| ORGANIZATION, CONSOLIDATION AND PRINCIPAL ACTIVITIES | 1. ORGANIZATION, CONSOLIDATION AND PRINCIPAL ACTIVITIES iHuman Inc. (the “Company”) is an exempted company incorporated in the Cayman Islands in September 2019. The Company, its subsidiaries, variable interest entity (“VIE”), and subsidiaries of the VIE are hereinafter collectively referred to as the “Group”. The Group is principally engaged in offering an integrated suite of tech-powered, intellectual development products and is committed to making the child-rearing experience easier for parents and transforming cognitive development into a fun journey for children. The Group generates its revenue from its self-directed and interactive online applications and from offline products and others (the “Offline Business”) in the intellectual development technology industry in the People’s Republic of China (the “PRC”). Restructuring The Group underwent a series of restructurings in 2019 and 2020 to reorganize the Offline Business into the Group (the “Onshore Restructuring”) and to establish the Company as the parent company and Tianjin Hongen Perfect Future Education Technology Co., Ltd. (“Tianjin Hongen”, or the “VIE”) as the VIE of the Company (the “Offshore Restructuring”). The Onshore Restructuring and Offshore Restructuring are hereinafter collectively referred to as the “Restructuring”. Onshore Restructuring Tianjin Hongen was established to carry out the Group’s online application offerings and commenced operations in March 2016. Prior to the Onshore Restructuring, the operation of the Offline Business was carried out by Hongen Education & Technology Co., Ltd. and certain of its subsidiaries (collectively, “Hongen Education”). In November 2019, Tianjin Hongen, through its wholly-owned subsidiary, Beijing Jinhongen Education Technology Co., Ltd. (“Beijing Jinhongen”), acquired certain operating assets and liabilities relating to the Offline Business for a cash consideration of RMB66,000 from Hongen Education, which was fully paid in 2020. Upon the completion of the Onshore Restructuring, Tianjin Hongen succeeded all of the Offline Business of Hongen Education. As Tianjin Hongen and Hongen Education were under common control of Mr. Michael Yufeng Chi (the “Controlling Shareholder”) through an act-in-concert agreement with his brother, Mr. Hanfeng Chi, for all the periods presented, the Onshore Restructuring was accounted for in a manner similar to a pooling of interest with acquired assets and liabilities recognized at their historical amount in the consolidated financial statements. Accordingly, the Company retrospectively adjusted its consolidated financial statements to include the related assets, liabilities and operations for the year ended December 31 2019. The difference between the cash consideration and the net book value of acquired net assets has been accounted for as a distribution to Hongen Education in the consolidated statements of changes in shareholders’ equity (deficit). Offshore Restructuring In September 2019, the Company issued a total of 215,053,763 ordinary shares to the shareholders of Tianjin Hongen as consideration in exchange for their respective equity interests in Tianjin Hongen. In October 2019, the Company incorporated a wholly-owned subsidiary, iHuman Online Limited (“iHuman Online”) in Hong Kong, and in November 2019, the Company incorporated another wholly-owned subsidiary, Hongen Perfect Future (Tianjin) Investment Co., Ltd. (“Hongen Investment”, or the “WFOE”) in the PRC. In June 2020, the Company, Hongen Investment, Tianjin Hongen and its registered shareholders entered into a series of contractual agreements (the “Contractual Agreements”) pursuant to which the Company became the primary beneficiary of Tianjin Hongen. 1. ORGANIZATION, CONSOLIDATION AND PRINCIPAL ACTIVITIES (Continued) As the Company and Tianjin Hongen were under common control of the Controlling Shareholder, the Offshore Restructuring was also accounted for in a manner similar to a pooling of interest as if the corporate structure of the Company had been in existence since the beginning of the periods presented. Furthermore, the ordinary shares of the Company were recorded at their original issue price, and have been retrospectively presented to reflect the historical equity transactions of the Group. On October 8, 2020, the Company completed its initial public offering (“IPO”) on the New York Stock Exchange (Note 13). The Company’s principal subsidiaries, VIE and the VIE’s subsidiaries are as follows: Percentage of equity interest Date of Place of attributable to Name establishment establishment the Company Principal activities Subsidiaries iHuman Online October 2, 2019 HK 100 % Investment holding Hongen Investment November 11, 2019 PRC 100 % Management and technical consulting Hongen Perfect (Beijing) Education Technology Development Co., Ltd. May 19, 2020 PRC 100 % Research and development Variable interest entity: Tianjin Hongen March 30, 2016 PRC Nil Operation of online applications Subsidiaries of the VIE: Beijing Hongen Perfect Future Education Technology Co., Ltd. July 1, 2016 PRC Nil Research and development Tianjin Hongen Perfect Technology Development Co., Ltd. August 26, 2019 PRC Nil Operation of online applications Beijing Jinhongen September 4, 2019 PRC Nil Offerings of products and other services To comply with PRC laws and regulations which has certain limitation of foreign control of companies that engage in value-added telecommunication services and certain other businesses, the Group primarily conducts its business in the PRC through its VIE and the VIE’s subsidiaries. The equity interests of the VIE are legally held by the PRC shareholders (the “Nominee Shareholders”). Despite the lack of technical majority ownership, there exists a parent-subsidiary relationship between the Company and the VIE through the Company’s effective control of the VIE through the Contractual Agreements. Through the Contractual Agreements, the Nominee Shareholders effectively assigned all of their voting rights underlying their equity interests in the VIE to the WFOE, who immediately assigned the voting rights underlying their equity interests in the VIE to the Company. Therefore, the Company has the power to direct the activities of the VIE that most significantly impact its economic performance. The Company also has the ability and obligation to absorb substantially all of the profits and all the expected losses of the VIE that potentially could be significant to the VIE. Based on the above, the Company consolidates the VIE in accordance with SEC Regulation SX-3A-02 and Accounting Standards Codification (“ASC”) 810, Consolidation 1. ORGANIZATION, CONSOLIDATION AND PRINCIPAL ACTIVITIES (Continued) The following is a summary of the Contractual Agreements: Powers of Attorneys Pursuant to the powers of attorneys executed by the Nominee Shareholders, the Nominee Shareholders agreed to entrust to Hongen Investment an irrevocable proxy to exercise all of their rights as shareholders of Tianjin Hongen, the VIE, and to approve, on behalf of the Nominee Shareholders, all related legal documents pertinent to the exercise of their rights in their capacity as the shareholders of Tianjin Hongen. Hongen Investment is also entitled to transfer or assign its voting rights to any other person or entity at its own discretion and without giving prior notice to the Nominee Shareholders or obtaining their consent. The powers of attorneys remain valid until the exclusive management services and business cooperation agreement expires or terminates. Exclusive Call Option Agreement Pursuant to the exclusive call option agreement among Hongen Investment, Tianjin Hongen and its Nominee Shareholders, the Nominee Shareholders irrevocably granted Hongen Investment or its designee(s) an exclusive call option to purchase, when and to the extent permitted under PRC laws, all or part of the equity interests in Tianjin Hongen. Hongen Investment has the sole discretion to decide when to exercise the option, whether in part or full. The exercise price of the call option to purchase all or part of the equity interests in Tianjin Hongen or assets held by Tianjin Hongen will be the minimum amount of consideration permitted under the then-applicable PRC laws. Without the prior consent of Hongen Investment, Tianjin Hongen and its Nominee Shareholders shall not: (i) amend the articles of association, (ii) increase or decrease the registered capital, (iii) sell or otherwise dispose of their assets or beneficial interest, (iv) create or allow any encumbrance on their assets or other beneficial interests, (v) extend any loans to third parties, (vi) enter into any material contracts (except those contracts entered into in the ordinary course of business), (vii) merge with or acquire any other persons or make any investments, or (viii) distribute dividends to their shareholders. The exclusive call option agreement will remain in effect until all the equity interests held by Nominee Shareholders or the assets held by Tianjin Hongen are transferred to Hongen Investment or its designee(s). Hongen Investment may terminate the exclusive call option agreement at its sole discretion, whereas under no circumstances may Tianjin Hongen or its Nominee Shareholders terminate this agreement. Any proceeds received by the Nominee Shareholders from the exercise of the option and distribution of profits or dividends, shall be remitted to Hongen Investment or its designee(s), to the extent permitted under PRC laws. Exclusive Management Services and Business Cooperation Agreement Pursuant to the exclusive management services and business cooperation agreement between Hongen Investment, Tianjin Hongen and the Nominee Shareholders, Hongen Investment has the exclusive right to provide technical and consulting services to Tianjin Hongen and its subsidiaries, including but not limited to management consultancy services, permission of intellectual property rights, technical support and business support. Without the prior written consent of Hongen Investment, Tianjin Hongen may not accept any services subject to this exclusive management services and business cooperation agreement from any third party, while Hongen Investment has the right to designate any party to provide such services. In return, Tianjin Hongen agrees to pay a service fee to Hongen Investment. Hongen Investment has the right to unilaterally adjust the service fee. The exclusive management services and business cooperation agreement is effective within the operating period of Tianjin Hongen. Hongen Investment may terminate this agreement unilaterally, whereas under no circumstances can Tianjin Hongen and the Nominee Shareholders terminate this agreement. 1. ORGANIZATION, CONSOLIDATION AND PRINCIPAL ACTIVITIES (Continued) Equity Interest Pledge Agreement Under the equity interest pledge agreement among Hongen Investment, Tianjin Hongen and its Nominee Shareholders, the Nominee Shareholders have pledged all of their equity interests in Tianjin Hongen to Hongen Investment to guarantee the performance of Tianjin Hongen and their obligations under the Contractual Agreements described above. During the term of the equity interest pledge agreement, Hongen Investment has the right to receive all of Tianjin Hongen’s dividends and profits distributed on the pledged equity. In the event of a breach by Tianjin Hongen or any of its Nominee Shareholders of the contractual obligations under the equity interest pledge agreement, Hongen Investment or its designee(s), as pledgee, will have the right to purchase, auction or sell all or part of the pledged equity interests in Tianjin Hongen and will have priority in receiving the proceeds from such disposal. Tianjin Hongen and its Nominee Shareholders, undertake that, without the prior written consent of Hongen Investment, they will not transfer, create or allow any encumbrance on the pledged equity interests. The equity interest pledge agreement will be valid until Tianjin Hongen and its Nominee Shareholders fulfill all contractual obligations under the Contractual Agreements. Financial Support Letter Pursuant to the financial support letter, the Company is obligated and hereby undertakes to provide unlimited financial support to Tianjin Hongen, to the extent permissible under the applicable PRC laws and regulations. The Company agrees to forego the right to seek repayment in the event if Tianjin Hongen is unable to repay such funding. Resolution of the Company’s board of directors The Company’s board of directors resolved that the rights under the powers of attorneys and the exclusive call option agreement were assigned to any officer authorized by the Company’s board of directors. In the opinion of the Company’s legal counsel, (i) the ownership structures of the VIE and WFOE are not in violation of applicable PRC laws and regulations currently in effect; and (ii) the Contractual Agreements are valid, binding and enforceable, and will not result in any violation of applicable PRC laws and regulations currently in effect; (iii) the financial support letter issued by the Company to the VIE, and the resolutions are valid in accordance with the articles of association of the Company. However, uncertainties in the PRC legal system could cause relevant regulatory authorities to find the current Contractual Agreements and businesses to be in violation of any existing or future PRC laws or regulations and could limit the Company’s ability to enforce its rights under these Contractual Agreements. Furthermore, the Nominee Shareholders of the VIE may have interests that are different from those of the Company, which could potentially increase the risk that they would seek to act contrary to the terms of the Contractual Agreements with the VIE. In addition, if the Nominee Shareholders will not remain the shareholders of the VIE, breach, or cause the VIE to breach, or refuse to renew, the existing Contractual Agreements the Company has with them and the VIE, the Company may not be able to effectively control the VIE and receive economic benefits from it, which may result in deconsolidation of the VIE. In addition, if the current structure or any of the Contractual Agreements were found to be in violation of any existing or future PRC laws or regulations, the Company may be subject to penalties, including but not be limited to, revocation of business and operating licenses, discontinuing or restricting business operations, restricting the Company’s right to collect revenues, temporary or permanent blocking of the Company’s internet platforms, restructuring of the Company’s operations, imposition of additional conditions or requirements with which the Company may not be able to comply, or other regulatory or enforcement actions against the Company. 1. ORGANIZATION, CONSOLIDATION AND PRINCIPAL ACTIVITIES (Continued) As of December 31, 2020 and 2021, there were no pledge or collateralization of the VIE and its subsidiaries’ assets that can only be used to settle their obligations. All liabilities of the VIE and its subsidiaries are without recourse to the Company. The table sets forth the assets and liabilities of the VIE and VIE’s subsidiaries included in the Group’s consolidated balance sheets: As of December 31, 2020 2021 2021 RMB RMB US$ ASSETS Current assets Cash and cash equivalents 247,253 315,775 49,552 Accounts receivable, net of allowance of RMB156 and RMB381 (US$60) as of December 31, 2020 and 2021, respectively 77,965 56,132 8,808 Inventories, net 16,873 28,054 4,402 Amounts due from related parties (including amounts due from Group companies of RMB5,141 and RMB67,899 (US$10,655) as of December 31, 2020 and 2021, respectively) 5,463 70,744 11,101 Prepayments and other current assets 64,587 72,332 11,350 Total current assets 412,141 543,037 85,213 Non ‑ current assets Property and equipment, net 6,390 11,949 1,875 Intangible assets, net 10,582 17,259 2,708 Operating lease right‑of‑use assets 6,521 19,100 2,998 Amounts due from related parties — 3,009 472 Other non‑current assets 784 3,604 566 Total non ‑ current assets 24,277 54,921 8,619 Total assets 436,418 597,958 93,832 LIABILITIES Current liabilities Accounts payable 19,980 25,950 4,072 Deferred revenue and customer advances 268,613 302,980 47,544 Amounts due to related parties (including amounts due to Group companies of nil and RMB8,410 (US$1,320) as of December 31, 2020 and 2021, respectively) 485 12,289 1,928 Accrued expenses and other current liabilities 95,200 88,053 13,817 Current operating lease liabilities 1,544 11,735 1,841 Total current liabilities 385,822 441,007 69,202 Non ‑ current liabilities Non‑current operating lease liabilities 5,070 6,501 1,020 Total non ‑ current liabilities 5,070 6,501 1,020 Total liabilities 390,892 447,508 70,222 The VIE and VIE’s subsidiaries’ net asset balances were RMB45,526 and RMB150,450 (US$23,610) as of December 31, 2020 and 2021, respectively. 1. ORGANIZATION, CONSOLIDATION AND PRINCIPAL ACTIVITIES (Continued) The table sets forth the results of operations of the VIE and VIE’s subsidiaries included in the Group’s consolidated statements of comprehensive loss for years ended December 31, 2019, 2020 and 2021, respectively: For the year ended December 31, 2019 2020 2021 2021 RMB RMB RMB US$ Revenue 218,656 531,915 944,722 148,247 Net income (loss) (275,511) (23,486) 92,175 14,464 The table sets forth the cash flows of the VIE and VIE’s subsidiaries included in the Group’s consolidated statements of cash flows for the years ended December 31, 2019, 2020 and 2021, respectively: For the year ended December 31, 2019 2020 2021 2021 RMB RMB RMB US$ Net cash provided by operating activities 42,627 218,765 144,980 22,751 Net cash used in investing activities (2,391) (15,622) (76,555) (12,013) Net cash provided by (used in) financing activities 58,523 (60,773) 97 15 Net increase in cash and cash equivalents 98,759 142,370 68,522 10,753 |
