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TABLE OF CONTENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

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As filed with the Securities and Exchange Commission on October 5, 2020

Registration No. 333-248647


SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549



AMENDMENT NO. 2 TO

FORM F-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933



iHuman Inc.
(Exact name of Registrant as specified in its charter)

Not Applicable
(Translation of Registrant's name into English)



Cayman Islands
(State or other jurisdiction of
incorporation or organization)
  8200
(Primary Standard Industrial
Classification Code Number)
  Not Applicable
(I.R.S. Employer
Identification Number)

K2, North America International Business Park,
No. 108 Beiyuan Road,
Chaoyang District, Beijing 100012
People's Republic of China
+86 10 5780-6606

(Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices)

Cogency Global Inc.
122 East 42nd Street, 18th Floor
New York, NY 10168
+1 (800) 221-0102

(Name, address, including zip code, and telephone number, including area code, of agent for service)



Copies to:

Z. Julie Gao, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP
c/o 42/F, Edinburgh Tower, The Landmark
15 Queen's Road Central
Hong Kong
+852 3740-4700

 

Yi Gao, Esq.
Simpson Thacher & Bartlett LLP
c/o 35th Floor, ICBC Tower
3 Garden Road
Central, Hong Kong
+852-2514-7600



Approximate date of commencement of proposed sale to the public: as soon as practicable after the effective date of this registration statement.

           If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. o

           If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

           If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

           If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

           Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933.

           Emerging growth company ý

           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 7(a)(2)(B) of the Securities Act. o

CALCULATION OF REGISTRATION FEE

               
 
Title of each class of securities to be registered
  Amount to Be
Registered(2)(3)

  Proposed Maximum
Offering Price Per
Share(3)

  Proposed maximum aggregate offering
price(2)(3)

  Amount of
registration fee(4)

 

Class A Ordinary Shares, par value US$0.0001 per share(1)

  40,250,000   $2.60   US$104,650,000   US$11,417

 

(1)
American depositary shares issuable upon deposit of Class A ordinary shares registered hereby will be registered under a separate registration statement on Form F-6 (Registration No. 333-249298). Each American depositary share represents five Class A ordinary shares.

(2)
Includes Class A ordinary shares that are issuable upon the exercise of the underwriters' option to purchase additional ADSs. Also includes Class A ordinary shares initially offered and sold outside the United States that may be resold from time to time in the United States either as part of their distribution or within 40 days after the later of the effective date of this registration statement and the date the shares are first bona fide offered to the public. These Class A ordinary shares are not being registered for the purpose of sales outside the United States.

(3)
Estimated solely for the purpose of determining the amount of registration fee in accordance with Rule 457(a) under the Securities Act of 1933.

(4)
Previously paid.

           The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

   


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.


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The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and we are not soliciting offers to buy these securities in any state where the offer or sale is not permitted.

PRELIMINARY PROSPECTUS (Subject to Completion) Dated October 5, 2020.

7,000,000 American Depositary Shares

LOGO

iHuman Inc.

Representing 35,000,000 Class A Ordinary Shares

        We are selling 7,000,000 American depositary shares, or ADSs. Each ADS represents five of our Class A ordinary shares, par value US$0.0001 per share.

        This is an initial public offering of the ADSs of iHuman Inc. Prior to this offering, there has been no public market for the ADSs or our ordinary shares. We anticipate that the initial public offering price will be between US$11.00 and US$13.00 per ADS. We have submitted an application for the listing of the ADSs on the New York Stock Exchange under the symbol "IH."

        We have granted the underwriters a 30-day option to purchase up to an additional 1,050,000 ADSs from us at the initial public offering price less the underwriting discounts and commissions.

        We are an "emerging growth company" under applicable U.S. federal securities laws and are eligible for reduced public company reporting requirements.

        Investing in the ADSs involves risks. See "Risk Factors" beginning on page 14 for factors you should consider before buying the ADSs.

        Neither the United States Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 
  Per ADS   Total  
Initial public offering price   US$               US$              
Underwriting discounts and commissions(1)   US$               US$              
Proceeds, before expenses, to us   US$               US$              

(1)
See "Underwriting" for additional information regarding compensation payable by us to the underwriters.

        Following the completion of this offering, our issued and outstanding share capital will consist of 117,372,382 Class A ordinary shares and 144,000,000 Class B ordinary shares, assuming that the underwriters do not exercise their option to purchase additional ADSs. Holders of Class A ordinary shares and Class B ordinary shares have the same rights except for voting and conversion rights. Each Class A ordinary share is entitled to one vote, and each Class B ordinary share is entitled to ten votes and is convertible into one Class A ordinary share. Class A ordinary shares are not convertible into Class B ordinary shares under any circumstances. Mr. Michael Yufeng Chi, our founder and chairman of the board of directors, will beneficially own all of our issued Class B ordinary shares and will be able to exercise 92.5% of the total voting power of our issued and outstanding share capital immediately following the completion of this offering, assuming that the underwriters do not exercise their option to purchase additional ADSs.

        The underwriters expect to deliver the ADSs to purchasers on or about                           , 2020.



Credit Suisse   Citigroup



Tiger Brokers   CMBI   CLSA

   

The date of this prospectus is                           , 2020.


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PROSPECTUS SUMMARY

    1  

SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA

    11  

RISK FACTORS

    14  

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

    62  

USE OF PROCEEDS

    64  

DIVIDEND POLICY

    65  

CAPITALIZATION

    66  

DILUTION

    68  

ENFORCEABILITY OF CIVIL LIABILITIES

    70  

CORPORATE HISTORY AND STRUCTURE

    72  

SELECTED CONSOLIDATED FINANCIAL DATA

    77  

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

    80  

INDUSTRY

    105  

BUSINESS

    114  

REGULATION

    136  

MANAGEMENT

    155  

PRINCIPAL SHAREHOLDERS

    162  

RELATED PARTY TRANSACTIONS

    164  

DESCRIPTION OF SHARE CAPITAL

    165  

DESCRIPTION OF AMERICAN DEPOSITARY SHARES

    176  

SHARES ELIGIBLE FOR FUTURE SALE

    187  

TAXATION

    189  

UNDERWRITING

    196  

EXPENSES RELATED TO THIS OFFERING

    207  

LEGAL MATTERS

    208  

EXPERTS

    209  

WHERE YOU CAN FIND ADDITIONAL INFORMATION

    210  

INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS

    F-1  



        Until                , 2020 (the 25th day after the date of this prospectus), all dealers that effect transactions is these ADSs, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealer's obligation to deliver a prospectus when acting as an underwriter and with respect to their unsold allotments or subscriptions.

        You should rely only on the information contained in this prospectus or in any free writing prospectus that we authorize to be distributed to you. We and the underwriters have not authorized anyone to provide you with any information other than that contained in this prospectus or in any free writing prospectus prepared by or on behalf of us or to which we have referred you, and neither we, nor the underwriters take responsibility for any other information others may give you. We are offering to sell, and seeking offers to buy the ADSs, only in jurisdictions where such offers and sales are permitted. The information in this prospectus or any free writing prospectus is accurate only as of its date, regardless of its time of delivery or the time of any sale of the ADSs. Our business, financial condition, results of operations and prospectus may have changed since that date.

        Neither we nor any of the underwriters has taken any action to permit a public offering of the ADSs outside the United States or to permit the possession or distribution of this prospectus or any filed free writing prospectus outside the United States. Persons outside the United States who come into possession of this prospectus or any filed free writing prospectus must inform themselves about and observe any restrictions relating to the offering of the ADSs and the distribution of the prospectus or any filed free writing prospectus outside the United States.

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PROSPECTUS SUMMARY

        The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and financial statements appearing elsewhere in this prospectus. In addition to this summary, we urge you to read the entire prospectus carefully, especially the risks of investing in the ADSs discussed under "Risk Factors," before deciding whether to invest in the ADSs. This prospectus contains information from an industry report commissioned by us dated August 24, 2020 and prepared by Frost & Sullivan, an independent research firm, to provide information regarding our industry and our market position in China. We refer to this report as the "Frost & Sullivan Report."

Our Mission

        We aspire to drive educational excellence for a better world forever.

Our Vision

        We endeavor to transform learning into a fun journey for every child.

What We Do

        According to the Frost & Sullivan Report, we are a leading childhood edutainment company in China, with core expertise in providing integrated and innovative products and services catering to the education demands for children mainly aged between three and eight. According to the Frost & Sullivan Report, we ranked No. 1 across each of the following metrics in the first half of 2020:

    No. 1 in terms of paying users among online childhood edutainment providers in China; and

    No. 1 in terms of MAUs among online childhood edutainment providers in China.

        With innovative and high-quality products and services targeting both individual users and education organizations, we have built a trusted and well recognized brand, as well as a massive and loyal following among families and educators throughout China. Our learning apps have attracted a user base of 10.3 million average total MAUs in the second quarter of 2020.

        Our line-up of highly effective edutainment products and services include (i) interactive and self-directed learning apps, and (ii) learning materials and smart learning devices.

    Interactive and self-directed learning apps that are engaging, innovative and fun, designed to maximize effective learning among children, which deliver an immersive learning experience and enable children to conduct self-directed learning in an efficient manner, making working parents' lives easier at the same time: iHuman Chinese, iHuman English World, iHuman Pinyin, iHuman Magic Math, iHuman Books, and iHuman Stories. Our learning apps seamlessly integrate solid pedagogy, attractive gamification features and systematic assessment tools, thereby striking a proper balance between education and entertainment.

    Time-tested learning materials and smart learning devices that encompass learning materials in both physical and digital formats, as well as smart learning devices that augment the effectiveness of our learning materials. Our learning materials serve both individual users and education organizations, covering diverse subjects including literacy and reading, English, mathematics and critical thinking, Chinese learning, music and painting. Our smart learning devices, designed to be used in tandem, further drive the effectiveness of our learning materials.

        We launched our online operations with the debut of our first interactive and self-directed learning app iHuman Chinese in 2016 and began to monetize this learning app in the second quarter of 2018. In late 2019, through a business combination under common control between our online operations and certain traditionally offline businesses of Hongen Education & Technology Co., Ltd., or Hongen

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Education, we embarked on a new chapter of integrated development. The combination merged the decades-long operational experience and deep insights in China's childhood education sector from Hongen Education with our industry-leading product development and original content creation capabilities.

        Content.    Leveraging our deep insights in China's childhood education sector and technological strength in gamification and animation, we offer a variety of high-quality original education content covering various subjects in rich formats, catering to the evolving and diversified needs of both individual users and education organizations for childhood education. We have strong in-house content development expertise in educational materials, gamification features, video and audio effects as well as art design. In addition, our products and services are imbued with the rich operational know-how and deep understanding of China's childhood education sector accumulated throughout the past decades, making our content highly compelling to our users. We also selectively collaborate with leading global learning content providers to jointly develop educational materials to further enhance our content origination capabilities.

        Technology.    We consistently pioneer new products that capture new market opportunities generated by the latest technological breakthroughs, meeting the evolving user demands for effective learning services. We deploy advanced game technologies, AI technologies and big data analysis to provide superior user experience. According to the Frost & Sullivan Report, we were among the first in the education sector in China to apply sophisticated game engines to the design of online education products. Our proprietary game technologies enable our online education products to offer a uniquely interactive and entertaining experience, inspiring children's learning interests and driving their engagement. We also deploy advanced AI technologies that power various teaching and voice assessment tools, all to improve the learning effectiveness for children. Leveraging our proprietary big data system, we are able to consistently refine and upgrade our products, as well as to intelligently recommend content to our users, continually improving user experience.

        Capitalizing on our proprietary technology infrastructure and innovative products and services, we have built a scalable business. We mainly generate revenues from users' paid subscriptions for the premium content of our learning apps, as well as the sale of learning materials and smart learning devices to both individual users and education organization.

        Our total revenues nearly doubled from RMB131.9 million in 2018 to RMB218.7 million (US$30.9 million) in 2019. In particular, our learning services revenues increased nearly five-fold from RMB22.0 million in 2018 to RMB107.4 million (US$15.2 million) in 2019. Our total revenues also nearly doubled from RMB91.8 million in the six months ended June 30, 2019 to RMB185.5 million (US$26.3 million) in the six months ended June 30, 2020. In particular, our learning services revenues increased nearly four-fold from RMB41.3 million in the six months ended June 30, 2019 to RMB152.5 million (US$21.6 million) in the six months ended June 30, 2020. Our gross profit also doubled from RMB66.0 million in 2018 to RMB134.5 million (US$19.0 million) in 2019 and continued the growth to have reached RMB125.4 million (US$17.7 million) in the six months ended June 30, 2020 compared to RMB54.3 million in the six months ended June 30, 2019. We had operating losses of RMB22.1 million and RMB278.8 million (US$39.5 million) in 2018 and 2019, respectively, and adjusted operating losses of RMB22.1 million and RMB8.3 million (US$1.2 million) in 2018 and 2019, respectively. In the six months ended June 30, 2020, we had an operating income of RMB5.8 million (US$0.8 million) and an adjusted operating income of RMB5.8 million (US$0.8 million). We had net losses of RMB17.6 million and RMB275.6 million (US$39.0 million) in 2018 and 2019, respectively, and adjusted net losses of RMB17.6 million and RMB5.1 million (US$0.7 million) in 2018 and 2019, respectively. In the six months ended June 30, 2020, we had a net income of RMB5.6 million (US$0.8 million) and an adjusted net income of RMB5.6 million (US$0.8 million). For discussions of adjusted operating income (loss) and adjusted net income (loss) and reconciliation of adjusted operating income (loss) to operating income (loss) and adjusted net income (loss) to net income (loss),

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see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures."

Industry Overview

        China's childhood education market primarily refers to education provided to children aged between 0 and 12 years old. The market consists of both formal childhood education and non-formal childhood education, also known as complementary childhood education. Formal childhood education refers to education at kindergartens and primary schools, who primarily charge tuition fees for providing education to children in campus. Complementary childhood education consists of both classroom-based education provided by offline pre-kindergartens and after-school learning centers, as well as content-based education delivered through online courses, online learning products, offline learning products and smart learning devices.

        Driven by the large and stable children population, parents' higher disposable income and increasing focus on children's education, and the fierce competition for admission into top schools, the total revenue of China's complementary childhood education market has grown rapidly from RMB420.6 billion in 2015 to RMB780.2 billion in 2019, representing a CAGR of 16.7%, and is expected to further increase to RMB1,337.7 billion in 2024, representing a CAGR of 11.4%, according to the Frost & Sullivan Report.

        The total revenue of China's content-based complementary childhood education market has grown rapidly from RMB25.4 billion in 2015 to RMB111.4 billion in 2019, representing a CAGR of 44.7%, and is expected to increase to RMB460.9 billion in 2024, representing a CAGR of 32.8%, according to the Frost & Sullivan Report. Due to the impact of the COVID-19 pandemic, kindergartens, primary schools and offline learning centers in China were closed in the first half of 2020, which led to a rapid increase in the demand for content-based complementary childhood education, especially online courses and online learning products. It is expected that the penetration rate of China's content-based complementary childhood education, calculated as a percentage of the total complementary childhood education market revenue, will continue to increase from 14.3% in 2019 to 34.5% in 2024, according to the Frost & Sullivan Report, as students will further migrate from offline education to online education.

        The total revenue of China's childhood edutainment products market has grown from RMB9.9 billion in 2015 to RMB36.9 billion in 2019, representing a CAGR of 38.9%, and is expected to further increase to RMB130.1 billion in 2024, representing a CAGR of 28.7%. The penetration rate of edutainment features in China's complementary childhood education products, calculated as a percentage of the sum of total revenue of online products, offline products and smart learning devices, has also increased from 48.2% in 2015 to 69.1% in 2019, and is expected to further increase to 80.8% in 2024, according to the Frost & Sullivan Report.

Our Strengths

        We believe the following competitive strengths are essential for our success and differentiate us from our competitors:

    our leadership in China's childhood edutainment market with well-established brand recognition;

    our proven product and content innovation capabilities;

    our integrated suite of online and offline products and services;

    our scalable business model with highly popular product and service offerings; and

    our visionary and experienced management team with passion for education and innovation.

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Our Strategies

        We intend to pursue the following strategies to further grow our business:

    expand the scope and further improve the quality of our product and service offerings;

    strengthen our content development capabilities and technology leadership

    expand user base and enhance user engagement;

    further expand into overseas markets; and

    pursue selective strategic investments, acquisitions and partnerships.

Our Challenges

        We face risks and uncertainties in realizing our business objectives and executing our strategies, including those relating to:

    our ability to continue to attract and retain users, convert non-paying users into paying users and increase the spending of our paying users;

    our limited operating history of online operations, which makes it difficult to predict our prospects and our business and financial performance;

    our ability to maintain and manage our growth;

    our ability to remain profitable in the future;

    our ability to compete successfully in China's childhood education market;

    our ability to counter the negative impact caused by the global outbreak of COVID-19;

    our ability to renew required licenses or permits or obtain newly required ones in a timely manner;

    our ability to maintain and enhance recognition of our brands;

    the success of our new product and service offerings; and

    strengthen our content development capabilities and technology leadership.

        See "Risk Factors" and other information included in this prospectus for a discussion of these and other risks and uncertainties that we face.

Corporate History and Structure

        We commenced operations through Tianjin Hongen Perfect Future Education Technology Co., Ltd., or Tianjin Hongen, in March 2016. We established certain wholly-owned subsidiaries of Tianjin Hongen to conduct our business, including Beijing Hongen Perfect Future Education Technology Co., Ltd. in July 2016 and Tianjin Hongen Perfect Technology Development Co., Ltd. in August 2019.

        Hongen Education & Technology Co., Ltd., or Hongen Education, an affiliate of ours, historically operated the business of learning materials and smart learning devices as well as the business of kindergartens and after-school learning centers. In November and December 2019, through a business combination under common control, we consolidated the business related to learning materials and smart learning devices of Hongen Education into Beijing Jinhongen Education Technology Co., Ltd, a wholly-owned subsidiary of Tianjin Hongen. Hongen Education continues to be our affiliate and operate kindergartens and after-school learning centers.

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        Our holding company, iHuman Inc., was incorporated in September 2019. In October 2019, iHuman Inc. established a wholly-owned subsidiary in Hong Kong, iHuman Online Limited. In November 2019, iHuman Online Limited established a wholly-owned subsidiary in China, Hongen Perfect Future (Tianjin) Investment Co., Ltd., or Hongen Investment. In May 2020, Hongen Investment established a wholly-owned subsidiary in China, Hongen Perfect (Beijing) Education Technology Development Co., Ltd., or Hongen Edutech. In June 2020, we gained control over Tianjin Hongen through Hongen Investment by entering into a series of contractual arrangements with Tianjin Hongen and its shareholders.

        The following diagram illustrates our corporate structure, including our subsidiaries, our VIE and its subsidiaries, as of the date of this prospectus:

GRAPHIC


Note:

(1)
Shareholders of Tianjin Hongen and their respective shareholdings in the VIE and relationship with our company are (i) Mr. Hanfeng Chi (63.61%), our director and brother of Mr. Michael Yufeng Chi, our controlling shareholder; (ii) Sanming Juyichang Enterprise Management Service Partnership (Limited Partnership) (17.67%), a limited partnership incorporated in the PRC beneficially and wholly owned by our employees and consultant; (iii) Mr. Tian Liang (7.07%), our shareholder; (iv) Sanming Jushengyi Enterprise Management Service Partnership (Limited Partnership) (6.65%), a limited partnership incorporated in the PRC beneficially and wholly owned by our employees; and (v) Sanming Kangqian

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    Information Technology Service Co., Ltd. (5%), a company incorporated in the PRC beneficially and wholly owned by Mr. Hanfeng Chi, our director.

Implication of Being an Emerging Growth Company

        As a company with less than US$1.07 billion in revenue for our last fiscal year, we qualify as an "emerging growth company" pursuant to the Jumpstart Our Business Startups Act of 2012, as amended, or the JOBS Act. An emerging growth company may take advantage of specified reduced reporting and other requirements compared to those 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 in the assessment of the emerging growth company's internal control over financial reporting. The JOBS Act also provides that an emerging growth company does not need to comply with any new or revised financial accounting standards until such date that a private company is otherwise required to comply with such new or revised accounting standards. Pursuant to the JOBS Act, we have elected to take advantage of the benefits of this extended transition period for complying with new or revised accounting standards. As a result, our operating results and financial statements may not be comparable to the operating results and financial statements of other companies who have adopted the new or revised accounting standards.

        We will remain an emerging growth company until the earliest of (a) the last day of the fiscal year during which we have total annual gross revenues of at least US$1.07 billion; (b) the last day of our fiscal year following the fifth anniversary of the completion of this offering; (c) the date on which we have, during the preceding three-year period, issued more than US$1.0 billion in non-convertible debt; or (d) the date on which we are deemed to be a "large accelerated filer" under the Securities Exchange Act of 1934, as amended, or the Exchange Act, which would occur if the market value of the ADSs that are held by non-affiliates exceeds US$700 million as of the last business day of our most recently completed second fiscal quarter. Once we cease to be an emerging growth company, we will not be entitled to the exemptions provided in the JOBS Act discussed above.

Implication of Being a Controlled Company

        Upon the completion of this offering, Mr. Michael Yufeng Chi, our founder and chairman of the board of directors, will beneficially own 55.1% of our total issued and outstanding ordinary shares, representing 92.5% of our total voting power, assuming the underwriters do not exercise their option to purchase additional ADSs, or 54.0% of our total issued and outstanding ordinary shares, representing 92.2% of the voting power, assuming the option to purchase additional ADSs is exercised in full. As a result, we will be a "controlled company" as defined under the NYSE Listed Company Manual because Mr. Chi will hold more than 50% of the voting power for the election of directors. As a "controlled company," we are permitted to elect not to comply with certain corporate governance requirements. We plan to rely on the exemption with respect to the requirement that a majority of the board of directors consist of independent directors.

Corporate Information

        Our principal executive offices are located at K2, North America International Business Park, No. 108 Beiyuan Road, Chaoyang District, Beijing 100012, People's Republic of China. Our telephone number at this address is +86 10 5780-6606. Our registered office in the Cayman Islands is located at the Office of Maples Corporate Services Limited, PO Box 309, Ugland House Grand Cayman, KY1-1104, Cayman Islands.

        Investors should submit any inquiries to the address and telephone number of our principal executive offices. Our main website is www.ihuman.com. The information contained on our website is not a part of this prospectus. Our agent for service of process in the United States is Cogency Global Inc., located at 122 East 42nd Street, 18th Floor, New York, NY 10168.

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Conventions that Apply to this Prospectus

        Unless otherwise indicated or the context otherwise requires, references in this prospectus to:

    "ADRs" are to the American depositary receipts that may evidence the ADSs;

    "ADSs" are to the American depositary shares, each of which represents five Class A ordinary shares;

    "BVI" are to the British Virgin Islands;

    "China" or the "PRC" are to the People's Republic of China, excluding, for the purposes of this prospectus only, Hong Kong, Macau and Taiwan;

    "Class A ordinary shares" are to our Class A ordinary shares, par value US$0.0001 per share;

    "Class B ordinary shares" are to our Class B ordinary shares, par value US$0.0001 per share;

    "edutainment" are to programs that combine education and entertainment;

    "Hongen Education" are to Hongen Education & Technology Co., Ltd. and its predecessors and subsidiaries. Hongen Education is an affiliate of ours that shares a common director, Mr. Hanfeng Chi, with us. Furthermore, Mr. Michael Yufeng Chi, our founder and chairman of the board of directors, beneficially owns more than 50% of the voting power in both Hongen Education and us. As such, Mr. Michael Yufeng Chi is able to direct the management and policies of both Hongen Education and our company. Therefore, Hongen Education and us are under common control, which, pursuant to Rule 405 under the Securities Act, makes Hongen Education an affiliate of ours;

    "iHuman," "we," "us," "our company" and "our" are to iHuman Inc., our Cayman Islands holding company and its subsidiaries, its consolidated variable interest entity and the subsidiaries of the consolidated variable interest entity;

    "Learning services" are to our online operations of learning apps, through which we generate revenues from subscription fees charged to users for the premium content;

    "Learning materials and devices" are to our offline operations of learning materials and smart learning devices, and we generate revenues from sales of these products;

    "monthly active user" or "MAUs" with respect to any of our learning apps, are to the number of unique mobile devices through which such learning app is accessed at least once in a given month. We treat each distinguishable device as a separate user for purposes of calculating MAUs, although it is possible that some people may use more than one mobile device and multiple people may share one mobile device to access our learning apps; "average MAUs" for a specific period, with respect to any of our learning apps, are to the monthly average of the sum of our MAUs for such learning app during that period; "total MAUs" is calculated by combining the MAUs of all of our learning apps in a given month, and duplicate access to different learning apps is not eliminated from the calculation; "average total MAUs" for a specified period, are to the monthly average of the sum of our total MAUs during that period;

    "our WFOEs" are to Hongen Perfect Future (Tianjin) Investment Co., Ltd. and Hongen Perfect (Beijing) Education Technology Development Co., Ltd. (each of which, "our WFOE");

    "revenues" for a specific period quoted from the Frost & Sullivan Report, are to the total amount of cash received by market participants for the sale of products and services during such period;

    "paying users" for a specific period are to users who paid subscription fees for the premium content on any of our learning apps during that period; a user who makes payments across

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      different learning apps using the same registered account is counted as one paying user; and a user who makes payments for the same learning app multiple times in the same period is counted as one paying user;

    "Perfect World Group" or "Perfect World" are to Perfect World Holding Group Co., Ltd., a holding company incorporated in the PRC, and its subsidiaries, including Perfect World Co., Ltd., a company incorporated in the PRC and listed on the Shenzhen Stock Exchange (SZ:002624). Mr. Michael Yufeng Chi beneficially owns more than 50% of the voting power in both Perfect World Group and us and is a common director of both Perfect World Group and us. As such, Mr. Michael Yufeng Chi is able to direct the management and policies of both Perfect World Group and our company. Therefore, Perfect World Group and us are under common control, which, pursuant to Rule 405 under the Securities Act, makes Perfect World Group an affiliate of ours;

    "RMB" and "Renminbi" are to the legal currency of China;

    "shares" or "ordinary shares" are to our Class A and Class B ordinary shares, par value US$0.0001 per share;

    "STEM" are to academic disciplines of science, technology, engineering and mathematics;

    "US$," "U.S. dollars," "$," and "dollars" are to the legal currency of the United States; and

    "VIE" are to variable interest entities, and "our VIE" or "Tianjin Hongen" are to Tianjin Hongen Perfect Future Education Technology Co., Ltd.

        Unless the context indicates otherwise, all information in this prospectus assumes no exercise by the underwriters of their option to purchase up to 1,050,000 additional ADSs representing 5,250,000 Class A ordinary shares from us. Unless otherwise noted, all translations from Renminbi to U.S. dollars and from U.S. dollars to Renminbi in this prospectus are made at a rate of RMB7.0651 to US$1.00, the exchange rate in effect as of June 30, 2020 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.

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The Offering

Offering price

  We currently estimate that the initial public offering price will be between US$11.00 and US$13.00 per ADS.

ADSs offered by us

 

7,000,000 ADSs (or 8,050,000 ADSs if the underwriters exercise their option to purchase additional ADSs in full).

ADSs outstanding immediately after this offering

 

7,000,000 ADSs (or 8,050,000 ADSs if the underwriters exercise their option to purchase additional ADSs in full).

Ordinary shares issued and outstanding immediately after this offering

 

117,372,382 Class A ordinary shares (or 122,622,382 Class A ordinary shares if the underwriters exercise their option to purchase additional ADSs) and 144,000,000 Class B ordinary shares.

The ADSs

 

Each ADS represents five Class A ordinary shares, par value US$0.0001 per share.

 

The depositary will hold Class A ordinary shares underlying your ADSs. You will have rights as provided in the deposit agreement among us, the depositary and holders and beneficial owners of ADSs from time to time.

 

We do not expect to pay dividends in the foreseeable future. If, however, we declare dividends on our Class A ordinary shares, the depositary will pay you the cash dividends and other distributions it receives on our ordinary shares after deducting its fees and expenses in accordance with the terms set forth in the deposit agreement.

 

You may surrender your ADSs to the depositary for cancellation in exchange for Class A ordinary shares. The depositary will charge you fees for any cancellation.

 

We may amend or terminate the deposit agreement without your consent. If you continue to hold your ADSs after an amendment to the deposit agreement, you agree to be bound by the deposit agreement as amended.

 

To better understand the terms of the ADSs, you should carefully read the "Description of American Depositary Shares" section of this prospectus. You should also read the deposit agreement, which is filed as an exhibit to the registration statement that includes this prospectus.

Option to purchase additional ADSs

 

We have granted to the underwriters an option, exercisable within 30 days from the date of this prospectus, to purchase up to an aggregate of 1,050,000 additional ADSs.

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Use of proceeds

 

We expect that we will receive net proceeds of approximately US$74.7 million from this offering, assuming an initial public offering price of US$12.00 per ADS, which is the midpoint of the estimated range of the initial public offering price, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

 

We intend to use the net proceeds from this offering for expanding our product and service offerings, both domestically and overseas, development of our existing products and services, improving our technology structure, marketing and brand promotions, as well as for general corporate purposes. See "Use of Proceeds" for more information.

Lock-up

 

We and each of our officers, directors, existing shareholders and option holders have agreed with the underwriters, subject to certain exceptions, not to sell, transfer or otherwise dispose of any ADSs, ordinary shares or similar securities for a period of 180 days after the date of this prospectus. See "Shares Eligible for Future Sale" and "Underwriting" for more information.

Listing

 

We have submitted an application to have the ADSs listed on the New York Stock Exchange under the symbol "IH." The ADSs and our ordinary shares will not be listed on any other stock exchange or traded on any automated quotation system.

Payment and settlement

 

The underwriters expect to deliver the ADSs against payment therefor through the facilities of the Depository Trust Company on                , 2020.

Depositary

 

Deutsche Bank Trust Company Americas.

        The number of ordinary shares that will be issued and outstanding immediately after this offering:

    is based on 226,372,382 issued and outstanding ordinary shares as of the date of this prospectus, assuming (i) the automatic re-designation of 144,000,000 ordinary shares beneficially owned by Mr. Michael Yufeng Chi into Class B ordinary shares on a one-for-one basis immediately prior to the completion of this offering and (ii) the automatic re-designation of all of our remaining issued and outstanding 71,053,763 ordinary shares and our 11,318,619 contingently redeemable ordinary shares into Class A ordinary shares on a one-for-one basis immediately prior to the completion of this offering;

    includes 35,000,000 Class A ordinary shares in the form of ADSs that we will issue and sell in this offering, assuming the underwriters do not exercise their option to purchase additional ADSs; and

    excludes Class A ordinary shares issuable upon exercise of our outstanding options and all Class A ordinary shares reserved for future issuances under our share incentive plan.

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SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA

        The following summary consolidated statement of operations for the years ended December 31, 2018 and 2019, summary consolidated balance sheet data as of December 31, 2018 and 2019, and summary consolidated cash flow data for the years ended December 31, 2018 and 2019 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The following summary consolidated statements of operations for the six months ended June 30, 2019 and 2020, summary consolidated balance sheet data as of June 30, 2020, and summary consolidated cash flow data for the six months ended June 30, 2019 and 2020 have been derived from our unaudited condensed consolidated financial statements included elsewhere in this prospectus. Our consolidated financial statements are prepared and presented in accordance with U.S. GAAP. Our historical results do not necessarily indicate results expected for any future periods. You should read this Selected Consolidated Financial Data section together with our consolidated financial statements and the related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this prospectus.

 
  For the Year Ended December 31,   For the Six Months ended June 30,  
 
  2018   2019   2019   2020  
 
  RMB   RMB   US$   RMB   RMB   US$  
 
  (in thousands, except for share
amounts and per share data)

 

Summary Consolidated Statement of Operations:

                                     

Revenues

                                     

Learning services

    22,010     107,409     15,203     41,285     152,462     21,580  

Learning materials and devices

    109,857     111,247     15,746     50,478     33,014     4,673  

Total Revenues

    131,867     218,656     30,949     91,763     185,476     26,253  

Cost of revenues

    (65,854 )   (84,163 )   (11,913 )   (37,417 )   (60,116 )   (8,509 )

Gross profit

    66,013     134,493     19,036     54,346     125,360     17,744  

Operating expenses

                                     

Research and development expenses(1)

    (52,103 )   (170,155 )   (24,084 )   (113,170 )   (73,674 )   (10,428 )

Sales and marketing expenses(1)

    (21,987 )   (53,716 )   (7,603 )   (37,689 )   (28,383 )   (4,017 )

General and administrative expenses(1)

    (13,986 )   (189,433 )   (26,812 )   (176,819 )   (17,464 )   (2,472 )

Total operating expenses

    (88,076 )   (413,304 )   (58,499 )   (327,678 )   (119,521 )   (16,917 )

Operating income (loss)

    (22,063 )   (278,811 )   (39,463 )   (273,332 )   5,839     827  

Other income, net

    6,069     4,578     648     1,578     1,759     248  

Income (loss) before income taxes

    (15,994 )   (274,233 )   (38,815 )   (271,754 )   7,598     1,075  

Income tax expenses

    (1,610 )   (1,364 )   (193 )   (59 )   (1,957 )   (277 )

Net income (loss)

    (17,604 )   (275,597 )   (39,008 )   (271,813 )   5,641     798  

Accretion to redemption value of contingently redeemable ordinary shares

        (821 )   (116 )       (6,449 )   (913 )

Net loss attributable to iHuman Inc.'s ordinary shareholders

    (17,604 )   (276,418 )   (39,124 )   (271,813 )   (808 )   (115 )

Loss per share

                                     

Basic

    (0.11 )   (1.52 )   (0.22 )   (1.70 )   (0.00 )   (0.00 )

Diluted

    (0.11 )   (1.52 )   (0.22 )   (1.70 )   (0.00 )   (0.00 )

Weighted average shares used in loss per share

                                     

Basic

    160,000,000     181,427,603     181,427,603     160,000,000     215,053,763     215,053,763  

Diluted

    160,000,000     181,427,603     181,427,603     160,000,000     215,053,763     215,053,763  

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  For the Year Ended December 31,   For the Six Months ended June 30,  
 
  2018   2019   2019   2020  
 
  RMB   RMB   US$   RMB   RMB   US$  
 
  (in thousands, except for share
amounts and per share data)

 

Non-GAAP Financial Measures(2)

                                     

Adjusted operating income (loss)

    (22,063 )   (8,270 )   (1,170 )   (2,791 )   5,839     827  

Adjusted net income (loss)

    (17,604 )   (5,056 )   (715 )   (1,272 )   5,641     798  

Notes:

(1)
Share-based compensation expenses were recorded as follows:
 
  For the Year Ended
December 31,
  For the Six Months
Ended
June 30,
 
 
  2018   2019   2019   2020  
 
  RMB   RMB   US$   RMB   RMB   US$  
 
  (in thousands)
 

Share-based compensation expenses:

                                     

Research and development expenses

        76,301     10,800     76,301          

Sales and marketing expenses

        25,892     3,665     25,892          

General and administrative expenses

        168,348     23,828     168,348          

Total

        270,541     38,293     270,541          
(2)
For discussions of adjusted operating income (loss) and adjusted net income (loss) and reconciliation of adjusted operating income (loss) to operating income (loss) and adjusted net income (loss) to net income (loss), see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures."

        The following table presents our summary consolidated balance sheets data as of December 31, 2018 and 2019 and June 30, 2020:

 
  As of December 31,   As of June 30,  
 
  2018   2019   2020  
 
  RMB   RMB   US$   RMB   US$  
 
  (in thousands)
 

Summary Consolidated Balance Sheet Data:

                               

Cash and cash equivalents

    6,124     104,883     14,845     154,992     21,938  

Accounts receivable, net

    13,624     20,118     2,848     46,283     6,551  

Inventories, net

    29,628     20,665     2,925     17,444     2,469  

Total current assets

    57,325     163,062     23,080     265,457     37,573  

Total assets

    58,599     168,315     23,823     297,067     42,048  

Total current liabilities

    122,334     182,764     25,868     260,633     36,890  

Total liabilities

    122,334     182,764     25,868     266,158     37,672  

Total mezzanine equity

        120,821     17,101     167,237     23,671  

Total shareholders' deficit

    (63,735 )   (135,270 )   (19,146 )   (136,328 )   (19,295 )

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        The following table presents our summary consolidated cash flow data for the years ended December 31, 2018 and 2019 and for the six months ended June 30, 2019 and 2020:

 
  For the Year Ended
December 31,
  For the Six months
Ended
June 30,
 
 
  2018   2019   2019   2020  
 
  RMB   RMB   US$   RMB   RMB   US$  
 
  (in thousands)
 

Summary Consolidated Cash Flow Data:

                                     

Net cash (used in) provided by operating activities

    (4,504 )   42,627     6,033     11,366     84,376     11,943  

Net cash used in investing activities

    (529 )   (2,391 )   (338 )   (941 )   (7,984 )   (1,130 )

Net cash provided by (used in) financing activities

    10,314     58,523     8,283     (7,631 )   (26,033 )   (3,685 )

Net increase in cash and cash equivalents

    5,281     98,759     13,978     2,794     50,109     7,093  

Cash and cash equivalents at the beginning of the period

    843     6,124     867     6,124     104,883     14,845  

Cash and cash equivalents at the end of the period

    6,124     104,883     14,845     8,918     154,992     21,938  

Key Operating Data

MAU and paying users

        We believe the MAU and number of paying users for our learning apps are important indicators of our business operations. We track the average total MAUs as a key metric for our user base and our users' level of engagement, and our learning services revenue is driven by the increase in the number of our paying users. The following table presents the MAU and number of paying users for the periods indicated:

 
  For the Year
Ended
December 31,
  For the Three
Months
Ended June 30,
 
 
  2018   2019   2019   2020  
 
  (in millions)
 

Average total MAU

    1.4     3.7     3.2     10.3  

Total paying users

    0.5     1.3     0.4     1.4  

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RISK FACTORS

        Investing in our ADSs involves a high degree of risk. You should carefully consider the following risks and uncertainties and all other information contained in this prospectus before investing in our ADSs. Our business, financial condition, results of operations or prospects could also be harmed by risks and uncertainties not currently known to us or that we currently do not believe are material. If any of the risks actually occur, our business, financial condition, results of operations and prospects could be adversely affected. In that event, the market price of our ADSs could decline, and you could lose part or all of your investment.

Risks Related to Our Business and Industry

         If we are not able to continue to attract and retain users, convert non-paying users into paying users, and maintain or increase the spending of paying users on our products and services, our business and prospects will be materially and adversely affected.

        We mainly generate revenues from subscriptions fees that users paid for the premium content of our online learning apps, as well as the sale of learning materials and smart learning devices to both individual users and education organizations. Therefore, our ability to attract and retain users, convert our non-paying users into paying users, and maintain or increase the spending of paying users on our products and services is critical to the continued success and growth of our business. Such ability primarily depends on the overall learning experience we provide to our users, the quality and popularity of our content, as well as the effectiveness of our technology.

        Although we have developed a large and rapidly growing user base, to continue to do so, we must attract users by continuing to expand the scope and improve the quality of our product and service offerings, strengthen our content development capabilities and technology leadership, continue to build our brand and reputation as the leading edutainment products provider, as well as effectively market and precisely target our products and services to prospective users. We may not, however, always be able to meet our users' expectations, many of which are outside of our control. We may face user dissatisfaction due to perceptions of our failure to engage our users in effective learning, our users' overall dissatisfaction with the quality of the content of our learning apps and offline products, technical disruptions or failure of our learning apps, smart devices or other products, as well as potential concerns from parents on their children's learning along with games being too immersive and distracting.

        If we are unable to continue to attract and retain users to subscribe for the premium content of our learning apps or purchase our other products, or to maintain or increase the spending of our existing users on our products and services, our revenues may decline, which may have a material adverse effect on our business, financial condition and results of operations.

         Our online operations have a limited operating history in an evolving market, which makes it difficult to predict our prospects and our business and financial performance.

        While the history of our business in the education industry dates back to 1996 when Hongen Education introduced its first product, our online operations have a limited operating history as we launched our online operations only in 2016 and established our integrated suite of online and offline products and services in late 2019. Our limited history of operating under the current business model may not serve as an adequate basis for evaluating our prospects and operating results, including our revenues, cash flows and operating margins. The online education market in China is still rapidly evolving and is characterized by intense competition, which makes it more difficult to evaluate our performance and prospects. We have encountered, and may continue to encounter in the future, risks, challenges and uncertainties associated with operating an integrated online and offline edutainment business and expanding our global reach, such as continuing to develop high-quality content, expanding

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our user base and enhancing user engagement, navigating an uncertain and evolving regulatory environment, and improving and expanding our product and service offerings. If we do not manage these risks successfully, our operating and financial results may differ materially from our expectations and our business and financial performance may suffer.

         We have grown rapidly and expect to continue to invest in our growth for the foreseeable future. If we fail to manage this growth effectively, the success of our business will be compromised.

        We have experienced rapid growth since the inception of our online operations. However, our historical growth may not be indicative of our future growth or financial results. For example, our learning services revenues experienced significant growth in the six months ended June 30, 2020 as the number of paying users increased rapidly during the COVID-19 pandemic. We cannot assure you that we will be able manage our growth at the same rate as we did in the past, or avoid any decline in the future. To maintain our growth, we need to attract more users, hire more qualified content development and other staff, scale up our product and service offerings and strengthen our technology infrastructure. Moreover, our current and planned staffing, systems, policies, procedures and controls may not be adequate to support our future operations. To effectively manage the expected growth of our operations and personnel, we will also be required to refine our operational, financial and management controls and reporting systems and procedures. If we fail to efficiently manage this expansion of our business, our costs and expenses may increase faster than we planned and we may not successfully attract a sufficient number of users and customers in a cost-effective manner, respond to competitive challenges, or otherwise execute our business strategies. These activities require significant capital expenditures and investment of valuable management and financial resources, and our growth will continue to place significant demands on our management. The increasingly large children user base and the expanding content also expose us to challenges related to legal compliance, such as complying with evolving laws and regulations on privacy and intellectual property. There is no guarantee that we will be able to effectively manage any future growth in an efficient, cost-effective and timely manner, or at all. Our growth in a relatively short period of time is not necessarily indicative of results that we may achieve in the future. If we fail to effectively manage the growth of our business and operations, our reputation, results of operations and overall business and prospects could be negatively impacted.

         We have incurred net losses in the past, and we may not be able to remain profitable or increase profitability in the future.

        We have incurred net losses of RMB17.6 million and RMB275.6 million (US$39.0 million) in 2018 and 2019, respectively, and we recorded a net income of RMB5.6 million (US$0.8 million) in the six months ended June 30, 2020. We cannot assure you that we will be able to remain profitable in the future. Our ability to maintain profitability will depend primarily on our ability to increase our operating margin, either by growing our revenues at a rate faster than the increase of our operating expenses, such as our research and development expenses, or by reducing our operating expenses as a percentage of our net revenues. As we plan to continue to invest in expanding the scope and improving the quality of our product and service offerings as well as in marketing and branding efforts, there can be no assurance that we will maintain profitability and we may experience net losses again in the future.

         We face competition, which may divert users to our competitors, lead to pricing pressure and loss of market share.

        The childhood education industry in China is evolving and competitive, and we expect competition in this sector to persist and intensify as more players may enter this promising market. We face competition in each part of our product service offerings from other education companies. For

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example, each of our learning apps has certain competitors in the relevant subject. We also face pressure for our offline operations from other providers of learning materials and smart learning device. Some of our current competitors or future competitors entering this market may have longer operating histories in certain businesses, greater brand recognition, or greater financial, technical or marketing resources than we do. We compete with our competitors across a range of factors, including, among others, high-quality content development staff, technology infrastructure and data analytics capabilities, scope and quality of our product and service offerings, user experience, and brand recognition. Our competitors may launch similar products or services, with different pricing and service packages that may have greater appeal than our offerings. If we reduce our subscription fees or increase spending in response to competition in order to retain or attract users or pursue new market opportunities, our revenues may decrease, and our costs and expenses may increase as a result of such actions, which may adversely affect our operating margins. If we are unable to successfully compete for users, maintain or increase our level of subscription fees, attract and retain competent content development staff or other key personnel, maintain our competitiveness in terms of the quality of our product and service offerings in a cost-effective manner, our business and results of operations may be materially and adversely affected.

         Our business, financial condition and results of operations, especially our offline operations, has been and may continue to be adversely affected by the COVID-19 outbreak.

        The recent outbreak of COVID-19 has spread rapidly across the world. The epidemic has resulted in quarantines, travel restrictions, and the temporary closure of stores and facilities in China and many other countries for the past few months. In March 2020, the World Health Organization declared the COVID-19 a pandemic.

        The current COVID-19 pandemic has already adversely affected many aspects of our business. Our offline business has been negatively impacted by the COVID-19 outbreak most significantly, as kindergartens and after-school learning centers, which are the major customers of our learning materials and devices, have undergone temporary yet prolonged closure since February 2020. As a result, some of the orders placed for our products in early 2020 were canceled or delayed.

        In addition, as part of China's nationwide efforts to contain the spread of COVID-19, we made adjustments of operation hours and work-from-home arrangements when our offices had been temporarily closed for a certain period of time. We had taken measures to facilitate our employees to work remotely, but we might still have experienced lower work efficiency and productivity in that period.

        The potential downturn brought by and the duration of the COVID-19 outbreak may be difficult to assess or predict where actual effects will depend on many factors beyond our control. The extent to which the COVID-19 outbreak impacts our long-term results remains uncertain, and we are closely monitoring its impact on us. Our business, results of operations, financial conditions and prospects could be adversely affected directly, as well as indirectly to the extent that the COVID-19 outbreak or any other epidemic harms the Chinese and global economy in general.

         We face uncertainties with respect to the development of relevant regulations. Failure to renew requested licenses or permits in a timely manner or obtain newly required ones, including the Online Publishing Service Permit and the Online Transmission of Audio-Visual Programs License due to adverse changes in regulations or policies could have a material adverse impact on our business, financial condition and results of operations.

        The internet industry and education industry in China are highly regulated by the PRC government. As an integrated online and offline edutainment company, we are required to obtain and maintain all necessary approvals, licenses or permits applicable to our business operations and make all

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necessary registration and filings for our products and services in China, and we may be required to apply for and obtain additional licenses or permits for our operations as the interpretation and implementation of current PRC laws and regulations are still evolving, and new laws and regulations may also be promulgated.

        We currently hold a Value-added Telecommunications Business Operating License and a Production and Operation of Radio and TV Programs Permit for our internet information service. We may be required to apply for and obtain additional licenses, permits or recordation, given the significant uncertainties of the interpretation and implementation of certain regulatory requirements applicable to online edutainment business. As of the date of this prospectus, online edutainment institutions are not explicitly required to obtain the Online Transmission of Audio-Visual Programs License primarily because there are significant uncertainties relating to the interpretation and implementation of relevant rules and regulations, in particular, as the scope of "internet audio-visual program" as defined in relevant rules and regulations promulgated by relevant government authorities. In addition, as of the date of this prospectus, there are no implementation rules, explicit interpretation from government authorities or prevailing enforcement practice deeming the provision of our edutainment content to our users through our learning apps as "online publishing" which refers to digital works with publishing features such as having been edited, produced or processed and are available to the public through information networks and requires an Online Publishing Service Permit. See "Regulation—Regulation Related to Online Publishing." However, there is no assurance that local PRC authorities will not adopt different enforcement practice, or any PRC government will not issue more explicit interpretation and rules or promulgate new laws and regulations from time to time to further regulate the online edutainment industry, which may subject us to additional licensing requirements to continue to operate our online business. If our online edutainment business is considered as transmission of "internet audio-visual program," we may be required to obtain the Online Transmission of Audio-Visual Programs License. If the content offered in our platform is considered as "online publications," we may be required to obtain the Online Publishing Service Permit. As of the date of this prospectus, no fines or other penalties have been imposed on us for failure to obtain the additional licenses, permits or recordation, including, among other things, License for Online Transmission of Audio-Visual Programs and Online Publishing Service Permit.

        In addition, if future PRC laws and regulations provide that our learning materials provided to kindergarten or after-school learning centers may be subject to review, vetting or any restrictions by relevant government authorities, there can be no assurance that we will pass such review and vetting, or comply with such restrictions. If we fail to pass such review and vetting, or are restricted from selling our learning materials to kindergarten or after-school learning centers, we may need to adjust our learning materials in compliance with such laws and regulations and incur additional costs, which may adversely harm our business, financial condition and results of operation.

        There can be no assurance that, if so required, we will be able to obtain all the required approvals, licenses, permits and complete all necessary filings, recordation renewals, review and registrations on a timely basis for our learning apps and learning materials, or at all, given the significant amount of discretion the PRC authorities may have in interpreting, implementing and enforcing relevant rules and regulations, as well as other factors beyond our control and anticipation. If we fail to obtain required permits in a timely manner or obtain or renew any permits and certificates, or fail to complete the necessary filings, recordation renewals, review or registrations on a timely basis, we may be subject to fines, confiscation of the gains derived from our non-compliant operations, suspension of our non-compliant operations or claims for compensation of any economic loss suffered by our users or other relevant parties.

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         Our business depends on the continued success of our brands, and if we fail to maintain and enhance the recognition of our brands, or the recognition of our brands is adversely affected by any negative publicity concerning us, our reputation and operating results may be harmed.

        We believe that market awareness of our iHuman (" GRAPHIC ") brand among users and customers have contributed significantly to our success. We also benefit from the brand recognition of Hongen Education, which has been operating in the education industry for more than 20 years. Maintaining and enhancing our brands are critical to our efforts to scale our business and attract and retain users and customers. We engage in branding efforts such as word-of-mouth marketing, promotional events, app store promotion and online social media advertising. These efforts may not always achieve the desired results. If we fail to maintain a strong brand, our business, results of operations and prospects will be materially and adversely affected. In addition, customers may be confused by our various brands for different lines of business, as well as by other brands with similar names/trademarks, if we fail to make our respective brand recognizable and differentiated. If we are unable to maintain and further enhance our brand recognition, or if our brand image is negatively impacted by any negative publicity, we may not be able to maintain our current growth and our business, financial condition and results of operations may be materially and adversely affected.

        Negative publicity about us and our business, shareholders, affiliates, directors, officers, other employees, business partners, users, businesses with similar names to ours without our authorization, as well as the industry in which we operate, can harm our brand and reputation. Negative publicity concerning these parties could be related to a wide variety of matters, including, but are not limited to:

    alleged misconduct or other improper activities committed by our directors, officers and other employees, in particular with respect to children or childhood education, including misrepresentation made by our employees to prospective users during sales and marketing activities;

    false or malicious allegations or rumors about us or our directors, shareholders, affiliates, officers and other employees;

    complaints by our users and customers about our products and services;

    security breaches of confidential user or transaction data;

    employment-related claims relating to alleged wrongful discharge, employment discrimination, wage and hour violations; and

    governmental and regulatory investigations or penalties resulting from our failure to comply with applicable laws and regulations.

        In addition to traditional media, there has been increasing use of social media platforms and similar media in China that provide individuals with access to a broad audience of consumers and other interested persons. The availability of information on instant messaging applications and social media platforms is virtually immediate without affording us an opportunity for redress or correction. The opportunity for dissemination of information, including inaccurate information, is seemingly limitless and readily available. Information concerning our company, shareholders, affiliates, directors, officers and other employees may be posted on such platforms at any time. The risks associated with any such negative publicity or incorrect information cannot be completely eliminated or mitigated and may materially harm our reputation, business, financial condition and results of operations.

         Our promulgation of new products and services may not be successful and may expose us to new challenges and more risks.

        Although we have been successful in launching learning apps in new subjects as well as in integrating our online and offline products, there is no assurance that we will be able to continue our

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success in our promulgation of new products and services in the future. For example, we plan to launch online courses in various formats. We also expect to expand the demographic coverage of our products and services to elder children groups, particularly those aged between eight and twelve, to increase user lifetime value. Our lack of experience with these new service and product offerings may adversely affect our prospects and our ability to compete with the existing market players in any of these product and service categories. Moreover, promulgation of new products and services and expansion into new markets may disrupt our ongoing business, distract our management and employees and increase our expenses to cover unforeseen or hidden liabilities or costs. We may also face challenges in achieving the expected benefits of synergies and growth opportunities in connection with these new product and service offerings. We may also become subject to additional compliance requirements for these new product and service categories. Failure to expand successfully may also diminish investor confidence in our decision-making and execution capabilities, which could materially and adversely affect our business, results of operations, financial condition and prospects.

         If we are not able to continue to engage, train and retain high-quality content development staff, we may not be able to offer appealing new content or maintain the quality of existing content of our products and services in a cost-effective way.

        As we believe our high-quality original education content is crucial to our product-centric business model and our prospects, our content development staff is critical to the popularity of our learning apps, learning materials and smart learning devices and to the experience of our users and customers. We seek to engage high-quality content development staff with strong educational backgrounds and innovative capabilities. We need to provide competitive salaries and offer attractive career outlooks to attract and retain them. We must also provide ongoing training to our content development staff to ensure that they stay abreast of the evolving and diversified needs of both individual users and education organizations for childhood education. Furthermore, as we continue to develop education content in new subjects and formats, we may need to engage additional high-quality content development staff with appropriate skill sets or backgrounds to develop the content effectively. We cannot guarantee that we will be able to effectively engage and train such staff quickly, or at all. Additionally, given the potentially more attractive opportunities for our skilled and experienced content development staff, over time, some of them may choose to leave us. Departure of quality content development staff may reduce the attractiveness of our product and service offerings and negatively impact our results of operations. Although we have not experienced major difficulties in engaging, training or retaining high-quality content development staff in the past, we may not always be able to do so to keep pace with our growth while maintaining consistent content development quality. A shortage of high-quality content development staff, a decrease in the quality of our existing staff's performance, whether actual or perceived, or a significant increase in the cost to engage or retain high-quality content development staff would have a material adverse effect on our business, financial condition and results of operations.

         We cooperate with various business partners, such as suppliers and distributors. If we are not able to maintain our relationships with existing business partners or develop relationships with new business partners, our operations may be materially and adversely affected.

        We cooperate with various business partners in the ordinary course of our business. For example, we cooperate with suppliers on materials and assembly for the production of our learning materials and smart learning devices, and with publishers for publishing our learning materials. We also cooperate with local distribution partners to effectively promote our product and service offerings. Maintaining strong relationships with suppliers and distributors is critical to the results of operations and prospects of our business. Furthermore, we are licensed to use certain copyrighted materials from an affiliate of ours for use in certain learning apps, and we are in the process of reaching an agreement with a leading publisher to obtain licenses to use certain of its copyright. We generally enter into cooperation

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agreements with our business partners, and these cooperation agreements typically do not restrict the business partners from cooperating with our competitors. There can be no assurance that the business partners we currently cooperate with will continue the cooperation with us on commercially acceptable terms, or at all, after the terms of the current agreements expire. Our ability to attract distributors to cooperate with us also hinges on the quality and popularity of our products. If we cannot ensure that our products are well-recognized among users and customers, we might not be able to attract new distributors or maintain our existing distribution channels. If we are unable to maintain our relationships with existing business partners or develop relationships with new business partners, our operations may be materially and adversely affected.

        In addition, we leveraged the support from, and our relationship with, our affiliates for back office support when we first launched our online operation. For example, Perfect World Group historically provided us with certain financial management, legal service, human resource service, administrative and IT support. As a result, our limited history of independent management may not serve as an adequate basis for evaluating our administrative efficiency. In 2020, we are handling most of these back office functions independently.

         We may not be able to develop and introduce new features to, or upgrade the current features in, our existing products and services to meet changing user preferences in a timely and cost-effective manner.

        To attract users and keep our existing users engaged, we must introduce new products and services and upgrade our existing products and services to meet users' evolving preferences. It is difficult to predict the preferences of a particular user or a specific group of users. Changes and upgrades to our existing products and services may not be well received by our users, and newly introduced products and services may not achieve success as expected. Going forward, we may also introduce new products and services in areas beyond childhood learning, with which we have little or no prior experience. Such efforts may require us to contribute a substantial amount of additional human capital and financial resources. We cannot assure you that any of such new products or services will achieve market acceptance or generate sufficient revenues to adequately compensate the costs and expenses incurred in relation to our development and promotion efforts. If we fail to improve our existing products and services and introduce new ones in a timely or cost-effective manner, our ability to attract and retain users may be impaired, and our financial performance and prospects may be adversely affected.

         The success and future growth of our business may be affected by user and customer acceptance and market trend of integration of learning and technology.

        We operate in the edutainment industry, and our business model features integrating technology, including gamified technology, closely with learning to provide a more interactive and engaging learning experience. However, edutainment remains a relatively new concept in China, and there are limited proven methods to project user demand, preference or available industry standards on which we can rely. The general public, many of whom are our potential users, may not recognize and accept the concept of children learning on a mobile app rather than from a human teacher. They may also have concerns over the effectiveness of our interactive and self-directed learning apps, considering that our business model is relatively new and there are few players with proven track records in the market. As a result of the foregoing, the general public may not choose our products and services, and may stick with traditional in-person teaching. If we fail to convince our users and potential users on the value and the effectiveness of our innovative approach as well as further promote our products and services, our growth will be limited and our business, financial performance and prospects may be materially and adversely affected.

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         We may not be able to maintain or increase our price level and we cannot guarantee that our monetization strategies will be successfully implemented.

        Our results of operations are affected by the pricing of our products and services. We determine the subscription fees of our learning apps and the prices of our offline products primarily based on the demand for our learning apps and products, the level of fees charged by our competitors, our pricing strategy to gain market share and general economic conditions in China. We cannot guarantee that we will be able to maintain or increase our fee level in the future without adversely affecting the demand for our learning apps.

         We have historically experienced working capital deficits. If we continue to experience such working capital deficits in the future, our business, liquidity, financial condition and results of operations may be materially and adversely affected.

        We had working capital deficits of RMB65.0 million and RMB19.7 million (US$2.8 million) as of December 31, 2018 and 2019, respectively. We had a positive cashflow from operations of RMB42.6 million (US$6.0 million) in 2019 and RMB84.4 million (US$11.9 million) in the six months ended June 30, 2020. As of June 30, 2020, our current assets exceeded our current liabilities. There is no assurance, however, that we will be able to maintain a working capital surplus in the future and that we will be able to address working capital deficit, if any, in a timely manner, which could materially and adversely affect our liquidity, results of operations, financial condition and ability to operate.

         We are subject to a variety of laws and other obligations regarding data privacy and protection, and any failure to comply with applicable laws and obligations could have a material adverse effect on our business, financial condition and results of operations.

        We are subject to various regulatory requirements relating to the security and privacy of data, including PRC restrictions on the collection and use of personal information and requirements to take steps to prevent personal data from being divulged, stolen, or tampered with. See "Regulation—Regulation Related to Internet Information Security and Privacy Protection." Regulatory requirements regarding the protection of data are constantly evolving and can be subject to differing interpretations or significant change, making the extent of our responsibilities in that regard uncertain. For example, the PRC Cybersecurity Law became effective in June 2017, but there are substantial uncertainties as to the interpretation and application of the law. It is possible that those regulatory requirements may be interpreted and applied in a manner that is inconsistent with our practices. In addition, the Office of the Central Cyberspace Affairs Commission, the Ministry of Industry and Information Technology, the Ministry of Public Security, and the State Administration for Market Regulation jointly issued an announcement on January 23, 2019 regarding carrying out special campaigns against mobile internet application programs collecting and using personal information in violation of applicable laws and regulations, which prohibits business operators from collecting personal information irrelevant to their services and from forcing users to give authorization in a disguised manner. Further, the Cyberspace Administration of China issued the Provisions on the Cyber Protection of Children's Personal Information on August 22, 2019, which took effect on October 1, 2019. The Provisions on the Cyber Protection of Children's Personal Information requires that, among others, network operators who collect, store, use, transfer and disclose personal information of children under the age of 14 shall establish special rules and user agreements for the protection of children's personal information, inform the children's guardians in a noticeable and clear manner, and shall obtain the consent of the children's guardians. We have been taking and will continue to take reasonable measures to comply with such announcement and provisions. However, as the announcement and provisions are relatively new, we cannot assure you we can adapt our operations to it in a timely manner. Besides the evolving regulations, we face challenges exposed by the wide array of different regulatory bodies and professional self-regulatory associations in the area (such as China National App Administration Center, or CNAAC, a third-party monitoring organization), which impose different standards of data

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privacy regulations or non-binding self-regulatory rules related to data privacy from different perspectives, often times resulting in a more difficult position for us to comply with all such regulations and rules.

        As our learning apps are available globally on app stores, we are also subject to data privacy laws and regulations overseas, including the Children's Online Privacy Protection Act, or the COPPA, in the United States and General Data Protection Regulation, or GDPR, in the European Union. We have been taking measures, including the implementation of a tailored data privacy policy for users in the United States, and will continue to take measures to make sure our collection, use and disclosure of personal information from children under 13 years of age in the United States are in compliance with the COPPA and the necessary parental consents are obtained properly. Even though our user base in the European Union is relatively limited, we are working closely on our data privacy and protection measures for EU users to make sure we comply with applicable laws and regulations. Although we strive to ensure that our learning apps are compliant with applicable data privacy and protection laws and regulations overseas, the laws may be modified, interpreted or applied in new manners that we may be unable to anticipate or adjust for appropriately. We may also incur substantial costs to ensure our compliance internationally. In addition, users or potential users may find our measures to comply with the applicable laws and regulations troublesome to follow, and thus we may lose our users or potential users.

        Any failure, or perceived failure, by us, or by our business partners, to comply with applicable privacy, data security and personal information protection laws, regulations, policies, contractual provisions, industry standards, and other requirements, may result in the suspension or even removal of our learning apps, as well as civil or regulatory liability, including governmental or data protection authority enforcement actions and investigations, fines, penalties, enforcement orders requiring us to cease operating in a certain way, litigation, or adverse publicity, and may require us to expend significant resources in responding to and defending allegations and claims. For example, in January 2020, iHuman Magic Math, one of our learning apps, was announced to have failed to "expressly state the purpose, way and scope of collection of data and expressly ask for user's consent" for its access to external storage by CNAAC. We promptly communicated with CNAAC to explain the necessity of the access, as well as the fact that we legitimately and expressly obtained our users' consent, and the case was resolved. On April 10, 2020, iHuman Chinese was announced by CNAAC to have failed, among other things, to "expressly display the location of the privacy permissions requested." We promptly communicated CNAAC to explain the necessity of the permissions we requested and the way we legitimately and expressly obtained consents, and an updated version of iHuman Chinese was promptly launched to clear CNAAC's concerns. On April 15, 2020, CNAAC confirmed that our measures were in compliance with its standard and iHuman Chinese were reinstated in Xiaomi and Baidu app stores where it was temporarily suspended for a few days.

        Moreover, claims or allegations that we have failed to adequately protect our users' data, or otherwise violated applicable privacy, data security and personal information protection laws, regulations, policies, contractual provisions, industry standards, or other requirements, may result in damage to our reputation and a loss of confidence in us by our users or our partners, potentially causing us to lose users, content providers, other business partners and revenues, which could have a material adverse effect on our business, financial condition and results of operations.

         If our security measures are breached or failed and result in unauthorized disclosure or unintended leakage of data, we could lose existing users, fail to attract new users and be exposed to protracted and costly litigation or administration sanctions.

        We store and transmit proprietary and confidential information, including confidential children and parent information such as nicknames, mobile numbers and email addresses for user registration, children's ages and pictures for creating user profile, and voice information for testing. The data is

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primarily stored in our digital database. To ensure the confidentiality and integrity of our data, we maintain comprehensive and rigorous data security measures. For example, we anonymize and encrypt confidential personal information and take other technological measures to ensure the secure processing, transmission and usage of data. See "Business—Data Privacy and Security." Our board of directors has also established a cyber security committee to oversee our cybersecurity risk management, which is responsible, on behalf of the board, for setting up cybersecurity measures, overseeing the implementation of the measures and dealing with major cybersecurity issues if such issues arise. These measures, however, may not be as effective as we anticipate. If our security measures are breached, or fail to function as intended, and result in unauthorized disclosure or unintended leakage of data, external parties may receive or be able to access the personal information on our users, which could subject us to liabilities, interrupt our business and adversely impact our reputation. Furthermore, we currently are subject to certain legal obligations regarding the manner in which we treat such information. Increased regulation of data utilization practices, including self-regulation or findings under existing laws that limit our ability to collect, transfer and use data, could have an adverse effect on our business. If we were to process or disclose data of our users in a manner they objected, our business reputation could be adversely affected, our mobile apps could be removed from app stores, and we may face potential legal claims that could impact our operating results.

        Any of these issues could harm our reputation, adversely affect our ability to attract users and customers, retain existing users and customers, or subject us to third-party lawsuits, regulatory fines or other action or liability. Further, any reputational damage resulting from breach of our security measures could create distrust of our company by prospective customers or investors. We may be required to expend significant additional resources to protect us against the threat of security measures breaches or to alleviate problems caused by such disruptions or breaches.

         Any significant disruption to our technology infrastructure or our failure to maintain the satisfactory performance, security and integrity of our technology infrastructure would reduce customer satisfaction and harm our reputation.

        The performance and reliability of our information technology system are critical to our operations and reputation. Our network infrastructure is currently deployed and our data is currently mainly maintained in physical server rooms operated by third party service providers in Beijing. Our operations depend on the service providers' ability to protect its and our system in its facilities against events such as damage or interruption from natural disasters, power or telecommunications failures, air quality issues, environmental conditions, computer viruses or attempts to harm our systems, criminal acts and similar events, which events are beyond our control. If our arrangement with such service providers is terminated or if there is a lapse of service or damage to their facilities, we could experience interruptions in our service. Any interruptions in the accessibility of or deterioration it the quality of access to our system could reduce user satisfaction and result in a reduction in the number of active users, which would reduce the attractiveness of our learning apps and harm our reputation. To date, we have not experienced any significant system outage caused by IT issues, but we cannot assure you that such issues will not happen in the future.

         We may not be successful in developing or maintaining relationships with key participants in the mobile industry or in developing products and services that operate effectively with these operating systems, networks, devices and standards.

        We make our learning apps available on both iOS and Android systems across a variety of mobile devices. We depend on the interoperability of our products and services with popular devices and mobile operating systems that we do not control. Any changes in devices or their systems that degrade the functionality of our products and services or give preferential treatment to competitive products or services could adversely affect the usage of our products and services. We may not be successful in developing relationships with key participants in the mobile industry or in developing services that

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operate effectively with their operating systems, networks, devices and standards. We also cooperate with key participants in the mobile industry to put our products on the front page of their respective apps stores and label our products as recommended, which helps us attract prospective users. If we cannot maintain such relationships at reasonable costs or at all, we may not get sufficient exposure on their respective platforms, which will impair our ability to acquire traffic.

        In addition, we rely on third-party mobile app distribution channels to distribute our learning apps to our users. As such, the promotion, distribution and operation of our learning apps are subject to such distribution channels' standard terms and policies for app developers, which are subject to the interpretation of, and frequent changes by, these distribution channels. If any major distribution channel interprets or changes its standard terms and conditions in a manner that is detrimental to us in the future, or terminate its existing relationship with us, our business, financial condition and results of operations may be materially and adversely affected.

         We rely on a single learning app, iHuman Chinese, for a substantial portion of our learning services revenues and any changes in the market and popularity of iHuman Chinese could have a material adverse effect on our business, financial condition and results of operations.

        iHuman Chinese, whose launch in 2016 and commercialization in April 2018 antedated most of our other learning apps, has been our most popular learning app and revenues from iHuman Chinese accounted for over 80% of our total learning services revenues in 2018, 2019 and the six months ended June 30, 2020. We expect the paying users of iHuman Chinese will continue to increase and the percentage of the revenues from iHuman Chinese to remain substantial in the near future. Although we commercialized other learning apps, including iHuman Books in 2017, iHuman Magic Math in 2018, iHuman Stories in 2018, iHuman Pinyin in late 2019, iHuman English World and iHuman Chinese International in 2020, and plan to further expand our service offerings, the growth of these offerings may not outpace the growth of iHuman Chinese and our reliance on iHuman Chinese may continue in the near future. If there is any disruption in the popularity of iHuman Chinese, whether as a result of our failure to continue to provide highly effective and engaging content, the launch of other competing apps to the market or otherwise, our business, financial condition and results of operations could be materially and adversely affected.

         If we are not able to improve or maintain our sales and marketing efficiency, our business and results of operations may be materially and adversely affected.

        Since the inception of our online operations, we have been conducting our sales and marketing activities efficiently. We incurred sales and marketing expenses of RMB22.0 million, RMB53.7 million (US$7.6 million) and RMB28.4 million (US$4.0 million) in 2018, 2019 and the six months ended June 30, 2020, respectively. In line with our product-centric business model, we have relied on word-of-mouth referrals among our users and promotions and recommendations from leading mobile app stores to expand our user base, which requires relatively lower sales and marketing expenses. We intend to further strengthen our collaboration with mobile app stores to enhance app store promotion and user recommendation, and we also plan to conduct more sales and marketing activities through online advertising, such as social media, internet video and livestreaming-based promotional campaigns. These sales and marketing activities may not be well received by our target user group and may not result in the levels of sales that we anticipate. We also may not be able to retain or recruit experienced marketing staff, or to efficiently train junior marketing staff. In addition, sales and marketing approaches and tools in the online education market in China are evolving. This further requires us to enhance our marketing and branding approaches and experiment with new methods to keep pace with industry developments and user preferences. Failure to refine our existing sales and marketing approaches or to introduce new sales and marketing approaches in a cost-effective manner may reduce our market share, cause our revenues to decline and negatively impact our operating margins.

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         We may be involved in legal and other disputes from time to time arising out of our operations, including allegations relating to our infringement of intellectual property rights of third parties.

        We have and may continue to be involved in legal and other disputes in the ordinary courses of our business, including allegations against us for potential infringement of third party's copyrights or other intellectual property rights. In the ordinary course of our business, content of our mobile apps or offline products may expose us to allegations from third parties for infringement of intellectual property rights. We may not have obtained licenses for all the content we offer, and the scope, type and terms of the licenses we obtained for certain content may not be broad enough to cover all fashions we currently employ or may employ in the future. In addition, if any purported licensor of the content we license does not actually have sufficient authorization relating to the content or right to license a content to us, or if such purported licensor had lost its authorization to sub-license content that we license, and do not timely inform us of such loss of authorization, we may be subject to claims of intellectual property infringement from third parties. Moreover, certain content of our mobile apps, including iHuman Books and iHuman Stories, or offline products contain storylines or passages from third party literary works, which we believe are in the public domain or are otherwise no longer copyrighted, and there is no guarantee that our use of these content does not infringe the intellectual property rights of any third parties.

        Furthermore, the licensing agreements of certain content we license have restricted the content from being accessed from outside of the PRC. Our mobile apps are accessible globally, and while we use an IP-based location identification system to prevent these content from being accessed overseas, the system may be breached, in which case we may violate the terms of these licensing agreements and be subject to disputes arising from our users' access to these content from outside of the PRC.

        Although we have not been subject to claims or lawsuits with respect to copyright infringement outside of China, we cannot assure you that we will not become subject to copyright laws or legal proceedings initiated by third parties in other jurisdictions, such as the United States, as a result of the ability of users to access our content in the United States and other jurisdictions, the ownership of our ADSs by investors in the United States and other jurisdictions, the extraterritorial application of foreign law by foreign courts or otherwise. In addition, we will become a publicly listed company upon the completion of this offering, as a result of which we may be exposed to increased risk of litigation. If a claim of infringement brought against us in the United States or other jurisdictions is successful, we may be required to, upon enforcement, (i) pay substantial statutory or other damages and compensations, (ii) remove relevant content from our platform or our mobile apps from certain app stores, or (iii) pay license fees for the content, which may not be available on commercially reasonable terms.

        Any claims against us, with or without merit, could be time consuming and costly to defend or litigate, divert our management's attention and resources or result in the loss of goodwill associated with our brand. If a lawsuit against us is successful, we may be required to pay substantial damages and/or license fees for the content in dispute, which could adversely affect the attractiveness of our products, limit our ability to attract and retain users, harm our reputation, and negatively affect our results of operations and financial condition.

         Our failure to protect our intellectual property rights may undermine our competitive position, and litigation to protect our intellectual property rights or defend against third-party allegations of infringement may be costly and ineffective.

        We believe that our patents, copyrights, trademarks and other intellectual property are essential to our success, and we depend, to a large extent, on our ability to develop and maintain the intellectual property rights relating to our content and technology. We have devoted considerable time and resources to the development and improvement of our learning apps, learning materials, smart learning devices, websites, and our system infrastructure.

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        We rely primarily on a combination of intellectual property laws and other contractual restrictions, including confidentiality agreements, non-compete agreements and IP ownership assignment terms, for the protection of the intellectual property used in our business. Nevertheless, these measures provide only limited protection and the actions we take to protect our intellectual property rights may not be adequate. Our trade secrets may become known or be independently discovered by our competitors. Third parties may in the future pirate our content and may infringe upon or misappropriate our other intellectual property. In particular, our learning materials and other printed materials have been historically been the target of piracy attacks and other intellectual property infringement, which has been an issue of significant concern for publications in China due to the low cost of piracy. Our sales of learning materials and other printed materials are conducted nationwide, which makes monitoring and enforcing our intellectual rights more difficult. The content of our learning apps may also subject to piracy and other intellectual property infringement. Infringement upon or the misappropriation of, our proprietary content and technologies or other intellectual property could have a material adverse effect on our business, financial condition or results of operations. Although we have taken measures in monitoring and policing the unauthorized use of our intellectual property, policing the unauthorized use of intellectual property rights can be difficult and expensive.

        In addition, litigation may be necessary to enforce our intellectual property rights, protect our trade secrets or determine the validity and scope of the proprietary rights of others. Such litigation may be costly and divert management's attention away from our business. An adverse determination in any such litigation would impair our intellectual property rights and may harm our business, prospects and reputation. Enforcement of judgments in China is also uncertain, and therefore even if we are successful in litigation, it may not provide us with an effective remedy. In addition, we have no insurance coverage against litigation costs and would have to bear all costs arising from such litigation to the extent we are unable to recover them from other parties. The occurrence of any of the foregoing could materially and adversely affect our business, financial condition and results of operations.

         Our business is subject to the risks of international operations.

        Our learning apps are accessible in overseas markets via app stores, and we have launched iHuman Chinese International, the international version of iHuman Chinese, in May 2020 to serve users outside of the PRC. We intend to strengthen and localize the content and functionalities of iHuman Chinese International and expand into more foreign markets with large Chinese diaspora. We intend to introduce more products and services tailored for overseas markets and also plan to cooperate with local distribution partners overseas to effectively promote our product and service offerings. Therefore, our international operations and expansion efforts have resulted and may continue to result in increased costs and subject us to a variety of risks, including increased competition, uncertain enforcement of our intellectual property rights, changes and evolutions in overseas market conditions and user preferences, and the complexity of compliance with foreign laws and regulations, including data protection laws.

        In addition, compliance with applicable Chinese and foreign laws and regulations, such as import and export requirements, anti-corruption laws, tax laws, foreign exchange controls and cash repatriation restrictions, data privacy requirements, labor laws, restrictions on foreign investment, and anti-competition regulations, increases the costs and risk exposure of doing business in foreign jurisdictions. Although we have implemented tailored privacy policy for our users in the United States and European Union in accordance with COPPA and GDPR, respectively, and required verifiable parental consent for iHuman Chinese International users, a violation by us or our employees or partners of other applicable foreign laws could nevertheless occur. In some cases, compliance with the laws and regulations of one country could violate the laws and regulations of another country. Violations of these laws and regulations could materially and adversely affect our brand, international growth efforts and business.

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         If we fail to adopt new technologies that are important to our business, our competitive position and ability to generate revenues may be materially and adversely affected.

        The technologies used in internet and value-added telecommunications services in general, and in online edutainment in particular, may evolve and change over time. As a product-driven edutainment company, we must anticipate and adapt to such technological changes and adopt new technologies in a timely fashion. If we fail to do so, our competitive position and our business development could suffer, which in turn would have a material and adverse effect on our financial condition and results of operations. If we are unsuccessful in addressing any of the risks relating to failure to adopt new technologies, our business may be materially and adversely affected.

         We may be subject to liability claims for any inappropriate content on our learning apps, which could cause us to incur legal costs and damages our reputation.

        We implement monitoring procedures to prohibit inappropriate content from being displayed on our learning apps and learning materials. However, we cannot assure you that there will be no inappropriate materials included in our education contents. Therefore, we may face civil or administrative liability if an individual or corporate, governmental or other entity believes that our content, in particular those related to childhood education, violates any laws, regulations or governmental policies or infringes upon its legal rights. Even if such a claim were not successful, defending such a claim may cause us to incur substantial costs. Moreover, any accusation of inappropriate content in our education content offerings could lead to significant negative publicity, which could harm our reputation and results of operations.

         We may not be able to obtain additional capital when desired, on favorable terms or at all.

        We make investments in content development, technological systems and other projects to remain competitive. Due to the unpredictable nature of the capital markets and our industry, there can be no assurance that we will be able to raise additional capital on terms favorable to us, or at all, if and when required, especially if we experience disappointing results of operations. If adequate capital is not available to us as required, our ability to fund our operations, take advantage of unanticipated opportunities, develop or enhance our infrastructure or respond to competitive pressures could be significantly limited. If we do raise additional funds through the issuance of equity or convertible debt securities, the ownership interests of our shareholders could be significantly diluted. These newly issued securities may have rights, preferences or privileges senior to those of existing shareholders.

         Our success depends on the continuing efforts of our founder, senior management team and other key employees.

        The continuing efforts of our founder, senior management team and other key employees are important to our continued success. In particular, we rely on the expertise and experience of Mr. Michael Yufeng Chi, our founder and chairman of the board of directors. We also rely on the experience and services from our senior management team. If they cannot work together effectively or efficiently, our business may be severely disrupted. If one or more of our senior management were unable or unwilling to continue in their present positions, we might not be able to replace them easily or at all, and our business, financial condition and results of operations may be materially and adversely affected. In addition, certain members of our senior management, including Mr. Michael Yufeng Chi, also hold positions in our affiliates, such as Perfect World Group. If any of such member of our senior management devote significantly more time or attention to our affiliates, our business and operation may be significantly and adversely affected. If any of our senior management joins a competitor or forms a competing business, we may lose users, key professionals and other staff members. Our senior management has entered into employment agreements with us which contain confidentiality clauses, as well as standalone confidentiality and non-compete agreements. However, if

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any dispute arises between our senior management and us, we may have to incur substantial costs and expenses in order to enforce such agreements in China or we may be unable to enforce them at all.

         We may encounter potential conflict of interests in competition with our affiliates, and such conflict of interests may not be resolved in our favor.

        We expect that Mr. Michael Yufeng Chi, our founder and chairman of the board of directors, will continue to be our controlling shareholder after the completion of this offering, and Mr. Hanfeng Chi will continue to be our director after the completion of this offering. They hold positions in certain affiliates of us, such as Mr. Michael Yufeng Chi serving as the chairman of Perfect World Group and Mr. Hanfeng Chi serving as a director of Hongen Education. In addition, Mr. Michael Yufeng Chi beneficially owns more than 50% of the voting power in Hongen Education and Perfect World Group. Although none of our affiliates operate in the online childhood edutainment market or offers integrated suite of online and offline education products and services, certain affiliates are engaged in childhood education-related businesses, such as operations of kindergartens. As a result, we may enter into potential competition with these affiliates, including the following:

    Employee recruiting and retention.  Because we and certain of our affiliates operate primarily in China's childhood education market, we and our affiliates may engage into competition for qualified employees, in particular with respect to education content developers.

    New business opportunities.  New business opportunities in the childhood education market may arise that we and our affiliates all find attractive and complementary to our respective existing business.

    Our board members may have conflict of interests.  Our chairman, Mr. Michael Yufeng Chi, is also the chairman of Perfect World Group. This relationship could create, or appear to create, conflict of interests when Mr. Michael Yufeng Chi is faced with decisions with potentially different implications for Perfect World Group and us.

        As we do not have non-solicitation or non-competition arrangements with any of our affiliates, there is no guarantee that Mr. Michael Yufeng Chi or Mr. Hanfeng Chi will resolve any potential conflict of interests in our favor.

         We are subject to third-party payment processing-related risks.

        Payments for some of our products and services are conducted through major third-party online payment channels in China. We may also be susceptible to fraud, user data leakage and other illegal activities in connection with the various payment methods we offer. In addition, our business depends on the billing, payment and escrow systems of the third-party payment service providers to maintain accurate records of payments by customers and collect such payments. If the quality, utility, convenience or attractiveness of these payment processing and escrow services declines, or if we have to change the pattern of using these payment services for any reason, the attractiveness of our company could be materially and adversely affected. We are also subject to various rules, regulations and requirements, regulatory or otherwise, governing electronic funds transfers that could change or be reinterpreted to make it difficult or impossible for us to comply. If we fail to comply with these rules or requirements, we may be subject to fines and higher transaction fees and become unable to accept the current online payment solutions from our customers, and our business, financial condition and results of operations could be materially and adversely affected. Business involving online payment services is subject to a number of risks that could materially and adversely affect third-party online payment service providers' ability to provide payment processing and escrow services to us, including:

    dissatisfaction with these online payment services or decreased use of their services;

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    increasing competition, including from other established Chinese internet companies, payment service providers and companies engaged in other financial technology services;

    changes to rules or practices applicable to payment systems that link to third-party online payment service providers;

    breach of customers' personal information and concerns over the use and security of information collected from buyers;

    service outages, system failures or failures to effectively scale the system to handle large and growing transaction volumes;

    increasing costs to third-party online payment service providers, including fees charged by banks to process transactions through online payment channels, which would also increase our costs of revenues; and

    failure to manage funds accurately or loss of funds, whether due to employee fraud, security breaches, technical errors or otherwise.

         Our results of operations are subject to seasonal fluctuations.

        Our results of operations are subject to seasonal fluctuations. Historically, our learning materials and devices revenues are generally higher in the first and third quarters because of the increased sales to kindergartens and after-school learning centers during the beginning of spring and fall sememsters. For our online operations which are at a relatively early state of development, we typically generate higher growth in the number of paying users and revenues of our learning apps in the first and third quarters because of the increased paid subscriptions during summer and winter vacations. However, it is difficult for us to judge the exact nature or extent of the seasonality of our learning services business due to its rapid growth. Given our limited operating history, the seasonal trends that we have experienced in the past may not be indicative of our future operating results. Our financial condition and results of operations for future periods may continue to fluctuate. As a result, the trading price of our ADSs may fluctuate from time to time due to seasonality.

         We have granted share-based awards, and expect to continue to grant share-based awards under our share incentive plan, which may result in increased share-based compensation expenses.

        In 2019, our VIE granted share-based awards to our employees, directors and consultant and we recorded share-based compensation expenses of RMB270.5 million (US$38.3 million) in 2019. In 2020, we have adopted a share incentive plan, or the 2020 Plan, to provide additional incentives to our employees, directors and consultants, under which options previously granted by our VIE were carried over on a one-on-one basis with identical terms and conditions under the 2020 Plan. As of the date of this prospectus, the maximum aggregate number of ordinary shares that may be issued under the plan is 19,684,555. See "Management—Share Incentive Plan." Because our options granted earlier are subject to the performance condition of we completing an IPO, among other performance and service conditions, if applicable, we have not previously recognized any share-based compensation expenses for such options. The IPO performance condition will be satisfied upon the completion of this offering. As a result, upon the completion of this offering, we will record an estimated share-based compensation expenses of approximately RMB74 million for those options. We also expect to continue to grant awards under our share incentive plan, which we believe is of significant importance to our ability to attract and retain key personnel and employees. As a result, our expenses associated with share-based compensation may increase, which may have an adverse effect on our financial condition and results of operations.

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         We rely on certain key operating metrics to evaluate the performance of our business, and real or perceived inaccuracies in such metrics may harm our reputation and negatively affect our business.

        We rely on certain key operating metrics, such as MAU and the number of paying users, among other things, to evaluate the performance of our business. Our operating metrics may differ from estimates published by third parties or from similarly titled metrics used by other companies due to differences in methodology and assumptions. We calculate these operating metrics using internal company data and certain external data. If we discover material inaccuracies in the operating metrics we use, or if they are perceived to be inaccurate, our reputation may be harmed and our evaluation methods and results may be impaired, which could negatively affect our business. If investors make investment decisions based on operating metrics we disclose that are inaccurate, we may also face potential lawsuits or disputes.

         We face risks related to natural and other disasters, including severe weather conditions or outbreaks of health epidemics, and other extraordinary events, which could significantly disrupt our operations.

        In addition to the impact of COVID-19, our business could be materially and adversely affected by natural disasters, other health epidemics or other extraordinary events affecting the PRC. Natural disasters may give rise to server interruptions, breakdowns, system failures, technology platform failures or internet failures, which could cause the loss or corruption of data or malfunctions of software or hardware as well as adversely affect our ability to operate our products and services.

        Our business could also be adversely affected if our employees are affected by health epidemics, such as the outbreak of the COVID-19, avian influenza, severe acute respiratory syndrome, or SARS, Zika virus, Ebola virus or other diseases. If any of our employees is suspected of having contracted a contagious disease, we may be required to apply quarantines or suspend our operations. In addition, our results of operations could be adversely affected to the extent that any health epidemic harms the Chinese economy in general. Most of our directors and management and the majority of our employees currently reside in Northern China. Most of our system hardware and back-up systems are hosted in facilities located in Beijing. Consequently, if any natural disasters, health epidemics or other public safety concerns were to affect Beijing, our operation may experience material disruptions, which may materially and adversely affect our business, financial condition and results of operations.

         A severe or prolonged downturn in the Chinese or global economy could materially and adversely affect our business and financial condition.

        COVID-19 had a severe and negative impact on the Chinese and the global economy in the first quarter of 2020, and China's National Bureau of Statistics reported a negative GDP growth of 6.8% for the first quarter of 2020. 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 already been slowing since 2010. There is considerable uncertainty over the long-term effects of the expansionary monetary and fiscal policies which had been adopted by the central banks and financial authorities of some of the world's leading economies, including the United States and China, even before 2020. 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. In addition, political tensions between the United States and China have escalated since the COVID-19 outbreak and the PRC National People's Congress' decision on Hong Kong national security legislation. Rising political tensions could reduce levels of trades, investments, technological exchanges and other economic activities between the two major economies, which would have a material adverse effect on global

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economic conditions and the stability of global financial markets. 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 have limited business insurance coverage, which could expose us to significant costs and business disruption.

        We maintain various insurance policies for our products and employees to safeguard against risks and unexpected events. However, we do not maintain business interruption insurance or key-man insurance. We cannot assure you that our insurance coverage is sufficient to prevent us from any loss or that we will be able to successfully claim our losses under our current insurance policy on a timely basis, or at all. If we incur any loss that is not covered by our insurance policies, or the compensated amount is significantly less than our actual loss, our business, financial condition and results of operations could be materially and adversely affected.

         We face certain risks relating to the real properties that we lease.

        We lease real properties from third parties primarily for our office use in China, and the lease agreements for some of these leased properties have not been registered with the PRC government authorities as required by PRC law. Although the failure to do so does not in itself invalidate the leases, we may be ordered by the PRC government authorities to rectify such noncompliance and, if such noncompliance were not rectified within a given period of time, we may be subject to fines imposed by PRC government authorities ranging from RMB1,000 and RMB10,000 for those of our lease agreements that have not been registered with the relevant PRC government authorities.

        As of the date of this prospectus, we are not aware of any regulatory or governmental actions, claims or investigations being contemplated or any challenges by third parties to our use of our leased properties the lease agreements of which have not been registered with the government authorities. However, government authorities could impose fines on us due to our failure to register some of our lease agreements, which may negatively impact our financial condition.

         If we fail to implement and maintain an effective system of internal controls to remediate our material weakness over financial reporting, we may be unable to accurately report our results of operations, meet our reporting obligations or prevent fraud, and investor confidence and the market price of the ADSs may be materially and adversely affected.

        Prior to this offering, we have been a private company with limited accounting and financial reporting personnel and other resources with which we address our internal control over financial reporting. In connection with the audits of our consolidated financial statements as of and for the years ended December 31, 2018 and 2019, we and our independent registered public accounting firm identified a material weakness in our internal control over financial reporting. As defined in the standards established by the U.S. Public Company Accounting Oversight Board, or PCAOB, a "material weakness" is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.

        The material weakness identified is our company's lack of sufficient accounting and financial reporting personnel with requisite knowledge and experience in application of U.S. GAAP and SEC rules. We are in the process of implementing a number of measures to address the material weakness. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Internal Control Over Financial Reporting." However, we cannot assure you that these measures may

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fully address the material weakness and deficiencies in our internal control over financial reporting or that we may conclude that they have been fully remediated.

        Upon completion of this offering, we will become subject to the Sarbanes-Oxley Act of 2002. Section 404 of the Sarbanes-Oxley Act, or Section 404, will require that we include a report from management on the effectiveness of our internal control over financial reporting in our annual report on Form 20-F beginning with our annual report in our second annual report on Form 20-F after becoming a public company. In addition, once we cease to be an "emerging growth company" as such term is defined in the JOBS Act, our independent registered public accounting firm must attest to and report on the effectiveness of our internal control over financial reporting. Moreover, even if our management concludes that our internal control over financial reporting is effective, our independent registered public accounting firm, after conducting its own independent testing, may issue a report that is qualified if it is not satisfied with our internal controls or the level at which our controls are documented, designed, operated or reviewed, or if it interprets the relevant requirements differently from us. In addition, after we become a public company, our reporting obligations may place a significant strain on our management, operational and financial resources and systems for the foreseeable future. We may be unable to timely complete our evaluation testing and any required remediation.

        During the course of documenting and testing our internal control procedures, in order to satisfy the requirements of Section 404, we may identify other weaknesses and deficiencies in our internal control over financial reporting. If we fail to maintain the adequacy of our internal control over financial reporting, as these standards are modified, supplemented or amended from time to time, we may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404. Generally speaking, if we fail to achieve and maintain an effective internal control environment, it could result in material misstatements in our financial statements and could also impair our ability to comply with applicable financial reporting requirements and related regulatory filings on a timely basis. As a result, our businesses, financial condition, results of operations and prospects, as well as the trading price of our ADSs, may be materially and adversely affected. Additionally, ineffective internal control over financial reporting could expose us to increased risk of fraud or misuse of corporate assets and subject us to potential delisting from the stock exchange on which we list, regulatory investigations and civil or criminal sanctions. We may also be required to restate our financial statements from prior periods.

         Increases in labor costs and enforcement of stricter labor laws and regulations in the PRC may adversely affect our business and results of operations.

        China's overall economy and the average wage in China have increased in recent years and are expected to grow. The average wage level for our employees has also increased in recent years. We expect that our labor costs, including wages and employee benefits, will increase in the future. Unless we are able to offset these increased labor costs by increasing our revenues faster, our profitability and results of operations may be materially and adversely affected.

        In addition, we have been subject to stricter regulatory requirements in terms of entering into labor contracts with our employees and paying various statutory employee benefits, including pensions, housing fund, medical insurance, work-related injury insurance, unemployment insurance and maternity insurance to designated government agencies for the benefit of our employees. Pursuant to the PRC Labor Contract Law and its implementation rules, employers are subject to stricter requirements in terms of signing labor contracts, minimum wages, paying remuneration, determining the term of employee's probation and unilaterally terminating labor contracts. In the event that we decide to terminate some of our employees or otherwise change our employment or labor practices, the PRC Labor Contract Law and its implementation rules may limit our ability to effect those changes in a desirable or cost-effective manner, which could adversely affect our business and results of operations.

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        As the interpretation and implementation of labor-related laws and regulations are still evolving, our employment practices may violate labor-related laws and regulations in China, which may subject us to labor disputes or government investigations. We cannot assure you that we have complied or will be able to comply with all labor-related law and regulations including those relating to obligations to make social insurance payments and contribute to the housing provident funds. If we are deemed to have violated relevant labor laws and regulations, we could be required to provide additional compensation to our employees and our business, financial condition and results of operations will be adversely affected.

         If we fail to effectively identify, pursue and consummate strategic investments, acquisitions or partnerships, our ability to grow and to achieve profitability could be impacted.

        We may from time to time evaluate opportunities for strategic investments, acquisitions or partnerships, and engage in discussions with possible domestic and international candidates. We may not be able to identify suitable opportunities for strategic investments, acquisitions or partnerships, complete such transactions on commercially favorable terms, or successfully integrate business operations, infrastructure and management philosophies of the acquired businesses and companies. Moreover, we may be unable to achieve the level of profitability or realize other benefits from such opportunities as expected, if at all. There may be particular complexities, regulatory or otherwise, associated with our potential expansion into new markets, and our strategies may not be successful beyond our current markets. If we are unable to effectively address these challenges, our ability to pursue strategic investments, acquisitions or partnerships as a component of our long-term strategy will be impaired, which could have an adverse effect on our growth and profitability.

         Our operations depend on the performance of the internet infrastructure and telecommunications networks in China.

        The successful operation of our business depends on the performance of the internet infrastructure and telecommunications networks in China. Almost all access to the internet is maintained through state-owned telecommunications operators under the administrative control and regulatory supervision of the Ministry of Industry and Information Technology, or the MIIT. Moreover, we have entered into contracts with various subsidiaries of a limited number of telecommunications service providers at the provincial level and rely on them to provide us with data communications capacity through local telecommunications lines. We have limited access to alternative networks or services in the event of disruptions, failures or other problems with China's internet infrastructure or the telecommunications networks provided by telecommunications service providers. We regularly serve a large number of users. With the expansion of our business, we may be required to upgrade our technology and infrastructure to keep up with the increasing traffic on our learning apps. However, we have no control over the costs of the services provided by telecommunications service providers. If the prices we pay for telecommunications and internet services rise significantly, our results of operations may be materially and adversely affected. If internet access fees or other charges to internet users increase, our user traffic may decline and our business may be harmed.

         We will incur increased costs as a result of being a public company, particularly after we cease to qualify as an "emerging growth company."

        Upon completion of this offering, we will become a public company and expect to incur 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. 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.

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        As a result of becoming a public company, we will need to increase the number of independent directors and adopt policies regarding internal controls and disclosure controls and procedures. We also expect that operating as a public company will make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. In addition, we will incur additional costs associated with our public company reporting requirements. It may also be more difficult for us to find qualified persons to serve on our board of directors or as executive officers. 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 number of additional costs we may incur or the timing of such costs.

        In addition, as an emerging growth company, we will still incur expenses in relation to management assessment according to requirements of Section 404(a) of the Sarbanes-Oxley Act of 2002. After we are no longer an "emerging growth company," we expect to incur significant additional expenses and devote substantial management effort toward ensuring compliance with the requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002 and the other rules and regulations of the SEC.

         We will be a "controlled company" within the meaning of the New York Stock Exchange's corporate governance rules and, as a result, will rely on exemptions from certain corporate governance requirements that provide protection to shareholders of other companies.

        We will be a "controlled company" as defined under the New York Stock Exchange's corporate governance rules because Mr. Michael Yufeng Chi, our founder and chairman of the board of directors, will beneficially own more than 50% of our total voting power immediately after the completion of this offering. For so long as we remain a controlled company under that definition, we are permitted to elect to rely, and may rely, on certain exemptions from corporate governance rules, including an exemption from the rule that a majority of our board of directors must be independent directors or that we have to establish a nominating committee and a compensation committee composed entirely of independent directors. We plan to rely on the exemption with respect to the rule that a majority of the board of directors must be independent directors. As a result, you may not have the same protection afforded to shareholders of companies that are subject to these corporate governance requirements.

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.

        Foreign ownership in entities that provide value-added telecommunication services, with a few exceptions, is subject to restrictions under current PRC laws and regulations. Specifically, foreign ownership of an internet information service provider may not exceed 50%, and the major foreign investor is required to have a record of good performance and operating experience in managing value-added telecommunications business.

        We are a Cayman Islands company and our PRC subsidiaries are considered foreign-invested enterprises. To ensure compliance with the PRC laws and regulations, we conduct our foreign investment-restricted business in China through Tianjin Hongen Perfect Future Education Technology Co., Ltd., or our VIE, and its subsidiaries, which currently holds the value-added telecommunication business license and other licenses necessary for our operation of such restricted business, based on a series of contractual arrangements by and among Hongen Perfect Future (Tianjin) Investment Co., Ltd., or Hongen Investment, our VIE and its shareholders. These contractual

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agreements enable us to (i) exercise effective control over our VIE, (ii) receive substantially all of the economic benefits of our VIE, and (iii) have an exclusive call option to purchase all or part of the equity interests in our VIE when and to the extent permitted by PRC law. As a result of these contractual arrangements, we exert control over our VIE and consolidate financial results of our VIE and its subsidiaries in our financial statements under U.S. GAAP. See "Corporate History and Structure" for further details.

        In the opinion of our PRC legal counsel, Tian Yuan Law Firm, (i) the ownership structures of our VIE and Hongen Investment in China are not in violation of mandatory provisions of applicable PRC laws and regulations currently in effect; and (ii) the contractual arrangements between Hongen Investment, our VIE and its shareholders governed by PRC law will not result in any violation of PRC laws or regulations currently in effect. However, we have been further advised by our PRC counsel that there are substantial uncertainties regarding the interpretation and application of current or future PRC laws and regulations. Thus, the PRC government may ultimately take a view contrary to the opinion of our PRC counsel. If the PRC government otherwise find that we are in violation of any existing or future PRC laws or regulations or lack the necessary permits or licenses to operate our business, the relevant governmental authorities would have broad discretion in dealing with such violation, including, without limitation:

    revoking the business licenses and/or operating licenses of such entities;

    imposing fines on us;

    confiscating any of our income that they deem to be obtained through illegal operations;

    discontinuing or placing restrictions or onerous conditions on our operations;

    placing restrictions on our right to collect revenues;

    shutting down our servers or blocking our apps/websites;

    requiring us to restructure our ownership structure or operations;

    restricting or prohibiting our use of the proceeds from this offering or other of our financing activities to finance the business and operations of our VIE and its subsidiaries; or

    taking other regulatory or enforcement actions that could be harmful to our business.

        Any of these events could cause significant disruption to our business operations and severely damage our reputation, which would in turn have a material adverse effect on our business, financial condition and results of operations. If occurrences of any of these events results in our inability to direct the activities of our VIE in China that most significantly impact its economic performance, and/or our failure to receive the economic benefits and residual returns from our consolidated variable interest entity, and we are not able to restructure our ownership structure and operations in a satisfactory manner, we may not be able to consolidate the financial results of our VIE in our consolidated financial statements in accordance with U.S. GAAP.

         The contractual arrangements with our VIE and its shareholders may not be as effective as direct ownership in providing operational control.

        We have to rely on the contractual arrangements with our VIE and its shareholders to operate the business in areas where foreign ownership is restricted, including provision of certain value-added telecommunication services. These contractual arrangements, however, may not be as effective as direct ownership in providing us with control over our VIE. For example, our VIE and its shareholders could breach their contractual arrangements with us by, among other things, failing to conduct the operations of our VIE in an acceptable manner or taking other actions that are detrimental to our interests.

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        If we had direct ownership of our VIE in China, we would be able to exercise our rights as a shareholder to effect changes in the board of directors of our VIE, 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 our VIE and its shareholders of their obligations under the contracts to exercise control over our VIE. The shareholders of our VIE may not act in the best interests of our company or may not perform their obligations under these contracts. If any dispute 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 "—Any failure by our VIE or its shareholders to perform their obligations under our contractual arrangements with them would have a material and adverse effect on our business."

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

        If our VIE or its shareholders fail to perform their respective obligations under the contractual arrangements, we may have to incur substantial costs and expend additional resources to enforce such arrangements. We may also have to rely on legal remedies under PRC law, including seeking specific performance or injunctive relief, and contractual remedies, which we cannot assure you will be sufficient or effective under PRC law. For example, if the shareholders of our VIE were to refuse to transfer their equity interests in our VIE to us or our designee if we exercise the purchase option pursuant to these contractual arrangements, or if they were otherwise to act in bad faith toward us, then we may have to take legal actions to compel them to perform their contractual obligations.

        All the agreements under our contractual arrangements are governed by PRC 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 "—Risks Related to Doing Business in China—Uncertainties with respect to the PRC legal system could adversely affect us." Meanwhile, there are very few precedents and little formal guidance as to how contractual arrangements in the context of a consolidated variable interest entity should be interpreted or enforced under PRC law. There remain significant uncertainties regarding the ultimate outcome of such arbitration should legal action become necessary. 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 delay or other obstacles in the process of enforcing these contractual arrangements, we may not be able to exert effective control over our VIE, and our ability to conduct our business may be negatively affected.

         The shareholders of our VIE may have actual or potential conflicts of interest with us.

        The shareholders of our VIE may have actual or potential conflicts of interest with us. These shareholders may breach, or cause our VIE to breach, or refuse to renew, the existing contractual arrangements we have with them and our VIE, which would have a material and adverse effect on our ability to effectively control our VIE and receive economic benefits from it. For example, the shareholders may be able to cause our agreements with our VIE to be performed in a manner adverse to us by, among other things, failing to remit payments due under the contractual arrangements to us

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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, except that we could exercise our purchase option under the exclusive call option agreements with these shareholders to request them to transfer all of their equity interests in the VIE to a PRC entity or individual designated by us, to the extent permitted by PRC law. For individuals who are also our directors and officers, we rely on them to abide by the laws of the Cayman Islands, which provide that directors and officers owe a fiduciary duty to the company that requires them to act in good faith and in what they believe to be the best interests of the company and not to use their position for personal gains. The shareholders of our VIE have executed powers of attorney to appoint Hongen Investment or a person designated by Hongen Investment to vote on their behalf and exercise voting rights as shareholders of our VIE. If we cannot resolve any conflict of interest or dispute between us and the shareholders of our VIE, 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.

        The shareholders of our VIE may be involved in personal disputes with third parties or other incidents that may have an adverse effect on their respective equity interests in our VIE and the validity or enforceability of our contractual arrangements with our VIE and its shareholders. For example, in the event that any of the shareholders of our VIE divorces his or her spouse, the spouse may claim that the equity interest of the VIE held by such shareholder is part of their community property and should be divided between such shareholder and his or her spouse. If such claim is supported by the court, the relevant equity interest may be obtained by the shareholder's spouse or another third party who is not subject to obligations under our contractual arrangements, which could result in a loss of the effective control over the VIE by us. Similarly, if any of the equity interests of our VIE is inherited by a third party with whom the current contractual arrangements are not binding, we could lose our control over the VIE or have to maintain such control by incurring unpredictable costs, which could cause significant disruption to our business and operations and harm our financial condition and results of operations.

        Although under our current contractual arrangements, (i) each of the spouses of Mr. Hanfeng Chi and Mr. Tian Liang has respectively executed a spousal consent letter, under which each spouse agrees that she will not raise any claims against the equity interest, and will take every action to ensure the performance of the contractual arrangements, and (ii) the VIE and its shareholders shall not assign any of their respective rights or obligations to any third party without the prior written consent of Hongen Investment, we cannot assure you that these undertakings and arrangements will be complied with or effectively enforced. In the case any of them is breached or becomes unenforceable and leads to legal proceedings, it could disrupt our business, distract our management's attention and subject us to substantial uncertainties as to the outcome of any such legal proceedings.

         Contractual arrangements in relation to our VIE may be subject to scrutiny by the PRC tax authorities and they may determine that we or our VIE owes 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 contractual arrangements in relation to our VIE 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 income of our VIE 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 our VIE for PRC tax purposes, which could in turn increase its tax liabilities without reducing our PRC subsidiaries' tax expenses. In addition, the

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PRC tax authorities may impose late payment fees and other penalties on our VIE for the adjusted but unpaid taxes according to the applicable regulations. Our financial position could be materially and adversely affected if our VIE's tax liabilities increase or if it is required to pay late payment fees and other penalties.

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

        On March 15, 2019, the National People's Congress promulgated the Foreign Investment Law, which took effect on January 1, 2020. Since it is relatively new, substantially uncertainties exist in relation to its interpretation and implementation. The Foreign Investment Law does not explicitly classify whether variable interest entities that are controlled through contractual arrangements would be deemed as foreign invested enterprises if they are ultimately "controlled" by foreign investors. However, it has a catch-all provision under definition of "foreign investment" that includes investments made by foreign investors in China through other means as provided by laws, administrative regulations or other methods prescribed by the State Council. Therefore, it still leaves leeway for future laws, administrative regulations or provisions of the State Council to provide for contractual arrangements as a form of foreign investment, at which time it will be uncertain whether our contractual arrangements will be deemed to be in violation of the market access requirements for foreign investment in the PRC and if yes, how our contractual arrangements should be dealt with.

        The Foreign Investment Law grants national treatment to foreign-invested entities, except for those foreign-invested entities that operate in industries specified as either "restricted" or "prohibited" from foreign investment in the Special Administrative Measures (Negative List) for Foreign Investment Access jointly promulgated by the Ministry of Commerce and the National Development and Reform Commission, or the NDRC, and took effect in July 2019. The Foreign Investment Law provides that foreign-invested entities operating in "restricted" or "prohibited" industries will require market entry clearance and other approvals from relevant PRC government authorities. If our control over our VIE through contractual arrangements are deemed as foreign investment in the future, and any business of our VIE is "restricted" or "prohibited" from foreign investment under the "negative list" effective at the time, we may be deemed to be in violation of the Foreign Investment Law, the contractual arrangements that allow us to have control over our VIE may be deemed as invalid and illegal, and we may be required to unwind such contractual arrangements and/or restructure our business operations, any of which may have a material adverse effect on our business operation.

        Furthermore, if future laws, administrative regulations or provisions mandate further actions to be taken by companies with respect to existing contractual arrangements, we may face substantial uncertainties as to whether we can complete such actions in a timely manner, or at all. Failure to take timely and appropriate measures to cope with any of these or similar regulatory compliance challenges could materially and adversely affect our current corporate structure and business operations.

         We may lose the ability to use and enjoy assets held by our VIE that are critical to the operation of our business if our VIE declare bankruptcy or become subject to a dissolution or liquidation proceeding.

        Our VIE holds certain assets that may be critical to the operation of our business. If the shareholders of our VIE breach the contractual arrangements and voluntarily liquidate the VIE or its subsidiaries, or if our VIE or its subsidiaries declare bankruptcy and all or part of their assets become subject to liens or rights of third-party creditors or are otherwise disposed of without our consent, we may be unable to continue some or all of our business activities, which could materially and adversely affect our business, financial condition and results of operations. In addition, if our VIE or its subsidiaries undergo an involuntary liquidation proceeding, third-party creditors may claim rights to some or all of their assets, thereby hindering our ability to operate our business, which could materially or adversely affect our business, financial condition and results of operations.

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         We may rely on dividends paid by our PRC subsidiary to fund cash and financing requirements. Any limitation on the ability of our PRC subsidiary to pay dividends to us could have a material adverse effect on our ability to conduct our business and to pay dividends to holders of the ADSs and our ordinary shares.

        We are a holding company, and we may rely on dividends to be paid by our PRC subsidiary for our cash and financing requirements, including the funds necessary to pay dividends and other cash distributions to the holders of the ADSs and our ordinary shares and service any debt we may incur. If our PRC subsidiary incurs 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, wholly foreign-owned enterprises in the PRC, such as Hongen Investment, may pay dividends only out of their accumulated profits as determined in accordance with PRC accounting standards and regulations. In addition, a wholly foreign-owned enterprise is required to set aside at least 10% of its after-tax profits each year, after making up previous years' accumulated losses, if any, to fund certain statutory reserve funds, until the aggregate amount of such a fund reaches 50% of its registered capital. At the discretion of the board of directors of the wholly foreign-owned enterprise, it may allocate a portion of its after-tax profits based on PRC accounting standards to staff welfare and bonus funds. These reserve funds and staff welfare and bonus funds are not distributable as cash dividends. Any limitation on the ability of our wholly-owned PRC subsidiary to pay dividends or make other distributions to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends, or otherwise fund and conduct our business.

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.

        We expect that our revenues will be primarily derived in China and most of our operations will continue to be conducted in China. Accordingly, our results of operations, financial condition and prospects are influenced by economic, political and legal developments in China. China's economy differs from the economies of most developed countries in many respects, including with respect to the amount of government involvement, level of development, growth rate, control of foreign exchange and allocation of resources. Although the PRC government has implemented measures emphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive assets, and the establishment of improved corporate governance in business enterprises, a substantial portion of productive assets in China is still owned by the government. The PRC government also exercises significant control over China's economic growth through strategically allocating resources, controlling the payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies. While the PRC economy has experienced significant growth over the past decades, that growth has been uneven across different regions and between economic sectors and may not continue, as evidenced by the slowing of the growth of the Chinese economy 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, leading to reduction in demand for our services and solutions 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, in the past the Chinese government has implemented certain measures, including interest rate adjustment, to control the pace of economic

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growth. These measures may cause decreased economic activity in China, which may adversely affect our business and results of operations.

         Uncertainties with respect to the PRC legal system could adversely affect us.

        The PRC legal system is a civil law system based on written statutes, where prior court decisions have limited precedential value. The PRC legal system is evolving rapidly, and the interpretations 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. However, since the PRC judicial and administrative authorities have significant discretion in interpreting and implementing statutory and contractual terms, it may be more difficult to predict the outcome of a judicial or administrative proceeding 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 in a timely manner, or at all, but which may have retroactive effect. As a result, we may not always be aware of any potential violation of these policies and rules. Such unpredictability towards our contractual, property (including intellectual property) and procedural rights could adversely affect our business and impede our ability to continue our operations.

         We may be adversely affected by the complexity, uncertainties and changes in PRC regulation of internet-related businesses and companies.

        The PRC government extensively regulates the internet industry, including foreign ownership of, and the licensing and permit requirements pertaining to, companies operating in the internet industry. These internet-related laws and regulations are relatively new and evolving, and their interpretation and enforcement involve significant uncertainties. As a result, in certain circumstances it may be difficult to determine what actions or omissions may be deemed to be in violation of applicable laws and regulations.

        We only have contractual control over our VIE and its subsidiaries. Such corporate structure may subject us to sanctions, compromise enforceability of related contractual arrangements, which may result in significant disruption to our business.

        The evolving PRC regulatory system for the internet industry may lead to the establishment of new regulatory agencies. For example, in May 2011, the State Council announced the establishment of the State Internet Information Office (with the involvement of the State Council Information Office, the MIIT, and the Ministry of Public Security). The primary role of the State Internet Information Office is to facilitate the policy-making and legislative development in this field, to direct and coordinate with the relevant departments in connection with online content administration and to deal with cross-ministry regulatory matters in relation to the internet industry.

        Our VIE currently holds a license for internet information services, or the ICP License, which is a kind of VATS License. The Circular on Strengthening the Administration of Foreign Investment in and Operation of Value-added Telecommunications Business, issued by the MIIT in July 2006, prohibits domestic telecommunications service providers from leasing, transferring or selling telecommunications business operating licenses to any foreign investor in any form, or providing any resources, sites or facilities to any foreign investor for their illegal operation of a telecommunications business in China. The circular also requires each license holder to have the necessary facilities, including servers, for its approved business operations and to maintain such facilities in the regions covered by its license.

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        The interpretation and application of existing PRC laws, regulations and policies and possible new laws, regulations or policies relating to the internet industry have created substantial uncertainties regarding the legality of existing and future foreign investments in, and the businesses and activities of, internet businesses in China, including our business. 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.

         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 the prospectus based on foreign laws.

        We are an exempted company incorporated under the laws of the Cayman Islands, however, we conduct substantially all of our operations in China and substantially all of our assets are located in China. In addition, all our directors and senior executive officers reside within China for a significant portion of the time and all of them are PRC nationals. As a result, it may be difficult for you to effect service of process upon us or our management residing in China. In addition, China does not have treaties providing for reciprocal recognition and enforcement of judgments of courts with the Cayman Islands and many other countries and regions. Therefore, recognition and enforcement in China of judgments of a court in any of these non-PRC jurisdictions in relation to any matter not subject to a binding arbitration provision may be difficult or impossible.

         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 providing 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, which became effective in March 2020, no overseas securities regulator is allowed to directly conduct investigation or evidence collection activities within the PRC territory. 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 and This Offering—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.

         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 its "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 the SAT, issued a circular, known as SAT Circular 82, as last amended in 2017, 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

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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 none of our entities outside of China is a PRC resident enterprise for PRC tax purposes. 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 iHuman Inc. is a PRC resident enterprise for enterprise income tax purposes, we could be subject to PRC tax at a rate of 25% on our worldwide income, which could materially reduce our net income, and 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 at a rate of 10% on gains realized on the sale or other disposition of ADSs or ordinary shares, if such income is treated as sourced from within China. 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 10% in the case of non-PRC enterprises or a rate of 20% in the case of non-PRC individuals 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 uncertainties with respect to indirect transfer of equity interests in PRC resident enterprises by their non-PRC holding companies.

        We face uncertainties regarding the reporting on and consequences of previous private equity financing transactions involving the transfer and exchange of shares in our company by non-resident investors. In February 2015, the SAT issued the Bulletin on Issues of Enterprise Income Tax on Indirect Transfers of Assets by Non-PRC Resident Enterprises, or SAT Bulletin 7. Pursuant to SAT Bulletin 7, an "indirect transfer" of PRC assets, including a transfer of equity interests in an unlisted non-PRC holding company of a PRC resident enterprise, by non-PRC resident enterprises may be re-characterized and treated as a direct transfer of the underlying PRC assets, if such arrangement does not have a reasonable commercial purpose and was established for the purpose of avoiding payment of PRC enterprise income tax. As a result, gains derived from such indirect transfer may be subject to PRC enterprise income tax, 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. SAT Bulletin 7 does not apply to transactions of sale of shares by investors through a public stock exchange where such shares were acquired from a transaction through a public stock exchange. On October 17, 2017, the SAT issued the Announcement of the State Administration of Taxation on Issues Concerning the Withholding of Non-resident Enterprise Income Tax at Source, or SAT Bulletin 37, which came into effect on December 1, 2017. SAT Bulletin 37 further clarifies the practice and procedure of the withholding of nonresident enterprise income tax.

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        We face uncertainties on the reporting and consequences of future private equity financing transactions, share exchanges or other transactions involving the transfer of shares in our company by investors that are non-PRC resident enterprises. The PRC tax authorities may pursue such non-resident enterprises with respect to a filing or the transferees with respect to a withholding obligation, and request our PRC subsidiaries to assist in the filing. As a result, we and non-resident enterprises in such transactions may become at risk of being subject to filing obligations or being taxed under SAT Bulletin 7 and SAT Bulletin 37, and may be required to expend valuable resources to comply with them or to establish that we and such non-resident enterprises should not be taxed under these bulletins, which may have a material adverse effect on our financial condition and results of operations.

         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 China's foreign exchange policies. In 2005, the PRC government changed its decades-old policy of pegging the value of the Renminbi to the U.S. dollar, and the Renminbi appreciated more than 20% against the U.S. dollar over the following three years. Between July 2008 and June 2010, this appreciation halted and the exchange rate between Renminbi and the U.S. dollar remained within a narrow band. Since June 2010, Renminbi has fluctuated against the U.S. dollar, at times significantly and unpredictably. With the development of the foreign exchange market and progress towards interest rate liberalization and Renminbi internationalization, the PRC government may in the future announce further changes to the exchange rate system, and we cannot assure you that the Renminbi will not appreciate or depreciate significantly in value against the U.S. dollar in the future. It is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate between the Renminbi 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 this offering 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. To date, we have not entered into any hedging transactions to reduce our exposure to foreign currency exchange risk. While we may decide to enter into hedging transactions in the future, the availability and effectiveness of these hedges may be limited and we may not be able to adequately hedge our exposure or at all. In addition, our currency exchange losses may be magnified by PRC exchange control regulations that restrict our ability to convert Renminbi into foreign currency.

         China's M&A Rules and certain other PRC regulations establish complex procedures for certain acquisitions of PRC companies by foreign investors, which could make it more difficult for us to pursue growth through acquisitions in China.

        A number of PRC laws and regulations have established procedures and requirements that could make merger and acquisition activities in China by foreign investors more time consuming and complex. In addition to the Anti-monopoly Law itself, these include 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, and the Rules of the Ministry of Commerce on Implementation of Security Review System of Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the Security Review Rules, promulgated in 2011. These laws and regulations

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impose requirements in some instances that the PRC Ministry of Commerce be notified in advance of any change-of-control transaction in which a foreign investor takes control of a PRC domestic enterprise. In addition, the Anti-Monopoly Law requires that the PRC Ministry of Commerce be notified in advance of any concentration of undertaking if certain thresholds are triggered. Moreover, the Security Review Rules specify that mergers and acquisitions by foreign investors that raise "national defense and security" concerns and mergers and acquisitions through which foreign investors may acquire de facto control over domestic enterprises that raise "national security" concerns are subject to strict review by the PRC Ministry of Commerce, and prohibit any attempt to bypass a security review, including by structuring the transaction through a proxy or contractual control arrangement. In the future, we may grow our business by acquiring complementary businesses. Complying with the requirements of the relevant regulations to complete such transactions could be time consuming, and any required approval processes, including approval from the PRC Ministry of Commerce, may delay or inhibit our ability to complete such transactions, which could affect our ability to expand our business or maintain our market share.

         The approval of the China Securities Regulatory Commission may be required in connection with this offering, and, if required, we cannot predict whether we will be able to obtain such approval.

        The M&A Rules requires an overseas special purpose vehicles that are controlled by PRC companies or individuals formed for the purpose of seeking a public listing on an overseas stock exchange through acquisitions of PRC domestic interests using shares of such special purpose vehicles or held by its shareholders as considerations to obtain the approval of the China Securities Regulatory Commission, or the CSRC, prior to the listing and trading of such special purpose vehicle's securities on an overseas stock exchange. However, the application of the M&A Rules remains unclear. If CSRC approval is required, it is uncertain whether it would be possible for us to obtain the approval.

        Our PRC counsel has advised us based on their understanding of the current PRC laws, regulations and rules that the aforesaid CSRC's approval may not be required for the listing and trading of our ADSs on the New York Exchange in the context of this offering, given that: (i) the CSRC currently has not issued any definitive rule or interpretation concerning whether offerings like ours in this prospectus are subject to this regulation, (ii) each of our PRC subsidiaries was incorporated as a wholly foreign-owned enterprise or a subsidiary of a wholly foreign-owned enterprise by means of direct investment rather than by merger or acquisition of equity interest or assets of a PRC domestic company owned by PRC companies or individuals as defined under the M&A Rules, and (iii) no provision in the M&A Rules clearly classifies contractual arrangements as a type of transaction subject to the M&A Rules.

        However, our PRC counsel has further advised us that there remains some uncertainty as to how the M&A Rules will be interpreted or implemented in the context of an overseas offering and its opinions summarized above are subject to any new laws, regulations and rules or detailed implementations and interpretations in any form relating to the M&A Rules. We cannot assure you that relevant PRC government agencies, including the CSRC, would reach the same conclusion as we do. If it is determined that CSRC approval is required for this offering, we may face sanctions by the CSRC or other PRC regulatory agencies for failure to obtain or delay in obtaining CSRC approval for this offering. These sanctions may include fines and penalties on our operations in China, limitations on our operating privileges in China, delays in or restrictions on the repatriation of the proceeds from this offering into the PRC, 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. The CSRC or other PRC regulatory agencies may also take actions requiring us, or making it advisable for us, to halt this offering before the settlement and delivery of the ADSs that we are offering. Consequently, if you engage in market trading or other activities in anticipation of and prior to the settlement and delivery of the ADSs we are offering, you would be doing so at the risk

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that the settlement and delivery may not occur. In addition, if the CSRC or other regulatory agencies later promulgate new rules or explanations requiring that we obtain their approvals for this offering, we may be unable to obtain a waiver of such approval requirements, if and when procedures are established to obtain such a waiver.

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

        In February 2012, the State Administration of Foreign Exchange, or 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 and 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 China for a continuous period of not less than one year and who have been granted options will be subject to these regulations when our company becomes an overseas-listed company upon the completion of this offering. Failure to complete SAFE registrations may subject them to fines 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 "Regulation—Regulations Related to Stock Incentive Plans."

        In addition, the SAT has issued certain circulars concerning employee share options and restricted shares. Under these circulars, our employees working in China who exercise share options or are granted restricted shares will be subject to PRC individual income tax. Our PRC subsidiaries have obligations to file documents related to employee share options or restricted shares with relevant tax authorities and to withhold individual income taxes of those employees who exercise their share options. If our employees fail to pay or 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. See "Regulation—Regulations Related to Stock Incentive Plans."

         PRC regulations relating to offshore investment activities by PRC residents may limit our PRC subsidiaries' ability to change their registered capital or distribute profits to us or otherwise expose us or our PRC resident beneficial owners to liability and penalties under PRC laws.

        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. SAFE Circular 37 requires PRC residents (including PRC individuals and PRC corporate entities as well as foreign individuals that are deemed as PRC residents for foreign exchange administration purpose) to register with SAFE or its local branches in connection with their establishment or control of an offshore entity established for the purpose of overseas investment or financing with such PRC residents or entities' legally owned assets or equity interests in domestic enterprises or offshore assets or interests. In February 2015, SAFE promulgated a Circular on Further Simplifying and Improving Foreign Exchange Administration Policy on Direct Investment, or SAFE Circular 13, effective in June 2015. Under SAFE Circular 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

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of SAFE. The qualified banks will directly examine the applications and accept registrations under the supervision of SAFE. SAFE Circular 37 further requires amendment to the SAFE registrations in the event of any changes with respect to the basic information of the offshore special purpose vehicle, such as change of a PRC individual shareholder, name and operation term, or any significant changes with respect to the offshore special purpose vehicle, such as increase or decrease of capital contribution, share transfer or exchange, or mergers or divisions. SAFE Circular 37 and SAFE Circular 13 are applicable to our shareholders who are PRC residents and may be applicable to any offshore acquisitions that we make in the future.

        If our shareholders who are PRC residents or entities do not complete their registration with the local SAFE branches, our PRC subsidiaries may be prohibited from distributing its profits and proceeds from any reduction in capital, share transfer or liquidation to us, and we may be restricted in our ability to contribute additional capital to our PRC subsidiaries.

        We have notified all PRC individuals or entities who directly or indirectly hold shares in our Cayman Islands holding company and who are known to us as being PRC residents to complete the foreign exchange registrations. However, we may not be informed of the identities of all the PRC residents or entities holding direct or indirect interest in our company, nor can we compel our beneficial owners to comply with SAFE registration requirements. We cannot assure you that all shareholders or beneficial owners of ours who are PRC residents or entities have complied with, and will in the future make, obtain or update any applicable registrations or approvals required by, SAFE regulations.

        The failure or inability of such shareholders or beneficial owners to comply with SAFE regulations, or failure by us to amend the foreign exchange registrations of our PRC subsidiaries, could subject us to fines or legal sanctions, restrict our overseas or cross-border investment activities, limit our PRC subsidiaries' ability to make distributions or pay dividends to us or affect our ownership structure. As a result, our business operations and our ability to distribute profits to you could be materially and adversely affected.

         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 this offering to make loans to our PRC subsidiaries and our VIE in China, 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, our VIE and its subsidiaries. We may make loans to our PRC subsidiaries, our VIE and its subsidiaries, or we may make additional capital contributions to our PRC subsidiaries, or we may establish new PRC subsidiaries and make capital contributions to these new PRC subsidiaries, or we may acquire offshore entities with business operations in China in an offshore transaction.

        Most of these ways are subject to PRC regulations and approvals. For example, loans by us to our wholly owned PRC subsidiaries to finance their activities cannot exceed statutory limits and must be registered with the local counterpart of SAFE. If we decide to finance our wholly owned PRC subsidiaries by means of capital contributions, these capital contributions are subject to the requirement of making necessary filings in the Foreign Investment Comprehensive Management Information System and registration with other governmental authorities in China. Due to the restrictions imposed on loans in foreign currencies extended to PRC domestic companies, we are not likely to make such loans to our VIE, which is a PRC domestic company. Further, we are not likely to finance the activities of our VIE by means of capital contributions due to regulatory restrictions relating to foreign investment in PRC domestic enterprises engaged in internet information and certain other businesses.

        SAFE promulgated the Notice of the State Administration of Foreign Exchange on Reforming the Administration of Foreign Exchange Settlement of Capital of Foreign-invested Enterprises, or SAFE

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Circular 19, effective June 2015, in replacement of a former regulation. According to SAFE Circular 19, the flow and use of the RMB capital converted from foreign currency-denominated registered capital of a foreign-invested company is regulated such that RMB capital may not be used for the issuance of RMB entrusted loans, the repayment of inter-enterprise loans or the repayment of banks loans that have been transferred to a third-party. Although SAFE Circular 19 allows RMB capital converted from foreign currency-denominated registered capital of a foreign-invested enterprise to be used for equity investments within China, it also reiterates the principle that RMB converted from the foreign currency-denominated capital of a foreign-invested company may not be directly or indirectly used for purposes beyond its business scope. Thus, it is unclear whether SAFE will permit such capital to be used for equity investments in China in actual practice. 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 SAFE Circular 16, effective on June 9, 2016, which reiterates some of the rules set forth in SAFE Circular 19, but changes the prohibition against using RMB capital converted from foreign currency-denominated registered capital of a foreign-invested company to issue RMB entrusted loans to a prohibition against using such capital to issue loans to non-associated enterprises. Violations of SAFE Circular 19 and SAFE Circular 16 could result in administrative penalties. SAFE Circular 19 and SAFE Circular 16 may significantly limit our ability to transfer any foreign currency we hold, including the net proceeds from this offering, to our PRC subsidiaries, which may adversely affect our liquidity and our ability to fund and expand our business in China. On October 23, 2019, SAFE promulgated the Notice of the State Administration of Foreign Exchange on Further Promoting the Convenience of Cross-border Trade and Investment, or the SAFE Circular 28, which, among other things, allows all foreign-invested companies to use Renminbi converted from foreign currency-denominated capital for equity investments in China, as long as the equity investment is genuine, does not violate applicable laws, and complies with the negative list on foreign investment. However, since the SAFE Circular 28 is newly promulgated, it is unclear how SAFE and competent banks will carry this out in practice.

        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 obtain the necessary government approvals on a timely basis, if at all, with respect to future loans to our PRC subsidiaries or VIE or future capital contributions by us to our PRC subsidiaries. As a result, uncertainties exist as to our ability to provide prompt financial support to our PRC subsidiaries or VIE when needed. If we fail to complete such registrations or obtain such approvals, our ability to use the proceeds we expect to receive from this offering 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.

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

        The PRC government imposes controls on the convertibility of the Renminbi into foreign currencies and, in certain cases, the remittance of currency out of China. We receive substantially all of our revenues in Renminbi. Under our current corporate structure, our Cayman Islands holding company may rely 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 the State Administration of Foreign Exchange, or 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 foreign currency and remitted out of China to pay capital expenses

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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 consolidated variable interest entity 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.

        In light of the capital outflows of China in 2016 due to the weakening Renminbi, the PRC government has imposed more restrictive foreign exchange policies and stepped up scrutiny of major outbound capital movement including overseas direct investment. More restrictions and substantial vetting process are put in place by SAFE to regulate cross-border transactions falling under the capital account. If any of our shareholders regulated by such policies fails to satisfy the applicable overseas direct investment filing or approval requirement timely or at all, it may be subject to penalties from the relevant PRC authorities. The PRC government may at its discretion further restrict access in the future to foreign currencies for current account transactions. If the foreign exchange control system prevents us from obtaining sufficient foreign currencies to satisfy our foreign currency demands, we may not be able to pay dividends in foreign currencies to our shareholders, including holders of the ADSs.

         The audit report included in this prospectus is prepared by an auditor who is not inspected by the U.S. Public Company Accounting Oversight Board, and as such, our investors are deprived of the benefits of such inspection. In addition, various legislative and regulatory developments related to U.S.-listed China-based companies due to lack of PCAOB inspection and other developments due to political tensions between the United States and China may have a material adverse impact on our listing and trading in the U.S. and the trading prices of our ADSs.

        Our auditor, the independent registered public accounting firm that issues the audit report included elsewhere in this prospectus, as an auditor of companies that are traded publicly in the United States and a firm registered with the PCAOB, is subject to laws in the United States pursuant to which the PCAOB conducts regular inspections to assess its compliance with the applicable professional standards. Since our auditor is located in China, a jurisdiction where the PCAOB has been unable to conduct inspections without the approval of the Chinese authorities, our auditor is currently not inspected by the PCAOB.

        In May 2013, the PCAOB announced that it had entered into a Memorandum of Understanding on Enforcement Cooperation with the China Securities Regulatory Commission, or CSRC, and the PRC Ministry of Finance, which establishes a cooperative framework between the parties for the production and exchange of audit documents relevant to investigations undertaken by the PCAOB, the CSRC or the PRC Ministry of Finance in the United States and the PRC, respectively. The PCAOB continues to be in discussions with the CSRC, and the PRC Ministry of Finance to permit joint inspections in the PRC of audit firms that are registered with PCAOB and audit Chinese companies that trade on U.S. exchanges.

        On December 7, 2018, the SEC and the PCAOB issued a joint statement highlighting continued challenges faced by the U.S. regulators in their oversight of financial statement audits of U.S.-listed companies with significant operations in China. The joint statement reflects a heightened interest in an issue that has vexed U.S. regulators in recent years. However, it remains unclear what further actions the SEC and PCAOB will take to address the problem.

        On April 21, 2020, the SEC and the PCAOB issued another joint statement reiterating the greater risk that disclosures will be insufficient in many emerging markets, including China, compared to those made by U.S. domestic companies. In discussing the specific issues related to the greater risk, the statement again highlights the PCAOB's inability to inspect audit work paper and practices of accounting firms in China, with respect to their audit work of U.S. reporting companies.

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        On June 4, 2020, the U.S. President issued a memorandum ordering the President's Working Group on Financial Markets, or the PWG, to submit a report to the President within 60 days of the memorandum that includes recommendations for actions that can be taken by the executive branch and by the SEC or PCAOB on Chinese companies listed on U.S. stock exchanges and their audit firms, in an effort to protect investors in the U.S.

        On August 6, 2020, the PWG released a report recommending that the SEC take steps to implement the five recommendations outlined in the report. In particular, to address companies from jurisdictions that do not provide the PCAOB with sufficient access to fulfill its statutory mandate, or NCJs, the PWG recommends enhanced listing standards on U.S. stock exchanges. This would require, as a condition to initial and continued exchange listing, PCAOB access to work papers of the principal audit firm for the audit of the listed company. Companies unable to satisfy this standard as a result of governmental restrictions on access to audit work papers and practices in NCJs may satisfy this standard by providing a co-audit from an audit firm with comparable resources and experience where the PCAOB determines it has sufficient access to audit work papers and practices to conduct an appropriate inspection of the co-audit firm. The report permits the new listing standards to provide for a transition period until January 1, 2022 for listed companies, but would apply immediately to new listings once the necessary rulemakings and/or standard-setting are effective. After we are listed on the NYSE, if we fail to meet the new listing standards before the deadline specified thereunder due to factors beyond our control, we could face possible de-listing from the NYSE, deregistration from the SEC and/or other risks, which may materially and adversely affect the market price and liquidity of our ADS, or effectively terminate our ADS trading in the United States.

        This lack of the PCAOB inspections in China prevents the PCAOB from fully evaluating audits and quality control procedures of our independent registered public accounting firm. As a result, we and investors in our ordinary shares are deprived of the benefits of such PCAOB inspections. The inability of the PCAOB to conduct inspections of auditors in China makes it more difficult to evaluate the effectiveness of our independent registered public accounting firm's audit procedures or quality control procedures as compared to auditors outside of China that are subject to the PCAOB inspections, which could cause investors and potential investors in our stock to lose confidence in our audit procedures and reported financial information and the quality of our financial statements.

        As part of a continued regulatory focus in the United States on access to audit and other information currently protected by national law, in particular China's, in June 2019, a bipartisan group of lawmakers introduced bills in both houses of Congress that would require the SEC to maintain a list of issuers for which the PCAOB is not able to inspect or investigate an auditor report issued by a foreign public accounting firm. The Ensuring Quality Information and Transparency for Abroad-Based Listings on our Exchanges (EQUITABLE) Act prescribes increased disclosure requirements for such issuers and, beginning in 2025, the delisting from national securities exchanges of issuers included for three consecutive years on the SEC's list. On May 20, 2020, the U.S. Senate passed S. 945, the Holding Foreign Companies Accountable Act, or the Kennedy Bill. On July 21, 2020, the U.S. House of Representatives approved its version of the National Defense Authorization Act for Fiscal Year 2021, which contains provisions comparable to the Kennedy Bill. If either of these bills is enacted into law, it would amend the Sarbanes-Oxley Act of 2002 to direct the SEC to prohibit securities of any registrant from being listed on any of the U.S. securities exchanges or traded "over-the-counter" if the auditor of the registrant's financial statements is not subject to PCAOB inspection for three consecutive years. Enactment of any of such legislations or other efforts to increase U.S. regulatory access to audit information could cause investor uncertainty for affected issuers, including us, the market price of our ADSs could be adversely affected, and we could be delisted if we are unable to cure the situation to meet the PCAOB inspection requirement in time. It is unclear if and when any of such proposed legislations will be enacted.

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        In addition, political tensions between the United States and China have escalated due to, among other things, trade disputes, the COVID-19 outbreak, 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 Donald J. Trump in August 2020 that prohibit certain transactions with certain Chinese companies and their applications. Rising political tensions could reduce levels of trades, investments, technological exchanges and other economic activities between the two major economies, which would have a material adverse effect on global economic conditions and the stability of global financial markets. Any of these factors could have a material adverse effect on our business, prospects, financial condition and results of operations. Furthermore, there have been recent media reports on deliberations within the U.S. government regarding potentially limiting or restricting China-based companies from accessing U.S. capital markets. If any such deliberations were to materialize, the resulting legislation may have material and adverse impact on the stock performance of China-based issuers listed in the United States.

         Proceedings instituted by the SEC against Chinese affiliates of the "big four" accounting firms, including our independent registered public accounting firm, could result in financial statements being determined to not be in compliance with the requirements of the Exchange Act.

        Starting in 2011 the Chinese affiliates of the "big four" accounting firms, including our independent registered public accounting firm, were affected by a conflict between U.S. and Chinese law. Specifically, for certain U.S.-listed companies operating and audited in mainland China, the SEC and the PCAOB sought to obtain from the Chinese firms access to their audit work papers and related documents. The firms were, however, advised and directed that under Chinese law, they could not respond directly to the U.S. regulators on those requests, and that requests by foreign regulators for access to such papers in China had to be channeled through the CSRC.

        In late 2012, this impasse led the SEC to commence administrative proceedings under Rule 102(e) of its Rules of Practice and also under the Sarbanes-Oxley Act of 2002 against the Chinese accounting firms, including our independent registered public accounting firm. A first instance trial of the proceedings in July 2013 in the SEC's internal administrative court resulted in an adverse judgment against the firms. The administrative law judge proposed penalties on the firms including a temporary suspension of their right to practice before the SEC, although that proposed penalty did not take effect pending review by the Commissioners of the SEC. On February 6, 2015, before a review by the Commissioner had taken place, the firms reached a settlement with the SEC. Under the settlement, the SEC accepts that future requests by the SEC for the production of documents will normally be made to the CSRC. The firms will receive matching Section 106 requests, and are required to abide by a detailed set of procedures with respect to such requests, which in substance require them to facilitate production via the CSRC. If they fail to meet specified criteria, the SEC retains authority to impose a variety of additional remedial measures on the firms depending on the nature of the failure. Remedies for any future noncompliance could include, as appropriate, an automatic six-month bar on a single firm's performance of certain audit work, commencement of a new proceeding against a firm, or, in extreme cases, the resumption of the current proceeding against all four firms. If additional remedial measures are imposed on the Chinese affiliates of the "big four" accounting firms, including our independent registered public accounting firm, in administrative proceedings brought by the SEC alleging the firms' failure to meet specific criteria set by the SEC with respect to requests for the production of documents, we could be unable to timely file future financial statements in compliance with the requirements of the Exchange Act.

        In the event that the SEC restarts the administrative proceedings, depending upon the final outcome, listed companies in the United States with major PRC operations may find it difficult or impossible to retain auditors in respect of their operations in the PRC, which could result in financial statements being determined not to be in compliance with the requirements of the Exchange Act, including possible delisting. Moreover, any negative news about any such future proceedings against

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these audit firms may cause investor uncertainty regarding China-based, U.S.-listed companies and the market price of our ADSs may be adversely affected.

        If our independent registered public accounting firm was denied, even temporarily, the ability to practice before the SEC and we were unable to timely find another registered public accounting firm to audit and issue an opinion on our financial statements, our financial statements could be determined not to be in compliance with the requirements of the Exchange Act. Such a determination could ultimately lead to the delisting of the ADSs from the New York Stock Exchange or deregistration from the SEC, or both, which would substantially reduce or effectively terminate the trading of the ADSs in the United States.

         The current tension in international trade, particularly with regard to U.S. and China trade policies, may adversely impact our business, financial condition, and results of operations.

        Although cross-border business may not be an area of our focus, since we plan to expand our business internationally in the future, any unfavorable government policies on international trade, such as capital controls or tariffs, may affect the demand for our products and services, impact our competitive position, or prevent us from being able to conduct business in certain countries. If any new tariffs, legislation, or regulations are implemented, or if existing trade agreements are renegotiated, such changes could adversely affect our business, financial condition, and results of operations. Recently, there have been heightened tensions in international economic relations, such as the one between the United States and China. The U.S. government has recently imposed, and has recently proposed to impose additional, new, or higher tariffs on certain products imported from China to penalize China for what it characterizes as unfair trade practices. China has responded by imposing, and proposing to impose additional, new, or higher tariffs on certain products imported from the United States. Following mutual retaliatory actions for months, on January 15, 2020, the United States and China entered into the Economic and Trade Agreement Between the United States of America and the People's Republic of China as a phase one trade deal, effective on February 14, 2020.

        Although the direct impact of the current international trade tension, and any escalation of such tension, on the edutainment industry in China is uncertain, the negative impact on general, economic, political and social conditions may adversely impact our business, financial condition and results of operations.

Risks Related to Our ADSs and This Offering

         An active trading market for our ordinary shares or our ADSs may not develop and the trading price for our ADSs may fluctuate significantly.

        We have submitted an application to list our ADSs on the New York Stock Exchange. Prior to the completion of this offering, there has been no public market for our ADSs or our ordinary shares, and we cannot assure you that a liquid public market for our ADSs will develop. If an active public market for our ADSs does not develop following the completion of this offering, the market price and liquidity of our ADSs may be materially and adversely affected. The initial public offering price for our ADSs will be determined by negotiation between us and the underwriters based upon several factors, and the trading price of our ADSs after this offering could decline below the initial public offering price. As a result, investors in our securities may experience a significant decrease in the value of their ADSs.

         The trading price of the ADSs is likely to be volatile, which could result in substantial losses to investors.

        The trading price of the 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

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industry factors, the price and trading volume for the ADSs may be highly volatile for factors specific to our own operations, including the following:

    variations in our revenues, earnings, cash flow;

    fluctuations in operating metrics;

    announcements of new investments, acquisitions, strategic partnerships or joint ventures by us or our competitors;

    announcements of new solutions and services and expansions by us or our competitors;

    changes in financial estimates by securities analysts;

    detrimental negative publicity about us, our competitors or our industry;

    additions or departures of key personnel;

    release of lockup or other transfer restrictions on our outstanding equity securities or sales of additional equity securities;

    regulatory developments affecting us or our industry; and

    potential litigation or regulatory investigations.

        Any of these factors may result in large and sudden changes in the volume and price at which the ADSs will trade. Furthermore, the stock market in general experiences price and volume fluctuations that are often unrelated or disproportionate to the operating performance of companies like us. These broad market and industry fluctuations may adversely affect the market price of our ADSs. Volatility or a lack of positive performance in our ADS price may also adversely affect our ability to retain key employees, most of whom have been granted equity incentives.

        In the past, shareholders of public companies have often brought securities class action suits against 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.

         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.

        Our authorized and issued ordinary shares are divided into Class A ordinary shares and Class B ordinary shares immediately prior to the completion of this offering. In respect of matters requiring the votes of shareholders, holders of Class A ordinary shares and Class B ordinary shares vote together as a single class except as may otherwise be required by law, and 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 the completion of this offering, Mr. Michael Yufeng Chi, our founder and chairman of the board of directors, will beneficially own 144,000,000 Class B ordinary shares, representing 92.5% of the aggregate voting power of our total issued and outstanding ordinary shares due to the disparate voting powers associated with our dual-class voting structure, assuming that the underwriters do not exercise their option to purchase additional ADSs. See "Principal Shareholders." After this offering,

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Mr. Michael Yufeng Chi, our founder and chairman of the board of directors, will have considerable influence over matters requiring shareholders' approval, such as appointing directors and approving material mergers, acquisitions, or other business combination transactions. This concentration of ownership may discourage, delay, or prevent a change of control of our company, which could have the effect of depriving our other shareholders of the opportunity to receive a premium for their shares as part of a sale of our company and may reduce the price of our ADSs. 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.

         Our dual-class voting structure may render the ADSs representing our Class A ordinary shares ineligible for inclusion in certain stock market indices, and thus adversely affect the trading price and liquidity of the ADSs.

        We cannot predict whether our dual-class share structure with different voting rights will result in a lower or more volatile market price of the ADSs, in adverse publicity, or other adverse consequences. Certain index providers have announced restrictions on including companies with multi-class share structures in certain of their indices. For example, S&P Dow Jones and FTSE Russell have changed 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. As a result, our dual-class voting structure may prevent the inclusion of the ADSs representing our Class A ordinary shares in such indices, which could adversely affect the trading price and liquidity of the ADSs representing our Class A ordinary shares. In addition, several shareholder advisory firms have announced their opposition to the use of multiple class structure and our dual-class structure may cause shareholder advisory firms to publish negative commentary about our corporate governance, in which case the market price and liquidity of the ADSs could be adversely affected.

         If securities or industry analysts cease to publish research or reports about our business, or if they adversely change their recommendations regarding the ADSs, the market price for the ADSs and trading volume could decline.

        The trading market for the ADSs 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 the ADSs, the market price for the ADSs would likely decline. If one or more of these analysts cease to cover us or fail to regularly publish reports on us, we could lose visibility in the financial markets, which, in turn, could cause the market price or trading volume for the ADSs to decline.

         We currently do not expect to pay dividends in the foreseeable future after this offering and you must rely on price appreciation of our ADSs for return on your investment.

        We currently intend to retain most, if not all, of our available funds and any future earnings after this offering to fund the development and growth of our business. As a result, we do not expect to pay any cash dividends in the foreseeable future. Therefore, you should not rely on an investment in our ADSs as a source for any future dividend income.

        Our board of directors has complete discretion as to whether to distribute dividends, subject to certain requirements of Cayman Islands law. In addition, our shareholders may by ordinary resolution declare a dividend, but no dividend may exceed the amount recommended by our directors. Under Cayman Islands law, a Cayman Islands company may pay a dividend out of either profit or share premium account, provided that in no circumstances may a dividend be paid if this would result in the company being unable to pay its debts as they 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

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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 after this offering 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.

         Because our initial public offering price is substantially higher than our net tangible book value per share, you will experience immediate and substantial dilution.

        If you purchase ADSs in this offering, you will pay more for your ADSs than the amount paid by our existing shareholders for their ordinary shares on a per ADS basis. As a result, you will experience immediate and substantial dilution, representing the difference between the initial public offering price of per ADS, and our adjusted net tangible book value per ADS, after giving effect to our sale of the ADSs offered in this offering. In addition, you may experience further dilution in connection of the issuance of ordinary shares upon the exercise or vesting, as the case may be, of our share incentive awards. See "Dilution" for a more complete description of how the value of your investment in the ADSs will be diluted upon completion of this offering.

         We have not determined a specific use for a portion of the net proceeds from this offering and we may use these proceeds in ways with which you may not agree.

        We have not determined a specific use for a portion of the net proceeds of this offering, and our management will have considerable discretion in deciding how to apply these proceeds. You will not have the opportunity to assess whether the proceeds are being used appropriately before you make your investment decision. You must rely on the judgment of our management regarding the application of the net proceeds of this offering. We cannot assure you that the net proceeds will be used in a manner that would improve our results of operations or increase the ADS price, nor that these net proceeds will be placed only in investments that generate income or appreciate in value.

         Substantial future sales or perceived potential sales of our ADSs in the public market could cause the price of our ADSs to decline.

        Sales of our ADSs in the public market after this offering, or the perception that these sales could occur, could cause the market price of our ADSs to decline. All ADSs sold in this offering will be freely transferable without restriction or additional registration under the Securities Act. The remaining ordinary shares issued and outstanding after this offering will be available for sale, upon the expiration of the 180-day lock-up period beginning from the date of this prospectus, subject to volume and other restrictions as applicable provided in Rules 144 and 701 under the Securities Act. Any or all of these shares may be released prior to the expiration of the lock-up period at the discretion of the representatives of the underwriters of this offering. To the extent shares are released before the expiration of the lock-up period and sold into the market, the market price of our ADSs could decline.

         Our post-offering memorandum and articles of association contain anti-takeover provisions that could have a material adverse effect on the rights of holders of our ordinary shares and the ADSs.

        We have conditionally adopted an amended and restated memorandum and articles of association that will become effective immediately prior to the completion of this offering. Our post-offering memorandum and articles of association contain provisions to limit the ability of others to acquire control of our company or cause us to engage in change-of-control transactions. These provisions could have the effect of depriving our shareholders of an opportunity to sell their shares at a premium over prevailing market prices by discouraging third parties from seeking to obtain control of our company in

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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, including ordinary shares represented by ADSs. Preferred shares could be issued quickly with terms calculated to delay or prevent a change in control of our company or make removal of management more difficult. If our board of directors decides to issue preferred shares, the price of the ADSs may fall and the voting and other rights of the holders of our ordinary shares and the ADSs may be materially and adversely affected.

         Our post-offering memorandum and articles of association and our agreement with the depositary bank ("deposit agreement") provide that the United States District Court for the Southern District of New York (or, if the United States District Court for the Southern District of New York lacks subject matter jurisdiction over a particular dispute, the state courts in New York County, New York) is the exclusive forum within the U.S. for the resolution of any complaint asserting a cause of action arising out of or relating in any way to the federal securities laws of the United States, and any suit, action or proceeding arising out of or relating in any way to the deposit agreement, which could limit the ability of holders of our ordinary shares, ADSs or other securities to obtain a favorable judicial forum for disputes with us, our directors and officers, the depositary bank, and potentially others.

        Our post-offering memorandum and articles of association provide that the United States District Court for the Southern District of New York (or, if the United States District Court for the Southern District of New York lacks subject matter jurisdiction over a particular dispute, the state courts in New York County, New York) is the exclusive forum within the United States for the resolution of any complaint asserting a cause of action arising out of or relating in any way to the federal securities laws of the United States, regardless of whether such legal suit, action, or proceeding also involves parties other than our company. Our deposit agreement provides that the United States District Court for the Southern District of New York (or, if the United States District Court for the Southern District of New York lacks subject matter jurisdiction over a particular dispute, the state courts in New York County, New York) shall have exclusive jurisdiction over any suit, action or proceeding against or involving us or the depositary, arising out of or relating in any way to the deposit agreement or the transactions contemplated thereby or by virtue of owning the ADSs or ADRs. The enforceability of similar federal court choice of forum provisions in other companies' organizational documents has been challenged in legal proceedings in the United States, and it is possible that a court could find this type of provision to be inapplicable or unenforceable. If a court were to find the federal choice of forum provision contained in our post-offering memorandum and articles of association to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions. If upheld, the forum selection clause in our post-offering memorandum and articles of association, as well as the forum selection provision in the deposit agreement, may limit a security-holder's ability to bring a claim against us, our directors and officers, the depositary bank, and potentially others in his or her preferred judicial forum, and this limitation may discourage such lawsuits. Holders of our shares or ADSs will not be deemed to have waived our compliance with the federal securities laws and the regulations promulgated thereunder pursuant to the exclusive forum provision in the post-offering memorandum and articles of association and deposit agreement.

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

        Holders of ADSs do not have the same rights as our registered shareholders. As a holder of 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 attached to the underlying

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Class ordinary shares represented by your ADSs indirectly by giving voting instructions to the depositary in accordance with the provisions of the deposit agreement. Where any matter is to be put to a vote at a general meeting, then upon receipt of your voting instructions, the depositary will try, as far as is practicable, to vote the underlying Class A ordinary shares represented by your ADSs in accordance with your instructions. You will not be able to directly exercise your right to vote with respect to the underlying Class A ordinary shares unless you cancel and withdraw such Class A ordinary shares and become the registered holder of such Class A ordinary shares prior to the record date for the general meeting.

        When a general meeting is convened, you may not receive sufficient advance notice of the meeting to withdraw the underlying Class A ordinary shares represented by your ADSs and become the registered holder of such Class A ordinary 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 post-offering memorandum and articles of association that will become effective immediately prior to completion of this offering, 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 underlying Class A ordinary shares represented by your ADSs and from becoming the registered holder of such Class A ordinary shares prior to the record date, so that you would not be able to attend the general meeting or to vote directly. Where any matter is to be put to a vote at a general meeting, upon our instruction the depositary will notify you of the upcoming vote and will arrange to deliver our voting materials to you. We cannot assure you that you will receive the voting materials in time to ensure that you can instruct the depositary to vote the 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. This means that you may not be able to exercise your right to direct how the underlying Class A ordinary shares represented by your ADSs are voted and you may have no legal remedy if the underlying Class A ordinary shares represented by your ADSs are not voted as you requested. In addition, in your capacity as an ADS holder, you will not be able to call a shareholders' meeting.

        Further, under the deposit agreement for the ADSs, if you do not vote, the depositary will give us a discretionary proxy to vote the ordinary shares underlying your ADSs at shareholders' meetings unless:

    we have instructed the depositary that we do not wish a discretionary proxy to be given;

    we have informed the depositary that there is substantial opposition as to a matter to be voted on at the meeting;

    a matter to be voted on at the meeting would have a material adverse impact on shareholders; or

    the voting at the meeting is to be made on a show of hands.

        The effect of this discretionary proxy is that you cannot prevent our underlying Class A ordinary shares represented by your ADSs from being voted, except under the circumstances described above. This may adversely affect your interests and make it more difficult for ADS holders to influence the management of our company. Holders of our ordinary shares are not subject to this discretionary proxy.

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

        Your ADSs are transferable on the books of the depositary. However, the depositary may close its books at any time or from time to time when it deems expedient in connection with the performance of its duties. The depositary may close its books from time to time for a number of reasons, including in connection with corporate events such as a rights offering, during which time the depositary needs to maintain an exact number of ADS holders on its books for a specified period. The depositary may also close its books in emergencies, and on weekends and public holidays. The depositary may refuse to deliver, transfer or register transfers of the 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.

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

        We may, from time to time, distribute rights to our shareholders, including rights to acquire securities. Under the 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 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 of association, the Companies Law (2020 Revision) 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 precedents 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 the standing to initiate a shareholder derivative action in a federal court of the United States.

        Shareholders of Cayman Islands exempted companies like us have no general rights under Cayman Islands law to inspect corporate records or to obtain copies of lists of shareholders of these companies. Our directors have discretion under our post-offering articles of association that will become effective immediately prior to completion of this offering to determine whether or not, and under what conditions, our corporate records may be inspected by our shareholders, but are not obliged to make them available to our shareholders. This may make it more difficult for you to obtain the information needed to establish any facts necessary for a shareholder motion or to solicit proxies from other shareholders in connection with a proxy contest.

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        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 our board of directors or controlling shareholder than they would as public shareholders of a company incorporated in the United States. For a discussion of significant differences between the provisions of the Companies Law of the Cayman Islands and the laws applicable to companies incorporated in the United States and their shareholders, see "Description of Share Capital—Our Post-Offering Memorandum and Articles of Association—Differences in Corporate Law."

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

        We are a Cayman Islands exempted company and substantially all of our assets are located outside of the United States. Substantially all of our current operations are conducted in China. In addition, many of our current directors and officers are nationals and residents of countries other than the United States. As a result, it may be difficult or impossible for you to bring an action against us or against these individuals in the United States in the event that you believe that your rights have been infringed under the 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. For more information regarding the relevant laws of the Cayman Islands and China, see "Enforceability of Civil Liabilities."

         Your rights to pursue claims against the depositary as a holder of ADSs are limited by the terms of the deposit agreement.

        Under the deposit agreement, any legal suit, action or proceeding against or involving us or the depositary, arising out of or relating in any way to the deposit agreement or the transactions contemplated thereby or by virtue of owning the ADSs may only be instituted in the United States District Court for the Southern District of New York (or, if the United States District Court for the Southern District of New York lacks subject matter jurisdiction over a particular dispute, in the state courts in New York County, New York), and you, as a holder of our ADSs, will have irrevocably waived any objection which you may have to the laying of venue of any such proceeding, and irrevocably submitted to the exclusive jurisdiction of such courts in any such action or proceeding.

        The depositary may, in its sole discretion, require that any dispute or difference arising from the relationship created by the deposit agreement be referred to and finally settled by an arbitration conducted under the terms described in the deposit agreement, although the arbitration provisions do not preclude you from pursuing claims under the Securities Act or the Exchange Act in the United States District Court for the Southern District of New York (or if the United States District Court for the Southern District of New York lacks subject matter jurisdiction). See "Description of American Depositary Shares" for more information.

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

        The deposit agreement governing the ADSs representing our ordinary shares provides that, subject to the depositary's right to require a claim to be submitted to arbitration, the United States District Court for the Southern District of New York (or, if the United States District Court for the Southern District of New York lacks subject matter jurisdiction over a particular dispute, in the state courts in New York County, New York) shall have exclusive jurisdiction to hear and determine claims arising out of or relating in any way to the deposit agreement (including claims arising under the Exchange Act or the Securities Act) 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 shares, the ADSs or the deposit agreement, including any claim under the U.S. federal securities laws.

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        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 state and federal law. To our knowledge, the enforceability of a contractual pre-dispute jury trial waiver in connection with claims arising under the federal securities laws has not been finally adjudicated by the United States Supreme Court. However, we believe that a contractual pre-dispute jury trial waiver provision is generally enforceable, including under the laws of the State of New York, which govern the deposit agreement. In determining whether to enforce a contractual pre-dispute jury trial waiver provision, courts will generally consider whether a party knowingly, intelligently and voluntarily waive 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.

        If you or any other holders or beneficial owners of ADSs bring a claim against us or the depositary in connection with matters arising under the deposit agreement or the ADSs, including claims under federal securities laws, you or such other holder or beneficial owner may not be entitled to a jury trial with respect to such claims, which may have the effect of limiting and discouraging lawsuits against us or the depositary. If a lawsuit is brought against us or the depositary under the deposit agreement, it may be heard only by a judge or justice of the applicable trial court, which would be conducted according to different civil procedures and may result in different outcomes than a trial by jury would have 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 provision of the Securities Act and the Exchange Act.

         As an exempted company incorporated in the Cayman Islands, we are permitted to adopt certain home country practices in relation to corporate governance matters that differ significantly from the NYSE listing standards.

        As a Cayman Islands exempted company listed on the NYSE, we are subject to the NYSE listing standards, which requires listed companies to have, among other things, a majority of their board members to be independent and independent director oversight of executive compensation and nomination of directors. 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 listing standards.

        We are permitted to elect to rely on home country practice to be exempted from the corporate governance requirements. If we choose to follow home country practice in the future, our shareholders may be afforded less protection than they would otherwise enjoy if we complied fully with the NYSE listing standards.

         We are a foreign private issuer within the meaning of the rules under the Exchange Act, and as such we are exempt from certain provisions applicable to U.S. domestic public companies.

        Because we qualify as a foreign private issuer under the Exchange Act, we are exempt from certain provisions of the securities rules and regulations in the United States that are applicable to U.S. domestic issuers, including:

    the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q or current reports on Form 8-K;

    the sections of the Exchange Act regulating the solicitation of proxies, consents, or authorizations in respect of a security registered under the Exchange Act;

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    the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and liability for insiders who profit from trades made in a short period of time; and

    the selective disclosure rules by issuers of material nonpublic information under Regulation FD.

        We will be required to file an annual report on Form 20-F within four months of the end of each fiscal year. In addition, we intend to publish our results on a quarterly basis as press releases, distributed pursuant to the rules and regulations of the NYSE. Press releases relating to financial results and material events will also be furnished to the SEC on Form 6-K. However, the information we are required to file with or furnish to the SEC will be less extensive and less timely compared to that required to be filed with the SEC by U.S. domestic issuers. As a result, you may not be afforded the same protections or information that would be made available to you were you investing in a U.S. domestic issuer.

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

        As a company with less than US$1.07 billion in revenues for our last fiscal year, we qualify as an "emerging growth company" pursuant to the JOBS Act. Therefore, we 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 and permission to delay adopting new or revised accounting standards until such time as those standards apply to private companies. As a result, if we elect not to comply with such reporting and other requirements, in particular the auditor attestation requirements, our investors may not have access to certain information they may deem important.

        The JOBS Act also provides that an emerging growth company does not need to comply with any new or revised financial accounting standards until such date that a private company is otherwise required to comply with such new or revised accounting standards. We have elected to take advantage of the extended transition period for complying with new or revised accounting standards until those standards would otherwise apply to private companies. As a result, our operating results and financial statements may not be comparable to the operating results and financial statements of other companies who have adopted the new or revised accounting standards. If we cease to be an emerging growth company, we will no longer be able to take advantage of these exemptions or the extended transition period for complying with new or revised accounting standards.

        We cannot predict if investors will find our ADSs less attractive or our company less comparable to certain other public companies because we will rely on these exemptions and election. If some investors find our ADSs less attractive as a result, there may be a less active trading market for our ADSs and our ADS price may be more volatile.

         There can be no assurance that we will not be a passive foreign investment company, or PFIC, for United States federal income tax purposes for any taxable year, which could subject United States investors in our ADSs or Class A ordinary shares to significant adverse United States income tax consequences.

        We will be classified as a passive foreign investment company, or PFIC, for United States federal income tax purposes for any taxable year if either (a) 75% or more of our gross income for such year consists of certain types of "passive" income or (b) 50% or more of the value of our assets (generally determined on the basis of a quarterly average) during such year produce or are held for the production of passive income (the "asset test"). Although the law in this regard is unclear, we intend to treat our VIE (including its subsidiaries) as being owned by us for United States federal income tax purposes, not only because we exercise effective control over the operation of such entities but also

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because we are entitled to substantially all of their economic benefits, and, as a result, we consolidate their results of operations in our consolidated financial statements. Assuming that we are the owner of our VIE (including its subsidiaries) for United States federal income tax purposes, and based upon our current and expected income and assets, including goodwill and other unbooked intangibles not reflected on our balance sheet (taking into account the expected proceeds from this offering) and projections as to the market price of our ADSs immediately following the offering, we do not expect to be a PFIC for the current taxable year or the foreseeable future.

        While we do not expect to become a PFIC, because the value of our assets for purposes of the asset test may be determined by reference to the market price of our ADSs, fluctuations in the market price of our ADSs may cause us to become a PFIC for the current or subsequent taxable years. The determination of whether we will be or become a PFIC will also depend, in part, on the composition of our income and assets. In addition, the composition of our income and assets will also be affected by how, and how quickly, we use our liquid assets and the cash raised in this offering. If we determine not to deploy significant amounts of cash for active purposes or if it were determined that we do not own the stock of our VIE for United States federal income tax purposes, our risk of being a PFIC may substantially increase. Because PFIC status is a factual determination made annually after the close of each taxable year, there can be no assurance that we will not be a PFIC for the current taxable year or any future taxable year.

        If we are a PFIC in any taxable year, a U.S. Holder (as defined in "Taxation—United States Federal Income Tax Considerations") 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 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 "Taxation—United States Federal Income Tax Considerations—Passive Foreign Investment Company Considerations" and "Taxation—United States Federal Income Tax Considerations—Passive Foreign Investment Company Rules."

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

        This prospectus contains forward-looking statements that reflect our current expectations and views of future events. The forward looking statements are contained principally in the sections entitled "Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business." Known and unknown risks, uncertainties and other factors, including those listed under "Risk Factors," may cause our actual results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements.

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

    our mission, goals and strategies;

    our future business development, financial condition and results of operations;

    the expected growth of the childhood education industry in China;

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

    our expectations regarding maintaining and strengthening our relationships with users, customers, business partners and other stakeholders;

    competition in our industry;

    our proposed use of proceeds; and

    relevant government policies and regulations relating to our industry.

        These forward-looking statements involve various risks and uncertainties. Although we believe that our expectations expressed in these forward-looking statements are reasonable, our expectations may later be found to be incorrect. Our actual results could be materially different from our expectations. Important risks and factors that could cause our actual results to be materially different from our expectations are generally set forth in "Prospectus Summary—Our Challenges," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Business," "Regulation" and other sections in this prospectus. You should read thoroughly this prospectus and the documents that we refer to with the understanding that our actual future results may be materially different from and worse than what we expect. We qualify all of our forward-looking statements by these cautionary statements.

        This prospectus contains certain data and information that we obtained from various government and private publications. Statistical data in these publications also include projections based on a number of assumptions. Our industry may not grow at the rate projected by market data, or at all. Failure of this market to grow at the projected rate may have a material and adverse effect on our business and the market price of the ADSs. In addition, the rapidly evolving nature of this industry results in significant uncertainties for any projections or estimates relating to the growth prospects or future condition of our market. Furthermore, if any one or more of the assumptions underlying the market data are later found to be incorrect, actual results may differ from the projections based on these assumptions. You should not place undue reliance on these forward-looking statements.

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        The forward-looking statements made in this prospectus relate only to events or information as of the date on which the statements are made in this prospectus. 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. You should read this prospectus and the documents that we refer to in this prospectus and have filed as exhibits to the registration statement, of which this prospectus is a part, completely and with the understanding that our actual future results may be materially different from what we expect.

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USE OF PROCEEDS

        We estimate that we will receive net proceeds from this offering of approximately US$74.7 million, or approximately US$86.5 million if the underwriters exercise their option to purchase additional ADSs, after deducting underwriting discounts and commissions and the estimated offering expenses payable by us. These estimates are based upon an assumed initial public offering price of US$12.00 per ADS, which is the midpoint of the price range shown on the front page of this prospectus. A US$1.00 increase (decrease) in the assumed initial public offering price of US$12.00 per ADS would increase (decrease) the net proceeds to us from this offering by approximately US$6.5 million, assuming the number of ADSs offered by us, as set forth on the front cover of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated expenses payable by us, assuming the underwriters do not exercise their option to purchase additional ADSs.

        The primary purposes of this offering are to create a public market for our shares for the benefit of all shareholders, retain talented employees by providing them with equity incentives, and obtain additional capital. We plan to use the net proceeds of this offering as follows:

    approximately 35% for expanding our product and service offerings, both domestically and overseas;

    approximately 25% for our development of existing products and services;

    approximately 20% for improving our technology infrastructure;

    approximately 10% for marketing and brand promotions; and

    the balance for general corporate purposes, which may include funding working capital needs and potential strategic investments and acquisitions, although we have not identified any specific investments or acquisition opportunities at this time.

        The foregoing represents our current intentions based upon our present plans and business conditions to use and allocate the net proceeds of this offering. Our management, however, will have significant flexibility and discretion to apply the net proceeds of this offering. If an unforeseen event occurs or business conditions change, we may use the proceeds of this offering differently than as described in this prospectus. See "Risk Factors—Risks Related to Our ADSs and This Offering—We have not determined a specific use for a portion of the net proceeds from this offering and we may use these proceeds in ways with which you may not agree."

        Pending any use described above, we plan to invest the net proceeds in short-term, interest-bearing, debt instruments or demand deposits.

        In using the proceeds of this offering, we are permitted under PRC laws and regulations as an offshore holding company to provide funding to our PRC subsidiaries only through loans or capital contributions and to our consolidated VIE only through loans, subject to satisfaction of applicable government registration and approval requirements. We cannot assure you that we will be able to obtain these government registrations or approvals on a timely basis, or at all. See "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 this offering to make loans to our PRC subsidiaries and our VIE in China, which could materially and adversely affect our liquidity and our ability to fund and expand our business."

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DIVIDEND POLICY

        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.

        We do not have any present plan to pay any cash dividends on our ordinary shares in the foreseeable future after this offering. We currently intend to retain most, if not all, of our available funds and any future earnings to operate and expand our business.

        We are a holding company incorporated in the Cayman Islands. We 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 "Regulation—Regulation Related to Dividend Distribution."

        If we pay any dividends on our ordinary shares, we will pay those dividends which are payable in respect of the underlying Class A ordinary shares represented by the ADSs to the depositary, as the registered holder of such Class A ordinary shares, and the depositary then will pay such amounts to the ADS holders in proportion to the underlying Class A ordinary shares represented by the ADSs held by such ADS holders, subject to the terms of the deposit agreement, including the fees and expenses payable thereunder. See "Description of American Depositary Shares." Cash dividends on our ordinary shares, if any, will be paid in U.S. dollars.

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CAPITALIZATION

        The following table sets forth our capitalization as of June 30, 2020:

    on an actual basis;

    on a pro forma basis to reflect (i) the automatic re-designation of 144,000,000 ordinary shares held by Academy Management Ltd. into Class B ordinary shares on a one-for-one basis immediately prior to the completion of this offering, (ii) the automatic re-designation of all of the remaining 71,053,763 ordinary shares into Class A ordinary shares on a one-for-one basis immediately prior to the completion of this offering; and (iii) the automatic re-designation of all of the 11,318,619 contingently redeemable ordinary shares into Class A ordinary shares on a one-for-one basis immediately prior to the completion of this offering; and

    on a pro forma as adjusted basis to reflect (i) the automatic re-designation of 144,000,000 ordinary shares held by Academy Management Ltd. into Class B ordinary shares on a one-for-one basis immediately prior to the completion of this offering, (ii) the automatic re-designation of all of the remaining 71,053,763 ordinary shares into Class A ordinary shares on a one-for-one basis immediately prior to the completion of this offering; (iii) the automatic re-designation of all of the 11,318,619 contingently redeemable ordinary shares into Class A ordinary shares on a one-for-one basis immediately prior to the completion of this offering; and (iv) the issuance and sale of 35,000,000 Class A ordinary shares in the form of ADSs by us in this offering at an assumed initial public offering price of US$12.00 per ADS, being the midpoint of the estimated range of the initial public offering price shown on the front cover of this prospectus, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us, assuming the underwriters do not exercise their option to purchase additional ADSs.

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        You should read this table together with our consolidated financial statements and the related notes included elsewhere in this prospectus and the information under "Management's Discussion and Analysis of Financial Condition and Results of Operations."

 
  As of June 30, 2020  
 
  Actual   Pro Forma   Pro Forma As
Adjusted(1)
 
 
  RMB   US$   RMB   US$   RMB   US$  
 
  (in thousands)
 

Mezzanine equity:

                                     

Contingently redeemable ordinary shares

    167,237     23,671                  

Shareholders' deficit:

                                     

Ordinary shares (US$0.0001 par value; 500,000,000 shares authorized, 215,053,763 shares issued and outstanding on an actual basis)

    149     21                  

Class A ordinary shares (US$0.0001 par value; none outstanding on an actual basis, 82,372,382 issued and outstanding on a pro forma basis, and 117,372,382 issued and outstanding on a pro forma as adjusted basis)

            58     8     83     12  

Class B ordinary shares (US$0.0001 par value; none outstanding on an actual basis, 144,000,000 issued and outstanding on a pro forma basis, and 144,000,000 issued and outstanding on a pro forma as adjusted basis)

            102     14     102     14  

Additional paid-in capital

    206,630     29,247     373,856     52,917     901,834     127,646  

Accumulated other comprehensive loss

    (250 )   (35 )   (250 )   (35 )   (250 )   (35 )

Accumulated deficit

    (342,857 )   (48,528 )   (342,857 )   (48,528 )   (342,857 )   (48,528 )

Total shareholders' (deficit) equity

    (136,328 )   (19,295 )   30,909     4,376     558,912     79,109  

Total capitalization(2)

    30,909     4,376     30,909     4,376     558,912     79,109  

Notes:

(1)
The pro forma as adjusted information discussed above is illustrative only. Our additional paid-in capital, accumulative deficit, accumulative other comprehensive loss, total shareholder's (deficit) equity and total capitalization following the completion of this offering are subject to adjustment based on the actual initial public offering price and other terms of this offering determined at pricing.

(2)
A US$1.00 increase (decrease) in the assumed initial public offering price of US$12.00 per ADS, which is the midpoint of the estimated range of the initial public offering price shown on the cover page of this prospectus, would increase (decrease) each of additional paid-in capital, total shareholders' deficit, and total capitalization by US$6.5 million.

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DILUTION

        If you invest in the ADSs, your interest will be diluted to the extent of the difference between the initial public offering price per ADS and our net tangible book value per ADS after this offering. Dilution results from the fact that the initial public offering price per ordinary share is substantially in excess of the book value per ordinary share attributable to the existing shareholders for our presently outstanding ordinary shares.

        Our net tangible book value as of June 30, 2020 was approximately US$(2.6) million, or US$(0.01) per ordinary share as of that date and US$(0.05) per ADS. Net tangible book value represents the amount of our total consolidated assets excluding our deferred channel costs and IPO costs and other intangible assets, less the amount of our total consolidated liabilities. Dilution is determined by subtracting net tangible book value per ordinary share, after giving effect to the additional proceeds we will receive from this offering, from the assumed initial public offering price of US$2.40 per Class A ordinary share, which is the midpoint of the estimated initial public offering price range set forth on the front cover of this prospectus adjusted to reflect the ADS-to-ordinary share ratio, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. Because the Class A ordinary shares and Class B ordinary shares have the same dividend and other rights, except for voting and conversion rights, the dilution is presented based on all issued and outstanding ordinary shares, including Class A ordinary shares and Class B ordinary shares.

        Without taking into account any other changes in pro forma net tangible book value after June 30, 2020, other than to give effect to our sale of the ADSs offered in this offering at the assumed initial public offering price of US$12.00 per ADS, which is the midpoint of the estimated initial public offering price range, after deduction of the underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of June 30, 2020 would have been US$72.1 million, or US$0.28 per ordinary share and US$1.40 per ADS. This represents an immediate increase in net tangible book value of US$0.29 per ordinary share and US$1.45 per ADS to the existing shareholders and an immediate dilution in net tangible book value of US$2.12 per ordinary share and US$10.60 per ADS to investors purchasing ADSs in this offering. The following table illustrates such dilution:

 
  Per Ordinary
Share
  Per ADS  

Assumed initial public offering price

  US$ 2.40   US$ 12.00  

Net tangible book value as of June 30, 2020

  US$ (0.01 ) US$ (0.05 )

Pro forma net tangible value after giving effect of the automatic re-designation of our contingently redeemable ordinary shares

  US$ (0.01 ) US$ (0.05 )

Pro forma as adjusted net tangible book value after giving effect to the automatic re-designation of our contingently redeemable ordinary shares and this offering

  US$ 0.28   US$ 1.40  

Amount of dilution in net tangible book value to new investors in this offering

  US$ 2.12   US$ 10.60  

        A US$1.00 increase (decrease) in the assumed initial public offering price of US$12.00 per ADS would increase (decrease) our pro forma as adjusted net tangible book value after giving effect to this offering by US$6.5 million, the pro forma as adjusted net tangible book value per ordinary share and per ADS after giving effect to this offering by US$0.02 per ordinary share and US$0.10 per ADS, and the dilution in pro forma as adjusted net tangible book value per ordinary share and per ADS to new investors in this offering by US$0.18 per ordinary share and US$0.90 per ADS, assuming no change to the number of ADSs offered by us as set forth on the front cover of this prospectus, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

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        The following table summarizes, on a pro forma as adjusted basis as of June 30, 2020, the differences between existing shareholders and the new investors with respect to the number of ordinary shares (in the form of ADSs or shares) purchased from us, the total consideration paid and the average price per ordinary share and per ADS paid before deducting the underwriting discounts and commissions and estimated offering expenses payable by us. The total number of ordinary shares does not include ordinary shares underlying the ADSs issuable upon the exercise of the option to purchase additional ADSs granted to the underwriters.

 
  Ordinary Shares
Purchased
  Total Consideration    
   
 
 
  Average
Price Per
Ordinary
Share
   
 
 
  Amount
(in thousands)
   
  Average
Price Per
ADS
 
 
  Number   Percent   Percent  

Existing shareholders

    226,372,382     86.6 % US$ 52,939     38.7 % US$ 0.23   US$ 1.15  

New investors

    35,000,000     13.4 % US$ 84,000     61.3 % US$ 2.40   US$ 12.00  

Total

    261,372,382     100.0 % US$ 136,939     100.0 %            

        The pro forma as adjusted information discussed above is illustrative only. Our net tangible book value following the completion of this offering is subject to adjustment based on the actual initial public offering price of the ADSs and other terms of this offering determined at pricing.

        The discussion and tables above assume no exercise of options outstanding as of the date of this prospectus. As of the date of this prospectus, there are 14,443,864 outstanding options with an average exercise price of US$0.90 per share. To the extent that any of these options are exercised, there will be further dilution to new investors.

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ENFORCEABILITY OF CIVIL LIABILITIES

        We are incorporated under the laws of the Cayman Islands as an exempted company with limited liability. We are incorporated in the Cayman Islands to take advantage of certain benefits associated with being a Cayman Islands exempted company, such as:

    political and economic stability;

    an effective judicial system;

    a favorable tax system;

    the absence of exchange control or currency restrictions; and

    the availability of professional and support services.

        However, certain disadvantages accompany incorporation in the Cayman Islands. These disadvantages include but are not limited to:

    the Cayman Islands has a less developed body of securities laws as compared to the United States and these securities laws provide significantly less protection to investors as compared to the United States; and

    Cayman Islands companies may not have standing to sue before the federal courts of the United States.

        Our post-offering memorandum and articles of association do not contain provisions requiring that disputes, including those arising under the securities laws of the United States, between us, our officers, directors and shareholders, be arbitrated.

        Most of our operations are conducted in China, and substantially all of our assets are located in China. All 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 Cogency Global Inc., as our agent upon whom process may be served in any action brought against us under the securities laws of the United States.

        We have been informed by Maples and Calder (Hong Kong) LLP, our counsel as to Cayman Islands law, 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 that are 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 that are predicated upon the securities laws of the United States or any state in the United States. We have also been advised by Maples and Calder (Hong Kong) LLP that although there is no statutory enforcement in the Cayman Islands of judgments obtained in a U.S. court (and the Cayman Islands are not a party to any treaties for the reciprocal enforcement or recognition of such judgments), the courts of the Cayman Islands will, at common law, recognize and enforce a foreign money judgment of a foreign court of competent jurisdiction without any re-examination of the merits of the underlying dispute based on the principle that a judgment of a competent foreign court imposes upon the judgment debtor an obligation to pay the liquidated sum for which such judgment has been given, provided such judgment, 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

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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 judgement is determined by the courts of the Cayman Islands to give rise to obligations to make payments that are penal or punitive in nature. A Cayman Islands court may stay enforcement proceedings if concurrent proceedings are being brought elsewhere.

        Tian Yuan Law Firm, our counsel as to PRC law, 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.

        Tian Yuan Law Firm 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 and other applicable laws and regulations 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 ordinary shares, to establish a connection to the PRC for a PRC court to have jurisdiction as required under the PRC Civil Procedures Law.

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CORPORATE HISTORY AND STRUCTURE

Corporate History

        We commenced operations through Tianjin Hongen Perfect Future Education Technology Co., Ltd., or Tianjin Hongen, in March 2016. We established certain wholly-owned subsidiaries of Tianjin Hongen to conduct our business, including Beijing Hongen Perfect Future Education Technology Co., Ltd. in July 2016 and Tianjin Hongen Perfect Technology Development Co., Ltd. in August 2019.

        Hongen Education & Technology Co., Ltd., or Hongen Education, an affiliate of ours, historically operated the business of learning materials and smart learning devices as well as the business of kindergartens and after-school learning centers. In November and December 2019, through a business combination under common control, we consolidated the business related to learning materials and smart learning devices of Hongen Education into Beijing Jinhongen Education Technology Co., Ltd, a wholly-owned subsidiary of Tianjin Hongen. Hongen Education continues to be our affiliate and operate kindergartens and after-school learning centers.

        Our holding company, iHuman Inc., was incorporated in September 2019. In October 2019, iHuman Inc. established a wholly-owned subsidiary in Hong Kong, iHuman Online Limited. In November 2019, iHuman Online Limited established a wholly-owned subsidiary in China, Hongen Perfect Future (Tianjin) Investment Co., Ltd., or Hongen Investment. In May 2020, Hongen Investment established a wholly-owned subsidiary in China, Hongen Perfect (Beijing) Education Technology Development Co., Ltd., or Hongen Edutech. In June 2020, we gained control over Tianjin Hongen through Hongen Investment by entering into a series of contractual arrangements with Tianjin Hongen and its shareholders.

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Corporate Structure

        The following diagram illustrates our corporate structure, including our subsidiaries, our VIE and its subsidiaries, as of the date of this prospectus:

GRAPHIC


Note:

(1)
Shareholders of Tianjin Hongen and their respective shareholdings in the VIE and relationship with our company are (i) Mr. Hanfeng Chi (63.61%), our director; (ii) Sanming Juyichang Enterprise Management Service Partnership (Limited Partnership) (17.67%), a limited partnership incorporated in the PRC beneficially and wholly owned by our employees and consultant; (iii) Mr. Tian Liang (7.07%), our shareholder; (iv) Sanming Jushengyi Enterprise Management Service Partnership (Limited Partnership) (6.65%), a limited partnership incorporated in the PRC beneficially and wholly owned by our employees; and (v) Sanming Kangqian Information Technology Service Co., Ltd. (5%), a company incorporated in the PRC beneficially and wholly owned by Mr. Hanfeng Chi, our director.

Contractual Arrangements with Our VIE and Its Shareholders

        Current PRC laws and regulations impose certain restrictions or prohibitions on foreign ownership of companies that engage in value-added telecommunication services and certain other businesses. We are an exempted company incorporated in the Cayman Islands. Hongen Investment and Hongen Edutech are our PRC subsidiaries and Hongen Investment is a foreign-invested enterprise under PRC

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Laws and Hongen Edutech is a subsidiary of Hongen Investment. To comply with PRC laws and regulations, we conduct certain of our business in China through Tianjin Hongen, our consolidated variable interest entity in the PRC which we refer to as our VIE in this prospectus, based on a series of contractual arrangements by and among Hongen Investment, our VIE and its shareholders.

        Our contractual arrangements with our VIE and its shareholders allow us to (i) exercise effective control over our VIE, (ii) receive substantially all of the economic benefits of our VIE, and (iii) have an exclusive call option to purchase all or part of the equity interests in our VIE when and to the extent permitted by PRC law.

        As a result of our direct ownership in Hongen Investment and the contractual arrangements with our VIE, we are regarded as the primary beneficiary of our VIE, and we treat our VIE and its subsidiaries as our consolidated affiliated entities under U.S. GAAP. We have consolidated the financial results of our VIE and its subsidiaries in our consolidated financial statements in accordance with U.S. GAAP.

        The following is a summary of the currently effective contractual arrangements by and among Hongen Investment, our VIE and its shareholders.

    Agreements that provide us with effective control over our VIE

        Powers of Attorney.    Pursuant to the powers of attorney executed by our VIE's shareholders, each of them irrevocably authorized Hongen Investment or its designee(s) to act on their respective behalf as proxy attorney, to the extent permitted by law, to exercise all rights of shareholders concerning all the equity interest held by each of them in our VIE, including but not limited to proposing to convene or attend shareholder meetings, signing resolutions and minutes of such meetings, exercising all the rights as shareholders in such meeting (including but not limited to voting rights, nomination rights and appointment rights), the right to receive dividends and the right to sell, transfer, pledge or dispose of all the equity held in part or in whole, and exercising all other rights as shareholders. The powers of attorney will remain effective during the period that the Exclusive Management Services and Business Cooperation Agreement remains effective.

        Equity Interest Pledge Agreement.    Under the equity interest pledge agreement among Hongen Investment, our VIE and its shareholders, our VIE's shareholders pledged all of their equity interests of our VIE to Hongen Investment as security for performance of the obligations of our VIE and its shareholders under the exclusive call option agreement, the exclusive management services and business cooperation agreement and the powers of attorney. During the term of the equity interest pledge agreement, Hongen Investment has the right to receive all of our VIE's dividends and profits distributed on the pledged equity. If any of the specified events of default occurs, Hongen Investment, as pledgee, will have the right to purchase, auction or sell all or part of the pledged equity interests in our VIE and will have priority in receiving the proceeds from such disposal. Hongen Investment may transfer all or any of its rights and obligations under the equity interest pledge agreement to its designee(s) at any time. Our VIE and its shareholders undertake that, without the prior written consent of Hongen Investment, they will not transfer, or create or allow any encumbrance on the pledged equity interests. The agreement will remain in effect until the fulfillment of all the obligations under the exclusive call option agreement, the exclusive management services and business cooperation agreement and the powers of attorney.

        We have registered the equity interest pledge under the equity interest pledge agreement in relation to our VIE with the relevant office of the State Administration for Market Regulation in accordance with the PRC Property Rights Law.

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    Agreements that allow us to receive economic benefits from our VIE

        Exclusive Management Services and Business Cooperation Agreement.    Pursuant to the exclusive management services and business cooperation agreement among Hongen Investment, our VIE and the shareholders of our VIE, Hongen Investment has the exclusive right to provide or designate any third-party to provide, among other things, education management consultancy services, permission of intellectual property rights, technological support and business support to our VIE and its subsidiaries. In exchange, our VIE and its subsidiaries pay service fees to Hongen Investment in an amount determined by Hongen Investment in its sole discretion and can be adjusted by Hongen Investment unilaterally. Without the prior written consent of Hongen Investment, our VIE and its subsidiaries cannot accept services provided by, or establish similar cooperation relationship with, any third-party. Hongen Investment has the exclusive ownership of all intellectual property rights created as a result of the performance of this agreement unless otherwise provided by PRC laws or regulations, which remain effective whether or not the agreement is amended or terminated. The exclusive management services and business cooperation agreement is effective within the operating period of our VIE. Hongen Investment may terminate the agreement unilaterally, whereas under no circumstances can our VIE or its shareholders terminate the agreement.

    Agreements that provide us with the option to purchase the equity interests in our VIE

        Exclusive Call Option Agreement.    Under the exclusive call option agreement among Hongen Investment, our VIE and its shareholders, each of the shareholders of our VIE has irrevocably granted Hongen Investment an exclusive call option to purchase, or designate a third-party to purchase, all or any part of their equity interests in our VIE at a purchase price equal to the lowest price permissible by the then-applicable PRC laws and regulations at Hongen Investment's sole and absolute discretion to the extent permitted by PRC law. The shareholders of our VIE shall promptly give all considerations they received from the exercise of the options to Hongen Investment or its designee(s). Our VIE and its shareholders covenant that, without Hongen Investment's prior written consent, they will not, among other things, (i) create any pledge or encumbrance on their equity interests in our VIE; (ii) transfer or otherwise dispose of their equity interests in our VIE; (iii) amend our VIE's articles of association or change our VIE's registered capital; (iv) cause our VIE to enter into any material contract to which our VIE is a party, except in the ordinary course of business and except for contracts entered into with us, or change the scope of business of our VIE; (v) terminate any material contract to which our VIE is a party or enter into any agreements with the value of the assets involved exceeding 10% of our VIE's total assets as audited in the preceding year; (vi) allow our VIE to incur, inherit, guarantee or permit any debts, except for those payables incurred in the ordinary or usual course of business but not incurred by way of borrowing; (vii) merge or consolidate our VIE with any other entity or acquire or invest in any other entity; (viii) distribute any dividend; (ix) sell, transfer, mortgage or otherwise dispose of any of our VIE's assets or allow any encumbrance of any assets, except for the disposal or the encumbrances of the assets that are treated as necessary for their daily business operations with the value of the assets involved in a single transaction not exceeding 10% of our VIE's total assets as audited in the preceding year; or (x) terminate, liquidate or dissolve our VIE. The agreement will remain effective until terminated by Hongen Investment at its discretion, with a 30-day written notice, or the entire equity interests in our VIE have been transferred to Hongen Investment or its designee(s) pursuant to the agreement.

        Spousal Consent Letters.    Pursuant to the spousal consent letters executed by the spouses of certain shareholders of our VIE, the signing spouses unconditionally and irrevocably agreed that the equity interest in our VIE held by and registered in the name of their spouses be disposed of in accordance with the exclusive call option agreement, the exclusive management services and business cooperation agreement, the equity interest pledge agreement and the powers of attorney described above, and that their spouses may perform, amend or terminate such agreements without their additional consent.

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Additionally, the signing spouses agreed not to assert any rights over the equity interest in our VIE held by their spouses. In addition, in the event that the signing spouses obtains any equity interest in our VIE held by their spouses for any reason, they agree to be bound by and sign any legal documents substantially similar to the contractual arrangements described above, as may be amended from time to time.

        Financial Support Letter.    Pursuant to the financial support letter, we are obligated and thereby undertake to provide unlimited financial support to our VIE, to the extent permissible under the applicable PRC laws and regulations. We agree to forego the right to seek repayment in the event if our VIE is unable to repay such funding.

        In the opinion of Tian Yuan Law Firm, our PRC legal counsel:

    the ownership structures of our VIE and Hongen Investment in China, both currently and immediately after giving effect to this offering, are not in violation of applicable PRC laws and regulations currently in effect; and

    the contractual arrangements between Hongen Investment, our VIE and its shareholders governed by PRC law are valid, binding and enforceable, and will not result in any violation of applicable PRC laws and 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 our VIE 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 "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," "Risk Factors—Risks Related to Our Corporate Structure—Our current corporate structure and business operations may be substantially affected by the newly enacted Foreign Investment Law" and "Risk Factors—Risks Related to Doing Business in China—Uncertainties with respect to the PRC legal system could adversely affect us."

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SELECTED CONSOLIDATED FINANCIAL DATA

        The following selected consolidated statement of operations for the years ended December 31, 2018 and 2019, selected consolidated balance sheet data as of December 31, 2018 and 2019, and selected consolidated cash flow data for the years ended December 31, 2018 and 2019 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The following selected consolidated statements of operations for the six months ended June 30, 2019 and 2020, selected consolidated balance sheet data as of June 30, 2020, and selected consolidated cash flow data for the six months ended June 30, 2019 and 2020 have been derived from our unaudited condensed consolidated financial statements included elsewhere in this prospectus. Our consolidated financial statements are prepared and presented in accordance with U.S. GAAP. Our historical results do not necessarily indicate results expected for any future periods. You should read this Selected Consolidated Financial Data section together with our consolidated financial statements and the related

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notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this prospectus.

 
  For the Year Ended December 31,   For the Six Months ended June 30,  
 
  2018   2019   2019   2020  
 
  RMB   RMB   US$   RMB   RMB   US$  
 
  (in thousands, except for share amounts and per share data)
 

Selected Consolidated Statement of Operations:

                                     

Revenues

                                     

Learning services

    22,010     107,409     15,203     41,285     152,462     21,580  

Learning materials and devices

    109,857     111,247     15,746     50,478     33,014     4,673  

Total Revenues

    131,867     218,656     30,949     91,763     185,476     26,253  

Cost of revenues

    (65,854 )   (84,163 )   (11,913 )   (37,417 )   (60,116 )   (8,509 )

Gross profit

    66,013     134,493     19,036     54,346     125,360     17,744  

Operating expenses

                                     

Research and development expenses(1)

    (52,103 )   (170,155 )   (24,084 )   (113,170 )   (73,674 )   (10,428 )

Sales and marketing expenses(1)

    (21,987 )   (53,716 )   (7,603 )   (37,689 )   (28,383 )   (4,017 )

General and administrative expenses(1)

    (13,986 )   (189,433 )   (26,812 )   (176,819 )   (17,464 )   (2,472 )

Total operating expenses

    (88,076 )   (413,304 )   (58,499 )   (327,678 )   (119,521 )   (16,917 )

Operating income (loss)

    (22,063 )   (278,811 )   (39,463 )   (273,332 )   5,839     827  

Other income, net

    6,069     4,578     648     1,578     1,759     248  

Income (loss) before income taxes

    (15,994 )   (274,233 )   (38,815 )   (271,754 )   7,598     1,075  

Income tax expenses

    (1,610 )   (1,364 )   (193 )   (59 )   (1,957 )   (277 )

Net income (loss)

    (17,604 )   (275,597 )   (39,008 )   (271,813 )   5,641     798  

Accretion to redemption value of contingently redeemable ordinary shares

        (821 )   (116 )       (6,449 )   (913 )

Net loss attributable to iHuman Inc.'s ordinary shareholders

    (17,604 )   (276,418 )   (39,124 )   (271,813 )   (808 )   (115 )

Loss per share

                                     

Basic

    (0.11 )   (1.52 )   (0.22 )   (1.70 )   (0.00 )   (0.00 )

Diluted

    (0.11 )   (1.52 )   (0.22 )   (1.70 )   (0.00 )   (0.00 )

Weighted average shares used in loss per share

                                     

Basic

    160,000,000     181,427,603     181,427,603     160,000,000     215,053,763     215,053,763  

Diluted

    160,000,000     181,427,603     181,427,603     160,000,000     215,053,763     215,053,763  

Note:

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(1)
Share-based compensation expenses were recorded as follows:
 
  For the Year Ended
December 31,
  For the Six Months Ended June 30,  
 
  2018   2019   2019   2020  
 
  RMB   RMB   US$   RMB   RMB   US$  
 
  (in thousands)
 

Share-based compensation expenses:

                                     

Research and development expenses

        76,301     10,800     76,301          

Sales and marketing expenses

        25,892     3,665     25,892          

General and administrative expenses

        168,348     23,828     168,348          

Total

        270,541     38,293     270,541          

        The following table presents our selected consolidated balance sheets data as of December 31, 2018 and 2019 and June 30, 2020:

 
  As of December 31,   As of June 30,  
 
  2018   2019   2020  
 
  RMB   RMB   US$   RMB   US$  
 
  (in thousands)
 

Selected Consolidated Balance Sheet Data:

                               

Cash and cash equivalents

    6,124     104,883     14,845     154,992     21,938  

Accounts receivable, net

    13,624     20,118     2,848     46,283     6,551  

Inventories, net

    29,628     20,665     2,925     17,444     2,469  

Total current assets

    57,325     163,062     23,080     265,457     37,573  

Total assets

    58,599     168,315     23,823     297,067     42,048  

Total current liabilities

    122,334     182,764     25,868     260,633     36,890  

Total liabilities

    122,334     182,764     25,868     266,158     37,672  

Total mezzanine equity

        120,821     17,101     167,237     23,671  

Total shareholders' deficit

    (63,735 )   (135,270 )   (19,146 )   (136,328 )   (19,295 )

        The following table presents our selected consolidated cash flow data for the years ended December 31, 2018 and 2019 and for the six months ended June 30, 2019 and 2020:

 
  For the Year Ended
December 31,
  For the Six months Ended June 30,  
 
  2018   2019   2019   2020  
 
  RMB   RMB   US$   RMB   RMB   US$  
 
  (in thousands)
 

Selected Consolidated Cash Flow Data:

                                     

Net cash (used in) provided by operating activities

    (4,504 )   42,627     6,033     11,366     84,376     11,943  

Net cash used in investing activities

    (529 )   (2,391 )   (338 )   (941 )   (7,984 )   (1,130 )

Net cash provided by (used in) financing activities

    10,314     58,523     8,283     (7,631 )   (26,033 )   (3,685 )

Net increase in cash and cash equivalents

    5,281     98,759     13,978     2,794     50,109     7,093  

Cash and cash equivalents at the beginning of the year

    843     6,124     867     6,124     104,883     14,845  

Cash and cash equivalents at the end of the year

    6,124     104,883     14,845     8,918     154,992     21,938  

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the section entitled "Selected Consolidated Financial Data" and our consolidated financial statements and the related notes included elsewhere in this prospectus. This discussion contains forward-looking statements that involve risks and uncertainties about our business and operations. Our actual results and the timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those we describe under "Risk Factors" and elsewhere in this prospectus. See "Special Note Regarding Forward-Looking Statements."

Overview

        We are a leading childhood edutainment company in China, with core expertise in providing integrated and innovative products and services catering to the education demands for children mainly aged between three and eight, according to the Frost & Sullivan Report. We ranked No. 1 among online childhood edutainment providers in China in terms of paying users and MAUs, respectively, in the first half of 2020, according to the Frost & Sullivan Report. With innovative and high-quality products and services targeting both individual users and education organizations, we have built a trusted and well recognized brand, as well as a massive and loyal user base among families and educators throughout China. We launched our online operations with the debut of our first interactive and self-directed learning app iHuman Chinese in 2016 and began to monetize this learning app in the second quarter of 2018. In late 2019, through a business combination under common control between our online operations and certain traditionally offline businesses of Hongen Education, we embarked on a new chapter of integrated development. The combination merged the decades-long operational experience and deep insights in China's childhood education sector from Hongen Education with our industry-leading product development and original content creation capabilities.

        Our line-up of highly effective edutainment products and services includes interactive and self-directed online learning apps and learning materials and smart learning devices offered to individual users, education organizations and distributors. We mainly generate revenues from subscription fees that users pay for the premium content of our online learning apps, as well as the sale of learning materials and smart learning devices to individual users, education organizations, and distributors.

        Our total revenues nearly doubled from RMB131.9 million in 2018 to RMB218.7 million (US$30.9 million) in 2019. In particular, learning services revenues increased nearly five-fold from RMB22.0 million in 2018 to RMB107.4 million (US$15.2 million) in 2019. Our total revenues also nearly doubled from RMB91.8 million in the six months ended June 30, 2019 to RMB185.5 million (US$26.3 million) in the six months ended June 30, 2020. In particular, our learning services revenues increased nearly four-fold from RMB41.3 million in the six months ended June 30, 2019 to RMB152.5 million (US$21.6 million) in the six months ended June 30, 2020. Our gross profit also doubled from RMB66.0 million in 2018 to RMB134.5 million (US$19.0 million) in 2019 and continued the growth to have reached RMB125.4 million (US$17.7 million) in the six months ended June 30, 2020 compared to RMB54.3 million in the six months ended June 30, 2019. We had operating losses of RMB22.1 million and RMB278.8 million (US$39.5 million) in 2018 and 2019, respectively, and adjusted operating losses of RMB22.1 million and RMB8.3 million (US$1.2 million) in 2018 and 2019, respectively. In the six months ended June 30, 2020, we had an operating income of RMB5.8 million (US$0.8 million) and an adjusted operating income of RMB5.8 million (US$0.8 million). We had net losses of RMB17.6 million and RMB275.6 million (US$39.0 million) in 2018 and 2019, respectively, and adjusted net losses of RMB17.6 million and RMB5.1 million (US$0.7 million) in 2018 and 2019, respectively. In the six months ended June 30, 2020, we had a net income of RMB5.6 million (US$0.8 million) and an adjusted net income of RMB5.6 million (US$0.8 million) in the six months

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ended June 30, 2020. For discussions of adjusted operating loss and adjusted net loss and reconciliation of adjusted operating loss to operating loss and adjusted net loss to net loss, see "—Non-GAAP Financial Measures."

Key Factors Affecting Our Results of Operations

        Our results of operations and financial condition are affected by the general factors driving China's childhood education industry. We have benefited from the China's overall economic growth, significant urbanization rate, and higher per capita disposable income of urban households in China, which has allowed many households in China to spend more on education. Our results of operations and financial condition are also affected by a number of technological advancements in the childhood education industry, including technological advancements in interaction, gamification and other content features that contribute to continued improvement in children's learning experience and education quality, as well as the increasing mobile internet penetration in China.

        While our business is influenced by these general factors, we believe our results of operations are also directly affected by certain company specific factors, including the following major factors:

Our ability to grow our user base, especially paying user base

        We currently derive all of our learning services revenues from subscription fees charged to users for the premium content on our online learning apps. Our learning services revenues is driven by the increase in the number of our paying users, which is affected by our ability to grow the number of active users, and our ability to convert a greater portion of our active users into paying users. We track the average total monthly active users, or MAUs, for each of our learning apps, which is the number of unique mobile devices through which such learning app is accessed at least once in a given month, as a key metric for our user base and our users' level of engagement. Our ability to maintain and enhance user engagement, depends on, among other things, our ability to continually offer popular childhood edutainment products and services and provide an entertaining and effective learning experience. The number of our average total MAUs grew from 1.4 million in 2018 to 3.7 million in 2019, and from 3.2 million in the second quarter of 2019 to 10.3 million in the second quarter of 2020. Our paying users increased from 0.5 million in 2018 to 1.3 million in 2019, and increased from 0.4 million in the second quarter of 2019 to 1.4 million in the second quarter of 2020.

Our ability to increase average spending of paying users

        Our learning services revenues is also driven by the increase in average revenue per paying user for such services. Our learning services revenues increased from RMB22.0 million in 2018 to RMB107.4 million (US$15.2 million) in 2019. In the corresponding period, our average revenue per paying user also increased from RMB40.2 in 2018 to RMB81.5 in 2019. Our learning services revenues increased from RMB41.3 million in the six months ended June 30, 2019 to RMB152.5 million (US$21.6 million) in the six months ended June 30, 2020. Our average revenue per paying user also increased from RMB64.1 in the six months ended June 30, 2019 to RMB71.0 in the six months ended June 30, 2020 in the corresponding period. Average revenue per paying user is primarily determined by our ability to provide a suite of diversified products tailored to childhood education needs, the perceived effectiveness of our education content, as well as our pricing strategies. Leveraging our strong in-house content development expertise and our gamification technologies, we intend to continue to expand our product offerings to cover a wider array of subjects, through a more diverse selection of content delivery formats. We determine our pricing primarily based on our assessment of the market demand, as well as certain other factors, such as the availability of competing products.

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Our ability to optimize our product offerings

        We offer a diversified suite of integrated online and offline childhood edutainment products to individual users, education organizations and distributors, and our results are affected by the gross margins for the mix of products we offer. Leveraging our integrated approach in growing and managing our online and offline product and service offerings, we have expanded our offerings in a scalable manner through effectively lowering our marginal costs. While our gross profit doubled from RMB66.0 million in 2018 to RMB134.5 million (US$19.0 million) in 2019, our gross margin also increased from 50.1% in 2018 to 61.5% in 2019. We had a gross profit of RMB125.4 million (US$17.7 million) in the six months ended June 30, 2020, representing a gross margin of 67.6%. We intend to continue to leverage our integrated strategy to optimize our product mix and develop new products with higher gross margins that meet diversified needs of both individual users and education organizations.

Our ability to manage our costs and operating expenses effectively

        Our results of operations are affected by our ability to control our costs. In an effort to improve our operating efficiency, we relocated certain operations and our warehouse facilities from Beijing to Zhongshan, Guangdong. We intend to continue to prudently control our product costs for our learning materials and devices.

        We have also incurred substantial research and development expenses and continue to improve our technologies to offer innovative content compelling to users. We plan to continue investing in technological innovations and monitoring relevant expenses.

        Historically, we have been able to maintain our sales and marketing expenses as a relatively low percentage of our revenues, due to our strong brand reputation and word-of-mouth referrals from existing customers and users. We intend to continue to leverage our existing brand value and to efficiently market our products and services.

        From 2018 to 2019, our research and development expenses and general and administrative expenses increased at higher rates than that of our total revenues, primarily due to the significant increase in share-based compensation expenses in connection with the share issuances to our employees and consultant in 2019. Although we expect our research and development expenses and general and administrative expenses to increase in absolute amount in the foreseeable future, we anticipate that, as a general trend, our research and development expenses and general and administrative expenses will respectively decrease as a percentage of our total revenues in the foreseeable periods after the completion of this offering, although we may experience quarterly fluctuations from time to time.

Our ability to continue to upgrade our technological capabilities

        We have a strong ability to deploy advanced game technologies into our learning apps and content creation, which differentiates us from our competitors and is also a key factor that affects our revenues and financial results. According to the Frost & Sullivan Report, we were among the first in the education sector in China to apply sophisticated game engines to the design of online education products. We also employ strong in-house content development expertise in educational materials, gamification features, video and audio effects as well as art design. We leverage our expertise in applying advanced technologies to infuse our curriculum and educational content with solid pedagogy and elements of fun. We also utilize AI technologies and big data analysis to provide superior user experience. We will continue to increase our investments in developing and upgrading our technology with a focus on providing a uniquely interactive and effective learning experience. Our emphasis will be on technological advancement, such as proprietary AR/VR technologies, AI technologies underlying children-focused voice recognition, and assessment tools and adaptive learning functionalities, as well as product gamification and interactive features. We believe our ability to grow our business significantly

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depends on our ability to continue to upgrade our technological capabilities to optimize our products and services.

Key Components of Results of Operations

Revenues

        We generate revenues from (i) learning services, which represent subscription fees charged to users for premium content on our learning apps, and (ii) learning materials and devices, which represent revenues from sale of learning materials and smart learning devices to individual users, education organizations and third-party distributors. The following table sets forth a breakdown of our total revenues by amounts and percentages for the periods presented:

 
  For the Year Ended December 31,   For the Six Months ended June 30,  
 
  2018   2019   2019   2020  
 
  RMB
  %
  RMB
  US$
  %
  RMB
  %
  RMB
  US$
  %
 
 
  (in thousands, except for percentages)
 

Revenues:

                                                             

Learning services

    22,010     16.7     107,409     15,203     49.1     41,285     45.0     152,462     21,580     82.2  

Learning materials and devices

    109,857     83.3     111,247     15,746     50.9     50,478     55.0     33,014     4,673     17.8  

Total revenues

    131,867     100.0     218,656     30,949     100.0     91,763     100.0     185,476     26,253     100.0  

Cost of revenues

        Our cost of revenues primarily consists of product costs and channel costs, which mainly include commission paid to third-party mobile app stores and to third-party distributors for our online learning apps. Our cost of revenues also includes freight costs, payroll and welfare expenses, and others. We expect our cost of revenues will continue to increase in absolute amount in the foreseeable future as our business continues to grow. The following table sets forth the components of our cost of revenues by amounts and percentages of our total revenues for the periods presented:

 
  For the Year Ended December 31,   For the Six Months ended June 30,  
 
  2018   2019   2019   2020  
 
  RMB
  %
  RMB
  US$
  %
  RMB
  %
  RMB
  US$
  %
 
 
  (in thousands, except for percentages)
 

Cost of Revenues:

                                                             

Product costs

    44,899     34.0     44,878     6,352     20.5     21,327     23.2     12,350     1,748     6.7  

Channel costs

    7,860     6.0     26,974     3,818     12.3     10,720     11.7     35,929     5,085     19.4  

Freight

    3,824     2.9     3,151     446     1.4     1,402     1.5     1,240     176     0.7  

Payroll and welfare

    3,557     2.7     2,582     365     1.2     1,373     1.5     2,499     354     1.3  

Others

    5,714     4.3     6,578     932     3.1     2,595     2.9     8,098     1,146     4.3  

Total cost of revenues

    65,854     49.9     84,163     11,913     38.5     37,417     40.8     60,116     8,509     32.4  

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Operating expenses

        Our operating expenses consist of research and development expenses, sales and marketing expenses and general and administrative expenses. The following table sets forth the components of our operating expenses by amounts and percentages of total revenues for the periods presented:

 
  For the Year Ended December 31,   For the Six Months ended June 30,  
 
  2018   2019   2019   2020  
 
  RMB
  %
  RMB
  US$
  %
  RMB
  %
  RMB
  US$
  %
 
 
  (in thousands, except for percentages)
 

Operating expenses:

                                                             

Research and development expenses

    52,103     39.5     170,155     24,084     77.8     113,170     123.3     73,674     10,428     39.7  

Sales and marketing expenses

    21,987     16.7     53,716     7,603     24.6     37,689     41.1     28,383     4,017     15.3  

General and administrative expenses

    13,986     10.6     189,433     26,812     86.6     176,819     192.7     17,464     2,472     9.4  

Total operating expenses

    88,076     66.8     413,304     58,499     189.0     327,678     357.1     119,521     16,917     64.4