice is not complied with within ninety calendar days, the Directors may thereafter withhold payment of all dividends, bonuses or other monies payable in respect of the Share until the requirements of the notice have been complied with.

REGISTRATION OF EMPOWERING INSTRUMENTS

50. The Company shall be entitled to charge a fee not exceeding one U.S. dollar (US$1.00) on the registration of every probate, letters of administration, certificate of death or marriage, power of attorney, notice in lieu of distringas, or other instrument.

ALTERATION OF SHARE CAPITAL

51. The Company may from time to time by Ordinary Resolution increase the share capital by such sum, to be divided into Shares of such Classes and amount, as the resolution shall prescribe.

52. The Company may by Ordinary Resolution:

(a) increase its share capital by new Shares of such amount as it thinks expedient;

(b) consolidate and divide all or any of its share capital into Shares of a larger amount than its existing Shares;

(c) subdivide its Shares, or any of them, into Shares of an amount smaller than that fixed by the Memorandum, provided that in the subdivision the proportion between the amount paid and the amount, if any, unpaid on each reduced Share shall be the same as it was in case of the Share from which the reduced Share is derived; and

(d) cancel any Shares that, at the date of the passing of the resolution, have not been taken or agreed to be taken by any Person and diminish the amount of its share capital by the amount of the Shares so cancelled.

53. The Company may by Special Resolution reduce its share capital and any capital redemption reserve in any manner authorised by the Companies Law.

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REDEMPTION, PURCHASE AND SURRENDER OF SHARES

54. Subject to the provisions of the Companies Law and these Articles, the Company may:

(a) issue Shares that are to be redeemed or are liable to be redeemed at the option of the Shareholder or the Company. The redemption of Shares shall be effected in such manner and upon such terms as may be determined, before the issue of such Shares, by either the Board or by the Shareholders by Special Resolution;

(b) purchase its own Shares (including any redeemable Shares) on such terms and in such manner and terms as have been approved by the Board or by the Members by Ordinary Resolution, or are otherwise authorised by these Articles; and

(c) make a payment in respect of the redemption or purchase of its own Shares in any manner permitted by the Companies Law, including out of capital.

55. The purchase of any Share shall not oblige the Company to purchase any other Share other than as may be required pursuant to applicable law and any other contractual obligations of the Company.

56. The holder of the Shares being purchased shall be bound to deliver up to the Company the certificate(s) (if any) thereof for cancellation and thereupon the Company shall pay to him the purchase or redemption monies or consideration in respect thereof.

57. The Directors may accept the surrender for no consideration of any fully paid Share.

TREASURY SHARES

58. The Directors may, prior to the purchase, redemption or surrender of any Share, determine that such Share shall be held as a Treasury Share.

59. The Directors may determine to cancel a Treasury Share or transfer a Treasury Share on such terms as they think proper (including, without limitation, for nil consideration).

GENERAL MEETINGS

60. All general meetings other than annual general meetings shall be called extraordinary general meetings.

61. (a)The Company may (but shall not be obliged to) in each calendar year hold a general meeting as its annual general meeting and shall specify the meeting as such in the notices calling it. The annual general meeting shall be held at such time and place as may be determined by the Directors.

(b) At these meetings the report of the Directors (if any) shall be presented.

62.(a)The Chairman of the Board or a majority of the Directors may call general meetings, and they shall on a Shareholders’ requisition forthwith proceed to convene an extraordinary general meeting of the Company.

(b) A Shareholders’ requisition is a requisition of Members holding at the date of deposit of the requisition Shares which carry in aggregate not less than one-third (1/3) of all votes attaching to all issued and outstanding Shares of the Company that as at the date of the deposit carry the right to vote at general meetings of the Company.

(c) The requisition must state the objects of the meeting and must be signed by the requisitionists and deposited at the Registered Office, and may consist of several documents in like form each signed by one or more requisitionists.

(d) If there are no Directors as at the date of the deposit of the Shareholders’ requisition, or if the Directors do not within twenty-one calendar days from the date of the deposit of the requisition duly proceed to convene a general meeting to be held within a further twenty-one calendar days, the requisitionists, or any of them representing more than one-half of the total voting rights of all of them, may themselves convene a general meeting, but any meeting so convened shall not be held after the expiration of three calendar months after the expiration of the said twenty-one calendar days.

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(e) A general meeting convened as aforesaid by requisitionists shall be convened in the same manner as nearly as possible as that in which general meetings are to be convened by Directors.

NOTICE OF GENERAL MEETINGS

63. At least ten (10) calendar days’ notice shall be given for any general meeting. Every notice shall be exclusive of the day on which it is given or deemed to be given and of the day for which it is given and shall specify the place, the day and the hour of the meeting and the general nature of the business and shall be given in the manner hereinafter mentioned or in such other manner if any as may be prescribed by the Company, provided that a general meeting of the Company shall, whether or not the notice specified in this Article has been given and whether or not the provisions of these Articles regarding general meetings have been complied with, be deemed to have been duly convened if it is so agreed:

(a) in the case of an annual general meeting, by all the Shareholders (or their proxies) entitled to attend and vote thereat; and

(b) in the case of an extraordinary general meeting, by two-thirds (2/3rd ) of the Shareholders having a right to attend and vote at the meeting, present in person or by proxy or, in the case of a corporation or other non-natural person, by its duly authorised representative or proxy.

64. The accidental omission to give notice of a meeting to or the non-receipt of a notice of a meeting by any Shareholder shall not invalidate the proceedings at any meeting.

PROCEEDINGS AT GENERAL MEETINGS

65. No business except for the appointment of a Chairman for the meeting shall be transacted at any general meeting unless a quorum of Shareholders is present at the time when the meeting proceeds to business. One or more Shareholders holding Shares which carry in aggregate (or representing by proxy) not less than one-third of all votes attaching to all Shares in issue and entitled to vote at such general meeting, present in person or by proxy or, if a corporation or other non-natural person, by its duly authorised representative, shall be a quorum for all purposes.

66. If within half an hour from the time appointed for the meeting a quorum is not present, the meeting shall be dissolved.

67. If the Directors wish to make this facility available for a specific general meeting or all general meetings of the Company, participation in any general meeting of the Company may be by means of a telephone or similar communication equipment by way of which all Persons participating in such meeting can communicate with each other and such participation shall be deemed to constitute presence in person at the meeting.

68. The Chairman of the Board, if any, shall preside as chairman of the meeting at every general meeting of the Company.

69. If there is no such Chairman of the Board, or if at any general meeting he is not present within fifteen minutes after the time appointed for holding the meeting or is unwilling to act as Chairman of the meeting, any Director or Person nominated by the Directors shall preside as Chairman of that meeting, failing which the Shareholders present in person or by proxy shall choose any Person present to be Chairman of that meeting.

70. The Chairman may with the consent of any general meeting at which a quorum is present (and shall if so directed by the meeting) adjourn the meeting from time to time and from place to place, but no business shall be transacted at any adjourned meeting other than the business left unfinished at the meeting from which the adjournment took place. When a meeting, or adjourned meeting, is adjourned for fourteen calendar days or more, notice of the adjourned meeting shall be given as in the case of an original meeting. Save as aforesaid it shall not be necessary to give any notice of an adjournment or of the business to be transacted at an adjourned meeting.

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71. The Directors may cancel or postpone any duly convened general meeting at any time prior to such meeting, except for general meetings requisitioned by the Shareholders in accordance with these Articles, for any reason or for no reason, upon notice in writing to Shareholders. A postponement may be for a stated period of any length or indefinitely as the Directors may determine.

72. At any general meeting a resolution put to the vote of the meeting shall be decided on a show of hands, unless a poll is (before or on the declaration of the result of the show of hands) demanded by the Chairman or any Shareholder present in person or by proxy, and unless a poll is so demanded, a declaration by the Chairman that a resolution has, on a show of hands, been carried, or carried unanimously, or by a particular majority, or lost, and an entry to that effect in the book of the proceedings of the Company, shall be conclusive evidence of the fact, without proof of the number or proportion of the votes recorded in favour of, or against, that resolution.

73. If a poll is duly demanded it shall be taken in such manner as the Chairman directs, and the result of the poll shall be deemed to be the resolution of the meeting at which the poll was demanded.

74. All questions submitted to a meeting shall be decided by an Ordinary Resolution except where a greater majority is required by these Articles or by the Companies Law. In the case of an equality of votes, whether on a show of hands or on a poll, the Chairman at which the show of hands takes place or at which the poll is demanded, shall be entitled to a second or casting vote.

75. A poll demanded on the election of a Chairman or on a question of adjournment shall be taken forthwith. A poll demanded on any other question shall be taken at such time as the Chairman directs.

VOTES OF SHAREHOLDERS

76. Subject to any rights and restrictions for the time being attached to any Share, on a show of hands every Shareholder present in person or by proxy (or, if a corporation or other non-natural person, by its duly authorised representative or proxy) shall, at a general meeting of the Company, each have one vote and on a poll every Shareholder present in person or by proxy (or, if a corporation or other non-natural person, by its duly authorised representative or proxy) shall have one vote for each Class A Ordinary Share and ten votes for each Class B Ordinary Share of which he is the holder.

77. In the case of joint holders the vote of the senior who tenders a vote whether in person or by proxy (or, if a corporation or other non-natural person, by its duly authorised representative or proxy) shall be accepted to the exclusion of the votes of the other joint holders and for this purpose seniority shall be determined by the order in which the names stand in the Register.

78. Shares carrying the right to vote that are held by a Shareholder of unsound mind, or in respect of whom an order has been made by any court having jurisdiction in lunacy, may be voted, whether on a show of hands or on a poll, by his committee, or other Person in the nature of a committee appointed by that court, and any such committee or other Person may vote in respect of such Shares by proxy.

79. No Shareholder shall be entitled to vote at any general meeting of the Company unless all calls, if any, or other sums presently payable by him in respect of Shares carrying the right to vote held by him have been paid.

80. On a poll votes may be given either personally or by proxy.

81. Each Shareholder, other than a recognised clearing house (or its nominee(s)) or depositary (or its nominee(s)), may only appoint one proxy on a show of hand. The instrument appointing a proxy shall be in writing under the hand of the appointor or of his attorney duly authorised in writing or, if the appointor is a corporation, either under Seal or under the hand of an officer or attorney duly authorised. A proxy need not be a Shareholder.

82. An instrument appointing a proxy may be in any usual or common form or such other form as the Directors may approve.

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83. The instrument appointing a proxy shall be deposited at the Registered Office or at such other place as is specified for that purpose in the notice convening the meeting, or in any instrument of proxy sent out by the Company:

(a) not less than 48 hours before the time for holding the meeting or adjourned meeting at which the person named in the instrument proposes to vote; or

(b) in the case of a poll taken more than 48 hours after it is demanded, be deposited as aforesaid after the poll has been demanded and not less than 24 hours before the time appointed for the taking of the poll; or

(c) where the poll is not taken forthwith but is taken not more than 48 hours after it was demanded be delivered at the meeting at which the poll was demanded to the Chairman or to the secretary or to any director;

provided that the Directors may in the notice convening the meeting, or in an instrument of proxy sent out by the Company, direct that the instrument appointing a proxy may be deposited at such other time (no later than the time for holding the meeting or adjourned meeting) at the Registered Office or at such other place as is specified for that purpose in the notice convening the meeting, or in any instrument of proxy sent out by the Company. The Chairman may in any event at his discretion direct that an instrument of proxy shall be deemed to have been duly deposited. An instrument of proxy that is not deposited in the manner permitted shall be invalid.

84. The instrument appointing a proxy shall be deemed to confer authority to demand or join in demanding a poll.

85. A resolution in writing signed by all the Shareholders for the time being entitled to receive notice of and to attend and vote at general meetings of the Company (or being corporations by their duly authorised representatives) shall be as valid and effective as if the same had been passed at a general meeting of the Company duly convened and held.

CORPORATIONS ACTING BY REPRESENTATIVES AT MEETINGS

86. Any corporation which is a Shareholder or a Director may by resolution of its directors or other governing body authorise such Person as it thinks fit to act as its representative at any meeting of the Company or of any meeting of holders of a Class or of the Directors or of a committee of Directors, and the Person so authorised shall be entitled to exercise the same powers on behalf of the corporation which he represents as that corporation could exercise if it were an individual Shareholder or Director.

DEPOSITARY AND CLEARING HOUSES

87. If a recognised clearing house (or its nominee(s)) or depositary (or its nominee(s)) is a Member of the Company it may, by resolution of its directors or other governing body or by power of attorney, authorise such Person(s) as it thinks fit to act as its representative(s) at any general meeting of the Company or of any Class of Shareholders provided that, if more than one Person is so authorised, the authorisation shall specify the number and Class of Shares in respect of which each such Person is so authorised. A Person so authorised pursuant to this Article shall be entitled to exercise the same powers on behalf of the recognised clearing house (or its nominee(s)) or depositary (or its nominee(s)) which he represents as that recognised clearing house (or its nominee(s)) or depositary (or its nominee(s)) could exercise if it were an individual Member holding the number and Class of Shares specified in such authorisation, including the right to vote individually on a show of hands.

DIRECTORS

88. (a) Unless otherwise determined by the Company in general meeting, the number of Directors shall not be less than three (3) Directors, the exact number of Directors to be determined from time to time by the Board of Directors.

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(b) (i) So long as HHtech Holdings Limited, Haiyu Holding Limited, Fandler Holding Limited, Forest Mountain Holding Limited, Wenshui Holding Limited and Shu Hill Holdings (collectively, “ Co-Founder Entities ”) continue to beneficially own no less than 54,680,596 Shares (subject to subsequent adjustment for share splits, share dividends, reverse share splits, re-capitalizations and the like), representing approximately 60% of the Shares the Co-Founder Entities beneficially own as of the date of the adoption of these Articles, the Co-Founder Entities shall be exclusively entitled to designate, appoint, remove, replace and reappoint at any time or from time to time three (3) Director; (ii) so long as it continues to beneficially own no less than 10% of the issued and outstanding Shares, People Better Limited shall be exclusively entitled to designate, appoint, remove, replace and reappoint at any time or from time to time one (1) Director; (iii) So long as it continues to beneficially own no less than 10% of the issued and outstanding Shares, Shunwei High Tech Limited shall be exclusively entitled to designate, appoint, remove, replace and reappoint at any time or from time to time one (1) Director.. For purpose of this Article 88(b), beneficial ownership shall have the meaning set forth in Rule 13d-3 under the United States Securities Exchange Act of 1934, as amended.

(c) The Board of Directors shall elect and appoint a Chairman of the Board by a majority of the Directors then in office. The period for which the Chairman of the Board will hold office will also be determined by a majority of all of the Directors then in office. The Chairman of the Board shall preside as Chairman of the meeting at every meeting of the Board of Directors. To the extent the Chairman is not present at a meeting of the Board of Directors within fifteen minutes after the time appointed for holding the same, the attending Directors may choose one of their number to be the Chairman of the meeting.

(d) The Company may by Ordinary Resolution appoint any person to be a Director.

(e) The Board may, by the affirmative vote of a simple majority of the remaining Directors present and voting at a Board meeting, appoint any person as a Director, to fill a casual vacancy on the Board or as an addition to the existing Board.

(f) An appointment of a Director may be on terms that the Director shall automatically retire from office (unless he has sooner vacated office) at the next or a subsequent annual general meeting or upon any specified event or after any specified period in a written agreement between the Company and the Director, if any; but no such term shall be implied in the absence of express provision. Each Director whose term of office expires shall be eligible for re-election at a meeting of the Shareholders or re-appointment by the Board.

89. A Director may be removed from office by Ordinary Resolution of the Company, notwithstanding anything in these Articles or in any agreement between the Company and such Director (but without prejudice to any claim for damages under such agreement). A vacancy on the Board created by the removal of a Director under the previous sentence may be filled by Ordinary Resolution or by the affirmative vote of a simple majority of the remaining Directors present and voting at a Board meeting. The notice of any meeting at which a resolution to remove a Director shall be proposed or voted upon must contain a statement of the intention to remove that Director and such notice must be served on that Director not less than ten (10) calendar days before the meeting. Such Director is entitled to attend the meeting and be heard on the motion for his removal.

90. The Board may, from time to time, and except as required by applicable law or Designated Stock Exchange Rules, adopt, institute, amend, modify or revoke the corporate governance policies or initiatives of the Company and determine on various corporate governance related matters of the Company as the Board shall determine by resolution of Directors from time to time.

91. A Director shall not be required to hold any Shares in the Company by way of qualification. A Director who is not a Member of the Company shall nevertheless be entitled to attend and speak at general meetings.

92. The remuneration of the Directors may be determined by the Directors or by Ordinary Resolution.

93. The Directors shall be entitled to be paid their travelling, hotel and other expenses properly incurred by them in going to, attending and returning from meetings of the Directors, or any committee of the Directors, or general meetings of the Company, or otherwise in connection with the business of the Company, or to receive such fixed allowance in respect thereof as may be determined by the Directors from time to time, or a combination partly of one such method and partly the other.

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ALTERNATE DIRECTOR OR PROXY

94. Any Director may in writing appoint another Person to be his alternate and, save to the extent provided otherwise in the form of appointment, such alternate shall have authority to sign written resolutions on behalf of the appointing Director, but shall not be required to sign such written resolutions where they have been signed by the appointing director, and to act in such Director’s place at any meeting of the Directors at which the appointing Director is unable to be present. Every such alternate shall be entitled to attend and vote at meetings of the Directors as a Director when the Director appointing him is not personally present and where he is a Director to have a separate vote on behalf of the Director he is representing in addition to his own vote. A Director may at any time in writing revoke the appointment of an alternate appointed by him. Such alternate shall be deemed for all purposes to be a Director of the Company and shall not be deemed to be the agent of the Director appointing him. The remuneration of such alternate shall be payable out of the remuneration of the Director appointing him and the proportion thereof shall be agreed between them.

95. Any Director may appoint any Person, whether or not a Director, to be the proxy of that Director to attend and vote on his behalf, in accordance with instructions given by that Director, or in the absence of such instructions at the discretion of the proxy, at a meeting or meetings of the Directors which that Director is unable to attend personally. The instrument appointing the proxy shall be in writing under the hand of the appointing Director and shall be in any usual or common form or such other form as the Directors may approve, and must be lodged with the Chairman of the meeting of the Directors at which such proxy is to be used, or first used, prior to the commencement of the meeting.

POWERS AND DUTIES OF DIRECTORS

96. Subject to the Companies Law, these Articles and to any resolutions passed in a general meeting, the business of the Company shall be managed by the Directors, who may pay all expenses incurred in setting up and registering the Company and may exercise all powers of the Company. No resolution passed by the Company in general meeting shall invalidate any prior act of the Directors that would have been valid if that resolution had not been passed.

97. Subject to these Articles, the Directors may from time to time appoint any natural person or corporation, whether or not a Director to hold such office in the Company as the Directors may think necessary for the administration of the Company, including but not limited to, chief executive officer, one or more other executive officers, president, one or more vice-presidents, treasurer, assistant treasurer, manager or controller, and for such term and at such remuneration (whether by way of salary or commission or participation in profits or partly in one way and partly in another), and with such powers and duties as the Directors may think fit. Any natural person or corporation so appointed by the Directors may be removed by the Directors. The Directors may also appoint one or more of their number to the office of managing director upon like terms, but any such appointment shall ipso facto terminate if any managing director ceases for any cause to be a Director, or if the Company by Ordinary Resolution resolves that his tenure of office be terminated.

98. The Directors may appoint any natural person or corporation to be a Secretary (and if need be an assistant Secretary or assistant Secretaries) who shall hold office for such term, at such remuneration and upon such conditions and with such powers as they think fit. Any Secretary or assistant Secretary so appointed by the Directors may be removed by the Directors or by the Company by Ordinary Resolution.

99. The Directors may delegate any of their powers to committees consisting of such member or members of their body as they think fit; any committee so formed shall in the exercise of the powers so delegated conform to any regulations that may be imposed on it by the Directors.

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100. The Directors may from time to time and at any time by power of attorney (whether under Seal or under hand) or otherwise appoint any company, firm or Person or body of Persons, whether nominated directly or indirectly by the Directors, to be the attorney or attorneys or authorised signatory (any such Person being an “Attorney” or “Authorised Signatory”, respectively) of the Company for such purposes and with such powers, authorities and discretion (not exceeding those vested in or exercisable by the Directors under these Articles) and for such period and subject to such conditions as they may think fit, and any such power of attorney or other appointment may contain such provisions for the protection and convenience of Persons dealing with any such Attorney or Authorised Signatory as the Directors may think fit, and may also authorise any such Attorney or Authorised Signatory to delegate all or any of the powers, authorities and discretion vested in him.

101. The Directors may from time to time provide for the management of the affairs of the Company in such manner as they shall think fit and the provisions contained in the three next following Articles shall not limit the general powers conferred by this Article.

102. The Directors from time to time and at any time may establish any committees, local boards or agencies for managing any of the affairs of the Company and may appoint any natural person or corporation to be a member of such committees or local boards and may appoint any managers or agents of the Company and may fix the remuneration of any such natural person or corporation.

103. The Directors from time to time and at any time may delegate to any such committee, local board, manager or agent any of the powers, authorities and discretions for the time being vested in the Directors and may authorise the members for the time being of any such local board, or any of them to fill any vacancies therein and to act notwithstanding vacancies and any such appointment or delegation may be made on such terms and subject to such conditions as the Directors may think fit and the Directors may at any time remove any natural person or corporation so appointed and may annul or vary any such delegation, but no Person dealing in good faith and without notice of any such annulment or variation shall be affected thereby.

104. Any such delegates as aforesaid may be authorised by the Directors to sub-delegate all or any of the powers, authorities, and discretion for the time being vested in them.

BORROWING POWERS OF DIRECTORS

105. The Directors may from time to time at their discretion exercise all the powers of the Company to raise or borrow money and to mortgage or charge its undertaking, property and assets (present and future) and uncalled capital or any part thereof, to issue debentures, debenture stock, bonds and other securities, whether outright or as collateral security for any debt, liability or obligation of the Company or of any third party.

THE SEAL

106. The Seal shall not be affixed to any instrument except by the authority of a resolution of the Directors provided always that such authority may be given prior to or after the affixing of the Seal and if given after may be in general form confirming a number of affixings of the Seal. The Seal shall be affixed in the presence of a Director or a Secretary (or an assistant Secretary) or in the presence of any one or more Persons as the Directors may appoint for the purpose and every Person as aforesaid shall sign every instrument to which the Seal is so affixed in their presence.

107. The Company may maintain a facsimile of the Seal in such countries or places as the Directors may appoint and such facsimile Seal shall not be affixed to any instrument except by the authority of a resolution of the Directors provided always that such authority may be given prior to or after the affixing of such facsimile Seal and if given after may be in general form confirming a number of affixings of such facsimile Seal. The facsimile Seal shall be affixed in the presence of such Person or Persons as the Directors shall for this purpose appoint and such Person or Persons as aforesaid shall sign every instrument to which the facsimile Seal is so affixed in their presence and such affixing of the facsimile Seal and signing as aforesaid shall have the same meaning and effect as if the Seal had been affixed in the presence of and the instrument signed by a Director or a Secretary (or an assistant Secretary) or in the presence of any one or more Persons as the Directors may appoint for the purpose.

108. Notwithstanding the foregoing, a Secretary or any assistant Secretary shall have the authority to affix the Seal, or the facsimile Seal, to any instrument for the purposes of attesting authenticity of the matter contained therein but which does not create any obligation binding on the Company.

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DISQUALIFICATION OF DIRECTORS

109. The office of Director shall be vacated, if the Director:

(a) becomes bankrupt or makes any arrangement or composition with his creditors;

(b) dies or is found to be or becomes of unsound mind;

(c) resigns his office by notice in writing to the Company;

(d) without special leave of absence from the Board, is absent from meetings of the Board for three consecutive meetings and the Board resolves that his office be vacated; or

(e) is removed from office pursuant to any other provision of these Articles.

PROCEEDINGS OF DIRECTORS

110. The Directors may meet together (either within or without the Cayman Islands) for the despatch of business, adjourn, and otherwise regulate their meetings and proceedings as they think fit. Questions arising at any meeting shall be decided by a majority of votes. At any meeting of the Directors, each Director present in person or represented by his proxy or alternate shall be entitled to one vote. In case of an equality of votes the Chairman shall have a second or casting vote. A Director may, and a Secretary or assistant Secretary on the requisition of a Director shall, at any time summon a meeting of the Directors.

111. A Director may participate in any meeting of the Directors, or of any committee appointed by the Directors of which such Director is a member, by means of telephone or similar communication equipment by way of which all Persons participating in such meeting can communicate with each other and such participation shall be deemed to constitute presence in person at the meeting.

112. The quorum necessary for the transaction of the business of the Board may be fixed by the Directors, and unless so fixed, the quorum shall be a majority of Directors then in office. A Director represented by proxy or by an alternate Director at any meeting shall be deemed to be present for the purposes of determining whether or not a quorum is present.

113. A Director who is in any way, whether directly or indirectly, interested in a contract or transaction or proposed contract or transaction with the Company shall declare the nature of his interest at a meeting of the Directors. A general notice given to the Directors by any Director to the effect that he is a member of any specified company or firm and is to be regarded as interested in any contract or transaction which may thereafter be made with that company or firm shall be deemed a sufficient declaration of interest in regard to any contract so made or transaction so consummated. A Director may vote in respect of any contract or transaction or proposed contract or transaction notwithstanding that he may be interested therein and if he does so his vote shall be counted and he may be counted in the quorum at any meeting of the Directors at which any such contract or transaction or proposed contract or transaction shall come before the meeting for consideration.

114. A Director may hold any other office or place of profit under the Company (other than the office of auditor) in conjunction with his office of Director for such period and on such terms (as to remuneration and otherwise) as the Directors may determine and no Director or intending Director shall be disqualified by his office from contracting with the Company either with regard to his tenure of any such other office or place of profit or as vendor, purchaser or otherwise, nor shall any such contract or arrangement entered into by or on behalf of the Company in which any Director is in any way interested be liable to be avoided, nor shall any Director so contracting or being so interested be liable to account to the Company for any profit realised by any such contract or arrangement by reason of such Director holding that office or of the fiduciary relation thereby established. A Director, notwithstanding his interest, may be counted in the quorum present at any meeting of the Directors whereat he or any other Director is appointed to hold any such office or place of profit under the Company or whereat the terms of any such appointment are arranged and he may vote on any such appointment or arrangement.

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115. Any Director may act by himself or through his firm in a professional capacity for the Company, and he or his firm shall be entitled to remuneration for professional services as if he were not a Director; provided that nothing herein contained shall authorise a Director or his firm to act as auditor to the Company.

116. The Directors shall cause minutes to be made for the purpose of recording:

(a) all appointments of officers made by the Directors;

(b) the names of the Directors present at each meeting of the Directors and of any committee of the Directors; and

(c) all resolutions and proceedings at all meetings of the Company, and of the Directors and of committees of Directors.

117. When the Chairman of a meeting of the Directors signs the minutes of such meeting the same shall be deemed to have been duly held notwithstanding that all the Directors have not actually come together or that there may have been a technical defect in the proceedings.

118. A resolution in writing signed by all the Directors or all the members of a committee of Directors entitled to receive notice of a meeting of Directors or committee of Directors, as the case may be (an alternate Director, subject as provided otherwise in the terms of appointment of the alternate Director, being entitled to sign such a resolution on behalf of his appointer), shall be as valid and effectual as if it had been passed at a duly called and constituted meeting of Directors or committee of Directors, as the case may be. When signed a resolution may consist of several documents each signed by one or more of the Directors or his duly appointed alternate.

119. The continuing Directors may act notwithstanding any vacancy in their body but if and for so long as their number is reduced below the number fixed by or pursuant to these Articles as the necessary quorum of Directors, the continuing Directors may act for the purpose of increasing the number, or of summoning a general meeting of the Company, but for no other purpose.

120. Subject to any regulations imposed on it by the Directors, a committee appointed by the Directors may elect a Chairman of its meetings. If no such Chairman is elected, or if at any meeting the Chairman is not present within fifteen minutes after the time appointed for holding the meeting, the committee members present may choose one of their number to be Chairman of the meeting.

121. A committee appointed by the Directors may meet and adjourn as it thinks proper. Subject to any regulations imposed on it by the Directors, questions arising at any meeting shall be determined by a majority of votes of the committee members present and in case of an equality of votes the Chairman shall have a second or casting vote.

122. All acts done by any meeting of the Directors or of a committee of Directors, or by any Person acting as a Director, shall notwithstanding that it be afterwards discovered that there was some defect in the appointment of any such Director or Person acting as aforesaid, or that they or any of them were disqualified, be as valid as if every such Person had been duly appointed and was qualified to be a Director.

PRESUMPTION OF ASSENT

123. A Director who is present at a meeting of the Board of Directors at which an action on any Company matter is taken shall be presumed to have assented to the action taken unless his dissent shall be entered in the minutes of the meeting or unless he shall file his written dissent from such action with the person acting as the Chairman or secretary of the meeting before the adjournment thereof or shall forward such dissent by registered post to such person immediately after the adjournment of the meeting. Such right to dissent shall not apply to a Director who voted in favour of such action.

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DIVIDENDS

124. Subject to any rights and restrictions for the time being attached to any Shares, the Directors may from time to time declare dividends (including interim dividends) and other distributions on Shares in issue and authorise payment of the same out of the funds of the Company lawfully available therefor.

125. Subject to any rights and restrictions for the time being attached to any Shares, the Company by Ordinary Resolution may declare dividends, but no dividend shall exceed the amount recommended by the Directors.

126. The Directors may, before recommending or declaring any dividend, set aside out of the funds legally available for distribution such sums as they think proper as a reserve or reserves which shall, in the absolute discretion of the Directors, be applicable for meeting contingencies or for equalising dividends or for any other purpose to which those funds may be properly applied, and pending such application may in the absolute discretion of the Directors, either be employed in the business of the Company or be invested in such investments (other than Shares of the Company) as the Directors may from time to time think fit.

127. Any dividend payable in cash to the holder of Shares may be paid in any manner determined by the Directors. If paid by cheque it will be sent by mail addressed to the holder at his address in the Register, or addressed to such person and at such addresses as the holder may direct. Every such cheque or warrant shall, unless the holder or joint holders otherwise direct, be made payable to the order of the holder or, in the case of joint holders, to the order of the holder whose name stands first on the Register in respect of such Shares, and shall be sent at his or their risk and payment of the cheque or warrant by the bank on which it is drawn shall constitute a good discharge to the Company.

128. The Directors may determine that a dividend shall be paid wholly or partly by the distribution of specific assets (which may consist of the shares or securities of any other company) and may settle all questions concerning such distribution. Without limiting the generality of the foregoing, the Directors may fix the value of such specific assets, may determine that cash payment shall be made to some Shareholders in lieu of specific assets and may vest any such specific assets in trustees on such terms as the Directors think fit.

129. Subject to any rights and restrictions for the time being attached to any Shares, all dividends shall be declared and paid according to the amounts paid up on the Shares, but if and for so long as nothing is paid up on any of the Shares dividends may be declared and paid according to the par value of the Shares. No amount paid on a Share in advance of calls shall, while carrying interest, be treated for the purposes of this Article as paid on the Share.

130. If several Persons are registered as joint holders of any Share, any of them may give effective receipts for any dividend or other moneys payable on or in respect of the Share.

131. No dividend shall bear interest against the Company.

132. Any dividend unclaimed after a period of six calendar years from the date of declaration of such dividend may be forfeited by the Board of Directors and, if so forfeited, shall revert to the Company.

ACCOUNTS, AUDIT AND ANNUAL RETURN AND DECLARATION

133. The books of account relating to the Company’s affairs shall be kept in such manner as may be determined from time to time by the Directors.

134. The books of account shall be kept at the Registered Office, or at such other place or places as the Directors think fit, and shall always be open to the inspection of the Directors.

135. The Directors may from time to time determine whether and to what extent and at what times and places and under what conditions or regulations the accounts and books of the Company or any of them shall be open to the inspection of Shareholders not being Directors, and no Shareholder (not being a Director) shall have any right to inspect any account or book or document of the Company except as conferred by law or authorised by the Directors or by Ordinary Resolution.

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136. The accounts relating to the Company’s affairs shall be audited in such manner and with such financial year end as may be determined from time to time by the Directors or failing any determination as aforesaid shall not be audited.

137. The Directors may appoint an auditor of the Company who shall hold office until removed from office by a resolution of the Directors and may fix his or their remuneration.

138. Every auditor of the Company shall have a right of access at all times to the books and accounts and vouchers of the Company and shall be entitled to require from the Directors and officers of the Company such information and explanation as may be necessary for the performance of the duties of the auditors.

139. The auditors shall, if so required by the Directors, make a report on the accounts of the Company during their tenure of office at the next annual general meeting following their appointment, and at any time during their term of office, upon request of the Directors or any general meeting of the Members.

140. The Directors in each calendar year shall prepare, or cause to be prepared, an annual return and declaration setting forth the particulars required by the Companies Law and deliver a copy thereof to the Registrar of Companies in the Cayman Islands.

CAPITALISATION OF RESERVES

141. Subject to the Companies Law, the Directors may:

(a) resolve to capitalise an amount standing to the credit of reserves (including a Share Premium Account, capital redemption reserve and profit and loss account), which is available for distribution;

(b) appropriate the sum resolved to be capitalised to the Shareholders in proportion to the nominal amount of Shares (whether or not fully paid) held by them respectively and apply that sum on their behalf in or towards:

(i) paying up the amounts (if any) for the time being unpaid on Shares held by them respectively, or

(ii) paying up in full unissued Shares or debentures of a nominal amount equal to that sum,

and allot the Shares or debentures, credited as fully paid, to the Shareholders (or as they may direct) in those proportions, or partly in one way and partly in the other, but the Share Premium Account, the capital redemption reserve and profits which are not available for distribution may, for the purposes of this Article, only be applied in paying up unissued Shares to be allotted to Shareholders credited as fully paid;

(c) make any arrangements they think fit to resolve a difficulty arising in the distribution of a capitalised reserve and in particular, without limitation, where Shares or debentures become distributable in fractions the Directors may deal with the fractions as they think fit;

(d) authorise a Person to enter (on behalf of all the Shareholders concerned) into an agreement with the Company providing for either:

(i) the allotment to the Shareholders respectively, credited as fully paid, of Shares or debentures to which they may be entitled on the capitalisation, or

(ii) the payment by the Company on behalf of the Shareholders (by the application of their respective proportions of the reserves resolved to be capitalised) of the amounts or part of the amounts remaining unpaid on their existing Shares,

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and any such agreement made under this authority being effective and binding on all those Shareholders; and

(e) generally do all acts and things required to give effect to the resolution.

142. Notwithstanding any provisions in these Articles, the Directors may resolve to capitalise an amount standing to the credit of reserves (including the share premium account, capital redemption reserve and profit and loss account) or otherwise available for distribution by applying such sum in paying up in full unissued Shares to be allotted and issued to:

(a) employees (including Directors) or service providers of the Company or its Affiliates upon exercise or vesting of any options or awards granted under any share incentive scheme or employee benefit scheme or other arrangement which relates to such persons that has been adopted or approved by the Directors or the Members;

(b) any trustee of any trust or administrator of any share incentive scheme or employee benefit scheme to whom shares are to be allotted and issued by the Company in connection with the operation of any share incentive scheme or employee benefit scheme or other arrangement which relates to such persons that has been adopted or approved by the Directors or Members; or

(c) any depositary of the Company for the purposes of the issue, allotment and delivery by the depositary of ADSs to employees (including Directors) or service providers of the Company or its Affiliates upon exercise or vesting of any options or awards granted under any share incentive scheme or employee benefit scheme or other arrangement which relates to such persons that has been adopted or approved by the Directors or the Members.

SHARE PREMIUM ACCOUNT

143. The Directors shall in accordance with the Companies Law establish a Share Premium Account and shall carry to the credit of such account from time to time a sum equal to the amount or value of the premium paid on the issue of any Share.

144. There shall be debited to any Share Premium Account on the redemption or purchase of a Share the difference between the nominal value of such Share and the redemption or purchase price provided always that at the discretion of the Directors such sum may be paid out of the profits of the Company or, if permitted by the Companies Law, out of capital.

NOTICES

145. Except as otherwise provided in these Articles, any notice or document may be served by the Company or by the Person entitled to give notice to any Shareholder either personally, or by posting it by airmail or a recognised courier service in a prepaid letter addressed to such Shareholder at his address as appearing in the Register, or by electronic mail to any electronic mail address such Shareholder may have specified in writing for the purpose of such service of notices, or by facsimile to any facsimile number such Shareholder may have specified in writing for the purpose of such service of notices, or by placing it on the Company’s Website should the Directors deem it appropriate. In the case of joint holders of a Share, all notices shall be given to that one of the joint holders whose name stands first in the Register in respect of the joint holding, and notice so given shall be sufficient notice to all the joint holders.

146. Notices sent from one country to another shall be sent or forwarded by prepaid airmail or a recognised courier service.

147. Any Shareholder present, either personally or by proxy, at any meeting of the Company shall for all purposes be deemed to have received due notice of such meeting and, where requisite, of the purposes for which such meeting was convened.

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148. Any notice or other document, if served by:

(a) post, shall be deemed to have been served five calendar days after the time when the letter containing the same is posted;

(b) facsimile, shall be deemed to have been served upon production by the transmitting facsimile machine of a report confirming transmission of the facsimile in full to the facsimile number of the recipient;

(c) recognised courier service, shall be deemed to have been served 48 hours after the time when the letter containing the same is delivered to the courier service; or

(d) electronic means, shall be deemed to have been served immediately (i) upon the time of the transmission to the electronic mail address supplied by the Shareholder to the Company or (ii) upon the time of its placement on the Company’s Website.

In proving service by post or courier service it shall be sufficient to prove that the letter containing the notice or documents was properly addressed and duly posted or delivered to the courier service.

149. Any notice or document delivered or sent by post to or left at the registered address of any Shareholder in accordance with the terms of these Articles shall notwithstanding that such Shareholder be then dead or bankrupt, and whether or not the Company has notice of his death or bankruptcy, be deemed to have been duly served in respect of any Share registered in the name of such Shareholder as sole or joint holder, unless his name shall at the time of the service of the notice or document have been removed from the Register as the holder of the Share, and such service shall for all purposes be deemed a sufficient service of such notice or document on all Persons interested (whether jointly with or as claiming through or under him) in the Share.

150. Notice of every general meeting of the Company shall be given to:

(a) all Shareholders holding Shares with the right to receive notice and who have supplied to the Company an address for the giving of notices to them; and

(b) every Person entitled to a Share in consequence of the death or bankruptcy of a Shareholder, who but for his death or bankruptcy would be entitled to receive notice of the meeting.

No other Person shall be entitled to receive notices of general meetings.

INFORMATION

151. No Member shall be entitled to require discovery of any information in respect of any detail of the Company’s trading or any information which is or may be in the nature of a trade secret or secret process which may relate to the conduct of the business of the Company and which in the opinion of the Board would not be in the interests of the Members of the Company to communicate to the public.

152. The Board shall be entitled to release or disclose any information in its possession, custody or control regarding the Company or its affairs to any of its Members including, without limitation, information contained in the Register and transfer books of the Company.

INDEMNITY

153. Every Director (including for the purposes of this Article any alternate Director appointed pursuant to the provisions of these Articles), Secretary, assistant Secretary, or other officer for the time being and from time to time of the Company (but not including the Company’s auditors) and the personal representatives of the same (each an “Indemnified Person”) shall be indemnified and secured harmless against all actions, proceedings, costs, charges, expenses, losses, damages or liabilities incurred or sustained by such Indemnified Person, other than by reason of such Indemnified Person’s own dishonesty, wilful default or fraud, in or about the conduct of the Company’s business or affairs (including as a result of any mistake of judgment) or in the execution or discharge of his duties, powers, authorities or discretions, including without prejudice to the generality of the foregoing, any costs, expenses, losses or liabilities incurred by such Indemnified Person in defending (whether successfully or otherwise) any civil proceedings concerning the Company or its affairs in any court whether in the Cayman Islands or elsewhere.

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154. No Indemnified Person shall be liable:

(a) for the acts, receipts, neglects, defaults or omissions of any other Director or officer or agent of the Company; or

(b) for any loss on account of defect of title to any property of the Company; or

(c) on account of the insufficiency of any security in or upon which any money of the Company shall be invested; or

(d) for any loss incurred through any bank, broker or other similar Person; or

(e) for any loss occasioned by any negligence, default, breach of duty, breach of trust, error of judgement or oversight on such Indemnified Person’s part; or

(f) for any loss, damage or misfortune whatsoever which may happen in or arise from the execution or discharge of the duties, powers, authorities, or discretions of such Indemnified Person’s office or in relation thereto;

unless the same shall happen through such Indemnified Person’s own dishonesty, willful default or fraud.

FINANCIAL YEAR

155. Unless the Directors otherwise prescribe, the financial year of the Company shall end on December 31 st in each calendar year and shall begin on January 1st in each calendar year.

NON-RECOGNITION OF TRUSTS

156. No Person shall be recognised by the Company as holding any Share upon any trust and the Company shall not, unless required by law, be bound by or be compelled in any way to recognise (even when having notice thereof) any equitable, contingent, future or partial interest in any Share or (except only as otherwise provided by these Articles or as the Companies Law requires) any other right in respect of any Share except an absolute right to the entirety thereof in each Shareholder registered in the Register.

WINDING UP

157. If the Company shall be wound up the liquidator may, with the sanction of a Special Resolution of the Company and any other sanction required by the Companies Law, divide amongst the Members in species or in kind the whole or any part of the assets of the Company (whether they shall consist of property of the same kind or not) and may for that purpose value any assets and determine how the division shall be carried out as between the Members or different classes of Members. The liquidator may, with the like sanction, vest the whole or any part of such assets in trustees upon such trusts for the benefit of the Members as the liquidator, with the like sanction, shall think fit, but so that no Member shall be compelled to accept any asset upon which there is a liability.

158. If the Company shall be wound up, and the assets available for distribution amongst the Members shall be insufficient to repay the whole of the share capital, such assets shall be distributed so that, as nearly as may be, the losses shall be borne by the Members in proportion to the par value of the Shares held by them. If in a winding up the assets available for distribution amongst the Members shall be more than sufficient to repay the whole of the share capital at the commencement of the winding up, the surplus shall be distributed amongst the Members in proportion to the par value of the Shares held by them at the commencement of the winding up subject to a deduction from those Shares in respect of which there are monies due, of all monies payable to the Company for unpaid calls or otherwise. This Article is without prejudice to the rights of the holders of Shares issued upon special terms and conditions.

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AMENDMENT OF ARTICLES OF ASSOCIATION

159. Subject to the Companies Law, the Company may at any time and from time to time by Special Resolution alter or amend these Articles in whole or in part.

CLOSING OF REGISTER OR FIXING RECORD DATE

160. For the purpose of determining those Shareholders that are entitled to receive notice of, attend or vote at any meeting of Shareholders or any adjournment thereof, or those Shareholders that are entitled to receive payment of any dividend, or in order to make a determination as to who is a Shareholder for any other purpose, the Directors may provide that the Register shall be closed for transfers for a stated period which shall not exceed in any case thirty calendar days in any calendar year.

161. In lieu of or apart from closing the Register, the Directors may fix in advance a date as the record date for any such determination of those Shareholders that are entitled to receive notice of, attend or vote at a meeting of the Shareholders and for the purpose of determining those Shareholders that are entitled to receive payment of any dividend the Directors may, at or within ninety calendar days prior to the date of declaration of such dividend, fix a subsequent date as the record date for such determination.

162. If the Register is not so closed and no record date is fixed for the determination of those Shareholders entitled to receive notice of, attend or vote at a meeting of Shareholders or those Shareholders that are entitled to receive payment of a dividend, the date on which notice of the meeting is posted or the date on which the resolution of the Directors declaring such dividend is adopted, as the case may be, shall be the record date for such determination of Shareholders. When a determination of those Shareholders that are entitled to receive notice of, attend or vote at a meeting of Shareholders has been made as provided in this Article, such determination shall apply to any adjournment thereof.

REGISTRATION BY WAY OF CONTINUATION

163. The Company may by Special Resolution resolve to be registered by way of continuation in a jurisdiction outside the Cayman Islands or such other jurisdiction in which it is for the time being incorporated, registered or existing. In furtherance of a resolution adopted pursuant to this Article, the Directors may cause an application to be made to the Registrar of Companies to deregister the Company in the Cayman Islands or such other jurisdiction in which it is for the time being incorporated, registered or existing and may cause all such further steps as they consider appropriate to be taken to effect the transfer by way of continuation of the Company.

DISCLOSURE

164. The Directors, or any service providers (including the officers, the Secretary and the registered office agent of the Company) specifically authorised by the Directors, shall be entitled to disclose to any regulatory or judicial authority any information regarding the affairs of the Company including without limitation information contained in the Register and books of the Company.

IRREVOCABLE PROXIES

165. Notwithstanding any other provision of these Articles, where a Shareholder (the “ Granting Shareholder ”) has granted an Irrevocable Proxy in respect of any Shares held by the Granting Shareholder (the “ Subject Shares ”) to authorise the Irrevocable Proxy Holder to vote the Subject Shares in respect of any matters or resolutions to be voted upon by the Shareholders as specified therein (the “ Relevant Matters ”), then, for so long as the Irrevocable Proxy remains in force:

(a) the Irrevocable Proxy Holder shall, within three (3) Business Days after an Irrevocable Proxy becomes effective, deliver a copy of such Irrevocable Proxy to the Company and copy the Granting Shareholder on such notice;

(b) only the Irrevocable Proxy Holder (and not the Granting Shareholder) shall be entitled to cast the votes attaching to the Subject Shares in respect of any resolutions which are proposed to be voted upon by the Shareholders to approve or authorise any Relevant Matter;

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(c) the Irrevocable Proxy Holder shall have full power and authority to vote the Subject Shares at all meetings of Shareholders with the same force and effect as the Granting Shareholder might or could do with respect to the Subject Shares;

(d) any vote attaching to the Subject Shares cast otherwise than by such Irrevocable Proxy Holder shall not be counted towards the result of any poll;

(e) the Irrevocable Proxy Holder shall have full power and authority to sign any resolution in writing of the Shareholders under Article 85 with the same force and effect as the Granting Shareholder might or could do with respect to the Subject Shares, and any such resolution in writing signed by the Irrevocable Proxy Holder shall be valid and effective as if it had been signed by the Granting Shareholder with respect to the Subject Shares;

(f) the Irrevocable Proxy may not be revoked or terminated by the Granting Shareholder otherwise than in accordance with the terms of the Irrevocable Proxy; and

(g) the provisions of Articles 82 and 83 shall not apply to the Irrevocable Proxy.

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EX-4.21

Exhibit 4.21

Business Cooperation Agreement

Party A: Xiaomi Communication Technology Co., Ltd.Legal Representative: Wang ChuanAddress: No. 019, 9th Floor, Building 6, Yard 33, Xierqi Middle Road, Haidian District, Beijing

Party B: Anhui Huami Information Technology Co., Ltd.Legal Representative: Huang WangAddress: Building B2, Zhong’an Chuanggu Science and Technology Park, High-tech Development Zone, Hefei City, Anhui Province

In view of the willingness of both parties to cooperate, this agreement is tailored for the modalities of cooperation of Xiaomi Customized Products, and the two parties hereby agree to abide by the following terms through friendly negotiation on matters related to cooperation between the two parties:

Article 1:Scope of the agreement

This agreement applies to all customized products provided or already provided by Party B to Party A (hereinafter referred to as “Xiaomi Customized Products”). The specific products are subject to the “Xiaomi Customized Product Project Establishment Agreement” annexed to this agreement signed by both parties before such products are launched.

Article 2:Modalities of cooperation

2.1 Party A specifies the trademark, ID (industrial design), packaging design scheme, etc. to be used in Xiaomi Customized Products (as defined in Article 3.1). Party B is responsible for the overall development, production and supply of Xiaomi Customized Products, and produces and delivers them according to Party A’s orders.

2.2 Party A provides Party B with order forecast based on market judgment. Party B shall arrange production with reference to order forecast, and order forecast is not legally binding on Party A. Party B is responsible for the production of Xiaomi Customized Products and the delivery of them to the warehouse designated by Party A. Party A is responsible for the promotion and sales of products.

2.3 Party A has the right to sell and dispose of Xiaomi Customized Products through all channels, including but not limited to domestic, international, online, offline and other channels; the Xiaomi Customized Products produced by Party B in accordance with this agreement can only be provided to Party A. Without the prior written permission of Party A, Party B shall not provide Xiaomi Customized Products to third parties other than Party A in any form and through any channels, including but not limited to domestic, international, online, offline and other channels. If Party B violates this clause, Party A has the right to terminate the agreement and require Party B to compensate Party A for all

losses, and Party A has the right to take any possible measures to avoid further expansion of losses.

2.4 Party B undertakes that Party B will not produce or sell fake Xiaomi brand products by itself or assist any third party in doing so.

2.5 Party B undertakes that Party B will not cooperate with consumer electronics manufacturers that compete with Xiaomi to develop, produce or outsource products that are the same or similar to Xiaomi Customized Products. If Party B violates this clause, Party A has the right to terminate the agreement and require Party B to pay US$1 million as liquidated damages.

2.6 Party A and Party B have formed a mutually beneficial and complementary business cooperative relationship based on common corporate values and consistent business concepts. Both parties fully realize that the friendly and close business cooperation between the two parties has important business, public opinion and reputation value. Party B undertakes that if there is a legal dispute with Party A, it should first be submitted to the management executives of both parties for negotiation and settlement of the dispute. During the existence of the business cooperation relationship between the two parties, Party B shall not bring claims, lawsuits, injunctions or other legal proceedings against Party A and its affiliates, other companies and suppliers in the Xiaomi ecological chain system for the Xiaomi brand products, unless such legal actions or claims will not affect the supply of Xiaomi brand products. If Party B violates this clause, Party A has the right to require Party B to pay liquidated damages of not less than RMB500,000 according to the specific breach of agreement.

2.7 Party B shall strictly control the production and processing of Xiaomi Customized Products. If Party A requests, Party B shall sign a supplier social responsibility agreement with its authorized manufacturer.

2.8 Both parties agree that the collection, storage, use, processing, transmission, provision, disclosure, deletion and other actions of user data generated during the service provision of Xiaomi Customized Products shall be carried out in accordance with the “User Data Terms for Xiaomi Customized Products” attached to this agreement.

Article 3:Definitions

3.1 Xiaomi Customized Products: Products produced and sold under various brands belonging to Xiaomi, as well as products which are using Party B’s own brand and determined as Xiaomi customized products by written consent of both parties.

3.2 Costs and quotations

3.2.1 The cost of Party A refers to the freight and other expenses (if any) incurred by Party A in selling Xiaomi Customized Products under this agreement.

Calculation method of freight: Based on the actual freight incurred.

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Other expenses: Expenses incurred in selling customized products.

3.2.2 The cost of Party B includes the following:

3.2.2.1 Raw material cost: The raw material cost should indicate the serial number, model specification, unit, consumption and unit price of all purchased materials, and full name and contact information of all suppliers/agents.

3.2.2.2 OEM Fee: The manufacturer’s OEM fee should specify all cost breakdowns.

3.2.2.3 Mold amortization fee: If both parties confirm that the mold cost needs to be shared, it is limited to the first set of molds for each Xiaomi customized product, and the mold cost of the secondary investment shall be borne by Party B.

Calculation formula of mold amortization cost:

Amortization cost per product mold = total mold cost/amortized quantity *

* Note: The amortized quantity is not less than the sales demand of the product for half a year, and not more than the sales demand of the product for one year. The sales demand is based on the output of Party A when the product sample is sealed. Both parties will negotiate for special customized products;

3.2.2.4 Logistics cost: The converted or estimated logistics cost from Party B’s manufacturer to Party A’s designated location (according to the template provided by Party A); the logistics cost from Party A to Party B’s manufacturer is not included in Party B’s cost.

3.2.3 Expenses that should not be included in the quotation: Party B’s profit and overhead cost (including but not limited to overhead cost such as management fee, utility fee, depreciation fee, after-sales service fee and others).

3.2.4 All prices quoted in this agreement are tax inclusive.

3.2.5 If Party A disagrees with Party B’s cost, Party A has the right to purchase by other means, including but not limited to the following methods:

3.2.5.1 Party A purchases directly from suppliers, and Party B is responsible for acceptance, quantity counting, management and use.

3.2.5.2 Party A provides Party B with relevant procurement channels, and Party B shall sign a procurement agreement with the manufacturer provided by Party A according to the relevant conditions specified by Party A.

Regardless of the above methods, Party B warrants that the raw materials and accessories confirmed by Party A or purchased according to clause 3.2.5.1 or clause 3.2.5.2 will be used in the products it provides to Party A.

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3.2.6 Remarks: Both parties only calculate the direct cost for the cooperation model and profit-sharing between the two parties;

One-time input costs (such as research and development, pilot run, certification *, sales, promotional activities, etc.) are not included in the cost.

* Note: This is only for the domestic market. The certification fee for overseas markets will be discussed separately whether it is included in the cost or how to share it according to the situation.

3.2.7 Each party shall bear their management/water and electricity depreciation/company operation expenses respectively.

3.2.8 After-sales maintenance/after-sales services fee/online and offline customer service, on the basis of complying with the “Xiaomi Ecological Chain Customized Product Quality Framework Agreement” attached to this agreement, within the specified quality failure rate, both parties shall bear their after-sales services fee respectively. (The specific after-sales services agreement is implemented in accordance with the “Xiaomi Ecological Chain Customized Product After-sales Services Framework Agreement” signed by both parties)

3.3 Procurement and acceptance

3.3.1 BOM input: Party B shall provide Bill of Material (“BOM”) according to the format requirements of Party A. After BOM is successfully inputted in Party A’s system, Party B shall provide a valid quotation sheet according to Party A’s template.

3.3.2 Purchase price: Subject to the latest purchase order in force (see Article 3.2.2 for the definition of the cost of Party B).

3.3.3 PO Form: Refers to the “Purchase Order” (“PO Form”) confirmed by both parties with seals within the valid period of this agreement.

3.3.4 Delivery Lead Time : From the date when Party B makes a commitment to the purchase order issued by Party A by effective confirmation, to the date when Party A designates the consignee to sign the receipt voucher.

3.3.5 Preliminary acceptance: After Party B delivers the ordered products to the designated place, the designated consignee will check the quantity, packaging, bundling and other status of the products without the need to unpack the transportation packaging of the products and without the use of any inspection equipment.

Article 4:Execution of orders

4.1 After Party B receives the purchase order issued by Party A, it shall sign and seal on Party A’s order and return it to Party A within 3 working days, making it a valid order for both parties; if Party B fails to confirm the order and return it to Party A within the above-mentioned time, Party B shall be deemed to have no objection to the order information, and the order shall be regarded as a valid order. Party B shall fully fulfill the contents of

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the valid order and shall periodically transmit to Party A in writing the shipment plan of the unexecuted valid order.

4.2 Party B shall deliver and transport in a packaging method suitable for product characteristics and delivery time. Party B is responsible for the logistics costs and responsibilities for delivering the goods to the designated location of Party A in the following ways: (1) The logistics costs are included in the cost of Party B, and Party B shall bear the relevant responsibilities such as risks before the acceptance and storage of the goods. (2) The logistics costs and responsibilities of Party A to self-pickup at Party B’s manufacturer shall be shared as follows: The logistics costs are not included in the cost of Party B, and Party B shall bear the relevant responsibilities caused by Party B’s reasons such as inappropriate packaging and loading.

4.3 Party B delivers the product to the delivery location specified in the valid order. Party A designates the consignee to conduct preliminary acceptance of the product and sign the receipt voucher to receive the order product that has passed the preliminary acceptance. After the preliminary acceptance is passed, Party A has the right to conduct further acceptance of the product. If the further acceptance is unqualified, Party B shall return and replace the product according to Party A’s requirements.

4.4 If Party B fails to deliver the goods on time, Party B shall notify Party A in writing of the revised delivery date and delivery quantity no later than 15 working days before the agreed delivery date of the relevant order. After written confirmation by Party A, both parties may determine the specific delivery date and quantity separately, but Party A’s consent on making modifications will not exempt Party B from the liability for breach of agreement for failure to deliver the goods according to the original time. Party B shall still be liable for compensation for the losses caused to Party A. If Party B still fails to deliver the goods in accordance with the delivery quantity and date separately determined by both parties, Party B shall pay Party A liquidated damages equivalent to three thousandths of the total amount of the order for each day of delay. If the delay is more than ten days, Party A has the right to cancel the order. If Party A suffers losses as a result, Party B shall also compensate for the actual losses caused to Party A, except for the circumstances caused by force majeure.

Article 5:Settlement and payment

5.1 For Xiaomi Customized Products sold through Party A’s channels, the gross profit after deducting all costs and expenses of Party A shall be executed by Party A and Party B in accordance with the “Xiaomi Customized Product Project Establishment Agreement” or the quotation sheet signed by both parties before the release of this product.

Gross profit per product = Selling price - The cost of Party B - The cost of Party A

* The cost of Party A and the cost of Party B is referred to in Article 3.2 of this agreement.

* The selling price is the average selling price of Xiaomi Customized Products by Party A.

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Both parties confirm that the settlement shall be carried out in the manner agreed in Article [5.3]

5.2 Business sharing model

Party B’s share = Party A’s sales quantity * gross profit per product * Party B’s share ratio.

5.2.1 Payment: Settle based on PO Form.

5.2.2 Share payment: Party A completes the share statement for the last month’s shipment of Xiaomi Customized Products on the 10th working day of each month, and sends it to Party B for confirmation. After confirmation, Party B will issue a Value-added Tax special invoice for the same amount equivalent to the share statement with the corresponding product name to Party A. Party A shall pay to Party B’s designated account within 10 working days after receiving the accurate invoice issued by Party B.

5.2.3 The calculation of the share is based on the actual sales volume of the product during the settlement time.

5.3 Purchase and sale mode

5.3.1 Purchase and sale payment: Party A completes the statement of account for the last month’s inbound inventory volume of Xiaomi Customized Products on the 5th working day of each month, and sends it to Party B for confirmation. After confirmation, Party B will issue a Value-added Tax special invoice for the same amount equivalent to the statement of account with the corresponding product name to Party A. Party A shall pay to Party B’s designated account within 30 working days after receiving the accurate invoice issued by Party B.

5.3.2 The settlement of the purchase and sale payment is subject to the inbound inventory volume and the statement of account.

5.4 Party B’s designated account:

Account Name: Anhui Huami Information Technology Co., Ltd.Bank: China Merchants Bank Hefei Branch Sales DepartmentBank account: ******

Article 6:Rights and Obligations of Both Parties

6.1 Party B shall ensure that Xiaomi Customized Products enjoy conditions of production, processing, procurement and other conditions not lower than Party B’s own brand products.

6.2 According to the content contained in the definition of cost in Article 3.2, Party B shall provide Party A with the latest cost list within 3 working days of the change in the BOM cost list for Xiaomi Customized Products. Party A has the right to require Party B to provide details of the contract, invoices, payment receipts, etc. between Party B and its suppliers/OEM manufacturers. If there is any adjustment to the price of raw materials,

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OEM costs, freight, or other costs, Party B shall mark the price changes and execution dates before and after in the BOM in detail, and adjust the above-mentioned prices in the new order with the consent of Party A. At the same time, Party B is obliged to ensure that Party A has the right to directly contact the supplier for review. The “Equal Informed Audit Rights Agreement” is signed together with this agreement as an annex to this agreement.

6.3 If the price changes of raw materials, OEM costs, freight or other costs have actually occurred and Party B has not notified Party A on such price changes, or has not marked and made corresponding adjustments in the BOM provided, once found, Party A has the right to terminate any issued orders (for the avoidance of doubt, Party A has the right to unilaterally cancel such orders regardless of whether Party B confirms such orders) and terminate the cooperation, and impose a fine on Party B’s negligence. The formula for calculating the amount of the fine is as follows:

Fine amount = purchase price per unit before price reduction * highest price reduction ratio * cumulative sales quantity of the product * 10;

Note: The highest price reduction ratio refers to the proportion of the single raw material with the highest price reduction in the BOM cost list.

6.4 Party A shall order products from Party B in accordance with the purchase order agreed upon by both parties. The purchase order is binding on both parties. If one party fails to fulfill the order plan and causes losses to the other party, that party (the “breaching party”) shall be liable for compensation, and the compensation amount shall be limited to the actual loss of the other party (the “abiding party”), excluding any indirect, expected and previously unpredictable losses of the breaching party. Notwithstanding the above-mentioned agreement, Party A has the right to cancel the order or change the content of the order if it finds a cost change after the order takes effect.

6.5 Party B shall inform Party A in advance when replacing product parts and suppliers. Product change management shall follow the “Xiaomi Ecological Chain Customized Product Quality Framework Agreement” attached to this agreement.

6.6 Party B undertakes that it has the qualifications/certification to provide goods and perform services, and has obtained all licenses, approvals and certifications required by Chinese laws and regulations and the laws and regulations of the target countries sold by Party A for the provision and performance of goods/services (if Party B is responsible for certification of Xiaomi Customized Products), such licenses, approvals and certifications shall remain fully valid during the period of this agreement.

6.7 Party B guarantees that the products provided to Party A are completely consistent with the products certified and tested in terms of manufacturing process, product quality, performance indicators and other tests.

6.8 Party A has the right to conduct compliance review of Xiaomi Customized Products in accordance with the company’s policies and  the requirements of laws and regulations of the sales target country. Party B shall cooperate with Party A according to the needs of Party A’s compliance review, provide timely information or materials that meet the

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requirements, and rectify Xiaomi Customized Products based on the results of the compliance review conducted by Party A.

6.9 Party B shall ensure that the packaging material information such as instructions, warnings, and statements of Xiaomi Customized Products meet the compliance requirements of the sales target country. Party A has the right to require Party B to rectify the packaging material information in accordance with the laws and regulations of the sales target country, and Party B shall bear the expenses arising therefrom.

6.10 Party B guarantees that the quality of the products meet the requirements of Party A, and shall provide Xiaomi Customized Products in accordance with the relevant provisions of the “Xiaomi Ecological Chain Customized Product Quality Framework Agreement” attached to this agreement. Party B knows and agrees to unconditionally accept and abide by all relevant policies such as after-sales, returns and replacements policies updated by Party A from time to time.

6.11 When Party A sells Xiaomi Customized Products with zero or negative gross profit, the loss shall be shared by Party A and Party B in accordance with the share ratio or the proportion agreed by both parties in writing.

6.12 If the Xiaomi Customized Products have potential safety hazards and endanger the personal and property safety of end users due to the reasons of Party B, Party B shall bear all the expenses and all legal responsibilities arising therefrom. For details, please refer to the annex “Xiaomi Ecological Chain Customized Product Quality Framework Agreement” to this agreement signed by both parties, and the annex “Xiaomi Ecological Chain Customized Product After-sales Services Framework Agreement”.

6.13 Party B’s collection, storage, use, processing, transmission, provision, disclosure, deletion and other actions of user data shall be carried out in accordance with the provisions of the “User Data Terms for Xiaomi Customized Products” attached to this agreement.

6.14 If both parties decide to cooperate in direct delivery mode, and Party B or its designated third-party logistics carrier  will directly transport the product to the receiving address or recipient designated by Party A, both parties shall sign the annex “Special Agreement on Direct Delivery Products” and the relevant data protection annex “Data Protection Appendix” (the name of the attachment may be adjusted).

6.15 If requested by Party A, Party B shall purchase product liability insurance that meets the requirements of Party A for Xiaomi Customized Products, and take Party A as the co-insured or additional insured, and the relevant expenses shall be borne by Party B. A copy or scanned copy of the insurance-related certificate shall be submitted to Party A for preservation.

6.16 Party B undertakes that Party B can carry out marketing and publicity on Xiaomi Customized Products, and the publicity methods include but are not limited to: (1) Party B uses its own marketing resources and channels to carry out marketing and publicity on Xiaomi Customized Products; (2) Party B and Party A carry out joint product publicity, product co-creation, use of Party A’s marketing resources or Party A’s designated

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marketing resources for product promotion. After negotiation between the two parties, no matter what kind of publicity method, if Party A pays the publicity supplier in advance on behalf of Party B, the product marketing fee that Party A has paid on behalf of Party B may be deducted from the purchase price or share payment that Party A should pay to Party B as stipulated in this agreement.

6.17 Party B shall not maliciously denigrate Xiaomi Customized Products when marketing or selling its own brand products, and shall not have unfair competition behaviors such as publishing unreasonable and malicious comparative advertisements between its own brand products and Xiaomi Customized Products, thereby affecting Xiaomi Customized Products’ sale and affecting the Xiaomi brand. If Party B violates this clause, Party A has the right to require Party B to pay liquidated damages of not less than RMB500,000 according to the specific breach of agreement.

6.18 If Party B is authorized by Party A to use Party A’s brand to register a New Media account, the ownership, use, operation and other related rights of the New Media account are all owned by Party A. Party A may authorize Party B to operate and manage Party A’s New Media account on its behalf. For the definition of “Party A’s Brand”, please refer to the relevant provisions of Article 1, Paragraph 1, Item 2 of the “Additional Provisions of Brand Protection”. The scope of this “New Media Account” includes Party B’s existing accounts registered with Party A’s brand and subsequent accounts authorized by Party A to operate Party A’s brand.

6.19 If Party B operates and manages Party A’s New Media account on Party A’s behalf, Party B shall abide by the following agreements:

6.19.1 The content operated by Party B on Party A’s New Media account shall be reported to Party A in advance and confirmed by Party A in accordance with Party A’s requirements before being released.

6.19.2 Operational content released by Party B shall comply with below requirements:

(1) The content that is not related to Party A’s main body, Party A’s business, and Party A’s brand products shall not be published through hot spots, network traffic or any other means;

(2) The content shall comply with the requirements of national laws, regulations and policies, and  any content that is related to military, political, pornography and explosion shall not be published;

(3) Content that violates public order and good customs shall not be published;

(4) Content that engages in false advertising of Party A’s products shall not be published;

(5) The new product information shall not be released without prior written confirmation of Party A;

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(6) It is not allowed to use the video clip images of Party A’s enterprise management team and Party A’s star spokesperson at will in the operational content. If it needs to be used, it must be confirmed in writing with Party A before being released;

(7) The content shall not infringe on the intellectual property rights of others.

6.19.3 If Party B fails to report to Party A in accordance with Article 6.19.1 and confirmed by Party A, if the content of the operation is prohibited from being published in Article 6.19.2, for each breach of agreement by Party B, Party A has the right to request Party B to pay liquidated damages of RMB500,000 according to the specific breach of agreement.

6.19.4 Party A may, according to the business development situation or based on Party B’s breach of agreement, notify Party B in writing to unconditionally withdraw the authority of Party A’s account operated on its behalf without the consent of Party B. Party B shall complete the handover of account operation within 5 working days from the date of receipt of Party A’s written notice. Party B’s refusal to hand over or extension of the handover shall be regarded as a breach of agreement. From the 6th day, Party A has the right to require Party B to voluntarily compensate Party A for RMB10,000 per day in addition to the liquidated damages stipulated in Article 6.19.3 above, and the cumulative total amount of liquidated damages is not limited.

6.19.5 Party B shall bear the corresponding responsibility for the infringement liability and policy risk liability arising from Party B’s operation and management of the New Media account. If Party B causes any loss to Party A, Party A has the right to recover from Party B.

6.20 If the customized products provided by Party B for Party A include firmware and software (including but not limited to independent APPs, drivers, application programs, etc.) which are developed by Party B to assist in customizing products for better use, Party B shall be responsible for firmware and software development, effective maintenance of the normal operation of the software, improvement of the software privacy compliance, and Party B shall retain the interface doc, requirements doc, User Interface (UI) file, User Experience (UE) file and other related technical docs of the firmware and software. If Party B proposes to terminate the cooperation with Party A or the two parties negotiate the termination of the cooperation, after both parties confirm that there are no active and new users of Party A’s products within 90 days before the termination of the cooperation, Party B may terminate the maintenance of the corresponding firmware or software with the written consent of Party A. If there are still active or new users of Party A’s products within 90 days before the termination of the cooperation between the two parties, Party B shall formulate a follow-up firmware or software maintenance and handover plan, and Party B may terminate the maintenance software with the written consent of Party A. If Party B is unable to continue to undertake the maintenance and after-sales work of the firmware and software due to factors such as enterprise bankruptcy, business adjustment or force majeure, Party B shall notify Party A in writing three months in advance in the handover of the firmware and software. If Party B violates this clause, Party A has the right to require Party B to bear liquidated damages of not less than RMB1 million according to the specific breach of agreement.

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6.21 The cloud services used by Party B for Party A’s customized products must be deployed and run on Party A’s server. If Party B needs to develop or provide services to the software of Party A’s customized products through external functional interfaces and SDKs, the interfaces and SDKs can only be used after the written evaluation and consent of Party A. Without the written permission of Party A, Party B shall not use any data and data products obtained from Party A for its own use or transmit, provide or disclose them to any other third party. If Party B’s above-mentioned development or service work can be entrusted to a third party with the consent of Party A, the supplier of Party B shall comply with the relevant security requirements for the use of Party A’s cloud services, and shall not use the convenience authorized by Party A and the unforeseen vulnerability in Party A’s system to penetrate, obtain, transfer data or conduct acts that endanger Party A and the data security of Party A. If Party B violates this clause, Party A has the right to require Party B to pay liquidated damages of not less than RMB1 million according to the specific breach of agreement and has the right to enforce Party B’s corresponding legal responsibility.

Article 7:Open Source Software

7.1 In principle, Party B shall not include or embed any open source software, independent software, free software, and third-party materials subject to the license terms of any open source software, independent software and free software (collectively referred to as “Open Source Software”) in the customized product, especially the use of contagious open source licenses. Contagious open source licenses include but are not limited to GPL-type licenses such as LGPL/MPL/GPL/AGPL.

7.2 If Party A judges that it is necessary to use it, Party B shall meet the following conditions (1) - (4) concurrently: (1) Party B has provided Party A with a written bill of material and clearly identified in the list that the specific elements in development of products and/or technical achievements contain Open Source Software; (2) Party B has clearly identified the third-party licenses and any use restrictions applicable to the Open Source Software in the above-mentioned written list; (3) Party B has adopted technical means and isolation measures to prevent the code delivered by Party B from infecting Party A’s code; and (4) With the written consent of Party A, Party B is allowed to use the Open Source Software.

7.3 Party B may use the Open Source Software only if Article 7.2 is satisfied and the following commitments and warranties are made: Party B has complied and will continue to comply with the terms and conditions of the relevant licenses applicable to the Open Source Software included or embedded in the contract products. If Party A does not agree to use the Open Source Software, Party B shall replace the Open Source Software and guarantee that the quality and performance of the contract product will not be affected in any way.

7.4 If Party B fails to perform or fully perform the above-mentioned obligations or fails to comply with any requirements of the Open Source Software license, Party B shall be responsible for handling and compensating Party A and Party A’s affiliates for all costs and losses arising therefrom, including but not limited to litigation fees, arbitration fees, attorney fees, liquidated damages, and settlement payments.

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Article 8:Intellectual property

8.1 Party B’s trademark and copyright authorization

8.1.1 Party B authorizes Party A and its affiliates to use Party B’s trademarks, logos and corporate names on Xiaomi Customized Products on a global scale, including but not limited to manufacturing, promotion, sales, promised sales and import and export, in an irrevocable, free and sublicensable manner. The relevant content of the use of the Xiaomi logo is subject to the “Additional Provisions for Brand Protection” attached to this agreement.

8.1.2 Party B shall ensure the originality of the materials of the product websites (including but not limited to publicity materials, copywriting, pictures, videos, H5 pages, etc.) designed and produced by Party B. If the materials are provided by third parties, Party B shall obtain relevant legal authorization from the third party. Party B agrees to authorize Party A and its affiliated entities to use all the above-mentioned materials free of charge worldwide. The specific methods and channels of use are determined by Party A.

8.2 If the software customized by Party B for Party A needs to be released on each app partner platform, the signature right belongs to Party A and the software is released in the name of Party A. The software copyright shall be applied for by Party A. If Party B needs to apply for it due to special circumstances, Party B shall apply for it after obtaining the consent of Party A.

8.3 Party B provides Party A with the development of product software and firmware services. Party B shall deliver all the codes involved to Party A. At the same time, if Party B needs to purchase third-party services or code bases from third-party suppliers in order to complete the service content stipulated in this agreement, Party B shall authorize and agree that all products under Party A and Party A’s brand can be used free of charge.

Article 9:Confidentiality clause

Both parties agree that the confidential information involved in the cooperation between the two parties includes but is not limited to any information provided by the two parties to the other party in accordance with this agreement, correspondence during the cooperation process and other undisclosed commercial or technical materials or information. The receiving party shall assume the confidentiality obligation of the disclosing party’s confidential information. Whether the confidential information is obtained orally, in writing, visually or in other forms, the receiving party shall not disclose the disclosing party’s confidential information to any third party or use it for other purposes unrelated to the cooperation between the two parties, unless the disclosing party has previously authorized the third party in writing to obtain the disclosed confidential information. The specific agreements related to confidentiality are subject to the “Non-disclosure Agreement” attached to this agreement.

Article 10:Liability for breach of contract and termination of contract

10.1 Any breach of this agreement, the annexes to this agreement, and the PO Form shall constitute a breach of this agreement. Unless otherwise agreed in this agreement or the

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annexes, if one party to the agreement violates the provisions of this agreement, that party (the “breaching party”) shall pay the other party (the “abiding party”) liquidated damages of RMB500,000. If the above-mentioned liquidated damages are insufficient to make up for the losses of the abiding party, the breaching party shall also compensate the insufficient part, including but not limited to the expenses and costs incurred by the abiding party’s handling of the breach of agreement, including investigation, arbitration, litigation, attorneys and other legal fees and expenses. If Party B or its affiliates have any payable amounts to Party A (including but not limited to the fees, fines, liquidated damages, etc.), Party A and its affiliates shall have the right to freeze the corresponding amount from any payable amounts of Party B or its affiliates, or offset the amount directly, to the maximum extent permitted by law.

10.2 If Party B violates the agreement and causes one or more of the following situations to occur, in order to maintain Party A’s brand reputation, Party A has the right to take all measures to solve such problems by itself or by requesting Party B, including but not limited to taking public relations measures, responding to lawsuits, reaching a settlement with a third party and/or paying the third party in advance, and all costs incurred in resolving such disputes or problems (including but not limited to the costs of hiring a lawyer and other third parties, the costs of responding to lawsuits, and paying the third party fees and fines) shall be borne by Party B. If Party A pays in advance, it has the right to recover from Party B:

(1) Incidents or disputes related to personal injury and property losses of consumers caused by Xiaomi Customized Products;

(2) Intellectual property disputes on Xiaomi Customized Products (including but not limited to intellectual property infringement disputes) caused by Party B;

(3) Party B fails to obtain the relevant certifications, licenses or qualifications required by the laws of China and the sales target country, or the products it provides do not meet any product compliance requirements of China and the sales target country, resulting in situations such as the inability to sell the product, customer complaints, consumer disputes, administrative penalties, detention and penalties by customs or market regulatory agencies, court bans, etc.;

(4) Disputes, complaints and other issues caused by Party B or together with the authorized channel distributors illegally or wrongly providing products after sale service;

(5) Party B’s collection, storage, use, processing, transmission, provision, disclosure, deletion and other actions of user data to be in violation of the laws and regulations of the place where the product is sold or all other applicable data privacy protection laws and regulations.

If a third party claims or files a lawsuit against Party A or its affiliates, distributors, agents, etc. (the “Injured Party”) due to the foregoing reasons, at the request of Party A, Party B shall cooperate with Party A to defend and ensure that the interests of the Injured Party will not be

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harmed, and Party B shall make compensation to the Injured Party (including but not limited to the expenses of the Injured Party’s lawyers and other third parties, the expenses of responding to the lawsuit, and the expenses compensated for the third party).

10.3 In the following circumstances, Party A has the right to terminate this agreement and specific orders in advance upon written notice from Party A:

(1) Party B seriously breaches its obligations under this agreement and specific orders;

(2) Except as prohibited by applicable bankruptcy laws, if Party B declares bankruptcy, is unable to pay its debts as they become due, is incapacitated for other reasons, and its assets are transferred or accepted by other creditors;

(3) If the products delivered by Party B cannot meet the agreed acceptance standards or quality requirements, Party A believes that there is no rectification value or it still cannot meet the standards after rectification for three times;

(4) Without the prior written consent of Party A, Party B delays the delivery without reasonable reason;

(5) Party B fails to comply with the “User Data Terms of Xiaomi Customized Products” attached to this agreement, fails to store data on Xiaomi Ecological Cloud or other cloud servers specified by Party A, triggers disputes that infringe on the protection of users’ personal information, and does not comply with Party A’s permission to disclose user data to third parties, etc.

Article 11:Export control

Both parties undertake and warrant to strictly comply with applicable export control and economic sanctions laws and regulations (including but not limited to laws and regulations in China, US, European Union, and Japan). One party warrants that the disclosure or provision of any technology, technical data, software code or other information, hardware, equipment or its components (“Delivery Items”) to the other party, would not violate any applicable export control laws and regulations. Both Parties undertake not to disclose or make available, to the best of its knowledge, directly or indirectly, any Delivered Items to: (1) any country or territory under comprehensive economic sanctions by the US government (currently include Crimea, Cuba, Iran, North Korea, and Syria), and other relevant US sanctioned areas (currently include Sudan and Venezuela); or (2) any individuals or entities which have been listed on (a) the US Specially Designated Nationals and Blocked Persons List (“SDN List”) or any other sanctions list, or entities owned or controlled by entities on the above-mentioned lists; or (b) the List of Denied Persons (“Entity List”), or any other export control or restricted transaction list; or (3) any military end user or for any military end use as specified in the US Export Control Regulations; (4) Delivered Items shall not be used in any way to support terrorism, nuclear technology, biological and chemical weapons, missiles, weapons of mass destruction, etc. If a party violates the provisions of this section, the abiding party shall have the right to cease performance of this agreement and any related contracts.

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Article 12:User data

Party B shall ensure that its collection, processing, disclosure, storage, use, transmission and other actions of user data comply with any data protection laws and regulations that may be applicable. If Party B violates any applicable data protection laws and regulations, it shall independently bear all legal responsibilities. Party B shall compensate Party A for any losses caused. If Party A is adversely affected, Party B shall publicly clarify the relevant situation through public channels or cooperate with Party A on the clarification. Other specific relevant provisions are subject to the “User Data Terms for Xiaomi Customized Products” attached to this agreement.

Article 13:Integrity clause

Party B undertakes that Party B and Party B’s personnel shall not engage in any commercial bribery in the business activities related to Party A, and Party B shall not have any conflict of interest in the business activities with Party A without the permission of Party A. If Party A reasonably judges that Party B may violate this agreement in its business activities with Party A based on whistle-blowing from third parties and Party B’s business operations, Party A has the right to conduct audits and investigations on Party B’s relevant business activities. Party B shall cooperate with Party A’s audit and investigation work, and shall bear the responsibility for breach of agreement. Other specific relevant provisions are subject to the “Business Integrity Agreement” annexed to this agreement.

Article 14:Force majeure

14.1 Any party who is unable to perform its obligations under this agreement due to force majeure events, including but not limited to fire, flood, earthquake, typhoon, natural disaster, etc., shall not bear any responsibility, and the performance time of such party stipulated in this agreement is automatically extended. The extended time shall be equal to the time when such party to the agreement is directly or indirectly unable to perform the agreement due to a force majeure event. The party to the agreement affected by the force majeure event shall notify the other party of the force majeure event by telegram or telex within a reasonable time, and submit the relevant proof of the force majeure event issued by the relevant authorities to the other party within 15 days after the occurrence of such event.

14.2 If the performance of the agreement cannot be continued, Party A has the right to unilaterally terminate this agreement and the specific order.

Article 15:Scope of effect

15.1 This agreement is signed by both parties in Haidian District, Beijing, and the validity period is [2] years, from [January 13, 2023] to [January 13, 2025].

15.2 Except for the circumstances stipulated in Article 10 of this agreement, if Party B fails to comply with any of the contents of this agreement, once figured out by Party A, Party A has the right to require Party B to stop the breach immediately; if Party A finds that Party B has not stopped the breach of agreement thereafter, then Party A has the right to terminate this agreement immediately.

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15.3 During the validity period of this agreement, neither party shall modify or terminate this agreement at will without the written consent of the other party, except for one party exercising its unilateral right to terminate this agreement in accordance with the provisions of this agreement. If both parties have negotiated and agreed to confirm the change of procurement plan, procurement quantity, after-sales processing and other specifications, rules and plans by email, Party A may require Party B to confirm the content of the email within the agreed time. If Party B has any objection to the content of the above-mentioned email, it shall be raised within three working days after receiving the email notification from Party A, and both parties shall negotiate together. If Party A and Party B cannot reach an agreement through negotiation, the content of Party A’s email notification shall prevail. If Party B does not raise an objection within the aforementioned period, Party B shall be deemed to agree to implement in accordance with the above-mentioned email from Party A.

15.4 Party A and Party B determine that if the occurrence of force majeure and other circumstances makes the performance of this agreement unnecessary or impossible, both parties may negotiate to terminate this agreement.

15.5 Upon the expiration of this agreement, the outstanding claims and debts incurred by both parties shall not be affected by the termination of this agreement, and both parties shall continue to perform their respective obligations.

15.6 If this agreement and the specific order are cancelled or terminated in advance for any reason, the warranty, intellectual property rights, confidentiality, breach of agreement and other terms that should be survived according to their nature stipulated in this agreement and the specific order shall remain to be valid.

Article 16:Settlement of disputes

16.1 Any dispute, controversies or claim arising from this agreement or related matters of this agreement shall be settled through friendly negotiation between the two parties. If it cannot be settled through negotiation, it shall be submitted to China International Economic and Trade Arbitration Commission for arbitration in Beijing in accordance with its currently effective rules. The award of the arbitration commission is final and binding on both parties. Unless otherwise agreed by both parties, the language of arbitration shall be Chinese.

16.2 The losing party shall bear the costs of the arbitration, unless the arbitration committee decides otherwise.

16.3 In the event of arbitration, neither party shall suspend, refuse or delay the performance of other parts of this agreement that are not affected by arbitration.

Article 17:Supplementary Provisions to the Agreement

17.1 Changes to the agreement: All changes to the agreement (including supplements, amendments, etc.) must be validly signed by both parties before they can take effect.

16

17.2 The attachments to this agreement “Xiaomi Customized Product Project Establishment Agreement”, “Equal Informed Audit Right Agreement”, “Intellectual Property Provisions”, “Xiaomi Customized Product User Data Provisions”, “Xiaomi Ecological Chain Customized Product Quality Framework Agreement”, “Xiaomi Ecological Chain Customized Product After-sales Services Framework Agreement”, “Non-disclosure Agreement”, “Additional Provisions for Brand Protection”, “Xiaomi Ecological Chain Customized Product International After-sales Services Framework Agreement”, “Product Change (PCN) Agreement”, “Business Integrity Agreement” and the PO Form signed by both parties is an integral part of this agreement and have the same legal effect.

17.3 If there are any matters not covered by this agreement, both parties shall negotiate and sign a written supplementary agreement, and the supplementary agreement shall have the same effect as this agreement.

17.4 Any express waiver of this agreement or failure to exercise any rights conferred by this agreement in a timely manner shall not constitute a continuing waiver or imply a waiver of any rights under this agreement.

17.5 If any provision or part of the agreement is found to be illegal or unenforceable, the relevant content will be severed from this agreement and will not affect, impair or derogate from the validity of any other provision or part of this agreement at all. Other provisions or parts of this agreement that are valid or legal and which are most similar in meaning and content to the above-mentioned provisions found to be illegal or unenforceable will supersede such provisions.

17.6 Notices: All notices shall be in writing. A written notice sent by Party A to Party B by fax or similar means shall be deemed to have been delivered on the day it is sent, a letter shall be deemed to have been delivered on the day it reaches the recipient of Party B, an airmail shall be deemed to have been delivered on the fifth (5) day after it is sent, and a courier shall be deemed to have been delivered on the day of the recipient’s confirmation signature. For electronic mail or telegram data, it is deemed to have been delivered on the day it reaches Party B’s electronic system. If Party B’s contact person changes, Party A shall be notified three (3) days in advance.

Party B Contact: ***

17.7 The headings and descriptions of the terms included in this agreement are for reference only and shall not in any way limit, restrict, extend, or describe the scope of this agreement or the content of any of the terms.

17.8 The original of this agreement in duplicate shall come into force after both parties have affixed the official seal or the special seal of the agreement. Both parties hold one copy, which has the same legal effect.

(There is no text below, it is a signature page)

17

Xiaomi Communication Technology Co., Ltd. (Seal)	Anhui Huami Information Technology Co., Ltd. (Seal)
Contract seal: /s/ Xiaomi Communication Technology Co., Ltd.	Contract seal: /s/ Anhui Huami Information Technology Co., Ltd.

18

Appendix 1:Intellectual Property Provisions

Appendix 2:Equal Informed Audit Right Agreement

Appendix 3:Xiaomi Customized Product User Data Provisions

Appendix 4:Xiaomi Customized Product Project Establishment Agreement

Appendix 5:Additional Provisions for Brand Protection

Appendix 6:Xiaomi Ecological Chain Customized Product Quality Framework Agreement

Appendix 7:Xiaomi Ecological Chain Customized Product After-sales Services Framework Agreement

Appendix 8:Non-disclosure Agreement

Appendix 9:Xiaomi Ecological Chain Customized Product International After-sales Services Framework Agreement

Appendix 10:Product Change (PCN) Agreement

Appendix 11:Business Integrity Agreement

19

EX-8.1

Exhibit 8.1

List of Principal Subsidiaries and Consolidated Variable Interest Entities of Zepp Health Corporation

Subsidiaries	Place of Incorporation
ZEPP Inc.	United States
Zepp North America Inc.	United States
Zepp Investment Platform I Ltd.	United States
Galaxy Trading Platform Limited	Hong Kong
Zepp Europe Holding B.V.	Netherlands
Zepp Netherlands Trading B.V. (Netherland)	Netherlands
Hong Kong Zepp Holding Limited	Hong Kong
Beijing Shunyuan Kaihua Technology Co., Ltd.	People’s Republic of China
Anhui Huami Health Technology Co., Ltd.	People’s Republic of China
Huami (Shenzhen) Information Technology Co., Ltd.	People’s Republic of China
Beijing Huami Intelligent Technology Co., Ltd.	People’s Republic of China
Huzhou Huayuan Chuangxu Management Consulting Partnership (Limited Partnership)	People’s Republic of China
Anhui Shunyuan Xinke Management Consulting Partnership (Limited Partnership)	People’s Republic of China
Shanghai Shengyin Technology Co., Ltd.	People’s Republic of China
Consolidated Variable Interest Entities	Place of Incorporation
Huami (Beijing) Information Technology Co., Ltd.	People’s Republic of China
Anhui Huami Information Technology Co., Ltd.	People’s Republic of China
Subsidiaries of Consolidated Variable Interest Entities	Place of Incorporation
Huami (Nanjing) Information Technology Co., Ltd.	People’s Republic of China

EX-12.1

Exhibit 12.1

Certification by the Principal Executive Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Wang Huang, certify that:

1. I have reviewed this annual report on Form 20-F of Zepp Health Corporation (the “Company”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;

4. The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and

5. The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

Date: April 24, 2023
By:	/s/ Wang Huang
Name:	Wang Huang
Title:	Chief Executive Officer

EX-12.2

Exhibit 12.2

Certification by the Chief Financial Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Leon Cheng Deng, certify that:

1. I have reviewed this annual report on Form 20-F of Zepp Health Corporation (the “Company”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;

4. The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and

5. The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

Date: April 24, 2023
By:	/s/ Leon Cheng Deng
Name:	Leon Cheng Deng
Title:	Chief Financial Officer

EX-13.1

Exhibit 13.1

Certification by the Principal Executive Officer

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Annual Report of Zepp Health Corporation (the “Company”) on Form 20-F for the fiscal year ended December 31, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Wang Huang, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: April 24, 2023
By:	/s/ Wang Huang
Name:	Wang Huang
Title:	Chief Executive Officer

EX-13.2

Exhibit 13.2

Certification by the Chief Financial Officer

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Annual Report of Zepp Health Corporation (the “Company”) on Form 20-F for the fiscal year ended December 31, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Leon Cheng Deng, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: April 24, 2023
By:	/s/ Leon Cheng Deng
Name:	Leon Cheng Deng
Title:	Chief Financial Officer

EX-15.1

Exhibit 15.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statements No. 333-226665 and No. 333-269830 on Form S-8 of our report dated April 24, 2023, relating to the financial statements of Zepp Health Corporation appearing in this Annual Report on Form 20-F for the year ended December 31, 2022.

/s/ Deloitte Touche Tohmatsu Certified Public Accountants LLP

Shanghai, the People’s Republic of China

April 24, 2023

EX-15.2

Exhibit 15.2

CONSENT LETTER

To	Zepp Health Corporation
	Building B2, Zhong’an Chuanggu Technology Park
	No. 900 Wangjiang West Road, Hefei, 230088
	People’s Republic of China
	April 24, 2023

Dear Sir/Madam:

We hereby consent to the reference of our name under the headings “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure” and “Item 4. Information on the Company—C. Organizational Structure” in Zepp Health Corporation’s Annual Report on Form 20-F for the year ended December 31, 2022 (the “Annual Report”), which will be filed with the Securities and Exchange Commission (the “SEC”) on the date hereof, and further consent to the incorporation by reference, in Zepp Health Corporation’s registration statements on Form S-8 (File No. 333-226665 and File No. 333-269830), of the summary of our opinion under the headings “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure” and “Item 4. Information on the Company—C. Organizational Structure” in the Annual Report. We also consent to the filing of this consent letter with the SEC as an exhibit to the Annual Report.

In giving such consent, we do not thereby admit that we come within the category of persons whose consent is required under Section 7 of the Securities Act of 1933, or under the Securities Exchange Act of 1934, in each case, as amended, or the regulations promulgated thereunder.

[The remainder of this page is intentionally left blank.]

[Signature Page]

Yours faithfully,

/s/ Zhong Lun Law Firm

XML

Document and Entity Information	12 Months Ended
	Dec. 31, 2022 shares
Document Information
Document Type	20-F
Document Registration Statement	false
Document Annual Report	true
Document Period End Date	Dec. 31, 2022
Document Transition Report	false
Document Shell Company Report	false
Entity File Number	001-38369
Entity Registrant Name	ZEPP HEALTH CORP
Entity Incorporation, State or Country Code	E9
Entity Address, Address Line One	Building B2, Zhong’an Chuanggu Technology Park
Entity Address, Address Line Two	No. 900 Wangjiang West Road
Entity Address, City or Town	Hefei
Entity Address, Postal Zip Code	230088
Entity Address, Country	CN
Title of 12(b) Security	American depositary shares (each representing four Class A ordinary shares, par value US$0.0001 per share)
Trading Symbol	ZEPP
Security Exchange Name	NYSE
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Non-accelerated Filer
Entity Emerging Growth Company	true
Entity Ex Transition Period	true
ICFR Auditor Attestation Flag	false
Document Accounting Standard	U.S. GAAP
Entity Shell Company	false
Auditor Firm ID	1113
Auditor Name	Deloitte Touche Tohmatsu Certified Public Accountants LLP
Auditor Location	Shanghai, the People’s Republic of China
Entity Central Index Key	0001720446
Document Fiscal Year Focus	2022
Document Fiscal Period Focus	FY
Current Fiscal Year End Date	--12-31
Amendment Flag	false
Business Contact
Document Information
Entity Address, Address Line One	Building B2, Zhong’an Chuanggu Technology Park
Entity Address, Address Line Two	No. 900 Wangjiang West Road
Entity Address, City or Town	Hefei
Entity Address, Postal Zip Code	230088
Entity Address, Country	CN
City Area Code	+86 010
Local Phone Number	5940 3251
Contact Personnel Email Address	ir@zepp.com
Contact Personnel Name	Leon Cheng Deng
Class A Ordinary Shares
Document Information
Entity Common Stock, Shares Outstanding	128,130,440
Class B Ordinary Shares
Document Information
Entity Common Stock, Shares Outstanding	117,208,247

XML

CONSOLIDATED BALANCE SHEETS ¥ in Thousands, $ in Thousands	Dec. 31, 2022 CNY (¥)	Dec. 31, 2022 USD ($)	Dec. 31, 2021 CNY (¥)
Current assets:
Cash and cash equivalents	¥ 886,632	$ 128,550	¥ 1,468,499
Restricted cash	86,708	12,571	41,040
Term deposit			5,000
Accounts receivable (net of allowance of RMB814 and RMB1,466 as of December 31, 2021 and 2022, respectively)	682,103	98,896	537,084
Amounts due from related parties (net of allowance of nil and nil as of December 31, 2021 and 2022, respectively)	138,614	20,097	295,614
Inventories, net	1,021,923	148,165	1,249,327
Short-term investments (including available-for-sale debt securities measured at fair value of RMB19,351 and RMB34,316 as of December 31, 2021 and 2022, respectively)	34,316	4,975	19,351
Prepaid expenses and other current assets	108,252	15,694	315,038
Total current assets	2,958,548	428,948	3,930,953
Property, plant and equipment, net	100,605	14,586	133,873
Intangible assets, net	123,300	17,877	135,582
Long-term investments (including available-for-sale debt securities measured at fair value of RMB108,448 and RMB148,819 as of December 31, 2021 and 2022, respectively)	1,686,628	244,538	1,552,591
Deferred tax assets	210,186	30,474	143,419
Operating lease right-of-use assets	65,573	9,507	108,435
Goodwill	66,081	9,581	61,055
Amount due from a related party, non-current	6,333	918
Other non-current assets	50,389	7,306	19,593
Total assets	5,267,643	763,735	6,085,501
Current liabilities:
Accounts payable (including accounts payable of the consolidated VIEs without recourse to the Group of RMB1,314,091 and RMB452,039 as of December 31, 2021 and 2022, respectively)	456,585	66,198	1,317,306
Advance from customers (including advance from customers of the consolidated VIEs without recourse to the Group of RMB2,262 and RMB2,133 as of December 31, 2021 and 2022, respectively)	2,133	309	4,230
Amounts due to related parties (including amount due to related parties of the consolidated VIEs without recourse to the Group of RMB48,561 and RMB38,913 as of December 31, 2021 and 2022,respectively)	40,978	5,941	50,123
Accrued expenses and other current liabilities (including accrued expenses and other current liabilities of the consolidated VIEs without recourse to the Group of RMB165,181 and RMB119,877 as of December 31, 2021 and 2022, respectively)	197,819	28,681	316,083
Income tax payables (including income tax payables of the consolidated VIEs without recourse to the Group of RMB411 and RMB407 as of December 31, 2021 and 2022, respectively)	2,715	394	2,595
Notes payable and others of the consolidated VIEs without recourse to the Group	456,438	66,177	103,795
Short-term bank borrowings (including short-term bank borrowings of the consolidated VIEs without recourse to the Group of RMB303,000 and RMB452,000 as of December 31, 2021 and 2022, respectively)	512,000	74,233	358,000
Total current liabilities	1,668,668	241,933	2,152,132
Deferred tax liabilities (including deferred tax liabilities of the consolidated VIEs without recourse to the Group of RMB23,006 and RMB32,393 as of December 31, 2021 and 2022, respectively)	35,552	5,155	26,909
Other non-current liabilities (including other non-current liabilities of the consolidated VIEs without recourse to the Group of RMB172,735 and RMB161,827 as of December 31, 2021 and 2022, respectively)	162,602	23,575	175,053
Long-term borrowings (including long-term borrowings of the consolidated VIEs without recourse to the Group of RMB254,500and RMB280,000 as of December 31, 2021 and 2022, respectively)	684,210	99,201	726,851
Non-current operating lease liabilities (including Noncurrent operating lease liabilities of the consolidated VIEs without recourse to the Group of RMB29,435 and RMB10,276 as of December 31, 2021 and 2022,respectively)	31,690	4,595	71,117
Total liabilities	2,582,722	374,459	3,152,062
Equity
Additional paid-in capital	1,690,879	245,154	1,641,544
Treasury shares	(67,163)	(9,738)	(21,798)
Accumulated retained earnings	942,848	136,700	1,271,171
Accumulated other comprehensive income	105,796	15,339	29,271
Total Zepp Health Corporation shareholders' equity	2,672,522	387,478	2,920,347
Noncontrolling interest	12,399	1,798	13,092
Total equity	2,684,921	389,276	2,933,439
Total liabilities and equity	5,267,643	763,735	6,085,501
Class A Ordinary Shares
Equity
Ordinary shares	85	12	85
Class B Ordinary Shares
Equity
Ordinary shares	¥ 77	$ 11	¥ 74

XML

CONSOLIDATED BALANCE SHEETS (Parenthetical) ¥ in Thousands, $ in Thousands	Dec. 31, 2022 CNY (¥) shares	Dec. 31, 2021 CNY (¥) shares
Allowance for doubtful accounts	¥ 1,466	¥ 814
Amounts due from related parties, allowance	0	0
Short-term investments	34,316	19,351
Long-term investments	148,819	108,448
Accounts payable	456,585	1,317,306
Advance from customers	2,133	4,230
Amount due to related parties	40,978	50,123
Accrued expense and other current liabilities	197,819	316,083
Income tax payables	2,715	2,595
Short-term bank borrowings	512,000	358,000
Deferred tax liabilities	35,552	26,909
Other non-current liabilities	162,602	175,053
Long-term borrowing	684,210	726,851
Non-current operating lease liabilities	¥ 31,690	¥ 71,117
Ordinary shares, authorized | shares	405,462,685
Class A Ordinary Shares
Ordinary shares, authorized | shares	9,700,000,000	9,700,000,000
Ordinary shares, outstanding | shares	128,130,440	133,992,912
Class B Ordinary Shares
Ordinary shares, authorized | shares	200,000,000	200,000,000
Ordinary shares, outstanding | shares	117,208,247	117,208,247
Variable Interest Entities
Accounts payable	¥ 452,039	¥ 1,314,091
Advance from customers	2,133	2,262
Amount due to related parties	38,913	48,561
Accrued expense and other current liabilities	119,877	165,181
Income tax payables	407	411
Short-term bank borrowings	452,000	303,000
Deferred tax liabilities	32,393	23,006
Other non-current liabilities	161,827	172,735
Long-term borrowing	280,000	254,500
Non-current operating lease liabilities	¥ 10,276	¥ 29,435

XML

CONSOLIDATED STATEMENTS OF OPERATIONS ¥ in Thousands, $ in Thousands	12 Months Ended
	Dec. 31, 2022 CNY (¥) ¥ / shares shares	Dec. 31, 2022 USD ($) $ / shares shares	Dec. 31, 2021 CNY (¥) ¥ / shares shares	Dec. 31, 2020 CNY (¥) ¥ / shares shares
CONSOLIDATED STATEMENTS OF OPERATIONS
Revenues (including RMB4,449,757, RMB3,350,032 and RMB1,703,995 with related parties for the years ended December 31, 2020, 2021 and 2022, respectively)	¥ 4,142,862	$ 600,659	¥ 6,250,109	¥ 6,433,363
Cost of revenues (including RMB3,713,536, RMB2,759,980 and RMB1,403,773 resulting from related parties sales for the years ended December 31, 2020, 2021 and 2022, respectively)	3,339,746	484,218	4,944,467	5,100,698
Gross profit	803,116	116,441	1,305,642	1,332,665
Operating expenses
Selling and marketing	460,304	66,738	438,273	358,655
General and administrative	235,932	34,207	258,346	261,805
Research and development	517,122	74,976	515,081	538,009
Total operating expenses	1,213,358	175,921	1,211,700	1,158,469
Operating income/(loss)	(410,242)	(59,480)	93,942	174,196
Other income and expenses
Interest income	12,334	1,788	16,686	46,118
Interest expenses	(57,001)	(8,264)	(44,884)	(22,623)
Realized gain from investments	597	87	13,507
Gain from deconsolidation of a subsidiary | ¥				56,522
Gain from fair value change of long-term investments	51,817	7,513		12,325
Impairment loss from a long-term investment	(13,858)	(2,009)
Other (expenses)/ income, net	43,820	6,353	27,418	(929)
Income/(Loss) before income tax and income from equity method investments	(372,533)	(54,012)	106,669	265,609
Income taxes (provision)/benefit	65,875	9,551	(10,745)	(31,154)
Income/(Loss) before income from equity method investments	(306,658)	(44,461)	95,924	234,455
(Loss)/ Income from equity method investments	17,657	2,560	41,028	(4,749)
Net income/(loss)	(289,001)	(41,901)	136,952	229,706
Less: Net income/(loss) attributable to noncontrolling interest	(693)	(100)	(851)	953
Net income/(loss) attributable to Zepp Health Corporation	(288,308)	(41,801)	137,803	228,753
Net income/(loss) attributable to ordinary shareholders of Zepp Health Corporation	¥ (288,308)	$ (41,801)	¥ 137,803	¥ 228,753
Net income/(loss) per share attributable to ordinary shareholders of Zepp Health Corporation
Basic income/(loss) per ordinary share | (per share)	¥ (1.17)	$ (0.17)	¥ 0.55	¥ 0.92
Diluted income/(loss) per ordinary share | (per share)	¥ (1.17)	$ (0.17)	¥ 0.52	¥ 0.88
Weighted average number of shares used in computing net income/(loss) per share
Ordinary share - basic	246,283,328	246,283,328	252,167,610	248,470,684
Ordinary share - diluted	246,283,328	246,283,328	264,368,629	260,351,994

XML

CONSOLIDATED STATEMENTS OF OPERATIONS (Parenthetical) - CNY (¥) ¥ in Thousands	12 Months Ended
	Dec. 31, 2022	Dec. 31, 2021	Dec. 31, 2020
CONSOLIDATED STATEMENTS OF OPERATIONS
Revenue from related parties	¥ 1,703,995	¥ 3,350,032	¥ 4,449,757
Cost of revenue related parties	¥ 1,399,491	¥ 2,759,980	¥ 3,713,536

XML

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/LOSS ¥ in Thousands, $ in Thousands	12 Months Ended
	Dec. 31, 2022 CNY (¥)	Dec. 31, 2022 USD ($)	Dec. 31, 2021 CNY (¥)	Dec. 31, 2020 CNY (¥)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/LOSS
Net income/(loss)	¥ (289,001)	$ (41,901)	¥ 136,952	¥ 229,706
Other comprehensive income/(loss), net of tax
Foreign currency translation adjustment	34,379	4,984	(17,938)	(45,117)
Unrealized (loss)/gain on available-for-sale investments and others, (net of tax effect of RMB4,017, nil and RMB7,096 for the years ended December 31, 2020, 2021 and 2022, respectively)	42,146	6,111	2,585	(21,340)
Comprehensive income/(loss)	(212,476)	(30,806)	121,599	163,249
Less: Net income /(loss) attributable to noncontrolling interest	(693)	(100)	(851)	953
Comprehensive income/(loss) attributable to Zepp Health Corporation	¥ (211,783)	$ (30,706)	¥ 122,450	¥ 162,296

XML

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/LOSS (Parenthetical) - CNY (¥) ¥ in Thousands	12 Months Ended
	Dec. 31, 2022	Dec. 31, 2021	Dec. 31, 2020
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/LOSS
Unrealized gain on available-for-sale investments and others	¥ 7,096	¥ 0	¥ 4,017

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CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY ¥ in Thousands, $ in Thousands	Ordinary Shares CNY (¥) shares	Treasury Shares CNY (¥) shares	Additional Paid-in Capital CNY (¥)	Accumulated Other Comprehensive Income CNY (¥)	Accumulated Retained Earnings CNY (¥)	Total Zepp Health Corporation Shareholders' Equity CNY (¥)	Noncontrolling Interest CNY (¥)	CNY (¥)	USD ($)
Beginning Balance at Dec. 31, 2019	¥ 155		¥ 1,478,902	¥ 111,081	¥ 910,612	¥ 2,500,750	¥ (3,162)	¥ 2,497,588
Beginning Balance, shares at Dec. 31, 2019 | shares	247,519,987
Treasury Shares, beginning at Dec. 31, 2019		¥ 0
Treasury Shares, beginning (in shares) at Dec. 31, 2019 | shares		0
Exercise of option	¥ 2		(2)
Exercise of option, shares | shares	2,625,176
Net income (loss)					228,753	228,753	953	229,706
Foreign currency translation adjustment				(45,117)		(45,117)		(45,117)
Share-based compensation			67,212			67,212		67,212
Unrealized gain/loss on available-for-sale investments, net of tax effect				(21,340)		(21,340)		(21,340)
Statutory reserve			5,997		(5,997)
Deconsolidation of a subsidiary							2,209	2,209
Ending Balance at Dec. 31, 2020	¥ 157		1,552,109	44,624	1,133,368	2,730,258		2,730,258
Ending Balance, shares at Dec. 31, 2020 | shares	250,145,163
Exercise of option	¥ 2		5,463			5,465		5,465
Exercise of option, shares | shares	3,712,160
Repurchase of ordinary shares		¥ 21,798				21,798		21,798
Repurchase of ordinary shares, shares | shares		(2,656,164)
Net income (loss)					137,803	137,803	(851)	136,952
Foreign currency translation adjustment				(17,938)		(17,938)		(17,938)
Share-based compensation			83,972			83,972		83,972
Unrealized gain/loss on available-for-sale investments, net of tax effect				2,585		2,585		2,585
Capital contribution from non-controlling interest							13,943	13,943
Ending Balance at Dec. 31, 2021	¥ 159		1,641,544	29,271	1,271,171	2,920,347	13,092	2,933,439
Ending Balance, shares at Dec. 31, 2021 | shares	253,857,323
Treasury Shares, ending at Dec. 31, 2021		¥ (21,798)						(21,798)
Treasury Shares, ending (in shares) at Dec. 31, 2021 | shares		(2,656,164)
Exercise of option	¥ 3		(3)
Exercise of option, shares | shares	4,357,100
Repurchase of ordinary shares		¥ 45,365				45,365		45,365
Repurchase of ordinary shares, shares | shares		(10,219,572)
Net income (loss)					(288,308)	(288,308)	(693)	(289,001)	$ (41,901)
Foreign currency translation adjustment				34,379		34,379		34,379	4,984
Share-based compensation			49,338			49,338		49,338
Unrealized gain/loss on available-for-sale investments, net of tax effect				42,146		42,146		42,146	6,111
Cash dividend					(40,015)	(40,015)		(40,015)
Ending Balance at Dec. 31, 2022	¥ 162		¥ 1,690,879	¥ 105,796	¥ 942,848	¥ 2,672,522	¥ 12,399	2,684,921	389,276
Ending Balance, shares at Dec. 31, 2022 | shares	258,214,423
Treasury Shares, ending at Dec. 31, 2022		¥ 67,163						¥ (67,163)	$ (9,738)
Treasury Shares, ending (in shares) at Dec. 31, 2022 | shares		12,875,736

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CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Parenthetical) - CNY (¥) ¥ in Thousands	12 Months Ended
	Dec. 31, 2022	Dec. 31, 2021	Dec. 31, 2020
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Unrealized gain on available-for-sale investments and others	¥ 7,096	¥ 0	¥ 4,017

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CONSOLIDATED STATEMENTS OF CASH FLOWS ¥ in Thousands, $ in Thousands	12 Months Ended
	Dec. 31, 2022 CNY (¥)	Dec. 31, 2022 USD ($)	Dec. 31, 2021 CNY (¥)	Dec. 31, 2020 CNY (¥)
Cash Flows from Operating Activities
Net income/(loss)	¥ (289,001)	$ (41,901)	¥ 136,952	¥ 229,706
Adjustment to reconcile net income to net cash provided by operating activities:
Non-cash lease expenses	40,571	5,882	41,536	48,191
Depreciation and amortization	58,618	8,498	51,884	27,129
Provision for excess and obsolete inventories	39,551	5,734	51,336	64,223
Share-based compensation	49,107	7,120	83,122	65,154
Share of results of equity method investment	(17,657)	(2,560)	(41,028)	4,749
Gain/(Loss) on disposal of property, plant and equipment and others	(1,909)	(277)	(304)	7,406
Gain from fair value change of long-term investments	(51,817)	(7,513)		(12,325)
Impairment loss from a long-term investment	13,858	2,009
Deferred income taxes	(65,220)	(9,456)	(18,694)	(10,442)
Gain from deconsolidation of a subsidiary				(56,522)
Allowance for doubtful accounts	652	95	814
Impairment loss from short-term investments			320
Realized gain from investments	(597)	(87)	(13,507)
Changes in operating assets and liabilities
Accounts receivable	(145,671)	(21,120)	(239,860)	(131,215)
Inventories	187,852	27,236	(83,126)	(410,691)
Prepaid expenses and other current assets	210,814	30,565	(158,829)	(79,957)
Amounts due from related parties	166,158	24,091	544,599	583,457
Other non-current assets	(30,795)	(4,465)	8,572	(33,049)
Amount due to related parties	(9,145)	(1,326)	38,938	(3,584)
Accounts payable	(910,679)	(132,036)	(673,224)	(9,761)
Notes payable	42,378	6,144	103,795	(2,184)
Advance from customers	(2,097)	(304)	(38,272)	(2,189)
Income tax payable	119	17	(25,111)	(40,148)
Accrued expenses and other current liabilities	(60,282)	(8,740)	7,767	(149,385)
Other non-current liability	(12,451)	(1,805)	(10,115)	68,739
Net Cash provided by/(used in) Operating Activities	(787,643)	(114,199)	(232,435)	157,302
Cash Flows from Investing Activities
Purchase of property, plant and equipment	(8,138)	(1,180)	(46,055)	(83,554)
Disposal of property, plant and equipment			2,520
Purchase of intangible assets	(1,782)	(258)	(7,027)	(1,220)
Purchase of term deposits			(5,000)	(212,065)
Proceeds from maturity of term deposits	5,000	725	5,000	207,065
Loans provided to third parties				(480)
Loans provided to related parties	(15,491)	(2,246)
Purchase of short-term investments	(16,339)	(2,369)
Disposal of short-term investments	3,981	577
Purchase of long-term investments	(12,733)	(1,846)	(1,072,783)	(82,221)
Disposal of long-term investments	2,841	412	20,000
Dividend received from an equity method investment	403	58	113
Acquisition of businesses and assets, net of cash acquired of RMB7,497				(26,713)
Deconsolidation of a subsidiary			20,000	(7,701)
Capital contribution from non-controlling interest			13,943
Other investing activities				9
Net Cash Used in Investing Activities	(42,258)	(6,127)	(1,069,289)	(206,880)
Cash Flows from Financing Activities
Exercise of share options			5,465
Bank borrowings received	838,859	121,623	1,473,567	1,207,793
Repayment of bank borrowings	(727,500)	(105,478)	(953,387)	(643,122)
Repurchase of ordinary shares	(53,216)	(7,716)	(13,763)
Proceeds from letter of credit factoring	310,265	44,984
Reverse factoring	(39,195)	(5,683)	39,195
Dividend distribution	(40,015)	(5,802)
Net Cash Provided by Financing Activities	289,198	41,928	551,077	564,671
Net increase in cash and cash equivalents and restricted cash	(540,703)	(78,398)	(750,647)	515,093
Effect of exchange rate changes	4,504	656	(15,564)	(43,334)
Cash and cash equivalents and restricted cash at beginning of the year	1,509,539	218,863	2,275,750	1,803,991
Cash and cash equivalents and restricted cash at end of the year	973,340	141,121	1,509,539	2,275,750
Supplemental disclosure of cash flow information
Income tax paid	3,443	499	74,377	82,406
Interest paid	55,847	8,097	47,132	14,858
Non-cash investing and financing activity
Payable for Intangible asset			1,031	1,641
Receivable from the disposal of a subsidiary	2,500	362	2,500	22,500
Conversion from convertible bond to equity interest investment	10,148	1,471		8,393
Disposal of previous equity interest in exchange for acquisition				87,716
Forgiveness of loan related to acquisition				13,711
Payable for property, plant and equipment			306	¥ 173
Payable for repurchasing of ordinary shares	¥ 129	$ 19	¥ 8,044

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CONSOLIDATED STATEMENTS OF CASH FLOWS (Parenthetical) ¥ in Thousands	12 Months Ended
	Dec. 31, 2022 CNY (¥)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Purchase of business, cash acquired	¥ 7,497

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ORGANIZATION AND PRINCIPAL ACTIVITIES

12 Months Ended

Dec. 31, 2022

ORGANIZATION AND PRINCIPAL ACTIVITIES

ORGANIZATION AND PRINCIPAL ACTIVITIES

1. ORGANAZATION AND PRINCIPAL ACTIVITIES

Zepp Health Corporation (the “Company”) was incorporated in the Cayman Islands in December 2014. The Company, its wholly owned subsidiaries and its variable interest entities (“VIEs”), Anhui Huami Information Technology Co., Ltd. (“Anhui Huami”), Huami (Beijing) Information Technology Co., Ltd. (“Beijing Huami”), Anhui Huami’s subsidiaries and Beijing Huami’s subsidiaries, are collectively referred to as the “Group”.

The Group primarily engages in the business of developing and manufacturing smart, wearable technological devices in the People’s Republic of China (“PRC”), and sells the products in PRC and overseas. During the years ended December 31, 2020, 2021 and 2022, the Group derived 69.0%, 53.5% and 41.0% of its revenue from sales of exclusively designed and manufactured smart wearable devices to one customer who is controlled by one of its shareholders.

As of December 31, 2022, details of the Company’s major subsidiaries, VIEs and major VIE’s subsidiary were as follows:

		Date of	Percentage
	Place of incorporation	Incorporation/acquisition	Of ownership
Major subsidiaries of the Company:
Hong Kong Zepp Holding Limited (“Zepp HK”)	Hong Kong (“HK”)	December 23, 2014	100%
ZEPP, INC. (“Zepp Inc”)	United States of America (“U.S.”)	January 15, 2015	100%
Beijing ShunYuan KaiHua Technology Co., Ltd. (“Shun Yuan”)	PRC	February 25, 2015	100%
Huami (Shenzhen) Information Technology Co., Ltd.	PRC	December 7, 2015	100%
Anhui Huami Health Technology Co., Ltd (“Anhui Health”)	PRC	December 28, 2015	100%
Zepp North America Inc. (“Zepp NA”)	U.S.	June 16, 2016	100%
Galaxy Trading Platform Limited (“Galaxy”)	HK	May 8, 2019	100%
Zepp Europe Holding B.V. (“Zepp Europe”)	Netherlands	June 11, 2020	100%
Zepp Netherlands Trading B.V. (“Netherland”)	Netherlands	April 20, 2021	100%
Variable interest entities of the Company:
Anhui Huami	PRC	December 27, 2013	Consolidated VIE
Beijing Huami	PRC	July 11, 2014	Consolidated VIE
Major subsidiary of Anhui Huami:
Anhui Huami Healthcare Co., Ltd. (“Anhui Healthcare”)	PRC	December 5, 2016	VIE’s subsidiary

The VIE arrangements

The Company conducts substantially all of its smart, wearable and technological devices business in the PRC through contractual arrangements with its VIEs, Anhui Huami and Beijing Huami and the VIEs’ subsidiaries. Since the operations of the VIEs and the VIEs’ subsidiaries are closely interrelated and almost indistinguishable from one another, the risks and rewards associated with their operations are substantially the same. In addition, the Company consolidates the VIEs and the VIEs’ subsidiaries as disclosed. Therefore, the Company aggregates disclosures related to the VIEs and the VIEs’ subsidiaries as variable interest entities and referred to them as “the VIEs” in the Company’s consolidated financial statements. The VIEs hold the requisite licenses and permits necessary to conduct the Company’s business. In addition, the VIEs hold the assets necessary to operate the Company’s business and generate substantially all of the Company’s revenues.

1. ORGANAZATION AND PRINCIPAL ACTIVITIES - CONTINUED

VIE Arrangements between the VIEs and the Company’s PRC subsidiary

The Company, through Shun Yuan, a wholly-owned subsidiary of the Company in the PRC (the “WFOE”) has entered into the following contractual arrangements with Anhui Huami, Beijing Huami and their shareholders that enable the Company to (1) have power to direct the activities that most significantly affects the economic performance of the VIEs, and (2) receive the economic benefits of the VIEs that could be significant to the VIEs. Accordingly, the Company is considered the primary beneficiary of the VIEs and has consolidated the VIEs’ financial results of operations, assets and liabilities in the Company’s consolidated financial statements. In making the conclusion that the Company is the primary beneficiary of the VIEs, the Company believes the Company’s rights under the terms of the purchase option agreement provide it with a substantive kick-out right. More specifically, the Company believes the terms of the purchase option agreement are valid, binding and enforceable under PRC laws and regulations currently in effect. The Company also believes that the consideration which is the minimum amount permitted by the applicable PRC law to exercise the option does not represent a financial barrier or disincentive for the Company to currently exercise its rights under the purchase option agreement.

A simple majority vote of the Company’s board of directors is required to pass a resolution to exercise the Company’s rights under the purchase option agreement, for which Mr. Wang Huang’s, the chief executive officer (“CEO”) of the Company (“Mr. Huang”), consent is not required. The Company’s rights under the purchase option agreement give the Company the power to control the shareholders of Anhui Huami and Beijing Huami. In addition, the Company’s rights under the power of attorney also reinforce the Company’s abilities to direct the activities that most significantly impact the VIEs’ economic performance. The Company also believes that this ability to exercise control ensures that the VIEs will continue to execute consulting and service agreements and also ensures that consulting and service agreements will be executed and renewed indefinitely unless a written agreement is signed by all parties to terminate it or a mandatory termination is requested by the local government. The Company has the rights to receive substantially all of the economic benefits from the VIEs.

Exclusive consulting and service agreement

On April 29, 2015, Shun Yuan entered into an exclusive consulting and service agreement with Anhui Huami and Beijing Huami to enable Shun Yuan to receive substantially all of the economic benefits of the VIEs and such agreement was amended on November 3, 2017. Under the exclusive consulting and service agreement, Shun Yuan has the exclusive right to provide or designate any entity affiliated with it to provide VIEs the technical and business support services, including information technology support, hardware management and updates, software development, maintenance and updates and other operating services. The exclusive consulting and service agreement could be indefinitely effective unless a written agreement is signed by all parties to terminate it or a mandatory termination is requested by the local government. The exclusive consulting and service agreement was effective on April 29, 2015.

On March 20, 2020, due to the change of the nominee shareholders in the VIEs, the exclusive consultation and service agreement of Anhui Huami and Beijing Huami was amended and restated with terms substantially similar as before.

Equity pledge agreement

Pursuant to the equity pledge agreements dated April 29, 2015 and amended on November 3, 2017 among Anhui Huami, Beijing Huami, all their shareholders and Shun Yuan, all shareholders of Anhui Huami and Beijing Huami agreed to pledge their equity interests in Anhui Huami or Beijing Huami to Shun Yuan to secure the performance of the VIEs’ obligations under the existing purchase option agreement, power of attorney, exclusive consulting and service agreement and also the equity pledge agreement.

1. ORGANAZATION AND PRINCIPAL ACTIVITIES - CONTINUED

Equity pledge agreement - continued

On March 20, 2020, due to the change of the nominee shareholders in the VIEs, the Group updated the registration of its equity pledge for Anhui Huami and Beijing Huami. The equity pledge agreement for Anhui Huami and Beijing Huami was amended and restated with the same terms as before.

Exclusive purchase option agreement

Pursuant to the exclusive purchase option agreements entered into on April 29, 2015 and amended on November 3, 2017 among Shun Yuan, Anhui Huami, Beijing Huami and their shareholders, the shareholders of Anhui Huami and Beijing Huami are obligated to sell their equity interest or any assets to Shun Yuan. Shun Yuan has the exclusive and irrevocable right to purchase, or cause the shareholders of Anhui Huami and Beijing Huami to sell to the party designated by Shun Yuan, in Shun Yuan’s sole discretion, all of the shareholders’ equity interests or any assets in Anhui Huami and Beijing Huami when and to the extent that applicable PRC law permits the Company to own such equity interests and assets in Anhui Huami and Beijing Huami. The price to be paid by Shun Yuan or any party designated by Shun Yuan will be the minimum amount of consideration permitted by applicable PRC law at the time when such transaction occurs. All of the shareholders promised and agreed that they will refund the consideration once received to Shun Yuan or any party designated by Shun Yuan within 10 working days. Also, the shareholders of Anhui Huami and Beijing Huami should try their best to help Anhui Huami and Beijing Huami develop well and are prohibited from transferring, pledging, intentionally terminating significant contracts or otherwise disposing of any significant assets in Anhui Huami and Beijing Huami without the Shun Yuan’s prior written consent.

On March 20, 2020, due to the change of the nominee shareholders in the VIEs, the exclusive purchase option agreement of Anhui Huami and Beijing Huami was amended and restated with the same terms as before.

Power of Attorney

On April 29, 2015 and amended on November 3, 2017, all of the shareholders of Anhui Huami and Beijing Huami have executed a power of attorney with Shun Yuan, Anhui Huami and Beijing Huami, whereby all of the shareholders irrevocably appoint and constitute the person designated by Shun Yuan as their attorney-in-fact to exercise on their behalf any and all rights that the shareholders have in respect of their equity interests in Anhui Huami and Beijing Huami. The power of attorney will be indefinitely effective unless all parties decide to terminate it by written agreement.

On March 20, 2020, due to the change of the nominee shareholders in the VIEs, the power of attorney agreement of Anhui Huami and Beijing Huami was amended and restated with the same terms as before.

1. ORGANAZATION AND PRINCIPAL ACTIVITIES - CONTINUED

Risks in relation to VIE structure

The Company believes that the contractual arrangements with its VIEs and their respective shareholders are in compliance with PRC laws and regulations and are legally enforceable. However, uncertainties in the PRC legal system could limit the Company’s ability to enforce the contractual arrangements. If the legal structure and contractual arrangements were found to be in violation of PRC laws and regulations, the PRC government could:

● revoke the business and operating licenses of the Company’s PRC subsidiaries and VIEs;

● discontinue or restrict the operations of any related-party transactions between the Company’s PRC subsidiaries and VIEs;

● limit the Group’s business expansion in China by way of entering into contractual arrangements;

● impose fines, confiscating the income from the WFOE or the VIEs or imposing other requirements with which the Company’s PRC subsidiaries and VIEs may not be able to comply;

● impose additional conditions or requirements with which the Group may not be able to comply;

● take other regulatory or enforcement actions against the Group that could be harmful to the Group’s business or

● require the Company or the Company’s PRC subsidiaries or VIEs to restructure the relevant ownership structure or operations.

● Restrict or prohibit the use of the proceeds of any offerings to financing the business and operations in the PRC

The Company’s ability to conduct its business may be negatively affected if the PRC government were to carry out any of the aforementioned actions. As a result, the Company may not be able to consolidate its VIEs in its consolidated financial statements as it may lose the ability to exert effective control over the VIEs and their respective shareholders and it may lose the ability to receive economic benefits from the VIEs. The Company, however, does not believe such actions would result in the liquidation or dissolution of the Company, its PRC subsidiaries or VIEs.

The VIE agreements were amended on November 3, 2017 and March 20, 2020 with no significant differences.

Mr. Huang is the largest shareholder of Anhui Huami and Beijing Huami, and Mr. Huang is also the largest beneficiary owner of the Company. The interests of Mr. Huang as the largest beneficiary owner of the VIEs may differ from the interests of the Company as a whole, since Mr. Huang is only one of the beneficiary shareholders of the Company, holding 28.4% of the total common shares as of December 31, 2022. The Company cannot assert that when conflicts of interest arise, Mr. Huang will act in the best interests of the Company or that conflicts of interests will be resolved in the Company’s favor. Currently, the Company does not have existing arrangements to address potential conflicts of interest Mr. Huang may encounter in his capacity as a beneficial owner and director of the VIEs, on the one hand, and as a beneficial owner and director of the Company, on the other hand. The Company believes Mr. Huang will not act contrary to any of the contractual arrangements and the exclusive option agreement provides the Company with a mechanism to remove Mr. Huang as a beneficiary shareholder of the VIEs should he act to the detriment of the Company. The Company relies on Mr. Huang, as a director and executive officer of the Company, to fulfill his fiduciary duties and abide by laws of the PRC and Cayman Islands and act in the best interest of the Company. If the Company cannot resolve any conflicts of interest or disputes between the Company and Mr. Huang, the Company would have to rely on legal proceedings, which could result in disruption of its business, and there is substantial uncertainty as to the outcome of any such legal proceedings.

1. ORGANAZATION AND PRINCIPAL ACTIVITIES - CONTINUED

Risks in relation to VIE structure - continued

In addition, most of the current shareholders of Anhui Huami and Beijing Huami are also beneficial owners of the Company and therefore have no current interest in seeking to act contrary to the contractual arrangements. However, to further protect the investors’ interest from any risk that the shareholders of Anhui Huami and Beijing Huami may act contrary to the contractual arrangements, the Company, through Shun Yuan, entered into an irrevocable power of attorney with all of the shareholders of Anhui Huami and Beijing Huami on April 29, 2015 and November 3, 2017. Through the power of attorney, all shareholders of Anhui Huami and Beijing Huami have entrusted the person designated by Shun Yuan as its proxy to exercise their rights as the shareholders of Anhui Huami and Beijing Huami with respect to an aggregate of 100% of the equity interests in Anhui Huami and Beijing Huami.

The following financial position, financial performance and cash flow of the VIEs and VIEs’ subsidiaries were included in the accompanying consolidated financial statements after the elimination of intercompany balances and transactions within the Group:

	As of December 31,
	2021	2022
	RMB	RMB
Total current assets	2,989,474	2,045,609
Total non-current assets	701,134	790,027
Total assets	3,690,608	2,835,636
Total current liabilities	1,937,301	1,521,807
Total non-current liabilities	479,676	484,496
Total liabilities	2,416,977	2,006,303

	For the years ended December 31,
	2020	2021	2022
	RMB	RMB	RMB
Revenues	6,297,534	5,219,560	2,536,863
Net income/(loss)	751,803	(61,184)	(1,282)

	For the years ended December 31,
	2020	2021	2022
	RMB	RMB	RMB
Net cash provided by/(used in) operating activities	770,935	(295,860)	(226,419)
Net cash used in investing activities	(131,183)	(71,916)	(26,610)
Net cash provided by financing activities	564,671	32,024	445,570

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SIGNIFICANT ACCOUNTING POLICIES

12 Months Ended

Dec. 31, 2022

SIGNIFICANT ACCOUNTING POLICIES

SIGNIFICANT ACCOUNTING POLICIES

2. SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation and principle of consolidation

The consolidated financial statements of the Group have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The consolidated financial statements of the Group include the financial statements of the Company, its wholly-owned subsidiaries, its VIEs and the VIEs’ subsidiaries. The Company believes that the disclosures are adequate to make the information presented not misleading.

Use of estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the consolidated financial statements and accompanying notes. Significant accounting estimates reflected in the Group’s consolidated financial statements include inventory valuation, the useful lives of long-lived assets, impairment of long-lived assets, incremental borrowing rate for leases, product warranties, fair value measurement of long-term available-for-sale investments and long-term investments of non-marketable equity securities with fair value change through profit or loss, the valuation allowance for deferred tax assets and income tax. Actual results could differ from those estimates, and such differences may be material to the consolidated financial statements.

Fair value

Fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Group considers the principal or most advantageous market in which it would transact and it considers assumptions that market participants would use when pricing the asset or liability.

Authoritative literature provides a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The level in the hierarchy within which the fair value measurement in its entirety falls is based upon the lowest level of input that is significant to the fair value measurement as follows:

Level 1

Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.

Level 2

Level 2 applies to assets or liabilities for which there are inputs other than quoted prices included within Level 1 that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.

2. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

Fair value - continued

Level 3

Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.

Measured fair value on a recurring basis

The Group measured its financial assets primarily including available-for-sale investments at fair value on a recurring basis and equity securities with readily determinable fair value as of December 31, 2021 and 2022.

Measured fair value on a nonrecurring basis

The Group measured acquired intangible assets using the income approach-discounted cash flow method when events or changes in circumstances indicate that the carrying amount of an asset may no longer be recoverable. The fair values were determined using models with significant unobservable inputs (Level 3 inputs). The Group did not recognize any impairment loss related to acquired intangible assets arising from acquisitions during the years ended December 31, 2020, 2021 and 2022.

The Group measured goodwill at fair value on a nonrecurring basis when it is evaluated annually or whenever events or changes in circumstances indicate that the carrying amount of a reporting unit exceeds its fair value as a result of the impairment assessments. The fair value of the reporting unit is determined using discounted cash flows. The Group did not recognize any impairment loss related to goodwill during the years ended December 31, 2020, 2021 and 2022.

For equity investments without readily determinable fair values for which the Company elected to use the measurement alternative, the equity investment is measured at fair value on a nonrecurring basis when there is an orderly transaction for identical or similar investments of the same issuer.

Fair value of financial instruments

The Group’s financial instruments consist primarily of cash and cash equivalents, restricted cash, term deposit, accounts receivable, amounts due from related parties, available-for-sale investments, amount due from a related party, noncurrent, accounts payable, notes payable and others, short-term bank borrowings, amounts due to related parties and long-term bank borrowings. The Company carries its available-for-sales investments at fair value. The carrying amounts of cash and cash equivalents, restricted cash, term deposit, accounts receivable, amounts due from related parties, accounts payable, notes payable and others, amounts due to related parties and short-term bank borrowings approximate their fair values due to the short-term maturities of these instruments. The carrying amounts of amount due from a related party, noncurrent and long-term borrowings approximates its fair value as the interest rates are based on the prevailing interest rates in the market.

2. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

Cash and cash equivalents

Cash and cash equivalents consist of cash on-hand, demand deposits with financial institutions, term deposits with an original maturity of three months or less and highly liquid investments, which are unrestricted from withdrawal or use, or which have original maturities of three months or less when purchased.

Restricted cash

Restricted cash represents deposits made to the bank for bank acceptance notes (or notes payable) issued by the Group. When the Group issues the bank acceptance notes, the banks require the Group to make a deposit for 30% to 75% of the face value of the bank acceptance notes issued as collateral. The deposits for unsettled bank acceptance notes are recorded as restricted cash in the consolidated balance sheets as of December 31, 2021 and 2022.

Term deposit

Term deposits consist of deposits placed with financial institutions with original maturities of greater than three months and less than one year.

Accounts receivable

Accounts receivable represents those receivables derived in the ordinary course of business, net of allowance for doubtful accounts.

Allowance for doubtful accounts

The Group maintains an allowance for doubtful accounts for estimated losses on uncollected accounts receivable. Management considers the following factors when determining the collectability of specific accounts: creditworthiness of customers, aging of the receivables, past transaction history with customers and their current condition, changes in customer payment terms, specific facts and circumstances, and the overall economic climate in the industries the Group serves. The Group evaluates its accounts receivable for expected credit losses on a regular basis. The Group maintains an estimated allowance for credit loss to reduce its accounts receivable to the amount that it believes will be collected. The Group uses the creditworthiness of customers, aging of the receivables, past transaction history with customers and their current condition, changes in customer payment terms, specific facts and circumstances, and the overall economic climate in the industries the Group serves to monitor the Group’s receivables within the scope of expected credit losses model and use these as a basis to develop the Group’s expected loss estimates. As of December 31, 2021 and 2022, the Company recorded RMB814 and RMB1,466 allowance for doubtful account.

Inventories, net

Inventories of the Group consist of raw materials, finished goods and work in process. Inventories are stated at the lower of cost or net realizable value on a weighted average basis. Inventory costs include expenses that are directly or indirectly incurred in the purchase, including shipping and handling costs charged to the Group by suppliers, and production of manufactured product for sale, such as include the cost of materials and supplies used in production, direct labor costs and allocated overhead costs such as depreciation, insurance, employee benefits, and indirect labor. Cost is determined using the weighted average method. The Group assesses the valuation of inventory and periodically writes down and writes off the value for estimated excess and obsolete inventory based upon the product life cycle.

2. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

Short-term investments

Short-term investments are mainly consisting of investment in convertible bonds with a maturity of less than one year. These investments are accounted for as available-for-sale investments and measured at fair value. The Group recorded RMB1,243, RMB1,240, and RMB2,006 unrealized gains in accumulated other comprehensive income on such investments during the years ended December 31, 2020, 2021 and 2022, respectively.

Prepaid expenses and other current assets

Prepaid expenses and other current assets primarily consist of advance to suppliers, prepaid expenses, other receivables, rental deposits and value-added tax recoverable.

Property, plant and equipment, net

Property, plant and equipment are carried at cost less accumulated depreciation. Depreciation is calculated on a straight-line basis over the following estimated useful lives:

Software and electronic equipment	3-5 years
Building	20 years
Leasehold improvements	Shorter of the lease term or estimated useful lives

Intangible assets, net

Acquired intangible assets other than goodwill consist of the domain name for the Company’s website www.zepp.com, an insurance brokerage license, trademark and patents.

The domain name, insurance brokerage license and certain trademark are recognized as an intangible asset with indefinite life and evaluated for impairment at least annually or if events or changes in circumstances indicate that the asset might be impaired. Such impairment test compares the fair values of the asset with its carrying value amounts and an impairment loss is recognized if and when the carrying amounts exceed the fair value. The estimates of values of the intangible asset not subject to amortization are determined using discounted cash flow valuation approach. Significant assumptions are inherent in this process, including estimates of discount rates and cash flow.

Some trademark and patents are recognized as intangible assets with finite lives and are amortized on a straight-line basis over their expected useful economic lives. Amortization is calculated on a straight-line basis over the estimated useful life of 5 to10 years.

2. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

Leases

The Group leases administrative office spaces in different cities in the PRC, and in the United States and Canada under operating leases. The Group determines whether an arrangement constitutes a lease and records lease liabilities and right-of-use assets on its consolidated balance sheets at the lease commencement. The Group measures its lease liabilities based on the present value of the total lease payments not yet paid discounted based on its incremental borrowing rate, which is the estimated rate the Group would be required to pay for a collateralized borrowing equal to the total lease payments over the term of the lease. The Group estimates its incremental borrowing rate based on an analysis of publicly traded debt securities of companies with credit and financial profiles similar to its own. The Group measures right-of-use assets based on the corresponding lease liability adjusted for payments made to the lessor at or before the commencement date, and the initial direct costs it incurs under the lease. The Group begins recognizing operating lease expenses when the lessor makes the underlying asset available to the Group. The Group’s leases have remaining lease terms of up to four years, some of which include options to extend the leases for an additional period which has to be agreed with the lessors based on mutual negotiation. After considering the factors that create an economic incentive, the Group did not include renewal option periods in the lease term for which it is not reasonably certain to exercise. For all real estate leases, any non-lease components, including common area maintenance, have been separated from lease components and excluded from the associated right-of-use asset and lease liability calculations.

For short-term leases with lease term less than one year, the Group records operating lease expenses in its consolidated statements of operations on a straight-line basis over the lease term and record variable lease payments as incurred.

Goodwill

Goodwill represents the excess of the purchase price over the fair value of identifiable net assets acquired in business combination. Goodwill is not amortized but is tested for impairment annually or more frequently if events on changes in circumstance indicate that it might be impaired.

Goodwill is tested for impairment at the reporting unit level on an annual basis and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. These events or circumstances could include a significant change in the stock prices, business climate, legal factors, operating performance indicators, competition, or sale or disposition of a significant portion of a reporting unit.

Application of the goodwill impairment test requires judgment, including the identification of reporting units, assignment of assets and liabilities to reporting units, assignment of goodwill to reporting units, and determination of the fair value of each reporting unit. The estimation of fair value of each reporting unit using a discounted cash flow methodology also requires significant judgments, including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rate of growth for the Group’s business, estimation of the useful life over which cash flows will occur, determination of the Group’s weighted average cost of capital and consideration of the impact of COVID-19. The estimates used to calculate the fair value of a reporting unit change from year to year based on operating results and market conditions. Changes in these estimates and assumptions could materially affect the determination of fair value and goodwill impairment for the reporting unit.

The Group uses the one-step method for its goodwill impairment assessment for the years ended December 31, 2020, 2021 and 2022. Goodwill impairment is calculated as the amount by which a reporting unit’s carrying value exceeds its fair value.

During the years ended December 31, 2020, 2021 and 2022, the Group recognized nil impairment loss on goodwill.

2. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

Long-term investments

The Group’s long-term investments consist of equity securities with readily determinable fair value, equity securities without readily determinable fair value, equity method investments and available-for-sale investments.

(a) Equity securities with readily determinable fair value

Equity securities with readily determinable fair values are measured at fair value and any changes in fair value are recognized in the consolidated statements of operations.

(b) Equity securities without readily determinable fair value

The Group accounts for equity investments that do not have a readily determinable fair value under the measurement alternative prescribed within Accounting Standards Update (“ASU”) 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, to the extent such investments are not subject to consolidation or the equity method. Under the measurement alternative, these financial instruments are carried at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer.

The Group reviews its equity securities without readily determinable fair value for impairment at each reporting period by considering factors including, but not limited to, current economic and market conditions and the impact of COVID-19, the operating performance of the companies including current earning trends and other company specific information.

(c) Equity method investments

For an investee company over which the Group has the ability to exercise significant influence, but does not have a controlling interest, the Group accounts for the investment under the equity method. Significant influence is generally considered to exist when the Group has an ownership interest in the voting stock of the investee between 20% and 50%. Other factors, such as representation on the investee’s board of directors, voting rights and the impact of commercial arrangements are also considered in determining whether the equity method of accounting is appropriate.

Under the equity method of accounting, the investee company’s accounts are not reflected within the Group’s consolidated balance sheets and statements of operations; however, the Group’s share of the earnings or losses of the investee company is reflected in the caption “(loss)/income from equity method investments” in the consolidated statements of operations.

An impairment charge is recorded if the carrying amount of the investment exceeds its fair value and this condition is determined to be other-than-temporary. The Group estimated the fair value of the investee company based on comparable quoted price for similar investment in active market, if applicable, or discounted cash flow approach which requires significant judgments, including the estimation of future cash flows, which is dependent on internal forecasts, the estimation of long-term growth rate of a company’s business, the estimation of the useful life over which cash flows will occur, the determination of the weighted average cost of capital and the impact of COVID-19. The Group recorded nil impairment losses on its equity method investments during the years ended December 31, 2020, 2021 and 2022.

2. SIGNIFICANT ACCOUNTING POLICIES – CONTINUED

Long-term investments - continued

(d) Available-for-sale investments

For investments which are determined to be debt securities, the Group accounts for them as long-term available-for-sale investments when they are not classified as either trading or held-to-maturity investments.

Available-for-sale investment is carried at its fair value and the unrealized gains or losses from the changes in fair values are included in accumulated other comprehensive income. The Group recorded RMB(22,583), RMB1,345, and RMB40,140 unrealized (losses) /gains in accumulated other comprehensive income on its available-for-sale investments during the years ended December 31, 2020, 2021 and 2022, respectively.

The Group evaluates each individual investment periodically for impairment. For investments where the Group does not intend to sell, the Company evaluates whether a decline in fair value is due to deterioration in credit risk. Credit-related impairment losses, not to exceed the amount that fair value is less than the amortized cost basis, are recognized through an allowance for credit losses on the consolidated balance sheet with corresponding adjustment in the consolidated statements of operations and comprehensive income. Subsequent increases in fair value due to credit improvement are recognized through reversal of the credit loss and corresponding reduction in the allowance for credit loss. Any decline in fair value that is non-credit related is recorded in accumulated other comprehensive income as a component of shareholder’s equity. As of December 31, 2021 and 2022, there were no investments held by the Group that had been in continuous unrealized loss position.

Notes payable and others

Notes payable and others include short-term bank acceptance notes issued by financial institutions that entitle the holder to receive the stated amount from the financial institutions at the maturity date of the notes. The Group has utilized notes payable to settle amounts owed to suppliers and contractors. Notes payable and others also includes a letter of credit, which is issued by the bank to facilitate the settlement of the transactions with service providers. Once issued, the bank endorses to pay to the service provider, who is also the letter of credit holder, when the letter of credit matures. The short-term bank acceptance notes and the letter of credit are normally settled within three months and twelve months, respectively.

Revenue recognition

Nature of Goods and Services

The Group generates substantially all of its revenues from sales of smart wearable devices. The Group also generates a small amount of its revenues from its subscription-based services. For the years ended December 31, 2020, 2021 and 2022, the Group generated 69.0%, 53.5% and 41.0% of revenue from one customer for sales of exclusively designed and manufactured smart wearable devices, and generated 31.0%, 46.5% and 59.0% of revenue from sales of the Group’s self-branded products and others. Revenue is recognized when control of the promised goods or services is transferred to the customer, in an amount that reflects the consideration the Group expects to be entitled to in exchange for the goods or services. The Group recognizes revenue, net of estimated sales returns and value-added taxes (“VAT”).

2. SIGNIFICANT ACCOUNTING POLICIES – CONTINUED

Revenue recognition - continued

The Group has determined that its contracts with its customers include multiple performance obligations that the Group accounts for separately as those are distinct from other items in the contract. The first performance obligation is the smart wearable device and embedded firmware that is essential to the functionality of the device, which the customer can benefit from it on its own or with other resources that are readily available to the customer. The second performance obligation is the software services included with the products, which are provided free of charge and enable users to sync, view, and access real-time data on the Group’s mobile apps. The third performance obligation is the embedded right included with the purchase of the device to receive, on a when-and-if-available basis, future unspecified firmware upgrades and features relating to the product’s essential firmware.

The Group allocates the transaction price to all performance obligations based on their relative standalone selling prices. The standalone selling prices are determined based on the expected cost plus margin as the Group determined that no observable price is available for any of its performance obligation. The Group considered multiple factors in the process of determining its cost plus margin including consumer behaviors and the Group’s internal pricing model. The cost plus margin estimated selling price for the smart and wearable devices comprised the majority of the transaction. The Group recognizes revenue for the amounts allocated to the connected smart and wearable devices when the customer obtains control of the Group’s product, which occurs at a point of time, typically upon delivery to and acceptance by the reseller, who has been identified as the customer of the Group. Amounts allocated to the software services and unspecified upgrade rights are deferred and recognized over time as the customer simultaneously receives and consumes the benefit over an estimated nine-month period.

Sales of self-branded products and others

The Group’s revenue recognition for its self-branded products is consistent with that described in the preceding paragraphs.

Cooperation agreement with one customer

For the years ended December 31, 2020, 2021 and 2022, the Group generated 69.0%, 53.5% and 41.0% of revenue from one customer for sales of exclusively designed and manufactured smart wearable devices. That customer is also the sole distributor for such smart wearable devices and is controlled by one of the shareholders (see Note 22). Under the cooperation agreement with this customer, the Group produces and assembles final product for shipments of wearable devices to that customer, who are then responsible for commercial distribution and sale of the product. The arrangement includes two payment instalments. The first payment instalment is priced to recover the costs incurred by the Group in developing and shipping the devices to the customer and is due from the customer to the Group once the products have been delivered and accepted by the customer. The Group allocates the initial payment instalment between the hardware device, the software services, and the software upgrades based on their standalone selling price and recognizes revenue based on its recognition policy further described in the preceding paragraph. The Group is also entitled to receive a potential second instalment payment calculated as 50 percent of the future net profits from commercial sales made by the customer. The Group has determined that the second instalment consideration constitutes variable consideration and includes the amount in the transaction price to the extent it is not constrained and it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period (see below for further details). The second instalment is also allocated between the hardware device, the software services, and the software upgrades based on the relative standalone price and is recognized based on the Group’s recognition policy further described in the preceding paragraph. The Group’s revenue recognition policy of its products under its cooperation agreement is substantially consistent with that for its sales of self-branded products except that the instalment payments arrangement under the cooperation agreement is not available to the self-branded products.

During the year ended December 31, 2022, the Group also sold one specific generation of Xiaomi Wearable Product, accounting for 26.1% of consolidated revenue, which has a standard selling price and does not include installment payments described in the preceding paragraph. The revenue recognition for the sales of such specific generation of Xiaomi Wearable Product is consistent with the revenue recognition described for the self-branded products.

2. SIGNIFICANT ACCOUNTING POLICIES – CONTINUED

Revenue recognition - continued

Variable Consideration

Revenues from product sales are recorded at the net sales price (transaction price), which includes estimate of variable consideration which result from the Group’s cooperation agreement with one customer (see above for more details). The amount of variable consideration is included in the transaction price to the extent it is not constrained and that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period. Actual amounts of consideration ultimately received may differ from the Group’s estimates. If actual results in the future vary from the Group’s estimates, the Group will adjust these estimates, which would affect revenue and earnings in the period such variances are known.

Sales Incentive

The Group periodically provides sales incentives to its customers for self-branded products, including reduced sales prices and volume-based discounts. Volume discounts are negotiated on a contract-by-contract basis with customers and the discount will increase depending upon the volume purchased over the period. The sales incentives are discounts to be applied to future sales to the customer which cannot be exchanged for cash. To the extent that the volume discount or sales incentive represents a material right or options to acquire additional goods or services at a discount in the future period, the material right is recognized as a separate performance obligation at the outset of the arrangement based on the most likely amount of incentive to be provided to the customer. Amounts allocated to a material right are recognized as revenue when those future goods are sold to the customers.

Practical Expedients and Exemptions

The Group generally expenses sales commissions when incurred because the amortization period would have been one year or less. These costs are recorded within selling and marketing expenses. In addition, the Group does not disclose the value of unsatisfied performance obligations as all of its contracts have an original expected length of one year or less.

Value added taxes

VAT on sales was previously calculated at 17% on revenue from products before May 1, 2018 and thereafter, in accordance with Cai Shui [2018] No.32, the VAT rate decreased to 16%. Since April 1, 2019, in accordance with Cai Shui [2019] No.39, the VAT rate further decreased to 13%. VAT was calculated at 6% on the revenue from the service provided. The Group reports revenue net of VAT. Subsidiaries that are VAT general taxpayers are allowed to offset qualified input VAT paid against their output VAT liabilities.

Rights of return

The Group offers certain sales returns for products sold directly to end users and to its resellers. The Group estimates the amount of its products sales that may be returned by its end users and resellers and records this estimate as a reduction of revenue in the period the related revenue is recognized. The Group currently estimates product return liabilities using its expectations and historical experience.

2. SIGNIFICANT ACCOUNTING POLICIES – CONTINUED

Cost of revenues

Cost of revenues consists primarily of material costs, salaries and benefits for staff engaged in production activities and related expenses which are directly attributable to the production of products. The shipping and handling fees billed to the customers are presented as part of cost of revenues as well.

Product warranty

The Group offers standard product warranty to its customers, for a 12-month period starting from the sales of the goods to the end users. The Group has the obligation to either repair or replace the defect product for the customers if the product is still under warranty. At the time revenue is recognized, an estimate of future warranty costs is recorded as a component of cost of revenues. The reserves established are regularly monitored based upon historical experience and any actual claims charged against the reserve. Warranty reserves are recorded as a cost of revenues.

Research and development expenses

Research and development expenses primarily consist of salaries and benefits for research and development personnel, materials, office rental expenses, general expenses and depreciation expenses associated with research and development activities.

Advertising expenses

Advertising expenses are expensed as incurred and included in selling and marketing expenses. Total advertising expenses were RMB136,974, RMB151,744 and RMB172,577 for the years ended December 31, 2020, 2021 and 2022, respectively.

Government subsidies

Government subsidies represent government grants received from local government authorities to encourage the Group’s technology and innovations and also other subsidies for production.

The Group records such government subsidies as other income or reduction of expenses or cost of revenues when it has fulfilled all of its obligation related to the subsidy.

During the years ended December 31, 2020, 2021 and 2022, the Group recognized RMB13,461, RMB23,140 and RMB41,054 as subsidy income and recognized RMB10,408, RMB103,660 and RMB53,563 as reduction of expenses or cost of revenues, respectively. As of December 31, 2021 and 2022, subsidies of RMB3,129 and RMB1,745 were recorded as other current liabilities, RMB175,053 and RMB162,602 were recorded as other non-current liabilities as the Group has to meet certain performance conditions required by the government authorities.

2. SIGNIFICANT ACCOUNTING POLICIES – CONTINUED

Income taxes

Income taxes are provided for in accordance with the laws of the relevant tax authorities. Deferred tax assets and liabilities are recognized when temporary differences exist between the tax bases of assets and liabilities and their reported amounts in the consolidated financial statements. Net operating loss carry forwards and credits are applied using enacted statutory tax rates applicable to future years. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more-likely-than-not that a portion of or all of the deferred tax assets will not be realized.

The Group accounts for uncertain tax positions by reporting a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return. Tax benefits are recognized from uncertain tax positions when the Group believes that it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. The Group recognizes interest and penalties, if any, related to unrecognized tax benefits in income tax expenses.

Share-based payment

Share-based payment transactions with employees, such as share options and restricted shares are measured based on the grant date fair value of the equity instrument. The Group has elected to recognize compensation expenses using the straight-line method. For all employee’s equity awards granted with graded vesting provided, the amount of compensation cost recognized at any date is at least equal to the portion of the grant-date value of the options that are vested at that date, over the requisite service period of the award. The requisite service period is generally the vesting period of the award. The Group elects to recognize forfeitures when they occur.

Comprehensive income

Comprehensive income consists of two components, net income and other comprehensive income, net of tax. Other comprehensive income refers to revenue, expenses, and gains and losses that are recorded as an element of shareholders’ equity but are excluded from net income. The Group’s other comprehensive income consists of foreign currency translation adjustments from its subsidiaries not using the RMB as their functional currency and the fair value change of available-for-sale investments of the Group. Comprehensive income is reported in the consolidated statements of comprehensive income.

Foreign currencies

The functional currency of the Company is the US$ and the reporting currency of the Company is the RMB. The Company’s subsidiaries, consolidated VIEs and VIEs’ subsidiaries with operations in the PRC, Hong Kong, the United States and other jurisdictions generally use their respective local currencies as their functional currencies. The financial statements of the Company’s subsidiaries, other than the subsidiaries and consolidated VIEs with the functional currency of RMB, are translated into RMB using the exchange rate as of the balance sheet date for assets and liabilities and the average daily exchange rate for each month for income and expense items. Translation gains and losses are recorded in accumulated other comprehensive income or loss as a component of shareholders’ equity.

In the financial statements of the Company’s subsidiaries and consolidated VIEs and VIEs’ subsidiaries, transactions in currencies other than the functional currency are measured and recorded in the functional currency using the exchange rate in effect at the date of the transaction. At the balance sheet date, monetary assets and liabilities that are denominated in currencies other than the functional currency are translated into the functional currency using the exchange rate at the balance sheet date. All gains and losses arising from foreign currency transactions are recorded in the consolidated statements of operations during the year in which they occur. For the years ended December 31, 2020, 2021 and 2022, the transaction gains amounted to RMB27,451, RMB18,156 and RMB12,086 were recorded in general and administrative expenses.

2. SIGNIFICANT ACCOUNTING POLICIES – CONTINUED

Foreign currencies - continued

RMB is not a freely convertible currency. The State Administration for Foreign Exchange, under the authority of the People’s Bank of China, controls the conversion of RMB into other currencies. The value of the RMB is subject to changes in central government policies and to international economic and political developments affecting supply and demand in the China Foreign Exchange Trading System market. The Group’s cash and cash equivalents denominated in US$ and RMB amounted to RMB435,205 and RMB990,222 as of December 31, 2021, RMB263,400 and RMB565,721 as of December 31, 2022, respectively.

Convenience translation

Translations of balances in the consolidated balance sheets, consolidated statements of operations and consolidated statements of cash flows from RMB into US$ as of and during the year ended December 31, 2022 is solely for the convenience of the reader and were calculated at the rate of US$1.00 = RMB6.8972, representing the rate as certified by the statistical release of the Federal Reserve Board of United States on December 30, 2022. No representation is made that the RMB amounts could have been, or could be, converted, realized or settled into U.S. dollar at that rate on December 31, 2022, or at any other rate.

Net income per share

Basic net income per ordinary share is computed by dividing net income attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period.

Diluted income per ordinary share reflect the potential dilution that would occur if securities were exercised or converted into ordinary shares. The Group had share options, restricted shares and restricted stock units (“RSU”) which could potentially dilute basic income per ordinary share in the future. To calculate the number of shares for diluted income per ordinary shares, the effect of the share options, restricted shares and RSU is computed using the treasury stock method.

Concentration of credit risk

Financial instruments that potentially expose the Group to concentrations of credit risk consist primarily of cash and cash equivalents, term deposits, accounts receivable. The Group places its cash and cash equivalents with financial institutions with high credit ratings and quality.

The Group conducts credit evaluations of third-party customers and related parties, and generally does not require collateral or other security from its third-party customers and related parties. The Group establishes an allowance for doubtful accounts primarily based upon the age of the receivables and factors surrounding the credit risk of specific third-party customers and related parties.

2. SIGNIFICANT ACCOUNTING POLICIES – CONTINUED

Concentration of credit risk - continued

Accounts receivable concentration of credit risk is as below:

	As of December 31,
	2021			2022
	RMB			RMB
Company A	87,825	16.4	%	124,319	18.2	%
Company B	269,460	50.1	%	287,160	42.1	%
Total	357,285	66.5	%	411,479	60.3	%

Amounts due from related parties concentration of credit risk is as below:

	As of December 31,
	2021			2022
	RMB			RMB
Company C	286,341	96.9	%	117,944	81.4	%
Total	286,341	96.9	%	117,944	81.4	%

Revenue generated from Company C accounted for 69.1%, 53.5% and 41.0% of total revenue during the years ended December 31, 2020, 2021 and 2022, respectively. Company C is a subsidiary of a company controlled by one of the Group’s shareholders (see Note 22).

	For the years ended December 31,
	2020			2021			2022
	RMB			RMB			RMB
Company C	4,447,957	69.1	%	3,340,857	53.5	%	1,697,053	41.0	%
Total	4,447,957	69.1	%	3,340,857	53.5	%	1,697,053	41.0	%

Supplier Concentration

The Group relies on third parties for the supply and manufacturing of its products, as well as third-party logistics providers. In instances where these parties fail to perform their obligations, the Group may be unable to find alternative suppliers or satisfactorily deliver its products to its customers on time, if at all.

For the year ended December 31, 2020, 15.1% of its raw materials and semi-manufactures were purchased through Company D, respectively, but numerous alternate sources of supply are readily available on comparable terms. No purchases from a single suppliers account for more than 10% of total purchases during the years ended December 31, 2021 and 2022.

2. SIGNIFICANT ACCOUNTING POLICIES – CONTINUED

Newly adopted accounting pronouncements

In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832) — Disclosures by Business Entities about Government Assistance. The amendments in this ASU require disclosures about transactions with a government that have been accounted for by analogizing to a grant or contribution accounting model to increase transparency about (1) the types of transactions, (2) the accounting for the transactions, and (3) the effect of the transactions on an entity’s financial statements. The amendments in this ASU are effective for all entities within their scope for financial statements issued for annual periods beginning after December 15, 2021. Early application of the amendments is permitted. The Group adopted ASU 2021-10 in the year ended December 31, 2022 and the adoption did not have a material impact on the Group’s consolidated financial statements.

Recent accounting pronouncements not yet adopted

In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (ASU 2021-08), which clarifies that an acquirer of a business should recognize and measure contract assets and contract liabilities in a business combination in accordance with Topic 606, Revenue from Contracts with Customers. The new amendments are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The amendments should be applied prospectively to business combinations occurring on or after the effective date of the amendments, with early adoption permitted. The Group is currently evaluating the impact of the new guidance on its consolidated financial statements.

In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions, which clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The amendments also clarify that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction. This guidance also requires certain disclosures for equity securities subject to contractual sale restrictions. The new guidance is required to be applied prospectively with any adjustments from the adoption of the amendments recognized in earnings and disclosed on the date of adoption. This guidance is effective for the Group for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. Early adoption is permitted. The Group does not expect that the adoption of this guidance will have a material impact on its financial position, results of operations and cash flows.

On September 29, 2022, the FASB issued ASU 2022-04 to enhance transparency about an entity’s use of supplier finance programs. ASU 2022-04 requires the buyer in a supplier finance program to disclose qualitative and quantitative information about the program, and at a minimum, the following information at least annually:

2. SIGNIFICANT ACCOUNTING POLICIES – CONTINUED

The key terms of the program, including payment terms and assets pledged as security or other forms of guarantees.

The amount of obligations outstanding at the end of the reporting period that the buyer has confirmed as valid and:

- A description of where those obligations are presented in the balance sheet.

- Rollforward information for the annual period showing the amount at the beginning of the period, the amount added during the period, the amount settled during the period, and the amount outstanding at the end of the period.

The amendments in this Update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, except for the amendment on rollforward information, which is effective for fiscal years beginning after December 15, 2023. Early adoption is permitted. The Group is currently evaluating the impact of the new guidance on its consolidated financial statements but does not expect the adoption of this standard to have a material impact on its financial position, results of operations and cash flows.

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ACQUISITIONS

12 Months Ended

Dec. 31, 2022

ACQUISITIONS

ACQUISITIONS

3. ACQUISITIONS

Business acquisition of PAI Health Inc. (“PAI”)

On June 12, 2020, the Group acquired 100% equity interest in PAI from Global Technology and Innovation Ltd (“GTI”) to expand the business of health-related software and algorithms development. The purchase consideration included a previously held 40.49% equity interest held in GTI which was previously accounted as an equity method investment by the Group for which the fair value approximated RMB87,716, cash of RMB1,370 and RMB13,711 of loan deemed effectively settled as a result of the acquisition. The fair value of previously held equity interest held in GTI was estimated by the Group with the assistance of an independent valuation appraiser by applying the income approach, market multiple approach and recent investment price approach.

The acquisition was recorded using the acquisition method of accounting. Accordingly, the acquired assets and liabilities assumed were recorded at their fair value at the date of acquisition. The purchase price allocation described below was determined by the Group with the assistance of an independent valuation appraiser. The acquired net assets were recorded at their estimated fair values on the acquisition date. The acquired goodwill is not deductible for tax purposes.

PAI constituted less than 1% of revenue and total assets of the consolidated financial statement as of and during the year ended December 31, 2021 and 2022 and the results of operations attributable to PAI and pro forma results of operations for PAI have not been presented because they are not material to the consolidated statements of operations and comprehensive income for the years ended December 31, 2020, 2021 and 2022.

The purchase price was allocated as of June 12, 2020, the date of acquisition, as follows:

		Amortization
	RMB	period
Cash	5,554
Other current assets	4,704
Property, plant and equipment	149	3 years
Intangible assets
Patents	42,495	5 years
Goodwill	67,856
Other non-current assets	261
Other current liabilities	8,868
Deferred tax liabilities	6,374
Other non-current liabilities	2,980
Total	102,797

3. ACQUISITIONS – CONTINUED

Business acquisition of PAI Health Inc. (“PAI”) - continued

The goodwill is mainly attributable to intangible assets that cannot be recognized separately as identifiable assets under US GAAP, and comprise of (a) the assembled work force and (b) the expected but unidentifiable business growth as a result of synergy effect from the acquisition. Goodwill is not allocated to the Company’s operating segments in the measure of segment assets regularly reported to and used by the chief operating decision maker. However, for the purpose of the annual goodwill impairment test, goodwill is allocated to the operating segments (goodwill reporting units).

Asset acquisition of Guoxu Insurance Brokerage Co., Ltd. (“Guoxu”)

In July 2020, the Group entered into a purchase agreement with shareholders of Guoxu to acquire 100% of Guoxu’s equity ownership for a gross consideration of RMB67,914, of which RMB35,075 was related to the effective settlement of the selling shareholder’s loan payable to Guoxu upon closing. This resulted in a net cash consideration of RMB32,839.

Guoxu holds an insurance brokerage license. As of the acquisition day, the Group terminated all the labor relationship with the employees of Guoxu and did not buy any material contracts. The Group evaluated the acquisition of the purchased assets under ASC 805-Business Combination (ASC 805), and concluded that as substantially all of the fair value of the gross assets acquired is concentrated in the insurance brokerage license, the transaction did not meet the requirements to be accounted for as a business combination and therefore the transaction was accounted for as an asset acquisition.

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DISPOSAL OF SUBSIDIARIES

12 Months Ended

Dec. 31, 2022

DISPOSAL OF SUBSIDIARIES

DISPOSAL OF SUBSIDIARIES

4. DISPOSAL OF SUBSIDIARIES

Disposal of Shenzhen Yunding Information Technology Co., Ltd. (“Yunding”)

In December 2020, the Group sold 26.7% equity interest in Yunding to its founder for cash consideration of RMB22,500. The consideration also included a loan receivable from Yunding amounting to RMB24,514 to be repaid annually over three years for which the Group has a right to convert the unpaid balance into equity interest of Yunding after December 31, 2023. Yunding was previously part of the Group’s self-branded products and others segment. Subsequent to this disposal, the Group remeasured its remaining 24.3% investment in Yunding at fair value and accounted for it as equity method investment because the Group retained the ability to exercise significant influence. The fair value of its remaining investment in Yunding was estimated by using recent financing transaction of Yunding. The Group recognized RMB56,522 gain from deconsolidation of a subsidiary which was recorded as part of gain from deconsolidation of a subsidiary in the consolidated statements of operations for the year ended December 31, 2020. In 2021, the Group further sold 5% equity interest of Yunding for RMB20,000. The disposal of Yunding did not represent a strategic shift and did not have a major effect on the Group’s operation.

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INVENTORIES, NET

12 Months Ended

Dec. 31, 2022

INVENTORIES, NET

INVENTORIES, NET

5. INVENTORIES, NET

Inventories consisted of the following:

	As of December 31,
	2021	2022
	RMB	RMB
Raw materials	282,939	97,266
Work in process	224,013	130,536
Finished goods	742,375	794,121
Inventories, net	1,249,327	1,021,923

During the years ended December 31, 2020, 2021 and 2022, the Group recorded a provision for the excess and obsolete inventories amounting to RMB64,223, RMB51,336 and RMB39,551 respectively.

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SHORT-TERM INVESTMENTS

12 Months Ended

Dec. 31, 2022

SHORT-TERM INVESTMENTS

SHORT-TERM INVESTMENTS

6. SHORT-TERM INVESTMENTS

	As of December 31,
	2021	2022
	RMB	RMB
Convertible bonds:	19,351	34,316
Total:	19,351	34,316

Short-term investments included convertible bonds with maturities less than 1 year, which were classified as available-for-sales investments and measured at fair value. The Group recognized RMB1,243, RMB1,240 and RMB2,006 unrealized gains from these investments in 2020, 2021 and 2022.

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PREPAID EXPENSES AND OTHER CURRENT ASSETS

12 Months Ended

Dec. 31, 2022

PREPAID EXPENSES AND OTHER CURRENT ASSETS

PREPAID EXPENSES AND OTHER CURRENT ASSETS

7. PREPAID EXPENSES AND OTHER CURRENT ASSETS

	As of December 31,
	2021	2022
	RMB	RMB
Value-added tax recoverable	198,189	4,648
Other receivables	57,039	44,951
Prepaid expenses	51,156	53,682
Advances to suppliers	7,838	1,758
Rental deposits	816	3,213
Total	315,038	108,252

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PROPERTY, PLANT AND EQUIPMENT, NET

12 Months Ended

Dec. 31, 2022

PROPERTY, PLANT AND EQUIPMENT, NET

PROPERTY, PLANT AND EQUIPMENT, NET

8. PROPERTY, PLANT AND EQUIPMENT, NET

Property, plant and equipment, net consisted of the following:

	As of December 31,
	2021	2022
	RMB	RMB
Software and electronic equipment	78,854	77,693
Buildings	34,764	34,764
Leasehold improvements	81,759	90,720
Total	195,377	203,177
Less: accumulated depreciation	(70,832)	(112,238)
Construction in progress	9,328	9,666
Property, plant and equipment, net	133,873	100,605

The Group has recorded depreciation expenses of RMB14,949, RMB35,109 and RMB41,406 during the years ended December 31, 2020, 2021 and 2022, respectively. No impairment was recorded during the years ended December 31, 2020, 2021 and 2022.

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INTANGIBLE ASSETS, NET

12 Months Ended

Dec. 31, 2022

INTANGIBLE ASSETS, NET

INTANGIBLE ASSETS, NET

9. INTANGIBLE ASSETS, NET

Intangible assets, net, consisted of the following:

	As of December 31,
	2021	2022
	RMB	RMB
Intangible assets with indefinite lives:
Domain name	2,024	2,024
Insurance brokerage license, trademark and others	42,617	44,399
Intangible assets with finite lives:
Patents and trademark	128,332	131,480
Less: accumulated amortization	37,391	54,603
Intangible assets, net	135,582	123,300

Amortization expenses for the intangible assets for the years ended December 31, 2020, 2021 and 2022, were RMB12,180, RMB16,775 and RMB17,212, respectively. Future amortization expenses relating to the existing intangible assets amounted to RMB17,374 per year for each of the next two years, RMB13,600 for the third year, RMB9,097 for the fourth and fifth year and RMB10,335 thereafter.

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LONG-TERM INVESTMENTS

12 Months Ended

Dec. 31, 2022

LONG-TERM INVESTMENTS

LONG-TERM INVESTMENTS

10. LONG-TERM INVESTMENTS

Long-term investments consisted of the following:

	As of December 31,
	2021	2022
	RMB	RMB
Equity securities without readily determinable fair value
Sifive, Inc. (“Sifive”) (a)	21,759	95,613
AliveCor, Inc., (“Alivecor”) (b)	14,988	24,582
Promaxo, Inc.(“Promaxo”) (c)	25,490	27,589
Other equity securities without readily determinable fair value (d)	81,775	91,141
Equity securities with readily determinable fair value
Hyperfine Inc. (e)	31,669	4,413
Equity method investments:
Jiangsu Yitong High-Tech Co, Ltd(“Jiangsu Yitong”) (f)	960,832	968,242
Hefei Huaying Xingzhi Fund Partnership (limited partnership) (“Huaying Fund I”) (g)	61,014	60,262
Anhui Huaying Zhihui Wulian Fund Parnership(limited partnership)(“Huaying Fund II”) (h)	200,067	212,803
Other equity method investments (i)	46,548	53,164
Available-for-sale investments
Yunding (j)	50,431	74,912
Other available-for-sale investments (k)	58,018	73,907
Total	1,552,591	1,686,628

(a) In 2018, the Group invested RMB12,332 to acquire 1.01% equity interests in Sifive. Sifive is a private company engaging in the business of semiconductor. The equity interest is not considered in-substance common shares due to substantial liquidation preference rights. Accordingly, the investment in Sifive was accounted for as equity securities without readily determinable fair value. The Group recognized RMB3,304, nil and RMB66,322 gain from the fair value change of this investment during the years ended December 31, 2020, 2021 and 2022, respectively.

10. LONG-TERM INVESTMENTS - CONTINUED

(b) In 2019, the Group invested USD1,000 in a convertible bond issued by Alivecor with 3% interest rate. In February 2020, the Group converted the bond to 0.56% equity interest and the equity interest is not considered in-substance common shares due to substantial liquidation rights owned by the Group. Accordingly, the investment in Alivecor was accounted for equity securities without readily determinable fair value. The Group recognized RMB7,728, nil and RMB8,620 gain from the fair value change of this investment during the years ended December 31, 2020, 2021 and 2022, respectively.

(c) In 2020, the Group invested USD4,000 to acquire 4.05% equity interests in Promaxo. Promaxo is a private company engaging in the business of Magnetic Resonance (“MR”) technology. The equity interest is not considered in-substance common shares due to substantial liquidation preference rights. Accordingly, the investment in Promaxo was accounted for as equity securities without readily determinable fair value. For the year ended December 31, 2020, 2021 and 2022, no fair value change was observed and recognized.

(d) These other investments represent certain insignificant investments in the third-party private companies, which the Group has no significant influence over the investees and accounted for these investments using the measurement alternative method.

(e) In December 2021, Hyperfine was successfully listed in the US capital market through a special purpose acquisition and the investment in Hyperfine was converted from equity securities without readily determinable fair value to equity securities with readily determinable fair value. The Group recorded RMB194 and RMB28,466 realized loss from the fair value change of this investment during the years ended December 31, 2021 and 2022, respectively.

(f) In February 2021, the Group acquired 29.99% equity interest of Jiangsu Yitong, a company listed on the Shenzhen stock exchange, for a total cash consideration of RMB959.68 million. The purpose of the investment is to expand the healthcare ecosystem in the domestic market. The investment of Jiangsu Yitong is accounted for using the equity method as the Group can exercise significant influence through its board representation without obtaining control. During 2022, the Group further acquired 0.01% equity interest of Jiangsu Yitong. The Group recorded RMB1,152 and RMB7,580 income from this equity method investment during the year ended December 31, 2021 and 2022, respectively.

The total consideration of the investment in Jiangsu Yitong was RMB960,832 and the proportion of Jiangsu Yitong’s net assets that owned by the Group was RMB137,302 as of December 31, 2021. The difference between the total consideration and the proportion of net assets was RMB823,530, which has been allocated into goodwill, intangible assets and others assets with the amount of RMB636,672, RMB173,524 and RMB13,334, respectively.

As of December 31, 2022, the carrying value of the investment in Jiangsu Yitong is RMB968,242 and the difference with the proportionate share of Jiangsu Yitong’s net assets was RMB813,101, which allocated into goodwill, intangible assets and others assets with the amount of RMB636,672, RMB172,940 and RMB3,489, respectively.

The intangible assets are trademark with indefinite life and patents with definite life, which are amortized on a straight-line basis over the estimated useful life of 3 to 7 years.

(g) In 2016, the Group invested RMB50,000 to acquire a 49.5% equity interests in a limited partnership, Huaying Fund I, which is a fund engaged in investing activities in small and middle scale High Tech private companies. The Group accounted for the investment under the equity method because the investments are common stock and the Group has significant influence through its board seat but does not control Huaying Fund I. The Group recorded RMB(2,452), RMB7,910 and RMB(752) of (loss)/income from equity method investment during the years ended December 31, 2020, 2021 and 2022, respectively.

10. LONG-TERM INVESTMENTS – CONTINUED

(h) In 2019, the Group invested RMB102,000 to acquire a 34% equity interests in a limited partnership, Huaying Fund II, a fund engaged in investing activities in small and middle scale High Tech private companies. The Group accounted for the investment using the equity method as the Group has significant influence through its board seat but does not control Huaying Fund II. In March 2021, the Group paid the second installment of cash consideration in Huaying Fund II for an amount of RMB68 million. The Group recorded RMB5,297, RMB24,434 and RMB12,737 of income from equity method investment during the years ended December 31, 2020, 2021 and 2022, respectively.

(i) The other equity method investments represent several insignificant investments classified as equity method investments as the Group has the ability to exercise significant influence but does not have control over the investees.

(j) In 2020, the Group invested RMB22,000 in a convertible bond issued by Yunding with interest rates ranging from 4.35% to 8.7%. The Group also has some equity interests in Yuding and accounted them as available for sale investment due to the redemption feature included in the investment as of December 31, 2021 and 2022. During 2021, the Group disposed 5% equity interests in Yunding and recognized a realized gain with amount of RMB13,507 from the disposal. The Group also recorded an unrealized gain of nil, RMB903 and RMB20,943 in other comprehensive income/(loss) for the years ended December 31, 2020, 2021 and 2022, respectively.

(k) Available-for-sale investments represent investments in debt securities and measured at fair value. Those investments mainly include investments in convertible bonds as well as investment with redemption features considered debt instruments.

The Group summarizes the condensed financial information of the Group’s equity investments using equity method as a group below in accordance with Rule 4-08 of Regulation S-X:

	For the year ended December 31,
	2020	2021	2022
	RMB	RMB	RMB
Revenue	28,087	330,685	412,975
Gross profit	15,114	198,495	147,434
Income from operations	3,011	140,006	68,663
Net income	3,042	137,681	66,039
Net income attributable to ordinary shareholders	3,042	137,681	66,039

	As of December 31,
	2021	2022
	RMB	RMB
Current assets	941,812	825,465
Non-current assets	780,128	913,919
Current liabilities	122,430	88,454
Non-current liabilities	36,807	1,386

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FAIR-VALUE MEASUREMENT

12 Months Ended

Dec. 31, 2022

FAIR-VALUE MEASUREMENT

FAIR-VALUE MEASUREMENT

11. FAIR-VALUE MEASUREMENT

Fair-value measurement on a recurring basis

As of December 31, 2021 and 2022, the financial assets measured at fair value on a recurring basis mainly consist of available-for-sale investments and equity securities with readily determinable fair value. Available-for-sale investment includes convertible bonds and redeemable preferred shares, which are recorded in short-term and long-term investments. The fair value hierarchy of these investments as of December 31, 2021 and 2022 are as follows:

	As of December 31, 2021
	Quoted Prices in		Significant
	Active Market for	Significant Other	Unobservable
	Identical Assets	Observable Inputs	Inputs
Description	Level 1	Level 2	Level 3	Total
	RMB	RMB	RMB	RMB
Short-term investments:
Convertible bonds	—	19,351	—	19,351
Long-term investments:
Convertible bonds	—	43,055	—	43,055
Redeemable preferred shares	—	—	65,393	65,393
Equity securities with readily determinable fair value	—	31,669	—	31,669
Total:	—	94,075	65,393	159,468

	As of December 31, 2022
	Quoted Prices in		Significant
	Active Market for	Significant Other	Unobservable
	Identical Assets	Observable Inputs	Inputs
Description	Level 1	Level 2	Level 3	Total
	RMB	RMB	RMB	RMB
Short-term investments:
Convertible bonds	—	—	34,316	34,316
Long-term investments:
Convertible bonds	—	—	38,741	38,741
Redeemable preferred shares	—	37,044	73,034	110,078
Equity securities with readily determinable fair value	4,413	—	—	4,413
Total:	4,413	37,044	146,091	187,548

For equity securities with readily determinable fair value, the fair value of the investment is measured as the quoted market price with discounts for lack of marketability as of December 31, 2021, and classified as level 2 investments. The investment is classified as level 1 measurement as the investment has readily quoted market price as of December 31, 2022, due to the passage of the sale restricted period.

The Group measured the fair value of the convertible bonds based on the respective principals, expected returns and the estimated conversion value. Those convertible bonds are classified in Level 2 or Level 3 depending on whether significant unobservable inputs are used in the fair value determination.

11. FAIR-VALUE MEASUREMENT - CONTINUED

Fair-value measurement on a recurring basis - continued

The Group measured the fair value of the redeemable preferred shares based on the recent transactions or based on the market approach when no recent transactions are available. Recent transactions include the purchase price agreed by an independent third party for an investment with similar terms. These investments are classified as level 2 measurement. When no recent transactions are available, a market approach will be used by the Company to measure fair value. The market approach takes into consideration a number of factors including market multiple and discount rates from traded companies in the industry and requires the Company to make certain assumptions and estimates regarding industry factors. Specifically, some of the significant unobservable inputs included the investee’s historical earning, discount of lack of marketability, investee’s time to initial public offering as well as related volatility. The Company has classified these as level 3 measurement. The assumptions are inherently uncertain and subjective. Changes in any unobservable inputs may have a significant impact on the fair values.

There are certain redeemable preferred shares and convertible bonds transferred from level 2 to level 3 during the years ended December 31, 2021 and 2022. The following table provides additional information about the reconciliation of the fair value measurements of assets using significant unobservable inputs (level 3).

	Level 3
	investments
	RMB
Balance as of January 1, 2021	1,934
Initial recognition	24,960
Transfer from level 2	38,499
Balance as of December 31, 2021	65,393
Unrealized gain	19,575
Transfer from level 2	73,057
Transfer to level 2	(11,934)
Balance as of December 31, 2022	146,091

Fair-value measurement on a non-recurring basis

Goodwill and acquired intangible assets are measured at fair value on a non-recurring basis when an impairment is recognized. The Group measures goodwill at fair value annually or whenever events or changes in circumstances indicate that the carrying amount of a reporting unit exceeds its fair value. The fair value of goodwill is determined using discounted cash flows, and an impairment loss is recognized for any excess in the carrying value of goodwill over the implied fair value of goodwill. The Group measures acquired intangible assets using the income approach—discounted cash flow method, when events or changes in circumstances indicate that the carrying amount of an asset may no longer be recoverable. During the years ended December 31, 2020, 2021 and 2022, no impairment loss was recognized for goodwill and intangible assets.

The Group measures long-term investments (excluding the equity securities with readily determinable fair values and available-for-sale investments) at fair value on a nonrecurring basis only if an impairment indicator exist or an observable price adjustment is available in the current period. For equity securities without readily determinable fair value for which the Group elected to use the measurement alternative, the investment is measured at fair value on a nonrecurring basis whenever there is an impairment or any changes resulting from observable price changes in an orderly transaction for the identical or a similar investment of the same issuer. The fair value of the investment is categorized as level 2 in the fair value hierarchy when directly or indirectly observable inputs in the market place are identified. Whenever events or changes in circumstances indicate that the carrying value may no longer be recoverable, the fair value of aforementioned long-term investments is determined using models with significant unobservable inputs (Level 3 inputs), primarily the management projection of discounted future cash flow and the discount rate. During the years ended December 31, 2020, 2021 and 2022, the Group recognized an impairment loss of RMB nil, nil and 13,858 for the equity securities without readily determinable fair value.

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ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

12 Months Ended

Dec. 31, 2022

ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

12. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

	As of December 31,
	2021	2022
	RMB	RMB
Deferred revenue	87,980	61,164
Current operating lease liabilities	50,092	42,320
Accrued payroll and welfare	41,948	25,875
Other tax payable	23,541	20,535
Product warranty	24,858	17,748
Accrued expenses	17,058	6,703
Refund liabilities	5,745	4,845
Government subsidies	3,129	1,745
Reverse factoring	39,195	—
Other current liabilities	22,537	16,884
Total	316,083	197,819

Product warranty activities were as follows:

	RMB
Balance as of January 1, 2020	49,527
Provided during the year	74,742
Utilized during the year	(91,487)
Balance as of December 31, 2020	32,782
Provided during the year	63,540
Utilized during the year	(71,464)
Balance as of December 31, 2021	24,858
Provided during the year	27,146
Utilized during the year	(34,256)
Balance as of December 31, 2022	17,748

The warranty costs recorded in cost of revenues were RMB74,742, RMB63,540 and RMB27,146 during the years ended December 31, 2020, 2021 and 2022, respectively.

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BANK BORROWINGS

12 Months Ended

Dec. 31, 2022

BANK BORROWINGS

BANK BORROWINGS

13. BANK BORROWINGS

The Group borrowed approximately RMB1,473,567 and RMB838,859 in different currencies from several commercial banks with weighted average interest rate of 3.83% and 3.13%, and repaid RMB953,387 and RMB727,500 in 2021 and 2022, respectively. These bank loans have maturities ranging from one to seven years and are used for the daily operations and investing activities of the Group. As of December 31, 2022, the unused lines of credit in the Group amounted to RMB1,789,015 which is available for future borrowing.

As of December 31, 2022, RMB464 million bank borrowing was provided by the bank for the sole use of the investment in Jiangsu Yitong and the Group has pledged 20.48% equity interest in Jiangsu Yitong to the bank. For some of the long-term bank borrowings, there are certain customary covenants regarding limits on levels of indebtedness, mergers, asset dispositions, changes in business, advances, investments, loans, restricted payments and financial condition such as the profitability, debt ratio, liquidation ratio and etc. Failure to meet any of the above requirements would result in an event of default that would allow lenders to declare amounts outstanding immediately due and payable and would allow the lenders to enforce their interests against collateral pledged if we were unable to settle the amounts outstanding. We were in compliance with all financial debt covenants as of December 31, 2022.

13. BANK BORROWINGS - CONTINUED

The principal repayment schedule of the bank borrowings in the following five years is listed as below:

	Repayment Amount
	RMB
2023	512,000
2024	140,000
2025	260,000
2026	65,000
2027 and thereafter	219,210

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DIVIDEND

12 Months Ended

Dec. 31, 2022

DIVIDEND

DIVIDEND

14. DIVIDEND

On March 17, 2022, the Company announced a special cash dividend of US$0.025 per ordinary share (US$0.1 per ADS) on its outstanding shares to shareholders of record as of the close of trading on March 28, 2022. The ex-dividend date is March 25, 2022 and the dividend was paid in April 2022.

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REVENUE AND DEFERRED REVENUE

12 Months Ended

Dec. 31, 2022

REVENUE AND DEFERRED REVENUES

REVENUE AND DEFERRED REVENUES

15. REVENUE AND DEFERRED REVENUE

Disaggregation of revenue

All the revenues for the period were recognized from contracts with customers. For the years ended December 31, 2020, 2021 and 2022, the majority of the Group’s revenues result from sales of products which was recognized at a point of time. The following table provides information about disaggregated revenue by products, including a reconciliation of the disaggregated revenue with reportable segments:

	For the years ended December 31,
	2020	2021	2022
	RMB	RMB	RMB
Xiaomi Wearable Products	4,438,081	3,340,857	1,697,053
Self-branded products and other	1,995,282	2,909,252	2,445,809
Total	6,433,363	6,250,109	4,142,862

During the years ended December 31, 2020, 2021 and 2022, the majority of the Group’s products are sold to resellers and distributors in the PRC. This includes products that have international versions which are first sold to the Group’s domestic distributors who subsequently distribute those products internationally.

15. REVENUE AND DEFERRED REVENUE - CONTINUED

Contract balances

The following table provides information about receivables, deferred revenue and refund liability from contracts with customers:

	As of December 31,
	2021	2022
	RMB	RMB
Accounts receivables	537,084	682,103
Amounts due from related parties	295,614	138,614
Deferred revenue	87,980	61,164
Refund liability (sales return)	5,745	6,932

Accounts receivables are recorded when the right to consideration is unconditional and payments terms on invoiced amounts are typically 30 to 90 days. Amounts due from related parties include both amounts billed and unbilled due from related party under the cooperation agreement. As of December 31, 2021 and 2022, the amount due from related parties include the billed amount of RMB231,485 and RMB136,001, and unbilled amounted to RMB64,129 and RMB2,613, respectively. The amount billed is recorded when the right to the consideration is unconditional and payment terms on invoiced amounts are typically 30 to 60 days. Unbilled amount due from related party relate to contractual right to consideration under cooperation agreement for the second instalment payment not yet invoiced. The Company recorded no impairment charges related to contract assets during the years ended December 31, 2020, 2021 and 2022.

Deferred Revenue, recorded in accrued expenses in the consolidated balance sheet, include payment received in advance of performance under the contract related to software services which are realized over the estimated usage period and payment received related to a material right provided to a customer to acquire additional goods or services at a discount in a future period. Refund liability includes the Group’s estimated product sales that may be returned by the Group’s end users and resellers covered under the Group’s sale return policy. Refund liability is included in “Accrued expenses and other” and “Amounts due to related parties”. Additions to the allowance were RMB3,679, RMB84,869 and RMB 157,821 and deductions from the allowance were RMB3,895, RMB79,490 and RMB156,634 during the years ended December 31, 2020, 2021 and 2022.

During the years ended December 31, 2020, 2021 and 2022, the Group recognized RMB59,585, RMB51,780 and RMB87,980 of revenue previously included in deferred revenue as of December 31, 2019, December 31, 2020 and 2021, which mainly consist of revenue recognized related to its subscription-based service. Additionally, during the years ended December 31, 2020, 2021 and 2022, the Group billed RMB102,687, RMB80,675 and RMB64,129 to a related party, which was initially recorded as unbilled amount, mainly due to the timing of invoicing for the goods related to its cooperation agreement. The difference between the opening and closing balances of the Group’s contract liabilities primarily results from the timing difference between the Group’s performance and the customer’s payment.

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INCOME TAXES

12 Months Ended

Dec. 31, 2022

INCOME TAXES

INCOME TAXES

16. INCOME TAXES

The Company is incorporated in the Cayman Islands. Under the current laws of the Cayman Islands, the Company is not subject to income or capital gains taxes. In addition, dividend payments are not subject to withholdings tax in the Cayman Islands.

The Company’s subsidiaries, Zepp HK and Galaxy, are located in HK and are subject to a two-tiered income tax rates for taxable income earned in HK with effect from April 1, 2018. The first HK$2 million of profits earned by Zepp HK and Galaxy will be taxed at 8.25%, while the remaining profits will continue to be taxed at the existing 16.5% tax rate. In addition, to avoid abuse of the two-tiered income tax rate regime, each group of connected entities can nominate only one entity to benefit from the two-tiered income tax rate. Additionally, payments of dividends by the subsidiaries incorporated in HK to the Company are not subject to any HK withholding tax. Under the HK tax laws, the Company is exempted from the HK income tax on foreign-derived income.

16. INCOME TAXES - CONTINUED

The Company’s subsidiaries Zepp Inc and Zepp NA are located in the U.S. and are subject to an income tax rate of 21% for taxable income earned as determined in accordance with relevant tax rules and regulations in the U.S.

The Company’s subsidiary Zepp Netherlands is located in Netherland and is subject to an income tax rate of 15% for taxable income earned as determined in accordance with relevant tax rules and regulations in Netherland.

The Company’s PRC subsidiaries, the VIEs and VIEs’ subsidiaries are subject to the 25% standard enterprise income tax rate except for Anhui Huami and Anhui Health and Shun Yuan that qualify as a high and new technology enterprise (“HNTE”), which are subject to a tax rate of 15%. Anhui Huami began to qualify as HNTE in 2015 and renewed the HNTE certificate in July 2018 and September 2021. Accordingly, Anhui Huami is subject to a tax rate of 15% during the years ended December 31, 2021, 2022 and 2023. Anhui Health qualifed as a HNTE in August 2020 and is subject to a tax rate of 15% during the year ended December 31, 2020, 2021 and 2022. In addition, Shun Yuan qualified as a HNTE since December 2021 and is subject to a tax rate of 15% during the years ended December 31, 2021, 2022 and 2023.

The current and deferred components of income taxes appearing in the consolidated statements of operation are as follows:

	For the years ended December 31,
	2020	2021	2022
	RMB	RMB	RMB
Current tax expenses	42,257	31,543	379
Deferred tax benefits	(11,103)	(20,798)	(66,254)
Income tax expenses/(benefit)	31,154	10,745	(65,875)

The significant components of the Group’s deferred tax assets were as follows:

	As of December 31,
	2021	2022
	RMB	RMB
Accrued expenses and other current liabilities	47,005	46,958
Net operating loss carry forwards	75,100	178,689
Intra-entity transfer of certain intangible assets	28,290	26,726
Total deferred tax assets	150,395	252,373
Less: valuation allowance	(6,976)	(42,187)
Deferred tax assets, net	143,419	210,186

As of December 31, 2022, the Group had RMB1,119,767 operating losses deriving from entities in the PRC, HK, U.S., Canada, and etc. The operating losses in the PRC amounted to RMB942,754 and can be carried forward for five years, or ten years if the Group qualifies as HNTE and operating losses are not utilized, some will begin to expire in 2023. The operating loss incurred in the U.S. before December 31, 2017 can be carried forward for 20 years to offset future taxable profit, while other losses incurred after December 31, 2017 may be carried forward indefinitely. The tax losses incurred in HK can be carried forward indefinitely. The operating loss incurred in the Canada can be carried back 3 years and forward 20 years for deduction against any form of income.

16. INCOME TAXES - CONTINUED

Management assesses the available positive and negative evidence in certain entities in the PRC, HK, U.S. and Canada to estimate if sufficient future taxable income will be generated to utilize the existing deferred tax assets and determines the valuation allowance on an entity by entity basis. In making such determination, the Group considers the following factors, among other matters, when determining whether some portion or all of the deferred tax assets will more likely than not be realized: the nature, frequency and severity of recent losses, forecasts of future profitability, the duration of statutory carry-forward periods, the Group’s experience with tax attributes expiring unused and tax planning alternatives. The Group’s ability to realize deferred tax assets depends on its ability to generate sufficient taxable income within the carry-forward periods provided for in the tax law. On the basis of this evaluation, for the years ended December 31, 2021 and 2022, the Group recorded RMB6,976 and RMB42,187 valuation allowance for the deferred tax assets.

Reconciliation between the tax expense computed by applying the PRC enterprise tax rate of 25% to income before income tax and the actual income tax expense were as follows:

	For the years ended December 31,
	2020	2021	2022
	RMB	RMB	RMB
Income/(loss) before income tax	265,609	106,669	(372,533)
Tax expense/(benefit) at PRC enterprise income tax rate of 25%	66,402	26,667	(93,133)
Effect of preferential tax rates	(41,869)	(19,387)	29,784
Tax effect of permanence differences	(20,001)	(34,587)	(53,808)
Effect of income tax rate differences in other jurisdictions	21,625	23,666	16,071
Change in tax rate	3,460	9,549	—
Changes in valuation allowances	1,537	4,837	35,211
Income tax benefits/(expenses)	31,154	10,745	(65,875)

If Anhui Huami, Anhui Health and Shun Yuan did not enjoy the tax holidays, tax expense would have increased by RMB41,869 and RMB19,387 for the years ended December 31, 2020 and 2021, respectively, and the tax benefit would have decreased by RMB29,784 for the year ended December 31, 2022. The decrease in basic net income per ordinary share would be RMB0.17 and RMB0.08 and the decrease in diluted net income per ordinary share would be RMB0.16 and RMB0.07 for the years ended December 31, 2020 and 2021. The increase in basic and diluted net loss per ordinary share would be RMB0.12 for the year ended December 31, 2022.

Under the Income Tax Law effective from January 1, 2008, the rules for determining whether an entity is resident in the PRC for tax purposes have changed and the determination of residence depends among other things on the “place of actual management”. If the Group, or its non-PRC subsidiaries, were to be determined as a PRC resident for tax purposes, they would be subject to a 25% income tax rate on their worldwide income including the income arising in jurisdictions outside the PRC. The Group does not believe that its legal entities organized outside of the PRC are considered PRC residents.

If the Company was to be a non-resident for PRC tax purposes, dividends paid to it out of profits earned after January 1, 2008 would be subject to a withholding tax. In the case of dividends paid by PRC entities to the entities organized outside of the PRC or any foreign investors, the withholding tax would be 10%, unless any entities organized outside of the PRC or any such foreign investors’ jurisdiction of incorporation has a tax treaty with China that provides for a different withholding arrangement.

16. INCOME TAXES - CONTINUED

Aggregate undistributed earnings of the Company’s PRC subsidiaries and VIEs that are available for distribution amounted to RMB2,228,550 and RMB1,993,460 as of December 31, 2021 and 2022, respectively. Upon distribution of such earnings, the Company will be subject to PRC EIT taxes, the amount of which is impractical to estimate. The Company did not record any tax on any of the aforementioned undistributed earnings because the relevant subsidiaries and VIEs do not intend to declare dividends and the Company intends to permanently reinvest it within the PRC. Additionally, no deferred tax liability was recorded for taxable temporary differences attributable to the undistributed earnings because the Company believes the undistributed earnings can be distributed in a manner that would not be subject to income tax.

The Group did not identify any significant unrecognized tax benefits for the years ended December 31, 2020, 2021 and 2022, respectively. The Group did not incur any significant interest and penalties related to potential underpaid income tax expenses and also does not anticipate any significant increases or decreases in unrecognized tax benefits in the next twelve months. The Group has no material unrecognized tax benefits which would favorably affect the effective income tax rate in future periods.

According to the PRC Tax Administration and Collection Law, the tax authority may require the taxpayer or the withholding agent to make delinquent tax payment within three years if the underpayment of taxes is resulted from the tax authority’s act or error. No late payment surcharge will be assessed under such circumstances. The statute of limitation will be three years if the underpayment of taxes is due to the computational errors made by the taxpayer or the withholding agent. Late payment surcharge will be assessed in such case. The statute of limitation will be extended to five years under special circumstances which are not clearly defined (but an underpayment of tax liability exceeding US$15 (RMB0.1 million) is specifically listed as a “special circumstance”). The statute of limitation for transfer pricing related issue is ten years. There is no statute of limitation in the case of tax evasion. Therefore, the Group’s PRC domiciled entities are subject to examination by the PRC tax authorities based on the above.

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ORDINARY SHARES

12 Months Ended

Dec. 31, 2022

ORDINARY SHARES

ORDINARY SHARES

17. ORDINARY SHARES

As of December 31, 2022, the Company had 405,462,685 ordinary shares authorized with a par value of US$0.0001 per share. There are two classes of ordinary shares which include the class A ordinary shares and class B ordinary shares. Holders of class A ordinary shares are entitled to one vote per share, while holders of class B ordinary shares are entitled to ten votes per share.

The Company repurchased 2,656,164 and 10,219,572 class A shares from the market for a total consideration of US$ 3,411 (RMB21,798) and US$6,905 (RMB45,365), at a weighted average price of US$ 1.284 and US$0.671 per share during the years ended December 31, 2021 and 2022, respectively. The shares are reserved for the employees and non-employees in the share incentive plan.

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SHARE-BASED PAYMENT

12 Months Ended

Dec. 31, 2022

SHARE-BASED PAYMENT

SHARE-BASED PAYMENT

18. SHARE-BASED PAYMENT

Share options

2015 Share Incentive Plan

On October 21, 2015, the Group adopted the 2015 share incentive plan (“2015 Plan”) which consists of a share incentive plan for U.S. service providers (“U.S. Plan”) and a share incentive plan for PRC service providers (“PRC Plan”). The maximum aggregate number of ordinary shares that may be issued under the 2015 Plan is 14,328,358 ordinary shares to be allocated to employees, officers, directors or consultants of the Company.

18. SHARE-BASED PAYMENT – CONTINUED

2015 Share Incentive Plan - continued

During the years ended December 31, 2020, 2021 and 2022, the Group granted nil share options to personnel under the 2015 Plan.

2018 Share Incentive Plan

In January 2018, The Company adopted the 2018 share incentive plan (“2018 Plan”), commencing on January 1, 2018, which provides additional incentives to employees, directors and consultants to promote the success of the Group’s business. Under the 2018 share incentive plan, the maximum aggregate number of shares which may be issued initially pursuant to all awards under the 2018 Plan is 9,559,607 ordinary shares. The number of shares reserved for future issuances under the 2018 Plan will be increased by (i) a number equal to 1.0% of the total number of outstanding shares immediately after IPO, or (ii) such number of shares as may be determined by the board of directors, on the first day of each calendar year during the term under 2018 Plan.

During the years ended December 31, 2020, 2021 and 2022, the Group granted 4,030,108, 8,988,000 and 1,492,332 share options to certain personnel under the 2018 Plan. The weighted average exercise price of options granted during the years ended December 31, 2020, 2021 and 2022 was US$0 per share, US$0.01 per share and US$0 per share. The Group has recorded RMB42,316, RMB64,415 and RMB32,916 share-based compensation expenses related to options in 2015 plan and 2018 plan for the years ended December 31, 2020, 2021 and 2022, respectively.

The Group calculated the estimated fair value of the options on the respective grant dates using the binomial option pricing model with assistance from independent valuation firms. Assumptions used to determine the fair value of share options granted during the years ended December 31, 2020, 2021 and 2022 are summarized in the following table:

	For the years ended December 31,
	2020		2021		2022
Risk-free interest rate	0.67%-0.72	%	1.66	%	4.25	%
Expected volatility	51.9%-52.0	%	52.2	%	52.4	%
Expected life of option (years)	10		10		10
Expected dividend yield	0.0	%	0.0	%	0.0	%
Fair value per ordinary share	RMB21.60-23.10		RMB8.05-12.98		RMB1.96

(i) Risk-free interest rate

Risk-free interest rate was estimated based on the yield to maturity of China international government bonds with a maturity period close to the contractual term of the options.

(ii) Expected life of option (years)

Expected life of option (years) represents the expected years to vest the options.

(iii) Volatility

The volatility of the underlying ordinary shares during the life of the options was estimated based on the historical stock price volatility of comparable listed companies over a period comparable to the contractual term of the options.

18. SHARE-BASED PAYMENT – CONTINUED

2018 Share Incentive Plan - continued

(iv) Dividend yield

The dividend yield was estimated by the Group based on its expected dividend policy over the contractual term of the options.

(v) Fair value of underlying ordinary shares

During the year ended December 31, 2020, 2021 and 2022, the fair value of the underlying ordinary shares is determined based on the closing market price of the share.

A summary of the stock option activity under the 2015 and 2018 Plan during the year ended December 31, 2022 is included in the table below.

		Weighted average
		exercise price
	Number of options	per option
		US$
Outstanding at January 1, 2022	16,798,153	0.07
Granted	1,492,332	—
Exercised	(4,357,100)	—
Forfeited	(1,105,682)	0.45
Outstanding at December 31, 2022	12,827,703	0.05

The following table summarizes information regarding the share options as of December 31, 2022:

	December 31, 2022
			Weighted
			average remaining
		Weighted	exercise
		average exercise	contractual	Aggregate
	Options Number	price per option	life (years)	intrinsic value
		US$		US$
Options
Outstanding	12,827,703	0.05	7.26	4,389
Exercisable	7,904,689	0.08	6.67	2,604
Expected to vest	4,923,014	—	8.21	1,784

The total intrinsic value of options exercised during the years ended December 31, 2020, 2021 and 2022 amounted RMB32,010, RMB14,094 and RMB10,894, respectively.

The weighted average grant date fair value of options granted during the year ended December 31, 2020, 2021 and 2022 was RMB22.42, RMB12.95 and RMB1.96 per share, respectively.

As of December 31, 2022, there was RMB47,616 of unrecognized compensation expenses related to the options.

18. SHARE-BASED PAYMENT – CONTINUED

Restricted Stock Units

During the years ended December 31, 2020, 2021 and 2022, the Company granted 2,216,120, 2,034,432 and 100,972 restricted stock units respectively to employees. Most of the shares have a vesting period of four or five years of employment services with the various vesting percentage in each year, or 20% on an annual basis over a five-year vesting period. The restricted stock units are not transferable and may not be sold or pledged and the holder has no voting or dividend right on the non-vested shares. In the event a non-vested shareholder’s employment for the Company is terminated for any reason prior to the fourth anniversary of the grant date, the holder’s right to the non-vested shares will terminate immediately. The outstanding restricted stock units shall be forfeited and automatically transferred to and reacquired by the Company at nil consideration.

The Group recognized compensation expenses over the service period on a straight-line basis. The aggregate fair value of the restricted stock units at grant dates was RMB137,036 as of December 31, 2022.The weighted average grant-date fair value of non-vested shares was RMB22.00 for the year ended December 31, 2022. The fair value of the vested restricted stock units was RMB21,020, RMB11,648 and RMB26,079 during the years ended December 31, 2020, 2021 and 2022.

During the years ended December 31, 2020, 2021 and 2022, the Group recorded compensation expenses of RMB22,838, RMB18,707 and RMB16,191 for the restricted stock units, respectively.

As of December 31, 2022, there was RMB29,700 unrecognized compensation expenses related to restricted stock units which is expected to be recognized over a weighted average vesting period of 2.13 years. The weighted average granted fair value of restricted stock units granted during the years ended December 31, 2020, 2021 and 2022 were RMB 22.84 per RSU, RMB21.44 per RSU and RMB6.88 per RSU.

A summary of the restricted stock units activity during the year ended December 31, 2022 is presented below:

	RSUs
Unvested balance as of January 1, 2022	3,079,436
Granted	100,972
Forfeited	(213,700)
Vested	(1,268,408)
Unvested balance as of December 31, 2021	1,698,300

Total share-based compensation recognized during the years ended December 31, 2020, 2021 and 2022 was as follows:

	For the years ended December 31,
	2020	2021	2022
	RMB	RMB	RMB
Cost of revenues	—	—	—
General and administrative	38,605	32,247	21,353
Research and development	23,978	42,677	23,585
Selling and marketing	2,571	8,198	4,169
Total share-based compensation expenses	65,154	83,122	49,107

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MAINLAND CHINA CONTRIBUTION PLAN

12 Months Ended

Dec. 31, 2022

MAINLAND CHINA CONTRIBUTION PLAN

MAINLAND CHINA CONTRIBUTION PLAN

19. MAINLAND CHINA CONTRIBUTION PLAN

Full time employees of the Group in the PRC participate in a government-mandated multi-employer defined contribution plan pursuant to which certain pension benefits, medical care, unemployment insurance, employee housing fund and other welfare benefits are provided to employees. Chinese labor regulations require the Group to accrue for these benefits based on certain percentages of the employees’ salaries. The total provisions for such employee benefits were RMB64,734, RMB104,650 and RMB101,345 during the years ended December 31, 2020, 2021 and 2022.

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SEGMENT INFORMATION

12 Months Ended

Dec. 31, 2022

SEGMENT INFORMATION

SEGMENT INFORMATION

20. SEGMENT INFORMATION

The Group is mainly engaged in the business of smart wearable technology development. The Group’s chief operating decision maker (“CODM”) has been identified as the Chief Executive Officer of the Group, who reviews financial information of operating segments when making decisions about allocating resources and assessing performance of the Group. An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, and is identified on the basis of the internal financial reports that are provided to and regularly reviewed by the Group’s CODM. During the years ended December 31, 2020, 2021 and 2022, the Group identified two operating segments. Those segments include Xiaomi wearable products and Self-branded products and others. The Xiaomi wearable products segment comprise of sales of Xiaomi-branded products. The self-branded products and others segment comprises of self-branded products. Both Xiaomi wearable product and Self-branded products and others have been identified as reportable segments. The Group primarily operates in the PRC and long-lived assets are mostly located in the PRC.

The Group’s CODM evaluates performance based on each reporting segment’s revenue, costs of revenues and gross profit. Revenues, cost of revenues and gross profits by segment are presented below. Separate financial information of operating income by segment is not available.

	For the year ended December 31, 2020
	Xiaomi	Self-branded
	wearable	products
	Products	and others	Total
	RMB	RMB	RMB
Revenues	4,438,081	1,995,282	6,433,363
Cost of revenues	3,706,495	1,394,203	5,100,698
Gross Profit	731,586	601,079	1,332,665

	For the year ended December 31, 2021
	Xiaomi	Self-branded
	wearable	products
	Products	and others	Total
	RMB	RMB	RMB
Revenues	3,340,857	2,909,252	6,250,109
Cost of revenues	2,754,086	2,190,381	4,944,467
Gross Profit	586,771	718,871	1,305,642

20. SEGMENT INFORMATION – CONTINUED

	For the year ended December 31, 2022
	Xiaomi	Self-branded
	wearable	products
	Products	and others	Total
	RMB	RMB	RMB
Revenues	1,697,053	2,445,809	4,142,862
Cost of revenues	1,394,460	1,945,286	3,339,746
Gross Profit	302,593	500,523	803,116

The Group does not evaluate its segment on a fully allocated cost basis nor does the Group keeps track of segment assets separately.

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STATUTORY RESERVES AND RESTRICTED NET ASSETS

12 Months Ended

Dec. 31, 2022

STATUTORY RESERVES AND RESTRICTED NET ASSETS

STATUTORY RESERVES AND RESTRICTED NET ASSETS

21. STATUTORY RESERVES AND RESTRICTED NET ASSETS

PRC legal restrictions permit payments of dividends by the Group’s PRC subsidiaries only out of their retained earnings, if any, determined in accordance with PRC regulations. Prior to payment of dividends, pursuant to the laws applicable to the PRC Domestic Enterprises and PRC Foreign Investment Enterprises, the PRC subsidiaries must make appropriations from after-tax profit to non-distributable statutory reserve funds as determined by the Board of Directors of the Group. Subject to certain cumulative limits including until the total amount set aside reaches 50% of its registered capital, the general reserve fund requires annual appropriations of not less than 10% of after-tax profit (as determined under accounting principles and financial regulations applicable to PRC enterprises at each year-end). These reserve funds can only be used for specific purposes and are not distributable as cash dividends and the maximum required amount is 50% of registered capital. During the years ended December 31, 2020, 2021 and 2022, the Group accrued an additional RMB5,997, nil and nil statutory reserve from the new appropriable profit earned by certain PRC entities in the Group.

As a result of these PRC laws and regulations, the Group’s PRC subsidiaries are restricted in their ability to transfer a portion of their net assets to the Company either in the form of dividends, loans or advances. The balances of restricted net assets were RMB180,981, RMB252,220 and RMB252,220 as of December 31, 2020, 2021 and 2022, respectively.

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RELATED PARTY BALANCES AND TRANSACTIONS

12 Months Ended

Dec. 31, 2022

RELATED PARTY BALANCES AND TRANSACTIONS

RELATED PARTY BALANCES AND TRANSACTIONS

22. RELATED PARTY BALANCES AND TRANSACTIONS

Name	Relationship with the Group
Xiaomi Communication Technology Co. Ltd.(“Xiaomi Communication”)	Controlled by one of the Company’s shareholders
Xiaomi Technology Co. Ltd. (“Xiaomi Technology”)	Controlled by one of the Company’s shareholders
Guangzhou Xiaomi Information Service Co. Ltd (“Xiaomi Information”)	Controlled by one of the Company’s shareholders
Youpin Information Technology Co. Ltd. (“Youpin Information”, together with Xiaomi Communication, Xiaomi Technology, Xiaomi Information as “Xiaomi”)	Controlled by one of the Company’s shareholders
Hefei Huaheng Electronic Technology Co. Ltd. (“Hefei Huaheng”)	Controlled by one of the Company’s shareholders
Shenzhen Yunding Information Technology Co., Ltd. (“Yunding”)	Significant influence by the Group
Hefei Jingyu Micro-electronics (“Hefei Jingyu”)	Significant influence by the Group
Gongqingcheng Yunding Ruiheng Investment Partnership (Limited Partnership). (“Gongqingcheng Yunding”)	Controlled by the founder of a company that the Group can exercise significant influence
Hefei Yizhi Electronic Technology Co., Ltd (“Hefei Yizhi”)	Controlled by one of the Company’s shareholders
Hefei Zepp Medical System Co., Ltd. (“Field Medical”)	Controlled by one of the Company’s shareholders
A vice president	Key management

22. RELATED PARTY BALANCES AND TRANSACTIONS - CONTINUED

(1)Balances:

	As of December 31,
	2021	2022
	RMB	RMB
Amount due from related parties:
Current:
Xiaomi Communication (a)	286,341	117,944
Field Medical (b)	—	10,375
Hefei Jingyu	1,101	2,648
Hefei LianRui Microelectronics Technology Co. Ltd	2,452	2,452
Yunding (c)	2,330	2,330
Gongqingcheng Yunding (d)	2,500	2,500
Others (a)	890	365
Non-current
A vice president (e)	—	6,333
Total	295,614	144,947

	As of December 31,
	2021	2022
	RMB	RMB
Amount due to related parties, current:
Hefei Jingyu	48,052	36,864
Xiaomi Communication	—	2,087
Xiaomi Technology(f)	1,562	1,965
Others	509	62
Total	50,123	40,978

22. RELATED PARTY BALANCES AND TRANSACTIONS - CONTINUED

(2)Transactions:

	For the years ended December 31,
	2020	2021	2022
	RMB	RMB	RMB
Sales to related parties:
Xiaomi Communication	4,447,957	3,340,857	1,697,053
Xiaomi Youpin	—	9,175	6,942
Others	1,800	—	—
Total	4,449,757	3,350,032	1,703,995

	For the years ended December 31,
	2020	2021	2022
	RMB	RMB	RMB
Purchase from related parties
Hefei Jingyu (g)	—	146,847	222,174
Others	12,000	—	—

(a) The amount due from Xiaomi represents receivables from the sales of products and services, which includes an unbilled amount of RMB64,129 and RMB2,613 as of December 31, 2021 and 2022, respectively.

(b) The amount due from Field Medical represents borrowings the Group provided to Field Medical to support the daily operation.

(c) The amount due from Yunding represents prepayment for the purchase of Yunding’ products which was collected in March 2023.

(d) In December 2020, the Group sold 26.7% equity interest in Yunding for a cash consideration of RMB22,500 to Gongqingcheng Yunding, of which RMB20,000 has been received in January 2021.

(e) The amount due from a vice president represents a loan provided to a key management.

(f) The amounts due to Xiaomi Technology represent the payable for the cloud service received by the Group.

(g) Hefei Jingyu is a subsidiary of Jiangsu Yitong, where the Group can exercise significant influence. During 2021 and 2022, the Group purchased some raw material from Hefei Jingyu with total transaction amount of RMB146,847 and RMB222,174.

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NET INCOME/(LOSS) PER SHARE

12 Months Ended

Dec. 31, 2022

NET INCOME/(LOSS) PER SHARE

NET INCOME/(LOSS) PER SHARE

23. NET INCOME/(LOSS) PER SHARE

The computation of basic and diluted net income per share for the years ended December 31, 2020, 2021 and 2022 is as follows:

	For the years ended December 31,
	2020	2021	2022
	RMB	RMB	RMB
Basic net income/(loss) per share calculation Numerator:
Net income/(loss) for the year attributable to the Company:	228,753	137,803	(288,308)
Net income/(loss) attributed to ordinary shareholders for computing net income per ordinary shares - basic	228,753	137,803	(288,308)
Denominator:
Weighted average ordinary shares outstanding used in computing net income/(loss) per ordinary shares – basic	248,470,684	252,167,610	246,283,328
Net income/(loss) per ordinary share attributable to ordinary shareholders—basic	0.92	0.55	(1.17)
Diluted net income/(loss) per share calculation
Net income/(loss) attributable to ordinary shareholders for computing net income per ordinary shares—basic and diluted	228,753	137,803	(288,308)
Denominator:
Weighted average ordinary shares outstanding used in computing net income per ordinary shares - basic	248,470,684	252,167,610	246,283,328
Effect of potentially diluted share options, restricted shares and RSUs	11,881,310	12,201,019	—
Weighted average ordinary shares outstanding used in computing net income per ordinary shares—diluted	260,351,994	264,368,629	246,283,328
Net income/(loss) per ordinary share attributable to ordinary shareholders—diluted	0.88	0.52	(1.17)

For the years ended December 31, 2020, 2021 and 2022, the following shares outstanding were excluded from the calculation of diluted net income per ordinary shares, as their inclusion would have been anti-dilutive for the years presented:

	For the years ended December 31,
	2020	2021	2022
Shares issuable upon exercise of share options, restricted shares and RSUs	89,165	301,946	7,390,487

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LEASES

12 Months Ended

Dec. 31, 2022

LEASES

LEASES

24. LEASES

The Group’s leases consist of operating leases for administrative office spaces in different cities in the PRC and overseas and financial lease which is immaterial. The Group determines if an arrangement is a lease at inception. Some lease agreements contain lease and non-lease components, which the Group chooses to account for as separate components. The allocation of the consideration between the lease and the non-lease components is based on the relative stand-alone prices of lease components included in the lease contracts.

The following table represents lease costs recognized in the Group’s consolidated statements of operation for the years ended December 31, 2020, 2021 and 2022. Lease costs are included in selling expenses, general and administrative expenses and research and development expenses on the Group’s consolidated statements of operations.

	For the years ended December 31,
	2020	2021	2022
	RMB	RMB	RMB
Operating lease cost (1)	57,080	41,595	37,428
Sublease income	(537)	(3,591)	(8,796)
Total lease cost	56,543	38,004	28,632

(1) Operating lease cost includes short-term lease costs, which was not material in the period presented.

The following table represents the components of leases that are recognized on the Group’s consolidated balance sheets as of December 31, 2021 and 2022.

	As of December 31,
	2021		2022
	RMB		RMB
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	49,644		50,357
Non-cash Right-of-use assets in exchange for new lease liabilities:
Operating leases	2,157		1,674
Weighted average remaining lease term:
Operating leases	2.80 years		2.03 years
Weighted average discount rate:
Operating leases	5.27	%	5.32	%

The following is a maturity analysis of the annual undiscounted cash flows for the year ended December 31, 2022:

Year ending December 31,	RMB
2023	43,701
2024	26,291
2025	8,441
Total lease payments	78,433
Less: imputed interest	(4,423)
Present value of lease liabilities	74,010

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SUBSEQUENT EVENT

12 Months Ended

Dec. 31, 2022

SUBSEQUENT EVENT

SUBSEQUENT EVENT

25. SUBSEQUENT EVENT

2023 Share Incentive Plan

The Company adopted the 2023 Share Incentive Plan, approved and authorized by the board of directors of the Company, effective January 11, 2023. The maximum aggregate number of Class A ordinary shares of the Company available for grant as awards is 10,322,520 under the 2023 Share Incentive Plan.

XML

SIGNIFICANT ACCOUNTING POLICIES (Policies)

12 Months Ended

Dec. 31, 2022

SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation and principle of consolidation

Basis of presentation and principle of consolidation

The consolidated financial statements of the Group have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The consolidated financial statements of the Group include the financial statements of the Company, its wholly-owned subsidiaries, its VIEs and the VIEs’ subsidiaries. The Company believes that the disclosures are adequate to make the information presented not misleading.

Use of estimates

Use of estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the consolidated financial statements and accompanying notes. Significant accounting estimates reflected in the Group’s consolidated financial statements include inventory valuation, the useful lives of long-lived assets, impairment of long-lived assets, incremental borrowing rate for leases, product warranties, fair value measurement of long-term available-for-sale investments and long-term investments of non-marketable equity securities with fair value change through profit or loss, the valuation allowance for deferred tax assets and income tax. Actual results could differ from those estimates, and such differences may be material to the consolidated financial statements.

Fair value

Fair value

Fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Group considers the principal or most advantageous market in which it would transact and it considers assumptions that market participants would use when pricing the asset or liability.

Authoritative literature provides a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The level in the hierarchy within which the fair value measurement in its entirety falls is based upon the lowest level of input that is significant to the fair value measurement as follows:

Level 1

Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.

Level 2

Level 2 applies to assets or liabilities for which there are inputs other than quoted prices included within Level 1 that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.

2. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

Fair value - continued

Level 3

Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.

Measured fair value on a recurring basis

The Group measured its financial assets primarily including available-for-sale investments at fair value on a recurring basis and equity securities with readily determinable fair value as of December 31, 2021 and 2022.

Measured fair value on a nonrecurring basis

The Group measured acquired intangible assets using the income approach-discounted cash flow method when events or changes in circumstances indicate that the carrying amount of an asset may no longer be recoverable. The fair values were determined using models with significant unobservable inputs (Level 3 inputs). The Group did not recognize any impairment loss related to acquired intangible assets arising from acquisitions during the years ended December 31, 2020, 2021 and 2022.

The Group measured goodwill at fair value on a nonrecurring basis when it is evaluated annually or whenever events or changes in circumstances indicate that the carrying amount of a reporting unit exceeds its fair value as a result of the impairment assessments. The fair value of the reporting unit is determined using discounted cash flows. The Group did not recognize any impairment loss related to goodwill during the years ended December 31, 2020, 2021 and 2022.

For equity investments without readily determinable fair values for which the Company elected to use the measurement alternative, the equity investment is measured at fair value on a nonrecurring basis when there is an orderly transaction for identical or similar investments of the same issuer.

Fair value of financial instruments

Fair value of financial instruments

The Group’s financial instruments consist primarily of cash and cash equivalents, restricted cash, term deposit, accounts receivable, amounts due from related parties, available-for-sale investments, amount due from a related party, noncurrent, accounts payable, notes payable and others, short-term bank borrowings, amounts due to related parties and long-term bank borrowings. The Company carries its available-for-sales investments at fair value. The carrying amounts of cash and cash equivalents, restricted cash, term deposit, accounts receivable, amounts due from related parties, accounts payable, notes payable and others, amounts due to related parties and short-term bank borrowings approximate their fair values due to the short-term maturities of these instruments. The carrying amounts of amount due from a related party, noncurrent and long-term borrowings approximates its fair value as the interest rates are based on the prevailing interest rates in the market.

Cash and cash equivalents

Cash and cash equivalents

Cash and cash equivalents consist of cash on-hand, demand deposits with financial institutions, term deposits with an original maturity of three months or less and highly liquid investments, which are unrestricted from withdrawal or use, or which have original maturities of three months or less when purchased.

Restricted cash

Restricted cash

Restricted cash represents deposits made to the bank for bank acceptance notes (or notes payable) issued by the Group. When the Group issues the bank acceptance notes, the banks require the Group to make a deposit for 30% to 75% of the face value of the bank acceptance notes issued as collateral. The deposits for unsettled bank acceptance notes are recorded as restricted cash in the consolidated balance sheets as of December 31, 2021 and 2022.

Term deposit

Term deposit

Term deposits consist of deposits placed with financial institutions with original maturities of greater than three months and less than one year.

Accounts receivable

Accounts receivable

Accounts receivable represents those receivables derived in the ordinary course of business, net of allowance for doubtful accounts.

Allowance for doubtful accounts

Allowance for doubtful accounts

The Group maintains an allowance for doubtful accounts for estimated losses on uncollected accounts receivable. Management considers the following factors when determining the collectability of specific accounts: creditworthiness of customers, aging of the receivables, past transaction history with customers and their current condition, changes in customer payment terms, specific facts and circumstances, and the overall economic climate in the industries the Group serves. The Group evaluates its accounts receivable for expected credit losses on a regular basis. The Group maintains an estimated allowance for credit loss to reduce its accounts receivable to the amount that it believes will be collected. The Group uses the creditworthiness of customers, aging of the receivables, past transaction history with customers and their current condition, changes in customer payment terms, specific facts and circumstances, and the overall economic climate in the industries the Group serves to monitor the Group’s receivables within the scope of expected credit losses model and use these as a basis to develop the Group’s expected loss estimates. As of December 31, 2021 and 2022, the Company recorded RMB814 and RMB1,466 allowance for doubtful account.

Inventories, net

Inventories, net

Inventories of the Group consist of raw materials, finished goods and work in process. Inventories are stated at the lower of cost or net realizable value on a weighted average basis. Inventory costs include expenses that are directly or indirectly incurred in the purchase, including shipping and handling costs charged to the Group by suppliers, and production of manufactured product for sale, such as include the cost of materials and supplies used in production, direct labor costs and allocated overhead costs such as depreciation, insurance, employee benefits, and indirect labor. Cost is determined using the weighted average method. The Group assesses the valuation of inventory and periodically writes down and writes off the value for estimated excess and obsolete inventory based upon the product life cycle.

Short-term investments

Short-term investments

Short-term investments are mainly consisting of investment in convertible bonds with a maturity of less than one year. These investments are accounted for as available-for-sale investments and measured at fair value. The Group recorded RMB1,243, RMB1,240, and RMB2,006 unrealized gains in accumulated other comprehensive income on such investments during the years ended December 31, 2020, 2021 and 2022, respectively.

Prepaid expenses and other current assets

Prepaid expenses and other current assets

Prepaid expenses and other current assets primarily consist of advance to suppliers, prepaid expenses, other receivables, rental deposits and value-added tax recoverable.

Property, plant and equipment, net

Property, plant and equipment, net

Property, plant and equipment are carried at cost less accumulated depreciation. Depreciation is calculated on a straight-line basis over the following estimated useful lives:

Software and electronic equipment	3-5 years
Building	20 years
Leasehold improvements	Shorter of the lease term or estimated useful lives

Intangible assets, net

Intangible assets, net

Acquired intangible assets other than goodwill consist of the domain name for the Company’s website www.zepp.com, an insurance brokerage license, trademark and patents.

The domain name, insurance brokerage license and certain trademark are recognized as an intangible asset with indefinite life and evaluated for impairment at least annually or if events or changes in circumstances indicate that the asset might be impaired. Such impairment test compares the fair values of the asset with its carrying value amounts and an impairment loss is recognized if and when the carrying amounts exceed the fair value. The estimates of values of the intangible asset not subject to amortization are determined using discounted cash flow valuation approach. Significant assumptions are inherent in this process, including estimates of discount rates and cash flow.

Some trademark and patents are recognized as intangible assets with finite lives and are amortized on a straight-line basis over their expected useful economic lives. Amortization is calculated on a straight-line basis over the estimated useful life of 5 to10 years.

Leases

Leases

The Group leases administrative office spaces in different cities in the PRC, and in the United States and Canada under operating leases. The Group determines whether an arrangement constitutes a lease and records lease liabilities and right-of-use assets on its consolidated balance sheets at the lease commencement. The Group measures its lease liabilities based on the present value of the total lease payments not yet paid discounted based on its incremental borrowing rate, which is the estimated rate the Group would be required to pay for a collateralized borrowing equal to the total lease payments over the term of the lease. The Group estimates its incremental borrowing rate based on an analysis of publicly traded debt securities of companies with credit and financial profiles similar to its own. The Group measures right-of-use assets based on the corresponding lease liability adjusted for payments made to the lessor at or before the commencement date, and the initial direct costs it incurs under the lease. The Group begins recognizing operating lease expenses when the lessor makes the underlying asset available to the Group. The Group’s leases have remaining lease terms of up to four years, some of which include options to extend the leases for an additional period which has to be agreed with the lessors based on mutual negotiation. After considering the factors that create an economic incentive, the Group did not include renewal option periods in the lease term for which it is not reasonably certain to exercise. For all real estate leases, any non-lease components, including common area maintenance, have been separated from lease components and excluded from the associated right-of-use asset and lease liability calculations.

For short-term leases with lease term less than one year, the Group records operating lease expenses in its consolidated statements of operations on a straight-line basis over the lease term and record variable lease payments as incurred.

Goodwill

Goodwill

Goodwill represents the excess of the purchase price over the fair value of identifiable net assets acquired in business combination. Goodwill is not amortized but is tested for impairment annually or more frequently if events on changes in circumstance indicate that it might be impaired.

Goodwill is tested for impairment at the reporting unit level on an annual basis and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. These events or circumstances could include a significant change in the stock prices, business climate, legal factors, operating performance indicators, competition, or sale or disposition of a significant portion of a reporting unit.

Application of the goodwill impairment test requires judgment, including the identification of reporting units, assignment of assets and liabilities to reporting units, assignment of goodwill to reporting units, and determination of the fair value of each reporting unit. The estimation of fair value of each reporting unit using a discounted cash flow methodology also requires significant judgments, including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rate of growth for the Group’s business, estimation of the useful life over which cash flows will occur, determination of the Group’s weighted average cost of capital and consideration of the impact of COVID-19. The estimates used to calculate the fair value of a reporting unit change from year to year based on operating results and market conditions. Changes in these estimates and assumptions could materially affect the determination of fair value and goodwill impairment for the reporting unit.

The Group uses the one-step method for its goodwill impairment assessment for the years ended December 31, 2020, 2021 and 2022. Goodwill impairment is calculated as the amount by which a reporting unit’s carrying value exceeds its fair value.

During the years ended December 31, 2020, 2021 and 2022, the Group recognized nil impairment loss on goodwill.

2. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

Long-term investments

Long-term investments

The Group’s long-term investments consist of equity securities with readily determinable fair value, equity securities without readily determinable fair value, equity method investments and available-for-sale investments.

(a) Equity securities with readily determinable fair value

Equity securities with readily determinable fair values are measured at fair value and any changes in fair value are recognized in the consolidated statements of operations.

(b) Equity securities without readily determinable fair value

The Group accounts for equity investments that do not have a readily determinable fair value under the measurement alternative prescribed within Accounting Standards Update (“ASU”) 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, to the extent such investments are not subject to consolidation or the equity method. Under the measurement alternative, these financial instruments are carried at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer.

The Group reviews its equity securities without readily determinable fair value for impairment at each reporting period by considering factors including, but not limited to, current economic and market conditions and the impact of COVID-19, the operating performance of the companies including current earning trends and other company specific information.

(c) Equity method investments

For an investee company over which the Group has the ability to exercise significant influence, but does not have a controlling interest, the Group accounts for the investment under the equity method. Significant influence is generally considered to exist when the Group has an ownership interest in the voting stock of the investee between 20% and 50%. Other factors, such as representation on the investee’s board of directors, voting rights and the impact of commercial arrangements are also considered in determining whether the equity method of accounting is appropriate.

Under the equity method of accounting, the investee company’s accounts are not reflected within the Group’s consolidated balance sheets and statements of operations; however, the Group’s share of the earnings or losses of the investee company is reflected in the caption “(loss)/income from equity method investments” in the consolidated statements of operations.

An impairment charge is recorded if the carrying amount of the investment exceeds its fair value and this condition is determined to be other-than-temporary. The Group estimated the fair value of the investee company based on comparable quoted price for similar investment in active market, if applicable, or discounted cash flow approach which requires significant judgments, including the estimation of future cash flows, which is dependent on internal forecasts, the estimation of long-term growth rate of a company’s business, the estimation of the useful life over which cash flows will occur, the determination of the weighted average cost of capital and the impact of COVID-19. The Group recorded nil impairment losses on its equity method investments during the years ended December 31, 2020, 2021 and 2022.

2. SIGNIFICANT ACCOUNTING POLICIES – CONTINUED

Long-term investments - continued

(d) Available-for-sale investments

For investments which are determined to be debt securities, the Group accounts for them as long-term available-for-sale investments when they are not classified as either trading or held-to-maturity investments.

Available-for-sale investment is carried at its fair value and the unrealized gains or losses from the changes in fair values are included in accumulated other comprehensive income. The Group recorded RMB(22,583), RMB1,345, and RMB40,140 unrealized (losses) /gains in accumulated other comprehensive income on its available-for-sale investments during the years ended December 31, 2020, 2021 and 2022, respectively.

The Group evaluates each individual investment periodically for impairment. For investments where the Group does not intend to sell, the Company evaluates whether a decline in fair value is due to deterioration in credit risk. Credit-related impairment losses, not to exceed the amount that fair value is less than the amortized cost basis, are recognized through an allowance for credit losses on the consolidated balance sheet with corresponding adjustment in the consolidated statements of operations and comprehensive income. Subsequent increases in fair value due to credit improvement are recognized through reversal of the credit loss and corresponding reduction in the allowance for credit loss. Any decline in fair value that is non-credit related is recorded in accumulated other comprehensive income as a component of shareholder’s equity. As of December 31, 2021 and 2022, there were no investments held by the Group that had been in continuous unrealized loss position.

Notes payable

Notes payable and others

Notes payable and others include short-term bank acceptance notes issued by financial institutions that entitle the holder to receive the stated amount from the financial institutions at the maturity date of the notes. The Group has utilized notes payable to settle amounts owed to suppliers and contractors. Notes payable and others also includes a letter of credit, which is issued by the bank to facilitate the settlement of the transactions with service providers. Once issued, the bank endorses to pay to the service provider, who is also the letter of credit holder, when the letter of credit matures. The short-term bank acceptance notes and the letter of credit are normally settled within three months and twelve months, respectively.

Revenue recognition

Revenue recognition

Nature of Goods and Services

The Group generates substantially all of its revenues from sales of smart wearable devices. The Group also generates a small amount of its revenues from its subscription-based services. For the years ended December 31, 2020, 2021 and 2022, the Group generated 69.0%, 53.5% and 41.0% of revenue from one customer for sales of exclusively designed and manufactured smart wearable devices, and generated 31.0%, 46.5% and 59.0% of revenue from sales of the Group’s self-branded products and others. Revenue is recognized when control of the promised goods or services is transferred to the customer, in an amount that reflects the consideration the Group expects to be entitled to in exchange for the goods or services. The Group recognizes revenue, net of estimated sales returns and value-added taxes (“VAT”).

2. SIGNIFICANT ACCOUNTING POLICIES – CONTINUED

Revenue recognition - continued

The Group has determined that its contracts with its customers include multiple performance obligations that the Group accounts for separately as those are distinct from other items in the contract. The first performance obligation is the smart wearable device and embedded firmware that is essential to the functionality of the device, which the customer can benefit from it on its own or with other resources that are readily available to the customer. The second performance obligation is the software services included with the products, which are provided free of charge and enable users to sync, view, and access real-time data on the Group’s mobile apps. The third performance obligation is the embedded right included with the purchase of the device to receive, on a when-and-if-available basis, future unspecified firmware upgrades and features relating to the product’s essential firmware.

The Group allocates the transaction price to all performance obligations based on their relative standalone selling prices. The standalone selling prices are determined based on the expected cost plus margin as the Group determined that no observable price is available for any of its performance obligation. The Group considered multiple factors in the process of determining its cost plus margin including consumer behaviors and the Group’s internal pricing model. The cost plus margin estimated selling price for the smart and wearable devices comprised the majority of the transaction. The Group recognizes revenue for the amounts allocated to the connected smart and wearable devices when the customer obtains control of the Group’s product, which occurs at a point of time, typically upon delivery to and acceptance by the reseller, who has been identified as the customer of the Group. Amounts allocated to the software services and unspecified upgrade rights are deferred and recognized over time as the customer simultaneously receives and consumes the benefit over an estimated nine-month period.

Sales of self-branded products and others

The Group’s revenue recognition for its self-branded products is consistent with that described in the preceding paragraphs.

Cooperation agreement with one customer

Cooperation agreement with one customer

For the years ended December 31, 2020, 2021 and 2022, the Group generated 69.0%, 53.5% and 41.0% of revenue from one customer for sales of exclusively designed and manufactured smart wearable devices. That customer is also the sole distributor for such smart wearable devices and is controlled by one of the shareholders (see Note 22). Under the cooperation agreement with this customer, the Group produces and assembles final product for shipments of wearable devices to that customer, who are then responsible for commercial distribution and sale of the product. The arrangement includes two payment instalments. The first payment instalment is priced to recover the costs incurred by the Group in developing and shipping the devices to the customer and is due from the customer to the Group once the products have been delivered and accepted by the customer. The Group allocates the initial payment instalment between the hardware device, the software services, and the software upgrades based on their standalone selling price and recognizes revenue based on its recognition policy further described in the preceding paragraph. The Group is also entitled to receive a potential second instalment payment calculated as 50 percent of the future net profits from commercial sales made by the customer. The Group has determined that the second instalment consideration constitutes variable consideration and includes the amount in the transaction price to the extent it is not constrained and it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period (see below for further details). The second instalment is also allocated between the hardware device, the software services, and the software upgrades based on the relative standalone price and is recognized based on the Group’s recognition policy further described in the preceding paragraph. The Group’s revenue recognition policy of its products under its cooperation agreement is substantially consistent with that for its sales of self-branded products except that the instalment payments arrangement under the cooperation agreement is not available to the self-branded products.

During the year ended December 31, 2022, the Group also sold one specific generation of Xiaomi Wearable Product, accounting for 26.1% of consolidated revenue, which has a standard selling price and does not include installment payments described in the preceding paragraph. The revenue recognition for the sales of such specific generation of Xiaomi Wearable Product is consistent with the revenue recognition described for the self-branded products.

2. SIGNIFICANT ACCOUNTING POLICIES – CONTINUED

Revenue recognition - continued

Variable Consideration

Revenues from product sales are recorded at the net sales price (transaction price), which includes estimate of variable consideration which result from the Group’s cooperation agreement with one customer (see above for more details). The amount of variable consideration is included in the transaction price to the extent it is not constrained and that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period. Actual amounts of consideration ultimately received may differ from the Group’s estimates. If actual results in the future vary from the Group’s estimates, the Group will adjust these estimates, which would affect revenue and earnings in the period such variances are known.

Sales Incentive

The Group periodically provides sales incentives to its customers for self-branded products, including reduced sales prices and volume-based discounts. Volume discounts are negotiated on a contract-by-contract basis with customers and the discount will increase depending upon the volume purchased over the period. The sales incentives are discounts to be applied to future sales to the customer which cannot be exchanged for cash. To the extent that the volume discount or sales incentive represents a material right or options to acquire additional goods or services at a discount in the future period, the material right is recognized as a separate performance obligation at the outset of the arrangement based on the most likely amount of incentive to be provided to the customer. Amounts allocated to a material right are recognized as revenue when those future goods are sold to the customers.

Practical Expedients and Exemptions

The Group generally expenses sales commissions when incurred because the amortization period would have been one year or less. These costs are recorded within selling and marketing expenses. In addition, the Group does not disclose the value of unsatisfied performance obligations as all of its contracts have an original expected length of one year or less.

Value added taxes

Value added taxes

VAT on sales was previously calculated at 17% on revenue from products before May 1, 2018 and thereafter, in accordance with Cai Shui [2018] No.32, the VAT rate decreased to 16%. Since April 1, 2019, in accordance with Cai Shui [2019] No.39, the VAT rate further decreased to 13%. VAT was calculated at 6% on the revenue from the service provided. The Group reports revenue net of VAT. Subsidiaries that are VAT general taxpayers are allowed to offset qualified input VAT paid against their output VAT liabilities.

Rights of return

Rights of return

The Group offers certain sales returns for products sold directly to end users and to its resellers. The Group estimates the amount of its products sales that may be returned by its end users and resellers and records this estimate as a reduction of revenue in the period the related revenue is recognized. The Group currently estimates product return liabilities using its expectations and historical experience.

Cost of revenues

Cost of revenues

Cost of revenues consists primarily of material costs, salaries and benefits for staff engaged in production activities and related expenses which are directly attributable to the production of products. The shipping and handling fees billed to the customers are presented as part of cost of revenues as well.

Product warranty

Product warranty

The Group offers standard product warranty to its customers, for a 12-month period starting from the sales of the goods to the end users. The Group has the obligation to either repair or replace the defect product for the customers if the product is still under warranty. At the time revenue is recognized, an estimate of future warranty costs is recorded as a component of cost of revenues. The reserves established are regularly monitored based upon historical experience and any actual claims charged against the reserve. Warranty reserves are recorded as a cost of revenues.

Research and development expenses

Research and development expenses

Research and development expenses primarily consist of salaries and benefits for research and development personnel, materials, office rental expenses, general expenses and depreciation expenses associated with research and development activities.

Advertising expenses

Advertising expenses

Advertising expenses are expensed as incurred and included in selling and marketing expenses. Total advertising expenses were RMB136,974, RMB151,744 and RMB172,577 for the years ended December 31, 2020, 2021 and 2022, respectively.

Government subsidies

Government subsidies

Government subsidies represent government grants received from local government authorities to encourage the Group’s technology and innovations and also other subsidies for production.

The Group records such government subsidies as other income or reduction of expenses or cost of revenues when it has fulfilled all of its obligation related to the subsidy.

During the years ended December 31, 2020, 2021 and 2022, the Group recognized RMB13,461, RMB23,140 and RMB41,054 as subsidy income and recognized RMB10,408, RMB103,660 and RMB53,563 as reduction of expenses or cost of revenues, respectively. As of December 31, 2021 and 2022, subsidies of RMB3,129 and RMB1,745 were recorded as other current liabilities, RMB175,053 and RMB162,602 were recorded as other non-current liabilities as the Group has to meet certain performance conditions required by the government authorities.

Income taxes

Income taxes

Income taxes are provided for in accordance with the laws of the relevant tax authorities. Deferred tax assets and liabilities are recognized when temporary differences exist between the tax bases of assets and liabilities and their reported amounts in the consolidated financial statements. Net operating loss carry forwards and credits are applied using enacted statutory tax rates applicable to future years. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more-likely-than-not that a portion of or all of the deferred tax assets will not be realized.

The Group accounts for uncertain tax positions by reporting a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return. Tax benefits are recognized from uncertain tax positions when the Group believes that it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. The Group recognizes interest and penalties, if any, related to unrecognized tax benefits in income tax expenses.

Share-based payment

Share-based payment

Share-based payment transactions with employees, such as share options and restricted shares are measured based on the grant date fair value of the equity instrument. The Group has elected to recognize compensation expenses using the straight-line method. For all employee’s equity awards granted with graded vesting provided, the amount of compensation cost recognized at any date is at least equal to the portion of the grant-date value of the options that are vested at that date, over the requisite service period of the award. The requisite service period is generally the vesting period of the award. The Group elects to recognize forfeitures when they occur.

Comprehensive income

Comprehensive income

Comprehensive income consists of two components, net income and other comprehensive income, net of tax. Other comprehensive income refers to revenue, expenses, and gains and losses that are recorded as an element of shareholders’ equity but are excluded from net income. The Group’s other comprehensive income consists of foreign currency translation adjustments from its subsidiaries not using the RMB as their functional currency and the fair value change of available-for-sale investments of the Group. Comprehensive income is reported in the consolidated statements of comprehensive income.

Foreign currencies

Foreign currencies

The functional currency of the Company is the US$ and the reporting currency of the Company is the RMB. The Company’s subsidiaries, consolidated VIEs and VIEs’ subsidiaries with operations in the PRC, Hong Kong, the United States and other jurisdictions generally use their respective local currencies as their functional currencies. The financial statements of the Company’s subsidiaries, other than the subsidiaries and consolidated VIEs with the functional currency of RMB, are translated into RMB using the exchange rate as of the balance sheet date for assets and liabilities and the average daily exchange rate for each month for income and expense items. Translation gains and losses are recorded in accumulated other comprehensive income or loss as a component of shareholders’ equity.

In the financial statements of the Company’s subsidiaries and consolidated VIEs and VIEs’ subsidiaries, transactions in currencies other than the functional currency are measured and recorded in the functional currency using the exchange rate in effect at the date of the transaction. At the balance sheet date, monetary assets and liabilities that are denominated in currencies other than the functional currency are translated into the functional currency using the exchange rate at the balance sheet date. All gains and losses arising from foreign currency transactions are recorded in the consolidated statements of operations during the year in which they occur. For the years ended December 31, 2020, 2021 and 2022, the transaction gains amounted to RMB27,451, RMB18,156 and RMB12,086 were recorded in general and administrative expenses.

2. SIGNIFICANT ACCOUNTING POLICIES – CONTINUED

Foreign currencies - continued

RMB is not a freely convertible currency. The State Administration for Foreign Exchange, under the authority of the People’s Bank of China, controls the conversion of RMB into other currencies. The value of the RMB is subject to changes in central government policies and to international economic and political developments affecting supply and demand in the China Foreign Exchange Trading System market. The Group’s cash and cash equivalents denominated in US$ and RMB amounted to RMB435,205 and RMB990,222 as of December 31, 2021, RMB263,400 and RMB565,721 as of December 31, 2022, respectively.

Convenience translation

Convenience translation

Translations of balances in the consolidated balance sheets, consolidated statements of operations and consolidated statements of cash flows from RMB into US$ as of and during the year ended December 31, 2022 is solely for the convenience of the reader and were calculated at the rate of US$1.00 = RMB6.8972, representing the rate as certified by the statistical release of the Federal Reserve Board of United States on December 30, 2022. No representation is made that the RMB amounts could have been, or could be, converted, realized or settled into U.S. dollar at that rate on December 31, 2022, or at any other rate.

Net income per share

Net income per share

Basic net income per ordinary share is computed by dividing net income attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period.

Diluted income per ordinary share reflect the potential dilution that would occur if securities were exercised or converted into ordinary shares. The Group had share options, restricted shares and restricted stock units (“RSU”) which could potentially dilute basic income per ordinary share in the future. To calculate the number of shares for diluted income per ordinary shares, the effect of the share options, restricted shares and RSU is computed using the treasury stock method.

Concentration of credit risk

Concentration of credit risk

Financial instruments that potentially expose the Group to concentrations of credit risk consist primarily of cash and cash equivalents, term deposits, accounts receivable. The Group places its cash and cash equivalents with financial institutions with high credit ratings and quality.

The Group conducts credit evaluations of third-party customers and related parties, and generally does not require collateral or other security from its third-party customers and related parties. The Group establishes an allowance for doubtful accounts primarily based upon the age of the receivables and factors surrounding the credit risk of specific third-party customers and related parties.

2. SIGNIFICANT ACCOUNTING POLICIES – CONTINUED

Concentration of credit risk - continued

Accounts receivable concentration of credit risk is as below:

	As of December 31,
	2021			2022
	RMB			RMB
Company A	87,825	16.4	%	124,319	18.2	%
Company B	269,460	50.1	%	287,160	42.1	%
Total	357,285	66.5	%	411,479	60.3	%

Amounts due from related parties concentration of credit risk is as below:

	As of December 31,
	2021			2022
	RMB			RMB
Company C	286,341	96.9	%	117,944	81.4	%
Total	286,341	96.9	%	117,944	81.4	%

Revenue generated from Company C accounted for 69.1%, 53.5% and 41.0% of total revenue during the years ended December 31, 2020, 2021 and 2022, respectively. Company C is a subsidiary of a company controlled by one of the Group’s shareholders (see Note 22).

	For the years ended December 31,
	2020			2021			2022
	RMB			RMB			RMB
Company C	4,447,957	69.1	%	3,340,857	53.5	%	1,697,053	41.0	%
Total	4,447,957	69.1	%	3,340,857	53.5	%	1,697,053	41.0	%

Supplier Concentration

Supplier Concentration

The Group relies on third parties for the supply and manufacturing of its products, as well as third-party logistics providers. In instances where these parties fail to perform their obligations, the Group may be unable to find alternative suppliers or satisfactorily deliver its products to its customers on time, if at all.

For the year ended December 31, 2020, 15.1% of its raw materials and semi-manufactures were purchased through Company D, respectively, but numerous alternate sources of supply are readily available on comparable terms. No purchases from a single suppliers account for more than 10% of total purchases during the years ended December 31, 2021 and 2022.

Newly adopted accounting pronouncements

Newly adopted accounting pronouncements

In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832) — Disclosures by Business Entities about Government Assistance. The amendments in this ASU require disclosures about transactions with a government that have been accounted for by analogizing to a grant or contribution accounting model to increase transparency about (1) the types of transactions, (2) the accounting for the transactions, and (3) the effect of the transactions on an entity’s financial statements. The amendments in this ASU are effective for all entities within their scope for financial statements issued for annual periods beginning after December 15, 2021. Early application of the amendments is permitted. The Group adopted ASU 2021-10 in the year ended December 31, 2022 and the adoption did not have a material impact on the Group’s consolidated financial statements.

Recent accounting pronouncements not yet adopted

Recent accounting pronouncements not yet adopted

In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (ASU 2021-08), which clarifies that an acquirer of a business should recognize and measure contract assets and contract liabilities in a business combination in accordance with Topic 606, Revenue from Contracts with Customers. The new amendments are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The amendments should be applied prospectively to business combinations occurring on or after the effective date of the amendments, with early adoption permitted. The Group is currently evaluating the impact of the new guidance on its consolidated financial statements.

In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions, which clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The amendments also clarify that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction. This guidance also requires certain disclosures for equity securities subject to contractual sale restrictions. The new guidance is required to be applied prospectively with any adjustments from the adoption of the amendments recognized in earnings and disclosed on the date of adoption. This guidance is effective for the Group for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. Early adoption is permitted. The Group does not expect that the adoption of this guidance will have a material impact on its financial position, results of operations and cash flows.

On September 29, 2022, the FASB issued ASU 2022-04 to enhance transparency about an entity’s use of supplier finance programs. ASU 2022-04 requires the buyer in a supplier finance program to disclose qualitative and quantitative information about the program, and at a minimum, the following information at least annually:

2. SIGNIFICANT ACCOUNTING POLICIES – CONTINUED

The key terms of the program, including payment terms and assets pledged as security or other forms of guarantees.

The amount of obligations outstanding at the end of the reporting period that the buyer has confirmed as valid and:

- A description of where those obligations are presented in the balance sheet.

- Rollforward information for the annual period showing the amount at the beginning of the period, the amount added during the period, the amount settled during the period, and the amount outstanding at the end of the period.

The amendments in this Update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, except for the amendment on rollforward information, which is effective for fiscal years beginning after December 15, 2023. Early adoption is permitted. The Group is currently evaluating the impact of the new guidance on its consolidated financial statements but does not expect the adoption of this standard to have a material impact on its financial position, results of operations and cash flows.

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ORGANIZATION AND PRINCIPAL ACTIVITIES (Tables)

12 Months Ended

Dec. 31, 2022

ORGANIZATION AND PRINCIPAL ACTIVITIES

Schedule of Subsidiaries and VIEs

		Date of	Percentage
	Place of incorporation	Incorporation/acquisition	Of ownership
Major subsidiaries of the Company:
Hong Kong Zepp Holding Limited (“Zepp HK”)	Hong Kong (“HK”)	December 23, 2014	100%
ZEPP, INC. (“Zepp Inc”)	United States of America (“U.S.”)	January 15, 2015	100%
Beijing ShunYuan KaiHua Technology Co., Ltd. (“Shun Yuan”)	PRC	February 25, 2015	100%
Huami (Shenzhen) Information Technology Co., Ltd.	PRC	December 7, 2015	100%
Anhui Huami Health Technology Co., Ltd (“Anhui Health”)	PRC	December 28, 2015	100%
Zepp North America Inc. (“Zepp NA”)	U.S.	June 16, 2016	100%
Galaxy Trading Platform Limited (“Galaxy”)	HK	May 8, 2019	100%
Zepp Europe Holding B.V. (“Zepp Europe”)	Netherlands	June 11, 2020	100%
Zepp Netherlands Trading B.V. (“Netherland”)	Netherlands	April 20, 2021	100%
Variable interest entities of the Company:
Anhui Huami	PRC	December 27, 2013	Consolidated VIE
Beijing Huami	PRC	July 11, 2014	Consolidated VIE
Major subsidiary of Anhui Huami:
Anhui Huami Healthcare Co., Ltd. (“Anhui Healthcare”)	PRC	December 5, 2016	VIE’s subsidiary

Schedule of Financial Statement Amounts and Balances of VIEs

	As of December 31,
	2021	2022
	RMB	RMB
Total current assets	2,989,474	2,045,609
Total non-current assets	701,134	790,027
Total assets	3,690,608	2,835,636
Total current liabilities	1,937,301	1,521,807
Total non-current liabilities	479,676	484,496
Total liabilities	2,416,977	2,006,303

	For the years ended December 31,
	2020	2021	2022
	RMB	RMB	RMB
Revenues	6,297,534	5,219,560	2,536,863
Net income/(loss)	751,803	(61,184)	(1,282)

	For the years ended December 31,
	2020	2021	2022
	RMB	RMB	RMB
Net cash provided by/(used in) operating activities	770,935	(295,860)	(226,419)
Net cash used in investing activities	(131,183)	(71,916)	(26,610)
Net cash provided by financing activities	564,671	32,024	445,570

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SIGNIFICANT ACCOUNTING POLICIES (Tables)

12 Months Ended

Dec. 31, 2022

Significant accounting policies

Schedule of estimated useful lives:

Software and electronic equipment	3-5 years
Building	20 years
Leasehold improvements	Shorter of the lease term or estimated useful lives

Concentration credit risk

Significant accounting policies

Schedule of concentration risk:

	As of December 31,
	2021			2022
	RMB			RMB
Company A	87,825	16.4	%	124,319	18.2	%
Company B	269,460	50.1	%	287,160	42.1	%
Total	357,285	66.5	%	411,479	60.3	%

Related parties concentration risk

Significant accounting policies

Schedule of concentration risk:

	As of December 31,
	2021			2022
	RMB			RMB
Company C	286,341	96.9	%	117,944	81.4	%
Total	286,341	96.9	%	117,944	81.4	%

Customer concentration risk

Significant accounting policies

Schedule of concentration risk:

	For the years ended December 31,
	2020			2021			2022
	RMB			RMB			RMB
Company C	4,447,957	69.1	%	3,340,857	53.5	%	1,697,053	41.0	%
Total	4,447,957	69.1	%	3,340,857	53.5	%	1,697,053	41.0	%

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ACQUISITIONS (Tables)

12 Months Ended

Dec. 31, 2022

ACQUISITIONS

Schedule of purchase price allocation

		Amortization
	RMB	period
Cash	5,554
Other current assets	4,704
Property, plant and equipment	149	3 years
Intangible assets
Patents	42,495	5 years
Goodwill	67,856
Other non-current assets	261
Other current liabilities	8,868
Deferred tax liabilities	6,374
Other non-current liabilities	2,980
Total	102,797

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INVENTORIES, NET (Tables)

12 Months Ended

Dec. 31, 2022

INVENTORIES, NET

Schedule of Inventories

	As of December 31,
	2021	2022
	RMB	RMB
Raw materials	282,939	97,266
Work in process	224,013	130,536
Finished goods	742,375	794,121
Inventories, net	1,249,327	1,021,923

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SHORT-TERM INVESTMENTS (Tables)

12 Months Ended

Dec. 31, 2022

SHORT-TERM INVESTMENTS

Schedule of short-term investments

	As of December 31,
	2021	2022
	RMB	RMB
Convertible bonds:	19,351	34,316
Total:	19,351	34,316

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PREPAID EXPENSES AND OTHER CURRENT ASSETS (Tables)

12 Months Ended

Dec. 31, 2022

PREPAID EXPENSES AND OTHER CURRENT ASSETS

Schedule of prepaid expenses and other current assets

	As of December 31,
	2021	2022
	RMB	RMB
Value-added tax recoverable	198,189	4,648
Other receivables	57,039	44,951
Prepaid expenses	51,156	53,682
Advances to suppliers	7,838	1,758
Rental deposits	816	3,213
Total	315,038	108,252

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PROPERTY, PLANT AND EQUIPMENT, NET (Tables)

12 Months Ended

Dec. 31, 2022

PROPERTY, PLANT AND EQUIPMENT, NET

Schedule of property, plant and equipment, net

	As of December 31,
	2021	2022
	RMB	RMB
Software and electronic equipment	78,854	77,693
Buildings	34,764	34,764
Leasehold improvements	81,759	90,720
Total	195,377	203,177
Less: accumulated depreciation	(70,832)	(112,238)
Construction in progress	9,328	9,666
Property, plant and equipment, net	133,873	100,605

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INTANGIBLE ASSETS, NET (Tables)

12 Months Ended

Dec. 31, 2022

INTANGIBLE ASSETS, NET

Schedule of intangible assets, net

	As of December 31,
	2021	2022
	RMB	RMB
Intangible assets with indefinite lives:
Domain name	2,024	2,024
Insurance brokerage license, trademark and others	42,617	44,399
Intangible assets with finite lives:
Patents and trademark	128,332	131,480
Less: accumulated amortization	37,391	54,603
Intangible assets, net	135,582	123,300

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LONG-TERM INVESTMENTS (Tables)

12 Months Ended

Dec. 31, 2022

LONG-TERM INVESTMENTS

Schedule of long-term investments

	As of December 31,
	2021	2022
	RMB	RMB
Equity securities without readily determinable fair value
Sifive, Inc. (“Sifive”) (a)	21,759	95,613
AliveCor, Inc., (“Alivecor”) (b)	14,988	24,582
Promaxo, Inc.(“Promaxo”) (c)	25,490	27,589
Other equity securities without readily determinable fair value (d)	81,775	91,141
Equity securities with readily determinable fair value
Hyperfine Inc. (e)	31,669	4,413
Equity method investments:
Jiangsu Yitong High-Tech Co, Ltd(“Jiangsu Yitong”) (f)	960,832	968,242
Hefei Huaying Xingzhi Fund Partnership (limited partnership) (“Huaying Fund I”) (g)	61,014	60,262
Anhui Huaying Zhihui Wulian Fund Parnership(limited partnership)(“Huaying Fund II”) (h)	200,067	212,803
Other equity method investments (i)	46,548	53,164
Available-for-sale investments
Yunding (j)	50,431	74,912
Other available-for-sale investments (k)	58,018	73,907
Total	1,552,591	1,686,628

(a) In 2018, the Group invested RMB12,332 to acquire 1.01% equity interests in Sifive. Sifive is a private company engaging in the business of semiconductor. The equity interest is not considered in-substance common shares due to substantial liquidation preference rights. Accordingly, the investment in Sifive was accounted for as equity securities without readily determinable fair value. The Group recognized RMB3,304, nil and RMB66,322 gain from the fair value change of this investment during the years ended December 31, 2020, 2021 and 2022, respectively.

10. LONG-TERM INVESTMENTS - CONTINUED

(b) In 2019, the Group invested USD1,000 in a convertible bond issued by Alivecor with 3% interest rate. In February 2020, the Group converted the bond to 0.56% equity interest and the equity interest is not considered in-substance common shares due to substantial liquidation rights owned by the Group. Accordingly, the investment in Alivecor was accounted for equity securities without readily determinable fair value. The Group recognized RMB7,728, nil and RMB8,620 gain from the fair value change of this investment during the years ended December 31, 2020, 2021 and 2022, respectively.

(c) In 2020, the Group invested USD4,000 to acquire 4.05% equity interests in Promaxo. Promaxo is a private company engaging in the business of Magnetic Resonance (“MR”) technology. The equity interest is not considered in-substance common shares due to substantial liquidation preference rights. Accordingly, the investment in Promaxo was accounted for as equity securities without readily determinable fair value. For the year ended December 31, 2020, 2021 and 2022, no fair value change was observed and recognized.

(d) These other investments represent certain insignificant investments in the third-party private companies, which the Group has no significant influence over the investees and accounted for these investments using the measurement alternative method.

(e) In December 2021, Hyperfine was successfully listed in the US capital market through a special purpose acquisition and the investment in Hyperfine was converted from equity securities without readily determinable fair value to equity securities with readily determinable fair value. The Group recorded RMB194 and RMB28,466 realized loss from the fair value change of this investment during the years ended December 31, 2021 and 2022, respectively.

(f) In February 2021, the Group acquired 29.99% equity interest of Jiangsu Yitong, a company listed on the Shenzhen stock exchange, for a total cash consideration of RMB959.68 million. The purpose of the investment is to expand the healthcare ecosystem in the domestic market. The investment of Jiangsu Yitong is accounted for using the equity method as the Group can exercise significant influence through its board representation without obtaining control. During 2022, the Group further acquired 0.01% equity interest of Jiangsu Yitong. The Group recorded RMB1,152 and RMB7,580 income from this equity method investment during the year ended December 31, 2021 and 2022, respectively.

The total consideration of the investment in Jiangsu Yitong was RMB960,832 and the proportion of Jiangsu Yitong’s net assets that owned by the Group was RMB137,302 as of December 31, 2021. The difference between the total consideration and the proportion of net assets was RMB823,530, which has been allocated into goodwill, intangible assets and others assets with the amount of RMB636,672, RMB173,524 and RMB13,334, respectively.

As of December 31, 2022, the carrying value of the investment in Jiangsu Yitong is RMB968,242 and the difference with the proportionate share of Jiangsu Yitong’s net assets was RMB813,101, which allocated into goodwill, intangible assets and others assets with the amount of RMB636,672, RMB172,940 and RMB3,489, respectively.

The intangible assets are trademark with indefinite life and patents with definite life, which are amortized on a straight-line basis over the estimated useful life of 3 to 7 years.

(g) In 2016, the Group invested RMB50,000 to acquire a 49.5% equity interests in a limited partnership, Huaying Fund I, which is a fund engaged in investing activities in small and middle scale High Tech private companies. The Group accounted for the investment under the equity method because the investments are common stock and the Group has significant influence through its board seat but does not control Huaying Fund I. The Group recorded RMB(2,452), RMB7,910 and RMB(752) of (loss)/income from equity method investment during the years ended December 31, 2020, 2021 and 2022, respectively.

10. LONG-TERM INVESTMENTS – CONTINUED

(h) In 2019, the Group invested RMB102,000 to acquire a 34% equity interests in a limited partnership, Huaying Fund II, a fund engaged in investing activities in small and middle scale High Tech private companies. The Group accounted for the investment using the equity method as the Group has significant influence through its board seat but does not control Huaying Fund II. In March 2021, the Group paid the second installment of cash consideration in Huaying Fund II for an amount of RMB68 million. The Group recorded RMB5,297, RMB24,434 and RMB12,737 of income from equity method investment during the years ended December 31, 2020, 2021 and 2022, respectively.

(i) The other equity method investments represent several insignificant investments classified as equity method investments as the Group has the ability to exercise significant influence but does not have control over the investees.

(j) In 2020, the Group invested RMB22,000 in a convertible bond issued by Yunding with interest rates ranging from 4.35% to 8.7%. The Group also has some equity interests in Yuding and accounted them as available for sale investment due to the redemption feature included in the investment as of December 31, 2021 and 2022. During 2021, the Group disposed 5% equity interests in Yunding and recognized a realized gain with amount of RMB13,507 from the disposal. The Group also recorded an unrealized gain of nil, RMB903 and RMB20,943 in other comprehensive income/(loss) for the years ended December 31, 2020, 2021 and 2022, respectively.

(k) Available-for-sale investments represent investments in debt securities and measured at fair value. Those investments mainly include investments in convertible bonds as well as investment with redemption features considered debt instruments.

Schedule of equity method investments

	For the year ended December 31,
	2020	2021	2022
	RMB	RMB	RMB
Revenue	28,087	330,685	412,975
Gross profit	15,114	198,495	147,434
Income from operations	3,011	140,006	68,663
Net income	3,042	137,681	66,039
Net income attributable to ordinary shareholders	3,042	137,681	66,039

	As of December 31,
	2021	2022
	RMB	RMB
Current assets	941,812	825,465
Non-current assets	780,128	913,919
Current liabilities	122,430	88,454
Non-current liabilities	36,807	1,386

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FAIR-VALUE MEASUREMENT (Tables)

12 Months Ended

Dec. 31, 2022

FAIR-VALUE MEASUREMENT

Schedule of fair-value measurement

	As of December 31, 2021
	Quoted Prices in		Significant
	Active Market for	Significant Other	Unobservable
	Identical Assets	Observable Inputs	Inputs
Description	Level 1	Level 2	Level 3	Total
	RMB	RMB	RMB	RMB
Short-term investments:
Convertible bonds	—	19,351	—	19,351
Long-term investments:
Convertible bonds	—	43,055	—	43,055
Redeemable preferred shares	—	—	65,393	65,393
Equity securities with readily determinable fair value	—	31,669	—	31,669
Total:	—	94,075	65,393	159,468

	As of December 31, 2022
	Quoted Prices in		Significant
	Active Market for	Significant Other	Unobservable
	Identical Assets	Observable Inputs	Inputs
Description	Level 1	Level 2	Level 3	Total
	RMB	RMB	RMB	RMB
Short-term investments:
Convertible bonds	—	—	34,316	34,316
Long-term investments:
Convertible bonds	—	—	38,741	38,741
Redeemable preferred shares	—	37,044	73,034	110,078
Equity securities with readily determinable fair value	4,413	—	—	4,413
Total:	4,413	37,044	146,091	187,548

Schedule of reconciliation of the fair value measurements of assets using significant unobservable inputs

	Level 3
	investments
	RMB
Balance as of January 1, 2021	1,934
Initial recognition	24,960
Transfer from level 2	38,499
Balance as of December 31, 2021	65,393
Unrealized gain	19,575
Transfer from level 2	73,057
Transfer to level 2	(11,934)
Balance as of December 31, 2022	146,091

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ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES (Tables)

12 Months Ended

Dec. 31, 2022

ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Schedule of accrued expenses and other current liabilities

	As of December 31,
	2021	2022
	RMB	RMB
Deferred revenue	87,980	61,164
Current operating lease liabilities	50,092	42,320
Accrued payroll and welfare	41,948	25,875
Other tax payable	23,541	20,535
Product warranty	24,858	17,748
Accrued expenses	17,058	6,703
Refund liabilities	5,745	4,845
Government subsidies	3,129	1,745
Reverse factoring	39,195	—
Other current liabilities	22,537	16,884
Total	316,083	197,819

Schedule of product warranty

	RMB
Balance as of January 1, 2020	49,527
Provided during the year	74,742
Utilized during the year	(91,487)
Balance as of December 31, 2020	32,782
Provided during the year	63,540
Utilized during the year	(71,464)
Balance as of December 31, 2021	24,858
Provided during the year	27,146
Utilized during the year	(34,256)
Balance as of December 31, 2022	17,748

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BANK BORROWINGS (Tables)

12 Months Ended

Dec. 31, 2022

BANK BORROWINGS

Schedule of principal repayment of bank borrowings

	Repayment Amount
	RMB
2023	512,000
2024	140,000
2025	260,000
2026	65,000
2027 and thereafter	219,210

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REVENUE AND DEFERRED REVENUES (Tables)

12 Months Ended

Dec. 31, 2022

REVENUE AND DEFERRED REVENUES

Schedule of disaggregated revenue by segment

	For the years ended December 31,
	2020	2021	2022
	RMB	RMB	RMB
Xiaomi Wearable Products	4,438,081	3,340,857	1,697,053
Self-branded products and other	1,995,282	2,909,252	2,445,809
Total	6,433,363	6,250,109	4,142,862

Schedule of deferred revenue and refund liability

	As of December 31,
	2021	2022
	RMB	RMB
Accounts receivables	537,084	682,103
Amounts due from related parties	295,614	138,614
Deferred revenue	87,980	61,164
Refund liability (sales return)	5,745	6,932

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INCOME TAXES (Tables)

12 Months Ended

Dec. 31, 2022

INCOME TAXES

Schedule of current and deferred components of income taxes

	For the years ended December 31,
	2020	2021	2022
	RMB	RMB	RMB
Current tax expenses	42,257	31,543	379
Deferred tax benefits	(11,103)	(20,798)	(66,254)
Income tax expenses/(benefit)	31,154	10,745	(65,875)

Schedule of deferred tax assets

	As of December 31,
	2021	2022
	RMB	RMB
Accrued expenses and other current liabilities	47,005	46,958
Net operating loss carry forwards	75,100	178,689
Intra-entity transfer of certain intangible assets	28,290	26,726
Total deferred tax assets	150,395	252,373
Less: valuation allowance	(6,976)	(42,187)
Deferred tax assets, net	143,419	210,186

Schedule of reconciliation between the income tax expense computed by applying the statutory rate and the actual income tax expense

	For the years ended December 31,
	2020	2021	2022
	RMB	RMB	RMB
Income/(loss) before income tax	265,609	106,669	(372,533)
Tax expense/(benefit) at PRC enterprise income tax rate of 25%	66,402	26,667	(93,133)
Effect of preferential tax rates	(41,869)	(19,387)	29,784
Tax effect of permanence differences	(20,001)	(34,587)	(53,808)
Effect of income tax rate differences in other jurisdictions	21,625	23,666	16,071
Change in tax rate	3,460	9,549	—
Changes in valuation allowances	1,537	4,837	35,211
Income tax benefits/(expenses)	31,154	10,745	(65,875)

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SHARE-BASED PAYMENT (Tables)

12 Months Ended

Dec. 31, 2022

SHARE-BASED PAYMENT

Schedule of assumptions used to determine fair value of share options granted

	For the years ended December 31,
	2020		2021		2022
Risk-free interest rate	0.67%-0.72	%	1.66	%	4.25	%
Expected volatility	51.9%-52.0	%	52.2	%	52.4	%
Expected life of option (years)	10		10		10
Expected dividend yield	0.0	%	0.0	%	0.0	%
Fair value per ordinary share	RMB21.60-23.10		RMB8.05-12.98		RMB1.96

Schedule of stock option activity

		Weighted average
		exercise price
	Number of options	per option
		US$
Outstanding at January 1, 2022	16,798,153	0.07
Granted	1,492,332	—
Exercised	(4,357,100)	—
Forfeited	(1,105,682)	0.45
Outstanding at December 31, 2022	12,827,703	0.05

Schedule of share options granted

	December 31, 2022
			Weighted
			average remaining
		Weighted	exercise
		average exercise	contractual	Aggregate
	Options Number	price per option	life (years)	intrinsic value
		US$		US$
Options
Outstanding	12,827,703	0.05	7.26	4,389
Exercisable	7,904,689	0.08	6.67	2,604
Expected to vest	4,923,014	—	8.21	1,784

Schedule of restricted stock units activity

	RSUs
Unvested balance as of January 1, 2022	3,079,436
Granted	100,972
Forfeited	(213,700)
Vested	(1,268,408)
Unvested balance as of December 31, 2021	1,698,300

Schedule of total share-based compensation recognized

	For the years ended December 31,
	2020	2021	2022
	RMB	RMB	RMB
Cost of revenues	—	—	—
General and administrative	38,605	32,247	21,353
Research and development	23,978	42,677	23,585
Selling and marketing	2,571	8,198	4,169
Total share-based compensation expenses	65,154	83,122	49,107

XML

SEGMENT INFORMATION (Tables)

12 Months Ended

Dec. 31, 2022

SEGMENT INFORMATION

Schedule of segment information

	For the year ended December 31, 2020
	Xiaomi	Self-branded
	wearable	products
	Products	and others	Total
	RMB	RMB	RMB
Revenues	4,438,081	1,995,282	6,433,363
Cost of revenues	3,706,495	1,394,203	5,100,698
Gross Profit	731,586	601,079	1,332,665

	For the year ended December 31, 2021
	Xiaomi	Self-branded
	wearable	products
	Products	and others	Total
	RMB	RMB	RMB
Revenues	3,340,857	2,909,252	6,250,109
Cost of revenues	2,754,086	2,190,381	4,944,467
Gross Profit	586,771	718,871	1,305,642

20. SEGMENT INFORMATION – CONTINUED

	For the year ended December 31, 2022
	Xiaomi	Self-branded
	wearable	products
	Products	and others	Total
	RMB	RMB	RMB
Revenues	1,697,053	2,445,809	4,142,862
Cost of revenues	1,394,460	1,945,286	3,339,746
Gross Profit	302,593	500,523	803,116

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RELATED PARTY BALANCES AND TRANSACTIONS (Tables)

12 Months Ended

Dec. 31, 2022

RELATED PARTY BALANCES AND TRANSACTIONS

Schedule of Amount due:

	As of December 31,
	2021	2022
	RMB	RMB
Amount due from related parties:
Current:
Xiaomi Communication (a)	286,341	117,944
Field Medical (b)	—	10,375
Hefei Jingyu	1,101	2,648
Hefei LianRui Microelectronics Technology Co. Ltd	2,452	2,452
Yunding (c)	2,330	2,330
Gongqingcheng Yunding (d)	2,500	2,500
Others (a)	890	365
Non-current
A vice president (e)	—	6,333
Total	295,614	144,947

	As of December 31,
	2021	2022
	RMB	RMB
Amount due to related parties, current:
Hefei Jingyu	48,052	36,864
Xiaomi Communication	—	2,087
Xiaomi Technology(f)	1,562	1,965
Others	509	62
Total	50,123	40,978

Schedule of transactions:

	For the years ended December 31,
	2020	2021	2022
	RMB	RMB	RMB
Sales to related parties:
Xiaomi Communication	4,447,957	3,340,857	1,697,053
Xiaomi Youpin	—	9,175	6,942
Others	1,800	—	—
Total	4,449,757	3,350,032	1,703,995

Schedule of purchase from related parties

	For the years ended December 31,
	2020	2021	2022
	RMB	RMB	RMB
Sales to related parties:
Xiaomi Communication	4,447,957	3,340,857	1,697,053
Xiaomi Youpin	—	9,175	6,942
Others	1,800	—	—
Total	4,449,757	3,350,032	1,703,995

	For the years ended December 31,
	2020	2021	2022
	RMB	RMB	RMB
Purchase from related parties
Hefei Jingyu (g)	—	146,847	222,174
Others	12,000	—	—

(a) The amount due from Xiaomi represents receivables from the sales of products and services, which includes an unbilled amount of RMB64,129 and RMB2,613 as of December 31, 2021 and 2022, respectively.

(b) The amount due from Field Medical represents borrowings the Group provided to Field Medical to support the daily operation.

(c) The amount due from Yunding represents prepayment for the purchase of Yunding’ products which was collected in March 2023.

(d) In December 2020, the Group sold 26.7% equity interest in Yunding for a cash consideration of RMB22,500 to Gongqingcheng Yunding, of which RMB20,000 has been received in January 2021.

(e) The amount due from a vice president represents a loan provided to a key management.

(f) The amounts due to Xiaomi Technology represent the payable for the cloud service received by the Group.

(g) Hefei Jingyu is a subsidiary of Jiangsu Yitong, where the Group can exercise significant influence. During 2021 and 2022, the Group purchased some raw material from Hefei Jingyu with total transaction amount of RMB146,847 and RMB222,174.

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NET INCOME/(LOSS) PER SHARE (Tables)

12 Months Ended

Dec. 31, 2022

NET INCOME/(LOSS) PER SHARE

Schedule of profit attributable to owners

	For the years ended December 31,
	2020	2021	2022
	RMB	RMB	RMB
Basic net income/(loss) per share calculation Numerator:
Net income/(loss) for the year attributable to the Company:	228,753	137,803	(288,308)
Net income/(loss) attributed to ordinary shareholders for computing net income per ordinary shares - basic	228,753	137,803	(288,308)
Denominator:
Weighted average ordinary shares outstanding used in computing net income/(loss) per ordinary shares – basic	248,470,684	252,167,610	246,283,328
Net income/(loss) per ordinary share attributable to ordinary shareholders—basic	0.92	0.55	(1.17)
Diluted net income/(loss) per share calculation
Net income/(loss) attributable to ordinary shareholders for computing net income per ordinary shares—basic and diluted	228,753	137,803	(288,308)
Denominator:
Weighted average ordinary shares outstanding used in computing net income per ordinary shares - basic	248,470,684	252,167,610	246,283,328
Effect of potentially diluted share options, restricted shares and RSUs	11,881,310	12,201,019	—
Weighted average ordinary shares outstanding used in computing net income per ordinary shares—diluted	260,351,994	264,368,629	246,283,328
Net income/(loss) per ordinary share attributable to ordinary shareholders—diluted	0.88	0.52	(1.17)

Schedule of shares excluded from calculation of net income per share

	For the years ended December 31,
	2020	2021	2022
Shares issuable upon exercise of share options, restricted shares and RSUs	89,165	301,946	7,390,487

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LEASES (Tables)

12 Months Ended

Dec. 31, 2022

LEASES

Schedule of components of lease cost

	For the years ended December 31,
	2020	2021	2022
	RMB	RMB	RMB
Operating lease cost (1)	57,080	41,595	37,428
Sublease income	(537)	(3,591)	(8,796)
Total lease cost	56,543	38,004	28,632

(1) Operating lease cost includes short-term lease costs, which was not material in the period presented.

Schedule of components of leases that are recognized on the Balance Sheets

	As of December 31,
	2021		2022
	RMB		RMB
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	49,644		50,357
Non-cash Right-of-use assets in exchange for new lease liabilities:
Operating leases	2,157		1,674
Weighted average remaining lease term:
Operating leases	2.80 years		2.03 years
Weighted average discount rate:
Operating leases	5.27	%	5.32	%

Schedule of maturities of lease liabilities under operating leases, after adoption of ASU 2016-02

The following is a maturity analysis of the annual undiscounted cash flows for the year ended December 31, 2022:

Year ending December 31,	RMB
2023	43,701
2024	26,291
2025	8,441
Total lease payments	78,433
Less: imputed interest	(4,423)
Present value of lease liabilities	74,010

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ORGANIZATION AND PRINCIPAL ACTIVITIES (Details) - customer	12 Months Ended
	Dec. 31, 2022	Dec. 31, 2021	Dec. 31, 2020	Nov. 03, 2017	Apr. 29, 2015
Anhui Huami
ORGANIZATION AND PRINCIPAL ACTIVITIES
Ownership percentage					100.00%
Beijing Huami
ORGANIZATION AND PRINCIPAL ACTIVITIES
Ownership percentage				100.00%
Beneficiary shareholder
ORGANIZATION AND PRINCIPAL ACTIVITIES
Common shares held (as percentage of total shares)	28.40%
Customer concentration risk
ORGANIZATION AND PRINCIPAL ACTIVITIES
Number of customers	1	1	1
Exclusively designed and manufactured smart wearable devices | Customer concentration risk | Sales revenue net
ORGANIZATION AND PRINCIPAL ACTIVITIES
Concentration risk, percentage	41.00%	53.50%	69.00%

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ORGANIZATION AND PRINCIPAL ACTIVITIES - Subsidiaries and VIEs (Details)	12 Months Ended
	Dec. 31, 2022
Anhui Huami
Major subsidiaries and major VIEs
Date of incorporation/acquisition	Dec. 27, 2013
Variable interest entity, nature of VIE	Consolidated VIE
Beijing Huami
Major subsidiaries and major VIEs
Date of incorporation/acquisition	Jul. 11, 2014
Variable interest entity, nature of VIE	Consolidated VIE
Anhui Huami Healthcare Co., Ltd. ("Huami Healthcare")
Major subsidiaries and major VIEs
Date of incorporation/acquisition	Dec. 05, 2016
Variable interest entity, nature of VIE	VIE’s subsidiary
Hong Kong Zepp Holding Limited ("Zepp HK")
Major subsidiaries and major VIEs
Date of incorporation/acquisition	Dec. 23, 2014
Percentage of ownership	100.00%
ZEPP, INC. ("Zepp Inc")
Major subsidiaries and major VIEs
Date of incorporation/acquisition	Jan. 15, 2015
Percentage of ownership	100.00%
Beijing ShunYuan KaiHua Technology Co., Ltd. ("Shun Yuan")
Major subsidiaries and major VIEs
Date of incorporation/acquisition	Feb. 25, 2015
Percentage of ownership	100.00%
Huami (Shenzhen) Information Technology Co., Ltd.
Major subsidiaries and major VIEs
Date of incorporation/acquisition	Dec. 07, 2015
Percentage of ownership	100.00%
Anhui Huami Health Technology Co., Ltd ("Anhui Health")
Major subsidiaries and major VIEs
Date of incorporation/acquisition	Dec. 28, 2015
Percentage of ownership	100.00%
Zepp North America Inc. ("Zepp NA")
Major subsidiaries and major VIEs
Date of incorporation/acquisition	Jun. 16, 2016
Percentage of ownership	100.00%
Galaxy Trading Platform Limited ("Galaxy")
Major subsidiaries and major VIEs
Date of incorporation/acquisition	May 08, 2019
Percentage of ownership	100.00%
Zepp Europe Holding B.V. ("Zepp Europe")
Major subsidiaries and major VIEs
Date of incorporation/acquisition	Jun. 11, 2020
Percentage of ownership	100.00%
Zepp Netherlands Trading B.V. ("Netherland")
Major subsidiaries and major VIEs
Date of incorporation/acquisition	Apr. 20, 2021
Percentage of ownership	100.00%

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ORGANIZATION AND PRINCIPAL ACTIVITIES - Risks in relation to VIE structure (Details) ¥ in Thousands, $ in Thousands	12 Months Ended
	Dec. 31, 2022 CNY (¥)	Dec. 31, 2022 USD ($)	Dec. 31, 2021 CNY (¥)	Dec. 31, 2020 CNY (¥)	Dec. 31, 2022 USD ($)
Variable Interest Entity
Total current assets	¥ 2,958,548		¥ 3,930,953		$ 428,948
Total assets	5,267,643		6,085,501		763,735
Total current liabilities	1,668,668		2,152,132		241,933
Total liabilities	2,582,722		3,152,062		$ 374,459
Revenues	4,142,862		6,250,109	¥ 6,433,363
Net income/(loss)	(288,308)	$ (41,801)	137,803	228,753
Net cash provided by/(used in) operating activities	(787,643)	(114,199)	(232,435)	157,302
Net cash used in investing activities	(42,258)	(6,127)	(1,069,289)	(206,880)
Net cash provided by/(used in) financing activities	289,198	$ 41,928	551,077	564,671
Variable Interest Entities
Variable Interest Entity
Total current assets	2,045,609		2,989,474
Total non-current assets	790,027		701,134
Total assets	2,835,636		3,690,608
Total current liabilities	1,521,807		1,937,301
Total non-current liabilities	484,496		479,676
Total liabilities	2,006,303		2,416,977
Revenues	2,536,863		5,219,560	6,297,534
Net income/(loss)	(1,282)		(61,184)	751,803
Variable Interest Entities | Correction of error
Variable Interest Entity
Net cash provided by/(used in) operating activities	(226,419)		(295,860)	770,935
Net cash used in investing activities	(26,610)		(71,916)	(131,183)
Net cash provided by/(used in) financing activities	¥ 445,570		¥ 32,024	¥ 564,671

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SIGNIFICANT ACCOUNTING POLICIES (Details) ¥ in Thousands				12 Months Ended
	Apr. 01, 2019	May 01, 2018	Apr. 30, 2018	Dec. 31, 2022 CNY (¥) $ / ¥	Dec. 31, 2022 CNY (¥) $ / ¥	Dec. 31, 2022 CNY (¥) USD ($) $ / ¥	Dec. 31, 2022 CNY (¥) customer $ / ¥	Dec. 31, 2022 CNY (¥) $ / ¥	Dec. 31, 2022 CNY (¥) installment $ / ¥	Dec. 31, 2021 CNY (¥) customer	Dec. 31, 2020 CNY (¥) customer	Dec. 31, 2022 USD ($) $ / ¥
SIGNIFICANT ACCOUNTING POLICIES
Impairment loss related to acquired intangible assets					¥ 0					¥ 0	¥ 0
Goodwill impairment					0					0	0
Allowance for doubtful accounts				¥ 1,466	1,466	¥ 1,466	¥ 1,466	¥ 1,466	¥ 1,466	814
Unrealized gains on available-for-sale investments					¥ 2,006					1,240	1,243
Lease term				4 years	4 years	4 years	4 years	4 years	4 years			4 years
Impairment losses on equity method investments					¥ 0					0	0
Unrealized (losses) / gains on available-for-sale investments					40,140					1,345	(22,583)
Investment held					0					0
Percentage of total revenues								26.10%
Value added tax rate	13.00%	16.00%	17.00%					6.00%
Advertising expenses					172,577					151,744	136,974
Government subsidy recognized as income					41,054					23,140	13,461
Government subsidy, cost of revenue					53,563					103,660	10,408
Government subsidies other current liabilities				¥ 1,745	1,745	¥ 1,745	¥ 1,745	¥ 1,745	¥ 1,745	3,129
Government subsidies other non-current liabilities				162,602	162,602	162,602	162,602	162,602	162,602	175,053
Cash and cash equivalents				¥ 886,632	¥ 886,632	¥ 886,632	¥ 886,632	¥ 886,632	¥ 886,632	1,468,499		$ 128,550,000
Foreign currency exchange rate | $ / ¥				6.8972	6.8972	6.8972	6.8972	6.8972	6.8972			6.8972
Product warranty term for one customer				12 months
U.S. Dollar Denominated
SIGNIFICANT ACCOUNTING POLICIES
Cash and cash equivalents				¥ 263,400	¥ 263,400	¥ 263,400	¥ 263,400	¥ 263,400	¥ 263,400	435,205
RMB
SIGNIFICANT ACCOUNTING POLICIES
Cash and cash equivalents				¥ 565,721	565,721	¥ 565,721	¥ 565,721	¥ 565,721	¥ 565,721	990,222
General and administrative expenses
SIGNIFICANT ACCOUNTING POLICIES
Transaction gains					¥ 12,086					¥ 18,156	¥ 27,451
Smart wearable devices
SIGNIFICANT ACCOUNTING POLICIES
Percentage of sales revenue								41.00%		53.50%	69.00%
Number of customers						1	1			1	1
Number of payment installments from customer | installment									2
Percentage of second installment payment receivable								50.00%
Self-branded products and others
SIGNIFICANT ACCOUNTING POLICIES
Percentage of sales revenue								59.00%		46.50%	31.00%
Minimum
SIGNIFICANT ACCOUNTING POLICIES
Deposit								30.00%
Minimum | Trademark and patents
SIGNIFICANT ACCOUNTING POLICIES
Useful lives				5 years
Maximum
SIGNIFICANT ACCOUNTING POLICIES
Deposit								75.00%
Maximum | Trademark and patents
SIGNIFICANT ACCOUNTING POLICIES
Useful lives				10 years

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SIGNIFICANT ACCOUNTING POLICIES - Property, plant and equipment, net (Details)	12 Months Ended
	Dec. 31, 2022
Software and electronic equipment | Maximum
Property, plant and equipment, net
Estimated useful lives	5 years
Software and electronic equipment | Minimum
Property, plant and equipment, net
Estimated useful lives	3 years
Buildings
Property, plant and equipment, net
Estimated useful lives	20 years

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SIGNIFICANT ACCOUNTING POLICIES - Account receivable concentration of credit risk (Details) ¥ in Thousands, $ in Thousands	12 Months Ended
	Dec. 31, 2022 CNY (¥)	Dec. 31, 2021 CNY (¥)	Dec. 31, 2022 USD ($)
Concentration of credit risk
Accounts receivables	¥ 682,103	¥ 537,084	$ 98,896
Customer concentration risk | Major Customers | Accounts Receivable
Concentration of credit risk
Accounts receivables	¥ 411,479	¥ 357,285
Concentration risk, percentage	60.30%	66.50%
Customer concentration risk | Company A | Accounts Receivable
Concentration of credit risk
Accounts receivables	¥ 124,319	¥ 87,825
Concentration risk, percentage	18.20%	16.40%
Customer concentration risk | Company B | Accounts Receivable
Concentration of credit risk
Accounts receivables	¥ 287,160	¥ 269,460
Concentration risk, percentage	42.10%	50.10%

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SIGNIFICANT ACCOUNTING POLICIES - Related parties concentration of credit risk (Details) ¥ in Thousands, $ in Thousands	12 Months Ended
	Dec. 31, 2022 CNY (¥)	Dec. 31, 2021 CNY (¥)	Dec. 31, 2022 USD ($)
Concentration of credit risk
Amounts due from related parties	¥ 138,614	¥ 295,614	$ 20,097
Concentration credit risk | Related parties concentration risk | Major Customers
Concentration of credit risk
Amounts due from related parties	¥ 117,944	¥ 286,341
Concentration risk, percentage	81.40%	96.90%
Concentration credit risk | Related parties concentration risk | Company C
Concentration of credit risk
Amounts due from related parties	¥ 117,944	¥ 286,341
Concentration risk, percentage	81.40%	96.90%

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SIGNIFICANT ACCOUNTING POLICIES - Revenue generated from related parties (Details) - CNY (¥) ¥ in Thousands	12 Months Ended
	Dec. 31, 2022	Dec. 31, 2021	Dec. 31, 2020
Concentration of credit risk
Revenues	¥ 4,142,862	¥ 6,250,109	¥ 6,433,363
Sales revenue net | Customer concentration risk | Major Customers
Concentration of credit risk
Revenues	¥ 1,697,053	¥ 3,340,857	¥ 4,447,957
Concentration risk, percentage	41.00%	53.50%	69.10%
Sales revenue net | Customer concentration risk | Company C
Concentration of credit risk
Revenues	¥ 1,697,053	¥ 3,340,857	¥ 4,447,957
Concentration risk, percentage	41.00%	53.50%	69.10%

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SIGNIFICANT ACCOUNTING POLICIES - Supplier concentration (Details)	12 Months Ended
	Dec. 31, 2020
Supplier concentration risk | Raw materials and semi-manufactures | Customer D
Concentration of credit risk
Concentration risk, percentage	15.10%

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ACQUISITIONS (Details) ¥ in Thousands, $ in Thousands		1 Months Ended	12 Months Ended
	Jun. 12, 2020 CNY (¥)	Jul. 31, 2020 CNY (¥)	Dec. 31, 2022 CNY (¥)	Dec. 31, 2021 CNY (¥)	Dec. 31, 2022 USD ($)
Business Combination, Recognized Identifiable Assets Acquired, Goodwill, and Liabilities Assumed, Net [Abstract]
Goodwill			¥ 66,081	¥ 61,055	$ 9,581
Guoxu
Asset Acquisition, Consideration Transferred [Abstract]
Percentage of equity interest		100.00%
Gross consideration		¥ 67,914
Loan deemed effectively settled as a result of the acquisition		35,075
Cash consideration		¥ 32,839
Acquisition of PAI
Business Combination
Voting interest (as a percent)	100.00%
Cash consideration	¥ 1,370
Loan deemed effectively settled as a result of the acquisition	13,711
Fair value of PAI acquired amount	¥ 87,716
Percentage of revenue			1.00%	1.00%
Previously held equity interest	40.49%
Business Combination, Recognized Identifiable Assets Acquired, Goodwill, and Liabilities Assumed, Net [Abstract]
Cash	¥ 5,554
Other current assets	4,704
Property, plant and equipment	¥ 149
Property, plant and equipment, amortization period	3 years
Patents	¥ 42,495
Goodwill	67,856
Other non-current assets	261
Other current liabilities	8,868
Deferred tax liabilities	6,374
Total identifiable assets	102,797
Other non-current liabilities	¥ 2,980
Patents	5 years

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DISPOSAL OF SUBSIDIARIES (Details) - CNY (¥) ¥ in Thousands	12 Months Ended
	Dec. 31, 2021	Dec. 31, 2020	Dec. 31, 2022
DISPOSAL OF SUBSIDIARIES
Gain from deconsolidation of a subsidiary		¥ 56,522
Shenzhen Yunding Information Technology Co., Ltd. ("Yunding")
DISPOSAL OF SUBSIDIARIES
Gain from deconsolidation of a subsidiary		¥ 56,522
Shenzhen Yunding Information Technology Co., Ltd. ("Yunding") | Disposal by sale
DISPOSAL OF SUBSIDIARIES
Ownership interest sold (as a percent)	5.00%	26.70%
Cash consideration	¥ 20,000	¥ 22,500
Previous intercompany loan, outstanding principal		¥ 24,514
Shenzhen Yunding Information Technology Co., Ltd. ("Yunding") | Disposal by sale | Shenzhen Yunding Information Technology Co., Ltd. ("Yunding")
DISPOSAL OF SUBSIDIARIES
Ownership interest (as a percent)			24.30%

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INVENTORIES, NET (Details) ¥ in Thousands, $ in Thousands	Dec. 31, 2022 CNY (¥)	Dec. 31, 2022 USD ($)	Dec. 31, 2021 CNY (¥)
INVENTORIES, NET
Raw materials	¥ 97,266		¥ 282,939
Work in process	130,536		224,013
Finished goods	794,121		742,375
Inventories, net	¥ 1,021,923	$ 148,165	¥ 1,249,327

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INVENTORIES, NET - Write downs (Details) - CNY (¥) ¥ in Thousands	12 Months Ended
	Dec. 31, 2022	Dec. 31, 2021	Dec. 31, 2020
INVENTORIES, NET
Provision for excess and obsolete inventories	¥ 39,551	¥ 51,336	¥ 64,223

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SHORT-TERM INVESTMENTS (Details) ¥ in Thousands, $ in Thousands	Dec. 31, 2022 CNY (¥)	Dec. 31, 2022 USD ($)	Dec. 31, 2021 CNY (¥)
Schedule Of Investments [Abstract]
Short-term investments (including available-for-sale debt securities measured at fair value of RMB19,351 and RMB34,316 as of December 31, 2021 and 2022, respectively)	¥ 34,316	$ 4,975	¥ 19,351

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SHORT-TERM INVESTMENTS - Additional information (Details) ¥ in Thousands, $ in Thousands	12 Months Ended
	Dec. 31, 2022 CNY (¥)	Dec. 31, 2022 USD ($)	Dec. 31, 2021 CNY (¥)	Dec. 31, 2020 CNY (¥)
LONG-TERM INVESTMENTS
Payments to acquire investment	¥ 16,339	$ 2,369
Unrealized gain on available-for-sale investments and others	7,096		¥ 0	¥ 4,017
Others
LONG-TERM INVESTMENTS
Unrealized gain on available-for-sale investments and others	¥ 2,006		¥ 1,240	¥ 1,243

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PREPAID EXPENSES AND OTHER CURRENT ASSETS (Details) ¥ in Thousands, $ in Thousands	Dec. 31, 2022 CNY (¥)	Dec. 31, 2022 USD ($)	Dec. 31, 2021 CNY (¥)
PREPAID EXPENSES AND OTHER CURRENT ASSETS
Value-added tax recoverable	¥ 4,648		¥ 198,189
Other receivables	44,951		57,039
Prepaid expenses	53,682		51,156
Advances to suppliers	1,758		7,838
Rental deposits	3,213		816
Total	¥ 108,252	$ 15,694	¥ 315,038

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PROPERTY, PLANT AND EQUIPMENT, NET (Details) ¥ in Thousands, $ in Thousands	Dec. 31, 2022 CNY (¥)	Dec. 31, 2022 USD ($)	Dec. 31, 2021 CNY (¥)
PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, gross	¥ 203,177		¥ 195,377
Less: accumulated depreciation	(112,238)		(70,832)
Property, plant and equipment, net	100,605	$ 14,586	133,873
Software and electronic equipment
PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, gross	77,693		78,854
Buildings
PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, gross	34,764		34,764
Leasehold improvements
PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, gross	90,720		81,759
Construction in progress
PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, gross	¥ 9,666		¥ 9,328

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PROPERTY, PLANT AND EQUIPMENT, NET - Additional Information (Details) - CNY (¥) ¥ in Thousands	12 Months Ended
	Dec. 31, 2022	Dec. 31, 2021	Dec. 31, 2020
PROPERTY, PLANT AND EQUIPMENT, NET
Depreciation expense	¥ 41,406	¥ 35,109	¥ 14,949
Impairment charges	¥ 0	¥ 0	¥ 0

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INTANGIBLE ASSETS, NET (Details) ¥ in Thousands, $ in Thousands	Dec. 31, 2022 CNY (¥)	Dec. 31, 2022 USD ($)	Dec. 31, 2021 CNY (¥)
Intangible assets with finite lives:
Patents and trademark	¥ 131,480		¥ 128,332
Less: accumulated amortization	54,603		37,391
Intangible assets, net	123,300	$ 17,877	135,582
Domain name
Intangible assets with indefinite lives:
Intangible assets with indefinite lives	2,024		2,024
Insurance brokerage license, trademark and others
Intangible assets with indefinite lives:
Intangible assets with indefinite lives	¥ 44,399		¥ 42,617

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INTANGIBLE ASSETS, NET - Additional information (Details) - CNY (¥) ¥ in Thousands	12 Months Ended
	Dec. 31, 2022	Dec. 31, 2021	Dec. 31, 2020
INTANGIBLE ASSETS, NET
Amortization of intangible assets	¥ 17,212	¥ 16,775	¥ 12,180
2023	17,374
2024	17,374
2025	13,600
2026	9,097
2027	9,097
Thereafter	¥ 10,335

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LONG-TERM INVESTMENTS (Details) ¥ in Thousands, $ in Thousands	Dec. 31, 2022 CNY (¥)	Dec. 31, 2022 USD ($)	Dec. 31, 2021 CNY (¥)
LONG-TERM INVESTMENTS
Long-term investments	¥ 1,686,628	$ 244,538	¥ 1,552,591
Jiangsu Yitong
LONG-TERM INVESTMENTS
Equity method investments	968,242		960,832
Huaying Fund I
LONG-TERM INVESTMENTS
Equity method investments	60,262		61,014
Huaying Fund II
LONG-TERM INVESTMENTS
Equity method investments	212,803		200,067
Yunding
LONG-TERM INVESTMENTS
Available-for-sale investments	74,912		50,431
Others
LONG-TERM INVESTMENTS
Available-for-sale investments	73,907		58,018
Sifive, Inc. ("Sifive")
LONG-TERM INVESTMENTS
Equity securities without readily determinable fair value	95,613		21,759
AliveCor, Inc. ("Alivecor")
LONG-TERM INVESTMENTS
Equity securities without readily determinable fair value	24,582		14,988
Promaxo, Inc.
LONG-TERM INVESTMENTS
Equity securities without readily determinable fair value	27,589		25,490
Others
LONG-TERM INVESTMENTS
Equity securities without readily determinable fair value	91,141		81,775
Equity method investments	53,164		46,548
Hyperfine Inc.
LONG-TERM INVESTMENTS
Equity securities with readily determinable fair value Hyperfine Inc.	¥ 4,413		¥ 31,669

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LONG-TERM INVESTMENTS - Additional information (Details) $ in Thousands	1 Months Ended		12 Months Ended
	Mar. 31, 2021 CNY (¥)	Feb. 28, 2021 CNY (¥)	Dec. 31, 2022 CNY (¥)	Dec. 31, 2022 USD ($)	Dec. 31, 2021 CNY (¥)	Dec. 31, 2020 CNY (¥)	Dec. 31, 2020 USD ($)	Dec. 31, 2019 CNY (¥)	Dec. 31, 2019 USD ($)	Dec. 31, 2018 CNY (¥)	Dec. 31, 2016 CNY (¥)	Feb. 29, 2020
LONG-TERM INVESTMENTS
Purchase of long term investments			¥ 12,733,000	$ 1,846	¥ 1,072,783,000	¥ 82,221,000
Gain from fair value change of long-term investments			51,817,000	7,513		12,325,000
(Loss)/ Income from equity method investments			17,657,000	$ 2,560	¥ 41,028,000	(4,749,000)
Disposal by sale | Shenzhen Yunding Information Technology Co., Ltd. ("Yunding")
LONG-TERM INVESTMENTS
Percentage of sale of investments					5.00%
Unrealized gain in other comprehensive income/(loss)			¥ 20,943,000		¥ 903,000	0
Realized gain on disposal					13,507,000
Patents | Minimum
LONG-TERM INVESTMENTS
Estimated useful life			3 years	3 years
Patents | Maximum
LONG-TERM INVESTMENTS
Estimated useful life			7 years	7 years
Jiangsu Yitong
LONG-TERM INVESTMENTS
Purchase of long term investments		¥ 959,680,000
Equity interests (as a percent)		29.99%	0.01%
(Loss)/ Income from equity method investments			¥ 7,580,000		1,152,000
Equity method investments			968,242,000		960,832,000
Share of net assets					137,302,000
Difference between the total consideration and the proportion of net assets			813,101,000		823,530,000
Jiangsu Yitong | Goodwill
LONG-TERM INVESTMENTS
Positive basis difference			636,672,000		636,672,000
Jiangsu Yitong | Intangible assets
LONG-TERM INVESTMENTS
Positive basis difference			172,940,000		173,524,000
Jiangsu Yitong | Other assets
LONG-TERM INVESTMENTS
Positive basis difference			3,489,000		13,334,000
Huaying Fund I
LONG-TERM INVESTMENTS
Purchase of long term investments											¥ 50,000,000
(Loss)/ Income from equity method investments			(752,000)		7,910,000	(2,452,000)
Equity method investments			60,262,000		61,014,000
Huaying Fund II
LONG-TERM INVESTMENTS
Purchase of long term investments	¥ 68,000,000							¥ 102,000,000
(Loss)/ Income from equity method investments			12,737,000		24,434,000	5,297,000
Equity method investments			212,803,000		200,067,000
Sifive
LONG-TERM INVESTMENTS
Purchase of long term investments										¥ 12,332,000
Equity interests (as a percent)										1.01%
Equity securities with readily determinable fair value Hyperfine Inc.			66,322,000		0	3,304,000
Alivecor
LONG-TERM INVESTMENTS
Purchase of long term investments | $									$ 1,000
Equity interests (as a percent)												0.56%
Equity securities with readily determinable fair value Hyperfine Inc.			8,620,000		0	¥ 7,728,000
Interest rate (as a percent)								3.00%	3.00%
Promaxo
LONG-TERM INVESTMENTS
Purchase of long term investments | $							$ 4,000
Equity interests (as a percent)						4.05%
Gain from fair value change of long-term investments			0		0	¥ 0
Hyperfine
LONG-TERM INVESTMENTS
Equity securities with readily determinable fair value Hyperfine Inc.			¥ 28,466,000		¥ 194,000
Huaying Fund II | Huaying Fund I
LONG-TERM INVESTMENTS
Equity method investment, ownership percentage											49.50%
Huaying Fund II | Huaying Fund II
LONG-TERM INVESTMENTS
Equity method investment, ownership percentage								34.00%	34.00%
Shenzhen Yunding Information Technology Co., Ltd. ("Yunding")
LONG-TERM INVESTMENTS
Purchase of long term investments						¥ 22,000,000
Shenzhen Yunding Information Technology Co., Ltd. ("Yunding") | Minimum
LONG-TERM INVESTMENTS
Interest rate						4.35%
Shenzhen Yunding Information Technology Co., Ltd. ("Yunding") | Maximum
LONG-TERM INVESTMENTS
Interest rate						8.70%
Shenzhen Yunding Information Technology Co., Ltd. ("Yunding") | Disposal by sale | Shenzhen Yunding Information Technology Co., Ltd. ("Yunding")
LONG-TERM INVESTMENTS
Equity method investment, ownership percentage			24.30%

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LONG-TERM INVESTMENTS - Equity method investments (Details) ¥ in Thousands, $ in Thousands	12 Months Ended
	Dec. 31, 2022 CNY (¥)	Dec. 31, 2022 USD ($)	Dec. 31, 2021 CNY (¥)	Dec. 31, 2020 CNY (¥)	Dec. 31, 2022 USD ($)
LONG-TERM INVESTMENTS
Revenue	¥ 4,142,862	$ 600,659	¥ 6,250,109	¥ 6,433,363
Gross profit	803,116	116,441	1,305,642	1,332,665
Net income (loss)	(289,001)	(41,901)	136,952	229,706
Net income attributable to ordinary shareholders	(288,308)	$ (41,801)	137,803	228,753
Non-current assets	50,389		19,593		$ 7,306
Current liabilities	1,668,668		2,152,132		$ 241,933
Equity method investments
LONG-TERM INVESTMENTS
Revenue	412,975		330,685	28,087
Gross profit	147,434		198,495	15,114
Income from operations	68,663		140,006	3,011
Net income (loss)	66,039		137,681	3,042
Net income attributable to ordinary shareholders	66,039		137,681	¥ 3,042
Current assets	825,465		941,812
Non-current assets	913,919		780,128
Current liabilities	88,454		122,430
Non-current liabilities	¥ 1,386		¥ 36,807

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FAIR-VALUE MEASUREMENT (Details) ¥ in Thousands, $ in Thousands	Dec. 31, 2022 CNY (¥)	Dec. 31, 2022 USD ($)	Dec. 31, 2021 CNY (¥)
Fair Value Assets Measured On Recurring Basis [Line Items]
Short-term investments (including available-for-sale debt securities measured at fair value of RMB19,351 and RMB34,316 as of December 31, 2021 and 2022, respectively)	¥ 34,316	$ 4,975	¥ 19,351
Long-term investments (including available-for-sale debt securities measured at fair value of RMB108,448 and RMB148,819 as of December 31, 2021 and 2022, respectively)	1,686,628	$ 244,538	1,552,591
Recurring Basis
Fair Value Assets Measured On Recurring Basis [Line Items]
Available-for-sale investments	187,548		159,468
Recurring Basis | Redeemable Preferred Shares
Fair Value Assets Measured On Recurring Basis [Line Items]
Long-term investments (including available-for-sale debt securities measured at fair value of RMB108,448 and RMB148,819 as of December 31, 2021 and 2022, respectively)	110,078		65,393
Recurring Basis | Fair Value, Inputs, Level 1
Fair Value Assets Measured On Recurring Basis [Line Items]
Available-for-sale investments	4,413
Recurring Basis | Significant Other Observable Inputs Level 2
Fair Value Assets Measured On Recurring Basis [Line Items]
Available-for-sale investments	37,044		94,075
Recurring Basis | Significant Other Observable Inputs Level 2 | Redeemable Preferred Shares
Fair Value Assets Measured On Recurring Basis [Line Items]
Long-term investments (including available-for-sale debt securities measured at fair value of RMB108,448 and RMB148,819 as of December 31, 2021 and 2022, respectively)	37,044
Recurring Basis | Significant Unobservable Inputs Level 3
Fair Value Assets Measured On Recurring Basis [Line Items]
Available-for-sale investments	146,091		65,393
Recurring Basis | Significant Unobservable Inputs Level 3 | Redeemable Preferred Shares
Fair Value Assets Measured On Recurring Basis [Line Items]
Long-term investments (including available-for-sale debt securities measured at fair value of RMB108,448 and RMB148,819 as of December 31, 2021 and 2022, respectively)	73,034		65,393
Recurring Basis | Convertible Bond
Fair Value Assets Measured On Recurring Basis [Line Items]
Short-term investments (including available-for-sale debt securities measured at fair value of RMB19,351 and RMB34,316 as of December 31, 2021 and 2022, respectively)	34,316		19,351
Long-term investments (including available-for-sale debt securities measured at fair value of RMB108,448 and RMB148,819 as of December 31, 2021 and 2022, respectively)	38,741		43,055
Recurring Basis | Convertible Bond | Significant Other Observable Inputs Level 2
Fair Value Assets Measured On Recurring Basis [Line Items]
Short-term investments (including available-for-sale debt securities measured at fair value of RMB19,351 and RMB34,316 as of December 31, 2021 and 2022, respectively)			19,351
Long-term investments (including available-for-sale debt securities measured at fair value of RMB108,448 and RMB148,819 as of December 31, 2021 and 2022, respectively)			43,055
Recurring Basis | Convertible Bond | Significant Unobservable Inputs Level 3
Fair Value Assets Measured On Recurring Basis [Line Items]
Short-term investments (including available-for-sale debt securities measured at fair value of RMB19,351 and RMB34,316 as of December 31, 2021 and 2022, respectively)	34,316
Long-term investments (including available-for-sale debt securities measured at fair value of RMB108,448 and RMB148,819 as of December 31, 2021 and 2022, respectively)	38,741
Recurring Basis | Equity securities without readily determinable fair value
Fair Value Assets Measured On Recurring Basis [Line Items]
Long-term investments (including available-for-sale debt securities measured at fair value of RMB108,448 and RMB148,819 as of December 31, 2021 and 2022, respectively)	4,413		31,669
Recurring Basis | Equity securities without readily determinable fair value | Fair Value, Inputs, Level 1
Fair Value Assets Measured On Recurring Basis [Line Items]
Long-term investments (including available-for-sale debt securities measured at fair value of RMB108,448 and RMB148,819 as of December 31, 2021 and 2022, respectively)	¥ 4,413
Recurring Basis | Equity securities without readily determinable fair value | Significant Other Observable Inputs Level 2
Fair Value Assets Measured On Recurring Basis [Line Items]
Long-term investments (including available-for-sale debt securities measured at fair value of RMB108,448 and RMB148,819 as of December 31, 2021 and 2022, respectively)			¥ 31,669

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FAIR-VALUE MEASUREMENT - Reconciliation of the fair value measurements (Details) - Redeemable Preferred Shares - CNY (¥) ¥ in Thousands	12 Months Ended
	Dec. 31, 2022	Dec. 31, 2021
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Balance as of January 1, 2021	¥ 65,393	¥ 1,934
Initial recognition		24,960
Transfer from level 2	73,057	38,499
Unrealized gain	19,575
Transfer to level 2	(11,934)
Balance as of December 31, 2022	¥ 146,091	¥ 65,393

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FAIR-VALUE MEASUREMENT - Additional Information (Details) - CNY (¥) ¥ in Thousands	12 Months Ended
	Dec. 31, 2022	Dec. 31, 2021	Dec. 31, 2020
FAIR-VALUE MEASUREMENT
Impairment equity securities	¥ 13,858	¥ 0
Goodwill impairment loss	0	0	¥ 0
Intangible assets impairment loss	¥ 0	¥ 0	¥ 0

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ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES (Details) ¥ in Thousands, $ in Thousands	Dec. 31, 2022 CNY (¥)	Dec. 31, 2022 USD ($)	Dec. 31, 2021 CNY (¥)	Dec. 31, 2020 CNY (¥)	Dec. 31, 2019 CNY (¥)
ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Deferred revenue	¥ 61,164		¥ 87,980
Current operating lease liabilities	¥ 42,320		¥ 50,092
Operating Lease, Liability, Current, Statement of Financial Position [Extensible List]	Total	Total	Total
Accrued payroll and welfare	¥ 25,875		¥ 41,948
Other tax payable	20,535		23,541
Product warranty	17,748		24,858	¥ 32,782	¥ 49,527
Accrued expenses	6,703		17,058
Refund liabilities	4,845		5,745
Government subsidies	1,745		3,129
Reverse factoring			39,195
Other current liabilities	16,884		22,537
Total	¥ 197,819	$ 28,681	¥ 316,083

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ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES - Product warranty (Details) - CNY (¥) ¥ in Thousands	12 Months Ended
	Dec. 31, 2022	Dec. 31, 2021	Dec. 31, 2020
ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Beginning balance	¥ 24,858	¥ 32,782	¥ 49,527
Provided during the year	27,146	63,540	74,742
Utilized during the year	(34,256)	(71,464)	(91,487)
Ending balance	¥ 17,748	¥ 24,858	¥ 32,782

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ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES - Warranty costs (Details) - CNY (¥) ¥ in Thousands	12 Months Ended
	Dec. 31, 2022	Dec. 31, 2021	Dec. 31, 2020
Cost of Revenue
Warranty costs
Warrant cost	¥ 27,146	¥ 63,540	¥ 74,742

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BANK BORROWINGS (Details) ¥ in Thousands, $ in Thousands	12 Months Ended
	Dec. 31, 2022 CNY (¥)	Dec. 31, 2022 USD ($)	Dec. 31, 2021 CNY (¥)	Dec. 31, 2020 CNY (¥)
Short Term Debt [Line Items]
Bank borrowings received	¥ 838,859	$ 121,623	¥ 1,473,567	¥ 1,207,793
Repayments of bank debt	¥ 727,500	$ 105,478	¥ 953,387	¥ 643,122
Interest rate (as a percent)	3.13%		3.83%
Unused lines of credit available for future borrowing	¥ 1,789,015
Jiangsu Yitong
Short Term Debt [Line Items]
Bank borrowings	¥ 464,000
Percentage of equity interest pledged to bank	20.48%
Minimum
Short Term Debt [Line Items]
Maturity term (in years)	1 year	1 year
Maximum
Short Term Debt [Line Items]
Maturity term (in years)	7 years	7 years

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BANK BORROWINGS - Principal repayment schedule of bank borrowings (Details) ¥ in Thousands	Dec. 31, 2022 CNY (¥)
BANK BORROWINGS
2023	¥ 512,000
2024	140,000
2025	260,000
2026	65,000
2027 and thereafter	¥ 219,210

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DIVIDEND (Details)	Mar. 17, 2022 $ / shares
DIVIDEND
Cash dividend per ordinary share	$ 0.025
ADR
DIVIDEND
Cash dividend per ordinary share	$ 0.1

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REVENUE AND DEFERRED REVENUES - Disaggregation of revenue (Details) ¥ in Thousands, $ in Thousands	12 Months Ended
	Dec. 31, 2022 CNY (¥)	Dec. 31, 2022 USD ($)	Dec. 31, 2021 CNY (¥)	Dec. 31, 2020 CNY (¥)
Disaggregation Of Revenue
Revenue	¥ 4,142,862	$ 600,659	¥ 6,250,109	¥ 6,433,363
Smart Wearable Devices
Disaggregation Of Revenue
Revenue	1,697,053		3,340,857	4,438,081
Self-branded products and others
Disaggregation Of Revenue
Revenue	¥ 2,445,809		¥ 2,909,252	¥ 1,995,282

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REVENUE AND DEFERRED REVENUES - Contract balances (Details) ¥ in Thousands, $ in Thousands	Dec. 31, 2022 CNY (¥)	Dec. 31, 2022 USD ($)	Dec. 31, 2021 CNY (¥)
REVENUE AND DEFERRED REVENUES
Accounts receivables	¥ 682,103	$ 98,896	¥ 537,084
Amounts due from related parties	138,614	$ 20,097	295,614
Deferred revenue	61,164		87,980
Refund liability (sales return)	¥ 6,932		¥ 5,745

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REVENUE AND DEFERRED REVENUES - Additional Information (Details) - CNY (¥) ¥ in Thousands	12 Months Ended
	Dec. 31, 2022	Dec. 31, 2021	Dec. 31, 2020
Disaggregation Of Revenue
Amount due from related parties, billed receivable	¥ 136,001	¥ 231,485
Amount due from related parties, unbilled receivable	2,613	64,129
Asset impairment charges	0	0	¥ 0
Deferred revenue, revenue recognized	87,980	51,780	59,585
Additions to the allowance	157,821	84,869	3,679
Deductions from the allowance	156,634	79,490	3,895
Cooperation Agreement
Disaggregation Of Revenue
Amount due from related parties, billed receivable	¥ 64,129	¥ 80,675	¥ 102,687
Minimum
Disaggregation Of Revenue
Payment terms (in days)	30 days
Minimum | Cooperation Agreement
Disaggregation Of Revenue
Payment terms (in days)	30 days
Maximum
Disaggregation Of Revenue
Payment terms (in days)	90 days
Maximum | Cooperation Agreement
Disaggregation Of Revenue
Payment terms (in days)	60 days

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INCOME TAXES (Details) ¥ / shares in Units, ¥ in Thousands, $ in Thousands		12 Months Ended
	Apr. 01, 2018 CNY (¥)	Dec. 31, 2022 CNY (¥) item ¥ / shares	Dec. 31, 2022 USD ($) item	Dec. 31, 2021 CNY (¥) ¥ / shares	Dec. 31, 2020 CNY (¥) ¥ / shares	Dec. 31, 2017	Dec. 31, 2022 USD ($)
Income Tax Contingency [Line Items]
Net income (loss)		¥ (289,001)	$ (41,901)	¥ 136,952	¥ 229,706
Operating loss		(410,242)	$ (59,480)	93,942	174,196
Deferred tax assets, valuation allowance		¥ 42,187		6,976
Percentage of withholding tax on dividends paid to foreign investors		10.00%	10.00%
Aggregate undistributed earnings available for distribution		¥ 1,993,460		2,228,550
Deferred tax liabilities attributable to undistributed earning		0
PRC, Hong Kong, United States and Canada
Income Tax Contingency [Line Items]
Operating loss		¥ 1,119,767
Beijing Shunyuan
Income Tax Contingency [Line Items]
Income tax rate		15.00%	15.00%
Anhui Huami, Anhui Health and Shun Yuan
Income Tax Contingency [Line Items]
Increase in income tax expenses		¥ 29,784		¥ 19,387	¥ 41,869
Decrease in net income per share - basic | ¥ / shares		¥ 0.12		¥ 0.08	¥ 0.17
Decrease in net income per share - diluted | ¥ / shares		¥ 0.12		¥ 0.07	¥ 0.16
Minimum
Income Tax Contingency [Line Items]
Underpayment of tax liability		¥ 100					$ 15
Hong Kong
Income Tax Contingency [Line Items]
Number of nominators | item		1	1
Hong Kong | Minimum
Income Tax Contingency [Line Items]
Net income (loss)	¥ 2,000
Income tax rate	8.25%
Hong Kong | Maximum
Income Tax Contingency [Line Items]
Income tax rate	16.50%
United States
Income Tax Contingency [Line Items]
Income tax rate		21.00%	21.00%
Operating loss carry forwards carry forward period						20 years
Netherland
Income Tax Contingency [Line Items]
Income tax rate		15.00%	15.00%
PRC
Income Tax Contingency [Line Items]
Income tax rate		25.00%	25.00%
Operating loss		¥ 942,754
PRC | Anhui Huami
Income Tax Contingency [Line Items]
Income tax rate		15.00%	15.00%	15.00%	15.00%
PRC | Anhui Huami Health Technology Co., Ltd ("Anhui Health")
Income Tax Contingency [Line Items]
Income tax rate		15.00%	15.00%	15.00%	15.00%
Canada | Minimum
Income Tax Contingency [Line Items]
Operating loss carry forwards carry forward period		3 years	3 years
Canada | Maximum
Income Tax Contingency [Line Items]
Operating loss carry forwards carry forward period		20 years	20 years

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INCOME TAXES - Current and deferred (Details) ¥ in Thousands, $ in Thousands	12 Months Ended
	Dec. 31, 2022 CNY (¥)	Dec. 31, 2022 USD ($)	Dec. 31, 2021 CNY (¥)	Dec. 31, 2020 CNY (¥)
INCOME TAXES
Current tax expenses	¥ 379		¥ 31,543	¥ 42,257
Deferred tax benefits	(66,254)		(20,798)	(11,103)
Income tax expenses/(benefit)	¥ (65,875)	$ (9,551)	¥ 10,745	¥ 31,154

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INCOME TAXES - Deferred tax assets (Details) - CNY (¥) ¥ in Thousands	Dec. 31, 2022	Dec. 31, 2021
Deferred tax assets
Accrued expenses and other current liabilities	¥ 46,958	¥ 47,005
Net operating loss carry forwards	178,689	75,100
Intra-entity transfer of certain intangible assets	26,726	28,290
Total deferred tax assets	252,373	150,395
Less: valuation allowance	(42,187)	(6,976)
Deferred tax assets, net	¥ 210,186	¥ 143,419

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INCOME TAXES - Tax Expense Reconciliation (Details) ¥ in Thousands, $ in Thousands	12 Months Ended
	Dec. 31, 2022 CNY (¥)	Dec. 31, 2022 USD ($)	Dec. 31, 2021 CNY (¥)	Dec. 31, 2020 CNY (¥)
INCOME TAXES
Income/(loss) before income tax	¥ (372,533)	$ (54,012)	¥ 106,669	¥ 265,609
Tax expense/(benefit) at PRC enterprise income tax rate of 25%	(93,133)		26,667	66,402
Effect of preferential tax rates	(29,784)		19,387	41,869
Tax effect of permanence differences	(53,808)		(34,587)	(20,001)
Effect of income tax rate differences in other jurisdictions	16,071		23,666	21,625
Change in tax rate			9,549	3,460
Changes in valuation allowances	35,211		4,837	1,537
Income tax expenses/(benefit)	¥ (65,875)	$ (9,551)	¥ 10,745	¥ 31,154

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ORDINARY SHARES (Details) $ / shares in Units, ¥ in Thousands, $ in Thousands	1 Months Ended	12 Months Ended
	Dec. 31, 2021 CNY (¥)	Dec. 31, 2022 CNY (¥) shares	Dec. 31, 2022 USD ($) $ / shares shares	Dec. 31, 2021 CNY (¥) shares	Dec. 31, 2021 USD ($) $ / shares shares
Class Of Stock [Line Items]
Ordinary shares, shares authorized			405,462,685
Ordinary shares, par value | $ / shares			$ 0.0001
Common stock shares repurchased, value | ¥		¥ 45,365		¥ 21,798
Class B Ordinary Shares
Class Of Stock [Line Items]
Ordinary shares, shares authorized			200,000,000		200,000,000
Ordinary shares, par value | $ / shares			$ 0.0001		$ 0.0001
Ordinary shares, shares outstanding			117,208,247		117,208,247
Class A Ordinary Shares
Class Of Stock [Line Items]
Ordinary shares, shares authorized			9,700,000,000		9,700,000,000
Ordinary shares, par value | $ / shares			$ 0.0001		$ 0.0001
Ordinary shares, shares outstanding			128,130,440		133,992,912
Ordinary Shares | Class A Ordinary Shares
Class Of Stock [Line Items]
Common stock shares repurchased		10,219,572	10,219,572	2,656,164	2,656,164
Common stock shares repurchased, value	¥ 21,798	¥ 45,365	$ 6,905		$ 3,411
Ordinary Shares | Class A Ordinary Shares | Weighted Average
Class Of Stock [Line Items]
Weighted average share price | $ / shares			$ 0.671		$ 1.284
Total Huami Corporation Shareholders' (Deficit)/Equity
Class Of Stock [Line Items]
Common stock shares repurchased, value | ¥		¥ 45,365		¥ 21,798

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SHARE-BASED PAYMENT - 2015 Plan (Details) - shares	12 Months Ended
	Dec. 31, 2022	Dec. 31, 2021	Dec. 31, 2020	Oct. 21, 2015
2015 Plan
SHARE-BASED PAYMENT
Shares authorized (in shares)				14,328,358
PRC Plan | Share options
SHARE-BASED PAYMENT
Share options granted	0	0	0

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SHARE-BASED PAYMENT - 2018 Plan (Details) ¥ in Thousands		12 Months Ended
	Jan. 01, 2018 shares	Dec. 31, 2022 $ / shares	Dec. 31, 2022 CNY (¥) shares	Dec. 31, 2021 $ / shares	Dec. 31, 2021 CNY (¥) shares	Dec. 31, 2020 $ / shares	Dec. 31, 2020 CNY (¥) shares
SHARE-BASED PAYMENT
Share-based compensation expense | ¥			¥ 49,107		¥ 83,122		¥ 65,154
2018 Plan | Share options
SHARE-BASED PAYMENT
Shares authorized (in shares) | shares	9,559,607
Increase in authorized shares (as percent of outstanding shares)	1.00%
Granted (in shares) | shares			1,492,332		8,988,000		4,030,108
Share options granted exercise price | $ / shares		$ 0		$ 0.01		$ 0
Share-based compensation expense | ¥			¥ 32,916		¥ 64,415		¥ 42,316

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SHARE-BASED PAYMENT - Share Options Fair Value Assumption (Details) - ¥ / shares	12 Months Ended
	Dec. 31, 2022	Dec. 31, 2021	Dec. 31, 2020
SHARE-BASED PAYMENT
Risk-free interest rate, minimum			0.67%
Expected volatility, minimum			51.90%
Share options
SHARE-BASED PAYMENT
Risk-free interest rate	4.25%	1.66%
Risk-free interest rate, maximum			0.72%
Expected volatility	52.40%	52.20%
Expected volatility, maximum			52.00%
Expected life of option (years)	10 years	10 years	10 years
Expected dividend yield	0.00%	0.00%	0.00%
Weighted average share price	¥ 1.96
Share options | Minimum
SHARE-BASED PAYMENT
Weighted average share price		¥ 8.05	¥ 21.60
Share options | Maximum
SHARE-BASED PAYMENT
Weighted average share price		¥ 12.98	¥ 23.10

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SHARE-BASED PAYMENT - Share Options Activity (Details) - 2015 and 2018 Plans - Share options $ / shares in Units, $ in Thousands	12 Months Ended
	Dec. 31, 2022 USD ($) $ / shares shares
Share number
Outstanding at beginning of year	16,798,153
Granted (in shares)	1,492,332
Exercised	(4,357,100)
Canceled and forfeited	(1,105,682)
Outstanding at end of year	12,827,703
Exercisable	7,904,689
Expected to vest	4,923,014
Weighted average exercise price per option
Outstanding at beginning of year (in USD per share) | $ / shares	$ 0.07
Cancelled and forfeited (in USD per share) | $ / shares	0.45
Outstanding at end of year (in USD per share) | $ / shares	0.05
Exercisable (in USD per share) | $ / shares	$ 0.08
Weighted-average remaining exercise contractual life (years)
Outstanding	7 years 3 months 3 days
Exercisable	6 years 8 months 1 day
Excepted to vest	8 years 2 months 15 days
Aggregate intrinsic value
Outstanding | $	$ 4,389
Exercisable | $	2,604
Expected to vest | $	$ 1,784

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SHARE-BASED PAYMENT - Share Options Other Disclosures (Details) - CNY (¥) ¥ / shares in Units, ¥ in Thousands	12 Months Ended
	Dec. 31, 2022	Dec. 31, 2021	Dec. 31, 2020
SHARE-BASED PAYMENT
Share-based compensation expense	¥ 49,107	¥ 83,122	¥ 65,154
Share options
SHARE-BASED PAYMENT
Intrinsic value share options exercised	¥ 10,894	¥ 14,094	¥ 32,010
Weighted average grant date fair value of options granted	¥ 1.96	¥ 12.95	¥ 22.42
Unrecognized compensation expenses related to the options	¥ 47,616

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SHARE-BASED PAYMENT - Restricted Stock Units (Details) - CNY (¥) ¥ / shares in Units, ¥ in Thousands	12 Months Ended
	Dec. 31, 2022	Dec. 31, 2021	Dec. 31, 2020
SHARE-BASED PAYMENT
Share-based compensation expense	¥ 49,107	¥ 83,122	¥ 65,154
Restricted Stock Units
SHARE-BASED PAYMENT
Vesting rights percentage	20.00%	20.00%	20.00%
Reacquisition of non-vested shares, consideration	¥ 0	¥ 0	¥ 0
Aggregate fair value of the restricted shares at the grant dates	¥ 137,036
Weighted average grant-date fair value of non-vested shares	¥ 22.00
Fair value of vested shares	¥ 26,079	11,648	21,020
Share-based compensation expense	16,191	¥ 18,707	¥ 22,838
Unrecognized compensation cost	¥ 29,700
Weighted average vesting period over which unrecognized compensation costs is expected to be recognized	2 years 1 month 17 days
Weighted average grant date fair value (in RMB per share)	¥ 6.88	¥ 21.44	¥ 22.84
Restricted Shares
Balance at the beginning of the year (in shares)	3,079,436
Granted (in shares)	100,972	2,034,432	2,216,120
Vested (in shares)	(1,268,408)
Cancelled and forfeited (in shares)	(213,700)
Balance at the end of the year (in shares)	1,698,300	3,079,436
Restricted Stock Units | Annual Basis Ending on Fourth Anniversary of Grant Date
SHARE-BASED PAYMENT
Vesting period (in years)	5 years	5 years	5 years
Restricted Stock Units | Minimum
SHARE-BASED PAYMENT
Vesting period (in years)	4 years	4 years	4 years
Restricted Stock Units | Maximum
SHARE-BASED PAYMENT
Vesting period (in years)	5 years	5 years	5 years

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SHARE-BASED PAYMENT - Share-based Compensation Recognized (Details) - CNY (¥) ¥ in Thousands	12 Months Ended
	Dec. 31, 2022	Dec. 31, 2021	Dec. 31, 2020
SHARE-BASED PAYMENT
Total stock-based compensation expense	¥ 49,107	¥ 83,122	¥ 65,154
General and administrative
SHARE-BASED PAYMENT
Total stock-based compensation expense	21,353	32,247	38,605
Research and development
SHARE-BASED PAYMENT
Total stock-based compensation expense	23,585	42,677	23,978
Selling and marketing
SHARE-BASED PAYMENT
Total stock-based compensation expense	¥ 4,169	¥ 8,198	¥ 2,571

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MAINLAND CHINA CONTRIBUTION PLAN (Details) - CNY (¥) ¥ in Thousands	12 Months Ended
	Dec. 31, 2022	Dec. 31, 2021	Dec. 31, 2020
MAINLAND CHINA CONTRIBUTION PLAN
Total provisions for employee benefits	¥ 101,345	¥ 104,650	¥ 64,734

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SEGMENT INFORMATION (Details) - segment	12 Months Ended
	Dec. 31, 2022	Dec. 31, 2021	Dec. 31, 2020
SEGMENT INFORMATION
Number of operating segments	2	2	2

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SEGMENT INFORMATION - Schedule of Revenues, Cost of Revenues and Gross Profits by Segment (Details) ¥ in Thousands, $ in Thousands	12 Months Ended
	Dec. 31, 2022 CNY (¥)	Dec. 31, 2022 USD ($)	Dec. 31, 2021 CNY (¥)	Dec. 31, 2020 CNY (¥)
Segment Reporting Information [Line Items]
Revenues	¥ 4,142,862		¥ 6,250,109	¥ 6,433,363
Cost of revenues	3,339,746		4,944,467	5,100,698
Gross profit	803,116	$ 116,441	1,305,642	1,332,665
Smart Wearable Devices
Segment Reporting Information [Line Items]
Revenues	1,697,053		3,340,857	4,438,081
Cost of revenues	1,394,460		2,754,086	3,706,495
Gross profit	302,593		586,771	731,586
Self-branded products and others
Segment Reporting Information [Line Items]
Revenues	2,445,809		2,909,252	1,995,282
Cost of revenues	1,945,286		2,190,381	1,394,203
Gross profit	¥ 500,523		¥ 718,871	¥ 601,079

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STATUTORY RESERVES AND RESTRICTED NET ASSETS (Details) - CNY (¥) ¥ in Thousands	12 Months Ended
	Dec. 31, 2022	Dec. 31, 2021	Dec. 31, 2020
Statutory Accounting Practices [Line Items]
Statutory reserve accrued	¥ 0	¥ 0	¥ 5,997
Restricted net assets	¥ 252,220	¥ 252,220	¥ 180,981
PRC
Statutory Accounting Practices [Line Items]
Required maximum percentage of statutory surplus reserve to registered capital	50.00%
Required minimum percentage of after tax profits to allocate to statutory common reserve	10.00%
Maximum
Statutory Accounting Practices [Line Items]
Percentage of profit appropriation made to reserve fund required amount of registered capital	50.00%

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RELATED PARTY BALANCES AND TRANSACTIONS - Balances (Details) ¥ in Thousands, $ in Thousands	Dec. 31, 2022 CNY (¥)	Dec. 31, 2022 USD ($)	Dec. 31, 2021 CNY (¥)
Amount due from related parties:
Amounts due from related parties	¥ 138,614	$ 20,097	¥ 295,614
Amounts due from related parties	144,947		295,614
Amount due to related parties, current:
Amount due to related parties	40,978	$ 5,941	50,123
Xiaomi Communication Technology Co. Ltd.("Xiaomi Communication")
Amount due from related parties:
Amounts due from related parties	117,944		286,341
Amount due to related parties, current:
Amount due to related parties	2,087
Field Medical
Amount due from related parties:
Amounts due from related parties	10,375
Hefei Jingyu
Amount due from related parties:
Amounts due from related parties	2,648		1,101
Amount due to related parties, current:
Amount due to related parties	36,864		48,052
Hefei LianRui Microelectronics Technology Co. Ltd
Amount due from related parties:
Amounts due from related parties	2,452		2,452
Yunding
Amount due from related parties:
Amounts due from related parties	2,330		2,330
Gongqingcheng Yunding
Amount due from related parties:
Amounts due from related parties	2,500		2,500
Xiaomi Technology Co. Ltd. ("Xiaomi Technology")
Amount due to related parties, current:
Amount due to related parties	1,965		1,562
Others
Amount due from related parties:
Amounts due from related parties	365		890
Amount due to related parties, current:
Amount due to related parties	62		¥ 509
A vice president
Amount due from related parties, non-current:
Amount due from related parties, Non-current	¥ 6,333

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RELATED PARTY BALANCES AND TRANSACTIONS - Transactions - Related party (Details) - CNY (¥) ¥ in Thousands	12 Months Ended
	Dec. 31, 2022	Dec. 31, 2021	Dec. 31, 2020
Related Party Transaction [Line Items]
Sales to related parties	¥ 1,703,995	¥ 3,350,032	¥ 4,449,757
Xiaomi Communication Technology Co. Ltd.("Xiaomi Communication")
Related Party Transaction [Line Items]
Sales to related parties	1,697,053	3,340,857	4,447,957
Xiaomi Youpin
Related Party Transaction [Line Items]
Sales to related parties	¥ 6,942	¥ 9,175
Others
Related Party Transaction [Line Items]
Sales to related parties			¥ 1,800

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RELATED PARTY BALANCES AND TRANSACTIONS - Transactions - Others (Details) - CNY (¥) ¥ in Thousands	12 Months Ended
	Dec. 31, 2022	Dec. 31, 2021	Dec. 31, 2020
Hefei Jingyu
Related Party Transaction [Line Items]
Purchase from related parties	¥ 222,174	¥ 146,847
Others
Related Party Transaction [Line Items]
Purchase from related parties			¥ 12,000

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RELATED PARTY BALANCES AND TRANSACTIONS - Additional information (Details) - CNY (¥) ¥ in Thousands	1 Months Ended		12 Months Ended
	Jan. 31, 2021	Dec. 31, 2020	Dec. 31, 2022	Dec. 31, 2021
Xiaomi Communication, Information, Technology
Related Party Transaction [Line Items]
Receivables from the sales of products and services			¥ 2,613	¥ 64,129
Hefei Jingyu
Related Party Transaction [Line Items]
Purchase from related parties			¥ 222,174	¥ 146,847
Yunding
Related Party Transaction [Line Items]
Ownership interest sold (as a percent)		26.70%
Cash consideration		¥ 22,500
Proceeds from disposal of equity interest in subsidiary	¥ 20,000

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NET INCOME/(LOSS) PER SHARE (Details) ¥ / shares in Units, $ / shares in Units, ¥ in Thousands, $ in Thousands	12 Months Ended
	Dec. 31, 2022 CNY (¥) ¥ / shares shares	Dec. 31, 2022 USD ($) $ / shares shares	Dec. 31, 2021 CNY (¥) ¥ / shares shares	Dec. 31, 2020 CNY (¥) ¥ / shares shares
Basic net income per share calculation Numerator:
Net income	¥ (288,308)	$ (41,801)	¥ 137,803	¥ 228,753
Net income attributed to ordinary shareholders for computing net income per ordinary shares-basic	¥ (288,308)	$ (41,801)	¥ 137,803	¥ 228,753
Denominator:
Weighted average ordinary shares outstanding used in computing net income per ordinary shares - basic	246,283,328	246,283,328	252,167,610	248,470,684
Net income per ordinary share attributable to ordinary shareholders-basic | (per share)	¥ (1.17)	$ (0.17)	¥ 0.55	¥ 0.92
Diluted net income per share calculation
Net income attributed to ordinary shareholders for computing net income per ordinary shares-basic	¥ (288,308)	$ (41,801)	¥ 137,803	¥ 228,753
Denominator:
Ordinary share - basic	246,283,328	246,283,328	252,167,610	248,470,684
Effect of potentially diluted stock options, restricted stocks and RSUs			12,201,019	11,881,310
Weighted average ordinary shares outstanding used in computing net income per ordinary shares - dilute	246,283,328	246,283,328	264,368,629	260,351,994
Net income per ordinary share attributable to ordinary shareholders-diluted | (per share)	¥ (1.17)	$ (0.17)	¥ 0.52	¥ 0.88

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NET INCOME/(LOSS) PER SHARE - Anti-dilutive Securities Excluded from Calculation of Diluted Net (Loss)/Income Per Ordinary Shares (Details) - shares	12 Months Ended
	Dec. 31, 2022	Dec. 31, 2021	Dec. 31, 2020
Shares issuable upon exercise of share options, restricted shares and RSUs
Antidilutive Securities Excluded From Computation Of Earnings Per Share [Line Items]
Anti-dilutive securities excluded from calculation of diluted net (loss)/income per ordinary shares	7,390,487	301,946	89,165

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LEASES - Lease Costs Included in Statements of Operations (Details) - CNY (¥) ¥ in Thousands	12 Months Ended
	Dec. 31, 2022	Dec. 31, 2021	Dec. 31, 2020
Lease Cost
Operating lease cost	¥ 37,428	¥ 41,595	¥ 57,080
Sublease income	(8,796)	(3,591)	(537)
Total lease cost	¥ 28,632	¥ 38,004	¥ 56,543

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LEASES - Cash Flow from operating leases (Details) - CNY (¥) ¥ in Thousands	12 Months Ended
	Dec. 31, 2022	Dec. 31, 2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	¥ 50,357	¥ 49,644
Operating leases	¥ 1,674	¥ 2,157
Weighted average remaining lease term, operating leases	2 years 10 days	2 years 9 months 18 days
Weighted average discount rate, operating leases	5.32%	5.27%

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LEASES - Maturity Analysis (Details) ¥ in Thousands	Dec. 31, 2022 CNY (¥)
Lessee, Operating Lease, Liability, Payment, Due [Abstract]
2023	¥ 43,701
2024	26,291
2025	8,441
Total lease payments	78,433
Less: imputed interest	(4,423)
Present value of lease liabilities	¥ 74,010

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SUBSEQUENT EVENT - (Details)	Jan. 11, 2023 shares
Subsequent Event | 2023 Share Incentive Plan
Subsequent Event [Line Items]
Maximum aggregate number of Class A ordinary shares available for grant as awards	10,322,520