Here Group FY2026 continuing operations lose $37.6M
Pop toy sales generated RMB596.8 million in revenue, alongside a RMB254.9 million continuing-operations net loss and RMB223.1 million in operating cash use.
Sentiment and the balance of points
Rhea-AI Sentiment reads the wording of the document, how positive or negative its language is on a 1 to 5 scale. The balance of points shown with the takes weighs what the document actually discloses, so the two can disagree, for example when a trial that missed its main goal is described in upbeat language.
Rhea-AI Filing Summary
Here Group Limited (HERE) reported fiscal 2026 results as a pop toy company following the divestiture of its legacy businesses, which are presented as discontinued operations. Revenue from continuing operations, generated solely from pop toy sales and related activities, was RMB596.8 million (US$88.0 million), versus RMB65.8 million in fiscal 2025. The company says the comparison is not directly comparable because pop toy operations began in fiscal 2025’s fourth quarter. Gross profit was RMB197.3 million (US$29.1 million).
Continuing operations recorded a net loss of RMB254.9 million (US$37.6 million) and used RMB223.1 million (US$32.9 million) of operating cash in fiscal 2026. Here Group recorded a RMB124.1 million (US$18.3 million) goodwill impairment related to Shenzhen Letsvan. Consolidated net income was RMB63.5 million (US$9.4 million), including RMB318.5 million (US$46.9 million) of net income from discontinued operations. Cash and restricted cash from continuing operations was RMB432.1 million (US$63.7 million) as of June 30, 2026; short-term investments were RMB178.2 million (US$26.3 million) as of that date.
How this balance works
Rhea-AI gives every point it takes from this document a weight. Minor counts 1, Moderate 3 and Major 9, so one Major point outweighs several Minor ones. The bar adds up the weights on each side, and when neither side holds more than 65% of the total the balance reads Mixed.
It reads the document as published, with the same rules for every company, and it does not look at what the market expected or at how the stock traded, so a point can be objectively good on a day the stock falls.
Rhea-AI Sentiment measures something else, the tone of the wording.
Positive
- None.
Negative
- Major pointContinuing-operations net loss was RMB254.9 million in fiscal 2026.
- Major pointOperating cash use was RMB223.1 million in fiscal 2026.
- Minor pointGoodwill impairment was RMB124.1 million in fiscal 2026.
Filing Explained
As of October 21, 2026, 18,922,459 Class A options remained outstanding, leaving possible additional share issuance if exercised.
Here Group reports that it held
The company says its VIE agreements ended on
As of
Key Figures
Key Terms
discontinued operation financial
goodwill impairment financial
discounted cash flow model financial
VIE structure technical
FAQ
AI-generated questions and answers. How Rhea-AI works. Not financial advice.
How much revenue did HERE report in fiscal 2026?
Did HERE make a profit in fiscal 2026?
AI-generated analysis. How Rhea-AI works. Not financial advice.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
OR
For the fiscal year ended
OR
OR
Date of event requiring this shell company report__________
For the transition period from __________ to __________
Commission file number:
(Exact name of registrant as specified in its charter)
N/A
(Translation of Registrant’s name into English)
(Jurisdiction of incorporation)
(Address of principal executive offices)
Telephone:
E-mail:
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered, pursuant to Section 12(b) of the Act
| Title of each class | Trading Symbol | Name of each exchange on which registered | ||
| The | ||||
| * | Not for trading, but only in connection with the listing on the Nasdaq Global Market of American depositary shares |
Securities registered or to be registered pursuant to Section 12(g) of the Act.
None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
None
Indicate the number of issued and outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:
Class A ordinary shares, par value US$0.0001 each,
Class B ordinary shares, par value US$0.0001 each,
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes ☐
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Emerging growth company |
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards † provided pursuant to Section 13(a) of the Exchange Act.
| † | The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012. |
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (10 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
| International Financial Reporting Standards as issued | Other ☐ | |
| by the International accounting Standards Board ☐ |
If “Other” has been checked in response to the previous question indicate by check mark which financial statement item the registrant has elected to follow. Item 17 ☐ Item 18 ☐
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☐ No ☐
TABLE OF CONTENTS
| Page | ||
| INTRODUCTION | ii | |
| FORWARD LOOKING STATEMENT | iv | |
| PART I | 1 | |
| ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS | 1 | |
| ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE | 1 | |
| ITEM 3. KEY INFORMATION | 1 | |
| ITEM 4. INFORMATION ON THE COMPANY | 51 | |
| ITEM 4A. UNRESOLVED STAFF COMMENTS | 90 | |
| ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS | 90 | |
| ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES | 105 | |
| ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS | 116 | |
| ITEM 8. FINANCIAL INFORMATION | 118 | |
| ITEM 9. THE OFFER AND LISTING | 119 | |
| ITEM 10. ADDITIONAL INFORMATION | 120 | |
| ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 135 | |
| ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES | 136 | |
| PART II | 138 | |
| ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES | 138 | |
| ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS | 138 | |
| ITEM 15. CONTROLS AND PROCEDURES | 138 | |
| ITEM 16. [RESERVED] | 140 | |
| ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT | 140 | |
| ITEM 16B. CODE OF ETHICS | 140 | |
| ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES | 140 | |
| ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES | 141 | |
| ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS | 141 | |
| ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT | 142 | |
| ITEM 16G. CORPORATE GOVERNANCE | 142 | |
| ITEM 16H. MINE SAFETY DISCLOSURE | 142 | |
| ITEM 16I. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS | 142 | |
| ITEM 16J. INSIDER TRADING POLICIES | 142 | |
| ITEM 16K. CYBERSECURITY. | 143 | |
| PART III | 145 | |
| ITEM 17. FINANCIAL STATEMENTS | 145 | |
| ITEM 18. FINANCIAL STATEMENTS | 145 | |
| ITEM 19. EXHIBITS | 145 | |
| EXHIBIT INDEX | 145 | |
| INDEX TO CONSOLIDATED FINANCIAL STATEMENTS | F-1 |
i
INTRODUCTION
Except where the context otherwise requires and for purposes of this annual report on Form 20-F only:
| ● | “ADRs” refers to the American depositary receipts which, if issued, evidence the ADSs; |
| ● | “ADSs” refers to American depositary shares, each of which represents three Class A ordinary shares; |
| ● | “affiliated entities” refers to Beijing Chuangyuqizhi, Beijing Feierlai, and their respective subsidiaries, and, in the context of describing our consolidated financial information before the completion of the restructuring and spin-off in 2022, refers to the respective variable interest entity and its subsidiaries in connection with our business at such relevant time; |
| ● | “Beijing Chuangyuqizhi” refers to Beijing Chuangyuqizhi Technology Co., Ltd., a variable interest entity before the VIE Termination; |
| ● | “Beijing Feierlai” refers to Feierlai (Beijing) Technology Co., Ltd., a variable interest entity before the VIE Termination; |
| ● | “Beijing Liangzizhige” refers to Beijing Qimengdao Technology Co., Ltd. (formerly known as Beijing Liangzizhige Technology Co., Ltd.), one of our WFOEs; |
| ● | “CAC” refers to the Cyberspace Administration of China; |
| ● | “CSRC” refers to the China Securities Regulatory Commission; |
| ● | “CAGR” refers to compound annual growth rate; |
| ● | “China” or “PRC” refers to the People’s Republic of China, and only in the context of describing the PRC laws, rules, regulations, regulatory authorities, and any PRC entities or citizens under such rules, laws and regulations and other legal or tax matters in this annual report, excludes Taiwan, the Hong Kong Special Administrative Region and the Macau Special Administrative Region; |
| ● | “Class A ordinary shares” refers to our Class A ordinary shares of par value US$0.0001 per share; |
| ● | “Class B ordinary shares” refers to our Class B ordinary shares of par value US$0.0001 per share; |
| ● | “legacy businesses” refers to all the business operations established prior to the acquisition of Shenzhen Letsvan, including the individual online learning services business, consumer businesses and other businesses aside from our pop toy business; |
| ● | “HFCAA” refers to Holding Foreign Companies Accountable Act, as amended; |
| ● | “ordinary shares” or “shares” refer to our ordinary shares comprising Class A ordinary shares, par value US$0.0001 per share and/or Class B ordinary shares, par value US$0.0001 per share; |
| ● | “RMB” or “Renminbi” refers to the legal currency of China; |
| ● | “SEC” refers to the United States Securities and Exchange Commission; |
| ● | “Shenzhen Letsvan” refers to Shenzhen Yiqi Culture Co., Ltd.; |
| ● | “US$,” “U.S. dollars,” “$” or “dollars” refers to the legal currency of the United States of America; |
ii
| ● | “VIEs” refers to the variable interest entities, namely, Beijing Chuangyuqizhi and Beijing Feierlai (each, a “VIE”), and, in the context of describing our consolidated financial information before the completion of the restructuring and spin-off in 2022, “VIE” refers to the respective variable interest entity in connection with our business at such relevant time; |
| ● | “we,” “us,” “our company,” “our,” “our group,” “Here,” or “Here Group” refers to Here Group Limited, formerly known as QuantaSing Group Limited, together as a group with its subsidiaries. However, in the context of describing the operations and financial information relating to such operations of Here Group Limited prior to the termination of the VIE agreements among Beijing Liangzizhige, Beijing Feierlai or Beijing Chuangyuqizhi and their respective nominee shareholder in 2025 (the “VIE Termination”), these terms refer to Here Group Limited and its subsidiaries and the affiliated entities. Where the context requires, in respect of the period prior to our company becoming the holding company of its present subsidiaries, these terms also refer to such subsidiaries as if they were subsidiaries of our company at the relevant time; and |
| ● | “WFOEs” refer to our wholly-owned PRC subsidiaries, and, (1) in the context of describing our consolidated financial information before the completion of the restructuring and spin-off in 2022, “WFOE” refers to our respective wholly-owned PRC subsidiary in connection with our business at such relevant time; and (2) in the context of describing the VIE structure and its impacts, “WFOE” refers to our respective wholly-owned PRC subsidiary under the relevant contractual arrangements. |
Names of certain companies provided in this annual report are translated or transliterated from their original Chinese legal names.
Discrepancies in any table between the amounts identified as total amounts and the sum of the amounts listed therein are due to rounding.
This annual report on Form 20-F includes our audited consolidated financial statements as of June 30, 2025 and 2026 and for the fiscal years ended June 30, 2024, 2025 and 2026.
This annual report contains translations of certain Renminbi amounts into U.S. dollars at specified rates solely for the convenience of the reader. Unless otherwise stated, the translation of Renminbi into U.S. dollars has been made at RMB6.7851 to US$1.00, the noon buying rate in effect on June 30, 2026 as set forth in the H.10 Statistical Release of the Federal Reserve Board. We make no representation that any Renminbi or U.S. dollar amounts could have been, or could be, converted into U.S. dollars or Renminbi, as the case may be, at any particular rate, the rates stated below, or at all. The PRC government imposes controls over its foreign currency reserves in part through direct regulation of the conversion of Renminbi into foreign exchange and through restrictions on foreign trade.
The ADSs are listed on the Nasdaq Global Market under the symbol “HERE.”
iii
FORWARD LOOKING STATEMENT
This annual report contains forward-looking statements that reflect our current expectations and views of future events. These forward-looking statements are made under the “safe harbor” provision under Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and as defined in the Private Securities Litigation Reform Act of 1995. These statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. All statements other than statements of historical fact in this annual report constitute forward-looking statements. We have used words or phrases such as “may,” “would,” “will,” “expect,” “anticipate,” “intend,” “seek,” “estimate,” “plan,” “believe,” “is/are likely to” or other similar expressions in this annual report to identify some of these forward-looking statements. These forward-looking statements, including, among others, those relating to our future business prospects, product development, revenues, profits, costs, capital expenditures, cash flows and working capital, are necessarily estimates reflecting the best judgment of directors and management and involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. As a consequence, these forward-looking statements should be considered in light of various important factors, including those set forth in this annual report.
These statements involve risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from the information expressed or implied by these forward-looking statements. Although we believe that we have a reasonable basis for each forward-looking statement contained in this annual report, we caution you that these statements are based on a combination of facts and factors currently known by us and our projections of the future, about which we cannot be certain. Forward-looking statements in this annual report include, but are not limited to, statements about:
| ● | our future business development, financial condition and results of operations; |
| ● | the expected growth of the sectors that we operate in; |
| ● | our expectations regarding demand for and market acceptance of our products and services; |
| ● | competition in our industries; |
| ● | our mission, goals and strategies; |
| ● | our proposed use of proceeds; and |
| ● | relevant government policies and regulations relating to our industries. |
You should read this annual report, including the risk factors disclosed in “Item 3. Key Information—D. Risk Factors” and the documents that we refer to in this annual report thoroughly and with the understanding that our actual future results may be materially different from and worse than what we expect. Moreover, we operate in an evolving environment. New risk factors and uncertainties emerge from time to time and it is not possible for our management to predict all risk factors and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. We qualify all of our forward-looking statements by these cautionary statements.
Market data and certain industry forecasts used in this annual report were obtained from internal surveys, market research, publicly available information and industry publications. Industry publications generally state that the information contained therein has been obtained from sources believed to be reliable, but that the accuracy and completeness of such information is not guaranteed. Similarly, internal surveys, industry forecasts and market research, while believed to be reliable, have not been independently verified, and we make no representation as to the accuracy of such information.
You should not rely upon forward-looking statements as predictions of future events. The forward-looking statements made in this annual report relate only to events or information as of the date on which the statements are made in this annual report. We undertake no obligation to update or revise 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.
The forward-looking statements made in this annual report relate only to events or information as of the date on which the statements are made in this annual report. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events. You should read this annual report and the documents that we refer to in this annual report and have filed as exhibits to the registration statement, of which this annual report is a part, completely and with the understanding that our actual future results may be materially different from what we expect.
iv
PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
ITEM 3. KEY INFORMATION
Our Company
Here Group Limited is a pop toy company. We create collectible pop toys, such as plush toys and figures, under our “HERE奇梦岛” brand. We operate an expanding IP portfolio that primarily include our proprietary IPs, including our flagship WAKUKU, SIINONO, and ZIYULI, and, to a lesser extent, certain other proprietary IPs and licensed IPs. Historically, before we terminated our contractual arrangements with the variable interest entities in 2025, we had primarily operated the individual online learning services under the brand of Qiuniu, Jiangzhen and Qianchi, including financial literacy courses and skills upgrading and recreation and leisure courses.
Our Holding Company Structure
Here Group Limited is an exempted company with limited liability incorporated under the laws of the Cayman Islands with no substantive operations. We carry out our current business in China through Shenzhen Chaowan World Information Technology Co., Ltd. (“Shenzhen Chaowan”) and Beijing Liangzizhige, our WFOEs, and their respective subsidiaries. Historically, we carried out our legacy individual learning services business in China through Beijing Liangzizhige, and its contractual arrangements, commonly known as the VIE structure, with Beijing Chuangyuqizhi and Beijing Feierlai, the variable interest entities based in China, and their respective nominee shareholder. As of June 30, 2026, we did not have any VIE structure entity in China. For details, see “Item 4. Information on the Company—A. History and Development of the Company” and “Item 4. Information on the Company—C. Organizational Structure—Our Historical Contractual Arrangements.” Such VIE structure was used to provide investors with exposure to foreign investment in China-based companies where the PRC law restricts direct foreign investment in certain business areas, such as certain value-added telecommunication services and other internet related business. Neither Here Group Limited nor our WFOEs owned any equity interests in the affiliated entities. Our historical contractual arrangements with the VIEs and their nominee shareholder were not equivalent of an investment in the equity interest of the VIEs, and investors may never hold equity interests in the Chinese operating companies, including the affiliated entities. Instead, we were regarded as the primary beneficiary of the VIEs and consolidated the financial results of the affiliated entities under U.S. GAAP in light of the VIE structure at the relevant time. Investors in the ADSs are purchasing the equity securities of Here Group Limited, the Cayman Islands holding company, rather than the equity securities of our operating entities.
1
The following diagram illustrates our simplified corporate structure, including our principal subsidiaries, as of the date of this annual report:
Permissions and Licenses Required from the PRC Authorities for Our Operations and Overseas Securities Offerings
The operations of the businesses that we own and operate are subject to PRC laws and regulations. The laws and regulations are relatively new and quickly evolving, hence bringing uncertainties to their interpretation and enforcement. For example, our operations in China are subject to regulatory approvals and permit requirements, rules governing product quality and liability, oversight on cybersecurity and data privacy, and guidelines about blind boxes, with respect to which the applicable laws and regulations have evolved substantially in recent years. For details, see “Item 4. Information on the Company—B. Business Overview—Regulation” in this annual report.
2
We, through our WFOEs, conduct our current operations in China. Our operations in China are governed by PRC laws and regulations. We are required to obtain certain licenses, permits from or filing with relevant governmental authorities in China in order to operate our business and conduct overseas securities offerings and listings. As of June 30, 2026, as advised by our PRC counsel, CM Law Firm, our WFOEs had obtained the licenses, permits and registrations from the PRC government authorities material for our business operations in China, including, among others, the Value-added Telecommunications Business Operating License for Online Data Processing and Transaction Processing. Given the uncertainties of interpretation and implementation of relevant laws and regulations and the enforcement practice by relevant government authorities, and the promulgation of new laws and regulations and amendment to the existing ones, we may be required to obtain additional licenses, permits, registrations, filings or approvals for our business operations in the future. We cannot assure you that we will be able to obtain, in a timely manner or at all, or maintain such licenses, permits or approvals, and we may also inadvertently conclude that such permissions or approvals are not required. Any lack of or failure to maintain requisite approvals, licenses or permits applicable to us may have a material adverse impact on our business, results of operations, financial condition and prospects and cause the value of any securities we offer to significantly decline or become worthless. For details, see “Item 3. Key Information—D. Risk Factors—Risks Related to Our Operations—We may face risks and uncertainties with respect to the licensing requirement for our business. Any lack of or failure to maintain requisite approvals, licenses or permits applicable to us may have a material adverse impact on our business, results of operations and financial condition.”
On December 28, 2021, the CAC and other twelve PRC regulatory authorities jointly revised and promulgated the Measures for Cybersecurity Review (the “Cybersecurity Review Measures”), which became effective on February 15, 2022. As a network platform operator who possesses personal information of more than one million users for purposes of the Cybersecurity Review Measures, we had applied for and completed a cybersecurity review for the initial public offering and listing of the ADSs on the Nasdaq Stock Market pursuant to the Cybersecurity Review Measures. The review was completed in August 2022. We have not received any material adverse findings in such review. As of the date of this annual report, save as disclosed above, we have not received any notice that we are a critical information infrastructure operator from any government authority, nor have we received any request from the CAC, to undergo a cybersecurity review pursuant to any PRC laws or regulations. Moreover, we have not received any notice from any PRC authority requiring us to obtain any permissions, in each case in connection with our previous issuance of securities to foreign investors.
On February 17, 2023, the CSRC, as approved by the State Council, released the Trial Measures for Administration of Overseas Securities Offerings and Listings by Domestic Enterprises and five interpretive guidelines (collectively, the “CSRC Filing Rules”), which came into effect on March 31, 2023. Under the CSRC Filing Rules, a filing-based regulatory system shall be applied to “indirect overseas offerings and listings” of PRC domestic enterprises, which refers to securities offerings and listings in an overseas market made under the name of an offshore entity but based on the underlying equity, assets, earnings or other similar rights of a domestic enterprise that operates its main business domestically. The CSRC Filing Rules state that, any post-listing follow-on offering by an issuer in the same overseas market where it has previously offered and listed securities, including issuance of shares, convertible notes and other similar securities, shall be subject to filing requirement within three business days after the completion of the offering, and if the subsequent offering is conducted in other overseas markets, it shall be filed with the CSRC within three working days after the applications for such offerings are submitted. Therefore, any of our future offering and listing of our securities in an overseas market shall be subject to the filing requirements under the CSRC Filing Rules. In addition, we are required to submit a report to CSRC after the occurrence and public disclosure of the following material events: (1) change of control; (2) investigations or sanctions imposed by overseas securities regulatory agencies or other relevant competent authorities; (3) change of listing status or transfer of listing segment and (4) voluntary or mandatory delisting. If we fail to complete the filing or reporting procedures, under the CSRC Filing Rules or otherwise, for any future overseas securities offering or listing, we may face sanctions by the CSRC or other PRC regulatory authorities, which may include orders for correction, warnings and fines. Any adverse regulatory actions or sanctions could have a material adverse effect on our business, financial condition, results of operations, reputation and prospects, as well as the trading price of the ADSs. For details, see “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—The filing with and reporting to the CSRC will be required in connection with our capital raising activities and occurrences of other specific events, and we cannot assure you that we will be able to make such filing or reporting in a timely manner or at all, in which case we may face regulatory sanctions for failure to make such filing or reporting.”
3
Cash and Asset Flows through Our Organization
In light of our holding company structure, our ability to pay dividends to the shareholders, including the investors in the ADSs, and to service any debt we may incur may highly depend upon dividends paid by our subsidiaries (including our WFOEs) to us, despite that we may obtain financing at the holding company level through other methods. Historically, under the VIE structure, such ability also relied on the service fees paid by the affiliated entities to our WFOEs. For instance, if any of our WFOEs incurs debt on its own behalf in the future, the instruments governing such debt may restrict its ability to pay dividends to us and the investors in the ADS as well as the ability to settle amounts owed under the contractual arrangements. In June 2024 and April 2025, Beijing Liangzizhige made the cash distribution of US$5.3 million and US$10.0 million, respectively, to Witty Digital Technology Limited (“Witty Digital”), its holding company in Hong Kong. In October 2024, our board of directors declared a special cash dividend in the amount of US$0.067 per ordinary share, or US$0.201 per ADS. The cash dividend was paid in November 2024 to shareholders of record at the close of business on October 30, 2024. The aggregate amount of cash dividends paid was US$10.9 million. As of the date of this annual report, save as disclosed above, none of Here Group Limited, our WFOEs and the VIEs have paid any dividends or made any distributions to their respective shareholder(s), including any U.S. investors. In the fiscal years ended June 30, 2024, 2025 and 2026, the total amount of the service fees that Beijing Feierlai, Beijing Chuangyuqizhi and their subsidiaries paid to Beijing Liangzizhige under the contractual arrangements was RMB713.7 million, RMB612.7 million and RMB330.2 million, respectively. Other than such payments, there were no service fee payments under the contractual arrangements within our group in the relevant fiscal years. We expect to continue to distribute earnings at the request of our WFOEs and based on our business needs. We currently have not maintained any cash management policies that specifically dictate how funds shall be transferred among Here Group Limited, the subsidiaries of Here Group Limited (including our WFOEs) and investors. We will determine the payment of dividends and fund transfer based on our specific business needs in accordance with the applicable laws and regulations.
Under PRC laws and regulations, our WFOEs are permitted to pay dividends only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. Furthermore, our WFOEs are required to make appropriations to certain statutory reserve funds or may make appropriations to certain discretionary funds, which are not distributable as cash dividends except in the event of a solvent liquidation of the companies. Remittance of dividends by our WFOEs out of China is also subject to certain procedures with the banks designated by the PRC State Administration of Foreign Exchange (“SAFE”). These restrictions are benchmarked against the paid-up capital and the statutory reserve funds of our WFOEs. In addition, while there are currently no such restrictions on foreign exchange and our ability to transfer cash or assets between Here Group Limited and our Hong Kong subsidiaries, if certain PRC laws and regulations, including existing laws and regulations and those enacted or promulgated in the future were to become applicable to our Hong Kong subsidiaries in the future, and to the extent our cash or assets are in Hong Kong or a Hong Kong entity, such funds or assets may not be available due to interventions in or the imposition of restrictions and limitations on our ability to transfer funds or assets by the PRC government. Furthermore, we cannot assure you that the PRC government will not intervene or impose restrictions on Here Group Limited or its subsidiaries to transfer or distribute cash within the organization, which could result in an inability of or prohibition on making transfers or distributions to entities outside of mainland China and Hong Kong. For details, see “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—We rely on dividends and other distributions on equity paid by our WFOEs to fund any cash and financing requirements we may have, and any limitation on the ability of our WFOEs to make payments to us could have a material adverse effect on our ability to conduct our business,” and “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—Restrictions on the remittance of Renminbi into and out of China and governmental control of currency conversion may limit our ability to pay dividends and other obligations, and affect the value of your investment.”
Under PRC laws and regulations, we, the Cayman Islands holding company, may fund our WFOEs only through capital contributions or loans, and fund the affiliated entities (if any) only through loans, subject to satisfaction of applicable government registration and approval requirements. For the fiscal years ended June 30, 2024, 2025 and 2026, before the VIE Termination, there were certain loans among Here Group Limited, our subsidiaries, and our VIEs and their subsidiaries, and certain dividends from our WFOEs to our Hong Kong subsidiaries.
In the fiscal years ended June 30, 2024 and 2025, Beijing Liangzizhige distributed a portion of its retained earnings of approximate US$5.3 million and US$10.0 million to its holding company in Hong Kong, Witty Digital Technology Limited, respectively. As of June 30, 2024, we had applied withholding tax rate of 5% based on the facts and circumstances of the offshore subsidiary and management’s interpretation of the HK DTA back then. During the fiscal year ended June 30, 2025, as there were new changes in relevant facts and circumstances, we accrued withholding tax on undistributed earnings as of June 30, 2025 using a 10% tax rate to reflect the management’s estimation accordingly. From June 30, 2025 onwards, we have continued to apply the 10% withholding tax rate.
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Holding Foreign Companies Accountable Act and PCAOB’s Inspection over Financial Statements
Pursuant to the HFCAA, if the SEC determines that we have filed audit reports issued by a registered public accounting firm that has not been subject to inspections by the PCAOB for two consecutive years, the SEC will prohibit our shares or the ADSs from being traded on a national securities exchange or in the over-the-counter trading market in the United States. On December 16, 2021, the PCAOB issued a report to notify the SEC of its determination that the PCAOB was unable to inspect or investigate completely registered public accounting firms headquartered in mainland China and Hong Kong, including our auditor. On December 15, 2022, the PCAOB issued a report that vacated its December 16, 2021 determination and removed mainland China and Hong Kong from the list of jurisdictions where it is unable to inspect or investigate completely registered public accounting firms. For this reason, we do not expect to be identified as a Commission-Identified Issuer under the HFCAA after we file this annual report on Form 20-F. Each year, the PCAOB will determine whether it can inspect and investigate completely audit firms in mainland China and Hong Kong, among other jurisdictions. If PCAOB determines in the future that it no longer has full access to inspect and investigate completely accounting firms in mainland China and Hong Kong and we continue to use an accounting firm headquartered in one of these jurisdictions to issue an audit report on our financial statements filed with the SEC, we would be identified as a Commission-Identified Issuer following the filing of the annual report on Form 20-F for the relevant fiscal year. There can be no assurance that we would not be identified as a Commission-Identified Issuer for any future fiscal year, and if we were so identified for two consecutive years, we would become subject to the prohibition on trading under the HFCAA. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Industry—The PCAOB had historically been unable to inspect our auditor in relation to their audit work performed for our financial statements and the inability of the PCAOB to conduct inspections of our auditor in the past has deprived our investors with the benefits of such inspections,” and “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Industry—The ADSs may be prohibited from trading in the United States under the HFCAA in the future if the PCAOB is unable to inspect or investigate completely auditors located in China. The delisting of the ADSs, or the threat of their being delisted, may materially and adversely affect the value of your investment.”
A. [Reserved]
B. Capitalization and Indebtedness
Not applicable.
C. Reasons for the Offer and Use of Proceeds
Not applicable.
D. Risk Factors
Summary of Risk Factors
Our business is subject to numerous risks and uncertainties, including risks that may prevent us from achieving our business objectives or may adversely affect our business, financial condition, results of operations, cash flows, and prospects. These risks are discussed more fully below and include, but are not limited to, risks related to:
Risks related to our business, industry and general operations
| ● | the shifts of our business model and offering mix, our limited experience with operating our current businesses, and the risk that our historical performance and growth rate may not be indicative of our future performance; |
| ● | uncertainties associated with our pop toy business and the development of such business; |
| ● | the intense competition in the industries that we operate in; |
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| ● | our ability to maintain and enhance our brand recognition and promote our IPs and products, and the risks associated with negative publicity; |
| ● | our ability to develop a robust sales channel and implement effective marketing strategies; and |
| ● | the complexity, uncertainties and changes in PRC regulations applicable to our businesses, including the licensing requirements for our business, product liability, data privacy and personal information protection. |
Risks related to doing business in China
| ● | Chinese government’s significant authority to intervene or influence our operations at any time and to exert more control over offerings conducted overseas and/or foreign investment in China-based issuers; |
| ● | the ADSs being delisted and prohibited from being traded on a national securities exchange or in the over-the-counter trading market under the HFCAA if the PCAOB is unable to inspect auditors who are located in China; |
| ● | impact from PRC economic, political and social conditions, as well as changes in any government policies, laws and regulations; |
| ● | uncertainties with respect to the PRC legal system, including such relating to the enforcement of rules and regulations in China and the risk that rules and regulations can change quickly with little advance notice; and |
| ● | reliance on dividends and other distributions on equity paid by our WFOEs to fund any cash and financing requirements we may have, and limitation on the ability of our WFOEs to make payments to us. |
Risks related to our corporate structure
| ● | the agreements that established the structure of our legacy operations in China to be found not compliant with PRC regulations relating to the relevant industries; |
| ● | the historical contractual arrangements with the VIEs and their shareholder being less effective than direct ownership in providing operational control; |
| ● | uncertainty with respect to the enforceability of the historical contractual arrangements with the VIEs and their shareholder; |
| ● | shareholders of the VIEs having conflicts of interest with us; |
| ● | the risk that the historical contractual arrangements we had entered into with the VIEs may be subject to scrutiny by the PRC tax authorities; and |
| ● | uncertainties with respect to the interpretation and implementation, and any changes thereto, of the PRC Foreign Investment Law, and other PRC regulatory restrictions on foreign investment in the relevant industries. |
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Risks related to our corporate governance
| ● | our status as an exempted company incorporated in the Cayman Islands; |
| ● | our status as a foreign private issuer; and |
| ● | our dual-class voting structure and the concentration of ownership which provide Class B ordinary shareholder considerable influence over corporate matters, including the election of board of directors. |
Risks related to the ADSs
| ● | volatility of the trading price of the ADSs; |
| ● | the sale or availability for sale of substantial amounts of the ADSs; and |
| ● | the voting rights of holders of ADSs being limited by the terms of the deposit agreement. |
Risks Related to the Evolvement of Our Business Model
Our historical operating and financial performance as well as growth rate, especially those related to our discontinued operation, are not indicative of our future performance. If we fail to manage our growth or implement our future business strategies effectively, the success of our business and our future prospects may be compromised.
We have shifted our business model from the traffic-driven legacy businesses, which primarily comprise the legacy individual online learning services, to the product-driven pop toy business. We began to offer our financial literacy learning services in July 2019. From August 2021, we began to launch additional courses for other personal interests in skills upgrading and recreation and leisure. In addition, starting from early 2023, we entered into the consumer goods sector through e-commerce. Our historical performance for our legacy businesses, which have been reclassified in the accompanying consolidated financial statements as discontinued operation for all periods presented, is not directly comparable with or indicative of the performance of our current business, mainly our pop toy business, which we began to operate in 2025 along with the acquisition of equity interests in Shenzhen Letsvan. We acquired equity interests in Shenzhen Letsvan from December 2024 and obtained control over Shenzhen Letsvan in March 2025 and began to consolidate its results of operations from April 2025. For the fiscal years ended June 30, 2025 and 2026, we recorded revenue from our pop toy business of RMB65.8 million and RMB596.8 million (US$88.0 million), respectively. Subsequent to obtaining control over Shenzhen Letsvan, we undertook further steps to acquire all of the remaining equity in Shenzhen Letsvan. As of the date of this annual report, we hold 76.3% of the equity interests in Shenzhen Letsvan, and we are still in the process of acquiring the remaining equity interests in Shenzhen Letsvan, upon completion of which Shenzhen Letsvan will become our wholly-owned subsidiary. Furthermore, in September 2025, to restructure our legacy businesses, the following agreements were entered into by and among the relevant parties: (1) a termination agreement (the “VIE Termination Agreement”) by and among Beijing Liangzizhige, Beijing Feierlai, Beijing Chuangyuqizhi, and Shenzhen Erwan Education Technology Co., Ltd. (“Shenzhen Erwan”) to terminate the VIE agreements among these parties (the “VIE Agreements”); (2) an equity transfer agreement by and among Beijing Liangzizhige, Beijing Feierlai, Beijing Chuangyuqizhi, Shenzhen Erwan and the relevant buyer; and (3) an equity transfer agreement by and among the company, QuantaSing International Limited (“QS International”), Rare River Group Limited (“Rare River”) and the relevant buyer. Upon the effectiveness of the termination of the VIE Agreements, we no longer consolidate the financial results of Beijing Feierlai and Beijing Chuangyuqizhi, effective from September 30, 2025, and we began to wholly operate as a pop toy company. For details of these transactions, see “Item 4. Information on the Company—A. History and Development of the Company.”
As such, our historical business model with our legacy businesses does not serve as an adequate basis for evaluating our prospects and future operating and financial results, including, among others, our overall revenue growth, margin level and operating cash flows. We cannot assure you that our new business will achieve the same level of success as that of our legacy businesses. In addition, the completion of any restructuring activities is subject to uncertainties, including applicable regulatory approvals and filings, and the ability of prospective parties to fulfill their obligations under the transaction agreements. These uncertainties may have a material adverse effect on our business, results of operations and financial condition, as well as our future prospects and the price of the ADSs.
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We have undertaken several new business initiatives and monetization strategies in the past, and we may continue to experience shifts in business model in the future. We cannot assure you that such new business initiatives and monetization strategies and shifts in business model will be successful and achieve desired benefits to us.
Before we terminated the VIE Agreements and disposed of our interests in our legacy individual online learning service business and certain consumer and other businesses, we had diversified our individual online learning services beyond financial literacy, including upgrading our courses relating to other personal interests in skills upgrading and recreation and leisure. In early 2023, we entered into the consumer goods sector through e-commerce. We entered into the pop toy sector through the acquisition of equity interests in Shenzhen Letsvan initially in December 2024.
We have a limited track record or experience in generating revenue from new business initiatives, which may adversely affect our prospects and ability to compete with the existing market players in the relevant fields. The endeavors to offer new products, which are usually costly and time-consuming, could disrupt our ongoing business, divert our management resources, and require us to make significant investments in establishing and maintaining cooperative relations, pursuing new projects, and furthering sales and marketing efforts, all of which may not be successful. We may also have to optimize our employee structure to adapt to the evolving market and business conditions, which may adversely affect our business, results of operations, financial condition and reputation. We cannot assure you that any of our new business initiatives will achieve market acceptance or generate sufficient revenues in a timely manner, or at all, to offset the costs and expenses incurred prior to their launch, which may have a negative impact on our profitability and return on relevant investments. We also cannot assure you that any such initiatives will attain the growth rate as we anticipate, which could affect our growth prospects. In addition, we had suspended certain new consumer businesses before establishing a track record of relevant operations, such as the baijiu business.
Moreover, our pop toy business differs significantly from our legacy businesses and may fail to generate any synergistic effect with our existing resources or let us achieve any operating leverage. Our new business initiatives, whether successful or not, may also incur negative publicity, cause a negative impact to our reputation, and subject us to relevant legal and regulatory risks. If we are unsuccessful in the exploration of new businesses due to financial constraints, failure to attract qualified personnel, lack of relevant experience or other reasons, we may not be able to maintain or increase our revenue or recover any associated costs, expenses and expenditures, and we may have to adjust our operations and strategies accordingly, which could adversely affect our business, results of operations and financial condition.
To seize the rising demands in oversea markets, we are also exploring opportunities to expand our offerings into overseas markets. We have selectively explored overseas business opportunities with our pop toy business, primarily through the overseas operations of pop toy business after the acquisition of Shenzhen Letsvan. The investment and additional resources required to establish operations and manage growth in other regions and countries may not produce desired levels of revenue or profitability, or at all. We may also encounter challenges typically associated with overseas operations, which we have limited experience in dealing with, such as adaption to local market practices, compliance with local laws and regulations, cultivation and maintenance of local customer base and management of local presence. We cannot assure you that we can address these challenges in a satisfactory manner, or at all, which could affect our future prospects.
We may in the future introduce new services and products to further diversify our revenue streams, including services and products with which we have little or no prior operating experience. These activities may also require significant capital expenditures and investment of valuable management and financial resources, and our growth will continue to place significant demands on such resources. We cannot assure you that we will be able to effectively manage any future growth in an efficient, cost-effective and timely manner, or at all. If we do not effectively manage the growth of our new business and strategies, our business, results of operations and financial condition could be adversely affected.
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Risks Related to Our Pop Toy Business and the Industry
We have limited experience with the operations and management of our new pop toy business, and the future development of our pop toy business is subject to uncertainties.
Since 2023, we have pursued several consumer-facing business opportunities with several new ventures, through both organic growth and external investments, including our business expansion into e-commerce and wellness products businesses. We began to operate in the pop toy industry with our investment in Shenzhen Letsvan since early 2025, and we have wholly operated as a pop toy company after the VIE Termination. The pop toy business differs from our legacy businesses in many aspects, including business model, sales and marketing strategies, growth strategies, distribution channels, monetization methods, day-to-day operations, cash and income streams, cost management and IP management. The competitive landscape of the pop toy sector is also novel to us. We cannot assure you whether we can successfully leverage our existing operational expertise to manage and develop our pop toy business.
We cannot assure you that our pop toy business will attain the level of success of our online learning business in the near term or at all. Moreover, we are subject to a number of risks related to our pop toy business, many of which are different from our legacy businesses in which we have more experience, including:
| ● | understand and capture the needs of targeted consumers in a timely and precise manner; |
| ● | ensure the safety, quality and standards of the products offered; |
| ● | construct and maintain an effective product portfolio; |
| ● | develop competitive pricing strategies and manage relevant costs; |
| ● | harnessing and protecting our IPs; |
| ● | maintain an efficient and high standard supply chain and manage our relationship with suppliers; |
| ● | resolve consumer complaints and claims; and |
| ● | comply with the rules and regulations applicable to our pop toy business, including those related to safety, e-commerce, product liability and consumer right protection, among others. |
If we fail to effectively manage any of these risks, we may not be able to execute the growth strategies of our pop toy business as planned, and we may have to devote significant costs and management attention to resolving the relevant issues, which in turn imposes a negative impact on our business, reputation, results of operations and financial condition.
As a pop toy company, it is critical for us to adjust our product portfolio to keep pace with changing consumer preferences and industry trends. If we fail to design and develop products that will be popular with consumers, we may not be able to attract and retain our customers, which could have a material adverse effect on our business, financial condition and results of operation.
The development of the pop toy market is subject to uncertainties and may be impacted by changing social and economic circumstances and evolving consumer preferences. The pop toy market faces unpredictable challenges, driven by shifting social, economic and cultural dynamics. Consumers’ discretionary spending patterns on toys are influenced by various factors, including economic conditions, demographic trends, social changes and volatile future economic prospects. The interests of consumers evolve extremely quickly and can change dramatically from time to time. These factors contribute to the unpredictability of consumer behavior and present significant risks to the pop toy market, which in turn could affect our business. The popularity and consumer appeal of various types of toys are also affected by evolving consumer preferences. Any decline in the pop toy market as a whole could have a material and adverse impact on our future prospects, business, results of operations and financial condition.
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To be successful, we must anticipate both the IPs and the products that will appeal to consumers and quickly develop and introduce products that can compete successfully for consumers’ limited time, attention and spending. Evolving consumer tastes and shifting interests, coupled with an ever changing and expanding pipeline of consumer products and content that compete for consumers’ interest and acceptance, create an environment in which some products and content can fail to achieve consumer acceptance, while others can be popular during a certain period of time but then be rapidly replaced. Consumer demand for pop culture products can and does shift rapidly and without warning. Even if our product offerings are initially successful, there can be no guarantee that we will be able to maintain their popularity with consumers. Accordingly, our success will depend, in part, on our ability to continually create and introduce new products that consumers find appealing. To the extent that we are unable to do so, our sales and profitability will be adversely affected. If we devote time and resources to developing and marketing products that consumers do not find appealing enough to meet our sales targets or at all, our sales and profits may decline and our business performance may be harmed.
The pop toy industry is competitive and fragmented, and we cannot ensure that we can acquire greater market share, retain existing market share, or otherwise compete effectively.
The pop toy industry is highly competitive and relatively fragmented. To thrive in the competitive environment and stand out among competitors, ongoing innovation and adaptability to consumer tastes and trends are paramount. We compete against competitors of varying brand and product portfolios in a number of areas that were different from the competitive landscape of the online learning industry, such as innovation capabilities, adaptability to consumer tastes and trends, IP-related abilities (e.g., the selection, development, commercialization and preservation of IPs), product quality and sales and marketing prowess. Failure as to any of these aspects can negatively affect our ability to sustain the popularity and market momentum of our product offering or continuously adjust our product offering in response to changing consumer preferences, which could have a material and adverse impact on our business, results of operations and financial condition.
The popularity of our existing IP portfolio may deteriorate, and we may not be able to successfully source, develop or commercialize new IPs.
The success of our pop toys is heavily reliant on the recognition and popularity of the IPs in our IP portfolio. However, whether such IPs will remain popular among the consumers is beyond our control, as consumer preferences may shift and unforeseen negative publicity surrounding these IPs may arise. Any decline in the recognition or popularity of our IPs could significantly affect our sales performance and reputation. In addition, we cannot assure you that we will always be successful in developing or identifying IPs that resonate with consumers. For proprietary IPs, success depends on our ability to interpret market trends, create engaging themes, develop compelling storylines and characters, and produce content that resonates with consumers. Misjudging market preferences could lead to a mismatch between expectations and actual market reception, while rapid changes in consumer tastes or market dynamics could result in newly launched IPs losing appeal or relevance.
The ability to successfully commercialize our IPs is also crucial to our business. Our efforts to commercialize IPs may not always yield the desired outcomes. The economic benefits derived from new IPs may fall short of expectations or fail to offset the research and development costs linked to proprietary IPs. Any failure to commercialize our IPs could have a material and adverse impact on our future prospects, business, results of operations and financial condition.
Our success depends on the creation process of our design team. The loss of designers, or our inability to attract and retain such designers and maintain our design team, could adversely affect our business.
Our success depends to a significant extent on the continued service and performance of our in-house design team, whose creative process is vital to our operations. The loss of any member of our in-house design team could impair our ability to diversify, extend and enhance our IP and product portfolio. In addition, competition for talented designers is intense. We compete with other companies in recruiting, hiring and retaining our innovative designers. Competition for these individuals could cause us to offer higher compensation and other benefits in order to attract and retain them, which would increase our operating costs. If we experience significant attrition of our design team, or if we incur significant cost increase to recruit and retain our designers, our business, results of operations, financial condition and prospects will be materially and adversely affected.
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We may incur significant costs on marketing efforts, and some marketing campaigns may not achieve our expected results.
We operate in a competitive industry and engage in a variety of sales and marketing activities to enhance the exposure and popularity of our IPs and products. We incur substantial advertising and marketing expenditures and other resources to maintain and increase our market recognition. Our marketing activities may not be well received by the market and may not result in the level of sales that we anticipate. We also may not be able to retain or recruit a sufficient number of experienced sales and marketing personnel, or to train newly hired sales and marketing personnel, which we believe is critical to implementing our sales and marketing strategies cost-effectively. Further, sales and marketing approaches and tools in China’s pop toy market are evolving rapidly. This requires us to continually enhance our sales and marketing approaches and experiment with new strategies to keep pace with industry developments and consumer preferences. Failure to engage in sales and marketing activities in a cost-effective manner and failure to achieve the anticipated results from our sales and marketing activities may reduce our market share, cause our revenues to decline, negatively impact our profitability, and materially harm our business, financial condition and results of operations.
Furthermore, a number of the PRC laws and regulations regulate advertisement of products, including the Advertising Law of the PRC and the Law of the PRC on the Protection of Customer Rights and Interests. Violation of these laws or regulations may result in penalties, such as fines, orders to cease dissemination of the advertisements, or orders to eliminate the influence of such advertisements, among others.
Our business depends significantly on market recognition of our brand, and any damage to our brand, trademarks or reputation, or failure to effectively promote our brand, could materially and adversely affect our business and results of operations.
Brand image is a key factor in consumer purchase decisions. We believe that market awareness of our brand has contributed, in part, to the success of our business to date. With our pivot to the pop toy sector, maintaining and enhancing our brand has become even more critical to our efforts to increase the market awareness of our products, which are in turn critical to our business growth. We believe that our future success depends substantially on the popularity of our Here and Letsvan brand and our reputation for popular and high-quality pop toy products.
Therefore, maintaining and enhancing the recognition and image of our brand is critical to our ability to differentiate our products and to compete effectively. Any actual or perceived contamination, spoilage or other product misbranding or tampering may lead to the erosion of our brand and damage to our brand value, regardless of its merits. We have invested significant resources in our high quality and popular products throughout our sales and distribution network. Our brand also depends on our ability to respond to competitive pressures. If we fail to do so, the value of our brand or reputation may be diminished and our business and results of operations may be materially and adversely affected. Furthermore, as we continue to grow in size, expand our product offerings and extend our geographic reach, maintaining product quality and consistency may be more difficult and we cannot assure you that we can maintain our customers’ confidence in our brand name. If consumers perceive or experience a reduction in the quality of our products or service, or consider in any way that we fail to deliver high quality products consistently, our brand value could suffer, which could have a material and adverse effect on our business.
We may be unable to expand and manage our sales and distribution network effectively.
We face risks associated with expanding and managing our sales and distribution network. There are a number of factors which could affect our ability to expand our sales network, and achieve satisfactory sales and profitability levels with our sales and distribution network, including: (1) our ability to find suitable partners and locations, including whether our terms with these partners on terms will be commercially acceptable to us; (2) competition for popular sales channels; (3) our ability to maintain an efficient and cost-effective operation (including adequate management and financial resources) with these sales channels; (4) our ability to effectively compete with other stores selling pop toys; (5) our ability to attract and retain high caliber sales personnel; and (6) our ability to maintain suitable level of inventories with our sales channel. If we fail to expand our sales and distribution channels effectively, we may not achieve optimal sales performance and our IPs may not be promoted effectively, and our results of operations and future prospects might be affected.
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We may encounter challenges in maintaining positive relationships with existing partners within our sales channels, experience disputes with them, or struggle to expand our sales network with new partners under favorable terms, our market presence across different channels or regions may be compromised. Failure to effectively execute our development and growth strategies, along with providing sufficient resources and operational support to our sales channels, could have a material and adverse impact on our future prospects, business, results of operations and financial condition.
We also face various risks in relation to the distributorship model as part of our sales channels. We have limited control over our distributors, who may not always comply with relevant laws, regulations, government guidelines, or adhere to agreements with us. Some distributors may sell our products to sub-distributors without our involvement or oversight, making it difficult to control their sales activities. Some distributors may violate our guidelines and sales strategies, and we may have limited control over disorganized ordering and stockpiling by distributors, making it challenging to make sales forecast and manage inventory levels effectively. All of these activities could cause harm to the effective management of sales channels, harm our reputation, and affect our results of operations.
If we are unable to obtain, maintain and protect our intellectual property rights, in particular trademarks and copyrights, our ability to compete could be affected.
Our intellectual property is a valuable asset of our business. The market for our products depends to a significant extent upon the value associated with our product design and the intellectual properties we develop and license. Although certain of our intellectual property is registered, there can be no assurances with respect to the rights associated with such intellectual property in those jurisdictions, including our ability to register, use, maintain or defend key trademarks and copyrights. To the extent possible, we rely on trademark, trade dress, copyright, patent and trade secret laws, as well as confidentiality procedures or other contractual restrictions of same or similar nature, to establish and protect our intellectual property or other proprietary rights. However, these laws, procedures and restrictions may provide only limited and uncertain protection and any of our intellectual property rights may be challenged, invalidated, circumvented, infringed or misappropriated, including by counterfeiters. In addition, our intellectual property portfolio in foreign countries is less extensive than our portfolio in the PRC, and the laws of foreign countries, including emerging markets in which our products are sold, may not protect our intellectual property rights to the same extent as the laws of the PRC. The costs required to protect our trademarks and copyrights may be substantial.
In addition, we may fail to apply for, or be unable to obtain, protection for certain aspects of the intellectual property used in or beneficial to our business. Further, we cannot provide assurance that our applications for trademarks, copyrights and other intellectual property rights will be granted, or, if granted, will provide sound and effective protection. Certain of our trademarks may have already been registered in the overseas markets that we are expanding or intend to expand to. In addition, third parties could bring infringement, invalidity or similar claims with respect to any of our current trademarks, copyrights and other intellectual properties, or any trademarks, copyrights or other intellectual properties we may seek to obtain in the future. Any such claims, whether or not successful, could be extremely costly to defend, divert management’s attention and resources, damage our reputation and brands, and substantially harm our business and results of operations. Any lawsuits or proceedings that we initiate could be expensive, take significant time and divert management’s attention from other business concerns. Litigation and other proceedings also put our intellectual property at risk of being invalidated, or if not invalidated, may result in the scope of our intellectual property rights being narrowed. In addition, our efforts to try to protect and defend our trademarks and copyrights and other intellectual properties may be ineffective. Additionally, we may provoke third parties to assert claims against us. We may not prevail in any lawsuits or other proceedings that we initiate, and the damages or other remedies awarded, if any, may not be commercially valuable. The occurrence of any of these events may have a material adverse effect on our business, financial condition and results of operations.
Furthermore, some of our products bear the trademarks and other intellectual property rights of our licensors, and the value of our products is affected by the value of those rights. Our licensors’ ability to maintain and protect their trademarks and other intellectual property rights is subject to risks similar to those described above with respect to our intellectual properties. We do not control the protection of the trademarks and other intellectual property rights of our licensors and we cannot ensure that our licensors will be able to secure or protect their trademarks and other intellectual property rights. The loss of any of our significant owned or licensed trademarks, copyrights or other intellectual property could have a material adverse effect on our business, financial condition and results of operations. In addition, our licensors may engage in activities or otherwise be subject to negative publicity that could harm their reputation and impair the value of the intellectual property rights we license from them, which could reduce consumer demand for our products and adversely affect our business, financial condition and results of operations.
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We have been and expect to continue to be involved with litigation and other legal proceedings related to intellectual property rights. For instance, with respect to our legacy individual online learning services business, certain of our competitors infringed certain copyrights of our financial literacy course contents and we sued such companies and claimed for, among others, injunctive relief and monetary damages. 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, however, 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 uncertain, and 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 result in substantial costs and diversion of our resources, and have a material adverse effect on our business, results of operations and financial condition.
Our collaborations with third-party partner factories for our products presents risks to our business. Failure in product quality control may adversely affect our business.
We collaborate with specialized third-party partner factories to manufacture our products. As a result, the loss or unavailability of one of our major partner factories, even temporarily, could have a negative impact on our business, financial condition and results of operations. While we could replace our partner factories if necessary, any such move may be time-consuming and costly. We may also be required to seek out additional factories in response to increased demand for our products, as our current partner factories may not have the capacity to increase production. If we fail to receive a material portion of the products made by our partner factories, or if we fail to shift partner factories, our sales and profitability could be significantly reduced.
We may not have effective control over whether our third-party partner factories would strictly follow our specifications and instructions as to, for example, raw materials to be used in the production of our products. There are risks that one or more of our third-party partner factories will not comply with our requirements, and that we may not be able to discover such non-compliance immediately or at all. As such, the use of third-party partner factories may expose us to product liability claims, administration penalties, confiscation or destruction of certain products, the revocation of business license, or the imposition of other administrative or even criminal liabilities. If defective products are sold, it would result in damage to our reputation, product recall, consumer litigation and others that could materially and adversely affect our business.
We are exposed to inventory management risks and may face inventory excess, obsolescence, impairment or shortage.
As of June 30, 2026, we had inventories of RMB134.7 million (US19.9 million). We must maintain sufficient inventory levels to ensure our product demand can be met, while avoiding excess inventory. Failure to forecast consumer demand or respond to any unexpected event negatively affecting the sales of our products could expose us to inventory obsolescence or result in a decline in inventory value or inventory write-downs. Changes to our business focus or product portfolio may also cause our inventories to be irrelevant and render our capital outlays for inventories unnecessary. For instance, we incurred purchase commitment loss of inventories for our baijiu business as we voluntarily suspended relevant operations. On the other hand, inaccurate sales forecast or insufficient production capacity at our partner factories may lead to inventory shortage and result in our inability to meet market demand for our products and satisfy orders from our sales partners. Failure in managing our inventory could have a material and adverse impact on our business, results of operations and financial condition.
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We are exposed to risks relating to warehousing and third-party logistics service providers.
Significant disruption to the operation of our warehouses, whether as a result of natural disasters, public health incidents, labor shortages, fires or other causes, or any unexpected and adverse changes in the storage conditions of our warehouses, could disrupt our operations, which may cause delay in product deliveries or even destroy our products. Prolonged disruptions in warehousing could also result in a loss of sales. Furthermore, we may fail to secure the lease agreement of our warehouses on favorable terms, or at all. Any of these events could have a material and adverse impact on our business, results of operations and financial condition.
We engage third-party logistics service providers to transport our products from partner factories to our warehouses and/or customers. Our dependence on third-party logistics providers could expose us to potential service disruptions or inefficiencies. If these providers fail to meet their service obligations due to operational issues, financial difficulties, or other unforeseen circumstances, our ability to deliver products to customers in a timely and cost-effective manner may be impacted, which could cause a decline in product sales and loss of revenue. In addition, improper handling of our products by the logistics service providers could also result in product damage, which could lead to product liabilities or claims and negatively affect our brand image and reputation. Any of these events could have a material and adverse impact on our business, results of operations and financial condition.
The success of our operations depends on our ability to avoid infringing, misappropriating or otherwise violating the trademarks, copyrights, trade secrets, know-how, patents and other proprietary rights of third parties.
We cannot assure you that our business practices do not and will not infringe, misappropriate or otherwise violate any trademarks, copyrights, trade secrets, know-how, patents and other proprietary rights of third parties, given the uncertainties inherent in the scope of certain trademarks, copyrights, trade secrets, know-how, patents and other proprietary rights. The increasing use of artificial intelligence in our business operations, including the involvement of AI-generated content (AIGC) in the process of creating and designing IPs, may also increase the risk of intellectual property right infringement due to, among others, the potential use of third-party copyrighted materials without proper authorization in training AI models, the possibility that AI-generated designs may reproduce or closely resemble third-party protected works, and uncertainties regarding the allocation of liability for infringement arising from AI-generated content. Intellectual property related litigation is usually complex and the results of such litigation are unpredictable. As we gain greater visibility and market exposure as a public company, we may also be at greater risk of being the subject of intellectual property–related litigation. Third parties may claim that our products or activities infringe, misappropriate or otherwise violate their trademarks, copyrights, trade secrets, know-how, patents or other proprietary rights. Defending against these allegations and lawsuits could be costly, take a significant amount of time, distract management from our business operations and delay our product launch. In addition, if we are found to have infringed, misappropriated or otherwise violated a third party’s trademarks, copyrights, trade secrets, know-how, patents or other proprietary rights, we may be required to pay substantial damages or be subject to orders, judgments or administrative penalties that prohibit us from selling certain products or impose other liabilities on us. In addition, any allegation of infringement of the intellectual property rights of others, even if unfounded, could damage our reputation and tarnish our brand image. Furthermore, our use of the disputed intellectual properties may be restricted, which could disrupt our operations. Occurrence of any of these incidents could have a material and adverse impact on our business, results of operations and financial condition.
We have undertaken strategic collaborations with IP licensors. If we fail to expand or maintain our collaboration with IP licensors, or our existing collaboration with any of our IP licensors is terminated or curtailed, or if we are no longer able to benefit from such business collaborations, our business and results of operations may be adversely affected.
Strategic collaborations with IP licensors are part of our business expansion strategies. We collaborate with IP licensors to jointly develop products that attract consumers. If we are unable to expand or maintain our collaboration with them in the future, our business and operating results may be materially and adversely affected. To the extent we cannot maintain our cooperative relationships with any of these IP licensors, it might be difficult for us to identify alternative qualified IP licensors, which might adversely impact our daily operation and consumer experience. Our cooperation with IP licensors may also be adversely affected by negative publicities regarding our IP licensors, which could negatively affect our reputation, business and results of operations. In addition, the license agreements we entered into with IP licensors may contain extensive and detailed provisions setting forth scope of licenses, such as categories and sub-categories of products authorized to use licensed IPs, authorized sales channels, territories where sales of co-branded products are allowed, among others. We, our employees and our business partners may inadvertently breach such IP protection provisions and therefore subject us to liabilities under our agreements with IP licensors. Disputes may also arise due to reasons that we are unable to foresee. If we are unable to resolve disputes with IP licensors, we may not be able to continue our cooperation with our IP licensors, which could have a material and adverse effect on our business and operating results.
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In addition, if we are unable to sell all of the co-branded products in our inventory within a reasonable period of time after the expiration of relevant agreements, we will not be able to continue to sell those products and may have to destroy our inventories. As a result, we may have to write down such inventories, which would result in negative impacts on our operating results and financial conditions.
Risks Related to Our Operations
Our continuing operations have incurred losses and may not achieve profitability in the future.
Our continuing operations are related to our pop toy business. We incurred net losses from continuing operations of nil, RMB21.8 million and RMB254.9 million (US$37.6 million) in the fiscal years ended June 30, 2024, 2025 and 2026, respectively (including an impairment loss on goodwill related to the acquisition of Shenzhen Letsvan was RMB124.1 million (US$18.3 million) for the fiscal year ended June 30, 2026). We cannot assure you that we will be able to generate net income or positive cash flow from operating activities in the future. Our future ability to maintain profitability will depend in large part on our ability to successfully operate and monetize from our pop toy business, maintain or increase our operating margin, either by growing our revenues at a rate faster than our costs and operating expenses increase, or by reducing our costs and operating expenses as a percentage of our revenues. In particular, our ability to achieve and maintain profitability will depend on the success of our IPs and products, which may take time to win market awareness and popularity. As a result of the foregoing, we may not be able to achieve profitability with our pop toy business in the future.
Our investments, acquisitions and alliances may require significant management attention and adversely affect our business operations, results of operations and financial condition.
We continually evaluate and consider strategic investments, combinations, acquisitions or alliances. For instance, in September 2023, we entered into an agreement relating to the acquisition of KELLY’S EDUCATION LIMITED (“Kelly’s Education”), a personalized online language education service provider in Hong Kong, pursuant to which we acquired all of the issued share capital of Kelly’s Education for a total consideration of HK$2.0 million. In addition, through a series of transactions during the fiscal year ended June 30, 2025, we acquired controlling interests in Shenzhen Letsvan, a company specializing in IP incubation, copyright commercialization, and the promotion and sales of pop toys, through which we began to engage in our primary business currently, namely pop toy business. If these investments and acquisitions do not perform as we expected, become less valuable to our business due to a change in our overall business strategy, or if the industry, regulatory or economic environments deteriorate, they could result in significant impairment of investments. Specifically, our impairment loss on goodwill related to the acquisition of Shenzhen Letsvan was RMB124.1 million (US$18.3 million) for the fiscal year ended June 30, 2026, primarily reflecting lower-than-anticipated financial performance amid macroeconomic headwinds.
We may not be able to identify suitable strategic alliances or acquisition opportunities, complete such transactions on commercially favorable terms, or successfully integrate business operations, infrastructure and management philosophies of acquired businesses and companies. Furthermore, these transactions could be material to our business if consummated. We may not have the financial resources necessary to consummate any acquisitions in the future or the ability to obtain the necessary funds on satisfactory terms. There may be particular complexities, regulatory or otherwise, associated with further expansion into new markets, and our strategies may not succeed beyond our current markets. Any future acquisitions may also result in significant transaction expenses in addition to integration and consolidation risks. We may not have sufficient management, financial and other resources to integrate any such acquisitions or to successfully operate new businesses, and we may be unable to profitably operate our expanded company. If we are unable to effectively address these challenges, our ability to execute acquisitions will be impaired, which could have an adverse effect on our growth.
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We may be adversely affected by negative publicity concerning us or our current and legacy business, brands, IPs, products and services, shareholders, affiliates, directors, officers, employees, the industries in which we operate regardless of its accuracy.
Negative publicity about us and our current and legacy business, brands, IPs, products and services, shareholders, affiliates, directors, officers, employees, the industries in which we operate can harm our brand recognition and reputation. For instance, with respect to our legacy individual online learning services, we had, from time to time, been subject to online complaints from alleged users or third parties claiming that our paid courses were overpriced and not useful, or claiming that the content on our platforms and the description about our services are invalid and misleading, or against our legacy brands. We were also exposed to negative publicity concerning refund disputes over course fees between us and the learners for our legacy individual online learning services or administrative penalties. We had also been subject to claims of fraudulent activities for the provision of our online learning services, which could harm consumer interests. Moreover, with our pop toy business, the reputation of our HERE奇梦岛 brand (previously known as Letsvan) plays a crucial role in consumer perception of us and the sales of our products. Addressing such adverse publicity may necessitate the launch of defensive media campaigns or legal actions, leading to increased marketing and legal expenses and diverting management’s focus from core operations. Any counterfeit products or knockoffs may also infringe and undermine our brand reputation in general.
Negative publicity concerning the foregoing could be related to a wide variety of matters, including but not limited to:
| ● | complaints about our sales and marketing activities; |
| ● | controversies over our product and IPs; |
| ● | breaches of confidentiality, in particular that of sensitive personal information; |
| ● | employment-related claims; and |
| ● | governmental and regulatory investigations or penalties resulting from our failure to comply with applicable laws and regulations. |
Our online marketing strategy relies on third-party social media platforms. In particular, our fans and the influencers we work with may post contents relating to our products from time to time. We may fail to detect and prevent illegal or inappropriate content from being posted, which may incur regulatory investigations, legal liability, or removal from social media platforms. In addition, unfavorable publicity or negative news regarding us, our fans, the influencers we work with, or our IP proprietors, or negative review on our brands and products could adversely affect our reputation.
If our senior management and other key personnel are unable to work together effectively or efficiently or if we lose their services, our business may be severely affected.
The continued services of our senior management and other key personnel are important to our continued success. If they cannot work together effectively or efficiently, our business may be severely disrupted. If, in the future, one or more of our senior management members were unable or unwilling to continue in their present positions, and we cannot find suitable replacement in a timely and efficient manner, or at all, our business, results of operations and financial condition may be materially and adversely affected. If any of our senior management joins a competitor or forms a competing business, we face the risk of losing other key personnel. Our senior management has entered into employment agreements with us which contain confidentiality clauses, as well as standalone confidentiality and non-compete agreements. While certain senior management members have departed from our company due to their personal development decisions, we have not experienced any material disruptions to our business or material disputes with them in connection with such departures. However, if 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.
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We may face risks and uncertainties with respect to the licensing requirement for our business. Any lack of or failure to maintain requisite approvals, licenses or permits applicable to us may have a material adverse impact on our business, results of operations and financial condition.
We are subject to government regulations for our operations in China. As we have transitioned to the pop toy sector, we are subject to laws, regulations and policies governing the pop toy sector. The regulatory regime for the industry has been evolving, with new laws, regulations and other regulatory measures being introduced from time to time, such as the Product Quality Law of the People’s Republic of China (2018 Revision). Such laws and regulations may become more comprehensive and stringent in the future. While we closely monitor changes in the relevant laws and regulations and have implemented measures to ensure our ongoing compliance, changes in the regulatory regime may materially and adversely affect our business. For example: (1) we may incur higher compliance costs on our business and face challenges in launching new products; (2) we may encounter greater difficulties in obtaining relevant regulatory approvals; and (3) our sales and marketing activities may be restricted in scope, content, format and other aspects. Any non-compliance with applicable laws and regulations may expose us to liabilities. In case of any non-compliance, we may incur significant expenses and divert management’s attention and substantial resources to resolving deficiencies. More specifically, on June 8, 2023, the SAMR promulgated the Blind Boxes Guidelines. The interpretation and enforcement of such newly promulgated guidelines can be uncertain.
With regards to our legacy individual online learning services business before the VIE Termination, according to relevant PRC laws and regulations, no entities or individuals may provide internet audio-visual program services, which include making and editing of audio-visual programs concerning educational content and broadcasting such content to the general public online, without the Audio-Visual License, issued by the State Administration of Press, Publication, Radio, Film and Television (the “SAPPRFT”) (currently known as National Radio and Television Administration), or its local bureaus, and only state-owned or state-controlled entities are eligible to apply for an Audio-Visual License. See “Item 4. Information on the Company—B. Business Overview—Regulation—Regulations on online transmission of audio-visual programs.” We did not obtain the Audio-Visual License for offering certain courses in live streaming format and video recordings of live streaming courses and certain other audio-video contents such as short, pre-recorded videos and audio podcasts through our platforms to our users. We were, however, not eligible to apply for such license since we are not a state-owned or state-controlled entity. As of the date of this annual report, we have not been subject to any penalties imposed by, or any investigations initiated by, the relevant government authorities due to such provision of internet audio-visual contents through our platforms without any requisite license before the VIE Termination. In addition, with respect to our legacy businesses, due to the ambiguity of the definition of “online publishing service” under the PRC laws and regulations, the online distribution of content, including our audio-visual contents and other course materials, through our platforms, may be regarded as an “online publishing service” and, therefore, we or the affiliated entities may be required to obtain an Online Publishing Service License. Failure to obtain such licenses may lead to fines, confiscation of relevant gains, suspension of the operations of our online platforms and other liabilities. As of the date of this annual report, we have not been required by the relevant regulatory authorities to obtain such license for our legacy businesses, nor have we been subject to any penalties imposed by, or any investigations initiated by, the relevant government authorities for failure to obtain such license.
We cannot assure you that local PRC authorities will not adopt different enforcement practice or will not issue more explicit interpretation and rules or promulgate new laws and regulations from time to time to further regulate the pop toy industry, which may subject us to additional licensing requirements. We may also be required to apply for and obtain additional licenses or permits for our operations in China as the interpretation and implementation of current PRC laws and regulations continue to evolve. If government authorities determine that our operations fall within the scope of business operations that require additional licenses, permits or approvals, we may not be able to obtain such licenses, permits or approvals in a timely manner or on commercially reasonable terms or at all, and failure to obtain such licenses, permits or approvals may subject us to fines, legal sanctions or an order to suspend our related operations. Moreover, we may fail to renew or update any of our existing licenses and permits in a timely manner and on commercially reasonable terms, or at all, which could materially and adversely affect our business, results of operations and financial condition. Government authorities may also from time to time issue new laws, rules and regulations and enhance enforcement of existing laws, rules and regulations, which could require us to obtain new and additional licenses, permits or approvals. If we are not able to comply with the applicable legal requirements, we may be subject to fines, confiscation of the gains derived from non-compliant operations, or suspension of non-compliant operations, any of which may materially and adversely affect our business, results of operations and financial condition.
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We have been and may continue to be subject to litigations, allegations, complaints, investigations and penalties from time to time, which may adversely affect our business, results of operations and financial condition.
We have been and may continue to be involved in legal and other disputes, including labor disputes, customer complaints, advertisements, unfair competition and other dissatisfactions, contractual disputes, product liability claims and administrative penalties in the ordinary course of our business operations. We have encountered and may also, in the future, encounter, disputes from time to time over rights and obligations concerning intellectual property rights and allegations against us for potential infringement of third party’s intellectual property rights, and we may not prevail in those disputes. 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 harm our brand equity. If a legal or administrative proceeding against us is successful, we may be required to pay substantial damages or fines and/or enter into agreements that may not be based upon commercially reasonable terms, or we may be unable to enter into such agreements at all. We may also lose, or be limited in, the rights to offer some of our products or be required to make changes to our product offerings or business model. As a result, the scope of our offerings could be reduced, which could adversely affect our ability to attract consumers, harm our reputation and have a material adverse effect on our business, results of operations and financial condition.
We are subject to a variety of evolving laws and regulations regarding cybersecurity, data security and personal information protection. If the data security measures adopted by us underperform, or if we otherwise fail to protect data security and personal information as required by relevant laws and regulations or by our users, consumers may lose trust in us, and we may be subject to liabilities and other negative consequences.
Maintaining data security and protecting personal information are critical to our business. Such information is potentially vulnerable to cyber-attacks, computer viruses, physical or electronic break-ins or similar disruptions. In addition, we are also subject to a variety of laws and regulations regarding cybersecurity, data security and personal information protection, including restrictions on the collection, storage and use of personal information and requirements to take steps to prevent personal data from being divulged, stolen or tampered with.
A party may nevertheless circumvent our data security measures and disseminate or misappropriate proprietary and confidential information and jeopardize the confidential nature of such information. Any unauthorized or otherwise inappropriate disclosure or leakage of data, whether willful or accidental, may give rise to wrongful access, misuse or loss of our proprietary and confidential information or other records, which could disrupt our business and expose us to potential liabilities, costly litigations and negative publicity. If security measures are breached because of third-party action, employee error, malfeasance or otherwise, or if design flaws in our technology infrastructure are exposed and exploited, our relationships with users and/or customers and business partners could be severely damaged, we could incur significant liabilities and our business and operations could be adversely affected. Furthermore, we have expanded our business to the pop toy sector. Any failure or perceived failure by us to prevent information security breaches or to comply with privacy policies or privacy-related legal obligations, or any compromise of security that results in the unauthorized release or transfer of personally identifiable information or other customer data, could cause consumers to lose trust in us and could expose us to legal claims. A security breach that leads to leakage of data and information of our users and/or customers could subject us to legal liabilities, regulatory sanctions, reputational damage and loss of confidence. In addition, data breaches or any misconduct during the process of collection, analysis, and storage of data, could result in a violation of applicable PRC data privacy and protection laws and regulations, and subject us to regulatory actions, investigations or litigations. As of the date of this annual report, we have not incurred any material actions, investigations or litigations relating to cybersecurity and personal information protection. However, we cannot guarantee that we will not encounter such incidents in the future. If any of such events occurs, we could incur significant costs in investigating and defending against them, and could be subject to negative publicity about our privacy and data protection practices, which may affect our reputation in the marketplace. Any potential risks related to our processing of data could require us to implement measures to reduce our exposure to liability, which may require us to expend substantial resources and limit the attractiveness of our products to consumers. As a result, our business, results of operations and financial condition could be materially and adversely affected. Any of these issues could harm our reputation, adversely affect our ability to attract consumers, reduce their willingness to pay, or subject us to third-party lawsuits, regulatory fines or other action or liability. Any reputational damage resulting from breach of our security measures could create distrust of our company by consumers or investors. We may be required to spend significant additional resources to protect us against the threat of security measures breaches or to alleviate problems caused by such disruptions or breaches. Any concerns or claims about our practices and compliance with regard to the processing of personal information or other privacy-related matters, even if ungrounded, could damage our reputation and results of operations.
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The PRC regulatory framework for data security and personal information protection is rapidly evolving, and we could face challenges in our continued compliance with the heightened regulatory scrutiny.
The PRC regulatory framework for data security and personal information protection is rapidly evolving and is likely to remain uncertain for the foreseeable future. For instance, on June 10, 2021, the Standing Committee of the National People’s Congress (“SCNPC”) promulgated the PRC Data Security Law, which took effect on September 1, 2021. The PRC Data Security Law, among other things, requires data collection to be conducted in a legitimate and proper manner, and stipulates that, for the purpose of data security, data processing activities must be conducted based on data classification and hierarchical protection system. Furthermore, the CAC promulgated the Security Assessment Measures for Outbound Data Transfer on July 7, 2022 (effective from September 1, 2022) and the Provisions on Promoting and Regulating Cross-Border Data Flows on March 22, 2024 (effective on the date of promulgation), respectively, to regulate outbound data transfer activities, protect the rights and interests of personal information, safeguard national security and social public interests, and promote the cross-border security and free flow of data. In addition, on December 8, 2022, the Ministry of Industry and Information Technology of the PRC (the “MIIT”) released the Administrative Measures for Data Security in Industry and Information Technology Sectors (Trial), effective from January l, 2023, which, among other things, impose specific data security management requirements and certain filing and reporting obligations on processors of important data and core data in industry and information technology sectors. Since the categories of important data and core data still remain unclear, it is uncertain how the measures will be interpreted and implemented.
On August 20, 2021, the SCNPC passed the PRC Personal Information Protection Law (the “PIPL”), which took effect on November 1, 2021. The PIPL accentuates the importance of processors’ obligations and responsibilities for personal information protection and sets out the basic rules for processing personal information and the rules for cross-border transfer of personal information. Pursuant to the PIPL, a personal information processor is allowed to process (including to collect, store, use, transmit, provide, disclose and delete) personal information only under certain circumstances, such as processing with consent from such individual, or for necessity of performance of a contract to which such individual is a contracting party or statutory duties, management of human resource under the labor rules and regulations developed in accordance with the law or a collective contract signed in accordance with the law, protection of public interest, or reasonable usage of legally disclosed information. Processing of sensitive personal information, such as the personal information that is likely to result in damage to personal dignity, personal or property safety once illegally disclosed, as well as the personal information of minors under the age of 14, is subject to higher regulatory requirements including specific purpose, sufficient necessity, duty of explanation to such individuals and consent from a parent or a guardian of such minors. See “Item 4. Information on the Company—B. Business Overview—Regulation—Regulations on Privacy Protection” for details. We do not foresee any material impediments for us to comply with the PIPL and other existing PRC laws and regulations on cybersecurity, data security and personal data protection in all material respects, based on the following reasons: as of the date of this annual report, (1) we have implemented comprehensive cybersecurity and data protection policies, procedures and measures to safeguard personal information rights and ensure secured storage and transmission of data and prevent unauthorized access or use of data; (2) there has been no material leakage of data or personal information or violation of cybersecurity and data protection and privacy laws and regulations by us which will have a material adverse impact on our business operations; (3) we have not been subject to any material fines or administrative penalties, or other sanctions by any competent regulatory authorities in relation to the infringement of cybersecurity and data protection laws and regulations; (4) there has been no material cybersecurity and data protection incidents or infringement upon the rights of any third parties, or other legal proceedings, administrative or governmental proceedings, pending or, to the best of the knowledge of our company, threatened against or relating to our company; and (5) we have not been involved in any investigations on cybersecurity review initiated by the CAC on such basis and have not received any inquiry, notice, warning or sanctions in this respect.
On September 24, 2024, the State Council promulgated the Administration Regulations on Cyber Data Security, which came into effect on January 1, 2025. The Administration Regulations on Cyber Data Security reiterate and refine the general regulations for cyber data processing activities, rules of personal information protection, important data security protection, cyber data cross-border transfer management, and the responsibilities of online platform service providers. In particular, the Administration Regulations on Cyber Data Security provide that cyber data processors whose cyber data processing activities affect or may affect national security shall be subject to national security review in accordance with the relevant regulations. However, the Administration Regulations on Cyber Data Security provide no further explanation or interpretation for the criteria on determining the risks that “affect or may affect national security.” Additionally, since the Administration Regulations on Cyber Data Security are still relatively new, the interpretation and implementation of these regulations may further evolve and develop.
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We cannot assure you that our existing data security and personal information protection system and technical measures will always be considered sufficient under applicable laws, regulations and other privacy standards, or that we will comply with the applicable laws and regulation in all respects. If relevant government authorities interpret or implement these and other laws or regulations in ways that may negatively affect us, our current practice of collecting and processing data and personal information may be ordered to be rectified or terminated by regulatory authorities, and we may also become subject to fines and other penalties. We could be adversely affected if PRC legislation or regulations require changes in business practices or privacy policies, or if the relevant PRC government authorities interpret or implement their legislation or regulations in ways that negatively affect our business, results of operations and financial condition.
We are subject to risks associated with our international expansion.
Overseas expansion is a crucial part of our long-term business strategy, especially with our venture into the pop toy sector. We have selectively engaged in certain international expansion initiatives, such as the overseas operations of the pop toy business. While overseas operations currently have not contributed a significant portion of our revenue, as our overseas operations grow and deepen, we could be faced with increased risks, including, among others:
| ● | political instability and general economic or political conditions in particular countries or regions; |
| ● | import or export licensing requirements and tariffs imposed by various foreign countries; |
| ● | difficulties and costs associated with complying with, and enforcing remedies under, a wide variety of complex domestic and international laws, treaties and regulations; |
| ● | different regulatory structures and unexpected changes in regulatory environments; |
| ● | increased costs to protect intellectual property and personal data security; |
| ● | inability to recruit international talent and challenges in replicating or adapting our company policies and procedures to operating environments different from that of China; |
| ● | exchange rate fluctuations; and |
| ● | fluctuations in selling prices and margins of our overseas sales. |
In addition, overseas operations generally could involve higher costs, such as costs for maintaining an operational framework and structure compliant with local regimes, recruiting and retaining local staff and coordination of local operations. All of these risks above will also intensify with the scale of our overseas operations and may have a negative impact on our business, results of operations, financial condition and prospects.
A material weakness in our internal control over financial reporting has been identified, and if we fail to implement and maintain an effective system of internal control over financial reporting, we could 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.
In the course of preparing and auditing our consolidated financial statements for the fiscal years ended June 30, 2024, 2025 and 2026, we and our independent registered public accounting firm identified one material weakness in our internal control over financial reporting as of June 30, 2026. As defined in the standards established by the PCAOB, a “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected on a timely basis.
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The material weakness identified relates to lack of sufficient financial reporting and accounting personnel with appropriate knowledge of U.S. GAAP and reporting requirements set forth by the SEC to properly address complex U.S. GAAP technical accounting issues, and to prepare and review the consolidated financial statements and related disclosures in accordance with U.S. GAAP and financial reporting requirements set forth by the SEC. The material weakness, if not remediated timely, may lead to material misstatements in our consolidated financial statements in the future.
To remedy our identified material weakness, we will continue to improve our internal control over financial reporting. For details, see “Item 15. Controls and Procedures—Internal Control over Financial Reporting.” The implementation of these measures, however, may not fully address the material weakness identified in our internal control over financial reporting, and we cannot conclude that it has been fully remedied. Our failure to correct the material weakness or our failure to discover and address any other material weaknesses or deficiencies could result in inaccuracies in our financial statements and impair our ability to comply with applicable financial reporting requirements and related regulatory filings on a timely basis. Moreover, ineffective internal control over financial reporting could significantly hinder our ability to prevent fraud.
We are subject to the Sarbanes-Oxley Act of 2002. Section 404 of the Sarbanes-Oxley Act (the “Section 404”) requires 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 for the fiscal year ended June 30, 2024. 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. If we fail to remedy the material weakness that has been identified and continues to exist or other material weaknesses that may be identified in the future, our management may again conclude that our internal control over financial reporting is not effective. In addition, as 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.
We may identify other weaknesses and deficiencies in our internal control over financial reporting in the future. 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, 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 business, results of operations, financial condition and prospects, as well as the trading price of the 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.
Any change, disruption, discontinuity in the features and functions of major social media in China could materially and adversely affect our business, results of operations and financial condition.
We leverage social media in China as a tool for customer acquisition and engagement. To the extent that we fail to leverage such platforms, our ability to attract consumers and maintain and enhance the recognition of our IPs and products may be severely harmed. If any of these platforms experiences downtime or other disruptions, or if we are unable to utilize these platforms, we may not be able to locate alternative platforms of similar scale to provide similar functions or support on commercially reasonable terms in a timely manner, or at all. Any interruption to or discontinuation of our relationships with major social network operators in China may affect our marketing campaigns, reduce our brand visibility among consumers, and cause a decline in the popularity of our IPs and products, which in turn may have a material adverse effect on our business, results of operations and financial condition.
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We currently have limited business insurance coverage.
Insurance companies in China currently do not offer as extensive an array of insurance products as insurance companies in more developed economies. We rarely maintain liability insurance or property insurance policies, equipment and facilities for injuries, death or losses due to fire, earthquake, flood or any other disaster. Consistent with customary industry practice in China, we rarely maintain any business interruption insurance or key-man life insurance. We have determined that the costs of insuring for these risks and the difficulties associated with acquiring such insurance on commercially reasonable terms make it impractical for us to have such insurance. Any uninsured business disruptions may result in our incurring substantial costs and the diversion of resources, which could have an adverse effect on our results of operations and financial condition.
We face uncertainties with respect to our leased properties.
We lease properties from third parties primarily for our offices, offline stores and warehouses in China, and the lease agreements for most 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 annual report, 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 such leased properties. However, we cannot assure you that the government authorities will not impose fines on us due to our failure to register any of our lease agreements, which may negatively impact our financial condition.
Failure to make adequate contributions to social insurance and housing fund as required by PRC regulations may subject us to penalties.
In accordance with the PRC Social Insurance Law and the Administrative Measures on Housing Fund and other relevant laws and regulations, an employer is required to pay basic pension insurance, basic medical insurance, work-related injury insurance, unemployment insurance, maternity insurance and housing fund (the “Employee Benefits”), for its employees in accordance with the rates provided under relevant regulations and withhold the Employee Benefits that should be assumed by the employees. Historically, we had not made sufficient contribution of the Employee Benefits for some employees. For our legacy individual online learning business, we started to make sufficient contribution of Employee Benefits for all employees from July 2023 in accordance with relevant regulations in China. Meanwhile, for our pop toy business, we started to make sufficient contribution of Employee Benefits for all employees from July 2025 in accordance with relevant regulations in China. We have made adequate provision in relation to the insufficient contribution of the Employee Benefits in our financial statements. However, we cannot assure you that the relevant government authorities will not, in the future, require us to pay the outstanding amount and impose late fees or fines on us, in which case our business, results of operations and financial condition may be adversely affected.
Increases in labor costs, inflation and implementation of stricter labor laws in the PRC may adversely affect our business and results of operations.
Under the PRC Labor Contract Law, employees have the right, among others, to have written employment contracts, to enter into employment contracts with no fixed term under certain circumstances, to receive overtime wages and to terminate or alter terms in labor contracts. Because the PRC government authorities have introduced various new labor-related regulations since the PRC Labor Contract Law took effect, and the interpretation and implementation of these regulations are still evolving, our employment practice could violate the PRC Labor Contract Law and related regulations and could be subject to related penalties, fines or legal fees. We have been, and may in the future be, subject to certain employment related disputes from time to time. We cannot assure you that we will not be subject to any material labor disputes or penalties from regulatory authorities in the future. If we are subject to severe penalties or incur significant legal fees in connection with labor law disputes or investigations, our business, results of operations and financial condition may be adversely affected.
China’s overall economy and the average salary have increased in recent years and are expected to continue to grow. The average salary level for our employees has also increased in recent years. If the inflation intensifies in China, we may have to increase the price level of our products while our costs and operating expenses may also increase in the mean time. In that case, our profit margin will depend on our ability to pass on the additional costs and operating expenses to our customers. In addition, a rising inflation level may also have a negative impact on consumers’ discretionary purchases, which will in turn reduce the demand of our offerings and negatively affect our results of operations and financial condition. Unless we are able to pass on these increased labor costs to consumers or reduce other costs, our business, results of operations and financial condition would be materially and adversely affected.
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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 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 have granted and will continue to grant share-based awards under our share incentive plans, which may result in increasing share-based compensation expenses.
In connection with our restructuring and spin-off, we adopted our 2018 share incentive plan (the “2018 Plan”) and 2021 global share plan (the “2021 Plan”) in May 2022 to reflect the respective interests of grantees prior to the restructuring and spin-off and to provide for future incentive grants to our employees, directors and consultants. Under the 2018 Plan and the 2021 Plan, the maximum aggregate number of shares which may be issued pursuant to all awards is 38,240,745 Class A ordinary shares. As of October 21, 2026, options to purchase a total of 18,922,459 Class A ordinary shares under the 2021 Plan had been granted and outstanding, and 13,797,510 of such options had been exercised. As of October 21, 2026, there had been no options granted under the 2018 Plan. We recorded share-based compensation of nil, RMB2.5 million and RMB37.0 million (US$5.4 million) from continuing operations for the fiscal years ended June 30, 2024, 2025 and 2026, respectively. We may continue to record significant share-based compensation expenses in relation to such share option grants. We expect to grant awards under such plans, which we believe is of significant importance to our ability to attract and retain key personnel and employees and may therefore record additional amount of share-based compensation expenses. See “Item 6. Directors, Senior Management and Employees—B. Compensation—Share Incentive Plans” for details. As a result, our expenses associated with share-based compensation may increase, which may have an adverse effect on our results of operations and financial condition.
We may need additional capital in the future to pursue our business objectives.
We may need to raise additional capital to respond to business challenges or opportunities, enhance our marketing efforts, accelerate our growth and design and develop new products. Due to the unpredictable nature of the capital markets and our industries, we cannot assure you 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 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.
Natural disasters and unusual weather conditions, power outages, pandemic outbreaks, terrorist acts, global political events and other extraordinary events could materially and adversely affect our results of operations, financial condition and growth prospects.
During the peak of the COVID-19 pandemic, various nations imposed various measures to keep COVID-19 in check, including travel restrictions from time to time. Such measures have adversely affected our operation, as it has caused inconvenience to our day-to-day operating activities. To the extent that future waves of COVID-19 pandemic disrupt normal business operations, we may face operational challenges with our services, and decline in the individual disposable income and discretionary spending.
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In addition, natural disasters, such as fires, earthquakes, hurricanes, floods, tornadoes, unusual weather conditions, power outages, other pandemic outbreaks, terrorist acts or disruptive global political events, or similar disruptions could materially and adversely affect our business operations and financial performance. These events could result in server interruptions, breakdowns, system failures, technology platform failures or internet failures, which could cause the loss or corruption of data or malfunctions of software, hardware, storage and network. Any interruptions to our sales and marketing activities due to extraordinary event can materially affect our ability to grow our consumer base and impair our consumer experience, disrupt normal business operations, and be detrimental to our reputation and growth prospects. In addition, in recent years, there have been other breakouts of epidemics in China and globally. Normal business operations could be disrupted if one of our employees is suspected of having H1N1 flu, avian flu, or another epidemic, since it could require our employees to be quarantined and/or our offices to be disinfected. Our results of operations could be also adversely affected to the extent that any of the extraordinary events harms the PRC economy in general.
Risks Related to Our Corporate Structure
For the risk factors under this subsection, the shareholder of the VIEs refer to the shareholder of the VIEs before the VIE Termination.
If the PRC government deems that our historical contractual arrangements with the VIEs do not comply with PRC regulatory restrictions on foreign investment in the relevant industries, or if these regulations or the interpretation of existing regulations change in the future, the price of the ADSs may be adversely affected.
In June 2018, MOFCOM and the National Development and Reform Commission (the “NDRC”) promulgated the Special Administrative Measures (Negative List) for Foreign Investment Access (the “Negative List”), which became effective on July 28, 2018, in order to amend the Guidance Catalog of Industries for Foreign Investment. The Negative List was latest amended on September 6, 2024. Pursuant to the latest Negative List, foreign ownership in entities that provide internet and other related businesses, including but not limited to, certain value-added telecommunication services, internet audio-visual program services and radio and television program production and operation, is subject to restrictions under current PRC laws and regulations, unless certain exceptions are available. Specifically, the operation of certain value-added telecommunications services is considered as “restricted,” while the provision of radio and television program production and operation and the internet audio-visual program services are considered as “prohibited.”
Here Group Limited is a Cayman Islands holding company with no substantive operations. Our WFOEs are foreign-invested enterprises under PRC laws and, accordingly, they are not eligible to engage in businesses that are subject to foreign ownership restriction under the PRC laws. Our legacy individual online learning services business and certain consumer and other businesses was carried through the historical contractual arrangements entered into by Beijing Liangzizhige with Beijing Chuangyuqizhi and Beijing Feierlai. For details, see “Item 4. Information on the Company—A. History and Development of the Company.” Investors in the ADSs are purchasing the equity securities of Here Group Limited, the Cayman Islands holding company, rather than the equity securities of any of our subsidiaries or the VIEs. Before the VIE Termination, the contractual arrangements with the respective VIE and its shareholder had enabled us to (1) be considered as the primary beneficiary of the VIEs for accounting purposes and consolidate the financial results of the affiliated entities, (2) receive substantially all of the economic benefits of the affiliated entities, (3) have the pledge right over the equity interests in the VIEs as the pledgee, and (4) have an exclusive option to purchase all or part of the equity interests in the VIEs when and to the extent permitted by PRC law.
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In the opinion of our PRC counsel, CM Law Firm, (1) the ownership structures of our WFOE and the VIEs in China under the historical contractual arrangements were not in any violation of the applicable PRC laws or regulations then in effect; and (2) prior to the termination thereof, the agreements under the historical contractual arrangements among each of our WFOE, the VIEs and their shareholder governed by PRC law were valid and binding upon each party to such agreements and enforceable against each party thereto in accordance with their terms and applicable PRC laws and regulations. However, we have been further advised by our PRC counsel that there are uncertainties regarding the interpretation and application of current or future PRC laws and regulations. The PRC government may ultimately take a view different from the opinion of our PRC counsel. The agreements under the historical contractual arrangements among our WFOE, the VIEs and their shareholder have not been tested in a court of law. If the PRC government otherwise find that we have been in violation of any existing or future PRC laws or regulations or lack the necessary permits or licenses to operate our legacy individual online learning services business, the relevant government authorities would have discretion in dealing with such violation, including, without limitation:
| ● | revoking the relevant business and/or operating licenses (if any); |
| ● | discontinuing or restricting any related-party transactions between our company and the VIEs (if any); |
| ● | imposing fines and penalties, confiscating the income that they deem to be obtained through illegal operations, or imposing additional operational requirements which we or the VIEs may not be able to comply with; |
| ● | restricting or prohibiting our use of the proceeds of our initial public offering in January 2023 to finance our business and operations in China; |
| ● | restricting the use of financing sources by us or otherwise restricting our or their ability to conduct business; and |
| ● | taking other regulatory or enforcement actions that could be harmful to our business. |
Any of these events could cause significant disruptions to us and materially and adversely affect our reputation, business, results of operations and financial condition. If the PRC government determines that the historical contractual arrangements and/or the VIE structure do not comply with PRC regulations, or if these regulations change or are interpreted differently in the future, the historical treatment of consolidating the financial results of the affiliated entities in our financial statements could be challenged or deemed invalid under the U.S. GAAP, and the ADSs may decline in value or become worthless.
The historical contractual arrangements with the VIEs and their shareholder may be less effective than direct ownership in providing operational control.
Before the VIE Termination, we had relied on the historical contractual arrangements between Beijing Liangzizhige, and Beijing Chuangyuqizhi and Beijing Feierlai and their respective nominee shareholder to operate our legacy individual online learning services business in China. The historical contractual arrangements, however, may be less effective than direct ownership in providing us with operational control over the VIEs. For instance, the VIEs and their shareholder could breach their contractual arrangements with us by, among other things, failing to conduct the operations of the VIEs in an acceptable manner or taking other actions that are detrimental to our interests.
If we had direct ownership of the VIEs in China, we would have been able to exercise our rights as a shareholder to effect changes in the board of directors of the VIEs, which in turn could implement changes, subject to any applicable fiduciary obligations, at the management and operational level. However, under the historical contractual arrangements, we had relied on the performance by the VIEs and their shareholder of their obligations under the contracts to direct the VIEs’ activities. The shareholder of the VIEs may not act in the best interests of our company or may not perform its obligations under these contracts. If any dispute relating to these contracts remains unresolved, we will have to enforce our rights under these historical contracts (if any) 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.
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We face uncertainty with respect to the enforceability of the historical contractual arrangements with the VIEs and their shareholder, and any failure by the VIEs or their shareholder to perform their obligations under our historical contractual arrangements with them would have a material adverse effect on us.
If the VIEs or their shareholder fail to perform their respective obligations under the historical 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.
All the agreements under our historical contractual arrangements with the VIEs 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. However, uncertainties in the PRC legal system could limit the ability to enforce these historical contractual arrangements. Meanwhile, there are very few precedents and little formal guidance as to how contractual arrangements in the context of a consolidated variable interest entity should be interpreted or enforced under PRC law. There remain significant uncertainties regarding the ultimate outcome of such 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 China courts through arbitration award recognition proceedings, which would require additional expenses and delay. In the event that these historical contractual arrangements are unenforceable, or if there is any significant delay or other obstacles in such process, our control over the VIEs under the historical contractual arrangements may be deemed ineffective, which could have a material adverse impact on us and the price of the ADSs. See “—Risks Related to Doing Business in China—Uncertainties with respect to the enforcement of and changes in laws and regulations in China could have a material adverse effect on our business, results of operations, financial condition and growth prospects, and cause the ADSs to significantly decline in value or become worthless.”
The shareholder of the VIEs under our historical contractual arrangements may have actual or potential conflicts of interest with us, which may materially and adversely affect our business, results of operations and financial condition.
The shareholder of the VIEs under our historical contractual arrangements may have actual or potential conflicts of interest with us. The shareholder may breach, or cause the VIEs to breach, the historical contractual arrangements, which would have a material adverse effect on our ability to consolidate the financial results of the affiliated entities and receive economic benefits from them. We cannot assure you that when conflicts of interest arise the shareholder will act in the best interests of our company or such conflicts will be resolved in our favor.
Under the historical contractual arrangements, we did not have any arrangements to address any conflicts of interest between the shareholder of the VIEs and our company, except that we had the right to exercise the purchase option under the exclusive option agreement with the shareholder to request it to transfer all of its equity interests in the VIEs to a PRC entity or individual designated by us, to the extent permitted by PRC law. For individuals who were also our directors and officers, we relied 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. If we cannot resolve any conflict of interest or dispute between us and the shareholder of the VIEs under the historical contractual arrangements, 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 shareholder of the VIEs may be involved in disputes with third parties or other incidents that may have an adverse effect on their respective equity interests in the VIEs and the validity or enforceability of our contractual arrangements with the VIEs and their shareholder. Although under our historical contractual arrangements, it is expressly provided that the VIEs and their shareholder shall not assign any of their respective rights or obligations to any third party without the prior written consent of our respective WFOE, we cannot assure you that these 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 distract our management’s attention and subject us to substantial uncertainties as to the outcome of any such legal proceedings.
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Historical contractual arrangements we had entered into with the VIEs may be subject to scrutiny by the PRC tax authorities and they may determine that we or the VIEs owe additional taxes, which could materially and adversely 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 adverse tax consequences if the PRC tax authorities determine that the historical contractual arrangements in relation to the VIEs 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 the VIEs in the form of a transfer pricing adjustment. A transfer pricing adjustment could, among other things, result in a reduction of expense deductions recorded by the VIEs for PRC tax purposes, which could in turn increase their tax liabilities without reducing our WFOEs’ tax expenses. In addition, the PRC tax authorities may impose late payment fees and other penalties on the VIEs for the adjusted but unpaid taxes according to the applicable regulations. Our financial position could be materially and adversely affected if the VIEs’ tax liabilities increase or if they are required to pay late fees and other penalties.
Uncertainties exist with respect to the interpretation and implementation of the Foreign Investment Law and how it may impact the viability of our historical corporate structure with the VIEs.
On March 15, 2019, the National People’s Congress promulgated the Foreign Investment Law, which came into effect on January 1, 2020 and 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 contains a catch-all provision under the definition of “foreign investment”, which includes investments made by foreign investors in China through means stipulated in laws or administrative regulations or other methods prescribed by the State Council. Therefore, it still leaves leeway for future laws, administrative regulations or provisions promulgated by the Stale Council to provide for contractual arrangements as a form of foreign investment, at which time it will be uncertain whether our historical contractual arrangements with the VIEs will be deemed to be in violation of the market access requirements for foreign investment in China and if yes, how our historical contractual arrangements with the VIEs 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 Negative List. The Foreign Investment Law provides that (1) foreign-invested entities operating in “restricted” industries are required to obtain market entry clearance and other approvals from relevant PRC government authorities; (2) foreign investors shall not invest in any industries that are “prohibited” under the Negative List. If our contractual control over the VIEs through our historical contractual arrangements are deemed as foreign investment in the future, and any business of the VIEs is “restricted” or “prohibited” from foreign investment under the “negative list” effective at the time, we may be deemed to have violated the Foreign Investment Law, the historical contractual arrangements that allow us to have contractual control over the VIEs may be deemed as invalid and illegal, which may have a material adverse effect on us.
Risks Related to Doing Business in China
The filing with and reporting to the CSRC will be required in connection with our capital raising activities and occurrences of other specific events, and we cannot assure you that we will be able to make such filing or reporting in a timely manner or at all, in which case we may face regulatory sanctions for failure to make such filing or reporting.
Under the current Regulations on Merger and Acquisition of Domestic Enterprises by Foreign Investors (the “M&A Rules”), as jointly adopted by six PRC regulatory agencies in 2006 and amended in 2009, an offshore special purpose vehicle that is controlled by PRC domestic companies or individuals and that has been formed for the purpose of an overseas listing of securities through acquisitions of PRC domestic companies or assets is required to obtain the approval of the CSRC prior to the listing and trading of such special purpose vehicle’s securities on an overseas stock exchange. However, substantial uncertainty remains regarding the scope and applicability of the M&A Rules to offshore special purpose vehicles. It remains uncertain 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, might, from time to time, further clarify or interpret the M&A Rules in writing or orally and require their approvals to be obtained for an offering. If we fail to obtain required CSRC approval under the M&A Rules in a timely manner, we may face sanctions by the CSRC or other PRC regulatory agencies, which may include fines and penalties on the operations in China, delays in or restrictions on the repatriation of the proceeds from the relevant offering into China, restrictions on or prohibition of the payments or remittance of dividends by our WFOEs in China, or other actions that could have a material adverse effect on our business, results of operations, financial condition, reputation and prospects, as well as the trading price of the ADSs.
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On July 6, 2021, the General Office of the State Council of the PRC, together with another regulatory authority, jointly promulgated the Opinions on Strictly Cracking Down Illegal Securities Activities in Accordance with the Law, which calls for enhanced administration and supervision of overseas-listed China-based companies, proposes to revise the relevant regulation governing the overseas issuance and listing of shares by such companies, and clarifies the responsibilities of competent domestic industry regulators and government authorities.
Moreover, on February 17, 2023, the CSRC, as approved by the State Council, released a new filing-based regime to regulate overseas offerings and listings by domestic companies. The new filing rules consist of the Trial Measures for Administration of Overseas Securities Offerings and Listings by Domestic Companies (the “Trial Measures”) and five interpretive guidelines (collectively, the “CSRC Filing Rules”), which came into effect on March 31, 2023. Under the CSRC Filing Rules, a filing-based regulatory system shall be applied to “indirect overseas offerings and listings” of PRC domestic companies. Pursuant to the CSRC Filing Rules, if the issuer meets either of the following conditions, its securities offerings and listing will be deemed as an “indirect overseas offering and listing by a PRC domestic company” and is therefore subject to the filing requirements: (1) any of the revenues, profits, total assets or net assets of the issuer’s Chinese operating entities in the most recent financial year accounts for more than 50% of the corresponding data in the issuer’s audited consolidated financial statements for the same period; and (2) the key link of its business operations are conducted in mainland China or its principal place of business is located in the mainland China, or the majority of senior management in charge of business operations are Chinese citizens or have domicile in the PRC. The CSRC Filing Rules state that, any post-listing follow-on offering by an issuer in an the same overseas market where it has previously offered and listed securities, including issuance of shares, convertible notes and other similar securities, shall be subject to filing requirement within three business days after the completion of the offering, and if the subsequent offering is conducted in other overseas markets, it shall be filed with the CSRC within three working days after the applications for such offerings are submitted. Therefore, any of our future offering and listing of our securities in an overseas market will be subject to the filing requirements under the CSRC Filing Rules. In addition, we are required to submit a report to CSRC after the occurrence and public disclosure of the following material events: (1) change of control; (2) investigations or sanctions imposed by overseas securities regulatory agencies or other relevant competent authorities; (3) change of listing status or transfer of listing segment and (4) voluntary or mandatory delisting. If we fail to complete the filing or reporting procedures with the CSRC as required, we may face sanctions by the CSRC, which may include orders for correction, warnings and fines. Any adverse regulatory actions or sanctions could have a material adverse effect on our business, financial condition, results of operations, reputation and prospects, as well as the trading price of the ADSs.
On February 24, 2023, the CSRC, together with other relevant government authorities, issued the Provisions on Strengthening Confidentiality and Archives Administration of Overseas Securities Offering and Listing by Domestic Companies (the “Archives Rules”), which became effective on March 31, 2023. According to the Archives Rules, domestic mainland China companies, whether offering and listing securities overseas directly or indirectly, must strictly abide the applicable laws and regulations when providing or publicly disclosing, either directly or through their overseas listed entities, documents and materials to securities companies, securities services providers such as accounting firms, or overseas regulators in the process of their overseas offering and listing. If such documents or materials contain any state secrets or government authorities work secrets, domestic companies must obtain the approval from competent governmental authorities according to the applicable laws, and file with the secrecy administrative department at the same level with the approving governmental authority. Furthermore, the Archives Rules also provides that securities companies and securities service providers shall also fulfill the applicable legal procedures when providing overseas regulatory institutions and other relevant institutions and individuals with documents or materials containing any state secrets or government authorities work secrets or other documents or materials that, if divulged, will jeopardize national security or public interest. For more details of the laws and regulations, see “Item 4. Information on the Company—B. Business Overview—Regulation—Regulations on M&A and overseas listings.”
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We believe, to the best of our knowledge, we are in compliance with the above-described PRC laws and regulations currently in force in all material respects. Nevertheless, we cannot assure you that we would be able to complete all the requirements, to the extent that they may be subsequently required by the relevant regulatory authorities, in a timely manner, or at all, or that completion of any other compliance requirements would not be imposed. Any failure to complete or delay in completing such procedures for our future capital raising activities or occurrences of specific events mentioned above as required under the CSRC Filing Rules and other relevant laws and regulations, would subject us to sanctions by the CSRC or other PRC regulatory authorities, which could materially and adversely affect our business, results of operations, financial condition and prospects, as well as the trading price of the ADSs. Accordingly, the value of your investment may be materially and adversely affected or become worthless.
Furthermore, the PRC government authorities may further strengthen oversight and control over offerings that are conducted overseas and/or foreign investment in China-based issuers like us. Any such action may adversely affect our operations and significantly limit or completely hinder our ability to offer or continue to offer securities to you and cause the value of such securities to significantly decline or be worthless.
The impact of the CAC’s increasing oversight over data security remains highly uncertain, which could significantly limit or completely hinder our ability in capital raising activities and materially and adversely affect our business and the value of your investment.
On December 28, 2021, the CAC and several other PRC government authorities jointly issued an amendment to the Measures for Cybersecurity Review, which took effect on February 15, 2022 and provides that the relevant operators shall apply with the Cybersecurity Review Office of CAC for a cybersecurity review under certain circumstances. See “Item 4. Information on the Company—B. Business Overview—Regulation—Regulations on internet information security and censorship.” As a network platform operator who possesses personal information of more than one million users for purposes of the Cybersecurity Review Measures, we had applied for and completed a cybersecurity review for the offering and listing of the ADSs on the Nasdaq Stock Market pursuant to the Cybersecurity Review Measures. The review was completed in August 2022. We have not received any material adverse findings in such review. We are in compliance with the existing regulations and policies by the CAC regarding the Cybersecurity Review as of the date of this annual report. However, it remains uncertain as to how the existing regulatory measures will be interpreted or implemented in the future, and whether the PRC regulatory agencies, including the CAC, may adopt new laws, regulations, rules, or detailed implementation and interpretation related to the measures, which may have a material adverse impact on our future capital raising activities, or even retrospectively, on our previous offering and listing. If any such new laws, regulations, rules, or implementation and interpretation comes into effect, we face uncertainty as to whether any review or other required actions can be timely completed, or at all. Given such uncertainty, we may be further required to suspend our business, shut down our platforms, or face other penalties, which could materially and adversely affect our business, results of operations and financial condition, and/or the value of the ADSs, or could significantly limit or completely hinder our ability to offer or continue to offer securities to investors. In addition, if any of these events retroactively causes us to be unable to consolidate the VIEs into our consolidated financial statements in accordance with U.S. GAAP, the value of the ADSs could significantly decline or become worthless.
The PCAOB had historically been unable to inspect our auditor in relation to their audit work performed for our financial statements and the inability of the PCAOB to conduct inspections of our auditor in the past has deprived our investors with the benefits of such inspections.
Our auditor, the independent registered public accounting firm that issues the audit report included elsewhere in this annual report, as an auditor of companies that are traded publicly in the United States and a firm registered with the PCAOB, is subject to laws in the United States pursuant to which the PCAOB conducts regular inspections to assess its compliance with the applicable professional standards. The auditor is located in mainland China, a jurisdiction where the PCAOB was historically unable to conduct inspections and investigations completely before 2022. As a result, we and investors in the ADSs were deprived of the benefits of such PCAOB inspections. The inability of the PCAOB to conduct inspections of auditors in China in the past has made it more difficult to evaluate the effectiveness of our independent registered public accounting firm’s audit procedures or quality control procedures as compared to auditors outside of China that are subject to the PCAOB inspections. On December 15, 2022, the PCAOB issued a report that vacated its December 16, 2021 determination and removed mainland China and Hong Kong from the list of jurisdictions where it is unable to inspect or investigate completely registered public accounting firms. However, if the PCAOB determines in the future that it no longer has full access to inspect and investigate completely accounting firms in mainland China and Hong Kong, and we use an accounting firm headquartered in one of these jurisdictions to issue an audit report on our financial statements filed with the SEC, we and investors in the ADSs would be deprived of the benefits of such PCAOB inspections again, which could cause investors and potential investors in the ADSs to lose confidence in our audit procedures and reported financial information and the quality of our financial statements.
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The ADSs may be prohibited from trading in the United States under the HFCAA in the future if the PCAOB is unable to inspect or investigate completely auditors located in China. The delisting of the ADSs, or the threat of their being delisted, may materially and adversely affect the value of your investment.
Pursuant to the HFCAA, if the SEC determines that we have filed audit reports issued by a registered public accounting firm that has not been subject to inspections by the PCAOB for two consecutive years, the SEC will prohibit our shares or ADSs from being traded on a national securities exchange or in the over-the-counter trading market in the United States.
On December 16, 2021, the PCAOB issued a report to notify the SEC of its determination that the PCAOB was unable to inspect or investigate completely registered public accounting firms headquartered in mainland China and Hong Kong and our auditor was subject to that determination. On December 15, 2022, the PCAOB removed mainland China and Hong Kong from the list of jurisdictions where it is unable to inspect or investigate completely registered public accounting firms. For this reason, we do not expect to be identified as a Commission-Identified Issuer under the HFCAA after we file this annual report on Form 20-F for the fiscal year ended June 30, 2026.
Each year, the PCAOB will determine whether it can inspect and investigate completely audit firms in mainland China and Hong Kong, among other jurisdictions. If the PCAOB determines in the future that it no longer has full access to inspect and investigate completely accounting firms in mainland China and Hong Kong and we use an accounting firm headquartered in one of these jurisdictions to issue an audit report on our financial statements filed with the SEC, we would be identified as a Commission-Identified Issuer following the filing of the annual report on Form 20-F for the relevant fiscal year. In accordance with the HFCAA, our securities would be prohibited from being traded on a national securities exchange or in the over-the-counter trading market in the United States if we are identified as a Commission-Identified Issuer for two consecutive years under such circumstances. If our shares and the ADSs are prohibited from trading in the United States, there is no assurance that we will be able to list on a non-U.S. exchange or that a market for our shares will develop outside of the United States. A prohibition of being able to trade in the United States would substantially impair your ability to sell or purchase the ADSs when you wish to do so, and the risk and uncertainty associated with delisting would have a negative impact on the price of the ADSs. Also, such a prohibition would significantly affect our ability to raise capital on terms acceptable to us, or at all, which would have a material adverse impact on our business, financial condition and prospects.
The PRC government has significant authority to exert influence on the China operations of an offshore holding company, and offerings conducted overseas and foreign investment in China-based issuers, such as us. Changes in China’s economic, political or social conditions or government policies could have a material adverse effect on our business, results of operations, financial condition, and the value of our securities.
We conduct substantially all of our current business in China and substantially all of our assets are located in China. Accordingly, our business, results of operations and financial condition may be influenced to a significant degree by the PRC political, economic, and social conditions. The PRC government may intervene or influence our operations at any time, which could result in a material change in our operations and/or the value of our securities. The PRC government has released regulations and policies that have significantly impacted various industries in general and specific operators within such industries, and may in the future release new regulations or policies that could intervene in or influence our operations or the industry sectors in which we operate. The PRC government may also require us to obtain new permits or approvals to continue our operations. If we fail to comply with these regulations, policies or requirements, it could result in a material change in our operations or significantly limit or completely hinder our ability to offer or continue to offer the ADSs to investors and cause the value of the ADSs to significantly decline or become worthless. Therefore, investors of our company and our business face uncertainties from potential actions taken by regulators that may affect our business and the value of the ADSs.
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Our ability to successfully maintain or grow business operations in China also depends on various factors, which are beyond our control. These factors include, among others, macro-economic and other market conditions, political stability, social conditions, measures to control inflation or deflation, changes in the rate or method of taxation, changes in laws, regulations and administrative directives or their interpretation, and changes in industry policies. If we fail to take timely and appropriate measures to adapt to any of the changes or challenges, our business, results of operations and financial condition could be materially and adversely affected.
A severe or prolonged downturn in the global or Chinese economy could materially and adversely affect our business, results of operations, financial condition and prospects.
The global macroeconomic environment has been facing numerous challenges. There is considerable uncertainty over the long-term effects of the monetary and fiscal policies adopted by the central banks and financial authorities of some of the world’s leading economies, including the United States and China. There have been concerns over the economic and other impacts of the tensions in the international relationship. There have also been concerns about the relationship between China and other countries and regions, 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, tariffs and sanctions. For instance, the U.S. introduced a series of tariffs in early 2025, targeting imports from China and other regions. Significant tariffs have been imposed starting February 2025, followed by further measures. Subsequently, China has introduced reciprocal tariffs, followed by tariff and other countermeasures between these countries. Any substantial increases in tariffs or trade restrictions implemented by these two economies could lead to retaliatory measures and disrupt global supply chains, which could affect our expansion plans and overseas sales, and have a material adverse effect on our business and future prospects.
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, and continued turbulence in the international capital markets may adversely affect our access to capital markets to meet liquidity needs.
Uncertainties with respect to the enforcement of and changes in laws and regulations in China could have a material adverse effect on our business, results of operations, financial condition and growth prospects, and cause the ADSs to significantly decline in value or become worthless.
We are governed by PRC laws, rules and regulations. The PRC legal system is a civil law system based on written statutes. Unlike the common law system, prior court decisions in a civil law system may be cited as reference but have limited precedential value. The interpretations of such laws and regulations may evolve rapidly, and enforcement of these laws and regulations involves significant uncertainties.
Moreover, developments in the pop toy industry and other industries and that we are and will be involved in may lead to changes in PRC laws, regulations and policies or in the interpretation and application thereof. As a result, we may be required by the regulators to upgrade or obtain the licenses, permits, approvals, to complete additional filings or registrations for the products and services we offer, or to modify business practices that may subject us to various penalties, including criminal penalties for individual and entity. We cannot assure you that our business operations would not be deemed to violate any existing or future PRC laws or regulations, which in turn could materially and adversely affect our business operations.
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Furthermore, the PRC legal system continues to evolve, and government policies and internal rules may not always be published on a timely basis, and may have a retroactive effect. As a result, we may not be aware of our violation of any of these policies and rules until sometime after the violation. Such unpredictability and uncertainties could limit the legal protections available to you and us, significantly limit or completely hinder our ability to offer or continue to offer the ADSs, cause significant disruption to our business operations, and severely damage our reputation, which would materially and adversely affect our results of operations and financial condition and cause the ADSs to significantly decline in value or become worthless.
From time to time, we may have to resort to administrative and court proceedings to enforce our legal rights. Any administrative and court proceedings in China may be protracted, resulting in substantial costs and diversion of resources and management’s attention. Since PRC administrative and court authorities have discretion in interpreting and implementing statutory provisions and contractual terms, it may be difficult to evaluate the outcome of administrative and court proceedings. 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.
These uncertainties may also affect our decisions on the policies and actions to be taken to comply with PRC laws and regulations, and may affect our ability to enforce contractual rights, property (including intellectual property) or tort rights. In addition, the regulatory uncertainties may be exploited through unmerited legal actions or threats in an attempt to extract payments or benefits from us. Such uncertainties may therefore increase the operating expenses and costs, and materially and adversely affect our business and results of operations.
You may experience difficulties in effecting service of legal process, enforcing foreign judgments or bringing actions in China against us or our management based on foreign laws.
While we have proactively expanded to certain overseas markets, especially with our acquisition of Shenzhen Letsvan, we conduct substantially all of our current business in China and substantially all of our assets are located in China. In addition, all our senior executive officers reside within China for a significant portion of the time and all are PRC nationals. In addition, China does not have treaties providing for the reciprocal recognition and enforcement of judgments of courts with the Cayman Islands and many other countries and regions. Even if you are successful in bringing an action of this kind, PRC laws may render you unable to enforce a judgment against our or the VIEs’ assets or the assets of our directors and officers.
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 instance, 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.
According to Article 177 of the PRC Securities Law (the “Article 177”), which became effective in March 2020, no overseas securities regulator is allowed to directly conduct investigation or evidence collection activities within the territory of the PRC. Accordingly, without PRC government approval, no entity or individual in China may provide documents and information relating to securities business activities to overseas regulators when it is under direct investigation or evidence discovery conducted by overseas regulators, which could present significant legal and other obstacles to obtaining information needed for investigations and litigation conducted outside of China. The inability for an overseas securities regulator to directly conduct investigation or evidence collection activities within China may further increase difficulties faced by you in protecting your interests. Furthermore, as of the date of this annual report, there have not been implementing rules or regulations regarding the application of Article 177, and it remains unclear as to how it will be interpreted, implemented or applied by relevant government authorities. As such, there are also uncertainties as to the procedures and requisite timing for the oversea securities regulatory agencies to conduct investigations and collect evidence within the territory of the PRC. If the U.S. securities regulatory agencies are unable to conduct such investigations, there exists a risk that they may determine to suspend or de-register our registration with the SEC and may also delist our securities from trading market within the United States.
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See also “—Risks Related to the ADSs—You may face difficulties in protecting your interests, and your ability to protect your rights through U.S. courts may be limited, because we are incorporated under Cayman Islands law and our operations are primarily conducted in emerging markets.”
Litigation and negative publicity surrounding China-based companies listed in the United States may result in increased regulatory scrutiny of us and negatively impact the trading price of the ADSs.
We believe that litigation and negative publicity surrounding companies with operations in China that are listed in the United States have negatively impacted stock prices for such companies. Certain politicians in the United States have publicly warned investors to shun China-based companies listed in the United States. The SEC and the PCAOB also issued a joint statement on April 21, 2020, reiterating the disclosure, financial reporting and other risks involved in the investments in companies that are based in emerging markets as well as the limited remedies available to investors who might take legal action against such companies. Furthermore, various equity-based research organizations have published reports on China-based companies after examining, among other things, their corporate governance practices, related party transactions, sales practices and financial statements that have led to special investigations and listing suspensions on U.S. national exchanges. Any similar scrutiny of us, regardless of its lack of merit, could cause the market price of the ADSs to fall, divert management resources and energy, cause us to incur expenses in defending ourselves against rumors, and increase the premiums we pay for director and officer insurance.
The tension in international trade and rising political tension, particularly between the United States and China, may adversely impact our business, results of operations and financial condition.
Our business could be materially and adversely affected by the tensions in international trade such as those between the United States and China in recent years. Changes to international trade policies could adversely affect the global economic conditions. In addition, geopolitical 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, and the executive orders issued by the U.S. government that may prohibit transactions with certain selected Chinese companies as well as their products and services. Rising political tensions could reduce levels of trades, investments, technological exchanges, and other economic activities between the two major economies. Such tensions involving China, and any escalation thereof, may negatively affect trading and business environments, which may, in turn, adversely impacting our business, results of operations and financial condition.
We rely on dividends and other distributions on equity paid by our WFOEs to fund any cash and financing requirements we may have, and any limitation on the ability of our WFOEs to make payments to us could have a material adverse effect on our ability to conduct our business.
Here Group Limited is a Cayman Islands holding company with no operations in China. We currently rely on dividends and other distributions on equity paid by our WFOEs, and before the VIE Termination, we also relied on such from the affiliated entities, for our cash and financing requirements, including the funds necessary to make overseas investments, fund our overseas operations, pay dividends and other cash distributions to our shareholders and service any debt we may incur. See “Item 3. Key Information—Cash and Asset Flows through Our Organization” and “Item 3. Key Information—Financial Information Related to the Affiliated Entities” for details of the cash flows within our group. To the extent our cash or assets in the business are in mainland China or Hong Kong or a mainland China or Hong Kong entity, the funds or assets may not be available to fund operations or for other use outside of mainland China or Hong Kong due to interventions in or the imposition of restrictions and limitations on the ability of Here Group Limited or our subsidiaries to transfer cash or assets. Current PRC regulations permit our WFOEs to pay dividends to us only out of their accumulated after-tax profits upon satisfaction of relevant statutory conditions and procedures, if any, determined in accordance with Chinese accounting standards and regulations. In addition, our WFOEs are required to set aside at least 10% of their accumulated profits each year, after making up previous years’ accumulated losses, if any, to fund certain reserve funds until the total amount set aside reaches 50% of their registered capital. For a detailed discussion of applicable PRC regulations governing distribution of dividends, see “Item 4. Information on the Company—B. Business Overview—Regulation—Regulations on dividend distribution.” As a result of these laws, rules and regulations, our WFOEs are restricted in their ability to transfer a portion of their respective net assets to their shareholders as dividends.
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While there are currently no such restrictions on foreign exchange and our ability to transfer cash or assets between Here Group Limited and our Hong Kong subsidiaries, if certain PRC laws and regulations, including existing laws and regulations and those enacted or promulgated in the future were to become applicable to our Hong Kong subsidiaries in the future, and to the extent our cash or assets are in Hong Kong or a Hong Kong entity, such funds or assets may not be available due to interventions in or the imposition of restrictions and limitations on our ability to transfer funds or assets by the PRC government. Furthermore, we cannot assure you that the PRC government will not intervene or impose restrictions on Here Group Limited or its subsidiaries to transfer or distribute cash within the organization, which could result in an inability of or prohibition on making transfers or distributions to entities outside of mainland China and Hong Kong.
Furthermore, if our WFOEs incur debt on their own behalf in the future, the instruments governing their debt may restrict their ability to pay dividends or make other distributions to us. Any limitation on the ability of our WFOEs 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.
The Enterprise Income Tax Law enacted by the National People’s Congress, which became effective on January 1, 2008, and its implementation rules provide that a withholding tax at a rate of 10% will be applicable to dividends payable by Chinese companies to non-PRC-resident enterprises unless reduced under treaties or arrangements between the PRC central government and governments of other countries or regions where the non-PRC resident enterprises are tax resident. See “—Risks Related to Doing Business in China—If we are classified as a PRC resident enterprise for PRC income tax purposes, such classification could result in unfavorable tax consequences to us and our non-PRC shareholders or ADS holders.”
Any restriction on currency exchange may limit the ability of our WFOEs to use their Renminbi revenues to pay dividends to us. The PRC government may continue to strengthen its capital controls and our WFOEs’ dividends and other distributions may be subject to tightened scrutiny in the future. Any limitation on the ability of our WFOEs 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.
Restrictions on the remittance of Renminbi into and out of China and governmental control of currency conversion may limit our ability to pay dividends and other obligations, and affect the value of your investment.
The PRC government imposes controls on the convertibility of Renminbi into foreign currencies and the remittance of funds out of China. Our current revenue was primarily denominated in Renminbi. We may convert a portion of our revenue into other currencies to meet our foreign currency obligations, such as payments of dividends declared in respect of the ADSs, if any. Shortages in the availability of foreign currency may restrict the ability of our WFOEs to remit sufficient foreign currency to pay dividends or other payments to us, or otherwise satisfy their foreign currency denominated obligations.
Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments, and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior SAFE approval by complying with certain procedural requirements. However, approval from or registration or filings with competent government authorities is required where Renminbi is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign currencies. Pursuant to the SAFE Circular 19, a foreign-invested enterprise may convert up to 100% of the foreign currency in its capital account into Renminbi on a discretionary basis according to the actual needs. The SAFE Circular 16 provides for an integrated standard for conversion of foreign exchange under capital account items on a discretionary basis, which applies to all enterprises registered in China. In addition, the SAFE Circular 16 has narrowed the scope of purposes for which an enterprise must not use the Renminbi funds so converted, which include, among others, (1) payment for expenditure beyond its business scope or otherwise as prohibited by the applicable laws and regulations, (2) investment in securities or other financial products other than banks’ principal-secured products, (3) provision of loans to non-affiliated enterprises, except where it is expressly permitted in the business scope of the enterprise, and (4) construction or purchase of real properties for use by third parties, except for real estate developers. The PRC government may at its discretion further restrict access to foreign currencies for current account transactions or capital account transactions in the future. If the foreign exchange control system prevents us from obtaining sufficient foreign currencies to satisfy our foreign currency needs, we may not be able to pay dividends in foreign currencies to our shareholders. Further, there is no assurance that new regulations will not be promulgated in the future that would have the effect of further restricting the remittance of Renminbi into or out of China.
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China’s M&A Rules and certain other PRC regulations establish complex procedures for some acquisitions of PRC companies by foreign investors, which could make it more difficult for us to pursue growth through acquisitions in China.
The M&A Rules and some other regulations and rules concerning mergers and acquisitions established complex procedures and requirements for acquisition of Chinese companies by foreign investors, including requirements in some instances that MOFCOM be notified in advance of any change-of-control transaction in which a foreign investor takes control of a PRC domestic enterprise. Moreover, the Anti-monopoly Law promulgated by the SCNPC requires that transactions which are deemed concentrations and involve parties with specified turnover thresholds must be cleared by the anti-monopoly enforcement agency before they can be completed. In addition, the Measures for the Security Review of Foreign Investment promulgated by the NDRC and MOFCOM in December 2020 specify that foreign investments in military, national defense-related areas or in locations in proximity to military facilities, or foreign investments that would result in acquiring the actual control of assets in certain key sectors, such as critical agricultural products, energy and resources, equipment manufacturing, infrastructure, transport, cultural products and services, information technology, internet products and services, financial services and technology sectors, are required to obtain approval from designated government authorities in advance.
In the future, we may pursue potential strategic acquisitions that are complementary to our business in China. Complying with the requirements of the above-mentioned regulations and other rules to complete such transactions could be time-consuming, and any required approval processes may delay or inhibit our ability to complete such transactions, which could affect our ability to expand business or maintain market share. Furthermore, there is a possibility that the PRC regulators may promulgate new rules or explanations requiring that we obtain the approval of MOFCOM or other PRC government authorities for our mergers and acquisitions. There is no assurance that we can obtain such approval from MOFCOM or any other relevant PRC government authorities for our mergers and acquisitions. Any uncertainties regarding such approval requirements could have a material adverse effect on our business and results of operations and our corporate structure.
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 making loans to or additional capital contributions to our WFOEs, which could materially and adversely affect our liquidity and our ability to fund and expand our business.
Here Group Limited is a Cayman Islands holding company. We conduct our operations in China through our WFOEs and, before the VIE Termination, also through the affiliated entities. We may make loans to our WFOEs or the VIEs subject to the approval from or registration with government authorities and limitation on amount, or we may make additional capital contributions to our WFOEs. Any loan to our WFOEs is required to be registered with SAFE or its local branches.
SAFE promulgated the Circular on Reforming of the Management Method of the Settlement of Foreign Currency Capital of Foreign-Invested Enterprises (the “SAFE Circular 19”), effective from June 2015, in replacement of a former regulation. According to SAFE Circular 19, the flow and use of the Renminbi 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 Renminbi entrusted loans, the repayment of inter-enterprise loans or the repayment of bank loans that have been transferred to a third party. Although SAFE Circular 19 allows Renminbi 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 Renminbi 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 (the “SAFE Circular 16”), effective from June 2016, which reiterates some of the rules set forth in SAFE Circular 19, but changes the prohibition against using Renminbi capital converted from foreign currency-denominated registered capital of a foreign-invested company to issue Renminbi entrusted loans to a prohibition against using such capital to issue loans to non-associated enterprises. Violations of SAFE Circular 19 and SAFE Circular 16 could result in administrative penalties. The SAFE Circular 19 and SAFE Circular 16 may significantly limit our ability to transfer any foreign currency we hold, including the net proceeds from our initial public offering, to our WFOEs, which may adversely affect our liquidity and our ability to fund and expand our business in China. On October 23, 2019, the SAFE promulgated the Circular of Further Facilitating Cross-border Trade and Investment (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. On April 10, 2020, the SAFE promulgated the Circular on Optimizing Administration of Foreign Exchange to Support the Development of Foreign-related Business (the “SAFE Circular 8”), under which eligible enterprises are allowed to make domestic payments by using their capital funds, foreign loans and the income under capital accounts of overseas listing without providing the evidentiary materials concerning authenticity of each expenditure in advance, provided that their capital use shall be authentic and conforms to the prevailing administrative regulations on the use of income under capital accounts. However, there are still uncertainties in practice as to its interpretation and implementations in practice.
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In light of the various requirements imposed by PRC regulations on loans to and direct investment in PRC entities by offshore holding companies, we cannot assure you that we will be able to complete the necessary government registrations or obtain the necessary government approvals on a timely basis, or at all, with respect to future loans by us to our WFOEs or the VIEs or their subsidiaries or with respect to future capital contributions by us to our WFOEs. If we fail to complete such registrations or obtain such approvals, our ability to use the proceeds from our securities offerings and to capitalize or otherwise fund the PRC operations may be negatively affected, which could materially and adversely affect our liquidity and the ability to fund and expand our business.
PRC regulations relating to the establishment of offshore special purpose companies by PRC residents may subject our PRC resident beneficial owners or our WFOEs to liability or penalties, limit our ability to inject capital into our WFOEs, limit our WFOEs’ ability to increase its registered capital or distribute profits to us, or may otherwise adversely affect us.
SAFE promulgated the SAFE Circular on Relevant Issues Relating to Domestic Resident’s Investment and Financing and Roundtrip Investment through Special Purpose Vehicles (the “SAFE Circular 37”) in July 2014. SAFE Circular 37 requires PRC residents or entities to register with SAFE or its local branch in connection with their establishment or control of an offshore entity established for the purpose of overseas investment or financing with such PRC residents or entities’ legally owned assets or equity interests in domestic enterprises or offshore assets or interests. On February 13, 2015, SAFE issued Circular on Further Simplifying and Improving the Foreign Currency Management Policy on Direct Investment (the “SAFE Circular 13”), effective on June 1, 2015, pursuant to which the power to accept SAFE registration was delegated from local SAFE to local qualified banks where the assets or interest in the domestic entity was located. In addition, such PRC residents or entities must update their SAFE registrations when the offshore special purpose vehicle undergoes material events relating to any change of basic information (including change of such PRC citizens or residents, name and operation term), increases or decreases in investment amount, transfers or exchanges of shares, or mergers or divisions.
If our shareholders who are PRC residents or entities do not complete their registration with the local SAFE branches, our WFOEs 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 WFOEs. Moreover, failure to comply with the SAFE registration described above could result in liability under PRC laws for evasion of applicable foreign exchange restrictions. In addition, our shareholders who are PRC entities shall complete their overseas direct investment filings according to applicable laws and regulations regarding the overseas direct investment by PRC entities, including filings with MOFCOM, the NDRC, or their local branches based on the investment amount, invested industry or other factors thereof.
We have used our best efforts to notify PRC residents or entities who directly or indirectly hold shares in our Cayman Islands holding company and who are known to us as being PRC residents or entities to complete the foreign exchange registrations or overseas direct investment filings. However, we may not at all times be fully aware or 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. Mr. Peng Li, being the relevant beneficial shareholder of our company, has completed the initial registrations with the local SAFE branch or qualified banks as required by SAFE Circular 37. We cannot assure you that all other 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, filings or approvals required by SAFE regulations or other regulations relating to overseas investment activities issued by MOFCOM and the NDRC. Furthermore, government authorities may also issue new laws, rules and regulations and amend, revise or enhance enforcement of existing laws, rules and regulations, which could require us or our shareholders to conduct new filings or obtain additional approvals. Failure by such shareholders or beneficial owners to comply with such regulations, or failure by us to amend the foreign exchange registrations of our WFOEs, could subject us to fines or legal sanctions, restrict our overseas or cross-border investment activities, limit our WFOEs’ ability to make distributions or pay dividends to us or affect our ownership structure, which could adversely affect our business and prospects.
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If we fail to comply with PRC regulations regarding the registration requirements for employee stock ownership plans or share option plans, the PRC plan participants or we could be subject to fines and other legal or administrative sanctions.
In February 2012, SAFE promulgated the Notices on Issues Concerning the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plan of Overseas Publicly Listed Company (the “SAFE Circular 7”). Pursuant to SAFE Circular 7, directors, supervisors, senior management and other employees participating in any stock incentive plan of an overseas publicly listed company who are PRC citizens or who are non-PRC citizens residing in China for a continuous period of not less than one year, are required to register with SAFE through a domestic qualified agent, which could be the PRC subsidiary of such overseas-listed company, and complete certain other procedures, unless certain exceptions are available. 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 non-PRC citizens living in China for a continuous period of not less than one year and have been granted options are subject to these regulations as our company has become an overseas-listed company. Failure to complete SAFE registrations may subject them to fines of up to RMB50,000 for individuals and may also limit our ability to contribute additional capital into our WFOEs and our WFOEs’ ability to distribute dividends to us. We also face regulatory uncertainties that could restrict our ability to adopt additional incentive plans for our directors, executive officers and employees under PRC law. See “Item 4. Information on the Company—B. Business Overview—Regulation—Regulations on foreign exchange—Regulations relating to stock incentive plans.”
In addition, the Ministry of Finance and the State Administration of Taxation (the “SAT”) have 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 WFOEs 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 or are granted restricted share. 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.
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 a “de facto management body” within China 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 SAT issued the Circular Regarding the Determination of Chinese-Controlled Offshore Incorporated Enterprises as PRC Tax Resident Enterprises on the Basis of De Facto Management Bodies (the “SAT Circular 82”), which provides certain specific criteria for determining whether the “de facto management body” of a PRC-controlled enterprise that is incorporated offshore is located in China. Although this circular only applies to offshore enterprises controlled by PRC enterprises or PRC enterprise groups, not those controlled by PRC individuals or foreigners like us, the criteria set forth in the circular may reflect SAT’s general position on how the “de facto management body” test should be applied in determining the tax resident status of all offshore enterprises. According to SAT Circular 82, an offshore incorporated enterprise controlled by a PRC enterprise or a PRC enterprise group will be regarded as a PRC tax resident by virtue of having its “de facto management body” in China and will be subject to PRC enterprise income tax on its global income only if all of the following conditions are met: (1) the primary location of the day-to-day operational management is in China; (2) decisions relating to the enterprise’s financial and human resource matters are made or are subject to approval by organizations or personnel in China; (3) the enterprise’s primary assets, accounting books and records, company seals, and board and shareholder resolutions, are located or maintained in China; and (4) at least 50% of voting board members or senior executives habitually reside in China.
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 our company or any of our subsidiaries outside of China 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 will be required to comply with PRC enterprise income tax reporting obligations. In addition, non-resident enterprise shareholders (including the 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 our 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 the ADS holders) and any gain realized on the transfer of ADSs or our 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.
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In addition to the uncertainty as to the application of the “resident enterprise” classification, we cannot assure you that the PRC government will not amend or revise the taxation laws, rules and regulations to impose stricter tax requirements or higher tax rates. Any of such changes could materially and adversely affect our results of operations and financial condition.
We face uncertainties with respect to indirect transfer of equity interests in PRC resident enterprises by their non-PRC holding companies.
On February 3, 2015, the SAT issued the Bulletin on Issues of Enterprise Income Tax on Indirect Transfers of Assets by Non-PRC Resident Enterprises (the “SAT Bulletin 7”). SAT Bulletin 7 extends its tax jurisdiction to transactions involving the transfer of taxable assets through offshore transfer of a foreign intermediate holding company. In addition, SAT Bulletin 7 provides certain criteria on how to assess reasonable commercial purposes and has introduced safe harbors for internal group restructurings and the purchase and sale of equity through a public securities market. SAT Bulletin 7 also brings challenges to both foreign transferor and transferee (or other person who is obligated to pay for the transfer) of taxable assets. 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 (the “SAT Bulletin 37”), which came into effect on December 1, 2017. SAT Bulletin 37 further clarifies the practice and procedure of the withholding of non-resident enterprise income tax.
Where a non-resident enterprise transfers taxable assets indirectly by disposing of the equity interests of an overseas holding company, which is an indirect transfer, the non-resident enterprise as either transferor or transferee, or the PRC entity that directly owns the taxable assets, may report such indirect transfer to the relevant tax authority. Using a “substance over form” principle, the PRC tax authority may disregard the existence of the overseas holding company if it lacks a reasonable commercial purpose and was established for the purpose of reducing, avoiding or deferring PRC tax. As a result, gains derived from such indirect transfer may be subject to PRC enterprise income tax, and the transferee or other person who is obligated to pay for the transfer is obligated to withhold the applicable taxes, currently at a rate of 10% for the transfer of equity interests in a PRC resident enterprise.
We face uncertainties as to the reporting and other implications of certain past and future transactions where PRC taxable assets are involved, such as offshore restructuring, sale of the shares in our offshore subsidiaries and investments. For transfer of shares in our company by investors who are non-PRC resident enterprises, our WFOEs may be requested to assist in the filing under SAT Bulletin 7 and/or SAT Bulletin 37. As a result, we may be required to expend valuable resources to comply with SAT Bulletin 7 and/or SAT Bulletin 37, or to establish that we and our non-PRC resident investors should not be taxed under these circulars, which may have a material adverse effect on our results of operations and financial condition.
The custodians or authorized users of our controlling non-tangible assets, including chops and seals, may fail to fulfill their responsibilities, or misappropriate or misuse these assets.
Under PRC laws, legal documents for corporate transactions are executed using the chop or seal of the signing entity or with the signature of a legal representative whose designation is registered and filed with the relevant branch of the SAMR. Although we usually utilize chops to enter into contracts, the designated legal representatives of our PRC subsidiaries have the apparent authority to enter into binding contracts on behalf of these entities without chops. In order to maintain the physical security of our chops, we generally have them stored in secure locations accessible only to authorized employees. Although we monitor such authorized employees, the procedures may not be sufficient to prevent all instances of abuse or negligence. There is a risk that our employees could abuse their authority, for instance, by entering into a contract not approved by us, or seeking to gain control of any of our PRC subsidiaries. If any employee obtains, misuses or misappropriates corporate chops and seals or other controlling non-tangible assets for whatever reason, the business operations of the relevant entities could be disrupted. We may have to take corporate or legal action to seek the return of the chops, apply for new chops with the relevant authorities, or otherwise seek legal redress for the violation of the representative’s fiduciary duties against us, which could involve significant time and resources to resolve and divert management attention from business operations. In addition, the affected entity may not be able to recover corporate assets that are sold or transferred out of our control in the event of such a misappropriation if a transferee relies on the apparent authority of the representative and acts in good faith.
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Fluctuations in exchange rates could have a material adverse effect on our results of operations and the value of your investment.
The conversion of Renminbi into foreign currencies, including the U.S. dollar, is based on rates set by the People’s Bank of China. The Renminbi has fluctuated against the U.S. dollar and other currencies, at times significantly and unpredictably. The value of Renminbi against the U.S. dollar and other currencies is affected by changes in China’s political and economic conditions and by China’s foreign exchange policies, among other things. We cannot assure you that Renminbi will not appreciate or depreciate significantly in value against the U.S. dollar and other currencies in the future. It is difficult to predict how market forces or PRC, or U.S. government policy may impact the exchange rate between Renminbi and U.S. dollar in the future.
Any significant appreciation or depreciation of Renminbi may materially and adversely affect our revenues, earnings and financial position, and the value of, and any dividends payable on, the ADSs in U.S. dollars. For instance, to the extent that we need to convert U.S. dollars we receive into Renminbi to pay our operating expenses, appreciation of Renminbi against the U.S. dollar would have an adverse effect on the Renminbi amount we would receive from the conversion. Conversely, a significant depreciation of Renminbi against the U.S. dollar may significantly reduce the U.S. dollar equivalent of our earnings, which in turn could adversely affect the price of the ADSs.
Very limited hedging options are available in China to reduce our exposure to exchange rate fluctuations. We have not entered into any hedging transactions in an effort to reduce our exposure to foreign currency exchange risk. While we may decide to enter into hedging transactions in the future, the availability and effectiveness of these hedges may be limited and we may not be able to adequately hedge our exposure, or 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.
Risks Related to Our Corporate Governance
We are an emerging growth company within the meaning of the Securities Act, and may take advantage of certain reduced reporting requirements. We cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make the ADSs less attractive to investors.
We are an “emerging growth company” as defined in the JOBS Act, and we may take advantage of certain exemptions from requirements applicable to other public companies that are not emerging growth companies including, most significantly, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002 for so long as we remain an emerging growth company. As a result, if we elect not to comply with such 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. Further, as an emerging growth company, we have elected to use the extended transition period for complying with new or revised financial accounting standards. As such, our financial statements may not be comparable to companies that comply with public company effective dates because of the potential differences in accounting standard used. We cannot predict if investors will find the ADSs less attractive because we may rely on these provisions. If some investors find the ADSs less attractive as a result, there may be a less active trading market for the ADSs and the trading price of the ADSs may be more volatile.
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We have incurred, and may continue to incur, increased costs as a result of being a public company, particularly after we cease to qualify as an “emerging growth company.”
We have incurred and expect to continue to incur significant legal, accounting and other expenses as a result of being a public company. The Sarbanes-Oxley Act of 2002, as well as rules subsequently implemented by the SEC and the Nasdaq Stock Market, 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. We will continue to incur significant expenses and devote substantial management effort toward ensuring compliance with the requirements of the Sarbanes-Oxley Act of 2002, including Section 404, and the other rules and regulations of the SEC.
As a public company, we have increased the number of independent directors and adopted policies regarding internal controls and disclosure controls and procedures. Operating as a public company also makes 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 have incurred and expect to continue to 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 continually evaluating and monitoring developments with respect to these rules and regulations, and we cannot predict or estimate with any degree of certainty the amount of additional costs we may incur or the timing of such costs.
We are a foreign private issuer within the meaning of the rules under the Exchange Act, and as such we are exempt from certain provisions applicable to U.S. domestic public companies.
Because we qualify as a foreign private issuer under the Exchange Act, we are exempt from certain provisions of the securities rules and regulations in the United States that are applicable to U.S. domestic issuers, including:
| ● | the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q or current reports on Form 8-K; |
| ● | the sections of the Exchange Act regulating the solicitation of proxies, consents, or authorizations in respect of a security registered under the Exchange Act; |
| ● | the sections of the Exchange Act requiring insiders to file public reports of short-swing benefits; |
| ● | the selective disclosure rules by issuers of material nonpublic information under Regulation FD; and |
| ● | certain audit committee independence requirements in Rule 10A-3 of the Exchange Act. |
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We are required to file an annual report on Form 20-F within four months of the end of each fiscal year. In addition, we intend to publish our results on a quarterly basis as press releases, distributed pursuant to the rules and regulations of the Nasdaq Stock Market. 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 is 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.
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 share capital is divided into Class A ordinary shares and Class B ordinary shares (with certain shares remaining undesignated, with power for our directors to designate and issue such classes of shares as they think fit). 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. Due to the disparate voting powers of the Class A ordinary shares and the Class B ordinary shares, the holder(s) of Class B ordinary shares will have the ability to control matters requiring shareholders’ approval, including any amendment of our memorandum and articles of association. Any future issuances of Class B ordinary shares may be dilutive to the voting power of holders of Class A ordinary shares. Any conversions of Class B ordinary shares into Class A ordinary shares may dilute the percentage ownership of the existing holders of Class A ordinary shares within their class of ordinary shares. Such conversions may increase the aggregate voting power of the existing holders of Class A ordinary shares. In the event that we have multiple holders of Class B ordinary shares in the future and certain of them convert their Class B ordinary shares into Class A ordinary shares, the remaining holders who retain their Class B ordinary shares may experience increases in their relative voting power.
As of October 21, 2026, Mr. Peng Li beneficially owned all of our issued Class B ordinary shares. These Class B ordinary shares constituted 31.8% of our total issued and outstanding share capital and 82.4% of the aggregate voting power of our total issued and outstanding share capital as of the same date. See “Item 6. Directors, Senior Management and Employees—E. Share Ownership.” As a result of the dual-class share structure and the concentration of ownership, holder(s) of Class B ordinary shares have and will continue to have considerable influence over matters which require shareholders’ approval, such as decisions regarding statutory mergers and consolidations, amendment to our memorandum and articles of association and other significant corporate actions. Such holder(s) may take actions that are not in the best interest of us or our other shareholders. This concentration of ownership may discourage, delay or prevent a change in 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 the 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 founder, Mr. Peng Li, has considerable influence over us and our corporate matters.
As of October 21, 2026, Mr. Peng Li beneficially owned all of our issued Class B ordinary shares. These Class B ordinary shares constitute 31.8% of our total issued and outstanding share capital and 82.4% of the aggregate voting power of our total issued and outstanding share capital as of the same date. See “Item 6. Directors, Senior Management and Employees—E. Share Ownership.” Mr. Peng Li has considerable power to control actions that require shareholders’ approval under Cayman Islands law, such as approving statutory mergers and consolidations, and amending our memorandum and articles of association. This control will limit your ability to influence corporate matters and may prevent transactions that would be beneficial to you, including discouraging others from pursuing any potential merger, takeover or other change of control transactions, which could have the effect of depriving the holders of our Class A ordinary shares and the ADSs of the opportunity to sell their shares at a premium over the prevailing market price.
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The dual-class structure of our ordinary shares may adversely affect the trading market for the ADSs.
Certain shareholder advisory firms have announced changes to their eligibility criteria for inclusion of shares of public companies on certain indices to exclude companies with multiple classes of shares and companies whose public shareholders hold no more than 5% of total voting power from being added to such indices. In addition, several shareholder advisory firms have announced their opposition to the use of multiple class structures. As a result, the dual class structure of our ordinary shares may prevent the inclusion of the ADSs representing Class A ordinary shares in such indices and may cause shareholder advisory firms to publish negative commentary about our corporate governance practices or otherwise seek to cause us to change our capital structure. Any such exclusion from indices could result in a less active trading market for the ADSs. Any actions or publications by shareholder advisory firms critical of our corporate governance practices or capital structure could also adversely affect the value of the ADSs.
As an exempted company incorporated in the Cayman Islands, we are permitted to adopt certain home country practices for corporate governance matters that differ significantly from the Nasdaq Stock Market corporate governance listing standards. These practices may afford less protection to shareholders than they would enjoy if we complied fully with the corporate governance listing standards.
We are subject to the Nasdaq Stock Market 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, the Nasdaq Stock Market rules permit a foreign private issuer like us to follow the corporate governance practices of its home country. Certain corporate governance practices in the Cayman Islands, which is our home country, may differ significantly from the Nasdaq Stock Market listing standards.
We are permitted to elect to rely on home country practice to be exempted from the corporate governance requirements. We currently follow Cayman Islands corporate governance practices in lieu of the corporate governance standards of the Nasdaq Stock Market that listed companies must: (1) have a majority of independent directors, (2) have a nominating/corporate governance committee composed entirely of independent directors, (3) obtain shareholders’ approval for issuance of securities in certain situations, and (4) hold annual shareholders’ meetings. To the extent that we choose to follow home country practice, our shareholders may be afforded less protection than they would otherwise enjoy if we complied fully with the Nasdaq Stock Market listing standards.
Certain judgments obtained against us by our shareholders may not be enforceable.
We conduct substantially all of our current business in China and substantially all of our assets are located in China. In addition, most of our current directors and senior executive officers are nationals and residents of jurisdictions 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 PRC laws and the laws of the Cayman Islands may render you unable to enforce a judgment against our assets or the assets of our directors and officers.
We are a “controlled company” within the meaning of the Nasdaq Stock Market listing rules. As a result, we are qualified for, and can rely on, exemptions from certain corporate governance requirements that provide protection to shareholders of other companies.
We are a “controlled company” as defined under the Nasdaq Stock Market listing rules because Mr. Peng Li, our founder, control more than 50% of our total voting power. Pursuant to our third amended and restated memorandum and articles of association, an ordinary resolution to be passed at a shareholders’ meeting requires the affirmative vote of a simple majority of the votes attaching to the ordinary shares cast at a meeting, while a special resolution requires the affirmative vote of no less than two-thirds of the votes cast attaching to the outstanding and issued ordinary shares cast at a meeting. A special resolution will be required for important matters such as making changes to our memorandum and articles of association. As a result, Mr. Peng Li will have the ability to control or significantly influence the outcome of matters requiring approval by shareholders. In addition, for so long as we remain a controlled company under that definition, we are permitted to elect to rely on, 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. Even if we cease to be a controlled company, we may still rely on exemptions available to foreign private issuers, including being able to adopt home country practices in relation to corporate governance matters. See “—Risks Related to the ADSs—As an exempted company incorporated in the Cayman Islands, we are permitted to adopt certain home country practices for corporate governance matters that differ significantly from the Nasdaq Stock Market corporate governance listing standards; these practices may afford less protection to shareholders than they would enjoy if we complied fully with the corporate governance listing standards.”
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Our memorandum and articles of association contain anti-takeover provisions that could have a material adverse effect on the rights of holders of our ordinary shares and the ADSs.
Our memorandum and articles of association contain provisions which could limit the ability of others to acquire control of our company or cause us to engage in change-of-control transactions. These provisions could have the effect of depriving our shareholders of an opportunity to sell their shares at a premium over prevailing market prices by discouraging third parties from seeking to obtain control of our company in a tender offer or similar transaction. Our board of directors has the authority, without further action by our shareholders, to issue preferred shares in one or more series and to fix their designations, powers, preferences, privileges, and relative participating, optional or special rights and the qualifications, limitations or restrictions, including dividend rights, conversion rights, voting rights, terms of redemption and liquidation preferences, any or all of which may be greater than the rights associated with our ordinary shares, in the form of ADS or otherwise. Preferred shares could be issued quickly with terms calculated to delay or prevent a change in control of our company or make removal of management more difficult. If our board of directors decides to issue preferred shares, the price of the ADSs may fall and the voting and other rights of the holders of our ordinary shares and ADSs may be materially and adversely affected. However, under Cayman Islands law, our board of directors may only exercise the rights and powers granted to them under our memorandum and articles of association for a proper purpose and for what they believe in good faith to be in the interest of our company.
Risks Related to the ADSs
The trading price of the ADSs could be subject to rapid and substantial volatility, which could result in substantial losses to investors.
The trading price of the ADSs may be volatile widely due to factors beyond our control. This may happen because of broad market and industry factors, including the performance and fluctuation of the market prices of other companies with business operations located mainly in China that have listed their securities in the United States. In addition to market and industry factors, the price and trading volume for the ADSs may be highly volatile for factors specific to our operations including the following:
| ● | actual or anticipated variations in our revenues, earnings, cash flow and changes or revisions of our expected results; |
| ● | fluctuations in operating metrics; |
| ● | announcements of new investments, acquisitions, strategic partnerships or joint ventures by us or our competitors; |
| ● | announcements of new products, services and courses and expansions by us or our competitors; |
| ● | changes in financial estimates by securities analysts; |
| ● | announcements of studies and reports relating to the quality of our product, service and course offerings or those of our competitors; |
| ● | changes in the performance or market valuations of other pop toy companies; |
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| ● | detrimental negative publicity about us, our competitors or our industries; |
| ● | 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 industries; |
| ● | general economic or political conditions affecting China or elsewhere in the world; |
| ● | fluctuations of exchange rates between the RMB and the U.S. dollar; 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. The securities of some China-based companies that have listed their securities in the United States have experienced significant volatility since their initial public offerings in recent years, including, in some cases, substantial declines in the trading prices of their securities. The trading performances of these companies’ securities after their offerings may affect the attitudes of investors towards Chinese companies listed in the United States in general, which consequently may impact the trading performance of the ADSs, regardless of our actual operating performance. In addition, any negative news or perceptions about inadequate corporate governance practices or fraudulent accounting, corporate structure or other matters of other Chinese companies may also negatively affect the attitudes of investors towards Chinese companies in general, including us, regardless of whether we have engaged in any inappropriate activities. In particular, the global financial crisis, the ensuing economic recessions and deterioration in the credit market in many countries have contributed and may continue to contribute to extreme volatility in the global stock markets.
Moreover, there have been recent instances of extreme stock price run-ups followed by rapid price declines and strong stock price volatility with a number of recent initial public offerings, particularly among companies with relatively smaller public floats. As we currently have a relatively small public float, we may experience greater stock price volatility, including aggressive price run-ups and declines, lower trading volume and less liquidity, compared with companies with larger public floats. In particular, the ADSs may be subject to rapid and substantial price volatility, low volumes of trades and large spreads in bid and ask prices. Such volatility, including any stock run-up, may be unrelated to our actual or expected operating performance, financial condition or prospects, and industry, market or economic factors, which makes it difficult for prospective investors to assess such rapidly changing value of the ADSs. In addition, if the trading volumes of the ADSs are low, persons buying or selling in relatively small quantities may easily influence prices of the ADSs. This low volume of trades could also cause the price of the ADSs to fluctuate significantly, with large percentage changes in price occurring in any trading day session. Holders of the ADSs may also not be able to readily liquidate their investment or may be forced to sell at depressed prices due to such low-volume trading. As a result of such volatility, investors may experience losses on their investment in the ADSs. Such volatility also could adversely affect our ability to issue additional ADSs or other securities and our ability to obtain additional financing in the future, as well as our ability to retain key employees, many of whom have been granted equity incentives. Furthermore, the potential extreme volatility may confuse the public investors of the value of the ADSs, distort the market perception of the price of the ADSs, and our financial performance and public image, and negatively affect the long-term liquidity of the ADSs, regardless of our actual or expected operating performance.
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 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 results of operations and financial condition.
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If securities or industry analysts do not 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.
Techniques employed by short sellers may drive down the market price of the ADSs.
Short selling is the practice of selling securities that the seller does not own but rather has borrowed from a third party with the intention of buying identical securities back at a later date to return to the lender. The short seller hopes to profit from a decline in the value of the securities between the sale of the borrowed securities and the purchase of the replacement shares, as the short seller expects to pay less in that purchase than it received in the sale. As it is in the short seller’s interest for the price of the security to decline, many short sellers publish, or arrange for the publication of, negative opinions regarding the relevant issuer and its business prospects in order to create negative market momentum and generate profits for themselves after selling a security short. These short attacks have, in the past, led to selling of shares in the market.
Public companies listed in the United States that have a substantial majority of their operations in China have been the subject of short selling. Much of the scrutiny and negative publicity has centered on allegations of a lack of effective internal control over financial reporting resulting in financial and accounting irregularities and mistakes, inadequate corporate governance policies or a lack of adherence thereto and, in many cases, allegations of fraud. As a result, many of these companies are now conducting internal and external investigations into the allegations and, in the interim, are subject to shareholder lawsuits and/or SEC enforcement actions.
We may be the subject of unfavorable allegations made by short sellers in the future. Any such allegations may be followed by periods of instability in the market price of our ordinary shares and ADSs and negative publicity. If and when we become the subject of any unfavorable allegations, whether such allegations are proven to be true or untrue, we could have to expend significant resources to investigate such allegations and/or defend ourselves. While we would strongly defend against any such short seller attacks, we may be constrained in the manner in which we can proceed against the relevant short seller by principles of freedom of speech, applicable federal or state law or issues of commercial confidentiality. Such a situation could be costly and time-consuming and could distract our management from growing our business. Even if such allegations are ultimately proven to be groundless, allegations against us could severely impact our business and shareholders’ equity, and the value of any investment in the ADSs could be greatly reduced or rendered worthless.
The sale or availability for sale of substantial amounts of the ADSs could adversely affect their market price.
Sales of substantial amounts of the ADSs in the public market, or the perception that these sales could occur, could adversely affect the market price of the ADSs and could materially impair our ability to raise capital through equity offerings in the future. We had 106,735,243 Class A ordinary shares and 49,859,049 Class B ordinary shares outstanding as of October 21, 2026, including 65,688,927 Class A ordinary shares represented by ADSs.
All of the ADSs are freely tradable without restriction or further registration under the Securities Act, and shares held by our existing shareholders may also be sold in the public market in the future subject to the restrictions in Rule 144 and Rule 701 under the Securities Act and the applicable lock-up agreements. The lockup agreement that our directors and executive officers and all of our pre-IPO shareholders signed with the underwriters of our initial public offering has expired, and these shareholders, and the remaining Class A ordinary shares are available for sale subject to volume and other restrictions under Rule 144 and Rule 701 under the Securities Act. We cannot predict what effect, if any, market sales of securities held by our significant shareholders or any other shareholder or the availability of these securities for future sale will have on the market price of the ADSs.
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In addition, we have granted certain options to employees under our share incentive plans. We may grant additional options or share-based awards to employees, directors and consultants in the future. To the extent that any of these options are vested and exercised, and any of such shares are sold in the market, it could have an adverse effect on the market price of the ADSs.
Investors may have to rely on price appreciation of the ADSs for return on your investment.
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 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 the ADSs will likely depend entirely upon any future price appreciation of the ADSs. There is no guarantee that the ADSs will appreciate in value or even maintain the price at which you purchased the ADSs. You may not realize a return on your investment in the ADSs and you may even lose your entire investment in the ADSs.
We may use the net proceeds from our initial public offering in ways with which you may not agree.
Our management have considerable discretion in deciding how to apply the net proceeds from our initial public offering. 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. We cannot assure you that the net proceeds will be used in a manner that will improve our results of operations or increase the price of the ADSs, nor that these net proceeds will be placed only in investments that generate income or appreciate in value.
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 and our operations are primarily conducted in emerging markets.
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 Act (As Revised) of the Cayman Islands and the common law of the Cayman Islands. The rights of shareholders to take action against our directors, actions by our minority shareholders and the fiduciary duties of our directors to us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from the common law of England, the decisions of whose courts are of persuasive authority, but are not binding, on a court in the Cayman Islands. The rights of our shareholders and the fiduciary duties of our directors under Cayman Islands law are not as clearly established as they would be under statutes or judicial 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 (save for our memorandum and articles of association, our register of mortgages and charges and special resolutions of our shareholders). Our directors have discretion under our articles of association to determine whether or not, and under what conditions, our corporate records may be inspected by our shareholders, but are not obliged to make them available to our shareholders. This may make it more difficult for you to obtain the information needed to establish any facts necessary for a shareholder motion or to solicit proxies from other shareholders in connection with a proxy contest.
We conduct substantially all of our current business in China and substantially all of our assets are located in China. The SEC, U.S. Department of Justice and other authorities often have substantial difficulties in bringing and enforcing actions against non-U.S. companies and non-U.S. persons, including company directors and officers, in certain emerging markets, including China. Additionally, our public shareholders may have limited rights and few practical remedies in China, as shareholder claims that are common in the United States, including class action securities law and fraud claims, generally are difficult or impossible to pursue as a matter of law or practicality in many emerging markets, including China.
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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 shareholders than they would as public shareholders of a company incorporated in the United States.
Certain judgments obtained against us by our shareholders may not be enforceable.
We conduct substantially all of our current business in China and substantially all of our assets are located in China. In addition, most of our current directors and senior executive officers are nationals and residents of jurisdictions 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 PRC laws and the laws of the Cayman Islands may render you unable to enforce a judgment against our assets or the assets of our directors and officers.
We may not be able to satisfy listing requirements of the Nasdaq Stock Market or maintain a listing of the ADSs on the Nasdaq Stock Market.
As the ADSs are listed on the Nasdaq Stock Market, we must meet certain financial and liquidity criteria to maintain such listing. If we violate the Nasdaq Stock Market’s listing requirements, or if we fail to meet any of the Nasdaq Stock Market’s listing standards, the ADSs may be delisted. In addition, our board of directors may determine that the cost of maintaining our listing on a national securities exchange outweighs the benefits of such listing. The delisting of the ADSs from the Nasdaq Stock Market could significantly impair our ability to raise capital and the value of your investment.
You, as holders of ADSs, may have fewer rights than holders of our ordinary shares and must act through the depositary to exercise those rights.
Holders of ADSs do not have the same rights as our registered shareholders. As a holder of the 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 that are carried by the underlying Class A ordinary shares represented by your ADSs indirectly in accordance with the provisions of the deposit agreement. Under the deposit agreement, you may vote only by giving voting instructions to the depositary. Upon receipt of your voting instructions, the depositary will try, as far as is practicable, to vote the underlying Class A ordinary shares represented by your ADSs in accordance with your instructions. If we ask for your instructions, then upon receipt of your voting instructions, the depositary will try to vote the underlying Class A ordinary shares represented by your ADSs in accordance with these instructions. If we do not instruct the depositary to ask for your instructions, the depositary may still vote in accordance with instructions you give, but it is not required to do so. You will not be able to directly exercise your right to vote with respect to the underlying Class A ordinary shares represented by your ADSs unless you withdraw such ordinary shares and become the registered holder of such shares prior to the record date for the general meeting.
The voting rights of holders of ADSs are limited by the terms of the deposit agreement, and you may not be able to exercise your right to vote your Class A ordinary shares.
As a holder of the ADSs, you will only be able to exercise the voting rights with respect to the underlying Class A ordinary shares represented by your ADSs in accordance with the provisions of the deposit agreement. Under the deposit agreement, you must vote by giving voting instructions to the depositary. Upon receipt of your voting instructions, the depositary will vote the underlying Class A ordinary shares represented by your ADSs in accordance with these instructions. You will not be able to directly exercise your right to vote with respect to the underlying Class A ordinary shares represented by your ADSs unless you cancel and withdraw such ordinary shares. Under our third amended and restated memorandum and articles of association, the minimum notice period required for convening a general meeting is ten calendar days. When a general meeting is convened, you may not receive sufficient advance notice to withdraw the underlying Class A ordinary shares represented by your ADSs to allow you to vote with respect to any specific matter. If we ask for your instructions, the depositary will notify you of the upcoming vote and will arrange to deliver our voting materials to you. We 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 vote and you may have no legal remedy if the underlying Class A ordinary shares represented by your ADSs are not voted as you requested.
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The depositary for the ADSs will give us a proxy to a person designated by us to vote our Class A ordinary shares represented by your ADSs in a manner consistent with the recommendation(s) made by our board of directors as set forth in the proxy statement or other voting materials in connection with the matter(s) submitted for voting if you do not vote at shareholders’ meetings or if the depositary or we do not receive timely voting instructions from you, except in limited circumstances, which could adversely affect your interests.
Under the deposit agreement for the ADSs, if you do not vote at shareholders’ meetings or if the depositary or we do not receive timely voting instructions from you, the depositary may give us a proxy to a person designated by us to vote the underlying Class A ordinary shares represented by the ADSs at shareholders’ meetings in a manner consistent with the recommendation(s) made by our board of directors as set forth in the proxy statement or other voting materials in connection with the matter(s) submitted for voting if we have timely provided the depositary with notice of meeting and related voting materials and (1) we have instructed the depositary that we wish a proxy to our board of directors to be given, (2) we have informed the depositary that there is no substantial opposition as to a matter to be voted on at the meeting, and (3) a matter to be voted on at the meeting would not have an adverse impact on shareholders.
The effect of this proxy is that you cannot prevent the underlying Class A ordinary shares represented by the ADSs from being voted, except under the circumstances described above. This may make it more difficult for holders to influence the management of the company. Holders of ordinary shares are not subject to this proxy.
You may not receive distributions on the ADSs or any value for them if such distribution is illegal or impractical or if any required government approval cannot be obtained in order to make such distribution available to you.
The depositary of ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian receives on ordinary shares or other deposited securities underlying the ADSs, after deducting its fees and expenses and any applicable taxes and governmental charges. You will receive these distributions in proportion to the number of ordinary shares your ADSs represent. However, the depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any holders of ADSs. For instance, it would be unlawful to make a distribution to a holder of ADSs if it consists of securities whose offering would require registration under the Securities Act but are not so properly registered or distributed under an applicable exemption from registration. The depositary may also determine that it is not reasonably practicable to distribute certain property. In these cases, the depositary may determine not to distribute such property. We have no obligation to register under the U.S. securities laws any offering of ADSs, ordinary shares, rights or other securities received through such distributions. We also have no obligation to take any other action to permit the distribution of ADSs, ordinary shares, rights or anything else to holders of ADSs. This means that you may not receive distributions we make on our ordinary shares or any value for them if it is illegal or impractical for us to make them available to you. These restrictions may cause a material decline in the value of the ADSs.
We and the depositary are entitled to amend the deposit agreement and to change the rights of ADSs holders under the terms of such agreement, and we may terminate the deposit agreement, without the prior consent of the ADSs holders.
We and the depositary may amend or terminate the deposit agreement without your consent. Such amendment or termination may be done in favor of our company. Holders of the ADSs, subject to the terms of the deposit agreement, shall be given at least 30 days’ notice of any amendment that imposes or increases any fees or charges (other than stock transfer or other taxes and other governmental charges, transfer or registration fees, SWIFT, cable, telex or facsimile transmission costs, delivery costs or other such expenses), or otherwise prejudices any substantial existing right of ADR holders. 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. The depositary may, and shall at our written direction, terminate the deposit agreement and the ADRs by mailing notice of such termination to the registered holders of ADRs at least 30 days prior to the date fixed in such notice for such termination. After instructing its custodian to deliver all ordinary shares to us along with a general stock power that refers to the names set forth on the ADR register maintained by the depositary and providing us with a copy of the ADR register maintained by the depositary, the depositary and its agents will perform no further acts under the deposit agreement or the ADRs and shall cease to have any obligations under the deposit agreement and/or the ADRs.
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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 our securities. However, we cannot make rights available to you in the United States unless we register the rights and the securities to which the rights relate under the Securities Act or an exemption from the registration requirements is available. Also, under the deposit agreement, the depositary will not make rights available to you unless either both the rights and any related securities are registered under the Securities Act, or the distribution of them to ADS holders is exempted from registration under the Securities Act. We are under no obligation to file a registration statement with respect to any such rights or securities or to endeavor to cause such a registration statement to be declared effective. Moreover, we may not be able to establish an exemption from registration under the Securities Act. If the depositary does not distribute the rights, it may, under the deposit agreement, either sell them, if possible, or allow them to lapse. Accordingly, you may be unable to participate in our rights offerings and may experience dilution in your holdings.
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 transfer books at any time or from time to time when it deems expedient in connection with the performance of its duties. In addition, the depositary may refuse to deliver, transfer or register transfers of ADSs generally when our books or the books of the depositary are closed, or at any time if we or the depositary deems it 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.
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 provides that, to the extent permitted by law, holders of the ADSs waive the right to a jury trial of any claim they may have against us or the depositary arising out of or relating to the ADSs or the deposit agreement, including any claim under U.S. federal securities laws. However, you will not be deemed, by agreeing to the terms of the deposit agreement, to have waived our or the depositary’s compliance with U.S. federal securities laws and the rules and regulations promulgated thereunder. In fact, you cannot waive our or the depositary’s compliance with U.S. federal securities laws and the rules and regulations promulgated thereunder.
If we or the depositary oppose 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. The deposit agreement governing the ADSs provides that, (1) the deposit agreement and the ADSs will be interpreted in accordance with the laws of the State of New York, and (2) as an owner of ADSs, you irrevocably agree that any legal action arising out of the deposit agreement and the ADSs involving us or the depositary may only be instituted in a state or federal court in the city of New York. 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, by a federal or state court in the City of New York. In determining whether to enforce a contractual pre-dispute jury trial waiver provision, courts will generally consider whether a party knowingly, intelligently and voluntarily has waived the right to a jury trial. We believe that this is the case with respect to the deposit agreement and the ADSs. It is advisable that you consult legal counsel regarding the jury waiver provision before investing in the ADSs.
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If you or any other holders or beneficial owners of ADSs, including purchasers of ADSs in secondary market transactions, 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 increasing the cost of bringing a claim and limiting and discouraging lawsuits against us and the depositary. If a lawsuit is brought against either or both of us and the depositary under the deposit agreement, it may be heard only by a judge or justice of the applicable trial court, which would be conducted according to different civil procedures and may result in different outcomes than a trial by jury would have, including results that could be less favorable to the plaintiffs in any such action.
Nevertheless, if this jury trial waiver provision is not permitted by applicable law, an action could proceed under the terms of the deposit agreement with a jury trial. No condition, stipulation or provision of the deposit agreement or ADSs serves as a waiver by any holder or beneficial owner of ADSs or by us or the depositary of compliance with any substantive provision of the U.S. federal securities laws and the rules and regulations promulgated thereunder.
Moreover, as the enforcement provisions in the deposit agreement, including the jury trial waiver, relate to claims arising out of or relating to the ADSs or the deposit agreement, we believe that, as a matter of construction of the clause, the enforcement provisions would likely continue to apply to ADS holders who withdraw the Class A ordinary shares from the ADS facility with respect to claims arising before the cancelation of the ADSs and the withdrawal of the Class A ordinary shares, and the enforcement provisions would most likely not apply to ADS holders who subsequently withdraw the Class A ordinary shares represented by ADSs from the ADS facility with respect to claims arising after the withdrawal. However, to our knowledge, there has been no case law on the applicability of the jury trial waiver to ADS holders who withdraw the Class A ordinary shares represented by the ADSs from the ADS facility.
Your rights to select a judicial venue for legal actions are limited by the terms of the deposit agreement and the deposit agreement may be amended or terminated without your consent.
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 Southern District of New York lacks subject matter jurisdiction over a particular dispute, in the state courts of New York County, New York), and a holder of the ADSs, will have irrevocably waived any objection which such holder 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. However, 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. Accepting or consenting to this forum selection provision does not represent you are waiving compliance with the U.S. federal securities laws and the rules and regulations promulgated thereunder. Furthermore, investors cannot waive compliance with the U.S. federal securities laws and rules and regulations promulgated thereunder.
We believe we were a passive foreign investment company for our fiscal year ended June 30, 2026, and we may be a PFIC for future fiscal years which could result in adverse U.S. federal income tax consequences to U.S. investors owning the ADSs or our Class A ordinary shares.
A non-U.S. corporation, such as our company, will be classified as a passive foreign investment company (“PFIC”), for U.S. federal income tax purposes, for any fiscal year if either (1) at least 75% of its gross income for such year consists of certain types of “passive” income; or (2) at least 50% of the value of its assets (generally determined on the basis of a quarterly average) during such year is attributable to assets that produce passive income or are held for the production of passive income. For purposes of making a PFIC determination, the non-U.S. corporation will be treated as owning its proportionate share of the assets and earning its proportionate share of the gross income of any other corporation in which it owns, directly or indirectly, more than 25% (by value) of the stock. Although the law in this regard is not entirely clear, we treated the formerly affiliated entities as being owned by us for U.S. federal income tax purposes for periods prior to the VIE termination. Prior to the VIE Termination, we controlled their management decisions and were entitled to substantially all of the economic benefits associated with them. As a result, we consolidated their financial results in our consolidated U.S. GAAP financial statements for periods prior to the VIE termination. On September 30, 2025, the Company terminated its contractual arrangements with its two VIEs pursuant to the VIE Termination Agreement. Effective from September 30, 2025, we no longer consolidate the financial results of two VIEs.
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Based on the market price of our ADSs and the composition of our assets, we believe we were a PFIC for U.S. federal income tax purposes for our fiscal year ended June 30, 2026. However, because the determination of whether we are or will become a PFIC for any fiscal year is a fact-intensive inquiry made annually that depends, in part, upon the composition of our income and assets and the value of our assets from time to time, and because there are uncertainties in the application of the relevant rules, there can be no assurance regarding our PFIC status for any taxable year. Furthermore, the value and proper classification of certain of our assets for U.S. tax purposes is subject to uncertainty, which may affect our PFIC status for any taxable year. In addition, fluctuations in the market price of the ADSs may increase the risk that we continue to be a PFIC for subsequent fiscal years because the value of our assets for the purpose of the asset test, including the value of our goodwill and other intangibles, may generally be determined by reference to the market price of the ADSs from time to time (which may be volatile). The composition of our income and assets may also be affected by how, and how quickly, we use our liquid assets.
Because we believe we were a PFIC for the fiscal year ended June 30, 2026, certain adverse U.S. federal income tax consequences could apply to a U.S. Holder (as defined in “Item 10. Additional Information—E. Taxation—U.S. Federal Income Taxation—General”) who holds or acquires our ADSs or our Class A ordinary shares. See “Item 10. Additional Information—E. Taxation—U.S. Federal Income Taxation—Passive foreign investment company considerations.”
ITEM 4. INFORMATION ON THE COMPANY
A. History and Development of the Company
Here Group Limited is an exempted company with limited liability incorporated under the laws of the Cayman Islands with no substantive operation. We currently carry out our pop toy business primarily in China through Shenzhen Letsvan, and, to a much lesser extent, overseas pop toy business through several overseas subsidiaries. Before the VIE Termination in September 2025, we carried out our legacy individual online learning services business and certain consumer and other businesses in China through Beijing Liangzizhige, one of our WFOEs, and its contractual arrangements, commonly known as the VIE structure, with Beijing Chuangyuqizhi and Beijing Feierlai, the variable interest entities based in China, and their respective nominee shareholder.
Corporate restructuring before the IPO
We began our online learning services in 2019 when we were within the group of Witty network, a Cayman Islands holding company held by our existing shareholders. In anticipation of our initial public offering and in order to focus on developing our online learning and enterprise service business, our shareholders restructured the corporate structure and spun-off these businesses from Witty network and its affiliate, EW Technology, into the entities within our group.
Prior to the spin-off, our business had been conducted through certain contractual arrangements established by Witty network’s wholly-owned subsidiary in China (the “Former WFOE”) with (1) Beijing Dianfengtongdao Technology Co., Ltd. (the “Former VIE”), a variable interest entity based in China, and its nominee shareholder, and (2) Beijing Feierlai and its nominee shareholder. In May 2021, Beijing Liangzizhige entered into a series of agreements and established new contractual arrangements with Beijing Feierlai and its nominee shareholder, and the previous contractual arrangements between the Former WFOE and Beijing Feierlai were terminated. Certain of our online learning business for which we have consolidated the financial results as of and for the fiscal years ended June 30, 2021 and 2022 was then spun-off from Witty network to EW Technology.
In February 2022, QuantaSing Group Limited was incorporated as a Cayman Islands holding company. In February 2021, Witty Digital Technology Limited was incorporated in Hong Kong. In March 2021, Hundreds of Mountains Limited was incorporated in the British Virgin Islands. Witty Digital and Hundreds of Mountains Limited are our wholly-owned subsidiaries. In March 2021, Beijing Liangzizhige was established in China as a new wholly-owned subsidiary of Witty Digital for the purpose of above-described restructuring.
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In March 2022, we completed the sale of 100% of the equity interest in Beijing ChangYou Star Network Technology Co., Ltd., and its subsidiary, Beijing Baichuan Insurance Brokerage Co., Ltd. (“Beijing Baichuan”), to Beijing Shanronghaina Network Technology Co., Ltd., an entity controlled by EW Technology.
In May 2022, EW Technology transferred all its equity interests in its BVI subsidiary which held the then equity interests in Beijing Liangzizhige and consolidated the financial results of Beijing Feierlai and its subsidiaries to QuantaSing Group Limited, upon which QuantaSing Group Limited acquired all the equity interests in Beijing Liangzizhige and became the primary beneficiary of Beijing Feierlai for consolidating the financial results of Beijing Feierlai and its subsidiaries. The restructuring and spin-off was completed in May 2022.
In February 2023, we completed an initial public offering of 3,377,396 ADSs (reflecting the partial exercise of the over-allotment option by the underwriters to purchase an additional 127,396 ADSs), raising approximately US$38.6 million in net proceeds after deducting underwriting commissions and the offering expenses payable by us.
Corporate restructuring after the IPO
E-commerce business
From early 2023, we begun to explore the consumer goods sector through e-commerce and undertook relevant steps to align such new business initiatives with our corporate structure. We incorporated Rare River Group Limited in February 2024 as our wholly-owned subsidiary in the Cayman Islands, which then incorporated Rare River Group (BVI) Limited (“Rare River BVI”) in February 2024 as its wholly-owned subsidiary in the BVI. Rare River BVI subsequently incorporated Rare River Technology (HK) Limited as its wholly-owned subsidiary in Hong Kong in March 2024, which then incorporated Beijing Ziranzhilu Liquor Industry Co., Ltd. (“Beijing Ziranzhilu”) in China as our WFOE in April 2024. Through a series of transfer of equity interests among Beijing Feierlai, Qiniuyouxuan (Beijing) Technology Co., Ltd. (“Qiniuyouxuan”) and other parties, Beijing Ziranzhilu obtained all of the equity interests in Qiniuyouxuan. As a result of the foregoing steps, our company operated e-commerce business in China through Qiniuyouxuan, Beijing Feierlai and certain of their subsidiaries.
Acquisition of KELLY’S EDUCATION
We expanded our learning services to the global online education market through the acquisition of KELLY’S EDUCATION LIMITED. In September 2023, we incorporated QuantaSing International Limited as our wholly-owned subsidiary in the Cayman Islands, which subsequently incorporated Kelly’s Investments Limited as its wholly-owned subsidiary in the BVI for the acquisition of Kelly’s Education, which was completed in September 2023. In January 2024, Kelly’s Education incorporated Shenzhen Kailisijin Education Technology Co., Ltd. (formerly known as Shenzhen Qisile Education Technology Co., Ltd.) as our WFOE.
Restructuring of VIE
CreaVerse Technology (HK) Limited (“CreaVerse Hong Kong”) incorporated Beijing Chuangyuqizhi Technology Co., Ltd. as our WFOE in April 2024. In May 2024, Beijing Feierlai transferred all its equity interests in Beijing Zhixueduxing Technology Co., Ltd. (“Beijing Zhixueduxing”) to Shenzhen Erwan. In May 2024, a series of contractual arrangements were entered into by and among Beijing Chuangyuqizhi, Beijing Zhixueduxing and its nominee shareholder, Shenzhen Erwan. Pursuant to the exercise of the exclusive option under the aforesaid contractual arrangements by Beijing Chuangyuqizhi, Shenzhen Erwan transferred all of the equity interests in Beijing Zhixueduxing to Beijing Denggaoerge Network Technology Co., Ltd. (“Beijing Denggaoerge”). In the meantime, CreaVerse Hong Kong entered into an equity transfer agreement with Shenzhen Erwan to transfer all of its equity interests in Beijing Chuangyuqizhi to Shenzhen Erwan. In April 2025, Beijing Liangzizhige entered into a series of agreements and established new contractual arrangements with Beijing Chuangyuqizhi and its nominee shareholder (i.e., Shenzhen Erwan). Beijing Feierlai subsequently entered into equity transfer agreements with Beijing Chuangyuqizhi to transfer its equity interests in certain subsidiaries to Beijing Chuangyuqizhi, including Beijing Denggaoerge. As a result of the foregoing adjustments, we operated our individual online learning services business and certain consumer and other business through the VIEs, Beijing Chuangyuqizhi and Beijing Feierlai, and their respective subsidiaries.
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As a result of the foregoing transactions, before the VIE Termination, we operated our individual online learning services business and certain consumer and other business in China pursuant to the VIE Agreements between Beijing Liangzizhige, Beijing Feierlai and Beijing Chuangyuqizhi, and their respective nominee shareholder. We also operated learning services overseas and certain consumer and certain other businesses through the subsidiaries of QS International and Rare River.
Shenzhen Letsvan Investment
We incorporated CreaVerse Group Limited (“CreaVerse Cayman”) in February 2024 as our wholly-owned subsidiary in the Cayman Islands, which then incorporated CreaVerse Group (BVI) Limited (“CreaVerse BVI”) in February 2024 as its wholly-owned subsidiary in the BVI. CreaVerse BVI subsequently incorporated CreaVerse Technology (Singapore) Pte. Limited (“CreaVerse Singapore”) as its wholly-owned subsidiary in Singapore in February 2024, which then incorporated CreaVerse Technology (HK) Limited (“CreaVerse Hong Kong”) as its wholly-owned subsidiary in Hong Kong in March 2024. CreaVerse Hong Kong incorporated Shenzhen Chaowan World Information Technology Co., Ltd. (“Shenzhen Chaowan”) in December 2024. From December 2024 to March 2025, Shenzhen Letsvan and its shareholders, Shenzhen Chaowan and/or certain other parties thereto, entered into a series of agreements (“Initial Investment Agreements”), including certain shareholders’ agreements, equity transfer agreements and capital injection agreements. Pursuant to the Initial Investment Agreements, we made initial investments in Shenzhen Letsvan at an aggregate cash consideration of approximately RMB235.0 million for 61.05% of its then outstanding equity interests. From April 2025, we began to consolidate the results of operations of Shenzhen Letsvan. We also established a number of overseas subsidiaries and controlled entities in Southeast Asia and the United States through CreaVerse Cayman, CreaVerse Singapore and CreaVerse Hong Kong in connection with the development of our pop toy business.
From June 2025, we undertook further steps to acquire all of the remaining equity interests in Shenzhen Letsvan from the minority shareholders through a mix of cash and stock consideration. The aggregate cash consideration to the minority shareholders amounted to RMB137.9 million. For the stock consideration and by way of private placement, we shall issue an aggregate of 18,219,330 Class A ordinary shares to Mr. Huiyu Zhan (Zack) (“Mr. Zhan”), the founder and chief executive officer and a director of Shenzhen Letsvan, as consideration for his remaining interests in Letsvan. The share issuance shall take place in three installments and be subject to certain restrictions and limitations, including respective vesting schedules and lock-up requirements. As of the date of this annual report, certain portion of this acquisition still remain in progress, and we hold 76.3% of the equity interests in Shenzhen Letsvan.
VIE Termination and Restructuring of Legacy Businesses
In furtherance of our strategy to pursue product-driven growth with the pop toy business, we restructured our legacy businesses through a series of transactions from September 2025. On September 30, 2025, Beijing Liangzizhige, entered into the VIE Termination Agreement with Beijing Feierlai and Beijing Chuangyuqizhi, and the respective nominee shareholder of Beijing Feierlai and Beijing Chuangyuqizhi, to terminate the contractual arrangements among these parties, including the termination of the voting rights proxy agreements, equity pledge agreements, exclusive consultancy and service agreements and exclusive option agreements. As part of the business restructuring and in connection with the termination of the VIE Agreements, we (through our relevant subsidiaries and the affiliated entities) entered into equity transfer agreements with the relevant entities of a third-party buyer (the “Buyer”) on September 30, 2025, pursuant to which Beijing Liangzizhige would instruct the nominee shareholder to transfer all of its equity interests in Beijing Feierlai and Beijing Chuangyuqizhi to the Buyer, and the company shall transfer all of its equity interests in QS International and Rare River to the Buyer, for an aggregate consideration of RMB162 million and US$2.5 million, and the Buyer would assume the net liabilities of these transferred entities as of June 30, 2025, subject to further adjustments reflecting the net liabilities changes before the closing and other adjustments as may be mutually agreed upon by the parties. The termination of the VIE Agreements took effect on September 30, 2025. We began to deconsolidate the results of operations of the affiliated entities from September 30, 2025. As a result of the business restructuring, we ceased to engage in any individual online learning services business in the PRC or overseas or any other consumer businesses or any other business, and continued to operate our pop toy business through Shenzhen Letsvan, together with all the other entities remaining in our group following the restructuring of the legacy businesses.
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Our principal executive offices are located at Room 3008, 30/F, Two Exchange Square, 8 Connaught Place Central, Hong Kong. Our registered office in the Cayman Islands is located at the offices of Maples Corporate Services Limited, PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands. The telephone number of our principal executive office is +852 2988 8279. Investors should contact us for any inquiries through the address and telephone number of our principal executive office. Our main website is http://www.heregroup.com. The information contained on our website is not a part of this annual report. Our agent for service of process in the United States is Cogency Global Inc., located at 122 East 42nd Street, 18th Floor, New York, New York 10168.
The SEC maintains an internet site, http://www.sec/gov, which contains reports, proxy and information statements, and other information regarding us. We also maintain an internet site, http://ir.heregroup.com/, for investors’ information. The information contained on our website is not a part of this annual report.
B. Business Overview
Our Pop Toy Business
We create collectible pop toys that spark joy and inspire global culture. With innovative design and storytelling at our core, we deliver immersive experiences that connect deeply with collectors worldwide. Guided by joy, integrity, wonder, and co-creation, we are building vibrant cultural ecosystems where fans shape and share dreams.
Our IP portfolio
Our ecosystem is structurally designed to mitigate single-IP dependency. We are building a growing and diverse IP portfolio, underpinned by our strong ability to develop proprietary IPs as well as to attract collaborations with recognized IPs. As of June 30, 2026, our total IP portfolio expanded to 22 IPs, comprising 13 proprietary IPs, including WAKUKU and ZIYULI, and 9 exclusively licensed IPs.
Our IP portfolio is built through a balanced mix of proprietary development and strategic licensing partnerships. We also pursue selective co-branded collaborations when the right opportunities arise. This combined approach demonstrates our strong capabilities in IP creation and commercialization. Each IP in our portfolio speaks to its own target audience, with distinct characteristics and appeal. This allows us to reach different consumer segments with precision and depth. We consider these capabilities to be core competitive advantages that distinguish us within the pop toy industry. We are committed to continuing our investment in building a solid IP foundation, which we believe will support our ability to capture and sustain a meaningful share of the growing global pop toy market.
Our IP portfolio is further strengthened through strategic partnerships with globally recognized IP holders and co-branded collaborations. Under licensing agreements, we reinterpret these beloved characters to develop exclusive variants. We also work with partners across media and cultural sectors to extend our brand influence. These collaborations amplify our brand visibility, allowing us to tap into established fan communities and reach new consumer segments, while generating rapid market traction alongside our in-house-developed offerings.
From July 1, 2025 to September 30, 2026, we continued to expand our IP portfolio across both proprietary and exclusively licensed IP offerings. On the proprietary side, we introduced YONNNA, a new IP with a retro-fantasy aesthetic, while continuing to develop new collections for our established flagship IPs. On the exclusively licensed IP side, we have expanded our portfolio including YEAOHUA, VIVIMANI, fluffy lili, LucStarry, Clomii, NAAYE and mix angel. These additions further enriched our IP matrix and expanded our reach across different consumer segments.
We remain fully committed to strengthening our IP foundation, which we believe will enable us to capture and sustain a meaningful share of the growing global pop toy market.
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Our proprietary IPs
Our proprietary IPs, including flagship characters such as WAKUKU and ZIYULI, are developed in-house through a specialized incubation methodology. This systematic approach helps us effectively cultivate culturally resonant IPs by combining precise audience targeting, focused creative development and efficient market testing, and further ensures each IP’s successful launch and sustained relevance in the dynamic pop toy market. The following image illustrates our proprietary IPs.
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WAKUKU
WAKUKU, our flagship IP, has become one of China’s most recognized pop toys. Portrayed as a skilled hunter full of courage and wisdom, the character embodies a spirit of playful rebellion and boundary-breaking exploration. Designed to reconnect audiences with the joy of uninhibited self-expression, WAKUKU encourages fans to challenge conventions and embrace their inner “wild child,” reflecting our brand ethos of creativity and bold individuality.
In the fiscal year ended June 30, 2026, we generated a total revenue of RMB369.3 million from the sales of WAKUKU, accounting for 61.9% of our total revenue of the same period, which underscored its foundational market stability and lasting emotional equity with consumers.
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ZIYULI
ZIYULI, a Chinese Princess who “grows by your side,” is depicted as a timeless sixteen-year-old. With large eyes and round cheeks, her cute design contrasts with a playful, whimsical personality. This relatable character aims to personify a “youthful heart,” fostering an emotional connection that celebrates optimism and perpetual youth among her fans.
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Our licensed IPs
To accelerate the expansion of our IP matrix and enhance the diversity of our product lines, we have initiated a series of strategic partnerships with third-party IP holders and designers. As of June 30, 2026, our efforts have resulted in a pipeline of 9 licensed IPs, all under exclusive agreements. We believe that these collaborations will enable us to introduce new and compelling product categories more swiftly, cater to a broader consumer base, and solidify our competitive position in the dynamic pop toy market. The following image illustrates our licensed IPs.
The following table sets forth key information of our licensed IPs.
| IP | Licensed Territory | License Type | License Period | |||
| SIINONO | Global | Exclusive IP | February 2025—February 2033 (8 years) | |||
| IMPOPO PIX | Global | Exclusive IP | April 2025—April 2033 (8 years) | |||
| YEAOHUA | Global | Exclusive IP | September 2025—August 2028 (3 years) | |||
| VIVIMANI | Global | Exclusive IP | September 2025—August 2028 (3 years) | |||
| fluffy lili | Global | Exclusive IP | January 2026—December 2028 (3 years) | |||
| LucStarry | Global | Exclusive IP | January 2026—January 2031 (5 years) | |||
| Clomii | Global | Exclusive IP | December 2025—December 2030 (5 years) | |||
| NAAYE | Global | Exclusive IP | January 2026—December 2028 (3 years) | |||
| mix angel | Global | Exclusive IP | June 2026—June 2029 (3 years) |
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SIINONO
SIINONO, a new IP launched in July 2025, is an alien creature from the warm and carefree planet Hacci. It is a story about accidental arrival and cheerful exploration, marked by a shy and curious personality, which creates a whimsical narrative of belonging that resonates deeply with audiences.
In its first full fiscal year, we generated a revenue of RMB92.7 million from the sales of SIINONO, contributing 15.5% to our revenue for the fiscal year ended June 30, 2026. Its rapid rise from zero to a near RMB100-million annualized scale in under 12 months confirms our ability to systematically incubate and scale new IPs.
Our co-branded IPs
To further enrich our IP ecosystem and expand our reach into new consumer segments, we have pursued selective co-branded collaborations with partners across industries. These partnerships allow us to combine our IP development capabilities with complementary brand strengths, creating fresh and distinctive product offerings. As of the date of this annual report, we have established two co-branded IPs. We believe these collaborations enhance our brand vitality, broaden our audience base, and reinforce our position in the competitive pop toy market. The following image illustrates our co-branded IPs.
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AOO
AOO, a co-branded IP launched in April 2026, is defined by a bold and fearless spirit. With a personality that is cool, playful, and fiercely independent, the character embodies a modern attitude of self-expression and confidence. AOO’s story and aesthetic resonate with young consumers who embrace individuality and authenticity. In June 2026, we expanded the IP with its 2.0 collection, further enriching its character expression and product offerings.
Our IP Development Strategy
We remain committed to building long-term IP value through a disciplined, quality-driven approach, developing a diverse portfolio of IPs with lasting relevance.
On IP sourcing, we pursue both original creation and licensing partnerships, building a platform for discovering and nurturing artists. The portfolio currently includes 22 IPs, spanning styles from cool-cute to adorable to fashion-forward, with continuous efforts to bring in emerging designers and artists to sustain creative vitality.
On commercialization, IP value is activated across multiple scenarios. Our IPs have established meaningful collaborations across beverages, fashion, sports, arts and culture, steadily extending their reach into broader consumer touchpoints. These are not one-off marketing events. They are how we build momentum for our IPs, extend their lifecycles, and create ongoing interaction with users.
On user experience, offline DTC stores serve as the core engagement ground, while new formats including transportation hubs, pop-up spaces, and themed experiences are being actively explored. These real-world interactions allow our IPs to build genuine, lasting connections with users.
Rather than pursuing short-term product cycles, we focus on building IPs with distinctive character and storytelling that truly earn a place in people’s lives. We maintain our own design judgment and creative conviction, rather than following market trends. We also recognize that an IP’s long-term asset value is linked to its perceived scarcity, and we manage our supply with discipline to protect that value. This is the foundation of our long-term, sustainable growth.
Our product offerings
We have developed an IP toy portfolio based on our proprietary and licensed IPs. We believe our IP toys have wide appeal to different age groups and genders. Our “HERE奇梦岛” branded products primarily include plush toys and figures. As of June 30, 2026, we operated over 40 blind box product lines and over 30 plush pendant card products across our IP portfolio.
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Plush toys
Our plush toy collection brings to life soothing characters from our proprietary and licensed IPs through advanced material innovation. We use diverse materials, including standard plush, slow-rebound foam and soft vinyl, to create multi-sensory experiences that deliver both stress-relieving comfort and emotional connection. This strategic material selection, exemplified in series such as “The Handicraft World of WAKUKU” and SIINONO “Whispers of ‘Ta’,” transforms our products into cherished companions while supporting a premium pricing strategy ranging from RMB69.8 to RMB1,099 per unit.
Figure toys
Our figure toys leverage soft vinyl to deliver a premium, tactile experience that builds deeper emotional connections with our IPs. The material’s unique warmth, substantial feel, and durability enhance perceived quality while providing comforting, stress-relieving interaction. This strategic material choice transforms our collectibles into cherished companions, strengthening brand loyalty and supporting our premium positioning.
IP merchandise
In addition to plush toys and figures, we offer a diversified range of IP merchandise that extends our proprietary and licensed IPs into everyday lifestyle and collectible formats. This category includes mouse pads, earphone pouches, phone lanyards, throw pillows, tissue box covers, and other character-based products. By translating our IP designs and stories into multiple product formats and price points, we aim to deepen fan engagement, broaden our reach across age groups and genders, and create recurring purchase opportunities. This merchandise offering complements our core toy portfolio, reinforces brand loyalty, and supports the long-term commercialization of our IP assets.
Our designer team and IP creation process
Our in-house designer team
Our fully integrated in-house design team provides a fundamental competitive edge by ensuring full control over our IP development lifecycle. The team possesses full chain capabilities to independently complete IP character and product design, allowing for effective control over creative direction and product quality. This structure guarantees a reliable and continuous IP pipeline while maintaining rigorous quality standards from concept to final product. It creates a closed-loop feedback system that allows for rapid iteration and refinement of our characters based on real-time market response. We consistently identify and attract talented professionals with strong market insight and IP creation capabilities, and through a standardized design management process, we ensure consistency and coherence in stylistic expression across all IP series. This approach not only accelerates our time-to-market for trend-responsive products but also fosters proprietary institutional knowledge and cohesive brand storytelling across all offerings. The team is committed to delivering high-quality creative output across diverse emotional dimensions, supporting the expansion of our IP matrix and product category diversification. By synchronizing creative development with strategic business objectives, we build deeper emotional connections with consumers and establish significant barriers to competition that are difficult to replicate. Looking forward, we will continue to maintain the team’s acumen and creativity, and consistently deliver IPs and products that resonate emotionally with consumers.
Our proprietary IP creation
Our proprietary IPs—including flagship characters WAKUKU and ZIYULI—are developed through our specialized in-house incubation methodology. This systematic process helps us effectively cultivate culturally resonant IPs by integrating precise audience targeting, focused creative development, and iterative market testing. Through this approach, we consistently launch IPs that capture consumer interest and maintain relevance in the evolving pop toy market. Our proprietary IPs continued to gain market recognition, with flagship characters maintaining strong performance and new additions steadily expanding our portfolio. We remain committed to refining our incubation methodology and exploring innovative ways to develop IPs with long-term cultural and commercial value.
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Our licensed IP selection
Our core strategy is to identify, sign, and long-term incubate high-quality original Chinese IPs, guided by a systematic framework designed to partner with IPs that possess long-term, multi-dimensional value. We are committed to continuously improving our full-chain mechanism covering IP sourcing, evaluation, signing, content development, product design, marketing, and commercial operations. We target IPs across four key dimensions: Emotional Appeal (distinct and resonant character design), Content Potential (strong storytelling foundations), Cultural Relevance (fashion-forward and adaptable aesthetics), and Artistic Depth (conceptual and philosophical strength). Our selection process is rigorous, prioritizing IPs that demonstrate clear design differentiation, proven commercial viability, strong product extensibility across categories and demographics, and collaborative partnership potential.
In parallel, we are expanding our partnership scope globally by selectively incorporating internationally recognized IPs through co-branding initiatives, which enhance our brand presence and demonstrate our design and commercialization capabilities in the pop toy and derivative products sector. These capabilities, channel resources, and operational expertise will, in turn, further reinforce our original Chinese IP development, forming a sustainable cycle centered on the cultivation and commercialization of in-house IP.
This disciplined selection process, combined with our fully integrated in-house design team, provides us with a fundamental competitive edge. This structure ensures end-to-end quality control from concept to finished products and establishes a closed-loop feedback system that enables rapid iteration based on market response. Ultimately, this integrated approach significantly accelerates our product launch timelines, builds proprietary institutional knowledge, unifies our brand narrative, deepens emotional connections with consumers, and creates formidable barriers to competition.
Our product design and development process
We generally design and develop our products through the following process:
| ● | Phase 1: Precise Targeting. Our process is grounded in a rigorous strategic foundation. We begin by defining the IP’s core positioning and conducting granular audience analysis to pinpoint market entry points. We clearly define target segments and assess potential IPs across four key dimensions: emotional appeal (distinct and resonant character design), content potential (strong storytelling foundations), cultural relevance (fashion-forward and adaptable aesthetics), and artistic depth (conceptual and philosophical strength). this phase culminates in a comprehensive product line roadmap and a creative brief that aligns all stakeholders on the vision, commercial objectives, and key differentiators for the upcoming product line, ensuring every development effort is guided by clear strategic intent. |
| ● | Phase 2: Creative Development. In this creative execution phase, initial concepts are transformed into tangible designs. Our in-house artists and designers, working across our design centers in Beijing, Shanghai, Shenzhen, and other cities, generate a wide range of visual concepts, which are then refined into approved designs for three-dimensional modeling. We leverage diverse materials, including standard plush, slow-rebound foam, and soft vinyl, to create multi-sensory experiences that deliver both stress-relieving comfort and emotional connection. We then produce industrial design for manufacturing and visual design. We create and iterate on physical prototypes, conducting a final pre-production review to guarantee that the product perfectly captures the intended aesthetic, quality, and functional specifications before manufacturing begins. |
| ● | Phase 3: Market Testing. Before full-scale production, we conduct market validation for our products. Through small-scale launches and user testing, we collect authentic consumer feedback to verify market acceptance of product designs. This iterative validation process helps us identify potential issues and continuously refine products based on user data. This step ensures that every product we bring to market has the potential to become a hit, while reducing market risks. |
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| ● | Phase 4: Production and Quality Control. During production, we implement a meticulous quality management system. Detailed production standards are established to govern materials, manufacturing processes, and finishing. Our quality control teams then monitor the production line closely to ensure consistent output. We have established an agile supply chain capable of scaling production rapidly. Our production capacity has expanded significantly, enabling us to meet surging demand for hit products without compromising quality. This phase concludes with a final, rigorous inspection of finished goods against our strict quality benchmarks before they are approved for warehouse entry, safeguarding the integrity of our brand. |
| ● | Phase 5: Marketing and Launch. The market introduction of our products is a carefully orchestrated effort. We develop a phased marketing plan that builds anticipation and engages our community through targeted campaigns. We leverage our growing social media presence. Our cumulative followers across major platforms are approaching 800,000. We use these channels to build content and community around our IPs. A synchronized channel strategy is deployed across our direct and wholesale networks to maximize reach and impact. This culminates in the product’s official market release, ensuring a cohesive and powerful launch that drives initial sales momentum. |
| ● | Phase 6: Post-Launch Management. Our engagement with a product extends far beyond its launch. We actively monitor and analyze sales data and consumer feedback to gauge market reception. Our integrated closed-loop feedback system enables rapid iteration and refinement based on real-time market response. These critical insights directly inform strategic decisions regarding the product’s lifecycle. This allows us to be agile and responsive to market dynamics while building lasting IP value that earns a lasting place in users’ hearts and lives. |
Our sales and marketing
Our customer base
The global pop toy market has transcended its niche origins to become a significant mainstream lifestyle category, appealing to a diverse demographic of consumers across age groups who seek emotional fulfillment, self-expression and authentic collectible experiences. Our strategy is designed to engage this broad audience through a portfolio of distinct IPs that cater to varied tastes and lifestyles. For instance, WAKUKU connects with fashion-forward individuals, while ZIYULI resonates deeply with urban female fans. SIINONO, with its timid, curious, and warm-hearted character, appeals to consumers seeking emotional comfort and a sense of belonging. This targeted approach allows us to build meaningful and lasting relationships with different consumer segments through products that blend artistic innovation with compelling storytelling. By aligning our creative development with these evolving market dynamics, we are well-positioned to sustain growth and deepen our connection with an increasingly varied consumer base.
Our sales network
We have built a robust multi-channel sales network integrating offline DTC stores, roboshops, domestic and international online platforms and distributor partnerships to secure seamless market coverage, boost brand accessibility and balance scalable growth with brand control. At the initial stage of our market development, we relied on distributor partnerships to establish our market presence and expand our reach. Through this approach, we gained valuable market access and built a solid foundation. As our pop toy business has grown, we have come to recognize that physical stores are not merely sales points. They are where we nurture and showcase our IPs, and where users build a genuine sense of belonging. Over time, we have strategically shifted more of our focus toward building out our self-operated DTC store network, including expansion into high-traffic locations such as transportation hubs and premium commercial districts, while continuing to work with our distributor partners. Our roboshop network has also been rolled out across key cities nationwide, and we are now shifting our focus from deployment scale to operational efficiency and data-driven refinement. As our self-operated capabilities continue to strengthen, we will continue to scale our DTC channels while transitioning our relationships with channel partners from traditional transaction-led distribution into high-value, customized strategic alliances, with a clear priority on reducing reliance on third-party distribution over time.
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DTC sales
Our DTC channels, including both physical and online touchpoints, have deepened the emotional connection between our brand and users while delivering immersive IP experiences, while also enabling us to capture first-party consumer data for product and marketing decisions.
On the physical side, as of September 30, 2026, we opened 8 DTC stores and deployed 25 roboshops in 6 cities. These physical touchpoints serve as extensions of our IP products, creating immersive brand experiences and deepening consumer engagement. We also enhance accessibility through pop-up stores and adopt a measured market entry strategy, beginning with pop-up activations in key cities, such as our successful rollouts in Shenzhen, Guangzhou, and Hangzhou, which validate local demand and operational readiness before we consider larger-scale retail investments. These pop-ups serve a dual purpose: they validate local demand and operational readiness before we consider larger-scale retail investments, and they function as epicenters for IP activation and immersive user interaction. We continuously monitor the performance of our DTC stores and will make adjustments to our store network as needed, including optimizing or closing underperforming locations, to ensure the long-term health and efficiency of our retail footprint.
On the online side, we operate flagship stores on Tmall, Douyin, and rednote in China and run a proprietary mini program. We also reach consumers in international markets via a North American independent e-commerce site and flagship stores on TikTok Shop and Shopee.
Distributor sales
We complement our direct channels with a selective distributor network that serves as an effective extension of our DTC footprint, covering regions and markets not yet reached by our self-operated stores. We cooperate with our distribution partners and they help us distribute to cover over 10,000 retail stores across China and collaborate with partners in more than 20 countries across North America, Europe, Southeast Asia, and the Middle East. Our distributors help place products in retail placement, extending brand presence in areas beyond our DTC coverage, while serving as an important window into regional market dynamics. They help us gauge local consumer preferences and test market potential, generating valuable insights that inform our future DTC expansion. This approach enables us to achieve broader market coverage in a capital-efficient manner, leveraging our partners’ established retail relationships and local expertise, while keeping our internal resources focused on strengthening our self-operated capabilities.
Marketing engagement
Our marketing strategy creates an integrated communication ecosystem that drives IP growth and commercial value. We strategically manage a social media matrix across key platforms to effectively capture audience attention and direct traffic into a cohesive conversion funnel. As of September 30, 2026, our cumulative followers across major social platforms in China had reached approximately 800,000 (on a gross basis without adjustment for duplicate records across platforms), and our IP-related content had generated over 1.8 billion views on Douyin and over 300 million views on rednote across our flagship IPs. This growing digital footprint forms one of the foundations of our brand and IP-driven model, and our strong online engagement has directly translated into commercial success.
Beyond our core digital operations, we carefully design online-to-offline events that bring our IPs to life through immersive experiences. We position our offline DTC stores as dedicated hubs for brand-user interaction and experience, treating each store itself as an extension of our IP products that unifies brand expression within our self-operated system. As of September 30, 2026, we opened 8 DTC stores in key cities including Beijing, Shenzhen, Chongqing, Xi’an and Guangzhou. We are also expanding into automated retail through our roboshop network: as of September 30, 2026, we deployed 25 roboshops across key cities nationwide, extending our offline reach with lower fixed costs while collecting valuable data on product preferences and purchasing habits. With the initial rollout phase largely behind us, we are now shifting our focus from deployment scale to operational efficiency and data-driven refinement, using real-time consumer insights to inform product assortment and placement strategies. In addition, we operate pop-up stores, themed exhibitions, and holiday light shows across multiple core commercial districts, achieving high-traffic reach through landmark public spaces in Shanghai, Beijing, Tianjin, and other cities, and deepening brand-consumer interaction. We also participated in national-level events such as the China New Cultural & Creative Market & Trendy Toy Carnival, further enhancing brand visibility and expanding our industry presence.
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Cross-industry co-branding and strategic partnerships continue to extend our brand’s reach beyond traditional toy consumers. We have formally established a strategic partnership with Beijing Radio and Television Station, covering program co-creation, IP integration, and co-branded content production. WAKUKU was invited by the Tianjin Culture and Tourism Bureau to serve as a promotion ambassador, demonstrating our success in integrating IP with cultural and tourism development. In the consumer sector, WAKUKU launched a co-branding collaboration with LUKFOOK Jewellery, blending pop toy culture with fine jewelry design. In the technology and mobility space, we partnered with Apollo Go, Baidu’s autonomous driving platform, to integrate our IPs with AI technology and smart mobility, spanning co-branding, in-vehicle exposure, and youth-focused content campaigns. In the entertainment industry, we participated in the official Golden Rooster Awards activities, with WAKUKU becoming one of the symbols of youth culture at the film festival, and collaborated with the popular variety show Call Me By Fire, bringing pop toy culture into mainstream television programming. In the sports sector, we became the first official pop toy brand partner in China Open history, generating over 200 million exposures, securing authentic interactions and organic endorsements from top global players, and achieving millions in sales revenue through themed pop-up stores. Building on this success, we extended the China Open partnership this year with SIINONO as the featured IP for the 2026 China Open. In August, SIINONO also launched a limited-edition co-branded sparkling water with Genki Forest and partnered with French fashion brand IRO Paris on an exclusive plush pendant collection. fluffy lili collaborated with CASEBANG on a Daydream series phone case collection and served as an official event partner for the 38th Hundred Flowers Awards. We also deepened our cultural presence through an exclusive collaboration with the Museum of Fine Arts, Boston, co-developing five co-branded products across three core IPs (WAKUKU, ZIYULI, and SIINONO) that bridge contemporary pop culture with classical art.
Looking forward, we will continue to accelerate the creation of offline scenarios to provide more spaces for IP-user interaction. In Hong Kong, our landmark cruise project at Central Pier has completed its final decoration, transforming the ship into a multi-layered vertical experiential space on Victoria Harbour. Ticket sales officially launched on Ctrip in September 2026, ahead of the maiden voyage in October 2026, capturing the peak tourist flows of the National Day Golden Week. These integrated efforts have ensured consistent brand exposure across all consumer touchpoints while aligning with contemporary aesthetic standards and targeted community preferences, providing strong support for the continued expansion of our IP matrix and the steady growth of our user base.
Our supply chain and manufacturing
We have built an integrated management system that spans the entire pop toy value chain—from IP incubation and design to product development, manufacturing, and retail distribution. By leveraging third-party production, we minimize fixed manufacturing costs while accessing specialized expertise. Our supply chain has the following advantages:
| ● | Agile response. Through deep collaboration with various suppliers, we efficiently support customized product needs and rapid process iterations, enabling swift product upgrades. |
| ● | Flexible Production. We have established a routine supplier collaboration mechanism that dynamically adjusts production schedules based on end sales data, ensuring timely supply while avoiding overstocking and effectively controlling inventory buildup risks. |
| ● | Robust quality management. We maintain quality monitoring through routine production audits and strict final inspections, supported by regular supplier training to ensure consistent output quality. |
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Our supply chain ecosystem is structured around the following key elements:
Supplier network
We maintain a diversified network of specialized manufacturing partners, primarily located in Guangdong, Guangxi, Sichuan, Hunan, Jiangsu, Zhejiang, Hebei and Hubei, China. This includes suppliers for mold development, PVC products, plush toys, peripheral merchandise and raw materials, enabling flexible and scalable production.
Supplier selection
We select our suppliers through a rigorous evaluation process assessing production quality, capacity, cost efficiency, technology advantage, word-of-mouth and compliance. All partnerships are governed by procurement agreements that mandate adherence to our standards and specifications.
Quality assurance
We implement a comprehensive quality control system covering the entire production process, from raw materials to finished goods. Our quality team conducts regular inspections and works closely with suppliers to ensure compliance with applicable regulations and industry standards. We also provide ongoing training to align suppliers with our design and development requirements.
Our Legacy Businesses
Our individual online learning services
We previously offered adult learners easy-to-understand, affordable, and accessible online learning services through our platforms to address their diversified demands for personal development. Our online learning platforms included QiNiu (rebranded from KuaiCai), JiangZhen and QianChi (rebranded from BanCai). We had ceased to provide individual online learnings services or generated revenue therefrom after the VIE termination by September 30, 2025.
Our enterprise services
We previously offered marketing services to our enterprise customers. We primarily collaborated with premium securities brokerage firms, allowing them to connect with our learners to enlarge their customer base, and charged leads referral fees from financial intermediary enterprises and fintech companies. We had stopped providing enterprise services or generated revenue therefrom after the VIE termination by September 30, 2025.
Our consumer business
In early 2023, we began to engage in the consumer business through e-commerce leveraging our existing market position and user base. We had primarily explored business opportunities in wellness products for seniors and curated wellness products, to satisfy the seniors’ aspirations for health and wellbeing. We had stopped providing consumer business or generated revenue therefrom after the VIE termination by September 30, 2025.
Data security and personal information protection
See “Item 16K. Cybersecurity” for details.
Competition
As we have shifted our focus to the pop toy sector, we have encountered and will continue to encounter new competition in the relevant markets. For instance, the pop toy market in China is still at a relatively early stage of development, featuring rapid development, intense competition and high fragmentation. We compete with existing and new players in such market based on our product development capabilities, IP management ability, branding and marketing effectiveness, and sales and distribution channels, among others.
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Intellectual Property
We believe that our intellectual property rights distinguish our offerings and brand and sustain our competitive advantages. The importance of intellectual property rights has also risen significantly along with our operations the pop toy business. We rely on a combination of copyright and trademark law, patents, trade secret protection and confidentiality agreements with employees to protect our intellectual property rights. Under the employment agreements we enter into with our employees, they acknowledge that the intellectual property created by them during the course of their employment belongs to us. We also closely monitor any infringement or misappropriation of our intellectual property rights.
As of June 30, 2026, we had registered 99 patents, 19 domain names, 454 copyrights (including 33 software copyrights), and 1,419 trademarks (including 421 international trademarks) in China. In addition, we are in the process of registering a number of trademarks in Southeast Asia and other overseas markets with respect to our pop toy business.
Insurance
We do not maintain any liability insurance or property insurance policies covering users or customers, equipment and facilities for injuries, death or losses due to fire, earthquake, flood or any other disaster. Consistent with customary industry practice in China, we do not maintain business interruption insurance, nor do we maintain key-man life insurance.
Regulation
This section sets forth a summary of the most significant rules and regulations that affect our business and operations in China.
Regulations on foreign investment
In March 2019, the Foreign Investment Law of PRC (the “Foreign Investment Law”) was promulgated by National People’s Congress and came into effect in January 1, 2020, which replaced the Sino-Foreign Equity Joint Venture Enterprise Law of PRC, the Sino-Foreign Cooperative Joint Venture Enterprise Law of PRC and the Wholly Foreign-owned Enterprise Law of PRC, and became the legal foundation for foreign investment in the PRC. To ensure the effective implementation of the Foreign Investment Law, the Regulations on Implementing the Foreign Investment Law of PRC (the “Implementation Regulations”), was promulgated by State Council in December 2019 and came into effect on January 1, 2020, which further provides that a foreign-invested enterprise established prior to the effective date of the Foreign Investment Law shall adjust its legal form or governance structure to comply with the provisions of the Company Law of the PRC or the Partnership Enterprises Law of the PRC, as applicable, and complete amendment registration before January 1, 2025.
According to the Foreign Investment Law, the State Council shall promulgate or approve a list of special administrative measures for access of foreign investments (the “Negative List”). The Foreign Investment Law grants national treatment to foreign-invested entities, except for those investing in the industries specified in the Negative List.
The NDRC and MOFCOM jointly issued the Special Administrative Measures (Negative List) for Foreign Investment Access (2024 version) (the “2024 Negative List”) in September 2024. The 2024 Negative List sets out the industries in which foreign investments are prohibited or restricted. Pursuant to the Foreign Investment Law, the Implementation Regulations and the 2021 Negative List, foreign investors shall not make investments in prohibited industries as specified in the Negative List, while foreign investments must satisfy certain conditions stipulated in the Negative List for investment in restricted industries. Industries not listed in the Negative List are generally deemed “permitted” for foreign investments. In the meantime, relevant competent government departments will formulate a catalog of the specific industries, fields and regions in which foreign investors are encouraged and guided to invest according to the national economic and social development needs.
We are a Cayman Islands company and our pop toy business does not fall under the 2024 Negative List. However, our legacy businesses before the VIE Termination by nature in China are mainly providing value-add telecommunications service and other internet related businesses which fall within the 2024 Negative List. The business operations that were restricted or prohibited for foreign investment were conducted through the affiliated entities.
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Regulations relating to blind boxes
The Compliance Guidelines for Blind Boxes Business Activities (for Trial Implementation) (the “Blind Boxes Guidelines”) was promulgated and effective on June 8, 2023. According to the Blind Boxes Guidelines, blind box business operators shall set fair prices for blind boxes, avoiding unmarked fees, overpricing, or price fraud. Blind box business operators are prohibited from indirectly induce consumption through arbitrarily adjusting the probabilities for a specific model being selected from a given blind box against the publicly disclosed probabilities, and altering the relevant selection outcome of a specific blind box. Blind box business operators shall not sell blind boxes to the minors under the age of eight. Where blind boxes are sold to the minors aged eight or above, the blind box business operators shall ensure the relevant guardians have agreed to the purchase. Blind box business operators shall publicize the key product details of the blind boxes to consumers, including product names, product categories, product specifications, the products potentially contained in a given box and the relevant price range, product selection rules which may set out the format of participation such as via online or offline method and probabilities for a specific model being selected, as well as the quantity of limited-edition products. Blind box business operators are encouraged to promise not hoarding, hyping, or entering the secondary market. In addition, for blind boxes sold via non-instant methods such as offline stores where the consumers will not know the selection outcomes until opening the blind box, blind box business operators must retain the records of selection rules and probabilities and establish a corresponding sampling inspection mechanism. For blind boxes sold through instant online methods, through which the consumers will know the selection outcome instantly, operators must retain the records of selection rules and probabilities and complete records of selection outcome. The relevant record retention period is generally not less than three years.
Regulations relating to pan-entertainment product retail
Pursuant to the PRC Civil Code, which was promulgated on May 28, 2020 and became effective on January 1, 2021, where the purpose of a contract cannot be achieved because the quality of the subject matter does not comply with the quality requirements, the buyer may refuse to accept the subject matter or terminate the contract. Where the buyer requests to return the subject matter or terminate the contract in accordance with PRC applicable laws, the seller shall bear the risk of return of the payment to buyer and liquidation damages to the subject matter. The seller shall deliver the subject matter according to the agreed quality requirements. In case that the seller provides the quality specifications concerning the subject matter, the delivered subject matter shall comply with the quality requirements in such specifications. If the terms in relation to quality are not met, the liability for breach of contract shall be borne by the seller in accordance with the agreement between the parties.
Regulations on consumer protection
To protect the legitimate rights and interests of consumers, to maintain social and economic order, and to promote the healthy development of the socialist market economy, the Standing Committee of the National People’s Congress promulgated the PRC Consumer Rights and Interests Protection Law (the “Consumer Protection Law”) in 1993 and latest amended in 2013. According to the Consumer Protection Law, business operators shall guarantee that the products and services they provide satisfy the requirements for personal or property safety, and provide consumers with authentic information about the quality, function, usage and term of validity of the products or services. The Consumer Protection Law also strengthens the protection of consumers and imposes more stringent requirements and obligations on business operators. For instance, business operators collecting and using personal information of consumers shall adhere to the principles of legitimacy, bona fide and necessity, state expressly the purpose, method and scope of collection and use of information, and shall obtain the consent of consumers. In addition, personal information of consumers collected by business operators and their staff shall not be divulged, sold or provided to others illegally. Business operators shall not send commercial information to consumers without their consent or request or when a consumer has explicitly rejected.
Regulations on product quality and liability
The principal legal provisions governing product liability are set out in the Product Quality Law of the People’s Republic of China (the “PRC Product Quality Law”), which was promulgated by the SCNPC on February 22, 1993, became effective on September 1, 1993 and was last amended on December 29, 2018. The PRC Product Quality Law is applicable to all activities of production and sale of any product within the territory of the PRC, and the manufacturers and sellers shall be liable for product quality in accordance with the PRC Product Quality Law. In the event of a violation of any legal provisions of the PRC Product Quality Law, manufacturers and sellers may be fined, suspended of operation, confiscated of any products illegally manufactured or sold and the proceeds gained therefrom or stripped of business licenses, and where the circumstances are serious, criminal liability shall be pursued. Consumers or other victims suffering personal injuries or property damage resulting from defects in commodities may demand compensations either from the sellers or from the manufacturers. If the liability lies with the manufacturers, the sellers shall have the right to recover the compensations from the manufacturers after paying the compensations, or vice versa.
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Pursuant to the PRC Civil Code, manufacturers shall be responsible for compensating the damages of the person or property caused by the defect of products. Sellers shall be responsible for compensation if the damages to the property or person are caused by defects resulting from the fault of sellers. If the seller is unable to name the manufacturer or supplier of the defective product, the seller shall bear tort liability. The injured person may demand indemnification from the manufacturer of the product or from the seller of the product. If the defect in the product is caused by the manufacturer, the seller shall have the right, after paying indemnification, to recover the same from the manufacturer. If the defect in the product is caused by the fault of the seller, the manufacturer shall have the right, after paying indemnification, to recover the same from the seller. Where any defect of a product is discovered after the product is put into circulation, the manufacturer or seller shall take such remedial measures as warning and recall in a timely manner, otherwise any failure to react timely or sufficiently that concurrently causes damages shall subject such manufacturer or seller to tort liabilities. However, where a manufacturer or seller is aware of any defect of a product but knowingly refuses to terminate its operation activities, severely jeopardizing the life and health of any another person, such person or its successor suffering such tort shall be entitled to punitive damages or other indemnifications to the extent permitted by laws.
There are also national standards relating to our pop toy business, such as GB/T 26701-2011, GB6675-2014, GB/T 16716.1-2018, GB 38507-2020. The Standardization Administration under the State Administration for Market Regulation (previously named General Administration of Quality Supervision, Inspection and Quarantine of the People’s Republic of China) issued a series of general principles. The National Toy Safety Technical Code of GB 6675-2014 issued on May 6, 2011 and implemented on January 1, 2016, which is mandatory requirement for toy industry. On October 5, 2025, the MIIT issued seven mandatory national standards, including “Safety of Toys—Part 1: Basic Specifications,” effective from November 1, 2026.
Regulations on pricing
According to the Pricing Law of the People’s Republic of China, which was promulgated by the SCNPC on December 29, 1997 and became effective on May 1, 1998, business operators shall follow the principles of fairness, lawfulness and good faith in fixing prices. Business operators shall not commit any illegitimate price acts: colluding with others to manipulate the market price, thus harming the lawful rights and interests of other operators or consumers; besides the disposal of perishable, seasonal and overstocked commodities at reduced prices in accordance with the law, dumping commodities at prices lower than the cost in order to drive out rivals or monopolize the market, thus disrupting the normal production and operation order and impairing the interests of the state or the lawful rights and interests of other operators; fabricating and spreading information about price hikes and forcing up prices, thus stimulating excessive commodity price hikes; using false or misleading means in terms of price to deceive consumers or other operators into trading with them; employing price discrimination against other operators with equal transaction conditions while providing the same commodities or services; forcing up or forcing down prices in disguised form by raising or lowering grades when purchasing or selling commodities or providing services; making exorbitant profits in violation of the provisions of laws and regulations; or other illegitimate price acts prohibited by laws and administrative regulations. Where a business operator commits any illegitimate price acts, such operator shall be ordered to make correction, and the illegal gains thereof shall be confiscated, a fine not more than five times the illegal gains may be imposed on such operator; if there are no illegal gains, such operator shall be given a warning and may also be fined; if the circumstances are serious, such operator shall be ordered to suspend the business for rectification, or have the business license thereof revoked by the administrative department for industry and commerce, or should such illegitimate price acts be otherwise subject to any penalties or punitive orders under other relevant PRC applicable laws, such laws shall also apply and business operators shall abide by such laws.
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Regulations relating to unfair competition
According to the Anti-unfair Competition Law of the PRC (the “Anti-unfair Competition Law”) promulgated on September 2, 1993 and last amended on June 27, 2025, when trading in the market, business operators should abide by the principles of voluntariness, equality, fairness, honesty and credibility, and abide by laws and recognized business ethics. Unfair competition refers to a business operator, in violation of the Anti-unfair Competition Law, disrupts the competition order and infringes the legitimate rights and interests of other business operators or consumers. A business operator in violation of Anti-unfair Competition Law may be subject to civil liability and administrative penalties. A business operator whose legitimate rights and interests are damaged by any act of unfair competition may file a lawsuit.
Regulations relating to online sales of our product
According to the E-Commerce Law of the PRC promulgated on August 31, 2018 and became effective on January 1, 2019, e-commerce operators include operators of e-commerce platforms, business operators one-commerce platforms, and other e-commerce operators that sell commodities or offer services on websites they develop themselves or through other network services. Unless otherwise provided, e-commerce operators shall complete the market entity registration. Commodities sold or services offered by e-commerce operators shall meet the requirements to safeguard personal safety and property security and the requirements on environmental protection, and they shall not supply or offer any commodity or service prohibited by laws and administrative regulations. An e-commerce operator shall also: (1) continuously display and update its business license information and administrative license or relevant information which indicates that it does not need to complete the market entity registration in a prominent position on its homepage or provide the link to the aforesaid information, (2) disclose information about commodities or services in a comprehensive, truthful, accurate and timely manner so as to safeguard the consumers’ right to know and right of choice, and (3) deliver commodities or services according to its promises or the ways and time limits as agreed upon with consumers, and bear the likely risks and responsibilities when commodities are in transit except when consumers choose a separate logistics service provider.
Pursuant to the Measures for the Administration of Live Streaming Marketing (for Trial Implementation) which was promulgated on April 16, 2021 and became effective on May 25, 2021, a live streaming room operator or live streaming marketer engaging in live streaming marketing activities shall publish commodity or service information in a truthful, accurate and comprehensive manner, and shall not (1) violate the relevant regulations of the Provisions on Ecological Governance of Network Information Content; (2) publish false or misleading information to deceive or mislead users; (3) market commodities that are counterfeit or inferior, infringe upon intellectual property rights or fail to satisfy the requirements for guaranteeing personal and property safety; (4) fabricate or falsify transactions, followers, page views, likes or other data; (5) promote and attract attention for others although it or he knows or should have known that they have violations of laws and regulations or high-risk behaviors; (6) harass, slander, insult or intimidate any other person, or infringe upon the lawful rights and interests of any other person; (7) conduct pyramid sales, fraud, or gambling, or sell contraband or controlled articles, among others; or (8) commit any other act in violation of any law or regulation or relevant provisions issued by the state. Any live streaming room operator or live streaming marketer who violates the regulations above and causes damage to any other person shall assume civil liability in accordance with the law. Criminal liability may be incurred if the violation constitutes crime.
The activities of e-commerce live streaming are currently regulated by the Opinions on Further Regulating For-profit Activities of Live Streaming to Promote the Healthy Development of the Industry promulgated on March 25, 2022 and effective on the same date, the Notice on the Issuance of the Guiding Opinions on Strengthening the Normative Management of Webcasting promulgated on February 9, 2021 and effective on the same date, the Notice of the State Administration of Radio and Television on Strengthening the Management of Live Network Show and Live E-commerce Broadcasting promulgated on November 12, 2020 and effective on the same date, the Guiding Opinions of the State Administration for Market Regulation on Strengthening the Supervision of Live Streaming Marketing Activities promulgated on November 5, 2020 and effective on the same date, the Measures for the Administration of Cyber Performance Business Operations promulgated on December 2, 2016 and effective on January 1, 2017 and the Provisions on the Administration of Internet Live-Streaming Services issued on November 4, 2016 and effective on December 1, 2016. According to the above-mentioned applicable regulations, illegal acts in live streaming marketing that infringe upon the lawful rights and interests of consumers, infringe upon intellectual property rights, and disrupt the market order shall be investigated and punished in accordance with the law.
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Regulations on import and export of goods
The Foreign Trade Law of the People’s Republic of China (the “PRC Foreign Trade Law”), was promulgated by the SCNPC on May 12, 1994, and last amended on December 25, 2025. Pursuant to the PRC Foreign Trade Law, the state allows free import and export of goods and technologies, unless it is otherwise provided under the laws and administrative regulations. According to the provisions of the PRC Foreign Trade Law, the state may restrict or prohibit the import or export of relevant goods or technologies for any of certain reasons. Import and export of goods that are banned or restricted for import and export without permission shall be handled and punished by the customs in accordance with the provisions of laws and administrative rules; if crime is constituted, the criminal liabilities shall be ascertained.
The Foreign Trade Law and the Measures for the Archival Filing and Registration of Foreign Trade Operators, promulgated by the Ministry of Commerce of the PRC on June 25, 2004, and amended on May 10, 2021, require enterprises engaged in import or export of goods or technology to file and register with the relevant authorities in charge of foreign trade under the State Council unless otherwise provided by other laws, administrative regulations or by the relevant authorities in charge of foreign trade under the State Council, otherwise such goods or technology may be detained and remain undeclared at the competent custom authorities.
According to the Customs Law of the PRC promulgated by the SCNPC on January 22, 1987 and last amended on April 29, 2021, where an enterprise engages in import or export of goods which goes through customs declaration formalities, it shall be subject to registration by customs or shall authorize a customs clearing enterprise to handle customs declaration formalities.
Measures for the Inspection, Supervision and Administration of Import and Export Toys, was promulgated by the General Administration of Quality Supervision, Inspection and Quarantine of the PRC on March 2, 2009, and was latest amended by the General Administration of Customs on November 23, 2018. Imported toys shall be inspected in accordance with the mandatory requirements of the national technical specifications of China. Exported toys shall be inspected according to the technical regulations and standards of the importing country or region. If the technical requirements agreed by the two parties are higher than the technical regulations and standards, the inspection shall be carried out in accordance with the agreed requirements. If the technical regulations and standards of the importing country or region are not clearly defined, the inspection shall be carried out in accordance with the mandatory requirements of the national technical specifications of China. Where an intergovernmental treaty is made in place, the inspection shall be carried out in accordance with the requirements stipulated therein. When exported toys are inspected, in addition to the relevant materials in accordance with the Provisions on Entry and Exit Inspection and Quarantine, the product quality and safety compliance statement shall be provided at the same time. When the exported toy is first inspected, the test report issued by the toy laboratory and other materials as stipulated by the General Administration of Customs shall be provided.
Regulations on advertisements
In 1994, the Standing Committee of the National People’s Congress promulgated the Advertising Law of the PRC in 1994 and latest amended in 2021 (the “Advertising Law”). The Advertising Law requires that advertisers, advertising operators, and advertisement publishers shall abide by the laws and administrative regulations, and by the principles of fairness and good faith while engaging in advertising activities. In addition, where a special government review is required for certain categories of advertisements before publishing, the advertisers, advertising operators and advertising distributors are obligated to confirm that such review has been duly performed and that the relevant approval has been obtained. If the advertisers, advertising operators and advertising distributors display any pop-up advertisement, they shall show the close button clearly to make sure that the viewers can close the advertisement upon one-click. Violations of these regulations may result in penalties, including fines, confiscation of advertising income, orders to cease dissemination of the advertisements and orders to publish an advertisement correcting the misleading information, and for serious violation, termination of advertising operations or revocation of business license. Furthermore, advertisers, advertising operators or advertising distributors may be subject to civil liabilities if they infringe on the legal rights and interests of third parties.
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The Measures for Administration of Internet Advertising promulgated by the SAMR in 2023 (the “Internet Advertising Measures”), effective from May 1, 2023, regulates any advertisement published on the internet, including but not limited to, through websites, webpage and apps, in the form of word, picture, audio and video and provides more detailed guidelines to the advertisers, advertising operators and advertising distributors. According to the Internet Advertising Measures, internet advertisements shall be distinguishable and, enable consumers to identify them as advertisements. With regard to commodities or services ranked under competitive bidding, advertisement distributors shall prominently mark them with “advertisements” in order to distinguish them from the natural search results.
Regulations on intellectual property
Copyright
China has enacted various laws and regulations relating to the protection of copyright. China is a signatory to some major international conventions on protection of copyright and became a member of the Berne Convention for the Protection of Literary and Artistic Works in October 1992, the Universal Copyright Convention in October 1992, and the Agreement on Trade-Related Aspects of Intellectual Property Rights upon its accession to the World Trade Organization in December 2001.
According to the Copyright Law of the PRC, promulgated by the Standing Committee of the National People’s Congress, which was latest amended in November 2020, and its related Implementing Regulations, Chinese citizens, legal persons, or other organizations shall, whether published or not, own copyright in their works, which include, among others, works of literature, art, natural science, social science, engineering technology and computer software. Copyright owners of protected works enjoy personal rights and property rights with respect to publication, authorship, alteration, integrity, reproduction, distribution, lease, exhibition, performance, projection, broadcasting, dissemination via information network, production, adaptation, translation, compilation and other rights shall be enjoyed by the copyright owners.
Pursuant to the Regulations on Protection of Information Network Transmission Right promulgated by the State Council in 2006, which was amended in 2013, in the event of infringement, such as providing any work, performance or audio-visual product of others to the public through the information network without authorization or permission, the infringer shall undertake civil liability to stop infringement, eliminate effect, apologize and compensate the damages etc.; where the infringement causes damage to public interest, the copyright administrative authorities may confiscate the illegal income and impose a fine; where the case constitutes a criminal offense, criminal liability shall be pursued in accordance with the law.
Pursuant to the Regulation on Computers Software Protection and the Measures for the Registration of Computer Software Copyright, the National Copyright Administration is mainly responsible for the registration and management of software copyright in China and recognizes the China Copyright Protection Center as the software registration organization. The China Copyright Protection Center shall grant certificates of registration to computer software copyright applicants in compliance with the regulations of the Measures for the Registration of Computer Software Copyright and the Regulation on Computers Software Protection.
Trademarks
According to the Trademark Law of the PRC and the Implementation Regulation of the Trademark Law of the PRC, registered trademarks are granted a term of ten years which may be renewed for consecutive ten-year periods upon request by the trademark owner. Trademark license agreements must be filed with the State Council trademark authority for record, and the Trademark Law of the PRC has adopted a “first-to-file” principle with respect to trademark registration. Conducts that shall constitute an infringement of the exclusive right to use a registered trademark include but not limited to using a trademark that is identical with or similar to a registered trademark on the same or similar goods without the permission of the trademark registrant, and the infringing party will be ordered to stop the infringement act immediately and may be imposed a fine. The infringing party may also be held liable for the right holder’s damages, which will be equal to gains obtained by the infringing party or the losses suffered by the right holder as a result of the infringement, including reasonable expenses incurred by the right holder for stopping the infringement.
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Patents
In accordance with the Patent Law of the PRC, promulgated by the Standing Committee of the National People’s Congress, which was latest amended in October 2020 and became effective on June 1, 2021, and its Implementation Rule, patent is divided in to 3 categories, i.e., invention patent, design patent and utility model patent. The duration of invention patent right, design patent right and utility model patent right shall be 20 years, 15 years and ten years, respectively, which all calculated from the date of application. Implementation of a patent without the authorization of the patent holder shall constitute an infringement of patent rights, and shall be held liable for compensation to the patent holder and may be imposed a fine, or even subject to criminal liabilities.
Domain names
The Measures on Administration of Internet Domain Names was promulgated by the MIIT in 2017, which adopts “first to file” rule to allocate domain names to applicants, and provide that the MIIT shall supervise the domain names services nationwide and publicize the PRC domain name system. After completion of the registration procedures, the applicant will become the holder of the relevant domain name.
Regulations on internet information security and censorship
The Decisions on Protection of Internet Security enacted by the Standing Committee of the National People’s Congress in 2000, as amended in 2009, provides that, among other things, the following activities conducted through the internet, if constituted a crime according to PRC laws, are subject to criminal punishment: (1) intrusion into a strategically significant computer or system; (2) intentionally inventing and disseminating destructive programs, such as computer viruses, to attack the computer system and the communications network, thereby destroying the computer system and the communications networks; (3) violating national regulations, suspending the computer networks or the communication services without authorization; (4) leaking state secrets; (5) spreading false commercial information; or (6) infringing intellectual property rights through internet.
In 2016, the Standing Committee of the National People’s Congress promulgated the Cybersecurity Law of the PRC (the “Cybersecurity Law”) and amended on October 28, 2025, which applies to the construction, operation, maintenance and use of networks as well as the supervision and administration of cybersecurity in the PRC. According to the Cybersecurity Law, network operators are subject to various security protection-related obligations, including but not limited to (1) complying with security protection obligations under graded system for cybersecurity protection requirements, which include formulating internal security management rules and operating instructions, appointing cybersecurity responsible personnel and their duties, adopting technical measures to prevent computer viruses, cyber-attack, cyber-intrusion and other activities endangering cybersecurity, adopting technical measures to monitor and record network operation status and cybersecurity events; (2) formulating an emergency plan and promptly responding and handling security risks, initiating the emergency plans, taking appropriate remedial measures and reporting to regulatory authorities in the event comprising cybersecurity threats; and (3) providing technical assistance and support to public security and national security authorities for protection of national security and criminal investigations in accordance with the law. On October 28, 2025, the SCNPC further revised the Cybersecurity Law, which came into effect on January 1, 2026. The revised Cybersecurity Law increases penalties under certain circumstances such as failure to discharge the obligation of safeguarding cybersecurity, and failure to take actions against information that is prohibited from being published or disseminated by laws or administrative regulations, and expands extraterritorial application for entities, organizations, or individuals outside the PRC engaging in activities that endanger the cybersecurity of the PRC.
On June 10, 2021, the Standing Committee of the National People’s Congress promulgated the Data Security Law of PRC (the “Data Security Law”) which became effective on September 1, 2021. The Data Security Law mainly sets forth specific provisions regarding establishing basic systems for data security management, including hierarchical data classification management system, risk assessment system, monitoring and early warning system, and emergency disposal system. In addition, it clarifies the data security protection obligations of organizations and individuals carrying out data activities and implementing data security protection responsibility.
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On July 30, 2021, the State Council promulgated the Regulations on Protection of Critical Information Infrastructure, which became effective on September 1, 2021. Pursuant to the Regulations on Protection of Critical Information Infrastructure, critical information infrastructure shall mean any important network facilities or information systems of the important industry or field such as public communication and information service, energy, communications, water conservation, finance, public services, e-government affairs and national defense science, which may endanger national security, people’s livelihood and public interest in case of damage, function loss or data leakage. In addition, competent departments and administration departments of each important industry and field (the “Protection Departments”), shall be responsible to formulate determination rules and determine the critical information infrastructure operator in the respective important industry or field. The result of the determination of critical information infrastructure operator shall be informed to the operator. As of the date of this annual report, we have not been informed as a critical information infrastructure operator by any competent departments or administration departments.
On September 24, 2024, the CAC published the Regulations on Network Data Security Management (the “Regulations on Cyber Data Security Management”), which became effective on January 1, 2025, and specified that data processor who processing the personal information of more than one million individuals and seeks to go public overseas, shall apply for cybersecurity review. In addition, the Regulations on Cyber Data Security Management also regulate other specific requirements in respect of the data processing activities conducted by data processors through the internet in view of personal data protection, important data safety, cross-broader data safety management and obligations of network platform operators. For instance, in one of the following situations, data processors shall delete or anonymize personal information within 15 business days: (1) the purpose of processing personal information has been achieved or the purpose of processing is no longer needed; (2) the storage term agreed with the users or specified in the personal information processing rules has expired; (3) the service has been terminated or the account has been canceled by the individual; or (4) unnecessary personal information or personal information unavoidably collected due to the use of automatic data collection technology but without the consent of the individual. For the processing of important data, specific requirements shall be complied with. For instance, processors of important data shall specify the responsible person of data safety, establish a data safety management department and make filing to the cyberspace administration at the districted city level within 15 business days after the identification of their important data.
Data processors processing personal information of more than one million people shall also comply with the provisions for processing of important data stipulated in Regulations on Cyber Data Security Management for important data processors. Data processors dealing with important data or listing overseas should carry out an annual data security assessment by themselves or by entrusting data security service agencies, and each year before January 31 data security assessment report for the previous year shall be submitted to the districted city level cyberspace administration department. When data collected and generated within the PRC are provided to the data processors overseas, if such data includes important data, or if the relevant data processor is a critical information infrastructure operator or processes personal information of more than one million people, the data processor shall go through the security assessment of cross-border data transfer organized by the CAC. Any failure to comply with such requirements may subject us to, among others, suspension of services, fines, revoking relevant business permits or business licenses and penalties. Since the Regulations on Cyber Data Security Management has not been formally adopted as of the date of this annual report, the revised draft (especially its operative provisions) and its anticipated adoption or effective date are subject to further changes with substantial uncertainty.
On December 28, 2021, the CAC and other twelve PRC regulatory authorities jointly revised and promulgated the Measures for Cybersecurity Review (the “Cybersecurity Review Measures”) which became effective on February 15, 2022, and the Measures for Cybersecurity Review which took effect on June 1, 2020 was abolished at the same time. The Cybersecurity Review Measures provides for certain circumstances under which network platform operators are subject to cybersecurity review.
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On July 7, 2022, the CAC promulgated the Security Assessment Measures for Outbound Data Transfer, effective from September 1, 2022 (the “Security Assessment Measures”) to regulate outbound data transfer activities, protect the rights and interests of personal information, safeguard national security and social public interests, and promote the cross-border security and free flow of data. Furthermore, the Security Assessment Measures provide that the security assessment for outbound data transfers shall follow principles of the combination of pre-assessment and continuous supervision and the combination of risk self-assessment and security assessment, so as to prevent the security risks arising from outbound data transfers, and ensure the orderly and free flow of data according to the law. For outbound data transfers that have been carried out prior to the implementation of the Security Assessment Measures, if not in compliance with the Security Assessment Measures, rectification shall be completed within 6 months from the implementation of the Security Assessment Measures. On March 22, 2024, the CAC promulgated the Provisions on Promoting and Regulating Cross-Border Data Flows (the “Cross-Border Data Flows Measures”), effective on the date of promulgation. The Cross-Border Data Flows Measures provide several exemptions from undergoing data security assessment, obtaining personal information protection certification or entering into standard contract for outbound transfer of personal information for businesses. These exemptions include, among others, the scenario where a data processor, other than a critical information infrastructure operator, has cumulatively transferred overseas personal information, excluding sensitive personal information, of fewer than 100,000 individuals since January 1 of the current year. A data processor, other than a critical information infrastructure operator, shall enter into a standard contract with overseas recipients for the cross-border transfer of personal information or obtain certification for personal information protection if since January 1 of the current year, the data processor has cumulatively transferred to overseas recipients (1) personal information of more than 100,000 but less than 1,000,000 individuals, excluding sensitive personal information, or (2) sensitive personal information of less than 10,000 individuals. The Cross-Border Data Flows Measures also explicitly state that data processors are not required to conduct data security assessment for cross-border transfer of important data if the data has not been notified or published as important data by relevant departments or regions. Considering the nature of our daily operations, we will not trigger outbound data transfer during such daily operations. We do not expect the Security Assessment Measures and the Cross-Border Data Flows Measures to have material impact on our daily operations in respect of the outbound data transfer. However, since the Security Assessment Measures and the Cross-Border Data Flows Measures are newly promulgated, there remains uncertainty as to how the new Measures will be implemented and interpreted by the competent authorities. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Operations—The PRC regulatory framework for data security and personal information protection is rapidly evolving, and we could face challenges in our continued compliance with the heightened regulatory scrutiny.”
Regulations on privacy protection
Pursuant to the Civil Code of the PRC (the “PRC Civil Code”), personal information of a natural person shall be protected by the law. Any organization or individual that need to obtain personal information of others shall obtain such information legally and ensure the safety of such information, and shall not illegally collect, use, process or transmit personal information of others, or illegally purchase or sell, provide or make public personal information of others.
Further, the Ninth Amendment to the Criminal Law of the PRC stipulates that any internet service provider that fails to fulfill the obligations related to Internet information security as required by applicable laws and refuses to take corrective measures, will be subject to criminal liability for (1) any large-scale dissemination of illegal information; (2) any severe effect due to the leakage of users’ personal information; (3) any serious loss of evidence of criminal activities; or (4) other severe situations, and any individual or entity that (a) sells or provides personal information to others unlawfully or (b) steals or illegally obtains any personal information will be subject to criminal liability in severe situations.
The Ministry of Public Security issued the Regulations on Technological Measures for Internet Security Protection in December 2005, requires Internet service providers to take proper measures including anti-virus, data back-up and other related measures, and to keep records of certain information about their users (including user registration information, log-in and log-out time, IP address, content and time of posts by users) for at least 60 days, and detect illegal information, stop transmission of such information, and keep relevant records. Internet services providers are prohibited from unauthorized disclosure of users’ information to any third parties unless such disclosure is required by the laws and regulations. It has also required to establish management systems and take technological measures to safeguard the freedom and secrecy of the users’ correspondences.
In addition, according to the Administrative Provisions on Mobile Internet Application Information Services (the “Mobile Application Administrative Provisions”) which was promulgated by the CAC in 2016, the mobile internet applications providers shall acquire relevant qualifications required by laws and regulations and implement the information security management responsibilities strictly and fulfill their obligations, including real-name system, protection of users’ information, examination and management of information content, etc. The CAC amended the Mobile Application Administrative Provisions in June 2022, which effective from August 1, 2022, and emphasizes that mobile internet applications providers shall comply with relevant provisions on the scope of necessary personal information when engaging in personal information processing activities. The application providers shall not compel the user to agree to the processing of personal information for any reason, and shall not refuse the user to use its basic functions and services because the user does not agree to provide non-essential personal information. As of the date of this annual report, we have adopted real-name registration system and established the user information security protection mechanism pursuant to the Mobile Application Administrative Provisions.
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Pursuant to the Decisions on Strengthening the Protection of Online information, issued by the Standing Committee of the National People’s Congress in 2012 and the Protection Provisions for the Personal Information of Telecommunications and Internet Users promulgated by the MIIT in 2013, telecommunication business operators and internet service providers are required to set up their own rules for collecting and use of internet users’ information and are prohibited from collecting or use such information without consent from users. Moreover, telecommunication business operators and internet service providers shall strictly keep users’ personal information confidential and shall not divulge, tamper with, damage, sell or illegally provide others with such information.
The CAC, the MIIT, the Ministry of Public Security and the SAMR jointly issued the Notice on Promulgation of the Rules on the Scope of Necessary Personal Information for Common Types of Mobile Internet Applications in March 2021, effective from May 1, 2021, specifying that the operator of an internet application shall not refuse a user to use the App’s basic functional services on the ground that the user disagree with the collection of unnecessary personal information.
On August 20, 2021, the Standing Committee of the National People’s Congress promulgated the Law of Personal Information Protection of PRC (the “Personal Information Protection Law”) which became effective on November 1, 2021. Pursuant to the Personal Information Protection Law, the processing of personal information includes the collection, storage, use, processing, transmission, provision, disclosure, deletion, etc. of personal information, and before processing personal information, personal information processors should truthfully, accurately and completely inform individuals of the following matters in a conspicuous manner and in clear and easy-to-understand language: (1) the name and contact information of the personal information processor; (2) purpose of processing personal information, processing method, type of personal information processed, and retention period; (3) methods and procedures for individuals to exercise their rights under this law; and (4) other matters that should be notified as required by laws and administrative regulations. Personal information processors should also take the following measures to ensure that personal information processing activities comply with laws and administrative regulations based on the processing purpose, processing methods, types of personal information, impact on personal rights and interests, and possible security risks, etc., and to prevent unauthorized access and personal information leakage, tampering, and loss: (1) formulate internal management systems and operating procedures; (2) implement classified management of personal information; (3) adopt corresponding security technical measures such as encryption and de-identification; (4) reasonably determine the operating authority for personal information processing, and regularly conduct safety education and training for practitioners; (5) formulate and organize the implementation of emergency plans for personal information security incidents; and (6) other measures stipulated by laws and administrative regulations.
Where personal information is processed in violation of the provisions of the Personal Information Protection Law, or the processing of personal information fails to fulfill the personal protection obligations hereunder, the department performing personal information protection duties shall order corrections, give warnings, confiscate illegal gains, and order to suspend or terminate the provision of services; if the personal information processor refuses to make corrections, a fine of not more than RMB1 million shall be imposed; the directly responsible person in charge and other directly responsible personnel shall be fined not less than RMB10,000 but not more than RMB100,000. If the aforesaid illegal act and the circumstances are serious, the department performing personal information protection duties at or above the provincial level shall order the personal information processor to make corrections, confiscate the illegal gains, and impose a fine of less than RMB50 million or less than 5% of the previous year’s turnover. It can also order the suspension of relevant business or suspend business for rectification, notify the relevant competent authority to revoke the relevant permits or the business license; impose a fine of RMB100,000 up to RMB1 million on the directly responsible person in charge and other directly responsible personnel, and may decide to prohibit he serves as a director, supervisor, senior manager and person in charge of personal information protection of related companies within a certain period of time.
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On June 27, 2022, the CAC promulgated the Administrative Provisions on the Account Information of Internet Users, effective from August 1, 2022 (the “Account Information Provisions”) which applies to the registration, use, and management of internet users’ account information by internet information service providers. The Account Information Provisions stipulates that internet information service providers shall, in accordance with laws, administrative regulations and relevant state regulations, formulate and disclose internet user account management rules and platform conventions, sign service agreements with internet users, and clarify the rights and obligations related to account information registration, use, and management. The Account Information Provisions also requires that the internet information service providers shall protect and handle internet users’ account information in accordance with law, and take measures to prevent unauthorized access and leakage, tampering, and loss of personal information. The internet information service providers shall set up convenient complaints and reporting portals in prominent locations, publicize complaints and reporting methods, improve mechanisms for acceptance, screening, disposal, and feedback, clarify processing procedures and time limits for feedback, and promptly handle complaints and reports from users and the public. Failure to comply with the above requirements may subject to warning, be ordered to rectify within a prescribed time limit and may be imposed a fine ranging from RMB10,000 to RMB100,000.
Regulations on value-added telecommunication services
Regulations relating to value-added telecommunications services
The Telecommunications Regulations of the PRC (the “Telecommunications Regulations”), as promulgated by the State Council in 2000 and most recently amended in 2016, requires telecommunications service providers to obtain operating licenses prior to the commencement of their operations. The Telecommunications Regulations distinguish “infrastructure telecommunications services” from “value-added telecommunications services”. According to the Telecommunications Regulations, operators of value-added telecommunications services shall obtain value-added telecommunications business operation licenses from the MIIT or its provincial branches prior to the commencement of such services.
Moreover, the Administrative Measures on Telecommunications Business Operating Licenses (2017 Revision), promulgated by the MIIT in July 2017, set forth more provisions to specify the types of licenses required to operate value-added telecommunications services, the qualifications and procedures for applying such licenses and the administration and supervision of such licenses.
Regulations relating to foreign investment restriction on value-added telecommunications services
Pursuant to the Regulations for the Foreign-Invested Telecommunications Enterprises, which was promulgated by the State Council in 2001 and most recently amended on March 29, 2022, foreign-invested value-added telecommunication enterprises in the PRC shall be established as Sino-foreign equity joint ventures, and the ultimate foreign equity ownership in a foreign-invested value-added telecommunication enterprise is subject to a cap of 50%. The 2021 Negative List further states that the equity ratio of foreign investment in the value-added telecommunications enterprises shall not exceed 50% except for the investment in e-commerce operation business, domestic multi-party communication business, information storage and re-transmission business or call center business.
In 2006, the Ministry of Information Industry issued the Circular on Strengthening the Administration of Foreign Investment in and Operation of Value-added Telecommunications Business, according to which, a foreign investor in the telecommunications service industry in the PRC must establish a foreign invested enterprise and apply for a telecommunications business operation license, while a PRC domestic company that holds a value-added telecommunications business operation licenses is prohibited from leasing, transferring or selling such license to foreign investors in any means, and from providing any assistance, including providing resources, sits or facilities, to foreign investors that illegally conduct value-added telecommunications business in the PRC.
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In 2015, the MIIT issued the Circular on Lifting Foreign Equity Ratio Restrictions on Online Data Processing and Transaction Processing Services (Operating E-commerce), foreign shareholding may reach 100% on online data processing and transaction processing services (operating e-commerce) nationwide.
Regulations relating to internet information services
The Administrative Measures on Internet Information Services (the “Internet Measures”), which was promulgated by the State Council in September 2000 and was later amended in 2024, set out guidelines on the provision of internet information services. The Internet Measures classified internet information services into commercial internet information services and non-commercial internet information services, and according to which, a commercial operator of internet content provision services must obtain an ICP License, from the appropriate telecommunications authorities.
According to the Internet Measures, violators may be subject to penalties, including criminal sanctions, for providing internet content that opposes the fundamental principles stated in the Constitution of the PRC; compromises national security, divulges national secrets, subverts national power or damages national unity; harms national dignity or interest; incites ethnic hatred or racial discrimination or damages inter-ethnic unity; undermines the PRC’s religious policy or propagates superstition; disseminates rumors, disturbs social order or disrupts social stability; disseminates obscenity or pornography, encourages gambling, violence, murder or fear or incites the commission of a crime; insults or slanders a third party or infringes upon the lawful rights and interests of a third party; or is otherwise prohibited by law or administrative regulations. The PRC government may order ICP License holders that violate any of the abovementioned content restrictions to rectify and, under serious conditions, revoke the ICP License.
Regulations on online transmission of audio-visual programs
The State Administration of Radio, Film and Television (the “SARFT”) (currently known as National Radio and Television Administration), and the MIIT jointly promulgated the Administrative Provisions on Internet Audio-Visual Program Services in December 2007 (the “Audio-Visual Program Provisions”), which was latest amended in August 2015. According to the Audio-Visual Program Provisions, “internet audio-visual program services” is defined as activities of producing, redacting and integrating audio-visual programs, and providers of internet audio-visual program services are required to obtain a license for online transmission of audio-visual programs (the “Audio-Visual License”). Entities engaged in Internet audio-visual program services without obtaining the Audio-Visual License may be subject to warning, order to rectify, and a fine of no more than RMB30,000. Under serious conditions, the equipment used for such activities shall be confiscated and a fine of one but no more than two times of the investment amount may be imposed.
However, according to the Notice on Relevant Issues Concerning Application and Approval of License for the Online Transmission of Audio-Visual Programs, which was issued by the SARFT in May 2008 and was latest amended in 2015, applicants of the Audio-Visual License shall be wholly state-owned or state-controlled entities and foreign-invested enterprises are not eligible to apply.
Regulations on production and distribution of radio and television programs
According to the Provisions for the Administration of the Production and Distribution of Radio and Television Programs promulgated by the SARFT in 2004 and was latest amended on June 3, 2025, any entity that produces or operates radio or television programs must obtain a Permit for Production and Operation of Radio and Television Programs. Entities holding such permits shall conduct their business within the permitted scope as provided in their permits. Entities engaging in the producing or operating of radio or television programs without such permit shall be subject to the closure of business, confiscation of used tools, equipment and carriers, as well as a fine between RMB10,000 to RMB50,000.
Regulations on online publishing
The State Administration of Press, Publication, Radio, Film and Television (the “SAPPRFT”) (whose duty has been brought under the National Administration of Press and Publication) and the MIIT jointly issued the Administrative Provisions on Online Publishing Services in February 2016 (the “Online Publishing Provisions”). Pursuant to the Online Publishing Provisions, any entity providing online publishing services shall obtain an Online Publishing Services Permit. “Online publishing services” refer to the provision of online publications to the public via information networks; “online publications” refer to digital works with publishing features such as having been edited, produced or processed and are available to the public through information networks. Entities engaging in the online publishing services without such permit shall be subject to the closure of business, confiscation of illegal income, used tools and equipment, as well as a fine of more than five times but less than ten times of the illegal income, if such illegal income is more than RMB10,000; or a fine of less than RMB50,000, if the illegal income is less than RMB10,000.
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Regulations on online live streaming services
The CAC issued the Administrative Regulations on Online Live Streaming Services (the “Online Live Streaming Regulations”) in 2016. According to the Online Live Streaming Regulations, provision of online live streaming services through online performances and online audio-visual programs is subject to the relevant qualifications specified in the laws and regulations. Neither a provider nor user of online live streaming services may take advantage of online live streaming services to engage in activities prohibited by laws and regulations, such as undermining national security, destabilize society, disturbing social order, infringing on others’ lawful rights and interests, and disseminating pornographic or obscene materials, and may take advantage of online live streaming services to produce, reproduce, release and disseminate information prohibited by laws and regulations.
The National Radio and Television Administration and the Ministry of Culture and Tourism of the PRC jointly issued the Code of Conduct for Online Streamers on June 8, 2022, to regulate the conduct of streamers who provide online performances and audio-visual program services through the Internet, including those who live stream on the online platforms, conduct real-time interactions with users, and perform in uploaded audio or video programs. For live streaming content that requires a high level of professionalism (such as medical and health care, finance, law, education), the streamers should obtain the corresponding qualifications and report to the live streaming platform, and the live streaming platform shall review and record the qualifications of the streamers.
Regulations on foreign exchange
Regulations relating to foreign currency exchange
The principal regulations governing foreign currency exchange in China are the Foreign Exchange Administration Regulations of the PRC, most recently amended in August 2008. Under the PRC foreign exchange regulations, payments of current account items, such as profit distributions, interest payments and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior approval from the SAFE, by complying with certain procedural requirements. By contrast, 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 account items, such as direct investments, repayment of foreign currency-denominated loans, repatriation of investments and investments in securities outside of China.
According to the Circular of SAFE on Further Improving and Adjusting the Foreign Exchange Policies on Direct Investment, promulgated in 2012 and latest amended in 2019, foreign exchange control measures related to foreign direct investment are improved, such as (1) the open of and payment into the foreign exchange account related to direct investment are no longer subject to approval by SAFE; (2) reinvestment with legal income of foreign investors in China is no longer subject to approval by SAFE; (3) purchase and external payment of foreign exchange related to foreign direct investment are no longer subject to approval by SAFE.
The SAFE issued the Circular on Reforming of the Management Method of the Settlement of Foreign Currency Capital of Foreign-Invested Enterprises (the “SAFE Circular 19”) on March 30, 2015, and it became effective on June 1, 2015, was partially repealed on December 30, 2019, and was latest amended on March 23, 2023. The SAFE Circular 19 expands a pilot reform of the administration of the settlement of the foreign exchange capitals of foreign-invested enterprises nationwide. In June 2016, SAFE further promulgated the Notice of the State Administration of Foreign Exchange on Reforming and Standardizing the Foreign Exchange Settlement Management Policy of Capital Account (the “SAFE Circular 16”) which, among other things, amends certain provisions of SAFE Circular 19. Pursuant to the SAFE Circular 19 and SAFE Circular 16, the flow and use of the Renminbi capital converted from foreign currency denominated registered capital of a foreign-invested company is regulated such that Renminbi capital may not be used for business beyond its business scope or to provide loans to persons other than affiliates unless otherwise permitted under its business scope.
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In October 2019, SAFE issued the Circular of Further Facilitating Cross-border Trade and Investment (the “SAFE Circular 28”), which cancels the restrictions on domestic equity investments by capital fund of non-investment foreign invested enterprises and allows non-investment foreign invested enterprises to use their capital funds to lawfully make equity investments in China, provided that such investments do not violate the Negative List and the target investment projects are genuine and in compliance with laws. According to the Circular on Optimizing Administration of Foreign Exchange to Support the Development of Foreign-related Business (the “SAFE Circular 8”), issued by SAFE in April 2020, under the prerequisite of ensuring true and compliant use of funds and compliance with the prevailing administrative provisions on use of income under the capital account, eligible enterprises are allowed to make domestic payments by using their capital funds, foreign credits and the income under capital accounts of overseas listing, without prior provision of the evidentiary materials concerning authenticity to the bank for each transaction. The handling banks shall conduct spot checks afterwards in accordance with the relevant requirements. The interpretation and implementation in practice of the SAFE Circular 28 and SAFE Circular 8 are still subject to substantial uncertainties.
Regulations relating to offshore investment
In July 2014, the SAFE issued the SAFE Circular on Relevant Issues Relating to Domestic Resident’s Investment and Financing and Roundtrip Investment through Special Purpose Vehicles (the “SAFE Circular 37”). SAFE Circular 37 regulates foreign exchange matters in relation to the use of special purpose vehicles (the “SPV”), by PRC residents or entities to seek offshore investment and financing or conduct round trip investment in China. Under the SAFE Circular 37, a SPV refers to an offshore entity established or controlled, directly or indirectly, by PRC residents or entities for the purpose of seeking offshore financing or making offshore investment, using legitimate onshore or offshore assets or interests, while “round trip investment” refers to direct investment in China by PRC residents or entities through SPVs, namely, establishing foreign-invested enterprises to obtain the ownership, control rights and management rights. The SAFE Circular 37 provides that, before making contribution into an SPV, PRC residents or entities are required to complete foreign exchange registration with SAFE or its local branch.
According to the Circular on Further Simplifying and Improving the Foreign Currency Management Policy on Direct Investment (the “SAFE Circular 13”), promulgated by SAFE in 2015 and latest amended in December 2019, local banks, instead of SAFE, will examine and handle foreign exchange registration for overseas direct investment, including the initial foreign exchange registration and amendment registration.
Regulations relating to stock incentive plans
Pursuant to the Notice on Issues Concerning the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plan of Overseas Publicly Listed Company (the “SAFE Circular 7”), promulgated by SAFE in 2012, employees, directors, supervisors, and other senior management participating in any share incentive plan of an overseas publicly-listed company who are PRC citizens or who are non-PRC citizens residing in China for a continuous period of not less than one year, subject to a few exceptions, are required to register with SAFE through a domestic agency. Moreover, 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.
In addition, the State Administration of Taxation (the “SAT”), has issued certain circulars concerning employee share options or restricted shares, under which the employees working in China who exercise share options or are granted restricted shares will be subject to PRC individual income tax. The PRC subsidiaries of such overseas listed company 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 the employees fail to pay or the PRC subsidiaries fail to withhold their income taxes as required by relevant laws and regulations, the PRC subsidiaries may face sanctions imposed by the PRC tax authorities or other PRC government authorities.
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Regulations on tax
Enterprise income tax
According to the Enterprise Income Tax Law of the PRC, which was promulgated by the National People’s Congress in 2007 and was latest amended in 2018 by the SCNPC, and the Implementation Regulations for the Enterprise Income Tax Law of the PRC, which was promulgated by the State Council and was latest amended in 2024, collectively referred to as the Enterprise Income Tax Law, a uniform 25% enterprise income tax rate is imposed to both foreign invested enterprises and domestic enterprises, except where tax incentives are granted to special industries and projects. Enterprise qualifying as “High and New Technology Enterprises” is entitled to a preferential 15% enterprise income tax rate, which will continue as long as such enterprise can retain its “High and New Technology Enterprise” status.
Under the Enterprise Income Tax Law, an enterprise established outside China with “de facto management body” located in China is considered a “resident enterprise” for PRC enterprise income tax purposes and is generally subject to a uniform 25% enterprise income tax rate on its worldwide income, and a “de facto management body” is defined as a body that has material and overall management and control over the manufacturing and business operations, personnel and human resources, finances and properties of an enterprise. The Circular Regarding the Determination of Chinese-Controlled Offshore Incorporated Enterprises as PRC Tax Resident Enterprises on the Basis of De Facto Management Bodies promulgated by SAT and latest amended in 2017 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.
Pursuant to the Bulletin on Issues of Enterprise Income Tax on Indirect Transfers of Assets by Non-PRC Resident Enterprises (the “SAT Bulletin 7”), which was promulgated by SAT in 2015, if a non-resident enterprise indirectly transfers properties such as equity in PRC resident enterprises without any justifiable business purposes and aiming to avoid the payment of enterprise income tax, such indirect transfer must be reclassified as a direct transfer of properties in PRC resident enterprise. However, SAT Bulletin 7 has introduced safe harbors for internal group restructurings and the purchase and sale of equity securities through a public securities market. In addition, SAT issued the Announcement of the State Administration of Taxation on Issues Concerning the Withholding of Non-resident Enterprise Income Tax at Source (the “SAT Bulletin 37”) in 2017, which further clarifies the practice and procedure of the withholding of non-resident enterprise income tax.
Value-added tax
Pursuant to the Provisional Regulations of the PRC on Value-added Tax, which was promulgated by the State Council and was latest amended in 2017, and the Implementation Rules for the Provisional Regulations the PRC on Value-added Tax, which was promulgated by the Ministry of Finance and was latest amended in 2011, entities and individuals engaging in selling goods, providing processing, repairing or replacement services or importing goods within the territory of the PRC are taxpayers of the value-added tax.
According to the Notice of the Ministry of Finance and the State Taxation Administration on the Adjusting Value-added Tax Rates effective in May 2018, the value-added tax rates of 17% and 11% on sales, imported goods shall be adjusted to 16% and 10%, respectively.
According to the Announcement of the Ministry of Finance, the State Taxation Administration and the General Administration of Customs on Relevant Policies for Deepening the Value-Added Tax Reform promulgated in March 2019, the value-added tax rates of 16% and 10% on sales, imported goods shall be adjusted to 13% and 9%, respectively.
On December 25, 2024, the latest amendment to the Value-added Tax Law of the PRC was promulgated, effective on January 1, 2026. After such amendment took effect, (i) all enterprises and individuals engaged in the sale of goods, the provision of processing, repair and replacement services, sales of services, intangible assets and real property, and the importation of goods within the territory of the PRC shall be liable to pay VAT, and the VAT tax rates generally applicable are simplified as 13%, 9%, 6% and 0%, and (ii) the VAT tax rate applicable to the small-scale taxpayers is 3%. On December 25, 2025, the Regulations for the Implementation of the Value-Added Tax Law of the PRC were promulgated, which further clarify the applicable tax rates and determine the calculation methods for tax payable in different situations.
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Regulations on dividend distribution
The principal laws, rules and regulations governing dividend distributions by foreign-invested enterprises in the PRC are the PRC Company Law, promulgated in 1993 and latest amended in 2023, and the Foreign Investment Law and its Implementation Regulations. Under these requirements, foreign-invested enterprises may pay dividends only out of their accumulated profit, if any, as determined in accordance with PRC accounting standards and regulations. A PRC company is required to allocate at least 10% of their respective accumulated after-tax profits each year, if any, to fund certain capital reserve funds until the aggregate amount of these reserve funds have reached 50% of the registered capital of the enterprises. A PRC company is not permitted to distribute any profits until any losses from prior fiscal years have been offset. Profits retained from prior fiscal years may be distributed together with distributable profits from the current fiscal year.
The Enterprise Income Tax Law and its implementation rules provide that since January 1, 2008, an enterprise income tax rate of 10% will normally be applicable to dividends declared to non-PRC resident investors which do not have an establishment or place of business in the PRC, or which have such establishment or place of business but the relevant income is not effectively connected with the establishment or place of business, to the extent such dividends are derived from sources within the PRC, unless any resident investors’ jurisdiction of incorporation has a tax treaty with China that provides for a preferential withholding arrangement.
Pursuant to the Arrangement Between the Mainland of China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Incomes (the “Double Tax Avoidance Arrangement”) and other applicable PRC laws, if a Hong Kong resident enterprise is determined by the competent PRC tax authority to have satisfied the relevant conditions and requirements under such Double Tax Avoidance Arrangement and other applicable laws, the 10% withholding tax on the dividends the Hong Kong resident enterprise receives from a PRC resident enterprise may be reduced to 5%. However, based on the Notice of the State Administration of Taxation on Issues Relating to the Implementation of Dividend Clauses in Tax Treaties, issued by SAT in 2009, if the relevant PRC tax authorities determine, in their discretion, that a company benefits from such reduced income tax rate due to a structure or arrangement that is primarily tax-driven, such PRC tax authorities may adjust the preferential tax treatment. According to the Announcement of the State Administration of Taxation on Issues Relating to “Beneficial Owner” in Tax Treaties issued by SAT in 2018, if an applicant’s business activities do not constitute substantive business activities, it could result in the negative determination of the applicant’s status as a “beneficial owner”, and consequently, the applicant could be precluded from enjoying the above-mentioned reduced income tax rate of 5% under the Double Tax Avoidance Arrangement.
Regulations on employment and social welfare
Regulations relating to employment
The major PRC laws and regulations that govern employment relationship are the PRC Labor Law, the Labor Contract Law and its implementation, which impose stringent requirements on the employers in relation to entering into fixed-term employment contracts, hiring of temporary employees and dismissal of employees.
Regulations relating to social insurance and housing fund
The PRC Social Insurance Law issued by the Standing Committee of the National People’s Congress in 2010 and latest amended in 2018, has established social insurance systems of basic pension insurance, basic medical insurance, work-related injury insurance, unemployment insurance and maternity insurance and has elaborated in detail the legal obligations and liabilities of employers who fail to comply with relevant laws and regulations on social insurance. For instance, an enterprise shall pay or withhold relevant social insurance for or on behalf of its employees, failure to make sufficient contributions to the social insurance will result in late fees and fines.
The Administrative Measures on Housing Funds issued by the State Council in 1999 and latest amended on August 10, 2026 provides that enterprise must register with the competent managing center for housing funds and shall contribute to the housing fund for its employees, failure to timely pay and deposit housing fund contributions in full amount will be ordered to complete the relevant procedures within a prescribed time limit or be fined.
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Regulations on anti-monopoly
According to the Anti-Monopoly Law of the PRC and other relevant regulations, where a concentration reaches one of the following thresholds, a declaration must be lodged in advance with the anti-monopoly law enforcement agency under the State Council, or otherwise the concentration shall not be implemented (1) during the previous fiscal year, the total global turnover of all operators participating in the transaction exceeded RMB10 billion, and at least two of these operators each had a turnover of more than RMB400 million within China; or (2) during the previous fiscal year, the total turnover within China of all operators participating in the transaction exceeded RMB2 billion, and at least two of these operators each had a turnover of more than RMB400 million within China. “Concentration of undertakings” means any of the following (1) a merger of such non-PRC undertakings; (2) acquiring control over other undertakings by acquiring equities or assets; or (3) acquisition of control over, or the possibility of exercising decisive influence on, an undertaking by contract or by any other means.
Regulations on M&A and overseas listings
MOFCOM, the CSRC, SAFE and other three other PRC governmental and regulatory agencies jointly promulgated the Provisions on Merger and Acquisition of Domestic Enterprises by Foreign Investors (the “M&A Rules”), which became effective in 2006 and was latest amended in 2009. The M&A Rules, among other things, requires that if an overseas company established or controlled by PRC companies or individuals (the “PRC Citizens”), intends to acquire interests or assets of any other PRC domestic company affiliated with the PRC Citizens, such acquisition must be submitted to MOFCOM for approval. The M&A Rules also requires that offshore special purpose vehicles formed for overseas listing purposes through acquisitions of PRC domestic companies and controlled by PRC companies or individuals, to obtain the approval of the CSRC prior to the listing and trading of such special purpose vehicles’ securities on an overseas stock exchange.
The M&A Rules also establish procedures and requirements that could make some acquisitions of PRC companies by foreign investors more time-consuming and complex, including requirements in some instances that MOFCOM 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 Rules on Implementation of Security Review System for the Merger and Acquisition of Domestic Enterprises by Foreign Investors issued by MOFCOM in 2011 specify that mergers and acquisitions by foreign investors that raise “national defense and security” concerns and mergers and acquisitions through which foreign investors may acquire de facto control over domestic enterprises that raise “national security” concerns are subject to strict review by MOFCOM, and prohibit any activities attempting to bypass such security review, including by structuring the transaction through a proxy or contractual control arrangement. On December 19, 2020, the NDRC and MOFCOM jointly promulgated the Measures for the Security Review of Foreign Investment to forth provisions concerning the security review mechanism on foreign investment, including the types of investments subject to review, review scopes and procedures, among others. According to the Measures for the Security Review of Foreign Investment, foreign investments in military, national defense-related areas or in locations in proximity to military facilities, or foreign investments that would result in acquiring the actual control of assets in certain key sectors, such as critical agricultural products, energy and resources, equipment manufacturing, infrastructure, transport, cultural products and services, information technology, Internet products and services, financial services and technology sectors, are required to obtain approval from designated government authorities in advance.
On July 6, 2021, General Office of the State Council and General Office of the CPC Central Committee issued Opinions on Strictly Cracking Down Illegal Securities Activities in Accordance with the Law. The opinions emphasized the need to strengthen the administration over illegal securities activities and the supervision on overseas listings by China-based companies and proposed to take effective measures, such as promoting the construction of relevant regulatory systems to deal with the risks and incidents faced by China- based overseas-listed companies.
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The new rules for the filing-based administration of overseas securities offerings and listings by Chinese domestic enterprises released on February 17, 2023 establish a new filing-based regime to regulate overseas offerings and listings by domestic enterprises. The new filing rules consist of the Trial Measures for Administration of Overseas Securities Offerings and Listings by Domestic Enterprises (the “Trial Measures”) and five interpretive guidelines (collectively, the “CSRC Filing Rules”). According to the CSRC Filing Rules, (1) an overseas offering and listing by a domestic enterprise, whether directly or indirectly, shall be filed with the CSRC; and (2) the issuer or its affiliated domestic enterprise, as the case may be, shall file with the CSRC for its initial public offering, follow-on offering and other equivalent offing activities. The CSRC Filing Rules also set forth certain regulatory red lines for overseas offerings and listings by domestic enterprises. However, from March 31, 2023, enterprises that have been listed overseas shall constitute existing enterprises and are not required to conduct the overseas listing filing procedure immediately, but shall carry out filing procedures as required if they conduct refinancing or are involved in other circumstances that require filing with the CSRC. Under CSRC Filing Rules, subsequent securities offerings of an issuer in the same overseas market where it has previously offered and listed securities shall be filed with the CSRC within three working days after the offering is completed, and if the subsequent securities offering is conducted in other overseas markets than where is has offered and listed, then it shall be filed with the CSRC within three working days after the relevant application is submitted overseas. In addition, overseas public enterprises shall submit a report to CSRC within three working days after the occurrence and public disclosure of following material events, including (1) change of control; (2) investigations or sanctions imposed by overseas securities regulatory agencies or other relevant competent authorities; (3) change of listing status or transfer of listing segment; and (4) voluntary or mandatory delisting.
On February 24, 2023, the CSRC, together with other relevant government authorities, issued the Provisions on Strengthening Confidentiality and Archives Administration of Overseas Securities Offering and Listing by Domestic Enterprises (the “Archives Rules”), which came into effect on March 31, 2023. The Archives Rules reiterate that working papers produced in the PRC by securities companies and securities service providers for direct and indirect international offering and listing by domestic enterprises, should be retained in mainland China, and, without prior approval by competent authorities of mainland China, such working papers shall not be brought, mailed or otherwise transferred to recipients outside of mainland China. Furthermore, the Archives Rules establish a cross-border regulatory cooperation mechanism as prescribed in the PRC Securities Law and strengthen cross-border regulatory cooperation as prescribed in the CSRC Filing Rules, which shifts the overall direction of cross-border supervision of international offering and listing from a “dominated by domestic regulators or depend on the conclusions of inspections by domestic regulators” approach to a “cross-border regulatory cooperation” mechanism.
The Archives Rules provide that, among other things, (1) in relation to the international offering and listing activities of domestic enterprises, the domestic enterprises are required to strictly comply with the relevant requirements on confidentiality and archives management, establish a sound confidentiality and archives system, and take necessary measures to implement their confidentiality and archives management responsibilities; (2) during the course of an international offering and listing, if a domestic enterprise needs to publicly disclose or provide to securities companies, accounting firms or other securities service providers and international regulators, any materials that contain relevant state secrets, work secrets of government agencies or that have a sensitive impact (i.e., be detrimental to national security or the public interest if divulged), the domestic enterprise should complete the relevant approval/filing and other regulatory procedures; and (3) working papers produced in mainland China by securities companies and securities service institutions, which provide domestic enterprises with securities services during their international issuance and listing, should be stored in mainland China, and the transmission of all such working papers to recipients outside of mainland China is required to be approved by competent authorities of mainland China.
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C. Organizational Structure
The following diagram illustrates our simplified corporate structure, including our principal subsidiaries and affiliated entities, before the VIE Termination:
| (1) | Beijing Feierlai and Beijing Chuangyuqizhi are wholly owned by Shenzhen Erwan Education Technology Co., Ltd., an entity owned as to 99.0% by Mr. Peng Li, our founder and chief executive officer, and 1.0% by Ms. Li Meng, mother of Mr. Li. |
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The following diagram illustrates our simplified corporate structure, including our principal subsidiaries, as of the date of this annual report:
The following table sets out the details of our subsidiaries that are significant to us as of the date of this annual report.
| Subsidiaries | Place of Incorporation | |
| CreaVerse Group Limited | Cayman Islands | |
| CreaVerse Group (BVI) Limited | BVI | |
| CreaVerse Technology (Singapore) Pte. Limited | Singapore | |
| CreaVerse Technology (HK) Limited | Hong Kong | |
| Shenzhen Chaowan World Information Technology Co., Ltd. | PRC | |
| Shenzhen Yiqi Culture Co., Ltd. | PRC | |
| Hangzhou Yiqi Technology Development Co., Ltd. | PRC | |
| Hundreds of Mountains Limited | BVI | |
| Witty Digital Technology Limited | Hong Kong | |
| Beijing Qimengdao Technology Co., Ltd. | PRC | |
| Beijing Yiqi Culture Co., Ltd. | PRC | |
| Shanghai Qimengdao Culture Co., Ltd. | PRC | |
| Chongqing Qimengdao Cultural Communication Co., Ltd. | PRC | |
| Shenzhen Qimengdao Trading Co., Ltd. | PRC | |
| Beijing Qimengdao Cultural Communication Co., Ltd. | PRC | |
| Xi’an Qimengdao Cultural Communication Co., Ltd. | PRC |
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Our Historical Contractual Arrangements
Here Group Limited is an exempted company with limited liability incorporated under the laws of the Cayman Islands with no substantive operations. We currently carry out our current business in China through Shenzhen Letsvan. Historically, we carried out our legacy individual learning services business in China through Beijing Liangzizhige, and its contractual arrangements, commonly known as the VIE structure, with Beijing Chuangyuqizhi and Beijing Feierlai, the variable interest entities based in China, and their respective nominee shareholder.
Before the VIE Termination, our historical contractual arrangements had allowed us to (1) be considered as the primary beneficiary of the VIEs for accounting purposes and consolidate the financial results of the affiliated entities, (2) receive substantially all of the economic benefits of the affiliated entities, (3) have the pledge right over the equity interests in the VIEs as the pledgee, and (4) have an exclusive option to purchase all or part of the equity interests in the VIEs when and to the extent permitted by PRC law.
As a result of our direct ownership in our WFOEs and the historical contractual arrangements with the VIEs, we were the primary beneficiary of the VIEs, and, therefore, had consolidated the financial results of the affiliated entities in our consolidated financial statements in accordance with U.S. GAAP before the VIE Termination.
The following is a summary of the historical contractual arrangements by and among Beijing Liangzizhige, the VIEs and their respective nominee shareholder.
Voting rights proxy agreements. Pursuant to the voting rights proxy agreements entered into by and among Beijing Liangzizhige, the VIEs and their respective nominee shareholder, the respective shareholder of the VIEs irrevocably appointed and authorized Beijing Liangzizhige or its designee(s) to act on its behalf as exclusive agent and attorney, to the extent permitted by PRC law, with respect to all matters concerning all equity interests held by such shareholder in the VIEs, including but not limited to the power to (1) attend shareholders’ meetings, (2) exercise all shareholder’s rights and shareholder’s voting rights that it is entitled under relevant PRC laws and regulations and the articles of association of the VIEs, including but not limited to the right to sell, transfer or pledge of all the equity interests held in part or in whole, and (3) designate and appoint on its behalf the legal representative, directors, supervisors, chief executive officer and other senior management members of the VIEs. The voting rights proxy agreements are irrevocable and continuously effective from the execution date until the entire equity interests in the VIEs have been transferred to Beijing Liangzizhige or its designee pursuant to the exclusive option agreement or unless otherwise agreed to with written consent by all parties.
Equity pledge agreements. Under the equity pledge agreements entered into by and among Beijing Liangzizhige, the VIEs and their respective nominee shareholder, the shareholder of the VIEs agrees to pledge all of its equity interests in the VIEs to Beijing Liangzizhige as security for performance of the respective obligations of the VIEs and their respective shareholder hereunder and under the exclusive option agreements, the voting rights proxy agreements and the exclusive consultancy and service agreements, and for payment of all the losses and losses of anticipated profits suffered by Beijing Liangzizhige as a result the VIEs or their shareholder’s defaults. If any of the VIEs or their shareholder breach their contractual obligations, Beijing Liangzizhige, as the pledgees, may, upon issuing written notice, exercise certain remedy measures, including but not limited to being paid in priority with all pledged equity interests based on monetary evaluation or from the proceeds from auction or sale. The shareholder of the VIEs agrees that, without Beijing Liangzizhige’s prior written consent, the shareholder of the VIEs shall not transfer the pledged equity interests or place or permit the existence of any security interests or other encumbrances over the pledged equity interest. Beijing Liangzizhige may assign all or any of its rights and obligations under the share pledge agreements to its designee(s) at any time. The equity pledge agreements pledge will become effective on the date thereof and will remain in effect until the fulfillment of all the obligations hereunder and under the exclusive option agreements, the voting rights proxy agreements and the exclusive consultancy and service agreements and the full payment of all the losses and losses of anticipated profits suffered by Beijing Liangzizhige as a result the VIEs or their shareholder’s default. We completed the registration of the pledged equity interests in Beijing Feierlai and Beijing Chuangyuqizhi with the competent administration for industry and commerce in May 2021 and April 2025, respectively.
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Exclusive consultancy and service agreements. Pursuant to the exclusive consultancy and service agreements entered into by and between Beijing Liangzizhige and the VIEs, Beijing Liangzizhige has the exclusive right, during the term of the exclusive consultancy and service agreements, to provide or designate its affiliates to provide complete business support and technical and consulting services to the VIEs. In exchange, the VIEs shall pay Beijing Liangzizhige in an amount equal to the VIEs’ revenues minus any turnover tax, total costs incurred by the VIEs, any provisions for statutory reserves and retained earnings, which should be paid on a quarterly basis. The retained earnings should be zero unless Beijing Liangzizhige agrees in writing for any other amount. Beijing Liangzizhige shall have exclusive and proprietary rights and interests in all rights, ownership, interests and intellectual properties arising out of or created during the performance of the agreement. The exclusive consultancy and service agreements shall remain effective for ten years from the execution date and shall be extended for another ten years unless confirmed otherwise in writing by Beijing Liangzizhige within three months prior to the expiration date.
Exclusive option agreements. Under the exclusive option agreements entered into by and between Beijing Liangzizhige, the VIEs and their respective nominee shareholder, the shareholder of the VIEs irrevocably granted Beijing Liangzizhige an exclusive right to purchase, or designate any third-party to purchase, all or part of the equity interests and assets in the VIEs at any time in part or in whole at the sole and absolute discretion of Beijing Liangzizhige to the extent permitted by PRC law and at a purchase price equal to the lowest price permitted by the then-applicable PRC law and regulations at the time of exercise of the options. The shareholder of the VIEs shall give all considerations it received within 10 business days from the exercise of the options to Beijing Liangzizhige or its designee(s) in a legally compliant manner. Without the prior written consent of Beijing Liangzizhige, the VIEs and/or their shareholder shall not, among others (1) transfer or otherwise dispose of any equity, assets or business of the VIEs, or create any pledge or encumbrance on any equity, assets or business of the VIEs, (2) increase or decrease any VIEs’ registered capital or change their structure of registered capital, (3) sell, transfer, mortgage, or dispose of in any other manner outside of ordinary course of business any assets of the VIEs or any legal or beneficial interests in the material business or revenues of the VIEs, or allow any encumbrances thereon of any security interests, (4) enter into any major contracts or terminate any material contracts to which any VIE is a party, or enter into any other contract that may result in any conflicts with the VIEs’ existing materials contacts, (5) carry out any transactions that may substantially affect the VIEs assets, business operations, shareholding structure, or equity investment in third-party entities, (6) appointment or replacement of any director, supervisor, or any management who could be appointed or dismissed by shareholder of any VIEs, (7) declare or distribute dividends, (8) dissolute or liquate or terminate any VIE, (9) amend any VIE’s articles of association, or (10) allow any VIE to incur any borrowings or loans. These agreements shall become effective on the execution date and remain in effect until all equity interests in the VIEs have been transferred to Beijing Liangzizhige and/or its designee(s) pursuant to these agreements.
In the opinion of our PRC counsel, CM Law Firm: (1) the ownership structures of the VIEs and WFOE under the historical contractual arrangements were not in any violation of applicable PRC laws and regulations then in effect; and (2) prior to the termination thereof, the agreements under the historical contractual arrangements among each of our WFOE, the VIEs and their shareholder governed by PRC law were valid and binding upon each party to such agreements and enforceable against each party thereto in accordance with their terms and applicable PRC laws and regulations.
However, we have been further advised by our PRC counsel that there are uncertainties regarding the interpretation and application of current PRC laws and regulations. The PRC government may ultimately take a view that is otherwise different from the opinion of our PRC counsel. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure.”
D. Property, Plants and Equipment
Our principal offices are located in Beijing, Shenzhen and Hangzhou, and we also leased stores in Beijing, Shenzhen, Xi’an and Chongqing and vending spaces for our roboshops in cities including Beijing, Shanghai and Shenzhen, as well as warehouses in Dongguan. Our leased premises in mainland China amounted to approximately 25,769 square meters in aggregate, with lease terms generally ranging from approximately three months to three years as of June 30, 2026. We also leased office in Hong Kong of approximately 110 square meters in aggregate, with lease terms of three years as of the same date. We lease all the facilities that we currently occupy from unaffiliated third parties. We believe that the facilities that we currently lease are adequate to meet our needs for the foreseeable future.
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ITEM 4A. UNRESOLVED STAFF COMMENTS
None.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
The following discussion of our financial condition and results of operations is based upon and should be read in conjunction with our consolidated financial statements and their related notes included in this annual report. This report contains forward-looking statements. In evaluating our business, you should carefully consider the information provided under the caption “Item 3. Key Information—D. Risk Factors” in this annual report. We caution you that our businesses and financial performance are subject to substantial risks and uncertainties.
A. Operating Results
The following discussion of our financial condition and results of operations is based upon and should be read in conjunction with our consolidated financial statements and their related notes included in this annual report. This report contains forward-looking statements. In evaluating our business, you should carefully consider the information provided under the caption “Item 3. Key Information—D. Risk Factors” in this annual report. We caution you that our businesses and financial performance are subject to substantial risks and uncertainties.
Key Factors Affecting Our Results of Operations
General factors affecting our results of operations
Our business, results of operations and financial condition have been, and are expected to continue to be, subject to the influence of the general factors affecting the overall economy and the industries that we operate in.
Our results of operations and financial condition are significantly affected by macroeconomic factors, including China’s economic performance and growth, urbanization level, and per capita disposable income. In the past, these factors had an impact on the mass market’s demand for and ability to spend on online learning services and, in turn, China’s online adult learning industry. As we have pivoted to our pop toy business, our results of operations and financial condition are affected by such macroeconomic factors that drive the spending behaviors, attitudes and preferences of consumers.
Historically, we primarily derived revenue from individual online learning services before the VIE Termination in September 2025. Our results of operations and financial condition in the past had depended significantly on the overall development status, competitive landscape and regulatory regime of China’s online adult learning industry.
As we shifted our business to the pop toy sector, our results of operations and financial condition are directly affected by the development of the pop toy market. The pop toy sector is affected by, among others, prominence and acceptance of pop toy culture, evolvement of consumption habits and expenditures on cultural and entertainment products and services, as they are shaped by macroeconomic conditions. These general trends and industry landscape may also vary across the different countries and regions that we expand into.
Specific factors affecting our results of operations
In addition to the general factors, we believe that our business, results of operations and financial condition are affected by company-specific factors, including the key factors discussed below:
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Change in offering mix and business model
We had experienced a shift in our offering mix in terms of our online course offerings and consumer goods offerings for our legacy individual online learning services and consumer business, and, more recently, a shift of our business model along with the change of our focus to the pop toy business and the spin-off of our legacy individual online services business and consumer business. Such shifts have affected, and are expected to continue to affect, our financial performance, especially our revenue growth and profit margin. Specifically, as a result of our business restructuring, we have ceased to engage in any individual online learning services business in the PRC or overseas or any other consumer businesses or any other business, and due to such divestiture, assets, liabilities, revenues and expenses and cash flows related to the legacy businesses have been reclassified in the accompanying consolidated financial statements as discontinued operation for all periods presented.
We entered into the pop toy sector, which is our main business now, through the acquisition of equity interests in Shenzhen Letsvan in March 2025. In the fiscal years ended June 30, 2025 and 2026, revenue from pop toy business was approximately RMB65.8 million and RMB596.8 million (US$88.0 million), respectively. The business model, revenue and cost structure and gross profit margin of the pop toy business, differ significantly from that of our individual online learning services and consumer business, which may affect our results of operations accordingly. As a result, any future change in our service offering mix or change in profit margin of any business may have a corresponding impact on our overall gross profit margin.
The performance of our pop toy business will have a predominant impact on our results of operations and financial condition going forward. Our ability to efficiently expand and monetize from our pop toy business depends on, among others, the attractiveness, scope and depth of our IP portfolio, the breadth and coverage of our sales channels, the effectiveness of our marketing efforts, the efficiency and quality of our supply chain, and the control over relevant costs for operating and developing such business. Specifically, we must build and constantly enrich our IP portfolio, which in turn depends on our IP selection.
Factors affecting our pop toy business
We consider the following factors critical to our results of operations as to the pop toy business.
Our IP portfolio lays the foundation for the expansion and enhancement of our product offering and the establishment of our fan base among consumers. We have curated a number of key IPs, including WAKUKU, SIINONO and ZIYULI. Our future success depends on the ongoing popularity of our key IPs, as well as the development and marketing of new IPs. We build our product portfolio upon these IPs. As of June 30, 2026, our product portfolio consisted of 13 proprietary IPs and 9 exclusive licensed IPs. Our revenue growth depends on our ability to expand, diversify and optimize our product portfolio upon popular IPs.
Our sales network and marketing efforts are critical to the visibility and popularity of our IPs among consumers, the sales performance of our products and the cultivation and the breadth and depth of our fan base. Our multi-channel sales network currently primarily consists of domestic and international online platforms, physical touchpoints and distributor partnerships. We primarily relied on marketing methods including social media operations on key platforms such as Douyin and rednote, community building and content marketing, online to offline experiential events, participation in major toy conventions and collaborations with diverse partners across different industries. We will continue to expand our sales network to drive our market penetration, and we will also involve ourselves in multi-dimensional marketing initiatives to elevate our brand awareness among consumers, promote our IPs and deepen our fan base. As we are still at a relatively early stage of enhancing the recognition of our IPs and promoting our products, we expect to experience an increase in our sales and marketing expenses.
Our ability to maintain a robust supply chain and achieve effective supply chain management is essential to the provision of satisfactory, high quality products to consumers and our profitability and business sustainability. We collaborate with specialized third-party partner factories to ensure the seamless and efficient conversion of IP and product designs to products. As we diversify our product portfolio and expedite our commercialization efforts, we expect that our effective collaboration with these suppliers will be crucial to our business success. In addition, we must maintain effective cost control to ensure the profit margin of our pop toy business. We may experience cost fluctuations, especially as certain of our products have yet reached mass commercialization, or our procurement scale is small. We expect that our overall cost level relative to our sales will improve with greater sales volume, as we achieved greater economies of scale in the long run.
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Ability to control our operating costs and expenses
Our operating margins depend in part on our ability to control our costs and realize additional operation leverage as we expand. For the fiscal years ended June 30, 2024, 2025 and 2026, for pop toy business, our cost of revenues accounted for nil, 65.3% and 66.9% of our total revenues, respectively. Our current pop toy business now has a substantially different cost structure, as costs of goods sold have become a major component, in contrast to the staff and labor outsourcing costs that dominated our legacy business. Historically, we have benefited from the significant scalability of our business model and have been able to control those costs at a relatively low level despite the significant growth in our revenues. Our ability to continue to control our costs largely depends on our ability to increase the economic benefits from the scalability of our business model and utilize advanced technology to optimize our course operations. As we have transitioned to a pop toy company, we expect that our costs of goods sold will have a prominent impact on our costs.
Historically, our sales and marketing expenses primarily consisted of online advertising spending, and to a lesser extent, compensation to our sales and marketing personnel, in connection with individual online learning services. As we shifted our focus to the pop toy sector, we have incurred and will continue to incur corresponding expenses to promote relevant businesses. For instance, we incur expenses with the promotion and penetration of our pop toy business, such as staff costs for relevant sales personnel, marketing and promotional expenses, and expenses related to sales channels. We expect to experience increases in these expenses as we have been engaging in massive business expansion activities for our pop toy business, which is at a relatively early stage of development and mandates substantive devotion of upfront investments. We may also incur fluctuations in other operating expenses due to the growth and/or changes of our business scale and scope of operations. For instance, we may experience increases in our operating expenses along with the growth of our pop toy business.
Non-GAAP Financial Measures
Adjusted net loss from continuing operations
To supplement our consolidated financial statements which are presented in accordance with U.S. GAAP, we also use adjusted net loss from continuing operations as an additional non-GAAP financial measure. We define adjusted net loss from continuing operations as net loss from continuing operations excluding share-based compensation and impairment loss on goodwill. We present this non-GAAP financial measure because our management uses it to evaluate our operating performance. We also believe that this non-GAAP financial measure provides useful information to investors and others in understanding and evaluating the consolidated financial results in the same manner as our management and in comparing financial results across accounting periods and to those of our peer companies.
This non-GAAP financial measure adjusts for the impact of items that we do not consider indicative of the operational performance of our business and should not be considered in isolation or construed as an alternative to net loss from continuing operations or any other measure of performance or as an indicator of our future performance. Investors are encouraged to compare this historical non-GAAP financial measure with the most directly comparable U.S. GAAP measures. Adjusted net loss from continuing operations presented here may not be comparable to similarly titled measures presented by other companies. Other companies may calculate similarly titled measures differently, limiting their usefulness as comparative measures to our data. We encourage investors and others to review our financial information in its entirety and not rely on a single financial measure.
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The following table sets forth a reconciliation of our net loss from continuing operations to adjusted net loss from continuing operations for the periods indicated.
| For the fiscal year ended June 30, | ||||||||||||||||
| 2024 | 2025 | 2026 | ||||||||||||||
| RMB | RMB | RMB | US$ | |||||||||||||
| (in thousands) | ||||||||||||||||
| Net loss from continuing operations | — | (21,806 | ) | (254,935 | ) | (37,572 | ) | |||||||||
| Less: share-based compensation | — | (2,513 | ) | (36,963 | ) | (5,448 | ) | |||||||||
| Less: impairment loss on goodwill | — | — | (124,059 | ) | (18,284 | ) | ||||||||||
| Adjusted net loss from continuing operations | — | (19,293 | ) | (93,913 | ) | (13,840 | ) | |||||||||
Key Components of Our Results of Operations
Revenues
For the fiscal years ended June 30, 2025 and 2026, we generated revenue from continuing operations primarily from our pop toy business. We began to generate revenue from pop toy business in the fourth quarter of the fiscal year ended June 30, 2025, with the acquisition of Shenzhen Letsvan.
The following table sets forth a breakdown of our revenues from continuing operations by sales channel, both by absolute amount and as a percentage of our total revenues from continuing operations for the periods indicated.
| For the fiscal year ended June 30, | ||||||||||||||||||||||||||||
| 2024 | 2025 | 2026 | ||||||||||||||||||||||||||
| RMB | % | RMB | % | RMB | US$ | % | ||||||||||||||||||||||
| (RMB in thousands, except for percentages) | ||||||||||||||||||||||||||||
| Revenues | ||||||||||||||||||||||||||||
| Revenue from distributor | — | — | 51,953 | 79.0 | 446,274 | 65,773 | 74.8 | |||||||||||||||||||||
| Revenue from online sales | — | — | 12,820 | 19.5 | 126,035 | 18,575 | 21.1 | |||||||||||||||||||||
| Revenue from retail store sales and roboshop sales and other retail channels | — | — | 1,008 | 1.5 | 20,366 | 3,002 | 3.4 | |||||||||||||||||||||
| Others | — | — | — | — | 4,123 | 607 | 0.7 | |||||||||||||||||||||
| Total | — | — | 65,781 | 100.0 | 596,798 | 87,957 | 100.0 | |||||||||||||||||||||
The following table sets forth a breakdown of our revenues from continuing operations by IPs, both by absolute amount and as a percentage of our total revenues from continuing operations for the periods indicated.
| For the fiscal year ended June 30, | ||||||||||||||||||||||||||||
| 2024 | 2025 | 2026 | ||||||||||||||||||||||||||
| RMB | % | RMB | % | RMB | US$ | % | ||||||||||||||||||||||
| (RMB in thousands, except for percentages) | ||||||||||||||||||||||||||||
| Revenues | ||||||||||||||||||||||||||||
| WAKUKU | — | — | 42,959 | 65.3 | 369,291 | 54,427 | 61.9 | |||||||||||||||||||||
| SIINONO | — | — | — | — | 92,667 | 13,657 | 15.5 | |||||||||||||||||||||
| ZIYULI | — | — | 17,591 | 26.7 | 57,404 | 8,460 | 9.6 | |||||||||||||||||||||
| Others (1) | — | — | 5,231 | 8.0 | 77,436 | 11,413 | 13.0 | |||||||||||||||||||||
| Total | — | — | 65,781 | 100.0 | 596,798 | 87,957 | 100.0 | |||||||||||||||||||||
| (1) | “Others” refers to revenue generated from all other IPs, such as MEMIMO, FUNII, FIILA, impopo pix, YEAOHUA and co-branded IPs, and other revenues, aggregated and presented as “Others”. |
Following the disposal of the legacy businesses on September 30, 2025, we derived substantially all of our revenue from pop toy business. We sell pop toys through third-party distributors, online platforms, self-operated retail stores and roboshops. In third-party distributor arrangements, the distributor is our direct customer. In other sale channels, we sell directly to end consumers. We act as the principal in all revenue arrangements, as we bear inventory risk, have primary responsibility for product fulfillment and quality, and maintain pricing discretion. Accordingly, we recognize revenue on a gross basis for the full amount of consideration to which we expect to be entitled, upon transfer of control of the products to the customer.
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Cost of revenues
Costs of revenues primarily consist of costs of goods sold, license fee, costs associated with operating the supply chain. The following table sets forth a breakdown of our cost of revenues from continuing operations by nature, both by absolute amount and as a percentage of our total cost of revenues from continuing operations for the periods indicated.
| For the fiscal year ended June 30, | ||||||||||||||||||||||||||||
| 2024 | 2025 | 2026 | ||||||||||||||||||||||||||
| RMB | % | RMB | % | RMB | US$ | % | ||||||||||||||||||||||
| (in thousands, except for percentages) | ||||||||||||||||||||||||||||
| Costs of goods sold | — | — | 39,844 | 92.7 | 336,675 | 49,620 | 84.3 | |||||||||||||||||||||
| Warehousing and logistics costs | — | — | 1,035 | 2.4 | 19,867 | 2,928 | 5.0 | |||||||||||||||||||||
| License fees | — | — | — | — | 16,110 | 2,374 | 4.0 | |||||||||||||||||||||
| Others(1) | — | — | 2,091 | 4.9 | 26,895 | 3,964 | 6.7 | |||||||||||||||||||||
| Total | — | — | 42,970 | 100.0 | 399,547 | 58,886 | 100.0 | |||||||||||||||||||||
| (1) | Include primarily salaries and benefit costs, molds depreciation costs, amortization of intangible assets and occupancy costs. |
Operating expenses
Our operating expenses primarily consist of sales and marketing expenses, research and development expenses, general and administrative expenses and impairment loss on goodwill. The following table sets forth the components of our operating expenses from continuing operations, both by absolute amount and as a percentage of our total operating expense from continuing operations for the periods indicated.
| For the fiscal year ended June 30, | ||||||||||||||||||||||||||||
| 2024 | 2025 | 2026 | ||||||||||||||||||||||||||
| RMB | % | RMB | % | RMB | US$ | % | ||||||||||||||||||||||
| (in thousands, except for percentages) | ||||||||||||||||||||||||||||
| Operating expenses: | ||||||||||||||||||||||||||||
| Sales and marketing expenses | — | — | 19,108 | 40.0 | 194,383 | 28,649 | 39.5 | |||||||||||||||||||||
| Research and development expenses | — | — | 9,010 | 18.9 | 44,274 | 6,525 | 9.0 | |||||||||||||||||||||
| General and administrative expenses | — | — | 19,673 | 41.1 | 128,925 | 19,001 | 26.2 | |||||||||||||||||||||
| Impairment loss on goodwill | — | — | — | — | 124,059 | 18,284 | 25.3 | |||||||||||||||||||||
| Total | — | — | 47,791 | 100.0 | 491,641 | 72,459 | 100.0 | |||||||||||||||||||||
Taxation
Cayman Islands
Here Group Limited, our ultimate holding company, was incorporated in the Cayman Islands. Certain of our intermediary holding companies were incorporated in the Cayman Islands. The Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains or appreciation, and there is no taxation in the nature of inheritance tax or estate duty. There are no other taxes levied by the Cayman Islands government that are likely to be material to us, except for stamp duties which may be applicable on instruments executed in, or after execution, brought within the jurisdiction of the Cayman Islands. The Cayman Islands is not party to any double tax treaties that are applicable to any payments made to or by our company. There are no exchange control regulations or currency restrictions in the Cayman Islands.
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Payments of dividends and capital in respect of the shares will not be subject to taxation in the Cayman Islands, and no withholding will be required on the payment of a dividend or capital to any holder of the shares, nor will gains derived from the disposal of the shares be subject to Cayman Islands income or corporation tax.
British Virgin Islands
Certain of our intermediary holding companies were incorporated in the British Virgin Islands (the “BVI”). All dividends, interest, rents, royalties, compensation and other amounts paid by such entity to persons who are not resident in the BVI and any capital gains realized with respect to any shares, debt obligations, or other securities of such entities by persons who are not resident in the BVI are exempt from all provisions of the Income Tax Ordinance in the BVI.
No estate, inheritance, succession or gift tax, rate, duty, levy or other charge is payable by persons who are not resident in the BVI with respect to any shares, debt obligation or other securities of our BVI subsidiaries.
All instruments relating to transfers of property to or by such entity and all instruments relating to transactions in respect of the shares, debt obligations or other securities of our BVI subsidiaries and all instruments relating to other transactions relating to the business of such entity are exempt from payment of stamp duty in the BVI. This assumes that our BVI subsidiaries do not hold an interest in real estate in the BVI.
There are currently no withholding taxes or exchange control regulations in the BVI applicable to our BVI subsidiaries or their shareholders.
Hong Kong
Certain of our intermediary holding companies were incorporated in Hong Kong. Since the two-tiered profits tax regime took effect on April 1, 2018, the applicable Hong Kong profits tax rate has been 8.25% for assessable profits on the first HK$2.0 million and 16.5% for any assessable profits in excess of HK$2.0 million. During the fiscal years ended June 30, 2024, 2025 and 2026, Hong Kong profits tax was not incurred, as there were no taxable profits derived from Hong Kong.
China
We primarily operate our current business in China through our WFOEs, and, historically, we operated our principal business, i.e., individual online learning services, through the VIEs and its subsidiaries, which were all incorporated in China. Under the PRC Enterprise Income Tax Law (“EIT Law”), the standard enterprise income tax rate is 25%. Entities qualifying as High and New Technology Enterprises (“HNTE”) qualify for a preferential tax rate of 15%, subject to a requirement that they re-apply for HNTE status every three years. Beijing Liangzizhige was qualified as a HNTE in 2022 and 2025, respectively, and applied a preferential enterprise income tax rate of 15% as an HNTE from 2022 to 2025. Beijing Liangzizhige’s HNTE status has been extended through October 2028. However, due to changes in facts and circumstances, beginning in the 2026 calendar year, although it continues to hold HNTE status, it no longer meets the conditions for HNTE tax treatment, and will apply the standard enterprise income tax rate of 25% from the 2026 calendar year onward.
The EIT Law also provides that an enterprise established under the laws of a foreign country or region but whose “de facto management body” is located in China be treated as a resident enterprise for PRC tax purposes and consequently be subject to the PRC income tax at the rate of 25% for its global income. The implementing rules of the EIT Law merely define the term of the “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.” Should we be treated as a resident enterprise for PRC tax purposes, we will be subject to PRC income tax on worldwide income at a uniform tax rate of 25%.
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The EIT law and its implementation rules also impose a withholding income tax of 10% on dividends distributed by a foreign investment enterprise to its immediate holding company outside China, if such immediate holding company is considered as a non-resident enterprise without any establishment or place within China or if the dividends received have no connection with the establishment or place of such immediate holding company within China, unless such immediate holding company’s jurisdiction of incorporation has a tax treaty with China that provides for a different withholding arrangement. The Cayman Islands, where our ultimate holding company was incorporated, does not have such tax treaty with China. According to the Arrangement between Mainland China and Hong Kong Special Administrative Region on the Avoidance of Double Taxation and Prevention of Fiscal Evasion (“HK DTA”) in August 2006, dividends paid by a foreign investment enterprise in China to its immediate holding company in Hong Kong will be subject to withholding tax at a rate of no more than 5% if all the requirements are satisfied.
To the extent that our subsidiaries have undistributed earnings, we will accrue appropriate expected withholding tax associated with repatriation of such undistributed earnings. In the fiscal years ended June 30, 2024 and 2025, Beijing Liangzizhige distributed a portion of its retained earnings of approximate US$5.3 million and US$10.0 million to its holding company in Hong Kong, Witty Digital Technology Limited, respectively. As of June 30, 2024, we had applied withholding tax rate of 5% based on the facts and circumstances of the offshore subsidiary and management’s interpretation of the HK DTA back then. During the year ended June 30, 2025, as there were new changes in relevant facts and circumstances, we accrued withholding tax on undistributed earnings as of June 30, 2025 using a 10% tax rate to reflect the management’ estimation accordingly. From June 30, 2025, we continued to apply the 10% withholding tax rate.
Discontinued Operation
On September 30, 2025, we entered into the VIE Termination Agreement with Beijing Feierlai and Beijing Chuangyuqizhi, and the respective nominee shareholder of Beijing Feierlai and Beijing Chuangyuqizhi, to terminate the contractual arrangements among these parties. As part of the business restructuring and in connection with the termination of the VIE Agreements, we entered into equity transfer agreements with the relevant entities of a third-party buyer on September 30, 2025. As a result of the business restructuring, we ceased to engage in any individual online learning services business in the PRC or overseas or any other consumer businesses or any other business. We refer to these transactions as the divestiture of the legacy businesses. The divestiture of the legacy business represents a strategic shift and has a major effect on our result of operations. Accordingly, assets, liabilities, revenues and expenses and cash flows related to the legacy businesses have been reclassified in the accompanying consolidated financial statements as discontinued operation for all periods presented. The consolidated balance sheets as of June 30, 2025 and 2026, consolidated financial statements of operations and consolidated financial statements of cash flows for the years ended June 30, 2024, 2025 and 2026 have been adjusted to reflect this change. Specifically, net income of RMB385.5 million, RMB378.4 million, RMB318.5 million for years ended June 30, 2024, 2025 and 2026, respectively, have been excluded from our financial results from continuing operations and have been separately reclassified to the discontinued operation.
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Results of Operations
The following table sets forth a summary of our consolidated results of operations for the years indicated. You should read this information together with our consolidated financial statements and related notes included elsewhere in this annual report. The results of operations in any period are not necessarily indicative of the results that may be expected for any future years or periods.
| For the fiscal year ended June 30, | ||||||||||||||||
| 2024 | 2025 | 2026 | ||||||||||||||
| RMB | RMB | RMB | US$ | |||||||||||||
| (in thousands, except for per share data) | ||||||||||||||||
| Revenues | — | 65,781 | 596,798 | 87,957 | ||||||||||||
| Cost of revenues | — | (42,970 | ) | (399,547 | ) | (58,886 | ) | |||||||||
| Gross profit | — | 22,811 | 197,251 | 29,071 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Sales and marketing expenses | — | (19,108 | ) | (194,383 | ) | (28,649 | ) | |||||||||
| Research and development expenses | — | (9,010 | ) | (44,274 | ) | (6,525 | ) | |||||||||
| General and administrative expenses | — | (19,673 | ) | (128,925 | ) | (19,001 | ) | |||||||||
| Impairment loss on goodwill | — | — | (124,059 | ) | (18,284 | ) | ||||||||||
| Total operating expenses | — | (47,791 | ) | (491,641 | ) | (72,459 | ) | |||||||||
| Loss from operations | — | (24,980 | ) | (294,390 | ) | (43,388 | ) | |||||||||
| Other incomes, net: | ||||||||||||||||
| Interest income | — | 796 | 11,343 | 1,672 | ||||||||||||
| Others, net | — | 5,728 | 16,648 | 2,454 | ||||||||||||
| Loss before income tax | — | (18,456 | ) | (266,399 | ) | (39,262 | ) | |||||||||
| Income tax (expense)/benefit | — | (3,350 | ) | 11,464 | 1,690 | |||||||||||
| Net loss from continuing operations | — | (21,806 | ) | (254,935 | ) | (37,572 | ) | |||||||||
| Net income from discontinued operation | 385,527 | 378,374 | 318,451 | 46,934 | ||||||||||||
| Net income | 385,527 | 356,568 | 63,516 | 9,362 | ||||||||||||
| Net loss/(income) attributable to non-controlling interests | — | 2,162 | (1,083 | ) | (160 | ) | ||||||||||
| Net income attributable to ordinary shareholders of Here Group Limited | 385,527 | 358,730 | 62,433 | 9,202 | ||||||||||||
| Including | ||||||||||||||||
| Net loss from continuing operations attributable to ordinary shareholders of Here Group Limited | — | (19,641 | ) | (256,006 | ) | (37,730 | ) | |||||||||
| Net income from discontinued operation attributable to ordinary shareholders of Here Group Limited | 385,527 | 378,371 | 318,439 | 46,932 | ||||||||||||
| Net loss from continuing operations per share attributable to ordinary shareholders of the Company - basic | — | (0.12 | ) | (1.59 | ) | (0.23 | ) | |||||||||
| Net income from discontinued operation per share attributable to ordinary shareholders of the Company - basic | 2.34 | 2.35 | 1.97 | 0.29 | ||||||||||||
| Net loss from continuing operations per share attributable to ordinary shareholders of the Company - diluted | — | (0.12 | ) | (1.59 | ) | (0.23 | ) | |||||||||
| Net income from discontinued operation per share attributable to ordinary shareholders of the Company - diluted | 2.34 | 2.35 | 1.97 | 0.29 | ||||||||||||
| Comprehensive income: | ||||||||||||||||
| Net income | 385,527 | 356,568 | 63,516 | 9,362 | ||||||||||||
| Other comprehensive loss | (4,869 | ) | (806 | ) | (4,557 | ) | (672 | ) | ||||||||
| Total comprehensive income | 380,658 | 355,762 | 58,959 | 8,690 | ||||||||||||
| Comprehensive loss/(income) attributable to non-controlling interests | — | 2,162 | (1,083 | ) | (160 | ) | ||||||||||
| Total comprehensive income/(loss) attributable to ordinary shareholders of Here Group Limited | 380,658 | 357,924 | 57,876 | 8,530 | ||||||||||||
| Non-GAAP financial measure(1) | ||||||||||||||||
| Adjusted net loss from continuing operations | — | (19,293 | ) | (93,913 | ) | (13,840 | ) | |||||||||
| (1) | See “—Non-GAAP Financial Measures.” |
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Change in Segment Reporting
For the fiscal year ended June 30, 2024, we identified two operating segments, including learning service and others and consumer business. For the fiscal year ended June 30, 2025, as a result of the acquisition of Shenzhen Letsvan in March 2025, we identified one more operating segment, pop toy business. Subsequent to the disposal of legacy businesses in September 2025, our chief operating decision maker (“CODM”) relies upon the consolidated results of operations as a whole for the only remaining business, being the pop toy business, when making decisions about allocating resources and assessing the performance of the Group. As a result of the assessment made by our CODM, we have determined we have only one reportable segment as defined by ASC 280.
Fiscal year ended June 30, 2026 compared to fiscal year ended June 30, 2025
Fiscal year ended June 30, 2025 continuing operations results reflect only the fourth quarter of fiscal year ended June 30, 2025 because our pop toy business commenced operations in the fourth quarter of fiscal year ended June 30, 2025 following the acquisition of Shenzhen Letsvan by the end of March 2025. The historical results of the legacy businesses are presented as discontinued operation in accordance with ASC 205-20.
Revenues
Our revenues from continuing operations, generated solely from pop toy sales and related activities, were RMB596.8 million (US$88.0 million) for the fiscal year ended June 30, 2026, from RMB65.8 million for the fiscal year ended June 30, 2025. The year-over-year results of continuing operations are not directly comparable as a result of the reason mentioned above.
Cost of revenues
Our cost of revenues from continuing operations, primarily consisting of the cost of pop toy products sold, license fee, costs associate with operating the supply chain, were RMB399.5 million (US$58.9 million) for the fiscal year ended June 30, 2026, from RMB43.0 million for the fiscal year ended June 30, 2025. The year-over-year results of continuing operations are not directly comparable as a result of the reason mentioned above.
Gross profit and gross margin
As a result of the foregoing, our gross profit from continuing operations was RMB197.3 million (US$29.1 million) for the fiscal year ended June 30, 2026, compared to RMB22.8 million for the fiscal year ended June 30, 2025.
Sales and marketing expenses
Our sales and marketing expenses from continuing operations, primarily consisting of advertising and promotional expenditures and employee compensation incurred to enhance product and brand visibility, support customer acquisition, and expand the Company’s market presence, were RMB194.4 million (US$28.6 million) for the fiscal year ended June 30, 2026, compared to RMB19.1 million for the fiscal year ended June 30, 2025. The year-over-year results of continuing operations are not directly comparable as a result of the reason mentioned above.
Research and development expenses
Our research and development expenses from continuing operations, primarily consisting of expenses supporting innovation across the Company’s pop toy portfolio, including the design and development of new products, were RMB44.3 million (US$6.5 million) for the fiscal year ended June 30, 2026, compared to RMB9.0 million for the fiscal year ended June 30, 2025. The year-over-year results of continuing operations are not directly comparable as a result of the reason mentioned above.
General and administrative expenses
Our general and administrative expenses from continuing operations, primarily consisting of costs supporting the Company’s core operational functions, including employee compensation, professional service fees, and other operational expenses, were RMB128.9 million (US$19.0 million) for the fiscal year ended June 30, 2026, compared to RMB19.7 million for the fiscal year ended June 30, 2025. The year-over-year results of continuing operations are not directly comparable as a result of the reason mentioned above.
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Impairment loss on goodwill
Our impairment loss on goodwill related to the acquisition of Shenzhen Letsvan was RMB124.1 million (US$18.3 million) for the fiscal year ended June 30, 2026, primarily reflecting lower-than-anticipated financial performance amid macroeconomic headwinds.
In performing the quantitative impairment test, we used an income approach based on a discounted cash flow model (“DCF model”) and compared the fair value of the reporting unit with its carrying amount, including goodwill. Forecasts of future cash flows are based primarily on the management’s best estimate and management believes forecasted operating cash flows were the best indicator of the fair value of the reporting unit. A number of significant assumptions were involved in the preparation of the DCF models, including future revenues and discount rates. Changes in these forecasts could significantly change the amount of impairment recorded. Therefore, it may be necessary to record further impairment charges to these reporting units in the future, if any changes occur.
Loss from operations
As a result of the foregoing, we recorded loss from operations of RMB25.0 million and RMB294.4 million (US$43.4 million) for the fiscal years ended June 30, 2025 and 2026, respectively.
Interest income
Our interest income from continuing operations was RMB11.3 million (US$1.7 million) for the fiscal year ended June 30, 2026, compared to RMB0.8 million for the fiscal year ended June 30, 2025, primarily due to the recognition of financing income on the newly added long-term consideration receivable from the divestiture.
Others, net
Our others, net from continuing operations were RMB16.6 million (US$2.5 million) for the fiscal year ended June 30, 2026, compared to RMB5.7 million for the fiscal year ended June 30, 2025, primarily driven by the newly added service fee for transition services related to the legacy businesses, partially offset by the increased share of net loss from our equity method investees.
Income tax expense
Our income tax benefits from continuing operations were RMB11.5 million (US$1.7 million) for the fiscal year ended June 30, 2026, compared with income tax expenses from continuing operations of RMB3.4 million for the fiscal year ended June 30, 2025.
Net loss from continuing operations
As a result of the foregoing, we incurred net loss from our continuing operations of RMB21.8 million and RMB254.9 million (US$37.6 million) for the fiscal years ended June 30, 2025 and 2026, respectively.
Net income from discontinued operation
We recorded net income from discontinued operation, net of income tax of RMB378.4 million and RMB318.5 million (US$46.9 million) for the fiscal years ended June 30, 2025 and 2026, respectively.
Net income
As a result of the foregoing, we recorded net income of RMB356.6 million and RMB63.5 million (US$9.4 million) for the fiscal years ended June 30, 2025 and 2026, respectively.
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Fiscal year ended June 30, 2025 compared to fiscal year ended June 30, 2024
We began our pop toy business since the fourth quarter of fiscal year ended June 30, 2025, following the acquisition of Shenzhen Letsvan by the end of March 2025. The operating and financial results for the fiscal years ended June 30, 2025 from the pop toy business reflect only the fourth quarter for this year and there are no comparative data for pop toy business for the year ended June 30, 2024. Most of our operating results for the year ended June 30, 2025 are generated from the legacy businesses, which have been reclassified as discontinued operation in the accompanying consolidated financial statements. For a detailed description of the comparison of our operating results, prior to the divestiture of the establishes business, for the year ended June 30, 2024 to the year ended June 30, 2025, see “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Results of Operations—Fiscal Year Ended June 30, 2025 Compared to Fiscal Year Ended June 30, 2024” of our annual report on Form 20-F filed with the Securities and Exchange Commission on October 31, 2025.
B. Liquidity and Capital Resources
Liquidity and Capital Resources
The following table sets forth a summary of our cash flows for the years indicated.
| For the fiscal year ended June 30, | ||||||||||||||||
| 2024 | 2025 | 2026 | ||||||||||||||
| RMB | RMB | RMB | US$ | |||||||||||||
| (in thousands) | ||||||||||||||||
| Net cash used in operating activities from continuing operations | — | (258,862 | ) | (223,132 | ) | (32,887 | ) | |||||||||
| Net cash provided by operating activities from discontinued operation | 282,720 | 442,748 | 83,706 | 12,337 | ||||||||||||
| Net cash (used in)/provided by investing activities from continuing operations | — | (86,884 | ) | 1,180 | 175 | |||||||||||
| Net cash (used in)/provided by investing activities from discontinued operation | (132,784 | ) | 80,465 | (64,183 | ) | (9,459 | ) | |||||||||
| Net cash used in financing activities from continuing operations | — | (25,574 | ) | (212,501 | ) | (31,319 | ) | |||||||||
| Net cash used in financing activities from discontinued operation | (130,192 | ) | (80,053 | ) | — | — | ||||||||||
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | (3,934 | ) | (707 | ) | (4,190 | ) | (617 | ) | ||||||||
| Net increase/(decrease) in cash and cash equivalents and restricted cash | 15,810 | 71,133 | (419,120 | ) | (61,770 | ) | ||||||||||
| Cash and cash equivalents and restricted cash at the beginning of the period | 764,281 | 780,091 | 851,224 | 125,455 | ||||||||||||
| Cash and cash equivalents and restricted cash at the end of the period | 780,091 | 851,224 | 432,104 | 63,685 | ||||||||||||
| Less: Cash and cash equivalents and restricted cash at the end of the year from discontinued operation | 780,091 | 357,524 | — | — | ||||||||||||
| Cash and cash equivalents and restricted cash at the end of the year from continuing operations | — | 493,700 | 432,104 | 63,685 | ||||||||||||
To date, we have financed our operating and investing activities primarily through net cash generated by operating activities and cash from historical equity financing activities. As of June 30, 2025 and 2026, our cash and cash equivalents and restricted cash were RMB493.7 million and RMB432.1 million (US$63.7 million), respectively. Our cash and cash equivalents primarily consist of cash on hand and deposits which have original maturities of three months or less and are readily convertible to cash. As of June 30, 2025 and 2026, our short-term investments were RMB140.0 million and RMB178.2 million (US$26.3 million), respectively. Short-term investments include wealth management product and equity securities of publicly listed companies.
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We believe that our current cash and cash equivalents, short-term investments, and our anticipated cash flows from operations will be sufficient to meet our anticipated working capital requirements and capital expenditures for at least the next 12 months. In the future, we may decide to enhance our liquidity position or increase our cash reserve for future investments through additional capital injection and financial activities. The issuance and sale of additional equity would result in further dilution to our shareholders. The incurrence of indebtedness would result in increased fixed obligations and could result in operating covenants that would restrict our business operations. We cannot assure you that any financing will be available in amounts or on terms acceptable to us, if at all.
As of June 30, 2026, 95.1%, 1.0%, 0.2%, 3.4%, 0.2% and 0.1% of our cash and cash equivalents and restricted cash were held in mainland China, Hong Kong, the United States, Singapore, Vietnam and Indonesia, respectively. As of June 30, 2026, 92.7%, 6.8%, 0.1%, 0.2% and 0.2% of our cash and cash equivalents and restricted cash were denominated in Renminbi, U.S. dollars, Hong Kong Dollars, Singapore Dollars and Indonesian Rupiah, respectively. As of June 30, 2026, 92.9% and 7.1% of our short-term investments were held in mainland China and Hong Kong, respectively.
We may make additional capital contributions to our WFOEs, establish new PRC subsidiaries and make capital contributions to these new PRC subsidiaries, make loans to our WFOEs, or acquire offshore entities with operations in China in offshore transactions. However, most of these uses are subject to PRC regulations. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—PRC regulation of loans to and direct investment in PRC entities by offshore holding companies and governmental control of currency conversion may delay or prevent us from making loans to or additional capital contributions to our WFOEs, which could materially and adversely affect our liquidity and our ability to fund and expand our business.”
For the fiscal year ended June 30, 2026, the majority of our revenues have been in the form of Renminbi. We expect that the majority of our revenues will continue to be in the form of Renminbi in the near future, except for revenues from international markets via online platforms and third-party distributors. Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments, and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior SAFE approval as long as certain routine procedural requirements are fulfilled. Therefore, our WFOEs are allowed to pay dividends in foreign currencies to us without prior SAFE approval by following certain routine procedural requirements. However, current PRC regulations permit our WFOEs to pay dividends to us only out of its accumulated profits, if any, determined in accordance with Chinese accounting standards and regulations. Our WFOEs are required to set aside at least 10% of its after-tax profits after making up previous years’ accumulated losses each year, if any, to fund certain reserve funds until the total amount set aside reaches 50% of its registered capital. These reserves are not distributable as cash dividends. In the fiscal year ended June 30, 2024 and 2025, Beijing Liangzizhige distributed a portion of its retained earnings of approximate US$5.3 million and US$10.0 million to its holding company in Hong Kong, Witty Digital Technology Limited. Furthermore, capital account transactions, which include foreign direct investment and loans, must be approved by and/or registered with SAFE, its local branches and certain local banks. As a Cayman Islands exempted company and offshore holding company, we are permitted under PRC laws and regulations to provide funding to our WFOEs only through loans or capital contributions, subject to the approval, filings or registration of government authorities and limits on the amount of capital contributions and loans. The PRC government may at its discretion restrict access to foreign currencies for current account transactions or capital account transactions in the future. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in Chin—Restrictions on the remittance of Renminbi into and out of China and governmental control of currency conversion may limit our ability to pay dividends and other obligations, and affect the value of your investment.”
Operating activities
Our net cash used in operating activities from continuing operations for the fiscal year ended June 30, 2026 was RMB223.1 million (US$32.9 million), primarily due to net loss from continuing operations of RMB254.9 million (US$37.6 million), as adjusted primarily by certain non-cash items, including impairment loss on goodwill of RMB124.1 million (US$18.3 million), share-based compensation of RMB37.0 million (US$5.4 million), amortization of intangible assets of RMB11.9 million (US$1.7 million) and deferred income tax benefit of RMB11.4 million (US$1.7 million), and changes working capital that positively affected our operating cash flows, including (1) an increased in accounts payable of RMB39.4 million (US$5.8 million), primarily due to higher purchases of our pop toy products; and (2) a decrease in prepayments and other current assets of RMB23.0 million (US$3.4 million), primarily due to lower receivables from financial institutions’ security accounts and from the ESOP platform relating to share option exercise proceeds (on behalf of employees), partially offset by higher receivables from third-party payment platforms and e-commerce platforms, partially offset by changes in working capital that negatively affected our operating cash flows, including (1) an increase in inventory, net of RMB120.7 million (US$17.8 million), primarily due to the acquisition of our pop toy business in March 2025 and the subsequent expansion of our pop toy operations; (2) a decrease in accrued expenses and other current liabilities of RMB91.5 million (US$13.5 million), primarily due to lower payables to employee-related payables associated with share option exercise proceeds and accrued payroll and welfare benefits; and (3) an increase in operating lease right-of-use assets of RMB22.9 million (US$3.4 million), primarily due to the expansion of our offline store network.
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Our net cash used in operating activities from continuing operations for the fiscal year ended June 30, 2025 was RMB258.9 million, primarily due to net loss of RMB21.8 million, as adjusted primarily by certain non-cash items, including amortization of intangible assets of RMB3.0 million and fair value change of short-term investments of RMB3.3 million, and changes working capital that positively affected our operating cash flows, including (1) a decrease in operating lease right-of-use assets of RMB5.3 million, primarily due to our enhanced expenses management; and (2) an increase in accounts payable of RMB5.1 million, primarily due to increased purchase, partially offset by changes in working capital that negatively affected our operating cash flows, including (1) an increase in prepayments and other current assets of RMB39.7 million, primarily due to lower receivables from financial institutions’ security accounts and from the ESOP platform relating to share option exercise proceeds (on behalf of employees); and (2) an decrease in accrued expenses and other current liabilities of RMB178.1 million, primarily due to a decrease in payables to entities of the legacy businesses.
Our net cash provided by operating activities from continuing operations amounted to nil for the fiscal year ended June 30, 2024.
Investing activities
Our net cash provided by investing activities from continuing operations for the fiscal year ended June 30, 2026 was RMB1.2 million (US$0.2 million), primarily attributable to proceeds from the disposal of the legacy businesses of RMB75.0 million (US$11.1 million), partially offset by net cash outflow from purchase and proceeds from short-term investments of RMB39.4 million (US$5.8 million) and purchase of property and equipment of RMB23.1 million (US$3.4 million).
Our net cash used in investing activities from continuing operations for the fiscal year ended June 30, 2025 was RMB86.9 million, primarily due to cash paid for the business acquisition of Shenzhen Letsvan of RMB20.0 million and net cash outflow from purchase and proceeds from for short-term investments of RMB66.3 million.
Our net cash used in investing activities from continuing operations amounted to nil for the fiscal year ended June 30, 2024.
Financing activities
Our net cash used in financing activities from continuing operations for the fiscal year ended June 30, 2026 was RMB212.5 million (US$31.3 million), primarily due to cash paid for repurchase of the ADSs of RMB77.0 million (US$11.3 million) and cash paid for the acquisition of non-controlling interests of Shenzhen Letsvan of RMB130.0 million (US$19.2 million).
Our net cash used in financing activities from continuing operations for the fiscal year ended June 30, 2025 was RMB25.6 million, primarily due to cash paid for repurchase of the ADSs of RMB16.1 million and cash paid for the acquisition of non-controlling interests of Shenzhen Letsvan of RMB7.9 million.
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Our net cash used in financing activities from continuing operations amounted to nil for the fiscal year ended June 30, 2024.
Material Cash Requirements
Our material cash requirements as of June 30, 2026 and any subsequent interim period primarily include working capital needs, capital expenditures and operating lease obligations.
Capital expenditures
We made capital expenditures of nil, RMB1.9 million and RMB30.5 million (US$4.5 million) for the fiscal years ended June 30, 2024, 2025 and 2026, respectively. Our capital expenditures primarily consist of computers and electronic equipment, office furniture and equipment, leasehold improvements and purchase of intangible assets. We expect to continue to incur similar capital expenditure in the future as we grow our business. We intend to fund our future capital expenditures with our existing cash balance and proceeds. We will continue to make capital expenditures to meet the expected growth of our business.
Contractual obligations
The following table sets forth our operating lease obligations and operating lease commitments as of June 30, 2026.
| For the fiscal year ended June 30, | ||||||||||||||||
| Total | 2027 | 2028 | 2029 | |||||||||||||
| (RMB in thousands) | ||||||||||||||||
| Operating lease payments | 35,976 | 19,384 | 13,482 | 3,110 | ||||||||||||
| Total | 35,976 | 19,384 | 13,482 | 3,110 | ||||||||||||
Other than as shown above, we did not have any material capital and other commitments, long-term obligations, guarantees or other reasonably likely material cash requirements as of June 30, 2026.
Off-Balance Sheet Arrangements
We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties. In addition, we have not entered into any derivative contracts that are indexed to our shares and classified as shareholder’s equity or that are not reflected in our consolidated financial statements. We do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in product development services with us.
C. Research and Development, Patents and Licenses, etc.
See “Item 4. Information on the Company—B. Business Overview—Our IP Development Strategy” and “Item 4. Information on the Company—B. Business Overview—Intellectual Property.”
D. Trend Information
Other than as disclosed elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or events for the fiscal year ended June 30, 2026 that are reasonably likely to have a material adverse effect on our net revenue, income, profitability, liquidity or capital resources, or that caused the disclosed financial information to be not necessarily indicative of future operating results or financial condition.
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E. Critical Accounting Estimates
We prepare our financial statements in accordance with U.S. GAAP, which requires our management to make judgments, estimates and assumptions. We continually evaluate these judgments, estimates and assumptions based on our own historical experience, knowledge and assessment of current business and other conditions, our expectations regarding the future based on available information and various assumptions that we believe to be reasonable, which together form our basis for making judgments about matters that are not readily apparent from other sources. Changes in facts and circumstances may result in revised estimates. Actual results could differ from those estimates, and as such, differences may be material to the consolidated financial statements.
We consider an accounting estimate to be critical if: (1) the accounting estimate requires us to make assumptions about matters that were highly uncertain at the time the accounting estimate was made, and (2) changes in the estimate that are reasonably likely to occur from period to period or use of different estimates that we reasonably could have used in the current period, would have a material impact on our results of operations or financial condition. There are other items within our financial statements that require estimation but are not deemed critical, as defined above. Changes in estimates used in these and other items could have a material impact on our financial statements. For a detailed discussion of our significant accounting policies and related judgments, see note 2 to our consolidated financial statements included elsewhere in this annual report.
Valuation of intangible asset acquired in business combination
We allocate the fair value of purchase consideration to the tangible assets acquired, liabilities assumed, and intangible assets acquired based on their estimated fair values. The excess of the fair value of purchase consideration over the fair value of these identifiable net assets and liabilities is recorded as goodwill. Determining the fair value of the tangible assets acquired, liabilities assumed, and intangible assets require management to make significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible assets include, but are not limited to, annual growth rates of revenue in the projected period and discount rate. While we use our best estimates and judgements, our estimates are inherently uncertain and subject to refinement.
Impairment assessment of goodwill
Goodwill represents the excess of the purchase price over the fair value of the identifiable net assets acquired in a business combination. We assess goodwill for impairment in accordance with ASC Subtopic 350-20, Intangibles—Goodwill and Other: Goodwill (“ASC 350-20”), which requires goodwill to be tested for impairment at the reporting unit level at least annually and more frequently upon the occurrence of certain events, as defined by ASC 350-20. A significant amount of judgment is required in performing impairment tests, including the optional assessment of qualitative factors for the annual impairment test, which is used to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. In the qualitative assessment, we consider primary factors such as, industry and market considerations, overall financial performance of the reporting unit, and other specific information related to the operations. This assessment serves as a basis for determining whether it is necessary to perform a quantitative impairment test.
The quantitative evaluation compares the carrying value of each reporting unit that has goodwill with the estimated fair value of the respective reporting unit. Should the carrying value of a reporting unit be in excess of the estimated fair value of that reporting unit, a goodwill impairment loss will be recognized.
As of June 30, 2026, the gross carrying value of goodwill was RMB187.6 million. Following the divesture of the legacy businesses, we now operate solely in the pop toy business, and management has determined that the entire Group constitutes a single reporting unit. As the actual financial performance of the reporting unit did not meet prior forecasted expectations and unfavorable local market conditions, we performed a quantitative impairment test of goodwill.
In performing the quantitative impairment test, we used an income approach based on a discounted cash flow model (“DCF model”) and compared the fair value of the reporting unit with its carrying amount, including goodwill. A number of significant assumptions were involved in the preparation of the DCF models, including forecasted revenues and discount rates. Based on the results of the quantitative goodwill impairment test, an impairment charge in goodwill arising from the acquisition of Shenzhen Letsvan of RMB124.1 million was recorded in the consolidated statements of operations and comprehensive income for the fiscal year ended June 30, 2026. After recognizing the impairment charge, the remaining balance of goodwill was RMB63.5 million as of June 30, 2026.
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Forecasted revenues. The financial projection was based on the financial budgets approved by our management, which considered the historical performance and its expectation for future market development, such as constructing and maintaining an effective product portfolio and IP portfolio and developing a robust sales channel and implementing effective marketing strategies.
Discount rate. When measuring possible impairment, future cash flows are discounted at a rate that is consistent with a weighted-average cost of capital that we anticipate a potential market participant would use. Weighted-average cost of capital is an estimate of the overall risk-adjusted rate of return expected by equity and debt holders of a business enterprise.
The following table sets out the key assumptions on which management had based its cash flow projections to undertake impairment testing of goodwill:
| As of June 30, 2026 | ||
| Annual growth rate of revenue in the projected period | -25% to 12% | |
| Post-tax discount rate | 17.00% |
Certain future events and circumstances, including deterioration of market conditions, increases in interest rates, and unfavorable impacts to the projections used in the impairment tests for the reporting unit discussed above, including changes in customer behavior, decrease in delivery capability, and delays or difficulties in achieving our profitability goals, could cause a further noncash impairment charge, which could have a material effect on the consolidated statements of operations and comprehensive income and consolidated balance sheets.
When reading our financial statements, you should consider our selection of critical accounting policies, the judgment and other uncertainties affecting the application of such policies and the sensitivity of reported results to changes in conditions and assumptions. Our critical accounting policies and practices include revenue recognition. See “Note 2 — Summary of Significant Accounting Policies” to our financial statements for the disclosure of these accounting policies.
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. Directors and Senior Management
The following table sets forth information regarding our directors and senior management as of the date of this annual report.
| Directors and Executive Officers | Age | Position/Title | ||
| Peng Li | 44 | Chairman of the board, director and chief executive officer | ||
| Huiyu Zhan | 42 | Director and chief product officer | ||
| Frank Lin | 61 | Director | ||
| Dong Xie | 45 | Director, chief financial officer and senior vice president | ||
| Pei Hua (Helen) Wong | 55 | Independent Director | ||
| Hongqiang Zhao | 50 | Independent Director | ||
| Shunyan Zhu | 55 | Independent Director | ||
| Guangqiang Shi | 46 | Senior vice president |
Peng Li is our founder and has served as the chairman of our board of directors and our chief executive officer since our inception. Prior to founding our company, Mr. Li had been the founder and served as the chief executive officer of Beijing Renjuren Network Technology Co., Ltd. from October 2013 to September 2015. Mr. Li was the co-founder and served as the vice president of Qianpin Online Network Technology (Beijing) Co., Ltd. from March 2011 to June 2013. Mr. Li served as the head of commercial operation center of Beijing UCWEB Internet Technology Co., Ltd. from March 2010 to February 2011. Prior to that, he was the strategic cooperation manager of Baidu.com, Inc. (Nasdaq: BIDU; HKEX:9888) from September 2005 to February 2010. From September 2004 to August 2005, Mr. Li served as the marketing manager of Beijing Jingyeda Technology Co., Ltd. (SZSE: 003005) in East China. Mr. Li received his bachelor’s degree in computer science and technology from Hebei Agricultural University in June 2004 and an EMBA degree from Tsinghua University in December 2024.
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Huiyu Zhan has served as our director since August 2025 and chief product officer since October 2025. Mr. Zhan is the founder and chief executive officer and a director of Shenzhen Letsvan. He was a seasoned entrepreneur with profound experience in the consumer sector. Prior to founding Shenzhen Letsvan in 2020, he had been engaged in continuous entrepreneurship in the cultural gifts and pop toy sectors. He had also served at Walmart (Shenzhen), Hong Kong Weiya Group, and among others, with extensive experience in sales and management. He pursued his undergraduate studies at Guanghua College of Changchun University from September 2004 to June 2008, majoring in marketing. He obtained an EMBA degree in Finance at The Chinese University of Hong Kong in July 2025.
Frank Lin has served as our director since May 2022. Mr. Lin is a general partner of DCM Ventures, a technology venture capital firm and one of our principal shareholders. Prior to joining DCM in 2006, Mr. Lin had been the co-founder and the chief operating officer of SINA Corporation (Nasdaq: SINA). He co-founded SINA’s predecessor, SinaNet, in 1995 and later helped guiding SINA through its listing on Nasdaq. Prior to founding SinaNet, Mr. Lin had been a consultant at Ernst & Young Management Consulting Group. Mr. Lin currently serves on the board of directors of numerous DCM portfolio companies, including GigaCloud Technology Inc (Nasdaq: GCT), Tuniu Corporation (Nasdaq: TOUR), Vipshop Holdings Limited (NYSE: VIPS), 51Talk Online Education Group (NYSE: COE) and YSB Inc. (HKEX: 9885). Mr. Lin received his MBA degree from Stanford University in 1993 and his bachelor’s degree in engineering from Dartmouth College in 1988.
Dong Xie has served as our chief financial officer since January 2021, our director since June 2022 and our senior vice president since October 2025. Prior to joining us, Mr. Xie had served as the partner of capital market services at PGAdvisory from March 2020 to December 2020. From January 2019 to March 2020, Mr. Xie served as the chief financial officer at Renmai Technology Group. From September 2014 to December 2018, Mr. Xie served as the chief financial officer and company secretary of Finup Financial Technology Group (Holding) Co., Ltd. From April 2010 to September 2010, Mr. Xie served as a vice president at CCB International (China) Co., Ltd. From November 2007 to March 2010, and from October 2010 to August 2014, Mr. Xie served as the associate director at the merger and acquisition transaction service department of Deloitte China. Mr. Xie is a Chinese Certified Public Accountant, Certified Internal Auditor, Certified Tax Agent and holds the China Legal Professional Qualification. He received his bachelor’s degree in economics and master’s degree in global economics from Nankai University in June 2003 and June 2006, respectively, and he started in September 2021 for the EMBA degree jointly offered by Guanghua School of Management of Peking University and Kellogg School of Management of Northwestern University. He has been acting as an independent director and chairman of the audit committee for China BlueChemical Ltd. (HKEX:3983) since May 2021, independent director and chairman of the audit committee for Duality Biotherapeutics, Inc. (HKEX:9606) since April 2025, independent director for Wuhan Dazhong Dental Medical Co., Ltd. (HKEX:2651) since October 2025.
Pei Hua (Helen) Wong has served as our independent director since January 2023. Ms. Wong is currently the Managing Partner of ACV Capital, a growth equity firm in Singapore. Before that, she had worked as a Partner in Qiming Ventures from 2014 to 2021, focusing on the TMT sector. Ms. Wong was a founding team member of GGV Capital. She was at GGV Capital from 2001 to 2011. She was ranked by Forbes as one of the top 100 venture capitalists in China in 2018, the top 25 Chinese women venture capitalists from 2017 to 2021, and iResearch as the top 26 Chinese consumer venture capitalists in 2021. Forbes also ranked her as one of three Singaporeans among the Top “50 over 50” in Asia Pacific in 2024. Ms. Wong has more than 25 years of experience in the venture capital industry. Some of her successful unicorn exits include Mobike (acquired by Meituan (HKEX:3690), DeDao (audio platform) and Tudou (video sharing). She also led the investment in Akulaku, a fintech unicorn in Southeast Asia. Ms. Wong received her bachelor’s and master’s degrees in Politics, Philosophy and Economics from Oxford University. She also received an MBA from INSEAD in 1999, and an EMBA degree from Cheung Kong GSB in 2010.
Hongqiang Zhao has served as our independent director since January 2023. Mr. Zhao serves as an independent director of Li Auto, Inc. (Nasdaq: LI; HKEX: 2015) since July 2020, GOGOX Holdings Limited (HKEX: 2246) since June 2022, and HUYA Inc. (NYSE: HUYA) since May 2018, respectively. From June 2018 to May 2023, Mr. Zhao served as an executive director and chief financial officer of Bairong Inc. (HKEX:6608). From October 2014 to October 2015, he served as the chief financial officer of NetEase Lede Technology Co., Ltd Beijing Branch. From December 2012 to December 2015, he served as a vice president of finance at SouFun Holdings Limited (now known as Fang Holdings Limited). He served as an assistant Chief Auditor at the Public Company Accounting Oversight Board in 2009. From August 2001 to February 2009, he worked at KPMG LLP in the United States, with the most recent position being manager audit. Mr. Zhao received a bachelor’s degree in accounting from Tsinghua University in 1999 and a master’s degree in accountancy from The George Washington University in 2001.
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Shunyan Zhu has served as our independent director since January 2025. Mr. Zhu has served as an executive director and the chairman of the board of directors of Alibaba Health Information Technology Ltd. (SEHK: 00241, “Alibaba Health”) from March 2020, and he currently serves as the chairman of the nomination committee of the board of directors of Alibaba Health. From March 2020 to November 2023, he served as the chief executive officer of Alibaba Health. Mr. Zhu is a partner of the Alibaba Partnership and was the President of the Innovation Initiatives Segment of the ultimate controlling shareholder of Alibaba Health, Alibaba Group Holding Limited (NYSE: BABA; SEHK: 9988; together with its subsidiaries, “Alibaba Group”). He was a director of Meinian Onehealth Healthcare Holdings Co., Ltd. (SZSE: 2044) from May 2020 to October 2021. Prior to joining Alibaba Group, Mr. Zhu founded Wuhan Xuncai Technology Co., Ltd. in 2003. He joined the founding team of UC Browser in 2007 as senior vice president, and was responsible for the marketing and commercialization of UC Browser. Subsequently, Mr. Zhu had served as (1) the president of Alimama Business Group, a leading big data marketing platform in the PRC operated by Alibaba Group; (2) the president of UC Browser; and (3) the president of the Intelligent Information Business Group. Mr. Zhu obtained a Bachelor of Science degree in mathematics in 1993 from Yanshan University in the PRC. He obtained a master’s degree in computing software in 1996 from Huazhong University of Science and Technology in the PRC.
Guangqiang Shi acted as our senior vice president from June 2024. Prior to joining us, Mr. Shi served as Assistant to the Chairman of 360 Security Technology Inc. and concurrently held the position of General Manager of the Beijing company at 360 Security Technology Inc. (SHSE: 601360) from August 2019 to June 2024. From July 2017 to August 2019, he served as director of public affairs at Blibee Trading Co., Ltd. From July 2002 to July 2017, Mr. Shi held various positions in local government departments and central state organs, focusing on policy research and government liaison. Mr. Shi received his bachelor’s degree in economics in July 2002 and his master’s degree in public administration in June 2014, both from Renmin University of China. He commenced doctoral studies in business administration at the School of Business, Renmin University of China, in September 2024.
The business address of our directors and executive officers is Room 3008, 30/F, Two Exchange Square, 8 Connaught Place Central, Hong Kong. No family relationship exists between any of our directors and executive officers.
B. Compensation
Compensation of Directors and Executive Officers
In the fiscal year ended June 30, 2026, the aggregate cash compensation to directors and executive officers was approximately RMB15.3 million (US$2.3 million). This amount consisted only of cash and did not include any share-based compensation or benefits in kind. Each of our directors and officers is entitled to reimbursement for all necessary and reasonable expenses properly incurred in the course of employment or service. Our directors and officers participate in our share incentive plan. See “—Share Incentive Plans.” We do not pay or set aside any amounts for pension, retirement or other benefits for our directors and officers, except our contributions on behalf of our officers located in China to a government-mandated multi-employer defined contribution plan.
Share Incentive Plans
The 2018 Plan
In May 2022, our board of directors approved and adopted our 2018 share incentive plan (the “2018 Plan”). The 2018 Plan is intended to promote our success and shareholder value by attracting, motivating and retaining selected employees and other eligible participants through the awards.
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The following paragraphs summarize the principal terms of the 2018 Plan.
Types of awards. The 2018 Plan permits the award of (1) options and share appreciation rights and (2) restricted or unrestricted shares.
Eligibility. The 2018 Plan provides for the grant of awards to, among others, officers or employees, directors or consultants of our company, or employees, directors or consultants of our related entities, such as a subsidiary corporation.
Administration. Subject to the terms of the 2018 Plan, the 2018 Plan will be administered by our board of directors, or one or more committees as appointed by our board of directors, comprising at least one member of the board of directors.
Award agreements. Awards granted under the 2018 Plan are evidenced by an award agreement that sets forth terms, conditions and limitations for each award, which may include the terms, provisions and restrictions of the award.
Vesting schedule and price. In general, the plan administrator determines the vesting schedule, which is specified in the relevant award agreement. The plan administrator will have sole discretion in approving and amending the terms and conditions of awards including, among others, exercise, base or purchase prices, the types, number and rights of shares granted, vesting and exercise schedules and acceleration provisions, as applicable, which are stated in the award agreement.
Compliance with law. An award may not be exercised nor may any shares be issued thereunder unless the exercise and issuance complies with all applicable laws.
Transferability. An award may not be transferred, except provided in the 2018 Plan, such as transfers by will or by laws of descent or distribution, or as provided in the relevant award agreement or otherwise determined by the plan administrator.
Changes to capitalization. In the event of share splits, combinations, exchanges and other specified changes in our capital structure not involving the receipt of consideration by us, the 2018 Plan provides for the proportional adjustment of the number and class of shares reserved under the 2018 Plan and the number, class and price of shares, if applicable, of all outstanding awards.
Change in control events. In the event of a change in control, the administrator may make provision for a cash payment in settlement of, or for the assumption, substitution or exchange of any or all outstanding awards. Each outstanding Award (whether or not vested and/or exercisable) shall terminate, subject to any provision that has been expressly made by the administrator for the survival, substitution, assumption, exchange or other continuation or settlement.
Amendment and termination. The 2018 Plan has a term of ten years commencing from the date of the board approval, unless terminated earlier in accordance with its terms. Our board of directors has the authority to terminate, amend or modify the 2018 Plan. However, no amendment, suspension or termination of the 2018 Plan may, without written consent of the participant, in any manner materially and adversely affect the participant’s rights and benefits of such award granted to a participant prior to the relevant change.
The 2021 Plan
In May 2022, our board of directors approved and adopted our 2021 global share plan (the “2021 Plan”). The 2021 Plan is intended to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to selected eligible participants and promote our business success through the awards.
The following paragraphs summarize the principal terms of the 2021 Plan.
Types of awards. The 2021 Plan permits the award of options and share purchase rights.
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Eligibility. The 2021 Plan provides for the grant of awards to, among others, officers or employees, directors or consultants of our company, or employees, directors or consultants of our related entities, such as a subsidiary corporation.
Administration. Subject to the terms of the 2021 Plan, the 2021 Plan will be administered by our board of directors, or one or more committees as appointed by our board of directors, comprising at least one member of the board of directors.
Terms and conditions of options. Options granted under the 2021 Plan are evidenced by an award agreement that sets forth terms and conditions for the options, such as the number of shares and types and term of options, exercise price and certain provisions applicable in the event that the grantee’s employment or service terminates. In general, the plan administrator determines such terms and conditions in their sole discretion, which are stated in the award agreement.
Terms and conditions of share purchase rights. Share purchase rights granted under the 2021 Plan are evidenced by an award agreement that sets forth terms and conditions for the share purchase rights, such as the duration of offer of shares and the purchase price. In general, the plan administrator determines such terms and conditions in their sole discretion, which are stated in the award agreement.
Compliance with law. An award may not be exercised nor may any shares be issued thereunder unless the exercise and issuance complies with all applicable laws.
Transferability. An award may not be transferred, except provided in the 2021 Plan, such as transfers by will or by laws of descent or distribution, or as provided in the relevant award agreement or otherwise determined by the plan administrator.
Changes to capitalization. In the event of dividend or other distribution, recapitalization, share split reorganization and other specified changes in our corporate structure, the 2021 Plan provides for the adjustment of the number and class of shares that may be delivered under the 2021 Plan and/or the number, class, and price of shares covered by each outstanding award.
Change in control events. In the event of a change in control, each outstanding award, and, if applicable, each right of us to repurchase or redeem restricted shares acquired will be assumed or an equivalent award substituted by the successor corporation.
Amendment and termination. The 2021 Plan has a term of ten years commencing from the date of the board approval, unless terminated earlier in accordance with its terms. Our board of directors has the authority to terminate, amend or modify the 2021 Plan. However, without written agreement between the participant and the administrator, no amendment, alteration, suspension, or termination of the 2021 Plan shall materially and adversely impair the rights of any participant with respect to an outstanding award.
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As of October 21, 2026, there had been no options granted to our directors and executive officers under the 2018 Plan. The following table summarizes, as of October 21, 2026, the number of ordinary shares under outstanding options that we had granted to our directors and executive officers under the 2021 Plan:
| Name | Ordinary Shares Underlying Options | Exercise Price (US$/Share) | Date of Grant | Date of Expiration | ||||||||||||
| Peng Li | — | — | — | — | ||||||||||||
| Huiyu Zhan | — | — | — | — | ||||||||||||
| Frank Lin | — | — | — | — | ||||||||||||
| Dong Xie | 2,360,000 | US$0.1— US$0.4 | April 1, 2021— June 21, 2024 | March 31, 2031— June 20, 2034 | ||||||||||||
| Pei Hua (Helen) Wong | * | US$0.4 | December 28, 2023 | December 27, 2033 | ||||||||||||
| Hongqiang Zhao | * | US$0.4 | December 28, 2023 | December 27, 2033 | ||||||||||||
| Shunyan Zhu | * | US$0.4 | March 21, 2025 | March 20, 2035 | ||||||||||||
| Guangqiang Shi | * | US$0.4 | June 21, 2024 | June 20, 2034 | ||||||||||||
| All directors and executive officers as a group | 3,050,000 | N/A | N/A | N/A | ||||||||||||
| * | Less than 1% of our total outstanding ordinary share on an as-converted basis. |
As of the date of this annual report, the maximum aggregate number of ordinary shares which may be issued pursuant to all awards under the 2018 Plan and the 2021 Plan is 38,240,745 Class A ordinary shares. As of October 21, 2026, options to purchase a total of 18,922,459 Class A ordinary shares under the 2021 Plan had been granted and outstanding, and 13,797,510 of such options had been exercised. As of October 21, 2026, there had been no options granted under the 2018 Plan. As of October 21, 2026, grantees other than our directors and executive officers above, as a group, held options to purchase an aggregate of 15,872,459 Class A ordinary shares, with exercise prices ranging from US$0.0005 per share to US$1.66 per share.
C. Board Practices
Board of Directors
Our board of directors consists of seven directors. A director is not required to hold any shares in our company to qualify to serve as a director. A director may vote with respect to any contract or transaction, proposed contract or transaction notwithstanding that he may be interested therein, and if he does so his vote shall be counted and he may be counted in the quorum at any meeting of our directors at which any such contract or transaction or proposed contract or transaction is considered, provided (1) such director, has declared the nature of his interest at the earliest meeting of the board at which it is practicable for him to do so, either specifically or by way of a general notice and (2) if such contract or transaction or proposed contract or transaction is a transaction with a related party, such transaction has been approved by the audit committee. Our directors may exercise all the powers of the company to borrow money, and to mortgage or charge its undertaking, property and assets (present and future) and uncalled capital or any part thereof, to issue debentures, debenture stock and other securities, whether outright or as collateral security for any debt, liability or obligation of the company or of any third party.
Committees of the Board of Directors
We have established three committees under the board of directors, including an audit committee, a compensation committee and a nominating and corporate governance committee. We have adopted a charter for each of the three committees. Each committee’s members and functions are described below.
Audit Committee. Our audit committee consists of Mr. Hongqiang Zhao, Ms. Pei Hua (Helen) Wong and Mr. Shunyan Zhu. Mr. Hongqiang Zhao is the chairman of our audit committee. We have determined that each of Mr. Hongqiang Zhao, Ms. Pei Hua (Helen) Wong and Mr. Shunyan Zhu satisfies the “independence” requirements of the Rule 5605(c)(2) of the Nasdaq Stock Market Listing Rules and meets the independence standards under Rule 10A-3 under the Exchange Act. Our board of directors has also determined that Mr. Hongqiang Zhao qualifies as an “audit committee financial expert” within the meaning of the SEC rules and possesses financial sophistication within the meaning of the Nasdaq Stock Market Listing Rules.
The audit committee oversees our accounting and financial reporting processes and the audits of our financial statements. The audit committee will be responsible for, among other things:
| ● | selecting our independent registered public accounting firm and pre-approving all auditing and non-auditing services performed by our independent registered public accounting firm; |
| ● | reviewing with the independent registered public accounting firm any audit problems or difficulties and management’s response; |
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| ● | reviewing and approving all proposed related-party transactions, as defined in Item 404 of Regulation S-K under the Securities Act; |
| ● | discussing the annual audited financial statements with management and our independent registered public accounting firm; |
| ● | reviewing major issues as to the adequacy of our internal controls and any special audit steps adopted in light of material control deficiencies; |
| ● | annually reviewing and reassessing the adequacy of our audit committee charter; |
| ● | meeting separately and periodically with management and our independent registered public accounting firms; |
| ● | monitoring compliance with our code of business conduct and ethics, including reviewing the adequacy and effectiveness of our procedures to ensure proper compliance; and |
| ● | reporting regularly to the board of directors. |
Compensation Committee. Our compensation committee consists of Mr. Peng Li, Ms. Pei Hua (Helen) Wong and Mr. Hongqiang Zhao. Mr. Peng Li is the chairman of our compensation committee. We have determined that each of Ms. Pei Hua (Helen) Wong and Mr. Hongqiang Zhao satisfies the “independence” requirements of Rule 5605(a)(2) of the Nasdaq Stock Market Listing Rules. As a foreign private issuer, we have elected not to have our compensation committee consist of entirely independent directors.
The compensation committee assists the board in reviewing and approving the compensation structure, including all forms of compensation, relating to our directors and executive officers. Our chief executive officer may not be present at any committee meeting during which his compensation is deliberated.
The compensation committee is responsible for, among other things:
| ● | reviewing and approving, or recommending to the board for its approval, the compensation for our chief executive officer and other executive officers; |
| ● | reviewing and recommending to the board for determination with respect to the compensation of our non-employee directors; |
| ● | reviewing periodically and approving any incentive compensation or equity plans, programs or similar arrangements, annual bonuses, employee pension and welfare benefit plans; and |
| ● | selecting compensation consultant, legal counsel or other adviser only after taking into consideration all factors relevant to that person’s independence from management. |
Nominating and Corporate Governance Committee. Our nominating and corporate governance committee consists of Mr. Peng Li, Ms. Pei Hua (Helen) Wong and Mr. Hongqiang Zhao. Mr. Peng Li is the chairman of our nominating and corporate governance committee. We have determined that each of Ms. Pei Hua (Helen) Wong and Mr. Hongqiang Zhao satisfies the “independence” requirements of Rule 5605(a)(2) of the Nasdaq Stock Market Listing Rules. As a foreign private issuer, we have elected not to have our nominating and corporate governance committee consist of entirely independent directors.
The nominating and corporate governance committee assists the board of directors in selecting directors and in determining the composition of our board and board committees. The nominating and corporate governance committee is responsible for, among other things:
| ● | identifying and recommending nominees for election or re-election to our board of directors, or for appointment to fill any vacancy; |
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| ● | reviewing annually with our board of directors its composition in light of the characteristics of independence, age, skills, experience and availability of service to us; |
| ● | selecting and recommending to the board the names of directors to serve as members of the audit committee and the compensation committee, as well as of the nominating and corporate governance committee itself; |
| ● | developing and reviewing the corporate governance principles adopted by the board and advising the board with respect to significant developments in the law and practice of corporate governance and our compliance with such laws and practices; and |
| ● | evaluating the performance and effectiveness of the board as a whole. |
Terms of Directors and Officers
Our directors may be appointed by a resolution of our board of directors, or by an ordinary resolution of our shareholders, pursuant to our third amended and restated memorandum and articles of association of our company. An appointment of a Director may be on terms that the Director shall automatically retire from office (unless he has sooner vacated office) at the next or a subsequent annual general meeting or upon any specified event or after any specified period in a written agreement between our company and the Director, if any; but no such term shall be implied in the absence of express provision. Unless expressly provided, our directors are not subject to a term of office and hold office until such time as they are removed from office by ordinary resolution of the shareholders. In addition, a director will cease to be a director if, among other things, the director (1) becomes bankrupt or makes any arrangement or composition with his creditors; (2) dies or is found by our company to be or becomes of unsound mind; (3) resigns his office by notice in writing to the company; (4) without special leave of absence from our board, is absent from three consecutive board meetings and our board of directors resolve that his office be vacated; or (5) is removed from office pursuant to any other provision of our third amended and restated memorandum and articles of association. Our officers are elected by and serve at the discretion of the board of directors.
Duties of Directors
Under Cayman Islands law, our directors owe to us fiduciary duties, including a duty of loyalty, a duty to act honestly and a duty to act in what they consider in good faith to be in our best interests. Our directors must also exercise their powers only for a proper purpose. Our directors also have a duty to exercise the skill they actually possess and such care and diligence that a reasonably prudent person would exercise in comparable circumstances. It was previously considered that a director need not exhibit in the performance of his duties a greater degree of skill than what may reasonably be expected from a person of his knowledge and experience. However, English and Commonwealth courts have moved towards an objective standard with regard to the required skill and care, and these authorities are likely to be followed in the Cayman Islands. In fulfilling their duty of care to us, our directors must ensure compliance with our memorandum and articles of association, as amended and restated from time to time. Our company may have the right to seek damages if a duty owed by our directors is breached. A shareholder may in certain limited exceptional circumstances have the right to seek damages in our name if a duty owed by our directors is breached.
Our board of directors has all the powers necessary for managing, and for directing and supervising, our business affairs. The functions and powers of our board of directors include, among others:
| ● | convening shareholders’ annual general meetings and reporting its work to shareholders at such meetings; |
| ● | declaring dividends and distributions; |
| ● | appointing officers and determining the term of office of officers; |
| ● | exercising the borrowing powers of our company and mortgaging the property of our company; and |
| ● | approving the transfer of shares of our company, including the registering of such shares in our share register. |
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Employment Agreements
We have entered into employment agreements with our executive officers. Each of our executive officers is employed for a specified time period, which will be automatically extended for successive one-year terms unless either party gives the other party a prior written notice to terminate employment. We may terminate the employment for cause, at any time, without advance notice or remuneration, for certain acts of the executive officer, including conviction or pleading of guilty to a felony, fraud, misappropriation or embezzlement, negligent or dishonest act to our detriment, misconduct or failure to perform his or her duty, disability, or death. An executive officer may terminate his or her employment at any time with a one-month prior written notice if there is a material and substantial reduction in such executive officer’s existing authority and responsibilities or at any time if the termination is approved by our board of directors.
Each executive officer agrees to hold, both during and after the employment agreement expires or is earlier terminated, in strict confidence and not to use, except for our benefit, any confidential information. Each executive officer also agrees to assign to us all his or her all inventions, improvements, designs, original works of authorship, formulas, processes, compositions of matter, computer software programs, databases, mask works and trade secrets.
Each executive officer agrees that, during his or her term of employment and for a period of one-year after terminating employment with us, such executive officer will not, without our prior written consent, (1) approach our suppliers, clients, customers or contacts or other persons or entities introduced to the executive officer in his or her capacity as a representative of us for the purpose of doing business with such persons or entities that will harm our business relationships with these persons or entities; (2) assume employment with or provide services to any of our competitors, or engage, whether as principal, partner, licensor or otherwise, any of our competitors, without our express consent; or (3) seek directly or indirectly, to solicit the services of, or hire or engage any of our employees who is employed by us on or after the date of the executive officer’s termination, or in the year preceding such termination, without our express consent.
Indemnification Agreements
We have entered into indemnification agreements with each of our directors and executive officers. Under these agreements, we agree to indemnify our directors and executive officers against all liabilities and expenses incurred by such persons in connection with claims made by reason of their being a director or officer of our company to the fullest extent permitted by law with certain limited exceptions.
D. Employees
As of June 30, 2025 and 2026, we had 714 and 368 full-time employees, respectively. The following table sets forth the numbers of our full-time employees by functions as of June 30, 2026.
| As of June 30, 2026 | ||||||||
| Function: | Number | % of total | ||||||
| Product development and supply chain | 122 | 33.2 | % | |||||
| Sales and marketing | 193 | 52.4 | % | |||||
| Administration | 53 | 14.4 | % | |||||
| Total | 368 | 100.0 | % | |||||
We enter into employment contracts with our full-time employees which contain standard confidentiality provisions. We also enter into separate non-compete agreement with certain employees. In addition to base salaries and benefits, we provide performance-based bonuses for our full-time employees and commission-based compensation for our sales and marketing force.
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As required by regulations in China, we participate in various employee social security plans that are organized by municipal and provincial governments for our PRC-based employees, including pension, unemployment insurance, maternity insurance, work-related injury insurance, medical insurance, and housing fund. We are required under PRC laws to make contributions to employee benefit plans for our employees at specified rates.
We have not experienced material labor disputes with our employees in the past. None of our employees is represented by labor unions.
E. Share Ownership
The following table sets forth information concerning the beneficial ownership of our ordinary shares as of October 21, 2026 by:
| ● | each of our directors and executive officers; and |
| ● | each person known to us to beneficially own 5.0% or more of our ordinary shares. |
The calculation in the table below is based on 156,594,292 ordinary shares outstanding as of October 21, 2026, including 106,735,243 Class A ordinary shares and 49,859,049 Class B ordinary shares. Our issued and outstanding ordinary shares do not include treasury ADSs.
Beneficial ownership is determined in accordance with the rules and regulations of the SEC. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, we have included shares that the person has the right to acquire within 60 days, including through the exercise of any option, warrant, or other right or the conversion of any other security. These shares, however, are not included in the computation of the percentage ownership of any other person.
See “—B. Compensation” for more details on options and restricted shares granted to our directors and executive officers.
| Class A ordinary shares | Class B ordinary shares | % of beneficial ownership† | % of aggregate voting power†† | |||||||||||||
| Directors and Executive Officers††† | ||||||||||||||||
| Peng Li(1) | — | 49,859,049 | 31.8 | 82.4 | ||||||||||||
| Huiyu Zhan(2) | 14,775,786 | — | 8.6 | * | ||||||||||||
| Frank Lin(3) | 24,370,089 | — | 15.6 | 4.0 | ||||||||||||
| Dong Xie | 2,361,074 | — | 1.5 | * | ||||||||||||
| Pei Hua (Helen) Wong | * | — | * | * | ||||||||||||
| Shunyan Zhu | * | — | * | * | ||||||||||||
| Hongqiang Zhao | * | — | * | * | ||||||||||||
| Guangqiang Shi | * | — | * | * | ||||||||||||
| Directors and executive officers as a group | 42,178,332 | 49,859,049 | 58.0 | 86.7 | ||||||||||||
| Principal Shareholders: | ||||||||||||||||
| Even Par Holding Limited(1) | — | 49,859,049 | 31.8 | 82.4 | ||||||||||||
| K2 Entities(4) | 23,170,342 | — | 14.8 | 3.8 | ||||||||||||
| DCM Entities(3) | 24,370,089 | — | 15.6 | 4.0 | ||||||||||||
| Huiyu Zhan(2) | 14,775,786 | — | 8.6 | * | ||||||||||||
| * | Represents less than 1% of our total outstanding shares as of October 21, 2026. |
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| † | For each person and group included in this column, percentage ownership is calculated by dividing the number of shares beneficially owned by such person or group by the sum of the total number of shares outstanding and the number of shares such person or group has the right to acquire upon exercise of option, warrant or other right within 60 days after October 21, 2026. |
| †† | For each person or group included in this column, percentage of total voting power represents voting power based on both Class A and Class B ordinary shares held by such person or group with respect to all outstanding shares of our Class A and Class B ordinary shares as a single class. As of the date of this annual report, holder of each of our Class A ordinary shares is entitled to one vote per share and holder of each of our Class B ordinary shares is entitled to ten votes. Our Class B ordinary shares are convertible at any time by the holder into Class A ordinary shares on a one-for-one basis, while Class A ordinary shares are not convertible into Class B ordinary shares under any circumstances. |
| ††† | Except as indicated otherwise below, the business address of our directors and executive officers is Room 3008, 30/F, Two Exchange Square, 8 Connaught Place Central, Hong Kong. |
| (1) | Represents 49,859,049 Class B ordinary shares held by Even Par Holding Limited, a company incorporated in the British Virgin Islands. Even Par Holding Limited is controlled by NICE PAR TRUST, a trust established under a trust deed between Mr. Peng Li as settlor and Vistra Trust (Singapore) Pte. Limited as trustee. Mr. Peng Li and his family members are beneficiaries of NICE PAR TRUST. Under the terms of the trust deed of this trust, Mr. Peng Li has the power to direct the trustee with respect to the retention or disposal of, and the exercise of any voting and other rights attached to, the shares held by Even Par Holdings Limited in Here Group Limited. Mr. Peng Li is the sole director of Even Par Holdings Limited. The registered address of Even Par Holdings Limited is at the offices of Sertus Chambers, P.O. Box 905, Quastisky Building, Road Town, Tortola, British Virgin Islands. |
| (2) | Represents (i) 200,322 Class A ordinary shares held by Mr. Zhan in the form of the ADSs; and (ii) 14,575,464 Class A ordinary shares that Mr. Zhan, through a British Virgin Islands entity controlled by him, had the right to purchase within 60 days as stock consideration for acquisition of certain of his interests in Shenzhen Letsvan. For details, see “Item 4. Information on the Company—A. History and Development of the Company—Corporate restructuring after the IPO—Shenzhen Letsvan Investment.” |
| (3) | Represents (i) 22,007,410 Class A ordinary shares held by DCM Ventures China Fund (DCM VIII), L.P. (of which 1,327,008 Class A ordinary shares were held in the form of the ADSs), an exempted limited partnership organized under the laws of the Cayman Islands; (ii) 1,820,446 Class A ordinary shares held by DCM VIII, L.P. (of which 109,770 Class A ordinary shares were held in the form of the ADSs), an exempted limited partnership organized under the laws of the Cayman Islands; and (iii) 542,233 Class A ordinary shares held by DCM Affiliates Fund VIII, L.P. (of which 32,694 Class A ordinary shares were held in the form of the ADSs), an exempted limited partnership organized under the laws of the Cayman Islands. The general partner of each of these DCM entities is DCM Investment Management VIII, L.P., the general partner of which is DCM International VIII, Ltd., which is ultimately controlled by Andre G. Levi and Frank Lin, a director of our company, and each may be deemed to share voting and dispositive power over the shares held by the DCM entities. Each of the foregoing persons disclaims beneficial ownership of shares held by the DCM entities, except to the extent of any pecuniary interest therein. The registered address of the DCM entities is P.O. Box 268, Floor 4 Willow House, Cricket Square, Grand Cayman KY1-1104, Cayman Islands. |
| (4) | Represents (i) 3,181,242 Class A ordinary shares held by K2 EVERGREEN PARTNERS LIMITED (of which 706,242 Class A ordinary shares were held in the form of the ADSs), a company incorporated in Hong Kong, which is wholly-owned by K2 Evergreen Partners L.P., the general partner of which is K2 Evergreen Partners LLC; (ii) 5,035,586 Class A ordinary shares held by K2 FAMILY PARTNERS LIMITED (of which 1,117,911 Class A ordinary shares were held in the form of the ADSs), a company incorporated in Hong Kong, which is wholly-owned by K2 Family Partners L.P., and the general partner of K2 Family Partners L.P. is K2 Family Partners GP, L.P., the general partner of which is K2 Family Partners GP, LLC; and (iii) 14,953,514 Class A ordinary shares held by K2 PARTNERS III LIMITED (of which 3,200,490 Class A ordinary shares were held in the form of the ADSs), a company incorporated in Hong Kong, which is wholly-owned by K2 Partners III L.P., the general partner of K2 Partners III L.P. is K2 Partners III GP, L.P., the general partner of which is K2 Partners III GP, LLC. KPartners Limited holds (i) 80% equity and voting power of K2 Evergreen Partners LLC; (ii) 66% equity and voting power of K2 Family Partners GP, LLC; and (iii) 66% equity and voting power of K2 Partners III GP, LLC. The registered address of the K2 entities is Room C, 20/F, Lucky Plaza, 315-321 Lockhart Road, Wanchai, Hong Kong. |
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On June 9, 2023, our board of directors authorized a share repurchase program (the “2023 Share Repurchase Program”), under which we may repurchase up to US$20.0 million of the ADSs over the 12 months commencing on June 9, 2023. Pursuant to the 2023 Share Repurchase Program, a total of 3,099,477 ADSs representing 9,298,431 Class A ordinary Shares were repurchased for an aggregate consideration of US$13.2 million from June 9, 2023 to June 8, 2024.
On June 11, 2024, our board of directors authorized a share repurchase program (the “2024 Share Repurchase Program”), under which we may repurchase up to US$20.0 million of the ADSs over the 12 months commencing on June 11, 2024. Pursuant to the 2024 Share Repurchase Program, a total of 1,661,232 ADSs representing 4,983,696 Class A ordinary Shares were repurchased for an aggregate consideration of US$3.6 million from June 11, 2024 to June 10, 2025.
On June 6, 2025, our board of directors authorized a share repurchase program (the “2025 Share Repurchase Program”), under which we may repurchase up to US$20.0 million of the ADSs for a purchase period beginning from June 11, 2025 and ending on June 30, 2026. Pursuant to the 2025 Share Repurchase Program, a total of 2,431,785 ADSs representing 7,295,355 Class A ordinary Shares had been repurchased for an aggregate consideration of US$13.1 million under the 2025 Share Repurchase Program.
On June 5, 2026, our board of directors authorized a share repurchase program (the “2026 Share Repurchase Program”), under which we may repurchase up to US$20.0 million of the ADSs for a purchase period beginning from July 1, 2026 and ending on June 30, 2027. As of October 21, 2026, a total of 414,728 ADSs representing 1,244,184 Class A ordinary Shares had been repurchased for an aggregate consideration of US$0.8 million under the 2026 Share Repurchase Program.
To the best of our knowledge, as of October 21, 2026, a total of 65,688,927 outstanding Class A ordinary shares were held by one record holder in the United States, which is Citibank N.A., the depositary of our ADS program, representing 41.9% of our total outstanding shares. None of our outstanding Class B ordinary shares is held by record holders in the United States. We are not aware of any arrangement that may, at a subsequent date, result in a change of control of our company.
F. Disclosure of a Registrant’s Action to Recover Erroneously Awarded Compensation
Not applicable.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A. Major Shareholders
See “Item 6. Directors, Senior Management and Employees—E. Share Ownership.”
B. Related Party Transactions
Contractual Arrangements with the VIEs and Its Shareholder
See “Item 4. Information on the Company—C. Organizational Structure—Our Historical Contractual Arrangements.”
Related Parties Transactions
In the fiscal years ended June 30, 2024, 2025 and 2026, we entered into certain material related party transactions as set forth below.
Sale of pop toy products and e-commerce platform operation services and other services to Yuhuatongxing. We sell pop toy products and provide e-commerce platform operation services and other services to Yuhuatongxing (Beijing) Cultural Development Co., Ltd. (“Yuhuatongxing”). For the fiscal years ended June 30, 2025 and 2026, we recorded revenues of RMB1.5 million and RMB29.3 million (US$4.3 million) for the foresaid transactions. As of June 30, 2025 and 2026, the amounts due from Yuhuatongxing in relation to the aforementioned revenues were RMB1.4 million and RMB8.9 million (US$1.3 million), respectively.
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Brand and product promotion services and IP license granted from Yuhuatongxing. Yuhuatongxing provided brand and product promotion services and granted IP license to us. For the fiscal years ended June 30, 2025 and 2026, we recorded operation costs and expenses of RMB2.5 million and RMB19.8 million (US$2.9 million) for the foresaid transactions. As of June 30, 2025 and 2026, the amounts due to Yuhuatongxing were RMB2.6 million and RMB17.6 million (US$2.6 million), respectively, including RMB2.6 million and RMB8.6 million (US$1.3 million) in relation to aforementioned costs and expenses. In addition, advances made on behalf of Yuhuatongxing, which have been fully settled, amounted to RMB1.8 million during the fiscal year ended June 30, 2026.
Acquisition of non-controlling equity interests. In late June 2025, we acquired part of the equity interests of Shenzhen Letsvan from Shenzhen Haoduoxiaohuoban Venture Capital Service Partnership (Limited Partnership) (“Haoduoxiaohuoban”) with a total consideration of RMB3.5 million (US$0.5 million). For the fiscal year ended June 30, 2025, a total of RMB2.8 million (US$0.4 million) was paid to Haoduoxiaohuoban. As of June 30, 2025, the outstanding balance to Haoduoxiaohuoban in connection with the acquisition of equity interests of Shenzhen Letsvan was RMB0.7 million (US$0.1 million), which was fully settled in July 2025. In July 2025, in order to acquire the remaining equity interests of Shenzhen Letsvan, we acquired more certain of the equity interests from certain related parties (including certain employees and an equity method investee) for a total consideration of RMB44.5 million (US$6.6 million), all of which was settled as of June 30, 2026. In addition, in connection with the acquisition of non-controlling interests in Shenzhen Letsvan during the fiscal year ended June 30, 2026, we recorded a loan of RMB17.3 million (US$2.5 million) to Mr. Huiyu Zhan, the founder of Shenzhen Letsvan and one of our current directors and chief product officer, which remained outstanding as of June 30, 2026.
Distribution from Equity Method Investee. For the fiscal year ended June 30, 2026, we received a distribution of RMB7.3 million (US$1.1 million) from Nanjing Shangdehehua Equity Investment Partnership (Limited Partnership), one of our equity method investees.
On September 24, 2026, we entered into a share transfer agreement with the controlling shareholder of Yuhuatongxing, which then held 53.45% of Yuhuatongxing’s equity interests. Pursuant to the agreement, we transferred our entire 46.55% equity interest in Yuhuatongxing for a consideration of RMB4.0 million. Upon completion of this transaction, Yuhuatongxing ceased to be our related party.
Shareholders Agreement
We entered into a shareholders agreement (as amended) with our shareholders on December 20, 2022. The shareholders agreements provide for certain shareholders’ rights, including information and inspection rights, preemptive rights, right of first refusal and co-sale rights, director nomination rights and provisions governing corporate governance matters. The special rights as well as the corporate governance provisions terminated automatically upon the completion of our initial public offering, except for the registration rights as set forth below.
Registration rights
We have granted certain registration rights to our shareholders. Set forth below is a description of the registration rights granted under the shareholders agreement.
Demand registration rights. At any time after the earlier of (1) the fourth anniversary of May 31, 2022, or (2) six months following the taking effect of a registration statement for a qualified initial public offering, if holders of at least 25% of the registrable securities then outstanding demand in writing that we file a registration statement under the Securities Act covering the registration of at least 20% (or any lesser percentage if the anticipated gross proceeds to our company from such proposed offering would exceed US$5,000,000) of the registrable securities then outstanding, we shall warrant such request, subject to certain terms and conditions. We have the right to defer filing of a registration statement for a period of not more than 90 days after the receipt of the request of the initiating holders if we furnish to the holders requesting registration a certificate signed by our chief executive officer stating that in the good faith judgment of our board of directors, it would be materially detrimental to us and our shareholders for such registration statement to be filed at such time. However, we cannot exercise the deferral right more than once in any 12 month period and shall not register any other of our shares during such period. We are obligated to effect no more than two demand registrations, other than demand registration to be effected pursuant to registration statement on Form F-3, for which an unlimited number of demand registrations shall be permitted.
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Piggyback registration rights. If we propose to register for our own account any of our equity securities, in connection with the public offering of such equity securities, we should promptly give holders of our registrable securities written notice of such registration and, upon the written request of any holder given within twenty (20) days after delivery of such notice, we should use our reasonable best efforts to include in such registration the registrable securities requested to be registered by such holder. If the managing underwriters of any underwritten offering determine in good faith that marketing factors require a limitation of the number of shares to be underwritten, and the number of shares that may be included in the registration statement and the underwriting shall be allocated (1) first, to our company, (2) second, to each holder requesting inclusion of its registrable securities in such registration statement on a pro rata basis based on the total number of registrable securities then held by each such holder, (3) third, to holders of other securities of our company.
Form F-3 registration rights. Our shareholders may request us in writing to file an unlimited number of registration statements on Form F-3. We shall effect the registration of the securities on Form F-3 as soon as practicable, except in certain circumstances, including, but not limited to, the aggregate value of the registrable securities and such other securities for sale shall not be less than US$500,000. We have the right to defer filing of a registration statement for a period of not more than 60 days after the receipt of the request of the initiating holders. However, we cannot exercise the deferral right more than once in any 12 month period and shall not register any other of our shares during such period.
Expenses of registration. We shall bear all registration expenses (other than underwriting discounts and commissions, and fees for special counsel of the holders participating in such registration) incurred in connection with any demand, piggyback or Form F-3 registration. However, we will not be required to pay for any expenses in excess of US$25,000 of any special audit required in connection with a demand registration.
Termination of registration rights. Our shareholders’ registration rights will terminate upon the earlier of (1) the fifth anniversary of the completion of our initial public offering, and (2) as to any shareholder when the shares subject to registration rights held by such shareholder can be sold without registration in any 90-day period pursuant to Rule 144 promulgated under the Securities Act.
Private Placements
See “Item 4. Information on the Company—A. History and Development of the Company.”
Share Incentive Plans
See “Item 6. Directors, Senior Management and Employees—B. Compensation—Share Incentive Plans.”
Employment Agreements and Indemnification Agreements
See “Item 6. Directors, Senior Management and Employees—C. Board Practices—Employment Agreements” and “Item 6. Directors, Senior Management and Employees—C. Board Practices—Indemnification Agreements.”
C. Interests of Experts and Counsel
Not applicable.
ITEM 8. FINANCIAL INFORMATION
A. Consolidated Statements and Other Financial Information
We have appended consolidated financial statements filed as part of this annual report.
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Legal Proceedings
From time to time, we may be subject to various claims and legal actions that arise in the ordinary course of our business. We are not presently a party to any litigation the outcome of which, we believe, if determined adversely to us, would individually or taken together have a material adverse effect on our business, operating results, cash flows or financial condition.
Dividend Policy
Our board of directors has complete discretion in deciding the payment of any future dividends, subject to certain requirements of Cayman Islands law. In addition, our shareholders may by ordinary resolution declare a dividend, but no dividend may exceed the amount recommended by our board of directors. Under Cayman Islands law, a Cayman Islands company may pay a dividend out of either profits 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. The declaration and payment of dividends will depend upon, among other things, our future operations and earnings, capital requirements and surplus, our financial condition, contractual restrictions, general business conditions and other factors as our board of directors may deem relevant.
Here Group Limited is a holding company incorporated in the Cayman Islands. For our cash requirements, including any payment of dividends to our shareholders, we rely upon payments from our WFOEs. PRC regulations may restrict the ability of our WFOEs to pay dividends to us. In June 2024 and April 2025, Beijing Liangzizhige made a cash distribution of US$5.3 million and US$10.0 million, respectively, to Witty Digital Technology Limited, its holding company in Hong Kong. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—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.”
In October 2024, we announced the declaration and distribution of a special dividend (the “Special Dividend”) of US$0.067 per ordinary share (US$0.201 per American depositary share, or ADS). The dividend was in U.S. dollars and in cash, funded by surplus cash and to be paid out from the share premium account of our company. The dividends were paid to the holders of our ordinary shares and ADSs of record as of the close of business on October 30, 2024. The aggregate amount of dividend paid was approximately US$10.9 million, which was fully paid by November 2024.
To the extent that we pay any dividends on our ordinary shares, we will pay those dividends which are payable in respect of the Class A ordinary shares underlying the ADSs to the depositary, as the registered holder of such ordinary shares, and the depositary then will pay such amounts to the ADS holders in proportion to the Class A ordinary shares underlying the ADSs held by such ADS holders, subject to the terms of the deposit agreement, including the fees and expenses payable thereunder. See “Item 12. Description of Securities Other than Equity Securities—D. American Depositary Shares.” Cash dividends on our Class A ordinary shares, if any, will be paid in U.S. dollars.
B. Significant Changes
Except as disclosed elsewhere in this annual report, we have not experienced any significant changes since the date of our audited consolidated financial statements included in this annual report.
ITEM 9. THE OFFER AND LISTING
A. Offer and Listing Details
See “—C. Markets.”
B. Plan of Distribution
Not applicable.
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C. Markets
The ADSs were listed for trading on the Nasdaq Global Market under the symbol “QSG” from January 2023. Starting from November 11, 2025, the ADSs were traded under the new symbol of “HERE”.
D. Selling Shareholders
Not applicable.
E. Dilution
Not applicable.
F. Expenses of the Issue
Not applicable.
ITEM 10. ADDITIONAL INFORMATION
A. Share Capital
Not applicable.
B. Memorandum and Articles of Association
The following are summaries of material provisions of our currently effective third amended and restated memorandum and articles of association and of the Companies Act (As Revised) of the Cayman Islands, which we refer to as the “Companies Act” below, insofar as they relate to the material terms of our ordinary shares.
Board of Directors
See “Item 6. Directors, Senior Management and Employees—C. Board Practices.”
Ordinary Shares
Ordinary shares. Our ordinary shares are issued in registered form. We may not issue shares to bearer. Our shareholders who are non-residents of the Cayman Islands may freely hold and vote their shares. Our ordinary shares are divided into Class A ordinary shares and Class B ordinary shares. Holders of our Class A ordinary shares and Class B ordinary shares will have the same rights except for voting and conversion rights. Each Class A ordinary share shall entitle the holder thereof to one vote on all matters subject to vote at our general meetings, and each Class B ordinary share shall entitle the holder thereof to ten votes on all matters subject to vote at our general meetings. Our ordinary shares are issued in registered form and are issued when registered in our register of members.
Conversion. Each Class B ordinary share is convertible into one Class A ordinary share at any time at the option of the holder thereof. Class A ordinary shares are not convertible into Class B ordinary shares under any circumstances. Any number of Class B ordinary shares held by a holder thereof will be automatically and immediately converted into an equal number of Class A ordinary shares upon the occurrence of (1) any sale, transfer, assignment or disposition of any Class B ordinary shares by the holder thereof to any person that is not Mr. Peng Li or his controlled entity, or (2) upon a change of ultimate beneficial ownership of any Class B ordinary share to any person that is not Mr. Peng Li or his controlled entity. In addition, all issued outstanding Class B ordinary shares will automatically convert into Class A ordinary shares upon the first to occur of: (1) the death or incapacity of Mr. Peng Li; (2) the date upon which Mr. Peng Li is no longer employed as our chief executive officer for cause; (3) if Mr. Peng Li was not employed as our chief executive officer for at least five years following the consummation of our initial public offering, the date when he is no longer employed as our chief executive officer; and (4) if Mr. Peng Li was employed as our chief executive officer for at least five years following the consummation of our initial public offering, the earlier of: (a) the date Mr. Peng Li ceases to be employed as our chief executive officer and ceases to be a member of our board of directors; and (b) if Mr. Peng Li continues to be a member of our board of directors, the second anniversary after Mr. Peng Li ceases to be employed as our chief executive officer without regard to whether he is a member of our board of directors on such second anniversary.
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Dividends. The holders of our ordinary shares are entitled to such dividends as may be declared by our board of directors or declared by our shareholders by ordinary resolution (provided that no dividend may be declared by our shareholders which exceeds the amount recommended by our directors). Our third amended and restated memorandum and articles of association provide that dividends may be declared and paid out of our lawfully available funds. Under the laws of the Cayman Islands, our company may pay a dividend out of either profits or share premium account, provided that in no circumstances may a dividend be paid if this would result in our company being unable to pay its debts as they fall due in the ordinary course of business.
Voting rights. Voting at any meeting of shareholders is by show of hands unless a poll is (before or on the declaration of the result of the show of hands) demanded. A poll may be demanded by the chairperson of such meeting or any one shareholder present in person or by proxy. With respect to all matters subject to a shareholders’ vote, on a show of hands every shareholder present at the meeting shall each have one vote, and on a poll, every shareholder present at the meeting shall have one vote for each Class A ordinary share, and ten votes for each Class B ordinary share, voting together as one class on all matters submitted to a vote by our shareholders at any general meeting.
An ordinary resolution to be passed at a meeting by the shareholders requires the affirmative vote of a simple majority of the votes attaching to the ordinary shares cast at a meeting, while a special resolution requires the affirmative vote of no less than two-thirds of the votes cast attaching to the outstanding and issued ordinary shares cast at a meeting. A special resolution will be required for important matters such as a change of name or making changes to our third amended and restated memorandum and articles of association. Our shareholders may, among other things, divide or combine their shares by ordinary resolution.
General meetings of shareholders. As a Cayman Islands exempted company, we are not obliged by the Companies Act to call shareholders’ annual general meetings. Our third amended and restated memorandum and articles of association provide that we may (but are not obliged to) in each year hold a general meeting as our annual general meeting in which case we shall specify the meeting as such in the notices calling it, and the annual general meeting shall be held at such time and place as may be determined by our directors.
Shareholders’ general meetings may be convened by the chairperson of our board of directors or a majority of our board of directors (acting by a resolution of our board of directors). Advance notice of at least seven calendar days is required for the convening of our annual general shareholders’ meeting (if any) and any other general meeting of our shareholders. A quorum required for any general meeting of shareholders consists of one or more shareholder present in person or by proxy, representing not less than a majority of all votes attaching to our issued and outstanding shares entitled to attend and vote at the general meeting.
The Companies Act provides shareholders with only limited rights to requisition a general meeting, and does not provide shareholders with any right to put any proposal before a general meeting. However, these rights may be provided in a company’s articles of association. Our third amended and restated memorandum and articles of association provide that upon the requisition of any one or more of our shareholders who together hold shares which carry in aggregate not less than two thirds of all votes attaching to the issued and outstanding shares of our company entitled to attend and vote at general meetings, our board will convene an extraordinary general meeting and put the resolutions so requisitioned to a vote at such meeting. However, our third amended and restated memorandum and articles of association do not provide our shareholders with any right to put any proposals before annual general meetings or extraordinary general meetings not called by such shareholders.
Transfer of ordinary shares. Subject to the restrictions set out in our third amended and restated memorandum and articles of association as set out below, any of our shareholders may transfer all or any of her or his ordinary shares by an instrument of transfer in the usual or common form or any other form approved by our board of directors.
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Our board of directors may, in its absolute discretion, decline to register any transfer of any ordinary share which is not fully paid up or on which we have a lien. Our board of directors may also decline to register any transfer of any ordinary share unless:
| ● | the instrument of transfer is lodged with us, accompanied by the certificate for the ordinary shares to which it relates and such other evidence as our board of directors may reasonably require to show the right of the transferor to make the transfer; |
| ● | the instrument of transfer is in respect of only one class of ordinary shares; |
| ● | the instrument of transfer is properly stamped, if required; |
| ● | in the case of a transfer to joint holders, the number of joint holders to whom the ordinary share is to be transferred does not exceed four; and |
| ● | a fee of such maximum sum as the Nasdaq Stock Market may determine to be payable or such lesser sum as our directors may from time to time require is paid to us in respect thereof. |
If our directors refuse to register a transfer they shall, within three calendar months after the date on which the instrument of transfer was lodged, send to each of the transferor and the transferee notice of such refusal.
The registration of transfers may, after compliance with any notice required of the Nasdaq Stock Market, be suspended and the register closed at such times and for such periods as our board of directors may from time to time determine, provided, however, that the registration of transfers shall not be suspended nor the register closed for more than 30 calendar days in any calendar year as our board may determine.
Liquidation. On the winding up of our company, if the assets available for distribution amongst our shareholders shall be more than sufficient to repay the whole of the share capital at the commencement of the winding up, the surplus shall be distributed amongst our shareholders in proportion to the par value of the shares held by them at the commencement of the winding up, subject to a deduction from those shares in respect of which there are monies due, of all monies payable to our company for unpaid calls or otherwise. If our assets available for distribution are insufficient to repay all of the paid-up capital, the assets will be distributed so that the losses are borne by our shareholders in proportion to the par value of the shares held by them.
Calls on shares and forfeiture of shares. Our board of directors may from time to time make calls upon shareholders for any amounts unpaid on their shares in a notice served to such shareholders at least 14 days prior to the specified time and place of payment. The shares that have been called upon and remain unpaid are subject to forfeiture.
Redemption, repurchase and surrender of shares. We may issue shares on terms that such shares are subject to redemption, at our option or at the option of the holders of these shares, on such terms and in such manner as may be determined by our board of directors or by a special resolution of our shareholders. Our company may also repurchase any of our shares on such terms and in such manner as have been approved by our board of directors or by an ordinary resolution of our shareholders. Under the Companies Act, the redemption or repurchase of any share may be paid out of our company’s profits or out of the proceeds of a new issue of shares made for the purpose of such redemption or repurchase, or out of capital (including share premium account and capital redemption reserve) if our company can, immediately following such payment, pay its debts as they fall due in the ordinary course of business. In addition, under the Companies Act no such share may be redeemed or repurchased (a) unless it is fully paid up, (b) if such redemption or repurchase would result in there being no shares issued and outstanding or (c) if the company has commenced liquidation. In addition, our company may accept the surrender of any fully paid share for no consideration.
Variations of rights of shares. If at any time, our share capital is divided into different classes of shares, the rights attached to any class may be materially adversely varied with the consent in writing of the holders of two-thirds of the issued shares of that class or with the sanction of a special resolution passed at a separate meeting of the holders of the shares of that class. The rights conferred upon the holders of the shares of any class issued with preferred or other rights shall not, subject to any rights or restrictions for the time being attached to the shares of that class, be deemed to be materially adversely varied by the creation or issue of further shares ranking pari passu with such existing class of shares.
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Issuance of additional shares. Our third amended and restated memorandum and articles of association authorize our board of directors to issue additional ordinary shares from time to time as our board of directors shall determine, to the extent out of available authorized but unissued ordinary shares.
Our third amended and restated memorandum and articles of association also authorize our board of directors to establish from time to time one or more series of preferred shares and to determine, with respect to any series of preferred shares, the terms and rights of that series, including:
| ● | the designation of the series; |
| ● | the number of shares of the series; |
| ● | the dividend rights, dividend rates, conversion rights, voting rights; and |
| ● | the rights and terms of redemption and liquidation preferences. |
Our board of directors may issue preferred shares without action by our shareholders to the extent out of authorized but unissued preferred shares. Issuance of these shares may dilute the voting power of holders of ordinary shares.
Inspection of books and records. Holders of our ordinary shares will have no general right under Cayman Islands law to inspect or obtain copies of our list of shareholders or our corporate records (save for our register of mortgages and charges, our memorandum and articles of association and special resolutions of our shareholders). However, we will provide our shareholders with annual audited financial statements. See “Where You Can Find Additional Information.”
Anti-takeover provisions. Some provisions of our third amended and restated memorandum and articles of association may discourage, delay or prevent a change of control of our company or management that shareholders may consider favorable, including provisions that:
| ● | authorize our board of directors to issue preferred shares in one or more series and to designate the price, rights, preferences, privileges and restrictions of such preferred shares without any further vote or action by our shareholders; and |
| ● | limit the ability of shareholders to requisition and convene general meetings of shareholders. |
However, under Cayman Islands law, our directors may only exercise the rights and powers granted to them under our third amended and restated memorandum and articles of association for a proper purpose and for what they believe in good faith to be in the best interests of our company.
Exempted company. We are an exempted company with limited liability under the Companies Act. The Companies Act distinguishes between ordinary resident companies and exempted companies. Any company that is registered in the Cayman Islands but conducts business mainly outside of the Cayman Islands may apply to be registered as an exempted company. The requirements for an exempted company are essentially the same as for an ordinary company except that an exempted company:
| ● | does not have to file an annual return of its shareholders with the Registrar of Companies; |
| ● | is not required to open its register of members for inspection; |
| ● | does not have to hold an annual general meeting; |
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| ● | may obtain an undertaking against the imposition of any future taxation (such undertakings are given for a period of up to 30 years); |
| ● | may register by way of continuation in another jurisdiction and be deregistered in the Cayman Islands; |
| ● | may register as a limited duration company; and |
| ● | may register as a segregated portfolio company. |
“Limited liability” means that the liability of each shareholder is limited to the amount unpaid by the shareholder on the shares of the company (except in exceptional circumstances, such as involving fraud, the establishment of an agency relationship or an illegal or improper purpose or other circumstances in which a court may be prepared to pierce or lift the corporate veil).
Registered Office and Objects
Our registered office in the Cayman Islands is located at the offices of Maples Corporate Services Limited at PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands, or at such other location within the Cayman Islands as our directors may from time to time decide. The objects for which our company is established are unrestricted and we have full power and authority to carry out any object not prohibited by the Companies Act or any other law of the Cayman Islands.
Differences in Corporate Law
The Companies Act is derived, to a large extent, from the older Companies Acts of England but does not follow recent English statutory enactments and, accordingly, there are significant differences between the Companies Act and the current Companies Act of England. In addition, the Companies Act differs from laws applicable to U.S. corporations and their shareholders. Set forth below is a summary of certain significant differences between the provisions of the Companies Act applicable to us and the laws applicable to companies incorporated in the United States and their shareholders.
Mergers and Similar Arrangements. The Companies Act permits mergers and consolidations between Cayman Islands companies and between Cayman Islands companies and non-Cayman Islands companies. For these purposes, (i) “merger” means the merging of two or more constituent companies and the vesting of their undertaking, property and liabilities in one of such companies as the surviving company, and (ii) a “consolidation” means the combination of two or more constituent companies into a consolidated company and the vesting of the undertaking, property and liabilities of such companies to the consolidated company. In order to effect such a merger or consolidation, the directors of each constituent company must approve a written plan of merger or consolidation, which must then be authorized by (a) a special resolution of the shareholders of each constituent company, and (b) such other authorization, if any, as may be specified in such constituent company’s articles of association. The written plan of merger or consolidation must be filed with the Registrar of Companies of the Cayman Islands together with a declaration as to the solvency of the surviving or consolidated company, a declaration as to the assets and liabilities of each constituent company, and an undertaking that a copy of the certificate of merger or consolidation will be given to the members and creditors of each constituent company and that notification of the merger or consolidation will be published in the Cayman Islands Gazette. Court approval is not required for a merger or consolidation which is effected in compliance with these statutory procedures.
A merger between a Cayman parent company and its Cayman subsidiary or subsidiaries does not require authorization by a resolution of shareholders of that Cayman subsidiary if a copy of the plan of merger is given to every member of that Cayman subsidiary to be merged unless that member agrees otherwise. For this purpose, a company is a “parent” of a subsidiary if it holds issued shares that together represent at least 90% of the votes at a general meeting of the subsidiary.
The consent of each holder of a fixed or floating security interest over a constituent company is required unless this requirement is waived by a court in the Cayman Islands.
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Save in certain limited circumstances, a shareholder of a Cayman constituent company who dissents from the merger or consolidation is entitled to payment of the fair value of his shares (which, if not agreed between the parties, will be determined by the Cayman Islands court) upon dissenting to the merger or consolidation; provided that the dissenting shareholder complies strictly with the procedures set out in the Companies Act. The exercise of dissenter rights will preclude the exercise by the dissenting shareholder of any other rights to which he or she might otherwise be entitled by virtue of holding shares, save for the right to seek relief on the grounds that the merger or consolidation is void or unlawful.
Separate from the statutory provisions relating to mergers and consolidations, the Companies Act also contains statutory provisions that facilitate the reconstruction and amalgamation of companies by way of schemes of arrangement; provided that the arrangement is approved by (a) 75% in value of shareholders or class of shareholders, as the case may be, or (b) a majority in number of the creditors or each class of creditors, as the case may be, with whom the arrangement is to be made, that are, in each case, present and voting either in person or by proxy at a meeting, or meetings, convened for that purpose. The convening of the meetings and subsequently the arrangement must be sanctioned by the Grand Court of the Cayman Islands. While a dissenting shareholder has the right to express to the court the view that the transaction ought not to be approved, the court can be expected to approve the arrangement if it determines that:
| ● | the statutory provisions as to the required majority vote have been met; |
| ● | the shareholders have been fairly represented at the meeting in question and the statutory majority are acting bona fide without coercion of the minority to promote interests adverse to those of the class; |
| ● | the arrangement is such that may be reasonably approved by an intelligent and honest man of that class acting in respect of his interest; and |
| ● | the arrangement is not one that would more properly be sanctioned under some other provision of the Companies Act. |
The Companies Act also contains a statutory power of compulsory acquisition which may facilitate the “squeeze out” of dissentient minority shareholders upon a tender offer. When a tender offer is made and accepted by holders of 90.0% in value of the shares for which the offer has been made, the offeror may, within a two-month period after the approval by the said holders, require the holders of the remaining shares to transfer such shares to the offeror on the terms of the offer. An objection can be made to the Grand Court of the Cayman Islands but this is unlikely to succeed in the case of an offer which has been so approved unless there is evidence of fraud, bad faith or collusion.
If an arrangement and reconstruction by way of scheme of arrangement is thus approved and sanctioned, or if a tender offer is made and accepted in accordance with the foregoing statutory procedures, a dissenting shareholder would have no rights comparable to appraisal rights, which would otherwise ordinarily be available to dissenting shareholders of Delaware corporations, providing rights to receive payment in cash for the judicially determined value of the shares.
Shareholders’ suits. In principle, we will normally be the proper plaintiff to sue for a wrong done to us as a company, and as a general rule a derivative action may not be brought by a minority shareholder. However, based on English authorities, which would in all likelihood be of persuasive authority in the Cayman Islands, the Cayman Islands court can be expected to follow and apply the common law principles (namely the rule in Foss v. Harbottle and the exceptions thereto) so that a non-controlling shareholder may be permitted to commence a class action against or derivative actions in the name of the company to challenge actions where:
| ● | a company acts or proposes to act illegally or ultra vires; |
| ● | the act complained of, although not ultra vires, could only be effected duly if authorized by more than a simple majority vote that has not been obtained; and |
| ● | those who control the company are perpetrating a “fraud on the minority.” |
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Indemnification of directors and executive officers and limitation of liability. Cayman Islands law does not limit the extent to which a company’s memorandum and articles of association may provide for indemnification of officers and directors, except to the extent any such provision may be held by the Cayman Islands courts to be contrary to public policy, such as to provide indemnification against civil fraud or the consequences of committing a crime. Our third amended and restated memorandum and articles of association provide that we shall indemnify our directors and officers, against all actions, proceedings, costs, charges, expenses, losses, damages or liabilities incurred or sustained by such directors or officer, other than by reason of such person’s dishonesty, willful default or fraud, in or about the conduct of our company’s business or affairs (including as a result of any mistake of judgment) or in the execution or discharge of his duties, powers, authorities or discretions, including without prejudice to the generality of the foregoing, any costs, expenses, losses or liabilities incurred by such director or officer in defending (whether successfully or otherwise) any civil proceedings concerning our company or its affairs in any court whether in the Cayman Islands or elsewhere. This standard of conduct is generally the same as permitted under the Delaware General Corporation Law for a Delaware corporation.
In addition, we have entered into indemnification agreements with our directors and executive officers that provide such persons with additional indemnification beyond that provided in our third amended and restated memorandum and articles of association.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers or persons controlling us under the foregoing provisions, we have been informed that in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
Directors’ fiduciary duties. Under Delaware corporate law, a director of a Delaware corporation has a fiduciary duty to the corporation and its shareholders. This duty has two components: the duty of care and the duty of loyalty. The duty of care requires that a director act in good faith, with the care that an ordinarily prudent person would exercise under similar circumstances. Under this duty, a director must inform himself of, and disclose to shareholders, all material information reasonably available regarding a significant transaction. The duty of loyalty requires that a director acts in a manner he reasonably believes to be in the best interests of the corporation. He must not use his corporate position for personal gain or advantage. This duty prohibits self-dealing by a director and mandates that the best interest of the corporation and its shareholders take precedence over any interest possessed by a director, officer or controlling shareholder and not shared by the shareholders generally. In general, actions of a director are presumed to have been made on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the corporation. However, this presumption may be rebutted by evidence of a breach of one of the fiduciary duties. Should such evidence be presented concerning a transaction by a director, the director must prove the procedural fairness of the transaction, and that the transaction was of fair value to the corporation.
As a matter of Cayman Islands law, a director of a Cayman Islands company is in the position of a fiduciary with respect to the company and therefore it is considered that he owes the following duties to the company—a duty to act in good faith in the best interests of the company, a duty not to make a personal profit based on his position as director (unless the company permits him to do so), a duty not to put himself in a position where the interests of the company conflict with his personal interest or his duty to a third party and a duty to exercise powers for the purpose for which such powers were intended. A director of a Cayman Islands company owes to the company a duty to act with skill and care. It was previously considered that a director need not exhibit in the performance of his duties a greater degree of skill than may reasonably be expected from a person of his knowledge and experience. However, English and Commonwealth courts have moved toward an objective standard with regard to the required skill and care and these authorities are likely to be followed in the Cayman Islands.
Shareholder action by written consent. Under the Delaware General Corporation Law, a corporation may eliminate the right of shareholders to act by written consent by amendment to its certificate of incorporation. Cayman Islands law and our third amended and restated memorandum and articles of association provide that our shareholders may approve corporate matters by way of a unanimous written resolution signed by or on behalf of each shareholder who would have been entitled to vote on such matter at a general meeting without a meeting being held.
Shareholder proposals. Under the Delaware General Corporation Law, a shareholder has the right to put any proposal before the annual meeting of shareholders; provided that it complies with the notice provisions in the governing documents. A special meeting may be called by the board of directors or any other person authorized to do so in the governing documents, but shareholders may be precluded from calling special meetings.
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The Companies Act provides shareholders with only limited rights to requisition a general meeting, and does not provide shareholders with any right to put any proposal before a general meeting. However, these rights may be provided in a company’s articles of association. Our third amended and restated memorandum and articles of association allow any one or more of our shareholders holding shares which carry in aggregate not less than two-thirds of the total number votes attaching to all issued and outstanding shares of our company as of the date of the deposit that are entitled to vote at general meetings to requisition an extraordinary general meeting of our shareholders, in which case our board is obliged to convene an extraordinary general meeting and to put the resolutions so requisitioned to a vote at such meeting. Other than this right to requisition a shareholders’ meeting, our third amended and restated memorandum and articles of association do not provide our shareholders with any other right to put proposals before annual general meetings or extraordinary general meetings. As a Cayman Islands exempted company, we are not obliged by law to call shareholders’ annual general meetings.
Cumulative voting. Under the Delaware General Corporation Law, cumulative voting for elections of directors is not permitted unless the corporation’s certificate of incorporation specifically provides for it. Cumulative voting potentially facilitates the representation of minority shareholders on a board of directors since it permits the minority shareholder to cast all the votes to which the shareholder is entitled on a single director, which increases the shareholder’s voting power with respect to electing such director. There are no prohibitions in relation to cumulative voting under the laws of the Cayman Islands, but our third amended and restated memorandum and articles of association do not provide for cumulative voting. As a result, our shareholders are not afforded any less protections or rights on this issue than shareholders of a Delaware corporation.
Removal of directors. Under the Delaware General Corporation Law, a director of a corporation with a classified board may be removed only for cause with the approval of a majority of the issued and outstanding shares entitled to vote, unless the certificate of incorporation provides otherwise. Under our post-offering memorandum and articles of association, directors may be removed by an ordinary resolution of our shareholders. An appointment of a director may be on terms that the director shall automatically retire from office (unless he has sooner vacated office) at the next or a subsequent annual general meeting or upon any specified event or after any specified period in a written agreement between the company and the director, if any; but no such term shall be implied in the absence of express provision. In addition, a director will also cease to be a director if he (i) becomes bankrupt or makes any arrangement or composition with his creditors; (ii) dies or is found to be or becomes of unsound mind; (iii) resigns his office by notice in writing; (iv) without special leave of absence from our board, is absent from meetings of our board for three consecutive meetings and our board resolves that his office be vacated; or (v) is removed from office pursuant to any other provision of our articles of association.
Transactions with interested shareholders. The Delaware General Corporation Law contains a business combination statute applicable to Delaware corporations whereby, unless the corporation has specifically elected not to be governed by such statute by amendment to its certificate of incorporation, it is prohibited from engaging in certain business combinations with an “interested shareholder” for three years following the date that such person becomes an interested shareholder. An interested shareholder generally is a person or a group who or which owns or owned 15% or more of the target’s outstanding voting shares within the past three years. This has the effect of limiting the ability of a potential acquirer to make a two-tiered bid for the target in which all shareholders would not be treated equally. The statute does not apply if, among other things, prior to the date on which such shareholder becomes an interested shareholder, the board of directors approves either the business combination or the transaction which resulted in the person becoming an interested shareholder. This encourages any potential acquirer of a Delaware corporation to negotiate the terms of any acquisition transaction with the target’s board of directors.
Cayman Islands law has no comparable statute. As a result, we cannot avail ourselves of the types of protections afforded by the Delaware business combination statute. However, although Cayman Islands law does not regulate transactions between a company and its significant shareholders, the directors of our company are required to comply with fiduciary duties which they owe to our company under Cayman Islands laws, including the duty to ensure that, in their opinion, any such transactions must be entered into bona fide in the best interests of the company and not with the effect of constituting a fraud on the minority shareholders.
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Restructuring. A company may present a petition to the Grand Court of the Cayman Islands for the appointment of a restructuring officer on the grounds that the company:
| (a) | is or is likely to become unable to pay its debts; and |
| (b) | intends to present a compromise or arrangement to its creditors (or classes thereof) either pursuant to the Companies Act, the law of a foreign country or by way of a consensual restructuring. |
The Grand Court may, among other things, make an order appointing a restructuring officer upon hearing of such petition, with such powers and to carry out such functions as the court may order. At any time (i) after the presentation of a petition for the appointment of a restructuring officer but before an order for the appointment of a restructuring officer has been made, and (ii) when an order for the appointment of a restructuring officer is made, until such order has been discharged, no suit, action or other proceedings (other than criminal proceedings) shall be proceeded with or commenced against the company, no resolution to wind up the company shall be passed, and no winding up petition may be presented against the company, except with the leave of the court. However, notwithstanding the presentation of a petition for the appointment of a restructuring officer or the appointment of a restructuring officer, a creditor who has security over the whole or part of the assets of the company is entitled to enforce the security without the leave of the court and without reference to the restructuring officer appointed.
Dissolution; winding up. Under the Delaware General Corporation Law, unless the board of directors approves the proposal to dissolve, dissolution must be approved by shareholders holding 100% of the total voting power of the corporation. Only if the dissolution is initiated by the board of directors may it be approved by a simple majority of the corporation’s outstanding shares. Delaware law allows a Delaware corporation to include in its certificate of incorporation a supermajority voting requirement in connection with dissolutions initiated by either an order of the courts of the Cayman Islands or by the board of directors.
Under Cayman Islands law, a company may be wound up by either an order of the courts of the Cayman Islands or by a special resolution of its members or, if the company is unable to pay its debts as they fall due, by an ordinary resolution of its members. The court has authority to order winding up in a number of specified circumstances including where it is, in the opinion of the court, just and equitable to do so.
Variation of rights of shares. Under the Delaware General Corporation Law, a corporation may vary the rights of a class of shares with the approval of a majority of the outstanding shares of such class, unless the certificate of incorporation provides otherwise. Under our third amended and restated memorandum and articles of association, if our share capital is divided into more than one class of shares, the rights attached to any such class may only be materially adversely varied with the consent in writing of the holders of two-thirds of the issued shares of that class or with the sanction of a special resolution passed at a separate meeting of the holders of the shares of that class. The rights conferred upon the holders of the shares of any class issued with preferred or other rights shall not, subject to any rights or restrictions for the time being attached to the shares of that class, be deemed to be materially adversely varied by the creation, allotment or issue of further shares ranking pari passu with or subsequent to such existing class of shares or the redemption or purchase of any shares of any class by the company. The rights of the holders of shares shall not be deemed to be materially adversely varied by the creation or issue of shares with preferred or other rights including, without limitation, the creation of shares with enhanced or weighted voting rights.
Amendment of governing documents. Under the Delaware General Corporation Law, a corporation’s governing documents may be amended with the approval of a majority of the outstanding shares entitled to vote, unless the certificate of incorporation provides otherwise. Under the Companies Act and our third amended and restated memorandum and articles of association, our memorandum and articles of association may only be amended by a special resolution of our shareholders.
Rights of non-resident or foreign shareholders. There are no limitations imposed by our third amended and restated memorandum and articles of association on the rights of non-resident or foreign shareholders to hold or exercise voting rights on our shares. In addition, there are no provisions in our third amended and restated memorandum and articles of association that require our company to disclose shareholder ownership above any particular ownership threshold.
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C. Material Contracts
We have not entered into any material contracts other than in the ordinary course of business and other than those described in “Item 4. Information on the Company” or “Item 7. Major Shareholders and Related Party Transactions” or elsewhere in this annual report on Form 20-F.
D. Exchange Controls
See “Item 4. Information on the Company—B. Business Overview—Regulation—Regulations relating to foreign exchange.”
E. Taxation
The following discussion of material Cayman Islands, PRC and United States federal income tax consequences of an investment in the ADSs or Class A ordinary shares is based upon laws and relevant interpretations thereof in effect as of the date of this annual report, all of which are subject to change. This discussion does not deal with all possible tax consequences relating to an investment in the ADSs or Class A ordinary shares, such as the tax consequences under state, local and other tax laws.
Cayman Islands Taxation
As advised by Maples and Calder (Hong Kong) LLP, our Cayman Islands counsel, the Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains or appreciation and there is no taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to us levied by the government of the Cayman Islands except for stamp duties which may be applicable on instruments executed in, or after execution brought within the jurisdiction of the Cayman Islands. The Cayman Islands is not party to any double tax treaties applicable to payments to or by our company. There are no exchange control regulations or currency restrictions in the Cayman Islands.
Payments of dividends and capital in respect of the shares will not be subject to taxation in the Cayman Islands and no withholding will be required on the payment of a dividend or capital to any holder of our shares, nor will gains derived from the disposal of the shares be subject to Cayman Islands income or corporation tax.
Pursuant to Section 6 of the Tax Concessions Act (As Revised) of the Cayman Islands, we may apply and we have applied for an undertaking from the Clerk of the Cabinet of the Cayman Islands that:
| ● | no law which is hereinafter enacted in the Cayman Islands imposing any tax to be levied on profits or income or gains or appreciation shall apply to us or our operations; and |
| ● | in addition, no tax to be levied on profits, income, gains or appreciations or which is in the nature of estate duty or inheritance tax shall be payable (i) on or in respect of our shares, debentures or other obligations, or (ii) by way of the withholding in whole or in part of any relevant payment as defined in the Tax Concessions Act. |
The above concessions shall be for a period of 30 years from July 13, 2022.
PRC Taxation
See “Item 4. Information on the Company—B. Business Overview—Regulation—Regulations relating to tax in the PRC.”
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U.S. Federal Income Taxation
The following discussion is a summary of material U.S. federal income tax considerations relating to the ownership and disposition of the ADSs or Class A ordinary shares by a U.S. Holder, as defined below, that holds the ADSs or Class A ordinary shares as “capital assets” (generally, property held for investment) under the U.S. Internal Revenue Code of 1986, as amended, or the Code. This discussion is based upon existing U.S. federal income tax law as of the date of this annual report, which is subject to differing interpretations or change, possibly with retroactive effect. No ruling has been sought from the U.S. Internal Revenue Service, or the IRS, with respect to any U.S. federal income tax consequences described below, and there can be no assurance that the IRS or a court will not take a contrary position. This discussion does not address all aspects of U.S. federal income taxation that may be important to particular investors in light of their individual circumstances, including investors subject to special tax rules (such as, for example, financial institutions, insurance companies, regulated investment companies, real estate investment trusts, broker-dealers, traders in securities that elect mark-to-market treatment, partnerships or other pass-through entities and their partners or investors, and tax-exempt organizations (including private foundations)), investors who are subject to special tax accounting rules under Section 451(b) of the Code, investors who are not U.S. Holders, investors that own (directly, indirectly or constructively) ADSs or Class A ordinary shares representing 10% or more of our stock (by vote or by value), investors that hold ADSs or Class A ordinary shares as part of a straddle, hedge, conversion, constructive sale or other integrated transaction, investors that have a functional currency other than the U.S. dollar, investors who acquired ADSs or Class A ordinary shares pursuant to the exercise of any employee share option or otherwise as compensation and certain former citizens or long-term residents of the United States, all of whom may be subject to tax rules that differ significantly from those summarized below. In addition, this discussion does not address any U.S. federal non-income, state, local or non-U.S. tax considerations, the alternative minimum tax or the Medicare contribution tax on net investment income. Each potential investor is urged to consult its tax advisor regarding the U.S. federal, state, local and non-U.S. income and other tax considerations of an investment in the ADSs or ordinary shares.
General
For purposes of this discussion, a “U.S. Holder” is a beneficial owner of the ADSs or Class A ordinary shares that is, for U.S. federal income tax purposes, (1) an individual who is a citizen or resident of the United States, (2) a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) created in, or organized under the laws of, the United States or any state thereof or the District of Columbia, (3) an estate the income of which is includible in gross income for U.S. federal income tax purposes regardless of its source or (4) a trust (a) the administration of which is subject to the primary supervision of a U.S. court and which has one or more U.S. persons who have the authority to control all substantial decisions of the trust, or (b) that has otherwise elected to be treated as a “United States person” under the Code.
If a partnership (or other entity treated as a partnership for U.S. federal income tax purposes) is a beneficial owner of the ADSs or Class A ordinary shares, the tax treatment of a partner in the partnership will depend upon the status of the partner and the activities of the partnership. Partnerships and partners of a partnership holding the ADSs or Class A ordinary shares are urged to consult their tax advisors regarding an investment in the ADSs or Class A ordinary shares.
The discussion below assumes the deposit agreement and any related agreement will be complied with in accordance with its terms.
For U.S. federal income tax purposes, a U.S. Holder of ADSs will generally be treated as the beneficial owner of the underlying Class A ordinary shares represented by the ADSs. Accordingly, deposits or withdrawals of Class A ordinary shares for the ADSs will generally not be subject to U.S. federal income tax.
Passive foreign investment company considerations
A non-U. S. corporation, such as our company, will be classified as a “passive foreign investment company,” or PFIC, for U.S. federal income tax purposes, if, in the case of any particular fiscal year, either (1) 75% or more of its gross income for such year consists of certain types of “passive” income or (2) 50% or more of its assets (generally determined on the basis of a quarterly average) during such year produce or are held for the production of passive income. For this purpose, cash and cash equivalents (with certain exceptions) are categorized as passive assets and the company’s unbooked intangibles associated with non-passive business activities may generally be classified as non-passive assets. Passive income generally includes, among other things, dividends, interest, rents, royalties, and gains from the disposition of passive assets. We will be treated as owning our proportionate share of the assets and earning our proportionate share of the income of any other corporation in which we own, directly or indirectly, more than 25% (by value) of the stock.
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In addition, although the law in this regard is unclear, we treated our formerly affiliated entities as being owned by us for United States federal income tax purposes for periods prior to the VIE termination because, prior to the VIE termination, we controlled their management decisions and were entitled to substantially all of their economic benefits, and, as a result, we combined and consolidated their financial results in our consolidated financial statements for periods prior to the VIE termination on September 30, 2025.
Based on the market price of our ADSs and the composition of our assets, we believe we were a PFIC for U.S. federal income tax purposes for our fiscal year ended June 30, 2026. However, because the determination of whether we are or will become a PFIC for any fiscal year is a fact-intensive inquiry made annually that depends, in part, upon the composition of our income and assets and the value of our assets from time to time, and because there are uncertainties in the application of the relevant rules, there can be no assurance regarding our PFIC status for any taxable year. Fluctuations in the market price of the ADSs may increase the risk that we continue to be a PFIC for subsequent fiscal years because the value of our assets for the purpose of the asset test, including the value of our goodwill and other intangibles, may generally be determined by reference to the market price of the ADSs from time to time (which may be volatile). The composition of our income and assets may also be affected by how, and how quickly, we use our liquid assets.
Dividends
Subject to the PFIC rules described below, any cash distributions (including constructive distributions and the amount of any PRC tax withheld) paid on the ADSs or Class A ordinary shares out of our current or accumulated earnings and profits, as determined under U.S. federal income tax principles, will generally be includible in the gross income of a U.S. Holder as dividend income on the day actually or constructively received by the U.S. Holder, in the case of Class A ordinary shares, or by the depositary bank, in the case of ADSs. Because we do not intend to determine our earnings and profits on the basis of U.S. federal income tax principles, any distribution will generally be treated as a “dividend” for U.S. federal income tax purposes. Dividends received on the ADSs or Class A ordinary shares will not be eligible for the dividends received deduction allowed to qualifying corporations under the Code.
Under current law, a non-corporate recipient of dividend income will generally be subject to tax on dividend income from a “qualified foreign corporation” at the lower rates applicable to “qualified dividend income” rather than the marginal tax rates generally applicable to ordinary income, provided that certain holding period and other requirements are met.
A non-U.S. corporation (other than a corporation that is classified as a PFIC for the fiscal year in which the dividend is paid or the preceding fiscal year) will generally be considered to be a qualified foreign corporation (1) if it is eligible for the benefits of a comprehensive tax treaty with the United States which the Secretary of Treasury of the United States determines is satisfactory for purposes of this provision and which includes an exchange of information program, or (2) with respect to any dividend it pays on stock (or ADSs in respect of such stock) that is readily tradable on an established securities market in the United States. The ADSs are currently listed on Nasdaq. We believe, but cannot assure you, that the ADSs are and will continue to be considered to be readily tradable on an established securities market in the United States. Since our Class A ordinary shares are not listed on established securities markets, it is unclear whether dividends that we pay on our Class A ordinary shares that are not backed by ADSs currently meet the conditions required for the reduced tax rate. There can be no assurance that the ADSs will be considered readily tradable on an established securities market in future years. In the event we are deemed to be a PRC resident enterprise under the Enterprise Income Tax Law (see “—PRC Taxation”), we may be eligible for the benefits of the Agreement Between the Government of the United States of America and the Government of the People’s Republic of China for the Avoidance of Double Taxation and the Prevention of Tax Evasion with Respect to Taxes on Income, or the U.S.-PRC income tax treaty (which the Secretary of the Treasury of the United States has determined is satisfactory for this purpose). U.S. Holders are urged to consult their tax advisors regarding the availability of the reduced tax rate on dividends in their particular circumstances.
For U.S. foreign tax credit purposes, dividends paid on the ADSs or Class A ordinary shares will generally be treated as income from foreign sources and will generally constitute passive category income. In the event that we are deemed to be a PRC resident enterprise under the Enterprise Income Tax Law, a U.S. Holder may be subject to PRC withholding taxes on dividends paid, if any, on the ADSs or Class A ordinary shares. A U.S. Holder may be eligible, subject to a number of complex limitations, to claim a foreign tax credit in respect of any foreign withholding taxes imposed on dividends received on the ADSs or Class A ordinary shares. A U.S. Holder who does not elect to claim a foreign tax credit for foreign tax withheld may instead claim a deduction for U.S. federal income tax purposes in respect of such withholding, but only for a year in which such U.S. Holder elects to do so for all creditable foreign income taxes. The rules governing foreign tax credits are complex. U.S. Holders are urged to consult their tax advisors regarding the availability of foreign tax credits under their particular circumstances.
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As discussed above, we believe that we were a PFIC for U.S. federal income tax purposes for our taxable year ended June 30, 2026. With certain exceptions, if we are classified as a PFIC for any year during which a U.S. Holder holds our ADSs or Class A ordinary shares, we will generally 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 even if we cease to be a PFIC. U.S. Holders are urged to consult their tax advisors regarding the availability of the reduced tax rate on dividends with respect to our ADSs or Class A ordinary shares under their particular circumstances.
Sale or other disposition of ADSs or Class A ordinary shares
Subject to the PFIC rules discussed below, a U.S. Holder will generally recognize capital gain or loss, if any, upon the sale or other disposition of ADSs or Class A ordinary shares in an amount equal to the difference between the amount realized upon the disposition and the U.S. Holder’s adjusted tax basis in such ADSs or Class A ordinary shares. Any capital gain or loss will be long-term capital gain or loss if the ADSs or Class A ordinary shares have been held for more than one year and will generally be U.S. source gain or loss for U.S. foreign tax credit purposes. Long-term capital gains of non-corporate U.S. Holders are currently eligible for reduced rates of taxation. The deductibility of a capital loss may be subject to limitations.
In the event that we are treated as a PRC resident enterprise under the EIT Law, gain from the disposition of the ADSs or Class A ordinary shares may be subject to tax in the PRC (see “—PRC Taxation”) and will generally be U.S. source, which may limit the ability to receive a foreign tax credit. If a U.S. Holder is eligible for the benefits of the U.S.-PRC income tax treaty, such holder may be able to elect to treat such gain as PRC source income for foreign tax credit purposes under the U.S.-PRC income tax treaty. Pursuant to U.S. Treasury regulations (the applicability of which has been postponed until further guidance is issued), however, if a U.S. Holder is not eligible for the benefits of the U.S.-PRC income tax treaty or does not elect to apply the treaty, then such holder may not be able to claim a foreign tax credit arising from any PRC tax imposed on the disposition of the ADSs or Class A ordinary shares. U.S. Holders are urged to consult their tax advisors regarding the tax consequences if a foreign tax is imposed on a disposition of the ADSs or Class A ordinary shares, including the availability of foreign tax credits under their particular circumstances, their eligibility for benefits under the U.S.-PRC income tax treaty, and the potential impact of the U.S. Treasury regulations.
As discussed above, we believe that we were a PFIC for U.S. federal income tax purposes for our taxable year ended June 30, 2026. With certain exceptions, if we are classified as a PFIC for any year during which a U.S. Holder holds our ADSs or Class A ordinary shares, we will generally 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 even if we cease to be a PFIC. U.S. Holders are urged to consult their tax advisors regarding the tax considerations of the sale or other disposition of our ADSs or Class A ordinary shares under their particular circumstances.
Passive foreign investment company rules
If we are classified as a PFIC for any fiscal year during which a U.S. Holder holds the ADSs or Class A ordinary shares, unless the U.S. Holder makes one of certain elections (as described below), the U.S. Holder will, except as discussed below, be subject to special tax rules that have a penalizing effect, regardless of whether we remain a PFIC, on (1) any excess distribution that we make to the U.S. Holder (which generally means any distribution paid during a fiscal year to a U.S. Holder that is greater than 125% of the average annual distributions paid in the three preceding fiscal years or, if shorter, the U.S. Holder’s holding period for the ADSs or Class A ordinary shares), and (2) any gain realized on the sale or other disposition, including, under certain circumstances, a pledge, of ADSs or Class A ordinary shares. Under the PFIC rules:
| ● | the excess distribution and/or gain will be allocated ratably over the U.S. Holder’s holding period for the ADSs or Class A ordinary shares; |
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| ● | the amount of the excess distribution or gain allocated to the fiscal year of distribution or gain and to any fiscal years in the U.S. Holder’s holding period prior to the first fiscal year in which we are classified as a PFIC (each such fiscal year, a pre-PFIC year) will be taxable as ordinary income; and |
| ● | the amount of the excess distribution or gain allocated to each prior fiscal year, other than the current fiscal year of distribution or gain or a pre-PFIC year, will be subject to tax at the highest tax rate in effect applicable to the individuals or corporations, as appropriate, for that other fiscal year, and will be increased by an additional tax equal to interest on the resulting tax deemed deferred with respect to each such other fiscal year. |
If we are a PFIC for any fiscal year during which a U.S. Holder holds the ADSs or Class A ordinary shares and any of our non-U.S. subsidiaries or other corporate entities in which we own equity interests is also a PFIC, such U.S. Holder would be treated as owning a proportionate amount (by value) of the shares of the lower-tier PFIC for purposes of the application of these rules. Each U.S. Holder is advised to consult its tax advisors regarding the application of the PFIC rules to any of our lower-tier PFICs.
If we are a PFIC for any year during which a U.S. Holder holds the ADSs or Class A ordinary shares, we will continue to be treated as a PFIC with respect to such U.S. Holder for all succeeding years during which the U.S. Holder holds the ADSs or Class A ordinary shares, unless we were to cease to be a PFIC and the U.S. Holder makes a “deemed sale” election with respect to the ADSs or Class A ordinary shares. If such election is made, the U.S. Holder will be deemed to have sold the ADSs or Class A ordinary shares it holds at their fair market value and any gain from such deemed sale would be subject to the rules described in the preceding two paragraphs. After the deemed sale election, so long as we do not become a PFIC in a subsequent fiscal year, the ADSs or Class A ordinary shares with respect to which such election was made will not be treated as shares in a PFIC and, as a result, the U.S. Holder will not be subject to the rules described above with respect to any “excess distribution” the U.S. Holder receives from us or any gain from an actual sale or other disposition of the ADSs or Class A ordinary shares. Each U.S. Holder is strongly urged to consult its tax advisors as to the possibility and consequences of making a deemed sale election if we are and then cease to be a PFIC and such an election becomes available to the U.S. Holder.
As an alternative to the foregoing rules, a U.S. Holder of “marketable stock” in a PFIC may make a mark-to-market election with respect to ADSs, provided that the ADSs are “regularly traded” (as defined in applicable U.S. Treasury Regulations) on Nasdaq, which is a qualified exchange or other market for these purposes. No assurances may be given regarding whether the ADSs qualify, or will continue to qualify, as being regularly traded in this regard. If a mark-to-market election is made, the U.S. Holder will generally (1) include as ordinary income for each fiscal year that we are a PFIC the excess, if any, of the fair market value of ADSs held at the end of the fiscal year over the U.S. Holder’s adjusted tax basis in such ADSs and (2) deduct as an ordinary loss the excess, if any, of the U.S. Holder’s adjusted tax basis in such ADSs over the fair market value of such ADSs held at the end of the fiscal year, but only to the extent of the net amount previously included in income as a result of the mark-to-market election. The U.S. Holder’s adjusted tax basis in the ADSs would be adjusted to reflect any income or loss resulting from the mark-to-market election. If a U.S. Holder makes an effective mark-to-market election, in each year that we are a PFIC, any gain recognized upon the sale or other disposition of the ADSs will be treated as ordinary income and any loss will be treated as ordinary loss, but only to the extent of the net amount previously included in income as a result of the mark-to-market election. Because our Class A ordinary shares are not listed on a stock exchange, U.S. Holders will not be able to make a mark-to-market election with respect to our Class A ordinary shares.
If a U.S. Holder makes a mark-to-market election in respect of a corporation classified as a PFIC and such corporation ceases to be classified as a PFIC, the U.S. Holder will not be required to take into account the mark-to-market gain or loss described above during any period that such corporation is not classified as a PFIC.
Because a mark-to-market election cannot be made for any lower-tier PFICs that a PFIC may own, a U.S. Holder who makes a mark-to-market election with respect to the ADSs may continue to be subject to the general PFIC rules with respect to such U.S. Holder’s indirect interest in any of our non-U.S. subsidiaries or other corporate entities in which we own equity interests that is classified as a PFIC.
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We do not intend to provide information necessary for U.S. Holders to make qualified electing fund elections, which, if available, would result in tax treatment different from the general tax treatment for PFICs described above.
If a U.S. Holder owns the ADSs or Class A ordinary shares during any fiscal year that we are a PFIC, the U.S. Holder must file an annual information return with the IRS. Each U.S. Holder is urged to consult its tax advisor concerning the potential reporting requirements that may apply and the U.S. federal income tax consequences of purchasing, holding, and disposing of the ADSs or Class A ordinary shares if we are or become a PFIC, including the possibility of making a mark-to-market election and the unavailability of the qualified electing fund election.
Information reporting and backup withholding
Certain U.S. Holders are required to report information to the IRS relating to an interest in “specified foreign financial assets” (as defined in the Code), including shares issued by a non-U.S. corporation, for any year in which the aggregate value of all specified foreign financial assets exceeds $50,000 (or a higher dollar amount prescribed by the IRS), subject to certain exceptions (including an exception for shares held in custodial accounts maintained with a U.S. financial institution). These rules also impose penalties if a U.S. Holder is required to submit such information to the IRS and fails to do so.
In addition, U.S. Holders may be subject to information reporting to the IRS and backup withholding with respect to dividends on and proceeds from the sale or other disposition of the ADSs or Class A ordinary shares. Information reporting will apply to payments of dividends on, and to proceeds from the sale or other disposition of, our Class A ordinary shares or ADSs by a paying agent within the United States to a U.S. Holder, other than U.S. Holders that are exempt from information reporting and properly certify their exemption. A paying agent within the United States will be required to withhold at the applicable statutory rate, currently 24%, in respect of any payments of dividends on, and the proceeds from the disposition of, our Class A ordinary shares or ADSs within the United States to a U.S. Holder (other than U.S. Holders that are exempt from backup withholding and properly certify their exemption) if the U.S. Holder fails to furnish its correct taxpayer identification number or otherwise fails to comply with applicable backup withholding requirements. U.S. Holders who are required to establish their exempt status generally must provide a properly completed IRS Form W-9.
Backup withholding is not an additional tax. Amounts withheld as backup withholding may be credited against a U.S. Holder’s U.S. federal income tax liability. A U.S. Holder generally may obtain a refund of any amounts withheld under the backup withholding rules by filing the appropriate claim for refund with the IRS in a timely manner and furnishing any required information. Each U.S. Holder is advised to consult with its tax advisor regarding the application of the U.S. information reporting rules to its particular circumstances.
F. Dividends and Paying Agents
Not applicable.
G. Statement by Experts
Not applicable.
H. Documents on display
We have previously filed with the SEC our registration statement on Form F-1 (File Number 333-268907), as amended, and a prospectus under the Securities Act with respect to our ordinary shares represented by the ADSs.
We are subject to the periodic reporting and other informational requirements of the Exchange Act. Under the Exchange Act, we are required to file reports and other information with the SEC. Specifically, we are required to file annually a Form 20-F within four months after the end of each fiscal year. Copies of reports and other information, when so filed, may be inspected without charge and may be obtained at prescribed rates at the public reference facilities maintained by the SEC at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. The public may obtain information regarding the Washington, D.C. Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a web site at www.sec.gov that contains reports, proxy and information statements, and other information regarding registrants that make electronic filings with the SEC using its EDGAR system.
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As a foreign private issuer, we are exempt from the rules of the Exchange Act prescribing the furnishing and content of quarterly reports and proxy statements, and our executive officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we are not required under the Exchange Act to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act.
We will furnish Citibank, N.A., the depositary of the ADSs, with all notices of shareholders’ meetings and other reports and communications that are made generally available to our shareholders. The depositary will make such notices, reports and communications available to holders of ADSs and, upon our request, will mail to all record holders of ADSs the information contained in any notice of a shareholders’ meeting received by the depositary from us.
In accordance with Nasdaq Stock Market Rule 5250(d), we will post this annual report on Form 20-F on our website at http://ir.heregroup.com/. We will, upon request, furnish our shareholders and ADS holders with our annual reports, which will include a review of operations and annual audited consolidated financial statements prepared in conformity with U.S. GAAP.
I. Subsidiary Information
Not applicable.
J. Annual Reports to Security Holders
Not applicable.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign exchange risk
Our operating transactions are mainly denominated in Renminbi and, therefore, we are exposed to risks related to movements between Renminbi and U.S. dollars. To date, we have not entered into any hedging transactions in an effort to reduce our exposure to foreign currency exchange risk. In addition, the value of your investment in the ADSs will be affected by the exchange rate between U.S. dollars and Renminbi because the value of our business is effectively denominated in Renminbi, and the ADSs will be traded in U.S. dollars.
The value of Renminbi against U.S. dollars is subject to changes by the central government policies and to international economic and political developments, among other things. There is also no assurance that the Renminbi will not appreciate or depreciate significantly against the U.S. dollars in the future.
As of June 30, 2025 and 2026, our cash and cash equivalents, restricted cash and short-term investments denominated in Renminbi were RMB516.5 million and RMB566.3 million, respectively, accounting for 81.5% and 92.8% of our total cash and cash equivalents, restricted cash and short-term investments as of the same time, respectively.
To the extent that we need to convert U.S. dollars into Renminbi for operations, appreciation of Renminbi against the U.S. dollar would reduce the Renminbi amount we receive from the conversion. Conversely, if we decide to convert Renminbi into U.S. dollars for the purpose of making payments for dividends on our ordinary shares or ADSs or for other business purposes, appreciation of the U.S. dollar against the Renminbi would reduce the U.S. dollar amounts available to us.
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Concentration risk
There was one customer that individually represented greater than 10% of our total revenues for the fiscal years ended June 30, 2026. There were three and two customers individually represented more than 10% of our net accounts receivables as of June 30, 2025 and 2026, respectively. There were two suppliers individually represented more than 10% of our total purchases for the fiscal years ended June 30, 2026.
Credit risk
Financial instruments that potentially expose us to significant concentration of credit risk primarily consist of cash and cash equivalents, restricted cash and short-term investment. As of June 30, 2025 and 2026, more than 97.5% of our cash and cash equivalents and short-term investments were held in well-established financial institutions located in mainland China, Hong Kong, Singapore and the U.S., which our management considered to be of high credit quality.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
A. Debt Securities
Not applicable.
B. Warrants and Rights
Not applicable.
C. Other Securities
Not applicable.
D. American Depositary Shares
Fees and Charges
As an ADS holder, you will be required to pay the following fees under the terms of the deposit agreement:
| Services | Fees | ||
| ● | Issuance of ADSs (e.g., an issuance of ADS upon a deposit of Class A ordinary shares, upon a change in the ADS(s)-to-Class A ordinary share(s) ratio, or for any other reason), excluding ADS issuances as a result of distributions of Class A ordinary shares | Up to US$0.05 per ADS issued | |
| ● | Cancelation of ADSs (e.g., a cancelation of ADSs for delivery of Class A ordinary shares, upon a change in the ADS(s)-to-Class A ordinary share(s) ratio, or for any other reason) | Up to US$0.05 per ADS canceled | |
| ● | Distribution of cash dividends or other cash distributions (e.g., upon a sale of rights and other entitlements) | Up to US$0.05 per ADS held | |
| ● | Distribution of ADSs pursuant to (i) stock dividends or other free stock distributions, or (ii) exercise of rights to purchase additional ADSs | Up to US$0.05 per ADS held | |
| ● | Distribution of securities other than ADSs or rights to purchase additional ADSs (e.g., upon a spin-off) | Up to US$0.05 per ADS held | |
| ● | ADS Services | Up to US$0.05 per ADS held on the applicable record date(s) established by the depositary | |
| ● | Registration of ADS transfers (e.g., upon a registration of the transfer of registered ownership of ADSs, upon a transfer of ADSs into DTC and vice versa, or for any other reason) | Up to US$0.05 per ADS transferred | |
| ● | Conversion of ADSs of one series for ADSs of another series (e.g., upon conversion of Partial Entitlement ADSs for Full Entitlement ADSs, or upon conversion of Restricted ADSs (each as defined in the Deposit Agreement) into freely transferable ADSs, and vice versa). | Up to US$0.05 per ADS converted | |
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As an ADS holder you will also be responsible to pay certain charges such as:
| ● | taxes (including applicable interest and penalties) and other governmental charges; |
| ● | the registration fees as may from time to time be in effect for the registration of Class A ordinary shares on the share register and applicable to transfers of Class A ordinary shares to or from the name of the custodian, the depositary or any nominees upon the making of deposits and withdrawals, respectively; |
| ● | certain cable, telex and facsimile transmission and delivery expenses; |
| ● | the fees, expenses, spreads, taxes and other charges of the depositary and/or service providers (which may be a division, branch or affiliate of the depositary) in the conversion of foreign currency; |
| ● | the reasonable and customary out-of-pocket expenses incurred by the depositary in connection with foreign currency conversions, compliance with exchange control regulations and other regulatory requirements; |
| ● | the fees, charges, costs and expenses incurred by the depositary, the custodian, or any nominee in connection with the ADR program; and |
| ● | the amounts payable to the depositary by any party to the deposit agreement pursuant to any ancillary agreement to the deposit agreement in respect of the ADR program, the ADSs and the ADRs. |
ADS fees and charges for (i) the issuance of ADSs, and (ii) the cancelation of ADSs are charged to the person for whom the ADSs are issued (in the case of ADS issuances) and to the person for whom ADSs are canceled (in the case of ADS cancelations). In the case of ADSs issued by the depositary into DTC, the ADS issuance and cancelation fees and charges may be deducted from distributions made through DTC, and may be charged to the DTC participant(s) receiving the ADSs being issued or the DTC participant(s) holding the ADSs being canceled, as the case may be, on behalf of the beneficial owner(s) and will be charged by the DTC participant(s) to the account of the applicable beneficial owner(s) in accordance with the procedures and practices of the DTC participants as in effect at the time. ADS fees and charges in respect of distributions and the ADS service fee are charged to the holders as of the applicable ADS record date. In the case of distributions of cash, the amount of the applicable ADS fees and charges is deducted from the funds being distributed. In the case of (i) distributions other than cash and (ii) the ADS service fee, holders as of the ADS record date will be invoiced for the amount of the ADS fees and charges and such ADS fees and charges may be deducted from distributions made to holders of ADSs. For ADSs held through DTC, the ADS fees and charges for distributions other than cash and the ADS service fee may be deducted from distributions made through DTC, and may be charged to the DTC participants in accordance with the procedures and practices prescribed by DTC and the DTC participants in turn charge the amount of such ADS fees and charges to the beneficial owners for whom they hold ADSs. In the case of (i) registration of ADS transfers, the ADS transfer fee will be payable by the ADS Holder whose ADSs are being transferred or by the person to whom the ADSs are transferred, and (ii) conversion of ADSs of one series for ADSs of another series, the ADS conversion fee will be payable by the Holder whose ADSs are converted or by the person to whom the converted ADSs are delivered.
In the event of refusal to pay the depositary fees, the depositary may, under the terms of the deposit agreement, refuse the requested service until payment is received or may set off the amount of the depositary fees from any distribution to be made to the ADS holder. Certain depositary fees and charges (such as the ADS services fee) may become payable shortly after the closing of the ADS offering. Note that the fees and charges you may be required to pay may vary over time and may be changed by us and by the depositary. You will receive prior notice of such changes.
The depositary may reimburse us for certain expenses incurred by us in respect of the ADR program, by making available a portion of the ADS fees charged in respect of the ADR program or otherwise, upon such terms and conditions as we and the depositary agree from time to time.
The depositary may convert currency itself or through any of its affiliates and, in those cases, acts as principal for its own account and not as agent, advisor, broker or fiduciary on behalf of any other person and earns revenue, including, without limitation, transaction spreads, that it will retain for its own account. The revenue is based on, among other things, the difference between the exchange rate assigned to the currency conversion made under the deposit agreement and the rate that the depositary or its affiliate receives when buying or selling foreign currency for its own account. The depositary makes no representation that the exchange rate used or obtained in any currency conversion under the deposit agreement will be the most favorable rate that could be obtained at the time or that the method by which that rate will be determined will be the most favorable to ADS holders, subject to the depositary’s obligations under the deposit agreement. The methodology used to determine exchange rates used in currency conversions is available upon request.
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PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
None.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
Material Modifications to the Rights of Security Holders
See “Item 10. Additional Information” for a description of the rights of securities holders, which remain unchanged.
Use of Proceeds
The following “Use of Proceeds” information relates to the registration statement on Form F-1, as amended (file No.: 333-268907) (the “F-1 Registration Statement”) in relation to our initial public offering, which was declared effective by the SEC on January 24, 2023.
For the period from the effective date of the Form F-1 to June 30, 2026, we had used proceeds of US$10.9 million for dividend distribution, US$19.1 million for shares repurchase, US$0.5 million for the investment on an unrelated private company, US$1.5 million for the acquisition and capital injection of Kelly’s education, US$3.4 million for general corporate purposes and working capital. As of June 30, 2026, we had used all the net proceeds we received from our initial public offering in 2023.
ITEM 15. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our chief executive officer and chief financial officer, has performed an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report, as required by Rule 13a-15(b) under the Exchange Act.
Based upon that evaluation, our management, with the participation of our chief executive officer and chief financial officer, has concluded that, due to the outstanding material weakness described below under “Internal Control over Financial Reporting,” as of June 30, 2026, our disclosure controls and procedures were not effective in ensuring that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Management’s Annual Report on Internal Control over Financial Reporting and Attestation Report of the Registered Public Accounting Firm
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP and includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of our company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with U.S. GAAP, and that receipts and expenditures of our company are being made only in accordance with authorizations of our management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of the unauthorized acquisition, use or disposition of our company’s assets that could have a material effect on the consolidated financial statements.
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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness of our internal control over financial reporting to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
As required by Section 404 of the Sarbanes-Oxley Act of 2002 and related rules as promulgated by the SEC, our management, including our chief executive officer and chief financial officer, assessed the effectiveness of internal control over financial reporting as of June 30, 2026, using the criteria set forth in the report “Internal Control—Integrated Framework (2013)” published by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management concluded that our internal control over financial reporting was not effective as of June 30, 2026, due to the material weakness identified in our internal control over financial reporting as described below.
Notwithstanding management’s assessment that our internal control over financial reporting was not effective as of June 30, 2026, due to the material weakness identified, we believe that the consolidated financial statements included in this annual report fairly present our financial position, results of operations and cash flows for the fiscal years covered thereby in all material aspects.
Our independent registered public accounting firm will not be required to report on the effectiveness of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act until we are no longer an “emerging growth company” as defined in the JOBS Act.
Internal Control over Financial Reporting
In connection with the audit of our consolidated financial statements for the fiscal years ended June 30, 2024, 2025 and 2026, we and our independent registered public accounting firm identified one material weakness in our internal control over financial reporting. As defined in the standards established by the U.S. Public Company Accounting Oversight Board, a “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim consolidated financial statements will not be prevented or detected on a timely basis.
The material weakness that has been identified relates to lack of sufficient financial reporting and accounting personnel with appropriate knowledge of U.S. GAAP and reporting requirements set forth by the SEC to properly address complex U.S. GAAP technical accounting issues, and to prepare and review the consolidated financial statements and related disclosures in accordance with U.S. GAAP and financial reporting requirements set forth by the SEC.
During the year ended June 30, 2026, the progress of our remediation on the material weakness has been temporarily affected due to the business shift and personnel changes. However, we remain committed to continuing our remediation efforts. To remedy our identified material weakness, we will continue to establish clear roles and responsibilities for accounting and financial reporting staff members to address complex accounting and financial reporting issues and to prepare and review consolidated financial statements, including the related disclosures, under U.S. GAAP and SEC reporting requirements, and we will implement measures to improve our internal control over financial reporting, including hiring an additional financial reporting manager and a reporting associate with appropriate knowledge and experience in U.S. GAAP accounting and SEC reporting to lead our accounting and financial reporting matters. In addition, we will continue to improve our internal control over financial reporting through the following measures, among others: (1) develop and implement a comprehensive set of processes and internal controls to timely and appropriately (i) identify transactions that may be subject to complex U.S. GAAP accounting treatment, (ii) analyze the transactions in accordance with the relevant U.S. GAAP, and (iii) review the accounting technical analysis; (2) enhance our financial closing and reporting policies and procedures and business process level internal controls relevant to the complex transactions to ensure that they are properly accounted for in accordance with U.S. GAAP; (3) recruit qualified accounting staff members with U.S. GAAP and SEC reporting experiences to implement the abovementioned financial reporting procedures and internal controls to ensure the consolidated financial statements and related disclosures under U.S. GAAP and SEC reporting requirements are prepared appropriately on a timely basis; and (4) establish an ongoing training program to provide sufficient and appropriate trainings for accounting and financial reporting personnel, including trainings related to U.S. GAAP and SEC reporting requirements.
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However, we cannot assure you that all these measures will be sufficient to remediate our material weakness in time, or at all. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Industry—We have identified one material weakness in our internal controls. If we are unable to develop and maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results in a timely manner, which may adversely affect investor confidence in us and materially and adversely affect our business and operating results.”
As a company with less than US$1.235 billion in revenue for the fiscal year ended June 30, 2026, we qualify as an “emerging growth company” pursuant to the JOBS Act. An emerging growth company may take advantage of specified reduced reporting and other requirements that are otherwise applicable generally to public companies. These provisions include exemption from the auditor attestation requirement under Section 404 of the Sarbanes-Oxley Act of 2002 in the assessment of the emerging growth company’s internal control over financial reporting.
Changes in Internal Control over Financial Reporting
There were no changes in our internal controls over financial reporting that occurred during the period covered by this annual report on Form 20-F that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 16. [RESERVED]
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
Our board of directors has determined that Mr. Hongqiang Zhao, an independent director (under the standards set forth in Rule 5605(a)(2) of the Nasdaq Stock Market Rules and Rule 10A-3 under the Exchange Act) and the chairman of our audit committee, is our audit committee financial expert.
ITEM 16B. CODE OF ETHICS
Our board of directors has adopted our code of conduct and ethics, a code that applies to members of the board of directors including its chairman and other senior officers, including the chief executive officer and the chief financial officer. This code is publicly available on our website at http://ir.heregroup.com.
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table sets forth the aggregate fees by categories specified below in connection with certain professional services rendered by PricewaterhouseCoopers Zhong Tian LLP, our independent registered public accounting firm, and its affiliates, for the fiscal years indicated. Save as disclosed below, we did not pay any other fees to our independent registered public accounting firm during the periods indicated below.
| For the fiscal year ended June 30, | ||||||||
| 2025 | 2026 | |||||||
| (RMB in thousands) | ||||||||
| Audit fees(1) | 9,315 | 7,918 | ||||||
| Tax fees(2) | — | — | ||||||
| (1) | “Audit fees” means the aggregate fees incurred in each of the fiscal years listed for professional services rendered by our principal auditor for the audit or review of our annual financial statements or quarterly financial information and review of documents filed with the SEC. |
| (2) | “Tax fees” means the aggregate fees incurred in each of the fiscal years listed for professional services rendered by our principal auditors for tax compliance and tax planning. |
Our audit committee (or a subcommittee designated by the audit committee) is responsible for pre-approving all audit and permitted non-audit services provided by PricewaterhouseCoopers Zhong Tian LLP.
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ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
None.
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
On June 11, 2024, our board of directors authorized the 2024 Share Repurchase Program, under which we may repurchase up to US$20.0 million of the ADSs over the 12 months commencing on June 11, 2024. Repurchases under the 2024 Share Repurchase Program may be made from time to time through open market transactions at prevailing market prices, in privately negotiated transactions, in block trades and/or through other legally permissible means. The following table sets forth the details of the repurchases made in accordance with the 2024 Share Repurchase Program during the fiscal years ended June 30, 2024 and 2025.
| Period | Total number of ADSs purchased | Average price paid per ADS | Total number of ADSs purchased as part of publicly announced plans or programs | Maximum dollar value of ADSs that may yet be purchased under the plans or programs | ||||||||||||
| June 2024 | 1,512,549 | 2.2 | 1,512,549 | 16,699,907.4 | ||||||||||||
| July 2024 | 90,087 | 1.7 | 90,087 | 16,549,773.2 | ||||||||||||
| August 2024 | 15,130 | 1.7 | 15,130 | 16,524,792.9 | ||||||||||||
| September 2024 | 33,466 | 1.7 | 33,466 | 16,468,006.9 | ||||||||||||
| December 2024 | 10,000 | 3.0 | 10,000 | 16,438,337.6 | ||||||||||||
On June 6, 2025, our board of directors authorized the 2025 Share Repurchase Program, under which we may repurchase up to US$20.0 million of the ADSs for a purchase period beginning from June 11, 2025 and ending on June 30, 2026. Repurchases under the 2025 Share Repurchase Program may be made from time to time through open market transactions at prevailing market prices, in privately negotiated transactions, in block trades and/or through other legally permissible means. The following table sets forth the details of the repurchases made in accordance with the 2025 Share Repurchase Program during the fiscal year ended June 30, 2025 and 2026.
| Period | Total number of ADSs purchased | Average price paid per ADS | Total number of ADSs purchased as part of publicly announced plans or programs | Maximum dollar value of ADSs that may yet be purchased under the plans or programs | ||||||||||||
| June 2025 | 193,553 | 11.6 | 193,553 | 17,762,201.1 | ||||||||||||
| July 2025 | 905 | 8.5 | 905 | 17,754,540.8 | ||||||||||||
| August 2025 | 188,828 | 8.0 | 188,828 | 16,234,686.3 | ||||||||||||
| September 2025 | 128,871 | 9.6 | 128,871 | 15,003,421.7 | ||||||||||||
| December 2025 | 407,223 | 5.1 | 407,223 | 12,926,266.8 | ||||||||||||
| January 2026 | 665,248 | 4.9 | 665,248 | 9,635,386.0 | ||||||||||||
| February 2026 | 88,581 | 4.8 | 88,581 | 9,207,517.3 | ||||||||||||
| March 2026 | 313,675 | 3.3 | 313,675 | 8,174,966.9 | ||||||||||||
| April 2026 | 186,151 | 3.3 | 186,151 | 7,552,978.5 | ||||||||||||
| May 2026 | 107,917 | 3.3 | 107,917 | 7,193,260.4 | ||||||||||||
| June 2026 | 150,833 | 2.1 | 150,833 | 6,877,065.0 | ||||||||||||
On June 5, 2026, our board of directors authorized the 2026 Share Repurchase Program, under which we may repurchase up to US$20.0 million of the ADSs for a purchase period beginning from July 1, 2026 and ending on June 30, 2027. Repurchases under the 2026 Share Repurchase Program may be made from time to time through open market transactions at prevailing market prices, in privately negotiated transactions, in block trades and/or through other legally permissible means.
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ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
None.
ITEM 16G. CORPORATE GOVERNANCE
As a Cayman Islands company listed on Nasdaq, we are subject to the Nasdaq corporate governance listing standards. However, the Nasdaq Stock Market Rules permit a foreign private issuer like us to follow the corporate governance practices of its home country. Certain corporate governance practices in the Cayman Islands, which is our home country, may differ significantly from the Nasdaq corporate governance listing standards. Certain corporate governance practices in the Cayman Islands, which is our home country, differ significantly from requirements for companies incorporated in other jurisdictions such as the United States. To the extent that we choose to follow home country practice with respect to corporate governance matters, our shareholders may be afforded less protection than they otherwise would under rules and regulations applicable to U.S. domestic issuers. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Governance—As an exempted company incorporated in the Cayman Islands, we are permitted to adopt certain home country practices for corporate governance matters that differ significantly from the Nasdaq corporate governance listing standards; these practices may afford less protection to shareholders than they would enjoy if we complied fully with the corporate governance listing standards.”
ITEM 16H. MINE SAFETY DISCLOSURE
Not applicable.
ITEM 16I. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
ITEM 16J. INSIDER TRADING POLICIES
We have
| ● | No Trading: No Affiliate may purchase or sell any type of security or enter into a binding security trading plan in compliance with Rule 10b5-1 under the Exchange Act, as amended, while in possession of material non-public information. Affiliates in possession of such information may not purchase or sell our securities until the later of (i) the expiration of a 48-hour waiting period following public disclosure of the material information by us, and (ii) the lapse of one full trading day on Nasdaq following such public disclosure. Additionally, affiliates may not trade during limited trading periods, regardless of the possession of material information. All transactions of securities by officers, directors, and key employees must be pre-approved by our compliance officer. |
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| ● | Trading Window: The insider trading policy establishes a trading window for officers, directors, employees, or consultants, during which they can trade our securities or enter into a trading plan. The trading window begins at the close of business on the second trading day following the public disclosure of our financial results for the previous fiscal year or quarter and ends on the last day of each fiscal quarter. Trading during the trading window does not provide a safe harbor, and affiliates must comply with all policies. |
| ● | No Tipping: No Affiliate may directly or indirectly disclose any material information to anyone who trades in our securities. |
| ● | Confidentiality: No Affiliate may communicate any material information to anyone outside our company under any circumstances unless approved by the compliance officer in advance, or to anyone within our company other than on a need-to-know basis. |
| ● | No Comment: No Affiliate may discuss any internal matters or developments of our company with anyone outside our company, except as required in the performance of regular corporate duties. Unless expressly authorized to do otherwise, if an affiliate receives any inquiries about us or our securities from any press, investment analyst, investor or other outsiders, or any requests for comments or interviews, they should decline to comment and direct the inquiry or request to the compliance officer or any other office designated by the chief executive officer. |
| ● | Corrective Action: If any information that may be considered material information is inadvertently disclosed, any Affiliate with knowledge of the disclosure should notify the compliance officer immediately. |
We are committed to maintaining the highest standards of ethical conduct and have implemented these insider trading policies and procedures to ensure compliance with applicable securities laws and to protect the interests of our shareholders.
Item 16K. Cybersecurity.
Risk Management and Strategy
We collect and store different types of personal information concerning our users in our business operations based on the type of services requested. For instance, we generally collect cellphone numbers and/or social media accounts of our users for account registration purpose, delivery information for physical goods shipment, and transaction data relating to blind-box purchases and draw records. We collect such information from different sources, including our mobile apps, Weixin mini-programs and official accounts, offline self-operated stores, third-party retail channels and fan community platforms. We believe that the legitimate and positive use of data concerning our users is critical to our business success.
We provide our services via our mobile apps under standard user privacy provisions, pursuant to which we undertake to collect user information on a lawful, appropriate and necessary basis. These provisions inform users about the situations we will collect personal information, the type of information collected, how we store and use such information, users’ rights, and our data security measures. In the case of blind-box sales, applicable regulations require us to take measures to prevent purchases by minors under the age of eight and to confirm that purchasers aged eight and above have obtained guardian consent, which requires the collection and verification of certain age-related and identity information. We also establish a set of detailed rules in collecting and using user information for each key step in blind-box sales and fan engagement, including those relating to online draw mechanics, purchase-limit mechanisms and community interactions.. We will not share user information with third parties unless there is express consent or required by law. We update our user privacy provisions from time to time to ensure that they comply with the relevant laws and regulations and stay abreast with our business updates.
We have implemented stringent internal protocols with respect to data storage, access, processing and extraction. For sensitive personal information, including identity verification data used in minor protection controls and certain transaction records, we apply encryption procedures, and grant classified and limited access to such information, generally after data masking, to those employees demonstrating authorized needs through an internal application and approval process. We have also implemented protocols on personal information security protection, which govern our internal business processes including the demand analysis, product design and development, testing and product launch, to evaluate and ensure our personal information compliance on an ongoing basis. We retain records of blind-box draw probabilities, draw results and related transaction records for the periods required by applicable regulations. To tackle potential security incidents, we design relevant action plans to limit the impact on our users and business operations.
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We currently do not
Governance
We have established data security management committee, which is generally responsible for assessing and managing our cybersecurity risks, and we have formulated emergency policies for cybersecurity incidents. We also have in-house security engineer, which is a certified information security professional, to implement and oversee our cybersecurity measures. As of the date of this annual report, we have not experienced material cybersecurity incidents.
Our routine cybersecurity governance primarily comprises three aspects, including decision-making, cybersecurity management and compliance. Our data security management committee is responsible for overseeing our cybersecurity risks and routine decision-making.
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PART III
ITEM 17. FINANCIAL STATEMENTS
We have elected to provide financial statements pursuant to Item 18.
ITEM 18. FINANCIAL STATEMENTS
Our consolidated financial statements are included at the end of this annual report.
ITEM 19. EXHIBITS
EXHIBIT INDEX
| Exhibit No. | Description of Exhibit | |
| 1.1* | Third Amended and Restated Memorandum and Articles of Association of the Registrant, as currently in effect | |
| 2.1 | Registrant’s specimen American depositary receipt (incorporated herein by reference to Exhibit A to the Registrant’s prospectus (file No.: 333-268984) filed pursuant to Rule 424(b)(3) on November 10, 2025) | |
| 2.2* | Registrant’s specimen certificate for Class A ordinary shares | |
| 2.3 | Deposit Agreement dated January 24, 2023, by and among the Registrant, the depositary and the owners and holders of American depositary shares issued thereunder (incorporated herein by reference to Exhibit 2.3 to our annual report on Form 20-F (file No. 001-41590) filed with the SEC on October 27, 2023) | |
| 2.4 | Amended and Restated Shareholders’ Agreement between the Registrant and other parties thereto dated December 20, 2022 (incorporated herein by reference to Exhibit 4.4 to our registration statement on Form F-1 (file no. 333-268907), as amended, initially filed with the SEC on December 20, 2022) | |
| 2.5* | Description of Securities | |
| 4.1 | English translation of Exclusive Consultancy and Service Agreement among Beijing Liangzizhige Technology Co., Ltd. and Feierlai (Beijing) Technology Co., Ltd. dated May 20, 2021 (incorporated herein by reference to Exhibit 10.5 to our registration statement on Form F-1 (file No. 333-268907), as amended, initially filed with the SEC on December 20, 2022) | |
| 4.2 | English translation of Equity Pledge Agreement among Beijing Liangzizhige Technology Co., Ltd., Feierlai (Beijing) Technology Co., Ltd. and the shareholder of Feierlai (Beijing) Technology Co., Ltd. dated May 20, 2021 (incorporated herein by reference to Exhibit 10.6 to our registration statement on Form F-1 (file No. 333-268907), as amended, initially filed with the SEC on December 20, 2022) | |
| 4.3 | English translation of Exclusive Option Agreement among Beijing Liangzizhige Technology Co., Ltd., Feierlai (Beijing) Technology Co., Ltd. and the shareholder of Feierlai (Beijing) Technology Co., Ltd. dated May 20, 2021 (incorporated herein by reference to Exhibit 10.7 to our registration statement on Form F-1 (file No. 333-268907), as amended, initially filed with the SEC on December 20, 2022) | |
| 4.4 | English translation of Voting Rights Proxy Agreement issued among Beijing Liangzizhige Technology Co., Ltd., Feierlai (Beijing) Technology Co., Ltd. and the shareholder of Feierlai (Beijing) Technology Co., Ltd. dated as of May 20, 2021 (incorporated herein by reference to Exhibit 10.8 to our registration statement on Form F-1 (file No. 333-268907), as amended, initially filed with the SEC on December 20, 2022) | |
| 4.5 | Form of Indemnification Agreement between the Registrant and its directors and executive officers (incorporated herein by reference to Exhibit 10.3 to our registration statement on Form F-1 (file No. 333-268907), as amended, initially filed with the SEC on December 20, 2022) | |
| 4.6 | Form of Employment Agreement between the Registrant and the executive officers of the Registrant (incorporated herein by reference to Exhibit 10.4 to our registration statement on Form F-1 (file No. 333-268907), as amended, initially filed with the SEC on December 20, 2022) | |
| 4.7 | 2018 Share Incentive Plan (incorporated herein by reference to Exhibit 10.1 to our registration statement on Form F-1 (file No. 333-268907), as amended, initially filed with the SEC on December 20, 2022) | |
| 4.8 | 2021 Share Incentive Plan (incorporated herein by reference to Exhibit 10.2 to our registration statement on Form F-1 (file No. 333-268907), as amended, initially filed with the SEC on December 20, 2022) | |
| 4.9 | English translation of Exclusive Consultancy and Service Agreement among Beijing Chuangyuqizhi Technology Co., Ltd. and Beijing Zhixueduxing Technology Co., Ltd. dated May 8, 2024 (incorporated herein by reference to Exhibit 4.9 to our annual report on Form 20-F (file No. 001-41590) filed with the SEC on August 29, 2024) | |
| 4.10 | English translation of Equity Pledge Agreement among Beijing Chuangyuqizhi Technology Co., Ltd., Beijing Zhixueduxing Technology Co., Ltd. and the shareholder of Beijing Zhixueduxing Technology Co., Ltd. dated May 8, 2024 (incorporated herein by reference to Exhibit 4.10 to our annual report on Form 20-F (file No. 001-41590) filed with the SEC on August 29, 2024) | |
| 4.11 | English translation of Exclusive Option Agreement among Beijing Chuangyuqizhi Technology Co., Ltd., Beijing Zhixueduxing Technology Co., Ltd. and the shareholder of Beijing Zhixueduxing Technology Co., Ltd. dated May 8, 2024 (incorporated herein by reference to Exhibit 4.11 to our annual report on Form 20-F (file No. 001-41590) filed with the SEC on August 29, 2024) | |
| 4.12 | English translation of Voting Rights Proxy Agreement issued among Beijing Chuangyuqizhi Technology Co., Ltd., Beijing Zhixueduxing Technology Co., Ltd. and the shareholder of Beijing Zhixueduxing Technology Co., Ltd. dated as of May 8, 2024 (incorporated herein by reference to Exhibit 4.12 to our annual report on Form 20-F (file No. 001-41590) filed with the SEC on August 29, 2024) | |
| 4.13 | English translation of Exclusive Consultancy and Service Agreement among Beijing Liangzizhige Technology Co., Ltd. and Beijing Chuangyuqizhi Co., Ltd. dated April 2, 2025 (incorporated herein by reference to Exhibit 4.13 to our annual report on Form 20-F (file No. 001-41590) filed with the SEC on October 31, 2025) | |
| 4.14 | English translation of Equity Pledge Agreement among Beijing Liangzizhige Technology Co., Ltd., Beijing Chuangyuqizhi Technology Co., Ltd. and the shareholder of Beijing Chuangyuqizhi Technology Co., Ltd. Dated April 2, 2025 (incorporated herein by reference to Exhibit 4.14 to our annual report on Form 20-F (file No. 001-41590) filed with the SEC on October 31, 2025) |
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| 4.15 | English translation of Exclusive Option Agreement among Beijing Liangzizhige Technology Co., Ltd., Beijing Chuangyuqizhi Technology Co., Ltd. and the shareholder of Beijing Chuangyuqizhi Technology Co., Ltd. dated April 2, 2025 (incorporated herein by reference to Exhibit 4.15 to our annual report on Form 20-F (file No. 001-41590) filed with the SEC on October 31, 2025) | |
| 4.16 | English translation of Voting Rights Proxy Agreement issued among Beijing Liangzizhige Technology Co., Ltd., Beijing Chuangyuqizhi Technology Co., Ltd. and the shareholder of Beijing Chuangyuqizhi Technology Co., Ltd. dated as of April 2, 2025 (incorporated herein by reference to Exhibit 4.16 to our annual report on Form 20-F (file No. 001-41590) filed with the SEC on October 31, 2025) | |
| 4.17 | English translation of Capital Increase Agreement among Shenzhen Yiqi Culture Co., Ltd., Mr. Huiyu Zhan and other shareholders of Shenzhen Yiqi Culture Co., Ltd., Shenzhen Chaowan World Information Technology Co., Ltd. and certain parties thereto dated as of March 21, 2025 (incorporated herein by reference to Exhibit 4.17 to our annual report on Form 20-F (file No. 001-41590) filed with the SEC on October 31, 2025) | |
| 4.18 | English translation of Shareholders’ Agreement among Shenzhen Yiqi Culture Co., Ltd., Mr. Huiyu Zhan and other shareholders of Shenzhen Yiqi Culture Co., Ltd., Shenzhen Chaowan World Information Technology Co., Ltd. and certain parties thereto dated as of March 21, 2025 (incorporated herein by reference to Exhibit 4.18 to our annual report on Form 20-F (file No. 001-41590) filed with the SEC on October 31, 2025) | |
| 4.19 | English translation of Equity Transfer Agreement among Shenzhen Yiqi Culture Co., Ltd., Mr. Huiyu Zhan and other shareholders of Shenzhen Yiqi Culture Co., Ltd., Shenzhen Chaowan World Information Technology Co., Ltd. and certain parties thereto dated as of March 21, 2025 (incorporated herein by reference to Exhibit 4.19 to our annual report on Form 20-F (file No. 001-41590) filed with the SEC on October 31, 2025) | |
| 4.20 | English translation of Debt-to-Equity Conversion Agreement among Shenzhen Yiqi Culture Co., Ltd., Mr. Huiyu Zhan and certain shareholders of Shenzhen Yiqi Culture Co., Ltd., and Shenzhen Chaowan World Information Technology Co., Ltd. dated as of March 21, 2025 (incorporated herein by reference to Exhibit 4.20 to our annual report on Form 20-F (file No. 001-41590) filed with the SEC on October 31, 2025) | |
| 4.21 | English translation of the Equity Transfer Agreement among QuantaSing Group Limited, Shenzhen Yiqi Culture Co., Ltd., Mr. Huiyu Zhan and certain shareholders of Shenzhen Yiqi Culture Co., Ltd. dated July 31, 2025 (incorporated herein by reference to Exhibit 4.21 to our annual report on Form 20-F (file No. 001-41590) filed with the SEC on October 31, 2025) | |
| 4.22 | English translation of the VIE termination agreement among Beijing Liangzizhige Technology Co., Ltd., Beijing Chuangyuqizhi Technology Co., Ltd., Feierlai (Beijing) Technology Co., Ltd. and their respective nominee shareholder dated as of September 30, 2025 (incorporated herein by reference to Exhibit 4.22 to our annual report on Form 20-F (file No. 001-41590) filed with the SEC on October 31, 2025) | |
| 4.23 | English translation of the Domestic Equity Transfer Agreement among the investor, Beijing Liangzizhige Technology Co., Ltd., Beijing Chuangyuqizhi Technology Co., Ltd., Feierlai (Beijing) Technology Co., Ltd. and their respective nominee shareholder dated as of September 30, 2025 (incorporated herein by reference to Exhibit 4.23 to our annual report on Form 20-F (file No. 001-41590) filed with the SEC on October 31, 2025) | |
| 4.24 | English translation of the Overseas Equity Transfer Agreement among the investor, QuantaSing Group Limited, QuantaSing International Limited and Rare River Group Limited dated as of September 30, 2025 (incorporated herein by reference to Exhibit 4.24 to our annual report on Form 20-F (file No. 001-41590) filed with the SEC on October 31, 2025) | |
| 8.1* | List of subsidiaries of the Registrant | |
| 11.1* | Code of business conduct and ethics | |
| 11.2* | Insider Trading Policy | |
| 12.1* | CEO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 12.2* | CFO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 13.1** | CEO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 13.2** | CFO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 15.1* | Consent of PricewaterhouseCoopers Zhong Tian LLP | |
| 15.2* | Consent of Maples and Calder (Hong Kong) LLP | |
| 15.3* | Consent of CM Law Firm | |
| 97* | Compensation Recovery Policy | |
| 101.INS* | Inline XBRL Instance Document- the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | |
| 101.SCH* | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
| * | Filed with this annual report on Form 20-F. |
| ** | Furnished with this annual report on Form 20-F. |
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SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
| HERE GROUP LIMITED | ||
| By: | /s/ Peng Li | |
| Name: | Peng Li | |
| Title: | Chief Executive Officer | |
Date: October 30, 2026
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HERE GROUP LIMITED
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| Page(s) | ||
| Report of Independent Registered Public Accounting Firm (PCAOB ID: | F-2 | |
| Consolidated Balance Sheets as of June 30, 2025 and 2026 | F-3 | |
| Consolidated Statements of Operations and Comprehensive Income for the years ended June 30, 2024, 2025 and 2026 | F-5 | |
| Consolidated Statements of Changes in Shareholders’ Equity for the years ended June 30, 2024, 2025 and 2026 | F-6 | |
| Consolidated Statements of Cash Flows for the years ended June 30, 2024, 2025 and 2026 | F-8 | |
| Notes to Consolidated Financial Statements | F-10 |
F-1
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Here Group Limited
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Here Group Limited and its subsidiaries (the “Company”) as of June 30, 2026 and 2025, and the related consolidated statements of operations and comprehensive income, of changes in shareholders’ equity and of cash flows for each of the three years in the period ended June 30, 2026, including the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2026 and 2025, and the results of its operations and its cash flows for each of the three years in the period ended June 30, 2026 in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/
October 30, 2026
We have served as the Company’s auditor since 2021.
F-2
HERE GROUP LIMITED
CONSOLIDATED BALANCE SHEETS
(All amounts in thousands, except for share and per share data, or otherwise noted)
| As of June 30, | ||||||||||||||
| Note | 2025 | 2026 | 2026 | |||||||||||
| RMB | RMB | US$ Note 2(e) |
||||||||||||
| ASSETS | ||||||||||||||
| Current assets: | ||||||||||||||
| Cash and cash equivalents | ||||||||||||||
| Restricted cash | ||||||||||||||
| Short-term investments | 15 | |||||||||||||
| Accounts receivable, net | 6 | |||||||||||||
| Amounts due from related parties | 25 | |||||||||||||
| Inventories, net | 7 | |||||||||||||
| Prepayments and other current assets | 8 | |||||||||||||
| Current assets held for sale | 4 | |||||||||||||
| Total current assets | ||||||||||||||
| Non-current assets: | ||||||||||||||
| Property and equipment, net | 9 | |||||||||||||
| Intangible assets, net | 10 | |||||||||||||
| Long-term investments | 16 | |||||||||||||
| Operating lease right-of-use assets | 14 | |||||||||||||
| Goodwill | 17 | |||||||||||||
| Other non-current assets | ||||||||||||||
| Non-current assets held for sale | 4 | |||||||||||||
| Total non-current assets | ||||||||||||||
| TOTAL ASSETS | ||||||||||||||
F-3
HERE GROUP LIMITED
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(All amounts in thousands, except for share data and per share data, or otherwise noted)
| As of June 30, | ||||||||||||||
| Note | 2025 | 2026 | 2026 | |||||||||||
| RMB | RMB | US$ Note 2(e) |
||||||||||||
| LIABILITIES | ||||||||||||||
| Current liabilities: | ||||||||||||||
| Short-term borrowings | 11 | |||||||||||||
| Accounts payable | 12 | |||||||||||||
| Accrued expenses and other current liabilities | 13 | |||||||||||||
| Amounts due to related parties | 25 | |||||||||||||
| Income tax payable | ||||||||||||||
| Contract liabilities | ||||||||||||||
| Operating lease liabilities, current | 14 | |||||||||||||
| Current liabilities held for sale | 4 | |||||||||||||
| Total current liabilities | ||||||||||||||
| Non-current liabilities: | ||||||||||||||
| Operating lease liabilities, non-current | 14 | |||||||||||||
| Deferred tax liabilities | 18 | |||||||||||||
| Non-current liabilities held for sale | 4 | |||||||||||||
| Total non-current liabilities | ||||||||||||||
| TOTAL LIABILITIES | ||||||||||||||
| Commitments and contingencies | 26 | |||||||||||||
| MEZZANINE EQUITY | ||||||||||||||
| Non-controlling interests | 20 | |||||||||||||
| SHAREHOLDERS’ EQUITY | ||||||||||||||
| Class A ordinary shares (US$ | 22 | |||||||||||||
| Class B ordinary shares (US$ | 22 | |||||||||||||
| Treasury stock | 22 | ( | ) | ( | ) | ( | ) | |||||||
| Additional paid-in capital | ||||||||||||||
| Accumulated other comprehensive income | ||||||||||||||
| Accumulated deficit | ( | ) | ( | ) | ( | ) | ||||||||
| TOTAL HERE GROUP LIMITED SHAREHOLDERS’ EQUITY | ||||||||||||||
| Non-controlling interests | ||||||||||||||
| TOTAL SHAREHOLDERS’ EQUITY | ||||||||||||||
| TOTAL LIABILITIES, MEZZANINE EQUITY, AND SHAREHOLDERS’ EQUITY | ||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-4
HERE GROUP LIMITED
Consolidated Statements of Operations and Comprehensive INCOME
(All amounts in thousands, except for share data and per share data, or otherwise noted)
| For the years ended June 30, | ||||||||||||||||||
| Note | 2024 | 2025 | 2026 | 2026 | ||||||||||||||
| RMB | RMB | RMB | US$ Note 2(e) |
|||||||||||||||
| Revenues (including revenue from related parties of , RMB | 2(x) | |||||||||||||||||
| Cost of revenues (including cost of revenues from related parties of , and RMB | ( | ) | ( | ) | ( | ) | ||||||||||||
| Gross profit | ||||||||||||||||||
| Operating expenses: | ||||||||||||||||||
| Sales and marketing expenses (including sales and marketing expenses from related parties of , RMB | ( | ) | ( | ) | ( | ) | ||||||||||||
| Research and development expenses | ( | ) | ( | ) | ( | ) | ||||||||||||
| General and administrative expenses | ( | ) | ( | ) | ( | ) | ||||||||||||
| Impairment loss on goodwill | 17 | ( | ) | ( | ) | |||||||||||||
| Total operating expenses | ( | ) | ( | ) | ( | ) | ||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ||||||||||||
| Other income: | ||||||||||||||||||
| Interest income | ||||||||||||||||||
| Others, net | 19 | |||||||||||||||||
| Loss before income tax expense | ( | ) | ( | ) | ( | ) | ||||||||||||
| Income tax (expense)/benefit | 18 | ( | ) | |||||||||||||||
| Net loss from continuing operations, net of income tax | ( | ) | ( | ) | ( | ) | ||||||||||||
| Net income from discontinued operation, net of income tax (including gain on disposal of , and RMB | 4 | |||||||||||||||||
| Net income | ||||||||||||||||||
| Net loss/(income) attributable to non-controlling interests | ( | ) | ( | ) | ||||||||||||||
| Net income attributable to ordinary shareholders of Here Group Limited | ||||||||||||||||||
| Including： | ||||||||||||||||||
| Net loss from continuing operations attributable to ordinary shareholders of the Company | ( | ) | ( | ) | ( | ) | ||||||||||||
| Net income from discontinued operation attributable to ordinary shareholders of the Company | ||||||||||||||||||
| Weighted average number of ordinary shares used in computing net (loss)/income per share | ||||||||||||||||||
| —Basic | 24 | |||||||||||||||||
| —Diluted | 24 | |||||||||||||||||
| Net loss from continuing operations per share attributable to ordinary shareholders of the Company—basic | 24 | ( | ) | ( | ) | ( | ) | |||||||||||
| Net income from discontinued operation per share attributable to ordinary shareholders of the Company —basic | 24 | |||||||||||||||||
| Net loss from continuing operations per share attributable to ordinary shareholders of the Company—diluted | 24 | ( | ) | ( | ) | ( | ) | |||||||||||
| Net income from discontinued operation per share attributable to ordinary shareholders of the Company—diluted | 24 | |||||||||||||||||
| Comprehensive income: | ||||||||||||||||||
| Net income | ||||||||||||||||||
| Other comprehensive loss | ||||||||||||||||||
| Foreign currency translation adjustments, net of nil tax | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||
| Total other comprehensive loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||
| Total comprehensive income | ||||||||||||||||||
Comprehensive loss/(income) attributable to non-controlling interests | ( | ) | ( | ) | ||||||||||||||
| Comprehensive income attributable to Here Group Limited | ||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-5
HERE GROUP LIMITED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(All amounts in thousands, except for share data and per share data, or otherwise noted)
| Attributable to the owners of Here Group Limited | ||||||||||||||||||||||||||||||||||||||||||||||
| Note | Class A ordinary shares |
Class B ordinary shares |
Treasury stock | Additional paid-in |
Accumulated other comprehensive |
Accumulated | Non-controlling | Total | ||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | capital | income/(loss) | deficit | interests | equity | ||||||||||||||||||||||||||||||||||||
| RMB | RMB | RMB | RMB | RMB | RMB | RMB | RMB | |||||||||||||||||||||||||||||||||||||||
| Balance as of June 30, 2023 | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||
| Issuance of ordinary shares for share incentive plan | 22 | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||
| Cancellation of ordinary shares | 22 | ( | ) | - | ||||||||||||||||||||||||||||||||||||||||||
| Repurchase of American depositary shares (“ADSs”) | 22 | - | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Exercise of share options | 21 | ( | ) | |||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | 21 | - | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Disposal of non-controlling interests | - | - | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Net income | - | - | - | |||||||||||||||||||||||||||||||||||||||||||
| Currency translation differences | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||
| Balance as of June 30, 2024 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Balance as of June 30, 2024 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Repurchase of ADSs | 22 | - | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Exercise of share options | 21 | ( | ) | |||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | 21 | - | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Acquisition of subsidiary with non-controlling interests | 3 | - | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Capital contribution from non-controlling interests | - | - | - | |||||||||||||||||||||||||||||||||||||||||||
| Acquisition of noncontrolling interest | 20 | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Declaration of cash dividends | 23 | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Net income | - | - | - | ( | ) | |||||||||||||||||||||||||||||||||||||||||
| Currency translation differences | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||
| Balance as of June 30, 2025 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
F-6
HERE GROUP LIMITED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (CONTINUED)
(All amounts in thousands, except for share data and per share data, or otherwise noted)
| Attributable to the owners of Here Group Limited | ||||||||||||||||||||||||||||||||||||||||||||||
| Note | Class A ordinary shares |
Class B ordinary shares |
Treasury stock | Additional paid-in |
Accumulated other comprehensive |
Accumulated | Non-controlling | Total | ||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | capital | income/(loss) | deficit | interests | equity | ||||||||||||||||||||||||||||||||||||
| RMB | RMB | RMB | RMB | RMB | RMB | RMB | RMB | |||||||||||||||||||||||||||||||||||||||
| Balance as of June 30, 2025 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Repurchase of ADSs | 22 | - | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Exercise of share options | 21 | ( | ) | |||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | 21 | - | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Share options retained by employees of Divested Business | 4 | - | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Acquisition of noncontrolling interest | 20 | - | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Elimination of upstream transaction with equity method investee | 16 | - | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Disposal of Divested Business | 4 | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Net income | - | - | - | |||||||||||||||||||||||||||||||||||||||||||
| Currency translation differences | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||
| Balance as of June 30, 2026 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-7
HERE GROUP LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(RMB in thousands, except for share data and per share data, or otherwise noted)
| For the years ended June 30, | ||||||||||||||||
| 2024 | 2025 | 2026 | 2026 | |||||||||||||
| RMB | RMB | RMB | US$ Note 2(e) |
|||||||||||||
| Cash flows from operating activities: | ||||||||||||||||
| Net income | ||||||||||||||||
| Less: net income from discontinued operation | ||||||||||||||||
| Net loss from continuing operations | ( | ) | ( | ) | ( | ) | ||||||||||
| Adjustments to reconcile net loss to net cash used in operating activities of continuing operations: | ||||||||||||||||
| Fair value changes of short-term investments | ( | ) | ||||||||||||||
| Provision of allowance for expected credit losses | ||||||||||||||||
| Inventory obsolescence impairment | ||||||||||||||||
| Depreciation of property and equipment | ||||||||||||||||
| Amortization of intangible assets | ||||||||||||||||
| Impairment loss on goodwill | ||||||||||||||||
| Share of (income)/loss from equity method investments, net of income tax | ( | ) | ||||||||||||||
| Amortization of unrecognized financing income | ( | ) | ( | ) | ||||||||||||
| Dividends received from an equity method investee | ||||||||||||||||
| Realized gains from short-term investments | ( | ) | ( | ) | ( | ) | ||||||||||
| Share-based compensation | ||||||||||||||||
| Deferred income tax expense/(benefit) | ( | ) | ( | ) | ||||||||||||
| Changes in operating assets and liabilities: | ||||||||||||||||
| Accounts receivable | ( | ) | ||||||||||||||
| Amounts due from related parties | ( | ) | ( | ) | ( | ) | ||||||||||
| Prepayments and other current assets | ( | ) | ||||||||||||||
| Operating lease right-of-use assets | ( | ) | ( | ) | ||||||||||||
| Accounts payables | ||||||||||||||||
| Accrued expenses and other current liabilities | ( | ) | ( | ) | ( | ) | ||||||||||
| Amounts due to related parties | ||||||||||||||||
| Income tax payable | ( | ) | ( | ) | ( | ) | ||||||||||
| Contract liabilities | ||||||||||||||||
| Operating lease liabilities, current portion | ( | ) | ||||||||||||||
| Operating lease liabilities, non-current portion | ||||||||||||||||
| Inventories, net | ( | ) | ( | ) | ( | ) | ||||||||||
| Other non-current assets | ( | ) | ( | ) | ( | ) | ||||||||||
| Net cash used in operating activities from continuing operations | ( | ) | ( | ) | ( | ) | ||||||||||
| Net cash provided by operating activities from discontinued operation | ||||||||||||||||
| Net cash provided by/(used in) operating activities | ( | ) | ( | ) | ||||||||||||
F-8
HERE GROUP LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(RMB in thousands, except for share data and per share data, or otherwise noted)
| For the years ended June 30, | ||||||||||||||||
| 2024 | 2025 | 2026 | 2026 | |||||||||||||
| RMB | RMB | RMB | US$ Note 2(e) |
|||||||||||||
| Cash flows from investing activities: | ||||||||||||||||
| Purchase of short-term investments | ( | ) | ( | ) | ( | ) | ||||||||||
| Proceeds from short-term investments | ||||||||||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ( | ) | ||||||||||
| Purchase of intangible assets | ( | ) | ( | ) | ||||||||||||
| Investment income from short-term investments | ||||||||||||||||
| Cash paid for business combination, net of cash and cash equivalents acquired | ( | ) | ||||||||||||||
| Proceeds from sale of equity method investments | ||||||||||||||||
| Disposal of Divested Business | ||||||||||||||||
| Disposal of property and equipment | ||||||||||||||||
| Loan provided to related parties | ( | ) | ( | ) | ( | ) | ||||||||||
| Net cash (used in)/provided by investing activities from continuing operations | ( | ) | ||||||||||||||
| Net cash (used in)/provided by investing activities from discontinued operation | ( | ) | ( | ) | ( | ) | ||||||||||
| Net cash (used in)/provided by investing activities | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Cash flows from financing activities: | ||||||||||||||||
| Proceeds from noncontrolling interests | ||||||||||||||||
| Acquisition of noncontrolling interest of subsidiaries | ( | ) | ( | ) | ( | ) | ||||||||||
| Repurchase of ADSs | ( | ) | ( | ) | ( | ) | ||||||||||
| Proceeds from exercise of share options | ||||||||||||||||
| Repayment of short-term borrowings | ( | ) | ( | ) | ( | ) | ||||||||||
| Other cash received relating to financing activities | ||||||||||||||||
| Net cash used in financing activities from continuing operations | ( | ) | ( | ) | ( | ) | ||||||||||
| Net cash used in financing activities from discontinued operation | ( | ) | ( | ) | ||||||||||||
| Net cash used in financing activities | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net increase/(decrease) in cash, cash equivalents and restricted cash | ( | ) | ( | ) | ||||||||||||
| Cash and cash equivalents and restricted cash at the beginning of the year | ||||||||||||||||
| Including: | ||||||||||||||||
| Cash and cash equivalents at the beginning of the year | ||||||||||||||||
| Restricted cash at the beginning of the year | ||||||||||||||||
| Cash, cash equivalents and restricted cash at the end of the year | ||||||||||||||||
| Including: | ||||||||||||||||
| Cash and cash equivalents at the end of the year | ||||||||||||||||
| Restricted cash at the end of the year | ||||||||||||||||
| Less: Cash and cash equivalents and restricted cash at the end of the year from discontinued operation | ||||||||||||||||
| Cash and cash equivalents and restricted cash at the end of the year from continuing operations | ||||||||||||||||
| Including: | ||||||||||||||||
| Cash and cash equivalents at the end of the year | ||||||||||||||||
| Restricted cash at the end of the year | ||||||||||||||||
| Supplemental disclosure of cash flow information | ||||||||||||||||
| Cash paid for income tax | ( | ) | ( | ) | ( | ) | ||||||||||
| Cash paid for interest | ( | ) | ( | ) | ( | ) | ||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-9
HERE GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share data and per share data, or otherwise noted)
| 1. | Organization and principal activities |
| (a) | Nature of operations |
Here Group Limited (the “Company” or “Here”) was incorporated in the Cayman Islands on
In March 2025, the Group completed an acquisition of
On September 30, 2025, the Group, through one of its subsidiaries, Beijing Qimengdao Technology Co., Ltd. (formerly known as Beijing Liangzizhige Technology Co., Ltd.), entered into the VIE Termination Agreement with Feierlai (Beijing) Technology Co., Ltd. (“Beijing Feierlai”, or the “VIE 1”) and Beijing Chuangyuqizhi Technology Co., Ltd. (“Beijing Chuangyuqizhi”, or the “VIE 2”), and the respective nominee shareholder of Beijing Feierlai and Beijing Chuangyuqizhi, to terminate the contractual arrangements among these parties. On the same day, the Group entered into share transfer agreements with the relevant entities of a third-party buyer (the “Buyer”), pursuant to which Beijing Qimengdao Technology Co., Ltd. instructed the nominee shareholder to transfer all of its equity interests in Beijing Feierlai and Beijing Chuangyuqizhi to the Buyer, and the Company transfers all of its equity interests in QuantaSing International Limited and Rare River Group Limited to the Buyer, for an aggregate consideration of approximately equivalent to RMB
The disposal of the Divested Business represents a strategic shift and has a significant impact on the Company’s results of operations. Accordingly, assets, liabilities, results of operations, and cash flows related to the Divested Business have been reflected in the accompanying consolidated financial statements as discontinued operation for all periods presented. The consolidated balance sheets as of June 30, 2025, the consolidated statements of comprehensive income and consolidated statements of cash flows for the years ended June 30, 2024, 2025 and 2026 have been adjusted to reflect this change (see Note 4).
Effective September 30, 2025, upon the completion of the disposal of the Divested Business, the Group deconsolidated the financial statements of the Divested Business from its consolidated financial statements. Following the disposition, the Group’s strategic focus would be centered on the pop toy business.
F-10
HERE GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amounts in thousands, except for share data and per share data, or otherwise noted)
| 1. | Organization and principal activities (Continued) |
| (a) | Nature of operations (Continued) |
As of June 30, 2026, the Company’s major subsidiaries are as follows:
| Date of incorporation | Place of incorporation | Percentage of direct or indirect economic interest | Principal activities | |||||||
| Wholly owned subsidiaries (offshore): | ||||||||||
| Hundreds of Mountains Limited | % | |||||||||
| Witty Digital Technology Limited | % | |||||||||
| CreaVerse Group Limited | % | |||||||||
| CreaVerse Group (BVI) Limited | % | |||||||||
| CreaVerse Technology (Singapore) Pte. Limited | % | |||||||||
| CreaVerse Technology (HK) Limited | % | |||||||||
| Wholly owned subsidiaries (onshore): | ||||||||||
| Beijing Qimengdao Technology Co., Ltd. (the “WFOE”) | % | |||||||||
| Beijing Yiqi Culture Co., Ltd. | % | |||||||||
| Shanghai Qimengdao Culture Co., Ltd. | % | |||||||||
| Chongqing Qimengdao Cultural Communication Co., Ltd. | % | |||||||||
| Shenzhen Qimengdao Trading Co., Ltd. | % | |||||||||
| Beijing Qimengdao Cultural Communication Co., Ltd. | % | |||||||||
| Beijing Qimengdao Trading Co., Ltd. | % | |||||||||
| Beijing Xingxuzaowu Cultural and Creative Co., Ltd. | % | |||||||||
| Xian Qimengdao Cultural Communication Co., Ltd. | % | |||||||||
| Shenzhen Chaowan World Information Technology Co., Ltd. | % | |||||||||
| Shenzhen Yiqi Culture Co., Ltd. | % | |||||||||
| Shenzhen Yiqiwan Cultural Industry Co., Ltd. | % | |||||||||
| Shenzhen Huiyusheji Culture Co., Ltd. | % | |||||||||
| Dongguan Yiqiwan Cultural Industry Co., Ltd. | % | |||||||||
| Hangzhou Yiqi Technology Development Co., Ltd. | % | |||||||||
| Qimengdao (Changchun) Culture Co., Ltd. | % | |||||||||
F-11
HERE GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amounts in thousands, except for share data and per share data, or otherwise noted)
| 1. | Organization and principal activities (Continued) |
| (b) | Variable interest entity |
Before September 2025, the Group operated substantially all of its Divested Business through the VIEs and VIEs’ subsidiaries. In May 2021, the Group, through one of its subsidiaries, or the WFOE, entered into a series of contractual arrangements with the VIE 1 and its shareholder, Shenzhen Erwan, an entity controlled by the Founder. In May 2024, the VIE 2 entered into a similar series of contractual arrangements with Beijing Zhixueduxing and its shareholder, Shenzhen Erwan, which were terminated in March 2025. In April 2025, the WFOE, entered into a similar series of contractual arrangements with the VIE 2 and its shareholder, Shenzhen Erwan.
In September 2025, as part of the disposal of the Divested Business, the Group terminated the aforementioned contractual agreements for VIE 1 and VIE 2, including the voting rights proxy agreements, equity pledge agreements, exclusive consultancy and service agreements and exclusive option agreements. With the termination of these VIE contractual agreements, the Group deconsolidated the VIEs from its consolidated financial statements since September 30, 2025.
The following table sets forth the assets, liabilities, results of operations and changes in cash and cash equivalents of the VIEs and VIEs’ subsidiaries, which were included in the Group’s consolidated balance sheets, consolidated statements of comprehensive income and consolidated statements of cash flows, after the elimination of intercompany balances and transactions among the VIEs and its subsidiaries:
| As of June 30, | ||||||||
| 2025 | 2026 | |||||||
| RMB | RMB | |||||||
| Current assets held for sale | ||||||||
| Non-current assets held for sale | ||||||||
| Current liabilities held for sale | ||||||||
| Non-current liabilities held for sale | ||||||||
| For the years ended June 30, | ||||||||||||
| 2024 | 2025 | 2026 | ||||||||||
| RMB | RMB | RMB | ||||||||||
| Net income from discontinued operation, net of income tax | ||||||||||||
| For the years ended June 30, | ||||||||||||
| 2024 | 2025 | 2026 | ||||||||||
| RMB | RMB | RMB | ||||||||||
| Net cash used in operating activities from discontinued operation | ( | ) | ( | ) | ( | ) | ||||||
| Net cash (used in)/provided by investing activities from discontinued operation | ( | ) | ( | ) | ||||||||
| Net cash provided by financing activities from discontinued operation | ||||||||||||
F-12
HERE GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amounts in thousands, except for share data and per share data, or otherwise noted)
| 2. | Summary of significant accounting policies |
| (a) | Basis of presentation |
The consolidated financial statements of the Group have been prepared in accordance with U.S. GAAP. Significant accounting policies followed by the Group in the preparation of the accompanying consolidated financial statements are summarized below.
Comparability and Reclassification Adjustment
To conform to the current year’s presentation relating to discontinued operation of the Divested Business (Note 4), the Group has reclassified certain comparative balances in the consolidated balance sheet as of June 30, 2025 and certain comparative amounts in the consolidated statements of operations and comprehensive income for the years ended June 30, 2024 and 2025. The assets and liabilities of the discontinued operation have been classified as assets held-for-sale and liabilities held-for-sale in the consolidated balance sheet as of June 30, 2025. The results of discontinued operation for the years ended June 30, 2024 and 2025 have been reflected separately in the consolidated statements of operations and comprehensive income as a single line item for all periods presented in accordance with U.S. GAAP. Cash flows from discontinued operation of the three categories for the years ended June 30, 2024 and 2025 were separately presented in the consolidated statements of cashflows for all periods presented in accordance with U.S. GAAP. These reclassifications had no impact on net income or loss, total assets and liabilities, shareholders’ equity, or cash flows as previously reported.
| (b) | Principles of consolidation |
The consolidated financial statements include the financial statements of the Company, its subsidiaries, and the consolidated VIEs (including the VIEs’ subsidiaries).
Subsidiaries are those entities in which the Company, directly or indirectly, controls more than one half of the voting power; or has the power to govern the financial and operating policies, to appoint or remove the majority of the members of the board of directors, or to cast a majority of votes at the meeting of directors.
A consolidated VIE is an entity in which the Company, or its subsidiaries, through contractual arrangements, has the power to direct the activities that most significantly impact the entity’s economic performance, and the right to receive benefit from the entity that could potentially be significant to the entity, and therefore the Company or its subsidiaries shall be deemed to have a controlling financial interest in the entity and is the primary beneficiary of the entity. There has been no consolidated VIE since September 30, 2025.
All significant intercompany transactions and balances between the Company, its subsidiaries and the consolidated VIEs have been eliminated upon consolidation.
| (c) | Use of estimates |
The preparation of the consolidated financial statements in conformity with U.S. GAAP requires the Group to make estimates and assumptions that affect the reported amounts of assets and liabilities and related disclosure of contingent assets and liabilities at the balance sheet date, and the reported revenues and expense during the reporting period and disclosed in the consolidated financial statements and accompanying notes.
Significant accounting estimates reflected in the Group’s consolidated financial statements include, but are not limited to, provision of credit losses of receivables, inventory write down, fair value of short-term investments, initial measurement of leases, depreciation and amortization of long-lived assets, impairment of goodwill, valuation of intangible assets and remeasurement of previously-held investments in connection with the business combination transaction, the valuation allowance of deferred tax assets, withholding tax on undistributed earnings, fair value of non-controlling interests, as well as the valuation and recognition of share-based compensation arrangements. Actual results could differ from those estimates and such differences may be material to the consolidated financial statements.
F-13
HERE GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amounts in thousands, except for share data and per share data, or otherwise noted)
| 2. | Summary of significant accounting policies (Continued) |
| (d) | Functional currency and foreign currency translation |
The Group’s reporting currency is Renminbi (“RMB”). The functional currency of the Company and the Group’s subsidiaries incorporated in the Cayman Islands, BVI, Singapore, and Hong Kong is United States dollars (“US$”) and the Hong Kong dollar (“HKD”), while the functional currency of subsidiaries incorporated in Vietnam and Indonesia is the Vietnamese dong and the Indonesian rupiah, respectively. The Group’s PRC subsidiaries determined their functional currency to be RMB. The determination of the respective functional currency is based on the criteria set out by ASC 830, Foreign Currency Matters.
Transactions denominated in foreign currencies other than functional currency are translated into the functional currency at the exchange rates prevailing on the transaction dates. Assets and liabilities denominated in foreign currencies other than functional currency are remeasured into the functional currency at the exchange rates prevailing at the balance sheet date. Exchange gains or losses arising from foreign currency transactions are recorded in the consolidated statements of operations and comprehensive income.
The financial statements of the Group’s non-PRC entities are translated from their respective functional currency into RMB. Assets and liabilities denominated in foreign currencies are translated into RMB using the applicable exchange rates at the balance sheet date. Equity accounts other than earnings generated in current period are translated into RMB at the appropriate historical rates. Revenues, expenses, gains and losses are translated into RMB using the average exchange rates for the relevant period.
The resulting foreign currency translation adjustments are recorded as a component of accumulated other comprehensive loss in the consolidated statement of changes in shareholders’ equity and a component of other comprehensive loss in the consolidated statement of operations and comprehensive income.
| (e) | Convenience translation |
Translations of the consolidated balance sheet, the consolidated statement of operations and comprehensive income and the consolidated statement of cash flows from RMB into US$ as of and for the year ended June 30, 2026 are solely for the convenience of the readers and have been calculated at the rate of
| (f) | Cash and cash equivalents |
Cash and cash equivalents consist of cash on hand, time deposits, and funds held in deposit accounts with banks, which are highly liquid and have original maturities of three months or less and are unrestricted as to withdrawal or use.
| (g) | Restricted cash |
Cash that is legally or contractually restricted as to withdrawal or for use or pledged as security is reported separately on the face of the consolidated balance sheets. In accordance with Accounting Standards Codification (“ASC”) 230, the amounts generally described as restricted cash and restricted cash equivalents are included in the total cash, cash equivalents and restricted cash balances in the consolidated statements of cash flows.
F-14
HERE GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amounts in thousands, except for share data and per share data, or otherwise noted)
| 2. | Summary of significant accounting policies (Continued) |
| (h) | Accounts receivable |
Accounts receivable are recorded at the invoiced amount and do not bear interest. Accounts receivable mainly represent receivable from sales of pop toy products.
The Group’s other receivables which were recorded as a component of the prepaid expenses and other current assets and other non-current assets are within the scope of ASC Topic 326.
To estimate expected credit losses, in accordance with ASC Topic 326, the Group has identified the relevant risk characteristics of its customers and the counterparties and the related accounts receivable and other receivables which include size, type of the services or the products the Group provides, or a combination of these characteristics. Receivables with similar risk characteristics have been grouped into pools. For each pool, the Group considers the past collection experience, current economic conditions, future economic conditions (external data and macroeconomic factors) and changes in the Group’s customer collection trends. This is assessed at each quarter based on the Group’s specific facts and circumstances. The allowance for credit losses and corresponding receivables is written off when they are determined to be uncollectible.
| (i) | Inventories, net |
Inventories, mainly consisting of products available for sale and raw materials, are recorded at the lower of cost or net realizable value. Cost of inventories is determined using the weighted average cost method. Net realizable value is based on estimated selling prices in the ordinary course of business, less reasonably predictable selling cost. Write-down is recorded when future estimated net realizable value is less than cost, which is recorded in cost of revenues in the consolidated statements of operations and comprehensive income. The Group recorded , RMB
| (j) | Fair value measurement |
Accounting guidance defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Group considers the principal or most advantageous market in which it would transact, and it considers assumptions that market participants would use when pricing the asset or liability.
Accounting guidance establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Accounting guidance establishes three levels of inputs that may be used to measure fair value:
| ● | Level 1 applies to assets or liabilities for which there are quoted prices, in active markets for identical assets or liabilities. |
| ● | Level 2 applies to assets or liabilities for which there are inputs other than quoted prices included within Level 1 that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical asset or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data. |
| ● | Level 3 applies to asset or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities. |
F-15
HERE GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amounts in thousands, except for share data and per share data, or otherwise noted)
| 2. | Summary of significant accounting policies (Continued) |
| (j) | Fair value measurement (Continued) |
The carrying amount of cash and cash equivalents, restricted cash, accounts receivable, amounts due from related parties, other receivables, accounts payables, and accrued expenses and other current liabilities approximate their fair values because of their short-term nature. Operating lease liabilities are measured at amortized cost using discounted rates reflected time value of money, thus the carrying amount approximates its fair value. The Group’s short-term investments mainly consisted of wealth management products which contain variable returns, and are measured at fair value (Note 2(k)).
Accounting guidance also describes three main approaches to measure the fair value of assets and liabilities: (1) market approach; (2) income approach and (3) cost approach. The market approach uses prices and other relevant information generated from market transactions involving identical or comparable assets or liabilities. The income approach uses valuation techniques to convert future amounts to a single present value amount. The measurement is based on the value indicated by current market expectations about those future amounts. The cost approach is based on the amount that would currently be required to replace an asset.
When available, the Group uses quoted market prices to determine the fair value of an asset or liability. If quoted market prices are not available, the Group will measure fair value using valuation techniques that use, when possible, current market-based or independently sourced market parameters, such as interest rates and currency rates.
The Group’s non-financial assets, such as property and equipment, intangible assets and goodwill, would be measured at fair value only if they were determined to be impaired.
| (k) | Short-term investments |
Short-term investments include (i) wealth management products with variable interest rates or principal non-guaranteed issued by certain financial institutions; (ii) investment in equity securities of publicly listed companies for which the Group does not have significant influence. In accordance with ASC 825, Financial Instruments, for financial products with variable returns referenced to performance of underlying assets, the Group elected the fair value method at the date of initial recognition and carries these investments at fair value. Fair value is estimated based on quoted prices of similar products provided by financial institutions at the end of each reporting period. Investments in marketable securities are accounted for pursuant to ASC 321 and reported at their readily determinable fair value as quoted by market exchanges in the consolidated balance sheets with change in fair value recognized in earnings. Changes in the fair value of these investments are reflected in the consolidated statements of operations and comprehensive income as investment income and included in “Others, net”.
| (l) | Prepayments and other current assets |
Prepayments and other current assets mainly consist of prepayments for promotion fees and other service fees, prepaid input value-added tax, deposits, receivables from third party payment platforms and third-party e-commerce platforms and receivables of consideration for Divested Business. Prepayments and other current assets are stated at the historical carrying amount net of the allowance for credit losses. The Group reviews other assets on a periodic basis and makes allowances when there is doubt as to the collectability of individual balances. Other assets are written off when they are determined to be uncollectible.
| (m) | Property and equipment, net |
Property and equipment are recorded at cost, less accumulated depreciation and impairment. Depreciation of property and equipment is calculated on a straight-line basis, after consideration of expected useful lives and estimated residual values. The Group has not recorded any impairments of property and equipment for the period presented.
F-16
HERE GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amounts in thousands, except for share data and per share data, or otherwise noted)
| 2. | Summary of significant accounting policies (Continued) |
| (m) | Property and equipment, net (Continued) |
| Category | Estimated useful life | |
| Shorter of the lease term or estimated economic life | ||
| Computer and electronic equipment | ||
| Molds | ||
| Furniture | ||
| Motor vehicles |
Repairs and maintenance costs are charged to expenses as incurred, whereas the costs of renewals and betterment that extend the useful lives of property, plant and equipment are capitalized as additions to the related assets. Gains and losses from the disposal of property and equipment are included in the consolidated statements of operations and comprehensive income.
| (n) | Intangible assets |
Intangible assets mainly include those acquired through business combinations and purchased intangible assets. Intangible assets acquired through business combinations are recognized as assets separate from goodwill if they satisfy either “contractual-legal” or “separability” criterion. Intangible assets arising from business combinations are recognized and measured at fair value upon acquisition. Purchased intangible assets are initially recognized and measured at cost upon acquisition. Separately identifiable intangible assets that have determinable lives continue to be amortized over their estimated useful lives based on either an accelerated method that reflects the pattern in which economic benefits of the intangible assets are consumed if that pattern can be reliably determined and results in
| Category | Estimated useful life | |
| Software | ||
| Intellectual property rights (“IP Rights”) | ||
| Licensed intellectual properties (“Licensed IPs”) | ||
| Channel relationship |
Separately identifiable amortizable intangible assets and other long-lived assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amounts of such assets may not be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. Measurement of any impairment loss for identifiable intangible assets is based on the amounts by which the carrying amounts of the assets exceed the fair values of the assets.
Intangible assets with an indefinite useful life mainly consist of the Group’s brand name. Intangible assets with an indefinite life are not amortized and are tested for impairment annually or more frequently if events or changes in circumstances indicate that they might be impaired.
F-17
HERE GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amounts in thousands, except for share data and per share data, or otherwise noted)
| 2. | Summary of significant accounting policies (Continued) |
| (o) | Goodwill |
Goodwill represents the excess of the purchase price over the fair value of identifiable net assets acquired in business combinations. Goodwill is not amortized, but tested for impairment annually or more frequently if event and circumstances indicate that it might be impaired.
Goodwill is tested for impairment at the reporting unit level on an annual basis and between annual tests if an event occurs or circumstances change that would more-likely-than-not reduce the fair value of a reporting unit below its carrying value. These events or circumstances include a significant change in stock prices, business environment, legal factors, financial performances, competition, or events affecting the reporting unit. Application of the goodwill impairment test requires judgment, including the identification of reporting units, assignment of assets and liabilities to reporting units, assignment of goodwill to reporting units, and determination of the fair value of each reporting unit.
The Group first assess qualitative factors to determine whether it is “more likely than not” that the fair value of a reporting unit is less than its carrying amount. If as a result of the qualitative assessment, it is more likely than not that the fair value of the reporting unit is less than its carrying amount, the quantitative impairment test is mandatory. Otherwise, no further testing is required. The quantitative impairment test consists of a comparison of the fair value of each reporting unit with its carrying amount, including goodwill. If the carrying amount of each reporting unit exceeds its fair value, an impairment loss equal to the difference between the fair value of the reporting unit and its carrying amount will be recorded.
| (p) | Long-term investments |
Investments in common stock or in-substance common stock and limited-partnership investments in entities over which the Group can exercise significant influence but does not own a majority equity interest or control are accounted for using the equity method of accounting in accordance with ASC 323 Investments-Equity Method and Joint Ventures. The Group adjusts the carrying amount of equity method investment for its share of the income or losses of the investee and reports the recognized income or losses in the consolidated statements of comprehensive income/(loss). When the Group’s share of losses in the equity investee equals or exceeds its interest in the equity investee, the Group does not recognize further losses, unless the Group has incurred obligations or made payments or guarantees on behalf of the equity investee, or the Group holds other investments in the equity investee. The Group’s share of the income or losses of an investee is based on the shares of common stock and in-substance common stock held by the Group.
The Group continually reviews its investment in equity investees under the equity method to determine whether a decline in fair value to below the carrying value is other-than-temporary. The primary factors the Group considers in its determination are the duration and severity of the decline in fair value, the financial condition, operating performance and the prospects of the equity investee, and other company specific information such as recent financing rounds.
| (q) | Impairment of long-lived assets other than goodwill and indefinite-lived intangible assets |
Long-lived assets are evaluated for impairment whenever events or changes in circumstances (such as a significant adverse change to market conditions that will affect the future use of the assets) indicate that the carrying value of an asset may not be fully recoverable or that the useful life is shorter than the Group had originally estimated. When these events occur, the Group evaluates the impairment for the long-lived assets by comparing the carrying value of the assets to an estimate of future undiscounted cash flows expected to be generated from the use of the assets and their eventual disposition. If the sum of the expected future undiscounted cash flows is less than the carrying value of the assets, the Group recognizes an impairment loss based on the excess of the carrying value of the assets over the fair value of the assets.
F-18
HERE GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amounts in thousands, except for share data and per share data, or otherwise noted)
| 2. | Summary of significant accounting policies (Continued) |
| (r) | Operating Leases |
The Group accounts for leases in accordance with ASC 842, Leases (“ASC 842”), which requires lessees to recognize leases on the balance sheet and disclose key information about leasing arrangements.
The Group has operating leases primarily for office space, offline stores and warehouses. The determination of whether an arrangement is a lease or contains a lease is made at inception by evaluating whether the arrangement conveys the right to use an identified asset and whether the Group obtains substantially all the economic benefits from and has the ability to direct the use of the asset. The Group elects not to apply the recognition requirements of ASC 842 to short-term leases. Variable lease payments are the payments made by a lessee to a lessor for the right to use an underlying asset that vary because of changes in facts or circumstances occurring after the commencement date, other than the passage of time. Variable lease payments are recorded in the period in which the obligation for the payment is incurred. Other operating leases are included in operating lease right-of-use assets, operating lease liabilities, current portion, and operating lease liabilities, non-current portion on the consolidated balance sheets.
The Group uses the implicit rate when readily determinable, or its incremental borrowing rate based on the information available, at the commencement date in determining the present value of lease payments. Certain leases include renewal options and/or termination options. Renewal options are included in the lease term if the Group is reasonably certain to exercise those options while options to terminate the lease are only included in the lease term if the Group is reasonably certain not to exercise those options. Lease expenses are recorded on a straight-line basis over the lease term.
| (s) | Treasury stock |
The Group accounts for treasury shares using the cost method. Under this method, the cost incurred to purchase the shares is recorded in the treasury stock account on the consolidated balance sheets. Treasury stock is shown separately in the shareholders’ equity before the ultimate disposition of those shares acquired. When the treasury shares are reissued, the Group reduces treasury shares at an amount equal to its cost, and record the reissuance gain in additional paid-in capital; in the case of reissuance loss, the Group record the reissuance loss in additional paid-in capital to the extent of prior reissuance gains, the remaining is recorded against retained earnings, or in the absence of retained earnings, by charging against additional paid-in capital. Once additional paid-in capital has been exhausted, additional charges are recorded by increasing the accumulated deficit. At retirement or cancellation of the treasury stock, the ordinary shares account is charged only for the aggregate par value of the shares. The excess of the acquisition cost of treasury stock over the aggregate par value is charged to retained earnings.
| (t) | Net (loss)/income per ordinary share |
Basic net (loss)/income per ordinary share is computed by dividing net (loss)/income attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period. For the calculation of diluted net (loss)/income per ordinary share, the weighted average number of ordinary shares is adjusted by the effect of potential dilutive ordinary shares, including ordinary shares issuable upon the exercise of outstanding share options using the treasury stock method. The effect mentioned above is not included in the calculation of the diluted net (loss)/income per ordinary share when inclusion of such effect would be anti-dilutive.
The shares repurchased by the Company are excluded from the number of shares outstanding for purposes of computing basic and diluted net (loss)/income per ordinary share in accordance with ASC 260.
F-19
HERE GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amounts in thousands, except for share data and per share data, or otherwise noted)
| 2. | Summary of significant accounting policies (Continued) |
| (u) | Non-controlling interests |
The Group’s consolidated financial statements include entities in which the Company has a controlling financial interest. Earnings or losses attributable to non-controlling interest shareholders of its subsidiaries and VIEs are classified separately as “Non-controlling interests” in the Company’s consolidated statements of operations and comprehensive income.
| (v) | Business combination |
The Group accounts for its business combinations using the acquisition method of accounting in accordance with ASC 805, Business Combinations. The purchase price of the acquisition is allocated to the tangible assets, liabilities, identifiable intangible assets acquired and non-controlling interest, if any, based on their estimated fair values as of the acquisition date. The excess of the purchase price over those fair values is recorded as goodwill. Acquisition-related expenses are expensed as incurred.
Considerations transferred in a business combination are measured at the fair value as of the date of acquisition. Where the consideration in an acquisition includes contingent consideration, and the payment of which depends on the achievement of certain specified conditions post-acquisition, the contingent consideration is recognized and measured at its fair value at the acquisition date and is recorded as a liability. It is subsequently carried at fair value with changes in fair value reflected in earnings.
In a business combination achieved in stages, the Group remeasures the previously held equity interest in the acquiree immediately before obtaining control at its acquisition-date fair value and the remeasurement gain or loss, if any, is recognized in the consolidated statements of operations and comprehensive income.
| (w) | Discontinued operation |
A discontinued operation may include a component of an entity or a group of components of an entity, or a business or non-profit activity. A disposal of a component of an entity or a group of components of an entity is reported in discontinued operation if the disposal results from strategic shift that has (or will have) a major effect on an entity’s operations and financial results when any of the following occurs: (1) the component of an entity or group of components of an entity meets the criteria to be classified as held for sale; (2) the component of an entity or group of components of an entity is disposed of by sale; (3) the component of an entity or group of components of an entity is disposed of other than by sale (for example, by abandonment or in a distribution to owners in a spinoff). For any component classified as held for sale or disposed of by sale or other than by sale that qualify for presentation as a discontinued operation in the period, the Group has reported the assets and liabilities of the discontinued operation as current assets held for sale, non-current assets held for sale, current liabilities held for sale, and non-current liabilities held for sale in the consolidated balance sheets. The results of discontinued operation were reflected separately in the consolidated statements of operations and comprehensive income as a single line item for all periods presented in accordance with U.S. GAAP. Cash flows from discontinued operation of the three categories were separately presented in the consolidated statements of cash flows for all periods presented in accordance with U.S. GAAP.
F-20
HERE GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amounts in thousands, except for share data and per share data, or otherwise noted)
| 2. | Summary of significant accounting policies (Continued) |
| (x) | Revenue recognition |
The Group recognizes revenue from the sale of pop toy products in accordance with ASC 606, Revenue from Contracts with Customers. Under ASC 606, the Group determines revenue recognition through the following steps:
| - | Identification of the contract, or contracts, with a customer; |
| - | Identification of the performance obligations in the contract; |
| - | Determination of the transaction price, including the constraint on variable consideration; |
| - | Allocation of the transaction price to the performance obligations in the contract; |
| - | Recognition of revenue when (or as) the Group satisfies a performance obligation. |
Revenue is recognized when control of the promised goods or services is transferred to customers and is measured at the fair value of the consideration received or receivable, representing amounts billed or billable for goods supplied or services rendered. Such amounts are stated net of discounts, sales incentives, return allowances and value-added taxes (“VAT”) collected from customers and remitted to tax authorities. Return allowances, which reduce revenue, are estimated using the most likely amount method based on the Group’s historical return data and its analysis of returns patterns by product category.
The Group’s revenue is predominantly derived from its pop toy business, following the disposal of the Divested Business on September 30, 2025. The Group sells its pop toy products through multiple channels, including distributors, online platforms, self-operated offline retail stores and roboshop machines.
For sales to distributors, revenue is recognized upon delivery to the contractual shipping destination. At that point, the Group has no remaining performance obligations that could affect the distributors’ acceptance of the products. The significant risks and rewards of ownership, including those related to obsolescence and loss, have also been passed to the distributors upon delivery. A receivable is recognized at the time of delivery, as the Group’s right to consideration becomes unconditional and only the passage of time is required before payment falls due. In cases where customers make advance payments, the Group’s records such amounts as contract liabilities upon receipt and subsequent recognizes them as revenue when control of the products is transferred to the customers.
For sales made through online platforms, including self-developed online platform or third-party e-commerce platforms, revenue is recognized at the point in time when the end customers receive the delivered products. The transaction price for such sales is recorded net of estimated sales discounts at the time of sale. Consideration paid by end customers upon placement of orders and is collected immediately if the orders are placed through self-developed online platform, or after the delivery of the products through settlement with the third-party products through settlement with the third-party e-commerce platforms. Commissions to the third-party e-commerce platforms represent incremental costs to obtain contracts. The Group applies the practical expedient to expense the commissions as incurred, as the expected amortization period is less than one year.
For sales through self-operated retail stores and roboshops, revenue is recognized at the point when customers place purchase orders by making payment and simultaneously take physical possession of the products. The transactions are settled contemporaneously in cash, by credit or debit cards, or through third-party payment service providers. The Group does not have material performance obligations subsequent to the point of sale for this channel.
Other revenue includes sales or services related to various other offerings, such as IP licensing and operation services. Revenue is recognized when the relevant services are rendered and the customer simultaneously receives and consumes the benefits provided by the Group.
F-21
HERE GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amounts in thousands, except for share data and per share data, or otherwise noted)
| 2. | Summary of significant accounting policies (Continued) |
| (x) | Revenue recognition (Continued) |
Practical expedients
The Group has used the following practical expedients as allowed under ASC 606:
| (i) | The effects of a significant financing component have not been adjusted for contracts which the Group expects, at contract inception, that the period between when the Group transfers a promised good or service to the customer and when the customer pays for that good or service will be one year or less. |
| (ii) | The Group expenses the costs to obtain a contract as incurred when the expected amortization period is one year or less. |
Contract balances
Timing of revenue recognition may differ from the timing of invoicing to customers. The Group recognizes contract assets or contract liabilities and accounts receivable in the consolidated balance sheets, depending on the relationship between the Group’s performance and the customer’s payment. Accounts receivable represents amounts invoiced and revenue recognized prior to invoicing, when the Group has satisfied its performance obligations and has the unconditional right to payment, and a contract asset if not yet has the unconditional right to receive consideration.
Contract liability is related to the payments received by the Group in advance from customers
before the control of the products transferred or the services rendered.
As of June 30, 2025, the Group’s contract liabilities were RMB1,665, substantially all of which was recognized as revenue for the year ended June 30, 2026. The Group’s contract liabilities were RMB7,111 as of June 30, 2026, which are expected to be recognized as revenue within one year.
Revenue Disaggregation
The following table sets forth a breakdown of the Group’s revenues disaggregated by business line:
| For the years ended June 30, | ||||||||||||
| 2024 | 2025 | 2026 | ||||||||||
| RMB | RMB | RMB | ||||||||||
| Revenue from sales of pop toy products | ||||||||||||
| -Distributors | ||||||||||||
| -Online platforms | ||||||||||||
| -Self-operated offline retail stores and roboshop machines | ||||||||||||
| Others | ||||||||||||
| Total revenues | ||||||||||||
| (y) | Cost of revenues |
Cost of revenues mainly consists of costs of goods sold, license fee, supply chain related personnel costs, warehousing costs and molds depreciation, freight expenses, impairment of inventories and physical inventories loss.
F-22
HERE GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amounts in thousands, except for share data and per share data, or otherwise noted)
| 2. | Summary of significant accounting policies (Continued) |
| (z) | Sales and marketing expenses |
Sales and marketing expenses consist primarily of: (i) marketing and promotional expenses, including costs related to the promotion of brand influence and IP product marketing, offline campaign execution and online traffic acquisition; (ii) salaries and benefits (including share-based compensation expenses) related to the Group’s sales and marketing team; (iii) operating expenses associate with retail stores and roboshops, including rental expenses, depreciation and other related expenses; (iv) commissions and e-commerce platform service charges; (v) other expenses incurred by the Group’s sales and marketing personnel. Marketing and promotional expenses are expensed as sales and marketing expenses when the services are received. For the years ended June 30, 2024, 2025 and 2026, marketing and promotional expenses were , RMB
| (aa) | General and administrative expenses |
General and administrative expenses consist primarily of salaries and benefits (including share-based compensation expenses) and related expenses for employees involved in general corporate functions, including finance, legal and human resources, rental fees, and professional service fees.
| (ab) | Research and development expenses |
Research and development expenses primarily consist of (i) salaries and benefits for the Group’s in-house creative design and product development teams, who are responsible for the design of IP characters and the diversification of product category portfolios, and (ii) other expenses associated with aforementioned activities, including office rental, general expenses and depreciation expenses.
| (ac) | Share-based compensation expenses |
All share-based awards granted to the founder, management, directors and employees, including restricted ordinary shares and share options, are measured at fair value on grant date. Share based compensation expense is recognized using the graded-vesting method over the requisite service period, which is the vesting period. The Group accounts for share-based compensation benefits granted to grantee in accordance with ASC 718 Stock Compensation. Information relating to the plans is set out in Note 21.
The Group uses the binomial option-pricing model or other appropriate methods to estimate the fair value of share options. The determination of estimated fair value of share-based payment awards on the grant date is affected by the fair value of the Company’s ordinary shares as well as assumptions regarding a number of complex and subjective variables. These variables include the expected value volatility of the Company over the expected term of the awards, actual and projected employee share option exercise behaviors, a risk-free interest rate, exercise multiple and expected dividend yield, if any.
Some awards are granted with service only conditions and some awards granted with both performance conditions and service conditions. For awards granted with performance conditions and service conditions, the Company evaluates the likelihood of performance conditions being met at each reporting period. Share-based compensation costs are recorded when the performance conditions are considered probable for the number of awards expected to vest on a graded-vesting basis, net of estimated forfeitures, over the requisite service period. The Group has chosen to account for forfeitures related to service condition aspects when they occur. The compensation cost of the awards granted with performance conditions and service conditions is measured based on the fair value of the awards when all conditions to establish the grant date have been met.
F-23
HERE GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amounts in thousands, except for share data and per share data, or otherwise noted)
| 2. | Summary of significant accounting policies (Continued) |
| (ad) | Employee benefits |
Full-time employees of the Group in the PRC participate in a government mandated defined contribution plan, pursuant to which certain pension benefits, medical care, employee housing fund and other welfare benefits are provided to the employees. Chinese labor regulations require that the PRC subsidiaries and the consolidated VIEs of the Group make contributions to the government for these benefits based on certain percentages of the employees’ salaries, up to a maximum amount specified by the local government. The Group has no legal obligation for the benefits beyond the contributions made. Employee social security and welfare benefits included as expenses of continuing operations in the consolidated statements of operations and comprehensive income amounted to , RMB
| (ae) | Taxation |
Income taxes
Current income taxes are provided based on(loss)/income before income tax for financial reporting purposes, adjusted for income and expense items which are not assessable or deductible for income tax purposes, in accordance with the regulations of the relevant tax jurisdictions.
Deferred income taxes are recognized for temporary differences between the tax bases of assets and liabilities and their reported amounts in the consolidated financial statements, net operating loss carry forwards and credits. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all the deferred tax assets will not be realized. Current income taxes are provided in accordance with the laws of the relevant taxing authorities. Deferred tax assets and liabilities are measured using enacted rates expected to apply to taxable income in which temporary differences are expected to be reversed or settled. The effect on deferred tax assets and liabilities of changes in tax rates is recognized in the statement of comprehensive (loss)/income in the period of the enactment of the change.
The Group considers positive and negative evidence when determining whether a portion or all its deferred tax assets will more likely than not be realized. This assessment considers, among other matters, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability, the duration of statutory carry-forward periods, its experience with tax attributes expiring unused, and its tax planning strategies. The ultimate realization of deferred tax assets is dependent upon its ability to generate sufficient future taxable income within the carry-forward periods provided for in the tax law and during the periods in which the temporary differences become deductible. When assessing the realization of deferred tax assets, the Group has considered possible sources of taxable income including (i) future reversals of existing taxable temporary differences, (ii) future taxable income exclusive of reversing temporary differences and carry-forwards, (iii) future taxable income arising from implementing tax planning strategies, and (iv) specific known trend of profits expected to be reflected within the industry. The Group records a valuation allowance to reduce the amount of deferred tax assets if based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized.
Value added Tax (“VAT”)
For the sales of products, the Group is subject to VAT at the rate of
F-24
HERE GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amounts in thousands, except for share data and per share data, or otherwise noted)
| 2. | Summary of significant accounting policies (Continued) |
| (af) | Comprehensive income |
Comprehensive income is defined to include all changes in equity of the Group during a period arising from transactions and other events and circumstances excluding transactions resulting from investments by shareholders and distributions to shareholders. Comprehensive income includes net income and foreign currency translation adjustments of the Group.
| (ag) | Segment reporting |
For the year ended June 30, 2024, the Group identified two operating segments, including learning service and others and consumer business. For the year ended June 30, 2025, as a result of the acquisition of Shenzhen Letsvan in March 2025 (Note 3), the Group identified one more operating segment, pop toy business. Subsequent to the disposal of Divested Business in September 2025 (Note 4), the Group’s CODM relies upon the consolidated results of operations as a whole for the only remaining pop toy business when making decisions about allocating resources and assessing the performance of the Group. As a result of the assessment made by CODM, the Group has only one reportable segment as defined by ASC 280.
As the Group’s long-lived assets are substantially all located in the PRC and substantial portion of the Group’s revenues are derived from the PRC, no geographical segments are presented.
| (ah) | Impact of newly adopted accounting pronouncement |
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”). The standard requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as additional information on income taxes paid, among other enhancements to improve the effectiveness of income tax disclosures. For public business entities, ASU 2023-09 is effective for annual periods beginning after December 15, 2024. For entities other than public business entities, ASU 2023-09 is effective for annual periods beginning after December 15, 2025; however, early adoption is permitted. The Group adopted the amendments prospectively for the fiscal year ended June 30, 2026. Please refer to Note 18 for further details.
F-25
HERE GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amounts in thousands, except for share data and per share data, or otherwise noted)
| 2. | Summary of significant accounting policies (Continued) |
| (ai) | Recently issued accounting pronouncements not yet adopted |
The Group qualifies as an “emerging growth company”, or EGC, pursuant to the Jumpstart Our Business Startups Act of 2012, as amended, or the JOBS Act. As an EGC, the Group 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.
In November 2024, the FASB issued ASU 2024-03, “Income Statement –Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses,” which requires entities to disaggregate operating expenses into specific categories such as employee compensation, depreciation, and intangible asset amortization, by relevant expense caption on the statement of operations. The standard is effective for annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027. Early adoption is permitted on either a prospective or retrospective basis. The Company is currently evaluating the impact of adopting ASU 2024-03 on its consolidated financial statements and related disclosures. The amendments only impact disclosures and are not expected to have an impact on the Group’s financial condition and results of operations.
In July 2025, the FASB issued ASU 2025-05, “Financial Instruments—Credit Losses (Topic 326) Measurement of Credit Losses for Accounts Receivable and Contract Assets”, which provides (1) all entities with a practical expedient and (2) entities other than public business entities with an accounting policy election when estimating expected credit losses for current accounts receivable and current contract assets arising from transactions accounted for under Topic 606. The standard is effective for interim and annual periods beginning after December 15, 2025. Early adoption is permitted in both interim and annual reporting periods in which financial statements have not yet been issued or made available for issuance. The Group is currently evaluating the impact of adopting ASU 2025-05.
In September 2025, the FASB issued ASU 2025-06, Intangibles-Goodwill and Other-Internal Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software (“ASU 2025-06”), which removes all references to software development project stages so that the guidance is neutral to different software development methods. Therefore, under ASU 2025-06, software capitalization will begin when management has authorized and committed to funding the software project and when it is probable that the project will be completed and the software will be used to perform the function intended. ASU 2025-06 will be effective for annual reporting periods beginning after December 15, 2027, and interim reporting periods within those annual reporting periods with early adoption permitted. The guidance is to be applied on a prospective basis, or on a modified transition approach or a retrospective transition approach. The Group does not expect the adoption of the ASU to have a material impact on the consolidated financial statements.
In December 2025, the FASB issued ASU 2025-10, Government Grants (Topic 832): Accounting for Government Grants Received by Business Entities (“ASU 2025-10”), which provides updated guidance on how to recognize, measure, and present government grants. The ASU will be effective for annual reporting periods beginning after December 15, 2028, including interim periods within those annual reporting periods, with early adoption permitted. The Group does not expect the adoption of the ASU to have a material impact on the consolidated financial statements.
F-26
HERE GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amounts in thousands, except for share data and per share data, or otherwise noted)
| 3. | Business combination |
Business combinations during the year ended June 30, 2025
Acquisition of Shenzhen Letsvan
Founded in 2020, Shenzhen Letsvan is principally engaged in IP incubation, copyright commercialization, and the promotion and sales of pop toys.
During the year ended June 30, 2025, the Group entered into a series of transactions with Shenzhen Letsvan and its then existing shareholders, pursuant to which the Group acquired a total of
The acquisition of Shenzhen Letsvan was accounted for using the acquisition method, and the purchase price allocation was made based on the fair value of the tangible and intangible assets acquired and liabilities assumed at the date of acquisition. The fair values of the identifiable intangible assets acquired were determined using various valuation techniques, including the fair value of the channel relationship was determined using the Multi-period Excess Earnings Method, and the fair value of IP Rights was determined using Relief from Royalty Method, all of which were under the income approach. The fair value measurements were primarily based on significant inputs that are not directly observable in the market and are considered Level 3 under the fair value measurements and disclosure framework. Key assumptions include cash flow projections for Shenzhen Letsvan and the discount rate applied to those cash flows. Identifiable intangible assets with finite lives are amortized over their useful lives. The carrying value of the other tangible assets acquired and liabilities assumed approximate their fair value. The excess of the purchase price and the fair value of non-controlling interests over the estimated fair values of the identifiable net assets acquired was recorded as goodwill. The Fair value of the non-controlling interest was estimated with reference to the price per share as of the acquisition date.
F-27
HERE GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amounts in thousands, except for share data and per share data, or otherwise noted)
| 3. | Business combination (Continued) |
The following is a summary of the fair value of the purchase price and the final allocation of the purchase price to the assets acquired and liabilities assumed:
| RMB | ||||
| Cash and cash equivalents | ||||
| Short-term investments | ||||
| Accounts receivable, net | ||||
| Other current assets | ||||
| Property and equipment, net | ||||
| Newly identified intangible assets (IP Rights) | ||||
| Newly identified intangible assets (channel relationship) | ||||
| Goodwill | ||||
| Other non-current assets | ||||
| Short-term borrowings | ( | ) | ||
| Other current liabilities | ( | ) | ||
| Other non-current liabilities | ( | ) | ||
| Deferred tax liabilities | ( | ) | ||
| Non-controlling interests-equity | ( | ) | ||
| Non-controlling interests- mezzanine equity | ( | ) | ||
| Total purchase consideration | ||||
| Total purchase price is comprised of: | ||||
| -Cash | ||||
| -Fair value of previously held equity interests | ||||
| Total | ||||
In connection with the Shenzhen Letsvan Acquisition, the Group recorded goodwill of RMB
Supplemental pro forma information
The following unaudited pro forma consolidated financial information is prepared as if the business acquisition occurred on July 1, 2023. For the business acquisition, amortization have been included in the calculation of the pro forma information provided below, based on the results of purchase price allocation. Amortization is computed on the straight-line method over the estimated useful lives of the assets ranging from three to ten years.
This supplemental pro forma information is presented for illustrative purposes only. It is based on historical information and does not purport to represent the actual results that may have occurred had the Company consummated the acquisitions on July 1, 2023, nor is it necessarily indicative of future results of operations of the consolidated enterprises:
| For the years ended June 30, | ||||||||
| 2024 | 2025 | |||||||
| RMB | RMB | |||||||
| Pro forma total net revenues | ||||||||
| Pro forma net income | ||||||||
Other acquisition during the year ended June 30, 2025
During the year ended June 30, 2025, the Group also made another business acquisition, for which the result of the operations has been included in the Group’s consolidated financial statements from its acquisition date and was not material to the Group’s consolidated financial statements.
F-28
HERE GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amounts in thousands, except for share data and per share data, or otherwise noted)
| 4. | Discontinued operation |
As described in Note 1(a), on September 30, 2025, the Group disposed the Divested Business for an aggregate cash consideration of approximately equivalent to RMB
The Disposal was accounted for as discontinued operation in accordance with ASC 205-20 since it represents a strategic shift that has a major effect on the Group’s operations and financial results. On September 30, 2025, the Group lost its control over the Divested Business and accordingly, the Company deconsolidated the Divested Business from its consolidated financial statements on September 30, 2025. Accordingly, the historical financial results of the Divested Business are reflected in the Group’s consolidated statements of operations and comprehensive income as discontinued operation for all periods presented, and the related assets and liabilities associated with discontinued operation in the prior year consolidated balance sheets are classified as assets/liabilities held for sale to provide the comparable financial information.
The assets and liabilities included in the captions “Current assets held for sale”, “Non-current assets held for sale”, “Current liabilities held for sale” and “Non-current liabilities held for sale” in the consolidated balance sheets as of June 30, 2025 consist of the following:
| As of June 30, 2025 | ||||
| RMB | ||||
| ASSETS | ||||
| Current assets: | ||||
| Cash and cash equivalents | ||||
| Restricted cash | ||||
| Short-term investments | ||||
| Accounts receivable, net | ||||
| Inventories, net | ||||
| Prepayments and other current assets | ||||
| Total current assets | ||||
| Non-current assets: | ||||
| Property and equipment, net | ||||
| Long-term investments | ||||
| Operating lease right-of-use assets | ||||
| Other non-current assets | ||||
| Total non-current assets | ||||
| LIABILITIES | ||||
| Current liabilities: | ||||
| Accounts payable | ||||
| Accrued expenses and other current liabilities | ||||
| Income tax payable | ||||
| Contract liabilities, current portion | ||||
| Advance from customers | ||||
| Operating lease liabilities, current | ||||
| Total current liabilities | ||||
| Non-current liabilities: | ||||
| Contract liabilities, non-current portion | ||||
| Operating lease liabilities, non-current | ||||
| Deferred tax liabilities | ||||
| Total non-current liabilities | ||||
F-29
HERE GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amounts in thousands, except for share data and per share data, or otherwise noted)
| 4. | Discontinued operation (Continued) |
The Divested Business’ results of operations for the years ended June 30, 2024 and 2025, and for the period from July 1, 2025 to September 30, 2025, the date immediately preceding the deconsolidation of the Divested Business shown in the table below, are included in the consolidated statements of operations and comprehensive income under the caption “Net income from discontinued operation, net of income tax”, for those respective periods, after intercompany eliminations, as applicable.
| For the years ended June 30, | For the period from July 1, 2025 to September 30, | |||||||||||
| 2024 | 2025 | 2025 | ||||||||||
| RMB | RMB | RMB | ||||||||||
| Revenues | ||||||||||||
| Cost of revenues | ( | ) | ( | ) | ( | ) | ||||||
| Gross profit | ||||||||||||
| Operating expenses: | ||||||||||||
| Sales and marketing expenses | ( | ) | ( | ) | ( | ) | ||||||
| Research and development expenses | ( | ) | ( | ) | ( | ) | ||||||
| General and administrative expenses | ( | ) | ( | ) | ( | ) | ||||||
| Impairment loss on long-lived assets | ( | ) | ||||||||||
| Impairment loss on goodwill | ( | ) | ||||||||||
| Total operating expenses | ( | ) | ( | ) | ( | ) | ||||||
| Income from operations | ||||||||||||
| Other income: | ||||||||||||
| Interest income | ||||||||||||
| Remeasurement gain of previously held equity interests in connection with step acquisition | ||||||||||||
| Others, net | ||||||||||||
| Pretax income from discontinued operation related to major classes of pretax profit | ||||||||||||
| Pretax gain on disposal of discontinued operation* | ||||||||||||
| Total pretax gain on discontinued operation | ||||||||||||
| Income tax expense | ( | ) | ( | ) | ( | ) | ||||||
| Net income from discontinued operation, net of tax | ||||||||||||
| * |
The following table set forth the condensed cash flows of the Divested Business were as follows for the years ended June 30, 2024 and 2025 and for the period from July 1, 2025 to September 30, 2025, the date immediately preceding deconsolidation of the Divested Business, which are included in the consolidated statements of cash flows of the Group as cash flow from discontinued operation:
| For the years ended June 30, | For the period from July 1, 2025 to September 30, | |||||||||||
| 2024 | 2025 | 2025 | ||||||||||
| RMB | RMB | RMB | ||||||||||
| Net cash provided by discontinued operating activities | ||||||||||||
| Net cash (used in)/provided by discontinued investing activities | ( | ) | ( | ) | ||||||||
| Net cash used in discontinued financing activities | ( | ) | ( | ) | ||||||||
| During the period from July 1, 2025 to September 30, 2025, the Divested Business made an aggregated net cash payment of RMB |
F-30
HERE GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amounts in thousands, except for share data and per share data, or otherwise noted)
| 5. | Concentration and risks |
Concentration of foreign currency risk
The Group’s operating transactions are mainly denominated in RMB. RMB is not freely convertible into foreign currencies. The value of the RMB is subject to changes by the central government policies and to international economic and political developments. In the PRC, certain foreign exchange transactions are required by law to be transacted only through authorized financial institutions at exchange rates set by the People’s Bank of China (the “PBOC”). Remittances in currencies other than RMB by the Group in the PRC must be processed through PBOC or other PRC foreign exchange regulatory bodies which require certain supporting documents in order to effect the remittances. As of June 30, 2025, the Group’s cash and cash equivalents, restricted cash and short-term investments denominated in RMB were RMB
Concentration of customers and suppliers
One customer accounted for
| As of June 30, | ||||||||
| Accounts receivables, net | 2025 | 2026 | ||||||
| Customer A | % | % | ||||||
| Customer B | % | |||||||
| Customer C | % | |||||||
| Customer D | % | |||||||
| * |
Two suppliers accounted for
Credit and concentration risk
Financial instruments that potentially expose the Group to significant concentration of credit risk primarily consist of cash and cash equivalents, restricted cash and short-term investment. As of June 30, 2025, and 2026, substantially all the Group’s cash and cash equivalents, restricted cash and short-term investments were held in major financial institutions located in Mainland China, Singapore and Hong Kong, which management considered to be of high credit quality.
F-31
HERE GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amounts in thousands, except for share data and per share data, or otherwise noted)
| 6. | Accounts receivable, net |
The accounts receivable, net, as of June 30, 2025 and 2026, consists of the following:
| As of June 30, | ||||||||
| 2025 | 2026 | |||||||
| RMB | RMB | |||||||
| Sales of pop toy products | ||||||||
| Others | ||||||||
| Accounts receivable | ||||||||
| Less: allowance for credit losses | ( | ) | ( | ) | ||||
| Accounts receivable, net | ||||||||
Accounts receivable, net are non-interest bearing and generally on terms between 15 days to 90 days.
The movements in the allowance for credit losses are as follows:
| For the years ended June 30, | ||||||||
| 2025 | 2026 | |||||||
| RMB | RMB | |||||||
| Balance at beginning of the year | ( | ) | ||||||
| Additions | ( | ) | ( | ) | ||||
| Write-offs | ||||||||
| Balance at end of the year | ( | ) | ( | ) | ||||
| 7. | Inventories, net |
Inventories, net, as of June 30, 2025 and 2026, consist of the following:
| For the years ended June 30, | ||||||||
| 2025 | 2026 | |||||||
| RMB | RMB | |||||||
| Finished goods | ||||||||
| Raw materials, packing materials and others | ||||||||
| Inventories | ||||||||
| Provisions for inventories | ( | ) | ( | ) | ||||
| Inventories, net | ||||||||
F-32
HERE GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amounts in thousands, except for share data and per share data, or otherwise noted)
| 8. | Prepayments and other current assets |
Prepaid expenses and other current assets, as of June 30, 2025 and 2026, consist of the following:
| As of June 30, | ||||||||
| 2025 | 2026 | |||||||
| RMB | RMB | |||||||
| Consideration receivable for the disposal of Divested Business | ||||||||
| Receivables from third party payment platforms (i) | ||||||||
| Receivables from e-commerce platforms (ii) | ||||||||
| Prepaid service fees | ||||||||
| Receivables from financial institutions security account(iii) | ||||||||
| Deposits | ||||||||
| Receivables from ESOP platform for share option exercise Proceeds (on behalf of employees) | ||||||||
| Prepayments for products procurement | ||||||||
| Others | ||||||||
| Total | ||||||||
| (i) |
| (ii) |
| (iii) |
| 9. | Property and equipment, net |
Property and equipment, net as of June 30, 2025 and 2026, consist of the following:
| As of June 30, | ||||||||
| 2025 | 2026 | |||||||
| RMB | RMB | |||||||
| Molds | ||||||||
| Leasehold improvements | ||||||||
| Computer and electronic equipment | ||||||||
| Others | ||||||||
| Total | ||||||||
| Less: Accumulated depreciation | ( | ) | ( | ) | ||||
| Property and equipment, net | ||||||||
Depreciation expenses for the years ended June 30, 2024, 2025 and 2026 were , RMB
F-33
HERE GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amounts in thousands, except for share data and per share data, or otherwise noted)
| 10. | Intangible assets, net |
Intangible assets, net, as of June 30, 2025 and 2026, consist of the following:
| As of June 30, | ||||||||
| 2025 | 2026 | |||||||
| RMB | RMB | |||||||
| IP Rights | ||||||||
| Channel relationship | ||||||||
| Brand | ||||||||
| Software | ||||||||
| Total | ||||||||
| Less: accumulated amortization | ( | ) | ( | ) | ||||
| Intangible assets, net | ||||||||
Except for Brand, which is intangible assets with indefinite useful life, other intangible assets are subject to amortization. Amortization expenses for intangible assets were , RMB
IP Rights and channel relationships acquired through business combination of Shenzhen Letsvan for RMB
| 11. | Short-term borrowings |
As of June 30, 2025, the Group’s short-term borrowings primarily consisted of (i) an unsecured revolving credit line for a total credit of up to RMB
| 12. | Accounts payable |
Accounts payable represent liabilities for services provided to and products purchased by the Group prior to the end of financial year which are unpaid. The amounts are unsecured and are usually paid within 60 days of recognition. Accounts payable are mainly comprised of payable for purchase of raw materials and finished goods from third parties and warehousing and logistics services expenses payable as of June 30, 2025 and 2026.
F-34
HERE GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amounts in thousands, except for share data and per share data, or otherwise noted)
| 13. | Accrued expenses and other current liabilities |
The following table summarizes the Group’s outstanding accrued expenses and other current liabilities as of June 30, 2025 and 2026, respectively:
| As of June 30, | ||||||||
| 2025 | 2026 | |||||||
| RMB | RMB | |||||||
| Accrued employee payroll and welfare benefits | ||||||||
| Other accrued expense | ||||||||
| Other tax payable | ||||||||
| Payable to employees related to share option exercise proceeds | ||||||||
| Total accrued expenses and other current liabilities | ||||||||
| 14. | Lease |
The Group has operating leases for corporate offices, offline stores and warehouses with lease terms from within three months to three years.
| As of June 30, | ||||||||
| 2025 | 2026 | |||||||
| RMB | RMB | |||||||
| Operating lease right-of-use assets, net | ||||||||
| Operating lease liabilities-current | ||||||||
| Operating lease liabilities-non-current | ||||||||
The following table provides a summary of the Group’s operating lease expenses and short-term lease expenses as of June 30, 2024, 2025 and 2026:
| For the years ended June 30, | ||||||||||||
| 2024 | 2025 | 2026 | ||||||||||
| RMB | RMB | RMB | ||||||||||
| Operating lease expenses | ||||||||||||
| Short-term lease expenses | ||||||||||||
| For the years ended June 30, | ||||||||||||
| 2024 | 2025 | 2026 | ||||||||||
| RMB | RMB | RMB | ||||||||||
| Cash paid for amounts included in the measurement of operating lease liabilities | ||||||||||||
| Right-of-use assets obtained in exchange for operating lease obligations | ||||||||||||
The following table provides a summary of the Group’s operating lease terms and discount rates as of June 30, 2025 and 2026:
| As of June 30, | ||||||||
| 2025 | 2026 | |||||||
| Weighted average remaining lease term (in years) | ||||||||
| Weighted average discount rate | % | % | ||||||
F-35
HERE GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amounts in thousands, except for share data and per share data, or otherwise noted)
| 14. | Lease (Continued) |
Maturities of operating lease liabilities as of June 30, 2026 were as follows:
| Amounts | ||||
| RMB | ||||
| For the year ended June 30, 2027 | ||||
| For the year ended June 30, 2028 | ||||
| For the year ended June 30, 2029 | ||||
| Total operating lease payments | ||||
| Less: imputed interest | ( | ) | ||
| Present value of operating lease liabilities | ||||
| 15. | Short-term investments |
The following table presents the fair value hierarchy for the Group’s short-term investments that are measured and recorded at fair value on a recurring basis as of June 30, 2025 and 2026:
| June 30, 2025 | Quoted Prices in Active Market for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Other Unobservable Inputs (Level 3) | Balance at Fair Value | ||||||||||||
| RMB | RMB | RMB | RMB | |||||||||||||
| Assets | ||||||||||||||||
| Wealth management products(i) | ||||||||||||||||
| Equity securities of publicly listed companies | ||||||||||||||||
| Total | ||||||||||||||||
| June 30, 2026 | Quoted Prices in Active Market for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Other Unobservable Inputs (Level 3) | Balance at Fair Value | ||||||||||||
| RMB | RMB | RMB | RMB | |||||||||||||
| Assets | ||||||||||||||||
| Wealth management products(i) | ||||||||||||||||
| Equity securities of publicly listed companies | ||||||||||||||||
| Total | ||||||||||||||||
| (i) |
For the years ended June 30, 2024, 2025 and 2026, the Company recorded gains or losses resulting from changes in the fair values of short-term investments in the line item “Others, net” in the consolidated statements of operations and comprehensive income. As of June 30, 2025 and 2026, none of these short-term investments were frozen, guaranteed or subject to other restrictions.
F-36
HERE GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amounts in thousands, except for share data and per share data, or otherwise noted)
| 16. | Long-term investments |
Long term investments as of June 30, 2025 and 2026 consist of the following:
| As of June 30, | ||||||||
| 2025 | 2026 | |||||||
| RMB | RMB | |||||||
| Equity investment (i) | ||||||||
| Total | ||||||||
In March 2024, the Group entered into a partnership agreement with third party investors in China to form a limited partnership enterprise (the “Partnership Enterprise”) for future investing activities in China. In accordance with the agreement, the Group served as one of the limited partners and agreed to subscribe for
Specifically, the Group acquired the equity interests of Shenzhen Letsvan held by the Partnership Enterprise among other noncontrolling shareholders in July 2025 (Note 20). As the Partnership Enterprise is also the Group’s equity method investee, the gain arising from the Group’s acquisition of the equity interests of Shenzhen Letsvan recognized by the Partnership Enterprise in its standalone financial statements should be eliminated in accordance with ASC 323-10-35-7 with a corresponding additional paid-in capital.
During the year ended June 30, 2025, the Group acquired Shenzhen Letsvan (Note 3), which held a
For the years ended June 30, 2025 and 2026, the Company recognized the share of profit from equity method investments of RMB
F-37
HERE GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amounts in thousands, except for share data and per share data, or otherwise noted)
| 17. | Goodwill |
| Total | ||||
| RMB | ||||
| Gross carrying value | ||||
| As of June 30, 2024 | ||||
| Addition (Note 3) | ||||
| As of June 30, 2025 | ||||
| Addition | ||||
| As of June 30, 2026 | ||||
| Total | ||||
| RMB | ||||
| Accumulated impairment | ||||
| As of June 30, 2024 | ||||
| Impairment | ||||
| As of June 30, 2025 | ||||
| Impairment | ( | ) | ||
| As of June 30, 2026 | ( | ) | ||
| Net carrying value | ||||
| As of June 30, 2024 | ||||
| As of June 30, 2025 | ||||
| As of June 30, 2026 | ||||
Following the Disposal of the Group’s Divested Business (Note 4), the Group now operates solely in the pop toy business, and management has determined that the entire Group constitutes a single reporting unit in accordance with ASC 280-10-50-1. The Group performed goodwill impairment assessments for the reporting unit as of June 30, 2026, and weighed the relevant qualitative factors and quantitative assessment results in totality. As the actual financial performance of the reporting unit did not meet prior forecasted expectations and unfavorable local market conditions, RMB
In performing quantitative impairment tests, the Group used an income approach based on a discounted cash flow model (“DCF model”). Forecasts of future cash flows are based primarily on the best estimate of future net revenues, gross margin and operating expenses, which are subject to expected business operation, local market development, and general economic conditions. Material changes in these forecasts could significantly change the amount of impairment recorded. Therefore, it may be necessary to record further impairment charges to the reporting unit in the future, if such changes occur.
Key assumptions used in quantitative impairment test
The quantitative impairment test consists of a comparison of the fair value of the reporting unit with its carrying amount, including goodwill. The Group used a DCF model to estimate the fair value of the reporting unit, as management believes forecasted operating cash flows are the best indicator of fair value. A number of significant assumptions were involved in the preparation of the DCF models, including future revenues and discount rates. The financial projection adopted in DCF models for impairment testing purpose is based on the financial budgets approved by the management of the Group, which considers the historical performance and its expectation for future market development. Cash flows beyond the forecasted period are extrapolated using a long-term growth rate. Post-tax discount rates reflect market assessment of the weighted average cost of capital in the industry in which the Group operates and the specific risks relating to the Group.
As of June 30, 2026, the fair value of the reporting unit fell below its carrying value by
Certain future events and circumstances, including deterioration of market conditions, increases in interest rates, and unfavorable impacts on the projections used in the impairment test for the reporting unit discussed above, including changes in customer behavior, decreases in delivery capability, and delays or difficulties in achieving the Group’s profitability goals, could cause the fair value of this reporting unit to fall below its carrying value and a non-cash impairment charge would be required. Such a charge could have a material effect on the consolidated statements of comprehensive income and consolidated balance sheets.
F-38
HERE GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amounts in thousands, except for share data and per share data, or otherwise noted)
| 18. | Taxation |
Cayman Islands
Under the current laws of the Cayman Islands, the Group is not subject to tax on income or capital gain. Additionally, upon payments of dividends to the shareholders, no Cayman Islands withholding tax will be imposed.
British Virgin Islands (“BVI”)
Subsidiaries in the BVI are exempted from income tax on its foreign-derived income in the BVI. There are no withholding taxes in the BVI.
Hong Kong
When the two-tiered profits tax regime took effect on April 1, 2018, the applicable Hong Kong profits tax rate is
PRC
Under the PRC Enterprise Income Tax Law (“EIT Law”), the statutory income tax rate is
The EIT Law also provides that an enterprise established under the laws of a foreign country or region but whose “de facto management body” is located in the PRC be treated as a resident enterprise for PRC tax purposes and consequently be subject to the PRC income tax at the rate of
Withholding tax on undistributed earnings
The EIT law also imposes a withholding income tax of
During the year ended June 30, 2024 and 2025, one of the Group’s WFOE, an onshore subsidiary of the Group, distributed a portion of its retained earnings of approximate US$
F-39
HERE GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amounts in thousands, except for share data and per share data, or otherwise noted)
| 18. | Taxation (Continued) |
The following table sets forth the component of income tax (expenses)/benefit of the Group for the years ended June 30, 2024, 2025 and 2026:
| For the years ended June 30, 2026 | ||||||||||||||||
| Mainland China | Hongkong | Others | Total | |||||||||||||
| RMB | RMB | RMB | RMB | |||||||||||||
| Loss before income tax benefits | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Current tax benefits | ( | ) | ||||||||||||||
| Deferred tax expenses | ||||||||||||||||
| Income tax benefits | ( | ) | ||||||||||||||
| For the years ended June 30, 2025 | ||||||||||||||||
| Mainland China | Hongkong | Others | Total | |||||||||||||
| RMB | RMB | RMB | RMB | |||||||||||||
| Loss before income tax expense | ( | ) | ( | ) | ( | ) | ||||||||||
| Current tax expenses | ( | ) | ( | ) | ||||||||||||
| Deferred tax expenses | ||||||||||||||||
| Income tax expenses | ( | ) | ( | ) | ||||||||||||
| For the years ended June 30, 2024 | ||||||||||||||||
| Mainland China | Hongkong | Others | Total | |||||||||||||
| RMB | RMB | RMB | RMB | |||||||||||||
| Loss before income tax expense | ||||||||||||||||
| Current tax expenses | ||||||||||||||||
| Deferred tax expenses | ||||||||||||||||
| Income tax expenses | ||||||||||||||||
F-40
HERE GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amounts in thousands, except for share data and per share data, or otherwise noted)
| 18. | Taxation (Continued) |
The following table sets forth reconciliation between the PRC statutory EIT rate and the effective tax rates for years prior to the adoption of ASU 2023-09:
| For the years ended June 30, | ||||||||
| 2024 | 2025 | |||||||
| Statutory income tax rate in PRC | % | % | ||||||
| Effect of income tax exemptions and preferential tax rates | - | % | ||||||
| Effect of income tax rate difference in other jurisdictions | % | |||||||
| Effect of PRC withholding tax | % | |||||||
| Permanent differences | - | % | ||||||
| Changes in valuation allowance | - | % | ||||||
| Effective tax rate | - | % | ||||||
Upon adoption of ASU 2023-09, as described in Note 2(ah), reconciliation of difference between the PRC statutory income tax rate and the Group’s effective income tax rate for the year ended June 30, 2026 is as follows:
| For the years ended June 30, 2026 | ||||||||
| RMB | Percentage | |||||||
| Chinese mainland statutory income tax benefits | % | |||||||
| Other jurisdictions’ tax effects | ||||||||
| Hong Kong | % | |||||||
| Cayman | ||||||||
| Effect on tax rates in different tax jurisdictions | ( | ) | - | % | ||||
| Other jurisdictions | ( | ) | % | |||||
| Changes in valuation allowance | ( | ) | - | % | ||||
| Non-taxable or non-deductible items | ||||||||
| Preferential tax rates and tax holiday | % | |||||||
| R&D Super deduction | % | |||||||
| Impairment loss on goodwill | ( | ) | - | % | ||||
| Others | ( | ) | - | % | ||||
| Other adjustments | ||||||||
| Effect of PRC withholding tax | % | |||||||
| Effective tax rates | % | |||||||
For the year ended June 30, 2026, income taxes paid amounted to RMB
Deferred tax assets and liabilities
| As of June 30, | ||||||||
| 2025 | 2026 | |||||||
| RMB | RMB | |||||||
| Deferred tax assets: | ||||||||
| Allowances of credit losses | ||||||||
| Allowance for inventory valuation allowance | ||||||||
| Operating lease liabilities | ||||||||
| Accrued liability | ||||||||
| Deductible temporary difference related to advertising expenses | ||||||||
| Net operating tax losses carried forward | ||||||||
| Subtotal | ||||||||
| Less: valuation allowance | ( | ) | ( | ) | ||||
| Total deferred tax assets, net | ||||||||
F-41
HERE GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amounts in thousands, except for share data and per share data, or otherwise noted)
| 18. | Taxation (Continued) |
| As of June 30, | ||||||||
| 2025 | 2026 | |||||||
| RMB | RMB | |||||||
| Deferred tax liabilities: | ||||||||
| Receivables of consideration for Divested Business | ||||||||
| Operating lease right-of-use assets | ||||||||
| Newly identified intangible assets arising from business combination | ||||||||
| Unrealized investment income | ( | ) | ||||||
| Withholding tax on undistributed earnings | ||||||||
| Total deferred tax liabilities | ||||||||
The tax losses of the Group expire over different time intervals depending on the local jurisdiction. According to PRC tax regulations, the PRC enterprise net operating loss can generally carry forward for no longer than five years, starting from the year subsequent to the year in which the loss was incurred.
| 2026 | ||||
| RMB | ||||
| Loss expiring for the year ended December 31, 2026 | ||||
| Loss expiring for the year ended December 31, 2027 | ||||
| Loss expiring for the year ended December 31, 2028 | ||||
| Loss expiring for the year ended December 31, 2029 | ||||
| Loss expiring for the year ended December 31, 2030 | ||||
| Loss expiring for the year ended December 31, 2031 | ||||
| Subtotal | ||||
A valuation allowance is provided against deferred tax assets when the Group determines that it is more likely than not that the deferred tax assets will not be utilized in the future. In making such determination, the Group evaluates a variety of factors including the Group’s operating history, accumulated equity, existence of taxable temporary differences and reversal periods.
Changes in valuation allowance are as follows:
| For the years ended June 30, | ||||||||||||
| 2024 | 2025 | 2026 | ||||||||||
| RMB | RMB | RMB | ||||||||||
| Balance at beginning of the year | ( | ) | ||||||||||
Addition | ( | ) | ( | ) | ||||||||
| Balance at end of the year | ( | ) | ( | ) | ||||||||
The major jurisdiction in which the Group is subject to potential examination is the PRC. In general, the PRC tax authorities have up to five years and in certain cases up to ten years to conduct examinations of the tax filings of the Group. All these related tax years remain subject to examination by the PRC tax authorities potentially.
F-42
HERE GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amounts in thousands, except for share data and per share data, or otherwise noted)
| 19. | Others, net |
| For the years ended June 30, | ||||||||||||
| 2024 | 2025 | 2026 | ||||||||||
| RMB | RMB | RMB | ||||||||||
| Government grants | ||||||||||||
| Fair value changes and investment gain of short-term investments | ||||||||||||
| Share of net income/(loss) of investments accounted for using equity method | ( | ) | ||||||||||
| Net gains relating to transition services provided to the Divested Business | ||||||||||||
| Others | ( | ) | ||||||||||
| Total | ||||||||||||
| 20. | Noncontrolling interests and noncontrolling interests with liquidation preferences |
In connection with the Group’s acquisition of Shenzhen Letsvan (Note 3), there are certain non-controlling interest shareholders. Pursuant to the shareholder agreement, certain non-controlling shareholders of Shenzhen Letsvan held preferred shares that entitled these shareholders to certain preferences and privileges, such as liquidation preferences. The Group determined that the preferred shares should be accounted for as mezzanine equity on the Group’s consolidated balance sheets since they are contingently redeemable upon the occurrence of a conditional event or a deemed redemption event, which is not solely within the control of the Group. The other non-controlling interests with no preferential rights held by non-controlling interest shareholders are classified under equity in the Group’s consolidated balance sheets. All the non-controlling interests were initially recorded at the acquisition date fair value and subsequently adjusted by the attribution of their shares of net income or loss pursuant to the shareholder agreement.
In June 2025, the Group, through one of its wholly-owned subsidiaries, further acquired approximately
In July 2025, the Group, through one of its wholly-owned subsidiaries, further entered into a series of agreements to acquire all of the remaining non-controlling interests of Shenzhen Letsvan from the minority shareholders with a fixed amount of cash or a fixed number of the Company’s ordinary shares as consideration.
Transactions with non-controlling shareholders other than Mr. Huiyu Zhan, or Mr. Zhan, the founder of Shenzhen Letsvan, were settled with cash consideration, amounting to RMB
Transaction with Mr. Zhan was agreed to be settled with an aggregate of
F-43
HERE GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amounts in thousands, except for share data and per share data, or otherwise noted)
| 21. | Share based compensation expenses |
Compensation expenses from continuing operations recognized for share-based compensation awards granted by the Company were as follows:
| For the years ended June 30, | ||||||||||||
| 2024 | 2025 | 2026 | ||||||||||
| RMB | RMB | RMB | ||||||||||
| Included in: | ||||||||||||
| Cost of revenues | ( | ) | ||||||||||
| Sales and marketing expenses | ||||||||||||
| Research and development expenses | ||||||||||||
| General and administrative expenses | ||||||||||||
| Total | ||||||||||||
| (a) Share options | ||||||||||||
| (b) Acquisition of equity interests from non-controlling shareholders | ||||||||||||
| (c) Restricted shares issued to the Founder of Shenzhen Letsvan | ||||||||||||
| Total | ||||||||||||
| (a) | Share options |
On May 31, 2022, the Company adopted the 2018 Employee Share Incentive Plan (the “2018 Plan”) and the 2021 Gl0bal Share Plan (the “2021 Plan”), whereby the maximum aggregate number of ordinary shares that can be issued under the 2018 Plan and the 2021 Plan was
The Company granted options to employees and directors under the 2018 Plan and 2021 Plan. All granted options have a contractual term of ten years. The options vest over a requisite service period of three, four or five years, depending on the terms of each award agreement, in three, four or five equal installments, with
During the year ended June 30, 2026, the Company modified share options granted certain departing employees to allow post-termination vesting and exercisability. This modification was accounted for as a Type III (improbable-to-probable) modification pursuant to ASC 718-20-35-3, and the Company recognized RMB
A summary of activities of share options of the Company for the years ended June 30, 2024, 2025 and 2026 is presented below:
F-44
HERE GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amounts in thousands, except for share data and per share data, or otherwise noted)
| 21. | Share based compensation expenses (Continued) |
| (a) | Share options (Continued) |
| Options Outstanding | Weighted Average Exercise Price (US$) | Weighted Average Remaining Contractual Life (In years) | Aggregate Intrinsic Value (RMB) | |||||||||||||
| Outstanding as of July 1, 2023 | ||||||||||||||||
| Granted | ||||||||||||||||
| Exercised | ( | ) | ||||||||||||||
| Forfeited | ( | ) | ||||||||||||||
| Expired | ( | ) | ||||||||||||||
| Outstanding as of June 30, 2024 | ||||||||||||||||
| Options vested and exercisable as of June 30,2024 | ||||||||||||||||
| Outstanding as of July 1, 2024 | ||||||||||||||||
| Granted | ||||||||||||||||
| Exercised | ( | ) | ||||||||||||||
| Forfeited | ( | ) | ||||||||||||||
| Expired | ( | ) | ||||||||||||||
| Outstanding as of June 30, 2025 | ||||||||||||||||
| Options vested and exercisable as of June 30,2025 | ||||||||||||||||
| Outstanding as of July 1, 2025 | ||||||||||||||||
| Granted | ||||||||||||||||
| Exercised | ( | ) | ||||||||||||||
| Forfeited | ( | ) | ||||||||||||||
| Expired | ( | ) | ||||||||||||||
| Outstanding as of June 30, 2026 | ||||||||||||||||
| Options vested and exercisable as of June 30,2026 | ||||||||||||||||
There were
For the year ended June 30, 2024, 2025 and 2026, share-based compensation expenses recognized associated with share options granted to directors and employees by the Company were , RMB
As of June 30, 2024, 2025 and 2026, there were RMB
F-45
HERE GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amounts in thousands, except for share data and per share data, or otherwise noted)
| 21. | Share based compensation expenses (Continued) |
| (a) | Share options (Continued) |
The estimated fair value of each option grant is estimated on the date of grant using the Binomial option-pricing model with the following assumptions:
| For the years ended June 30, | ||||||||||||
| 2024 | 2025 | 2026 | ||||||||||
| Expected volatility | % | % | % | |||||||||
| Risk-free interest rate (per annum) | % | % | % | |||||||||
| Expected dividend yield | % | % | % | |||||||||
| Expected term (in years) | ||||||||||||
| Fair value of the underlying shares on the date of option grants (US$) | ||||||||||||
| (b) | Acquisition of equity interests from non-controlling shareholders |
As discussed in Note 20, in connection with the acquisition of non-controlling interests of Shenzhen Letsvan in June 2025, the Group recognized RMB
| (c) | Restricted shares issued to the Founder of Shenzhen Letsvan |
As discussed in Note 20, in connection with the non-controlling interests held by Mr. Zhan in July 2025, the Group granted a total of
| 22. | Ordinary shares and treasury stock |
On February 9, 2022, the Company was incorporated in the Cayman Islands with an authorized share capital of US$
On January 27, 2023, the Company completed the initial public offering or IPO. Immediately prior to the completion of the IPO, the Company’s authorized share capital was changed into US$
During the IPO, the Company issued a total of
F-46
HERE GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amounts in thousands, except for share data and per share data, or otherwise noted)
| 22. | Ordinary shares and treasury stock (Continued) |
On February 16, 2023, the underwriters exercised their option to purchase
During the year ended June 30, 2024,
During the year ended June 30, 2024,
In June 2023, the Board of Directors of the Group authorized a share repurchase program (“2023 share repurchase program”) to repurchase up to US$
As of June 30, 2026, the Group had repurchased an aggregate of
The Company accounts for the repurchased ordinary shares under the cost method and includes such treasury stock as a component of the shareholders’ equity.
During the year ended June 30, 2024 and 2025,
As of June 30, 2026,
| 23. | Special cash dividends |
In
dividends had been declared by the Company for the year ended June 30, 2026.
F-47
HERE GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amounts in thousands, except for share data and per share data, or otherwise noted)
| 24. | Net income/(loss) per share |
Basic net income/(loss) per share is the amount of net loss available to each share of ordinary shares outstanding during the reporting period. Diluted net loss per share is the amount of net loss available to each share of ordinary shares outstanding during the reporting period adjusted to include the effect of potentially dilutive ordinary equivalent shares.
Basic net income/(loss) per share and diluted net income/(loss) per share were calculated in accordance with ASC 260 Earnings per share for the years ended June 30, 2024, 2025 and 2026 as below:
| For the years ended June 30, | ||||||||||||
| 2024 | 2025 | 2026 | ||||||||||
| RMB | RMB | RMB | ||||||||||
| Numerator: | ||||||||||||
| Net income for discontinued operation | ||||||||||||
| Net income attributable to noncontrolling interests | ( | ) | ( | ) | ||||||||
| Net income from discontinued operation attributable to ordinary shareholders of Here Group Limited | ||||||||||||
| Denominator: | ||||||||||||
| Weighted average number of ordinary shares outstanding (i) | ||||||||||||
| — basic | ||||||||||||
| — diluted | ||||||||||||
| Net income from discontinued operation per ordinary share attributable to ordinary shareholders of Here Group Limited | ||||||||||||
| — basic | ||||||||||||
| — diluted | ||||||||||||
| Numerator: | ||||||||||||
| Net loss for continuing operations | ( | ) | ( | ) | ||||||||
| Net loss/(income) attributable to noncontrolling interests | ( | ) | ||||||||||
| Net loss from continuing operations attributable to ordinary shareholders of Here Group Limited | ( | ) | ( | ) | ||||||||
| Denominator: | ||||||||||||
| Weighted average number of ordinary shares outstanding (i) | ||||||||||||
| — basic | ||||||||||||
| — diluted | ||||||||||||
| Net loss from continuing operations per ordinary share attributable to ordinary shareholders of Here Group Limited | ||||||||||||
| — basic | ( | ) | ( | ) | ||||||||
| — diluted | ( | ) | ( | ) | ||||||||
| (i) |
For the years ended June 30, 2024, 2025 and 2026, as the Group is in a net loss position for the continuing operations, the potential ordinary shares were anti-dilutive and excluded from the calculation of diluted net loss per share. For the years ended June 30, 2024, 2025 and 2026, stock options to purchase ordinary shares and restricted shares that were anti-dilutive and excluded from the calculation of diluted net loss per share of the Company were
F-48
HERE GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amounts in thousands, except for share data and per share data, or otherwise noted)
| 25. | Related party transactions |
Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operational decisions. Parties are also considered to be related if they are subject to common control. Related parties may be individuals or corporate entities.
During the years ended June 30, 2024, 2025 and 2026, other than disclosed elsewhere, the Group had the following material related party transactions.
| Name of related parties | Relationship with the Group | |
| (a) |
| For the years ended June 30, | ||||||||||||
| 2024 | 2025 | 2026 | ||||||||||
| RMB | RMB | RMB | ||||||||||
| Revenue from a related party (1) | ||||||||||||
| Sales of pop toy products | ||||||||||||
| Others | ||||||||||||
| Total | ||||||||||||
| For the years ended June 30, | ||||||||||||
| 2024 | 2025 | 2026 | ||||||||||
| RMB | RMB | RMB | ||||||||||
| Services received from a related party (1) | ||||||||||||
| IP license fee included in cost of revenues | ||||||||||||
| Promotion service fee included in sales and marketing expenses | ||||||||||||
| For the years ended June 30, | ||||||||||||
| 2024 | 2025 | 2026 | ||||||||||
| RMB | RMB | RMB | ||||||||||
| Other transactions | ||||||||||||
Payment for acquisition of non-controlling interests in Shenzhen Letsvan (2) | ||||||||||||
| Lending to Mr. Zhan (3) | ||||||||||||
| Nanjing Shangde Hehua(4) | ||||||||||||
| Capital contribution of non-controlling interest from a related party | ||||||||||||
| Lending to an equity investee of the Group | ||||||||||||
F-49
HERE GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amounts in thousands, except for share data and per share data, or otherwise noted)
| 25. | Related party transactions (Continued) |
| (b) | The outstanding balance due from/to related parties as of June 30, 2025 and 2026 were as follows: |
| As of June 30, | ||||||||
| 2025 | 2026 | |||||||
| RMB | RMB | |||||||
| Due from related parties | ||||||||
| Mr. Zhan (3) | ||||||||
| Due from Yuhuatongxing (1) | ||||||||
| Due from an equity investee of the Group | ||||||||
| Total | ||||||||
| As of June 30, | ||||||||
| 2025 | 2026 | |||||||
| RMB | RMB | |||||||
| Due to related parties | ||||||||
| Due to Yuhuatongxing (1) | ||||||||
| Due to a non-controlling shareholder (2) | ||||||||
| Total | ||||||||
Note:
| (1) | In January 2025, the Group, Tianjin Yihua Management Consulting Co., Ltd. (“Tianjin Yihua”), a wholly-owned subsidiary of YH Entertainment Group (a company listed on the Main Board of the Stock Exchange of Hong Kong Limited (stock code: 2306)), and Yuhuatongxing, entered into a strategic cooperation framework agreement, which was subsequently supplemented and amended (the “Strategic Cooperation Framework Agreements”). Pursuant to the Strategic Cooperation Framework Agreements, |
| a) | Yuhuatongxing acts as an authorized distributor of the Group and pays the Group for the pop toy products purchased. |
| b) | Yuhuatongxing receives service fees from the Group for the provision of promotion services. |
| c) | The Company designs, manufactures and sells pop toys incorporating certain IPs licensed from Yuhuatongxing, as well as co-developed pop toys that combine IPs owned by both parties. For sales of the above-mentioned products, the Company pays Yuhua sales-based royalties as IP license fees. |
Given the Group’s payments to Yuhuatongxing are in exchange for distinct marketing services and licenses priced at fair value, the Group recorded the services received from Yuhuatongxing as selling and marketing expenses and cost of sales, rather than as a reduction of revenue derived from sales of pop toy products.
| (2) | As described in Note 20, during the year ended June 30, 2025, the Group acquired a |
| (3) | During the year ended June 30, 2026, to facilitate the Company’s acquisition of Shenzhen Letsvan non-controlling interests held by Mr. Zhan (Note 20), the Group lent RMB |
| (4) | During the year ended June 30, 2026, the Group received a distribution of RMB |
F-50
HERE GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amounts in thousands, except for share data and per share data, or otherwise noted)
| 25. | Related party transactions (Continued) |
| (c) |
| As of June 30, | ||||||||
| 2025 | 2026 | |||||||
| RMB | RMB | |||||||
| Due from other related parties | ||||||||
| 26. | Commitments and contingencies |
Operating lease commitment
Upon the adoption of ASC 842, Leases, future minimum lease payments for operating lease liabilities as of June 30, 2025 and 2026 are disclosed in Note 14.
Legal Proceedings
From time to time, the Company may be involved in various legal actions arising in the ordinary course of business. The Company accrues costs associated with these matters when they become probable and the amount can be reasonably estimated. The Company did not have other material commitments, long-term obligations, significant contingencies or guarantees as of June 30, 2025 and 2026.
| 27. | Subsequent events |
Share repurchase program
Subsequent to June 30, 2026 and as of October 21, 2026, the Company had repurchased
The Group has evaluated subsequent events through October 30, 2026, which is the date the consolidated financial statements are issued, with no other material events or transactions identified that should have been recorded or disclosed in the consolidated financial statements.
Transfer of equity interests of Yuhuatongxing to Tianjin Yihua
In September 2026, the Group’s subsidiary, Shenzhen Letsvan, Yuhuatongxing and Tianjin Yihua, the controlling shareholder of Yuhuatongxing, entered into a Share Transfer Agreement, pursuant to which Shenzhen Letsvan agreed to transfer all of its equity interest in Yuhuatongxing for a consideration of RMB
As of October 30, 2026, the closing of share transfer is yet to be completed.
F-51
HERE GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amounts in thousands, except for share data and per share data, or otherwise noted)
| 28. | Restricted net assets and parent company only condensed financial information |
The Group’s ability to pay dividends is primarily dependent on the Group receiving distributions of funds from its subsidiaries. Relevant PRC statutory laws and regulations permit payments of dividends by the Group’s subsidiaries and the consolidated VIEs incorporated in the PRC only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. The results of operations reflected in the financial statements prepared in accordance with U.S. GAAP differ from those reflected in the statutory financial statements of the Group’s subsidiaries.
In accordance with the PRC laws and regulations, statutory reserve funds shall be made and can only be used for specific purposes and are not distributable as cash dividends. As a result of these PRC laws and regulations that require annual appropriations of
The Company performed a test on the restricted net assets of its subsidiaries and the consolidated VIEs (the “restricted net assets”) in accordance with Securities and Exchange Commission Regulation S-X Rule 4-08 (e) (3), “General Notes to Financial Statements” and concluded that it was applicable for the Company to disclose the condensed financial information for the parent company for the years ended June 30, 2024,2025 and 2026.
For the purpose of presenting parent only financial information, the Company records its investments in its subsidiaries under the equity method of accounting. Such investments are presented on the separate condensed balance sheets of the Company as “Investment in subsidiaries” and the income of the subsidiaries is presented as “share of income of subsidiaries”. The Company’s net financial interests in the consolidated VIEs are presented on the separate condensed balance sheets of the Company as “Net liabilities of the VIEs, and the income of the VIEs is presented as “Income from the VIEs”. The subsidiaries did not pay any dividend to the Company for the years presented. Certain information and footnote disclosures generally included in financial statements prepared in accordance with U.S. GAAP have been condensed and omitted. The footnote disclosures contain supplemental information relating to the operations of the Company, as such, these statements are not the general-purpose financial statements of the reporting entity and should be read in conjunction with the notes to the consolidated financial statements of the Company. The Company did have significant capital and other commitments or guarantees as of June 30, 2026.
F-52
HERE GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amounts in thousands, except for share data and per share data, or otherwise noted)
| 28. | Restricted net assets and parent company only condensed financial information (Continued) |
Condensed balance sheets
| As of June 30, | ||||||||||||
| 2025 | 2026 | 2026 | ||||||||||
| RMB | RMB | US$ | ||||||||||
| ASSETS | ||||||||||||
| Current assets: | ||||||||||||
| Cash and cash equivalents | ||||||||||||
| Short-term investments | ||||||||||||
| Amounts due from intra-Group companies | ||||||||||||
| Prepayments and other current assets | ||||||||||||
| Total current assets | ||||||||||||
| Investment in subsidiaries | ||||||||||||
| Total non-current assets | ||||||||||||
| TOTAL ASSETS | ||||||||||||
| Accrued expenses and other current liabilities | ||||||||||||
| Amounts due to intra-Group companies | ||||||||||||
| Total current liabilities | ||||||||||||
| Net liabilities of the VIE | ||||||||||||
| Total non-current liabilities | ||||||||||||
| TOTAL LIABILITIES | ||||||||||||
| SHAREHOLDERS’ EQUITY | ||||||||||||
| Class A ordinary shares | ||||||||||||
| Class B ordinary shares | ||||||||||||
| Treasury stock | ( | ) | ( | ) | ( | ) | ||||||
| Additional paid-in capital | ||||||||||||
| Accumulated other comprehensive income | ||||||||||||
Accumulated deficit | ( | ) | ( | ) | ( | ) | ||||||
| TOTAL SHAREHOLDERS’ EQUITY | ||||||||||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||
F-53
HERE GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amounts in thousands, except for share data and per share data, or otherwise noted)
| 28. | Restricted net assets and parent company only condensed financial information (Continued) |
Condensed statements of operations and comprehensive income
| For the years ended June 30, | ||||||||||||||||
| 2024 | 2025 | 2026 | 2026 | |||||||||||||
| RMB | RMB | RMB | US$ | |||||||||||||
| Revenues | ||||||||||||||||
| Cost of revenues | ( | ) | ( | ) | ( | ) | ||||||||||
| Gross Profit | ( | ) | ( | ) | ( | ) | ||||||||||
| Operating expenses: | ||||||||||||||||
| Sales and marketing expenses | ( | ) | ( | ) | ||||||||||||
| Research and development expenses | ( | ) | ( | ) | ||||||||||||
| General and administrative expenses | ( | ) | ( | ) | ( | ) | ||||||||||
| Total operating expenses | ( | ) | ( | ) | ( | ) | ||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ||||||||||
| Other income: | ||||||||||||||||
| Interest income | ||||||||||||||||
| Others, net | ||||||||||||||||
| Share of loss from subsidiaries | ( | ) | ( | ) | ( | ) | ||||||||||
| Loss before income tax | ( | ) | ( | ) | ( | ) | ||||||||||
| Income tax expense | ||||||||||||||||
| Net loss from continuing operations, net of income tax | ( | ) | ( | ) | ( | ) | ||||||||||
| Net income from discontinued operation, net of income tax | ||||||||||||||||
| Net income | ||||||||||||||||
| Net income | ||||||||||||||||
| Other comprehensive loss | ||||||||||||||||
| Foreign currency translation adjustments, net of nil tax | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total other comprehensive loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total comprehensive income | ||||||||||||||||
F-54
HERE GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amounts in thousands, except for share data and per share data, or otherwise noted)
| 28. | Restricted net assets and parent company only condensed financial information (Continued) |
Condensed statements of cash flows
| For the years ended June 30, | ||||||||||||||||
| 2024 | 2025 | 2026 | 2026 | |||||||||||||
| RMB | RMB | RMB | US$ | |||||||||||||
| Net cash (used in)/provided by operating activities | ( | ) | ||||||||||||||
| Cash flows from investing activities: | ||||||||||||||||
| Loan provided to subsidiaries | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loan repaid by subsidiaries | ||||||||||||||||
| Proceeds from short-term investments | ||||||||||||||||
| Net cash provided by investing activities | ||||||||||||||||
| Cash flows from financing activities: | ||||||||||||||||
| Loan from subsidiaries | ||||||||||||||||
| Repayments of loan from subsidiaries | ( | ) | ( | ) | ( | ) | ||||||||||
| Proceeds from exercise of share options | ||||||||||||||||
| Repurchase of ADSs | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Dividends paid to equity holders of the Company | ( | ) | ||||||||||||||
| Net cash used in financing activities | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Effect of exchange rate changes on cash and cash equivalents | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Net increase/(decrease) in cash and cash equivalents | ( | ) | ( | ) | ( | ) | ||||||||||
| Cash and cash equivalents at beginning of the year | ||||||||||||||||
| Cash and cash equivalents at end of the year | ||||||||||||||||
F-55