| 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 VIE’s subsidiaries 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-upbringing experience easier for parents and transforming intellectual development into a fun journey for children. The Group generates its revenues from the subscription fees that users paid for the premium content of its self-directed and interactive online applications, as well as from offline products and others. The majority of the Group’s revenues are generated from mainland China. On October 8, 2020, the Company completed its initial public offering (“IPO”) on the New York Stock Exchange (Note 12). The Company’s principal subsidiaries, the VIE and VIE’s subsidiary as of December 31, 2023 are as follows: Percentage of equity interest Date of Place of attributable to Name establishment establishment the Company Principal activities Subsidiaries iHuman Online Limited (“iHuman Online”) October 2, 2019 Hong Kong 100 % Investment holding and operation of online applications Hongen Perfect Future (Tianjin) Investment Co., Ltd. (“Hongen Investment”, or the “WFOE”) November 11, 2019 Mainland China 100 % Management and technical consulting Hongen Perfect (Beijing) Education Technology Development Co., Ltd. May 19, 2020 Mainland China 100 % Research and development Variable interest entity Tianjin Hongen Perfect Future Education Technology Co., Ltd. (“Tianjin Hongen”, or the “VIE”) March 30, 2016 Mainland China Nil Operation of online applications Subsidiary of the VIE Beijing Jinhongen Education Technology Co., Ltd. (“Beijing Jinhongen”) September 4, 2019 Mainland China Nil Offering of products and other services To comply with laws and regulations in mainland China which have 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 mainland China through the VIE and VIE’s subsidiaries. The equity interests of the VIE are legally held by the shareholders in mainland China (the “Nominee Shareholders”). Despite the lack of technical majority ownership, the Company through WFOE has the power to direct activities of the VIE that most significantly impact its economic performance. Through a series of contractual agreements entered into by and among the Company, Hongen Investment, Tianjin Hongen and the Nominee Shareholders (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. 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 is considered the primary beneficiary of the VIE and consolidates the VIE in accordance with the Securities and Exchange Commission (the “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 laws in mainland China, 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 laws in mainland China. 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 laws in mainland China. Exclusive Management Services and Business Cooperation Agreement Pursuant to the exclusive management services and business cooperation agreement among 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 laws and regulations in mainland China. 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 laws and regulations in mainland China currently in effect; and (ii) the Contractual Agreements are valid, binding and enforceable, and will not result in any violation of applicable laws and regulations in mainland China 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 legal system of mainland China could cause relevant regulatory authorities to find the current Contractual Agreements and businesses to be in violation of any existing or future laws or regulations in mainland China 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 direct activities of the VIE that most significantly impact its economic performance 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 laws or regulations in mainland China, 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, 2022 and 2023, there were no pledge or collateralization of the VIE and VIE’s subsidiaries’ assets that can only be used to settle their obligations. All liabilities of the VIE and VIE’s 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, 2022 2023 2023 RMB RMB US$ (in thousands) ASSETS Current assets Cash and cash equivalents 505,621 739,750 104,192 Accounts receivable, net of allowance of RMB5,407 and RMB5,926 (US$835) as of December 31, 2022 and 2023, respectively 79,606 57,517 8,101 Inventories, net 19,199 17,084 2,406 Amounts due from related parties (including amounts due from Group companies of RMB111,494 and RMB118,806 (US$16,733) as of December 31, 2022 and 2023, respectively) 113,233 120,067 16,911 Prepayments and other current assets 101,022 83,200 11,718 Total current assets 818,681 1,017,618 143,328 Non ‑ current assets Property and equipment, net 8,909 5,935 836 Intangible assets, net 16,554 17,033 2,399 Operating lease right‑of‑use assets 9,777 3,648 514 Long-term investment 26,333 26,333 3,709 Other non‑current assets 3,747 6,033 850 Total non ‑ current assets 65,320 58,982 8,308 Total assets 884,001 1,076,600 151,636 LIABILITIES Current liabilities Accounts payable 23,781 21,702 3,057 Deferred revenue and customer advances 379,063 317,270 44,687 Amounts due to related parties (including amounts due to Group companies of RMB11,489 and RMB4,943 (US$696) as of December 31, 2022 and 2023, respectively) 16,309 8,989 1,266 Accrued expenses and other current liabilities 105,897 106,256 14,966 Current operating lease liabilities 4,626 1,927 271 Total current liabilities 529,676 456,144 64,247 Non ‑ current liabilities Non‑current operating lease liabilities 2,894 1,933 272 Total non ‑ current liabilities 2,894 1,933 272 Total liabilities 532,570 458,077 64,519 The VIE and VIE’s subsidiaries’ net asset balances were RMB351,431 thousand and RMB618,523 thousand (US$87,117 thousand) as of December 31, 2022 and 2023, respectively. 1. ORGANIZATION, CONSOLIDATION AND PRINCIPAL ACTIVITIES (Continued) The table sets forth the results of operations of the VIE and VIE’s subsidiaries included in the Group’s consolidated statements of comprehensive income (loss) for the years ended December 31, 2021, 2022 and 2023, respectively: For the year ended December 31, 2021 2022 2023 2023 RMB RMB RMB US$ (in thousands) Revenues 944,722 985,436 1,010,418 142,314 Net income 92,175 189,204 258,999 36,479 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, 2021, 2022 and 2023, respectively: For the year ended December 31, 2021 2022 2023 2023 RMB RMB RMB US$ (in thousands) Net cash provided by operating activities 144,980 258,279 215,169 30,306 Net cash provided by (used in) investing activities (76,555) (68,433) 18,960 2,670 Net cash provided by financing activities 97 — — — Net increase in cash and cash equivalents 68,522 189,846 234,129 32,976 |
