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Sound Group Inc.

Sound Group Inc.SOGP财报

Nasdaq · software industry

SoundHound AI, Inc. is an American music and speech recognition company based in Santa Clara, California. It was originally founded as Melodis in 2005 before rebranding to SoundHound Inc. in 2010, and SoundHound AI in 2022.

What changed in Sound Group Inc.'s 20-F — 2022 vs 2023

Top changes in Sound Group Inc.'s 2023 20-F

611 paragraphs added · 622 removed · 486 edited across 5 sections

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

214 edited+65 added−48 removed729 unchanged
Given the uncertainties of interpretation and implementation of relevant laws and regulations and the enforcement practice by relevant government authorities, we may be required to obtain additional licenses, permits, filings or approvals for the functions and services of our platform in the future. For more detailed information, see “Item 3. Key Information—D.
Given the uncertainties of interpretation and implementation of relevant laws and regulations and the enforcement practice by relevant government authorities, we may be required to obtain additional licenses, permits, filings or approvals for the functions and services of our platform in the future. For more detailed information, see “Item 3. Key Information—3.D.
Therefore, we may be required to complete filing with the CSRC in relation to any future offshore offering. For more detailed information, see “Item 3. Key Information—D.
Therefore, we may be required to complete filing with the CSRC in relation to any future offshore offering. For more detailed information, see “Item 3. Key Information—3.D.
Risk Factors—Risks Related to Doing Business in China—The approval, filing or other requirements of the China Securities Regulatory Commission or other PRC government authorities may be required under PRC law in connection with our issuance of securities overseas.” and “Item 3. Key Information—D.
Risk Factors—Risks Related to Doing Business in China—The approval, filing or other requirements of the China Securities Regulatory Commission or other PRC government authorities may be required under PRC law in connection with our issuance of securities overseas.” and “Item 3. Key Information—3.D.
If the PRC government finds such agreements non-compliant with relevant PRC laws, regulations and rules, or if these laws, regulations and rules or their interpretation thereof change in the future, we could be subject to severe penalties or be forced to relinquish our interests in the VIEs. ● Any failure by the VIEs or their shareholders to perform their obligations under our contractual arrangements with them would have a material adverse effect on our business. ● The approval, filing or other requirements of the China Securities Regulatory Commission or other PRC government authorities may be required under PRC law in connection with our issuance of securities overseas. ● We rely on contractual arrangements with the VIEs and their shareholders for our operations in China, which may not be as effective in providing operational control as direct ownership. ● We may lose the ability to use and enjoy assets held by the VIEs and their subsidiaries that are important to our business if the VIEs and their subsidiaries declare bankruptcy or become subject to a dissolution or liquidation proceeding.
If the PRC government finds such agreements non-compliant with relevant PRC laws, regulations, and rules, or if these laws, regulations, and rules or the interpretation thereof change in the future, we could be subject to severe penalties or be forced to relinquish our interests in the VIEs. ● Any failure by the VIEs or their shareholders to perform their obligations under our contractual arrangements with them would have a material adverse effect on our business. ● The approval, filing or other requirements of the China Securities Regulatory Commission or other PRC government authorities may be required under PRC law in connection with our issuance of securities overseas. ● We rely on contractual arrangements with the VIEs and their shareholders for our operations in China, which may not be as effective in providing operational control as direct ownership. ● We may lose the ability to use and enjoy assets held by the VIEs and their subsidiaries that are important to our business if the VIEs and their subsidiaries declare bankruptcy or become subject to a dissolution or liquidation proceeding.
We require users to agree to our terms of service upon account registration. Our terms of service set out types of content strictly prohibited on our platforms, and we have also developed a content monitoring system. See “Item 4. Information of the Company—4.B.
We require users to agree to our terms of service upon account registration. Our terms of service set out types of content strictly prohibited on our platforms, and we have also developed a content monitoring system. See “Item 4. Information on the Company—4.B.
We launched certain incentive programs to encourage content creation, enhance user spending and attract more hosts and users to our platforms, however, we cannot guarantee you that the hosts attracted to our platforms due to those incentive programs will remain active after we terminate such programs.
We launched certain incentive programs to encourage content creation, enhance user spending and attract more hosts and users to our platforms, however, we cannot guarantee you that the hosts attracted to our platforms due to those incentive programs will remain active after we terminate such programs.
In the past, we defended against the putative class action lawsuits described in “Item 8. Financial Information—A.
In the past, we defended against the putative class action lawsuits described in “Item 8. Financial Information—8.A.
Moreover, even if our management concludes that our internal control over financial reporting is effective, our independent registered public accounting firm, after conducting its own independent testing, may issue a report that is qualified if it is not satisfied with our internal controls or the level at which our controls are documented, designed, operated or reviewed, or if it interprets the relevant requirements differently from us.
Moreover, even if our management concludes that our internal control over financial reporting is effective, our independent registered public accounting firm, after conducting its own independent testing, may issue a report that is qualified if it is not satisfied with our internal controls or the level at which our controls are documented, designed, operated or reviewed, or if it interprets the relevant requirements differently from us.
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.
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.
In addition, a majority of our directors and executive officers named in this annual report reside within China and are nationals of countries other than the United States, all of our directors and officers are located outside of the Cayman Islands, and most of the assets of these persons are located within China.
In addition, a majority of our directors and executive officers named in this annual report reside within China and are nationals of countries other than the United States, all of our directors and officers are located outside of the Cayman Islands, and most of the assets of these persons are located outside of the United States.
If we were involved in a class action suit, it could divert a significant amount of our management’s attention and other resources from our business and operations, which could harm our results of operations and require us to incur significant expenses to defend the suit. See “Item 3. Key Information—D.
If we were involved in a class action suit, it could divert a significant amount of our management’s attention and other resources from our business and operations, which could harm our results of operations and require us to incur significant expenses to defend the suit. See “Item 3. Key Information—3.D.
Any failure or delay in the completion of the cybersecurity review procedures may prevent us from using or providing certain network products and services, and may result in penalties, including fines, suspension of business and revocation of required licenses, and our reputation and results of operations could be materially and adversely affected. 17 Table of Contents On December 31, 2021, the CAC together with other regulatory authorities published Administrative Provisions on Algorithm Recommendation for Internet Information Services, effective on March 1, 2022 which provides, among others, that algorithm recommendation service providers shall (i) establish and improve the management systems and technical measures for algorithm mechanism and principle review, scientific and technological ethics review, user registration, information release review, data security and personal information protection, anti-telecommunications and Internet fraud, security assessment and monitoring, and security incident emergency response, formulate and disclose the relevant rules for algorithm recommendation services, and be equipped with professional staff and technical support appropriate to the scale of the algorithm recommendation service; (ii) regularly review, evaluate and verify the principle, models, data and application results of algorithm mechanisms, (iii) strengthen information security management, establish and improve a feature database for identifying illegal and bad information, and improve entry standards, rules and procedures; and (iv) strengthen the management of user models and user labels, and improve the rules on points of interest recorded into user models and user label management, and shall not record illegal and harmful information keywords into the points of interest of users or use them as user labels to push information.
Any failure or delay in the completion of the cybersecurity review procedures may prevent us from using or providing certain network products and services, and may result in penalties, including fines, suspension of business and revocation of required licenses, and our reputation and results of operations could be materially and adversely affected. 19 Table of Contents On December 31, 2021, the CAC together with other regulatory authorities published Administrative Provisions on Algorithm Recommendation for Internet Information Services, effective on March 1, 2022 which provides, among others, that algorithm recommendation service providers shall (i) establish and improve the management systems and technical measures for algorithm mechanism and principle review, scientific and technological ethics review, user registration, information release review, data security and personal information protection, anti-telecommunications and Internet fraud, security assessment and monitoring, and security incident emergency response, formulate and disclose the relevant rules for algorithm recommendation services, and be equipped with professional staff and technical support appropriate to the scale of the algorithm recommendation service; (ii) regularly review, evaluate and verify the principle, models, data and application results of algorithm mechanisms, (iii) strengthen information security management, establish and improve a feature database for identifying illegal and bad information, and improve entry standards, rules and procedures; and (iv) strengthen the management of user models and user labels, and improve the rules on points of interest recorded into user models and user label management, and shall not record illegal and harmful information keywords into the points of interest of users or use them as user labels to push information.
See “—The PRC government may further tighten the regulation on online audio and entertainment platforms, which may materially and negatively affect our reputation, business, financial condition and results of operations” and “—Our content monitoring system may not be effective in preventing misconduct by our platforms users and misuse of our platforms and such misconduct or misuse may materially and adversely impact our business, financial condition and results of operations.” Meanwhile, we may face claims for fraud, defamation, libel, negligence, copyright, patent or trademark infringement, other unlawful activities or other theories and claims based on the nature and content of the information delivered on or otherwise accessed through our platforms.
See “—The PRC government may further tighten the regulation on online audio and entertainment platforms, which may materially and negatively affect our reputation, business, financial condition and results of operations” and “—Our content monitoring system may not be effective in preventing misconduct by our platforms’ users and misuse of our platforms and such misconduct or misuse may materially and adversely impact our business, financial condition and results of operations.” Meanwhile, we may face claims for fraud, defamation, libel, negligence, copyright, patent or trademark infringement, other unlawful activities or other theories and claims based on the nature and content of the information delivered on or otherwise accessed through our platforms.
The market price of our ADSs have fluctuated and may continue to fluctuate substantially due to a variety of factors, including our financial condition, operating performance, quarterly fluctuations in our results of operations, our ability to execute on our current growth strategy in a timely fashion, announcements about technological innovations or new products or services by us or our competitors, market acceptance of new products and services offered by us, changes in our relationships with our suppliers or customers, our ability to meet analysts’ expectations, changes in the information technology environment, changes in earnings estimates by analysts, sales of our ADSs by existing holders, and the loss of key personnel.
The market price of our ADSs have fluctuated and may continue to fluctuate substantially due to a variety of factors, including our financial condition, operating performance, fluctuations in our results of operations, our ability to execute on our current growth strategy in a timely fashion, announcements about technological innovations or new products or services by us or our competitors, market acceptance of new products and services offered by us, changes in our relationships with our suppliers or customers, our ability to meet analysts’ expectations, changes in the information technology environment, changes in earnings estimates by analysts, sales of our ADSs by existing holders, and the loss of key personnel.
See “—Our content monitoring system may not be effective in preventing misconduct by our platforms users and misuse of our platforms and such misconduct or misuse may materially and adversely impact our business, financial condition and results of operations.” If we are deemed to have facilitated the appearance of inappropriate content placed by third parties on our platforms under PRC laws and regulations, we may be subject to fines or other disciplinary actions, including in serious cases suspension or revocation of the licenses necessary to operate our platforms, imposed by court or government authority.
See “—Our content monitoring system may not be effective in preventing misconduct by our platforms’ users and misuse of our platforms and such misconduct or misuse may materially and adversely impact our business, financial condition and results of operations.” If we are deemed to have facilitated the appearance of inappropriate content placed by third parties on our platforms under PRC laws and regulations, we may be subject to fines or other disciplinary actions, including in serious cases suspension or revocation of the licenses necessary to operate our platforms, imposed by court or government authority.
Risk Factors—Risks Related to Our Business—We and certain of our directors and officers have been named as defendants in several shareholder class action lawsuits in the past, and if similar events occur again in the future, they could have a material adverse impact on our business, financial condition, results of operation, cash flows and reputation.” Any such class action suit, whether or not successful, could harm our reputation and restrict our ability to raise capital in the future.
Risk Factors—Risks Related to Our Business and Industry—We and certain of our directors and officers have been named as defendants in several shareholder class action lawsuits in the past, and if similar events occur again in the future, they could have a material adverse impact on our business, financial condition, results of operation, cash flows and reputation.” Any such class action suit, whether or not successful, could harm our reputation and restrict our ability to raise capital in the future.
Business Overview—Content Monitoring System.” If our AI system fails to interpret true and improper meaning of certain content, or if our monitoring team draws incorrect decision as to legality of certain content, illegal or unauthorized content may become accessible to our users via our platforms and expose us to various risks which may materially and adversely impact our business, financial condition and results of operations.
Business Overview—Content Moderation.” If our AI system fails to interpret true and improper meaning of certain content, or if our monitoring team draws incorrect decision as to legality of certain content, illegal or unauthorized content may become accessible to our users via our platforms and expose us to various risks which may materially and adversely impact our business, financial condition and results of operations.
Risk Factors—Risks Related to Doing Business in China— The PCAOB had historically been unable to inspect our auditor in relation to their audit work performed for our financial statements and the inability of the PCAOB to conduct inspections of our auditor in the past has deprived our investors with the benefits of such inspections.”; “Item 3. Key Information—D.
Risk Factors—Risks Related to Doing Business in China—The PCAOB had historically been unable to inspect our former 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—3.D.
On December 16, 2021, the Public Company Accounting Oversight Board (the “PCAOB”) issued the HFCAA Determination Report to notify the SEC of its determinations that the PCAOB was unable to inspect or investigate completely registered public accounting firms headquartered in mainland China and Hong Kong (the “2021 Determinations”), including our auditor.
On December 16, 2021, the Public Company Accounting Oversight Board (the “PCAOB”) issued the HFCAA Determination Report to notify the SEC of its determinations that the PCAOB was unable to inspect or investigate completely registered public accounting firms headquartered in mainland China and Hong Kong (the “2021 Determinations”), including our former auditor.
The amended Anti-monopoly Law also provides that the relevant authority shall investigate a transaction where there is any evidence that the concentration has or may have the effect of eliminating or restricting competitions, even if such concentration does not reach the filing threshold. See “Item 4. Information of the Company—4.B.
The amended Anti-monopoly Law also provides that the relevant authority shall investigate a transaction where there is any evidence that the concentration has or may have the effect of eliminating or restricting competitions, even if such concentration does not reach the filing threshold. See “Item 4. Information on the Company—4.B.
We have accrued in the financial statements but not made full contributions to the social insurance plans for employees as required by the relevant PRC laws and regulations. As of the date of this annual report, we are not aware of any notice from regulatory authorities or any claim or request from these employees in this regard.
We have accrued in the financial statements but not made full contributions to the social insurance plans for employees as required by the relevant PRC laws and regulations. As of the date of this annual report, we are not aware of any outstanding notice from regulatory authorities or any outstanding claim or request from these employees in this regard.
Organizational Structure—Contractual Arrangements with the VIEs and the VIEs’ Respective Shareholders” for more details about these contractual arrangements. In particular, our ability to direct the VIEs depends on the powers of attorney, pursuant to which Hongyi Technology and Guangzhou QingYin (our WFOEs) can exercise all shareholders rights in the VIEs.
Organizational Structure—Contractual Arrangements with the VIEs and the VIEs’ Respective Shareholders” for more details about these contractual arrangements. In particular, our ability to direct the VIEs depends on the powers of attorney, pursuant to which Hongyi Technology and Guangzhou QingYin (our WFOEs) can exercise all shareholders’ rights in the VIEs.
There can be no assurance that we will meet the minimum bid price requirement or any other requirements in the future. The failure to maintain our listing on the Nasdaq would have an adverse effect on the market price and liquidity of our ADSs.
There can be no assurance that we will continue to meet the minimum bid price requirement or any other requirements in the future. The failure to maintain our listing on the Nasdaq would have an adverse effect on the market price and liquidity of our ADSs.
Any PRC tax imposed on a transfer of our shares not through a public stock exchange, or any adjustment of such gains would cause us to incur additional costs and may have a negative impact on the value of your investment in our company.
Any PRC tax imposed on a transfer of our shares not through a public stock exchange, or any adjustment of such gains may cause us to incur additional costs and may have a negative impact on the value of your investment in our company.
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 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 former auditor was subject to that determination.
The provincial press, publication, radio and television administrative authorities shall supervise the local audio-visual program websites to further improve the program content monitoring system and ensure the online program service providers to fully implement the relevant requirements. 27 Table of Contents In August 2018, the National Office of Anti-Pornography and Illegal Publication, or the NOAPIP, the MIIT, the Ministry of Public Security, the Ministry of Culture and Tourism, the National Radio and Television Administration and the Cyberspace Administration of China jointly issued the Notice on Strengthen the Management of Live Streaming Service, which required a real-name registration system for users to be put in place by live streaming service providers.
The provincial press, publication, radio and television administrative authorities shall supervise the local audio-visual program websites to further improve the program content monitoring system and ensure the online program service providers to fully implement the relevant requirements. 29 Table of Contents In August 2018, the National Office of Anti-Pornography and Illegal Publication, or the NOAPIP, the MIIT, the Ministry of Public Security, the Ministry of Culture and Tourism, the National Radio and Television Administration and the Cyberspace Administration of China jointly issued the Notice on Strengthen the Management of Live Streaming Service, which required a real-name registration system for users to be put in place by live streaming service providers.
Although we have been successfully blocking these attacks in the past, we cannot guarantee that this will always be the case, and in the incident if users experience a malware attack by using our platforms, our users may associate the malware with our websites or mobile apps, and our reputation, business, financial condition and results of operations would be materially and adversely affected. 39 Table of Contents Our operations mainly depend on the performance of the internet infrastructure, fixed telecommunications networks and mobile operating systems in China, which may experience unexpected system failure, interruption, inadequacy or security breaches.
Although we have been successfully blocking these attacks in the past, we cannot guarantee that this will always be the case, and in the incident if users experience a malware attack by using our platforms, our users may associate the malware with our websites or mobile apps, and our reputation, business, financial condition and results of operations would be materially and adversely affected. 41 Table of Contents Our operations mainly depend on the performance of the internet infrastructure, fixed telecommunications networks and mobile operating systems in China, which may experience unexpected system failure, interruption, inadequacy or security breaches.
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.
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 then 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.
In addition, if any third party suffers or alleges to have suffered physical, financial or emotional harm following contact initiated on our platforms or after hearing unsettling, inappropriate, fraudulent or misleading content that our content monitoring system failed to filter out, or if any third party suffers or alleges to have suffered damages as a result of improper or fraudulent activities on our platforms, we may face civil lawsuits or other liabilities initiated by the affected third party, or governmental or regulatory actions against us. 37 Table of Contents In response to allegations of illegal or inappropriate activities conducted through our platforms or any negative media coverage about us, PRC government authorities may intervene and hold us liable for non-compliance with PRC laws and regulations concerning the dissemination of information on the internet and subject us to administrative penalties or other sanctions, such as requiring us to restrict or discontinue some of the features and services provided on our website and mobile application, or even revoke our licenses or permits to provide internet content service.
In addition, if any third party suffers or alleges to have suffered physical, financial or emotional harm following contact initiated on our platforms or after hearing unsettling, inappropriate, fraudulent or misleading content that our content monitoring system failed to filter out, or if any third party suffers or alleges to have suffered damages as a result of improper or fraudulent activities on our platforms, we may face civil lawsuits or other liabilities initiated by the affected third party, or governmental or regulatory actions against us. 39 Table of Contents In response to allegations of illegal or inappropriate activities conducted through our platforms or any negative media coverage about us, PRC government authorities may hold us liable for non-compliance with PRC laws and regulations concerning the dissemination of information on the internet and subject us to administrative penalties or other sanctions, such as requiring us to restrict or discontinue some of the features and services provided on our website and mobile application, or even revoke our licenses or permits to provide internet content service.
If we cannot increase our capacity to deliver our online services, we may not be able to the increases in traffic we anticipate from our expanding user base, and the adoption of our services may be hindered, which could adversely impact our business, financial condition and results of operations.
If we cannot increase our capacity to deliver our online services, we may not be able to the increases in traffic we anticipate from user base, and the adoption of our services may be hindered, which could adversely impact our business, financial condition and results of operations.
This will generally continue to be the case even if we cease to be a PFIC in a later taxable year, unless a “deemed sale” election is made. See “Item 10. Additional Information—10.E. Taxation—U.S.
This will generally continue to be the case even if we cease to be a PFIC in a later taxable year, unless a “deemed sale” election is made. See “Item 10. Additional Information—10.E. Taxation—Material U.S.
New technologies in programming or operations could render our technologies, our platforms or products or services that we are developing or expect to develop in the future obsolete or unattractive, thereby limiting our ability to recover related product development costs, outsourcing costs and licensing fees, which could result in a decline in our revenues and market share. 42 Table of Contents Our business depends substantially on the continuing efforts of our executive officers, key employees and qualified personnel, and our business operations may be adversely and negatively impacted if we lose their services.
New technologies in programming or operations could render our technologies, our platforms or products or services that we are developing or expect to develop in the future obsolete or unattractive, thereby limiting our ability to recover related product development costs, outsourcing costs and licensing fees, which could result in a decline in our revenues and market share. 44 Table of Contents Our business depends substantially on the continuing efforts of our executive officers, key employees and qualified personnel, and our business operations may be adversely and negatively impacted if we lose their services.
Apart from services charges and loans among the VIEs and our PRC subsidiaries, there were no other assets transferred between the VIEs and Non-VIEs in 2020, 2021 and 2022. 5 Table of Contents As advised by our PRC legal counsel, for any amounts owed by the VIEs to our PRC subsidiaries under the VIE agreements, unless otherwise required by PRC governmental authorities, we are able to settle such amounts without limitations under the current effective PRC laws and regulations, provided that the VIEs have sufficient funds to do so.
Apart from services charges and loans among the VIEs and our PRC subsidiaries, there were no other assets transferred between the VIEs and Non-VIEs in 2021, 2022 and 2023. 5 Table of Contents As advised by our PRC legal counsel, for any amounts owed by the VIEs to our PRC subsidiaries under the VIE agreements, unless otherwise required by PRC governmental authorities, we are able to settle such amounts without limitations under the current effective PRC laws and regulations, provided that the VIEs have sufficient funds to do so.
If government actions or sanctions are brought against us, or if there are widespread rumors that government actions or sanctions have been brought against us, our reputation could be harmed, we may lose users and customers, our revenues and results of operation may be materially and adversely affected and the value of our ADSs could be dramatically reduced. 15 Table of Contents Adverse changes in global or China’s economic, political or social conditions or government policies could have a material adverse effect on our business, financial condition and results of operations.
If government actions or sanctions are brought against us, or if there are widespread rumors that government actions or sanctions have been brought against us, our reputation could be harmed, we may lose users and customers, our revenues and results of operation may be materially and adversely affected and the value of our ADSs could be dramatically reduced. 17 Table of Contents Adverse changes in global or China’s economic, political or social conditions or government policies could have a material adverse effect on our business, financial condition and results of operations.
Furthermore, there are no assurances that the number of shares reserved for issuance under our share incentive plans will be sufficient to grant equity awards adequate to recruit new employees and to compensate existing employees. 49 Table of Contents We may be the subject of allegations, harassing or other detrimental conduct by third parties, which could harm our reputation and cause us to lose market share, users and customers.
Furthermore, there are no assurances that the number of shares reserved for issuance under our share incentive plans will be sufficient to grant equity awards adequate to recruit new employees and to compensate existing employees. 50 Table of Contents We may be the subject of allegations, harassing or other detrimental conduct by third parties, which could harm our reputation and cause us to lose market share, users and customers.
In addition to market and industry factors, the price and trading volume for our ADSs may be highly volatile for factors specific to our own operations, including the following: ● variations in our revenues, earnings, cash flow and data related to our user base or user engagement; ● announcements of new investments, acquisitions, strategic partnerships or joint ventures by us or our competitors; ● announcements of new product and service offerings, solutions and expansions by us or our competitors; ● changes in financial estimates by securities analysts; ● detrimental adverse publicity about us, our products and services or our industry; ● additions or departures of key personnel; 61 Table of Contents ● release of lock-up or other transfer restrictions on our outstanding equity securities or sales of additional equity securities; and ● potential litigation or regulatory investigations.
In addition to market and industry factors, the price and trading volume for our ADSs may be highly volatile for factors specific to our own operations, including the following: ● variations in our revenues, earnings, cash flow and data related to our user base or user engagement; ● announcements of new investments, acquisitions, strategic partnerships or joint ventures by us or our competitors; ● announcements of new product and service offerings, solutions and expansions by us or our competitors; ● changes in financial estimates by securities analysts; ● detrimental adverse publicity about us, our products and services or our industry; ● additions or departures of key personnel; ● release of lock-up or other transfer restrictions on our outstanding equity securities or sales of additional equity securities; and ● potential litigation or regulatory investigations.
If we are not able to maintain our relationship with guilds, they may choose to devote their resources to hosts who release programs on the other platforms, or they may encourage their hosts to use other platforms, which could materially and adversely affect our business, financial condition and results of operations. 35 Table of Contents We may be liable for intellectual property infringement relating to intellectual properties of third parties, which may materially and adversely affect our business, financial condition and prospects.
If we are not able to maintain our relationship with guilds, they may choose to devote their resources to hosts who release programs on the other platforms, or they may encourage their hosts to use other platforms, which could materially and adversely affect our business, financial condition and results of operations. 37 Table of Contents We may be liable for intellectual property infringement relating to intellectual properties of third parties, which may materially and adversely affect our business, financial condition and prospects.
If others do not perceive our key operating metrics to be accurate representations of our results of operations, or if we discover material inaccuracies in our key operating metrics, our reputation may be harmed and customers and platforms’ partners may be less willing to allocate their resources or spending to us, which could negatively affect our business and operating results. 43 Table of Contents We are subject to risks relating to litigation and disputes, which could adversely affect our business, prospects, results of operations and financial condition.
If others do not perceive our key operating metrics to be accurate representations of our results of operations, or if we discover material inaccuracies in our key operating metrics, our reputation may be harmed and customers and platforms’ partners may be less willing to allocate their resources or spending to us, which could negatively affect our business and operating results. 45 Table of Contents We are subject to risks relating to litigation and disputes, which could adversely affect our business, prospects, results of operations and financial condition.
We believe these powers of attorney are legally enforceable but may not be as effective as direct equity ownership. 55 Table of Contents Although we have been advised by our PRC counsel, Fangda Partners, that each of the contractual arrangements among each of our WFOEs, the VIEs, and shareholders of the VIEs is valid, binding and enforceable under existing PRC laws and regulations, these contractual arrangements may not be as effective in providing control over the VIEs and their subsidiaries as direct ownership.
We believe these powers of attorney are legally enforceable but may not be as effective as direct equity ownership. 56 Table of Contents Although we have been advised by our PRC counsel, Fangda Partners, that each of the contractual arrangements among each of our WFOEs, the VIEs, and shareholders of the VIEs is valid, binding and enforceable under existing PRC laws and regulations, these contractual arrangements may not be as effective in providing control over the VIEs and their subsidiaries as direct ownership.
Risks Related to Our Business and Industry ● If we fail to retain our existing users, to keep them engaged, to further grow our user base or to increase paying ratio, our business, operation, profitability and prospects may be materially and adversely affected. ● The PRC government may further tighten the regulation on online audio and entertainment platforms, which may materially and negatively affect our reputation, business, financial condition and results of operations. ● We may fail to attract, cultivate and retain talented and popular hosts, which may materially and negatively affect our user retention and thus our business and operations. ● Our content monitoring system may not be effective in preventing misconduct by our platforms’ users and misuse of our platforms and such misconduct or misuse may materially and adversely impact our business, financial condition and results of operations. ● We may fail to offer attractive audio content on our platforms. ● We have limited experience in international markets.
Risks Related to Our Business and Industry ● If we fail to retain our existing users, to keep them engaged, to further grow our user base or to increase paying ratio, our business, operation, profitability and prospects may be materially and adversely affected. ● The PRC government may further tighten the regulation on online audio and entertainment platforms, which may materially and negatively affect our reputation, business, financial condition and results of operations. 13 Table of Contents ● We may fail to attract, cultivate and retain talented and popular hosts, which may materially and negatively affect our user retention and thus our business and operations. ● Our content monitoring system may not be effective in preventing misconduct by our platforms’ users and misuse of our platforms and such misconduct or misuse may materially and adversely impact our business, financial condition and results of operations. ● We may fail to offer attractive audio content on our platforms. ● We have limited experience in international markets.
Due to the complexity involved in our overseas business expansion, we cannot assure you that we are in compliance with all local laws or regulations, including license requirements, or that our existing licenses will be successfully renewed or expanded to cover all of our areas of operations. 50 Table of Contents In addition, cultural differences may also impose additional challenges to our efforts in content control.
Due to the complexity involved in our overseas business expansion, we cannot assure you that we are in compliance with all local laws or regulations, including license requirements, or that our existing licenses will be successfully renewed or expanded to cover all of our areas of operations. 51 Table of Contents In addition, cultural differences may also impose additional challenges to our efforts in content control.
Risks Related to Our Corporate Structure There are uncertainties regarding the interpretation and application of current and future PRC laws, regulations, and rules relating to the agreements that establish the VIE structure for our operations in China, including potential future actions by the PRC government, which could affect the enforceability of our contractual arrangements with the VIEs and, consequently, significantly affect the financial condition and results of operations performance of Lizhi.
Risks Related to Our Corporate Structure ● There are uncertainties regarding the interpretation and application of current and future PRC laws, regulations, and rules relating to the agreements that establish the VIE structure for our operations in China, including potential future actions by the PRC government, which could affect the enforceability of our contractual arrangements with the VIEs and, consequently, significantly affect the financial condition and results of operations performance of our company.
Any such penalties or changes in policies, regulations or enforcement by government authorities, may disrupt our operations and materially and adversely affect our business, financial condition and results of operations. 32 Table of Contents As of the date of this annual report, we have not been subject to any material penalties from the relevant government authorities for failure to obtain any licenses for our business operations in the past.
Any such penalties or changes in policies, regulations or enforcement by government authorities, may disrupt our operations and materially and adversely affect our business, financial condition and results of operations. 34 Table of Contents As of the date of this annual report, we have not been subject to any material penalties from the relevant government authorities for failure to obtain any licenses for our business operations in the past.
If any of these third-party online payment systems suffer from security breaches, users may lose confidence in such payment systems and refrain from purchasing our virtual gifts online, in which case our results of operations would be negatively impacted. 40 Table of Contents We exercise no control over the third parties with whom we have business arrangements.
If any of these third-party online payment systems suffer from security breaches, users may lose confidence in such payment systems and refrain from purchasing our virtual gifts online, in which case our results of operations would be negatively impacted. 42 Table of Contents We exercise no control over the third parties with whom we have business arrangements.
Under the deposit agreement for the ADSs, if you do not timely and properly give voting instructions to the depository as to how to vote the Class A ordinary shares underlying your ADSs, the depositary will give us or our nominee a discretionary proxy to vote the Class A ordinary shares underlying your ADSs at shareholders’ meetings unless: ● we have failed to timely provide the depositary with notice of meeting and related voting materials; ● we have instructed the depositary that we do not wish a discretionary proxy to be given; ● we have informed the depositary that there is substantial opposition as to a matter to be voted on at the meeting; ● a matter to be voted on at the meeting would have a material adverse impact on shareholders; or ● the voting at the meeting is to be made on a show of hands.
Under the deposit agreement for the ADSs, if you do not timely and properly give voting instructions to the depository as to how to vote the Class A ordinary shares underlying your ADSs, the depositary will give us or our nominee a discretionary proxy to vote the Class A ordinary shares underlying your ADSs at shareholders’ meetings unless: ● we have failed to timely provide the depositary with notice of meeting and related voting materials; ● we have instructed the depositary that we do not wish a discretionary proxy to be given; ● we have informed the depositary that there is substantial opposition as to a matter to be voted on at the meeting; ● a matter to be voted on at the meeting would have a material adverse impact on shareholders; or 65 Table of Contents ● the voting at the meeting is to be made on a show of hands.
There is no explicit provision or official interpretation stating that the merging or acquisition of a company engaged in the internet content business requires security review, and there is no requirement that acquisitions completed prior to the promulgation of the Security Review Circular are subject to MOFCOM review. 23 Table of Contents In the future, we may grow our business by acquiring complementary businesses.
There is no explicit provision or official interpretation stating that the merging or acquisition of a company engaged in the internet content business requires security review, and there is no requirement that acquisitions completed prior to the promulgation of the Security Review Circular are subject to MOFCOM review. 25 Table of Contents In the future, we may grow our business by acquiring complementary businesses.
The CCPA gives California consumers certain rights similar to those provided by the GDPR, and users may seek similar assurances from suppliers regarding compliance. 41 Table of Contents Unauthorized use of our intellectual property by our hosts and employees and other third parties and the expenses incurred in protecting our intellectual property rights may harm our brands and reputation and materially and adversely affect our business.
The CCPA gives California consumers certain rights similar to those provided by the GDPR, and users may seek similar assurances from suppliers regarding compliance. 43 Table of Contents Unauthorized use of our intellectual property by our hosts and employees and other third parties and the expenses incurred in protecting our intellectual property rights may harm our brands and reputation and materially and adversely affect our business.
In case of a loss of virtual assets, we may be sued by our users and held liable for damages, which may negatively affect our reputation and business, financial condition and results of operations. 16 Table of Contents Our business is subject to complex and evolving Chinese and international laws and regulations, including those regarding data privacy and cybersecurity.
In case of a loss of virtual assets, we may be sued by our users and held liable for damages, which may negatively affect our reputation and business, financial condition and results of operations. 18 Table of Contents Our business is subject to complex and evolving Chinese and international laws and regulations, including those regarding data privacy and cybersecurity.
It is unclear whether any new “negative list” to be issued under the PRC Foreign Investment Law will be different from the foregoing lists that already exist. 58 Table of Contents The PRC Foreign Investment Law leaves leeway for future laws, administrative regulations or provisions of the State Council to provide for contractual arrangements as a form of foreign investment.
It is unclear whether any new “negative list” to be issued under the PRC Foreign Investment Law will be different from the foregoing lists that already exist. 59 Table of Contents The PRC Foreign Investment Law leaves leeway for future laws, administrative regulations or provisions of the State Council to provide for contractual arrangements as a form of foreign investment.
We receive substantially all of our revenues in RMB. 59 Table of Contents 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.
We receive substantially all of our revenues in RMB. 60 Table of Contents 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.
According to the Social Insurance Law, employees must participate in pension insurance, work-related injury insurance, medical insurance, unemployment insurance and maternity insurance and the employers must, together with their employees or separately, pay the social insurance premiums for such employees. 22 Table of Contents We expect our labor costs to increase due to the implementation of these new laws and regulations.
According to the Social Insurance Law, employees must participate in pension insurance, work-related injury insurance, medical insurance, unemployment insurance and maternity insurance and the employers must, together with their employees or separately, pay the social insurance premiums for such employees. 24 Table of Contents We expect our labor costs to increase due to the implementation of these new laws and regulations.
As we face increasing competition and as litigation becomes a more common method for resolving commercial disputes in China, we face a higher risk of being the subject of intellectual property infringement claims or other legal proceedings. 36 Table of Contents We have adopted systematic methods to reduce our exposure to the risks of intellectual property infringement claims.
As we face increasing competition and as litigation becomes a more common method for resolving commercial disputes in China, we face a higher risk of being the subject of intellectual property infringement claims or other legal proceedings. 38 Table of Contents We have adopted systematic methods to reduce our exposure to the risks of intellectual property infringement claims.
Business Overview—Content Monitoring System.” If we cannot develop or maintain an effective operation of artificial intelligence to assist in those areas, or if we fail to improve our AI-based system to align with the fast increase of our data volume, we may not have the technologies required to support our business operations and development.
Business Overview—Content Moderation.” If we cannot develop or maintain an effective operation of artificial intelligence to assist in those areas, or if we fail to improve our AI-based system to align with the fast increase of our data volume, we may not have the technologies required to support our business operations and development.
Moreover, we may be required to obtain additional licenses or approvals if the PRC government adopts more stringent policies or regulations for our industry. 31 Table of Contents To expand our business scope and explore innovative business models, we have adopted and will continue to adopt various operating strategies and measures.
Moreover, we may be required to obtain additional licenses or approvals if the PRC government adopts more stringent policies or regulations for our industry. 33 Table of Contents To expand our business scope and explore innovative business models, we have adopted and will continue to adopt various operating strategies and measures.
Our PRC subsidiaries and PRC VIEs are subject to restrictions on paying dividends or making other payments to us, which may restrict our ability to satisfy our liquidity requirements. We are a holding company incorporated in the Cayman Islands. In 2020, 2021 and 2022, our subsidiaries and the VIEs (including their subsidiaries) located in the PRC have not paid dividends.
Our PRC subsidiaries and PRC VIEs are subject to restrictions on paying dividends or making other payments to us, which may restrict our ability to satisfy our liquidity requirements. We are a holding company incorporated in the Cayman Islands. In 2021, 2022 and 2023, our subsidiaries and the VIEs (including their subsidiaries) located in the PRC have not paid dividends.
As a result, our consolidated results of operations may be adversely affected. 56 Table of Contents If the chops of our PRC subsidiaries, the VIEs and their subsidiaries, are not kept safely, are stolen or are used by unauthorized persons or for unauthorized purposes, the corporate governance of these entities could be severely and adversely compromised.
As a result, our consolidated results of operations may be adversely affected. 57 Table of Contents If the chops of our PRC subsidiaries, the VIEs and their subsidiaries, are not kept safely, are stolen or are used by unauthorized persons or for unauthorized purposes, the corporate governance of these entities could be severely and adversely compromised.
In 2022, we started to incubate new applications in other international markets. We have limited experience in international markets and we expect to enter and expand our operations in international markets.
In 2022, we started to incubate and launch new applications in other international markets. We have limited experience in international markets and we expect to enter and expand our operations in international markets.
Any adverse changes in economic conditions in China, in the policies of the PRC government or in the laws and regulations in China could have a material adverse effect on the overall economic growth of China. Such developments could adversely affect our business and operating results, lead to reduction in demand for our services and adversely affect our competitive position.
Any adverse changes in economic conditions in China, in the policies of the PRC government or in the laws and regulations in China could have a material adverse effect on the overall business environment of China. Such developments could adversely affect our business and operating results, lead to reduction in demand for our services and adversely affect our competitive position.
Organizational Structure—Contractual Arrangements with the VIEs and the VIEs’ Respective Shareholders.” 52 Table of Contents In the opinion of our PRC counsel, Fangda Partners, based on its understanding of the relevant PRC laws and regulations, each of the contractual arrangements among each of our WFOEs, the VIEs, and their respective shareholders is valid, binding and enforceable in accordance with its terms.
Organizational Structure—Contractual Arrangements with the VIEs and the VIEs’ Respective Shareholders.” 53 Table of Contents In the opinion of our PRC counsel, Fangda Partners, based on its understanding of the relevant PRC laws and regulations, each of the contractual arrangements among each of our WFOEs, the VIEs, and their respective shareholders is valid, binding and enforceable in accordance with its terms.
For more information regarding our principal shareholders and their affiliated entities, see “Item 6, Directors, Senior Management and Employees—6.E. Share Ownership.” 57 Table of Contents We may rely on dividends paid by our PRC subsidiaries to fund cash and financing requirements.
For more information regarding our principal shareholders and their affiliated entities, see “Item 6. Directors, Senior Management and Employees—6.E. Share Ownership.” 58 Table of Contents We may rely on dividends paid by our PRC subsidiaries to fund cash and financing requirements.
Many of these laws and regulations are subject to change and uncertain interpretation. ● The PRC government’s significant oversight and discretion over our business operation could result in a material adverse change in our operations and the value of our ADSs. ● Any failure or perceived failure by us to comply with Anti-monopoly Guidelines for Internet Platforms and other Anti-monopoly laws and regulations may result in governmental investigations or enforcement actions, litigation or claims against us and could have an adverse effect on our business, financial condition and results of operations. ● Our ADSs may be prohibited from trading in the United States under the HFCAA in the future if the PCAOB is unable to inspect or investigate completely auditors located in China.
Many of these laws and regulations are subject to change and uncertain interpretation. ● The PRC government’s significant oversight and discretion over our business operation could result in a material adverse change in our operations and the value of our ADSs. ● Any failure or perceived failure by us to comply with Anti-monopoly Guidelines for Internet Platforms and other Anti-monopoly laws and regulations may result in governmental investigations or enforcement actions, litigation or claims against us and could have an adverse effect on our business, financial condition and results of operations. ● Our ADSs may be prohibited from trading in the United States under the HFCAA in the future if the PCAOB is unable to inspect or investigate completely our auditor.
Continued growth could end up straining our ability to maintain reliable service levels for all of our users and hosts, develop and improve our operational, financial, legal and management controls, and enhance our reporting systems and procedures. Managing our growth will require significant expenditures and the allocation of valuable management resources.
Achieving and managing growth could end up straining our ability to maintain reliable service levels for all of our users and hosts, develop and improve our operational, financial, legal and management controls, and enhance our reporting systems and procedures. Managing our growth will require significant expenditures and the allocation of valuable management resources.
The Cyber Security Law requires network operators to fulfill certain obligations to safeguard security in the cyberspace and enhance network information management. 38 Table of Contents On August 17, 2021, the State Council promulgated the Regulations on Key Information Infrastructure Security Protection, which has become effective on September 1, 2021.
The Cyber Security Law requires network operators to fulfill certain obligations to safeguard security in the cyberspace and enhance network information management. 40 Table of Contents On August 17, 2021, the State Council promulgated the Regulations on Key Information Infrastructure Security Protection, which has become effective on September 1, 2021.
We were likely a passive foreign investment company, or PFIC, for 2022 and there is a significant risk that we will be a PFIC for 2023 and possibly subsequent taxable years, in which case U.S. investors will generally be subject to adverse U.S. federal income tax consequences.
We were likely a passive foreign investment company, or PFIC, for 2023 and there is a significant risk that we will be a PFIC for 2024 and possibly subsequent taxable years, in which case U.S. investors will generally be subject to adverse U.S. federal income tax consequences.
For these reasons, we cannot express an expectation as to our PFIC status for 2023 or any future taxable year. U.S. holders of our ADSs or ordinary shares should consult their tax advisers regarding the value and characterization of our assets for purposes of the PFIC rules.
For these reasons, we cannot express an expectation as to our PFIC status for 2024 or any future taxable year. U.S. holders of our ADSs or ordinary shares should consult their tax advisers regarding the value and characterization of our assets for purposes of the PFIC rules.
Our business, financial condition and results of operations may be materially and adversely affected by these and other risks associated with our global expansion. 51 Table of Contents We face risks related to natural disasters, health epidemics and other outbreaks, which could significantly disrupt our operations.
Our business, financial condition and results of operations may be materially and adversely affected by these and other risks associated with our global expansion. 52 Table of Contents We face risks related to natural disasters, health epidemics and other outbreaks, which could significantly disrupt our operations.
This re-engineering process could require significant additional research and development resources, and we may not be able to complete it successfully. 44 Table of Contents Negative publicity may materially and adversely affect our brand, reputation, business and growth prospects.
This re-engineering process could require significant additional research and development resources, and we may not be able to complete it successfully. 46 Table of Contents Negative publicity may materially and adversely affect our brand, reputation, business and growth prospects.
Our inability to take these actions as and when necessary could materially adversely affect our liquidity, results of operations, financial condition and ability to operate. 47 Table of Contents We do not currently have business insurance to cover our main assets and business.
Our inability to take these actions as and when necessary could materially adversely affect our liquidity, results of operations, financial condition and ability to operate. 49 Table of Contents We do not currently have business insurance to cover our main assets and business.
The value of our goodwill for any taxable year may be determined in large part by reference to our average quarterly market capitalization for that year. Because our market capitalization declined substantially during 2022, we believe we were likely a PFIC for our 2022 taxable year.
The value of our goodwill for any taxable year may be determined in large part by reference to our average quarterly market capitalization for that year. Because our market capitalization declined substantially during 2022 and 2023, we believe we were likely a PFIC for our 2023 taxable year.
Although we recorded a net income of RMB86.5 million in 2022, there is no guarantee that we will remain profitable and will not incur further net losses in the future. 29 Table of Contents Our ability to sustain profitability is affected by various external factors, many of which are beyond our control, such as the continual development of online audio and entertainment in China.
Although we recorded a net income of RMB86.5 million in 2022, there is no guarantee that we will remain profitable and will not incur further net losses in the future. Our ability to sustain profitability is affected by various external factors, many of which are beyond our control, such as the continual development of online audio and entertainment in China.
We generate substantially all of our net revenues from virtual gift sales for our audio entertainment. Therefore, our success in monetization primarily depends on our ability to maintain and increase the size of our user base and user engagement level.
The size of our user base and the level of our user engagement are critical to our success. We generate substantially all of our net revenues from virtual gift sales for our audio entertainment. Therefore, our success in monetization primarily depends on our ability to maintain and increase the size of our user base and user engagement level.
According to the Notice on Several Issues Concerning Enterprise Income Tax for Indirect Share Transfer by Non-PRC Resident Enterprises, issued by the State Taxation Administration on February 3, 2015, or SAT Circular 7, an “indirect transfer” of assets of a PRC resident enterprise, including a transfer of equity interests in a non-PRC holding company of a PRC resident enterprise, by non-PRC resident enterprises may be re-characterized and treated as a direct transfer of PRC taxable properties, if such transaction lacks reasonable commercial purpose and was undertaken for the purpose of reducing, avoiding or deferring PRC enterprise income tax.
According to the Notice on Several Issues Concerning Enterprise Income Tax for Indirect Share Transfer by Non-PRC Resident Enterprises, issued by the State Taxation Administration on February 3, 2015 and last emended on December, 2019, or SAT Circular 7, an “indirect transfer” of assets of a PRC resident enterprise, including a transfer of equity interests in a non-PRC holding company of a PRC resident enterprise, by non-PRC resident enterprises may be re-characterized and treated as a direct transfer of PRC taxable properties, if such transaction lacks reasonable commercial purpose and was undertaken for the purpose of reducing, avoiding or deferring PRC enterprise income tax.
Where the underlying transfer relates to PRC real properties or to equity investments in a PRC resident enterprise, which is not related to a PRC establishment or place of business of a non-resident enterprise, a PRC enterprise income tax at 10% would apply, subject to available preferential tax treatment under applicable tax treaties or similar arrangements, and the party who is obligated to make the transfer payments has the withholding obligation.
Where the underlying transfer relates to PRC real properties or to equity investments in a PRC resident enterprise, and the resulting gain is not related to a PRC establishment or place of business of a non-resident enterprise, a PRC enterprise income tax at 10% would apply, subject to available preferential tax treatment under applicable tax treaties or similar arrangements, and the party who is obligated to make the transfer payments has the withholding obligation.
The measures we take in response to such negative publicity, disputes or legal claims may be expensive, time consuming and disruptive to our operations and divert our management’s attention. In addition, we have run into multiple incidents in the past where the users paid for our virtual currency through fraudulent methods, including illegal use of credit cards.
The measures we take in response to such negative publicity, disputes or legal claims may be expensive, time consuming and disruptive to our operations and divert our management’s attention. 48 Table of Contents In addition, we have run into multiple incidents in the past where the users paid for our virtual currency through fraudulent methods, including illegal use of credit cards.
Federal Income Tax Considerations—Passive Foreign Investment Company Rules.” 70 Table of Contents We have incurred and will continue to incur increased costs as a result of being a public company, particularly after we cease to qualify as an “emerging growth company.” As a public company, we are incurring and expect to continue to incur significant legal, accounting and other expenses that we did not incur as a private company.
Federal Income Tax Considerations—Passive Foreign Investment Company Rules.” We have incurred and will continue to incur increased costs as a result of being a public company, particularly after we cease to qualify as an “emerging growth company.” As a public company, we are incurring and expect to continue to incur significant legal, accounting and other expenses that we did not incur as a private company.
Any such PRC tax liability will reduce the returns on your investment in our ADSs. 21 Table of Contents There are uncertainties with respect to indirect transfers of PRC taxable properties.
Any such PRC tax liability will reduce the returns on your investment in our ADSs. 23 Table of Contents There are uncertainties with respect to indirect transfers of PRC taxable properties.
If we fail to meet the challenges presented by our expansion overseas, our business, financial condition and results of operations may be materially and adversely affected. We are exploring opportunities overseas since 2019. We launched TIYA App, an audio-based social networking product, in the United States in October 2020.
If we fail to meet the challenges presented by our expansion overseas, our business, financial condition and results of operations may be materially and adversely affected. We have been exploring opportunities overseas since 2019. We launched TIYA App, an audio-based social networking product, in the United States in October 2020.
If one or more of these analysts cease to cover us or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause the market price or trading volume for our ADSs to decline. 63 Table of Contents Our ADSs may become the target of a “short squeeze”.
If one or more of these analysts cease to cover us or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause the market price or trading volume for our ADSs to decline. Our ADSs may become the target of a “short squeeze”.
In the event that the shareholders of the VIEs breach the terms of these contractual arrangements and voluntarily liquidate the VIEs, or the VIEs declares bankruptcy and all or part of its assets become subject to liens or rights of third-party creditors, or are otherwise disposed of without our consent, we may be unable to conduct some or all of our business operations or otherwise benefit from the assets held by our affiliated entities, which could have a material adverse effect on our business financial condition and results of operations. 53 Table of Contents Most of the nominee shareholders of the VIEs are also beneficial owners of the Company.
In the event that the shareholders of the VIEs breach the terms of these contractual arrangements and voluntarily liquidate the VIEs, or the VIEs declares bankruptcy and all or part of its assets become subject to liens or rights of third-party creditors, or are otherwise disposed of without our consent, we may be unable to conduct some or all of our business operations or otherwise benefit from the assets held by our affiliated entities, which could have a material adverse effect on our business financial condition and results of operations. 54 Table of Contents Most of the nominee shareholders of the VIEs are also the management of the Company.
Concurrently with such termination, Guangzhou QingYin entered into a new series of contractual arrangements by and among Guangzhou QingYin, Guangzhou Huanliao and the shareholder(s) of Guangzhou Huanliao in July 2022, which were amended and restated in January 2023. For details, please refer to “Item 4. Information on the Company—4.C.
Concurrently with such termination, Guangzhou QingYin entered into a new series of contractual arrangements by and among Guangzhou QingYin, Guangzhou Huanliao and the shareholder(s) of Guangzhou Huanliao in July 2022, which were last amended and restated in May 2023. For details, please refer to “Item 4. Information on the Company—4.C.

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On December 27, 2021, the MOFCOM and NDRC promulgated the Special Administrative Measures for the Access of Foreign Investment (Negative List) (2021 Version), or the Negative List, which became effective on January 1, 2022.
On December 27, 2021, the MOFCOM and NDRC promulgated the Special Administrative Measures for the Access of Foreign Investment (Negative List) (2021 Version), or the Negative List (2021), which became effective on January 1, 2022.
On December 31, 2021, the CAC together with other regulatory authorities published Administrative Provisions on Algorithm Recommendation for Internet Information Services, to be effective on March 1, 2022 which provides, among others, that algorithm recommendation service providers shall (i) establish and improve the management systems and technical measures for algorithm mechanism and principle review, scientific and technological ethics review, user registration, information release review, data security and personal information protection, anti-telecommunications and Internet fraud, security assessment and monitoring, and security incident emergency response, formulate and disclose the relevant rules for algorithm recommendation services, and be equipped with professional staff and technical support appropriate to the scale of the algorithm recommendation service; (ii) regularly review, evaluate and verify the principle, models, data and application results of algorithm mechanisms, (iii) strengthen information security management, establish and improve a feature database for identifying illegal and bad information, and improve entry standards, rules and procedures; (iv) strengthen the management of user models and user labels, and improve the rules on points of interest recorded into user models and user label management, and shall not record illegal and harmful information keywords into the points of interest of users or use them as user labels to push information.
On December 31, 2021, the CAC together with other regulatory authorities published Administrative Provisions on Algorithm Recommendation for Internet Information Services, effective on March 1, 2022 which provides, among others, that algorithm recommendation service providers shall (i) establish and improve the management systems and technical measures for algorithm mechanism and principle review, scientific and technological ethics review, user registration, information release review, data security and personal information protection, anti-telecommunications and Internet fraud, security assessment and monitoring, and security incident emergency response, formulate and disclose the relevant rules for algorithm recommendation services, and be equipped with professional staff and technical support appropriate to the scale of the algorithm recommendation service; (ii) regularly review, evaluate and verify the principle, models, data and application results of algorithm mechanisms, (iii) strengthen information security management, establish and improve a feature database for identifying illegal and bad information, and improve entry standards, rules and procedures; and (iv) strengthen the management of user models and user labels, and improve the rules on points of interest recorded into user models and user label management, and shall not record illegal and harmful information keywords into the points of interest of users or use them as user labels to push information.
Such actions include, among other things, incurrence of debt to a third party, change of directors or senior management, acquisition or disposal of assets or shares, amendment to its articles of association or business scope and other matters.
Such actions include, among other things, incurrence of debt to a third party, change of directors or senior management, acquisition or disposal of assets or shares, amendment to its articles of association or business scope and other matters.
No overseas offering and listing shall be made under any of the following circumstances: (1) where such securities offering and listing is explicitly prohibited by provisions in laws, administrative regulations and relevant state rules; (2) where the intended securities offering and listing may endanger national security as reviewed and determined by competent authorities; (3) where the PRC domestic enterprise intending to make the securities offering and listing, or its controlling shareholders and the actual controller, have committed crimes such as corruption, bribery, embezzlement, misappropriation of property or undermining the order of the socialist market economy during the latest three years;(4) where the PRC domestic enterprise intending to make the securities offering and listing is suspected of committing crimes or major violation of laws and regulations, and is under investigation according to law, and no conclusion has yet been made thereof; and (5) where there are material ownership disputes over equity held by the PRC domestic enterprise’s controlling shareholder or by other shareholders that are controlled by the controlling shareholder and/or actual controller. ​ ​ 98 Table of Contents 4.C.
No overseas offering and listing shall be made under any of the following circumstances: (1) where such securities offering and listing is explicitly prohibited by provisions in laws, administrative regulations and relevant state rules; (2) where the intended securities offering and listing may endanger national security as reviewed and determined by competent authorities; (3) where the PRC domestic enterprise intending to make the securities offering and listing, or its controlling shareholders and the actual controller, have committed crimes such as corruption, bribery, embezzlement, misappropriation of property or undermining the order of the socialist market economy during the latest three years;(4) where the PRC domestic enterprise intending to make the securities offering and listing is suspected of committing crimes or major violation of laws and regulations, and is under investigation according to law, and no conclusion has yet been made thereof; and (5) where there are material ownership disputes over equity held by the PRC domestic enterprise’s controlling shareholder or by other shareholders that are controlled by the controlling shareholder and/or actual controller. ​ ​ 99 Table of Contents 4.C.
Risk Factors—Risks Related to Doing Business in China—The PCAOB had historically been unable to inspect our auditor in relation to their audit work performed for our financial statements and the inability of the PCAOB to conduct inspections of our auditor in the past has deprived our investors with the benefits of such inspections.”; “Item 3. Key Information—D.
Risk Factors—Risks Related to Doing Business in China—The PCAOB had historically been unable to inspect our former 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—3.D.
The pledge under the equity pledge agreement has been registered with the relevant PRC legal authority pursuant to PRC laws and regulations. The existing equity pledge agreement was initially entered into in March 2011 and was subsequently amended and restated on substantially similar terms in December 2014, June 2017, August 2017, June 2019 and January 2023, respectively.
The pledge under the equity pledge agreement has been registered with the relevant PRC legal authority pursuant to PRC laws and regulations. The existing equity pledge agreement was initially entered into in March 2011 and was subsequently amended and restated on substantially similar terms in December 2014, June 2017, August 2017, June 2019, January 2023 and May 2023 respectively.
These contractual arrangements include the operation agreement, equity pledge agreement, exclusive equity transfer option agreement, exclusive technical consulting and service agreement, etc., as the case may be. As a result of these contractual arrangements, we are considered the primary beneficiary of the VIEs and consolidate their operating results in our financial statements under U.S. GAAP.
These contractual arrangements include the operation agreement, equity pledge agreement, exclusive equity transfer option agreement, exclusive technical consulting and service agreement, etc., as the case may be. As a result of these contractual arrangements, we are considered the primary beneficiary of the VIEs and consolidate their operating results in our financial statements under U.S.
Risk Factors—Risks Related to Our Corporate Structure.” In the opinion of Fangda Partners, our PRC counsel: ● the ownership structures of the VIEs do not and will not contravene any PRC laws or regulations currently in effect; and ● the contractual arrangements among Hongyi Technology, Guangzhou Lizhi and their respective shareholders, as well as among Guangzhou QingYin, Guangzhou Huanliao and their respective shareholders governed by PRC laws are valid and binding upon each party to such arrangements and enforceable against each party thereto in accordance with their terms and applicable PRC laws and regulations currently in effect. 100 Table of Contents There are uncertainties regarding the interpretation and application of current and future PRC laws, regulations and rules.
Risk Factors—Risks Related to Our Corporate Structure.” In the opinion of Fangda Partners, our PRC counsel: ● the ownership structures of the VIEs do not and will not contravene any PRC laws or regulations currently in effect; and ● the contractual arrangements among Hongyi Technology, Guangzhou Lizhi and their respective shareholders, as well as among Guangzhou QingYin, Guangzhou Huanliao and their respective shareholders governed by PRC laws are valid and binding upon each party to such arrangements and enforceable against each party thereto in accordance with their terms and applicable PRC laws and regulations currently in effect. 101 Table of Contents There are uncertainties regarding the interpretation and application of current and future PRC laws, regulations and rules.
The existing operation agreement was initially entered into in July 2022 and was subsequently amended and restated on substantially similar terms in January 2023. 103 Table of Contents Power of Attorney Pursuant to a series of power of attorney issued by shareholders of Guangzhou Huanliao on January 6, 2023, such shareholders of Guangzhou Huanliao irrevocably appointed Guangzhou QingYin as their attorney-in-fact to act on their behalf on all shareholder matters of Guangzhou Huanliao and exercise all rights as shareholders of Guangzhou Huanliao.
The existing operation agreement was initially entered into in July 2022 and was subsequently amended and restated on substantially similar terms in January 2023. 104 Table of Contents Power of Attorney Pursuant to a series of power of attorney issued by shareholders of Guangzhou Huanliao on January 6, 2023, such shareholders of Guangzhou Huanliao irrevocably appointed Guangzhou QingYin as their attorney-in-fact to act on their behalf on all shareholder matters of Guangzhou Huanliao and exercise all rights as shareholders of Guangzhou Huanliao.
For more details, please see “4.B. Business Overview – Regulations Related to M&A and Overseas Listings.” As these opinions and regulations were newly issued, there are still uncertainties regarding the interpretation and implementation of such opinions and regulations. In addition, new rules or regulations promulgated in the future could impose additional requirements on us.
For more details, please see “—4.B. Business Overview—Regulations Related to M&A and Overseas Listings.” As these opinions and regulations were newly issued, there are still uncertainties regarding the interpretation and implementation of such opinions and regulations. In addition, new rules or regulations promulgated in the future could impose additional requirements on us.
Concurrently with such termination, Guangzhou QingYin, our wholly owned subsidiary established in July 2022 in the PRC, entered into a new series of contractual arrangements by and among Guangzhou QingYin, Guangzhou Huanliao and the shareholders of Guangzhou Huanliao in July 2022, which were amended and restated in January 2023, and by which Guangzhou QingYin may consolidate Guangzhou Huanliao’s financial statements under U.S.
Concurrently with such termination, Guangzhou QingYin, our wholly owned subsidiary established in July 2022 in the PRC, entered into a new series of contractual arrangements by and among Guangzhou QingYin, Guangzhou Huanliao and the shareholders of Guangzhou Huanliao in July 2022, which were last amended and restated in May 2023, and by which Guangzhou QingYin may consolidate Guangzhou Huanliao’s financial statements under U.S.
On January 17, 2020, we completed our IPO on the Nasdaq Global Market and our ADSs are traded under the symbol “LIZI.” In October 2020, we launched TIYA App operated by TIYA PTE. LTD. In January 2021, we launched LIZHI Podcast operated by Guangzhou Lizhi. In February 2020, TIYA INC. was incorporated under the laws of British Virgin Islands.
On January 17, 2020, we completed our IPO on the Nasdaq Global Market and our ADSs were traded under the symbol “LIZI.” In October 2020, we launched TIYA App operated by TIYA PTE. LTD. In January 2021, we launched LIZHI Podcast operated by Guangzhou Lizhi. In February 2020, TIYA INC. was incorporated under the laws of British Virgin Islands.
Risk Factors—Risks Related to Our Business and Our Industry—If we fail to obtain or maintain the required licenses and approvals or if we fail to comply with laws and regulations applicable to our industry, our business, financial condition and results of operations may be materially and adversely affected.” 86 Table of Contents Regulations Related to Production and Operation of Radio and Television Programs On July 19, 2004, the SARFT promulgated the Regulations on the Administration of Production and Operation of Radio and Television Programs, or the Radio and TV Programs Regulations, as partly amended on December 1, 2020 and became effective on the same date.
Risk Factors—Risks Related to Our Business and Industry—If we fail to obtain or maintain the required licenses and approvals or if we fail to comply with laws and regulations applicable to our industry, our business, financial condition and results of operations may be materially and adversely affected.” Regulations Related to Production and Operation of Radio and Television Programs On July 19, 2004, the SARFT promulgated the Regulations on the Administration of Production and Operation of Radio and Television Programs, or the Radio and TV Programs Regulations, as partly amended on December 1, 2020 and became effective on the same date.
Since its launch in 2013, LIZHI App is dedicated to building an audio community that allows users to create, share, discover, and listen to audio content, and enjoy an immersive and interactive audio entertainment experience. LIZHI App is a one-stop mobile platform for users to discover and enjoy a wide range of content.
Since its launch in 2013, LIZHI App has been dedicated to building an audio community that allows users to create, share, discover, and listen to audio content, and enjoy an immersive and interactive audio entertainment experience. LIZHI App is a one-stop mobile platform for users to discover and enjoy a wide range of content.
Guangzhou Lizhi has obtained the License for Production and Operation of Radio and TV Programs for its business. Regulations Relating to Advertising Business The State Administration for Market Regulation (formerly known as State Administration of Industry and Commerce, “SAMR”) is the primary governmental authority regulating advertising activities in China.
Guangzhou Lizhi has obtained the License for Production and Operation of Radio and TV Programs for its business. Regulations Related to Advertising Business The State Administration for Market Regulation (formerly known as State Administration of Industry and Commerce, “SAMR”) is the primary governmental authority regulating advertising activities in China.
The pledge under the equity pledge agreement has been registered with the relevant PRC legal authority pursuant to PRC laws and regulations. The existing equity pledge agreement was initially entered into in July 2022 and was subsequently amended and restated on substantially similar terms in January 2023.
The pledge under the equity pledge agreement has been registered with the relevant PRC legal authority pursuant to PRC laws and regulations. The existing equity pledge agreement was initially entered into in July 2022 and was subsequently amended and restated on substantially similar terms in January 2023 and May 2023, respectively.
Copyright owners of protected works enjoy personal 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. The Copyright Law was further amended on November 11, 2020 and will take effect from June 1, 2021.
Copyright owners of protected works enjoy personal 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. The Copyright Law was further amended on November 11, 2020 and took effect from June 1, 2021.
Risk Factors—Risks Related to Our Business and Industry—Our business depends on a strong brand, and any failure to maintain, protect and enhance our brand would hurt our ability to retain or expand our user and customer base, or our ability to increase their level of engagement.” We implement comprehensive measures to protect our intellectual property in addition to making trademark and patent registration applications.
Risk Factors—Risks Related to Our Business and Industry—Our business depends on a strong brand, and any failure to maintain, protect and enhance our brand would hurt our ability to retain or expand our user and customer base, or our ability to increase their level of engagement.” 81 Table of Contents We implement comprehensive measures to protect our intellectual property in addition to making trademark and patent registration applications.
According to the Regulations on the Administration of Foreign-Invested Telecommunications Enterprises, or FITE Regulations, promulgated by the State Council on December 11, 2001 and last amended on February 6, 2016, and became effective on February 6, 2016, which set forth detailed requirements including capitalization, investor qualifications and application procedures concerning the establishment of a foreign-invested telecommunications enterprise.
According to the Regulations on the Administration of Foreign-Invested Telecommunications Enterprises, or FITE Regulations, promulgated by the State Council on December 11, 2001 and last amended on March 29, 2022, and became effective on February 6, 2016, which set forth detailed requirements including capitalization, investor qualifications and application procedures concerning the establishment of a foreign-invested telecommunications enterprise.
ITEM 4. INFORMATION ON THE COMPANY 4.A. History and Development of the Company Corporate History We commenced operations in 2010 with the establishment of Guangzhou Lizhi. In November and October 2010, each of Lizhi Holding Limited and LIZHI INC., our wholly owned subsidiaries, was incorporated in Hong Kong and the British Virgin Islands, respectively.
ITEM 4. INFORMATION ON THE COMPANY 4.A. History and Development of the Company Corporate History We commenced operations in 2010 with the establishment of Guangzhou Lizhi. 72 Table of Contents In November and October 2010, each of Lizhi Holding Limited and Lizhi Inc., our wholly owned subsidiaries, was incorporated in Hong Kong and the British Virgin Islands, respectively.
Under PRC laws and regulations, our PRC subsidiaries are subject to certain restrictions with respect to paying dividends or otherwise transferring any of their net assets offshore to LIZHI Inc. In particular, under the current effective PRC laws and regulations, dividends may be paid only out of distributable profits.
Under PRC laws and regulations, our PRC subsidiaries are subject to certain restrictions with respect to paying dividends or otherwise transferring any of their net assets offshore to Sound Group Inc. In particular, under the current effective PRC laws and regulations, dividends may be paid only out of distributable profits.
Hongyi Technology is entitled to terminate or extend the exclusive technical consulting and service agreement at its discretion. The existing exclusive technical consulting and service agreement was initially entered into in March 2011 and was subsequently superseded by an amended and restated exclusive technical consulting and service agreement on substantially similar terms in June 2017.
Hongyi Technology is entitled to terminate or extend the exclusive technical consulting and service agreement at its discretion. The existing exclusive technical consulting and service agreement was initially entered into in March 2011 and was subsequently superseded by an amended and restated exclusive technical consulting and service agreement on substantially similar terms in June 2017 and May 2023, respectively.
We derive most of our net revenues from virtual gift sales in relation to our audio entertainment, which can be purchased by users using our virtual currency, Golden Coins.
We generate most of our net revenues from virtual gift sales in relation to our audio entertainment, which can be purchased by users using our virtual currency, Golden Coins.
Our objective is to promote creativity and production by focusing on talent development, supported by compensation, benefits and health programs. Talent Development We provide our employees by offering a number of learning opportunities through a variety of programs, including podcasts, training sessions, team discussion and expert lectures.
Our objective is to promote creativity and production by focusing on talent development, supported by compensation, benefits and health programs. Talent Development We provide our employees by offering a number of learning opportunities through a variety of programs, including training sessions, team discussions and expert lectures.
Guangzhou Lizhi currently holds the Internet Culture Operating License issued by the Ministry of Culture and Tourism of the Guangdong Province on August 2, 2019. Guangzhou Huanliao currently holds the Internet Culture Operating License issued by the Ministry of Culture and Tourism of the Guangdong Province on November 21, 2019.
Guangzhou Lizhi currently holds the Internet Culture Operating License issued by the Ministry of Culture and Tourism of the Guangdong Province on August 2, 2022. Guangzhou Huanliao currently holds the Internet Culture Operating License issued by the Ministry of Culture and Tourism of the Guangdong Province on November 21, 2022.
Guangzhou Lizhi currently holds the Internet Culture Operating License issued by the Ministry of Culture and Tourism of the Guangdong Province on August 2, 2019. Guangzhou Huanliao currently holds the Internet Culture Operating License issued by the Ministry of Culture and Tourism of the Guangdong Province on November 21, 2019.
Guangzhou Lizhi currently holds the Internet Culture Operating License issued by the Ministry of Culture and Tourism of the Guangdong Province on August 2, 2022. Guangzhou Huanliao currently holds the Internet Culture Operating License issued by the Ministry of Culture and Tourism of the Guangdong Province on November 21, 2022.
Investors In the future, if and when we become profitable, LIZHI Inc.’s ability to pay dividends, if any, to its shareholders and ADS holders and to service any debt it may incur will depend upon dividends paid by our PRC subsidiaries.
Investors In the future, if and when we become profitable, Sound Group Inc.’s ability to pay dividends, if any, to its shareholders and ADS holders and to service any debt it may incur will depend upon dividends paid by our PRC subsidiaries.
Concurrently with such termination, Guangzhou QingYin entered into a new series of contractual arrangements by and among Guangzhou QingYin, Guangzhou Huanliao and the shareholder(s) of Guangzhou Huanliao in July 2022, which were amended and restated in January 2023.
Concurrently with such termination, Guangzhou QingYin entered into a new series of contractual arrangements by and among Guangzhou QingYin, Guangzhou Huanliao and the shareholder(s) of Guangzhou Huanliao in July 2022, which were last amended and restated in May 2023.
Most of our intellectual property is owned by Guangzhou Lizhi, and certain trademarks, copyrights and domain names are owned by the subsidiaries of the VIEs, Wuhan Lizhi and Changsha Limang, for the purpose of maintaining and renewing their operating licenses as required by relevant PRC government authorities.
Most of our intellectual property is owned by Guangzhou Lizhi and Guangzhou Huanliao, and certain trademarks, copyrights and domain names are owned by the subsidiaries of the VIEs, Wuhan Lizhi and Wuhan Yuyin, for the purpose of maintaining and renewing their operating licenses as required by relevant PRC government authorities.
Organizational Structure—Contractual Arrangements with the VIEs and the VIEs’ Respective Shareholders.” As such, we refer to each of Hongyi Technology, Guangzhou Tiya and Guangzhou QingYin as our wholly foreign owned entity, or WFOE, and to each of Guangzhou Lizhi and Guangzhou Huanliao as our variable interest entity, or VIE, in this annual report.
Organizational Structure—Contractual Arrangements with the VIEs and the VIEs’ Respective Shareholders.” As such, we refer to each of Hongyi Technology, Guangzhou Tiya and Guangzhou QingYin as our wholly foreign owned entity, or WFOE, and to each of Guangzhou Lizhi and Guangzhou Huanliao as our variable interest entity, or VIE, in this annual report. In January 2019, Sound Group Inc.
If any of our subsidiaries incurs debt on its own behalf in the future, the instruments governing such debt may restrict its ability to pay dividends to LIZHI Inc.
If any of our subsidiaries incurs debt on its own behalf in the future, the instruments governing such debt may restrict its ability to pay dividends to Sound Group Inc.
On December 16, 2021, the PCAOB issued the HFCAA Determination Report to notify the SEC of its determinations that the PCAOB was unable to inspect or investigate completely registered public accounting firms headquartered in mainland China and Hong Kong (the “2021 Determinations”), including our auditor.
On December 16, 2021, the Public Company Accounting Oversight Board (the “PCAOB”) issued the HFCAA Determination Report to notify the SEC of its determinations that the PCAOB was unable to inspect or investigate completely registered public accounting firms headquartered in mainland China and Hong Kong (the “2021 Determinations”), including our former auditor.
The content management system of an internet culture business entity is required to specify the responsibilities, standards and processes for content review as well as accountability measures, and is required be filed with the provincial level counterpart of the MOC.
An Internet culture business entity shall establish and improve its content management system. The content management system of an internet culture business entity is required to specify the responsibilities, standards and processes for content review as well as accountability measures, and is required be filed with the provincial level counterpart of the MOC.
As a result of these contractual arrangements, we are considered the primary beneficiary of the VIEs for accounting purposes and consolidate their operating results in our consolidated financial statements under U.S. GAAP. In 2020, 2021 and 2022, the amount of revenues generated by the VIEs accounted for 96.7%, 93.0% and 98.6%, respectively, of our total net revenues.
As a result of these contractual arrangements, we are considered the primary beneficiary of the VIEs for accounting purposes and consolidate their operating results in our consolidated financial statements under U.S. GAAP. In 2021, 2022 and 2023, the amount of revenues generated by the VIEs accounted for 93.0%, 98.6% and 99.9%, respectively, of our total net revenues.
The existing exclusive equity transfer option agreement was initially entered into in March 2011 and was subsequently amended and restated on substantially similar terms in December 2014, June 2017, August 2017, June 2019 and January 2023, respectively. 101 Table of Contents Exclusive Technical Consulting and Service Agreement Pursuant to an exclusive technical consulting and service agreement entered into on June 9, 2017 by and between Hongyi Technology and Guangzhou Lizhi, Guangzhou Lizhi agreed to appoint Hongyi Technology as its exclusive provider of technology services, including software development, internet maintenance, network security and other services in exchange for a service fee which equal to an amount no more than 90% of the after-tax net profit of Guangzhou Lizhi and are subject to the adjustment by the Company’s relevant subsidiaries at its sole discretion, for a term of ten years starting from the date thereof.
The existing exclusive equity transfer option agreement was initially entered into in March 2011 and was subsequently amended and restated on substantially similar terms in December 2014, June 2017, August 2017, June 2019 and January 2023, respectively. 102 Table of Contents Exclusive Technical Consulting and Service Agreement Pursuant to an exclusive technical consulting and service agreement entered into on June 9, 2017 by and between Hongyi Technology and Guangzhou Lizhi, Guangzhou Lizhi agreed to appoint Hongyi Technology as its exclusive provider of technology services, including software development, internet maintenance, network security and other services in exchange for a service fee which are subject to the adjustment by the Company’s relevant subsidiaries at its sole discretion, for a term of ten years starting from the date thereof.
(iii) any internet information service provider, who provides its users with information memory space for such users to provide the works, performance and audio-visual products to the general public via the information network, will not be required to assume the indemnification liabilities if (a) it clearly indicates that the information memory space is provided to the users and publicizes its own name, contact person and web address; (b) it has not altered the works, performance and audio-visual products that are provided by the users; (c) it is not aware of or has reason to know the infringement of the works, performance and audio-visual products provided by the users; (d) it has not directly derived any economic benefit from the provision of the works, performance and audio-visual products by its users; and (e) after receiving a notice from the right holder, it has deleted such works, performance and audio-visual products as alleged for infringement pursuant to such regulation.
(iii) any internet information service provider, who provides its users with information memory space for such users to provide the works, performance and audio-visual products to the general public via the information network, will not be required to assume the indemnification liabilities if (a) it clearly indicates that the information memory space is provided to the users and publicizes its own name, contact person and web address; (b) it has not altered the works, performance and audio-visual products that are provided by the users; (c) it is not aware of or has reason to know the infringement of the works, performance and audio-visual products provided by the users; (d) it has not directly derived any economic benefit from the provision of the works, performance and audio-visual products by its users; and (e) after receiving a notice from the right holder, it has deleted such works, performance and audio-visual products as alleged for infringement pursuant to such regulation. 93 Table of Contents (iv) an internet information service provider, who provides its users with search services or links, will not be required to assume the indemnification liabilities if, after receiving a notice from the right holder, it has disconnected the link to the works, performance and audio-visual products as alleged for copyright infringement pursuant to this regulation.
Concurrently with such termination, Guangzhou QingYin entered into a new series of contractual arrangements by and among Guangzhou QingYin, Guangzhou Huanliao and then shareholder(s) of Guangzhou Huanliao in July 2022, which were amended and restated in January 2023 as below. 102 Table of Contents Equity Pledge Agreement Pursuant to an equity pledge agreement entered into on January 6, 2023 by and between Guangzhou QingYin and then shareholders of Guangzhou Huanliao, such shareholders of Guangzhou Huanliao pledged all of their equity interests in Guangzhou Huanliao to Guangzhou QingYin to guarantee the performance of Guangzhou Huanliao and, to the extent applicable, such shareholders of Guangzhou Huanliao, of their obligations under the contractual arrangement of the VIE.
Concurrently with such termination, Guangzhou QingYin entered into a new series of contractual arrangements by and among Guangzhou QingYin, Guangzhou Huanliao and then shareholder(s) of Guangzhou Huanliao in July 2022, which were last amended and restated in May 2023 as below. 103 Table of Contents Equity Pledge Agreement Pursuant to the equity pledge agreement and its supplementary agreement respectively entered into on January 6, 2023 and May 8, 2023 by and between Guangzhou QingYin and then shareholders of Guangzhou Huanliao, such shareholders of Guangzhou Huanliao pledged all of their equity interests in Guangzhou Huanliao to Guangzhou QingYin to guarantee the performance of Guangzhou Huanliao and, to the extent applicable, such shareholders of Guangzhou Huanliao, of their obligations under the contractual arrangement of the VIE.
Guangzhou Lizhi Equity Pledge Agreement Pursuant to an equity pledge agreement entered into on January 17, 2023 by and between Hongyi Technology and then shareholders of Guangzhou Lizhi, such shareholders of Guangzhou Lizhi pledged all of their equity interests in Guangzhou Lizhi to Hongyi Technology, to guarantee the performance of Guangzhou Lizhi and, to the extent applicable, such shareholders of Guangzhou Lizhi, of their obligations under the contractual arrangements of the VIE.
Guangzhou Lizhi Equity Pledge Agreement Pursuant to the equity pledge agreement and its supplementary agreement respectively entered into on January 17, 2023 and May 8, 2023 by and between Hongyi Technology and then shareholders of Guangzhou Lizhi, such shareholders of Guangzhou Lizhi pledged all of their equity interests in Guangzhou Lizhi to Hongyi Technology, to guarantee the performance of Guangzhou Lizhi and, to the extent applicable, such shareholders of Guangzhou Lizhi, of their obligations under the contractual arrangements of the VIE.
The amended FITE Regulations will take effect on May 1, 2022. There are uncertainties regarding the interpretation and implementation of the newly amended regulations.
The amended FITE Regulations took effect on May 1, 2022. There are uncertainties regarding the interpretation and implementation of the newly amended regulations.
Exclusive Technical Consulting and Service Agreement Pursuant to an exclusive technical consulting and service agreement entered into on July 19, 2022 by and between Guangzhou QingYin and Guangzhou Huanliao, Guangzhou Huanliao agreed to appoint Guangzhou QingYin as its exclusive provider of technology services, including software development, internet maintenance, network security and other services in exchange for a service fee which equal to an amount no more than 90% of the after-tax net profit of Guangzhou Huanliao and are subject to the adjustment by the Company’s relevant subsidiaries at its sole discretion, for a term of ten years starting from the date thereof.
Exclusive Technical Consulting and Service Agreement Pursuant to an exclusive technical consulting and service agreement entered into on July 19, 2022 by and between Guangzhou QingYin and Guangzhou Huanliao, Guangzhou Huanliao agreed to appoint Guangzhou QingYin as its exclusive provider of technology services, including software development, internet maintenance, network security and other services in exchange for a service fee which are subject to the adjustment by the Company’s relevant subsidiaries at its sole discretion, for a term of ten years starting from the date thereof.
The Patent Law was further amended on October 17, 2020 and will take effect from June 1, 2021.
The Patent Law was further amended on October 17, 2020 and took effect from June 1, 2021.
Taxation.” Implication of the Holding Foreign Companies Accountable Act Trading in our securities on U.S. markets, including Nasdaq, may be prohibited under the HFCAA if the PCAOB determines that it is unable to inspect or investigate completely our auditor for two consecutive years.
Taxation.” 77 Table of Contents Implication of the Holding Foreign Companies Accountable Act Trading in our securities on U.S. markets, including the Nasdaq Stock Market LLC, or the Nasdaq, may be prohibited under the Holding Foreign Companies Accountable Act (the “HFCAA”) if the PCAOB determines that it is unable to inspect or investigate completely our auditor for two consecutive years.
Monetization We generate net revenues through virtual gift sales in relation to audio entertainment, as well as podcast, advertising and others. 78 Table of Contents Virtual gift sales At current stage, we strategically offer most of our podcast contents for free to create a loyal and engaged audio ecosystem, which we believe is essential in expanding our user base and may provide monetization potential through audio entertainment, as well as podcast, advertising and others.
Virtual gift sales At current stage, we strategically offer most of our podcast content for free to create a loyal and engaged audio ecosystem, which we believe is essential in expanding our user base and may provide monetization potential through audio entertainment, as well as podcast, advertising and others.
Licenses and Approvals The following table sets forth a list of material licenses and approvals, subject to further renewal, that the VIEs and subsidiaries of VIEs are required to obtain to carry out our operations in China. ​ ​ ​ License Entity Holding the License Type of the Entity Regulatory Authority ICP License ​ Guangzhou Lizhi ​ VIE ​ Guangdong branch of the MIIT Internet Culture Operating License ​ Guangzhou Lizhi ​ VIE ​ The Ministry of Culture and Tourism of the Guangdong Province ICP License ​ Guangzhou Huanliao ​ VIE ​ Guangdong branch of the MIIT Internet Culture Operating License ​ Guangzhou Huanliao ​ VIE ​ The Ministry of Culture and Tourism of the Guangdong Province ICP License ​ Wuhan Lizhi ​ VIE’s Subsidiary ​ Hubei branch of the MIIT Internet Culture Operating License ​ Wuhan Lizhi ​ VIE’s Subsidiary ​ Wuhan Branch of the Ministry of Culture and Tourism of PRC ICP License ​ Changsha Limang ​ VIE’s Subsidiary ​ Hunan branch of the MIIT Internet Culture Operating License ​ Changsha Limang ​ VIE’s Subsidiary ​ Changsha Branch of the Ministry of Culture and Tourism of PRC ICP License ​ Wuhan Yuyin ​ VIE’s Subsidiary ​ Hubei branch of the MIIT Internet Culture Operating License ​ Wuhan Yuyin ​ VIE’s Subsidiary ​ Wuhan Branch of the Ministry of Culture and Tourism of PRC ICP License ​ Wuhan Zhiyin ​ VIE’s Subsidiary ​ Hubei branch of the MIIT Internet Culture Operating License ​ Wuhan Zhiyin ​ VIE’s Subsidiary ​ Wuhan Branch of the Ministry of Culture and Tourism of PRC ICP License ​ Huaian Lizhi ​ VIE’s Subsidiary ​ Jiangsu branch of the MIIT Internet Culture Operating License ​ Huaian Lizhi ​ VIE’s Subsidiary ​ The Ministry of Culture and Tourism of the Jiangsu Province ​ Regulation Regulations Related to Foreign Investment Industry Catalogue Related to Foreign Investment The establishment, operation and management of corporate entities in the PRC is governed by the Company Law of the PRC, or the Company Law, which was promulgated by the Standing Committee of the National People’s Congress, or the SCNPC, on December 29, 1993 and last amended and became effective on October 26, 2018.
Employees” for more information about our employees. 82 Table of Contents Licenses and Approvals The following table sets forth a list of material licenses and approvals, subject to further renewal, that the VIEs and subsidiaries of VIEs are required to obtain to carry out our operations in China. ​ ​ ​ License Entity Holding the License Type of the Entity Regulatory Authority ICP License ​ Guangzhou Lizhi ​ VIE ​ Guangdong branch of the MIIT Internet Culture Operating License ​ Guangzhou Lizhi ​ VIE ​ The Ministry of Culture and Tourism of the Guangdong Province ICP License ​ Guangzhou Huanliao ​ VIE ​ Guangdong branch of the MIIT Internet Culture Operating License ​ Guangzhou Huanliao ​ VIE ​ The Ministry of Culture and Tourism of the Guangdong Province ICP License ​ Wuhan Lizhi ​ VIE’s Subsidiary ​ Hubei branch of the MIIT Internet Culture Operating License ​ Wuhan Lizhi ​ VIE’s Subsidiary ​ Wuhan Branch of the Ministry of Culture and Tourism of PRC ICP License ​ Wuhan Yuyin ​ VIE’s Subsidiary ​ Hubei branch of the MIIT Internet Culture Operating License ​ Wuhan Yuyin ​ VIE’s Subsidiary ​ Wuhan Branch of the Ministry of Culture and Tourism of PRC ICP License ​ Wuhan Zhiyin ​ VIE’s Subsidiary ​ Hubei branch of the MIIT Internet Culture Operating License ​ Wuhan Zhiyin ​ VIE’s Subsidiary ​ Wuhan Branch of the Ministry of Culture and Tourism of PRC ICP License ​ Huaian Lizhi ​ VIE’s Subsidiary ​ Jiangsu branch of the MIIT Internet Culture Operating License ​ Huaian Lizhi ​ VIE’s Subsidiary ​ The Ministry of Culture and Tourism of the Jiangsu Province ​ Regulation Regulations Related to Foreign Investment Industry Catalogue Related to Foreign Investment The establishment, operation and management of corporate entities in the PRC is governed by the Company Law of the PRC, or the Company Law, which was promulgated by the Standing Committee of the National People’s Congress, or the SCNPC, on December 29, 1993 and last amended on December 29, 2023 and became effective on July 1, 2024.
Compensation” for more information about our share incentive plan. Health, Safety, Social, and Environmental Matters We do not operate any manufacturing or warehousing facilities. Therefore, we are not subject to significant health, safety, social, or environmental risks.
Directors, Senior Management and Employees—6.B. Compensation” for more information about our share incentive plan. Health, Safety, Social, and Environmental Matters We do not operate any manufacturing or warehousing facilities. Therefore, we are not subject to significant health, safety, social, or environmental risks.
In 2020, 2021 and 2022, the amount of technical development service fees paid to our PRC subsidiaries from the VIEs was RMB5.9 million, RMB26.4 million and RMB76.0 million (US$11.0 million), respectively. We expect that the amounts of such service fees will increase in the foreseeable future as our PRC business continues to grow.
In 2021, 2022 and 2023, the amount of technical development service fees paid to our PRC subsidiaries from the VIEs was RMB26.4 million, RMB76.0 million and RMB137.0 million (US$19.3 million), respectively. We expect that the amounts of such service fees will increase in the foreseeable future as our PRC business continues to grow.
We believe that our ability to compete effectively for users depends upon many factors, including the quality and variety of our content, user experience on our platforms, ability to retain top hosts, capability to adjust to changes in technology and customer tastes and the strength of our brands.
We believe that our ability to compete effectively for users depends on many factors, including the quality and variety of our content, user experience on our platforms, ability to retain top hosts, technological advancements, capability to adapt to changes in the market and customer tastes, and the strength of our brands.
With user interactions built into every audio content, live streaming and interactive audio entertainment features and products, our users not only listen to audio contents on our platforms, but also create, store, discover, and share audio contents and interact with each other through different audio entertainment channels.
With user interactions built into every audio content, live streaming and interactive audio entertainment feature and product, our users not only listen to audio content on our various platforms but also create, store, discover, and share audio content and interact with each other through various audio entertainment channels.
Regulations Related to Employee Stock Incentive Plan Pursuant to the Notice of Issues Related to the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plan of Overseas Listed Company, or Circular 7, which was issued by the SAFE on February 15, 2012, employees, directors, supervisors, and other senior management who participate in any stock incentive plan of an publicly-listed overseas company and who are PRC citizens or non-PRC citizens residing in China for a continuous period of no less than one year, subject to a few exceptions, are required to register with SAFE or its local branches through a qualified domestic agent, which may be a PRC subsidiary of such overseas listed company, and complete certain other procedures with respect to the stock incentive plan.
Regulations Related to Employee Stock Incentive Plan Pursuant to the Notice of Issues Related to the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plan of Overseas Listed Company, or Circular 7, which was issued by the SAFE on February 15, 2012, employees, directors, supervisors, and other senior management who participate in any stock incentive plan of an publicly-listed overseas company and who are PRC citizens or non-PRC citizens residing in China for a continuous period of no less than one year, subject to a few exceptions, are required to register with SAFE or its local branches through a qualified domestic agent, which may be a PRC subsidiary of such overseas listed company, and complete certain other procedures with respect to the stock incentive plan. 98 Table of Contents In addition, the State Administration for Taxation has issued circulars in relation to employee stock incentive awards, under which our employees based in the PRC shall be subject to PRC individual income tax for exercising their incentive awards.
On July 13, 2006, the Ministry of Information Industry of the PRC, or the MII (the predecessor of the Ministry of Industry and Information Technology of the PRC, or the MIIT), issued the Circular on Strengthening the Administration of Foreign Investment in and Operation of Value-added Telecommunications Business, or the MII Circular, which provides that (a) foreign investors can only operate telecommunications business in China through telecommunications enterprises with valid telecommunications business operation license; (b) domestic licensees may not rent, transfer or sell telecommunications business licenses to foreign investors in any form or provide any foreign investors with resources, venues or facilities to promote unlicensed operations of telecommunications businesses in China; (c) value-added telecommunications service providers or their shareholders must directly own the domain names and registered trademarks that are used in their daily operations; (d) each value-added telecommunications service provider must have necessary facilities for its approved business operations and maintain such facilities in the geographic regions specified in its license; and (e) all value-added telecommunications service providers should improve their network and information security, establish relevant information safety system and set up emergency plans to ensure network and information safety. 82 Table of Contents Regulations Related to Telecommunications Services According to the Telecommunications Regulations of the PRC, or the Telecommunications Regulations, promulgated by the State Council on September 25, 2000 and last revised and came into effect on February 6, 2016, all telecommunications businesses in China have been categorized by the Telecommunications Regulations into basic telecommunications services and value-added telecommunications services.
On July 13, 2006, the Ministry of Information Industry of the PRC, or the MII (the predecessor of the Ministry of Industry and Information Technology of the PRC, or the MIIT), issued the Circular on Strengthening the Administration of Foreign Investment in and Operation of Value-added Telecommunications Business, or the MII Circular, which provides that (a) foreign investors can only operate telecommunications business in China through telecommunications enterprises with valid telecommunications business operation license; (b) domestic licensees may not rent, transfer or sell telecommunications business licenses to foreign investors in any form or provide any foreign investors with resources, venues or facilities to promote unlicensed operations of telecommunications businesses in China; (c) value-added telecommunications service providers or their shareholders must directly own the domain names and registered trademarks that are used in their daily operations; (d) each value-added telecommunications service provider must have necessary facilities for its approved business operations and maintain such facilities in the geographic regions specified in its license; and (e) all value-added telecommunications service providers should improve their network and information security, establish relevant information safety system and set up emergency plans to ensure network and information safety.
Entities engaged in commercial internet cultural activities shall file the application to the applicable provincial level counterpart of the MOC for approval and obtain an Internet Culture Operation License. 85 Table of Contents According to the Measures for the Administration of Internet Performance Business Operations promulgated by the MOC on December 2, 2016 and came into effect on January 1, 2017, entities engaged in internet performance business operations shall, in accordance with the Internet Culture Provisions, apply to the cultural administrative department at the provincial level for an Internet Culture Operation License, and the business scope in the license shall expressly include internet performance.
According to the Measures for the Administration of Internet Performance Business Operations promulgated by the MOC on December 2, 2016 and came into effect on January 1, 2017, entities engaged in internet performance business operations shall, in accordance with the Internet Culture Provisions, apply to the cultural administrative department at the provincial level for an Internet Culture Operation License, and the business scope in the license shall expressly include internet performance.
In 2020, 2021 and 2022, we generated RMB21.8 million, RMB18.0 million and RMB11.0 million, (US$1.6 million) from podcast, advertising and others, representing 1.4%, 0.9% and 0.5% of our total net revenues for the same periods.
In 2021, 2022 and 2023, we generated RMB18.0 million, RMB11.0 million and RMB8.4 million (US$1.2 million) from podcast, advertising and others, representing 0.9%, 0.5% and 0.4% of our total net revenues for the same periods.
According to the Necessary Personal Information Rules, mobile app operators shall not deny users’ access to its basic functions and services on the basis that such user disagrees with the provision of their personal information that is not necessary.
According to the Necessary Personal Information Rules, mobile app operators shall not deny users’ access to its basic functions and services on the basis that such user disagrees with the provision of their personal information that is not necessary. The Necessary Personal Information Rules further provides relevant scopes of necessary personal information for different types of mobile apps.
Foreign Investment in Value-Added Telecommunication Business According to the Negative List, foreign investors are prohibited from holding more than 50% of equity interests in an enterprise which provides value-added telecommunications services (except for e-commerce business, domestic multi-party communications services, store and forward services and call center services).
Foreign-invested projects that are not listed in the Negative list (2021) and Negative List (2024) are permitted foreign-invested projects. 83 Table of Contents Foreign Investment in Value-Added Telecommunication Business According to the Negative List, foreign investors are prohibited from holding more than 50% of equity interests in an enterprise which provides value-added telecommunications services (except for e-commerce business, domestic multi-party communications services, store and forward services and call center services).
We raised approximately US$30,000,002 of gross proceeds before deducting placement agent fees and other offering expenses through a follow-on offering in April 2021. In April 2022, TIYA Co. LTD was incorporated and FUNAGE FZ-LLC was incorporated in Japan and UAE, respectively.
We raised approximately US$30,000,002 of gross proceeds before deducting placement agent fees and other offering expenses through a follow-on offering in April 2021. In April 2022, Vocalbeats Co. LTD (formerly known as TIYA Co. LTD) was incorporated in Japan and FUNAGE FZ-LLC was incorporated in UAE. In August 2022, SONICO SDN. BHD. was incorporated in Malaysia.
From time to time we check firewalls and operation systems to ensure there is no breach. We also work with leading data security companies to implement and test data security measures. As of the date of this annual report, there has not any breach of user data that has a material impact on our operations.
We also work with leading data security companies to implement and test data security measures. As of the date of this annual report, there has not any breach of user data that has a material impact on our operations.
As of December 31, 2022, we had 68 pending trademark applications in China and overseas. In addition, we are in the process of applying for registration of another 49 patents in China.
As of December 31, 2023, we had 34 pending trademark applications in China and overseas. In addition, we are in the process of applying for registration of another 36 patents in China.
LTD., TIYA CO., LTD., Tiya Inc.(USA) and FUNAGE FZ-LLC currently focus on our overseas business. ​ ​ 99 Table of Contents Contractual Arrangements with the VIEs and the VIEs’ Respective Shareholders Currently, our businesses in China are operated primarily through the VIEs and the VIEs’ subsidiaries, due to PRC legal restrictions on foreign ownership in value-added telecommunication services and other internet related business.
BHD. currently focus on our overseas business. ​ ​ 100 Table of Contents Contractual Arrangements with the VIEs and the VIEs’ Respective Shareholders Currently, our businesses in China are operated primarily through the VIEs and the VIEs’ subsidiaries, due to PRC legal restrictions on foreign ownership in value-added telecommunication services and other internet related business.
In 2020, 2021 and 2022, we generated RMB1,481.1 million, RMB2,101.5 million and RMB2,174.3 million, (US$315.2 million) from virtual gift sales to users of our audio entertainment products, representing 98.6%, 99.1% and 99.5% of our total net revenues for the same periods. In 2022, we had approximately 483.5 thousand average audio entertainment paying users on our apps.
In 2021, 2022 and 2023, we generated RMB2,101.5 million, RMB2,174.3 million and RMB2,063.3 million, (US$290.6 million) from virtual gift sales to users of our audio entertainment products, representing 99.1%, 99.5% and 99.6% of our total net revenues for the same periods. In 2023, we had approximately 417.4 thousand average audio entertainment paying users on our apps.
Regulations that apply to the advertising business primarily include: (i) the PRC Advertisement Law, promulgated by the Standing Committee of the National People’s Congress on October 27, 1994 and most recently amended on April 29, 2021 and became effective on the same date; and (ii) the Administrative Regulations for Advertising, promulgated by the State Council on October 26, 1987 and which has been effective since December 1, 1987.
Regulations that apply to the advertising business primarily include: (i) the PRC Advertisement Law, promulgated by the Standing Committee of the National People’s Congress on October 27, 1994 and most recently amended on April 29, 2021 and became effective on the same date; and (ii) the Administrative Regulations for Advertising, promulgated by the State Council on October 26, 1987 and which has been effective since December 1, 1987. 88 Table of Contents On July 4, 2016, the SAMR issued the Interim Measures for the Administration of Internet Advertising, or the Internet Advertising Measures, which became effective on September 1, 2016.
We do not have any equity interests in the VIEs who are owned by certain nominee shareholders.
GAAP. 76 Table of Contents We do not have any equity interests in the VIEs who are owned by certain nominee shareholders.
According to the Notice of the SAFE on Issues concerning Foreign Exchange Administration of the Overseas Investment and Financing and the Round-tripping Investment Made by Domestic Residents through Special-Purpose Companies, or the Circular 37, promulgated by the SAFE on July 4, 2014, a domestic resident (domestic institution or domestic resident individual), which/who, for the purposes of offshore investment and financing, directly establishes or indirectly controls a special purpose company, and directly or indirectly undertakes domestic direct investment activities through such special purpose company using legitimately held domestic company assets or equities, or using legitimately held overseas company assets or equities, namely the activity of establishing a domestic foreign investment enterprise or project by merger and acquisition or incorporating a new entity while acquiring ownership title, rights of control, rights of business operation and management and so on, must apply to the SAFE for registration of foreign exchange for overseas investments.
This includes: (a) cancelling the two administrative approvals, namely the foreign exchange registration approvals under domestic and overseas direct investments, which shall be verified directly by banks instead; (b) simplifying the management of registration and confirmation of capital contribution by foreign investors under domestic direct investment; and (c) cancelling the annual foreign exchange inspection of direct investments. 95 Table of Contents According to the Notice of the SAFE on Issues concerning Foreign Exchange Administration of the Overseas Investment and Financing and the Round-tripping Investment Made by Domestic Residents through Special-Purpose Companies, or the Circular 37, promulgated by the SAFE on July 4, 2014, a domestic resident (domestic institution or domestic resident individual), which/who, for the purposes of offshore investment and financing, directly establishes or indirectly controls a special purpose company, and directly or indirectly undertakes domestic direct investment activities through such special purpose company using legitimately held domestic company assets or equities, or using legitimately held overseas company assets or equities, namely the activity of establishing a domestic foreign investment enterprise or project by merger and acquisition or incorporating a new entity while acquiring ownership title, rights of control, rights of business operation and management and so on, must apply to the SAFE for registration of foreign exchange for overseas investments.
On November 14, 2021, the CAC published the Administration Regulations of Cyber Data Security (Draft for Comment), or the Draft Regulations for Cyber Data Security, which provides that data processors conducting certain activities must apply for cybersecurity review, including, among others, merger, reorganization or separation of Internet platform operators that have acquired a large number of data resources related to national security, economic development or public interests affects or may affect national security and listing abroad of data processors processing over one million users’ personal information.
In addition, network platform operators who possess personal information of more than one million users, and intend to be listed at a foreign stock exchange must be subject to the cybersecurity review. 74 Table of Contents On November 14, 2021, the CAC published the Administration Regulations of Cyber Data Security (Draft for Comment), or the Draft Regulations for Cyber Data Security, which provides that data processors conducting certain activities must apply for cybersecurity review, including, among others, merger, reorganization or separation of Internet platform operators that have acquired a large number of data resources related to national security, economic development or public interests affects or may affect national security and listing abroad of data processors processing over one million users’ personal information.
Regulations Related to Intellectual Property Rights Copyright According to the Copyright Law of the PRC, or the Copyright Law promulgated by the SCNPC on September 7, 1990 and last amended on February 26, 2010 and became effective on April 1, 2010, and its related Implementing Regulations issued by the State Council on August 2, 2002 and last amended on January 30, 2013 and became effective on March 1, 2013, 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.
Any company that fails to file the necessary application will be subject to sanctions, including but not limited to mandatory corrective actions and fines. 92 Table of Contents Regulations Related to Intellectual Property Rights Copyright According to the Copyright Law of the PRC, or the Copyright Law promulgated by the SCNPC on September 7, 1990 and last amended on February 26, 2010 and became effective on April 1, 2010, and its related Implementing Regulations issued by the State Council on August 2, 2002 and last amended on January 30, 2013 and became effective on March 1, 2013, 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.
We also provide onboarding sessions for new employees to meet each other and familiarize with our technology offerings. We also focus on developing management and organization skills of our new and seasoned managers through leadership programs. 80 Table of Contents Compensation and Benefits We provide competitive compensation for our employees and benefits, including share incentive plan. See “Item 6.B.
We also offer onboarding sessions for new employees to meet each other and familiarize themselves with our product and technology offerings. Furthermore, we focus on developing the management and organizational skills of both new and seasoned managers through leadership programs. Compensation and Benefits We provide competitive compensation for our employees and benefits, including share incentive plan. See “Item 6.
Otherwise, the entities handling personal information could be ordered to correct, or suspend or terminate the provision of services, and face confiscation of illegal income, fines or other penalties. 89 Table of Contents On November 14, 2021, the CAC published the Administration Regulations of Cyber Data Security (Draft for Comment), which provides that data processors conducting the following activities shall apply for cybersecurity review: (i) merger, reorganization or separation of network platform operators that have acquired a large number of data resources related to national security, economic development or public interests affects or may affect national security; (ii) listing abroad of data processors processing over one million users’ personal information; (iii) listing in Hong Kong which affects or may affect national security; (iv) other data processing activities that affect or may affect national security.
On November 14, 2021, the CAC published the Administration Regulations of Cyber Data Security (Draft for Comment), which provides that data processors conducting the following activities shall apply for cybersecurity review: (i) merger, reorganization or separation of network platform operators that have acquired a large number of data resources related to national security, economic development or public interests affects or may affect national security; (ii) listing abroad of data processors processing over one million users’ personal information; (iii) listing in Hong Kong which affects or may affect national security; (iv) other data processing activities that affect or may affect national security.
Standards for such fees are set by the copyright administrative department of the State Council together with the department of the State Council in charge of pricing. 92 Table of Contents Trademark Pursuant to the Trademark Law of the PRC promulgated by the SCNPC on August 23, 1982 and last revised on April 23, 2019 and came into effect on November 1, 2019, and the Implementation Rules of PRC Trademark Law promulgated on August 3, 2002 and last amended on April 29, 2014 by the State Council and became effective on May 1, 2014, a registered trademark means a trademark that has been approved by and registered with the trademark office, including goods marks, service marks, collective marks and certification marks.
Trademark Pursuant to the Trademark Law of the PRC promulgated by the SCNPC on August 23, 1982 and last revised on April 23, 2019 and came into effect on November 1, 2019, and the Implementation Rules of PRC Trademark Law promulgated on August 3, 2002 and last amended on April 29, 2014 by the State Council and became effective on May 1, 2014, a registered trademark means a trademark that has been approved by and registered with the trademark office, including goods marks, service marks, collective marks and certification marks.
GAAP. For details, please refer to “Item 4. Information on the Company—4.C. Organizational Structure—Contractual Arrangements with the VIEs and the VIEs’ Respective Shareholders.” In October 2013, we launched our LIZHI App operated by Guangzhou Lizhi.
GAAP. For details, please refer to “Item 4. Information on the Company—4.C. Organizational Structure—Contractual Arrangements with the VIEs and the VIEs’ Respective Shareholders.” In October 2013, we launched our LIZHI App operated by Guangzhou Lizhi. In December 2015, Huai’an Lizhi Network Technology Co., Ltd., or Huai’an Lizhi, was established in the PRC.
Through our audio entertainment services, such as audio livestreaming and multi-user on-air dialogue, users can follow their favorite content creators and channels and interact with others through various interactive features, and even become a content creator or a host themselves and create their own audio content and perform in audio live streaming programs.
Through our audio entertainment services, such as audio live streaming and multi-user on-air dialogues, users can follow their favorite content creators and channels, interact with others through various interactive features, and even become content creators or hosts themselves, creating their own audio content and participating in audio live streaming programs.
We hope to inspire everyone to be a content creator, and promote the popularity of our content creators through online and offline activities. Technology DOREME, our self-developed real-time audio and video streaming technology solution, provides real-time communication (RTC) technology support for our various products, aiming to ensure a stable and smooth audio experience.
We hope to inspire everyone to be a content creator and promote the popularity of our content creators through both online and offline activities. 79 Table of Contents Technology We developed DOREME, our proprietary real-time audio and video streaming technology solution to provide real-time communication (RTC) technology support for our various products, aiming to reduce voice delay, enhance the audio quality, and ensure a stable and smooth audio experience.
In May 2019, Guangzhou Tiya entered into a series of contractual arrangements with Guangzhou Huanliao and then shareholder of Guangzhou Huanliao, by which Guangzhou Tiya may consolidate Guangzhou Huanliao’s financial statements under U.S. GAAP.
In March 2019, Guangzhou Tiya, our wholly owned subsidiary, was established in the PRC. In May 2019, Guangzhou Tiya entered into a series of contractual arrangements with Guangzhou Huanliao and then shareholder of Guangzhou Huanliao, by which Guangzhou Tiya may consolidate Guangzhou Huanliao’s financial statements under U.S. GAAP.
If we detect minor violations, we will intervene and rectify by deleting relevant content and images, posting warnings, and closing or suspending user accounts. For severe violations, we will temporarily or permanently close down relevant user or host accounts.
If we detect minor violations, we will intervene and rectify by deleting relevant content and images, posting warnings, closing or suspending user accounts.
During such review, we may be required to suspend providing any existing or new services to our customers and/or experience other disruptions of our operations, and such review could also result in negative publicity with respect to our Company and diversion of our managerial and financial resources. 73 Table of Contents On December 31, 2021, the CAC together with other regulatory authorities published Administrative Provisions on Algorithm Recommendation for Internet Information Services, effective on March 1, 2022 which provides, among others, that algorithm recommendation service providers shall (i) establish and improve the management systems and technical measures for algorithm mechanism and principle review, scientific and technological ethics review, user registration, information release review, data security and personal information protection, anti-telecommunications and Internet fraud, security assessment and monitoring, and security incident emergency response, formulate and disclose the relevant rules for algorithm recommendation services, and be equipped with professional staff and technical support appropriate to the scale of the algorithm recommendation service; (ii) regularly review, evaluate and verify the principle, models, data and application results of algorithm mechanisms, (iii) strengthen information security management, establish and improve a feature database for identifying illegal and bad information, and improve entry standards, rules and procedures; and (iv) strengthen the management of user models and user labels, and improve the rules on points of interest recorded into user models and user label management, and shall not record illegal and harmful information keywords into the points of interest of users or use them as user labels to push information.
On December 31, 2021, the CAC together with other regulatory authorities published Administrative Provisions on Algorithm Recommendation for Internet Information Services, to be effective on March 1, 2022 which provides, among others, that algorithm recommendation service providers shall (i) establish and improve the management systems and technical measures for algorithm mechanism and principle review, scientific and technological ethics review, user registration, information release review, data security and personal information protection, anti-telecommunications and Internet fraud, security assessment and monitoring, and security incident emergency response, formulate and disclose the relevant rules for algorithm recommendation services, and be equipped with professional staff and technical support appropriate to the scale of the algorithm recommendation service; (ii) regularly review, evaluate and verify the principle, models, data and application results of algorithm mechanisms, (iii) strengthen information security management, establish and improve a feature database for identifying illegal and bad information, and improve entry standards, rules and procedures; (iv) strengthen the management of user models and user labels, and improve the rules on points of interest recorded into user models and user label management, and shall not record illegal and harmful information keywords into the points of interest of users or use them as user labels to push information. 91 Table of Contents On July 7, 2022, the CAC promulgated the Measures for the Security Assessment of Data Cross-border Transfer, which took effect on September 1, 2022.
The competent governmental authorities as well as the supervision and administrative authorities of the aforementioned important industries and sectors will be responsible for (i) organizing the identification of critical information infrastructures in their respective industries in accordance with certain identification rules, and (ii) promptly notifying the identified operators and the public security department of the State Council of the identification results.
The competent governmental authorities as well as the supervision and administrative authorities of the aforementioned important industries and sectors will be responsible for (i) organizing the identification of critical information infrastructures in their respective industries in accordance with certain identification rules, and (ii) promptly notifying the identified operators and the public security department of the State Council of the identification results. 90 Table of Contents On August 20, 2021, the SCNPC promulgated the Personal Information Protection Law, effective on November 1, 2021.
The Measures for the Security Assessment of Data Cross-border Transfer requires that any data processor providing data collected and generated during operations within the territory of the PRC or personal information to an overseas recipient in the following situations shall report security assessment for its outbound data transfer to the CAC: (a) a data processor provides important data abroad; (b) a critical information infrastructure operator or a data processor processing personal information of more than one million individuals provides personal information abroad; (c) a data processor has provided personal information of more than one hundred thousand individuals abroad or sensitive personal information of more than ten thousand individuals abroad since January 1, 2021; and (d) other situations that are stipulated by CAC. 90 Table of Contents Regulations related to Virtual Currency On January 25, 2007, the Ministry of Public Security, the MOC, the MIIT and the GAPP jointly issued a circular regarding online gambling which has implications on the issuance and use of virtual currency.
The Measures for the Security Assessment of Data Cross-border Transfer requires that any data processor providing data collected and generated during operations within the territory of the PRC or personal information to an overseas recipient in the following situations shall report security assessment for its outbound data transfer to the CAC: (a) a data processor provides important data abroad; (b) a critical information infrastructure operator or a data processor processing personal information of more than one million individuals provides personal information abroad; (c) a data processor has provided personal information of more than one hundred thousand individuals abroad or sensitive personal information of more than ten thousand individuals abroad since January 1, 2021; and (d) other situations that are stipulated by CAC.
As of December 31, 2022, we had registered: ● 452 trademarks in China; ● 416 trademarks in Hong Kong and other jurisdictions; ● 109 domain names, including lizhi.fm; ● 61 patents in China; and ● 120 software copyrights in China, relating to all of our online communities and other products.
As of December 31, 2023, we had registered: ● 466 trademarks in China; ● 416 trademarks in Hong Kong and other jurisdictions; ● 109 domain names; ● 65 patents in China; and ● 133 software copyrights in China, relating to all of our online communities and other products.
Apart from the mobile apps, we are also exploring the in-car audios as another usage scenario to leverage our large content library. Since December 2020, we started to collaborate with a number of automobile manufacturers and Internet of Vehicles platforms in China.
In addition to our mobile apps, we are also exploring the use of in-car audio as another usage scenario to leverage our extensive content library. Since December 2020, we started to collaborate with certain automobile manufacturers and Internet of Vehicles platforms.
For the year ended December 31, 2022, we had not been subject to any fines or other penalties due to non-compliance with health, work safety, social, or environmental regulations.
For the year ended December 31, 2023, we had not been subject to any fines or other penalties due to non-compliance with health, work safety, social, or environmental regulations. See “Item 6. Directors, Senior Management and Employees-6.D.
Pursuant to this regulation, an internet information service provider may be exempted from indemnification liabilities under the following circumstances: (i) any internet information service provider who provides automatic internet access service upon instructions of its users or provides automatic transmission service of works, performance and audiovisual products provided by its users is not required to assume indemnification liabilities if (a) it has not chosen or altered the transmitted works, performance and audio-visual products; and (b) it provides such works, performance and audio-visual products to the designated user and prevents any person other than such designated user from obtaining the access. 91 Table of Contents (ii) any internet information service provider who, for the sake of improving network transmission efficiency, automatically stores and provides to its own users, based on the technical arrangement, the relevant works, performances and audio-visual products obtained from any other internet information service provider will not be required to assume the indemnification liabilities if (a) it has not altered any of the works, performance or audio-visual products that are automatically stored; (b) it has not affected such original internet information service provider in grasping the information where the users obtain the relevant works, performance and audio-visual products; and (c) when the original internet information service provider revises, deletes or shields the works, performance and audio-visual products, it will automatically revise, delete or shield the same based on the technical arrangement.
(ii) any internet information service provider who, for the sake of improving network transmission efficiency, automatically stores and provides to its own users, based on the technical arrangement, the relevant works, performances and audio-visual products obtained from any other internet information service provider will not be required to assume the indemnification liabilities if (a) it has not altered any of the works, performance or audio-visual products that are automatically stored; (b) it has not affected such original internet information service provider in grasping the information where the users obtain the relevant works, performance and audio-visual products; and (c) when the original internet information service provider revises, deletes or shields the works, performance and audio-visual products, it will automatically revise, delete or shield the same based on the technical arrangement.
We generate net revenues through virtual gift sales in relation to audio entertainment, as well as podcast, advertising and others. Our total net revenues increased to RMB2,185.3 million in 2022 from RMB2,119.5 million in 2021 and RMB1,502.9 million in 2020. Audio entertainment services currently contributes the largest share of our revenues.
We generate net revenues through virtual gift sales related to audio entertainment, as well as podcast, advertising and others. Our total net revenues decreased to RMB2,071.8 million (US$291.8) in 2023 from RMB2,185.3 million in 2022 and RMB2,119.5 million in 2021. Audio entertainment services currently contribute the largest share of our revenues.

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Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

85 edited+17 added−30 removed112 unchanged
Investing activities Net cash used in investing activities was RMB122.8 million in 2022 mainly attributed to purchase of short-term investments of RMB111.0 million and property, equipment and leasehold improvement of RMB11.7 million.
Net cash used in investing activities was RMB122.8 million in 2022 mainly attributed to purchase of short-term investments of RMB111.0 million and property, equipment and leasehold improvement of RMB11.7 million.
The difference between our net cash generated from operating activities and our net income of RMB86.5 million was due to (i) depreciation of property, equipment and leasehold improvement of RMB18.1 million, (ii) share-based compensation expenses of RMB29.2 million, (iii) an increase in salary and welfare payable of RMB11.5 million, an increase in deferred revenue of RMB15.0 million, a decrease in prepayments and other current assets of RMB4.0 million and a decrease in accounts receivable of RMB3.2 million, and (iii) partially offset by a decrease in a decrease in accounts payable of RMB27.0 million and accrued expenses and other current liabilities of RMB6.0 million.
The difference between our net cash generated from operating activities and our net income of RMB86.5 million was due to (i) depreciation of property, equipment and leasehold improvement of RMB18.1 million, (ii) share-based compensation expenses of RMB29.2 million, (iii) an increase in salary and welfare payable of RMB11.5 million, an increase in deferred revenue of RMB15.0 million, a decrease in prepayments and other current assets of RMB4.0 million and a decrease in accounts receivable of RMB3.2 million, and (iv) partially offset by a decrease in accounts payable of RMB27.0 million and accrued expenses and other current liabilities of RMB6.0 million.
In addition, Guangzhou Huanliao qualified as a HNTE which allows it to enjoy a three-year preferential EIT rate of 15% from December 21, 2021 to December 21, 2024. They will enjoy the 15% preferential tax rate as long as it re-applies for HNTE status every three years and meet the HNTE criteria during this three-year period.
In addition, Guangzhou Huanliao qualified as a HNTE which allows it to enjoy a three-year preferential EIT rate of 15% from December 20, 2021 to December 21, 2024. They will enjoy the 15% preferential tax rate as long as it re-applies for HNTE status every three years and meet the HNTE criteria during this three-year period.
Our actual results may differ materially from those we currently anticipate as a result of many factors, including those we describe under “Item 3. Key Information—Item 3.D. Risk Factors” and elsewhere in this annual report.
Our actual results may differ materially from those we currently anticipate as a result of many factors, including those we describe under “Item 3. Key Information—3.D. Risk Factors” and elsewhere in this annual report.
Trend Information Other than as disclosed elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or events for the year ended December 31, 2022 that are reasonably likely to have a material and adverse effect on our net revenues, income, profitability, liquidity or capital resources, or that would cause the disclosed financial information to be not necessarily indicative of future results of operations or financial condition. 5.E.
Trend Information Other than as disclosed elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or events for the year ended December 31, 2023 that are reasonably likely to have a material and adverse effect on our net revenues, income, profitability, liquidity or capital resources, or that would cause the disclosed financial information to be not necessarily indicative of future results of operations or financial condition. 5.E.
Although we have achieved a positive working capital as of December 31, 2022, there is no assurance that we will generate sufficient net income or operating cash flows to meet our working capital requirements and repay our liabilities as they become due in the future due to a variety of factors, some of which are beyond our control.
Although we have achieved a positive working capital as of December 31, 2023, there is no assurance that we will generate sufficient net income or operating cash flows to meet our working capital requirements and repay our liabilities as they become due in the future due to a variety of factors, some of which are beyond our control.
Unfavorable changes in any of these general industry conditions could negatively affect demand for our services and materially and adversely affect our results of operations. 104 Table of Contents Specific Factors Affecting Our Results of Operations While our business is influenced by general factors affecting the online audio industry in China and overseas, we believe our results of operations are more directly affected by company specific factors, including the following major factors: Our ability to expand user base and enhance user engagement We rely on our engaged and growing user community to drive our net revenue growth.
Unfavorable changes in any of these general industry conditions could negatively affect demand for our services and materially and adversely affect our results of operations. 105 Table of Contents Specific Factors Affecting Our Results of Operations While our business is influenced by general factors affecting the online audio industry in China and overseas, we believe our results of operations are more directly affected by company specific factors, including the following major factors: Our ability to expand user base and enhance user engagement We rely on our engaged user community to drive our net revenue growth.
Selling and marketing expenses. Our selling and marketing expenses were RMB259.6 million (US$37.6 million) in the fiscal year 2022, compared to RMB386.2 million in the prior year, mainly attributable to a decrease in branding and marketing expenses, partially offset by increased salary and welfare benefits expenses related to an increase in the average salary.
Selling and marketing expenses. Our selling and marketing expenses were RMB259.6 million in the fiscal year 2022, compared to RMB386.2 million in the prior year, mainly attributable to a decrease in branding and marketing expenses, partially offset by increased salary and welfare benefits expenses related to an increase in the average salary.
Other than as discussed above, we did not have any significant capital and other commitments, long-term obligations or guarantees as of December 31, 2022. Off-Balance Sheet Commitments and Arrangements We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties.
Other than as discussed above, we did not have any significant capital and other commitments, long-term obligations or guarantees as of December 31, 2023. Off-Balance Sheet Commitments and Arrangements We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties.
Our cost of revenue was RMB1,468.9 million (US$213.0 million) in the fiscal year 2022, compared to RMB1,502.5 million in the prior year, mainly attributable to a decrease in the total revenue sharing fees to our content creators resulting from a sharing percentage adjustment in our revenue sharing policies, as well as decreases in share-based compensation expenses and salary and welfare benefits expenses which resulted from decreases in our operation’s headcount, and a decline in other miscellaneous costs.
Our cost of revenue was RMB1,468.9 million in the fiscal year 2022, compared to RMB1,502.5 million in the prior year, mainly attributable to a decrease in the total revenue sharing fees to our content creators resulting from a sharing percentage adjustment in our revenue sharing policies, as well as decreases in share-based compensation expenses and salary and welfare benefits expenses which resulted from decreases in our operation’s headcount, and a decline in other miscellaneous costs.
Our general and administrative expenses were RMB106.7 million (US$15.5 million) in the fiscal year 2022, representing an increase of 2% from RMB104.6 million in the prior year, mainly driven by a decrease in professional service fees, share-based compensation expenses and other miscellaneous expenses, partially offset by increasing rental expenses and higher salary and welfare benefits expenses related to an increase in the average salary.
Our general and administrative expenses were RMB106.7 million in the fiscal year 2022, representing an increase of 2% from RMB104.6 million in the prior year, mainly driven by a decrease in professional service fees, share-based compensation expenses and other miscellaneous expenses, partially offset by increasing rental expenses and higher salary and welfare benefits expenses related to an increase in the average salary.
During the years ended December 31, 2020, 2021 and 2022, we did not have any arrangement where the performance obligations had already been satisfied in the past period but recognized the corresponding revenue in the current period.
During the years ended December 31, 2021, 2022 and 2023, we did not have any arrangement where the performance obligations had already been satisfied in the past period but recognized the corresponding revenue in the current period.
Material Cash Requirements Other than the ordinary cash requirements for our operations, our material cash requirements as of December 31, 2022 and any subsequent interim period primarily include our capital expenditures, repayment of short-term loans and operating lease obligations.
Material Cash Requirements Other than the ordinary cash requirements for our operations, our material cash requirements as of December 31, 2023 and any subsequent interim period primarily include our capital expenditures, repayment of short-term loans and operating lease obligations.
Our research and development expenses were RMB283.3 million (US$41.1 million) in the fiscal year 2022, representing an increase of 7% from RMB264.7 million in the prior year, primarily due to increasing rental expenses and higher salary and welfare benefits expenses related to an increase in average salary, partially offset by declining expenses related to research and development services provided by third parties.
Our research and development expenses were RMB283.3 million in the fiscal year 2022, representing an increase of 7% from RMB264.7 million in the prior year, primarily due to increasing rental expenses and higher salary and welfare benefits expenses related to an increase in average salary, partially offset by declining expenses related to research and development services provided by third parties.
See “Item 3.D. Key Information—Risk Factors—Risks Related to Our Corporate Structure.” 112 Table of Contents All transactions and balances among us, our subsidiaries, the VIEs and subsidiaries of the VIEs have been eliminated upon consolidation. Revenue recognition Our net revenues comprise of audio entertainment revenue and podcast, advertising and other revenue.
See “Item 3.D. Key Information—Risk Factors—Risks Related to Our Corporate Structure.” All transactions and balances among us, our subsidiaries, the VIEs and subsidiaries of the VIEs have been eliminated upon consolidation. Revenue recognition Our net revenues comprise of audio entertainment revenue and podcast, advertising and other revenue.
Appropriation to discretionary surplus fund or enterprise expansion fund and staff bonus and welfare fund is made at the discretion of our PRC subsidiaries, consolidated VIEs and their subsidiaries in China. 120 Table of Contents As a holding company with no material operations of our own, we conduct our operations primarily through our PRC subsidiaries, the VIEs and their subsidiaries.
Appropriation to discretionary surplus fund or enterprise expansion fund and staff bonus and welfare fund is made at the discretion of our PRC subsidiaries, consolidated VIEs and their subsidiaries in China. As a holding company with no material operations of our own, we conduct our operations primarily through our PRC subsidiaries, the VIEs and their subsidiaries.
Holding Company Structure LIZHI INC. is a holding company with no material operations of its own. We conduct our operations primarily through the VIEs and their subsidiaries in China. As a result, our ability to pay dividends depends upon dividends paid by our subsidiaries, the VIEs and their subsidiaries.
Holding Company Structure Sound Group Inc. is a holding company with no material operations of its own. We conduct our operations primarily through the VIEs and their subsidiaries in China. As a result, our ability to pay dividends depends upon dividends paid by our subsidiaries, the VIEs and their subsidiaries.
Our revenue sharing fees represent our payment to hosts or guilds based on a percentage of revenue from sales of virtual items and certain performance based incentives. We expect the revenue sharing fees to increase generally in parallel with the expansion of our business.
Our revenue sharing fees represent our payment to hosts or guilds based on a percentage of revenue from sales of virtual items and certain performance based incentives. We expect the revenue sharing fees to increase generally in parallel with the expansion of our business. Salary and welfare benefits .
We expect that the foreign currency translation adjustments will continue to fluctuate in accordance with the fluctuation between Renminbi and U.S. dollars in future periods. 109 Table of Contents Results of Operations Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 Net revenues.
We expect that the foreign currency translation adjustments will continue to fluctuate in accordance with the fluctuation between Renminbi and U.S. dollars in future periods. 110 Table of Contents Results of Operations Year Ended December 31, 2023 Compared to Year Ended December 31, 2022 Net revenues.
The farther the valuation date is from an expected liquidity event, the higher the put option value is and thus the higher the implied DLOM is. 116 Table of Contents The lower DLOM is used for the valuation, the higher the determined fair value of the ordinary shares becomes.
The farther the valuation date is from an expected liquidity event, the higher the put option value is and thus the higher the implied DLOM is. The lower DLOM is used for the valuation, the higher the determined fair value of the ordinary shares becomes.
Revenue related to each consumable item is a single performance obligation provided on a consumption basis, and is recognized at the point in time when the virtual item is transferred directly to the users and consumed by them. Revenue related to time-based virtual items is recognized ratably over the contract period.
Revenue related to each consumable item is a single performance obligation provided on a consumption basis, and is recognized at the point in time when the virtual item is transferred directly to the users and consumed by them. Revenue related to time-based virtual items is recognized ratably over the fixed period on a straight-line basis.
No share option was granted for the year ended December 31, 2019, and all share options granted in 2020, 2021 and 2022 were with little to no exercise price for which fair value was measured as the grant date price of our ordinary shares. 115 Table of Contents Share-based compensation expenses are recorded net of actual forfeitures.
No share option was granted for the year ended December 31, 2019, and all share options granted in 2021, 2022 and 2023 were with little to no exercise price for which fair value was measured as the grant date price of our ordinary shares. Share-based compensation expenses are recorded net of actual forfeitures.
Also, the growth of our user base could be largely influenced by the restrictive and regulatory measures that the PRC government authority may impose on the industry we operate in. See “Item 3. Key Information—3.D.
The growth of a portion of our user base could be largely influenced by the restrictive regulatory measures that the PRC government authority may impose on the industry we operate in. See “Item 3. Key Information—3.D.
We evaluate these estimates on an ongoing basis. 121 Table of Contents We consider an accounting estimate to be critical if: (i) the accounting estimate requires us to make assumptions about matters that were highly uncertain at the time the accounting estimate was made, and (ii) 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 financial condition or results of operations.
We consider an accounting estimate to be critical if: (i) the accounting estimate requires us to make assumptions about matters that were highly uncertain at the time the accounting estimate was made, and (ii) 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 financial condition or results of operations.
Operating income was RMB66.7 million (US$9.7 million) in the fiscal year 2022, compared to an operating loss of RMB138.5 million in the prior year. Net income was RMB86.5 million (US$12.5 million) in the fiscal year 2022, compared to net loss of RMB127.3 million in the prior year.
Operating income was RMB66.7 million in the fiscal year 2022, compared to an operating loss of RMB138.5 million in the prior year. Net income was RMB86.5 million in the fiscal year 2022, compared to net loss of RMB127.3 million in the prior year.
For the years ended December 31, 2020, 2021 and 2022, we had recorded income tax expenses of RMB1.0 million, RMB0.4 million and RMB0.2 million, respectively. Deferred taxes arise from differences between assets and liabilities measured for financial reporting versus income tax return purposes.
For the years ended December 31, 2021, 2022 and 2023, we had recorded income tax expenses of RMB0.4 million, RMB0.2 million and RMB0.4 million (US$0.1 million), respectively. Deferred taxes arise from differences between assets and liabilities measured for financial reporting versus income tax return purposes.
Our total operating expenses were RMB649.7 million (US$94.2 million) in fiscal year 2022, compared to RMB755.5 million in the prior year. Research and development expenses.
Our total operating expenses were RMB649.7 million in fiscal year 2022, compared to RMB755.5 million in the prior year. Research and development expenses.
Net cash generated from financing activities was RMB212.7 million in 2021 primarily due to the completion of our follow-on public offering in April 2021 and third-party loans taken out by the VIEs. Net cash generated from financing activities was RMB298.0 million in 2020 primarily due to the completion of our initial public offering in January 2020.
Net cash generated from financing activities was RMB212.7 million in 2021 primarily due to the completion of our follow-on public offering in April 2021 and third-party loans taken out by the VIEs.
The decreases were partially offset by increasing bandwidth costs. Gross profit. As a result of the foregoing, our gross profit was RMB716.3 million (US$103.9 million) in fiscal year 2022, representing an increase of 16% from RMB617.0 million in the prior year. Operating expenses.
The decreases were partially offset by increasing bandwidth costs. Gross profit. As a result of the foregoing, our gross profit was RMB716.3 million in fiscal year 2022, representing an increase of 16% from RMB617.0 million in the prior year. 111 Table of Contents Operating expenses.
Adjustments based on filed returns are generally recorded in the period when the tax returns are filed and the global tax implications are known, which could impact our effective tax rate.
Adjustments based on filed returns are generally recorded in the period when the tax returns are filed and the global tax implications are known, which could impact our effective tax rate. 123 Table of Contents
Capital Expenditures We made capital expenditures of RMB23.0 million, RMB20.9 million and RMB11.8 million (US$1.7 million) in 2020, 2021 and 2022, respectively. In these periods, our capital expenditures were mainly used for purchases of property, equipment, leasehold improvement and intangible assets.
Capital Expenditures We made capital expenditures of RMB20.9 million, RMB11.8 million and RMB7.2 million (US$1.0 million) in 2021, 2022 and 2023, respectively. In these periods, our capital expenditures were mainly used for purchases of property, equipment, leasehold improvement and intangible assets.
The accounts receivable arises primarily from our advertising customers. ​ ​ ​ ​ ​ ​ ​ As of December 31, ​ 2021 2022 ​ ​ (RMB in thousands) Accounts receivable 6,458 3,233 ​ Please see Note 3 of consolidated financial statements for additional information. There were no material contract assets as of December 31, 2021 and 2022.
The accounts receivable arises primarily from our advertising customers. ​ ​ ​ ​ ​ ​ ​ As of December 31, ​ 2022 2023 ​ ​ (RMB in thousands) Accounts receivable 3,233 1,557 ​ Please see Note 4 of consolidated financial statements for additional information. There were no material contract assets as of December 31, 2022 and 2023.
Contract liabilities Contract liabilities primarily consist of deferred revenue which comprises unconsumed virtual currency, unamortized revenue from time-based virtual items and unamortized subscription fees for podcast services. ​ During the years ended December 31, 2020, 2021 and 2022, we recognized revenue amounted to RMB9.9 million, RMB11.0 million and RMB12.5 million (US$1.8 million), respectively that was included in the corresponding opening deferred revenue balance of the year.
Contract liabilities Contract liabilities primarily consist of deferred revenue which comprises unconsumed virtual currency, unamortized revenue from time-based virtual items and unamortized subscription fees for podcast services. 114 Table of Contents During the years ended December 31, 2021, 2022 and 2023, we recognized revenue amounted to RMB11.0 million, RMB12.5 million and RMB14.0 million (US$2.0 million), respectively that was included in the corresponding opening deferred revenue balance of the year.
As of December 31, 2022, we had RMB568.2 million (US$82.4 million) in cash and cash equivalents. Our cash and cash equivalents mainly represent demand deposits which are placed in bank and large reputable financial institutions, that are readily convertible to fixed amounts of cash and with original maturities from the date of purchase with terms of three months or less.
As of December 31, 2023, we had RMB495.0 million (US$69.7 million) in cash and cash equivalents. Our cash and cash equivalents mainly represent demand deposits which are placed in bank and large reputable financial institutions, that are readily convertible to fixed amounts of cash and with original maturities from the date of purchase with terms of three months or less.
Our net revenue was RMB2,185.3 million (US$316.8 million) in the fiscal year 2022, representing a 3% increase from RMB2,119.5 million in the prior year. The increase was primarily due to the growth in average user spending on our audio entertainment products. Cost of revenues.
Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 Net revenues. Our net revenue was RMB2,185.3 million in the fiscal year 2022, representing a 3% increase from RMB2,119.5 million in the prior year. The increase was primarily due to the growth in average user spending on our audio entertainment products. Cost of revenues.
We do not have retained or contingent interests in assets transferred. We have not entered into contractual arrangements that support the credit, liquidity or market risk for transferred assets.
We have not entered into contractual arrangements that support the credit, liquidity or market risk for transferred assets.
We adopted a share incentive plan on May 31, 2019, or the 2019 Share Incentive Plan. The 2019 Share Incentive Plan replaced the 2018 BVI Plan in its entirety and granted 38,194,330 options and restricted shares to certain management members, employees and consultant.
The 2019 Share Incentive Plan replaced the 2018 BVI Plan in its entirety and granted 38,194,330 options and restricted shares to certain management members, employees and consultant.
We had a positive working capital (defined as total current assets deducted by total current liabilities) of RMB352.0 million (US$51.0 million) as of December 31, 2022 primarily due to our business expansion, particularly, the expansion of our audio entertainment products operations.
We had a positive working capital (defined as total current assets deducted by total current liabilities) of RMB260.5 million (US$36.7 million) as of December 31, 2023 primarily due to our business expansion, particularly, the expansion of our audio entertainment products operations.
The granted and outstanding awards under the 2018 BVI Plan have since been terminated. For key terms of the Second Amended and the Restated 2019 Share Incentive Plan, see “Item 6. Directors, Senior Management and Employees—6.B.
Kastle Limited holds such ordinary shares in trust for the benefit of these senior management and directors. The granted and outstanding awards under the 2018 BVI Plan have since been terminated. For key terms of the Second Amended and the Restated 2019 Share Incentive Plan, see “Item 6. Directors, Senior Management and Employees—6.B.
The following table sets forth our average total mobile MAUs for each of the quarters indicated. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Three Months Ended ​ March 31, June 30, September December March 31, June 30, September December ​ ​ 2021 ​ 2021 ​ 30, 2021 ​ 31, 2021 ​ 2022 ​ 2022 ​ 30, 2022 ​ 31, 2022 ​ ​ (in thousands) Average Total Mobile MAUs 59,677 60,877 58,946 54,115 51,495 49,682 49,749 50,760 ​ Our ability to maintain and expand our user base, as well as maintain and enhance user engagement, depends on, among other things, our ability to cultivate and retain high-quality hosts, our ability to continuously produce quality content, our ability to maintain our pivotal position in the growing online audio industry in China, our ability to maintain our growth in the overseas market, and our ability to continually improve our users’ entertainment experience through technological innovation.
The following table sets forth our average total mobile MAUs for each of the quarters indicated. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Three Months Ended ​ March 31, June 30, September December March 31, June 30, September December ​ ​ 2022 ​ 2022 ​ 30, 2022 ​ 31, 2022 ​ 2023 ​ 2023 ​ 30, 2023 ​ 31, 2023 ​ ​ (in thousands) Average Total Mobile MAUs 51,495 49,682 49,749 50,760 49,622 45,607 42,138 36,022 ​ Our ability to maintain and expand our user base, as well as maintain and enhance user engagement, depends on, among other things, our ability to develop applications that meet diverse user needs globally, our ability to cultivate and retain high-quality hosts, our ability to continuously produce quality content, our ability to maintain our pivotal position in the growing online audio industry in China, our ability to maintain our growth in the overseas market, and our ability to continually improve user experience through technological innovation.
As of February 28, 2023, 86,290,620 options and restricted share units corresponding to 86,290,620 of our ordinary shares are outstanding, which has been redesignated as Class A ordinary shares on a one-on-one basis immediately prior to the completion of our initial public offering (the “2019 Replacement”).
As of September 30, 2024, 60,651,040 options and restricted share units corresponding to 60,651,040 of our ordinary shares are outstanding, which has been redesignated as Class A ordinary shares on a one-on-one basis immediately prior to the completion of our initial public offering (the “2019 Replacement”).
Salary and welfare benefits represent payroll-related expenses incurred for our employees involved in the operations of our platforms and products. We expect our salary and welfare benefits to continue to increase in absolute amount in parallel with our business growth. For risks related to the COVID-19, see “Item 3. Key Information—3.D.
Salary and welfare benefits represent payroll-related expenses incurred for our employees involved in the operations of our platforms and products. We expect our salary and welfare benefits to continue to increase in absolute amount in parallel with our business growth. Payment handling costs .
Such direct loans to the nominee shareholders would be eliminated in our consolidated financial statements against the VIE’s share capital. 5.C. Research and Development, Patents and Licenses, Etc. Our strong technological capabilities support the stable operation of our platforms.
Such direct loans to the nominee shareholders would be eliminated in our consolidated financial statements against the VIE’s share capital. 5.C. Research and Development, Patents and Licenses, Etc. Our strong technological capabilities support the stable operation of our platforms. Flexibility and scalability are combined when delivering superior services, which increase operational efficiency and enable innovations.
The following table sets forth sources of our net revenues in absolute amounts and as percentages of total net revenues for the periods indicated: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Year Ended December 31, ​ ​ 2020 ​ 2021 ​ 2022 ​ RMB % RMB % RMB US$ % ​ ​ (in thousands, except for percentages) Net revenues Audio entertainment 1,481,120 98.6 2,101,475 99.1 2,174,314 315,246 99.5 Podcast, advertising and others 21,788 1.4 18,039 0.9 10,952 1,588 0.5 Total 1,502,908 100.0 2,119,514 100.0 2,185,266 316,834 100.0 ​ Cost of Revenues Our cost of revenues consists of (i) revenue sharing fees, (ii) salary and welfare benefits, (iii) payment handling costs, (iv) bandwidth costs, and (v) others.
The following table sets forth sources of our net revenues in absolute amounts and as percentages of total net revenues for the periods indicated: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Year Ended December 31, ​ ​ 2021 ​ 2022 ​ 2023 ​ RMB % RMB % RMB US$ % ​ ​ (in thousands, except for percentages) Net revenues Audio entertainment 2,101,475 99.1 2,174,314 99.5 2,063,346 290,616 99.6 Podcast, advertising and others 18,039 0.9 10,952 0.5 8,426 1,187 0.4 Total 2,119,514 100.0 2,185,266 100.0 2,071,772 291,803 100.0 ​ Cost of Revenues Our cost of revenues consists of (i) revenue sharing fees, (ii) salary and welfare benefits, (iii) payment handling costs, (iv) bandwidth costs, (v) share-based compensation expenses and (vi) others.
Among those, a total of 5,395,630 Class A ordinary shares corresponding to restricted shares granted to certain of our management members and director, which has been redesignated as Class A ordinary shares on a one-on-one basis immediately prior to the completion of IPO, were held by Kastle Limited, a company incorporated with limited liability under the laws of Hong Kong as of February 28, 2023. 5,395,630 Kastle Limited holds such ordinary shares in trust for the benefit of these senior management and directors.
Among those, a total of 5,008,430 Class A ordinary shares corresponding to restricted shares granted to certain of our management members and director, which has been redesignated as Class A ordinary shares on a one-on-one basis immediately prior to the completion of IPO, were held by Kastle Limited, a company incorporated with limited liability under the laws of Hong Kong as of September 30, 2024.
PRC Generally, our subsidiaries and consolidated VIEs in China are subject to enterprise income tax on their taxable income in China at a rate of 25%, except where a special preferential rate applies. The enterprise income tax is calculated based on the entity’s global income as determined under PRC tax laws and accounting standards.
PRC Generally, our subsidiaries and consolidated VIEs in China are subject to enterprise income tax on their taxable income in China at a rate of 25%, except where a special preferential rate applies.
We reassess the probability of vesting at each reporting period for awards with performance conditions and adjusts compensation expenses based on its probability assessment, unless on certain situations, we may not be able to determine that it is probable that a performance condition will be satisfied until the event occurs.
We reassess the probability of vesting at each reporting period for awards with performance conditions and adjusts compensation expenses based on its probability assessment, unless on certain situations, we may not be able to determine that it is probable that a performance condition will be satisfied until the event occurs. 116 Table of Contents An aggregate of 22,280,320 options and restricted share units was granted for the years ended December 31, 2023.
As an offshore holding company, we are permitted under PRC laws and regulations to provide funding from the proceeds of our offshore fund raising activities to our PRC subsidiaries only through loans or capital contributions, and to the VIEs only through loans, in each case subject to the satisfaction of the applicable government registration and approval requirements.
Apart from such cash and cash equivalents held in the Cayman Islands, substantially all of our assets were held and substantially all of our net revenues were generated by our PRC subsidiaries, the VIEs and their subsidiaries. 121 Table of Contents As an offshore holding company, we are permitted under PRC laws and regulations to provide funding from the proceeds of our offshore fund raising activities to our PRC subsidiaries only through loans or capital contributions, and to the VIEs only through loans, in each case subject to the satisfaction of the applicable government registration and approval requirements.
The following table sets forth the components of our operating expenses in absolute amounts and as percentages ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Year Ended December 31, ​ ​ 2020 ​ 2021 ​ 2022 ​ RMB % RMB % RMB US$ % ​ ​ (in thousands, except for percentages) Operating expenses Selling and marketing expenses 142,734 31.3 386,204 51.1 259,618 37,641 40.0 Research and development expenses 225,329 49.3 264,706 35.0 283,349 41,082 43.6 General and administrative expenses 88,856 19.4 104,617 13.9 106,727 15,474 16.4 Total 456,919 100.0 755,527 100.0 649,694 94,197 100.0 ​ Selling and Marketing Expenses Our selling and marketing expenses primarily consist of (i) advertising and promotional expenses, including traffic promotion and brand marketing, (ii) salaries and welfare benefits to our sales and marketing personnel, and (iii) share-based compensation to our sales and marketing personnel.
The following table sets forth the components of our operating expenses in absolute amounts and as percentages ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Year Ended December 31, ​ ​ 2021 ​ 2022 ​ 2023 ​ RMB % RMB % RMB US$ % ​ ​ (in thousands, except for percentages) Operating expenses Selling and marketing expenses 386,204 51.1 259,618 40.0 237,646 33,472 32.4 Research and development expenses 264,706 35.0 283,349 43.6 301,490 42,464 41.1 General and administrative expenses 104,617 13.9 106,727 16.4 193,907 27,311 26.5 Total 755,527 100.0 649,694 100.0 733,043 103,247 100.0 ​ Selling and Marketing Expenses Our selling and marketing expenses primarily consist of (i) advertising and promotional expenses, including traffic promotion and brand marketing, (ii) salaries and welfare benefits to our sales and marketing personnel, and (iii) share-based compensation to our sales and marketing personnel.
Share-based compensation Amended and Restated 2019 Share Incentive Plan In September 2018, Lizhi BVI adopted the 2018 Share Incentive Plan, or the 2018 BVI Plan. Under the 2018 BVI Plan, Lizhi BVI granted 27,765,900 options and restricted shares to its certain management members, employees and a consultant corresponding to 27,765,900 ordinary shares.
Under the 2018 BVI Plan, Lizhi BVI granted 27,765,900 options and restricted shares to its certain management members, employees and a consultant corresponding to 27,765,900 ordinary shares. 115 Table of Contents We adopted a share incentive plan on May 31, 2019, or the 2019 Share Incentive Plan.
The table below sets forth a breakdown of our cost of revenues in absolute amounts and as percentages of total cost of revenues for the periods indicated: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Year Ended December 31, ​ ​ 2020 ​ 2021 ​ 2022 ​ RMB % RMB % RMB US$ % ​ ​ (in thousands, except for percentages) Cost of revenues Revenue sharing fees 1,031,903 90.9 1,357,270 90.3 1,351,096 195,891 92.0 Salary and welfare benefits 41,159 3.6 52,268 3.5 40,653 5,894 2.8 Payment handling costs 22,692 2.0 32,506 2.2 22,899 3,320 1.6 Bandwidth costs 11,226 1.0 30,889 2.1 32,795 4,755 2.2 Share-based compensation expense 14,789 1.3 11,484 0.7 7,052 1,022 0.5 Others 12,909 1.2 18,088 1.2 14,426 2,092 0.9 Total 1,134,678 100 1,502,505 100 1,468,921 212,974 100 ​ Revenue sharing fees .
The table below sets forth a breakdown of our cost of revenues in absolute amounts and as percentages of total cost of revenues for the periods indicated: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Year Ended December 31, ​ ​ 2021 ​ 2022 ​ 2023 ​ RMB % RMB % RMB US$ % ​ ​ (in thousands, except for percentages) Cost of revenues Revenue sharing fees 1,357,270 90.3 1,351,096 92.0 1,368,498 192,749 92.1 Salary and welfare benefits 52,268 3.5 40,653 2.8 45,273 6,377 3.0 Payment handling costs 32,506 2.2 22,899 1.6 21,076 2,968 1.4 Bandwidth costs 30,889 2.1 32,795 2.2 39,424 5,553 2.7 Share-based compensation expense 11,484 0.7 7,052 0.5 3,845 542 0.3 Others 18,088 1.2 14,426 0.9 8,281 1,166 0.5 Total 1,502,505 100 1,468,921 100 1,486,397 209,355 100 ​ Revenue sharing fees .
The incurrence of debt would divert cash for working capital and capital expenditures to service debt obligations and could result in operating and financial covenants that restrict our operations and our ability to pay dividends to our shareholders.
The incurrence of debt would divert cash for working capital and capital expenditures to service debt obligations and could result in operating and financial covenants that restrict our operations and our ability to pay dividends to our shareholders. If we are unable to obtain additional equity or debt financing as required, our business and prospects may suffer.
We expect our research and development expenses to continue to grow in absolute amount in parallel with our business growth as we continue to upgrade our audio and AI technologies. For risks related to the COVID-19, see “Item 3. Key Information—3.D.
We expect our research and development expenses to continue to grow in absolute amount in parallel with our business growth as we continue to upgrade our audio and AI technologies.
Risk Factors—Risks Related to Our Business and Our Industry—We face risks related to the outbreak of COVID-19.” Other Expenses/Income Our other expenses/income consist mainly of (i) foreign exchange losses/gains; (ii) interest expenses of bank loan and investment incomes; (ii) government grants we received; and (iv) others primarily including bank fees and tax rebate received during the year.
We expect our general and administrative expenses to grow in absolute amount as we grow our business. Other Expenses/Income Our other expenses/income consist mainly of (i) foreign exchange losses/gains; (ii) interest expenses of bank loan, investment income and interest income; (ii) government grants we received; and (iv) others primarily including bank fees and tax rebate received during the year.
Guangzhou Lizhi obtained High and New Technology Enterprise, or HNTE, status from December 1, 2020 to December 1, 2023, and it enjoyed a preferential tax rate of 15% in enterprise income tax to the extent it has taxable income under the PRC Enterprise Income Tax Law.
The enterprise income tax is calculated based on the entity’s global income as determined under PRC tax laws and accounting standards. 112 Table of Contents Guangzhou Lizhi obtained High and New Technology Enterprise, or HNTE, status from December 28, 2023 to December 28, 2026, and it enjoyed a preferential tax rate of 15% in enterprise income tax to the extent it has taxable income under the PRC Enterprise Income Tax Law.
(ii) Payment terms and conditions vary by contract type, although terms generally include a requirement of prepayment or payment within one year or less.
(ii) Payment terms and conditions vary by contract type, although terms generally include a requirement of prepayment or payment within one year or less. According, we have determined that our contracts generally do not include a significant financing component.
If we are unable to obtain additional equity or debt financing as required, our business and prospects may suffer. 117 Table of Contents As we will continue to invest in product innovation and AI technology to support our growth, we may not be able to further improve our working capital position or to achieve a surplus.
As we will continue to invest in product innovation and AI technology to support our growth, we may not be able to further improve our working capital position or to achieve a surplus.
As of December 31, 2021 and 2022, management does not believe that sufficient positive evidence exists to conclude that the recoverability of our deferred tax assets is more likely than not to be realized.
As of December 31, 2022 and 2023, management does not believe that sufficient positive evidence exists to conclude that the recoverability of our deferred tax assets is more likely than not to be realized. Consequently, we have provided full valuation allowances on the related deferred tax assets. Our provision for income taxes is composed of current and deferred taxes.
We intend to fund our existing and future material cash requirements with our existing cash balance and other financing alternatives. We will continue to make cash commitments, including capital expenditures to support the short-term and/or long-term growth of our business. We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties.
We will continue to make cash commitments, including capital expenditures to support the short-term and/or long-term growth of our business. 120 Table of Contents We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties. We do not have retained or contingent interests in assets transferred.
Risk Factors—Risks Related to Our Business and Our Industry—We face risks related to the outbreak of COVID-19.” General and Administrative Expenses Our general and administrative expenses primarily consist of (i) salaries and welfare benefits of our general and administrative staff, (ii) professional service fees, (iii) share-based compensation of our general and administrative staff, and (iv) other expenses such as leases and depreciation and amortization.
General and Administrative Expenses Our general and administrative expenses primarily consist of (i) salaries and welfare benefits of our general and administrative staff, (ii) professional service fees, (iii) share-based compensation of our general and administrative staff, and (iv) other expenses such as provision for credit losses, leases and depreciation and amortization.
Recently issued accounting pronouncements For detailed discussion on recent accounting pronouncements, see Note 2(dd) to our consolidated financial statements included elsewhere in this annual report. 5.B Liquidity and Capital Resources Cash flows and working capital Our principal sources of liquidity have been cash generated from our operations, contributions from our shareholders, and bank loans taken out by our subsidiary and the VIEs.
With the completion of our initial public offering in January 2020, it is no longer necessary for us to estimate the fair value of our ordinary shares in connection with our accounting for granted options, restricted shares and restricted share units and the market price of our publicly traded ADSs is used as an indicator of fair value of our ordinary shares. 117 Table of Contents Recently issued accounting pronouncements For detailed discussion on recent accounting pronouncements, see Note 2(dd) to our consolidated financial statements included elsewhere in this annual report. 5.B Liquidity and Capital Resources Cash flows and working capital Our principal sources of liquidity have been cash generated from our operations, contributions from our shareholders, and bank loans taken out by our subsidiary and the VIEs.
Consequently, we have provided full valuation allowances on the related deferred tax assets. 122 Table of Contents Our provision for income taxes is composed of current and deferred taxes. The current and deferred tax provisions are calculated based on estimates and assumptions that could differ from the actual results reflected in income tax returns filed during the subsequent year.
The current and deferred tax provisions are calculated based on estimates and assumptions that could differ from the actual results reflected in income tax returns filed during the subsequent year.
We satisfy our performance obligation by providing services throughout the estimated user relationship period as the subscription period is generally perpetual. Revenue is recognized ratably over the estimated average user relationship period. The estimated average user relationship period is based on historical data collected from those paying subscribers who have subscribed to a podcast content.
The estimated average user relationship period is based on historical data collected from those paying subscribers who have subscribed to a podcast content.
Our costs and expenses consist primarily of revenue sharing fees in relation to arrangements with our hosts. It is critical for us to manage our costs and expenses effectively and improve operational efficiency. We believe our platforms have achieved strong operating leverage and economies of scale as a result of our engaged user base and extensive content library.
Our ability to further improve cost efficiency and economies of scale We have made substantial investments in our technology, products, content and team. Our costs and expenses consist primarily of revenue sharing fees in relation to arrangements with our hosts. It is critical for us to manage our costs and expenses effectively and improve operational efficiency.
For the years ended December 31, 2020, 2021 and 2022, the Company’s overseas entity recognized income tax expense amounted to RMB1.0 million, RMB0.3 million and RMB0.1 million, respectively, for the assessable profits base on the existing legislation, interpretation and practice of Singapore. 111 Table of Contents Hong Kong Our subsidiary incorporated in Hong Kong is subject to Hong Kong profits tax at a rate of 16.5% for taxable income earned in Hong Kong before April 1, 2018.
For the years ended December 31, 2021, 2022 and 2023, the Company’s overseas entity recognized income tax expense/(credit) amounted to RMB0.3 million, RMB0.1 million and RMB(0.1) million, respectively, for the assessable profits base on the existing legislation, interpretation and practice of Singapore.
The difference between our net cash generated in operating activities and our net loss of RMB82.2 million was due to (i) an increase in salary and welfare payable of RMB26.4 million, (ii) depreciation of property, equipment and leasehold improvement of RMB17.7 million, (iii) an increase in accrued expenses and other current liabilities of RMB14.3 million, and (iv) an increase in deferred revenue of RMB2.5 million, partially offset by an increase in prepayments and other current assets of RMB5.0 million, an increase in accounts payable of RMB6.0 million and an increase in taxes payable of RMB6.0 million.
The difference between our net cash used in operating activities and our net loss of RMB134.5 million was due to (i) depreciation of property, equipment and leasehold improvement of RMB13.2 million, (ii) share-based compensation expenses of RMB26.8 million, (iii) allowance for expected credit loss of RMB90.8 million, (iv) a decrease in deferred revenue of RMB6.4 million, an increase in prepayments and other current assets of RMB94.6 million, and a decrease in accounts payable of RMB10.6 million, and (v) partially offset by a decrease in accounts receivable of RMB1.6 million.
Net cash used in investing activities was RMB94.6 million in 2020 primarily due to purchase of short-term investments of RMB86.3 million and property, equipment and leasehold improvement of RMB21.2 million. Financing activities Net cash generated from financing activities was RMB4.8 million in 2022 primarily due to third-party loans taken out by our subsidiary and the VIEs.
Financing activities Net cash used in financing activities was RMB71.7 million in 2023 primarily due to third-party loans net repayment by our subsidiary and the VIEs. Net cash generated from financing activities was RMB4.8 million in 2022 primarily due to third-party loans taken out by our subsidiary and the VIEs.
We expect the adoption of advanced streaming and AI technologies to improve our operational efficiency, which, together with our strong business growth, will enable us to benefit further from economies of scale. 106 Table of Contents Key Components of Results of Operations ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Year Ended December 31, ​ ​ 2020 ​ 2021 ​ 2022 ​ RMB RMB RMB US$ ​ ​ (in thousands, except for share and per share data) Net revenues 1,502,908 2,119,514 2,185,266 316,834 Cost of revenues (1,134,678) (1,502,505) (1,468,921) (212,974) Gross profit: 368,230 617,009 716,345 103,860 Operating expenses: Selling and marketing expenses (142,734) (386,204) (259,618) (37,641) General and administrative expenses (88,856) (104,617) (106,727) (15,474) Research and development expenses (225,329) (264,706) (283,349) (41,082) Total operating expenses (456,919) (755,527) (649,694) (94,197) Operating (loss)/income (88,689) (138,518) 66,651 9,663 Other income: Interest (expenses)/ income, net (1,796) (1,103) 2,611 379 Foreign exchange losses (836) (738) (1,052) (153) Investment income 1,241 468 2,197 319 Government grants 12,870 13,496 14,360 2,082 Others, net (3,975) (479) 1,944 282 (Loss)/income before income taxes (81,185) (126,874) 86,711 12,572 Income tax expense (999) (376) (207) (30) Net (loss)/income (82,184) (127,250) 86,504 12,542 Accretions to preferred shares redemption value (154,066) — — — Net loss attributable to the non-controlling interests shareholders — — 13 2 Net (loss)/income attributable to our Company’s ordinary shareholders (236,250) (127,250) 86,517 12,544 ​ ​ ​ ​ ​ ​ ​ ​ ​ Net (loss)/income (82,184) (127,250) 86,504 12,542 Other comprehensive (loss)/income: Foreign currency translation adjustments (6,338) (7,848) 24,314 3,525 Total other comprehensive (loss)/income (6,338) (7,848) 24,314 3,525 Total comprehensive (loss)/income (88,522) (135,098) 110,818 16,067 Accretions to preferred shares redemption value (154,066) — — — Comprehensive loss attributable to the non-controlling interests shareholders — — 13 2 Comprehensive (loss)/income attributable to our Company’s ordinary shareholders (242,588) (135,098) 110,831 16,069 Net (loss)/income attributable to our Company’s ordinary shareholders per share Basic (0.27) (0.13) 0.08 0.01 Diluted (0.27) (0.13) 0.08 0.01 Weighted average number of ordinary shares Basic 883,202,412 991,715,849 1,036,485,949 1,036,485,949 Diluted 883,202,412 991,715,849 1,038,617,910 1,038,617,910 Net (loss)/income attributable to our Company’s ordinary shareholders per ADSs Basic (5.35) (2.57) 1.67 0.24 Diluted (5.35) (2.57) 1.67 0.24 Weighted average number of ADSs Basic 44,160,121 49,585,792 51,824,297 51,824,297 Diluted 44,160,121 49,585,792 51,930,895 51,930,895 ​ 107 Table of Contents Net Revenues We generate net revenues through (i) sales of virtual gifts to users in relation to audio entertainment, and (ii) podcast, advertising and others.
We expect the adoption of advanced streaming and AI technologies to improve our operational efficiency, which, together with our business growth, will enable us to benefit further from economies of scale. 107 Table of Contents Key Components of Results of Operations ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Year Ended December 31, ​ ​ 2021 ​ 2022 ​ 2023 ​ RMB RMB RMB US$ ​ ​ (in thousands, except for share and per share data) Net revenues 2,119,514 2,185,266 2,071,772 291,803 Cost of revenues (1,502,505) (1,468,921) (1,486,397) (209,355) Gross profit: 617,009 716,345 585,375 82,448 Operating expenses: ​ ​ ​ ​ Selling and marketing expenses (386,204) (259,618) (237,646) (33,472) General and administrative expenses (104,617) (106,727) (193,907) (27,311) Research and development expenses (264,706) (283,349) (301,490) (42,464) Total operating expenses (755,527) (649,694) (733,043) (103,247) Operating (loss)/income (138,518) 66,651 (147,668) (20,799) Other income: ​ ​ ​ ​ Interest expenses (2,904) (2,474) (1,563) (220) Foreign exchange losses (738) (1,052) (1,488) (210) Interest and investment income 2,269 7,282 10,820 1,524 Government grants 13,496 14,360 9,395 1,323 Others, net (479) 1,944 (3,577) (504) (Loss)/income before income taxes (126,874) 86,711 (134,081) (18,886) Income tax expense (376) (207) (434) (61) Net (loss)/income (127,250) 86,504 (134,515) (18,947) Net loss attributable to the non-controlling interests shareholders — 13 7,864 1,108 Net (loss)/income attributable to our Company’s ordinary shareholders (127,250) 86,517 (126,651) (17,839) ​ ​ ​ ​ ​ ​ ​ ​ ​ Net (loss)/income (127,250) 86,504 (134,515) (18,947) Other comprehensive (loss)/income: ​ Foreign currency translation adjustments (7,848) 24,314 3,277 462 Total other comprehensive (loss)/income (7,848) 24,314 3,277 462 Total comprehensive (loss)/income (135,098) 110,818 (131,238) (18,485) Comprehensive loss attributable to the non-controlling interests shareholders — 13 7,953 1,120 Comprehensive (loss)/income attributable to our Company’s ordinary shareholders (135,098) 110,831 (123,285) (17,365) Net (loss)/income attributable to our Company’s ordinary shareholders per share Basic (0.13) 0.08 (0.12) (0.02) Diluted (0.13) 0.08 (0.12) (0.02) Weighted average number of ordinary shares Basic 991,715,849 1,036,485,949 1,078,969,851 1,078,969,851 Diluted 991,715,849 1,038,617,910 1,078,969,851 1,078,969,851 Net (loss)/income attributable to our Company’s ordinary shareholders per ADSs Basic (25.66) 16.69 (23.48) (3.31) Diluted (25.66) 16.66 (23.48) (3.31) Weighted average number of ADSs Basic 4,958,579 5,182,430 5,394,849 5,394,849 Diluted 4,958,579 5,193,090 5,394,849 5,394,849 ​ 108 Table of Contents Net Revenues We generate net revenues through (i) sales of virtual gifts to users in relation to audio entertainment, and (ii) podcast, advertising and others.
In next coming 12 months, we expect the majority of our capital expenditures will use for purchasing long-term assets above. 119 Table of Contents Contractual obligation The following table sets forth our contractual obligations as of December 31, 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Payment Due by Years Ending ​ Less than ​ ​ More than ​ ​ ​ 1 year ​ 1-3 years ​ 3-5 years ​ 5 years ​ Total ​ (in RMB thousands) Lease obligations (1) 19,527 8,520 — — 28,047 Short-term loans 73,765 — — — 73,765 Note: (1) Lease obligation represents the minimum commitments under non-cancelable operating lease agreements for our office premises and staff quarters.
Contractual obligation The following table sets forth our contractual obligations as of December 31, 2023: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Payment Due by Years Ending ​ Less than ​ ​ More than ​ ​ ​ 1 year ​ 1-3 years ​ 3-5 years ​ 5 years ​ Total ​ (in RMB thousands) Lease obligations (1) 10,838 4,048 — — 14,886 Note: (1) Lease obligation represents the minimum commitments under non-cancelable operating lease agreements for our office premises and staff quarters.
Bandwidth costs is fees that we pay to telecommunication service providers for bandwidth and content delivery-related services. We expect our bandwidth costs to continue to increase in absolute amount in parallel with our business growth. For risks related to the COVID-19, see “Item 3. Key Information—3.D.
Payment handling costs represent fees that we pay to third-party payment processing platforms through which our users purchase our virtual currencies. We expect our payment handling costs to continue to increase in absolute amount in parallel with our business growth. Bandwidth costs . Bandwidth costs is fees that we pay to telecommunication service providers for bandwidth and content delivery-related services.
For a detailed discussion of our significant accounting policies and related judgments, see “Note 2 Significant Accounting Policies” in the Notes to Consolidated Financial Statements included elsewhere in this annual report.
For a detailed discussion of our significant accounting policies and related judgments, see “Note 2 Significant Accounting Policies” in the Notes to Consolidated Financial Statements included elsewhere in this annual report. 122 Table of Contents The following is a brief description of our critical accounting estimate: Critical accounting estimate in provision for income taxes and valuation allowance for deferred tax assets We are subject to the income tax laws of the various jurisdictions in which we operate.
We will continue to strengthen our technologies and big data analytic capabilities to enhance user experience and achieve operational efficiencies. 5.D.
Our platforms incorporate the following features: (i) audio making, (ii) AI-enabled discovery and distribution, (iii) user-experience enhancements, and (iv) data storage and backup technologies. We will continue to strengthen our technologies and big data analytic capabilities to enhance user experience and achieve operational efficiencies. 5.D.
Risk Factors—Risks Related to Our Business and Our Industry—We face risks related to the outbreak of COVID-19.” Research and Development Expenses Our research and development expenses primarily consist of (i) salaries and welfare benefits of our research and development staff, (ii) share-based compensation of our research and development staff, and (iii) technological services fees provided by third parties.
We are monitoring our discretionary advertising and promotion expenses, and will adjust them accordingly depending on the market conditions. Research and Development Expenses Our research and development expenses primarily consist of (i) salaries and welfare benefits of our research and development staff, (ii) share-based compensation of our research and development staff, and (iii) technological services fees provided by third parties.
Podcast revenue We provide users with certain subscription services which entitle paying subscribers to listen to specific podcast content on our platforms. The subscription fee is time-based and is collected upfront from subscribers. 113 Table of Contents The receipt of subscription fee is initially recorded as deferred revenue.
The Group does not have further performance obligations to users after the virtual items are consumed immediately or after the stated contract period for time-based items. Podcast revenue We provide users with certain subscription services which entitle paying subscribers to listen to specific podcast content on our platforms. The subscription fee is time-based and is collected upfront from subscribers.
Operating Expenses Our operating expenses consist of (i) selling and marketing expenses; (ii) research and development expenses; and (iii) general and administrative expenses.
Other costs of revenues include other taxes and surcharges, advertising production cost, depreciation and amortization and other costs. 109 Table of Contents Operating Expenses Our operating expenses consist of (i) selling and marketing expenses; (ii) research and development expenses; and (iii) general and administrative expenses.
Our user-generated content library makes our business more cost-effective compared to competitors focused on acquiring costly professional-generated content. Our large podcast user base and their loyalty to hosts serve as an organic funnel to direct traffic from our podcasts to our audio entertainment, thereby lowering our user acquisition costs.
Our podcast user base and their loyalty to hosts serve as an organic funnel to direct traffic from our podcasts to our audio entertainment, thereby lowering our user acquisition costs. Our ability to achieve cost efficiency and economies of scale also depends on our ability to efficiently manage and control our costs and expenses.
Our ability to achieve cost efficiency and economies of scale also depends on our ability to efficiently manage and control our costs and expenses. We plan to upgrade our technological capabilities and infrastructure to support the growth of our business.
We plan to upgrade our technological capabilities and infrastructure to support the growth of our business.
We intend to attract and train more popular hosts, provide more high-quality content, expand user paying scenarios on our platforms, and enhance interactions between hosts and audience. 105 Table of Contents The following table sets forth the number of our average audio entertainment mobile MAUs on our apps, average audio entertainment paying users on our apps and average total monthly paying users across our platforms and apps for each of the quarters indicated.
To increase paying user base, we intend to attract and train more popular hosts, provide more high-quality content, expand user paying scenarios on our platforms, and enhance interactions between hosts and audiences. 106 Table of Contents The following table sets forth the number of average total monthly paying users across our platforms and apps for each of the quarters indicated. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Three Months Ended ​ March 31, June 30, September December March 31, June 30, September December ​ ​ 2022 ​ 2022 ​ 30, 2022 ​ 31, 2022 ​ 2023 ​ 2023 ​ 30, 2023 ​ 31, 2023 ​ ​ (in thousands) Average total monthly paying users 482.2 485.1 476.7 491.8 471.5 433.7 402.6 365.3 ​ We will continue to expand our product offerings to diversify our monetization channels.
Furthermore, our future capital needs may cause us to be bound by covenants that restrict our operations, such as our ability to incur additional indebtedness or pay dividends.” The following table presents the summary of our consolidated cash flows data for the years ended December 31, 2020, 2021 and 2022. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Year Ended December 31, ​ ​ 2020 ​ 2021 ​ 2022 ​ RMB RMB RMB US$ ​ ​ (in thousands) Net cash generated from/(used in) operating activities 39,996 (40,426) 136,267 19,759 Net cash (used in)/generated from investing activities (94,559) 52,101 (122,783) (17,803) Net cash generated from financing activities 298,046 212,682 4,771 692 Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash (7,038) (6,063) 22,812 3,306 Net increase/(decrease) in cash, cash equivalents, and restricted cash 236,445 218,294 41,067 5,954 Cash, cash equivalents, and restricted cash at the beginning of the year 82,709 319,154 537,448 77,923 Cash, cash equivalents, and restricted cash at the end of the year 319,154 537,448 578,515 83,877 ​ Operating activities Net cash generated from operating activities was RMB136.3 million in 2022.
If we experience working capital deficits in the future, our business, liquidity, financial condition and results of operations may be materially and adversely affected.” 118 Table of Contents The following table presents the summary of our consolidated cash flows data for the years ended December 31, 2021, 2022 and 2023. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Year Ended December 31, ​ ​ 2021 ​ 2022 ​ 2023 ​ RMB RMB RMB US$ ​ ​ (in thousands) Net cash (used in)/generated from operating activities (40,426) 136,267 (117,045) (16,487) Net cash generated from/(used in) investing activities 52,101 (122,783) 105,653 14,880 Net cash generated from/(used in) financing activities 212,682 4,771 (71,674) (10,094) Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash (6,063) 22,812 2,168 307 Net increase/(decrease) in cash, cash equivalents, and restricted cash 218,294 41,067 (80,898) (11,394) Cash, cash equivalents, and restricted cash at the beginning of the year 319,154 537,448 578,515 81,482 Cash, cash equivalents, and restricted cash at the end of the year 537,448 578,515 497,617 70,088 ​ Operating activities Net cash used in operating activities was RMB117.0 million in 2023.
We held cash and cash equivalents, short-term investments and restricted cash of RMB689.9 million (US$100.0 million) as of December 31, 2022, among which RMB185.0 million (US$26.8 million) was held by LIZHI INC..
We held cash and cash equivalents and restricted cash of RMB497.6 million (US$70.1 million) as of December 31, 2023, among which RMB70.5 million (US$10.0 million) was held by Sound Group Inc.

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Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

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The committees operate in accordance with terms of reference established by our board of directors. Audit Committee. Our audit committee consists of Mr. Yipeng Li, Mr. Ming Zhang and Mr. Xiang Wang. Mr. Yipeng Li is the chairman of our audit committee. We have determined that each of Mr. Yipeng Li, Mr.
The committees operate in accordance with terms of reference established by our board of directors. Audit Committee. Our audit committee consists of Mr. Yipeng Li, Mr. Ming Zhang and Mr. Xiang Wang. Mr. Yipeng Li is the chairman of our audit committee. We have determined that each of Mr. Yipeng Li, Mr. Ming Zhang and Mr.
Our compensation committee consists of Mr. Jinnan (Marco) Lai, Ms. Juan Ren and Mr. Ming Zhang, and is chaired by Mr. Jinnan (Marco) Lai. The compensation committee assists the board in reviewing and approving the compensation structure, including all forms of compensation, relating to our executive officers.
Compensation Committee . Our compensation committee consists of Mr. Jinnan (Marco) Lai, Ms. Juan Ren and Mr. Ming Zhang, and is chaired by Mr. Jinnan (Marco) Lai. The compensation committee assists the board in reviewing and approving the compensation structure, including all forms of compensation, relating to our executive officers.
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES 6.A. Directors and Senior Management The following table sets forth information regarding our executive officers and directors as of the date of this annual report. ​ ​ ​ ​ ​ Directors and Executive Officers Age Position/Title Mr. Jinnan (Marco) Lai 48 Founder, Chief Executive Officer and Chairman of the Board of Directors Ms.
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES 6.A. Directors and Senior Management The following table sets forth information regarding our executive officers and directors as of the date of this annual report. ​ ​ ​ ​ ​ Directors and Executive Officers Age Position/Title Mr. Jinnan (Marco) Lai 49 Founder, Chief Executive Officer and Chairman of the Board of Directors Ms.
The audit committee is responsible for, among other things: ● selecting the independent registered public accounting firm and pre-approving all auditing and non-auditing services permitted to be performed by the independent registered public accounting firm; ● reviewing with the independent registered public accounting firm any audit problems or difficulties and management’s response; ● reviewing and approving all proposed related party transactions; ● discussing the annual audited financial statements with management and the independent registered public accounting firm; ● reviewing major issues as to the adequacy of our internal controls and any special audit steps adopted in light of significant or material control deficiencies, if any; ● annually reviewing and reassessing the adequacy of our audit committee charter; ● meeting separately and periodically with management and the independent registered public accounting firm; and ● reporting regularly to the board of directors. 127 Table of Contents Compensation Committee .
The audit committee is responsible for, among other things: ● selecting the independent registered public accounting firm and pre-approving all auditing and non-auditing services permitted to be performed by the independent registered public accounting firm; ● reviewing with the independent registered public accounting firm any audit problems or difficulties and management’s response; ● reviewing and approving all proposed related party transactions; ● discussing the annual audited financial statements with management and the independent registered public accounting firm; ● reviewing major issues as to the adequacy of our internal controls and any special audit steps adopted in light of significant or material control deficiencies, if any; ● annually reviewing and reassessing the adequacy of our audit committee charter; ● meeting separately and periodically with management and the independent registered public accounting firm; and ● reporting regularly to the board of directors.
Prior to that, Mr. Li served as the chief financial officer of Sunlands Technology Group (NYSE: STG) from September 2017 to April 2020. Mr. Li served as the chief financial officer of Alibaba Health Information Technology Limited (HKEx: 241), a subsidiary of Alibaba Group, from September 2015 to September 2017.
Li served as the Chief Financial Officer of Sunlands Technology Group (NYSE: STG) from September 2017 to April 2020. Mr. Li served as the Chief Financial Officer of Alibaba Health Information Technology Limited (HKEX: 241), a subsidiary of Alibaba Group, from September 2015 to September 2017.
In addition, each executive officer has agreed to be bound by non-competition and non-solicitation restrictions during the term of his or her employment and typically for one year following the last date of employment. 124 Table of Contents We have also entered into an indemnification agreement with each of our directors and executive officers.
In addition, each executive officer has agreed to be bound by non-competition and non-solicitation restrictions during the term of his or her employment and typically for one year following the last date of employment. We have also entered into an indemnification agreement with each of our directors and executive officers.
We are required under PRC law to make contributions from time to time to employee benefit plans for our PRC-based full-time employees at specified percentages of the salaries, bonuses and certain allowances of such employees, up to a maximum amount specified by the local governments in China. 129 Table of Contents None of our employees are represented by labor unions.
We are required under PRC law to make contributions from time to time to employee benefit plans for our PRC-based full-time employees at specified percentages of the salaries, bonuses and certain allowances of such employees, up to a maximum amount specified by the local governments in China. None of our employees are represented by labor unions.
Li received his bachelor’s degree in accounting from Simon Fraser University in 2002. Mr. Li is a member of Chinese Institution of Certified Public Accountants. Mr. Ming Zhang has served as our independent director since July 2020. Mr. Zhang has nearly 20 years of experiences in Internet technology industry.
Li received his bachelor’s degree in accounting from Simon Fraser University in 2002. Mr. Li is a member of the Chinese Institution of Certified Public Accountants. Mr. Ming Zhang has served as our independent director since July 2020. Mr. Zhang has nearly 20 years of experience in the internet technology industry.
None of our directors has a service contract with us that provides for benefits upon termination of service as a director. Committees of the board of directors We have established the following committees in our board of directors upon our initial public offering: an audit committee, a compensation committee and a nominating and corporate governance committee.
None of our directors has a service contract with us that provides for benefits upon termination of service as a director. 127 Table of Contents Committees of the Board of Directors We have established the following committees in our board of directors upon our initial public offering: an audit committee, a compensation committee and a nominating and corporate governance committee.
Jinnan (Marco) Lai is our founder, Chief Executive Officer and director. Mr. Lai has served as a director and the Chief Executive Officer of Lizhi BVI since 2010 and our director and Chief Executive Officer since January 2019. Before founding Lizhi, Mr. Lai was a successful serial entrepreneur in China’s internet industry.
Jinnan (Marco) Lai is our founder, Chief Executive Officer and director. Mr. Lai has served as a director and the Chief Executive Officer of Lizhi BVI since 2010 and as our director and Chief Executive Officer since January 2019. Before founding Sound Group Inc., Mr. Lai was a successful serial entrepreneur in China’s internet industry.
Voice Tech Ltd disclaims beneficial ownership of the shares held by Voice Intelligence Ltd except to the extent of its pecuniary interest therein. Voice Intelligence is a company organized under the laws of the British Virgin Islands. The registered address of Voice Intelligence is Vistra Corporate Service Centre, Wickhams Cay II, Road Town, Tortola, VG1110, British Virgin Islands.
Voice Home Ltd disclaims beneficial ownership of the shares held by Voice Future Ltd except to the extent of its pecuniary interest therein. Voice Future is a company organized under the laws of the British Virgin Islands. The registered address of Voice Future is Vistra Corporate Service Centre, Wickhams Cay II, Road Town, Tortola, VG1110, British Virgin Islands.
The compensation committee is responsible for, among other things: ● reviewing and approving the compensation for our executive officers; ● reviewing and evaluating periodically the management succession plan in consultation with the chief executive officer; ● reviewing any incentive compensation or equity plans, programs or similar arrangements; ● selecting compensation consultant, legal counsel or other adviser only after taking into consideration of all factors relevant to that person’s independence from management; and ● reporting periodically to the board of directors.
The compensation committee is responsible for, among other things: ● reviewing and approving the compensation for our executive officers; ● reviewing and evaluating periodically the management succession plan in consultation with the chief executive officer; ● reviewing any incentive compensation or equity plans, programs or similar arrangements; ● selecting compensation consultant, legal counsel or other adviser only after taking into consideration of all factors relevant to that person’s independence from management; and ● reporting periodically to the board of directors. 128 Table of Contents Nominating and Corporate Governance Committee .
Ming Zhang satisfies the “independence” requirements of Rule 5605(a)(2) of the Listing Rules of the Nasdaq Stock Market and Rule 10A-3 under the Securities Exchange Act of 1934. We have determined that Mr.
Xiang Wang satisfies the “independence” requirements of Rule 5605(a)(2) of the Listing Rules of the Nasdaq Stock Market and Rule 10A-3 under the Securities Exchange Act of 1934. We have determined that Mr.
In addition, none of our outstanding Class A ordinary shares was held by any record holder in the United States as of February 28, 2023. None of our shareholders has informed us that it is affiliated with a member of Financial Industry Regulatory Authority, or FINRA.
In addition, none of our outstanding Class A ordinary shares was held by any record holder in the United States as of September 30, 2024. None of our shareholders has informed us that it is affiliated with a member of Financial Industry Regulatory Authority, or FINRA.
We are not aware of any arrangement that may, at a subsequent date, result in a change of control of our company. 131 Table of Contents 6.F. Disclosure of a Registrant’s Action to Recover Erroneously Awarded Compensation. Not applicable
We are not aware of any arrangement that may, at a subsequent date, result in a change of control of our company. 6.F. Disclosure of a Registrant’s Action to Recover Erroneously Awarded Compensation. None.
The functions and powers of our board of directors include, among others, (i) convening shareholders’ annual general meetings and reporting its work to shareholders at such meetings, (ii) declaring dividends and distributions, (iii) appointing officers and determining their terms of offices and responsibilities, and (iv) approving the transfer of shares of our company, including the registering of such shares in our share register. 128 Table of Contents Terms of Directors and Officers Our officers are elected by and serve at the discretion of the board.
The functions and powers of our board of directors include, among others, (i) convening shareholders’ annual general meetings and reporting its work to shareholders at such meetings, (ii) declaring dividends and distributions, (iii) appointing officers and determining their terms of offices and responsibilities, and (iv) approving the transfer of shares of our company, including the registering of such shares in our share register.
Share Ownership The following table sets forth information concerning the beneficial ownership of our ordinary shares as of February 28, 2023 by: ● each of our directors and executive officers; ● all of our directors and executive officers as a group; and ● each of our principal shareholders who beneficially own more than 5% of our total outstanding ordinary shares.
Share Ownership The following table sets forth information concerning the beneficial ownership of our ordinary shares as of September 30, 2024 by: ● each of our directors and executive officers; ● all of our directors and executive officers as a group; and ● each of our principal shareholders who beneficially own more than 5% of our total outstanding ordinary shares.
Operating Results—Critical Accounting Policies, Judgments and Estimates—Share-based compensation.” 126 Table of Contents 6.C. Board Practices Board of directors Our board of directors consists of six directors, including four independent directors. A director is not required to hold any shares in our company to qualify to serve as a director.
Operating Results—Critical Accounting Policies and Judgments—Share-based compensation.” 6.C. Board Practices Board of Directors Our board of directors consists of five directors, including three independent directors. A director is not required to hold any shares in our company to qualify to serve as a director.
Ren received her bachelor’s degree from Hubei Polytechnic University and EMBA degree from Guanghua School of Management, Peking University. Mr. Yipeng Li has served as our independent director since January 2020. Mr. Li has served as the chief financial officer and a director of Cloopen Group Holding Limited (NYSE: RAAS) since May 2020 and February 2021, respectively.
Ren received her bachelor’s degree from Hubei Polytechnic University and EMBA degree from Guanghua School of Management, Peking University. Mr. Yipeng Li served as our independent director since January 2020. Mr. Li has served as the Chief Financial Officer of Cloopen Group Holding Limited since May 2020. Prior to that, Mr.
Vesting Schedule . In general, the plan administrator determines the vesting schedule, which is set forth in the award agreement. 125 Table of Contents Transfer Restrictions .
Vesting Schedule . In general, the plan administrator determines the vesting schedule, which is set forth in the award agreement. Transfer Restrictions .
Our directors also owe to our company a duty to exercise the skill they actually possess and such care and diligence that a reasonable prudent person would exercise in comparable circumstances.
Our directors must also exercise their powers only for a proper purpose. Our directors also owe to our company a duty to exercise the skill they actually possess and such care and diligence that a reasonable prudent person would exercise in comparable circumstances.
Among those, a total of 5,395,630 Class A ordinary shares corresponding to restricted shares units granted to certain of our management members and director, were held by Kastle Limited, a company incorporated with limited liability under the laws of Hong Kong, as of February 28, 2023.
Among those, a total 5,008,430 Class A ordinary shares corresponding to restricted shares units granted to certain of our management members and director, were held by Kastle Limited, a company incorporated with limited liability under the laws of Hong Kong, as of September 30, 2024.
As of February 28, 2023, awards representing 86,290,620 Class A ordinary shares have been granted and outstanding under the Second Amended and Restated 2019 Share Incentive Plan. The awards issued under the Second Amended and Restated 2019 Share Incentive Plan are vested by equal instalment from nil to four years upon our initial public offering in January 2020.
As of September 30, 2024, awards representing 60,651,040 Class A ordinary shares have been granted and outstanding under the Second Amended and Restated 2019 Share Incentive Plan. The awards issued under the Second Amended and Restated 2019 Share Incentive Plan are vested by equal instalment from nil to four years upon our initial public offering in January 2020.
Board Diversity ​ ​ ​ ​ ​ ​ ​ Board Diversity Matrix (As of February 28, 2023) Country of Principal Executive Offices: People’s Republic of China Foreign Private Issuer Yes Disclosure Prohibited Under Home Country Law No Total Number of Directors 6 ​ ​ Female Male Non-Binary Did Not Disclose Gender ​ ​ ​ ​ ​ ​ ​ ​ Part I: Gender Identity ​ ​ ​ ​ ​ ​ ​ Directors 1 ​ 5 ​ 0 ​ 0 Part II: Demographic Background ​ ​ ​ ​ ​ ​ ​ Underrepresented Individual in Home Country Jurisdiction ​ ​ ​ – LGBTQ+ ​ ​ ​ – ​ 6.D.
Board Diversity ​ ​ ​ ​ ​ ​ ​ Board Diversity Matrix (As of September 30, 2024) Country of Principal Executive Offices: Singapore Foreign Private Issuer Yes Disclosure Prohibited Under Home Country Law No Total Number of Directors 5 ​ 129 Table of Contents ​ Female Male Non-Binary Did Not Disclose Gender ​ ​ ​ ​ ​ ​ ​ ​ Part I: Gender Identity ​ ​ ​ ​ ​ ​ ​ Directors 1 ​ 4 ​ 0 ​ 0 Part II: Demographic Background ​ ​ ​ ​ ​ ​ ​ Underrepresented Individual in Home Country Jurisdiction ​ ​ ​ – LGBTQ+ ​ ​ ​ – ​ 6.D.
As of February 28, 2023, other grantees under the Second Amended and Restated 2019 Share Incentive Plan as a group held awards representing 77,778,460 Class A ordinary shares. For discussions of our accounting policies and estimates for awards granted pursuant to the Second Amended and Restated 2019 Share Incentive Plan, see “Item 5. Operating and Financial Review and Prospects—5.A.
As of September 30, 2024, other grantees under the Second Amended and Restated 2019 Share Incentive Plan as a group held awards representing 52,138,880 Class A ordinary shares. For discussions of our accounting policies and estimates for awards granted pursuant to the Second Amended and Restated 2019 Share Incentive Plan, see “Item 5. Operating and Financial Review and Prospects—5.A.
As of February 28, 2023, there are 86,290,620 options and restricted share units outstanding that were granted to certain management members, employees and consultant corresponding to 86,290,620 of our Class A ordinary shares pursuant to the Second Amended and Restated 2019 Share Incentive Plan.
As of September 30, 2024, there are 60,651,040 options and restricted share units outstanding that were granted to certain management members, employees and consultant corresponding to 60,651,040 of our Class A ordinary shares pursuant to the Second Amended and Restated 2019 Share Incentive Plan.
Duties and Functions of Directors Under Cayman Islands law, our directors owe fiduciary duties to our company, including a duty of loyalty, a duty to act honestly and a duty to act in what they consider in good faith to be in our best interests. Our directors must also exercise their powers only for a proper purpose.
Duties and Functions of Directors Under the common law of the Cayman Islands, our directors owe fiduciary duties to our company, including a duty of loyalty, a duty to act honestly and a duty to act in what they consider in good faith to be in our best interests.
The table below excludes 5,395,630 ordinary shares issued to Kastle Limited, which holds such ordinary shares in trust for the benefit of certain of our senior management and directors before the corresponding share awards granted to such senior management and directors are vested pursuant to the Second Amended and Restated 2019 Share Incentive Plan, except when calculating the number of shares underlying share options held by such person or group that are exercisable or options and restricted share units that will become vested within 60 days after February 28, 2023. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Ordinary Shares ​ ​ ​ ​ ​ ​ ​ ​ Percentage of ​ ​ ​ ​ ​ ​ ​ ​ Total ordinary ​ total ordinary ​ Percentage of ​ ​ Class A ordinary ​ Class B ordinary ​ shares on an as- ​ shares on an as- ​ aggregate voting ​ shares shares converted basis converted basis power*** Directors and Executive Officers**†: ​ ​ ​ ​ ​ ​ Jinnan (Marco) Lai (1) — 192,215,000 192,215,000 18.5 % 61.7 % Ning Ding (2) 1,000 39,000,000 39,001,000 3.8 % 12.5 % Zelong Li * — * * * ​ Mr.
The table below excludes 5,008,430 ordinary shares issued to Kastle Limited, which holds such ordinary shares in trust for the benefit of certain of our senior management and directors before the corresponding share awards granted to such senior management and directors are vested pursuant to the Second Amended and Restated 2019 Share Incentive Plan, except when calculating the number of shares underlying share options held by such person or group that are exercisable or options and restricted share units that will become vested within 60 days after September 30, 2024. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Ordinary Shares ​ ​ ​ ​ ​ ​ ​ ​ Percentage of ​ ​ ​ ​ ​ ​ ​ ​ Total ordinary ​ total ordinary ​ Percentage of ​ ​ Class A ordinary ​ Class B ordinary ​ shares on an as- ​ shares on an as- ​ aggregate voting ​ shares shares converted basis converted basis power*** Directors and Executive Officers**†: ​ ​ ​ ​ ​ ​ Mr.
The registered address of Voice Future is Vistra Corporate Service Centre, Wickhams Cay II, Road Town, Tortola, VG1110, British Virgin Islands. VOICE WORLD Ltd. is a company organized under the laws of the British Virgin Islands. The registered address of VOICE WORLD Ltd. is Start Chambers, Wickhams Cay II, P.O. Box 2221, Road Town, Tortola, VG1110, British Virgin Islands.
Voice Intelligence is a company organized under the laws of the British Virgin Islands. The registered address of Voice Intelligence is Vistra Corporate Service Centre, Wickhams Cay II, Road Town, Tortola, VG1110, British Virgin Islands.
To our knowledge, as of February 28, 2023, a total of 725,781,720 Class A ordinary shares are held by one record holder in the United States, which was Deutsche Bank Trust Company Americas, the depositary of our ADR program, representing approximately 70.0% of our total outstanding shares.
To our knowledge, as of September 30, 2024, a total of 797,689,080 Class A ordinary shares are held by one record holder in the United States, which was Deutsche Bank Trust Company Americas, the depositary of our ADR program, representing approximately 81.0% of our total outstanding shares.
Employees We had 699 employees as of December 31, 2022. As of December 31, 2022, 38 of our full-time employees were located outside of China.
Employees We had 563 employees as of December 31, 2023. As of December 31, 2023, 50 of our full-time employees were located outside of China.
We amended and restated the 2019 Share Incentive Plan on March 18, 2020, or the Amended and Restated 2019 Share Incentive Plan, to increase the maximum aggregate number of Class A ordinary shares we are authorized to issue under the Amended and Restated 2019 Share Incentive Plan to 100,000,000 Class A ordinary shares.
All granted and outstanding awards under the 2018 BVI Plan have since been terminated. 125 Table of Contents We amended and restated the 2019 Share Incentive Plan on March 18, 2020, or the Amended and Restated 2019 Share Incentive Plan, to increase the maximum aggregate number of Class A ordinary shares we are authorized to issue under the Amended and Restated 2019 Share Incentive Plan to 100,000,000 Class A ordinary shares.
The entire interest of Voice Home Ltd is held by TMF (Cayman) Ltd. as trustee for a trust established by Mr. Jinnan (Marco) Lai as settlor for the benefit of beneficiaries designated by Mr. Jinnan (Marco) Lai. All of the voting and dispositive power of Voice Future is vested in VOICE WORLD Ltd.
Jinnan (Marco) Lai as settlor for the benefit of beneficiaries designated by Mr. Jinnan (Marco) Lai. All of the voting and dispositive power of Voice Future is vested in VOICE WORLD Ltd. VOICE WORLD Ltd is wholly owned by Mr. Jinnan (Marco) Lai.
Li served as a product manager for Shanghai Labox Information Technology Limited from 2008 to 2010. Mr. Li graduated from Guangdong Mechanical & Electrical College of Technology with a bachelor’s degree in computer application. 6.B.
Li has been a Vice President of Guangzhou Lizhi since 2010 and a director of Lizhi BVI since June 2017. Before joining us, Mr. Li served as a product manager for Shanghai Labox Information Technology Limited from 2008 to 2010. Mr. Li graduated from Guangdong Mechanical & Electrical College of Technology with a bachelor’s degree in computer application. 6.B.
Compensation Compensation For the fiscal year ended December 31, 2022, we paid an aggregate of RMB9.2 million (US$1.3 million) in cash to our executive officers, and an aggregate of RMB2.7 million (US$0.4 million) in cash to our non-executive directors.
Compensation Compensation For the fiscal year ended December 31, 2023, we paid an aggregate of RMB13.9 million (US$1.9 million) on an accrual basis to our executive officers, and an aggregate of RMB2.0 million (US$0.3 million) on an accrual basis to our non-executive directors.
Lu also served as the Company’s Vice President of Finance since December 2021 and Director of Finance from 2019 to December 2021. Previously, Ms. Lu worked at PricewaterhouseCoopers from 2013. Ms. Lu received her bachelor’s degree and master’s degree in accounting from Jinan University. Ms. Lu is a member of Chinese Institution of Certified Public Accountants. Mr.
Lu has served as our Acting Chief Financial Officer since June 2020. Ms. Lu also served as the Company’s Vice President of Finance since December 2021 and Director of Finance from 2019 to December 2021. Previously, Ms. Lu worked at PricewaterhouseCoopers from 2013. Ms. Lu received her bachelor’s degree and master’s degree in accounting from Jinan University. Ms.
Ning Ding is our co-founder and Chief Technology Officer. Mr. Ding has served as a director of Lizhi BVI since March 2012, our Chief Technology Officer since January 2019, and our director from January 2019 to April 2022. Mr. Ding has also been the chief technology officer of Guangzhou Lizhi since 2010. Previously, Mr.
Lu is a member of the Chinese Institution of Certified Public Accountants. 124 Table of Contents Mr. Ning Ding is our co-founder and Chief Technology Officer. Mr. Ding has served as a director of Lizhi BVI since March 2012, our Chief Technology Officer since January 2019, and our director from January 2019 to April 2022. Mr.
The following table sets forth a breakdown of our employees by function as of December 31, 2022: ​ ​ ​ ​ ​ ​ ​ Number of ​ ​ ​ employees ​ % of total Research and development 482 69.0 % Operations and products 86 12.3 % Sales and marketing 54 7.7 % General and administration 77 11.0 % Total 699 100.0 % ​ Our success depends on our ability to attract, retain and motivate qualified personnel.
The following table sets forth a breakdown of our employees by function as of December 31, 2023: ​ ​ ​ ​ ​ ​ ​ Number of ​ ​ ​ employees ​ % of total Research and development 386 68.6 % Operations and products 57 10.1 % Sales and marketing 53 9.4 % General and administration 67 11.9 % Total 563 100.0 % ​ Our success depends on our ability to attract, retain and motivate qualified personnel.
Juan Ren 38 Vice President and Director Mr. Yipeng Li 46 Independent Director Mr. Ming Zhang 46 Independent Director Mr. Xiang Wang 62 Independent Director Professor Yike Guo 61 Independent Director Ms. Chengfang Lu 36 Acting Chief Financial Officer Mr. Ning Ding 44 Co-founder and Chief Technology Officer Mr. Zelong Li 38 Chief Operating Officer ​ Mr.
Juan Ren 39 Vice President and Director Mr. Yipeng Li 47 Independent Director Mr. Ming Zhang 47 Independent Director Mr. Xiang Wang 63 Independent Director Ms. Chengfang Lu 37 Vice President of Finance and Acting Chief Financial Officer Mr. Ning Ding 45 Co-founder and Chief Technology Officer Mr. Zelong Li 39 Chief Operating Officer ​ Mr.
The entire interest of Voice Tech Ltd is held by TMF (Cayman) Ltd. as trustee for a trust established by Mr. Ding as settlor for the benefit of beneficiaries designated by Mr. Ding. All of the voting and dispositive power of Voice Intelligence is vested in AI VOICE Ltd. AI VOICE Ltd is wholly owned by Mr. Ding.
Ding as settlor for the benefit of beneficiaries designated by Mr. Ding. All of the voting and dispositive power of Voice Intelligence is vested in AI VOICE Ltd. AI VOICE Ltd is wholly owned by Mr. Ding. Voice Tech Ltd disclaims beneficial ownership of the shares held by Voice Intelligence Ltd except to the extent of its pecuniary interest therein.
The nominating and corporate governance committee assists the board in selecting individuals qualified to become our directors and in determining the composition of the board and its committees.
Our nominating and corporate governance committee consists of Mr. Jinnan (Marco) Lai, Ms. Juan Ren and Mr. Ming Zhang, and is chaired by Mr. Jinnan (Marco) Lai. The nominating and corporate governance committee assists the board in selecting individuals qualified to become our directors and in determining the composition of the board and its committees.
Chengfang Lu Nominal * ​ Various dates from April 1, 2020 to December 1, 2022 — Mr. Ming Zhang — * ​ Various dates from July 13, 2020 to January 14, 2023 — Mr.
Chengfang Lu Nominal * ​ Various dates from April 1, 2020 to December 1, 2022 — Mr. Ming Zhang — * ​ Various dates from July 13, 2020 to January 14, 2024 — Mr. Xiang Wang — * ​ Various dates from July 13, 2020 to January 14, 2024 — Note: * Less than 1% of our total outstanding shares.
The calculations in the table below are based on 1,036,498,870 ordinary shares issued and outstanding. Beneficial ownership is determined in accordance with the rules and regulations of the SEC.
The calculations in the table below are based on 985,095,010 ordinary shares issued and outstanding (excluding 5,008,430 ordinary shares issued to Kastle Limited). 130 Table of Contents Beneficial ownership is determined in accordance with the rules and regulations of the SEC.
Ding served as the deputy general manager of technology for Shanghai Labox Information Technology Limited from 2007 to 2010. He worked for Guangzhou Mowang Information Technology Co., Ltd. as its development manager from 2006 to 2007. Mr. Ding graduated from Southwest University with a bachelor’s degree in computer science and technology. Mr. Zelong Li is our Chief Operating Officer. Mr.
Ding has also been the Chief Technology Officer of Guangzhou Lizhi since 2010. Previously, Mr. Ding served as the deputy general manager of technology for Shanghai Labox Information Technology Limited from 2007 to 2010. He worked for Guangzhou Mowang Information Technology Co., Ltd. as its development manager from 2006 to 2007. Mr.
Wang has over 20 years of experience in the semiconductor and communications industry. Before joining Xiaomi Corporation, he was the Senior Vice President and President of Qualcomm Greater China. Mr.
Wang has over 20 years of experience in the semiconductor and communications industry. Before joining Xiaomi Corporation, he was the Senior Vice President and President of Qualcomm Greater China. Mr. Wang graduated from the Beijing University of Technology with a bachelor’s degree in electronic engineering. Ms. Chengfang Lu is our Acting Chief Financial Officer. Ms.
The plan administrator has the authority to amend or terminate the Second Amended and Restated 2019 Share Incentive Plan, provided that, such termination or amendment shall not adversely affect in any material way any awards previously granted unless agreed by the relevant grantee.
The plan administrator has the authority to amend or terminate the Second Amended and Restated 2019 Share Incentive Plan, provided that, such termination or amendment shall not adversely affect in any material way any awards previously granted unless agreed by the relevant grantee. 126 Table of Contents The following table summarizes, as of September 30, 2024, the number of the outstanding awards granted under the Second Amended and Restated 2019 Share Incentive Plan to our directors and executive officers. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Ordinary Shares Underlying ​ ​ ​ ​ ​ ​ Outstanding Options, Restricted ​ ​ ​ ​ ​ ​ ​ ​ Shares and Restricted Share ​ ​ ​ ​ Name ​ Exercise Price ​ Units Awards Granted ​ Date of Grant ​ Date of Expiration ​ ​ (US$/share) ​ ​ ​ ​ ​ ​ Mr.
(4) 61,075,320 — 61,075,320 5.9 % 2.0 % Notes: * Less than 1% of our total outstanding shares. ** For each person and group included in this column, percentage ownership is calculated by dividing the number of shares beneficially owned by such person or group by the sum of (i) 1,036,498,870, being the number of ordinary shares outstanding as of February 28, 2023, excluding 5,395,630 ordinary shares held by Kastle Limited, which holds such ordinary shares in trust for the benefit of certain of our senior management and directors before the corresponding share awards granted to such senior management and directors are vested pursuant to the Second Amended and Restated 2019 Share Incentive Plan, and (ii) the number of ordinary shares underlying options, restricted shares and restricted share units held by such person or group that are exercisable or issuable within 60 days after February 28, 2023. 130 Table of Contents *** For each person and group included in this column, percentage of voting power is calculated by dividing the voting power beneficially owned by such person or group by the voting power of all of our ordinary shares as a single class. † The address of our directors and executive officers is Yangcheng Creative Industry Zone, No. 309 Middle Huangpu Avenue, Tianhe District, Guangzhou 510655, The People’s Republic of China.
Xiang Wang * — * * * ​ All Directors and Executive Officers as a Group 23,321,600 231,215,000 254,536,600 25.8 % 76.1 % Principal Shareholders: ​ ​ ​ ​ ​ ​ ​ Voice Future Ltd (1) — 192,215,000 192,215,000 19.5 % 62.7 % Voice Intelligence Ltd (2) — 39,000,000 39,000,000 4.0 % 12.7 % Notes: * Less than 1% of our total outstanding shares. ** For each person and group included in this column, percentage ownership is calculated by dividing the number of shares beneficially owned by such person or group by the sum of (i) 985,095,010, being the number of ordinary shares outstanding as of September 30, 2024, excluding 5,008,430 ordinary shares held by Kastle Limited, which holds such ordinary shares in trust for the benefit of certain of our senior management and directors before the corresponding share awards granted to such senior management and directors are vested pursuant to the Second Amended and Restated 2019 Share Incentive Plan, and (ii) the number of ordinary shares underlying options, restricted shares and restricted share units held by such person or group that are exercisable or issuable within 60 days after September 30, 2024. *** For each person and group included in this column, percentage of voting power is calculated by dividing the voting power beneficially owned by such person or group by the voting power of all of our ordinary shares as a single class. † The office address of our directors and executive officers is 60 Anson Road, Mapletree Anson, #09-01/02, Singapore, 079914. 131 Table of Contents (1) The number of ordinary shares beneficially owned represents 192,215,000 Class B ordinary shares held by Mr.
(2) The number of ordinary shares beneficially owned represents 39,000,000 Class B ordinary shares held by Mr. Ning Ding through Voice Intelligence Ltd, or Voice Intelligence. Voice Intelligence is 5% owned by AI VOICE Ltd., an entity controlled by Mr. Ding, and 95% owned by Voice Tech Ltd.
Ning Ding through Voice Intelligence Ltd, or Voice Intelligence. Voice Intelligence is 5% owned by AI VOICE Ltd., an entity controlled by Mr. Ding, and 95% owned by Voice Tech Ltd. The entire interest of Voice Tech Ltd is held by TMF (Cayman) Ltd. as trustee for a trust established by Mr.
(1) The number of ordinary shares beneficially owned represents 192,215,000 Class B ordinary shares held by Mr. Lai through Voice Future Ltd, or Voice Future. Voice Future is 5% owned by VOICE WORLD Ltd, an entity controlled by Mr. Jinnan (Marco) Lai, and 95% owned by Voice Home Ltd.
Lai through Voice Future Ltd, or Voice Future. Voice Future is 5% owned by VOICE WORLD Ltd, an entity controlled by Mr. Jinnan (Marco) Lai, and 95% owned by Voice Home Ltd. The entire interest of Voice Home Ltd is held by TMF (Cayman) Ltd. as trustee for a trust established by Mr.
Zelong Li has served as our Chief Operating Officer since March 2021 and our director from March 2019 to April 2022. Mr. Li has been a vice president of Guangzhou LIZHI since 2010 and a director of LIZHI BVI since June 2017. Before joining us, Mr.
Ding graduated from Southwest University with a bachelor’s degree in computer science and technology. Mr. Zelong Li is our Chief Operating Officer. Mr. Zelong Li has served as our Chief Operating Officer since March 2021 and our director from March 2019 to April 2022. Mr.
Removed
Wang graduated from the Beijing University of Technology with a bachelor’s degree in electronic engineering. 123 Table of Contents Professor Yike Guo has served as our independent director since September 2020. Professor Guo has over 30 years of experience in data science and machine learning and has been developing innovative technology within the industry since the mid-1990s.
Added
Terms of Directors and Officers Our officers are elected by and serve at the discretion of the board.
Removed
Professor Guo has served as the Provost of the Hong Kong University of Science and Technology since December 2022.
Added
Jinnan (Marco) Lai (1) — 192,215,000 192,215,000 19.5 % 62.7 % Mr. Ning Ding (2) 1,000 39,000,000 39,001,000 4.0 % 12.7 % Mr. Zelong Li * — * * * ​ Mr. Yipeng Li — — — — — ​ Ms. Juan Ren * — * * * ​ Ms. Chengfang Lu * — * * * ​ Mr.
Removed
Prior to that, he served as Vice-President (Research and Development) of the Hong Kong Baptist University since January 2020, as a Professor of Computing Science in the Department of Computing at Imperial College London since 2002, as the founding Director of the Data Science Institute at Imperial College since 2014, and as an Adjunct Professor at Imperial College Business School since 2016.
Added
Ming Zhang * — * * * ​ Mr.
Removed
Professor Guo is also a Fellow of the Royal Academy of Engineering (FREng), the Academia Europaea (MAE), the Hong Kong Academy of Engineering Sciences (FHKEng), the Institute of Electrical and Electronics Engineers (FIEEE), the British Computer Society (FBCS), and the Society for Chinese Intelligence (FCAAI).
Added
VOICE WORLD Ltd. is a company organized under the laws of the British Virgin Islands. The registered address of VOICE WORLD Ltd. is Start Chambers, Wickhams Cay II, P.O. Box 2221, Road Town, Tortola, VG1110, British Virgin Islands. (2) The number of ordinary shares beneficially owned represents 39,000,000 Class B ordinary shares held by Mr.
Removed
Professor Guo received a first-class honors degree in Computing Science from Tsinghua University and a Ph.D. in Computational Logic from Imperial College. Ms. Chengfang Lu is our Acting Chief Financial Officer. Ms. Lu has served as our Acting Chief Financial Officer since June 2020. Ms.
Removed
All granted and outstanding awards under the 2018 BVI Plan have since been terminated.
Removed
The following table summarizes, as of February 28, 2023, the number of the outstanding awards granted under the Second Amended and Restated 2019 Share Incentive Plan to our directors and executive officers. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Ordinary Shares Underlying ​ ​ ​ ​ ​ ​ Outstanding Options, Restricted ​ ​ ​ ​ ​ ​ ​ ​ Shares and Restricted Share ​ ​ ​ ​ Name ​ Exercise Price ​ Units Awards Granted ​ Date of Grant ​ Date of Expiration ​ ​ (US$/share) ​ ​ ​ ​ ​ ​ Mr.
Removed
Xiang Wang — * ​ Various dates from July 13, 2020 to January 14, 2023 — Professor Yike Guo — * ​ Various dates from September 9, 2020 to December 10, 2022 — Note: * Less than 1% of our total outstanding shares.
Removed
Nominating and Corporate Governance Committee . Our nominating and corporate governance committee consists of Mr. Jinnan (Marco) Lai, Ms. Juan Ren and Mr. Ming Zhang, and is chaired by Mr. Jinnan (Marco) Lai.
Removed
Yipeng Li — — — — — ​ Ms. Juan Ren * — * * * ​ Ms. Chengfang Lu * — * * * ​ Mr. Ming Zhang * — * * * ​ Mr.
Removed
Xiang Wang * — * * * ​ Professor Yike Guo * — * * * ​ All Directors and Executive Officers as a Group 17,591,520 231,215,000 248,806,520 24.0 % 74.7 % Principal Shareholders: ​ Matrix Partners China I Hong Kong Limited (3) 153,169,710 — 153,169,710 14.8 % 4.9 % Morningside China TMT Fund II, L.P.
Removed
VOICE WORLD Ltd is wholly owned by Mr. Jinnan (Marco) Lai. Voice Home Ltd disclaims beneficial ownership of the shares held by Voice Future Ltd except to the extent of its pecuniary interest therein. Voice Future is a company organized under the laws of the British Virgin Islands.
Removed
(3) Represents 153,169,710 Class A ordinary shares held by Matrix Partners China I Hong Kong Limited. Matrix Partners China I Hong Kong Limited is a company organized under the laws of Hong Kong. The registered address of Matrix Partners China I Hong Kong Limited is UNIT 1003, 10/F., TOWER 2, SILVERCORD 30 CANTON ROAD, TSIM SHA TSUI KOWLOON, HONG KONG.
Removed
Matrix Partners China I Hong Kong Limited is controlled by Matrix Partners China I, L.P., which holds 90.2% of the equity interest of Matrix Partners China I Hong Kong Limited. The remaining 9.8% of its equity interest is held by Matrix Partners China I-A, L.P.
Removed
Both Matrix Partners China I, L.P. and Matrix Partners China I-A, L.P. are managed by Matrix China I GP, Ltd. Timothy A.
Removed
Barrows, David Ying Zhang, David Su and Yibo Shao are directors of Matrix China I GP, Ltd. and are deemed to have shared voting and investment power over the shares held by Matrix Partners China I, L.P. and Matrix Partners China I-A, L.P.
Removed
The registered office address of Matrix Partners China I, L.P. and Matrix Partners China I-A, L.P. is Maples Corporate Services Limited, PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands. (4) Represents 61,075,320 Class A ordinary shares held by Morningside China TMT Fund II, L.P.
Removed
Morningside China TMT Fund II, L.P. is an exempted limited partnership registered under the laws of the Cayman Islands. The registered address of Morningside China TMT Fund II, L.P. is Windward 3, Regatta Office Park, PO Box 1350, Grand Cayman KY1-1108, Cayman Islands.
Removed
The general partner of Morningside China TMT Fund II, L.P. is Morningside China TMT GP II, L.P., whose general partner is TMT General Partner Ltd. TMT General Partner Ltd. is controlled by its board consisting of five individuals, Jianming Shi, Qin Liu, Gerald Lokchung Chan, Maria K. Lam and Makim Wai On Andrew Ma.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

2 edited+1 added−0 removed2 unchanged
Directors, Senior Management and Employees—6.B. Compensation—Share Incentive Plan.” Other Related Party Transactions In January 2023, VOCAL BEATS Inc., our wholly owned subsidiary in the British Virgin Islands, entered into a share subscription agreement with Sky Voice Limited, a company registered in the British Virgin Islands and controlled by a family trust of Mr.
Compensation—Share Incentive Plan.” Other Related Party Transactions In January 2023, VOCAL BEATS Inc., our wholly owned subsidiary in the British Virgin Islands, entered into a share subscription agreement with Sky Voice Limited, a company registered in the British Virgin Islands and controlled by a family trust of Mr.
Board Practices—Terms of Directors and Officers.” Contractual Arrangements with the VIEs and the VIEs’ Respective Shareholders See “Item 4. Information on the Company—4.C. Organizational Structure—Contractual Arrangements with the VIEs and the VIEs’ Respective Shareholders.” Employment Agreements and Indemnification Agreements See “Item 6. Directors, Senior Management and Employees—6.B. Compensation—Employment Agreements and Indemnification Agreements.” Share Incentives See “Item 6.
Board Practices—Terms of Directors and Officers.” Contractual Arrangements with the VIEs and the VIEs’ Respective Shareholders See “Item 4. Information on the Company—4.C. Organizational Structure—Contractual Arrangements with the VIEs and the VIEs’ Respective Shareholders.” 132 Table of Contents Employment Agreements and Indemnification Agreements See “Item 6. Directors, Senior Management and Employees—6.B.
Added
Compensation—Employment Agreements and Indemnification Agreements.” Share Incentives See “Item 6. Directors, Senior Management and Employees—6.B.

Other SOGP 10-K year-over-year comparisons